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Darkness descends over Sunrise

November 20, 2008
by Kevin Kolus, Staff Writer
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Financial difficulties are casting doubt over America’s largest senior living provider

On November 7, Sunrise Senior Living, arguably the nation’s premier brand name in assisted living services, reported a startling third quarter net loss of $68.7 million—the company’s worst financial hemorrhaging in eight years. The following Monday, Sunrise shares dropped a steep 39%, marking a total fall of 96% for the year. Though immediately ominous at a glance, these tumbles were not a surprise; the company incurred a $70 million loss in 2007, was sued by Five Star Quality Care in August for alleged excess charges by Sunrise insurance programs, and announced a seven-year low for second quarter results only one month ago. Good publicity—and the reassurance it provides apprehensive investors—has been nonexistent for Sunrise in an economic landscape appearing to be in recession.

One of the reasons Sunrise has found itself bleeding money is because of its strong focus on development. Given that current capital markets have stifled not only development of properties, but also the company’s ability to sell properties at the value it seeks, Sunrise has been forced to come up with income primarily from its operations as a long-term care provider, which has shown to be not nearly profitable enough. To give this fact some perspective, Sunrise shares sold for $40 a pop one year ago—last week they were down to $1.30 each.

"Sunrise is a traditionally heavy user of capital that is currently unprofitable and is trudging through these terrible capital markets."

-Mark Ordan, CEO of Sunrise Senior Living

With a future uncertain, at least on the surface of daily news, Sunrise held a conference call the same day it publicly disclosed its most recent losses. The company, admitting it was in an unsteady environment, released a plan for investors to show it could stop the bleeding and focus toward a tighter—and less wasteful—business.

Unless Sunrise receives an additional waiver from lenders, it expects that on January 1, 2009, it may no longer be able borrow money. To bypass this potential chokehold, Sunrise and the lenders acknowledged earlier this month that it was their intention to revise and restructure the collection of loans known as a credit facility by January 31, 2009. If Sunrise is not able to modify its credit facility, lenders are allowed to accelerate the payment of all amounts outstanding and require the company to provide cash as collateral for any credit, among other actions.

Sunrise CEO Mark Ordan said the company has been discussing other sources of capital with third parties such as Goldman Sachs and is also seeking refinancing through new lenders. For additional cash, Sunrise will sell land parcels from an abandoned development project as well as other properties. Also, the remaining $52.8 million in cash on hand the company has will most likely be sufficient to support its operations through January 31, essentially buying time for Sunrise to further amend the credit facility.

“Sunrise is a traditionally heavy user of capital that is currently unprofitable and is trudging through these terrible capital markets,” Ordan said during the conference call. “While I won’t join the ranks of CEOs who say ‘all is well’ when it isn’t, I will point out some facts. We have been proactively clamping down on every outflow of cash that doesn’t immediately support our core business.”

This statement is reminiscent of one made in late September in which Ordan assured that a strategic plan was being implemented to “focus on the profitability of our core business, scale back new development, and reduce overhead and our overall cost structure....” Since then, the company has identified 160 noncare related positions that will be eliminated in 2008-09, with an anticipated savings of $17 million. Administrative and general spending is expected to be curbed by at least $20 million, but results of that initiative remain to be seen.



Unless Sunrise receives an additional waiver from lenders, it expects that on January 1, 2009, it may no longer be able borrow money.

While the above mentioned tactics resemble a temporary tourniquet on losses, they do not necessarily mean profits. With undetermined development goals for 2009, and no intention to begin construction on new projects until market conditions improve, the company seems to be catching its breath. However, Sunrise is taking steps toward becoming recognized as an operator. Currently, the company is attempting to create a better brand name for itself in Germany, and further ventures will be expected to focus more on outreach to potential customers rather than development of properties. Just recently Sunrise released a “Caregiver Toolkit” to educate people who visit their facilities and are unsure of how to care for their elderly loved ones at home.

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