The new Financial agreement (8k filing) with the Lenders does allow refinancing but with a caveat.
Quote: Section 4.6. Indebtedness. For the period commencing on the Effective Date and ending on April 1, 2009, the following subsection (c) shall be added to Section 8.3 (Indebtedness) of the Credit Agreement:
“(c) Notwithstanding subsections (a) and (b) above and notwithstanding any other provision of this Credit Agreement to the contrary, the Company and its Subsidiaries shall not incur any additional Indebtedness for borrowed monies except: (A) Indebtedness existing as of December 30, 2008 may have its maturities extended or such existing Indebtedness may be refinanced if any such refinancing does not materially increase the principal amount of such existing Indebtedness; (B) unsecured Indebtedness for borrowed monies that is (i) subordinated in right of payment to the repayment of the Obligations in accordance with written agreements acceptable to the Administrative Agent, and (ii) does not exceed Five Million Dollars ($5,000,000.00) in aggregate amount; and (C) the Contemplated Financings, as scheduled on Exhibit 8.1(f) . Neither the Company nor any of its Subsidiaries shall enter into any guarantys after the Effective Date other than guarantys provided solely in connection with the financing of the Burlingame transaction (as scheduled as a Contemplated Financing on Exhibit 8.1(f)) . Unquote
Existing debt (as of Dec 30,2008) can be refinanced but the refinancing should not increase the "Principal" amount of existing indebtness..
what generally happens in a refinance is..
property has higher cash flows as occupancy rates go up and if the interest rates are down the cash flow discount methond of calculation.. will allow the company to now get more money ..
for eg: initial financing was done for 10 million .. now with current cash flow the asset is valued at a higher level and you can get 15 million loan.
SRZ would show 5 million as gains from this refinancing deal in profits but the no on units is still the same so each unit has now got 50% more loans..(Principal amount of loan has increased)
As per my understanding the lenders are not allowing SRZ to take on more principal debt, they have given the freedom to refinance the debt but the principal should not increase.. so the additional cash flows can be used to repay the loans and build equity in the business or increase cash flows to the parent as profits to repay other loans (like the 95 million due to the lenders)
===========================================
Unsecured debt which is subordinate to the existing loans of the company can be issued but not more than 5 million
Basically the lenders are preserving their rights by ensuring additional debt is subordinate and unsecured.. for SRZ this means a higher interest rate for the 5 million loan (negative for SRZ)
===========================================
Financial guarantees can be given by SRZ but to an already scheduled transaction called " Burlingame transaction "
===========================================
Conclusion: Basically this is going back to the basics since financial leverage and exotic instruments are going to be less forthcoming the lenders are looking at deleveraging the company & its subsidiaries and build basic building blocks for future financing.. [This is positive for shareholders as the value of the company will increase]
PN: Colour coding is for easy reference.
Saturday, January 24, 2009
Thursday, January 22, 2009
SRZ: 8K Report: Credit Agreement: Jan 21,2009(updated)
8K report has been filed by SRZ on Jan 21,2009.(I have made some updates)
Salient points (My interpretation)
1. Credit Agreement with Lenders (Bank of America is the principal and administrative agent)
2. SRZ is not in compliance with certain financial covenants, lenders have waived the compliance till March 30,2009 but additional loans will not be provided.The ammendment modifies certain negative covenants to limit Sunrise’s ability, among other things, to (i) pledge certain Company or Subsidiary assets or grant consensual Liens on such Company or Subsidiary assets; (ii) incur additional Indebtedness for borrowed money; and (iii) Dispose of real estate, improvements or material assets.
3. SRZ has to pay principal repayment of 400,000 (when signing the agreement) and principal repayment of additional 1.1million (by Jan 23,2009) and additional 400,000 dollars as ammendment modification fee's. (in total 1.9 million to the lenders 1.5 million will directly reduce the principal amount due to the lenders)
4. Interest rates on borrowing have been increased (Euro: LIBOR + 4.75%) & (USD: BoA Base Rate + 3.25%)the current 120 million will have a higher interest rate of about 6.5 to 7.0% (LIBOR: 1.89 + 4.75 = 6.64% Base Rate: 3.25 + 3.25 = 6.5% dated: Jan 24,2009)
Company has outstanding borrowings of 95 million and Letters of credit of 24.5 million : Total 120 million (Total line of credit is 160 million from this facility it does not have access to the remaining amount 40 million)The interest rate on these loans is going to be 6.5 to 7.0% (as per new interest rate calculations)(Negative: As the interest rates have been increased.. but I dont see 6.5 to 7% as very high rates.. Govt is lending to banks and Auto industry at higher rates)
5. SRZ can refinance already existing debt which are up for renewal after Dec 31,2008 but the principal amount of the debt cannot be increased. (Big positive development as refinancing can be done but with a caveat that pricipal amount cannot be increased ie the refinance can be done only for refinancing and not to show additional cash profits)
6. SRZ can issue unsecured subordinate debt upto 5 million with agreements acceptable to administrative agent (Bank of America) (Big Positive development as per new financial agreement)
7. No new guarantees can be given other than to "Already contemplated financing of Burlingame transaction" (Positive: Lenders have give some leeway for planned projects)
8. No sales except for already contemplated Sale transaction which can net at the max 20 million (Positive:Gives us insight into the future (Q1 2009) this means SRZ already has plans for sales which will net 20 million this quarter (Jan to march 2009) and has been shared with the lenders and the lenders have given their go ahead)
9. "Contemplated Land/Shut Down Communities" sales realization amount of 8 million from (Positive: Gives us insight to the future (Q1 2009) SRZ will be selling land and will get 8 million from that transaction)
10. Cross default will not be triggered for default over non north american assets (read germany) unless the applicable creditor commences exercising its default remedies (Positive: Ammendment to the financial agreement to prevent trigger of default in US case on non US assets are in default - keeping german communities in mind)
11. The company also stated that it is not in default for any other covenant (wonder what happened to the NATIXIS payment?? - german communities)
Conclusion:
- The ammendment to the credit agreement allows SRZ to refinance debt obligations (I think around 200+ million)
- SRZ can sell some assets and net 28 million for Q1 2009
- SRZ can take on additional debt as unsecured subordinate debt (5 million) for Q1 2009
- There are some restrictions like what can be sold, what is the type of refinancing and how the debt is structured to prevent the erosion of the lenders stake in the assets. Its a good thing as the company cannot put too much at risk and concentrate on getting positive cash flows from operations and not just refinancing which will make the company healthy.
There has been an upgrade to "Market Perform" by Avondale after the release of the updated credit agreement.
Please note these are my interpretations and can be incorrect. Here is a link to the actual document
Salient points (My interpretation)
1. Credit Agreement with Lenders (Bank of America is the principal and administrative agent)
2. SRZ is not in compliance with certain financial covenants, lenders have waived the compliance till March 30,2009 but additional loans will not be provided.The ammendment modifies certain negative covenants to limit Sunrise’s ability, among other things, to (i) pledge certain Company or Subsidiary assets or grant consensual Liens on such Company or Subsidiary assets; (ii) incur additional Indebtedness for borrowed money; and (iii) Dispose of real estate, improvements or material assets.
3. SRZ has to pay principal repayment of 400,000 (when signing the agreement) and principal repayment of additional 1.1million (by Jan 23,2009) and additional 400,000 dollars as ammendment modification fee's. (in total 1.9 million to the lenders 1.5 million will directly reduce the principal amount due to the lenders)
4. Interest rates on borrowing have been increased (Euro: LIBOR + 4.75%) & (USD: BoA Base Rate + 3.25%)the current 120 million will have a higher interest rate of about 6.5 to 7.0% (LIBOR: 1.89 + 4.75 = 6.64% Base Rate: 3.25 + 3.25 = 6.5% dated: Jan 24,2009)
Company has outstanding borrowings of 95 million and Letters of credit of 24.5 million : Total 120 million (Total line of credit is 160 million from this facility it does not have access to the remaining amount 40 million)The interest rate on these loans is going to be 6.5 to 7.0% (as per new interest rate calculations)(Negative: As the interest rates have been increased.. but I dont see 6.5 to 7% as very high rates.. Govt is lending to banks and Auto industry at higher rates)
5. SRZ can refinance already existing debt which are up for renewal after Dec 31,2008 but the principal amount of the debt cannot be increased. (Big positive development as refinancing can be done but with a caveat that pricipal amount cannot be increased ie the refinance can be done only for refinancing and not to show additional cash profits)
6. SRZ can issue unsecured subordinate debt upto 5 million with agreements acceptable to administrative agent (Bank of America) (Big Positive development as per new financial agreement)
7. No new guarantees can be given other than to "Already contemplated financing of Burlingame transaction" (Positive: Lenders have give some leeway for planned projects)
8. No sales except for already contemplated Sale transaction which can net at the max 20 million (Positive:Gives us insight into the future (Q1 2009) this means SRZ already has plans for sales which will net 20 million this quarter (Jan to march 2009) and has been shared with the lenders and the lenders have given their go ahead)
9. "Contemplated Land/Shut Down Communities" sales realization amount of 8 million from (Positive: Gives us insight to the future (Q1 2009) SRZ will be selling land and will get 8 million from that transaction)
10. Cross default will not be triggered for default over non north american assets (read germany) unless the applicable creditor commences exercising its default remedies (Positive: Ammendment to the financial agreement to prevent trigger of default in US case on non US assets are in default - keeping german communities in mind)
11. The company also stated that it is not in default for any other covenant (wonder what happened to the NATIXIS payment?? - german communities)
Conclusion:
- The ammendment to the credit agreement allows SRZ to refinance debt obligations (I think around 200+ million)
- SRZ can sell some assets and net 28 million for Q1 2009
- SRZ can take on additional debt as unsecured subordinate debt (5 million) for Q1 2009
- There are some restrictions like what can be sold, what is the type of refinancing and how the debt is structured to prevent the erosion of the lenders stake in the assets. Its a good thing as the company cannot put too much at risk and concentrate on getting positive cash flows from operations and not just refinancing which will make the company healthy.
There has been an upgrade to "Market Perform" by Avondale after the release of the updated credit agreement.
Please note these are my interpretations and can be incorrect. Here is a link to the actual document
Saturday, January 17, 2009
National Investment Center (For Senior Housing and Care Industry) Jan 2009 Newsletter
Please find Link to Jan 2009 Newsletter by National Investment Center For Senior Housing and Care Industry.
They have interviewed Jerry Doctrow, Managing Director, Stifel, Nicolaus & Co. (Brokerage and Investment Banking Firm) www.stifel.com
My Take: Things are not as bad as it looks to be for senior housing industry. Financing is being more readily available in the market. As per the report long term interest rates (30 year fixed ) is going to be 4.5% (December 2008 rate: 5.10%)
Do Read it Here is the Link
They have interviewed Jerry Doctrow, Managing Director, Stifel, Nicolaus & Co. (Brokerage and Investment Banking Firm) www.stifel.com
My Take: Things are not as bad as it looks to be for senior housing industry. Financing is being more readily available in the market. As per the report long term interest rates (30 year fixed ) is going to be 4.5% (December 2008 rate: 5.10%)
Do Read it Here is the Link
SRZ: Strong Buy: ASHA (American Senior Housing Association) Top 50
According to American Senior Housing Association (ASHA)
SRZ is among the Top ranked (Rank 4) companies for Ownership of Senior Housing (Higher than Ventas: Rank 5) &
SRZ is among the top ranked companies for Management of Senior Housing Properties (Rank 2nd behind BKD: Ranked 1st)
Ownership :No of Units (Rank for 2008)
SRZ: 25,904 (Rank 4)
Ventas: 24,110 (Rank 5)
BKD: 18,777 (Rank 8)
I can understand the higher ranking for SRZ as it does not pay any dividents (unlike Ventas an REIT ) and is funneling all the money back into property acquisition/creation.. Also it is one of the largest property builders in senior housing space.
Managed Properties: No of Managed Units (Rank for 2007):
BKD: 51638 (Rank 1)
SRZ: 45932(Rank 2)
Emeritus: 16463 (Rank 7)
Surprisingly BKD is more of a management company than SRZ and BKD owns less no of units and has a higher debt burden. My understanding till now was SRZ was more of a management company and rest of the senior living companies were intent on buying the property while SRZ was only into management of properties.
SRZ (Market Cap:64.7 Million) owns more property than BKD (Market Cap: 616 Million) and SRZ has less Debt and higher Brand Recall. (SRZ is a no brainer value Buy)
Ventas (Market Cap:4.2 Billion but Ventas has other non senior housing assets such as hospitals so actually not comparable)
American Senior Housing Association Top 50 Owners:
American Senior Housing Top 50 Managers:
Please download the American Senior Housing Asociation Report of Top 50 for 2008 Here
SRZ is among the Top ranked (Rank 4) companies for Ownership of Senior Housing (Higher than Ventas: Rank 5) &
SRZ is among the top ranked companies for Management of Senior Housing Properties (Rank 2nd behind BKD: Ranked 1st)
Ownership :No of Units (Rank for 2008)
SRZ: 25,904 (Rank 4)
Ventas: 24,110 (Rank 5)
BKD: 18,777 (Rank 8)
I can understand the higher ranking for SRZ as it does not pay any dividents (unlike Ventas an REIT ) and is funneling all the money back into property acquisition/creation.. Also it is one of the largest property builders in senior housing space.
Managed Properties: No of Managed Units (Rank for 2007):
BKD: 51638 (Rank 1)
SRZ: 45932(Rank 2)
Emeritus: 16463 (Rank 7)
Surprisingly BKD is more of a management company than SRZ and BKD owns less no of units and has a higher debt burden. My understanding till now was SRZ was more of a management company and rest of the senior living companies were intent on buying the property while SRZ was only into management of properties.
SRZ (Market Cap:64.7 Million) owns more property than BKD (Market Cap: 616 Million) and SRZ has less Debt and higher Brand Recall. (SRZ is a no brainer value Buy)
Ventas (Market Cap:4.2 Billion but Ventas has other non senior housing assets such as hospitals so actually not comparable)
American Senior Housing Association Top 50 Owners:
American Senior Housing Top 50 Managers:
Please download the American Senior Housing Asociation Report of Top 50 for 2008 Here
Friday, January 16, 2009
SEC 13G/A Filing for SRZ: Jamie Lester & Soundpost Partners
Soundpost Partners and Jamie Lester have filed their latest share holding in SRZ
Reported Date: Jan 16,2009 (Actual Date Dec 31,2008)
Soundpost Partners: 3,900,000 (7.7% of share capital)
Jamie Lester : 3,900,000 (7.7% of share capital)
Here is the link to the official document
It is important to know that originally Soundpost partners and Jamie lester each held close to 9.8% (ie 19.6% of equity capital) on Nov 17,2008
Reported Date: Nov 20,2008 (Actual Date: Nov 17,2008)
Soundpost Partners: 5,016,350 (9.8% of share capital)
Jamie Lester : 5,016,350 (9.8% of share capital)
Here is the link to the official document
So Jamie Lester and Soundpost partners have sold close to 2,232,700 (2.2 million) shares from Nov 17 to Dec 31,2008 so ideally they should have a negative view about the stock.. but one must understand that Jamie Lester and Sounpost partners hold close to 7,800,000 (7.8 million) even after Dec 31,2008
- I would conclude that Jamie and Soundpost partners are more positive about the stock than negative about the future of SRZ. (as they still hold 7.8million shares 78% of original holding)
Well lets see what happened Around this period:
=============================================
Nov 13,2008: 1.5 million shares allocated to Mark Ordan (1.5 million options at 0.92) Document Link
Nov 19,2008: (Actual Date: Nov 19,2008)
SRZ management changed the trigger for "Acquiring Person" from 20% of shares to "10%" of share capital. SRZ Management can automatically issue new Rights shares to everyone other than the 10% "Acquiring" person (basically to prevent any one to attempt a takeover of the company when its vulnerable) Link
Nov 20,2008: (Actual Buy Date: Nov 17,2008)
Soundpost Partners, LP - 5,016,350 (9.8% of capital)
Jaime Lester - 5,016,350 (9.8% of capital)
Dec 4,2008: (Actual Buy date: Dec 2,2008)
Weiss Multi-Strategy Advisers LLC: 4,800,000 shares (9.4% of capital)
George A. Weiss: 4,800,000 shares (9.4% of capital)
Frederick E. Doucette III: 4,800,000 shares (9.4% of capital)
Weiss Multi-Strategy Partners LLC: 2,554,006 (5.01% of capital)
Jamie Lester,George Weiss & Frederick Doucette hold more than 50% of equity capital of SRZ.
Dec 10,2008: (Actual Date: Nov 30,2008)
EARNEST Partners, LLC: 240 shares
Dec 15,2008: (Actual Date: Dec 9,2008)
John F. Gaul SRZ Company's General Counsel to leave the company on Feb 27,2009
Dec 24,2008: (Actual Date: Dec 23,2008)
Nadeau Richard John (Chief Financial Officer)750,000 stock option at 1.37 per share
Pangelinan Julie Anne (Chief Accounting Officer)500,000 stock option at 1.37 per share
Dec 24,2008: (Actual date: Dec 18,2008)
Standstill Agreement between NATIXIS & SRZ
Dec 29,2008: (Actual date: Dec 18,2008)
Schwartz Daniel (SVP, North American Operations) 200,000 stock option at 1.37 per share
Dec 30,2008: (Actual Date: Dec 18,2008)
NEEB D GREGORY (Chief Investment Officer) 500,000 stock option at 1.37 per share
=============================================
- Looks like there was accumulation of shares by few players in SRZ.
- SRZ management changed the rules of a definition of "Acquiring Person" status from 20% to 10% and then asked the major share holders to report their intentions.. (all of them stated that they donot intend to change the management)
- A lot of options have also been granted during this period 3 million options.
- One of the major share holders has reduced his stake from 19.6% to 15.4%.
My conclusion:
- Massive movement of wealth (denoted by transfer of SRZ shares) has happened during this period and significant holdings have been acquired by a few players.
- Selling of close to 2.2 million shares when the short have been close to 5 million indicate that this 2.2 million shareholder could also be the person holding the shorts.. (my speculation only)
- Going forward ..we must observe the shorts and my belief is that we can expect the shorts to reduce significantly and the price appreciation will also follow along with the positive financing news.
Next week (Jan 20 to Jan 23) a short week could be a great week for SRZ share holders.
Reported Date: Jan 16,2009 (Actual Date Dec 31,2008)
Soundpost Partners: 3,900,000 (7.7% of share capital)
Jamie Lester : 3,900,000 (7.7% of share capital)
Here is the link to the official document
It is important to know that originally Soundpost partners and Jamie lester each held close to 9.8% (ie 19.6% of equity capital) on Nov 17,2008
Reported Date: Nov 20,2008 (Actual Date: Nov 17,2008)
Soundpost Partners: 5,016,350 (9.8% of share capital)
Jamie Lester : 5,016,350 (9.8% of share capital)
Here is the link to the official document
So Jamie Lester and Soundpost partners have sold close to 2,232,700 (2.2 million) shares from Nov 17 to Dec 31,2008 so ideally they should have a negative view about the stock.. but one must understand that Jamie Lester and Sounpost partners hold close to 7,800,000 (7.8 million) even after Dec 31,2008
- I would conclude that Jamie and Soundpost partners are more positive about the stock than negative about the future of SRZ. (as they still hold 7.8million shares 78% of original holding)
Well lets see what happened Around this period:
=============================================
Nov 13,2008: 1.5 million shares allocated to Mark Ordan (1.5 million options at 0.92) Document Link
Nov 19,2008: (Actual Date: Nov 19,2008)
SRZ management changed the trigger for "Acquiring Person" from 20% of shares to "10%" of share capital. SRZ Management can automatically issue new Rights shares to everyone other than the 10% "Acquiring" person (basically to prevent any one to attempt a takeover of the company when its vulnerable) Link
Nov 20,2008: (Actual Buy Date: Nov 17,2008)
Soundpost Partners, LP - 5,016,350 (9.8% of capital)
Jaime Lester - 5,016,350 (9.8% of capital)
Dec 4,2008: (Actual Buy date: Dec 2,2008)
Weiss Multi-Strategy Advisers LLC: 4,800,000 shares (9.4% of capital)
George A. Weiss: 4,800,000 shares (9.4% of capital)
Frederick E. Doucette III: 4,800,000 shares (9.4% of capital)
Weiss Multi-Strategy Partners LLC: 2,554,006 (5.01% of capital)
Jamie Lester,George Weiss & Frederick Doucette hold more than 50% of equity capital of SRZ.
Dec 10,2008: (Actual Date: Nov 30,2008)
EARNEST Partners, LLC: 240 shares
Dec 15,2008: (Actual Date: Dec 9,2008)
John F. Gaul SRZ Company's General Counsel to leave the company on Feb 27,2009
Dec 24,2008: (Actual Date: Dec 23,2008)
Nadeau Richard John (Chief Financial Officer)750,000 stock option at 1.37 per share
Pangelinan Julie Anne (Chief Accounting Officer)500,000 stock option at 1.37 per share
Dec 24,2008: (Actual date: Dec 18,2008)
Standstill Agreement between NATIXIS & SRZ
Dec 29,2008: (Actual date: Dec 18,2008)
Schwartz Daniel (SVP, North American Operations) 200,000 stock option at 1.37 per share
Dec 30,2008: (Actual Date: Dec 18,2008)
NEEB D GREGORY (Chief Investment Officer) 500,000 stock option at 1.37 per share
=============================================
- Looks like there was accumulation of shares by few players in SRZ.
- SRZ management changed the rules of a definition of "Acquiring Person" status from 20% to 10% and then asked the major share holders to report their intentions.. (all of them stated that they donot intend to change the management)
- A lot of options have also been granted during this period 3 million options.
- One of the major share holders has reduced his stake from 19.6% to 15.4%.
My conclusion:
- Massive movement of wealth (denoted by transfer of SRZ shares) has happened during this period and significant holdings have been acquired by a few players.
- Selling of close to 2.2 million shares when the short have been close to 5 million indicate that this 2.2 million shareholder could also be the person holding the shorts.. (my speculation only)
- Going forward ..we must observe the shorts and my belief is that we can expect the shorts to reduce significantly and the price appreciation will also follow along with the positive financing news.
Next week (Jan 20 to Jan 23) a short week could be a great week for SRZ share holders.
Monday, January 12, 2009
SRZ : Cash Flow statement (Sept 2008)
Trying to peek into the fundamentals of the company. (I am not a finance guy but just trying my best effort to get an understanding)
Cash Flow Statement specially Cash flow from Operations is supposed to be the bedrock of a companies health. It gives the critical information about if the company is making money in the basic activity/operations of the company.
Lets look at the Annual numbers for SRZ (Only cash flow from operations)
Here are my observations:
1. Annual 12 month cash flow statements "Cash from Operating Activities" (these are restated values) show positive cash flows for SRZ for every year. The average is 130.51 million (year 2004 to 2007) which is more than the current market cap 81.54 million.
2. The Quaterly "Cash from Operating Activities" numbers have deteriorated with an average number of negative -20.45 million. Which means SRZ is burning through cash of 21 million per quarter to run its operations in 2008.
3 The Quarterly "Deferred Taxes" are negative -25.36 million(per Qtr). SRZ did state that it is going to receive a tax refund of close to 27 million from the Govt. (already reported before in this blog link ) so basically it cancells out the expected tax refund with expected taxes that have to be paid to the Govt.
4. "Working capital" on 12 month report was positive 6.18 million (Qtrly). This basically means the company was managing its working capital flows very well and earning income of 6.18 million per quarter (till 2007).
5. The Quaterly "Working Capital" numbers show a negative -22.14 million which means SRZ has not been able to manage its working capital very well and it has an average of 22.14 million of -ve impact on the cash flow. BKD also has -ve working capital numbers for the year (-4.43 million) but looks like BKD has been more prepared than SRZ to handle the current downturn.
6. "Non cash Item" on 12 month report was +ve 11.91 million (Qtrly)
I think this is income from sale of properties and refinancing deals.
7. Quarterly numbers show the "Non Cash Item" have accelerated (238%) to +ve 40.31 million (Qtrly). Which according to me is basically the management is trying to get projects refinanced at a faster pace and also has cancelled new projects (pulled out money).
8. "Net Income" on 12 month report has been close to +ve 1.82 million(Qtrly). Quaterly numbers numbers for "Net Income" has -ve -44.53 million (Qtrly). SRZ has close to 62 million of one time large unusual items in Sept 2008 Quarterly reports. (Mainly related to cancellation of projects, retrenchment, Accounting restatement)
Conclusion: SRZ was running a tight ship till 2007. It was managing its cash flows and reinvesting it in new assets. SRZ (SRZ 4 Yrs Avg: Cash Flow from Operations: 130.56 million) was doing better than BKD ( BKD 4 Yrs Avg: Cash Flow from Operations 88.15 million) in these numbers.
2008 Credit squeeze has severly impacted the cash flow of SRZ. Company has responded by increasing its non cash items (curtailing new development and refinancing projects) It has not been able to stem the flow and has been burning through 21 million on a quarterly basis. (Mainly related to cancellation of projects, retrenchment, Accounting restatement)
SRZ future quarterly cash flows need to be observed to confirm if the company has been able to stem the -ve cash flow from operations.
If you look at the annual numbers they are pretty good and if the annual numbers are to be taken as the long term future of the company.. then right now the company is quoting(Market Cap: 81.54 million) at 60% discount to its 4 year average Cash Flow from operations(130.51 million). Which shows significant value at current prices.
One must understand that SRZ is in a growing industry. It has great brand value. It has global operations targetting rich developed countries. 80+ age population growth is 29% per annum in US and 44% per annum in Europe. Its capital requirements for growth is significantly lower compared to other players due to different model of operations ("management" instead of "ownership" of properties) resulting in a balance sheet which is not leveraged at all. With just 54,000 units there is ample scope for growth in the future.
Cash Flow Statement specially Cash flow from Operations is supposed to be the bedrock of a companies health. It gives the critical information about if the company is making money in the basic activity/operations of the company.
Lets look at the Annual numbers for SRZ (Only cash flow from operations)
Here are my observations:
1. Annual 12 month cash flow statements "Cash from Operating Activities" (these are restated values) show positive cash flows for SRZ for every year. The average is 130.51 million (year 2004 to 2007) which is more than the current market cap 81.54 million.
2. The Quaterly "Cash from Operating Activities" numbers have deteriorated with an average number of negative -20.45 million. Which means SRZ is burning through cash of 21 million per quarter to run its operations in 2008.
3 The Quarterly "Deferred Taxes" are negative -25.36 million(per Qtr). SRZ did state that it is going to receive a tax refund of close to 27 million from the Govt. (already reported before in this blog link ) so basically it cancells out the expected tax refund with expected taxes that have to be paid to the Govt.
4. "Working capital" on 12 month report was positive 6.18 million (Qtrly). This basically means the company was managing its working capital flows very well and earning income of 6.18 million per quarter (till 2007).
5. The Quaterly "Working Capital" numbers show a negative -22.14 million which means SRZ has not been able to manage its working capital very well and it has an average of 22.14 million of -ve impact on the cash flow. BKD also has -ve working capital numbers for the year (-4.43 million) but looks like BKD has been more prepared than SRZ to handle the current downturn.
6. "Non cash Item" on 12 month report was +ve 11.91 million (Qtrly)
I think this is income from sale of properties and refinancing deals.
7. Quarterly numbers show the "Non Cash Item" have accelerated (238%) to +ve 40.31 million (Qtrly). Which according to me is basically the management is trying to get projects refinanced at a faster pace and also has cancelled new projects (pulled out money).
8. "Net Income" on 12 month report has been close to +ve 1.82 million(Qtrly). Quaterly numbers numbers for "Net Income" has -ve -44.53 million (Qtrly). SRZ has close to 62 million of one time large unusual items in Sept 2008 Quarterly reports. (Mainly related to cancellation of projects, retrenchment, Accounting restatement)
Conclusion: SRZ was running a tight ship till 2007. It was managing its cash flows and reinvesting it in new assets. SRZ (SRZ 4 Yrs Avg: Cash Flow from Operations: 130.56 million) was doing better than BKD ( BKD 4 Yrs Avg: Cash Flow from Operations 88.15 million) in these numbers.
2008 Credit squeeze has severly impacted the cash flow of SRZ. Company has responded by increasing its non cash items (curtailing new development and refinancing projects) It has not been able to stem the flow and has been burning through 21 million on a quarterly basis. (Mainly related to cancellation of projects, retrenchment, Accounting restatement)
SRZ future quarterly cash flows need to be observed to confirm if the company has been able to stem the -ve cash flow from operations.
If you look at the annual numbers they are pretty good and if the annual numbers are to be taken as the long term future of the company.. then right now the company is quoting(Market Cap: 81.54 million) at 60% discount to its 4 year average Cash Flow from operations(130.51 million). Which shows significant value at current prices.
One must understand that SRZ is in a growing industry. It has great brand value. It has global operations targetting rich developed countries. 80+ age population growth is 29% per annum in US and 44% per annum in Europe. Its capital requirements for growth is significantly lower compared to other players due to different model of operations ("management" instead of "ownership" of properties) resulting in a balance sheet which is not leveraged at all. With just 54,000 units there is ample scope for growth in the future.
Sunday, January 11, 2009
SRZ Memory Care Facility in Michigan- open from Jan 29,2009
Please find report with regards to a new facility scheduled to be open from Jan 29,2009 for SRZ at Bloomfield Hills in Michigan
23 bed unit SRZ has opened as a joint venture with MetLife and called MetSun LLC
Here is the Link
23 bed unit SRZ has opened as a joint venture with MetLife and called MetSun LLC
Here is the Link
Friday, January 9, 2009
Senior Care investor: Dec 2008 Report (My views)
"Charles" one of the readers of the blog has forwarded the link for Senior care Dec 2008 Report
(not that old) and is supposedly has a negative bias to SRZ.
I personally dont feel that way if you read the report (Link). As they say beauty is in the eye of the beholder... Here are my reasons.
1. There are a number of acquisitions that are reported in the newsletter which is positive for the industry and SRZ (financing is available & there is interest in the investor community).
2. Valuations have dropped for senior care industry (but most of the SRZ properties are managed by SRZ and self ownership levels is at around 20 %) so valuation drop actually should be positive for SRZ and bad for other senior care providers .. this also convinced me that management of properties with minimal ownership levels is the ideal way forward - identification of core competency)
3. This is really interesting.. discounted price has been stated as "50,000 USD" per unit
- SRZ has 54,000 units (as per Reuters) and 52,000 units as per SRZ company website.
- 100% ownership value USD 50,000 x 52,000 = 2.6Billion
- 20% ownership value: 520 million.
- company owns atleast 10% of the communities ( I am sure its more than 10% but its better to be conservative) that would be:
260 million + 468 million (20% ownership for 90% of the units at 50,000 per unit)
- Thats 728 million market capitalization. Current Market Cap is just 81.54 million (CMP:1.60)
- To achieve 728 million market capitalization the stock price should be: USD 14.28 thats a 792.5% return from current prices..
I think my valuation of SRZ as a USD 10 stock is an ultra conservative valuation and anyway you cut it.. SRZ is much more than USD 10 for sure.
We are living in "Interesting Times" and SRZ here is an example of an open opportunity to make some real good long term investment providing great returns for years to come.
Here is the "Link" to the senior care investor Dec 2008 Report. Thanks Charles!!
(not that old) and is supposedly has a negative bias to SRZ.
I personally dont feel that way if you read the report (Link). As they say beauty is in the eye of the beholder... Here are my reasons.
1. There are a number of acquisitions that are reported in the newsletter which is positive for the industry and SRZ (financing is available & there is interest in the investor community).
2. Valuations have dropped for senior care industry (but most of the SRZ properties are managed by SRZ and self ownership levels is at around 20 %) so valuation drop actually should be positive for SRZ and bad for other senior care providers .. this also convinced me that management of properties with minimal ownership levels is the ideal way forward - identification of core competency)
3. This is really interesting.. discounted price has been stated as "50,000 USD" per unit
- SRZ has 54,000 units (as per Reuters) and 52,000 units as per SRZ company website.
- 100% ownership value USD 50,000 x 52,000 = 2.6Billion
- 20% ownership value: 520 million.
- company owns atleast 10% of the communities ( I am sure its more than 10% but its better to be conservative) that would be:
260 million + 468 million (20% ownership for 90% of the units at 50,000 per unit)
- Thats 728 million market capitalization. Current Market Cap is just 81.54 million (CMP:1.60)
- To achieve 728 million market capitalization the stock price should be: USD 14.28 thats a 792.5% return from current prices..
I think my valuation of SRZ as a USD 10 stock is an ultra conservative valuation and anyway you cut it.. SRZ is much more than USD 10 for sure.
We are living in "Interesting Times" and SRZ here is an example of an open opportunity to make some real good long term investment providing great returns for years to come.
Here is the "Link" to the senior care investor Dec 2008 Report. Thanks Charles!!
Tuesday, January 6, 2009
Development Pipeline for next 12 months Till Q32009)
Additional inputs from the Nov 2008 Q3 presentation. Basically we are looking at project pipeline for SRZ:
Q4 08
Consolidated communities -
Venture communities 5 (826 Resident capacity)
Greystone communities 1 (344 Resident Capacity)
Total 6 (1170 Resident Capacity)
Q1 09
Consolidated communities 1 (115 Resident Capacity)
Venture communities 9 (821 Resident Capacity)
Greystone communities 1 (222 Resident Capacity)
Total 11 (1158 Resident Capacity)
Q2 09
Consolidated communities -
Venture communities 3 (296 Resident Capacity)
Greystone communities 1 (309 Resident Capacity)
Total 4 (605 Resident Capacity)
Q3 09
Consolidated communities -
Venture communities 4 (380 Resident Capacity)
Greystone communities -
Total 4 (380 Resident Capacity)
So what we can see is that the already committed properties are scheduled for completion and the development pipeline is still healthy for 2009. Considering that the average development pipeline is close to 5 years the impact of the credit squeeze is going to impact the future 2-3 years down the line.
Another important fact to be considered is that most of the additional development are in "Venture" communities. These are communities where the primary owners are other parties.
This is the model/strategy that has been used by SRZ.
- Build their brand "Sunrise" in assisted living space.
- Manage properties for institutions (REIT) and earn management fees and minority shareholder profit from the ventures.
This has a positive and negative spin on SRZ.
- Positive spin: SRZ is not constrained by its own financial size(leverage potential) for growth.
- Negative spin: There exist a possibility that the property owners can change the management contract with a potentially negative implication for SRZ.
I think the negative spin is actually good for the company as the company has to maintain its standards else it might loose its contract which will result in better quality care to the residents and the SRZ management has to be innovative in cutting cost with out a reduction in long term brand value. (The other assisted living communities donot have this "stretch/risk" inbuilt in their system and can relax rules having potential long term negative implications)
Q4 08
Consolidated communities -
Venture communities 5 (826 Resident capacity)
Greystone communities 1 (344 Resident Capacity)
Total 6 (1170 Resident Capacity)
Q1 09
Consolidated communities 1 (115 Resident Capacity)
Venture communities 9 (821 Resident Capacity)
Greystone communities 1 (222 Resident Capacity)
Total 11 (1158 Resident Capacity)
Q2 09
Consolidated communities -
Venture communities 3 (296 Resident Capacity)
Greystone communities 1 (309 Resident Capacity)
Total 4 (605 Resident Capacity)
Q3 09
Consolidated communities -
Venture communities 4 (380 Resident Capacity)
Greystone communities -
Total 4 (380 Resident Capacity)
So what we can see is that the already committed properties are scheduled for completion and the development pipeline is still healthy for 2009. Considering that the average development pipeline is close to 5 years the impact of the credit squeeze is going to impact the future 2-3 years down the line.
Another important fact to be considered is that most of the additional development are in "Venture" communities. These are communities where the primary owners are other parties.
This is the model/strategy that has been used by SRZ.
- Build their brand "Sunrise" in assisted living space.
- Manage properties for institutions (REIT) and earn management fees and minority shareholder profit from the ventures.
This has a positive and negative spin on SRZ.
- Positive spin: SRZ is not constrained by its own financial size(leverage potential) for growth.
- Negative spin: There exist a possibility that the property owners can change the management contract with a potentially negative implication for SRZ.
I think the negative spin is actually good for the company as the company has to maintain its standards else it might loose its contract which will result in better quality care to the residents and the SRZ management has to be innovative in cutting cost with out a reduction in long term brand value. (The other assisted living communities donot have this "stretch/risk" inbuilt in their system and can relax rules having potential long term negative implications)
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