Saratoga Group - Impact from Coronavirus

March 16, 2020 / Investment
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Saratoga Group - Impact from Coronavirus

We are saddened by the economic, social and health impact of the Coronavirus across the world, specifically to our friends/neighbors here in the US.  I wanted to briefly share with you the challenges (and opportunities) we perceive and how we are responding:

  1. Remote work.  First of all, most of our organization already works remotely and have at most 3 people working together in an office.  The exception is our headquarters in Auburn, CA where we have 7 of us.  At this point, we continue to work from our office locations.  ALL of our software/systems are in the "cloud".  This means at a moment's notice we can each work from home with very little disruption.  Here is an article I previously wrote about our initiatives to build/use automation software in our business.
  2. Community gatherings.  We had plans in the works to host some community gatherings for Easter.  It's part of our initiative to create a better sense of belonging as described in this article.  At this time, we have suspended all community gatherings.
  3. HUD Guidance.  HUD provided a fact sheet they recommended be handed out to every resident in a multi-family community.  We trained all of our managers in our weekly call to download the fact sheet and pass it out before next week's meeting.  Fortunately, MH communities will be much less susceptible to this air-born virus because they are not sharing common air/filtration with a bunch of other people.  
  4. CapEx Projects.  The silver lining for us is that we have an aggressive list of projects on our docket for this spring/summer.  We are pressing forward with our plans.  For example, we have 7 major asphalt projects we are lining up for 2020.  Although oil/asphalt prices are not perfectly correlated (typically a 6 month lag), we have been able to negotiate lower prices on some of our asphalt projects.
  5. Financing.  The vast majority of our financing was put in place with a 10 year loan (fixed for the first 5 and another 5 year reset).  We are strategically evaluating recapitalization of communities that are ready for long term debt at historically low interest rates.   
  6. Cash Flow.  A few years ago when Saratoga Group decided to go "all in" on MH Communities, our primary thesis was this asset class would fare well in economic down cycles.  I'm hopeful that the US economy can recover quickly.  But if it doesn't, our residents will continue to live in our communities.  And we will continue to attract more residents as we beautify and make our communities clean and safe.  Across our portfolio, our leverage is just over 50%.  This provides room for significant decreases in operating income without risking our ability to cover our debt payments.

Housing is a basic necessity, and despite economic undulations, we continue to be extremely under supplied with workforce housing in the US.

In summary, I want to share a photo gallery showing new homeowners, construction projects, and a glimpse of life in an SG Community. 

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Sam Hales

Invest with Saratoga Group

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