0001387749-15-000009.txt : 20150630 0001387749-15-000009.hdr.sgml : 20150630 20150630083355 ACCESSION NUMBER: 0001387749-15-000009 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20150630 DATE AS OF CHANGE: 20150630 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ADCARE HEALTH SYSTEMS, INC CENTRAL INDEX KEY: 0001004724 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 311332119 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-83967 FILM NUMBER: 15960021 BUSINESS ADDRESS: STREET 1: 1145 HEMBREE ROAD CITY: ROSWELL STATE: GA ZIP: 30076 BUSINESS PHONE: 404-781-2895 MAIL ADDRESS: STREET 1: 1145 HEMBREE ROAD CITY: ROSWELL STATE: GA ZIP: 30076 FORMER COMPANY: FORMER CONFORMED NAME: ADCARE HEALTH SYSTEMS INC DATE OF NAME CHANGE: 19951208 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Doucet Asset Management CENTRAL INDEX KEY: 0001387749 IRS NUMBER: 030600882 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 2204 LAKE SHORE DRIVE STREET 2: SUITE 218 CITY: BIRMINGHAM STATE: AL ZIP: 35209 BUSINESS PHONE: 2054149788 MAIL ADDRESS: STREET 1: 2204 LAKE SHORE DRIVE STREET 2: SUITE 218 CITY: BIRMINGHAM STATE: AL ZIP: 35209 SC 13D 1 r13d_adk06292015.txt OMB APPROVAL OMB Number: 3235-0145 Expires: February 28, 2016 Estimated average burden Hours per response 14.5 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. ------------------------------------------------------------------------------- (Name of Issuer) Common Stock ------------------------------------------------------------------------------- (Title of Class of Securities) 00650W300 ---------------------------------------- (CUSIP Number) Chris Doucet, 2204 Lakeshore Drive, Suite 304,Birmingham, Alabama 35209 205-414-9788 ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 29, 2015 ------------------------------------------------------------------------------- (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) ------------------------------------------------ CUSIP No. 00650W300 ------------------------------------------------ -------------------------------------------------------------------------- 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 -------------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ] (b) [ ] -------------------------------------------------------------------------- 3 SEC Use Only -------------------------------------------------------------------------- 4 Source of Funds (See Instructions) HC -------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e)[ ] -------------------------------------------------------------------------- 6 Citizen or Place of Organization Delaware, US -------------------------------------------------------------------------- Number of 7 Sole Voting Power 0 -------------------------------------------------------- Shares Beneficially 8 Shared Voting 1,603,346 -------------------------------------------------------- Owned by Each 9 Sole Dispositive Power 0 -------------------------------------------------------- Reporting Person With 10 Shared Dispositive Power 1,603,346 -------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,603,346 -------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] -------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 8.2% -------------------------------------------------------------------------- 14 Type of Reporting Person (See Instructions) HC -------------------------------------------------------------------------- ------------------------------------------------ CUSIP No. 00650W300 ------------------------------------------------ -------------------------------------------------------------------------- 1 Name of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) Doucet Asset Management, LLC 03-0600882 -------------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ] (b) [ ] -------------------------------------------------------------------------- 3 SEC Use Only -------------------------------------------------------------------------- 4 Source of Funds (See Instructions) IA -------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e)[ ] -------------------------------------------------------------------------- 6 Citizen or Place of Organization Delaware, US -------------------------------------------------------------------------- Number of 7 Sole Voting Power 0 -------------------------------------------------------- Shares Beneficially 8 Shared Voting 1,603,346 -------------------------------------------------------- Owned by Each 9 Sole Dispositive Power 0 -------------------------------------------------------- Reporting Person With 10 Shared Dispositive Power 1,603,346 -------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,603,346 -------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] -------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 8.2% -------------------------------------------------------------------------- 14 Type of Reporting Person (See Instructions) IA -------------------------------------------------------------------------- ------------------------------------------------ CUSIP No. 00650W300 ------------------------------------------------ -------------------------------------------------------------------------- 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 -------------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ] (b) [ ] -------------------------------------------------------------------------- 3 SEC Use Only -------------------------------------------------------------------------- 4 Source of Funds (See Instructions) IN -------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e)[ ] -------------------------------------------------------------------------- 6 Citizen or Place of Organization US Citizen -------------------------------------------------------------------------- Number of 7 Sole Voting Power 0 -------------------------------------------------------- Shares Beneficially 8 Shared Voting 1,603,346 -------------------------------------------------------- Owned by Each 9 Sole Dispositive Power 0 -------------------------------------------------------- Reporting Person With 10 Shared Dispositive Power 1,603,346 -------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,603,346 -------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] -------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 8.2% -------------------------------------------------------------------------- 14 Type of Reporting Person (See Instructions) IN -------------------------------------------------------------------------- ------------------------------------------------ CUSIP No. 00650W300 ------------------------------------------------ -------------------------------------------------------------------------- 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 -------------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ] (b) [ ] -------------------------------------------------------------------------- 3 SEC Use Only -------------------------------------------------------------------------- 4 Source of Funds (See Instructions) IN -------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e)[ ] -------------------------------------------------------------------------- 6 Citizen or Place of Organization US Citizen ------------------------------------------------------------------------- Number of 7 Sole Voting Power 0 -------------------------------------------------------- Shares Beneficially 8 Shared Voting 1,603,346 -------------------------------------------------------- Owned by Each 9 Sole Dispositive Power 0 -------------------------------------------------------- Reporting Person With 10 Shared Dispositive Power 1,603,346 -------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,603,346 -------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] -------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 8.2% -------------------------------------------------------------------------- 14 Type of Reporting Person (See Instructions) IN -------------------------------------------------------------------------- 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 29,2015 Doucet Asset Management has acquired 1,603,346 shares of the Common Stock of the Company on the open market for total consideration of $6,397,130. 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 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. Chris Doucet sent the following letter to the board of directors June 29, 2015 AdCare Health Systems Board of Directors 3050 Peachtree Road NW Suite 355 Atlanta, GA 30305 Dear Board, First, I want to commend the Board on hiring Bill McBride as AdCares CEO last fall. He had the difficult challenge and task of navigating the Company through its transition to a property holding company. Based on conversations with several reputable REIT experts, they have all confirmed what I already suspected-Bill has done an exemplary job executing on the initiatives set forth by the Board. He has virtually completed the Companys transition in leasing or divesting its portfolio of 40 properties to new operators while negotiating favorable triple-net leases with long terms and standard annual escalators. In addition, Bill is making strides in addressing the Companys capital structure. This has significantly improved the optics of the Company to prospective acquirers as AdCare is simply a plug and play target at this point. Most impressively, Bill has done this with little disruption to the Companys operations and little to no deterioration in patient care. The long awaited benefits of Bills efforts should be imminent. I am convinced the Board made the right decision to hire Bill and convert AdCare into a real estate holding company. Nonetheless, the successful transition from an operating company to a real estate holding company has not been reflected in the price of AdCares common stock. I believe the combination of successive capital raises with little clarity on the use of proceeds coupled with the rising short interest in the stock have relegated ADK to ridiculously low levels. Bill has made it clear on recent conference calls that his main desire is to use part of the Companys $35 million in recent raises to make accretive acquisitions of nursing home properties. The market has shown its disappointment in the lack of success in accomplishing this goal by selling the common stock off by nearly 25% over the past 90 days. However, during the same timeframe, fundamentals of the Company have clearly improved suggesting there has been a marked disconnect between the operational performance of the Company and the stock price. So what can the Company do in the near term to take advantage of this short term dilemma and help restore investor confidence in Bill, the Board, and the stock? One answer is to use some of the cash on the Companys balance sheet to initiate a buyback of the Companys stock and augment the Companys current strategy of growing the value of the enterprise by making accretive acquisitions. According to Bloomberg Analytics, the average cap rate for the healthcare REIT universe is 6.3, while the average FFO multiple in the space is 13.8. So what does this mean for ADK valuations? If one sifts through the press releases, 8Ks, 10Qs and 10K since July, 2014, investors can make several relevant projections, apply multiples to those projections and make certain value assumptions. Revenues $28.834 million (assumes conservative assumptions on three remaining properties) Convert Debt $7.7 million (assumes $7.5 million note is not converted by 7/31 and is paid off) Mortgage Debt $111.086 million (assumes the Company pays down four mortgages in the amount of about $18 million and brings $1 million in proceeds in excess of the mortgage amounts and $2 million in restricted cash onto the balance sheet) Preferred Debt $53.830 million Bank Debt 0 Cash $17 million (assumes $7.5 million note is not converted by 7/31 and is paid off) Estimated Annualized FFO $.34 (beginning annualized FFO in Q415 assumes no acquisitions and G&A and lease expenses projected on July, 2014 have not changed) Based on the above assumptions and corresponding multiples, ADK would be worth $4.65 on an FFO basis and about $9.00 on a fully diluted basis. The latter would only be realized if the company was sold to a strategic buyer who liked the properties, leases and the operators. However, a price of $4.65 and an FFO of $.34 annualized by Q415 assume interest costs remain at the very high current cost of capital of about 7.29% and the Company is not successful in adding accretive acquisitions which would of course add to the FFO. For every 1 million shares the Company is successful in purchasing at current levels, the Company would add over $340,000 to FFO or about $.017 per share. This increase in FFO would give the Company the ability to increase the dividend by $.0136 per annum or about 40 basis points to investors (assuming the Company continues their dividend policy of paying out only 80% of FFO in the form of earnings). Most REIT investors understand and appreciate the Companys strategy. Simply put, convert the existing portfolio to a holding company, reduce G&A to a nominal level, use the cash to make accretive acquisitions, and ultimately sell the portfolio to a larger REIT at a synergistic multiple for both parties. However, while the broader market fully appreciates the power of the model the Company is creating, the stock has been relegated to orphan status due to the aforementioned successive raises combined with the inability of the Company to close on a single acquisition. As such, you should ameliorate your current strategy. Take this as an opportunity to buy ADK stock on the open market at significant multiples discount to its peers, exploit the current dislocation in the market and any others that may occur in the future. The Company can in essence invest in properties it knows very well at a 10 cap and ultimately sell the company at a much lower cap rate at some point in the future. This would be appear to be a good way to augment your current strategy in the short term, regain investor confidence and build long term value. Buying back stock would also be a low risk method of building value as the Company is more familiar with each of these properties than its competitors. The Company would also avoid transaction costs and associated transition risks typically associated with the purchase of a new property. I am happy to discuss my analysis in more detail at your convenience. Sincerely, Chris L. Doucet CEO, Managing Partner Doucet Asset Management, LLC Item 5. Interest in Securities of the Issuer (a) As of the close of business on June 26, 2015 Doucet Capital, Doucet Asset Management, Christopher L. Doucet, and Suzette A. Doucet were the beneficial owners of 1,603,346 shares of Common Stock, which constitute in the aggregate 8.2% of the outstanding shares of Common Stock of the Company based on 19,350,000 shares of Common Stock Outstanding pursuant to the Form 10-K for the quarterly period ending December 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. (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 29, 2015 DOUCET CAPITAL, LLC /S/ Christopher L. Doucet --------------------------- Name: Christopher L. Doucet Title: Managing Member DOUCET ASSET MANAGEMENT, LLC By: Doucet Capital, LLC, its managing member /S/ Christopher L. Doucet --------------------------- Name: Christopher L. Doucet Title: Managing Member CHRISTOPHER L. DOUCET /S/ Christopher L. Doucet -------------------------- Christopher L. Doucet, individually SUZETTE A. DOUCET /S/ Suzette A. Doucet ----------------------- 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 29, 2015 DOUCET CAPITAL, LLC /S/ Christopher L. Doucet --------------------------- Name: Christopher L. Doucet Title: Managing Member DOUCET ASSET MANAGEMENT, LLC By: Doucet Capital, LLC, its managing member /S/ Christopher L. Doucet --------------------------- Name: Christopher L. Doucet Title: Managing Member CHRISTOPHER L. DOUCET /S/ Christopher L. Doucet ------------------------- Christopher L. Doucet SUZETTE A. DOUCET /S/ Suzette A. Doucet --------------------- Suzette A. Doucet