Item 1A. Risk Factors
Investing in our securities involves risks. The following factors, among others, could materially adversely affect our business, financial condition, results of operations and cash flows. These risks should be considered together with the other information contained in this Annual Report.
Risks Related to Our Business
Our revenues depend on reimbursement from Medicare, Medicaid and other third-party payors; therefore, changes in reimbursement policies or payment methodologies could adversely affect our business.
A substantial portion of the revenues generated by our Healthcare Services segment, our Pharmacy Services segment and our tenants is derived from payments from government healthcare programs such as Medicare and Medicaid. These programs are subject to frequent statutory, regulatory and administrative changes, including rate reductions, changes in payment methodologies, increased utilization review, retroactive adjustments and limitations on covered services. The healthcare industry is also increasingly shifting toward value-based purchasing and other reimbursement models that link payments to quality metrics, patient outcomes and efficiency of care. If reimbursement rates decline, if new reimbursement methodologies are unfavorable, or if we, our operators or our pharmacy business fail to satisfy program requirements, our revenues, operating margins and financial condition could be materially adversely affected.
Changes in patient acuity, payor mix, bundled payments and consolidated billing arrangements could reduce our revenues and margins.
Our operating results are affected not only by reimbursement rates, but also by changes in patient acuity, length of stay, payor mix and the structure of reimbursement programs. A shift toward lower-margin residents, increased Medicare Advantage penetration, lower Medicaid reimbursement, shorter stays or increased use of bundled payment, consolidated billing or other cost-containment arrangements could reduce revenues and profitability. In addition, if reimbursement models do not adequately compensate us or our operators for the clinical needs of residents, pharmacy costs, therapy costs or other services furnished, our margins could be adversely affected.
Transition to direct operation of certain facilities may not be successful and exposes us to additional operating, regulatory and staffing risks.
We are shifting from primarily leasing facilities to operating certain facilities directly. Operating skilled nursing and related healthcare facilities requires capabilities that differ from our historical landlord model, including recruiting and retaining clinical staff amid labor shortages and elevated wage and agency costs; establishing and maintaining operating systems, billing and compliance processes and internal controls; obtaining and maintaining required state licenses and Medicare/Medicaid certifications; and, at some locations, managing third‑party managers. Newly operated facilities may require working capital and ramp‑up time and may not achieve expected volumes, payor mix or quality metrics. If we do not execute this transition effectively, we could face higher costs, operating losses, regulatory sanctions, impairment charges and liquidity pressure, and our business, financial condition and results of operations could be materially adversely affected.
For independent living, memory care and assisted living segments, revenue is also dependent on private pay sources such that events which adversely affect the ability of seniors to afford our resident offerings such as declines in the economy, housing market, consumer confidence, or the equity markets, increased inflation, and unemployment among resident family members, could cause our revenues and business to decline.
Costs to seniors associated with independent living, assisted living, and memory care communities are not generally reimbursable under government reimbursement programs such as Medicare and Medicaid. Economic decline or uncertainty, increased inflation, downturns in the housing market, higher levels of unemployment among resident family members, lower levels of consumer confidence, stock market volatility, and changes in demographics could adversely affect the ability of seniors to afford to live in our facilities. If we are unable to retain and attract seniors with sufficient income, assets, or other resources required to pay for independent living, assisted living, and memory care services and other service offerings, our occupancy, revenues, results of operations, and cash flow could decline.
Our tenants’ ability to pay rent depends on their financial performance, and tenant financial distress could materially adversely affect us.
A significant portion of our revenues is derived from lease payments from tenants who operate healthcare facilities on our properties. The ability of our tenants to satisfy their obligations depends on their operating performance, which is affected by factors including reimbursement levels, labor costs, regulatory compliance, occupancy and local market conditions. If one or more tenants were to experience financial distress, default on lease payments, seek bankruptcy protection or fail to renew leases, our rental income could decline. In addition, replacing a tenant may involve delays due to licensing, change-of-ownership approvals and other regulatory processes. Healthcare facilities are specialized assets, and identifying replacement operators may be difficult or time-consuming.
Competition and changing healthcare delivery models could reduce demand for our services.
The long-term care and healthcare services industries are highly competitive. We and our tenants compete with numerous providers of healthcare services, including skilled nursing facilities, home health providers, assisted living facilities, memory care providers, continuing care retirement communities and community-based care programs. Competition is based on factors such as quality of care, reputation, location, physician relationships, price and the range of services offered. In addition, healthcare delivery models continue to evolve, with increased emphasis on home-based care, outpatient treatment and alternatives to institutional long-term care, which may reduce demand for some of our services.
Labor shortages and staffing mandates could increase operating costs and adversely affect operations.
The healthcare industry is experiencing ongoing shortages of qualified nurses, caregivers, therapists, pharmacists and other healthcare professionals. Recruiting and retaining qualified personnel has become increasingly difficult and costly. Labor costs have increased due to wage inflation, competition for qualified staff, reliance on temporary staffing agencies and regulatory staffing requirements. Federal and state governments have implemented or proposed minimum staffing mandates for skilled nursing facilities. Complying with these requirements may significantly increase labor costs and could reduce profitability if reimbursement rates do not increase sufficiently to offset these expenses. Failure to maintain adequate staffing levels could also negatively affect quality ratings, regulatory compliance and facility operations.
State direct-spending requirements, supplemental Medicaid payment changes and other Medicaid funding restrictions could adversely affect our results.
Certain states have adopted, and other states may adopt, requirements that skilled nursing facilities spend specified portions of their revenue, including Medicaid-derived revenue, on direct patient care, staffing or other designated cost categories. These requirements may reduce operating flexibility, create compliance burdens and expose operators to penalties, recoupments, admission restrictions or other sanctions if they are not satisfied. In addition, some states have provided supplemental Medicaid payments or other support intended to offset labor inflation or workforce shortages. If such payments are reduced, delayed or eliminated, and base reimbursement rates do not increase sufficiently, our operators’ financial performance and our results could be adversely affected.
Increased survey enforcement, public quality ratings and staffing-related disclosure requirements could adversely affect our facilities and operators.
Federal and state agencies have increased scrutiny of skilled nursing facilities, including through enhanced survey enforcement, payroll-based staffing data review, infection-control oversight, public reporting of quality measures and staffing levels, and the CMS Five-Star Quality Rating System. Deficiency citations, lower public ratings, staffing-related findings or alleged failures to meet regulatory requirements may result in civil monetary penalties, denial of payment for new admissions, directed plans of correction, reputational harm, reduced referrals and lower occupancy. These developments could adversely affect the financial performance of our operated facilities and the ability of our tenants to satisfy their obligations to us.
Union activity, labor organizing efforts and other labor-related disputes could increase our costs and disrupt operations.
We and our operators compete for qualified nurses, therapists, administrators, pharmacists, pharmacy technicians and other personnel in a challenging labor market. Union activity, organizing campaigns, collective bargaining, strikes, work stoppages or other labor-related disputes could increase wages and benefits, reduce operational flexibility, disrupt staffing and adversely affect patient care and financial performance. Labor-related disputes may also lead to reputational harm, regulatory scrutiny or difficulty recruiting and retaining employees.
Public health crises and infectious disease outbreaks could disrupt operations and reduce occupancy.
Healthcare facilities are particularly vulnerable to public health crises such as epidemics, pandemics and severe seasonal illnesses. Such events may lead to reduced occupancy, increased operating costs, staffing shortages, employee burnout, litigation, regulatory enforcement and disruptions in referral patterns. Future public health crises could materially disrupt our operations and the operations of our tenants.
Economic downturns could negatively impact tenant performance and access to capital.
Periods of economic instability, inflation, rising interest rates or credit market disruption could adversely affect the healthcare industry and the real estate markets in which we operate. Economic downturns may reduce the financial stability of our tenants and limit their ability to pay rent. In addition, economic conditions may restrict our access to capital markets or increase borrowing costs, which could impair our ability to refinance debt or fund acquisitions.
Natural disasters and other catastrophic events could damage our properties and disrupt operations.
Our facilities may be affected by hurricanes, floods, fires, earthquakes, severe weather events, acts of terrorism and other catastrophic events. Such events may damage or destroy facilities, disrupt operations, require evacuation of residents, increase insurance costs and reduce occupancy. Insurance coverage may not fully cover losses or may not be available on acceptable terms.
Our geographic concentration exposes us to regional economic and regulatory risks.
Our properties are located in a limited number of states, with a significant concentration in the Southeast and certain markets in the Midwest. Regional economic conditions, demographic changes, reimbursement policies and regulatory developments affecting these areas could have a disproportionate impact on our operations.
Changes in reimbursement policies and purchasing programs could adversely affect our Pharmacy Services segment.
Our Pharmacy Services segment derives a substantial portion of its revenues from Medicare, Medicaid and other government healthcare programs. Changes in reimbursement methodologies, competitive bidding programs, average sales price methodologies, purchasing programs or other pricing benchmarks could reduce reimbursement levels. States and managed care organizations may also adopt restrictive formularies, reimbursement limitations or other cost-containment measures that reduce pharmacy reimbursement rates.
Our Pharmacy Services segment is subject to risks relating to long-term care pharmacy network participation, Part D requirements and third-party payor contracts.
Our institutional pharmacy business depends in part on participation in third-party payor networks and compliance with requirements applicable to long-term care pharmacies, including Medicare Part D and other government and commercial program requirements. If we are unable to maintain or renew contracts with pharmacy benefit managers, Part D plans, managed care organizations or other payors on acceptable terms, or if reimbursement is not adequate to cover the specialized services required of long-term care pharmacies, our pharmacy revenues and margins could be adversely affected. Changes in formulary design, network participation criteria, pricing benchmarks, utilization management requirements or other contract terms could also reduce reimbursement and profitability.
The Pharmacy Services business depends on key suppliers and customers.
Our Pharmacy Services segment relies heavily on certain suppliers for pharmaceutical products and on a limited number of important customer relationships. The loss of a key supplier, drug shortages, supply-chain disruptions or the loss of one or more significant customers could adversely affect pharmacy operations and financial performance.
The Pharmacy Services industry is highly competitive.
The pharmacy services market includes large national providers and integrated pharmacy platforms with substantially greater financial and operational resources than we possess. Increased competition, consolidation in managed care contracting, pressure from pharmacy benefit managers, changes in reimbursement and reduced growth in pharmaceutical demand could adversely affect our pharmacy operations.
Dispensing errors, failures in medication management or other pharmacy service issues could result in liability, reputational harm and loss of business.
Our pharmacy operations involve dispensing, packaging, delivering and managing of medications for elderly and medically complex patients, including residents of skilled nursing and assisted living facilities. Errors in dispensing, labeling, delivery, drug-interaction review, medication administration support or other pharmacy services could contribute to adverse drug events, hospitalizations, regulatory investigations, professional liability claims, loss of customers and reputational harm. Because long-term care residents often take multiple medications and have complex clinical needs, failures in pharmacy coordination or service quality could have a material adverse effect on our Pharmacy Services segment.
The healthcare industry is highly regulated, and regulatory changes or enforcement actions could adversely affect our tenants and operations.
Healthcare operators are subject to extensive federal, state and local regulations governing licensure, facility operations, reimbursement practices, patient care standards, fraud and abuse laws and financial relationships with providers. Failure to comply with these laws could result in fines, sanctions, loss of licensure, exclusion from government programs, facility closure, repayment obligations or other liabilities. Changes in healthcare laws, regulations or enforcement priorities could materially affect our business and the businesses of our operators.
Cybersecurity incidents or data breaches could disrupt operations and expose us to liability.
We rely on information technology systems and third-party service providers to manage business operations and sensitive information. Cybersecurity incidents, ransomware attacks, phishing events or other system disruptions could result in operational interruptions, unauthorized disclosure of confidential information, regulatory investigations, litigation and reputational harm. Healthcare organizations are frequent targets of cyberattacks, and our security measures may not prevent all incidents.
Environmental liabilities could arise from ownership of real estate.
As an owner of real property, we may be subject to environmental laws that impose liability for the presence or disposal of hazardous substances on our properties, regardless of fault. Environmental remediation costs or liabilities could exceed the value of the affected property, and tenant indemnities may not be enforceable or sufficient.
Risks Relating to Our Industry or Structure
Our substantial indebtedness could adversely affect our financial flexibility.
Our indebtedness could increase vulnerability to economic downturns, require significant cash flow to service debt, limit our ability to obtain additional financing and restrict operational flexibility due to financial covenants. Failure to comply with debt covenants could result in defaults and acceleration of outstanding debt.
We rely on external sources of capital and may be unable to obtain financing on favorable terms.
Our ability to grow our business and refinance existing debt depends on access to capital markets and other sources of financing. Market conditions, investor sentiment and our financial performance may affect our ability to obtain financing. If capital is unavailable or expensive, we may be unable to fund acquisitions, refinance maturing debt or pursue strategic opportunities.
Rising interest rates could increase borrowing costs.
Increases in interest rates could raise the cost of our existing variable-rate debt and future borrowings. Higher borrowing costs could reduce profitability, constrain capital deployment and limit acquisition opportunities.
Future transactions could result in dilution to existing shareholders.
We may pursue equity offerings, joint ventures, mergers or other strategic transactions in order to raise capital or pursue strategic opportunities. These transactions could result in significant dilution to existing shareholders.
We may fail to realize the anticipated benefits of the SunLink merger.
The anticipated strategic and financial benefits of the merger with SunLink may not be realized as expected or may take longer than anticipated. Integration challenges, unexpected liabilities or operational disruptions could reduce the expected benefits of the transaction.
Integration risks and loss of key employees could affect the combined company.
Successfully integrating operations, systems, personnel and business processes following the merger may be complex and costly. The loss of key employees or operational disruptions could negatively impact the combined company’s performance and delay realization of expected synergies.
Risks Relating to Public Company Compliance
The costs of being publicly owned may strain our resources and impact our business, financial condition, results of operations and prospects.
As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls for financial reporting. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.
These requirements may place a strain on our systems and resources and have required us, and may in the future require us, to hire additional accounting and financial resources with appropriate public company experience and technical accounting knowledge. In addition, failure to maintain such internal controls could result in us being unable to provide timely and reliable financial information which could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or cause us to be late in the filing of required reports or financial results. Any of the foregoing events could have a materially adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to Our Securities and Organizational Documents
The market price of our securities may be volatile.
The trading price of our securities may fluctuate due to changes in financial performance, general market conditions, industry trends, analyst recommendations and investor sentiment. Stock market volatility may cause significant price fluctuations independent of our operating performance.
Our securities trade on the OTCQB market, which provides limited liquidity.
Our common stock and preferred stock trade on the OTCQB market. Trading on the OTCQB generally results in reduced liquidity, wider bid-ask spreads, lower analyst coverage and fewer institutional investors than trading on a national securities exchange. Limited trading liquidity may adversely affect the market prices of our securities and our ability to raise capital.
The rights of holders of our preferred stock are senior to those of our common shareholders, and the rights among our series of preferred stock are not identical.
Our capital structure includes multiple series of preferred stock with differing rights, preferences and priorities. The rights of holders of our preferred stock may rank senior to the rights of holders of our common stock with respect to dividends, distributions and liquidation proceeds. In addition, the rights of one series of preferred stock may rank senior to, junior to or on parity with another series of preferred stock. As a result, holders of our common stock may not be entitled to receive dividends or liquidation proceeds unless and until the dividend and liquidation preferences of the applicable preferred stock have been satisfied. These preferences may reduce the value of our common stock and may adversely affect the rights of common shareholders in the event of a liquidation, sale of the Company or other corporate transaction.
We are a holding company and depend on dividends and other distributions from our subsidiaries to meet our obligations.
We are a holding company and conduct substantially all of our operations through our subsidiaries. Accordingly, our ability to meet our financial obligations, including debt service, operating expenses and any future dividends or other distributions to shareholders, depends on the receipt of dividends, distributions and other payments from our subsidiaries. The ability of our subsidiaries to make such payments may be restricted by applicable law, contractual obligations, debt covenants, regulatory requirements or the financial condition and operating performance of those subsidiaries. If our subsidiaries are unable to make distributions to us, our liquidity and financial flexibility could be materially adversely affected.
Ownership and transfer restrictions contained in our Charter may restrict acquisitions or transfers of our stock.
Our Charter contains ownership and transfer restrictions that may discourage, delay or prevent a person from acquiring or transferring shares of our stock. These restrictions may limit the ability of shareholders to transfer shares freely, may deter a change in control transaction and may reduce the liquidity or market value of our securities. These provisions may also prevent shareholders from receiving a premium for their shares that might otherwise be offered in connection with a proposed acquisition of the Company.
Provisions of Georgia law and our organizational documents may delay or prevent a change in control that shareholders may consider favorable.
Certain provisions of Georgia law, as well as provisions in our Charter and Bylaws, may have the effect of discouraging, delaying or preventing a change in control or changes in our management, even if some or all of our shareholders believe such a transaction or change would be in their best interests. These provisions may include restrictions on share ownership and transfer, advance notice requirements, provisions relating to the calling of shareholder meetings, and other governance provisions that could make it more difficult for a third party to acquire control of us or for shareholders to effect changes in our Board of Directors or management. These provisions could discourage takeover attempts, reduce the market price of our securities or prevent shareholders from realizing a premium over the market price of their shares.
Transactions we may pursue in the future, including transactions intended to strengthen our capital structure or improve market listing eligibility, may dilute existing shareholders.
We may in the future pursue equity issuances, convertible securities offerings, preferred stock issuances, exchanges, restructurings or other strategic or financing transactions in order to raise capital, repay indebtedness, support operations, pursue acquisitions or improve our capital markets position. Any such transaction could dilute the ownership interests or voting power of existing shareholders, reduce earnings per share or otherwise adversely affect the rights of existing holders of our common stock or preferred stock. If we issue securities with rights, preferences or privileges senior to those of our existing securities, the value of our outstanding securities could be adversely affected.
Shareholders may experience dilution or reduced voting influence as a result of past or future merger and financing transactions.
Past and future merger, acquisition, financing or restructuring transactions may reduce the ownership percentage, economic interest or voting influence of existing shareholders. Shareholders may not realize benefits from such transactions that are commensurate with any dilution they experience. In addition, the market may react negatively to such transactions, which could adversely affect the price of our securities.
General Risk Factors
If we lose key management personnel, we may not be able to successfully manage our business or achieve our objectives, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We are dependent on our management team, and our future success depends largely upon the management experience, skill, and contacts of our management and the loss of any of our key management team could harm our business. If we lose the services of any or all of our management team, we may not be able to replace them with similarly qualified personnel, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our directors and officers substantially control all major decisions.
Our directors and officers beneficially own a significant number of shares of our outstanding common stock. Therefore, our directors and officers will be able to influence major corporate actions required to be voted on by shareholders, such as the election of directors, the amendment of our charter documents and the approval of significant corporate transactions such as mergers, reorganizations, sales of substantially all of our assets and liquidation. Furthermore, our directors will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and incur indebtedness. This control may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in their best interests.
Item 1B. Unresol ved Staff Comments
Disclosure pursuant to Item 1B of Form 10-K is not required to be provided by smaller reporting companies.
Item 1C. Cybersecurity
Risk Management and Strategy
We have developed and implemented cybersecurity risk management processes intended to protect the confidentiality, integrity and availability of our critical systems and information.
While everyone at the Company plays a part in managing cybersecurity risks, primary cybersecurity oversight responsibility is shared by the Board, the audit committee of the Board of Directors (“Audit Committee”) and senior management. Our cybersecurity risk management program is integrated into our overall enterprise risk management program.
Our cybersecurity risk management program includes:
physical, technological and administrative controls intended to support our cybersecurity and data governance framework, including controls designed to protect the confidentiality, integrity and availability of our key information systems and tenant, employee and other third-party information stored on those systems, such as access controls, encryption, data handling requirements and other
cybersecurity safeguards, and internal policies that govern our cybersecurity risk management and data protection practices;
a defined procedure for timely incident detection, containment, response and remediation, including a written security incident response plan that includes procedures for responding to cybersecurity incidents;
cybersecurity risk assessment processes designed to help identify material cybersecurity risks to our critical systems, information, products, services and broader enterprise Information Technology (“IT”) environment;
a security team responsible for managing our cybersecurity risk assessment processes and security controls;
the use of external consultants or other third-party experts and service providers, where considered appropriate, to assess, test or otherwise assist with aspects of our cybersecurity controls;
annual cybersecurity and privacy training of employees, including incident response personnel and senior management, and specialized training for certain teams depending on their role and/or access to certain types of information; and
a third-party risk management process that includes internal vetting of certain third-party vendors and service providers with whom we may share data.
Additionally, we engage third-party providers to augment our cybersecurity capabilities. These partnerships entail ongoing assistance for threat monitoring and mitigation, as well as targeted support for specialized security expertise.
As of December 31, 2025 , we have not identified risks from known cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us,
including our business strategy, results of operations or financial condition. For an examination of cybersecurity threats that could potentially have a material impact on us, please refer to Part I, Item 1A., “Risk Factors” –“ Cybersecurity incidents or data breaches could disrupt operations and expose us to liability ” in this Annual Report.”
Governance
With oversight from the Board, the Audit Committee is primarily responsible for assisting the Board in fulfilling its ultimate oversight responsibilities relating to risk assessment and management, including relating to cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our cybersecurity risk management program, including processes and policies for determining risk tolerance, and reviews management’s strategies for adequately mitigating and managing identified risks, including risks relating to cybersecurity threats.
Our management team is responsible for assessing and managing our material risks from cybersecurity threats and for our overall cybersecurity risk management program on a day-to-day basis, and supervises both our internal cybersecurity personnel and the relationship with our retained external cybersecurity consultants. Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, including briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment.
