Adcare Health Systems (ADK)

[MissionIR]

ADK Gets Green Light from Stonegate

According to a recent investment analysis report by Stonegate Securities, AdCare, an Ohio-based developer, owner, and operator of skilled nursing and assisted living communities, “holds significant potential for investors”. It bases its conclusion on the following:

• AdCare is executing an aggressive acquisition strategy – The company has begun buying skilled nursing facilities from independent operators, with the acquisition target calling for optimization potential and a reasonable price. According to a recent press release, 54 facilities have been put under contract since the campaign began. AdCare has been careful to avoid states with unhealthy economies, and has focused on the Southeast, Southwest, and Midwest.

• AdCare is improving the metrics associated with the acquired facilities – Once an appropriate property is acquired, AdCare increases the acuity level of the services it offers, increasing the Medicare census and the resulting reimbursement rates. In addition, AdCare identifies and implements various operational efficiencies, improving the bottom line. As a result, the company’s Medicare census has increased by 37.5% at acquired facilities. AdCare has also been able to offset recent cuts in Medicare reimbursements.

• AdCare revenues are increasing at record rates – Third quarter 2011 revenues increased a record 208% over the prior year, to $40.9 million, due to the company’s acquisition strategy and operation optimization results. Given the company’s success to date, and the announced acquisitions yet to close, management guidance points to annual recurring revenue of over $300 million, a 460% increase over 2010 levels. And this doesn’t include acquisitions not yet announced.

• AdCare has unique growth opportunities due to a fragmented but growing industry – The overall value of the long-term care market grew from $186 billion in 2005 to $258 billion in 2010, and is expected to continue to grow at over 6% annually. The skilled nursing care market, AdCare’s acquisition focus, is the biggest market segment. The long-term care market is extremely fragmented, with roughly 80% of nursing homes being privately owned single facilities, providing many acquisition candidates.