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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 1,603,346
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,603,346
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11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,603,346
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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)
8.2%
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14 Type of Reporting Person (See Instructions)
HC
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CUSIP No. 00650W300
------------------------------------------------
--------------------------------------------------------------------------
1 Name of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only)
Doucet Asset Management, LLC 03-0600882
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2 Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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3 SEC Use Only
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4 Source of Funds (See Instructions)
IA
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5 Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)[ ]
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6 Citizen or Place of Organization
Delaware, US
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Number of 7 Sole Voting Power 0
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Shares
Beneficially 8 Shared Voting 1,603,346
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Owned by
Each 9 Sole Dispositive Power 0
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Reporting
Person With 10 Shared Dispositive Power 1,603,346
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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) [ ]
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13 Percent of Class Represented by Amount in Row (11)
8.2%
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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 1,603,346
--------------------------------------------------------
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) [ ]
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13 Percent of Class Represented by Amount in Row (11)
8.2%
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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 1,603,346
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Owned by
Each 9 Sole Dispositive Power 0
--------------------------------------------------------
Reporting
Person With 10 Shared Dispositive Power 1,603,346
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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
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Item 1. Security and Issuer
The class of equity to which this statement relates is the common stock
$0.001 par value (the "Common Stock") of Adcare Health Systems. Inc.
(the "Company"), which has its principal executive offices at:
1145 Hembree Road
Roswell, GA 30076
Item 2. Identity and Background
Doucet Capital LLC, Doucet Asset Management LLC, Christopher L. Doucet,
and Suzette A. Doucet are the persons filing this statement. Doucet
Capital is a holding company which owns Doucet Asset Management LLC, a
SEC registered investment adviser firm that exercises discretionary
authority over client investments. Both firms are limited liability
companies organized under the laws of the state of Delaware. Christopher
L. Doucet is the managing member of Doucet Capital LLC and Chief Execu-
tive Officer of Doucet Asset Management. Suzette A. Doucet is a member
of Doucet Capital and the Chief Financial Officer of Doucet Asset Manage-
ment. As such, Mr. and Mrs. Doucet control the activities of Doucet
Capital and Doucet Asset Management. Both Mr. and Mrs. Doucet are US
citizens. The business address of each of the Reporting Persons is
2204 Lakeshore Drive, Suite 304, Birmingham, Alabama 35209.
During the last five years, neither of the Reporting Persons has been (a)
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (b) a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation
with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
As of June 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
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Name: Christopher L. Doucet
Title: Managing Member
DOUCET ASSET MANAGEMENT, LLC
By: Doucet Capital, LLC,
its managing member
/S/ Christopher L. Doucet
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Name: Christopher L. Doucet
Title: Managing Member
CHRISTOPHER L. DOUCET
/S/ Christopher L. Doucet
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Christopher L. Doucet, individually
SUZETTE A. DOUCET
/S/ Suzette A. Doucet
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Suzette A. Doucet, individually
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