The Mission Report

The MissionIR Report - February 2012

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Foreclosures Draw Private Equity as U.S. Rents Homes

Private equity firms are jumping into distressed housing as the U.S. government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.

GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro, the fund's founder said. That followed announcements this month that GI Partners, a Menlo Park private equity fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million on similar housing.

"It's a massive market," Shapiro said in a telephone interview from New York. "We're starting to see this as a billion dollar opportunity to buy rental housing."

Creating more single-family rental properties is one of a series of programs introduced by President Barack Obama's administration aimed at reviving the housing market. Last week, the administration revised its Home Affordable Modification Program, offering government incentives for mortgage investors Fannie Mae and Freddie Mac (FMCC) when they forgive debt on homes that lost value as a way of preventing delinquent borrowers from losing their houses.

Increasing rentals may reduce lenders' losses on foreclosed and surrendered properties and curb declines in home prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity funds began focusing on these investments in September, after the administration asked for proposals to sell the government's inventory of foreclosed homes -- about half of all houses seized from delinquent borrowers.

The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after falling 3.4 percent in the year ended in October, according to data released yesterday. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg News survey.

Even as prices dropped, the "seeds to a recovery are being planted," Karl Case, co-creator of the measure, said today in an interview on Bloomberg Radio's "Bloomberg Surveillance," with Ken Prewitt and Tom Keene. "Efforts are underway to deal with a backlog of foreclosed properties," he said.

The Federal Housing Finance Agency, which oversees Fannie Mae (FNMA) and Freddie Mac, plans to complete initial transactions in the first quarter of this year, offering some of the 180,000 foreclosed homes in their inventory to private operators as rental properties, Corinne Russell, a spokeswoman, said in a telephone interview.

The Federal Housing Administration, which also will participate in the rental program, had 32,170 real-estate owned homes seized from borrowers, also known as REOs, as of Dec. 31, according to spokesman Lemar Wooley.

Possible aspects of the program include public-private partnerships to share the risk and profits, "seller financing" guaranteed by the government and rent-to-own opportunities for tenants, according to a November memo.

"New households have a much higher propensity to be renters," Thomas Lawler, a former economist with Fannie Mae who's now an independent housing consultant in Leesburg, Virginia. "And a lot of folks who are losing their homes to foreclosure are now renters."

Demand for rental housing helped boost shares of the 12- member Bloomberg Apartment Real Estate Investment Trust index 13 percent over the past 12 months compared with a 2.1 percent gain for the S&P 500 Index. It's also attracting private equity funds to single-family homes, which historically have been an investment for small investors.

"The key is being able to efficiently manage these homes," Shapiro said. "That's why we're targeting select markets. Our intention is to rent them, to hold them for long term."

Facebook to File for IPO Next Week

The imminent initial public offering of Facebook, the world's largest social network, is the talk of Wall Street and Silicon Valley. Some even believe that the deal, which even with reports of a scaled-back valuation of below $100 billion, would be one of the largest tech IPOs to date and could rival the 1995 offering of Netscape in importance.

"This is clearly the most important moment in the Valley's history since the Netscape IPO," said Stephen Diamond, associate professor of law at Santa Clara University. "The Netscape IPO put the Valley on the map in a different sort of way. Post-Netscape, it was not just a silicon, hardware world." The IPO of the first Internet browser ushered in the Internet era and fueled the ensuing dot-com boom.

The hoopla began on Friday with reports that the company is expected to file its first prospectus possibly as early as Wednesday. Investors won't know the company's valuation until the deal is actually priced, which is not likely to occur until May, but All Things D report that the valuation is likely to be less than $100 billion. Friday, The Wall Street Journal reported that Facebook seeks to raise $10 billion, with a value ranging from $75 billion to $100 billion.

That valuation is vastly higher than Google Inc.'s IPO in the summer of 2004, when the search giant went public in a quasi-Dutch auction at $85 a share, and raised about $1.7 billion, with its shares jumping to just over $100 on its first trading day. The Google IPO came a few years after the dot-com boom and subsequent bust, and investors were still jittery about Internet stocks.

When Netscape went public in 1995, the underwriters doubled the offering price and its shares soared to $75 in intra-day trading, after opening at $28. Its valuation soared to around $2.3 billion by the end of the day.

In the last few years, though, in the wake of the dot-com flame-out, venture capitalists and startup companies have insisted that they learned from the last boom-bust cycle, and the IPO drought. The advent of Sarbanes-Oxley legislation has made it tougher and more expensive to go public, and many companies instead chose the merger route as a way to bring their early investors some returns.

Even last year, as tech IPOs finally came back to life, investors seem more cautious. The financial results of the first social media companies to go public, like Groupon Inc. and Zynga, have been under far more scrutiny this time around.

"A little more than half the IPOs are trading at or below their offering prices," said Rick Kline, a partner with Goodwin Procter, a law firm in Menlo Park, Calif. "That is a difficult background. Something like Facebook's IPO could be the thing that really helps investors...It could fall under the rubric of a rising tide lifts all boats."

One potential fear, though, is that such a monster IPO from Facebook is going to usher in another tech bubble. During the dot-com boom, small start-up companies that were either flashes in the pan or not ready for the public markets, went public. Facebook, with its over 800 million users, hefty revenue growth and high operating profit margins, could tantalize.

"It will be interesting to see if it increases the appetite for more speculative companies," Kline said. "That's what happened 10 or 12 years ago, that's what people point to. After Netscape, there was such an appetite for the next one that people were willing to buy them on speculation. That has certainly died down in the last few years." Kline pointed to the fact that Google's IPO did not fuel a new speculative frenzy as a proof point.

Netscape also set the trend for the young, unprofitable Internet company going public. It was only 16 months old, unprofitable, and had 250 employees at the time of its IPO.

Still, Kline pointed out, "people have short memories."

China Continues to Advance

There's really only one thing China doesn't do nowadays: stand still.

Take a look at other economies' dollar-equivalent size in 2000 and you'll find that China has since effectively created more than 10 Swedens, nearly 10 new Australias, five new Canadas, more than two new Frances or U.K.s, or about seven Indias.

Individual wealth has soared too, and the growth in Chinese retail sales since 2007 has more than compensated for the decline seen in the U.S. as crunched consumers pulled in their horns.

No wonder then that all those high-level trade delegations flock to Beijing, eager in many cases to let historical bygones be bygones and focus on a future of joint prosperity.

For many Western corporations, exporting to China transcends mere opportunity and becomes instead a matter of survival. It is, after all, a very long time since similar growth rates were seen, or even imagined, in their home economies.

However, this street is becoming increasingly two-way. China doesn't stand still and so is not content to be the low-cost, low-value-added capital of the world.

So, as Goldman Sachs puts it: "While opportunities for European companies in China remain strong, China is itself quickly moving up the value chain." As it does so, it may increasingly be seen as less of a competitive opportunity and more a potential threat. Its corporate sector has got domestic markets growing at a clip we can only dream of in the West, increasing research capabilities, government support and an accelerating appetite to merge and acquire beyond its own borders.

Now, ironically, said Goldman, Chinese companies are increasingly emerging as international competitors to Europe in many of the same industries that have benefited from growth in Chinese demand over the last 10 years.

Some sectors, the likes of commodities and specialty chemicals, solar cells and telecoms are already facing intense competition from newer Chinese peers.

However, this is just the start.

Others, such as telecom handsets, low-end power transmission technology, high-speed rail, wind-power generation, smart-grid technology, civil aircraft and solar equipment may be expected to face competition now, or within the next few years.

It looks as though a bridgehead in China won't be sufficient in future as Western corporates have to deal with more direct competition. Given China's cost advantages, their best hope may lie in the free float of the yuan, but Beijing has shown no sign of any desperate hurry to change.

AdCare Health Systems, Inc.

AdCare Health Systems presented at Noble Financial Capital Markets' 8th Annual Equity Conference earlier this month. CEO Boyd Gentry and Chief Acquisition Officer Chris Brogdon discussed emerging opportunities in the highly fragmented healthcare segments of senior assisted living and elderly nursing care, as well as talked about the progress of AdCare's M&A program designed to build upon the company's strong reputation for operational efficiency and high-quality living environments.

Noble Financial, a research driven, full-service investment banking boutique, is as discriminating with its invitations to institutional investors as it is with the companies invited to present. Rather than just focusing on crowding the conference floor, Noble Financial carefully invites a smaller audience of investors with a large appetite for the companies presenting; quality always trumps quantity. The entire presentation can be viewed at the following link: AdCare Health Systems, Inc. Noble Financial Capital Markets Presentation

About AdCare Health Systems, Inc. (ADK)

Ohio-based AdCare Health Systems is an expanding national leader in the development, ownership, and management of care facilities, including nursing homes, assisted living facilities, independent living facilities, dementia/alzheimer's units, sub-acute units and retirement communities. In addition, the company provides a variety of home health care services.

The company's mission is to provide the finest in care facilities, and has a history of success in their development as well as management. In particular, the senior living facilities market is considered to be one of the most dynamic and rapidly growing sectors within the healthcare arena. Changing demographics, coupled with the limited supply of senior living facilities, clearly supports this growth. AdCare is exploiting these trends by growing both internally and through strategic acquisitions.

The company has a seasoned senior management team, with substantial senior living, healthcare, and real estate industry experience. The senior management team is incentivized to continue to grow the business through their combined ownership of approximately 25.6% of the common stock. The resulting numbers underline AdCare's growth strategy, with revenues showing steady growth for the last 9 years, and now in line for another record breaking year in 2011.

Earlier this month it was reported that Ladenburg Thalmann analysts initiated coverage on shares of Adcare, setting a "buy" rating and $7.50 price target on the stock. The stock is currently trading at $4.05 with a market cap of approximately $49 million. Combining its current annualized run-rate with transactions currently in the process of closing, AdCare's estimated annualized revenue run-rate is anticipated to exceed $300 million.

FluoroPharma Medical, Inc.

FluoroPharma Medical also presented at Noble Financial Capital Markets' 8th Annual Equity Conference earlier this month. Thijs Spoor, President & CEO of FluoroPharma Medical, delivered the company's presentation, summarizing the rising importance in medical diagnostics of PET technology and the associated radiopharmaceuticals such as those developed by FluoroPharma.

During his presentation, Mr. Spoor exposed the major gap between the promise of PET and the current availability of chemical agents needed to make the promise a reality. The entire presentation can be viewed at the following link: FluoroPharma Medical, Inc. Noble Financial Capital Markets Presentation

About FluoroPharma Medical, Inc. (FPMI)

FluoroPharma Medical, Inc. is a biopharmaceutical company focused on discovering and developing patented Positron Emission Tomography (PET) imaging products to improve patient management by evaluating cardiac disease at the cellular and molecular levels. The company is currently advancing two products in clinical trials to fulfill critical unmet medical needs. The agents will provide clinicians important tools for detecting and assessing pathology before critical manifestations of disease.

The company's proprietary molecules labeled with the radioactive isotope of fluorine combined with PET scanning provide non-invasive, highly specific and efficient assessment of heart metabolism and physiology. FluoroPharma's cardiovascular program addresses the largest segment of the nuclear medicine market.

Molecular imaging fulfills numerous unmet needs in diagnosis by enabling visualization, characterization and measurement of biological processes at the molecular and cellular level. Unlike traditional imaging modalities – MRI, CT, and Ultrasound – that reveal the anatomical abnormalities and cause for disease, PET provides insight into physiology and can detect disease before anatomical manifestation is identified. According to GAI, the market for molecular imaging agents currently exceeds $1.7 billion annually and promises rapid growth for the foreseeable future.

FluoroPharma's comprehensive technology platform was developed by scientists at the Massachusetts General Hospital. To date, the company has been issued four US patents and has seven applications pending in addition to strong international protection. With a solid and experienced management team in place and the necessary resources to advance clinical development, FluoroPharma is well positioned to capitalize on its superior imaging technology.

VistaGen Therapeutics, Inc.

VistaGen Therapeutics, Inc. and Synterys, Inc., a medicinal chemistry and collaborative drug discovery company, recently entered into a strategic medicinal chemistry services agreement. The collaboration will further VistaGen's stem cell technology-based drug rescue initiatives with the support of Synterys' medicinal chemistry expertise.

"After evaluating several high quality candidates, we are happy to have selected Synterys as the medicinal chemistry partner of choice for our drug rescue programs," stated Ralph Snodgrass, Ph.D., President and Chief Scientific Officer of VistaGen. "Synterys' scientists bring significant experience in medicinal and synthetic organic chemistry to our collaboration, as well as the skills and infrastructure necessary to drive our programs forward successfully and cost effectively."

About VistaGen Therapeutics, Inc. (VSTA)

VistaGen Therapeutics, Inc. is a biotechnology company applying stem cell technology for drug rescue and cell therapy. Drug rescue combines human stem cell technology with modern medicinal chemistry to generate new chemical variants ("drug rescue variants") of promising drug candidates that have been discontinued during preclinical development ("put on the shelf") due to heart or liver safety concerns. VistaGen also focuses on cell therapy, or regenerative medicine, which includes repairing, replacing or restoring damaged tissues or organs.

VistaGen's versatile stem cell technology platform, Human Clinical Trials in a Test Tube™, has been developed to provide clinically relevant predictions of potential toxicity of promising new drug candidates long before they are ever tested on humans. VistaGen's human pluripotent stem cell-based bioassay systems more closely approximate human biology than conventional animal studies and other nonclinical techniques and technologies currently used in drug development.

Using mature human heart cells produced from pluripotent stem cells, VistaGen leveraged its Human Clinical Trials in a Test Tube™ platform to develop CardioSafe 3D™, a novel three-dimensional (3D) bioassay system for predicting the in vivo cardiac effects of new drug candidates before they are tested in humans. The Company now plans to use CardioSafe 3D™ to build a pipeline of small molecule drug rescue variants of once-promising drug candidates that have been "put on the shelf" by pharmaceutical companies and academic research institutions because of heart toxicity concerns, despite positive efficacy data signaling their potential therapeutic and commercial benefits.

VistaGen is also developing LiverSafe 3D™, a novel predictive liver toxicity and drug metabolism bioassay system for drug rescue applications. In parallel with drug rescue activities, the company is funding early-stage nonclinical studies focused on potential cell therapy applications of its Human Clinical Trials in a Test Tube™ platform. Each of these nonclinical studies is based on the proprietary human pluripotent stem cell differentiation and cell production capabilities of VistaGen's Human Clinical Trials in a Test Tube™ platform.


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