Attached files
| file | filename |
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| 8-K - SUN HEALTHCARE GROUP INC | form8k.htm |
| EX-99.1 - SUN HEALTHCARE GROUP INC | ex99-1.htm |
EXHIBIT 99.2
JPMorgan Healthcare Conference
San Francisco, CA
January 10, 2011
1
Statements made in this Confidential Information Memorandum that are not historical facts are "forward-looking" statements (as
defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any
time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate,"
"believe," "plan," "estimate,” "expect,” "hope,” "intend,” "may” and similar expressions. Forward-looking statements in this
Confidential Information Memorandum also include all statements regarding expected financial position, results of operations, cash
flows, liquidity, financing plans, business strategy, growth opportunities, plans and objectives of management for future operations,
the impact of reductions in reimbursements and other changes in government reimbursement programs and the timing and impact of
the proposed restructuring transactions. Factors that could cause actual results to differ are identified in the public filings made by
Sun with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; the impact that
healthcare reform legislation will have on Sun’s business; Sun’s ability to maintain the occupancy rates and payor mix at Sun’s
healthcare centers; potential liability for losses not covered by, or in excess of, Sun’s insurance; the effects of government
regulations and investigations; the significant amount of Sun’s indebtedness, covenants in Sun’s debt agreements that may restrict
Sun’s activities and Sun’s ability to make acquisitions, incur more indebtedness; the impact of the current economic downturn on
Sun’s business; the ability of Sun to collect its accounts receivable on a timely basis; increasing labor costs and the shortage of
qualified healthcare personnel; and Sun’s ability to receive increases in reimbursement rates from government payors to cover
increased costs. More information on factors that could affect Sun’s business and financial results are included in Sun’s public filings
made with the Securities and Exchange Commission, including Sun’s Annual Report on Form 10-K and Quarterly Reports on Form
10-Q, copies of which are available on Sun’s web site, www.sunh.com. There may be additional risks of which Sun is presently
unaware or that Sun currently deems immaterial.
defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any
time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate,"
"believe," "plan," "estimate,” "expect,” "hope,” "intend,” "may” and similar expressions. Forward-looking statements in this
Confidential Information Memorandum also include all statements regarding expected financial position, results of operations, cash
flows, liquidity, financing plans, business strategy, growth opportunities, plans and objectives of management for future operations,
the impact of reductions in reimbursements and other changes in government reimbursement programs and the timing and impact of
the proposed restructuring transactions. Factors that could cause actual results to differ are identified in the public filings made by
Sun with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; the impact that
healthcare reform legislation will have on Sun’s business; Sun’s ability to maintain the occupancy rates and payor mix at Sun’s
healthcare centers; potential liability for losses not covered by, or in excess of, Sun’s insurance; the effects of government
regulations and investigations; the significant amount of Sun’s indebtedness, covenants in Sun’s debt agreements that may restrict
Sun’s activities and Sun’s ability to make acquisitions, incur more indebtedness; the impact of the current economic downturn on
Sun’s business; the ability of Sun to collect its accounts receivable on a timely basis; increasing labor costs and the shortage of
qualified healthcare personnel; and Sun’s ability to receive increases in reimbursement rates from government payors to cover
increased costs. More information on factors that could affect Sun’s business and financial results are included in Sun’s public filings
made with the Securities and Exchange Commission, including Sun’s Annual Report on Form 10-K and Quarterly Reports on Form
10-Q, copies of which are available on Sun’s web site, www.sunh.com. There may be additional risks of which Sun is presently
unaware or that Sun currently deems immaterial.
The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond
Sun’s control. Sun cautions that any forward-looking statements made by Sun are not guarantees of future performance. Sun
disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking
statements to reflect future events or developments.
Sun’s control. Sun cautions that any forward-looking statements made by Sun are not guarantees of future performance. Sun
disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking
statements to reflect future events or developments.
References to “Sun” refer to Sun Healthcare Group, Inc. and its subsidiaries
Forward-Looking Statements
2
References are made in this presentation to EBITDA, EBITDA margin, EBITDAR and EBITDAR margin, which are non-GAAP
financial measures. EBITDA is defined as net income before loss (gain) on discontinued operations, interest expense (net of interest
income), income tax expense (benefit) and depreciation and amortization. EBITDA margin is EBITDA as a percentage of revenue.
EBITDAR is EBITDA before rent expense and EBITDAR margin is EBITDAR as a percentage of revenue. Sun believes that
EBITDA, EBITDA margin, EBITDAR and EBITDAR margin provide useful information regarding Sun's operational performance
because these financial measures enhance the overall understanding of the financial performance and prospects for the future of
Sun's core business activities, provide consistency in Sun's financial reporting and provide a basis for the comparison of results of
core business operations between current, past and future periods. These measures are also some of the primary indicators Sun
uses for planning and forecasting in future periods, including trending and analyzing the core operating performance of its business
from period to period without the effect of GAAP expenses, revenues and gains that are unrelated to day-to-day performance.
Non-GAAP Financial Measures
3
Ø Attractive industry fundamentals
§ Healthcare policy favors SNFs - delivers effective clinical outcomes at lower costs
§ Favorable demographics - Increasing senior population
§ Number of SNF beds has steadily declined creating favorable supply / demand dynamics
Ø Nationally diversified portfolio of centers and services
§ Focus on high acuity and clinically complex patients
§ Urban and rural markets
Ø Proven and experienced management team
§ Consistent operating performance
§ No change in operating management
Investment Highlights
4
Number of Centers Per State
States with Centers
IN 2005: Sun Operated 104 Inpatient Centers in 13 States
7
7
22
1
1
11
9
5
7
9
8
10
7
A History of Portfolio Expansion & Growth
Number of Centers Per State
States with Centers
TODAY (1): Sun Operates 202 Inpatient Centers in 25 States
5
5
11
15
1
1
9
1
9
9
2
20
3
18
10
1
15
2
17
7
9
8
8
9
7
Revenue ($M’s) $882.1
Normalized EBITDAR ($M’s) 60.6
Margin 6.9%
Skilled Mix 16.1%
Length of Stay 37 Days
Revenue ($M’s) $1,897.3
Normalized EBITDAR ($M’s) 248.5
Margin 13.0%
Skilled Mix 19.2%
Length of Stay 30 Days
(1) LTM September 30, 2010
5
…With Patient Care As Its Top Priority
Ø Based on a recent independent survey, 86% of our current residents/patients would recommend our
center to others; 87% expressed overall satisfaction
center to others; 87% expressed overall satisfaction
Trend in Rehospitalizations
§ By responding to medical condition changes, return-to-
hospital rates are markedly lower than our peers
hospital rates are markedly lower than our peers
Quality Measures
§ Key quality metrics continue to improve and trend
better than national averages
better than national averages
The above graph represents the percent of patients rehospitalized within 20
days of admission to a skilled nursing center. Patients are more prone to
hospital readmissions within 20 days following acute hospitalization.
days of admission to a skilled nursing center. Patients are more prone to
hospital readmissions within 20 days following acute hospitalization.
6
Skilled Nursing Services (SunBridge)
§ 202 skilled nursing centers
§ 19,500 patients/residents
Hospice Services (SolAmor)
§ Growing business operating in 10 states with
20 offices with 4 startups
20 offices with 4 startups
Rehabilitation Therapy Services (SunDance)
§ Contract services, rehab agency,
management services
management services
§ 344 contracts with non-affiliated entities
§ Provides services to substantially all
SunBridge skilled nursing centers
SunBridge skilled nursing centers
Medical Staffing Services (CareerStaff)
§ Primarily hospital setting (also serves SNFs,
schools, prisons)
schools, prisons)
§ 60% + of billings are for therapists (also
provide nursing and pharmacy services)
provide nursing and pharmacy services)
9/30/10 LTM Net Revenue = $1.9 billion
9/30/10 LTM Net Revenue = $1.9 billion
Note: Inpatient segment includes both the SunBridge & SolAmor business lines
Net Revenue by Line of Business
Net Revenue by Source
Sun Healthcare Today
SunBridge Healthcare Corporation
Ø Centers include skilled nursing centers,
assisted living centers and independent living
centers
assisted living centers and independent living
centers
Ø Provides services that:
§ Focus on higher acuity, short-term stay
patients
patients
§ Include specialty services that address local
market needs
market needs
Ø 67 centers have Rehab Recovery Suites
(“RRS”) with 1,647 beds as of September 30,
2010
(“RRS”) with 1,647 beds as of September 30,
2010
§ Specialize in Medicare / managed care
patients
patients
Ø 46 wings dedicated to Alzheimer’s
patients (Solana)
patients (Solana)
SunBridge
|
OPERATING PROFILE
as of September 30, 2010
|
|
|
Centers
States
|
202
25
|
|
Property Type:
Skilled Nursing
SNF/AL/IL
AL
Mental Health
IL
|
166 (82%)
16 (8%)
10 (5%)
8 (4%)
2 (1%)
|
|
Beds:
Licensed
Available
|
23,189
22,407
|
|
YTD 9/30/10 Occupancy %
|
87.1%
|
|
SNF Skilled Mix:(YTD 9/30/10)
% of Patient Days
% of SNF Revenue
|
19.2%
37.9%
|
7
SolAmor Hospice Corporation
ØProvides hospice services in affiliated skilled
nursing centers, non-affiliated skilled nursing
centers and the patient’s home
nursing centers, non-affiliated skilled nursing
centers and the patient’s home
ØOperates in 10 states; 9 of which have
affiliated skilled nursing centers
affiliated skilled nursing centers
§ Synergistic service as 6% - 10% of patients
in SNFs eligible for hospice services
in SNFs eligible for hospice services
ØHistorical growth due to de novo start-ups and
acquisitions
acquisitions
§ Holisticare in 2008
§ Allegiance in 2009
§ Countryside in 2010
ØStrong contributor to earnings
SolAmor
8
Average Daily Census
Acquisition Rationale:
ØGood geographic overlap to our SunBridge
portfolio
portfolio
§ 7 existing offices / 4 startup offices -
growing or opening in 2011
growing or opening in 2011
§ Shares markets with 9 existing
SunBridge centers
SunBridge centers
§ Expands SolAmor platform to ten states
and approximately 1,050 patients daily
and approximately 1,050 patients daily
ØOpportunity to grow in SNF settings (initially a
home-based business)
home-based business)
ØNew presence in 2 markets (AL & GA) with
barriers to entry:
barriers to entry:
§ Alabama is not issuing any new
provider licenses for Hospice unless
you are already a certified provider
provider licenses for Hospice unless
you are already a certified provider
§ Georgia is a lengthy process
Countryside Hospice Care, Inc. Acquisition
9
Sun center
Other Sun centers
Countryside
Countryside - Startup
Countryside - Alabama
Countryside - Georgia
SunDance Rehabilitation Corporation
Ø Broad array of rehabilitation therapy services
for post acute patients provided in skilled
nursing centers and assisted living facilities
for post acute patients provided in skilled
nursing centers and assisted living facilities
Ø Provides rehabilitation therapy services to 476
centers in 37 states
centers in 37 states
§ 344 centers operated by non-affiliated
parties
parties
§ 132 SNF centers operated by SunBridge
§ In most of the remaining 50 affiliated SNF
centers, services provided by staff employed
by center
centers, services provided by staff employed
by center
Ø Approximately 60% of revenue from non-
affiliated sources
affiliated sources
SunDance
10
Revenue
Revenue Per Contract
($ in thousands)
CareerStaff Unlimited, Inc.
Ø Provides temporary medical staffing to
hospitals, skilled nursing facilities, schools and
prisons
hospitals, skilled nursing facilities, schools and
prisons
§ Approximately 60% of billings are for
therapists
therapists
Ø Operates in 36 states
§ National network of 33 branches with 27
offices
offices
Ø Diversified staffing approach:
§ Per diem, travel and permanent placement
§ Places a wide array of healthcare
professionals: therapists, nurses,
pharmacists, and physicians
professionals: therapists, nurses,
pharmacists, and physicians
Ø Full-service human resources manager
CareerStaff
11
Revenue
EBITDA and margin
($ in millions)
12
POSITIONING FOR THE FUTURE
Leveraging Opportunities in the Care Chain
13
Acute Care
LTAC
SNF
Assisted Living
Home Based Care
Sweet Spot - Lower Cost Provider to Higher Acuity Patients = Higher
Margins and Greater Opportunities
Margins and Greater Opportunities
14
Resource Utilization Group (RUG) payment system
Ø Payments to SNFs vary based on the intensity of clinical services provided to Medicare
patients
patients
Ø Resource Utilization Group IV (RUG IV) system replaced existing RUG III system
effective October 1, 2010
effective October 1, 2010
Ø The new RUG IV system:
§ Updated the RUG III system by changing and refining the 53 categories in RUG III to
create 66 categories that more accurately reflect the cost of services provided
create 66 categories that more accurately reflect the cost of services provided
§ 13 new RUGs categories focused on medical complexity
§ Eliminates the lookback period
§ Changes the reimbursement level for therapy delivered concurrently
RUG IV: What It Means
**Positive Opportunity for Sun**
15
Ø Near Term: RUG IV Medicare System Implementation
§ RUG IV continues to place emphasis on higher acuity patients
§ Requires centers to optimize therapy delivery using a combination of individual, group, concurrent and
nursing rehabilitation to increase efficiency
nursing rehabilitation to increase efficiency
§ New rate structure creates new opportunities for a broader array of clinically complex patients
Ø Longer Term: Continued focus on post-acute care solutions
§ Accountable Care Organizations (ACO) will need to partner with high acuity SNFs to provide faster
discharges and lower levels of readmission
discharges and lower levels of readmission
§ Focus shifts to patient pathway from individual-setting reimbursement
Ø SNFs will play an integral role in multi-provider systems
§ Cost savings are real and proven
§ Clinical capabilities continue to increase and broaden
Reimbursement Evolution Favors SNFs
Further Expansion of Product & Service Offering
16
Ø Expand clinical products/services to improve ability to capture clinically complex patients
§ Upgrade complement of clinicians and their skill sets
§ Focus on clinical competencies
• Tracheotomy care, HIV / Isolation, advanced IV capabilities, etc.
§ Expand packaging and selling of clinical service offerings
Ø Specialty unit development in markets that provide unique opportunities (e.g. ventilator
program)
program)
Ø Rehab Recovery Suites remain a relevant strategy to attract and care for short-term high-
acuity patients
acuity patients
§ Anticipate adding 600 new beds in 2011 or 31% growth in capacity
• 2,580 beds covering nearly 70% of the urban-based centers
17
Rehab Recovery Suites - Product Profile
Rehab Recovery Suites (RRS)
ØSeparate and distinct units within a center
ØEnhanced therapy and clinical product
ØHospitality services - dedicated concierge
Skilled Mix (Q3 ’10)
Acuity - Rehab / Rehabilitation Extensive Services (Q3 ’10)
% of Days
% of Revenue
Rehab
REX
n Number of centers: 67
n Number of beds: 1,647
n Average bed size: 25 beds per center
n Cost / bed: $25,000
n Development time: 6 - 9 months
RRS Metrics
Long-Term Asset Modernization Initiative
ØLong term capital investment strategy
designed to upgrade, reconfigure and fully
renovate nursing centers
designed to upgrade, reconfigure and fully
renovate nursing centers
§ Focus on privacy for patients, enhanced
amenities/public spaces, designated units
with specific purpose
amenities/public spaces, designated units
with specific purpose
§ Create improved work environment for
staff and attending physicians to enhance
ability to deliver care
staff and attending physicians to enhance
ability to deliver care
§ Upgrade therapy and external
environment to enhance living experience
and create unique exercise venues
environment to enhance living experience
and create unique exercise venues
ØSelection is dictated by market demographics,
competitive profile and return on investment
competitive profile and return on investment
ØCurrently committed to renovate 17 centers
ØPartnering with landlords (REITs) to fund
many of these projects and paying a cost of
capital add on to rent
many of these projects and paying a cost of
capital add on to rent
18
Focus on skilled nursing
growth
growth
Ø Increase skilled nursing
revenue and contribution by
revenue and contribution by
§ Maintaining high
occupancy rates
occupancy rates
§ Continue focus on high
acuity and Medicare
patients
acuity and Medicare
patients
§ Expand product array for
clinically complex
patients
clinically complex
patients
§ Partnering with local
medical communities
medical communities
Seek growth in ancillary
businesses
businesses
Ø Grow hospice operations and
leverage new acquisition
leverage new acquisition
§ Synergistic to skilled nursing
business
business
Ø Focus on rehabilitation therapy
business by
business by
§ Expanding product offerings
§ Improving labor productivity
and profitability
and profitability
Utilize Sun’s financial
flexibility
flexibility
Ø Targeted acquisitions of
new skilled nursing centers
and ancillary-services
providers
new skilled nursing centers
and ancillary-services
providers
Ø Growth-oriented capital
spending
spending
§ RRS initiatives targeting
higher-acuity patients
higher-acuity patients
§ Modernization initiative
Sun’s Growth Strategy
19
20
2011 OUTLOOK
21
2011 Guidance
22
Portfolio:
Ø No acquisitions or dispositions beyond the recently
announced purchase of Countryside Hospice Care, Inc.
announced purchase of Countryside Hospice Care, Inc.
Ø Excludes results of operations of two nursing centers in
Oklahoma with leases expired at our option on
December 31, 2010 and one nursing center that we
expect to sell in 2011
Oklahoma with leases expired at our option on
December 31, 2010 and one nursing center that we
expect to sell in 2011
Reimbursement:
Ø Medicare rates:
§ Net positive impact to average Medicare rates from
RUG-IV, partially offset by:
RUG-IV, partially offset by:
− Labor and other costs associated with higher-
acuity patients
acuity patients
− Elimination of concurrent therapy
− Impact of Medicare Part B Multiple Procedure
Payment Reduction (MPPR)
Payment Reduction (MPPR)
Ø Medicaid rates, net of provider taxes, are expected to be
flat in 2011
flat in 2011
2011 Guidance Parameters
Post-Restructuring with Sabra:
Ø Sun currently leases 86 formerly owned centers from
Sabra, resulting in an increased rent of $70.4 million
Sabra, resulting in an increased rent of $70.4 million
Ø Operating leases
Ø Traditional triple net leases
Ø Lesser of CPI of 2.5% escalators
Capital:
Ø Capital expenditures in the range of $55 to $60 million
principally to support:
principally to support:
§ Routine maintenance and renovations for nursing
centers and IT systems
centers and IT systems
§ Build-out of more than 600 new beds for our Rehab
Recovery Suites, bringing our total to 2,580 and a
31% increase over 2010
Recovery Suites, bringing our total to 2,580 and a
31% increase over 2010
Ø Interest of approximately $20 million reflecting an average
debt balance of $150 million at a blended interest rate of
9%
debt balance of $150 million at a blended interest rate of
9%
§ $10 million required debt reduction
§ Includes $6.3 million related to Sun’s letter of credit
facility
facility
Ø Effective tax rate of 41% and 2011 cash income taxes paid
between $12 million and $14 million
between $12 million and $14 million
23
Debt Table & Bank Covenants
FREE CASH FLOW
24
*Based upon 2011 guidance
25