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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _)*
Adcare Health Systems Inc.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
00650W300
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(CUSIP Number)
Chris Doucet, 2204 Lakeshore Drive, Suite 304,Birmingham, Alabama 35209
205-414-9788
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
June 9, 2014
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(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. [X]
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7 for other
parties to whom copies are to be sent.
The remainder of this cover page shall be filled out for a reporting persons
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be for the purpose of Section 18 of the Securities Exchange
Act of 1934 () or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Persons who respond to the collection of information contained in this form are
not required to respond unless the form displays a currently valid OMB control
number.
SEC 1746 (3-06)
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CUSIP No. 00650W300
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1 Name of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only)
Doucet Capital,LLC, sole owner of Doucet Asset Management, LLC 03-0600886
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2 Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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3 SEC Use Only
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4 Source of Funds (See Instructions)
HC
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5 Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)[ ]
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6 Citizen or Place of Organization
Delaware, US
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Number of 7 Sole Voting Power 0
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Shares
Beneficially 8 Shared Voting 1,383,229
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,383,229
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,383,229
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12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
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13 Percent of Class Represented by Amount in Row (11)
7.9%
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14 Type of Reporting Person (See Instructions)
HC
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CUSIP No. 00650W300
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1 Name of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only)
Doucet Asset Management, LLC 03-0600882
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2 Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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3 SEC Use Only
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4 Source of Funds (See Instructions)
IA
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5 Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)[ ]
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6 Citizen or Place of Organization
Delaware, US
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Number of 7 Sole Voting Power 0
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Shares
Beneficially 8 Shared Voting 1,383,229
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,383,229
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,383,229
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12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
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13 Percent of Class Represented by Amount in Row (11)
7.9%
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14 Type of Reporting Person (See Instructions)
IA
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CUSIP No. 00650W300
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1 Name of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only)
Christopher L. Doucet, managing member of Doucet Capital, LLC and
CEO and control person of Doucet Asset Management
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2 Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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3 SEC Use Only
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4 Source of Funds (See Instructions)
IN
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5 Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)[ ]
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6 Citizen or Place of Organization
US Citizen
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Number of 7 Sole Voting Power 0
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Shares
Beneficially 8 Shared Voting 1,383,229
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,383,229
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,383,229
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12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
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13 Percent of Class Represented by Amount in Row (11)
7.9%
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14 Type of Reporting Person (See Instructions)
IN
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CUSIP No. 00650W300
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1 Name of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only)
Suzette A. Doucet, CFO and control person of Doucet Asset Management, LLC
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2 Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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3 SEC Use Only
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4 Source of Funds (See Instructions)
IN
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5 Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)[ ]
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6 Citizen or Place of Organization
US Citizen
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Number of 7 Sole Voting Power 0
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Shares
Beneficially 8 Shared Voting 1,383,229
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,383,229
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,383,229
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12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
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13 Percent of Class Represented by Amount in Row (11)
7.9%
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14 Type of Reporting Person (See Instructions)
IN
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Item 1. Security and Issuer
The class of equity to which this statement relates is the common stock
$0.001 par value (the "Common Stock") of Adcare Health Systems. Inc.
(the "Company"), which has its principal executive offices at:
1145 Hembree Road
Roswell, GA 30076
Item 2. Identity and Background
Doucet Capital LLC, Doucet Asset Management LLC, Christopher L. Doucet,
and Suzette A. Doucet are the persons filing this statement. Doucet
Capital is a holding company which owns Doucet Asset Management LLC, a
SEC registered investment adviser firm that exercises discretionary
authority over client investments. Both firms are limited liability
companies organized under the laws of the state of Delaware. Christopher
L. Doucet is the managing member of Doucet Capital LLC and Chief Execu-
tive Officer of Doucet Asset Management. Suzette A. Doucet is a member
of Doucet Capital and the Chief Financial Officer of Doucet Asset Manage-
ment. As such, Mr. and Mrs. Doucet control the activities of Doucet
Capital and Doucet Asset Management. Both Mr. and Mrs. Doucet are US
citizens. The business address of each of the Reporting Persons is
2204 Lakeshore Drive, Suite 304, Birmingham, Alabama 35209.
During the last five years, neither of the Reporting Persons has been (a)
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (b) a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation
with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
As of June 9, 2014 Doucet Asset Management has acquired 1,383,229
shares of the Common Stock of the Company on the open market for
total consideration of $5,920,880.
The above amount of total consideration includes any commissions incurred
in the making of the investments. The source of these funds was the
investment capital of the discretionary clients of Doucet Asset Manage-
ment, which include Christopher and Suzette Doucet.
Item 4. Purpose of Transaction
All of the shares of Common Stock reported herein were acquired for
investment purposes, and were originally acquired without the purpose or
effect of changing or influencing control of the Company. The Reporting
Persons review on a continuing basis the investment in the Company. Based
on such review and depending on the price and availability of the
Company's securities, the Reporting Persons may acquire, or cause to be
acquired, additional securities of the Company, in the open market or
otherwise, dispose of, or cause to be disposed of, securities of the
Company, in the open market or otherwise, at any time, or formulate other
purposes, plans or proposals regarding the Company or any of its
securities, to the extent deemed advisable in light of general investment
and policies of the Reporting Persons, the Company s business, financial
condition and operating results, general market and industry conditions
or other factors.
Doucet Asset Management and would like to see management maximize
stockholder value, and has sent the following letter to the
Company's Board of Directors:
June 9, 2014
Sent Via Certified Mail
AdCare Health Systems Inc.
Board of Directors
1145 Hembree Road
Roswell, GA 30076-1122
Dear Board of Directors,
As a point of introduction, my name is Chris Doucet and I am
CEO and managing partnerof Doucet Asset Management. Doucet
Asset Management has control of 1,383,229 sharesof ADK stock
through its holdings of the common stock in our managed accounts
and personal accounts as well as through our holdings of
convertible bonds in which it has discretion.
Strategic Alternatives
We would like to begin by commending the Board on their decision
to initiate a process to explore and evaluate a broad range of
strategic alternatives which was noted in the press release dated
May 30, 2014. Based on our internal analysis of the
assets of AdCare, we believe the Company is potential undervalued
by 80% or more versus the inherent value of its assets. As a
leading shareholder in the Company, we welcome recent initiative;
however, we feel this action by the Board is long overdue and
would have been more appropriate subsequent to any of
the following events:
April 17, 2013: Brogdon Family, LLC sent a letter to the
Board of Directors of their intent to purchase an additional
amount of shares, at a price of $8.00 per share, to bring
their holdings in the common stock of the Company to 55% - 75%.
July 15, 2013: Park City Capital, LLC presented a thoughtful
analysis which describes how AdCare could command a value of
$13 per common share.
December 12, 2013: We attended the annual stockholder
meeting and witnessed 13 shareholders (we counted) stand up
and express to you, in very clear terms, that management of
AdCare was subpar, corporate expenses were out of control,
and the Company should immediately hire an investment banker
and sell the Company.
Intent of Correspondence Is To Look Forward
The intent of this letter is to present a simple plan for the Company
to realize the true value of the assets for the shareholders.
However, due to the historic conflicts of interest between the Board
and major shareholder, a single significant strategic alternative
should be persued to maximize stockholder value and
we vehemently disagree that the Company should seek a broad range of
strategic alternatives. The Board has lost the faith of the major
shareholders which leaves the Company with only one viable strategic
option-sell the Company.
What is AdCare Worth?
We believe if AdCare were to sell its assets, stockholders would
realize a value of between $6.44 and $8.22 per share and a mid-point
of about $7.30 per share. While we hope that the willingness by
Mr. Brogdon to purchase a majority stake in the Company at $8.00
per share and Park City Capitals suggestion that the stock could be
worth $13.00 per share are more accurate than our calculations, the
consistent themeamong all of our filings and letters is the stock is
worth a lot more than $4 and the Company has done little to bridge
this gap.While we have attempted to internally value AdCare based on
severaldifferent valuation metrics, we have determined the cleanest
and most accurate way to value the Company is through a sum of the
parts analysis.
This belief is reinforced by the fact that we are convinced there would
be two different natural buyers for the two different parts of AdCare
Health Systems business.
Sum of the Parts Analysis
Our internal sum of the parts analysis places a value on the owned real
estate and a separate value on the leased and managed only properties.
Owned Properties: AdCare currently owns 25 properties with approximately
2700 owned beds. In evaluating the real estate, Park City Capital stated,
in its July 15, 2013 13D filing, that the average skilled nursing home
sold for $89,300 per bed to REITs in 2012, according to a 2013 REIT
industry report. However, since that report was published, there have
also been several high profile mergers in the industry including the
NorthStar acquisition of Formation Capital and Safanad for $1.05 billion
and Ventas $2.6 billion purchase of ARC Healthcare so far in 2014.
We have also noted dozens of smaller transactions, public and private,
in the southeastern portion of the U.S. where most of AdCare properties
are located. Bed prices ranged between $88,000 to $180,000. To be on
the conservative side, and since we have been told the $88,000 per bed
transaction was for a combination of unprofitable beds and older
properties, internally we use a valuation of between $90,000 and $110,000
per bed which would equate to approximately $243 million and $297 million
in gross value for the owned real estate. A mid-point price would equate
to approximately $6.00 per share, subsequent to the execution of all stock
options, warrants and conversion of the convertible bonds outstanding to
common stock.
Leased and Managed Only Properties:
AdCare currently has 13 properties which are leased or are managed-only
properties. While we do not ever remember seeing the Company breakdown
revenue as far as owned properties and leased properties in their 10Q
and 10K filings, ex-CEO Boyd Gentry did suggest to shareholders on
several occasions that the revenue from the leased side of the business
accounted for about $75 million of AdCares roughly $225 million in
revenues in 2013. Assuming this information is correct, one could also
make the assumption the Company would realize a market range of margins
on the leased revenue.
With the aforementioned stated caveats, the values range between
$.90 and $1.70 per share for the leased and managed-only portfolio.
We found the publicly-traded healthcare companies with the highest
percentage of leased properties in their portfolio as a percentage of
the total portfolio and did a simple Trailing Twelve Months Revenue to.
Enterprise Value Calculation (Rev/EV). We then applied those ratios to
AdCare.
The lowest and highest multiple comparables we found with a high
concentration of leased properties were Diversicare (DVCR) and Kindred
Healthcare (KND) respectively. Their Rev/EV multiples ranged from
..60% to .32% for the trailing twelve months giving this division of
AdCare an imputed value of $24 to $45 million or $.90 to $1.70 per share,
assuming a fully fully dilute share count of 26.4 million shares. The
mid-point valuation number came out to $34.5 million or about $1.30 per share.
Sum of the Parts:
So if one were to add up our mid-point valuation for the owned real
estate of $6 per share plus our mid-point valuation for the leased and
managed only properties of $1.30, he would get a total mid-point
valuation of approximately $7.30 per share.
Brogdon and Park City Valuations Much Higher Than $7.30 Per Share
Both Brogdon and Park City suggested valuations much higher than $7.30 a
year ago when the overall skilled nursing/nursing home market was weaker
than it is today and before merger mania began in earnest in the healthcare
industry. As a result, we can only assume a $7.30 price tag for the entire
Company would be very conservative and perhaps even on the low side of
reality. At the very least, what we concluded from our internal analysis of
AdCare is there is a strong argument to be made that the shares of AdCare are
tremendously undervalued at the current stock price. Additionally, at the very
least, since we understand that there are no debt covenants that restrict the
buyback of the common stock or repayment of high coupon debt, there should have
been some plan of action announced by or on the May 31st press release which
stated a plan to do one or both was put in place by the Board.
Conclusion
Once again, I commend the Board on making the decision to explore strategic
alternatives. Speaking on behalf of my family and clients who have a stake
in this Company, there is only one strategic alternative to consider here and
that is to sell the Company. Please do it quickly and fulfill your fiduciary
responsibility as Board members.
Regards,
Chris L. Doucet
CEO and Managing Partner
Doucet Asset Management
Doucet reserves the right from time to time to formulate plans and
proposals regarding the Company or any of its securities, and to
carry out any of the actions or transactions to protect the interests
of its clients. Doucet may in the future acquire additional Common
Stock or other securities of the Company in the open market, in
privately negotiated purchases or otherwise and may also, depending
on the current circumstances, dispose of all or a portion of the
Common Stock beneficially owned by them in one or more transactions.
Item 5. Interest in Securities of the Issuer
(a) As of the close of business on June 9, 2014 Doucet Capital,
Doucet Asset Management, Christopher L. Doucet, and Suzette A. Doucet
were the beneficial owners of 1,383,229 shares of Common Stock, which
constitute in the aggregate 7.9% of the outstanding shares of Common
Stock of the Company based on 17,505,444 shares of Common Stock
Outstanding pursuant to the Form 10-Q for the quarterly period ending
March 31, 2014 filed by the Company.
(b) Doucet Capital, Doucet Asset Management, Christopher L. Doucet, and
Suzette A. Doucet have shared power to vote, direct the vote of, dispose
of and direct the disposition of the Common Stock beneficially owned as
described in Item 5(a) above. Such power is shared among the Reporting
Persons.
(c) Transactions in the Common Stock by the Reporting Persons affected
in the last 60 days are as set forth in the table below. All such trades
were made in open market transactions.
Date Shares Total Cost Buy or Sell
5.2.2014 439 1791.28 Buy
5.8.2014 750 3076.40 Buy
5.30.2014 35235 144066.05 Buy
6.2.2014 3427 13860.73 Buy
6.3.2014 6215 24938.01 Buy
6.5.2014 5000 20240.26 Buy
(d) The Reporting Persons have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of,
the Common Stock beneficially owned by them.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
None.
Item 7. Material to be Filed as Exhibits
Exhibit 1. Joint Filing Agreement
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: June 9, 2014
DOUCET CAPITAL, LLC
/S/ Christopher L. Doucet
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Name: Christopher L. Doucet
Title: Managing Member
DOUCET ASSET MANAGEMENT, LLC
By: Doucet Capital, LLC,
its managing member
/S/ Christopher L. Doucet
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Name: Christopher L. Doucet
Title: Managing Member
CHRISTOPHER L. DOUCET
/S/ Christopher L. Doucet
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Christopher L. Doucet, individually
SUZETTE A. DOUCET
/S/ Suzette A. Doucet
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Suzette A. Doucet, individually
EXHIBIT 1
JOINT ACQUISITION STATEMENT
PURSUANT TO RULE 13d-1(k)
The undersigned acknowledge and agree that the foregoing statement on
Schedule 13G, is filed on behalf of each of the undersigned and that all
subsequent amendments to this statement on Schedule 13D, shall be filed on
behalf of each of the undersigned without the necessity of filing additional
joint acquisition statements. The undersigned acknowledge that each shall be
responsible for the timely filing of such amendments, and for the completeness
and accuracy of the information concerning him or it contained therein, but
shall not be responsible for the completeness and accuracy of the information
concerning the others, except to the extent that he or it knows or has reason to
believe that such information is inaccurate.
Date: June 9, 2014
DOUCET CAPITAL, LLC
/S/ Christopher L. Doucet
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Name: Christopher L. Doucet
Title: Managing Member
DOUCET ASSET MANAGEMENT, LLC
By: Doucet Capital, LLC,
its managing member
/S/ Christopher L. Doucet
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Name: Christopher L. Doucet
Title: Managing Member
CHRISTOPHER L. DOUCET
/S/ Christopher L. Doucet
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Christopher L. Doucet
SUZETTE A. DOUCET
/S/ Suzette A. Doucet
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Suzette A. Doucet