StoneMor’s Rights Offering

This week, StoneMor Partners, L.P. (STON) announced that it has set a record date of September 26, 2019 for its upcoming rights offering. Soon thereafter, once the SEC declares the registration statement to be effective, the partnership will mail a joint proxy/prospectus to unitholders. STON anticipates that the rights offering will be completed early in the 2019 fourth quarter.

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A Review of the Markopolos Report on General Electric

On August 15, 2019, Harry Markopolos, who gained fame as the person who exposed the fraud perpetrated by Bernie Madoff, released a 175-page report entitled “General Electric, A Bigger Fraud Than Enron.” GE’s stock fell 11.3% on the day; but it has since regained all that it lost after GE, security analysts and the media criticized the analysis and conclusions of the report and questioned the motivations of Mr. Markopolos, who had entered into an agreement with an unnamed hedge fund to profit from a decline in GE’s share price. Although this tempest seems to have passed, I will offer some thoughts on the content of the Markopolos report and its potential implications for investors.

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A Reset for Senior Housing Properties Trust

In response to the financial difficulties of its primary tenant, Five Star Senior Living (FVE), Senior Housing Properties Trust (SNH) has been forced to negotiate a change in the structure of their business relationship.  Specifically, SNH has agreed to cancel its five master leases with FVE and will instead have FVE manage the properties for a 5% annual fee.  This move is a consequence of the nationwide building boom in senior housing communities over the past decade that has put downward pressure on occupancy rates.  After providing some background on this issue, I will focus on the projected impact of this new business arrangement on SNH’s future financial performance.  Complicating the analysis is SNH’s decision to sell $900 million of mostly non-core assets to upgrade its portfolio and reduce debt.  SNH is among the earliest in its industry to address this problem and that should serve it well as others eventually are forced to come to grips with it.

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The Old and New Five Star

Five Star Senior Living (FVE) and its landlord Senior Housing Properties Trust (SNH) have previously announced a restructuring of their commercial arrangements whereby SNH will cancel the five master leases that cover 181 senior living and skilled nursing facilities currently operated by FVE.  Under the new arrangement, FVE will manage those properties for SNH for a fee equal to 5% of gross property revenues and reimbursement of direct property operating costs. FVE will also have the opportunity to earn an annual incentive fee equal to 15% of the excess over targeted EBITDA for the properties up to a maximum of 1.5% of gross property revenues.

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A Solid First Half for Housing and the Builders

A typical analysis from policy makers, like the Federal Reserve, points out that activity in the housing market has declined so far this year; but that assertion focuses primarily on housing starts.   A more complete picture from the national data shows that the housing market bounced back strongly in the 2019 first quarter from a steep 2018 fourth quarter slide.  The housing market was also able to hold on to those gains in the 2019 second quarter.

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An Update on Bed Bath & Beyond

Bed Bath and Beyond, Inc. (BBBY) reported a fiscal 2019 first quarter loss of $2.91 per share, which included approximately $3.03 per share of unusual charges and expenses. Excluding these unusual items, adjusted EPS was $0.12 per share, at the high end of management’s guidance range of $0.07-$0.12, but lower than last year’s adjusted EPS of $0.38.

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Bed Bath & Beyond’s Next Generation Lab Store

On Saturday, July 13, I visited the Bed Bath & Beyond (BB&B) store on Route 10 in East Hanover, NJ and also the Cost Plus World Market and buy buy Baby stores about two miles east on Route 10 in Livingston NJ.  Here are my photographs and observations on the East Hanover Bed Bath & Beyond store:

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Notes and Analysis from Merck’s Investor Day

On June 20, Merck held an investor day, its first in five years, to highlight its goals and objectives and provide a broad perspective on its five-year performance outlook.  Although its blockbuster cancer treatment, KEYTRUDA (pembrolizumab), has been a spectacular success, investors have been concerned about whether the company has growth potential from other medicines in its pipeline, especially looking out to 2023 when the Januvia/Janumet franchise faces a steep slide in sales following patent expirations.  During the presentation, management expressed confidence about the company’s growth prospects through 2023 and over the longer term.

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Bluegreen’s Share Price Plunges on Bass Pro Contract Cancellation

Shares of Bluegreen Vacations Corporation (BXG) received a double whammy in May from the parent company BBX Capital’s (BBX) decision to back out of its offer to buyback BXG’s public float – equal to 10% of outstanding shares – and by Bass Pro Shop’s decision to cancel its marketing arrangement with BXG.  Since the May 22 close of trading, the day before BBX announced that it would not proceed with its plan to take BXG private, the stock has lost nearly 50% of its value.

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A Solid 2019 First Quarter for New Home Sales

As anticipated, the market for new single-family houses rebounded from a steep 2018 fourth quarter slide to post modest gains in the 2019 first quarter against fairly strong 2018 first quarter levels.  The primary driver of the housing rebound has been the decline in mortgage rates from the recent peak of 4.94% during the first week of November to 4.10% during the week of May 6, according to Freddie Mac.  With unemployment low and consumer confidence high, many potential buyers do not want to lose the opportunity of homeownership (or trading up to a larger home).  If economic conditions remain positive, the new homes market should see at least modest gains in 2019, especially as year-over-year comparisons become more favorable as the year progresses.

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