I love this sector - all selling at below book
value - Have ACR, SNRZ, and BAL. They will all sit here
near their lows for a few months until some Wall
Street type "discovers" value in these stocks because of
the medicare restoration announced yesterday, and the
fact people are still getting old. . .wow.
On a deal this size, you got
me? It would just be my guess that Lehman would put
some sort of participation in the deal but I have no
On our side is the fact that we have a proven
track record with an experienced mgmt. team. The
companies in the industry that have had problems lately and
the few that are going under just didn't have the
mgmt. experience and know how we have.
balance sheet has the lowest leverage in our peer group.
So, going into the negotiations with Lehmans, we can
boast to be the soundest company in our industry,
financial health wise (see Morningstar link
So, when we couple all of that with the 31
consectutive quarters of positive "manufactured" earnings (as
you put it), unless the Fed does a number on us, we
should come out great.
The only downside is, as
you point out, with the loss of our management fees
and the unbudgeted acquisition costs, analyst will
probably lower projected EPS for next year (currently at
$1.04 I think).
It will be interesting to see
how much lower they go (assuming they do lower them).
You and I and most everyone else posting to the board
have assumed this all along. We just don't know how
much. We have traded in some mgmt. fees for long-term
cash flow and asset acquisitions.
I am also
hoping we will pick up more mgmt. fees with all of the
"distressed" properties out there now. Some of the companies
out there with serious financing problems may be
forced into hiring experienced mgmt. But of course, we
can't count on that.
Out of the closet after lurking a while. I
confess to reading all 800+ posts, and appreciate the
intelligent and (mostly) civil tone of this board.
Refreshing...many thanks to Texas, Bikki, Sively, Matt et al --
even Tiger, for assisting my CSU learning
I concur with your thoughts, mentges, and recently
bought in, two lots just over 5, expecting to hold
between six months and a year for a double. While being
delighted with the small pop this week, I don't believe
that it's upward and onward quite yet. Too many
institutions need to pretty up portfolios at year-end --
taking losses off the books, getting out of "bad"
sectors, and dropping low-priced stocks to conform with
investment policies. This can be especially nasty to a stock
as thinly traded as CSU. I suspect we haven't seen
the last of it, and wouldn't be surprised by a retest
of recent lows before things head up.
as this is my first post here, let me weigh in on
another topic -- effects of the ILM purchase. While it
should slightly dilute short-term earnings -- especially
adding in the one-time hit of merger costs -- it's
nonsense to call the management fees a "wash", as some
have done. CSU is trading income from a short-term
management contract -- due to expire in a couple of years --
for an owner's permanent cash flow as they
internalize management -- about $2 million yearly at present,
and certain to increase. This cash flow has a
calculable NPV which must be included in the worth of the
deal to CSU.
Of greater concern to me is the
status of and financing for the development projects,
which has never been specified and was glossed over
with generalities about "discussions" in the recent
CC. If CSU has an Achilles heel that could limit
future earnings and stock valuation, this is it.
institutions largely over at end of October which
is the end of year date for most;certainly no
coincidence we saw near panic selloff then.
capital for development and acquisitions certainly key.
ILM purchase (on favorable terms??)would show vote of
confidence in CSU cash flow, management by Wall Street...In
this regard direction of interest rates is powerful
influence. (Lehman is perhaps best known as bond-trading
I follow bond market closely--it's like the tide
that either aids or hinders locomotion of equity
market/CSU--and on momentum-basis 30 Yr rates have stopped rising
after 12 consecutive months (typical length of cyclical
bear market in bonds). The next 6 weeks starting with
Fed Meeting/Decision (likely unchanged)through year
end will be critical. To maintain upward momentum of
rates (unlikely) would mean sharply higher rates--with
danger to equity markets and CSU. If rates turn down
(likely--as momentum has peaked)that would be very bullish
for CSU over the next 12 months.
positive week we've had in some time. Good luck.
" . . effects of the ILM
purchase. While it should slightly dilute short-term
earnings -- especially adding in the one-time hit of
merger costs -- it's nonsense to call the management
fees a "wash" . . . CSU is trading income from a
short-term management contract -- due to expire in a couple
of years -- for an owner's permanent cash flow as
they internalize management -- about $2 million yearly
at present, and certain to increase. This cash flow
has a calculable NPV which must be included in the
worth of the deal to CSU."
I am the author who
called it a "wash". I agree with your analysis on
management fees. They have considerable value. In competing
for ILM with Brookdale CSU had to pay for those
earnings. My point was that the impact on CSU EPS was a
"wash" on a current basis. Those fees are already
included in CSU's EPS. You deserve credit for being one of
the few investors willing to admit that the ILM
merger will be dilutive.
For some time I have
promulgated the theory that CSU, and others in this sector,
were overpriced at the time of their IPO's because
these fees were valued at the same multiple as the
earnings from real estate owned. CSU investors bought the
ILM earnings twice, at the IPO and at the time of the
merger. I have also asked investors to look at the off
balance sheet financing of high growth. Companies can
manufacture earnings when the expense related to growth are
put into other entities.
It sounds like you did your homework. And your
concern about financing is a very valid concern. But on
the flip side of the the coin, I now understand why
the subject has been "glossed over" by
We are talking about a huge loan commitment but
until the ILM proxies have been tallied and we have the
2/3 vote, we will not have the final details and
final negotiations cannot be completed. We do have the
commitment from Lehman Brothers to finance the acquisition
but the remaining details will just have to
To me it is also exciting that at our projected cash
flow rate, we should be able to self-fund our growth
in 2001. That is another reason I bought in
I agree that we should be somewhere between 5 and 6
at 12/31/99 (though 7 wouldn't surprise me should a
institution or 2 buys in). I doubt it will go back into the
4's because I think the market knows it has
overreacted (on CSU).
money. Plus CSU's portfolio is currently around
80% I/L; these are just upscale rental condos, with a
few extra amenities. They don't cost as much to run
as A/L's or nursing facilities, plus the first wave
of Baby Boomer retirees should greatly increase
demand for I/Ls within the next year or three.
(from the 10/27 conference call)
forget that the recent PriceWaterhouseCoopers survey
shows that I/L has twice the demand of A/L and the
American Senior Housing Association's 99 construction
report shows that I/L is only 6% of the new
construction, and I/L and A/L is only 11% of the new
construction (in LTC industry).
Also, CSU's resident
turnover is less that A/L. A/L projects have average
length of stay of 2 years compared to CSU's 4 years.