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AdCare Transitioning to a Health Care Facilities Holding Company

New Business Model Designed To Optimize Cash Flow and Unlock Shareholder Value
July 25, 2014
AdCare Health Systems Inc., an Atlanta-based provider of senior living and health care facility management, plans to transition a health care property holding and leasing company.

Through a series of sale/leasebacks, the operations of the company’s currently owned and operated health care facilities, which are principally skilled nursing facilities, will be transitioned to third parties, and the properties AdCare leases will be sub-leased.

As of year-end 2013, AdCare operated or managed 46 facilities comprised of 43 skilled nursing facilities, two assisted living facilities and one independent living/senior housing facility totaling approximately 4,700 beds. Of those facilities, it owned 26, leased nine and managed 11.

The company said it believes this new business model will help the company unlock shareholder value by reducing risk, enhancing cash flow and enabling the company to return cash to shareholders through a quarterly dividend.

“Over the last several months, the board of directors has actively evaluated a number of strategic alternatives to unlock long-term shareholder value, including a possible sale of the company,” stated David Tenwick, AdCare’s chairman and interim CEO. “It became clear that the company’s historical structure as an owner/operator was not conducive to maximizing value.”

The board identified several such elements including high ongoing expenses, execution risk, and the fact that potential REIT buyers would have to find operators to manage all of AdCare’s properties.

“These factors reduced the number of potential parties interested in acquiring all or part of the company,” Tenwick said. “After careful analysis and consideration, the board unanimously agreed to exit the day-to-day management of our health care facilities and begin transitioning the company to a health care property holding and leasing company.”

This structure requires significantly less working capital enabling, while allowing the company to pursue strategic acquisitions, he added.

AdCare has identified and commenced discussions with regional operators to lease its facilities in Ohio, Oklahoma and Arkansas, representing 18 of the company’s 34 facilities.

Furthermore, certain regional operators in other markets, including Alabama, Georgia and South Carolina, have contacted the company to discuss leasing the company’s facilities in these regions.

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