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Strategies & Market Trends : Value Investing

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To: James Clarke who wrote (9933)	2/11/2000 8:53:00 AM
From: valueminded	Read Replies (1) of 78673

James/All My analysis of SNH is a little more negative than that presented on this thread especially in regards to a possible dividend cut. I believe a 9 month loss of 50% of their total revenue base is a real possibility. From the 10q if you look at the Frontier and Sun rent obligations, they are 1.1 in arrearages on annual rents of 1.7mil as of Nov 1. (I do not think they have collected yet) These operators declared chapter 11 in July and October and here it is Feb so the 9mo scenario does not seem unrealistic. Look at Mariner and Integrated, they declare chapter 11 Feb 2000 and represent 48% of rental income. If we pull the income statement and cut revenues by 50% I calculate net income of ~2mil/yr Add back in depreciation gets to ~24mil/yr. Use the obligatory 85% payout gives me a dividend of ~80c/share possible. Since everyone in this sector is in the same boat, it is doubtful (imo) that asset sales will bring any relief even if they could get decent prices for them. While I agree that this is probably close to a worst case scenario, it is not the worst case as we do have a rising interest rate environment. SNH debt is all floating according to the 10q. A 71 Bpt rise (from Sept 99) will cost an additional 1.4mil/yr according to 10q. I believe we are looking at about another 2-3mil/year in costs in the current interest rate environment. It would seem entirely possible to have a dividend reduction of up to about 60% instead of the 20-30% I have seen mentioned on this thread. Agree / disagree and why. Thanks as I am trying to determine at what point I would be interested in adding to my position.

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