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| 8-K - 8-K - REGIONAL HEALTH PROPERTIES, INC | adk3q2016earningsrelease.htm |
AdCare Health Systems Reports Third Quarter 2016 Results
Concludes Review of Strategic Alternatives
ATLANTA, GA, November 14, 2016—AdCare Health Systems, Inc. (NYSE MKT: ADK) (NYSE MKT:
ADK.PRA), a self-managed healthcare real estate investment company that invests primarily in real
estate purposed for senior living and long-term care, today reported results for the three months
and nine months ended September 30, 2016.
Business Update
Completed sale of nine Arkansas properties
Concluded its previously announced review of strategic alternatives for the Company
and is implementing a go-forward strategy focusing on specific initiatives to increase
shareholder value
Announced share repurchase programs for up to 1.0 million shares of common stock
and up to 100,000 shares of preferred stock
Reduced quarterly general and administrative expense to $1.6 million in the third
quarter, down over 25% sequentially as compared to the second quarter
Refinanced the conventional bank debt on its Georgetown facility with $3.7 million of
HUD debt
On March 29, 2016, the Company announced that the Board of Directors had begun to explore
strategic alternatives for the Company given that its transition to a healthcare property holding and
leasing company was complete. After a thorough and objective review of all potential alternatives
and careful consideration, the Board of Directors, in consultation with its financial advisor, Stifel,
determined that continuation of the Company’s strategy, including portfolio improvement and the
redeployment of net cash proceeds from the sale of its nine Arkansas facilities, is currently the best
alternative for enhancing shareholder value and is in the best interest of shareholders.
“The Board has thoroughly and diligently evaluated a wide range of strategic alternatives, including
a sale or merger of the Company,” continued McBride. “We reached out to a significant number of
interested parties and received proposals from several parties. The Board determined, following
consultation with Stifel, that such proposals would not provide adequate value to shareholders and
would not be in their best interest at this time.”
Strategic Plan
Management is focused on the following initiatives to increase shareholder value, some of which
are the result of feedback from the review of strategic alternatives:
Continue to work closely with its existing operators, including making limited investments in
the Company’s facilities at attractive returns on capital which will increase rent and help
improve the credit profile of the portfolio. In order to regain recertification, the Company
has invested in two facilities currently operated by Peach Health Group and formerly
operated by New Beginnings Care LLC which filed for reorganization under the Bankruptcy
Code earlier this year. The Company anticipates recertification of these facilities by the end
of the year. In the third quarter, the Company has begun to see an improvement in the
coverage ratios, as Rent Coverage Before Management Fees improved sequentially from
1.3x to 1.5x and Rent Coverage After Management Fees improved sequentially from 0.9x to
1.2x.
Redeploy the net cash proceeds from the Arkansas sale to increase shareholder value. This
would include the repurchase of common and preferred stock, repayment of debt and
selective acquisition of facilities. The Board has approved a 1.0 million share common stock
repurchase program and a 100,000 share preferred stock repurchase program. As part of its
acquisition strategy, AdCare will pursue opportunities to acquire facilities currently leased
by AdCare and subleased to third-party operators. During the strategic review, the
valuations on leasehold interests were significantly discounted by interested parties even
though the leases have over 10 years remaining. The Company has the right of refusal on
nine of its 11 leased facilities.
The Company will continue to reduce overhead costs and continue to resolve, when
possible, the remaining professional liabilities resulting from its discontinued operations
business. During the third quarter the Company has further reduced its overhead from $2.1
million to $1.6 million, a 25.2% reduction.
“Our portfolio operating metrics, particularly rent coverages, continue to improve as our local and
regional operator tenants have been implementing their operating strategies,” added Mr. McBride.
“From an operational perspective, in the third quarter we further reduced our general and
administrative expenses by more than $500,000 or 25% from the second quarter of 2016 as a
result of planned headcount reduction and lower other expenses. We expect further reductions in
G&A as activity related to our legacy business diminishes. We refinanced conventional bank debt
(interest rate of 4.71%) associated with our Georgetown facility with $3.7 million of debt
guaranteed by the US Department of Housing and Urban Development at an interest rate of 2.98%.
The steady improvement in the overall credit profile of our property portfolio, along with lower
G&A costs and debt refinancing activity, creates additional value for shareholders.”
Under the new share repurchase programs announced today, shares may be purchased from time
to time in open market transactions at prevailing market prices, in privately negotiated
transactions or by other means in accordance with federal securities laws. The actual timing,
number and value of shares repurchased under the programs will be determined by the Company
in its discretion and will depend on a number of factors, including the market price of the shares,
general market and economic conditions, and applicable legal and contractual requirements. The
share repurchase programs may be suspended, discontinued or terminated at any time without
prior notice.
The new share repurchase programs announced today will terminate on November 10, 2017. The
common stock repurchase program that was previously announced by the Company on November
9, 2015 has terminated. In September 2016, the Company ceased sales of its Series A Preferred
Stock under its previously announced at-the-market sales agreements and related shelf
registration statement and will not engage in any such sales unless the preferred stock repurchase
program announced today has terminated.
Summary of Financial Results for the Three Months and Nine Months Ended September 30, 2016
Revenues in the third quarter of 2016 were $7.2 million, up 16.9% from $6.1 million in the third
quarter of 2015. Revenues for the nine months ended September 30, 2016, increased by 76.2% to
$21.4 million from $12.1 million for the nine months ended September 30, 2015. The increase in
revenues reflects the Company’s transition to a healthcare property holding and leasing company.
In accordance with accounting principles generally accepted in the United States, the Company
recognized all rental revenues on a straight line rent accrual basis, except rental revenues for the
nine facilities leased to affiliates of Skyline Healthcare LLC, for which revenue is recognized based
on cash rent owed (due to the pending sale of the facilities at September 30, 2016), and rental
revenues for two facilities leased to affiliates of Peach Health Group LLC for which rental revenues
are not recognized due to the current reimbursement status of the facilities.
General and administrative costs decreased by $516,000, or 24.4%, to $1.6 million for the three
months ended September 30, 2016, compared with $2.1 million for the same period in 2015. For
the three months ended September 30, 2016 and 2015, general and administrative costs include
$170,000 and $245,000, respectively, of stock-based compensation expense. General and
administrative costs for the nine months ended September 30, 2016 decreased by approximately
$1.7 million, or 21.7%, to $6.3 million, compared with $8.0 million for the same period in 2015. For
the nine months ended September 30, 2016 and 2015, general and administrative costs include
$890,000 and $677,000, respectively, of stock-based compensation expense.
The loss from discontinued operations, net of tax for the quarter was $2.2 million, compared with
$3.1 million for the prior-year period. Year-to-date, the loss from discontinued operations, net of
tax was $6.5 million, compared with loss from discontinued operations, net of tax of $2.3 million
for the prior-year period. The losses in the three and nine month periods ended September 30,
2016 were primarily due to increased reserves for professional liability claims in connection with
legacy operations as well as higher bad debt expense related to legacy patient care related
receivables.
Net loss attributable to AdCare common stockholders in the third quarter of 2016 was $3.9 million,
or $0.19 per diluted share, compared with $6.3 million, or $0.32 per basic and diluted share for the
third quarter of 2015. For the nine months ended September 30, 2016, the net loss attributable to
AdCare common stockholders was $14.4 million, or $0.72 per basic and diluted share, compared
with a net loss of $18.5 million, or $0.94 per basic and diluted share, in the year-ago period.
Cash and cash equivalents at September 30, 2016, totaled $1.5 million, compared with $2.7 million
at December 31, 2015. Restricted cash and investments at September 30, 2016, totaled $5.5
million, excluding $3.6 million of restricted cash included in assets of disposal group held for sale,
compared with $12.7 million at December 31, 2015. Total debt outstanding at September 30, 2016,
totaled $115.5 million, compared with $122.8 million at December 31, 2015 (including $32.0
million and $958,000 in liabilities of disposal group held for sale and net of $2.3 million and $2.7
million of deferred financing costs at September 30, 2016 and December 31, 2015, respectively).
See our Current Report on Form 8-K, filed on October 11, 2016, for a discussion of the completed sale
of our nine facilities in Arkansas.
Conference Call and Webcast
AdCare will hold a conference call to discuss its third quarter 2016 financial results on Monday,
November 14, 2016, at 4:30 p.m. ET.
Date and time: Monday, November 14, 2016 at 4:30 p.m. ET
Dial-in number: 1-800-311-6662 (domestic) or 1-719-325-2390 (international)
Reference passcode: 8326469
Replay number: Dial 844-512-2921 (domestic) or 1-412-317-6671 (international). Reference
passcode: 8326469 to access the replay. The replay will be available until November 21,
2016.
Webcast link: http://public.viavid.com/index.php?id=121726
About AdCare Health Systems
AdCare Health Systems, Inc. (NYSE MKT: ADK) (NYSE MKT: ADK.PRA) is a self-managed healthcare
real estate investment company that invests primarily in real estate purposed for senior living and
long-term healthcare through facility lease and sub-lease transactions. AdCare currently owns,
leases or manages for third parties 29 facilities. For more information about AdCare, visit
www.adcarehealth.com.
Important Cautions Regarding Forward-Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Words such as “expects,” “intends,” “believes,” “anticipates,” “plans,” “likely,” “will,”
“seeks,” “estimates” and variations of such words and similar expressions are intended to identify
such forward-looking statements. Statements in this press release regarding future events and
developments and our future performance, as well as management’s expectations, beliefs, plans,
estimates or projections relating to the future, are forward-looking statements. Forward-looking
statements in this press release include, among others, statements regarding the new share
repurchase programs, improving the credit profile of the portfolio, timing and prospects of
recertification of two Georgia facilities, the acquisition of facilities, the reduction of overhead costs,
the resolution of professional liability claims and increasing shareholder value.
Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and
assumptions and are subject to risks and uncertainties that could cause actual results to differ
materially from those projected or contemplated by our forward-looking statements due to various
factors, including, among others: our dependence on the operating success of our operators; the
significant amount of, and our ability to service, our indebtedness; covenants in our debt
agreements that may restrict our ability to make investments, incur additional indebtedness and
refinance indebtedness on favorable terms; the availability and cost of capital; our ability to raise
capital through equity and debt financings or through the sale of assets; the effect of increasing
healthcare regulation and enforcement on our operators and the dependence of our operators on
reimbursement from governmental and other third-party payors; the relatively illiquid nature of
real estate investments; the impact of litigation and rising insurance costs on the business of our
operators; the impact on us of litigation relating to our prior operation of our healthcare
properties; the effect of our operators declaring bankruptcy, becoming insolvent or failing to pay
rent as due; the ability of any of our operators in bankruptcy to reject unexpired lease obligations
and to impede our ability to collect unpaid rent or interest during the pendency of a bankruptcy
proceeding and retain security deposits for the debtor’s obligations; our ability to find replacement
operators and the impact of unforeseen costs in acquiring new properties; and other factors
discussed from time to time in our news releases, public statements and documents filed by us
with the Securities and Exchange Commission from time to time, including our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. These forward-
looking statements and such risks, uncertainties and other factors speak only as of the date of this
press release, and we expressly disclaim any obligation or undertaking to update or revise any
forward-looking statement contained herein, to reflect any change in our expectations with regard
thereto or any other change in events, conditions or circumstances on which any such statement is
based, except to the extent otherwise required by applicable law.
Company Contacts Investor Relations
Bill McBride Allan Rimland Brett Maas
Chairman and CEO President and CFO Managing Partner
AdCare Health Systems, Inc. AdCare Health Systems, Inc. Hayden IR
Tel (678) 368-4345 Tel (678) 869-5116 Tel (646) 536-7331
bill.mcbride@adcarehealth.com allan.rimland@adcarehealth.com brett@haydenir.com
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000’s)
September 30, December 31,
ASSETS 2016 2015
(Unaudited)
Current assets:
Cash and cash equivalents 1,457$ 2,720$
Restricted cash 1,796 9,169
Accounts receivable, net of allowance of $10,303 and $12,487 3,327 8,805
Prepaid expenses and other 2,130 3,214
Assets of disposal group held for sale 49,824 1,249
Total current assets 58,534 25,157
Restricted cash and investments 3,682 3,558
Property and equipment, net 79,320 126,676
Intangible assets - bed licenses 2,471 2,471
Intangible assets - lease rights, net 2,920 3,420
Goodwill 2,105 4,183
Lease deposits 1,426 1,812
Other assets 3,855 1,996
Total assets 154,313$ 169,273$
LIABILITIES AND DEFICIT
Current liabilities:
Current portion of notes payable and other debt 11,464$ 50,960$
Current portion of convertible debt 7,700 -
Accounts payable 4,041 8,741
Accrued expenses and other 6,089 3,125
Liabilities of disposal group held for sale 32,036 958
Total current liabilities 61,330 63,784
Notes payable and other debt, net of current portion:
Senior debt, net 56,174 54,742
Bonds, net 6,566 6,600
Convertible debt, net 1,394 8,968
Other debt, net 169 531
Other liabilities 4,346 3,380
Deferred tax liability 389 389
Total liabilities 130,368 138,394
Preferred stock, no par value; 5,000 shares authorized; 2,764 and
2,427 shares issued and outstanding, redemption amount $69,096
and $60,273 at September 30, 2016 and December 31, 2015, respectively 61,504 54,714
Stockholders' deficit:
Common stock and additional paid-in capital, no par value; 55,000
shares authorized; 19,892 and 19,861 issued and outstanding at
September 30, 2016 and December 31, 2015, respectively 61,611 60,958
Accumulated deficit (99,170) (84,793)
Total stockholders' deficit (37,559) (23,835)
Total liabilities and stockholders' deficit 154,313$ 169,273$
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000’s, except per share data)
(Unaudited)
(Amounts in 000's) 2016 2015 2016 2015
Revenues:
Rental revenues 6,912$ 5,826$ 20,651$ 11,322$
Management fee and other revenues 253 304 760 827
Total revenues 7,165 6,130 21,411 12,149
Expenses:
Facility rent expense 2,176 1,736 6,523 3,552
Depreciation and amortization 1,124 1,911 4,176 5,384
General and administrative expense 1,598 2,114 6,275 8,014
Other operating expense 241 309 1,413 530
Total expenses 5,139 6,070 18,387 17,480
Income (loss) from operations 2,026 60 3,024 (5,331)
Other expense:
Interest expense, net 1,801 1,830 5,377 6,599
Loss on extinguishment of debt - - - 680
Other expense - 268 51 749
Total other expense, net 1,801 2,098 5,428 8,028
Income (loss) from continuing operations before income taxes 225 (2,038) (2,404) (13,359)
Income tax expense 3 - 3 20
Income (loss) from continuing operations 222 (2,038) (2,407) (13,379)
Loss from discontinued operations, net of tax (2,210) (3,057) (6,513) (2,328)
Net loss (1,988) (5,095) (8,920) (15,707)
Net loss attributable to noncontrolling interests - 284 - 784
Net loss attributable to AdCare Health Systems, Inc. (1,988) (4,811) (8,920) (14,923)
Preferred stock dividends (1,879) (1,499) (5,457) (3,582)
Net loss attributable to AdCare Health Systems, Inc. Common
Stockholders (3,867)$ (6,310)$ (14,377)$ (18,505)$
Net loss per share of common stock attributable to
AdCare Health Systems, Inc.
Basic and diluted:
Continuing operations (0.08)$ (0.18)$ (0.39)$ (0.86)$
Discontinued operations (0.11)$ (0.14)$ (0.33)$ (0.08)$
(0.19)$ (0.32)$ (0.72)$ (0.94)$
Weighted average shares of common stock outstanding:
Basic and diluted 19,917 19,838 19,909 19,617
Three Months Ended September 30, Nine Months Ended September 30,
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
SUPPLEMENTAL OPERATING METRICS
Three Months Ended Three Months Ended Three Months Ended
Portfolio Operating Metrics (1) March 31, 2016 June 30, 2016 September 30, 2016
Occupancy (%) 82.3% 81.7% 82.6%
Skilled Mix (2) 13.2% 12.3% 12.1%
Rent Coverage Before Management Fees 1.34 1.32 1.51
Rent Coverage After Management Fees 0.98 0.93 1.17
(1) Excludes nine Arkansas facilities, which were sold on October 6, 2016, three Georgia facilities currently
operated by Peach Healthcare Group, and three Ohio facilities currently managed by the Company.
(2) Skilled Mix refers to Medicare A and Managed Care Resources Utilization Groups (RUGs) census. Includes one
assisted living facility in Ohio.