IPOs, Initial Public Offerings: pre & post IPO

Sutherland Asset Management (SLD)

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Based in New York, New York, Sutherland Asset Management (SLD) scheduled a $125 million IPO on NYSE with a market capitalization of $554 million at a price range midpoint of $15.50 for Friday, Jan.16, 2015.

Recommendation
Neutral slightly plus, C+, 6
As (and if) the economy improves, SBC loans should increase
As a REIT expects to pay out taxable income
Annualizing Sept '14 qtr yield would be 8.6%
Annualizing Sept '14 nine months yield would be 4%
1 times book
25% to selling shareholders

SEC Documents

Manager, Joint-managers: J.P. Morgan, Morgan Stanley, FBR
Co-managers: Citigroup, Keefe, Bruyette & Woods (A Stifel Company), JMP Securities, Ladenburg Thalmann

End of lockup (180 days): Wednesday, July 15, 2015
End of 25-day quiet period: Tuesday, February 10, 2015

Summary
SLD is a real estate finance company that acquires, originates, manages, services and finances primarily SBC loans.

SBC loans generally range in original principal amount of between $500,000 and $10 million and are used by small businesses

Valuation
Glossary
Pre-IPO grade-score summary
http://gaskinsco.com/scr-rate.htm
Many IPOs in today’s environment are graded C+ and scored 7.
If the pre-IPO grade is below C+ or the score is below 7,
then our analysts may have some concerns about the company’s
outlook and/or its market segment.
If the pre-ipo grade is above C+ or the score is above 7,
then our analysts believe the company’s overall business outlook is very favorable.
C = unprofitable, C+ = profitable

Valuation Ratios Mrkt Cap ($mm) Price /Sls Price /Erngs Price /BkVlue Price /TanBV % offered in IPO
annualizing Sept 3 mos
Sutherland Asset Management (SLD) $553 5.3 11.5 1.0 1.0 23%
Payout annualizing  Sept '14 three  months 8.6%
Payout annualizing  Sept '14 nine months 4.0%
SCORECARD . Mgt Market Market Do- Proprie- Total
1-5, 5 is high . . Grwth mination tary rating
20 is perfect . 2 2 1 1 C+, 6

Business
SLD is a real estate finance company that acquires, originates, manages, services and finances primarily SBC loans.

SBC loans generally range in original principal amount of between $500,000 and $10 million and are used by small businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties.

Portfolio size
SLD also invests in SBC ABS, and other real estate-related investments. As of September 30, 2014, SLD held a diversified portfolio of assets with an aggregate Unpaid Principal Balance (UPB) of approximately $1.5 billion and a carrying value of approximately $1.2 billion.

Through ReadyCap Holdings, LLC, SLD's wholly-owned origination subsidiary, including its subsidiaries, SLD originated more than $411 million in conventional loans in 18 states since ReadyCap's inception in September 2012 and through December 2014.

SLD originated $77.4 million of loans in the fourth quarter of 2014.

Externally managed
SLD is externally managed and advised by Waterfall Asset Management, LLC, an SEC registered investment adviser, whose investment professionals source and evaluate SLD’s loan acquisitions and advise on its new loan origination strategies.

SLD has historically acquired performing, sub-performing, and non-performing SBC loans and intends to continue to acquire these loans as part of its business strategy.

Growth plan
SLD will continue expanding its national origination platform by entering new attractive markets in the United States.

SLD will also originate SBC loans for real estate guaranteed under the U.S. Small Business Administration, or SBA, Section 7(a) loan program, or the SBA Section 7(a) Program, through ReadyCap (wholly owned subsidiary) using SLD's license as a Small Business Lending Company, or SBLC, and recent personnel hires.

In the future, SLD may also originate SBC loans for real estate under the SBA 504 loan program, pursuant to which the SBA guarantees subordinated, long-term financing.

Additionally, ReadyCap has been approved by the Federal Home Loan Mortgage Corporation, or Freddie Mac, as an originator and servicer for multi-family loan products under Freddie Mac's newly launched small balance loan program, or the Freddie Mac program.

ReadyCap employs 101 people focused on originating and servicing SBC loans, including SBA loan originations.

Performing loans
SLD considers a loan to be performing if the borrower is current on 100% of the contractual payments due for principal and interest during the most recent quarter or if the borrower's contractual status is current and the borrower has made at least 66% of contractual payments due for principal and interest in the most recent quarter.

SLD considers a loan to be sub-performing or non-performing if the borrower does not meet the criteria of a performing loan.

SLD’s acquired performing loans represented approximately 59.8% of the carrying value and 56.4% of the UPB of SLDs’ total loan portfolio as of September 30, 2014.

Sub-performing loans
SLD typically acquire sub-performing and non-performing loans at a discount to their UPB when SLD believes that resolution of the loans will provide attractive risk-adjusted returns.

SLD’s acquired sub-performing and non-performing loans represented in the aggregate 10.4% of the carrying value and 21.2% of the UPB of SLD’s total loan portfolio as of September 30, 2014.

Loan Origination & ReadyCap
Through ReadyCap, SLD's wholly owned subsidiary, SLD has originated more than $411 million in conventional loans in 18 states since ReadyCap's inception in September 2012 and through December 2014. SLD originated $77.4 million of loans in the fourth quarter of 2014.

SLD’s originated loans, all of which are currently classified as performing loans, represented approximately 29.8% of the carrying value and 22.4% of the UPB of SLD’s total loan portfolio as of September 30, 2014. SLD will continue expanding its national origination platform by entering new attractive markets in the United States.

SLD will also originate SBC loans for real estate guaranteed under the SBA Section 7(a) Program through ReadyCap using SLD’s SBLC license and recent personnel hires.

In the future, SLD may also originate SBC loans for real estate under the SBA 504 loan program, pursuant to which the SBA guarantees subordinated, long-term financing.

Additionally, ReadyCap has been approved by Freddie Mac as an originator and servicer for multi-family loan products under Freddie Mac's newly launched small balance loan program. ReadyCap employs 101 people focused on originating and servicing SBC loans, including SBA loan originations.

Coldwell Banker Commercial Alliance
Through Coldwell Banker Commercial Alliance, SLD's wholly-owned brokerage and advisory subsidiary, SLD provides sales, leasing, transaction management and facilities management services in support of owners of smaller commercial properties.

CBCA employs 65 people dedicated to these activities on our behalf, and SLD expects CBCA will emerge as an important source of SBC loan originations referrals for over time.

Competition
SLD competes with numerous regional and community banks, specialty finance companies, savings and loan associations and other entities, and SLD expects that others may be organized in the future.

The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of SBC assets suitable for purchase, which may cause the price for such assets to rise. Additionally, origination of SBC loans by SLD’s competitors may increase the availability of SBC loans which may result in a reduction of interest rates on SBC loans.

5% shareholders pre-IPO
Sutherland REIT Holdings, LP   43.4%

Dividends
U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income.

SLD generally intend over time to pay quarterly dividends in an amount equal to SLD’s net taxable income.

Although not currently anticipated, in the event that SLD’s board of directors determines to make distributions in excess of the income or cash flow generated from SLD’s target assets, SLD may make such distributions from the proceeds of this or future offerings of equity or debt securities or other forms of debt financing or the sale of assets.

Use of proceeds
SLD expects to receive $85 million from its IPO and use it for the following:

to acquire and originate SBC assets in accordance with SLD’s business strategy described in this prospectus and for general business purposes, including the payment of fees and expense reimbursements to SLD’s Manager.

Depending on the availability of SLD’s target assets, until SLD invests the net proceeds of this offering, SLD may pay down its financing arrangements including those with affiliates of the underwriters and may temporarily invest in interest-bearing short-term investments, including money market accounts that are consistent with SLD’s intention to qualify as a REIT. These initial investments are expected to provide a lower net return than SLD will seek to achieve from its target assets.

Financials
Glossary
Pre-IPO grade-score summary
http://gaskinsco.com/scr-rate.htm
Many IPOs in today’s environment are graded C+ and scored 7.
If the pre-IPO grade is below C+ or the score is below 7,
then our analysts may have some concerns about the company’s
outlook and/or its market segment.
If the pre-ipo grade is above C+ or the score is above 7,
then our analysts believe the company’s overall business outlook is very favorable.
C = unprofitable, C+ = profitable

Sutherland Asset Management SLD, C+, 6 . . . . Post IPO shares: 35.7mm
SBC loans . . . . . IPO Mkt
 New York, NY . . . . . Cap (mm)
. . . . . . $553
. . . . . . @$15.5
. . . . . Sept 9 mos Sept 3 mos
. . . 2014 2014
Total income ($thousands) . . . . $48.5 $26.3
Net income ($thousands) . . . . $17.0 $11.9
Net % ot total . . . . 35% 45%
Accumulated deficit ($mm) . . $4.7
Per share dilution . . -$8.24
Valuation Ratios Mrkt Cap ($mm) Price /Sls Price /Erngs Price /BkVlue Price /TanBV % offered in IPO
annualizing Sept 3 mos
Sutherland Asset Management (SLD) $553 5.3 11.5 1.0 1.0 23%
Payout annualizing  Sept '14 three  months 8.6%
Payout annualizing  Sept '14 nine months 4.0%
SCORECARD . Mgt Market Market Do- Proprie- Total
1-5, 5 is high . . Grwth mination tary rating
20 is perfect . 2 2 1 1 C+, 6

 

 

 

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