AdCare Reports Second Quarter Results

Transition Nears Completion with Signed Agreements for All 40 Facilities; Transfer of Five Facilities Completed August 1st as Expected

Provides Post-Transition Financial Guidance

Aug 12, 2015, 07:00 ET from AdCare Health Systems, Inc.

ATLANTA, Aug. 12, 2015 /PRNewswire/ -- AdCare Health Systems, Inc. (NYSE MKT: ADK)(NYSE MKT: ADK.PRA), a self-managed healthcare real estate investment company that invests primarily in real estate purposed for senior living and long-term healthcare, today reported results for the second quarter ended June 30, 2015. The company also provided post-transition financial guidance.

Business Highlights

  • On June 30, 2015, the Board of Directors declared a cash dividend of $0.055 per share of common stock, payable on July 31, 2015. This quarterly dividend, if annualized, would represent an annual dividend of $0.22 per share, or a dividend yield of 5.7% (based on the closing stock price on August 11, 2015 of $3.85 per share).
  • The company expects that 2015 dividends will be considered a return of capital for federal income tax purposes.
  • The company expects post-transition annual revenues between $30.0 and $30.8 million.
  • The company has entered into agreements for all 40 of the healthcare facilities it owned, operated or managed before the transition commenced. Of these, 32 facilities have been transferred to third-party operators, or are under management agreements with indefinite terms, and one has been sold. Transfer of operations of six facilities remains in progress, and one facility is expected to be sold during the fourth quarter.

"The mid-point of 2015 marks a pivotal point in our company's evolution as we have effectively completed what we set out to do nearly a year ago, to transition our business model from an owner and operator of healthcare facilities to a healthcare property holding and leasing company," stated Bill McBride, AdCare's Chairman and Chief Executive Officer. "Witnessing the progress we began making earlier this year, the company delivered on its commitment to return capital to shareholders by declaring a $0.05 per share dividend at the end of the first quarter, followed by a $0.055 per share dividend at the end of the second quarter."

"With all remaining facilities under lease agreements or sales contracts and on track to transition to third-party operators or close before year-end, the company now has the necessary information to provide the investment community with an update to its post-transition financial model," continued McBride.

"As we move forward, we believe we are now able to begin focusing our attention on building a strong pipeline of potential acquisition targets to expand our portfolio of properties beyond the 39 we own, lease or manage today," McBride added. "Our next step towards growth will be the active identification, screening and evaluation of single facilities and larger portfolios of properties that meet our defined criteria for shareholder returns and portfolio management. Simultaneously, we are evaluating a number of shareholder value-enhancing initiatives, including modifying its current leases, refinancing existing indebtedness, and other potential changes."

2015 Dividends

On March 31, 2015, the Board of Directors declared a cash dividend of $0.05 per share of common stock, payable on April 30, 2015. On June 30, 2015, the Board of Directors declared a cash dividend of $0.055 per share of common stock, payable on July 31, 2015. The most recent quarterly dividend, if annualized, would represent an annual dividend of $0.22 per share, or a dividend yield of 5.7% (based on the closing stock price on August 11, 2015 of $3.85 per share).

Based on the company's projected current and accumulated negative earnings and profits (E&P) tax position, the company expects cash dividends paid to common stockholders for 2015 (and until such time that the company may have positive current or accumulated E&P) should be treated as a return of capital to stockholders to the extent available for federal income tax purposes.

Post-transition Financial Guidance

Once operations for the remaining six properties have been transitioned to third-party operators, and the company closes on the sale of a property in Oklahoma, the company expects:

  • Annual Revenue between $30.0 and $30.8 million.
  • Annual Rent expense of approximately $8.0 million.
  • Annual General and Administrative expense between $4.5 and $4.8 million.
  • Annual Net interest expense between $7.1 and $7.2 million.
  • Annual Preferred dividends of approximately $5.9 million.
  • Annual Adjusted FFO per share between $0.25 and $0.30.

(See "Use of Non-GAAP Financial Information" below for the definition of Adjusted FFO, a non-GAAP financial measure, as well as an important discussion about the use of this measure and its reconciliation to GAAP net loss, the most directly comparable GAAP financial measure).

Transition Summary

  • The company has entered into agreements for all 40 of the healthcare facilities it owned, operated or managed before the transition commenced.
    • Thirty-two facilities have transferred operations to third-party operators or are under management contracts with an indefinite term.
    • One facility in Arkansas has been sold.  
    • The transfer of operations of two facilities in Georgia is expected to occur on September 1, 2015, subject to receipt of landlord consent and state regulatory approvals.  
    • The company expects to transition operations of one facility in Arkansas to a third-party operator in the third quarter of 2015, subject to receipt of state regulatory approvals. 
    • The transfer of operations of one facility in Georgia is subject to HUD approval and receipt of state regulatory approvals and is expected to occur in the third quarter of 2015. 
    • The company expects to transition operations of two facilities in Oklahoma to a third-party operator during the fourth quarter of 2015, subject to receipt of state regulatory approvals. 
    • The company expects to close the sale of one facility in Oklahoma in the fourth quarter of 2015, subject to certain termination provisions and closing conditions. 

Summary Financial Results for the Three and Six Months Ended June 30, 2015

Tables reporting the full financial results, reflecting the legacy business model, are included in this press release and in the company's Quarterly Report on Form 10-Q, to be filed with the U.S. Securities and Exchange Commission. Beginning with the quarter ended June 30, 2015, AdCare began reporting the operations that have been transitioned to third-party operators as discontinued operations. For facilities that were transferred during the period, patient care revenues and expenses have been reported as discontinued operations up to the date of transfer; subsequent to date of operations transfer, rental revenues were recognized.

Revenues in the second quarter of 2015 were $23.3 million, up 16.2% from $20.1 million in the second quarter of 2014. Rental revenues of $4.2 million represented 18.0% of total revenues in the second quarter of 2015 compared with $296,000, or 1.5% of total revenues, in the prior year period. Revenues for the first six months of 2015 were $44.1 million, up 9.4% from $40.3 million in the prior year period. Rental revenues of $5.5 million represented 12.6% of total revenues in the first six months of 2015 compared with $593,000, or 1.5% of total revenues, in the prior year period.

Adjusted EBITDA from continuing operations in the second quarter of 2015 totaled $2.2 million compared with $(0.8) million in the second quarter of 2014. Adjusted EBITDA from continuing operations for the first six months of 2015 totaled $2.0 million compared to $(1.4) million for the first six months of 2014. (See "Use of Non-GAAP Financial Information" below for the definition of Adjusted EBITDA from continuing operations, a non-GAAP financial measure, as well as an important discussion about the use of this measure and its reconciliation to GAAP net loss, the most directly comparable GAAP financial measure).

The net loss attributable to common stockholders-continuing operations totaled $3.4 million, or $0.17 per basic and diluted share, in the second quarter of 2015 compared with a net loss of $7.4 million, or $0.43 per basic and diluted share, in the second quarter of 2014. For the first six months of 2015, the net loss attributable to common stockholders-continuing operations totaled $9.4 million, or $0.48 per basic and diluted share, compared with a net loss of $14.0 million, or $0.81 per basic and diluted share in the year ago period.  

Cash and cash equivalents at June 30, 2015 totaled $15.3 million compared with $10.7 million at December 31, 2014. Restricted cash and investments at June 30, 2015 totaled $14.4 million, as compared with $8.8 million at December 31, 2014. Total debt outstanding at June 30, 2015 totaled $146.3 million (which includes $9.4 million in liabilities of disposal group held for sale and $5.9 million in liabilities of a variable interest entity held for sale), as compared with $151.4 million at December 31, 2014 (which includes $4.0 million in liabilities of disposal group held for use, $5.2 million in liabilities of disposal group held for sale and $6.0 million in liabilities of a variable interest entity held for sale).

Conference Call and Webcast

AdCare will hold a conference call to discuss its second quarter financial results today, Wednesday August 12, 2015 at 9 a.m. ET.

  • Dial-in number: 1-888-428-9498 (domestic) or 1-719-325-2462 (international)
  • Replay number: Dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international). Please use passcode 8582292 to access the replay. The replay will be available until August 19, 2015.
  • Webcast link: http://public.viavid.com/index.php?id=115628

About AdCare Health Systems

AdCare Health Systems, Inc. (NYSE MKT: ADK) (NYSE MKT: ADK.PRA) is a self-managed healthcare real estate investment company that invests primarily in real estate purposed for senior living and long-term healthcare through facility lease and sub-lease transactions. The company currently owns, leases or manages for third parties 39 facilities, primarily in the Southeast. For more information about AdCare visit www.adcarehealth.com.

Important Cautions Regarding Forward-Looking Statements

Statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of federal law. Such statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "plans," "intends," "anticipates" and variations of such words or similar expressions, but their absence does not mean that the statement is not forward-looking. Statements in this press release that are forward-looking include, among other things, statements regarding the company's transition to a healthcare facilities holding and leasing company, statements regarding the transfer of operations to third-party operators, statements regarding acquisition opportunities, statements regarding any dividend, and statements regarding the company's future financial condition or results of operations.  Such forward-looking statements reflect management's beliefs and assumptions and are based upon information currently available to management and involve known and unknown risks, results, performance or achievements of AdCare, which may differ materially from those expressed or implied in such statements. Such factors are identified in the public filings made by AdCare with the Securities and Exchange Commission, including AdCare's Annual Report on Form 10-K for the year ended December 31, 2014. There is no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements. Except where required by law, AdCare undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this press release.

References to the consolidated company and its assets and activities, as well as the use of terms such as "we," "us," "our," and similar verbiage, is not meant to imply that AdCare Health Systems, Inc. has direct operating assets, employees or revenue or that any of the facilities, the home health business or other related businesses are operated by the same entity.

Use of Non-GAAP Financial Information

For purposes of the Securities and Exchange Commission's regulations, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented.

"Adjusted EBITDA from continuing operations" is a measure of operating performance that is not calculated in accordance with U.S. generally accepted accounting principles ("GAAP").  The company defines "Adjusted EBITDA from continuing operations" as net income (loss) from continuing operations before interest expense, income tax expense, depreciation and amortization (including amortization of non-cash stock-based compensation), loss on extinguishment of debt and other non-routine adjustments.  Adjusted EBITDA from continuing operations should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by, or used in, operations as determined in accordance with GAAP. 

The company believes Adjusted EBITDA from continuing operations is useful to investors in evaluating the company's performance, results of operations and financial position for the following reasons:

  • It is helpful in identifying trends in the company's day-to-day performance because the items excluded have little or no significance to the company's day-to-day operations;
  • It provides an assessment of controllable expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and
  • It provides data that assists management to determine whether or not adjustments to current spending decisions are needed.

Funds from Operations ("FFO") and Adjusted Funds from Operations ("Adjusted FFO") are also measures of operating performance that are not calculated in accordance with GAAP. The company calculates and reports FFO in accordance with the definition and interpretive guidelines issued by the National Association of Real Estate Investment Trusts ("NAREIT"), and consequently, FFO is defined as net income (loss) from continuing operations attributed to common stockholders, adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairments on real estate assets. Adjusted FFO is calculated as FFO adjusted for the impact of non-cash stock-based compensation and other non-routine adjustments. The company believes this measure provide an enhanced measure of the operating performance of the Company's core portfolio. The Company's computation of Adjusted FFO is not comparable to the NAREIT definition of FFO or to similar measures reported by many REITs, but the company believes that is appropriate measure for this company.

The company believes that FFO and Adjusted FFO are important supplemental measures of its operating performance. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions. The term FFO was designed by the real estate industry to address this issue. FFO described herein is not necessarily comparable to FFO of real estate investment trusts that do not use the same definition or implementation guidelines or interpret the standards differently from the company.

The company uses FFO and Adjusted FFO among the criteria to measure the operating performance of its business. The company further believes that by excluding the effect of depreciation, amortization, impairments on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO and Adjusted FFO can facilitate comparisons of operating performance between periods and between the company and many REITs. The company offers these measures to assist the users of its financial statements in analyzing its operating performance and not as measures of liquidity or cash flow. FFO and Adjusted FFO are not measures of financial performance under GAAP and should not be considered as measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with GAAP. Investors and potential investors in the company's securities should not rely on this measure as a substitute for any GAAP measure, including net income.

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000's)



June 30,

December 31,

ASSETS

2015

2014


(Unaudited)


Current assets:



Cash and cash equivalents

$    15,340

$        10,735

Restricted cash and investments

8,354

3,321

Accounts receivable, net of allowance of $10,903 and $6,708

16,654

24,294

Prepaid expenses and other

3,327

1,766

Deferred tax assets

569

569

Assets of disposal group held for use

-

4,592

Assets of disposal group held for sale

10,242

5,813

Assets of variable interest entity held for sale

5,894

5,924

  Total current assets

60,380

57,014




Restricted cash and investments

6,009

5,456

Property and equipment, net

128,693

130,993

Intangible assets - bed licenses

2,471

2,471

Intangible assets - lease rights, net

3,754

4,087

Goodwill

4,224

4,224

Lease deposits

1,816

1,683

Deferred loan costs, net

3,491

3,464

Other assets

2,286

569

  Total assets

$  213,124

$      209,961




LIABILITIES AND EQUITY / (DEFICIT)






Current liabilities:



Current portion of notes payable and other debt

$      6,259

$          2,436

Current portion of convertible debt, net of discounts

4,482

14,000

Revolving credit facilities and lines of credit

1,542

5,576

Accounts payable

13,915

16,434

Accrued expenses

10,583

15,653

Liabilities of disposal group held for use

-

4,035

Liabilities of disposal group held for sale

9,398

5,197

Liabilities of variable interest entity held for sale

5,870

5,956

  Total current liabilities

52,049

69,287




Notes payable and other debt, net of current portion:



Senior debt, net of discounts

102,621

106,089

Bonds, net of discounts

6,918

7,011

Convertible debt, net of discounts

9,200

-

Revolving credit facilities

-

1,059

Other liabilities

2,947

2,129

Deferred tax liability

605

605

  Total liabilities

174,340

186,180




Preferred stock, no par value; 5,000 shares authorized; 2,113 and 950 shares issued and outstanding, redemption amount $52,831 and $23,750 at June 30, 2015 and December 31, 2014, respectively

47,950

20,392




Stockholders' equity:



Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 19,838 and 19,151 issued and outstanding at June 30, 2015 and December 31, 2014, respectively

62,036

61,896

Accumulated deficit

(68,262)

(56,067)

Total stockholders' equity / (deficit)

(6,226)

5,829

Noncontrolling interest in subsidiary

(2,940)

(2,440)

Total equity / (Deficit)

(9,166)

3,389

  Total liabilities and equity / (deficit)

$  213,124

$      209,961

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in 000's, except per share data)

(Unaudited)



Three Months Ended June 30,

Six Months Ended June 30,

(Amounts in 000's)

2015

2014

2015

2014

Revenues:





Patient care revenues

$          18,865

$          19,467

$          38,088

$          38,944

Management revenues

256

304

474

786

Rental revenues

4,205

296

5,545

593

  Total revenues

23,326

20,067

44,107

40,323

Expenses:





Cost of services (exclusive of facility rent,





depreciation and amortization)

16,862

16,013

33,822

31,907

General and administrative expense

2,513

4,179

5,683

8,740

Facility rent expense

1,932

923

3,021

1,855

Depreciation and amortization

1,797

1,856

3,473

3,614

Salary retirement and continuation costs

(39)

1,282

(47)

1,282

  Total expenses

23,065

24,253

45,952

47,398

Income (loss) from operations

261

(4,186)

(1,845)

(7,075)






Other income (expense):





Interest expense, net

(2,279)

(2,601)

(4,769)

(5,174)

Loss on extinguishment of debt

-

-

(680)

(583)

Other expense

(194)

(83)

(480)

(191)

  Total other expense, net

(2,473)

(2,684)

(5,929)

(5,948)

Loss from continuing operations





before income taxes

(2,212)

(6,870)

(7,774)

(13,023)

Income tax expense

-

-

(20)

(8)

Loss from continuing operations

(2,212)

(6,870)

(7,794)

(13,031)

Income (loss) from discontinued operations, net of tax

(3,151)

4,075

(2,818)

7,713

Net loss

(5,363)

(2,795)

(10,612)

(5,318)

Net loss attributable to noncontrolling interests

270

157

500

330

Net loss attributable to AdCare Health Systems, Inc.

(5,093)

(2,638)

(10,112)

(4,988)

Preferred stock dividend

(1,437)

(646)

(2,083)

(1,292)

Net loss attributable to AdCare Health





Systems, Inc. common stockholders

(6,530)

(3,284)

(12,195)

(6,280)






Net loss per share of common stock attributable to AdCare Health Systems, Inc. common stockholders - basic:





     Continuing operations

$             (0.17)

$             (0.43)

$             (0.48)

$             (0.81)

     Discontinued operations

$             (0.16)

$               0.24

$             (0.15)

$               0.45


$             (0.33)

$             (0.19)

$             (0.63)

$             (0.36)






Net loss per share of common stock attributable to AdCare Health Systems, Inc. common stockholders - diluted:





     Continuing operations

$             (0.17)

$             (0.43)

$             (0.48)

$             (0.81)

     Discontinued operations

$             (0.16)

$               0.24

$             (0.15)

$               0.45


$             (0.33)

$             (0.19)

$             (0.63)

$             (0.36)






Weighted average shares of common stock outstanding:





     Basic

19,775

17,221

19,499

17,220

     Diluted

19,775

17,221

19,499

17,220

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA FROM CONTINUING OPERATIONS

(Amounts in 000's)

(Unaudited)



Three Months Ended June 30,

Six Months Ended June 30,

(Amounts in 000's)

2015

2014

2015

2014

Condensed Consolidated Statements of Operations Data:





Net Loss

$           (5,363)

$           (2,795)

$         (10,612)

$           (5,318)

Discontinued operations

3,151

(4,075)

2,818

(7,713)

Net loss from continuing operations (Per GAAP)

(2,212)

(6,870)

(7,794)

(13,031)

Add back:





Interest expense, net

2,279

2,601

4,769

5,174

Income tax expense

-

-

20

8

Amortization of stock based compensation

229

226

432

738

Depreciation and amortization

1,797

1,856

3,473

3,614

Loss on extinguishment of debt

-

-

680

583

Other adjustments

70

84

225

193

New business model expenses

123

-

255

-

Salary retirement and continuation costs

(39)

1,282

(47)

1,282

Adjusted EBITDA from continuing operations

$            2,247

$              (821)

$            2,013

$           (1,439)

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO FFO AND ADJUSTED FFO

(Amounts in 000's)

(Unaudited)



Range of Financial Guidance Upon
Completion of Transition


Twelve Month Period

Condensed consolidated statements of operations data:



Net loss

$              (2,350)

$              (1,250)

Discontinued operations

-

-

Net loss from continuing operations (per GAAP)

(2,350)

(1,250)

Depreciation and amortization

6,500

6,500

Funds from operations (FFO)

$               4,150

$               5,250

Amortization of stock based compensation

750

750

Adjusted FFO 

$               4,900

$               6,000




Assumed shares of common stock outstanding 

19,900

19,900

Adjusted FFO per share

$                 0.25

$                 0.30

 

SOURCE AdCare Health Systems, Inc.



RELATED LINKS

http://www.adcarehealth.com