SRZ has reported an 8K filing on Feb 25,2009
CFO salary has been increased from 257,885 to 500,000 + incentives which could be 150% of the base ie additional 750,000 USD.
There are 750,000 options alloted on Dec 23,2008 (Option Price = 1.37 Price on Dec 23,2008)
Obviously SRZ is not close to any bankruptcy as a 100% salary hike is not something you get in the middle of a squeeze.
Richard Nadeau actually came in for the SOX (Sarbanes-Oxley) Section 404 compliance and for the restatement of the accounts and now he is the CFO.
Rick is also the person who got in CEO Mark Ordan.
Also if you listen to the Q3 2008 conference call, my feeling was that Rick is the foundation stone providing all the backup support, guiding direction and steering the ship.
Finance after all is like the blood flowing through the veins.. critical for sustainance.
if you listen to Q3 2008 conference call (link) I got a feeling that operations wise the company is doing just fine .. its the one time expenses that have really brought down the company stock.. and the way the management put a negative spin on the story.
Link to 8K filing
Summary: This is a good news for all SRZ fans. if you have shorts please watch them carefully. We should see the light at the end of the tunnel. Actually its like seeing a horror movie in a movie hall where the only lights on are to the "exit" sign. Some have got scared and ran for the exit.. others have enjoyed the horror movie. The movie is about to end and we all can see the real SRZ.
"God grant me the serenity to accept the things I cannot change;
courage to change the things I can and most of all to know the difference"
Friday, February 27, 2009
Monday, February 23, 2009
Q4 and full year 2008 Confernce Call
So here it is folks, this is the first quarterly report after the stock touched 27 cents and the first quarter the new management has had a chance to implement its strategy.
It is also a quarter where the external environment and the internal dynamics of the company has been in a state of flux.
We as investors should take this opportunity to attend the Q4 conference call. The conference call details are:
Call in number: Toll Free: 877-795-3638 or International Dial in: 719-325-4841 (Not a toll free number)
Please Reference: "Sunrise Q4 Earnings call"
The audio archives will be available at this location after the conference call. Also previous audio archives are available for people to go through. Here is the link
Here are some of the questions I would like to have them answered by the company executives.
1. Since there are a lot of "one time" expenses, can the company provide the normalized earnings for SRZ for the Q4 Quarter and year end 2008 also.
2. Are all German resident communities in 7 locations (Frankfurt, Konigstein, Oberursel, Weisbaden, Bonn, Klein-Flottbek and Munchen ) operating cash flow negative?
3. In how many resident communities is SRZ the majority owner (can you also provide the resident capacity of SRZ owned resident capacity)
4. What is the gross margin level the company is trying to strive for next 1 year ? what is the current gross margin level.
Overall I would expect SRZ to improve its operations cost and also with a decline in the various one time expenses you will see better Q4 Cash flow and income statement.
Saturday, February 21, 2009
SRZ: 8K Filing: NATIXIS
SRZ has filed an SEC 8K report
1. With regards to new "Standstill Agreements" with NATIXIS.
2. Stockholder Derivative litigation settlement.
Standstill Agreements with NATIXIS:
There are 4 Players:
Player 1: Sunrise München-Thalkirchen Senior Living GmbH & Co. KG (Property Company for the German Asset under consideration for SRZ)
Player 2: Sunrise München-Thalkirchen GmbH, (Operations Company for the German assets under consideration for SRZ)
Player 3: Sunrise Senior Living Inc (Guarantor for the German assets under consideration for SRZ)
Player 4: NATIXIS London Branch (Agent on behalf of the other finance parties)
There are 2 loan agreement in place between NATIXIS and SRZ.
1. Loan Agreement for the property between Sunrise München-Thalkirchen Senior Living GmbH & Co. KG and NATIXIS
2. Loan Agreement for the Operations between Sunrise München-Thalkirchen GmbH and NATIXIS
SRZ is the guarantor of these loans as the parent company.
NATIXIS and SRZ have come to two standstill agreement till March 31,2009.
Standstill Agreement 1: "Funding Standstill Agreement"
Standstill Agreement 2: "Loan Standstill Agreement"
The following are some of the salient points for "Funding Standstill Agreement :
- NATIXIS has demanded that Euros 8,076,878 be paid for non compliance to Loan To Value (LTV) ratio. The LTV ratio is 119.8% as per evaluations done by Atrisreal.
- SRZ is of the opinion that the LTV ratio has not been violated and there are discussion going on between SRZ and NATIXIS to determine the course of action.
-NATIXIS has agreed not to commence any action to demand the Cash flow Deficit
- SRZ is not in "Default" till the "parties" agree on the amount of default
- Once Agreement is reached about the cash flow deficit amount and SRZ does not pay the same the "Funding Standstill Agreement" will automatically terminate.
- Other loans that come due during the Standstill agreement, NATIXIS will not serve request for interest payments on the demands
Interest under Loan Agreement on Feb 27,2009
Interest under Loan Agreement on March 31,2009
The following are the salient features of the "Loan Standstill Agreement"
- No request for prepayment due to LTV breach.
- NATIXIS will not enforce any claims for payment that are due as per original Loan Agreement namely:
Operating company Loan: EUR 56,981.28 (interest & principal) on Jan 29,2009
Property Company Loan: EUR 347,522.91 (interest & principal) on Jan 29,2009
- "Loan Standstill Agreement" will terminate if:
a) End date of March 31,2009.
b) Negotiations end between SRZ and NATIXIS
c) Commencement of insolvency proceedings against SRZ or its German affiliates by anyone.
d) Termination of "Funding Standstill Agreement"
e) NATIXIS has provided its agreement to selling of the Munich business.
======================================
Conclusion:
1. More breathing space for SRZ to fix itself.
2. All agreements are ending on March 31,2009 as everyone wants to be at the table during discussions, it really does not make sense to have an agreement beyond March 31,2009 for NATIXIS as SRZ would be at default with other parties on March 31,2009.
3. SRZ can sell off the Munich property and NATIXIS is in agreement
4. Companies finances are improving for the Munich property as the LTV ratio was 204.7% and the Cash flow deficit was Euro 11,224,376 in Dec 18 2008 filing. for the Feb20,2009 filing the LTV ratio is 119.8% and Cash Flow Deficit is Euro 8,076,878.
5. SRZ has resident properties in German at the following locations: Frankfurt, Konigstein, Oberursel, Weisbaden, Bonn, Klein-Flottbek and Munchen . Only Munich (Munchen) property is being mentioned so its not all german operations but some specific location.
Its an operations game and with Tiffany heading Europe, hopefully we should see better days in Europe.
==============================================
Shareholder Derivative Litigation:
- The shareholder derivatives litigation has been settled, there are no payments to be made by the company as there was liability insurance for the directors of the company.
- Paul Klaassen 700,000 stock options have been repriced from USD 8.50 to USD13.09.
Here is the link to the 8k report.
1. With regards to new "Standstill Agreements" with NATIXIS.
2. Stockholder Derivative litigation settlement.
Standstill Agreements with NATIXIS:
There are 4 Players:
Player 1: Sunrise München-Thalkirchen Senior Living GmbH & Co. KG (Property Company for the German Asset under consideration for SRZ)
Player 2: Sunrise München-Thalkirchen GmbH, (Operations Company for the German assets under consideration for SRZ)
Player 3: Sunrise Senior Living Inc (Guarantor for the German assets under consideration for SRZ)
Player 4: NATIXIS London Branch (Agent on behalf of the other finance parties)
There are 2 loan agreement in place between NATIXIS and SRZ.
1. Loan Agreement for the property between Sunrise München-Thalkirchen Senior Living GmbH & Co. KG and NATIXIS
2. Loan Agreement for the Operations between Sunrise München-Thalkirchen GmbH and NATIXIS
SRZ is the guarantor of these loans as the parent company.
NATIXIS and SRZ have come to two standstill agreement till March 31,2009.
Standstill Agreement 1: "Funding Standstill Agreement"
Standstill Agreement 2: "Loan Standstill Agreement"
The following are some of the salient points for "Funding Standstill Agreement :
- NATIXIS has demanded that Euros 8,076,878 be paid for non compliance to Loan To Value (LTV) ratio. The LTV ratio is 119.8% as per evaluations done by Atrisreal.
- SRZ is of the opinion that the LTV ratio has not been violated and there are discussion going on between SRZ and NATIXIS to determine the course of action.
-NATIXIS has agreed not to commence any action to demand the Cash flow Deficit
- SRZ is not in "Default" till the "parties" agree on the amount of default
- Once Agreement is reached about the cash flow deficit amount and SRZ does not pay the same the "Funding Standstill Agreement" will automatically terminate.
- Other loans that come due during the Standstill agreement, NATIXIS will not serve request for interest payments on the demands
Interest under Loan Agreement on Feb 27,2009
Interest under Loan Agreement on March 31,2009
The following are the salient features of the "Loan Standstill Agreement"
- No request for prepayment due to LTV breach.
- NATIXIS will not enforce any claims for payment that are due as per original Loan Agreement namely:
Operating company Loan: EUR 56,981.28 (interest & principal) on Jan 29,2009
Property Company Loan: EUR 347,522.91 (interest & principal) on Jan 29,2009
- "Loan Standstill Agreement" will terminate if:
a) End date of March 31,2009.
b) Negotiations end between SRZ and NATIXIS
c) Commencement of insolvency proceedings against SRZ or its German affiliates by anyone.
d) Termination of "Funding Standstill Agreement"
e) NATIXIS has provided its agreement to selling of the Munich business.
======================================
Conclusion:
1. More breathing space for SRZ to fix itself.
2. All agreements are ending on March 31,2009 as everyone wants to be at the table during discussions, it really does not make sense to have an agreement beyond March 31,2009 for NATIXIS as SRZ would be at default with other parties on March 31,2009.
3. SRZ can sell off the Munich property and NATIXIS is in agreement
4. Companies finances are improving for the Munich property as the LTV ratio was 204.7% and the Cash flow deficit was Euro 11,224,376 in Dec 18 2008 filing. for the Feb20,2009 filing the LTV ratio is 119.8% and Cash Flow Deficit is Euro 8,076,878.
5. SRZ has resident properties in German at the following locations: Frankfurt, Konigstein, Oberursel, Weisbaden, Bonn, Klein-Flottbek and Munchen . Only Munich (Munchen) property is being mentioned so its not all german operations but some specific location.
Its an operations game and with Tiffany heading Europe, hopefully we should see better days in Europe.
==============================================
Shareholder Derivative Litigation:
- The shareholder derivatives litigation has been settled, there are no payments to be made by the company as there was liability insurance for the directors of the company.
- Paul Klaassen 700,000 stock options have been repriced from USD 8.50 to USD13.09.
Here is the link to the 8k report.
Wednesday, February 18, 2009
Tuesday, February 17, 2009
GM Bonds: GM Bonds: Bankruptcy Filings
GM has filed as per Feb 17, 2009 deadline new plans for restructuring.
There are 3 types of bankruptcy filings in consideration.
1. Pre-Packaged Chapter 11.
2. Pre-Negotiated "Cram Down"
3. Conventional Bankruptcy
Out of the 3 Conventional Bankruptcy is a strict No-No due to the amount of time required to complete the same. The best/suggested alternative is pre-packaged chapter 11 filing.
Pre-Packaged Chapter 11 filing salient features:
1. Bond holders are to receive 1/3 30 cents to a dollar and the rest 70 cents in the form of equity interest.
2. This requires that the VEBA (Voluntary Employee Benefitiary Association) gets half their proposed funding of 10 billion in Equity
3. Current Equity shareholders will be reduced next to nothing due to large scale debt to Equity conversion.
===============================
Company Net Present Value Calculations (Current GM Enterprise valuation is around 8 Billion) here is the break down.
There are 3 types of bankruptcy filings in consideration.
1. Pre-Packaged Chapter 11.
2. Pre-Negotiated "Cram Down"
3. Conventional Bankruptcy
Out of the 3 Conventional Bankruptcy is a strict No-No due to the amount of time required to complete the same. The best/suggested alternative is pre-packaged chapter 11 filing.
Pre-Packaged Chapter 11 filing salient features:
1. Bond holders are to receive 1/3 30 cents to a dollar and the rest 70 cents in the form of equity interest.
2. This requires that the VEBA (Voluntary Employee Benefitiary Association) gets half their proposed funding of 10 billion in Equity
3. Current Equity shareholders will be reduced next to nothing due to large scale debt to Equity conversion.
===============================
Company Net Present Value Calculations (Current GM Enterprise valuation is around 8 Billion) here is the break down.
Conclusion:
- 30 cents to a dollar for 25 dollar is 7.5 USD. So current bond holders will get new bonds worth 7.5 USD.
- All current bonds are quoting at close to 3.50 USD so there is a still lot of value in the current prices.
- Also for the remaining 17.5 USD bond holders will receive equity (could be 5 to 10 shares average 8)
So all in all a 3.50 USD investment will get you 7.5 USD worth of bond (in a solvent company) and 8 shares of GM. The bond interest rates could be higher than 7.5% also the shares would also get good valuations, if quoting at 2 USD will give you a total value package of 25 USD or more thats a 614 % return by Dec 2009 on investment of 3.5 USD
I would suggest a strong buy for GM bonds at these levels and a Strong Sell for GM shares (already at 2.18 USD)
Monday, February 16, 2009
SRZ: Valuation and Earning Estimate
This is with respect to questions on Yahoo message board with regards to valuations and earnings estimate of Sunrise Senior living (SRZ). Yahoo message board is the most active board for SRZ and here are my thoughts.
====================================
PureGamble:
Basically when we buy a stock we are trying to evaluate if the company is worth the price that we are paying. Earnings can be doctored (legally) to show higher positive numbers even when the companies are not doing so well.
The question in our mind should be: If I am a business man/woman how much would I pay for a company and how do I calculate it.
The general rule of the thumb is 1 times annual sales. In case of SRZ Sales are 1.7 billion
Current market capitalization of SRZ is 40 million so thats a great value buy.
Ofcourse anything available at steep discount we need to do a deep dive and try to evaluate the networth of the company to determine the true price of SRZ as a company. (is it really cheap)
From asset prespective we know SRZ has 54,000 resident capacity and approximately 50% is owned by SRZ and the rest is under management contract (other people's Assets)
I have previously done some calculations (on Dec 22,2008) and we will use the same. The valuation comes to about 10 USD per share even considering bankruptcy levels. (here is the link)
That is, the company from an asset prespective.. throw away valuation is 10USD ie. 10 * 50 Million = 500 million market capitalization.
============================================
Valuation 1: Let us now look at the company from Operating Cash flow basis.
Operating Cash flow is a pretty stringent and standard process to determine the health of the company. We will look at SRZ annual cash flow from operations for past 4 years and determine how much is the company worth.
Cash flow analysis has also been done before (Jan12,2009) and here is the Link
As we deep dive there are a lot of numbers and numbers can drag you down.
Gist of Cash Flow is : SRZ 4 years 2004,2005,2006,2007 Annual Operating Cash flow average is 130 million. If you can buy a company for equal to operating cash flows it would be a great buy
=======================================
The question is still what is the true worth of SRZ in market capitalization terms?
Generally when a company is valued, its true/ideal market capitalization is determined by ..
considering the "Time value of money" principles.
If we apply to the operating cash flow of SRZ (130 million) the time value of money fundas the question statement would be:
How much money would I need in super safe Govt bonds to earn 130 million each year.
Current 1 year MTA rate is : 1.633%
Last year 1 Year MTA rate is :4.326%
(from Bankrate.com Link)
SRZ loan rates are right now 6.5 to 7% assuming the worst case 7% interest rate, restating the question.
How much money do I need to earn 130 million each year when interest rate is 7%
= 130million /0.07 = 1857 million ie 1.8Billion
At different inetrest rates the numbers would be:
at 7% interst rate 130 million cash flow would be valued at : 1857 million
at 8% interest rate 130 million cash flow would be valued at : 1625 million
at 9% interest rate 130 million cash flow would be valued at : 1444 million
at 10% interest rate 130 million cash flow would be valued at : 1300 million
So we get 2 important observations.
1. the valuation (1.857 billion) is pretty close to 1 times sales (1.7 Billion)
2. As the interest rate goes up the valuation of the company goes down. So interest rates rise is a no-no for stock prices..
======================================
Valuation 2: Another way to dice the valuation matrix is: how much would you need to get the company back on roll.. (pay out the debt and other issues which are depressing the company's valuations)
40 million (Current market cap) + 120 million (Current credit facility payment) + 180 million (German operations debt) = 340 million.
So if you have 340 million and if you could potentially buy SRZ for current market cap with a total investment of another 300 million the company would be as good as a new dime.
So by spending 340 million you can effectively get a company worth 1.8 billion.
PN: This is what the hedge fund/private equity players do.. invest 340 million and make 1.46Billion (1.8Billion - 340 million)
============================================
Valuation 3: Another way to slice it would be if we need 300 million to fix the company how much time would it take for the company to become as good as new? (fix itself)
300 million /130 million (annual Cash flow from operations) = 2.3 years
So 2.3 years down the line the historical data available about the company tells us we can expect SRZ to have a valuation of 1.8 billion
============================================
Earning 1: The final question that comes up is what is the earning estimate for the company.
SRZ current market cap is know 40 million.
Current interest rate is known 7%
using cash flow as equal to earnings we can determine cash flow 1 year down the line as 40 * 0.07 = 2.8 million
So my answer to PureGamble would be: SRZ earnings in Cash flow prespective is going to be +ve2.8 million cash flow within 12 months time frame.
======================================
Conclusion: Anyway you slice it or dice it current valuation (40 million market cap) is noting but rediculous. Its a screaming Buy!!! for SRZ.
============================================
====================================
PureGamble:
Basically when we buy a stock we are trying to evaluate if the company is worth the price that we are paying. Earnings can be doctored (legally) to show higher positive numbers even when the companies are not doing so well.
The question in our mind should be: If I am a business man/woman how much would I pay for a company and how do I calculate it.
The general rule of the thumb is 1 times annual sales. In case of SRZ Sales are 1.7 billion
Current market capitalization of SRZ is 40 million so thats a great value buy.
Ofcourse anything available at steep discount we need to do a deep dive and try to evaluate the networth of the company to determine the true price of SRZ as a company. (is it really cheap)
From asset prespective we know SRZ has 54,000 resident capacity and approximately 50% is owned by SRZ and the rest is under management contract (other people's Assets)
I have previously done some calculations (on Dec 22,2008) and we will use the same. The valuation comes to about 10 USD per share even considering bankruptcy levels. (here is the link)
That is, the company from an asset prespective.. throw away valuation is 10USD ie. 10 * 50 Million = 500 million market capitalization.
============================================
Valuation 1: Let us now look at the company from Operating Cash flow basis.
Operating Cash flow is a pretty stringent and standard process to determine the health of the company. We will look at SRZ annual cash flow from operations for past 4 years and determine how much is the company worth.
Cash flow analysis has also been done before (Jan12,2009) and here is the Link
As we deep dive there are a lot of numbers and numbers can drag you down.
Gist of Cash Flow is : SRZ 4 years 2004,2005,2006,2007 Annual Operating Cash flow average is 130 million. If you can buy a company for equal to operating cash flows it would be a great buy
=======================================
The question is still what is the true worth of SRZ in market capitalization terms?
Generally when a company is valued, its true/ideal market capitalization is determined by ..
considering the "Time value of money" principles.
If we apply to the operating cash flow of SRZ (130 million) the time value of money fundas the question statement would be:
How much money would I need in super safe Govt bonds to earn 130 million each year.
Current 1 year MTA rate is : 1.633%
Last year 1 Year MTA rate is :4.326%
(from Bankrate.com Link)
SRZ loan rates are right now 6.5 to 7% assuming the worst case 7% interest rate, restating the question.
How much money do I need to earn 130 million each year when interest rate is 7%
= 130million /0.07 = 1857 million ie 1.8Billion
At different inetrest rates the numbers would be:
at 7% interst rate 130 million cash flow would be valued at : 1857 million
at 8% interest rate 130 million cash flow would be valued at : 1625 million
at 9% interest rate 130 million cash flow would be valued at : 1444 million
at 10% interest rate 130 million cash flow would be valued at : 1300 million
So we get 2 important observations.
1. the valuation (1.857 billion) is pretty close to 1 times sales (1.7 Billion)
2. As the interest rate goes up the valuation of the company goes down. So interest rates rise is a no-no for stock prices..
======================================
Valuation 2: Another way to dice the valuation matrix is: how much would you need to get the company back on roll.. (pay out the debt and other issues which are depressing the company's valuations)
40 million (Current market cap) + 120 million (Current credit facility payment) + 180 million (German operations debt) = 340 million.
So if you have 340 million and if you could potentially buy SRZ for current market cap with a total investment of another 300 million the company would be as good as a new dime.
So by spending 340 million you can effectively get a company worth 1.8 billion.
PN: This is what the hedge fund/private equity players do.. invest 340 million and make 1.46Billion (1.8Billion - 340 million)
============================================
Valuation 3: Another way to slice it would be if we need 300 million to fix the company how much time would it take for the company to become as good as new? (fix itself)
300 million /130 million (annual Cash flow from operations) = 2.3 years
So 2.3 years down the line the historical data available about the company tells us we can expect SRZ to have a valuation of 1.8 billion
============================================
Earning 1: The final question that comes up is what is the earning estimate for the company.
SRZ current market cap is know 40 million.
Current interest rate is known 7%
using cash flow as equal to earnings we can determine cash flow 1 year down the line as 40 * 0.07 = 2.8 million
So my answer to PureGamble would be: SRZ earnings in Cash flow prespective is going to be +ve2.8 million cash flow within 12 months time frame.
======================================
Conclusion: Anyway you slice it or dice it current valuation (40 million market cap) is noting but rediculous. Its a screaming Buy!!! for SRZ.
============================================
Friday, February 13, 2009
SRZ: Ventas Q4 Earnings Report
Ventas has reported the Q4 results.. We are not trying to gauge Ventas but learning from it and its impact to Sunrise (SRZ) as Sunrise is one of the largest chunk of Ventas properties.
1. Dilution of shares from 123 million in 2007 to 139 million in 2008 ie 9.4% increase in equity.
(This is pretty expensive.. cause on a long term basis equity is the most expensive form of funding as dividents are given for the life of the equity)
2. Normalized FFO (Funds from Operations) has increased to 2.74 from 2.69. An increase of 2%.
Assuming FFO as Cash flows from operations it shows an increase in cash flows. One thing to keep in mind is "Normalized". There are a multiple changes that happened last year.
- sold properties.
- re-negotiated debt.
- Issued additional equity.
- etc etc..
So its not really apples to apples as you have sold properties and you have made money from the sale but the operating income from the properties is lost.. you have also issued additional equity and paid of debt at a profit..so some magical formula is used to make an apple to orange look like an apple to apple comparison. So there is some merit in the increase in normalized FFO but its not a true comparison.
A good understanding of the normalization trick is here..
Fourth quarter 2008 normalized FFO increased eight percent to $95.0 million, from $87.7 million in the fourth quarter of 2007. Normalized FFO per diluted common share was stable at $0.66 for both periods.
This basically shows that an 8% increase in revenue is equal to 0% increase in EPS.
- Normalization in FFO did not take into consideration the increase in equity.
- Equity increase has been an expensive proposition as the increase in earnings have actually diluted by 8% going forward.
Thats why Stock options are really a very good way to fleece the company of the earnings and pay the management.. (its cheaper to give bonuses in cash from the profit!!)
=====================================
NAREIT FFO for the year ended December 31, 2008 increased ten percent to $416.0 million, or $2.97 per diluted common share, from $377.7 million, or $3.07 per diluted common share, for the comparable 2007 period. So Actually National Association of Real Estate Investment Trusts standards are much tougher and according to these standards Ventas had a decrease in earnings from EPS=3.07USD (in 2007) to EPS=2.97USD( 2008)
The decrease in NAREIT FFO per diluted common share is principally due to higher weighted average diluted shares outstanding in 2008.
Interpretation: 10% increase in FFO to 416 million as compared to 377.7 million in 2007 but the earnings per share is down at USD 2.97 per share instead of USD 3.07 per share according to NAREIT earning calculation standards due to dilution of equity and other factors..
=====================================
For Sunrise portfolio:
Lower earnings due to the following:
1. Exchange rate fluctuations resulted in lower earnings (can be ignored)
2. Lower occupancy as compared to 2007
ie 300,000 less earnings from the 79 communities owned by Ventas and managed by Sunrise.
For 72 communities that were already stabilized there was a decrease in earnings by 3.2 million
29.4 million (2008) verses 32.6 million(2007) 9.8% decline in earnings or 6.4% decline in earnings (if you consider the 1.1 million exchange rate loss as an exception to the calculation)
Average Daily rates declined by 2% and Occupancy also declined by 2%
========================================
Stabilized/Lease up communities:
Average occupancy increased by 5% in 2008 from 58.2%(Q3 2007) to 63.7% (Q4 2008)
One of the communities has been reclassified as Stabilized.
But what does stabilized mean?? if average occupancy is 63.7% assuming stabilized is 80% occupancy .. then one community is at 80% occupancy and the other community is at 46% occupancy.. I guess SRZ is off the hook once the community is termed as stabilized!! (just my thought)
=====================================
Conclusions: Times are tough and Ventas is seeing that SRZ communities had 2% decrease in occupancy and 2% decrease in daily rates..
All Ventas properties are managed by Sunrise.. Its good to know that a Ventas quaterly report talks so much about SRZ cause it clearly shows the brand of SRZ in the assisted living space. I would say Hip Hip Hurray!! for SRZ.
=====================================
The link to the Q4 report is here
1. Dilution of shares from 123 million in 2007 to 139 million in 2008 ie 9.4% increase in equity.
(This is pretty expensive.. cause on a long term basis equity is the most expensive form of funding as dividents are given for the life of the equity)
2. Normalized FFO (Funds from Operations) has increased to 2.74 from 2.69. An increase of 2%.
Assuming FFO as Cash flows from operations it shows an increase in cash flows. One thing to keep in mind is "Normalized". There are a multiple changes that happened last year.
- sold properties.
- re-negotiated debt.
- Issued additional equity.
- etc etc..
So its not really apples to apples as you have sold properties and you have made money from the sale but the operating income from the properties is lost.. you have also issued additional equity and paid of debt at a profit..so some magical formula is used to make an apple to orange look like an apple to apple comparison. So there is some merit in the increase in normalized FFO but its not a true comparison.
A good understanding of the normalization trick is here..
Fourth quarter 2008 normalized FFO increased eight percent to $95.0 million, from $87.7 million in the fourth quarter of 2007. Normalized FFO per diluted common share was stable at $0.66 for both periods.
This basically shows that an 8% increase in revenue is equal to 0% increase in EPS.
- Normalization in FFO did not take into consideration the increase in equity.
- Equity increase has been an expensive proposition as the increase in earnings have actually diluted by 8% going forward.
Thats why Stock options are really a very good way to fleece the company of the earnings and pay the management.. (its cheaper to give bonuses in cash from the profit!!)
=====================================
NAREIT FFO for the year ended December 31, 2008 increased ten percent to $416.0 million, or $2.97 per diluted common share, from $377.7 million, or $3.07 per diluted common share, for the comparable 2007 period. So Actually National Association of Real Estate Investment Trusts standards are much tougher and according to these standards Ventas had a decrease in earnings from EPS=3.07USD (in 2007) to EPS=2.97USD( 2008)
The decrease in NAREIT FFO per diluted common share is principally due to higher weighted average diluted shares outstanding in 2008.
Interpretation: 10% increase in FFO to 416 million as compared to 377.7 million in 2007 but the earnings per share is down at USD 2.97 per share instead of USD 3.07 per share according to NAREIT earning calculation standards due to dilution of equity and other factors..
=====================================
For Sunrise portfolio:
Lower earnings due to the following:
1. Exchange rate fluctuations resulted in lower earnings (can be ignored)
2. Lower occupancy as compared to 2007
ie 300,000 less earnings from the 79 communities owned by Ventas and managed by Sunrise.
For 72 communities that were already stabilized there was a decrease in earnings by 3.2 million
29.4 million (2008) verses 32.6 million(2007) 9.8% decline in earnings or 6.4% decline in earnings (if you consider the 1.1 million exchange rate loss as an exception to the calculation)
Average Daily rates declined by 2% and Occupancy also declined by 2%
========================================
Stabilized/Lease up communities:
Average occupancy increased by 5% in 2008 from 58.2%(Q3 2007) to 63.7% (Q4 2008)
One of the communities has been reclassified as Stabilized.
But what does stabilized mean?? if average occupancy is 63.7% assuming stabilized is 80% occupancy .. then one community is at 80% occupancy and the other community is at 46% occupancy.. I guess SRZ is off the hook once the community is termed as stabilized!! (just my thought)
=====================================
Conclusions: Times are tough and Ventas is seeing that SRZ communities had 2% decrease in occupancy and 2% decrease in daily rates..
All Ventas properties are managed by Sunrise.. Its good to know that a Ventas quaterly report talks so much about SRZ cause it clearly shows the brand of SRZ in the assisted living space. I would say Hip Hip Hurray!! for SRZ.
=====================================
The link to the Q4 report is here
Thursday, February 12, 2009
GM Bonds for Life
General motors has close to 4.5 Billion dollar worth of bonds.
The bonds are of 25 Dollar face value and have Annual interest rates of 7.25% to 7.5%
These are long term bonds with maturity dates of 2044 to 2051
The bond are traded as stocks with the following ticker symbols, their interest rates, Actual return on investment if you buy them today(Feb 12,2009) .. and their expiration dates.
1. GMW: Interest Rate 7.25% : Interest per annum= 1.8125USD
Current Market Price=3.13USD : Yield = 57.9% per annum till 2041
2. XGM: Interest Rate 7.25% : Interest per annum= 1.8125 USD
Current Market Price=3.17 USD : Yield=57.17% per annum till 2041
3. GMS: Interest rate 7.5% Interest per annum=1.875 USD
Current Market Price=3.28USD : Yield=57.16% per annum till 2044
4. BGM: Interest Rate 7.375% Interest per annum=1.84375USD
Current Market Price=3.15USD : Yield=58.53% per annum till 2048
5. HGM: Interest Rate 7.375% Interest per Annum= 1.84375 USD
Current Market Price=3.32: Yield=55.53% per annum till 2051
6. RGM: Interest rate 7.25% : Interest per annum=1.8125 USD
Current Market Price=3.10USD : Yield=58.46% per annum till 2052
- Auto industry and GM are percieved as the most negative industries.
- The US Auto companies have been in losses from times in memorial and loosing market share to their Asian counterparts.
But here are the salient features which should be kept in mind.
1. Feb 8, 2008 these bonds were quoting at around 16 USD
2. Sept 10, 2008 these bonds were quoting at 10USD.
3. GM has never defaulted on its bonds in the history of the company (which spans 100 years)
4. Even if the company is reporting losses the interest on the bonds have to be paid.
5. The face value of the bond is USD 25 so if GM buys back the bonds it has to pay you 25 dollars ie 8 times your cost of USD 3 per bond. (this is addition to the interest of 1.8USD every year)
6. If for some reason the tide turns and GM becomes profitable these bonds could quote at USD 25 or more (june 2004 the bonds had a market price of 26USD)
7. In case of bankruptcy generally bond holders are paid 25 cents to a dollar (75% discount to face value) as per bond experts, 25 cents to a dollar for a 25USD bond is 6.25USD (which is 100% above the current market price of 3USD)
8. As per GM starting 2010 GM will save 7 billion dollars in healthcare costs for retired employees.
9. GM is going to launch Chevy Volt in 2010 which is touted to have a Fuel economy rating higher than new Toyota Prius ie 100+MPG.
10. For us to continue to receive the 50% interest every year GM has to be solvent not profitable.
11. GM has largest market share in China and is profitable in the asian market.(Future growth market)
12. These bonds are staggered ie. the record dates for dividents are different.
RGM Record dates are: Jan31, Apr31, Jul31, Oct31 (interest rates are paid quaterly)
HGM Record dates are: Dec 15, Mar 15, Jun15, Sep15 (Interest are paid quaterly)
With proper planning you can switch from one bond to the other and get twice the divident ie 1.8 x 2 = 3.6USD per annum.
Various Scenarios:
- buying 1000 Bonds at 3.19USD ie investing 3190USD you will receive 1833USD every year till 2046 ie next 37 years and at the end of tenure GM will pay 25000USD.
- if GM goes bankrupt you will receive 6250USD
- if GM buys back the bonds you will recive 1833USD every year + 25000USD when GM buys back the bonds
- if GM does well the bond will quote close to face value and you can continue to receive the interest of 1833USD every year or encash and receive 25000USD (sell at market rates)
- if you are over smart and try and time your buy and sell to get twice the interest by switching between record dates.. of different bonds you can make 3666USD every year as interest and also expect the payback at face value 25 USD.
All said and done what is the most important thing to do?.. Take that first step and buy the correct bond from the stock market (not from GM)
Here is the link to GM website where you can get the prospectus.
The bonds are of 25 Dollar face value and have Annual interest rates of 7.25% to 7.5%
These are long term bonds with maturity dates of 2044 to 2051
The bond are traded as stocks with the following ticker symbols, their interest rates, Actual return on investment if you buy them today(Feb 12,2009) .. and their expiration dates.
1. GMW: Interest Rate 7.25% : Interest per annum= 1.8125USD
Current Market Price=3.13USD : Yield = 57.9% per annum till 2041
2. XGM: Interest Rate 7.25% : Interest per annum= 1.8125 USD
Current Market Price=3.17 USD : Yield=57.17% per annum till 2041
3. GMS: Interest rate 7.5% Interest per annum=1.875 USD
Current Market Price=3.28USD : Yield=57.16% per annum till 2044
4. BGM: Interest Rate 7.375% Interest per annum=1.84375USD
Current Market Price=3.15USD : Yield=58.53% per annum till 2048
5. HGM: Interest Rate 7.375% Interest per Annum= 1.84375 USD
Current Market Price=3.32: Yield=55.53% per annum till 2051
6. RGM: Interest rate 7.25% : Interest per annum=1.8125 USD
Current Market Price=3.10USD : Yield=58.46% per annum till 2052
- Auto industry and GM are percieved as the most negative industries.
- The US Auto companies have been in losses from times in memorial and loosing market share to their Asian counterparts.
But here are the salient features which should be kept in mind.
1. Feb 8, 2008 these bonds were quoting at around 16 USD
2. Sept 10, 2008 these bonds were quoting at 10USD.
3. GM has never defaulted on its bonds in the history of the company (which spans 100 years)
4. Even if the company is reporting losses the interest on the bonds have to be paid.
5. The face value of the bond is USD 25 so if GM buys back the bonds it has to pay you 25 dollars ie 8 times your cost of USD 3 per bond. (this is addition to the interest of 1.8USD every year)
6. If for some reason the tide turns and GM becomes profitable these bonds could quote at USD 25 or more (june 2004 the bonds had a market price of 26USD)
7. In case of bankruptcy generally bond holders are paid 25 cents to a dollar (75% discount to face value) as per bond experts, 25 cents to a dollar for a 25USD bond is 6.25USD (which is 100% above the current market price of 3USD)
8. As per GM starting 2010 GM will save 7 billion dollars in healthcare costs for retired employees.
9. GM is going to launch Chevy Volt in 2010 which is touted to have a Fuel economy rating higher than new Toyota Prius ie 100+MPG.
10. For us to continue to receive the 50% interest every year GM has to be solvent not profitable.
11. GM has largest market share in China and is profitable in the asian market.(Future growth market)
12. These bonds are staggered ie. the record dates for dividents are different.
RGM Record dates are: Jan31, Apr31, Jul31, Oct31 (interest rates are paid quaterly)
HGM Record dates are: Dec 15, Mar 15, Jun15, Sep15 (Interest are paid quaterly)
With proper planning you can switch from one bond to the other and get twice the divident ie 1.8 x 2 = 3.6USD per annum.
Various Scenarios:
- buying 1000 Bonds at 3.19USD ie investing 3190USD you will receive 1833USD every year till 2046 ie next 37 years and at the end of tenure GM will pay 25000USD.
- if GM goes bankrupt you will receive 6250USD
- if GM buys back the bonds you will recive 1833USD every year + 25000USD when GM buys back the bonds
- if GM does well the bond will quote close to face value and you can continue to receive the interest of 1833USD every year or encash and receive 25000USD (sell at market rates)
- if you are over smart and try and time your buy and sell to get twice the interest by switching between record dates.. of different bonds you can make 3666USD every year as interest and also expect the payback at face value 25 USD.
All said and done what is the most important thing to do?.. Take that first step and buy the correct bond from the stock market (not from GM)
Here is the link to GM website where you can get the prospectus.
SRZ: Sunrise Senior Living
- Dec 19,2008 : SRZ Strong Value Buy
- Dec 22,2008: SRZ: Peek into 2008 Q3 Report
- Dec 22,2008: SRZ: Strip down valuation USD 10
- Dec 23,2008: SRZ Funding Interest Rates
- Dec 26,2008: SRZ: NATIXIS : Stand Still Agreement: Option Grant to CFO,CAO
- Dec 29,2008: SRZ: gastrointestinal virus outbreak
- Dec 30,2008: SRZ: 10K Ammendment for year ending Dec 2007
- Jan6,2009: SRZ: Development pipeline for next 12 months
- Jan9,2009: SRZ: Senior Care Investor Dec 2008 Report
- Jan 11,2009: SRZ: Memory Care Facility Open in Michigan Jan29,2009
- Jan 12, 2009: SRZ: Cash Flow Statement (Sept 2008)
- Jan 16,2009: SRZ: SEC 13G: Jamie Lester & Sound Post Partners 15.4% holding
- Jan 17,2009: SRZ: American Senior Housing Association (ASHA) Top 50
- Jan 17, 2009: SRZ: NAtional Investment Center - Senior Housing & Care Industry Jan 2009 Newsletter
- Jan 22, 2009 : SRZ: SEC 8K : Credit Agreement Update
- Jan 24, 2009: SRZ : Refinancing allowed but with a caveat
- Feb 2, 2009: SRZ: One on One with Paul Klaassen (Promoters - 2004 Article)
- Feb 12,2009: SRZ: SEC Schedule 13G 40% Holdings by Guardian Investor Services
- Feb 13,2009: SRZ: Ventas Q4 results & SRZ
- Feb 16,2009: SRZ: Valuation and Earning Estimate
- Feb 21,2009: SRZ: 8K NATIXIS Standstill Agreement & Stockholder Litigation settlement
- March 4,2009: SRZ: Annual Results 2008 Review.
- March 12,2009: SRZ: Greystone Asset Sale Agreement
- March 25,2009: SRZ: 11th Credit Agreement - Additional Asset sale of 12 million projected
- April 29,2009: SRZ 12 Ammendment to Credit Agreement
- May 8,2009: SRZ: Compensatory Agreement (Bonus to CEO & CIO Greg Neeb -2008)
- May 8, 2009: SRZ: Clarification regarding Foxhill Assisted Living & Condominium Project
- May 8,2009: SRZ: Sunrise Announces Overhead Cost Reduction/Downsizing Plan & German community Sale
- August 12,2009: SRZ: Q2 2009 Quaterly Report
- August 16,2009: SRZ: Senior Assisted Living Company Valuation 6.39USD
- October 17,2009: SRZ: Sale of 21 communities for 204 million
- October 20,2009: SRZ: Shareholder as of Sept 25,2009
- Nov 23,2009: SRZ: Q3 Report: Better Days Ahead
- Feb 2, 2010: SRZ: Multibagger: Ripe for Picking
Schedule 13G/A Filings in SRZ Feb 10 & Feb 12
Schedule 13G by definition means reporting holdings of more than 5% in a company.
It also means that the company/person reporting the holding is doing so only for investment and not for control of ownership/change of management.
if you are looking to control of ownership one needs to declare the same by filing Schedule 13D
Feb 10 filing has the following investors:
=============================================
This is year end Dec 31,2008 reporting by
RS Value Fund -3,712,784- shares 7.3% of equity
RS Investment Management Co. LLC -6,039,175- 11.9% of Equity
Guardian Investor Services LLC -6,039,175- 11.9% of equity
The Guardian Life Insurance Company of America -6,039,175- 11.9% of Equity
So looks like guardian Investor Services is bullish with respect to SRZ as they are holding 43% of SRZ's equity.
=============================================
This is year end Dec 31,2008 reporting by T Rowe Price
T. ROWE PRICE ASSOCIATES, INC - 29,900 - shares
T. ROWE PRICE SMALL-CAP STOCK FUND, INC. - NIL - shares
This statement is being filed to report the fact that, as of the date of this report, the reporting person(s) has (have) ceased to be the beneficial owner of more than five percent of the class of securities.
So T Rowe Price is no longer a 5% stake holder..
My Take:
- This could be because SRZ is no longer part of the NYSE Small CAP index hence the index funds will sell.
- Year end selling ot reduce the tax burden in case of profits from other investments are there to report.
Here is the Link
It also means that the company/person reporting the holding is doing so only for investment and not for control of ownership/change of management.
if you are looking to control of ownership one needs to declare the same by filing Schedule 13D
Feb 10 filing has the following investors:
=============================================
This is year end Dec 31,2008 reporting by
RS Value Fund -3,712,784- shares 7.3% of equity
RS Investment Management Co. LLC -6,039,175- 11.9% of Equity
Guardian Investor Services LLC -6,039,175- 11.9% of equity
The Guardian Life Insurance Company of America -6,039,175- 11.9% of Equity
So looks like guardian Investor Services is bullish with respect to SRZ as they are holding 43% of SRZ's equity.
=============================================
This is year end Dec 31,2008 reporting by T Rowe Price
T. ROWE PRICE ASSOCIATES, INC - 29,900 - shares
T. ROWE PRICE SMALL-CAP STOCK FUND, INC. - NIL - shares
This statement is being filed to report the fact that, as of the date of this report, the reporting person(s) has (have) ceased to be the beneficial owner of more than five percent of the class of securities.
So T Rowe Price is no longer a 5% stake holder..
My Take:
- This could be because SRZ is no longer part of the NYSE Small CAP index hence the index funds will sell.
- Year end selling ot reduce the tax burden in case of profits from other investments are there to report.
Here is the Link
Monday, February 2, 2009
One on One with Paul Klaassen
This is an old article but it will help in understanding the philosophy of Sunrise and the management.
Here is the Link
Here is the Link
Saturday, January 24, 2009
SRZ: Refinancing has been allowed but with caveat
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.
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.
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)
Subscribe to:
Posts (Atom)
