February 4, 2015
AdCare Health Systems Inc.
Board of Directors
3050 Peachtree Road NW
Atlanta, GA 30305
Dear AdCare Board:
My name is Chris Doucet and I am CEO and Managing Partner of Doucet
Asset Management. Doucet Asset Management has control of approximately
1,433,659 shares of AdCare Stock (NYSEADK) through its holdings of the
common stock in our managed accounts and personal accounts as well as
through our holdings of convertible bonds in which the firm has discretion.
It is our belief that we are the largest investors in ADK.
We would like to begin by commending the Board on its decision to offer
Bill McBride the position of CEO of ADK last fall and convincing him to
accept it. We have been impressed with the job he has done thus far on
executing the strategic plan laid out by the Board this past summer,
stabilizing the existing business in rapid fashion, significantly
reducing expenses and refinancing short-term debt at extremely
It is still our desire to see the Company sold as soon as possible.
Mergers and acquisition activity in the space is still robust and we
would like to see ADK have adequate leverage to command a premium
price in the marketplace.We fully understand what Bill must do so
stockholder value can ultimately be realized. We also understand that
there are diseconomies of scale in the REIT market and we are likely
to receive a higher price in an ultimate sale in the future if ADKs
portfolio is larger versus smaller, all other things being equal. As
a result of this aforementioned basic fact of the REIT market,
we would like to propose a simple plan-ADK should merge with Global
Healthcare REIT (OTCGBCS) at the appropriate prices.
There would be several benefits to this simple plan. Merging ADK
and GBCS at current prices would significantly benefit both companies.
Currently, both ADK and GBCS:
- share the same office space
- are in the same exact business
- compete with one another in the same market for the same properties
- are in similar geographies with similar clientele
- have portfolios which were both assembled by the same person
- have some of the same operators
- were done with similar economics
- have an identical investment thesis
- share many of the same investors
- trade roughly at the same discount to their implied intrinsic values
- are too small on their own to trade at large premiums to their
- have duplicate boards and management teams
- pay duplicate public costs
The combined Company would:
- instantly grow to 50 properties
- save on duplicate board and management expenses
- save on duplicate public costs
- enjoy more attractive cost of capital
- be able to pay out a higher dividend stream as a combined
company versus on a standalone basis
- appear on more radar screens of Wall Street and potential
acquirers because of the increased size of the Company
- be able to maintain the use of ADK s $23 million tax loss
In short, having GBCS and ADK continue to exist as two separate
companies simply does not make sense and never did. Combining the
two companies would create a plethora of benefits to both shareholder
Once again, we commend the Board on making the decision to hire Bill.
He is doing the hard work to get this company cleaned up and doing this
heavy lifting in an expedient fashion.We appreciate the consideration
of my proposal as we believe it makes perfect sense for both Companies
to work together and not compete with each other and duplicate costs.
Chris L. Doucet
CEO and Managing Partner
Doucet Asset Management