It has certainly been a tough few years for AdCare Health Systems. Its former Vice Chairman, Chris Brogdon, has been accused of several securities laws violations. Then the company decided it wanted to get out of the operating business, which it was not doing too well at, and focus on being a landlord, much like a REIT. In a new scandal, an institutional investor, together with a third party, commissioned a little bit of research that turned up some fluff on the resume of the just-ousted CEO, Bill McBride. Apparently, McBride indicated that not only did he graduate from UCLA, but that he also had an MBA from the school. Apparently not. So, the board fired him.
AdCare’s stock had not been faring too well recently, and a week before the firing it slipped to a new low of $1.02 per share. It is currently just above that low at $1.04 per share. The 52-week range has only been $1.02 to $2.60, but in years past it had been at much higher levels. So, when we look at the current stock value, with a total market cap of about $20 million, we have to wonder if this is a bargain. A few shareholders believe it is worth much more than that, and use the valuation of AdCare’s recent sale of its Arkansas portfolio to justify a higher value. We are not so sure, and one of the problems is whether you value it as a REIT or something else.
The company currently owns 14 skilled nursing facilities and one assisted living building, with a total of 1,529 beds, which it leases to other operators. It also leases from third parties 11 additional SNFs with 1,262 beds, which are in turn leased to others, and it manages three buildings with 332 beds. We are not sure how much intrinsic value there is in leasing properties that it in turn leases to others. As of December 31, 2016, there was a total of $79.9 million of debt on the books, plus $61.4 million of preferred stock. If the $14 million of cash is deducted, that leaves about $127.3 million of liabilities. That results in debt and preferred stock of about $83,300 per bed. Since we do not believe that AdCare’s facilities are above average, it seems like there is not much room for any increase in value for the common equity, at $1.04 per share. The company could continue to try to grow out of its problems, or just sell out to the highest bidder. Given its past, however, and the cast of characters that have been involved, we assume there would be a valuation discount just to protect a buyer from any other problems that may come to the surface. Allan Rimland, a former investment banker, joined the company in 2015 and is now the CEO. We wish him well at the helm.
