EXETF - Extendicare

[Myth465]

Thanks for the updates similar to UCCMal I want to know about the split.

Dont mind waiting here, love the monthly dividends. I would like about 8 holdings like this throwing off a blinded 8% yield each year.

 

So far I have 2-3.

[no_free_lunch]

Thanks Olmsted. 

 

Interesting the move up today on what I viewed as essentially no news.

[Uccmal]

I have had a rethink on this.  The numbers are okay.

 

I eliminated the non RSP portion of my holdings for a few reasons: (still hold shares in an RRSP)

1) I wanted to eliminate my margin borrowings.

2) Extendicare versus Seaspan - SSW is a far better run company with a slightly lower yield, but a yield that will be raised 25% per year for the foreseeable future.

3) Extendicare is my weakest holding

4) Dont want to pay tax on the dividends

 

Extendicare specific:

1) I dont like, understand, or trust the self insurance set up they have.  I probably need to read up more on this.

2) Management's heart is not in breaking up the company. 

3) The dividend yield is okay but in a rising interest rate environment, a dividend that may never get increased will pressure down the stock - yeah, I am thinking ahead.

4) The US division is twice the size of the Canadian division - Why would management let it go?

5) Managment seems lackadasical.  To a degree this is understandable.  You aren't likely to attract the most aggressive people to the nursing home business.  This could be construed as a positive too. 

 

So, I will wait and see what the next Q or two brings. 

 

 

[Olmsted]

Sold today.  I still like the thesis, I just like some other ideas more.  I also wonder how keen management really is to unlock value.  The result of many instances of "hiring an adviser to evaluate strategic alternatives" is to do precisely nothing.  It sometimes seems the adviser is there just to make management's preconceptions seem legitimate.

[Myth465]

Looks like all of you guys are bailing.

I still hold, mainly for the monthly dividend. This blended with Lightstream delivers 10% paid monthly.

We get paid to wait, but it looks like many of you feel as though we are waiting in vain.

 

I have this in a Roth, like the yield, and like the hard assets but you all are right. Management's motives are not easy to locate.

Olmsted, what do you like more?

[no_free_lunch]

Well it may or may not be worth more than it is selling for, but I think you guys are underestimating the probability of a corporate event.  It is not that I am speculating that they are going to do something, it's that I am just going along with what they have stated.

 

Check out their Q1 earnings (may 9):

 

SEPARATION OF EXTENDICARE'S CANADIAN AND U.S. BUSINESSES

Extendicare also announced today that the board of directors of the Company (the “Board”) has concluded that the Company should separate its U.S. and Canadian

businesses. The complexities associated with the Company’s cross border business mix and operations and the contrasting U.S. and Canadian senior care operating and regulatory environments have long presented challenges to the market in assessing the Company's valuation.

..

The Strategic Committee is in the process of evaluating the specific technique and form of the separation, which may take the form of a sale of the U.S. business or, alternatively, a distribution by the Company of the Canadian or U.S. business

..

The Board expects that the separation of the Company’s Canadian and U.S. businesses can be completed late this year. 

 

 

http://www.extendicare.com/investors/index.aspx

 

Personally I am giving them credit for their word.  They seem to have done a spinoff of another division in 2006 so this is not without precedent.  If at the end of the year they cancel the whole thing then I will certainly sell but as I am getting a good dividend and the stock doesn't seem to have any premium built in I will wait.  If you have better opportunities I can certainly see the desire to sell.  Personally, I am building up more and more cash and am loath to do any more selling.

[Olmsted]

Well it may or may not be worth more than it is selling for, but I think you guys are underestimating the probability of a corporate event.  It is not that I am speculating that they are going to do something, it's that I am just going along with what they have stated.

 

Check out their Q1 earnings (may 9):

 

SEPARATION OF EXTENDICARE'S CANADIAN AND U.S. BUSINESSES

Extendicare also announced today that the board of directors of the Company (the “Board”) has concluded that the Company should separate its U.S. and Canadian

businesses. The complexities associated with the Company’s cross border business mix and operations and the contrasting U.S. and Canadian senior care operating and regulatory environments have long presented challenges to the market in assessing the Company's valuation.

..

The Strategic Committee is in the process of evaluating the specific technique and form of the separation, which may take the form of a sale of the U.S. business or, alternatively, a distribution by the Company of the Canadian or U.S. business

..

The Board expects that the separation of the Company’s Canadian and U.S. businesses can be completed late this year. 

 

 

http://www.extendicare.com/investors/index.aspx

 

Personally I am giving them credit for their word.  They seem to have done a spinoff of another division in 2006 so this is not without precedent.  If at the end of the year they cancel the whole thing then I will certainly sell but as I am getting a good dividend and the stock doesn't seem to have any premium built in I will wait.  If you have better opportunities I can certainly see the desire to sell.  Personally, I am building up more and more cash and am loath to do any more selling.

 

You're probably right.  That comment was kind of an afterthought.  Really it just comes down to being spread too thin across a bunch of positions, having a hard time keeping up with them all, and wanting to consolidate on best ideas.

 

Olmsted, what do you like more?

 

Well I still own FIAT, ALSK, HIG, AWLCF, AIG, BAC and a bunch of others well-known on these boards.  So I guess that means I like those better.  I still think this a solid play, just needed to consolidate.

[no_free_lunch]

Earnings out, no big change that I could notice.  AFFO is about $0.23 per share or roughly $0.90 annualized.

 

Adjusted EBITDA of $43.0 million in Q3 2013, increased by $4.7 million over Q3 2012, and increased by $1.2 million over Q2 2013.

..

AFFO was $20.4 million ($0.235 per basic share) in Q3 2013 compared to $11.2 million ($0.130 per basic share) in Q3 2012 and $22.1 million ($0.255 per basic share) in Q2 2013.

..

Distributions in the first nine months of 2013 totalled $41.5 million, or $0.48 per share, representing approximately 68% of AFFO for the same period.

..

As previously announced in May 2013, the board of directors of the Company (the "Board"), appointed a strategic committee of the Board (the "Strategic Committee") to review strategic alternatives relating to the separation of Extendicare's Canadian and U.S. businesses. With the assistance of CitiGroup Global Markets Inc., as a financial advisor, the Strategic Committee has been evaluating various alternatives relating to the realignment of Extendicare's businesses and has made considerable progress in its review. The Board is optimistic that it will publicly announce the outcome of the strategic review process before year end. The Board will adopt the transaction or structure that it concludes would be in the best interests of the Company and its shareholders. No assurance can be given that the process will result in the completion of a transaction or other alternative or the timing or its terms.

..

For the first nine months of 2013, we recorded a provision for self-insured liabilities of US$32.6 million (US$9.4 million, US$9.2 million, and US$14.0 million, in the first, second and third quarters, respectively). Approximately US$16.6 million of the US$32.6 million provision recorded in the first nine months of 2013 related to our former Kentucky operations, as we continue to process the settlement of those claims.

..

 

http://finance.yahoo.com/news/extendicare-announces-2013-third-quarter-220000878.html

[krazeenyc]

Earnings out, no big change that I could notice.  AFFO is about $0.23 per share or roughly $0.90 annualized.

 

Adjusted EBITDA of $43.0 million in Q3 2013, increased by $4.7 million over Q3 2012, and increased by $1.2 million over Q2 2013.

..

AFFO was $20.4 million ($0.235 per basic share) in Q3 2013 compared to $11.2 million ($0.130 per basic share) in Q3 2012 and $22.1 million ($0.255 per basic share) in Q2 2013.

..

Distributions in the first nine months of 2013 totalled $41.5 million, or $0.48 per share, representing approximately 68% of AFFO for the same period.

..

As previously announced in May 2013, the board of directors of the Company (the "Board"), appointed a strategic committee of the Board (the "Strategic Committee") to review strategic alternatives relating to the separation of Extendicare's Canadian and U.S. businesses. With the assistance of CitiGroup Global Markets Inc., as a financial advisor, the Strategic Committee has been evaluating various alternatives relating to the realignment of Extendicare's businesses and has made considerable progress in its review. The Board is optimistic that it will publicly announce the outcome of the strategic review process before year end. The Board will adopt the transaction or structure that it concludes would be in the best interests of the Company and its shareholders. No assurance can be given that the process will result in the completion of a transaction or other alternative or the timing or its terms.

..

For the first nine months of 2013, we recorded a provision for self-insured liabilities of US$32.6 million (US$9.4 million, US$9.2 million, and US$14.0 million, in the first, second and third quarters, respectively). Approximately US$16.6 million of the US$32.6 million provision recorded in the first nine months of 2013 related to our former Kentucky operations, as we continue to process the settlement of those claims.

..

 

http://finance.yahoo.com/news/extendicare-announces-2013-third-quarter-220000878.html

Nice to see the update on the separation. I'll be looking to add ...

[no_free_lunch]

It is a 7 or 8% position for me (as I recall) and that is probably where I will keep it.  I think it is worth more than present if they can spin out the american operations, the insurance issues and medicare reimbursement are just so ugly, they have to be holding investors back.  Personally, I wouldn't bet the farm on it though, there are too many unknowns.

[krazeenyc]

I added to my position today -- I'm as excited for EXTEF's prospects as I've ever been.  It's interesting I notice that as a stock moves up (SHLD) people grow more bullish and excited. Whereas when a stock languishes like Extendicare has (especially during a hot bull market) -- people assume it's not as good an idea. When in fact, I think comparatively it's a even better opportunity than b4.  The Canadian business is very solid and will continue to do well.  I think the spinoff/sale of the US operations will be a a huge catalyst (I think the mortgage debt obscures the value of the company -- and I'm really hoping on the US operations being split up into a real estate company and an operations company.

[no_free_lunch]

Leisureworld (one of the better canadian comps) is down about 15% from when I first looked at that.  Has me a bit spooked.  LW is now yielding almost 9% without the complexity of US operations.  That has me concerned what the upside is.

 

I think for this to play out well the US operations need to be both spun out and then split up into RE/operations.  I have decided to pull out and wait until the separation details are released.  Hopefully I will have a chance to get back in before it pops.

[AchilliesValue]

I still own the stock. It's a normal position for me (10%). Received two dividend checks and don't mind getting paid 7% to wait.

[tytthus]

Leisureworld (one of the better canadian comps) is down about 15% from when I first looked at that. 

 

I'm not sure when you first looked, but pretty much all property REITs are down about 15% since late spring....check out the IYR chart.  Chalk it up to taper talk if you'd like....

 

Extendicare has actually held up better.

[no_free_lunch]

tytthus,

 

I looked at it in june I think, whenever this thread was started.  That was after the initial REIT drop.

 

The thing is, it's not really about whether I think EXE is overvalued or not, but it's value relative to peers.  The whole thesis is that it's cheap relative to peers but that the difference will be realized via a spinoff.  However, the more I dig into it, the less sure I am that it's actually that cheap.  At the time it was definitely cheap on EV/EBITDA but people generally use AFFO to value these things and it was less cheap on that basis.  In either case, with LW down 15-20% it's debatable now how much of a discount there is that a spinoff can arbitrage.

 

There is still possibility, as krazeenyc said, if they split up their US operations.  However, no guarantee that that will be the plan.

 

So it's not that I think the stock or the sector is bad or will do poorly, just that my investment thesis was based on closing this price gap between peers as opposed to investing in a LTC REIT.  It looks like the market has already closed much of the gap.

 

[krazeenyc]

http://finance.yahoo.com/news/extendicare-provides-strategic-review-220000192.html

 

Added slightly to EXETF this morning. Still think it's a bargain. While a deal is not done they are telling you that they are working on a deal or at least working on separating their US Business.

[Myth465]

Still holding. Loving the yield and the relative peacefulness of the holding.

One day we will wake up to some interesting news, till then the money will keep coming in.

[krazeenyc]

http://finance.yahoo.com/news/extendicare-provides-strategic-review-220000192.html

 

Added slightly to EXETF this morning. Still think it's a bargain. While a deal is not done they are telling you that they are working on a deal or at least working on separating their US Business.

 

Was really surprised when EXETF did not move when they announced this. I guess people are paying attention -- just acting gradually loll (lucky for me).  Nice almost 10% move since.

[LanceSanity]

Is anyone else looking at this? The market seems too impatient. The last strategic review was encouraging.

[Myth465]

I have held for a year. Really like the dividend but down 7%, mostly due to the Loonie.

Expect good news in a few days or next quarter. In the meantime we are paid to wait...

[jmp8822]

Earnings out with an update on Strategic Review - link to earnings below:

 

http://web.tmxmoney.com/article.php?newsid=67614227&qm_symbol=EXE

 

Looks like a minor hang-up from a regulatory standpoint, with an expected outright sale, as opposed to the company attempting a lease, or spin of property.  It would be nice to know what the expected sale price is - hoping that management was able to negotiate a good value for shareholders, versus just wanting out from under the mess.

[Myth465]

I would prefer a sale. We are being priced as if the US business is worth nothing, and the Div can be supported by the Canadian business.

A sale with cash going to reduce debt and expand in Canada is the best way forward.

 

Will continue to hold, may buy more.

[krazeenyc]

I'm looking forward to hearing what they have to say tomorrow.  I wonder how difficult the review process will be and of course how much we'll get.

[thecynic]

From the conf call, they expect some kind of settlement with government by middle of the year (so June?). So either one of following is going to happen

1) Settle: since they already have a buyer and only the issue with government is in way, the US portion will be sold. Not sure what the settlement amount will be.

2) No settlement: Spin off. Not sure what the timeline would be, perhaps end of year?

[AchilliesValue]

Anyone know if the expected settlement is material?  It wasn't asked on the call.