Extendicare Inc (EXE.TO)

Just cut their dividend. Are going to split up the business into US and Canadian. He views that it's worth $7.50, but don't chase it below 7.

Had 52 week high and then low on the same day when dividend was cut. A prudent measure to shore up balance sheet. The space is still under a great deal of pressure. It will continue for 3-5 years. Prefers Canadian focused companies like CSH-T.

Just sold her holdings. Just announced a distribution cut. Really good operators and do a really good job but unfortunately, in an industry where they are facing a lot of headwinds, particularly in the US where they are facing cuts in Medicare and Medicaid. Wouldn’t be in a real rush to Sell your position, but from a longer-term standpoint, your better off to roll into something else that is a little more stable.

A few years ago this was a market favourite. They were expanding into the US but that turned into a mitigated disaster. Got rid of a lot of the US assets but are still unwinding some and still facing some lawsuits. Payout ratio is quite high so you have to question whether the 11% yield is sustainable.

Seniors housing in Canada and skilled nursing facilities in the US and have run into trouble, primarily in the US, in having their funding cut. Had a lot of litigation problems, mostly in Kentucky, which they exited. Also, had a period where the number of people going through their facilities were going down. This has been rebuilding over the last few quarters until the last one when their provisions for litigation went up again and their census went down again. There is a lot of pressure on the stock and will continue to be. Doesn’t feel there is any immediate pressure on cutting the dividend.

His biggest concern with this is regulatory risks. Feels the 10.2% dividend is sustainable based on today’s regulatory reimbursement rates, but is uncertain about what they are going to look like next year. A couple of years ago there was a 12% cut. Saw a low single-digit increase this year. There could be a decrease or increase next year. He is particularly concerned with what is going on in the US regarding a fiscal cliff. US has some budget issues.

Have skilled nursing facilities in the US as well as long-term care homes in Canada. Thinks the dividend is sustainable at the moment. Have about a 75% payout ratio with a yield of about 10% which should make you worry. Face a lot of headline risks because their biggest payers are Medicare and Medicaid. Got a 1.9% raise this fall but if there is no agreement in Congress, they’ll lose 2%. On the positive side they have good demographics working for them.

(Market Call Minute.) A confusing balance sheet.

Nursing homes. Long-term, with the demographics, it should be an awfully good business. Have run into some problems. Have had too much financial leverage. Also recently got out of their big business in the US. Should do well over time. 11% payout is high.