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Capital Senior Living Corp. Message Board

  • mentges mentges Nov 12, 1999 2:15 PM Flag

    Just bought in at 5 1/2 . . .

    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.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Hey Tiger,

      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
      idea.

      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.

      Our
      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
      http://quicktake.morningstar.com/Stocks/InduSnap/_CSU.html#indupeeranchor).

      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
      curve.

      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.

      FWIW,
      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.


      Best.

      • 3 Replies to borisgoodenough
      • 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.

        Access to
        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
        house.)

        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.

        First
        positive week we've had in some time. Good luck.
        KP

      • Welcome!

        " . . 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
        management.

        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
        wait.

        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
        long-term.

        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.
      matt

      • 1 Reply to matt_bianco
      • (from the 10/27 conference call)

        Don't
        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.

 
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