It is nice to see some brainstorming and intelligent issues brought up. For the record though if you look back it was the shorts like me that was positive at first about constructive debate. I originally brought up IBD as a good source of ideas and told that IMBICILE to look at different names in health care like stryker, quest diagnostics, etc you yourself mentioned JNJ as diversification. His limited intelligence could only bring up ideas like pigrims, and double wide trailors. So good debating was lost with such a feeble mind.
Also up untill now the shorts have been dead right on this one. It should be a fun ride either way. I look forward to some honest open debate and good ideas not just on BKD but other stocks and ideas. Since you took so much time in laying out good points of interest i will tackle them when i can.
Just so you know i was a legacy Alterra employee, whereas Biggypapa seems to have been from Brookdale. Let me explain some of my reasoning then maybe you will start to understand why i am so negative on BKD. You yourself said I state "I think Alterra is sort-of the weak link in terms of quality." (end quote). My God you have no idea how dead on that is, I mean dead on. I have seen the different buildings and let me tell you you would be amazed at some of the trash at Alterra. My belief is you are only as valuable as sum of all employees or as weak as the weakest link. While I beleive BKD does have some very fine buildings, Alterra is killing this company, what did they acquire??? 200 or so Alterra's? not sure of the exact number. Just so you know Alterra is CANCER! Poor run, incompetent MGT. They should have never acquired them. I beleive Alterra is at the stem of the problems they will experience.
I remember after Alterra was in bankruptcy we were almost bought by Emeritus (ESC). They took a stake and even meet some employees that cam to our buildings to visit. They seemed like a breath of freash air. Then all of a sudden this all ended as ESC pulled out abruptly. Then eventually came humdreds of more rumors untill we were acquired by BKD after the reorganization. We thought at the time this was a good more for us at Alterra, new mgt, new company, new start? Not really many employees were shocked/amazed how little if anything changed they kept all the old Alterra MGT, same philosophy , nothing was different. I was shocked as to why someone would spend so much and not clean house, or at least put in a new director (which our building desperately needed) and weed out the bad attitudes and start freash. Same old same old. BKD had just flushed away tons of money. They would have been better off just cherry picking certain prime locations, and buying those houses. Do your research and tell me where most of those buildings were located along with good old BILL LASKY.
Is it possible that Fortress got Alterra on the cheap and knew that the consequence was that it would be a major turnaround job—that was the trade-off? Or, do you think they grossly underestimated (and therefore overpaid) how hard that turnaround would be and still think the value is only $83,000 or less for those? I know that Brookdale/Fortress believes that by bulking up as they did (albeit in the go-go times of easy financing), they could save a lot on food purchasing, insurance (liability), and other purchasing to a lesser extent—the whole “economies of scale” argument. You may be right--It may be that doing the 2006 acquisitions of AEW, ASL, SAL, NHP and other one-off acquisitions without Alterra would have been best. For me, though, I have to look to the future and figure out if they can succeed even with today’s headwinds.
When you talk about trash at Alterra, is it the facilities themselves, middle/lower skilled employees, or management that are the weakest link? I hear you, Alterra is not an insignificant part of the overall company--about 28% of the units--but the “other stuff” is 72%, so there’s some buffer even if Alterra sputters a little—though not a lot of course.
In general, can you put good managers in old facilities / so-so neighborhoods and really make a difference?--or do you think this assisted living business is much more about location location location like real estate (similar to a question of: would you rather have good mgmt or good location?).
As an industry insider (you), i would love your opinion on that--and appreciate any additional color. Does a director or marketing person develop personal relationships, or is it more direct-to-consumer type marketing? Also, I echo your questions to the others that have intimate experience with Brookdale—any color is much appreciated!
Oh, and Mr. Lasky is at Enduracare, a small rehab and therapy mgmt company (http://www.enduracare.com/leadership.html) providing services to sr. housing and hospitals.
Nice job on detail, I love the way you break down statistics. In the long-run it will pay off with investing as a whole. Sorry i do not have much time to post i have to go somewhere, but i will answer some questions shortly. Once question you asked was would you rather have good mgt, or good location? I feel that is kind of an oxy-moron (no offense). Because good mgt would do proper due dilligence and locate buildings properly based on need. If you are deling with older buildings and what to do that is a more serious question, i think you mugst have good mgt and leadership because if the location is bad you must excell in other areas like service, care, skill etc and make people/families realize that the extra care and service is worth the cost.
Also if you dont mind me asking what other stocks do you own besides BKD? SInce you do your homework i am curious as to what other companies you may own. I am currently looking to add a larger position in healthways (HWAY) they just got slammed due to a medicare trial coming to end, not sure if they were going to renew the contract. I think it is a good long-term winner, since it is part of keeping health care costs down. Let me know what ideas you may have.
another multi-parter...sorry, i wish they didn't have the 4k word cap.
Thanks for the color on Alterra. That is the one piece with which i'm not as familiar [BKD total 47.6k owned or leased units: BLC—10.9k units, Alterra—13.2k units (see 12/5/03 emergence from bankruptcy), ARC—11.5k units, other acq like SAL, ASL, AEW, NHP—12k units]. How long ago did you leave (apologies if you wrote that somewhere)? Were you in management at a facility? I only ask because I know that Brookdale is trying to re-brand everything as “Brookdale” now and would appreciate any insight you still have on that front—friends that are still there, etc—and, I wonder if Brookdale is now taking time to “clean house,” which you suggest is needed, now that they are not doing any major acquisitions any time soon—so they say. It doesn’t seem like many Alterra people are at the top—just the Co-President Mark Ohlendorf. It’s mostly the Brookdale (Schulte, Rijos) and ARC (Sheriff) (and arguably Fortress) people that seem to be running the show. By the way, why did CFO Stan Young leave (seems to be a mystery)?
I believe the party line is that Alterra, like many companies, built and acquired a lot of stuff while everyone else was too (including hospitality companies). They were over-extended with debt, and then occupancy plummeted and the negative effects of leverage reared their ugly heads. Is that why you are very keenly concerned about Brookdale’s leverage—because the combination of leverage and over-building in the mid/late 90s crushed the industry? It does seem like the second part, over-capacity, is far from being a problem now—given current pipelines, lending standards, etc. One thing that is puzzling to me is that Brookdale hasn’t really sold anything—I find it hard to believe that there aren’t some lost causes that should be shed. Look at the hospital company Community Health Systems—acquirers, good operators, but they are shedding non-strategic or non-performing assets.
Back to Alterra: I always look at an investment in two major ways—what is the quality and what is the price? It is a sliding scale—in the extreme, a low quality company or investment for free is often better than a high quality asset that you pay 10x it’s proper value. From what I’ve read, Fortress and Emeritus made a $76 million equity investment in 12/03, and Alterra had $350 million in debt and $60 million in annualized leases. Using a 9% cap rate, that would be $667 million in capitalized leases (see: http://www.levinassociates.com/publications/sci/sciheadlines/03%20scihead/03scihead08.htm). So, for $1.1 billion, they acquired 13,200 units, or $83,000 per unit. That seems like some wiggle room given Brookdale’s current valuation of $159,000 per unit [(mkt cap + net debt + capitalized leases) / (owned + leased facilities)] and mid ’07 valuation of $208,000 per unit
Also I feel ruby and biggypappa are 100% correct in that the prime time of assisted living is 10-20 years from now when it will be at it's peak optimal performance. So I ask myself why grow so fast so quick? Again look at Alterra's past "deja-vu". It dosn't work. BKD would be much better off with zero or little debt, and grow organically a few houses in prime real estate for the next ten years eventually maximizing location and houses when the boom times will demand this service. If done correctly they would have what they have now, and little if any debt. Besides i beleive that a small company growing enormous over 10-20 years will reward invesotrs much better than going from small to a goliath over night.
The biggest problem i see with this strategy other than massive debt, is perception of product. I know for a fact BKD is trying to sell itslef as a high end facility, and I think they should and would do the same. Alterra is ruining this perception, families will not want to shell out 3-6k per month at that drag. If a company grows slowly they can control the locations, staff, mgt they train and present a much better product to its customers. BKD grew too fast as Alterra did many years ago and lost focus on many levels of business. Sometimes it is not the big things that need fixing but the small ones they overlook that add up to big differences in success or failure. I beleive BKD does not really know what they have in ALterra, or they would have never bought them.
I am curious as to which facility ruby's family member stayed at? What did biggypappi think of alterra while he was at BKD. And of course your opinions bacchus6. I will post more soon as soon as the ideas come to me. On a positive note I do think the industry is flush with opportunity, just not sure if anyone is smart enough to capture it?