Evolutions takes first step back to district control

Reggie Ellis

Tulare hospital to support Evo Management Co. with payments after nonprofit saved gym during the district’s financial toils

TULARE – After a group of citizens supported its fitness center while the hospital went through bankruptcy, the Tulare hospital district is now able to return the favor.

Last month Tulare Local HealthCare District, the public agency which owns the Tulare hospital, amended its lease agreement with Evo Management Company, LLC (EMC) for operations of Evolutions Fitness and Wellness Center, located at 1425 E Prosperity Ave. in Tulare. The amendment allows the hospital district to make monthly support payments to help the company survive the shutdown of fitness centers until the pandemic improves and they are allowed to reopen in Tulare County. The deal will allow EMC to retain operations of the closed facility making them eligible for newly available Paycheck Protection Programs (PPP) loans under the renewed CARES Act.

Evolutions has, for the most part, been closed since March 2020 in compliance with state public health orders, with the exception of a brief time over the summer. The shutdown has severely reduced the gym’s ability to generate enough revenue to pay for minimal operational costs and expenses, a lifeline allowing Evolutions to eventually reopen without another influx of $150,000 in start-up costs.

Current membership is at 2,705 based on end of September numbers but cancellations have not been entered since gym closed in July. There is no planned reopening date. The worst case scenario has the fitness center losing 400 memberships during the pandemic, which would represent a loss of about $15,500 for the year, or net loss of $26,758 after expenses. If Evolutions only loses 100 memberships, net losses will be $15,358. However, the hospital district expects Evolutions to be back in the black this summer.

Evolutions might have closed permanently in 2017 during the financial mismanagement of the hospital district, if not for a group of local citizens forming a nonprofit company to keep it pumping. As the district was trying to get out from under the clutches of Healthcare Conglomerate Associates (HCCA), whose executives now face 40 felony charges of embezzlement and other white collar crimes, Paul Atlas, J. Michael Lane and Patricia Hitlin formed Evo Management Company, LLC to keep Tulare’s favorite gym from closing to the public while the hospital was going through bankruptcy. The nonprofit worked with other local entities, including the Tulare Industry Site Development Foundation, Tulare Local Development Company and Tulare Hospital Foundation, to raise $150,000 to get the facility running again.

“The intent of EMC in leasing the Premises was to assist the District by operating a fitness facility, Evolutions Fitness and Wellness Center, previously operated by the district, so that the district might focus on significant issues related to its operation of a hospital and related bankruptcy.”

Under the original lease, the hospital district allowed EMC to “retain only those revenues necessary to provide [EVO Management] with a modest rate of return on investment and to cover [its] on-going expenses of operations.” The district provided EVO Management with a $45,000 advance in rent which EMC agreed to pay back in $5,000 installments as well as “all net profits of operation after payment of … approved expenses” to the hospital district. Learning its lesson from HCCA, the hospital also appointed an oversight committee giving them the power to inspect records and then report back to the board on a monthly basis.

Both the district and EMC agreed the fitness center would eventually revert back to hospital control, as evidenced by the hospital board’s July 17, 2018 decision to approve a $275,000 loan with Tulare Industrial Site Development Foundation to upgrade aging equipment. Since October of 2018 EMC has made every monthly payment of nearly $5,500 to payoff the new equipment. The two entities reaffirmed the original agreement with a resolution at the Dec. 16 hospital board meeting saying the district will take over payments of the loan, set to be paid off in November 2023, and retain ownership of all of the equipment. The resolution passed unanimously on a 3-0 vote at the Dec. 16 meeting as board members Xavier Avila and Senovia Gutierrez were absent.

Since emerging from bankruptcy in October 2019, the hospital district refinanced its municipal bonds in early 2020, paid off its line of credit with the City of Tulare in June 2020, and began benefiting from rent payments from Adventist Health’s lease of the hospital in October 2020.

The resolution and amendment approved last month are the first steps in transitioning control of Evolutions back to the district. Before that happens, the district wants to ensure all PPP loans by EMC have been forgiven, consent from all vendors to work directly with the district, and district finances are stable. According to financial documents presented at the meeting, the district is reporting enough cash flow to pay the gym’s expenses. Once Evolutions transitions back to the district, staff will begin researching how to certify the gym as a medical fitness facility to “remain open safely in potential future situations.”

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