BUSINESS

Diversicare Healthcare Services, Inc. (together with its subsidiaries, “Diversicare Healthcare Services” or the “Company”) provides long-term care services to nursing center patients in nine states, primarily in the Southeast, Midwest, and Southwest. The Company’s centers provide a wide range of health care services to their patients and residents that include nursing, personal care, and social services. In addition to the nursing, personal care and social services usually provided in long-term care centers, the Company’s nursing centers also offer a variety of comprehensive rehabilitation services, as well as nutritional support services. The Company's continuing operations include centers in Alabama, Florida, Indiana, Kansas, Kentucky, Missouri, Ohio, Tennessee, and Texas. The Company's operating results also include the results of certain discontinued operations that have been reclassified on the face of the financial statements to reflect the discontinued status of these operations.

As of September 30, 2014, the Company’s continuing operations consist of 51 skilled nursing and long-term care centers with 6,229 licensed beds. The Company owns 13 and leases 38 of its nursing centers.

BUSINESS DEVELOPMENT

Acquisitions

On March 6, 2013, the Company entered into an asset purchase agreement ("the Agreement") with Cumberland & Ohio Co. of Texas, as receiver of the assets of SeniorTrust of Florida, Inc. to acquire certain land, improvements, furniture, fixtures and equipment, and personal property of five facilities, all located in Kansas, for an aggregate purchase price of $15,500,000. The purchase of the Kansas facilities was completed on May 1, 2013. The Company also incurred $338,000 in acquisition-related expenses associated with this transaction. The five facilities acquired under the Agreement include the following:


•	77-bed skilled nursing facility known as Chanute HealthCare Center


•	119-bed skilled nursing facility known as Haysville HealthCare Center


•	80-bed skilled nursing facility known as Larned HealthCare Center


•	62-bed skilled nursing facility known as Sedgwick HealthCare Center


•	80-bed skilled nursing facility known as Council Grove HealthCare Center

As a result of the consummation of the Agreement, the Company allocated the purchase price of $15,500,000 between the assets associated with the transaction based on the fair value of the acquired net assets. In addition to the assets acquired in the transaction, the Company also assumed liabilities of $758,000 which resulted in total cash outlay of $14,742,000. The allocation of the purchase price was determined with the assistance of HealthTrust LLC, a third-party real estate valuation firm. The allocation for the net assets acquired is as follows:



	As of May 1, 2013
Purchase Price	$	15,500,000

Land	$	2,130,000
Buildings	12,127,000
Furniture, fixtures, and equipment	1,200,000
Inventory	43,000

Less: Liabilities assumed	$	758,000

Total cash paid	$	14,742,000

Lease Agreements and Assumption of Operations

On August 1, 2014, the Company completed a transaction to assume operations of two centers in Ohio. The centers included in this transaction are a 142-bed skilled nursing facility and a 42-bed assisted living center. The lease provides for an initial lease term of 10 years. The centers were already operating and treating patients on the transition date. There was no purchase price paid to enter into the lease agreement for these skilled nursing centers.

On July 1, 2014, the Company completed a transaction to enter the state of Missouri through the assumption of operations of three facilities totaling 339 skilled nursing beds. The nursing centers are owned by a real estate investment trust ("REIT"), and the lease provides for an initial 15-year lease term with a 5-year renewal option. The centers were already operating and treating patients on the transition date. There was no purchase price paid to enter into the lease agreement for these skilled nursing centers.

On June 1, 2014, the Company assumed operations at Diversicare of Nicholasville, an existing 73-bed facility in Nicholasville, Kentucky. The nursing center is owned by a real estate investment trust ("REIT"), and the lease provides for an initial 15-year lease term with a 5-year renewal option. The center was already operating and treating patients on the transition date. There was no purchase price paid to enter into the lease agreement for this skilled nursing center.

On March 1, 2014, the Company assumed operations at Diversicare of Big Springs, an existing 135-bed facility in Huntsville, Alabama. The nursing center is owned by an unrelated third-party and the lease provides for an initial 10-year lease term with two additional 5-year renewal options. The additional skilled nursing center increases the Company's footprint in Alabama to seven centers, and the third center in the Huntsville market. The center was already operating and treating patients on the transition date. There was no purchase price paid to enter into the lease agreement for this skilled nursing center.

On October 1, 2013, the Company assumed operations at four existing nursing centers, three in Ohio and one in Indiana. The nursing centers are owned by a REIT and the lease of these centers provides for an initial 15-year lease term with a 5-year renewal option. This transaction represents an increase in the Company's footprint in the Midwest, expanding into one new state, Indiana. All four of the centers were operating and treating patients on the transition date. There was no purchase price paid to enter into the lease agreement for these skilled nursing centers.

On August 1, 2013, the Company assumed operations at Seneca Place, an existing 107-bed facility in Louisville, Kentucky. The nursing center is owned by a REIT, and the lease provides for an initial 15-year lease term with a 5-year renewal option. The center was already operating and treating patients on the transition date. There was no purchase price paid to enter into the lease agreement for this skilled nursing center.