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Investors in Alterra Healthcare Corp. (Brookfield, WI) have seen the value of their shares drop more than 85% over the past year. The collapse of Alterra’s stock is a sign of the tough times that have beset the assisted living industry, Howard Capek, an analyst at UBS Warburg, tells the Post-Standard of Syracuse, NY.
The sources of cash that assisted living companies need to bankroll expansions are drying up at the same time interest rates are rising, Capek says. Meanwhile, overbuilding in some regions has caused companies, including Alterra, to miss earnings forecasts and take longer than anticipated to fill up new facilities, the Post-Standard reports.
Capek has a "hold" rating on Alterra’s stock, and he says most of the other 15 analysts who cover the company have the same rating on it.
But Alterra might see at least a dim light at the end of the tunnel. The company says it has secured $173 million in financing in the form of convertible senior debentures and convertible preferred shares to certain investors, including significant existing shareholders and convertible debenture holders of the company. The completed transaction consists of $168 million of series A, series B, and series C convertible senior debentures with a conversion price of $4 per share, a 9.8% semi-annual payment-in-kind (PIK) coupon, and a seven-year maturity. It also includes $5 million of series A, convertible preferred shares with a conversion price of $4 per share, a 9.8% semi-annual PIK dividend, and a mandatory redemption in seven years, Alterra says.
Alterra previously said the new financing would be used for general business purposes, including paying off debt, financing the completion of residences under construction, acquiring a recently built portfolio of 14 Alterra-managed assisted living facilities from certain investors, and acquiring third-party interests in certain of its joint venture arrangements.
As part of the transaction, Alterra will have the option to issue, and the investors will have the option to purchase, up to an additional $30 million of series B or C debentures within 180 days of the closing. This would result in an aggregate transaction amount of about $203 million, Alterra says.
Capek tells the Post-Standard that publicly traded real estate companies went on a binge building assisted living facilities in the 1990s. But the boom led to overbuilding, he says, and the rush of new facilities began to fade out at the end of 1998.
Alterra, formerly known as Alternative Living Services, changed its name to Alterra a year ago. To improve its cash flow and strengthen its balance sheet, the company recently stopped developing new residences and, instead, said it will focus on completing projects already under construction. This decision resulted in a pre-tax charge for the company against earnings of $47.3 million last year.
Alterra also said at the time that it will significantly reduce its use of joint venture arrangements for development.