Document

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported)

August 3, 2017 (August 3, 2017)

Diversicare Healthcare Services, Inc.

(Exact Name of Registrant as Specified in Charter)



Delaware	001-12996	62-1559667
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1621 Galleria Boulevard, Brentwood, TN 37027

(Address of Principal Executive Offices) (Zip Code)

(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).



	Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.		¨

Item 2.02 Results of Operation and Financial Condition.

On August 3, 2017, the Registrant announced its results of operation for the three-month and six-month periods ended June 30, 2017. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety. The information furnished pursuant to Item 2.02 herein, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

Item 7.01. Regulation FD Disclosure.

The Registrant is furnishing its Investor presentation update for the period ended June 30, 2017, which is also contained on its website, DVCR.com. See Exhibit 99.2 to this Current Report of Form 8-K.

Item 9.01. Financial Statements and Exhibits.

99.1 Press release dated August 3, 2017

99.2 Investor presentation

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Diversicare Healthcare Services, Inc.

By: /s/ James R. McKnight, Jr.

James R. McKnight, Jr.

Chief Financial Officer

Date: August 3, 2017



Company Contact: Kelly J. Gill Chief Executive Officer 615-771-7575		Investor Relations: James R. McKnight, Jr. Chief Financial Officer 615-771-7575

Diversicare Announces 2017 Second Quarter Results

BRENTWOOD, TN, (August 3, 2017) – Diversicare Healthcare Services, Inc. (NASDAQ: DVCR), a premier provider of long-term care services, today announced its results for the second quarter ended June 30, 2017.

On July 27, 2017, the Board of Directors declared a quarterly dividend of $0.055 per common share payable to shareholders of record as of September 30, 2017, to be paid on October 16, 2017.

Second Quarter 2017 Highlights

Net revenue increased to an all-time high of $142.6 million in the second quarter of 2017 from $95.8 million in the second quarter of 2016, an increase of 48.8%, primarily attributable to the 22 Alabama and Mississippi nursing centers acquired in the fourth quarter of 2016.

Facility-level operating income was $29.4 million, or 20.6% of net revenue, an increase of $12.0 million from the prior year.

Net income from continuing operations was $0.4 million, or $0.06 per share, in the second quarter of 2017, compared to a net loss from continuing operations of $2.2 million, or $0.35 per share, in the second quarter of 2016.

Adjusted EBITDA was $4.8 million in the second quarter of 2017 compared to $1.9 million in the second quarter of 2016.

On July 1, 2017, the Company purchased the assets of a 103-bed center in Selma, Alabama for $8.75 million.

See below for a reconciliation of all GAAP and non-GAAP financial results.

Commenting on the results, Kelly Gill, Diversicare’s CEO, stated, “The second quarter 2017 proved to be a successful quarter for the Company as our net revenue increased to an all-time high of $142.6 million. We continue to experience accretive results from the centers we acquired from Golden Living in the fourth quarter 2016 and stable organic growth within our same-center group.

Mr. Gill continued, "Additionally, as previously announced, we added another center to our portfolio on July 1st, bringing our total centers operated to 77 and owned real estate to 18. Since we began our focused expansion plan, this center marks the 47^th acquisition and is the 11^th acquisition that included the purchase of the real estate. I'm proud and grateful for the strides and efforts made by our team to seamlessly integrate this new center onto our operating platform.

Mr. Gill concluded, "We continue to see positive synergies from our strategic investments and hardworking team members, which are reflective in our financial results. I look forward to building upon our success and sharing our results in the future."

Second Quarter 2017 Results

The following table summarizes key revenue and census statistics for continuing operations for each period:



	Three Months Ended June 30,
	2017			2016
Skilled nursing occupancy	79.8		%	76.7		%
As a percent of total census:
Medicare census	12.0		%	11.7		%
Medicaid census	68.6		%	68.3		%
Managed Care census	3.6		%	3.5		%
As a percent of total revenues:
Medicare revenues	27.3		%	27.6		%
Medicaid revenues	51.6		%	50.5		%
Managed Care revenues	7.0		%	6.8		%
Average rate per day:
Medicare	$	453.02		$	456.91
Medicaid	$	173.92		$	168.36
Managed Care	$	391.60		$	388.45

Patient revenues were $142.6 million and $95.8 million for the three months ended June 30, 2017 and 2016, respectively, an increase of $46.8 million. The following table summarizes the revenue fluctuations attributable to our portfolio growth (in thousands):



	Three Months Ended June 30,
	2017		2016		Change
Same-store revenue	$	96,570	$	95,805	$	765
2016 acquisition revenue	45,980		—		45,980
Total revenue	$	142,550	$	95,805	$	46,745

The overall increase in revenues of $46.8 million is primarily attributable to revenue contributions from the acquisition of the Golden Living operations in Alabama and Mississippi during the fourth quarter of 2016 of $46.0 million.

On a same-store center basis, the average Medicare and Medicaid rate per patient day for the second quarter of 2017 increased compared to the second quarter of 2016, resulting in increases in revenue of $0.5 million and $0.5 million, respectively, or 2.4% and 0.9%, respectively. Our same-store Medicare average daily census for the second quarter of 2017 increased $0.6 million, or 2.8%, and conversely our Medicaid average daily census for the second quarter of 2017 decreased $1.1 million, or 2.2%. Revenue related to ancillary services increased for the second quarter of 2017 compared to the second quarter of 2016 by $0.2 million.

Operating expense increased in the second quarter of 2017 to $113.2 million as compared to $78.4 million in the second quarter of 2016. Operating expense decreased as a percentage of revenue to 79.4% for the second quarter of 2017 as compared to 81.8% for the second quarter of 2016. The following table summarizes the expense increases attributable to our portfolio growth (in thousands):



	Three Months Ended June 30,
	2017		2016		Change
Same-store operating expense	$	76,991	$	78,385	$	(1,394	)
2016 acquisition expense	36,175		—		36,175
Total expense	$	113,166	$	78,385	$	34,781

The overall increase in operating expense of $34.8 million is primarily attributable the acquisition of the Golden Living operations in Alabama and Mississippi during the fourth quarter of 2016 of $36.2 million.

On a same-store center basis, operating expenses decreased by $1.4 million, which is attributable to a favorable variance in bad debt expense and health insurance costs of $1.0 million and $0.2 million, respectively, in second quarter of 2017 compared to the second quarter of 2016.

One of the largest components of operating expenses is wages, which increased to $65.8 million during the second quarter of 2017 as compared to $45.1 million in the second quarter of 2016, which, consistent with above, is due to acquisition activity.

Lease expense increased in the second quarter of 2017 to $13.8 million as compared to $6.9 million in the second quarter of 2016. The increase in lease expense was primarily attributable to the 22 newly leased centers in Alabama and Mississippi, which occurred during the fourth quarter of 2016.

Professional liability expense was $2.7 million and $1.9 million in the second quarters of 2017 and 2016, respectively. Our cash expenditures for professional liability costs of continuing operations were $2.3 million and $0.9 million for the second quarters of 2017 and 2016, respectively. Professional liability expense and cash expenditures fluctuate from year to year based respectively on the results of our third-party professional liability actuarial studies and on the costs incurred in defending and settling existing claims. See “Liquidity and Capital Resources” for further discussion of the accrual for professional liability.

General and administrative expense was $8.2 million in the second quarter of 2017 as compared to $6.9 million in the second quarter of 2016, an increase of $1.3 million, but conversely decreased as a percentage of revenue from 7.2% in 2016 to 5.8% in 2017. The increase in general and administrative expense is attributable to an increase in corporate wages and payroll taxes and travel by $1.3 million and $0.1 million, respectively, which is due to the acquisition of 22 new centers during the fourth quarter of 2016.

Depreciation and amortization expense was approximately $2.6 million in the second quarter of 2017 as compared to $2.1 million in 2016. The increase in depreciation expense relates to fixed assets at the newly leased centers.

Interest expense was $1.5 million in the second quarter of 2017 and $1.2 million in the second quarter of 2016, an increase of $0.3 million. The increase was primarily attributable to higher debt balances in 2017 as a result of the change in ownership processes for the newly leased Alabama and Mississippi centers.

As a result of the above, continuing operations reported income of $0.5 million before income taxes for the second quarter of 2017 as compared to a loss of $3.4 million for the second quarter of 2016. The provision for income taxes was $0.1 million for the second quarter of 2017, and the benefit for income taxes $1.3 million was for the second quarter of 2016. Both basic and diluted income per common share from continuing operations were $0.06 for the second quarter of 2017 as compared to both basic and diluted loss per common share from continuing operations of $0.35 in the second quarter of 2016.

Our net receivables balance increased $2.4 million to $64.6 million as of June 30, 2017, from $62.2 million as of December 31, 2016. The increase in accounts receivable is attributable to the 22 newly leased centers in Alabama and Mississippi.

Conference Call Information

A conference call has been scheduled for Thursday, August 3, 2017 at 4:00 P.M. Central time (5:00 P.M. Eastern time) to discuss second quarter 2017 results. The conference call information is as follows:




Date:		Thursday, August 3, 2017
Time:		4:00 P.M. Central, 5:00 P.M. Eastern
Webcast Links:		www.DVCR.com
Dial in numbers:		877.340.2552 (domestic) or 253.237.1159 (International) Conference ID: 56397676 The Operator will connect you to Diversicare’s Conference Call

A replay of the conference call will be accessible two hours after its completion through August 10, 2017, by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering Conference ID 56397676.

FORWARD-LOOKING STATEMENTS

The “forward-looking statements” contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictive in nature and are frequently identified by the use of terms such as “may,” “will,” “should,” “expect,” “believe,” “estimate,” “intend,” and similar words indicating possible future expectations, events or actions. These forward-looking statements reflect our current views with respect to future events and present our estimates and assumptions only as of the date of this release. Actual results could differ materially from those contemplated by the forward-looking statements made in this release. In addition to any assumptions and other factors referred to specifically in connection with such statements, other factors, many of which are beyond our ability to control or predict, could cause our actual results to differ materially from the results expressed or implied in any forward-looking statements including, but not limited to, our ability to successfully integrate the operations of our new nursing centers in Alabama, Mississippi, Kansas and Kentucky, as well as successfully operate all of our centers, our ability to increase census at our renovated centers, changes in governmental reimbursement, government regulation, the impact of the recently adopted federal health care reform or any future health care reform, any increases in the cost of borrowing under our credit agreements, our ability to comply with covenants contained in those credit agreements, our ability to renew or extend our leases at or prior to the end of the existing lease terms, the outcome of professional liability lawsuits and claims, our ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of proceedings alleging violations of state or Federal False Claims Acts, laws and regulations governing quality of care or other laws and regulations applicable to our business including HIPAA and laws governing reimbursement from government payors, the costs of investing in our business initiatives and development, our ability to control costs, changes to our valuation of deferred tax assets, changes in occupancy rates in our centers, changing economic and competitive conditions, changes in anticipated revenue and cost growth, changes in the anticipated results of operations, the effect of changes in accounting policies as well as others. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as well as in its other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors. These assumptions may not materialize to the extent assumed, and risks and uncertainties may cause actual results to be different from anticipated results. These risks and uncertainties also may result in changes to the Company’s business plans and prospects. Diversicare Healthcare Services, Inc. is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services.

Diversicare provides long-term care services to patients in 77 nursing centers and 8,556 skilled nursings beds. For additional information about the Company, visit Diversicare's web site: www.DVCR.com.

-Financial Tables to Follow-

DIVERSICARE HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



	June 30, 2017		December 31, 2016
	(Unaudited)
ASSETS:
Current Assets
Cash and cash equivalents	$	3,900	$	4,263
Receivables, net	64,633		62,152
Current assets of discontinued operations	42		28
Deposit in escrow	8,673		—
Other current assets	4,968		5,247
Total current assets	82,216		71,690

Property and equipment, net	60,012		59,800
Deferred income taxes	20,757		21,185
Acquired leasehold interest, net	6,883		7,075
Other assets, net	3,212		3,301
TOTAL ASSETS	$	173,080	$	163,051

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities
Current portion of long-term debt and capitalized lease obligations	$	10,373	$	7,715
Trade accounts payable	10,859		12,972
Current liabilities of discontinued operations	440		427
Accrued expenses:
Payroll and employee benefits	18,857		20,108
Current portion of self-insurance reserves	10,196		9,401
Provider taxes	2,508		3,114
Other current liabilities	5,299		4,432
Total current liabilities	58,532		58,169
Noncurrent Liabilities
Long-term debt and capitalized lease obligations, less current portion and deferred financing costs, net	81,449		72,145
Self-insurance reserves, less current portion	11,417		11,766
Other noncurrent liabilities	8,789		9,551
Total noncurrent liabilities	101,655		93,462

SHAREHOLDERS’ EQUITY	12,893		11,420

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	173,080	$	163,051

DIVERSICARE HEALTHCARE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)



	Three Months Ended June 30,
	2017			2016
PATIENT REVENUES, net	$	142,550		$	95,805
Operating expense	113,166			78,385
Facility-level operating income	29,384			17,420

EXPENSES:
Lease and rent expense	13,763			6,854
Professional liability	2,724			1,934
General and administrative	8,221			6,881
Depreciation and amortization	2,620			2,060
Lease termination costs	—			2,008
Total expenses less operating	27,328			19,737
OPERATING INCOME (LOSS)	2,056			(2,317		)
OTHER INCOME (EXPENSE):
Equity in net income of unconsolidated affiliate	—			28
Interest expense, net	(1,541		)	(1,158		)
Total other expense	(1,541		)	(1,130		)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	515			(3,447		)
BENEFIT (PROVISION) FOR INCOME TAXES	(134		)	1,297
INCOME (LOSS) FROM CONTINUING OPERATIONS	381			(2,150		)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
OPERATING LOSS	(28		)	—
NET INCOME (LOSS)	$	353		$	(2,150	)

NET INCOME (LOSS) PER COMMON SHARE:
Per common share – basic
Continuing operations	$	0.06		$	(0.35	)
Discontinued operations	—			—
	$	0.06		$	(0.35	)

Per common share – diluted	$	0.06		$	(0.35	)
Continuing operations	—			—
Discontinued operations	$	0.06		$	(0.35	)

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	0.055		$	0.055
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	6,294			6,211
Diluted	6,472			6,211

DIVERSICARE HEALTHCARE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)



	Six Months Ended June 30,
	2017			2016
PATIENT REVENUES, net	$	284,050		$	193,750
Operating expense	223,833			157,003
Facility-level operating income	60,217			36,747

EXPENSES:
Lease and rent expense	27,506			14,106
Professional liability	5,394			4,000
General and administrative	17,194			13,615
Depreciation and amortization	5,107			4,063
Lease termination costs	—			2,008
Total expenses less operating	55,201			37,792
OPERATING INCOME (LOSS)	5,016			(1,045		)
OTHER INCOME (EXPENSE):
Equity in net income of unconsolidated affiliate	—			61
Gain on sale of investment in unconsolidated affiliate	733			—
Interest expense, net	(3,024		)	(2,228		)
Debt retirement costs	—			(351		)
Total other expense	(2,291		)	(2,518		)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	2,725			(3,563		)
BENEFIT (PROVISION) FOR INCOME TAXES	(996		)	1,339
INCOME (LOSS) FROM CONTINUING OPERATIONS	1,729			(2,224		)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
OPERATING LOSS	(43		)	(37		)
NET INCOME (LOSS)	$	1,686		$	(2,261	)

NET INCOME (LOSS) PER COMMON SHARE:
Per common share – basic
Continuing operations	$	0.28		$	(0.36	)
Discontinued operations	(0.01		)	(0.01		)
	$	0.27		$	(0.37	)

Per common share – diluted	$	0.27		$	(0.36	)
Continuing operations	(0.01		)	(0.01		)
Discontinued operations	$	0.26		$	(0.37	)

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	0.11		$	0.11
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	6,263			6,185
Diluted	6,458			6,185

DIVERSICARE HEALTHCARE SERVICES, INC.

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA



	For Three Months Ended
	June 30, 2017		March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016
	(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income (loss)	$	353	$	1,333		$	1,425		$	(975	)	$	(2,150	)
Loss from discontinued operations, net of tax	28		15			13			17			—
Income tax provision (benefit)	134		862			804			(495		)	(1,297		)
Interest expense	1,541		1,483			1,373			1,201			1,158
Depreciation and amortization	2,620		2,487			2,237			1,992			2,060
EBITDA	4,676		6,180			5,852			1,740			(229		)

EBITDA adjustments:
Acquisition related costs (a)	133		85			1,492			438			150
Lease termination costs (b)	—		—			—			—			2,008
Gain on sale of unconsolidated affiliate (c)	—		(733		)	(1,366		)	—			—
Adjusted EBITDA	$	4,809	$	5,532		$	5,978		$	2,178		$	1,929



(a)	Represents non-recurring costs associated with acquisition-related transactions.
(b)	Represents non-recurring lease termination costs related to the termination of the Avon, Ohio operating lease in May 2016.
(c)	Represents non-recurring gain on the sale of an unconsolidated affiliate in November 2016.

DIVERSICARE HEALTHCARE SERVICES, INC.

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME (LOSS)

(In thousands, except per share data)



	For Three Months Ended
	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income (loss)	$	353		$	1,333		$	1,425		$	(975	)	$	(2,150	)
Adjustments:
Acquisition related costs (a)	133			85			1,492			438			150
Lease termination costs (b)	—			—			—			—			2,008
Gain on sale of unconsolidated affiliate (c)	—			(733		)	(1,366		)	—			—
Tax impact of above adjustments (d)	(53		)	(283		)	(1,000		)	(153		)	(755		)
Discontinued operations, net of tax	28			15			13			17			—
Adjusted net income (loss)	$	461		$	417		$	564		$	(673	)	$	(747	)

Adjusted net income (loss) per common share
Basic	$	0.07		$	0.07		$	0.09		$	(0.11	)	$	(0.12	)
Diluted	$	0.07		$	0.06		$	0.09		$	(0.11	)	$	(0.12	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	6,294			6,233			6,213			6,212			6,211
Diluted	6,472			6,440			6,421			6,212			6,211



(a)	Represents non-recurring costs associated with acquisition-related transactions.
(b)	Represents non-recurring lease termination costs related to the termination of the Avon, Ohio operating lease in May 2016.
(c)	Represents non-recurring gain on the sale of an unconsolidated affiliate in November 2016.
(d)	Represents tax provision for the cumulative adjustments for each period.

DIVERSICARE HEALTHCARE SERVICES, INC.

FUNDS PROVIDED BY OPERATIONS

(In thousands, except per share data, unaudited)



	Six Months Ended June 30,
	2017			2016
NET INCOME (LOSS)	$	1,686		$	(2,261	)
Discontinued operations	(43		)	(37		)
Net income (loss) from continuing operations	1,729			(2,224		)
Adjustments to reconcile net income (loss) from continuing operations to funds provided by operations:
Depreciation and amortization	5,107			4,063
Provision for doubtful accounts	4,187			3,661
Deferred income tax benefit	403			(1,689		)
Provision for self-insured professional liability, net of cash payments	(309		)	1,595
Stock based compensation	504			486
Equity in net losses of unconsolidated affiliate	—			(61		)
Gain on sale of unconsolidated affiliate	(733		)	—
Debt retirement costs	—			351
Provision for leases in excess of cash payments	(304		)	(1,093		)
Lease termination costs, net of cash payments	—			1,958
Deferred bonus	600			—
Other	247			358
FUNDS PROVIDED BY OPERATIONS	$	11,431		$	7,405

FUNDS PROVIDED BY OPERATIONS PER COMMON SHARE:
Basic	$	1.83		$	1.20
Diluted	$	1.77		$	1.20
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
Basic	6,263			6,185
Diluted	6,458			6,185

We have included certain financial measures in this press release, including EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations which are “non-GAAP financial measures” using accounting principles generally accepted in the United States (GAAP) and using adjustments to GAAP (non-GAAP). These non-GAAP measures are not measurements under GAAP. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. We define EBITDA as net income (loss) adjusted for loss (income) from discontinued operations, interest expense, income tax and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for acquisition-related, debt retirement, lease termination and lease deferral costs. We define Adjusted Net income (loss) as Net income (loss) adjusted for acquisition-related costs, lease termination costs, lease deferral costs, debt retirement costs and income (loss) from discontinued operations. Funds Provided by Operations is defined as net income from operating activities adjusted for the cash effect of professional liability and other non-cash charges. Management believes that Funds Provided by Operations is an important performance measurement because it eliminates the effect of actuarial assumptions on our professional liability reserves, includes the cash effect of professional liability payments, and does not include the effects of deferred tax benefit and other non-cash charges.

Our measurements of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations may not be comparable to similarly titled measures of other companies. We have included information concerning EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations in this press release because we believe that such information is used by certain investors as measures of a company’s historical performance. Management believes that Adjusted EBITDA and Adjusted Net income (loss) are important performance measurements because they eliminate certain nonrecurring start-up losses and separation costs. Management believes that Funds Provided by Operations is an important performance measurement because it eliminates the effect of actuarial assumptions on our professional liability reserves, includes the cash effect of professional liability payments, and does not include the effects of deferred taxes and other non-cash items. Our presentation of EBITDA, Adjusted EBITDA, Adjusted Net income (loss) and Funds Provided by Operations should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.



DIVERSICARE HEALTHCARE SERVICES, INC. SELECTED OPERATING STATISTICS (Unaudited)
Three Months Ended June 30, 2017
			As of June 30, 2017			Occupancy (Note 2)
Region (Note 1)			Licensed Nursing Beds (4)	Available Nursing Beds (4)	Skilled Nursing Weighted Average Daily Census	Licensed Nursing Beds		Available Nursing Beds		Medicare Utilization		2017 Q2 Revenue ($ in millions)		Medicare Room and Board Revenue PPD (Note 3)		Medicaid Room and Board Revenue PPD (Note 3)
Alabama			2,361	2,294	2,014	85.3	%	87.8	%	11.7	%	$	43.0	$	439.19	$	183.30
Kansas			464	464	406	87.5	%	87.5	%	10.7	%	7.8		432.42		160.12
Kentucky			1,285	1,281	1,121	87.2	%	87.5	%	14.2	%	26.7		464.48		190.44
Mississippi			1,138	1,103	1,005	88.3	%	91.1	%	14.0	%	21.1		419.80		181.71
Missouri			339	339	232	68.4	%	68.4	%	8.4	%	4.1		489.99		140.73
Ohio			404	393	342	84.6	%	87.0	%	13.2	%	9.4		492.81		190.04
Tennessee			617	551	433	70.2	%	78.6	%	16.4	%	9.6		446.61		175.72
Texas			1,845	1,662	1,196	64.8	%	71.9	%	7.9	%	20.9		505.87		141.72
Total			8,453	8,087	6,749	79.8	%	83.5	%	12.0	%	$	142.6	$	453.02	$	173.92

	Note 1:	The Alabama region includes nursing centers in Alabama and Florida. The Kentucky region includes one nursing center in Indiana.
	Note 2:	The number of Licensed Nursing Beds is based on the licensed capacity of the facility. The Company has historically reported its occupancy based on licensed nursing beds, and excludes a limited number of assisted living, independent living, and personal care beds. The number of Available Nursing Beds represents licensed nursing beds less beds removed from service. Available nursing beds is subject to change based upon the needs of the facilities, including configuration of patient rooms, common usage areas and offices, status of beds (private, semi-private, ward, etc.) and renovations. Occupancy is measured on a weighted average basis.
	Note 3:	These Medicare and Medicaid revenue rates include room and board revenues, but do not include any ancillary revenues related to these patients.
	Note 4:	The Licensed and Available Nursing Bed counts above include only licensed and available SNF beds.

Nasdaq: DVCR Investor Update As of June 30, 2017

Nasdaq: DVCR Forward-looking statements made in this presentation involve a number of risks and uncertainties, but not limited to, our ability to successfully integrate the operations of our new nursing centers in Alabama, Mississippi, Kansas and Kentucky, as well as successfully operate all of our centers, our ability to increase patients served at our renovated centers, changes in governmental reimbursement, government regulation, the impact of the recently adopted federal health care reform or any future healthcare reform, any increases in the cost of borrowing under our credit agreements, our ability to comply with covenants contained in those credit agreements, our ability to renew real estate investment trust leases under reasonable terms, the outcome of professional liability lawsuits and claims, our ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of proceedings alleging violations of state or Federal False Claims Acts, laws and regulations governing quality of care or other laws and regulations applicable to our business including laws governing reimbursement from government payers, the costs of investing in our business initiatives and development, our ability to control costs, changes to our valuation of deferred tax assets, changes in occupancy rates in our centers, changing economic and competitive conditions, changes in anticipated revenue and cost growth, changes in the anticipated results of operations, the effect of changes in accounting policies as well as other risk factors detailed in the Company's Securities and Exchange Commission filings. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as well as in other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors that could cause actual results to differ materially from those indicated in the forward-looking statements. Forward-Looking Statements 2

Nasdaq: DVCR Leading Skilled Nursing Provider Compelling Demographic Trends Management’s Strategic Vision Yielding Results Improving Patient Quality Measures, Census And Skilled Mix Demonstrated Ability To Grow And Enhance Portfolio Positively Trending Financial Results Investment Highlights 3

Nasdaq: DVCR • Joined Diversicare in 2012 • 20+ years of experience in the LTC industry • Previous senior leadership positions at: ‒ Golden Living • Licensed Physical Therapist • Licensed Nursing Home Administrator Executive Leadership • Joined Diversicare in 2012 • 10+ Years of senior finance positions in the healthcare industry • Previous senior leadership positions at: ‒ NuscriptRX ‒ Take Care Health Systems ‒ I-TRAX, Inc. (CHD Meridian) • Joined Diversicare in 2010 • 25 Years+ of experience in the LTC industry • Previous senior leadership positions at: ‒ Beverly ‒ Living Centers of America ‒ Skilled Healthcare • SNF – Rehab - Hospice Jay McKnight Chief Financial Officer Kelly Gill CEO, President & Director Leslie Campbell Chief Operating Officer 4

Nasdaq: DVCR NE CO OK LA FL (1) IA IL KS (6) OH (5) IN (1) MO (3) AR KY (13) TN (5) PA MS (11) AL (19) SC NC GA VA WV TX (13) 5 Diversicare as of June 30, 2017 2016 YTD Revenue $193.8M – 2017 YTD Revenue $284.1M; 46.6% Growth Currently – 76 SNFs, 1 ALF – 8,556 Licensed Skilled Nursing Beds – 10 States Headquartered in Brentwood, TN

Nasdaq: DVCR 6 Company Profile  Operating since 1989  NASDAQ Listed Company since 1994 Symbol: DVCR  Added to Russell Microcap Index in 2014  52 week range $6.41 – $12.82  Historically paid $0.22 annual dividend  Headquartered in Brentwood, TN

Nasdaq: DVCR 7 Long Term Care Industry Overview • Compelling Demographic Trends • High Quality Clinical Outcomes • Relative Low Cost of Care

Nasdaq: DVCR 8 Compelling Industry Demographics Risi n g Deman d St able Su p pl y Sources: AHCA, CMS OSCAR Data and US Census Bureau, US Administration on Aging 15,000 15,500 16,000 16,500 17,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 Number of Skilled Nursing Facilities 0 20 40 60 80 100 1990 2000 2010 2020E 2030E 2040E 2050E 2060E Age 65+ Population (in millions)

Nasdaq: DVCR 9 • Long term care spending continues to increase ‒ Medicare and Medicaid expenditures for SNFs expected to grow 65% from 2015 to 2025 ‒ Annual spending on older adults is expected to increase 250% by 2040 Sources: Medpac and US HHS Department Compelling Industry Demographics 20.0 30.0 40.0 50.0 60.0 70.0 80.0 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Medicare and Medicaid SNF Spending (in billions) Medicare Medicaid

Nasdaq: DVCR 10 Relative Cost Per Case of Treatment Across Post-Acute Care Providers Sources: Medpac and US HHS Department $0 $20 $40 $60 $80 $100 $120 Stroke Hip Fracture Joint Replacement Respiratory w/ Vent Tracheotomy w/ Vent $9 $9 $11 $6 $10 $34 $34 $18 $17 $26 $31 $31 $45 $67 $115 SNF IRF LTAC SNFs are recognized as high quality, low cost provider of institutional post-acute care

Nasdaq: DVCR 11 Company Overview • Mature Company • Provides a full spectrum of post-acute healthcare services • Robust operating platform capable of significant growth expansion

Nasdaq: DVCR Investments made in internal improvements and scalability position Diversicare for external growth Launched Q3 2010 Today Expanded Focus Now On Portfolio Growth Retooling: Areas of Focus Platform Development Operational Improvement Facility Renovations Key Strategic Accomplishments 12

Nasdaq: DVCR Implement an Electronic Medical Record (EMR) Solution Centralization of Key Processes People – Processes – Resources Completed – Company repositioned for rapid growth Platform Development and Operational Improvements 13

Nasdaq: DVCR 14 Key Results and Outcomes • Improved Quality Measures • Improved patient mix and reimbursement rates • Improved operating and G&A leverage • Demonstrated growth through acquisitions

Nasdaq: DVCR Results for Legacy Centers: 5 Star Quality Measures Relative to For-Profit Peer Group 15 Diversicare is an industry leader in 5 Star Quality Measures outcomes. 3.97 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.0 4.1 Overall QM Rating DVCR Industry For-Profit Not-For-Profit

Nasdaq: DVCR Results for All Centers: 5 Star Quality Measures Relative to For-Profit Peer Group 16 3.57 3.3 3.4 3.5 3.6 3.7 3.8 Overall QM Rating DVCR Industry For-Profit Not-For-Profit Diversicare is an industry leader in 5 Star Quality Measures outcomes.

Nasdaq: DVCR A – Resulting from a 2% decrease in rates as a result of sequestration beginning April 1, 2013. Results: Rate Increases Driven By Higher Acuity • Medicare rate growth driven by acuity • 16.6% Increase from FY10 Q3 to FY17 Q2 • 3.9% CAGR 17 A $380 $430 $480 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 $388 $453 Medicare Rate Per Day Medicare Rate Per Day RUGS IV Final Rule Impact

Nasdaq: DVCR • Medicaid rates driven by acuity • 17.4% Increase from FY10 Q3 to FY17 Q2 • 4.1% CAGR Results: Rate Increases Driven By Higher Acuity 18 $145 $150 $155 $160 $165 $170 $175 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 $148 $174 Medicaid Rate Per Day Medicaid Rate Per Day

Nasdaq: DVCR Results: Growth in Operated Facilities • Our ability to integrate facilities onto our platform is proven by our growth and early accretion of new facilities. • We acquired 22 facilities in the fourth quarter of 2016. • On July 1, 2017, we acquired a facility located in Selma, Alabama, which is not reflected in the graph above. 19 45 30 35 40 45 50 55 60 65 70 75 80 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 76

Nasdaq: DVCR Acquisitions are Accretive to earnings within a quarter of acquisitions date – the exceptions being development opportunities like new construction, major renovations, etc. Demonstrated Platform Scalability by successful implementation of new facilities New Facility Integration, including EMR, implemented during the first quarter of operations at new facilities Results: Impact Of New Centers 20

Nasdaq: DVCR Results: Revenue Impact of Acquisitions 21 * For the purposes of this chart, the “same-store group” represents all centers operated by the Company prior to January 1, 2015. $- $20 $40 $60 $80 $100 $120 $140 $160 Q1 ’14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Quarterly Revenue Same-store group* 2015 Acquisitions (3) 2016 Acquisitions (22)

Nasdaq: DVCR *Same-Store group represents all nursing centers acquired by the Company prior to January 1, 2016. Results: New Centers and Same-Store 22

Nasdaq: DVCR Results: Revenue Growth and Operating Leverage • Continued Company-wide cost reduction efforts in place o Diligent vendor management and product selection criteria o Centralized purchasing functions drive consistency through all facilities o Revenue and operating expenses increased in the fourth quarter due to the acquisition of 22 new centers 23 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% $30.0 $50.0 $70.0 $90.0 $110.0 $130.0 $150.0 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Revenue and Facility-Level Operating Profit Revenue Operating Profit (%)

Nasdaq: DVCR • Continued G&A reduction efforts in place o Right-sized overhead structure for new portfolio o Centralized core functions to leverage skilled teams • Savings from G&A reductions funded strategic investments Results: G&A Leverage 24 A –G&A expenses increased in the third quarter of 2016 due to preparation for our acquisition activity of 22 centers in the fourth quarter. 5.8% 5.0% 6.0% 7.0% 8.0% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 G&A Expense as a % of Revenue A

Nasdaq: DVCR 25 Current Areas of Focus • Continuous quality improvement • Enhancing existing portfolio • Growth through accretive acquisitions

Nasdaq: DVCR Continuous improvement of Quality Measures Continue to drive volume of patients served Improve skilled mix / provide high-acuity services Ongoing renovations of existing facilities Continue to Enhance Existing Portfolio 26

Nasdaq: DVCR Achieved goal of doubling the size of the Company in 3 years Target: 5-10 new facilities per year Active acquisition pipeline Expanded operating infrastructure = Scalability Structure flexibility = Several sources of financial capacity Portfolio Growth 27

Nasdaq: DVCR • Full Ownership Of Assets • Participate In Value Appreciation • Enhance Facility Ownership Fee-Simple Acquisitions • Minimal Capital Required • Leverage Turnaround Capabilities • Leverage Strong REIT Relationships Assumption of Long-Term Operating Leases 2010 Today 20% 23% 80% 77% Flexible Structure Broadens Pipeline 28 Acquisition Types

Nasdaq: DVCR 29 Summary • Improved operational and financial results • Attractive investment dynamics • Repositioned for the future

Nasdaq: DVCR Key Financial and Operating Statistics 30 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Average Daily Census 6,749 6,770 6,402 4,592 4,595 Total Average Daily Census – Medicare & Managed Care 1,053 1,065 938 684 699 Skilled Mix % 15.6% 15.7% 14.6% 14.9% 15.2% Occupancy (Available Beds) 83.5% 80.1% 80.3% 80.4% 79.1% Medicare Rate Per Day $453.02 $451.26 $458.47 $455.69 $456.91 Medicaid Rate Per Day $173.92 $173.75 $173.05 $169.51 $168.36 Revenue (Millions) $142.6 $141.5 $135.0 $97.3 $95.8 Facility Level Operating Profit $29.4 $30.8 $28.5 $17.9 $17.4 G&A % of Revenue 5.8% 6.3% 6.8% 7.6% 7.2% Net Income (Loss) $0.4 $1.3 $1.4 $(1.0) $(2.2) Adjusted EBITDAR $18.6 $19.3 $18.4 $9.1 $8.8 Adjusted EBITDA $4.8 $5.5 $6.0 $2.2 $1.9

Nasdaq: DVCR Appendix A: Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR 32 (a) Represents non-recurring costs associated with acquisition-related transactions. (b) Represents non-recurring lease termination costs related to the termination of the Avon, Ohio operating lease in May 2016. (c) Represents non-recurring gain on the sale of an unconsolidated affiliate sold in November 2016.