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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 1,611,925
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,611,925
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,611,925
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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)
8.4%
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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
--------------------------------------------------------
Shares
Beneficially 8 Shared Voting 1,611,925
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Owned by
Each 9 Sole Dispositive Power 0
--------------------------------------------------------
Reporting
Person With 10 Shared Dispositive Power 1,611,925
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,611,925
--------------------------------------------------------------------------
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)
8.4%
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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
--------------------------------------------------------
Shares
Beneficially 8 Shared Voting 1,611,925
--------------------------------------------------------
Owned by
Each 9 Sole Dispositive Power 0
--------------------------------------------------------
Reporting
Person With 10 Shared Dispositive Power 1,611,925
--------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,611,925
--------------------------------------------------------------------------
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
--------------------------------------------------------------------------
13 Percent of Class Represented by Amount in Row (11)
8.4%
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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
--------------------------------------------------------------------------
4 Source of Funds (See Instructions)
IN
--------------------------------------------------------------------------
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
--------------------------------------------------------
Shares
Beneficially 8 Shared Voting 1,611,925
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Owned by
Each 9 Sole Dispositive Power 0
--------------------------------------------------------
Reporting
Person With 10 Shared Dispositive Power 1,611,925
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,611,925
--------------------------------------------------------------------------
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
--------------------------------------------------------------------------
13 Percent of Class Represented by Amount in Row (11)
8.4%
--------------------------------------------------------------------------
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 January 19, 2016 Doucet Asset Management has acquired 1,611,925
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
January 19, 2016
AdCare Health Systems
Attention Board of Directors
3050 Peachtree Road NW
Suite 355
Atlanta, GA 30305
Dear Board of Directors:
According to SEC filings, Doucet Asset Management is the largest
holder of ADK stock. In addition to the holdings in common stock
held personally and in managed accounts, we also placed millions
of dollars in the preferred securities, convertible notes and have
purchased many shares on behalf of our broker dealer clients.
Sufficed to say, we have a large interest in seeing ADK succeed and
are determined to see a positive outcome for all holders of all
security holders of the Company.
Let me begin by congratulating Bill and his management team on
completing the strategic plan initiated by the Board and announced
by the Company in July, 2014. It has been a difficult journey for
investors, but a better Company has emerged from the restructuring.
Bill proved to be the right man for the job.
I was relieved to see Bill and his team clean up two legacy issues
and was encouraged to see the Company finally begin buying back some
stock on the open market two weeks ago. While I am not typically a
fan of stock buybacks, I believe ADK is the poster child of the Company
where it makes sense to do so. The Company could easily fetch twice the
current stock price in the open market and every 500,000 shares of
common stock purchased in the open market adds an additional 10 cents
to the stock price of the remaining shareholders price when the Company
is sold.
Since the Board announced their strategic plan to the public in the
summer of 2014, the stock is down about 60% from $5.00 per share to
around $2 per share today. The transition from an operating Company to
a property and lease holding company is done. The Company is in a much
better place than it was 18 months ago, and most of the legacy issues
of the Company are now memories. Now it is time to maximize stockholder
value through a sale of the Company. Perhaps not selling the Company
before the transition was done was to protect the operations and made
sense. Now that these issues are behind us and we are no longer
operators of skilled nursing home properties that excuse is gone and we
would like to see the Company sold.
I would have been happy to express these sentiments to all of the Board
members in person at the annual meeting this past December, but only 50%
of you were even present at the meeting. Further, as evidenced by the
questions and responses from the management January 5th conference call
with investors, the amount of discontent among the stockholder base
has probably hit an apex as the stock price is trading near multi-year
lows. The time has come to adhere to the wishes of the owners of the
company, the shareholders, and maximize stockholder value by selling
the company. Furthermore, the Board should immediately make it known to
shareholders their intent to fulfill the wishes of shareholders in public
disclosures.
Based on our research, there are two ways potential buyers might value
ADK: A Cap Rate Basis and a multiple of AFFO. Both would translate into
a price significantly higher than the stock currently trades today.
Cap Rate Basis
On the Omega Healthcare (NYSE: OHI) most recent quarterly conference call,
the CEO stated the following:
Turning to the deal environment. We have seen a handful of
large transactions priced in the 7% yield range. While
we have a couple of mid-sized pipeline transactions
that were priced in the mid 8% yield range, our deal pricing
for new transactions is likely to be higher. Smaller
skilled nursing facility transactions will likely price
in the 9s with mid-sized deals in the high 8s.
So if we assume the cap rates in the market have weakened since November in
skilled nursing facilities, we might want to use a 7.5 to 9 cap range instead
of a 7 to mid 8 range.
Management has given guidance to the Street suggesting the Company revenue
is expected to be in the range of between $31-31.8 million and lease expenses
of $8 million implying net operating income of $23.4 million assuming you use
the mid-point in revenues of $31.4 million. My assumption is you would have to
include and additional $500k in lease expenses for the Ohio properties to be
conservative giving you an adjusted NOI of $22.9 million. Based on cap rates
ranging from 7.5 to 9.0 and assuming 20 million shares outstanding, we come up
with the following values after paying off the debt and the preferred
securities at par:
Cap Rate Gross Value Net Debt Net Px Per Share
7.5 $305.33mm $163mm $162.33mm $7.11
8.0 $286.25mm $163mm $123.25mm $6.16
8.5 $269.41mm $163mm $100.41mm $5.32
9.0 $254.44mm $163mm $91.44mm $4.57
FFO Multiple
Based on the past operating history by the Company, I think investors would
all agree the Company made the right move by outsourcing the management of
the facilities to good operators and becoming a property and lease holding
Company. While it is my firm belief we received discounted lease rates
reflective of our poor past operating history, it was the right thing to
do. This is just one more reason why I believe the stock is undervalued.
Management reiterated its guidance of $.25 to $.30 in AFFO post transition.
It is remarkable the Company will be able to produce this much AFFO given
the high blended cost of capital of (7.33% based on our estimates which
is hundreds of basis points over the market) and G&A as a percentage of
revenue around 15% (versus a market average of around 5%). AFFO would be
increased by about 33 cents a share just by lowering borrowing costs by
200 basis points and lowering G&A to the market average of 5% of revenues.
This would represent an increase of over 100% in AFFO. According
to Bloomberg, the market currently values for Skilled Nursing Facilities
at around 15 x AFFO. If the Company were able to lower its cost of capital
and rid itself of layers of G&A, it could easily trade in the $7s or even
$8s. However, even if an acquirer does not pay a market premium for the
Company and does not give ADK any of the benefits from cost savings an
acquirer would realize in interest costs and lower G&A,the stock would
still trade around $4.12 (assuming the mid-point in AFFO of $.275).
Conclusion
Based on these two valuation methods, investors would expect to see a price of
between $4.12 on the low side and the $8s on the high side in the ordinary
course of business. Whatever the case is, it is clear the stock would command
a much higher value than the market is willing to give it given the inaction on
the part of management to market the Company to the investing public and talk
to the market about the Companys value proposition. However, investors can
realize full value for their holdings if the Company is sold. Therefore, the
simplest solution for all parties involved would be to put out an announcement
that you are selling the Company or communicate to the public your intention
to hire an investment banker to sell the Company. Please do it immediately and
announce your intention to the public. Investors have lived through this black
box of information and a cloud of frustration for way too long. If you
disagree, please resign and allow investors to replace you with members who
represent the interests of all shareholders. I will be anxiously awaiting
your response.
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 January 19, 2016 Doucet Capital,
Doucet Asset Management, Christopher L. Doucet, and Suzette A. Doucet
were the beneficial owners of 1,611,925shares of Common Stock, which
constitute in the aggregate 8.4% of the outstanding shares of Common
Stock of the Company based on 19,151,000 shares of Common Stock
Outstanding pursuant to the Form 10-Q for the quarterly period ending
September 30, 2015 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: Januray 19, 2016
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
---------------------------
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
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Suzette A. Doucet, individually
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