NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
AdCare Health Systems, Inc. (“AdCare”), through its subsidiaries (together, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term healthcare and senior living. Our business primarily consists of leasing and subleasing such facilities to third-party tenants, which operate the facilities. As of December 31, 2015, the Company owned, leased, or managed for third parties
38
facilities primarily in the Southeast. The operators of the Company's facilities provide a range of health care services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
The Company was incorporated in Ohio on August 14, 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 Health Systems, Inc. AdCare completed its initial public offering in November 2006. Initially based in Ohio, the Company expanded its portfolio through a series of strategic acquisitions to include properties in a number of other states, primarily in the Southeast. In 2012, the Company relocated its executive offices and accounting operations to Georgia, and AdCare changed its state of incorporation from the Ohio to Georgia on December 12, 2013.
Historically, the Company's business focused on owning and operating skilled nursing and assisted living facilities. The Company also managed facilities on behalf of unaffiliated owners with whom the Company entered into management contracts. In July 2014, the Company's Board of Directors (the “Board”) approved a strategic plan to transition (the “Transition”) the Company to a healthcare property holding and leasing company through a series of leasing and subleasing transactions. As of December 31, 2015, the Company completed the Transition through: (i) leasing to third-party operators all of the healthcare properties which it owns and previously operated; (ii) subleasing to third-party operators all of the healthcare properties which it leases (but does not own) and previously operated; and (iii) continuing the
one
remaining management agreement to manage
two
skilled nursing facilities and
one
independent living facility for third parties.
The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (
i.e
., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the properties including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual escalation clauses. As a result of the Transition, the Company now has many of the characteristics of a real estate investment trust ("REIT") and is now focused on the ownership, acquisition and leasing of healthcare related properties. The Board is analyzing and considering: (i) whether and, if so, when, we could satisfy the requirements to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”); (ii) the structural and operational complexities which would need to be addressed before we could qualify as a REIT, including the disposition of certain assets or the termination of certain operations which may not be REIT compliant; and (iii) if we were to qualify as a REIT, whether electing REIT status would be in the best interests of the Company and its shareholders in light of various factors, including our significant consolidated Federal net operating loss carryforwards of approximately
$58.3 million
as of December 31, 2015. There is no assurance that the Company will qualify as a REIT in future taxable years or, if it were to so qualify, that the Board would determine that electing REIT status would be in the best interests of the Company and its shareholders.
As of
December 31, 2015
, the Company owns, leases, or manages
38
facilities primarily in the Southeast. Of the
38
facilities, the Company: (i) leased
22
owned and subleased
11
leased skilled nursing facilities to third-party operators; (ii) leased
two
owned assisted living facilities to third-party operators; and (iii) managed on behalf of third-party owners
two
skilled nursing facilities and
one
assisted living facility (see
Note 7 - Leases
for a full description of the Company's leases).
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles ("GAAP") in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC").
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported results of operations during the reporting period. Examples of significant estimates include allowance for doubtful accounts, contractual allowances for Medicaid, Medicare, and managed care reimbursements, deferred tax valuation allowance, fair value of derivative instruments, fair value of employee and nonemployee stock based awards, fair value estimation methods used to determine the assigned fair value of assets and liabilities acquired in acquisitions, valuation of goodwill and other long-lived assets, and cash flow projections. Actual results could differ materially from those estimates.
Principles of Consolidation
The consolidated financial statements include the Company's majority owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated through consolidation. For subsidiaries that are not wholly owned by the Company, the portions not controlled by the Company are presented as non-controlling interests in the consolidated financial statements.
Arrangements with other business enterprises are evaluated, and those in which AdCare is determined to have controlling financial interest are consolidated. Guidance is provided by FASB ASC Topic 810-10,
Consolidation—Overall,
which includes consolidation of business enterprises to which the usual condition of consolidation (ownership of a majority voting interest) does not apply. This guidance includes controlling financial interests that may be achieved through arrangements that do not involve voting interests. In absences of clear control through voting interests, a company's exposure (variable interest) to the economic risks and potential rewards from the variable interest entity's assets and activities are the best evidence of control. If an enterprise holds the power to direct and right to receive benefits of an entity, it would be considered the primary beneficiary. The primary beneficiary is required to consolidate the assets, liabilities and results of operations of the variable interest entity in its financial statements.
The Company has evaluated and concluded that as of
December 31, 2015
, they have no relationship with a variable interest entity ("VIE") in which they are the primary beneficiary required to consolidate the entity.
Reclassifications
Certain reclassifications have been made to the
2014
financial information to conform to the
2015
presentation with no effect on the Company's consolidated financial position or results of operations. These reclassifications did not affect total assets, total liabilities, or stockholders' equity. Reclassifications were made to the Balance Sheet as of
December 31, 2014
and the consolidated statements of operations and consolidated statements of cash flows for the year ended
December 31, 2014
to reflect the same facilities in discontinued operations for both periods presented.
Cash, Cash Equivalents, and Restricted Cash and Investments
The Company considers all unrestricted short-term investments with original maturities less than three months, which are readily convertible into cash, to be cash equivalents. Certain cash, cash equivalents and investment amounts are restricted for specific purposes such as mortgage escrow requirements, reserves for capital expenditures on United States Housing and Urban Development ("HUD") insured facilities and collateral for other debt obligations.
Revenue Recognition
Triple-Net Leased Properties.
The Company's triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our consolidated balance sheets.
Management Fee Revenue and Other.
The Company recognizes management fee revenues as services are provided. Further, the Company recognizes interest income from lease inducements receivables and loans made to tenants.
Allowances.
The Company assesses the collectibility of our rent receivables, including straight-line rent receivables. The Company bases its assessment of the collectibility of rent receivables on several factors, including, payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments, the Company provides a reserve against the recognized straight-line rent receivable asset for the portion that we estimate may not be recovered. If the Company changes its assumptions or estimates regarding the collectibility of future rent payments required by a lease, the Company
may adjust its reserve to increase or reduce the rental revenue recognized in the period the Company makes such change in its assumptions or estimates.
At December 31, 2015, the Company allowed for approximately
$12.5 million
on approximately
$20.9 million
of gross patient care related receivables primarily from our operations before completion of our Transition. Allowance for patient care receivables are estimated based on an aged bucket method incorporating different payor types. All patient care receivables exceeding 365 days are fully allowed at December 31, 2015. The increase in the reserves for patient care is primarily included in discontinued operations.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, restricted investments, accounts receivable and straight-line rent receivable. Cash and cash equivalents, restricted cash and restricted investments are held with various financial institutions. From time to time, these balances exceed the federally insured limits. These balances are maintained with high quality financial institutions which management believes limits the risk.
Accounts receivable are recorded at net realizable value. The Company performs ongoing evaluations of its tenants and significant third-party payors with which they contract, and generally does not require collateral. The Company maintains an allowance for doubtful accounts which management believes is sufficient to cover potential losses. Delinquent accounts receivable are charged against the allowance for doubtful accounts once likelihood of collection has been determined. Accounts receivable are considered to be past due and placed on delinquent status based upon contractual terms, how frequently payments are received, and on an individual account basis.
Property and Equipment
Property and equipment are stated at cost. Expenditures for major improvements are capitalized. Depreciation commences when the assets are placed in service. Maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded. Depreciation is recorded on a straight-line basis over the estimated useful lives of the respective assets. Property and equipment also includes bed license intangibles for states other than Ohio (where the building and bed license are deemed complimentary assets) and are amortized over the life of the building. The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment for use in its day-to-day operations. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or capital lease. As of
December 31, 2015
, all of the Company's leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. The lease term is also used to provide the basis for establishing depreciable lives for leasehold improvements.
Intangible Assets and Goodwill
Intangible assets consist of finite lived and indefinite lived intangibles. The Company's finite lived intangibles include lease rights and certain certificate of need ("CON") and bed licenses that are not separable from the associated buildings. Finite lived intangibles are amortized over their estimated useful lives. For the Company's lease related intangibles, the estimated useful life is based on the terms of the underlying facility leases averaging approximately
ten
years. For the Company's CON/bed licenses that are not separable from the buildings, the estimated useful life is based on the building life when acquired with an average estimated useful life of approximately
32
years. The Company evaluates the recoverability of the finite lived intangibles whenever an impairment indicator is present.
The Company's indefinite lived intangibles consist primarily of values assigned to CON/bed licenses that are separable from the buildings. The Company does not amortize goodwill or indefinite lived intangibles. On an annual basis, the Company evaluates the recoverability of the indefinite lived intangibles and goodwill by performing an impairment test. The Company performs its annual test for impairment during the fourth quarter of each year. For the year ended December 31, 2015, the test results indicated no impairment necessary.
Deferred Financing Costs
The Company records deferred financing costs associated with debt obligations as an asset. Costs are amortized over the term of the related debt using the straight-line method and are reflected as interest expense. The straight-line method yields results substantially similar to those that would be produced under the effective interest rate method.
Income Taxes and Uncertain Tax Positions
Deferred tax assets or liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that included the enactment date. Deferred tax assets are also recognized for the future tax benefits from net operating loss and other carry forwards. Valuation allowances are recorded for deferred tax assets when the recoverability of such assets is not deemed more likely than not.
Judgment is required in evaluating uncertain tax positions. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is measured to determine the amount of benefit to recognize in the financial statements. The Company classifies unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets. The Company is subject to income taxes in the U.S. and numerous state and local jurisdictions. In general, the Company's tax returns filed for the 1998 through
2015
tax years are still subject to potential examination by taxing authorities.
In early 2014, the Internal Revenue Service ("IRS") initiated an examination of the Company's income tax return for the 2011 income tax year. On May 7, 2014, the IRS completed and closed the examination and no changes were required to the Company's 2011 income tax return.
In October 2014, the Georgia Department of Revenue ("GDOR") initiated an examination of the Company's Georgia income tax returns and net worth returns for the 2010, 2011, 2012, and 2013 tax years. To date, the GDOR has not proposed any adjustments.
The Company is not currently under examination by any other major income tax jurisdiction.
Stock Based Compensation
The Company follows the provisions of ASC topic 718 “
Compensation - Stock Compensation
”, which requires the use of the fair-value based method to determine compensation for all arrangements under which employees, non-employees, and others receive shares of stock or equity instruments (options, warrants or restricted shares). All awards are amortized on a straight-line basis over their vesting terms.
Fair Value Measurements and Financial Instruments
Accounting guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The categorization of a measurement within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1— Quoted market prices in active markets for identical assets or liabilities
Level 2— Other observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3— Significant unobservable inputs
The respective carrying value of certain financial instruments of the Company approximates their fair value. These instruments include cash and cash equivalents, restricted cash and investments, accounts receivable, notes receivable, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values, they are receivable or payable on demand, or the interest rates earned and/or paid approximate current market rates.
Self-Insurance
The Company was self-insured for employee medical claims (in all states except for Oklahoma, where the Company participates in the Oklahoma state subsidy program) and had a large deductible workers' compensation plan (in all states except for Ohio, where workers' compensation is covered under a premium-only policy provided by the Ohio Bureau of Workers' Compensation). Additionally, the Company maintains insurance programs, including general and professional liability, property, casualty, directors' and officers' liability, crime, automobile, employment practices liability and earthquake and flood.
In 2015, the insurance program changed with the needs of the company and the transition of operations. The Workers Compensation transitioned from a high deductible to a guaranteed cost program in February 2015. Professional liability insurance was provided
to facilities operations up until the date of transfer when new operators insurance substituted for new claims. Claims which were associated with prior operations of the company but not reported as of the transition date were self-insured.
The Company's prior facility operations subject it to certain liability risks which may result in malpractice claims being asserted against the Company if its services are alleged to have resulted in patient injury or other adverse effects. The Company is self-insured with respect to such claims (see
Note 8 - Accrued Expenses
).
The company maintains a running self-insurance reserve accrual based on outstanding claims obtained from quarterly loss runs provided by the carrier.
As of
December 31, 2015
, claims incurred but not reported or unsettled claims for the legacy self-insured employee medical plan and the large deductible workers' compensation plan are recognized as a liability in the consolidated financial statements.
Recently Issued Accounting Pronouncements
Except for rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws, FASB ASC is the sole source of authoritative GAAP literature applicable to the Company. The Company has reviewed the FASB accounting pronouncements and Accounting Standards Update ("ASU") interpretations that have effectiveness dates during the periods reported and in future periods.
In April 2014, the FASB issued
ASU 2014-08
, which amends the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU should be applied prospectively and is effective for the Company for the 2015 annual and interim reporting periods. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The Company adopted this ASU January 1, 2015.
In May 2014, the FASB issued
ASU 2014-09
guidance which requires revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for those goods and services. The new standard requires the disclosure of sufficient quantitative and qualitative information for financial statement users to understand the nature, amount, timing and uncertainty of revenue and associated cash flows arising from contracts with customers. The new guidance does not affect the recognition of revenue from leases. In August 2015, the FASB delayed the effective date of the new revenue standard by one year. As a result, this new revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early application is permitted under the original effective date of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company is currently evaluating the impact on the Company's financial position and results of operations and related disclosures.
In August 2014, the FASB issued
ASU 2014-15
, which provides guidance regarding an entity’s ability to continue as a going concern, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new standard, there was minimal guidance in GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The Company has not yet determined the impact, if any, that the adoption of this new standard will have on its consolidated financial statements.
In April 2015, the FASB issued
ASU 2015-03
, which requires debt issuance costs to be presented as a direct reduction from the carrying amount of the debt liability, consistent with the presentation of debt discounts. The amortization of debt issuance costs will be reported as interest expense. The new standard is to be applied on a retrospective basis and reported as a change in an accounting principle. In August 2015, the FASB released clarifying guidance for debt issuance costs related to line-of-credit arrangements, which permits debt issuance costs to be presented as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Debt issuance costs associated with a line of credit can be amortized ratably over the term of the line-of-credit arrangement. This standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted for financial statements that have not been previously issued. The Company has concluded that changes in its accounting required by this new guidance will not materially impact the Company's financial position or results of operations and related disclosures..
In September 2015, the FASB issued
ASU 2015-16
, which
requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Under this guidance the acquirer recognizes, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated
as if the accounting had been completed at the acquisition date. New disclosures are required to present separately on the face of the income statement or disclose in the notes the portion of the amount recognized in current-period earnings by line item that would have been recognized in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. At adoption, the new guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company is currently evaluating changes in its accounting required by this new standard and the impact to the Company's financial position and related disclosures.
In November 2015, the FASB issued
ASU 2015 - 17
under the simplification and productivity initiative for presentation of deferred income tax liabilities and assets. This guidance simplifies the presentation of deferred income taxes such that deferred tax liabilities and assets are to be classified as noncurrent in a classified balance sheet. The update does not amend the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted as of the beginning of an interim or annual reporting period and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company has elected to early adopt, prospectively, the new guidance as of the balance sheet date. At December 31, 2015, the adoption resulted in a reclassification from current to noncurrent deferred tax assets of $6.2 million before consideration of the related valuation allowance. with the net amount presented as noncurrent deferred tax liability. The Company did not have any reclasses of the deferred tax liability amounts.Prior periods are not retrospectively adjusted under the prospective adoption.
In January 2016, the FASB issued
ASU 2016-01
which provides revised accounting guidance related to the accounting for and reporting of financial instruments. This guidance significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.
In February 2016, the FASB issued
ASU 2016-02
as a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance,
ASC 840,
Leases
.
ASU 2016-02
creates a new Topic,
ASC 842, Leases
. This new Topic retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.
NOTE 2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted by the impact of the assumed issuance of convertible shares and the weighted-average number of shares of common stock outstanding (which includes potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive). Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. Potentially dilutive securities from convertible promissory notes are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance. For
2015
and
2014
, potentially dilutive securities of
4.5 million
and
7.0 million
, respectively, were excluded from the diluted loss per share calculation because including them would have been anti-dilutive in both periods.
The following table provides a reconciliation of net loss for continuing and discontinued operations and the number of shares used in the computation of both basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
2014
|
|
(Amounts in 000's, except per share data)
|
|
Loss
|
|
Shares
|
|
Per
Share
|
|
(Loss) Income
|
|
Shares
|
|
Per
Share
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(17,811
|
)
|
|
|
|
|
|
$
|
(38,188
|
)
|
|
|
|
|
|
Preferred stock dividends
|
|
(5,208
|
)
|
|
|
|
|
|
(2,584
|
)
|
|
|
|
|
|
Basic loss from continuing operations
|
|
$
|
(23,019
|
)
|
|
19,680
|
|
|
$
|
(1.17
|
)
|
|
$
|
(40,772
|
)
|
|
17,930
|
|
|
$
|
(2.27
|
)
|
|
Diluted loss from continuing operations
|
|
$
|
(23,019
|
)
|
|
19,680
|
|
|
$
|
(1.17
|
)
|
|
$
|
(40,772
|
)
|
|
17,930
|
|
|
$
|
(2.27
|
)
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
(4,892
|
)
|
|
|
|
|
|
$
|
23,783
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
(815
|
)
|
|
|
|
|
|
806
|
|
|
|
|
|
|
Basic (loss) income from discontinued operations attributable to the Company
|
|
$
|
(5,707
|
)
|
|
19,680
|
|
|
$
|
(0.29
|
)
|
|
$
|
24,589
|
|
|
17,930
|
|
|
$
|
1.37
|
|
|
Diluted (loss) income from discontinued operations attributable to the Company
|
|
$
|
(5,707
|
)
|
|
19,680
|
|
|
$
|
(0.29
|
)
|
|
$
|
24,589
|
|
|
17,930
|
|
|
$
|
1.37
|
|
|
Net Loss Attributable to AdCare:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss
|
|
$
|
(28,726
|
)
|
|
19,680
|
|
|
$
|
(1.46
|
)
|
|
$
|
(16,183
|
)
|
|
17,930
|
|
|
$
|
(0.90
|
)
|
|
Diluted loss
|
|
$
|
(28,726
|
)
|
|
19,680
|
|
|
$
|
(1.46
|
)
|
|
$
|
(16,183
|
)
|
|
17,930
|
|
|
$
|
(0.90
|
)
|
|
|
|
|
(1)
|
Securities outstanding that were excluded from the computation, prior to the use of the treasury stock method, because they would have been anti-dilutive are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Amounts in 000’s)
|
|
2015
|
|
2014
|
|
Stock options
|
|
267
|
|
|
934
|
|
|
Common stock warrants - employee
|
|
1,887
|
|
|
1,689
|
|
|
Common stock warrants - nonemployee
|
|
164
|
|
|
1,028
|
|
|
Shares issuable upon conversion of convertible debt
|
|
2,165
|
|
|
3,334
|
|
|
Total shares
|
|
4,483
|
|
|
6,985
|
|
NOTE 3. LIQUIDITY AND PROFITABILITY
Sources of Liquidity
The Company continues to undertake measures to streamline its operations and cost infrastructure in connection with its new business model, including: (i) eliminating patient care services and related costs; (ii) increasing future minimum lease revenue; (iii) refinancing or repaying current maturities to reduce interest costs and reducing mandatory principal repayments through refinancing transactions with HUD or other lending sources; and (iv) reducing general and administrative expenses.
At
December 31, 2015
, the Company had
$2.7 million
in cash and cash equivalents as well as restricted cash of
$12.7 million
. Over the next twelve months, the Company anticipates both access to and receipt of several sources of liquidity.
At
December 31, 2015
, the Company had
three
office buildings held for sale. The Company completed the sale of
one
of its office spaces on February 12, 2015 for
$0.3 million
and expects to sell its other
two
office spaces by the third quarter of 2016. The office space sold on February 12, 2015 was unencumbered and the Company anticipates that the sale of the other two spaces will approximate the related obligations.
The Company routinely has discussions with existing and new potential lenders to refinance current debt on a long-term basis and, in recent periods, has refinanced short-term acquisition-related debt with traditional long-term mortgage notes, some of which have been executed under government guaranteed lending programs.
On July 21, 2015, the Company entered into separate At Market Issuance Sales Agreements (together, the “Sales Agreements”) with each of MLV & Co. LLC and JMP Securities LLC (each, an “Agent” and together, the “Agents”), pursuant to which the Company may offer and sell, from time to time, up to
800,000
shares of the Company’s
10.875%
Series A Cumulative Redeemable Preferred Stock, no par value per share and liquidation preference of
$25.00
per share (the "Series A Preferred Stock"), through an “at-the-market” offering program ("ATM"). As of December 31, 2015, the Company sold
313,695
shares of Series A Preferred Stock under the ATM, generating net proceeds to the Company of approximately
$6.7 million
. (see
Note 12 - Dividends and Preferred Stock
).
On July 30, 2015, the Company amended the terms of that certain
8%
subordinated convertible note, issued by the Company to Cantone Asset Management, LLC ("CAM") and due July 31, 2015, with a principal payment amount as of such date of
$4.8 million
to: (i) extend the maturity date with respect to
$1.5 million
of the principal amount of the such note to October 31, 2017; (ii) increase the interest rate from 8.0% to
10.0%
per annum; and (iii) increase the conversion price from
$3.97
to
$4.25
per share (see
Note 9
- Notes Payable and Other Debt
).
Cash Requirements
At December 31, 2015, the Company had
$125.5 million
in indebtedness of which the current portion is
$51.9 million
. This current portion is comprised of the following components: (i) debt of held for sale entities of approximately
$1.0 million
, which includes senior debt - mortgage indebtedness; and (ii) remaining debt of approximately
$51.1 million
which includes senior debt - mortgage indebtedness (for a complete listing of our debt , see
Note 9 - Notes Payable and Other Debt
). As indicated previously, the Company routinely has discussions with existing and potential new lenders to refinance current debt on a longer term basis and, in recent periods, has refinanced shorter term acquisition debt with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs.
The Company anticipates net principal disbursements of approximately
$46.4 million
(including a debt pay-down of approximately
$5.5 million
using current restricted cash,
$1.4 million
of payments on shorter term vendor notes,
$3.1 million
of routine debt service amortization, and a
$0.7 million
payment of other debt) which reflect the offset of anticipated proceeds on refinancing of approximately
$38.5 million
. On March 24, 2016, the Company received a lender commitment to refinance approximately
$25.4 million
and to extend
$9.1 million
of current maturities, subject to definitive documentation and certain closing conditions. On March 29, 2016, the Company received a lender commitment to extend approximately
$5.0 million
of current maturities, subject to definitive documentation and certain closing conditions. The Company anticipates operating cash requirements in 2016 as being substantially less than in 2015 due to the Transition. Based on the described sources of liquidity, the Company expects sufficient funds for its operations and scheduled debt service, at least through the next twelve months. On a longer term basis, at December 31, 2015, the Company has approximately
$64.5 million
of debt maturities due over the next
two
year period ending December 31, 2017. These debt maturities include
$9.2 million
of convertible promissory notes, which are convertible into shares of the common stock. The Company has been successful in recent years in raising new equity capital and believes based on recent discussions that these markets will continue to be available for raising capital in the future. The Company believes its long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.
The Company has absorbed negative cash flows from operations in the past but anticipates a reversal to a positive cash flow from operations during 2016. In order to satisfy the Company's capital needs, the Company seeks to: (i) continue improving operating results through its leasing and subleasing transactions executed with favorable terms and consistent and predictable cash flow; (ii) re-lease Arkansas facilities with a new leasing arrangement made with a new operator (iii) expand borrowing arrangements with certain lenders; (iv) refinance current debt where possible to obtain more favorable terms; and (v) raise capital through the issuance of debt or equity securities. The Company anticipates that these actions, if successful, will provide the opportunity to maintain liquidity on a short and long-term basis, thereby permitting the Company to meet our operating and financing obligations for the next twelve months. However, there is no guarantee that such actions will be successful or that anticipated operating results of the Transition. If the Company is unable to expand existing borrowing agreements, refinance current debt, or raise capital through the issuance of securities, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives or sell assets.
NOTE 4. RESTRICTED CASH AND INVESTMENTS
The following presents the Company's various restricted cash, escrow deposits and investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Amounts in (000's)
|
|
2015
|
|
2014
|
|
Collateral cash and certificates of deposit
|
|
$
|
7,687
|
|
|
$
|
2,302
|
|
|
Current replacement reserves
|
|
950
|
|
|
646
|
|
|
Escrow deposits
|
|
532
|
|
|
338
|
|
|
Other restricted cash
|
|
—
|
|
|
35
|
|
|
Total current portion
|
|
9,169
|
|
|
3,321
|
|
|
Restricted investments for other debt obligations
|
|
2,264
|
|
|
3,446
|
|
|
HUD replacement reserves
|
|
1,174
|
|
|
1,074
|
|
|
Reserves for capital improvements
|
|
120
|
|
|
936
|
|
|
Total noncurrent portion
|
|
3,558
|
|
|
5,456
|
|
|
Total restricted cash and investments
|
|
$
|
12,727
|
|
|
$
|
8,777
|
|
Collateral cash and certificates of deposit
—In securing mortgage financing from certain lending institutions, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash and/or certificates of deposit to be held as collateral in accordance with the terms of the loan agreements.
Current replacement reserves
—Cash reserves set aside for non-critical building repairs to be completed within the next 12 months.
Escrow deposits
—In connection with financing secured through our lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted investments for other debt obligations
—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.
HUD replacement reserves
—The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets.
NOTE 5. PROPERTY AND EQUIPMENT
Property and Equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Amounts in 000's)
|
|
Estimated Useful
Lives (Years)
|
|
2015
|
|
2014
|
|
Buildings and improvements
|
|
5 - 40
|
|
$
|
128,912
|
|
|
$
|
128,136
|
|
|
Equipment
|
|
2 - 10
|
|
13,470
|
|
|
13,294
|
|
|
Land
|
|
—
|
|
7,128
|
|
|
7,127
|
|
|
Computer related
|
|
2 - 10
|
|
2,999
|
|
|
2,908
|
|
|
Construction in process
|
|
—
|
|
390
|
|
|
52
|
|
|
|
|
|
|
152,899
|
|
|
151,517
|
|
|
Less: accumulated depreciation and amortization
|
|
|
|
26,223
|
|
|
20,524
|
|
|
Property and equipment, net
|
|
|
|
$
|
126,676
|
|
|
$
|
130,993
|
|
For the twelve months ended
December 31, 2015
and
2014
, total depreciation and amortization expense was
$7.3 million
and
$7.4 million
, respectively. Total depreciation and amortization expense excludes
$0.1 million
and
$2.1 million
in
2015
and
2014
, respectively, that is recognized in Loss from Discontinued Operations, net of tax. During the twelve months ended
December 31, 2014
, the Company recorded an impairment of $
1.8 million
related to an adjustment to the fair value less the cost to sell Companions
102
-bed nursing facility located in Tulsa, Oklahoma. The assets and liabilities of Companions were included in Assets and Liabilities Held for Sale as of
December 31, 2014
. On October 30, 2015, the Company completed the sale of Companions (see
Note 11 - Discontinued Operations
).
During the twelve months ended
December 31, 2015
, the Company recognized impairment charges of approximately
$0.5 million
and
$0.1 million
to write down the carrying value of its
two
office buildings located in Roswell, Georgia and one office building
located in Rogers, Arkansas, respectively. The assets and liabilities of the office buildings are included in Assets and Liabilities Held for Sale as of
December 31, 2015
(see
Note 11 - Discontinued Operations
).
NOTE 6. INTANGIBLE ASSETS AND GOODWILL
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000's)
|
|
Bed Licenses
(included in
property and
equipment)
|
|
Bed Licenses—
Separable
|
|
Lease
Rights
|
|
Total
|
|
Balances, December 31, 2013
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
37,220
|
|
|
$
|
2,471
|
|
|
$
|
8,824
|
|
|
$
|
48,515
|
|
|
Accumulated amortization
|
|
(2,482
|
)
|
|
—
|
|
|
(3,935
|
)
|
|
(6,417
|
)
|
|
Net carrying amount
|
|
$
|
34,738
|
|
|
$
|
2,471
|
|
|
$
|
4,889
|
|
|
$
|
42,098
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
—
|
|
|
(1,418
|
)
|
|
(1,418
|
)
|
|
Accumulated amortization
|
|
—
|
|
|
—
|
|
|
1,418
|
|
|
1,418
|
|
|
Amortization expense
|
|
(1,173
|
)
|
|
—
|
|
|
(802
|
)
|
|
(1,975
|
)
|
|
Reclass to held for sale
|
|
|
|
|
|
|
|
|
|
Gross
|
|
(1,530
|
)
|
|
—
|
|
|
—
|
|
|
(1,530
|
)
|
|
Accumulated amortization
|
|
68
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2014
|
|
|
|
|
|
|
|
|
|
Gross
|
|
35,690
|
|
|
2,471
|
|
|
7,406
|
|
|
45,567
|
|
|
Accumulated amortization
|
|
(3,587
|
)
|
|
—
|
|
|
(3,319
|
)
|
|
(6,906
|
)
|
|
Net carrying amount
|
|
32,103
|
|
|
2,471
|
|
|
4,087
|
|
|
38,661
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
Gross
|
|
—
|
|
|
—
|
|
|
(525
|
)
|
|
(525
|
)
|
|
Accumulated amortization
|
|
—
|
|
|
—
|
|
|
525
|
|
|
525
|
|
|
Amortization expense
|
|
(1,173
|
)
|
|
—
|
|
|
(667
|
)
|
|
(1,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2015
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
35,690
|
|
|
$
|
2,471
|
|
|
$
|
6,881
|
|
|
$
|
45,042
|
|
|
Accumulated amortization
|
|
(4,760
|
)
|
|
—
|
|
|
(3,461
|
)
|
|
(8,221
|
)
|
|
Net carrying amount
|
|
$
|
30,930
|
|
|
$
|
2,471
|
|
|
$
|
3,420
|
|
|
$
|
36,821
|
|
Amortization expense for bed licenses is included in property and equipment depreciation and amortization expense (see
Note 5 - Property and Equipment
).
Estimated amortization expense for all finite-lived intangibles for each of the future years ending December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in (000's)
|
|
Bed
Licenses
|
|
Lease
Rights
|
|
2016
|
|
$
|
1,173
|
|
|
$
|
667
|
|
|
2017
|
|
1,173
|
|
|
667
|
|
|
2018
|
|
1,173
|
|
|
667
|
|
|
2019
|
|
1,173
|
|
|
667
|
|
|
2020
|
|
1,173
|
|
|
482
|
|
|
Thereafter
|
|
25,065
|
|
|
270
|
|
|
Total
|
|
$
|
30,930
|
|
|
$
|
3,420
|
|
The following table summarizes the changes in the carrying amount of goodwill for the years ended
December 31, 2015
and
2014
.
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000's)
|
|
Balances, December 31, 2013
|
|
|
|
Goodwill
|
|
$
|
5,023
|
|
|
Accumulated impairment losses
|
|
(799
|
)
|
|
Total
|
|
$
|
4,224
|
|
|
|
|
|
|
Balances, December 31, 2014
|
|
|
|
Goodwill
|
|
$
|
5,023
|
|
|
Accumulated impairment losses
|
|
(799
|
)
|
|
Total
|
|
$
|
4,224
|
|
|
|
|
|
|
Impairment loss
|
|
(41
|
)
|
|
Net change during year
|
|
(41
|
)
|
|
|
|
|
|
Balances, December 31, 2015
|
|
|
|
Goodwill
|
|
$
|
5,023
|
|
|
Accumulated impairment losses
|
|
(840
|
)
|
|
Total
|
|
$
|
4,183
|
|
On July 1, 2015, the Company completed the sale of its Bentonville Manor Nursing Home,
83
-bed skilled nursing facility located in Bentonville, Arkansas ("Bentonville") for approximately
$3.4 million
net of closing costs. The Company wrote off the remaining goodwill of
$0.04 million
at the time of sale. For the year ended
December 31, 2015
, the Company determined that no other impairment adjustments were necessary for goodwill. The Company does not amortize goodwill or indefinite lived intangibles, which consist of separable bed licenses.
NOTE 7. LEASES
Operating Leases
The Company leases a total of
eleven
skilled nursing facilities from unaffiliated owners under non-cancelable leases, most of which have rent escalation clauses and provisions for payments of real estate taxes, insurance and maintenance costs; each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party operators. The Company also leases certain office space located in Atlanta, Georgia.
Foster Prime Lease.
Eight
of the Company's skilled nursing facilities (collectively, the "Georgia Facilities") are leased under a single master indivisible arrangement, by and between ADK Georgia, LLC, a Georgia limited liability company and subsidiary of the Company (“ADK”), and William M. Foster ("Lessor"), as landlord (the "Prime Lease"). Under the Prime Lease, a breach at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. In addition, other potential defaults related to an individual facility may cause a default of the entire Prime Lease. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
On August 14, 2015, ADK and Lessor entered into an amendment to the Prime Lease (the “Second Amendment”) whereby the parties amended the Prime Lease to extend its initial term by
seven
years, resulting in a new lease termination date of August 31, 2027. In consideration for the extension, among other things, the Company agreed to: (i) pay to Lessor a fee of
$575,000
; (ii) release to Lessor upon the earlier of January 1, 2016 or the termination of the Prime Lease
one
month of pre-paid rent in the amount of
$398,000
; (iii) release to Lessor upon the earlier of January 1, 2017 or the termination of the Prime Lease the security deposit paid under the Prime Lease in the amount of
$500,000
; and (iv) pay to Lessor within
ten
days of the end of each quarter a payment of
$26,000
. The annual base rent due in the first year immediately following the execution of the Second Amendment is approximately
$5.3 million
.
Under the Second Amendment, the Company (and not Lessor) is responsible for the cost of maintaining the Georgia Facilities, including the cost to repair or replace all structural or capital items due to ordinary wear and tear.
Pursuant to the Second Amendment: (i) Lessor consented to ADK’s sublease of the Georgia Facilities to third-party operators and ADK agreed to obtain Lessor’s consent prior to any future sublease of any of the Georgia Facilities; and (ii) the Company executed a Lease Guaranty for the benefit of Lessor whereby the Company guaranteed the performance of all of ADK’s obligations under the Prime Lease. In connection with such guaranty, the Company also consented to being primarily responsible for all of ADK’s obligations under the Prime Lease, thereby allowing Lessor to proceed directly against the Company, without having taken any prior action against ADK, should ADK be in default under the Prime Lease.
On September 9, 2015 ADK and Lessor entered into a third amendment to the Prime Lease whereby commencing on July 1, 2016 and continuing during lease years two through five, rent increases at
2%
annually then increase at
2.5%
annually for the remainder of the lease term. As of
December 31, 2015
, the Company was in compliance with all financial and administrative covenants of this lease agreement.
Bonterra/Parkview Master Lease.
Two
of the Company's facilities are leased under a single indivisible agreement (the "Bonterra/Parkview Master Lease"); therefore, a breach at a single facility could subject the second facility to the same default risk. On September 1, 2015, the Bonterra/Parkview Master Lease was amended (the "Bonterra/Parkview Master Lease Amendment"), whereby the parties agreed to: (i) extend its initial term by
three
years, resulting in a new lease termination date of August 31, 2025; (ii) provide consent to the sublease of the
two
facilities to a third-party operator; and (iii) extend the optional renewal terms to
two
separate
twelve
-year renewal periods. In consideration for the amended terms, among other things, the Company agreed to a monthly increase in base rent equal to
37.5%
of the difference between the base rent owed by the Company under the Bonterra/Parkview Master Lease and the base rent owed to the Company by the new sublease operator. The annual base rent due in the first year immediately following the execution of the Bonterra/Parkview Master Lease Amendment is approximately
$1.9 million
. As of
December 31, 2015
, the Company was in compliance with all financial and administrative covenants of this lease agreement.
Covington Prime Lease.
One of the Company's facilities is leased under an agreement dated August 26, 2002, as subsequently amended (the "Covington Prime Lease"), by and between the Company and Covington Realty, LLC. On August 1, 2015, the Covington Prime Lease was amended (the "Covington Prime Lease Amendment"), whereby the parties agreed to: (i) provide consent to the sublease of the facility to a third-party operator; (ii) extend the term of the lease to expire on April 30, 2025; and (iii) set the annual base rent, effective May 1, 2015 and continuing throughout the lease term, equal to
102%
of the immediately preceding lease year's base rent. The annual base rent due in the first year immediately following the execution of the Covington Prime Lease Amendment is approximately
$0.6 million
. As of
December 31, 2015
, the Company was in compliance with all financial and administrative covenants of this lease agreement.
Future Minimum Lease Payments
Future minimum lease payments for each of the next five years ending December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in
000's)
|
|
2016
|
|
$
|
8,083
|
|
|
2017
|
|
8,181
|
|
|
2018
|
|
8,346
|
|
|
2019
|
|
8,526
|
|
|
2020
|
|
8,697
|
|
|
Thereafter
|
|
55,320
|
|
|
Total
|
|
$
|
97,153
|
|
The Company has also entered into lease agreements for various equipment used in its day-to-day operations. These leases are included in future minimum lease payments above.
Leased and Subleased Facilities to Third-Party Operators
In connection with the Company's transition to a self-managed real estate investment company,
thirty-five
facilities (
twenty-four
owned by us and
eleven
leased to us) are leased or subleased on a triple net basis, meaning that the lessee (i.e., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable.
Future Minimum Lease Receivables
Future minimum lease receivables for each of the next five years ending December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in
000's)
|
|
2016
|
|
$
|
26,052
|
|
|
2017
|
|
26,845
|
|
|
2018
|
|
27,474
|
|
|
2019
|
|
28,082
|
|
|
2020
|
|
27,634
|
|
|
Thereafter
|
|
204,913
|
|
|
Total
|
|
$
|
341,000
|
|
The following is a summary of the Company's specific leases to third-parties and which comprise the future minimum lease receivable of the Company. The terms of each lease are structured in a similar manner as "triple-net" leases. Each lease contains specific rent escalation amounts ranging from
2.0%
to
3.5%
annually. Further, each lease has one or more renewal options. For those facilities where the Company subleases, the renewal option in the sublease agreement is dependent on the Company renewal of its lease agreement. Generally, the the sublease agreements are cross-defaulted where applicable for subleases of multiple facilities by the same lessee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Lease Term
|
|
|
|
|
|
|
|
Commencement
|
|
Expiration
|
|
Initial
|
|
Facility Name
|
|
Operator Affiliation
|
|
Date
|
|
Date
|
|
Annual Rent
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Owned
|
|
|
|
|
|
|
|
|
|
Cumberland H&R
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
$
|
540
|
|
|
Heritage Park
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
240
|
|
|
Homestead Manor
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
120
|
|
|
Little Rock H&R
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
1,602
|
|
|
Northridge Health
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
420
|
|
|
River Valley Health
|
|
Aria Health Group LLC
|
|
11/1/2015
|
|
4/30/2030
|
|
480
|
|
|
Stone County ALF
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
60
|
|
|
Stone County Nursing
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
838
|
|
|
Woodland Hills
|
|
Aria Health Group LLC
|
|
5/1/2015
|
|
4/30/2030
|
|
480
|
|
|
Eaglewood ALF
|
|
Beacon Health Management
|
|
8/1/2015
|
|
7/31/2025
|
|
720
|
|
|
Eaglewood Care Center
|
|
Beacon Health Management
|
|
8/1/2015
|
|
7/31/2025
|
|
720
|
|
|
H&C of Greenfield
|
|
Beacon Health Management
|
|
8/1/2015
|
|
7/31/2025
|
|
360
|
|
|
Southland Healthcare
|
|
Beacon Health Management
|
|
11/1/2014
|
|
10/31/2024
|
|
900
|
|
|
The Pavilion Care Center
|
|
Beacon Health Management
|
|
8/1/2015
|
|
7/31/2025
|
|
360
|
|
|
Attalla Health Care
|
|
C.R. Management
|
|
12/1/2014
|
|
8/31/2030
|
|
1,080
|
|
|
Autumn Breeze
|
|
C.R. Management
|
|
9/30/2015
|
|
9/30/2025
|
|
840
|
|
|
College Park
|
|
C.R. Management
|
|
4/1/2015
|
|
3/31/2020
|
|
600
|
|
|
Coosa Valley Health Care
|
|
C.R. Management
|
|
12/1/2014
|
|
8/31/2030
|
|
900
|
|
|
Glenvue H&R
|
|
C.R. Management
|
|
7/1/2015
|
|
6/30/2025
|
|
1,140
|
|
|
NW Nursing Center
|
|
Southwest LTC
|
|
12/31/2015
|
|
11/30/2025
|
|
300
|
|
|
Quail Creek
|
|
Southwest LTC
|
|
12/31/2015
|
|
11/30/2025
|
|
660
|
|
|
Georgetown Health
|
|
Symmetry Healthcare
|
|
4/1/2015
|
|
3/31/2030
|
|
288
|
|
|
Mountain Trace Rehab
|
|
Symmetry Healthcare
|
|
6/1/2015
|
|
5/31/2030
|
|
648
|
|
|
Sumter Valley Nursing
|
|
Symmetry Healthcare
|
|
4/1/2015
|
|
3/31/2030
|
|
770
|
|
|
Subtotal Owned Facilities (24)
|
|
|
|
|
|
$
|
15,066
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
Covington Care
|
|
Beacon Health Management
|
|
8/1/2015
|
|
4/30/2025
|
|
$
|
780
|
|
|
Lumber City
|
|
Beacon Health Management
|
|
11/1/2014
|
|
8/31/2027
|
|
840
|
|
|
LaGrange
|
|
C.R. Management
|
|
4/1/2015
|
|
8/31/2027
|
|
960
|
|
|
Thomasville N&R
|
|
C.R. Management
|
|
7/1/2014
|
|
8/31/2027
|
|
324
|
|
|
Jeffersonville
(a)
|
|
New Beginnings Care
|
|
11/1/2015
|
|
7/31/2020
|
|
648
|
|
|
Oceanside
(a)
|
|
New Beginnings Care
|
|
11/1/2015
|
|
7/31/2020
|
|
421
|
|
|
Savannah Beach
(a)
|
|
New Beginnings Care
|
|
11/1/2015
|
|
7/31/2020
|
|
247
|
|
|
Bonterra
|
|
Wellington Health Services
|
|
9/1/2015
|
|
8/31/2025
|
|
1,020
|
|
|
Parkview Manor/Legacy
|
|
Wellington Health Services
|
|
9/1/2015
|
|
8/31/2025
|
|
1,020
|
|
|
Powder Springs
|
|
Wellington Health Services
|
|
4/1/2015
|
|
8/31/2027
|
|
2,100
|
|
|
Tara
|
|
Wellington Health Services
|
|
4/1/2015
|
|
8/31/2027
|
|
1,800
|
|
|
Subtotal Leased Facilities (11)
|
|
|
|
|
|
$
|
10,160
|
|
|
Total (35)
|
|
|
|
|
|
|
|
$
|
25,226
|
|
(a)
On November 3, 2015, the Company entered into a single master sublease agreement (the "Master Sublease Agreement") with the affiliates of New Beginnings Care, LLC to sublease the Jeffersonville, Savannah Beach and Oceanside facilities, commencing on November 1, 2015. The Master Sublease Agreement replaced the previously executed sublease agreements entered into November 30, 2012 and June 30, 2013 to sublease the Jeffersonville, Savannah Beach and Oceanside facilities, which were terminated on October 15, 2015. The annual rent due under the Master Sublease Agreement in the first year is approximately
$1.3 million
in the aggregate, which is reflected in the table above.
All facilities are skilled nursing facilities except for Stone County and Eaglewood which are assisted living facilities and Spring Meade Residence which is an independent living facility. All facilities have renewal provisions of
one
term of
five
years except facilities (Mountain Trace, Quail Creek, NW Nursing, Sumter Valley, and Georgetown) which have
two
renewal terms with each being
five
years. The leases also contain standard rent escalations that range from
2%
to
3.5%
annually.
As indicated above, the Company subleased through its subsidiaries (the "Aria Sublessors") nine facilities located in Arkansas (the "Aria Sublessees") to affiliates of Aria Health Group, LLC ("Aria") pursuant to separate sublease agreements (the "Aria Subleases"). Eight of the Aria Subleases commenced on May 1, 2015 and the remaining sublease commenced on November 1, 2015. Effective February 3, 2016, each Aria Sublease was terminated due to the failure to pay rent pursuant to the terms of such sublease. Subsequently, on February 5, 2016, the Company entered into a Master Lease Agreement, as amended, with Skyline Healthcare LLC ("Skyline") to lease the facilities commencing April 1, 2016 (see
Note 19 - Subsequent Events
).
On January 22, 2016, New Beginnings Care LLC and its affiliates ("New Beginnings") filed a petition to reorganize their finances under the U.S. Federal Bankruptcy Code (the "Bankruptcy Code"). To date, New Beginnings has neither affirmed nor rejected the Master Sublease Agreement entered into on November 3, 2015 with respect to the Jeffersonville, Oceanside, and Savannah Beach facilities. The Company is in discussions with New Beginnings and other potential operators about leasing such facilities.
NOTE 8. ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Amounts in (000's)
|
|
2015
|
|
2014
|
|
Accrued payroll related
|
|
$
|
684
|
|
|
$
|
6,915
|
|
|
Accrued employee benefits
|
|
648
|
|
|
3,405
|
|
|
Real estate and other taxes
|
|
411
|
|
|
1,335
|
|
|
Self-insured reserve
|
|
221
|
|
|
—
|
|
|
Other accrued expenses
|
|
1,161
|
|
|
3,998
|
|
|
Total
|
|
$
|
3,125
|
|
|
$
|
15,653
|
|
NOTE 9. NOTES PAYABLE AND OTHER DEBT
Notes payable and other debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Amounts in (000's)
|
|
2015
|
|
2014
|
|
Revolving credit facilities and lines of credit
|
|
$
|
—
|
|
|
$
|
6,832
|
|
|
Senior debt—guaranteed by HUD
(a)
|
|
25,469
|
|
|
26,022
|
|
|
Senior debt—guaranteed by USDA
(a)
|
|
26,463
|
|
|
27,128
|
|
|
Senior debt—guaranteed by SBA
(a)
|
|
3,548
|
|
|
3,703
|
|
|
Senior debt—bonds, net of discount
(b)
|
|
7,025
|
|
|
12,967
|
|
|
Senior debt—other mortgage indebtedness
(c) (d)
|
|
51,128
|
|
|
60,277
|
|
|
Other debt
|
|
2,638
|
|
|
430
|
|
|
Convertible debt
|
|
9,200
|
|
|
14,000
|
|
|
Total
|
|
125,471
|
|
|
151,359
|
|
|
Less current portion
|
|
50,960
|
|
|
22,012
|
|
|
Less: portion included in liabilities of variable interest entity held for sale
(b)
|
|
—
|
|
|
5,956
|
|
|
Less: portion included in liabilities of disposal group held for sale
(c)
|
|
958
|
|
|
5,197
|
|
|
Less: portion included in liabilities of disposal group held for use
(d)
|
|
—
|
|
|
4,035
|
|
|
Notes payable and other debt, net of current portion
|
|
$
|
73,553
|
|
|
$
|
114,159
|
|
(a)
United States Department of Housing and Urban Development ("HUD"), United States Department of Agriculture ("USDA"), Small Business Administration ("SBA")
(b)
The senior debt - bonds, net of discount included
$6.0 million
at
December 31, 2014
related to revenue bonds issued by the Medical Clinical Board of the City of Hoover in the State of Alabama to the Company's consolidated VIE,Riverchase Village ADK, LLC ("Riverchase"). On November 20, 2015, the Riverchase facility financed with such bonds was sold to a third-party unrelated to the Company.
(c)
At
December 31, 2014
, the senior debt - other mortgage indebtedness included
$5.0 million
related to the outstanding loan entered into in conjunction with the acquisition of Companions, a skilled nursing facility located in Tulsa, Oklahoma, as well as a related
$0.2 million
outstanding line of credit balance. On
October 30, 2015
, the Company completed the sale of Companions. At
December 31, 2015
, the senior debt - other mortgage indebtedness includes
$1.0 million
related to the outstanding loan on
one
of the
two
office buildings located in Roswell, Georgia.
(d)
At
December 31, 2014
, the senior debt - other mortgage indebtedness included
$4.0 million
related to the outstanding loans entered into in conjunction with the acquisition of a skilled nursing facility located in Bentonville, Arkansas and
one
of the
two
office buildings located in Roswell, Georgia. During the twelve months ended
December 31, 2015
, the Bentonville, Arkansas facility was sold and the outstanding loan on the office building in Roswell, Georgia was reclassified to liabilities held for sale.
Scheduled Maturities
The schedule below summarizes the scheduled maturities as of
December 31, 2015
for each of the next
five
years and thereafter. The
2016
maturities include
$1.0 million
related to the outstanding loan on one of the two office buildings located in Roswell, Georgia classified as liabilities of disposal group held for sale.
|
|
|
|
|
|
|
|
|
|
|
Amounts in (000's)
|
|
2016
|
|
$
|
51,918
|
|
|
2017
|
|
12,580
|
|
|
2018
|
|
1,800
|
|
|
2019
|
|
1,848
|
|
|
2020
|
|
1,945
|
|
|
Thereafter
|
|
55,585
|
|
|
Subtotal
|
|
125,676
|
|
|
Less: unamortized discounts
|
|
(205
|
)
|
|
Total notes and other debt
|
|
$
|
125,471
|
|
Debt Covenant Compliance
As of
December 31, 2015
, the Company has approximately
thirty-eight
credit related instruments (credit facilities, mortgage notes, bonds and other credit obligations) outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDA or EBITDAR, current ratios and tangible net worth requirements. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on subsidiary level (i.e. facility, multiple facilities or a combination of subsidiaries comprising less than the Company's consolidated financial measurements). Some covenants are based on annual financial metric measurements whereas others are based on quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of
December 31, 2015
, the Company has not been in compliance with certain financial and administrative covenants. For each instance of such non-compliance, the Company has obtained waivers or amendments to such requirements including as necessary modifications to future covenant requirements or the elimination of certain requirements in future periods.
The table below indicates which of the Company's credit-related instruments are out of compliance as of
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
Balance at
December 31, 2015
(000's)
|
|
Consolidated or
Subsidiary Level
Covenant
Requirement
|
|
Financial Covenant
|
|
Measurement
Period
|
|
Min/Max
Financial
Covenant
Required
|
|
Financial
Covenant
Metric
Achieved
|
|
|
|
Future
Financial
Covenant
Metric
Required
|
|
Community Bank - Mountain Trace Nursing ADK, LLC - USDA
|
|
$
|
4,507
|
|
|
Subsidiary
|
|
Minimum Debt Service Coverage Ratio
|
|
Quarterly
|
|
1.0
|
|
|
0.50
|
|
|
*
|
|
1.00
|
|
|
PrivateBank - Mortgage Note - Valley River Nursing, LLC; Park Heritage Nursing, LLC; Benton Nursing, LLC
|
|
$
|
7,359
|
|
|
Operator
|
|
Minimum EBITDAR (000s)
|
|
Quarterly
|
|
$
|
265
|
|
|
$
|
36
|
|
|
*
|
|
$
|
265
|
|
|
|
|
|
|
Guarantor
|
|
Minimum Debt Service Coverage Ratio
|
|
Annual
|
|
1.0
|
|
|
0.4
|
|
|
*
|
|
1.0
|
|
|
Private Bank - Mortgage Note - Little Rock HC&R Nursing, LLC
|
|
$
|
11,399
|
|
|
Operator
|
|
Minimum EBITDAR (000s)
|
|
Quarterly
|
|
$
|
450
|
|
|
$
|
23
|
|
|
*
|
|
$
|
450
|
|
|
|
|
|
|
Guarantor
|
|
Minimum Debt Service Coverage Ratio
|
|
Annual
|
|
1.0
|
|
|
0.4
|
|
|
*
|
|
1.0
|
|
|
|
|
|
|
Guarantor
|
|
Maximum Annual Leverage Ratio
|
|
Annual
|
|
11
|
|
|
222
|
|
|
*
|
|
11
|
|
|
PrivateBank - Mortgage Note - Georgetown HC&R Property Holdings, LLC; Sumter Valley HC&R Property Holdings, LLC
|
|
$
|
9,149
|
|
|
Operator
|
|
Minimum Debt Service Coverage Ratio
|
|
Quarterly
|
|
1.8
|
|
|
1.1
|
|
|
*
|
|
1.8
|
|
|
|
|
|
|
Guarantor
|
|
Minimum Debt Service Coverage Ratio
|
|
Annual
|
|
1.0
|
|
|
0.4
|
|
|
*
|
|
1.0
|
|
|
|
|
|
|
Guarantor
|
|
Maximum Annual Leverage Ratio
|
|
Annual
|
|
11
|
|
|
222
|
|
|
*
|
|
11
|
|
|
PrivateBank - Mortgage Note - APH&R Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC
|
|
$
|
11,816
|
|
|
Operator
|
|
Minimum EBITDAR
|
|
Quarterly
|
|
$
|
495
|
|
|
$
|
(601
|
)
|
|
*
|
|
$
|
495
|
|
|
|
|
|
|
Guarantor
|
|
Minimum Debt Service Coverage Ratio
|
|
Annual
|
|
1.0
|
|
|
0.4
|
|
|
*
|
|
1.0
|
|
|
|
|
|
|
Guarantor
|
|
Maximum Annual Leverage Ratio
|
|
Annual
|
|
11.0
|
|
|
222
|
|
|
*
|
|
11.0
|
|
|
Congressional Bank - Mortgage Note - QC Property Holdings, LLC
|
|
$
|
5,000
|
|
|
Subsidiary
|
|
Minimum Fixed Charge Coverage Ratio
|
|
Quarterly
|
|
1.1
|
|
|
(0.5
|
)
|
|
*
|
|
1.1
|
|
|
|
|
|
|
Subsidiary
|
|
Minimum Debt Service Coverage Ratio
|
|
Annual
|
|
1.5
|
|
|
(1.1
|
)
|
|
*
|
|
1.5
|
|
* Waiver or amendment for violation of covenant obtained for the next twelve months.
Revolving Credit Facilities and Lines of Credit
Contemporary Healthcare
On August 17, 2012, in conjunction with the acquisition of Companions, a wholly owned subsidiary of the Company entered into a Loan Agreement with Contemporary Healthcare Capital LLC ("Contemporary") and issued a promissory note in favor of Contemporary with a principal amount of
$0.6 million
("Contemporary
$0.6 million
Loan"). The Contemporary
$0.6 million
Loan matured on August 20, 2015 and interest accrues on the principal balance at an annual rate of
9.0%
. Payments for the interest and a portion of the principal in excess of the borrowing base are payable monthly, commencing on September 20, 2012.
On May 14, 2015, the outstanding principal amount of
$0.2 million
under the Contemporary
$0.6 million
Loan was repaid in full, thus releasing all liens and security interests as well as terminating all indebtedness on the Contemporary
$0.6 million
Loan.
Gemino-Northwest Credit Facility
On May 30, 2013, NW 61
st
Nursing, LLC (“Northwest”), a wholly owned subsidiary of the Company, entered into a Credit Agreement (the “Northwest Credit Facility”) with Gemino Healthcare Finance, LLC ("Gemino"). The Northwest Credit Facility provided for a
$1.0 million
principal amount senior-secured revolving credit facility.
Interest accrued on the principal balance thereof at an annual rate of
4.75%
plus the current LIBOR rate. Northwest also paid to Gemino: (i) a collateral monitoring fee equal to
1.0%
per annum of the daily outstanding balance of the Northwest Credit Facility; and (ii) a fee equal to
0.5%
per annum of the unused portion of the Northwest Credit Facility. The Northwest Credit Facility was secured by a security interest in the accounts receivable and the collections and proceeds thereof relating to the Company’s skilled nursing facility located in Oklahoma City, Oklahoma known as the Northwest Nursing Center. AdCare had unconditionally guaranteed all amounts owing under the Northwest Credit Facility.
On April 30, 2015, the outstanding principal amount of
$1.0 million
under the Northwest Credit Facility was repaid in full.
Gemino-Bonterra Credit Facility
On April 27, 2011, ADK Bonterra/Parkview, LLC, a wholly owned subsidiary of the Company entered into a Credit Agreement, as amended (the "Gemino-Bonterra Credit Facility") with Gemino. The Gemino-Bonterra Credit Facility was a secured credit facility for borrowings up to
$2.0 million
. Interest accrued on the principal balance outstanding at an annual rate equal to the LIBOR rate plus the applicable margin of
4.75%
to
5.00%
, which fluctuated depending upon the principal amount outstanding.
On July 1, 2015, the outstanding principal amount of
$0.4 million
under the Gemino-Bonterra Credit Facility was repaid in full.
PrivateBank Credit Facility
On April 1, 2015, certain wholly owned subsidiaries (the “PrivateBank Borrowers”) the Company entered into a Eighth Modification Agreement (the “Eighth Modification”) with The PrivateBank and Trust Company (“PrivateBank”), which modified that certain Loan Agreement, dated September 20, 2012, between the PrivateBank Borrowers, PrivateBank and the Company, as guarantor (as amended, the “PrivateBank Credit Facility”). Under the Eighth Modification:(i) PrivateBank consented to the transfer of operations to new operators and the amendment of the related leases; (ii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from
$8.8 million
to
$6.0 million
, effective April 1, 2015; and (iii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from
$6.0 million
to
$5.8 million
, effective August 1, 2015.
On May 1, 2015, the PrivateBank Borrowers entered into a Ninth Modification Agreement (the “Ninth Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Ninth Modification: (i) PrivateBank consented to the transfer of operations to new operators and the amendment of the related leases; and (ii) the outstanding amount owing under the PrivateBank Credit Facility was reduced from
$5.8 million
to
$3.8 million
.
On July 30, 2015, the PrivateBank Borrowers entered into a Tenth Modification Agreement (the “Tenth Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Tenth Modification: (i) the outstanding amount owing under the PrivateBank Credit Facility was reduced to
$3.8 million
, effective July 30, 2015; and (ii) the PrivateBank Borrowers shall not have the right to receive any additional cash borrowings under the PrivateBank Credit Facility.
On September 2, 2015, the PrivateBank Borrowers entered into a Eleventh Modification Agreement (the “Eleventh Modification”) with PrivateBank, which modified the PrivateBank Credit Facility. Under the Eleventh Modification: (i) the outstanding amount owing under the PrivateBank Credit Facility was reduced to
$1.8 million
, effective September 2, 2015; and (ii) the face value of one of the two letters of credit outstanding under the PrivateBank Credit Facility was reduced by
$2.0 million
.
As of
December 31, 2015
: (i) there were
no
cash borrowings outstanding under the PrivateBank Credit Facility; (ii) the Company
had
$0.4 million
of outstanding letters of credit related to this credit facility; and (iii) the Company was in compliance with all covenants contained in the PrivateBank Credit Facility.
PrivateBank-Woodland Nursing and Glenvue Nursing Credit Facility
On September 24, 2014, certain wholly-owned subsidiaries of the Company entered into a Loan and Security Agreement (the “Woodland Nursing and Glenvue Nursing Credit Facility”) with PrivateBank. The Woodland Nursing and Glenvue Nursing Credit Facility provided for a
$1.5 million
principal amount senior secured revolving credit facility. In the fourth quarter of 2015, the Woodland Nursing and Glenvue Nursing Credit Facility was paid in full. Subsequently, the Company terminated and closed the facility.
Senior Debt—Guaranteed by HUD
Autumn Breeze
On
December 17, 2014
, Mt. Kenn Property Holdings, LLC (“Mt. Kenn”), a wholly owned subsidiary of the Company, entered into a Mortgage and Deed of Trust Agreement (the “Mt. Kenn Credit Facility”), with KeyBank National Association ("KeyBank"). The Mt. Kenn Credit Facility provides for a
$7.6 million
principal amount secured credit facility.
The Mt. Kenn Credit Facility matures on
January 1, 2045
. Interest on the Mt. Kenn Credit Facility accrues on the principal balance thereof at an annual rate of
3.65%
. The Mt. Kenn Credit Facility is secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Mt. Kenn Credit Facility. HUD has insured all amounts owing under the Mt. Kenn Credit Facility.
The Mt. Kenn Credit Facility contains customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, KeyBank may, after receiving the prior written approval of HUD, terminate the Mt. Kenn Credit Facility and all amounts under the Mt. Kenn Credit Facility will become immediately due and payable.
In connection with entering into the Mt. Kenn Credit Facility, Mt. Kenn entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. The term loan is
75%
insured by the SBA, an agency of the United States of America, was repaid in conjunction with this financing.
As of
December 31, 2015
,
$7.5 million
was outstanding under the Mt. Kenn Credit Facility. The Company has
$0.9 million
of restricted assets related to this loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Mt. Kenn Credit Facility.
Glenvue
On
September 24, 2014
, a wholly owned subsidiary of the Company entered into a Mortgage and Deed of Trust Agreement (the “Glenvue Credit Facility”), with Housing & Healthcare Finance, LLC ("H&H") in connection with the refinancing of the skilled nursing facility known as Glenvue Health and Rehabilitation ("Glenvue"). The Glenvue Credit Facility provides for an
$8.8 million
principal amount secured credit facility.
The Glenvue Credit Facility matures on
October 1, 2044
. Interest on the Glenvue Credit Facility accrues on the principal balance thereof at an annual rate of
3.75%
. The Glenvue Credit Facility is secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Glenvue Credit Facility. HUD has insured all amounts owing under the Glenvue Credit Facility.
The Glenvue Credit Facility contains customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, failure to perform or comply with certain agreements and certain events of bankruptcy and insolvency. Upon the occurrence of certain events of default, H&H may, after receiving the prior written approval of HUD, terminate the Glenvue Credit Facility and all amounts under the Glenvue Credit Facility will become immediately due and payable.
In connection with entering into the Glenvue Credit Facility, Glenvue entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. As of
December 31, 2015
,
$8.6 million
was outstanding under the Glenvue Credit Facility. The Company has
$0.4 million
of restricted assets related to this loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Glenvue Credit Facility.
Hearth and Care of Greenfield
On October 1, 2014, a certain wholly-owned subsidiary of the Company entered into a Modification Agreement with Red Mortgage Capital, Inc. ("Red Capital") and HUD which modified the loan agreement, dated July 29, 2008, by and between a wholly-owned subsidiary of the Company and Red Capital (the "Hearth and Care of Greenfield Loan Agreement"), which matures in 2038. The modification, among other things: (i) reduced the rate of interest therein provided from
6.50%
per annum to
4.20%
per annum, effective as of November 1, 2014; (ii) revised the amount of monthly installments of interest and principal payable on and after December 1, 2014, so as to re-amortize in full the loan over the remaining term thereof; and (iii) modified the prepayment provision of the loan.
As of
December 31, 2015
, the outstanding balance on the loan was
$2.3 million
. Additionally, the Company has
$0.3 million
in restricted assets related to this loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Hearth and Care of Greenfield Loan Agreement.
The Pavilion Care Center
On October 1, 2014, a certain wholly-owned subsidiary of the Company entered into a Modification Agreement with Red Mortgage Capital, LLC ("Red Capital") and HUD which modified the loan agreement, dated November 27, 2007, by and between a wholly-owned subsidiary of the Company and Red Mortgage (the "Pavilion Care Center Loan Agreement"), which matures in 2027. The modification, among other things: (i) reduced the rate of interest therein provided from
5.95%
per annum to
4.16%
per annum, effective as of November 1, 2014; (ii) revised the amount of monthly installments of interest and principal payable on and after December 1, 2014, so as to re-amortize in full the loan over the remaining term thereof; and (iii) modified the prepayment provision of the loan.
As of
December 31, 2015
, the outstanding balance on the loan was
$1.5 million
. Additionally, the Company had
$0.3 million
in restricted assets related to this loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Pavilion Care Center Loan Agreement.
Woodland Manor
On
September 24, 2014
, a wholly owned subsidiary of the Company ("Woodland"), entered into a Mortgage and Deed of Trust Agreement (the “Woodland Credit Facility”), with H&H in connection with the refinancing of the skilled nursing facility known as Eaglewood Care Center ("Eaglewood") located in Springfield, Ohio. The Woodland Credit Facility provides for a
$5.7 million
principal amount secured credit facility.
The Woodland Credit Facility matures on
October 1, 2044
. Interest on the Woodland Credit Facility accrues on the principal balance thereof at an annual rate of
3.75%
. The Woodland Credit Facility is secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Woodland Credit Facility. HUD has insured all amounts owing under the Woodland Credit Facility. The Woodland Credit Facility contains customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, failure to perform or comply with certain agreements and certain events of bankruptcy and insolvency. Upon the occurrence of certain events of default, H&H may, after receiving the prior written approval of HUD, terminate the Woodland Credit Facility and all amounts under the Woodland Credit Facility will become immediately due and payable.
In connection with entering into the Woodland Credit Facility, Woodland entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. As of
December 31, 2015
,
$5.6 million
was outstanding under the Woodland Credit Facility. The Company has
$0.4 million
of restricted assets related to this loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Woodland Credit Facility.
Senior Debt—Guaranteed by USDA
For
five
skilled nursing facilities, the Company has term loans insured
70%
to
80%
by the United States Department of Agriculture ("USDA") with financial institutions that totaled approximately
$26.5 million
at
December 31, 2015
. The Company has
$1.8 million
of restricted assets related to these loans. The combined USDA loans require monthly principal and interest payments of approximately
$0.2 million
adjusted quarterly with a variable interest rate of prime plus
1%
to
1.75%
, with floors of
5.50%
to
6.00%
. The loans mature at various dates starting in
2035
through
2036
. Deferred financing costs incurred on these loans amounted to approximately
$0.8 million
and are being amortized to interest expense over the life of the loans. In addition, the loans have an annual renewal fee for the USDA guarantee of
0.25%
of the guaranteed portion. The loans have prepayment penalties of
6%
to
8%
through
2014
, which decline
1%
each year capped at
1%
for the remainder of the term.
At
December 31, 2015
, the Company was not in compliance with covenants contained in
one
of the
five
USDA loans and has obtained waivers with the USDA.
Senior Debt—Guaranteed by SBA
Stone County
In June 2012, Mt. V Property Holdings, LLC ("Stone County"), a wholly owned subsidiary of AdCare, entered into a loan agreement with the Economic Development Corporation of Fulton County (the "CDC"), an economic development corporation working with the SBA, in the amount of
$1.3 million
.
The CDC loan matures in July 2032 and accrues interest at a rate of
2.42%
per annum. The CDC loan is payable in equal monthly installments of principal and interest based on a twenty (
20
) year amortization schedule. The CDC loan may be prepaid, subject to prepayment premiums, during the first
ten
years. There are also annual fees associated with the CDC loan, including an SBA guarantee fee. The CDC loan is secured by a second in priority security deed on the Stone County Nursing and Rehabilitation facility and guarantees from AdCare, the SBA and a wholly owned subsidiary of AdCare.
As of
December 31, 2015
,
$1.1 million
was outstanding under the CDC loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Stone County loan agreement.
Other Senior Debt—Guaranteed by SBA
For
two
facilities, the Company has term loans insured
75%
by the SBA with a financial institution that totaled approximately
$2.4 million
at
December 31, 2015
. The combined SBA mortgage notes require monthly principal and interest payments of approximately
$16,000
with an interest rate of
2.81%
to
5.5%
. The notes mature at various dates starting in 2031 through 2036. Deferred financing costs incurred on these loans amounted to approximately
$0.2 million
and are being amortized to interest expense over the life of the note.
One
of the loans has a prepayment penalty of
2.2%
declining each year until year
ten
. For one facility, a term loan in an amount of
$2.0 million
insured
75%
by the SBA with a financial institution was paid off in 2014 in connection with a refinancing by HUD.
At
December 31, 2015
, the Company was in compliance with covenants contained in the SBA term loans.
Senior Debt—Bonds, net of Discount
Eaglewood Village Bonds
In April 2012, a wholly-owned subsidiary of the Company entered into a loan agreement with the City of Springfield,Ohio pursuant to which City of Springfield lent to such subsidiary the proceeds from the sale of City of Springfield's Series 2012 Bonds. The Series 2012 Bonds consist of
$6.6 million
in Series 2012A First Mortgage Revenue Bonds and
$0.6 million
in Taxable Series 2012B First Mortgage Revenue Bonds.The Series 2012A Bonds mature in May 2042 and accrue interest at a fixed rate of
7.65%
per annum. The Series 2012B Bonds mature in May 2021 and accrue interest at a fixed rate of
8.5%
per annum. Deferred financing costs incurred on the loan amounted to
$0.6 million
and are being amortized to interest expense over the life of the loan. The bonds are secured by the Company's assisted living facility located in Springfield, Ohio known as Eaglewood Village and guaranteed by AdCare. There is an original issue discount of
$0.3 million
and restricted assets of
$0.4 million
related to this loan.
As of
December 31, 2015
,
$6.6 million
was outstanding under the Series 2012A First Mortgage Revenue Bonds and
$0.6 million
was outstanding under the Taxable Series 2012B First Mortgage Revenue Bonds. The unamortized discount on the bonds was
$0.2 million
at
December 31, 2015
. At
December 31, 2015
, the Company was in compliance with covenants contained in the Series 2012 Bonds and has obtained a waiver from the City of Springfield.
Quail Creek
In July 2012, a wholly owned subsidiary of the Company financed the purchase of a skilled nursing facility located in Oklahoma City, Oklahoma known as Quail Creek Nursing & Rehabilitation Center ("Quail Creek") by the assumption of existing indebtedness issued by The Bank of New York Mellon Global Corporate Trust, as assignee of The Liberty National Bank and Trust. The indebtedness under the Loan Agreement and Indenture consisted of a principal amount of
$2.8 million
. In July of 2012, the purchase price allocation of fair value totaling
$3.2 million
was assigned to this indebtedness resulting in a
$0.4 million
premium that was being amortized to maturity. The loan was originally scheduled to mature in August 2016 and accrued interest at a fixed rate of
10.25%
per annum. The loan was secured by the Quail Creek facility.
On
September 27, 2013
, the outstanding principal and accrued interest in the amount of
$3.1 million
was deposited into a restricted defeased bonds escrow account. Pursuant to the Loan Agreement and Indenture, the outstanding loan was prepaid on
March 3, 2014
, at par plus accrued interest in the amount of
$3.1 million
from the funds that were previously deposited into a restricted defeased bonds escrow account.
Riverchase
Riverchase, a consolidated VIE of the Company, financed its acquisition of the Riverchase Village facility, an assisted living facility located in Hoover, Alabama, using the proceeds of revenue bonds (the “Riverchase Bonds”) issued in two series by the Medical Clinical Board of the City of Hoover in the State of Alabama, as to which the Company was a guarantor.
The Series 2010A portion of the Riverchase Bonds of
$5.8 million
was scheduled to mature on June 1, 2039. The Series 2010B portion of
$0.5 million
was scheduled to mature serially beginning on June 1, 2012 through June 1, 2017, with annual redemption amounts ranging from
$75,000
to
$100,000
. The Series 2010A and 2010B bonds were subject to redemption beginning on June 1, 2012 through May 31, 2015 at a redemption price ranging from
101%
to
103%
of the principal amount plus accrued interest. Any early redemption after May 31, 2015 is at a redemption price of
100%
of the principal amount plus accrued interest. The Riverchase Bonds require monthly payments of fixed interest of
$41,000
at a weighted average effective interest rate of
7.9%
.
As of
December 31, 2014
, the liabilities of Riverchase were classified as Liabilities of Variable Interest Entity Held for Sale.
On November 20, 2015, Riverchase completed the previously announced sale to an unrelated third party of the Riverchase Village facility for a purchase price (as subsequently amended) of
$6.9 million
. In connection with the sale of the Riverchase Village facility: (i) the Riverchase Bonds were repaid in full; and (ii) the Company was released from its guaranty of Riverchase’s obligations thereunder.
Senior Debt—Other Mortgage Indebtedness
Bentonville, Heritage Park and River Valley
On May 1, 2015, certain wholly-owned subsidiaries of the Company (collectively, the “Benton Borrower Group”), entered into a Loan Modification Agreement with PrivateBank, which modified that certain Loan Agreement, dated September 1, 2011, as amended, between the Benton Borrower Group and PrivateBank (the "Bentonville, Heritage Park and River Valley Credit Facility"). The Loan Modification, among other things: (i) provided for PrivateBank's consent to the sublease of the Company’s Heritage Park Nursing Center to an affiliate of Aria; and (ii) amended the minimum EBITDA covenant described in the Bentonville, Heritage Park and River Valley Credit Facility to (a) reflect a new facility operator, and (b) change the minimum EBITDA covenant to a “Minimum EBITDAR/Management Fee” covenant, which modifies minimum EBITDAR to take into account management fees equal to the greater of the operator’s actual management fees for such period or imputed management fees equal to
5%
of such operator’s gross income for such period, as determined in accordance with generally accepted accounting principles.
On July 1, 2015, the Company completed the sale of its Bentonville, Arkansas skilled nursing facility consisting of
83
licensed beds for
$3.4 million
net of customary closing and certain real property apportionments. Net proceeds were used to repay certain mortgage indebtedness under the Bentonville, Heritage Park and River Valley Credit Facility.
On October 30, 2015, Benton Borrower Group entered into a Second Modification Agreement with PrivateBank, which modified the Bentonville, Heritage Park and River Valley Credit Facility to, among other things establish a single cash collateral account to combine and collectively share the restricted cash reserves related to the following loans: (a) the Northridge, Woodland Hills and Abington Credit Facility (as defined below); (b) the Little Rock Credit Facility (as defined below); and (c) Bentonville, Heritage Park and River Valley Credit Facility.
As of
December 31, 2015
,
$8.0 million
was outstanding at an interest rate of
6.0%
per annum under the Bentonville, Heritage Park and River Valley Credit Facility. Interest accrues at LIBOR plus
3.5%
with a floor of
6.0%
. The
$8.0 million
principal outstanding under the loan is included in the current portion of debt disclosed in the table above. At
December 31, 2015
, the Company was not in compliance with a covenant contained in the loan agreement and has obtained a waiver from PrivateBank.
The Bentonville, Heritage Park and River Valley Credit Facility matures in September 2016.
On March 24, 2016, the Company received a commitment to refinance the Bentonville, Heritage Park and River Valley Credit Facility, the Little Rock Credit Facility, and the Northridge, Woodland Hills and Abington Credit Facility for a combined total of
$25.4 million
of debt.
Companions Specialized Care
In August 2012, a wholly owned subsidiary of the Company financed the acquisition of Companions by entering into a loan agreement for
$5.0 million
(the "Contemporary Loan") with Contemporary Healthcare Capital ("Contemporary"). The loan was scheduled to mature in August 2015 with a required final payment of
$5.0 million
and accrues interest at a fixed rate of
8.5%
per annum. Deferred financing costs incurred on the loan amounted to
$0.2 million
and were amortized to interest expense over the life of the loan. The loan had a prepayment penalty of
5%
during the first year of the term and
1%
during the second year of the term. The loan is secured by Companions and guaranteed by AdCare.
On August 12, 2015, a wholly owned subsidiary of the Company entered into a First Amendment with Contemporary, which modified the Contemporary Loan. Under the First Amendment: (i) the outstanding amount owing under the Contemporary Loan was reduced from
$5.0 million
to
$3.0 million
; (ii) restricted assets related to the loan of
$2.0 million
were used to reduce the outstanding amount owing under the Contemporary Loan, thus eliminating all restricted assets related to the loan; and (iii) the maturity date of the Contemporary Loan was extended to November 20, 2015.
On October 30, 2015, the Company completed the sale of Companions and repaid in full the outstanding balance under the Contemporary Loan.
Georgetown and Sumter Valley
In
December 2013
, the Company entered into a Note, Mortgage and Loan Agreement Modification Agreement with Metro City Bank (the "Georgetown and Sumter Valley Modification Agreement") which modified the loan agreement, dated
December 31, 2012
, by and between Sumter Valley Property Holdings, LLC ("Sumter"), Georgetown HC&R Property Holdings, LLC ("Georgetown") and Metro City Bank. Interest on the loan accrues on the principal balance thereof at an annual rate of
1.5%
per annum plus the prime interest rate, to be adjusted quarterly (but in no event shall the total interest be less than
5.50%
per annum), and payments for the interest are payable monthly. The Georgetown and Sumter Valley Modification Agreement, among other things: (i) extended the maturity date from
February 1, 2014
to
February 1, 2015
; (ii) increased the total amount available from
$6.9 million
to
$9.0 million
; (iii) established monthly deposits of
$14,000
as cash collateral, which the Company made through the maturity date; and (iv) required the Company to pay deferred financing fees of
$0.2 million
.
On January 30, 2015, the outstanding principal and interest of
$9.0 million
owed under Georgetown and Sumter Valley Modification Agreement was repaid in full.
Georgetown and Sumter Credit Facility
On January 30, 2015, Georgetown and Sumter, two wholly-owned subsidiaries of the Company, entered into a Loan Agreement (the "Georgetown and Sumter Credit Facility") with PrivateBank. The Georgetown and Sumter Credit Facility provides for a
$9.3 million
principal amount secured credit facility.
The Georgetown and Sumter Credit Facility matures on September 1, 2016. Interest on the Georgetown and Sumter Credit Facility accrues on the principal balance thereof at the LIBOR rate plus
4.25%
. As of
December 31, 2015
, the interest rate was
4.7%
. Interest payments on the loan are due and payable monthly. The Georgetown and Sumter Credit Facility is secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Georgetown and Sumter Credit Facility.
AdCare has unconditionally guaranteed all amounts owing under the Georgetown and Sumter Credit Facility.
On January 30, 2015, proceeds from the Georgetown and Sumter Credit Facility were used to pay off all amounts outstanding under a separate
$9.0 million
credit facility with Metro City Bank under which certain subsidiaries of the Company were borrowers.
As of
December 31, 2015
: (i)
$9.1 million
was outstanding under the Georgetown and Sumter Credit Facility; and (ii) the Company was not in compliance with all covenants contained in the Georgetown and Sumter Credit Facility and has obtained waivers from PrivateBank.
Glenvue
In July 2012, Glenvue H&R Property Holdings LLC, a wholly-owned subsidiary of the Company, financed the acquisition of the Glenvue facility, by entering into a loan agreement for
$6.6 million
with PrivateBank. The loan matured in July 2014 with a required final payment of
$6.4 million
and accrued interest at an annual rate of the greater of: (i)
6.0%
per annum; or (ii) the LIBOR rate plus
4.0%
per annum. The loan required monthly payments of principal and interest. Deferred financing costs incurred on the loan amounted to
$0.1 million
and were amortized to interest expense over the life of the loan. The loan was secured by the Glenvue facility and guaranteed by AdCare.
On
July 17, 2014
, the loan was modified with PrivateBank. The modification, among other things: (i) extended the maturity date of the loan agreement from
July 2, 2014
to
January 2, 2015
, and (ii) amended certain financial terms under the loan agreement regarding debt service and interest charges.
On
September 24, 2014
, the loan in the amount of
$6.4 million
was repaid by the proceeds from the Glenvue Credit Facility, noted above, and the Company received net proceeds of
$1.8 million
for working capital purposes.
Hembree Road Building
In November 2012, in connection with the acquisition of AdCare's corporate offices at Hembree Road, Roswell, Georgia, a wholly owned subsidiary of AdCare issued a promissory note in favor of Fidelity Bank for a principal amount of
$1.1 million
. The note matures in December 2017. Interest on the note accrues on the principal balance thereof at a fixed rate of
5.5%
per annum and payments for the interest and principal are due monthly. The entire outstanding principal balance of the note, together with all accrued but unpaid interest thereon, is payable on December 31, 2017.
As of
December 31, 2015
,
$1.0 million
was outstanding under the loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Fidelity Bank promissory note.
Little Rock Credit Facility
On March 30, 2012, subsidiaries of the Company, in connection with the Company's April 2012 acquisition of
three
skilled nursing facilities located in Arkansas, entered into a loan agreement for
$21.8 million
with PrivateBank (the "Little Rock Credit Facility"). The Little Rock Credit Facility, as amended on December 28, 2012, matures in December 2016 with a required final payment of
$13.7 million
. The Little Rock Credit Facility accrues interest at the LIBOR rate plus
4%
with a minimum rate of
6%
per annum and requires monthly principal payments plus interest for total current monthly payments of
$0.2 million
. The Little Rock Credit Facility is secured by the
three
facilities and guaranteed by AdCare. The facility is also secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Little Rock Credit Facility. A portion of the Little Rock Credit Facility with respect to the Northridge facility and Woodland Hills facility was paid off and refinanced with a portion of the proceeds from a new credit facility with KeyBank.
On May 1, 2015, Little Rock entered into a Fifth Modification Agreement with PrivateBank. The Fifth Modification, among other things: (i) provided for PrivateBank's consent to the sublease of the Company’s Little Rock Health & Rehabilitation Center to an affiliate of Aria; and (ii) amended the minimum EBITDAR covenant to reflect a new facility operator.
On October 30, 2015, Little Rock entered into a Sixth Modification Agreement with PrivateBank, which modified among other things establish a single cash collateral account to combine and collectively share the restricted cash reserves related to the following loans: (a) the Northridge, Woodland Hills and Abington Credit Facility; (b) the Little Rock Credit Facility; and (c) Bentonville, Heritage Park and River Valley Credit Facility; and (iii) establish an excess rent account to capture monthly cash rent proceeds from operators in excess of the monthly debt payments payable under the Northridge, Woodland Hills and Abington Credit Facility and the Little Rock Credit Facility.
The Company has
$2.1 million
of restricted assets related to this loan. As of
December 31, 2015
,
$11.4 million
was outstanding at an interest rate of
6.0%
per annum under loan agreement. At
December 31, 2015
, the Company was not in compliance with a covenant contained in the loan agreement and has obtained a waiver from PrivateBank.
Northridge, Woodland Hills and Abington
On
December 28, 2012
, the Company's wholly owned subsidiaries which own the Northridge, Woodland Hills and Abington facilities (the "KeyBank Borrowers") entered into a Secured Loan Agreement with KeyBank (the "KeyBank Credit Facility"). The KeyBank Credit Facility provided for a
$16.5 million
principal amount senior secured credit facility and was set to mature on
February 27, 2015
; provided, however, that the borrowers may extend the maturity date by an additional
six
months if certain closing conditions are met. Interest on the KeyBank Credit Facility accrues on the principal balance thereof at an annual rate of
4.25%
plus the current LIBOR rate. The KeyBank Credit Facility may be prepaid at any time without premium or penalty, provided that the borrowers pay any costs of KeyBank in re-employing such prepaid funds. AdCare and
two
of its subsidiaries have unconditionally guaranteed all amounts owing under the KeyBank Credit Facility.
On
March 28, 2014
, the Company entered into a Fourth Amendment with KeyBank. Pursuant to the amendment, among other things: (i) KeyBank waived the failure of certain financial covenants of such subsidiaries regarding fixed charge coverage ratio, implied debt service coverage, and compliance of making a certain sinking fund payment due on
March 1, 2014
, such that no default or events of default under the KeyBank Credit Facility occurred due to such failure; (ii) modified and amended certain financial covenants regarding the Company’s fixed charge ratio and implied debt service coverage; and (iii) paid down
$3.4 million
of loan principal from the release of
$3.4 million
from a certain collateral account.
On February 25, 2015, the outstanding principal and interest of
$12.0 million
owed under the KeyBank Credit Facility was repaid in full in connection with a refinancing with PrivateBank.
Northridge, Woodland Hills and Abington Credit Facility
On February 25, 2015,
three
wholly owned subsidiaries of the Company entered into a Loan Agreement (the "Northridge, Woodland Hills and Abington Credit Facility") with PrivateBank, which provides for a
$12.0 million
principal amount secured credit facility. The credit facility is secured by real property.
The Northridge, Woodland Hills and Abington Credit Facility matures on September 1, 2016. Interest accrues on the principal balance thereof at the LIBOR rate plus
4.25%
. Principal and interest payments on the loan are due and payable monthly. The facility is also secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Northridge, Woodland Hills and Abington Credit Facilities.
AdCare has unconditionally guaranteed all amounts owing under the Northridge, Woodland Hills and Abington Credit Facility. Proceeds from the Northridge, Woodland Hills and Abington Credit Facility were used to pay off all amounts outstanding under a separate
$12.0 million
credit facility with KeyBank National Association ("KeyBank") under which certain subsidiaries of the Company were borrowers.
On October 30, 2015, the Company entered into a Modification Agreement with PrivateBank, which modified the Northridge, Woodland Hills and Abington Credit Facility to, among other things: (i) provide lender consent for the sublease of
three
skilled nursing facilities to new operators; (ii) establish a single cash collateral account to combine and collectively share the restricted cash reserves related to the following loans: (a) the Northridge, Woodland Hills and Abington Credit Facility; (b) the Little Rock Credit Facility; and (c) Bentonville, Heritage Park and River Valley Credit Facility; and (iii) establish an excess rent account to capture monthly cash rent proceeds from operators in excess of the monthly debt payments payable under the Northridge, Woodland Hills and Abington Credit Facility and the Little Rock Credit Facility.
As of
December 31, 2015
,
$11.8 million
was outstanding, at an interest rate of approximately
5.5%
per annum, of the maximum borrowing amount of
$12.0 million
under the Northridge, Woodland Hills and Abington Credit Facility.The
$11.8 million
principal outstanding under the loan is included in the current portion of debt disclosed in the table above. As of
December 31, 2015
, the Company had
$2.0 million
of outstanding restricted assets related to this credit facility. At
December 31, 2015
, the Company was not in compliance with a covenant contained in the Northridge, Woodland Hills and Abington Credit Facility and has obtained a waiver from PrivateBank.
Northwest
In connection with the acquisition of the Northwest Nursing Center facility, a wholly owned subsidiary of AdCare issued a note pursuant to a Loan Agreement with First Commercial Bank, dated December 31, 2012, for a principal amount of
$1.5 million
. The note matures on December 31, 2017. Interest on the note accrues on the principal balance thereof at an annual rate equal to the prime interest rate (but in no event shall the interest rate be less than
5.00%
per annum), and payments for the interest are payable monthly. The entire outstanding principal balance of the note, together with all accrued but unpaid interest thereon, is payable on December 31, 2017. AdCare and certain subsidiaries of the Company have unconditionally guaranteed all amounts owing under the note.
As of
December 31, 2015
,
$1.3 million
was outstanding under the loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Loan Agreement with First Commercial Bank.
Quail Creek Credit Facility
In September 2013, QC Property Holdings, LLC ("QC"), a wholly owned subsidiary of the Company, entered into a loan agreement with Housing & Healthcare Funding, LLC in the amount of
$5.0 million
.
The loan agreement matures on
September 27, 2016
and accrues interest at the one-month LIBOR rate plus
4.75%
with a floor of
5.75%
. As of
December 31, 2015
, the interest rate was
5.75%
. The loan is secured by: (i) a first mortgage on the real property and improvements constituting the Quail Creek facility; (ii) a first priority interest on all furnishing, fixtures and equipment associated with the Quail Creek facility; and (iii) an assignment of all rents paid under any existing or future leases and rental agreements with respect to the Quail Creek facility. AdCare has unconditionally guaranteed all amounts owning under the loan.
As of
December 31, 2015
,
$5.0 million
was outstanding under the loan agreement. The Company has
$0.1 million
of restricted assets related to this loan. At
December 31, 2015
, the Company was in not compliance with covenants contained in the Quail Creek Credit Facility and has obtained the necessary waivers.
On March 29, 2016, the Company obtained a lender commitment to extend the maturity date of the Quail Creek Credit facility from September 2016 to September 2018.
Stone County
In June 2012, the Company entered into
two
loan agreements with Metro City Bank in the amounts of
$1.3 million
and
$1.8 million
.
The
$1.3 million
loan from Metro City Bank was repaid with the funding from the CDC loan of
$1.3 million
. The
$1.8 million
Metro City Bank loan matures in June 2022 and accrues interest at the prime rate plus
2.25%
with a minimum rate of
6.25%
per
annum. Deferred financing costs incurred on this loan amounted to
$0.1 million
and are being amortized to interest expense over the life of the loan. The loan has a prepayment penalty of
10%
for any prepayment through June 2013. The penalty is reduced by
1%
each year until the loan maturity date. The Metro City Bank loan is secured by the Stone County Nursing and Rehabilitation facility and is guaranteed by AdCare. The Company has
$0.1 million
of restricted assets related to this loan.
As of
December 31, 2015
,
$1.7 million
was outstanding under the Metro City Bank loan. At
December 31, 2015
, the Company was in compliance with covenants contained in the Metro City Bank loan.
Woodland Manor
In connection with the Company's January 2012 acquisition of the skilled nursing facility known as Woodland Manor, the Company entered into a loan agreement for
$4.8 million
(the "Woodland Credit Facility") with PrivateBank. The loan matures in December 2016 with a required final payment of
$4.3 million
and accrued interest at the LIBOR rate plus
4%
with a minimum rate of
6%
per annum. The loan required monthly payments of principal and interest. The loan had a prepayment penalty of
5%
through
2012
, which declined by
1%
each year through
2015
. The loan was secured by Woodland Manor and guaranteed by AdCare.
On
September 24, 2014
, that certain Loan Agreement, with PrivateBank in the outstanding principal amount of
$4.5 million
was repaid by the proceeds from the Woodland Credit Facility, noted above, and the Company received net proceeds of
$0.5 million
for working capital purposes.
Other Mortgage Indebtedness
The Company has one term loan with the Bank of Las Vegas with respect to the College Park skilled nursing facility that totaled approximately
$2.5 million
at
December 31, 2015
. The mortgage note requires monthly principal and interest payments with interest accrued at
6.25%
and matures in May
2031
. At
December 31, 2015
, the Company was in compliance with covenants contained in the Bank of Las Vegas promissory note.
Other Debt
Insurance Funding
In March 2015, the Company obtained financing from IPFS Corporation and entered into a Commercial Insurance Premium Finance Security Agreement for several insurance programs, including property, casualty, and crime, effective March 1, 2015 which matured on December 31, 2015. The total amount financed was approximately
$0.4 million
requiring monthly payments with interest of
3.29%
starting April 2015.
In May 2015, the Company obtained additional financing from IPFS Corporation, effective May 1, 2015 and maturing on April 30, 2016. The additional amount financed was approximately
$1.0 million
requiring monthly payments with interest of
3.29%
starting June 2015. At
December 31, 2015
, the combined outstanding principal and interest was approximately
$0.01 million
under the Commercial Insurance Premium Finance Security Agreement.
KeyBank Promissory Notes
On February 25, 2015, the Company entered into
four
separate unsecured Promissory Note Agreements (the "KeyBank Promissory Notes") with KeyBank for an aggregate principal amount of
$0.7 million
. The indebtedness represents the portion of certain deferred exit fees owed by the Company to KeyBank in connection with the February 2015 repayment of a credit facility with KeyBank. The KeyBank Promissory Notes mature on August 25, 2016, at which time the entire principal balance of the non-interest-bearing notes then unpaid shall be due. If, prior to the maturity date, certain refinancing agreements are entered into with KeyBank as lender, affiliate of lender, or by an agency financing originated by KeyBank or any affiliate of KeyBank, then and in such an event the entire remaining principal amount of the KeyBank Promissory Notes shall be forgiven.
On April 3, 2015, the Company entered into
five
separate unsecured Amended and Restated Promissory Note Agreements with KeyBank, which amend the KeyBank Promissory Notes to include a fifth note with the aggregate principal total of
$0.7 million
remaining unaltered. The amendments restate the principal balances on the original notes in order to include a fifth note. At
December 31, 2015
, an aggregate
$0.7 million
was outstanding under the notes.
Pharmacy Care of Arkansas Promissory Note
On February 8, 2016, the Company entered into an unsecured promissory note (the "Pharmacy Care Promissory Note") with Pharmacy Care of Arkansas, LLC for a principal amount of approximately
$1.0 million
and maturing on January 31, 2018. The Pharmacy Care Promissory Note requires monthly payments with interest of
2%
per annum beginning February 29, 2016.
Pinnacle Healthcare Promissory Notes
The Company previously issued promissory notes in the aggregate principal amount of
$2.4 million
. The notes bore interest at
7%
payable quarterly in arrears the first day of each December, March, June and September beginning in December 2011. This note was paid in full by the Company in March 2014.
Reliant Rehabilitation Promissory Note
On February 25, 2016, the Company entered into an unsecured promissory note (the "Reliant Rehabilitation Promissory Note") with Reliant Pro Rehab, LLC for a principal amount of approximately
$0.9 million
which matures on November 15, 2016. The Reliant Rehabilitation Care Promissory Note requires monthly payments with interest of
7%
per annum beginning March 15, 2016.
Convertible Debt
Subordinated Convertible Notes Issued in 2010 (the "2010 Notes")
In 2010, the Company entered into a Securities Purchase Agreement with certain accredited investors pursuant to which the Company sold to them an aggregate of
$11.1 million
in principal amount of the 2010 Notes, bearing
10%
interest per annum payable quarterly in cash in arrears beginning December 31, 2010.
Effective
October 26, 2013
, the Company entered into a Waiver, Amendment and Forbearance with holders of the 2010 convertible Notes, pursuant to which the Company and the holders amended: (i) the requirement to adjust the conversion price of the 2010 Notes for dilutive equity issuances (i.e., the "full ratchet and anti-dilution" provision); (ii) extended the maturity date to
August 29, 2014
; and (iii) adjusted the interest rate to
12.0%
per annum.
During the
twelve months ended
December 31, 2014
, holders of the 2010 Notes converted approximately
$6.9 million
of principal and accrued and unpaid interest outstanding under such notes into shares of common stock at a price of
$3.73
per share. The Company recognized a
$1.8 million
loss on extinguishment of debt during the
twelve months ended
December 31, 2014
related to the difference between the conversion price and the market price on the date the 2010 Notes were converted into shares of common stock.
As of
December 31, 2015
and
December 31, 2014
, there was no outstanding balance under the 2010 Notes.
Subordinated Convertible Notes Issued in 2011 (the "2011 Notes")
In 2011, the Company entered into a Securities Purchase Agreement with certain accredited investors pursuant to which the Company sold to them an aggregate of
$4.5 million
in principal amount of the 2011 Notes.
The 2011 Notes bore interest at
10%
per annum and were payable quarterly in cash in arrears beginning June 30, 2011. The 2011 Notes matured on March 31, 2014.
The 2011 Notes were convertible at the option of the holder into shares of common stock of the Company at a conversion price of
$4.80
per share (adjusted for
5%
stock dividends on October 14, 2011 and October 22, 2012, and subject to adjustment for stock dividends, stock splits, combination of shares, recapitalization and other similar events). The 2011 Notes were unsecured and subordinated in right of payment to existing and future senior indebtedness.
On
March 28, 2014
, certain holders of the 2011 Notes with an aggregate principal amount of
$0.4 million
surrendered and cancelled such 2011 Notes in payment for 2014 Notes (as discussed and defined below) with an equal principal amount. On
March 31, 2014
, the Company repaid the remaining outstanding principal amount of
$4.0 million
of the 2011 Notes plus all interest accrued and unpaid under the 2011 Notes (including those 2011 Notes surrendered and cancelled in payment for 2014 Notes).
Subordinated Convertible Notes Issued in 2012 (the "2012 Notes")
In 2012, the Company entered into a Securities Purchase Agreement, with certain accredited investors pursuant to which the Company sold to them an aggregate of
$7.5 million
in principal amount of the 2012 Notes. The 2012 Notes bear interest at
8%
per annum and such interest is payable quarterly in cash in arrears beginning on September 30, 2012. The 2012 Notes matured on July 31, 2015. The 2012 Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness of the Company.
At any time on or after the
six
-month anniversary of the date of issuance of the notes, the notes are convertible at the option of the holder into shares of common stock at a conversion price equal to
$3.97
per share (adjusted for a
5%
stock dividend on October 22, 2012, and subject to adjustment for stock dividends, stock splits, combination of shares, recapitalization and other similar events).
If at any time on or after the six-month anniversary date, the weighted average price of the common stock for any
20
trading days within a period of 30 consecutive trading days equals or exceeds
200%
of the conversion price and the average daily trading volume of the common stock during such 20 days exceeds
50,000
shares, then the Company may, subject to the satisfaction of certain other conditions, redeem the notes in cash at a redemption price equal to the sum of
100%
of the principal amount being redeemed plus any accrued and unpaid interest on such principal.
In addition, the holders of a majority of the aggregate principal amount of notes then outstanding may require the Company to redeem all or any portion of the notes upon a change of control transaction, at a redemption price in cash equal to
110%
of the redemption amount.
On June 30, 2015, the Company entered into prepayment agreements with Anthony Cantone and CAM in connection with the Company's
8%
Subordinated Convertible Notes due July 31, 2015 with an aggregate original principal amount of approximately
$6.4 million
(the "Cantone Notes"). In connection therewith, the Company made principal prepayments in aggregate of approximately
$1.5 million
with respect to the Cantone Notes. On August 21, 2014, Mr. Cantone and certain of his affiliates filed a Schedule 13G/A with the SEC reporting ownership in excess of
5%
of the common stock. On October 5, 2015, Mr. Cantone and certain of his affiliates filed a Schedule 13G/A with the SEC reporting ownership of less than 5% of the common stock (see
Note 18 - Related Party Transactions
).
On
July 30, 2015
, the Company and CAM amended the terms of that certain
8%
subordinated convertible note, issued by the Company to CAM and due July 31, 2015, with a principal payment amount as of such date of
$4.8 million
, which was repaid, to: (i) extend the maturity date with respect to
$1.5 million
of the principal amount of the such note to October 31, 2017; (ii) increase the interest rate from
8.0%
to
10.0%
per annum; and (iii) increase the conversion price from
$3.97
to
$4.25
per share.
Additionally, the amendment modifies the Company’s right to prepay the note so that the Company may prepay at any time, without penalty, upon
60
days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to the note; provided, however, that: (i) the shares of the common stock issuable upon conversion of the note have been registered for resale under the Securities Act of 1933, as amended (the "Securities Act"); (ii) at any time after the issue date of the note, the volume-weighted average price of the common stock for
10
consecutive trading days has equaled or exceeded
150%
of the then-current conversion price; and (iii) such prepayment may not be effected prior to July 31, 2016. The amendment also affords each of CAM and the Company the right to cause the redemption of all or any portion of the principal amount of the note upon a change of control (as defined in the note) at a redemption price equal to
115%
of the sum of (i) outstanding principal amount to be redeemed, plus (ii) the amount of accrued and unpaid interest thereon.
Pursuant to the amendment, the Company paid to Cantone Research, Inc. (“CRI”), an affiliate of CAM, a fee equal to
$37,500
. The amendment also amends that certain Consulting Agreement, dated July 2, 2012, between the Company and CRI to: (i) reduce the annual consulting fee payable thereunder to
$15,000
and further reduce such fee proportionately upon each repayment, redemption or conversion of the principal amount of the note; and (ii) terminate the Consulting Agreement upon the earlier of October 31, 2017, or the conversion, redemption or prepayment of the entire principal amount of the note.
As of
December 31, 2015
, the outstanding principal amount of the 2012 Notes is
$1.5 million
.
Subordinated Convertible Promissory Notes Issued in 2014
(the "2014 Notes")
The Company entered into Subscription Agreements with certain accredited investors pursuant to which the Company sold, on
March 28, 2014
, an aggregate of
$6.5 million
in principal amount of the 2014 Notes. The 2014 Notes bear interest at
10.0%
per annum and such interest is payable quarterly in cash in arrears beginning on
June 30, 2014
. The 2014 Notes mature on
April 30, 2015
. The 2014 Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness of the Company.
At any time on or after the date of issuance of the 2014 Notes, the 2014 Notes are convertible at the option of the holder into shares of the common stock at an initial conversion price equal to
$4.50
per share, subject to adjustment for stock dividends, stock splits, combination of shares, recapitalization and other similar events.
The Company may prepay at any time, without penalty, upon
60
days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to any 2014 Note; provided, however, that: (i) the shares of common stock issuable upon conversion of any 2014 Note which is to be so prepaid must be: (a) registered for resale under the Securities Act ; or (b) otherwise sellable under Rule 144 of the Securities Act without volume limitations thereunder; and (ii) at any time after the issue date of the 2014 Notes, the volume-weighted average price of the common stock for ten consecutive trading days has equaled or exceeded
105%
of the then-current conversion price.
In addition, the holders holding a majority of the outstanding principal amount with respect to all the 2014 Notes may require the Company to redeem all or any portion of the 2014 Notes upon a change of control at a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon. Furthermore, upon a change of control, the Company may redeem all or any portion of the 2014 Notes for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon.
Park City Capital Offshore Master, Ltd. (“Park City Offshore”), an affiliate of Michael J. Fox, entered into a Subscription Agreement with the Company pursuant to which the Company issued
$1.0 million
in principal amount of the 2014 Notes. Mr. Fox is a director of Park City Offshore and a director of the Company and beneficial owner of greater than
5%
of the Company's outstanding common stock. The 2014 Note was offered to and sold to Park City Offshore on the same terms and conditions as all other buyers in the offering.
On April 30, 2015, the Company repaid the outstanding principal amount of
$6.5 million
under the 2014 Notes plus all interest accrued and unpaid thereunder. Of the
$6.5 million
outstanding principal amount,
$0.8 million
was repaid in cash and
$5.7 million
was repaid through the setoff of amounts owed to the Company by the noteholders.
Convertible Subordinated Notes Issued in 2015 (the "2015 Notes")
On March 31, 2015, the Company entered into Subscription Agreements for
$8.5 million
of the 2015 Notes with certain accredited investors, including certain holders of the 2014 Notes. In connection therewith, the Company issued approximately
$1.7 million
in principal amount of 2015 Notes on March 31, 2015 and approximately
$6.0 million
in principal amount of 2015 Notes on April 30, 2015. Accepted subscriptions for
$0.8 million
in principal amount of 2015 Notes were not funded by the April 30, 2015 payment deadline, and 2015 Notes were not issued in respect thereof.
The 2015 Notes are convertible at the option of the holder into shares of common stock at an initial conversion price equal to
$4.25
per share. If, prior to December 31, 2015, the Company issued or sold any shares of common stock or common stock equivalents (excluding certain excluded securities, as defined in the 2015 Notes) for a consideration per share (the “New Issuance Price”) less than the conversion price then in effect immediately prior to such issuance or sale, then immediately after such issuance or sale the conversion price then in effect shall be reduced to an amount equal to the New Issuance Price (an “Adjustment for Dilutive Issuances”). Notwithstanding the foregoing, no Adjustment for Dilutive Issuances would be effected to the extent it would cause the number of shares of common stock issued, plus the number of shares of common stock issuable, in respect of all 2015 Notes in the aggregate to exceed
3,850,405
shares of common stock. As of
December 31, 2015
, no Adjustment for Dilutive Issuances was made. In addition, the conversion price will be subject to adjustment for any subdivision (by stock dividend, stock split or similar corporation action) or combination (by reverse stock split or similar corporate action) of the common stock.
The Company may prepay at any time, without penalty, upon
60
days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to any 2015 Note; provided, however, that: (i) the shares of common stock issuable upon conversion of any 2015 Note which is to be so prepaid must be: (a) registered for resale under the Securities Act; or (b) otherwise sellable under Rule 144 of the Securities Act without volume limitations thereunder; (ii) at any time after the issue date of such 2015 Note, the volume-weighted average price of the common stock for
ten
consecutive trading days has equaled or exceeded
125%
of the then-current conversion price; and (iii) such prepayment may not be effected prior to March 31, 2016. The 2015 Notes have a maturity date of April 30, 2017.
The holders holding a majority of the outstanding principal amount with respect to all the 2015 Notes may require the Company to redeem all or any portion of the 2015 Notes upon a change of control (as defined in the 2015 Notes) for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon. In addition, upon a change of control, the Company may redeem all or any portion of the 2015 Notes for a redemption price equal to the outstanding principal amount to be redeemed plus all accrued and unpaid interest thereon.
In the offering, the Company accepted Subscription Agreements from certain related parties (see
Note 18 - Related Party Transactions
).
As of
December 31, 2015
, the outstanding principal amount of the 2015 Notes is
$7.7 million
.
NOTE 10. ACQUISITIONS
The Company had no acquisitions during the years ended
December 31, 2015
or
2014
.
NOTE 11. DISCONTINUED OPERATIONS