REGIONAL HEALTH PROPERTIES, INC - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2019

For the transition period from                    to                   

Commission File Number 001-33135

Regional Health Properties, Inc.

(Exact name of registrant as specified in its charter)

454 Satellite Boulevard NW, Suite 100, Suwanee, GA 30024

(Address of principal executive offices)

(678) 869-5116

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”,  “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐    No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐  No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 31, 2019:  1,688,219 shares of common stock, no par value, were outstanding.

Regional Health Properties, Inc.

Form 10-Q

Table of Contents

2

Part I.  Financial Information

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)(Unaudited) 

See accompanying notes to unaudited consolidated financial statements

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REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in 000’s, except per share data)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

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REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Amounts in 000’s)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

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REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

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REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

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REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2019

Description of Business

AdCare Health Systems, Inc. (“AdCare”) is the former parent of, and the predecessor issuer to, Regional Health Properties, Inc. (“Regional Health” or “Regional” and, together with its subsidiaries, the “Company” or “we”). On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, a Georgia corporation and wholly owned subsidiary of AdCare formed for the purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. The Company now has many of the characteristics of a real estate investment trust and is focused on the ownership, acquisition and leasing of healthcare related properties. For a description of the Merger, see Part II, Item 8, “Financial Statements and Supplemental Data”, Note 1 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on May 17, 2019 (the “Annual Report”).

Regional Health is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. The Company’s business primarily consists of leasing and subleasing healthcare facilities to third-party tenants, which operate the facilities. The operators of the Company’s facilities provide a range of healthcare services to their 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.

As of June 30, 2019, the Company owned, leased, or managed for third parties 28 facilities, primarily in the Southeast United States. Of the 28 facilities, the Company: (i) leased 14 owned facilities and subleased nine (9) leased skilled nursing facilities to third-party tenants; (ii) leased two (2) owned assisted living facilities to third-party tenants; and (iii) managed on behalf of third-party owners two (2) skilled nursing facilities and one (1) independent living facility (see Note 7 – Leases, herein, and Note 7 – Leases located in Part II, Item 8, “Financial Statements and Supplemental Data” in the Annual Report for a more detailed description of the Company’s leases).

On April 15, 2019, the Company entered into a purchase and sale agreement with respect to four (4) owned skilled nursing facilities, with a scheduled closing date, subject to satisfaction or waiver of customary terms and conditions, of August 1, 2019, which could have been extended by up to 15 days. On August 1, 2019, the Company completed the sale of three (3) of the facilities and extended the scheduled closing date, subject to satisfaction or waiver of customary terms and conditions, to August 30, 2019 for the remaining one (1) unencumbered facility. In connection with the sale, the Company repaid the indebtedness owed to Pinecone Realty Partners II, LLC (“Pinecone”) and mortgage indebtedness under the Company’s credit facility with Congressional Bank, a Maryland chartered commercial bank, as successor in interest to Housing & Healthcare Funding, LLC, (the “Quail Creek Credit Facility”) in full with the proceeds thereof. The net cash inflow to the Company after sales commission, transaction expenses, principal, accrued interest and legal fees was approximately $0.4 million. For further information, see Note 10 – Discontinued Operations and Dispositions and Note 15 – Subsequent Events.

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 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. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.

When used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), unless otherwise specifically stated or the context otherwise requires, the terms:

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Going Concern

For the six months ended and as of June 30, 2019, we had negative working capital of approximately $14.3 million. At June 30, 2019, we had $1.2 million in unrestricted cash and $80.7 million in indebtedness, including current maturities of $26.9 million. The current portion of such indebtedness is comprised of: (i) $20.6 million of long term-debt (including a $0.5 million “tail fee” and a $0.5 million “repayment or acceleration fee”) under a debt refinancing loan agreement dated February 15, 2018, as amended from time to time, between the Company and Pinecone, with an original aggregate principal amount of $16.25 million which refinanced existing mortgage debt (the “Pinecone Credit Facility”), classified as current due to the Company’s then short-term forbearance agreement regarding the Company’s noncompliance with certain covenants under the Pinecone Credit Facility, pursuant to which Pinecone could have exercised its default-related rights and remedies, including the acceleration of the maturity of the debt, upon the termination of the forbearance period under such forbearance agreement (as further discussed below in this note and Note 3 – Liquidity); (ii) $3.9 million of mortgage indebtedness under the Quail Creek Credit Facility which had a maturity date in June 2019; and (iii) other debt of approximately $2.4 million, which includes senior debt and bond and mortgage indebtedness. On August 1, 2019, the Company fully repaid the amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility using the proceeds from the sale of three (3) of the Company’s facilities. For a period of three months following such repayment, Pinecone will continue to hold a right of first refusal to provide first mortgage financing for any acquisition of a healthcare facility by the Company and an exclusive option to refinance the Company’s existing first mortgage loan (the “Pinecone Financing Option”), with a balance of $5.3 million at June 30, 2019, on the Company’s 124-licensed bed skilled nursing facility located in Alabama known as Coosa Valley Health Care, subject to the terms and conditions of the Pinecone Credit Facility. There is no assurance, however, that the Company will complete the sale of the one (1) remaining unencumbered facility as contemplated by the purchase and sale agreement, or that the Company will otherwise be able to resolve the Pinecone Financing Option.

As of June 30, 2019, the continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the second new amended and restated forbearance agreement, dated March 29, 2019, between the Company and certain of its subsidiaries and Pinecone (the “Second A&R Forbearance Agreement”) as amended on June 13, 2019; and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a going concern. However, the Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019. If efforts to make such repayment had been unsuccessful, the Company would have been required to seek relief through other available alternatives, including a filing under the U.S. Bankruptcy Code. The consolidated financial statements do not include any adjustments that might have been necessary if the Company was unable to continue as a going concern. See Note – 10 Discontinued Operations and Dispositions and Note – 15 Subsequent Events for details on a purchase and sale agreement, with respect to the sale of certain of the Company’s facilities. The sale of three (3) such facilities on August 1, 2019 (the “Asset Sale”), and the repayment of all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility, have addressed certain factors that had created substantial doubt regarding the Company’s ability to continue as a going concern.

As a result of such repayment, the Company is able to conclude that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the periods presented have been included.  Operating results for the three and six months ended June 30, 2019 and 2018 are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. 

You should read the unaudited consolidated financial statements in this Quarterly Report together with the historical audited consolidated financial statements of the Company for the year ended December 31, 2018, included in the Annual Report. See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of all significant accounting policies. During the three and six months ended June 30, 2019, there were no material changes to the Company’s policies, except as noted below in Recently Adopted Standards.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

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Reverse Stock Split

On December 27, 2018, the Board authorized a reverse stock split of the issued and outstanding shares of the common stock, at a ratio of one-for-twelve shares (the “Reverse Stock Split”). Shareholder approval for the Reverse Stock Split was obtained at the Company’s annual meeting of shareholders on December 27, 2018 and the Reverse Stock Split became effective on December 31, 2018. At the effective date, every 12 shares of the common stock that were issued and outstanding were automatically combined into one (1) issued and outstanding share of the common stock. Shareholders did not receive fractional shares in connection with the Reverse Stock Split and instead, received an additional whole share of the common stock in lieu thereof. The authorized number of shares, and the par value per share, of the common stock was not affected by the Reverse Stock Split. The Reverse Stock Split also correspondingly affected all outstanding Regional Health equity awards. The Reverse Stock Split was implemented for the purpose of complying with the NYSE American LLC (“NYSE American” or the “Exchange”) continued listing standards regarding low selling price.

All authorized, issued and outstanding stock and per share amounts contained in the accompanying consolidated financial statements have been adjusted to reflect the Reverse Stock Split for all prior periods presented.

Revenue Recognition and Allowances

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 collectability is probable. 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 straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one (1) or more tenant(s) of the Company’s facilities, rental income for the affected facilities is thus recognized only upon cash collection, and any accumulated straight-line rent receivable is thus reversed in the period in which the Company deems rent collection to no longer be probable. Rental revenues for five (5) facilities located in Ohio (until operator transition on December 1, 2018), one (1) facility in North Carolina (until operator transition on March 1, 2019) and four (4) facilities held for sale since April 15, 2019 were recorded on a cash basis during the year ended December 31, 2018, the three months ended March 31, 2019 and the three months ended June 30. 2019, respectively. For additional information with respect to such facilities, see Note 7 – Leases.

Revenue from Contracts with Customers. The Company recognizes management fee revenues as services are provided. The Company has one (1) contract to manage three (3) facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the year. Further, the Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.

Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants 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 or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, then the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates (see Note 7 – Leases).

As of June 30, 2019 and December 31, 2018, the Company reserved for approximately $0.0 million and $1.4 million, respectively, of gross patient care related receivables arising from its legacy operations. Allowances for patient care receivables are estimated based on an aged bucket method as well as additional analyses of remaining balances incorporating different payor types. Any changes in patient care receivable allowances are recognized as a component of discontinued operations. All uncollected patient care receivables were fully reserved at June 30, 2019 and December 31, 2018.  Accounts receivable, net, totaled $1.1 million at June 30, 2019 and $1.0 million at December 31, 2018.

Extinguishment of Debt

The Company recognizes extinguishment of debt when the criteria for a troubled debt restructure are not met and the change in the debt terms is considered substantial. The Company calculates the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt (including deferred finance fees) and recognizes a gain or loss on the income statement of the period of extinguishment.

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Pre-paid expenses and other

As of June 30, 2019 and December 31, 2018, the Company had $0.5 million and $0.5 million, respectively, in pre-paid expenses and other, primarily for directors’ and officers’ insurance and mortgage insurance premiums.

Self-Insurance

The Company was self-insured against professional and general liability claims since it discontinued its healthcare operations during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the “Transition”). See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 15 – Commitments and Contingencies in the Annual Report for more information. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company’s estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 8 – Accrued Expenses and Other.

In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors’ and officers’ liability, crime and employment practices liability.

Recently Adopted Standards

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) ASU 2016-02, Leases, as codified in Accounting Standards Codification (“ASC”) 842, using the non-comparative transition option pursuant to ASU 2018-11. Therefore we have not restated comparative period financial information for the effects of ASC 842, and we have not made the new required lease disclosures for comparative periods beginning before January 1, 2019. The Company recognized both right of use assets and lease liabilities for leases in which we lease land, real property or other equipment, electing the practical expedient to maintain the prior operating lease classification. Effective January 1, 2019, we will assess any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification. We are reporting revenues and expenses for real estate taxes and insurance, prospectively where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.

The following table summarizes real estate tax recognized on our consolidated statement of operations for the three and six months ended June 30, 2019 and 2018:

Also, we now expense certain leasing costs, other than leasing commissions, as they are incurred. Current GAAP provides for the deferral and amortization of such costs over the applicable lease term. Adoption of ASU 2016-02 has not had a material effect on the Company’s consolidated financial statements, other than the initial balance sheet impact of recognizing the right-of-use assets and the right-of-use lease liabilities. Upon adoption, we recognized operating lease assets of $39.8 million on our consolidated balance sheet for the period ended March 31, 2019, which represents the present value of minimum lease payments associated with such leases. Also upon adoption, we recognized operating lease liabilities of $41.5 million, instead of $1.7 million of previously recorded deferred rent recorded in “Other Liabilities” on our consolidated balance sheet for the period ended March 31, 2019. The present value of minimum lease payments was calculated on each lease using a discount rate that approximates our incremental borrowing rate and the current lease term and upon adoption we utilized a discount rate of 7.98% for the Company’s leases. See Note 7– Leases for the Company’s operating leases.  

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of the other accounting pronouncements the Company is currently evaluating.

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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 respective period. Diluted earnings per share is similar to basic earnings per share except: (i) net income or loss is adjusted by the impact of the assumed conversion of convertible debt into shares of common stock; and (ii) the weighted-average number of shares of common stock outstanding includes potentially dilutive securities (such as options, warrants, non-vested common stock and additional shares of common stock issuable under convertible debt outstanding during the period) when such 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 debt 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 the six months ended June 30, 2019 and 2018, approximately 0.1 million and 0.1 million shares, respectively, of potentially dilutive securities were excluded from the diluted loss per share calculation because including them would have been anti-dilutive for such periods.

The following tables provide a reconciliation of net (loss) income for continuing and discontinued operations and the number of shares of common stock used in the computation of both basic and diluted earnings per share:

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Going Concern and Overview

For the three and six months ended and as of June 30, 2019, we had negative working capital of $14.3 million. At June 30, 2019, we had $1.2 million in unrestricted cash and $80.7 million in indebtedness, including current maturities of $26.9 million. The current portion of such indebtedness is comprised of: (i) $20.6 million of long term-debt (including a $0.5 million “tail fee” and a $0.5 million “repayment or acceleration fee”) under the Pinecone Credit Facility, classified as current due to the Company’s then short-term forbearance agreement regarding the Company’s noncompliance with certain covenants under the Pinecone Credit Facility, pursuant to which Pinecone could have exercised its default-related rights and remedies, including the acceleration of the maturity of the debt, upon the termination of the forbearance period under such forbearance agreement (as further discussed below in this note); (ii) $3.9 million of mortgage indebtedness under the Quail Creek Credit Facility which matured in June 2019; and (iii) other debt of approximately $2.4 million, which includes senior debt and bond and mortgage indebtedness. On August 1, 2019, the Company fully repaid the amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility using the proceeds from the sale of three (3) of the Company’s facilities. For a period of three months following such repayment Pinecone will continue to hold a right of first refusal to provide first mortgage financing for any acquisition of a healthcare facility by the Company, and retains the Pinecone Financing Option.

Prior to August 1, 2019, the continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the Second A&R Forbearance Agreement as amended on June 13, 2019; and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a going concern.

The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019. If efforts to make such repayment had been unsuccessful, the Company would have been required to seek relief through a number of other available alternatives including a filing under the U.S. Bankruptcy Code. The consolidated financial statements do not include any adjustments that might have been necessary if the Company was unable to continue as a going concern. See Note – 10 Discontinued Operations and Dispositions and Note – 15 Subsequent Events for details on a purchase and sale agreement, with respect to the sale of certain of the Company’s facilities. The Asset Sale on August 1, 2019, and the repayment of all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility, have addressed certain factors that had created substantial doubt regarding the Company’s ability to continue as a going concern. There is no assurance, however, that the Company will complete the sale of the one (1) remaining unencumbered facility, as contemplated by the purchase and sale agreement, or that the Pinecone Financing Option will be resolved in the Company’s favor. As a result of such repayment, the Company is able to conclude that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.

The Company is undertaking measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity by: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders or raising capital through the issuance of securities after restructuring of the Company’s capital structure; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.

Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months from the date of this filing. At June 30, 2019, the Company had $1.2 million in unrestricted cash. During the six months ended June 30, 2019, the Company generated positive operating cash flow from continuing operations of $0.9 million.

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Series A Preferred Dividend Suspension

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. Such dividends are currently in arrears with respect to the fourth quarter of 2017, all quarters of 2018, and the first and second quarters of 2019. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock on an ongoing basis. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.22 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.

Current Maturities of Debt

As of June 30, 2019, the Company had total current liabilities of $40.1 million and total current assets of $25.8 million, resulting in a working capital deficit of approximately $14.3 million. Included in current liabilities at June 30, 2019 is the $26.9 million current portion of the Company’s $80.7 million in indebtedness. The current portion of such indebtedness is comprised of: (i) $20.6 million of long term-debt (including a $0.5 million “tail fee” and a $0.5 million “repayment or acceleration fee” ) under the Pinecone Credit Facility, classified as current due to the Company’s then short-term forbearance agreement with Pinecone regarding the Company’s noncompliance with certain covenants under the Pinecone Credit Facility pursuant to which Pinecone could have exercised its default-related rights and remedies, including the acceleration of the maturity of the debt, upon the termination of the forbearance period under such forbearance agreement (as further discussed below in this note); (ii) $3.9 million mortgage indebtedness under the Quail Creek Credit Facility which had a maturity date in June 2019; and (iii) other debt of approximately $2.4 million, which includes senior debt and bond and mortgage indebtedness. The Company anticipates net principal repayments of approximately $26.9 million during the next twelve-month period, which includes approximately $20.6 million debt under the Pinecone Credit Facility, $3.9 million of payments under the Quail Creek Credit Facility, $1.3 million of routine debt service amortization, $1.0 million payments on other non-routine debt and $0.1 million payment of bond debt. The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019. For further information, see Note – 10 Discontinued Operations and Dispositions and Note – 15 Subsequent Events.

On February 15, 2018 (the “Closing Date”), the Company entered into the Pinecone Credit Facility with Pinecone, with an aggregate principal amount of $16.25 million, which refinanced existing mortgage debt in an aggregate amount of $8.7 million on three (3) skilled nursing properties known as Attalla, College Park and Northwest (the “Facilities”), and provided additional surplus cash flow of $6.3 million for general corporate needs (see Note 9 – Notes Payable and Other Debt) after deducting approximately $1.25 million in debt issuance costs and prepayment penalties. Regional Health was a guarantor of the Pinecone Credit Facility. Certain of the notes under the Pinecone Credit Facility were also guaranteed by certain wholly-owned subsidiaries of Regional Health. The surplus cash flow from the Pinecone Credit Facility was used to fund $2.4 million of self-insurance reserves for professional and general liability claims with respect to 25 professional and general liability actions, and to fund repayment of $1.5 million in convertible debt. The remaining $2.4 million in surplus cash proceeds from the Pinecone Credit Facility was used for general corporate purposes.  

On May 10, 2018, Pinecone notified the Company in writing (the “Default Letter”) that the Company was in default under certain financial covenants of the Loan Agreement dated as of February 15, 2018, among the Company and certain of its subsidiaries and Pinecone (the “Loan Agreement”) and other loan documents evidencing the Pinecone Credit Facility (collectively, the “Pinecone Loan Documents”).  On May 18, 2018, the Company and certain of its subsidiaries entered into a Forbearance Agreement with Pinecone with respect to the specified events of default set forth therein (the “Original Forbearance Agreement”), pursuant to which, among other things, additional fees in the amount of $0.4 million were added to the outstanding principal balance under the Pinecone Credit Facility. The forbearance period under the Original Forbearance Agreement terminated on July 6, 2018 because the Company did not satisfy conditions in the Original Forbearance Agreement that required the Company to enter into an agreement with Pinecone to support a transaction or series of transactions to remedy the defaults specified in the Default Letter and the Original Forbearance Agreement.

On September 6, 2018, the Company and certain of its subsidiaries entered into a new Forbearance Agreement (the “New Forbearance Agreement”) with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the New Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to specified events of default (such events of default as set forth in the Company’s forbearance agreement with Pinecone as in effect from time to time, the “Specified Defaults”) under the Pinecone Loan Documents.

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Pursuant to the New Forbearance Agreement, the Company and Pinecone amended certain provisions of the Pinecone Loan Documents. Such amendments, among other things: (i) removed the restriction on prepaying the loans during the thirteen (13) month-period after the Closing Date; (ii) provided a thirty (30)-day cure period for certain events of default and a fifteen (15)-day cure period for certain failures to provide information or materials pursuant to the Pinecone Loan Documents; (iii) increased the finance fee payable on repayment or acceleration of the loans, depending on the time at which the loans were repaid ($0.25 million prior to December 31, 2018 and $0.5 million thereafter); and (iv) increased the outstanding principal balance owed by (a) approximately $0.7 million to reimburse Pinecone for its accrued and unpaid expenses and to pay outstanding interest payments for prior interest periods and (b) $1.5 million fee described as a non-refundable payment of additional interest. During the forbearance period under the New Forbearance Agreement, the interest rate reverted from the default rate of 18.5% per annum to the ongoing rate of 13.5% per annum.

The New Forbearance Agreement terminated on December 31, 2018 because the Company did not satisfy certain conditions set forth therein.

On December 31, 2018, the Company and certain of its subsidiaries entered into a new amended and restated Forbearance Agreement (the “A&R New Forbearance Agreement”) with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the A&R New Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Loan Agreement.  

Pursuant to the A&R New Forbearance Agreement, the Company and Pinecone amended certain provisions of the Loan Agreement. In addition Pinecone consented to the termination, effective January 15, 2019, of the Company’s lease and sublease of two (2) skilled nursing facilities, an 115-bed skilled nursing facility located in East Point, Georgia and an 184-bed skilled nursing facility located in Atlanta, Georgia (the “Omega Facilities”), by mutual consent of the Company and the lessor (affiliate of Omega Healthcare) and the sublessees (affiliates of Wellington Health Services) of each of the Omega Facilities (the “Omega Lease Termination”). The leases of the Omega Facilities were to expire in August 2025, and the A&R New Forbearance Agreement required that the Omega Lease Termination be completed by February 1, 2019.

Pursuant to the A&R New Forbearance Agreement, the Company paid Pinecone approximately $1.4 million, of which: (i) $0.2 million was paid to Pinecone on January 4, 2019 for Pinecone’s expenses; and (ii) $1.2 million was paid to Pinecone on January 28, 2019, of which (a) $0.3 million was for Pinecone’s expenses (including a 1% prepayment penalty) and (b) $0.9 million was applied to pay down the principal amount of Pinecone’s loan to AdCare Property Holdings, LLC (the “AdCare Holdco Loan”), which at March 31, 2019 was approximately $4.5 million. The Company funded such payments to Pinecone using the gross proceeds realized by the Company from the Omega Lease Termination, including a $1.2 million termination fee paid by the lessor to the Company, which fee approximated future forgone cash flow from the Company’s related sublease.

The A&R New Forbearance Agreement amended the Loan Agreement to, among other things: (i) add a $0.35 million fee (paid in kind) to the loans on a pro rata basis; (ii) provide for additional payment in kind interest at a rate of 3.5% (the “PIK Rate”), with such interest to be paid in kind in arrears by increasing the outstanding principal amount of loans held by the Pinecone on the first (1st) day of each month; provided that interest accruing at the PIK Rate on each loan and any overdue interest on each loan was paid in cash (a) on the maturity of the loans, whether by acceleration or otherwise, or (b) in connection with any repayment or prepayment of the loans; and (iii) modify the default rate of interest to add an additional 2.5% to the PIK Rate, in addition to the ongoing rate of 13.5%. During the forbearance period under the A&R New Forbearance Agreement, the interest rate paid in cash on the first (1st) day of each month was the ongoing rate of 13.5% per annum. See Note – 10 Discontinued Operations and dispositions for further information on the Omega Lease Termination and subsequent AdCare Holdco Loan partial repayment completed on January 28, 2019. The forbearance period under the A&R New Forbearance Agreement expired according to its terms on March 14, 2019.

On March 29, 2019, the Company and certain of its subsidiaries entered into the Second A&R Forbearance Agreement with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Second A&R Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Loan Agreement. The forbearance period under the Second A&R Forbearance Agreement commenced on March 29, 2019 and could have extended as late as October 1, 2019, unless the forbearance period was earlier terminated as a result of specified termination events, including a default or event of default under the Loan Agreement (other than any Specified Defaults) or any failure by the Company or its subsidiaries to comply with the terms of the Second A&R Forbearance Agreement, including, without limitation, the Company’s obligation to progress with the Asset Sale in accordance with the timeline specified therein.

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On June 13, 2019, the Company and certain of its subsidiaries entered into a first amendment (the “Pinecone Amendment”) to the Second A&R Forbearance Agreement, pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Pinecone Amendment, to extend the timeline to complete the Asset Sale to August 15, 2019.  

Pursuant to the Pinecone Amendment, the Company paid an additional non-refundable payment, payable in kind, on June 13, 2019, by increasing the outstanding principal amount owed to Pinecone up to approximately $0.5 million, which replaced approximately $0.2 million of payable in kind fees, under the Second A&R Forbearance Agreement. The forbearance period under the Second A&R Forbearance Agreement remained unchanged by the Pinecone Amendment and could have terminated at any time in accordance with the Second A&R Forbearance Agreement.  

Pursuant to the Second A&R Forbearance Agreement, the Company and Pinecone amended certain provisions of the Loan Agreement.  The Second A&R Forbearance Agreement required, among other things, that the Company pursue and complete the Asset Sale which resulted in the repayment in full of all of the Company’s indebtedness to Pinecone and, in connection therewith, the Company pay not less than $0.3 million and not more than $0.55 million in forbearance fees, as well as certain other expenses of Pinecone. Additionally the Second A&R Forbearance Agreement accelerated the previously disclosed 3% finance “tail fee”, 1% prepayment penalty, and 1% break up fee so that such fees and penalties became part of the principal as of April 15, 2019.

Upon the occurrence of an event of default (other than the Specified Defaults), or the expiration or termination of the forbearance period under the Second A&R Forbearance Agreement, Pinecone could have declared the entire unpaid principal balance under the Pinecone Credit Facility, together with all accrued interest and other amounts payable to Pinecone thereunder, immediately due and payable. Subject to the terms of the Pinecone Loan Documents, Pinecone could have foreclosed on the collateral securing the Pinecone Credit Facility (the “Collateral”). The Collateral included, among other things, the Facilities and all assets of the borrowers owning the Facilities, the leases associated with the Facilities and all revenue generated by the Facilities, and rights under a promissory note in the amount of $5.0 million, issued by Regional Health pursuant to the Pinecone Credit Facility in favor of one of its subsidiaries, which subsidiary is a borrower and guarantor under the Pinecone Credit Facility.

In addition, the equity interests in substantially all of Regional Health’s direct and indirect, wholly-owned subsidiaries (the “Pledged Subsidiaries”) were pledged to Pinecone as part of the Collateral. The assets and operations of the Pledged Subsidiaries constituted substantially all of the Company’s assets and operations.

The forbearance period under the Second A&R Forbearance Agreement commenced on March 29, 2019 and may have continued until October 1, 2019, unless earlier terminated in accordance with the Second A&R Forbearance Agreement. The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019, from the proceeds of the Asset Sale. For further information, see Note – 10 Discontinued Operations and Dispositions and Note – 15 Subsequent Events.

Debt Covenant Compliance

As of June 30, 2019, the Company was not in compliance with the covenants for the Pinecone Credit Facility and the Quail Creek Credit Facility. The Company repaid both credit facilities on August 1, 2019. For further information, see Note – 10 Discontinued Operations and Dispositions and Note – 15 Subsequent Events.

Changes in Operational Liquidity

On January 15, 2019, but effective February 1, 2019, the Company agreed to a 10% reduction in base rent, or an aggregate average of approximately $31,000 per month cash rent reduction for the year ending December 31, 2019, and $48,000 per month decrease in straight-line revenue, respectively, for two (2) of the Company’s eight (8) facilities located in Georgia, which are subleased to affiliates of Wellington Health Services (the “Wellington Sublessees”) under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). The Wellington Subleases due to expire August 31, 2027, relate to the Company’s 134-bed skilled nursing facility located in Thunderbolt, Georgia (the “Tara Facility”) and an 208-bed skilled nursing facility located in Powder Springs, Georgia (the “Power Springs Facility”). Additionally, the Company modified the annual rent escalator to 1% per year from the prior scheduled increase from 1% to 2% previously due to commence on the 1st day of the sixth lease year.

Non-Compliance with NYSE American Continued Listing Standards

On August 28, 2018, the Company received a deficiency letter from NYSE American stating that the Company was not in compliance with the continued listing standards as set forth in Section 1003(f)(v) of the NYSE American Company Guide (the “Company Guide”). Specifically, the letter informed the Company that the Exchange determined that shares of the Company’s securities were selling for a low price per share for a substantial period of time and, pursuant to Section 1003(f)(v) of the

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Company Guide, the Company’s continued listing was predicated on the Company effecting a reverse stock split of the common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the Exchange determined to be no later than February 27, 2019.

On February 28, 2019 the Company regained compliance with the continued listing standards set forth in the Company Guide regarding the low selling price by completing the Reverse Stock Split. The proposal to amend the Charter to effect a reverse stock split of the common stock at a ratio of between one-for-six and one-for-twelve, as determined by the Board in its sole discretion, was approved at the Company’s 2018 annual meeting of shareholders, and the Reverse Stock Split became effective on December 31, 2018. If the Company is again determined to be noncompliant with any of the continued listing standards of the NYSE American within twelve months of February 28, 2019, the Exchange will examine the relationship between the Company’s previous noncompliance with the continued listing standards with respect to the low selling price and such new event of noncompliance in accordance with Section 1009(h) of the Company Guide. In connection with such new event of noncompliance, the Exchange may, among other things, truncate the compliance procedures described in the continued listing standards or initiate immediate delisting proceedings.

On April 17, 2019, the Company received a letter from NYSE American stating that the Company was not in compliance with the Exchange’s continued listing standards under the timely filing criteria outlined in Section 1007 of the Company Guide because the Company failed to timely file its Annual Report on Form 10-K for the period ended December 31, 2018. As a result, the Company became subject to the procedures and requirements set forth in Section 1007 of the Company Guide. The Company was provided a six-month cure period (until October 17, 2019) during which the Exchange would monitor the Company and the status of the initial delinquent report and any subsequent delinquent reports.

On May 17, 2019, the Company received a letter from NYSE American stating that the Company had regained compliance with the Exchange’s continued listing standards set forth in Part 10 of the Company Guide. Specifically, the Company resolved the continued listing deficiency with respect to sections 134 and 1011 of the Company Guide since the Company filed its Annual Report Form 10-K for the period ended December 31, 2018 with the SEC on May 17, 2019.

On May 21, 2019, the Company received a letter of noncompliance from the NYSE American stating that the Company was not in compliance with the Exchange’s continued listing standards under the timely filing criteria outlined in Section 1007 of the Company Guide because the Company failed to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2019 (the "Delayed Form 10-Q"), which was due to be filed with the SEC no later than May 20, 2019 (the “Filing Delinquency”). As a result, the Company became subject to the procedures and requirements set forth in Section 1007 of the Company Guide. The Company was provided a six-month cure period during which the Exchange would monitor the Company and the status of the initial delinquent report and any subsequent delinquent reports.

On June 18, 2019, the Company received a letter from NYSE American stating that the Company had regained compliance with the Exchange’s continued listing standards set forth in Part 10 of the Company Guide. Specifically, the Company resolved the continued listing deficiency with respect to sections 134 and 1011 of the Company Guide since the Company filed the Delayed Form 10-Q with the SEC on June 18, 2019.

In 2016, the NYSE American notified the Company that it was not in compliance with certain NYSE American continued listing standards relating to stockholders’ equity. The Company regained compliance with such continued listing standards as a result of the Merger, but there is no assurance that the Company will be able to maintain such compliance in the future. As of June 30, 2019, the Company’s stockholders’ equity of $5.1 million was $0.9 million below the required minimum for compliance with certain NYSE American continued listing standards relating to stockholders’ equity. Specifically, Section 1003(a)(iii) of the Company Guide requires stockholders’ equity of $6.0 million or more if an issuer has reported losses from continuing operations and/or net losses in its five (5) most recent fiscal years. On August 1, 2019, the Company completed the Asset Sale, and the Company repaid its indebtedness under the Pinecone Credit Facility and the Quail Creek Credit Facility with the proceeds of such sale. See Note – 10 Discontinued Operations and Dispositions and Note – 15 Subsequent Events for further information. The Company expects that such debt repayment will enable the Company to comply with the applicable NYSE American continued listing standards regarding stockholders’ equity, although there is no assurance that the Company will successfully maintain such compliance. If the Company falls below the required minimum stockholders’ equity, then the Company could become subject to the procedures and requirements of Section 1009 of the Company Guide and be required to submit a compliance plan describing the actions the Company has taken to regain compliance with the continued listing standards. Alternatively, the Exchange may, among other things, truncate the compliance procedures described in the continued listing standards or initiate immediate delisting proceedings.

The Company’s ability to raise additional capital through the issuance of equity securities and the terms upon which we are able to raise such capital will be adversely affected if we are unable to maintain the listing of the common stock and the Series A Preferred Stock on the NYSE American.

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Evaluation of the Company’s Ability to Continue as a Going Concern

Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the entity’s current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the entity to meet its obligations as they come due arising within one year of the date of the issuance of the Company’s consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the entity will be able to continue as a going concern. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In applying applicable accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months (including any potential obligations in connection with the Pinecone Financing Option), as well as the Company’s recurring business operating expenses.

As the Company fully repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019 from the proceeds of the Asset Sale, the Company is able to conclude that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.

The following presents the Company's cash and restricted cash:

Cash collateral—In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such loan agreements.

Replacement reserves—Cash reserves set aside for non-critical building repairs for completion within the next twelve months, pursuant to loan agreements.

Escrow deposits—In connection with financing secured through the Company’s lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.

Restricted cash 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.

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HUD and other replacement reserves—The regulatory agreements entered into in connection with the financing secured through the U.S. Department of Housing and Urban Development (“HUD”) require monthly escrow deposits for replacement and improvement of the HUD project assets..

The following table sets forth the Company’s property and equipment:

During the three months ended June 30, 2019, the Company transferred $19.7 million of Property and equipment, net, to Assets held for sale and on August 1, 2019, sold approximately $17.0 million of such net assets. See Note 10 – Discontinued Operations and Dispositions and Note 15 – Subsequent Events for further information.

The following table summarizes total depreciation and amortization expense for the three and six months ended June 30, 2019 and 2018:

Intangible assets consist of the following:

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The following table summarizes amortization expense for the six months ended June 30, 2019 and 2018:

Expected amortization expense for all definite-lived intangibles for each of the years ended December 31 is as follows: 

The following table summarizes the carrying amount of goodwill:

The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill.

Operating Leases

The Company leases nine (9) skilled nursing facilities from unaffiliated owners under non-cancelable leases, all of which have rent escalation clauses and provisions requiring payment of real estate taxes, insurance and maintenance costs by the lessee. Each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in Atlanta and Suwanee, Georgia. The Atlanta office space is subleased to a third-party entity.

As of June 30, 2019, the Company is in compliance with all operating lease financial covenants.

Subleased facilities

The weighted average remaining lease term for our nine (9) subleased facilities is 8.3 years.

Foster Prime Lease. Eight (8) of the Company’s skilled nursing facilities (collectively, the “Georgia Facilities”) are leased under a single master indivisible arrangement (as amended), by and between the Company and William M. Foster, with a lease termination date of August 31, 2027 (the “Prime Lease”). Under the Prime Lease, a default related to an individual facility may cause a default of the entire Prime Lease. The Company is responsible for the cost of maintaining the Georgia Facilities. On August 14, 2015, the lessor consented to the Company’s sublease of the Georgia Facilities to a third-party tenant. Commencing on July 1, 2016, annual rent increases at 2.0% annually for the remainder of the lease term.

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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 (“Covington”). On January 11, 2019 the Company and Covington entered into a forbearance agreement (the “Covington Forbearance Agreement”), whereby the Company and Covington agreed that (a) the term of the lease shall be extended from April 30, 2025 until April 30, 2029 (the “Term”); (b) the base rent was reduced by approximately $0.8 million over the remainder of the prior lease term; and (c) the Company shall receive relief from approximately $0.5 million of outstanding lease amounts (the “Rent Due”) as of December 31, 2018. Without waiving any default by the Company or Covington’s rights and remedies, and subject to specified terms and conditions for so long as the Company or the Company’s subtenant are not in default under the lease and the proposed sublease, as the case may be. Covington (including its subsidiaries, affiliates, successors and assigns) will forbear from pursuing its rights against the Company for so long as neither the Company nor its subtenant is not in default under the existing lease, as amended on January 11, 2019, or the new sublease, on the final day of the third, fourth and fifth years following the execution of the new sublease. Covington will release and forever quit claim specified portions of the Rent Due as follows: one-third (1/3) at the end of year three (3) of the new sublease, one-third (1/3) at the end of year four (4) of the new sublease, and one-third (1/3) at the end of year five (5) of the new sublease. The forbearance period under the Covington Forbearance Agreement shall terminate as of the expiration of the Term. At Covington’s option in its sole and absolute business discretion, the Covington Forbearance Agreement and the forbearance period thereunder can be terminated upon the occurrence of certain specified events such as, the Company files a petition for bankruptcy or takes advantage of any other debtor relief law, or an involuntary petition for bankruptcy is filed against the Company, or any other judicial action is taken with respect to the Company by any creditor of the Company or the Company breaches or defaults in performance of any covenant or agreement contained in the Covington Forbearance Agreement. Upon termination of the forbearance period under the Covington Forbearance Agreement, for any reason, Covington may take all steps it deems necessary or desirable to enforce its lease rights as permitted by law or equity.

Bonterra/Parkview Master Lease. Prior to the Omega Lease Termination which was effective January 15, 2019, the Omega Facilities were leased under a single indivisible agreement (the “Bonterra/Parkview Master Lease”), which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants. Effective January 15, 2019, pursuant to the Omega Lease Termination and as contemplated by the A&R New Forbearance Agreement, the Company’s leases for the Omega Facilities were terminated by mutual consent of the Company and the lessor of the Omega Facilities.

In connection with the Omega Lease Termination, the Company transferred approximately $0.4 million of all its integral physical fixed assets in the Omega Facilities to the lessor and on January 28, 2019 received from the lessor gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases. The Company paid $1.2 million of such Omega Lease Termination proceeds to Pinecone on January 28, 2019, as required by the A&R New Forbearance Agreement, to reimburse Pinecone for approximately $0.3 million of certain unpaid expenses and partially prepay $0.9 million of the AdCare Holdco Loan. The Omega Lease Termination contributed approximately $0.7 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the period ended March 31, 2019. For further information see Note 10 - Discontinued Operations and Dispositions.

Wellington. Two (2) of the Company’s eight (8) Georgia Facilities, leased under the Prime Lease, are subleased to the Wellington Sublessees under the Wellington Subleases, due to expire August 31, 2027, comprising the Tara Facility and the Power Springs Facility. Effective February 1, 2019, the Company agreed to a 10% reduction in base rent, or in aggregate approximately an average $31,000 per month cash rent reduction for the year ended December 31, 2019, and $48,000 per month decrease in straight-line revenue, respectively for the Tara Facility and the Power Springs Facility combined. Additionally the Company modified the annual rent escalator to 1% per year from the prior scheduled increase from 1% to 2% previously due to commence of the 1^st day of the sixth lease year.

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Future Minimum Lease Payments

Future minimum lease payments for each of the next five years ending December 31, are as follows: