AdCare Health Systems, Inc., a self-managed healthcare real estate investment company that invests primarily in real estate purposed for senior living and long-term care, reported results for the three and six months ended June 30, 2017.

Business Update

• Observed sequential improvements in underlying portfolio operating metrics

• Reduced general and administrative expenses to $822,000 for the second quarter, below stated target of $1.0 million of general & administrative expenses per quarter

• Extended the maturity of one mortgage loan totaling $1.2 million from 2017 to 2020

• Reduced the number of professional and general liability cases from 44 to 41

• Filed with the Securities and Exchange Commission a notice of special meeting and a definitive proxy statement for a special meeting of shareholders to be held on September 20, 2017, to consider and vote upon an agreement and plan of merger pursuant to which AdCare would merge with and into Regional Health Properties, Inc., a wholly owned subsidiary of AdCare formed for the purpose of the merger

"Operating metrics of our portfolio again showed improvement during the second quarter with increases in our occupancy rate and rent coverage ratios," commented Allan Rimland, AdCare's President, Chief Executive Officer and Chief Financial Officer. "These continued improvements underscore the Company's rationale for transitioning from an owner and operator of senior housing assets to a property holding and leasing company, namely improved performance through partnering with regional operators with strong clinical, operational and financial capabilities. The Company's pipeline of potential acquisitions continues to strengthen, both in terms of the number and quality of potential transactions. Management is carefully evaluating these opportunities."

Management periodically monitors a number of facility performance metrics including rent coverages both before and after management fees. In the second quarter of 2017, excluding the impact of the recently acquired Meadowood facility, the Company's portfolio rent coverage before management fees was 1.76x (as compared with 1.71x in the first quarter of 2017) and rent coverage after management fees was 1.35x (as compared with 1.29x in the first quarter of 2017).

"We made significant progress during the quarter in reducing our G&A expenses to below our target through our continued efforts to streamline our overhead structure," added Rimland. "At the same time, we extended the maturities of a $1.2 million mortgage note and $0.5 million in other debt to strengthen our balance sheet and reduce refinancing risk. We are in the process of evaluating the refinancings of other senior secured mortgage debt."

Summary of Financial Results for the Three and Six Months Ended June 30, 2017

Total revenues in the second quarter of 2017 were $6.3 million, down 12.0% from $7.2 million in the second quarter of 2016. Total revenues for the six months ended June 30, 2017, decreased by 12.7% to $12.4 million from $14.2 million for the six months ended June 30, 2016. The decrease reflects the sale of nine Arkansas facilities in October 2016 partially offset by rental revenues from the Meadowood facility and facilities operated by affiliates of Peach Health Group. The acquisition of the Meadowood facility closed on May 1, 2017. The Company generally recognizes all rental revenues on a straight-line rent accrual basis.

General and administrative costs decreased by $1.3 million, or 61.5%, to $822,000 for the three months ended June 30, 2017, compared with $2.1 million for the same period in 2016. For the three months ended June 30, 2017 and 2016, general and administrative costs include stock-based compensation expense, net of restricted stock and warrant forfeitures. General and administrative costs for the six months ended June 30, 2017 decreased by approximately $2.2 million, or 47.7%, to $2.4 million, compared with $4.7 million for the same period in 2016. For the six months ended June 30, 2017 and 2016, general and administrative costs include $154,000 and $720,000, respectively, of stock-based compensation expense.

Interest expense decreased by $745,000, or 42.5%, to $1.0 million for the second quarter of 2017 compared with $1.8 million for the same period in 2016. Interest expense for the six months ended June 30, 2017 decreased by approximately $1.5 million, or 43.0%, to $2.0 million compared with $3.6 million for the same period in 2016. The decrease is mainly due to the repayment of $36.0 million of debt in connection with the sale of nine Arkansas facilities in October 2016 and $6.7 million principal repayment of convertible debt on January 10, 2017 and the remaining $1.0 million on April 30, 2017, partially offset by $4.1 million in new mortgage debt financing for the Meadowood facility.

The loss from discontinued operations, net of tax for the second quarter of 2017 was $604,000, compared with $3.8 million for the prior-year period. Year-to-date, the loss from discontinued operations, net of tax was $1.0 million, compared with loss from discontinued operations, net of tax of $4.3 million for the prior-year period. The losses in the three and six-month periods ended June 30, 2017 were lower compared with the prior year periods primarily due to lower bad debt expense.

Net loss attributable to AdCare common stockholders in the second quarter of 2017 was $1.9 million, or $0.10 per basic and diluted share, compared with $6.8 million, or $0.34 per basic and diluted share, for the second quarter of 2016. For the six months ended June 30, 2017, the net loss attributable to AdCare common stockholders was $4.7 million, or $0.24 per basic and diluted share, compared with a net loss of $10.5 million, or $0.53 per basic and diluted share, in the year-ago period.

Cash and cash equivalents at June 30, 2017 totaled $2.0 million compared with $14.0 million at December 31, 2016. Restricted cash and investments at June 30, 2017 totaled $3.7 million compared with $5.5 million at December 31, 2016. Total debt outstanding at June 30, 2017 totaled $74.2 million compared with $80.0 million at December 31, 2016 (net of $2.1 million and $2.2 million of deferred financing costs at June 30, 2017 and December 31, 2016, respectively).