macquarie report - august 2009

This is an extract from MBL report on LLP.
Obviously it prdates the LLC t/over.

WHAT INTERESTS ME IS THE MBL REFERENCE TO THE POTENTIAL SALE OF THE AGED CARE BUSINESS.

This would make sense for LLC. LLC is mainly looking for a conduit for its R/V developments - it is not a natural care-provider.
It is probably looking to fold the PTN aged care assets it just acquired into LLP, then flog them off.
If LLP did that, then it would pay off most of the LLP debt. It looks a sthough MBL values the existing aged care assets at $200m- $250m.

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Dated Tuesday 18 August 2009

Divisional outlook suggests significant Operating
EBITDA improvement in FY10

Outlook
􀂃 LLP management suggested the operating outlook for
FY10 is �gsignificantly improved�h.
Division FY10 outlook comments
Retirement
Living
Expect to improve. The business will benefit from cost
efficiencies and productivity gains
Residential Aged
Care
Consistent with FY09 with a bias to the upside. More value
going forward with integration of Conform.
Development Significant upside. FY09 numbers "way on the low-side".
Small capital spend required to complete developments and
realise cash.

Corporate/ Other Stable in FY10. Clearly need to be reduced, particularly the
management fee.
Source: LLP and Macquarie Research August 2009

In search of liquidity
􀂃 At 30 June 2009, LLP had drawn $461.1m of their $525m
debt facility implying an undrawn debt balance of $63.9m.
However the availability of this unused amount is subject
to the banks consent. Thus absent banks consent, LLP
has liquidity of only ~$35.0m (cash at bank).
􀂃 Furthermore, LLP will likely need to reduce their debt
balance by a further >$100m (as part of negotiations with
banks) and thus liquidity will be dependent on asset sales
or potentially an equity raising. In this regard, we note:
�Ë LLP may receive $42.5m-$45.0m cash from the sale
of management rights to PTN by 30 June 2010;
�Ë LLP have $11.4m of non core assets currently
contracted or under offer and expected to settle over
FY10/FY11;
�Ë LLP is marketing the sale of a further $16.9m of non
core assets and land which is expected to settle over
FY10/FY11; and
�Ë LLP are in the process of determining the highest
and best use of a further $7m of sites.
􀂃 These initiatives would deliver a total of ~$80m and net
of cash on hand and the $100m debt reduction, would
leave liquidity of ~$15m. Thus provided the banks are
comfortable waiting two years, we see the task as
achievable.
􀂃 Although on our forecasts, cash interest cover remains
low and gearing >30%. Thus we assume the sale of the
aged care business in our forecasts at 1 July 2010 as a
means of debt reduction. Should the banks not be
patient enough for such an outcome, we suspect an
equity raising may be a viable alternative for LLP.
􀂃 We assume the resumption of distributions in the June
2011 half with management having said that
�gdistributions will be reviewed further when net operating
cashflow after interest is sufficiently robust.�h