Since GHV is bankrupt, how will this affect lawsuits pending against GHV? Will attorneys representing clients suing GHV be able to recover legal fees? Just wondering.
Every industry insider I've ever heard says you
can't do per bed valuations. Too much state-to-state
variation based on licensing issues, etc.
I feel ETT's "intrinsic" value is extremely hard to
determine due to the complicated nature of its holdings. It
may well be negative.
<<June 16 Merrill Lynch comment on
Eldertrust included the following - ETT's NAV is a negative
46.6 million. Came to this conclusion by assuming
nursing homes in the current environment sell for $30,000
per bed and ALF's at $60,000 per bed. >>
Thanks. I was aware of ML #'s but seeking to verify or
refute as this represents about a 50% haircut. Obviously
REIT'S and operators have had that much and more taken
off, but that reflects excess leverage rather than
non-leveraged value of the land-building-business that makes up
a nursing home. Any other data on per bed values
would be welcome.
June 16 Merrill Lynch comment on Eldertrust
included the following - ETT's NAV is a negative 46.6
million. Came to this conclusion by assuming nursing homes
in the current environment sell for $30,000 per bed
and ALF's at $60,000 per bed.
Since the Fall of last year roughly 2000 nursing
homes have come under bankruptcy: about 12% of the
nations total. Most of the non-bankrupt facilities are
also hurting badly.
Looking at census projections,
to cover demand from growth in the over 75
population from 2000 to 2005, it will be necessary to keep
those facilities in service and construct an additional
1700 new facilities.
Since roughly 2/3's of this
demand will be supported by gov't programs, Medicare,
medicaid, etc, and the gov't has shown itself to be a
totally unreliable 'partner', will investors step up to
the plate to provide risk capital [6=>10 $B] for
construction of those facilities?
I know one that won't.
That will be dificult to determine because of the different geographical regions of the country. In the Southwest beds are half what they are in Pennsylvania or Michigan.
Just what is a 'bed' worth at a SNF or
ETT is a group of assets and a chunk of debt. The
debt is easy. But what are those homes worth in
today's market - not fire-sale court-house steps, but
sold the way you would your house over a reasonable
time frame. Hint ETT book is around $71/bed on SNF's
and $118/be on ALF's
[both in thousands,
SNF=Skilled Nursing Facility ALF=Assisted Living Facility]I'd
expect it to be less, but how much less?
This isn't a
riddle where I know the answer, this is something we
need to figure out in considering if there's
substantial margin of safety with ETT.
In a prior post I stated <<An important
distinction here is that the lease contracts are master
leases, covering groups of homes, rather than one lease
per home. This means that GHV can't individually
cherry-pick or selectively prune the worst performing homes,
but must go or pass on 'chunks' of homes. Were it
otherwise, ETT would get stuck with the dregs with little
hope or profitably re-leasing or selling at reasonable
I would doubt there's much difference in the
average performance of these master leased groups, that
would encourage to GHV to bail on the
contracts.>> Well, almost, but not quite. According to Lee the
GHV contracts are not master leases but are cross
defaulted, within groups of leases
executed at the same
time, as to payment defaults. While this is not quite
as strong as a master lease, it nevertheless
presumabley helps prevent selective pruning. Lee also
confirmed my impression that lease coverage at the
individual property level is generally positive - that is,
that if the facility were run as a stand alone
business there would be enough revenue to cover normal
expenses and pay the rent. This would be important if
releasing were necessary.
Litagation is not affected by BK ... just the
collection of awards, if any.
DIP gets first ...
after that the BK judge decides pecking orders although
standard IMO is:
1) bonds; 2) preferrred; c) common
with settlements/awards coming somewhere inbetween
BK never seems to stop the attorneys from suing for
"DIP gets first ... after that the BK judge
decides pecking orders although standard IMO
1) bonds; 2) preferrred; c) common with
settlements/awards coming somewhere inbetween 1-3."
Nope: Dip &
Bk lawyers & expense, then accepted contracts [ETT's
leases], Secured loans [ETT's mortages], wage & benefit
claims, consumer deposits, tax claims, then trade claims
[I think civil suit settlements may be here],
unsecured Bonds, Preferred & common, in that
There will be period of uncertainty while plan is
drawn, submitted and approved to determine if ETT's
leases are accepted.
We had an extended discussion
of what if's on bankruptcy on the board earlier.
Might be worth a revisit.