Provides Updates on Cash and Debt, Accounting Restatement,
Anticipated Pre-Tax Charges and Impairments and Other Matters
MCLEAN, Va., March 3 /PRNewswire-FirstCall/ -- Sunrise Senior Living, Inc.
(NYSE: SRZ) today reported preliminary selected financial and operating data
for the quarter ended December 31, 2007. The Company also provided updates on
its cash and debt, the accounting restatement, anticipated pre-tax charges and
impairments and other matters.
Operational Highlights
-- As of December 31, 2007, Sunrise operated 457 communities with capacity
for approximately 54,000 residents, located in the United States,
Canada, the United Kingdom and Germany.
-- During the quarter, Sunrise opened seven new communities and began
construction on 16 new communities.
-- For the year, Sunrise opened 22 communities with capacity for 2,600
additional residents and began construction on 32 new communities with
capacity for approximately 3,500 residents.
-- As of December 31, 2007, the Company had 45 communities under
construction, with capacity for an additional 5,800 residents.
-- For the fourth quarter 2007, revenue under management increased 7
percent to $616.7 million as compared to $576.1 million in the prior-
year fourth quarter. For 2007, revenue under management was $2,372
million, up over 8 percent from 2006 revenue under management of $2,192
million. The measure "revenue under management" is derived by
combining the revenues of Sunrise's consolidated communities,
communities owned in unconsolidated ventures and communities owned by
third parties that are managed by Sunrise. Revenue under management
for the quarter and the year grew largely due to new openings,
stabilization of new properties opened during the prior year,
acquisitions and increases in average daily rate.
-- Sunrise's same-community portfolio included 206 communities in the
fourth quarter 2007, compared to 176 communities in the fourth quarter
of 2006. Sunrise's same-community portfolio consists of communities in
which Sunrise has an ownership interest (i.e., consolidated communities
and venture communities) that were stabilized in both the fourth
quarter of 2007 and 2006 (which Sunrise defines as being open for 12
months or achieving 95 percent occupancy, whichever occurs first). The
increase in number of same communities is partially due to the
stabilization of communities in The Fountains venture portfolio,
consisting of 16 communities that were acquired in the third quarter of
2005. Six of the communities became stabilized earlier in 2007, and
the remaining ten communities became stabilized during the fourth
quarter of 2006. The remaining increase in stabilized communities is
due to new community openings that first stabilized in the fourth
quarter 2006. Of the 206 communities in the same-community portfolio,
145 are venture communities and 61 are consolidated communities.
-- Same-community revenues increased 5.9 percent during the fourth quarter
2007, to $311.5 million as compared to $294.1 million in the prior-year
fourth-quarter. Revenue growth from communities in ventures was 5.1
percent and growth from consolidated communities was 7.6 percent.
Growth in same-community revenues was primarily driven by rate
increases.
-- Average daily rate for the same-community portfolio increased 6.5
percent over the prior-year fourth quarter to $153.82. Same-community
average daily rate for communities in ventures increased 5.8 percent
over the prior-year fourth quarter to $156.85, while same-community
average daily rate for consolidated communities increased 7.9 percent
over the prior-year fourth quarter to $148.27. Rates grew over the
prior-year fourth quarter primarily through increases in resident fees
for new and existing residents. Rates decreased slightly from the
third quarter of 2007 average daily rate of $155.48 due to the
integration of The Fountains communities into the same-community
portfolio. Of these communities, nine communities offer entrance fee
models, which require higher up-front payments and lower monthly rates.
-- Same-community operating expenses decreased 3.4 percent in the fourth
quarter 2007 to $198.3 million, as compared to $205.2 million in the
prior-year fourth quarter. Same-community operating expense excludes
management fees paid to Sunrise with respect to same-community ventures
in order to make comparisons between consolidated and venture
communities consistent. Same-community expense for communities in
ventures decreased 2.4 percent for the quarter and same-community
expense growth for consolidated communities decreased 5.0 percent. The
decrease was due to expense credits of approximately $15.4 million
primarily related to prior periods. Following the Company's recent
review of its self-insurance and health and dental benefits programs,
the Company concluded that, based on historical claims levels and other
information, existing reserve levels for these programs were higher
than needed to cover projected claims, so a portion of the excess
reserves was credited back to the communities. Excluding these
credits, same-community operating expenses for the quarter would have
been approximately $213.7 million, representing a 4.1 percent increase
over the prior year.
-- The same-community occupancy rate was 90.6 percent for the quarter 2007
compared to 91.6 percent in the prior-year fourth quarter. The
occupancy rate for communities in ventures was 90.6 percent, down from
91.6 percent in the prior-year fourth quarter. For consolidated
communities, the occupancy rate was 90.7 percent, down from 91.6
percent in the prior-year fourth quarter. The decline in occupancy was
largely due to a decrease in occupancy for The Fountains communities.
In addition, as previously disclosed, the Company has identified
several existing markets and select communities that have shown
declines in occupancy and has put plans in place to address these
markets.
-- Sunrise's management believes that total revenue under management and
total same-community revenues, average daily rate, occupancy and
expenses are useful indicators of trends in Sunrise's management
business. For such data broken down by consolidated communities and
unconsolidated ventures, please refer to the Supplemental Information
attached. The preliminary financial data and operating metrics provided
herein are not necessarily indicative of the results of operations of
the Company for the three and twelve months ended December 31, 2007 and
2006. Because the Company's restatement of its financial statements
has not been completed, Sunrise is unable at this time to provide a
reasonable estimate of either its fourth-quarter 2007 or fourth-quarter
2006 results of operations.
Cash and debt
-- On December 31, 2007, Sunrise had approximately $320 million of cash
and cash equivalents. Of this balance approximately $130 million was
restricted for use by the Company's self-insurance program and another
approximately $40 million was restricted for other purposes. The
Company had approximately $250 million in debt outstanding at year-end.
-- There were $100 million in borrowings and $71.7 million in letters of
credit outstanding under the Company's bank credit facility. On
December 31, 2007, the Company had capacity to borrow up to an
additional $78.3 million under this facility.
-- As disclosed previously, on January 31, 2008, the Company amended its
$250 million bank credit facility to waive and modify certain delivery
dates for its financial statements. In addition, effective February
20, 2008, the amount available for borrowing under the bank credit
facility was reduced to $160 million until the Company furnishes the
lender with 2006 and 2007 audited financial statements.
-- On February 20, 2008, Sunrise Senior Living Insurance, Inc., Sunrise's
wholly owned insurance captive, directly issued $43.3 million of
letters of credit that had previously been issued under the bank credit
facility.
-- As of February 29, 2008, the Company had borrowings of $108 million,
letters of credit of $28.4 million and borrowing availability of
approximately $23.6 million under the bank credit facility. The
Company believes this availability, unrestricted cash balances, and
unlevered real estate assets is sufficient to support the Company's
operations over the next twelve months.
Accounting Restatement
-- Sunrise currently estimates that the cumulative impact of the
previously disclosed restatement issues will reduce net income for all
periods impacted, including 1996 through 2005, by approximately $140
million, excluding the impact of the stock option adjustments and
revenue recognition related to the Company's Greystone subsidiary, as
described below. This represents an increase of $10 million from the
previously disclosed $130 million cumulative net income adjustments and
is due to a number of miscellaneous adjustments.
-- The Company also expects to record non-cash compensation expense
totaling approximately $44 million pre-tax ($27 million after tax)
related to the impact of the stock option adjustments described in the
Company's release dated November 9, 2007.
-- The Company has now determined that it will be required to adjust its
revenue recognition policies related to its Greystone subsidiary, a
developer and manager of continuing care retirement communities. From
the acquisition date of May 10, 2005 through December 31, 2005,
revenues were recognized based on cash received under the contract.
The cash payments corresponded to project completion milestones as set
forth in the agreements. During the course of the accounting
restatement Sunrise determined that revenue earned under these
contracts should be recognized upon completion of the contract. There
is no change in the amount or timing of the cash flow earned from the
contracts. The total impact of the adjustment is expected to reduce
pretax income by approximately $14 million.
-- More than 40 percent of the $140 million estimated cumulative net
income impact of the restatement adjustments (excluding stock option
expense and Greystone adjustments) relates to periods prior to
2003 and, therefore, will be reflected as a reduction in the opening
balance of retained earnings as of January 1, 2003 in the Company's
restated financial statements when filed. The Company continues to
expect that due to expiration of guarantees, refinancings, sales of
assets and recapitalizations the substantial majority of the income and
gains deferred in the restatement will be recaptured during the three-
year period of 2006-2008. More than half of the cumulative net income
impact of the adjustments (excluding stock option expense and Greystone
adjustments) has already been recaptured for the period through
December 31, 2007.
European Ventures
The Company has ventures in the United Kingdom and Germany to develop and
operate senior living communities.
-- United Kingdom. As previously disclosed, during the third quarter of
2007, this venture, in which the Company has a 20 percent equity
interest sold six communities to a venture in which the Company has a
10 percent interest. The Company received cash proceeds of
approximately $42 million related to the transaction. In addition, the
Company received approximately $47 million resulting from a loan to the
venture collateralized by a forward-sale purchase agreement for nine
additional communities. In the fourth quarter of 2007 the Company
completed the first of the forward-sales and will receive additional
cash proceeds of $3 million.
-- Germany. As previously disclosed, the Company expects to fund cash
shortfalls related to operating deficit guarantees related to its
Germany venture in which it has a 20 percent interest. To date,
Sunrise has funded approximately $29 million under these guarantees and
other loans, and expects to fund an additional net $60 million through
2012, the date at which the Company estimates that no further funding
will be required. The Company expects to record a pre-tax charge of
$50 million as it does not expect full repayment of the loans resulting
from the funding. The Company has now determined that this charge
should be recorded in 2006, instead of 2007 as previously disclosed.
No assurance can be given that additional pre-tax charges will not be
required in subsequent periods.
Other Anticipated Pre-Tax Charges and Impairments
-- Impairment of Long-Lived Assets. The Company expects to record an
impairment charge of $14.6 million in 2006 related to four small senior
living communities, two of which the Company acquired in 1996 and two
of which the Company acquired in 1999. The Company also expects to
record an impairment charge of approximately $4.0 million in 2007
related to another senior living community acquired in 1999.
-- Acquired Venture. As disclosed in the Company's press release dated
November 9, 2007, in the third quarter of 2005, Sunrise acquired a 20
percent interest in a venture and entered into management agreements
for the 16 communities owned by the venture. In conjunction with this
transaction, the Company guaranteed to fund shortfalls between actual
net operating income and a specified level of net operating income up
to $7 million per year through July 2010. The Company paid $12 million
to the venture to enter into the management agreements, which was
recorded as an intangible asset and is being amortized over the 30-year
life of the management agreements. The $12 million was placed into a
reserve account by the venture, and the first $12 million of shortfalls
were to be funded from that reserve account by the venture. The Company
determined that shortfalls will exceed the amount held in the reserve
account. As a result, the Company expected to record a pre-tax charge
of $21 million. The Company has now determined that the entire $21
million charge will be recorded in 2006.
-- Trinity Hospice Impairment. As a result of a review of the goodwill
related to the Company's hospice business acquired in 2006, Trinity
Hospice, Inc. ("Trinity"), the Company expects to record a material
impairment loss in 2007 relating to its investment in Trinity. The
amount of the impairment loss has not yet been determined, but is
expected to be material. At December 31, 2007, the goodwill and
intangible assets related to the acquisition of Trinity totaled
approximately $69 million.
-- Senior Living Condominium Developments. As disclosed in the Company's
press release dated November 9, 2007, Sunrise expects to record a loss
of approximately $23 million due to a commitment to fund actual project
costs in excess of budgeted project costs. During 2007, Sunrise expects
to record an additional loss of $7 million due to an increase in the
budgeted project costs. Sunrise plans to seek reimbursement for some
of these overages. However, there can be no assurance that Sunrise will
be reimbursed for any of these overages. As also disclosed in the
Company's press release dated November 9, 2007, the Company expects to
record pre-tax charges totaling approximately $21 million to write off
capitalized development costs for four discontinued condominium
projects.
-- Legal and Accounting Fees Related to Accounting Review, Special
Independent Committee Investigation and Related Matters. During 2006,
the Company incurred approximately $3 million for legal and accounting
fees related to its accounting restatement. During 2007, the Company
incurred legal and accounting fees of approximately $42 million related
to the accounting restatement, the Special Independent Committee
investigation, the SEC investigation and responding to various
shareholder actions.
The anticipated pre-tax charges and impairments described above are
preliminary and remain subject to audit by Ernst & Young LLP. As such, this
information is not final or complete, and remains subject to change, possibly
materially.
Status of Filing of 2006 Form 10-K
The Company continues to work diligently and plans to file its 2006 Form
10-K no later than the New York Stock Exchange ("NYSE") trading extension date
of March 17, 2008. No assurance can be given that the Company will file its
2006 Form 10-K by that date. In the event the Company is not able to file its
2006 Form 10-K by March 17, 2008, the NYSE is expected to initiate de-listing
of the Company's common stock from trading on the NYSE in accordance with its
listing requirements.
Delay in Filing of 2007 Form 10-K
The Company is filing a Form 12b-25 today reporting that its filing of its
2007 Form 10-K will be delayed.
Legal Proceedings Update
-- Trinity OIG Investigation and Related Qui Tam Action. On September
14, 2006, the Company acquired Trinity for $75 million with the
objective of entering the hospice care industry. On January 3, 2007,
Trinity received a subpoena from the Phoenix field office of the
Office of the Inspector General of the Department of Health and Human
Services ("OIG") requesting certain information regarding Trinity's
operations in three locations for the period January 1, 2000 through
June 30, 2006, a period that was prior to Sunrise's acquisition of
Trinity. On September 11, 2007, Trinity and the Company were served
with a qui tam complaint filed on September 5, 2007 in the United
States District Court for the District of Arizona. That filing
amended a complaint filed under seal on November 21, 2005 by four
former employees of Trinity under the qui tam provisions of the
Federal False Claims Act. On February 13, 2008, Trinity received a
subpoena from the Los Angeles regional office of the OIG requesting
information regarding Trinity's operations in 19 locations for the
period December 1, 1998 through February 12, 2008. This subpoena
relates to the ongoing investigation being conducted by the Commercial
Litigation Branch of the U.S. Department of Justice and the civil
division of the U.S. Attorney's Office in Arizona. Trinity is in the
process of complying with the subpoena. During 2006, the Company
recorded a loss of $5 million for possible fines, penalties and
damages related to the Trinity OIG investigation. As of December 31,
2007, the Company had incurred approximately $2 million in
professional fees and other costs in connection with the investigation
and related qui tam action and remediation activities. The Company
expects to incur additional costs, which may be substantial, until
this matter is resolved.
-- IRS Audit. The Internal Revenue Service is auditing our federal income
tax returns for the years ended December 31, 2005 and 2006, and our
employment tax returns for 2004, 2005 and 2006.
About Sunrise Senior Living
Sunrise Senior Living, a McLean, Va.-based company, employs approximately
40,000 people. As of December 31, 2007, Sunrise operated 457 communities in
the United States, Canada, Germany and the United Kingdom, with a combined
capacity for approximately 54,000 residents. At quarter end, Sunrise also had
45 communities under construction in these countries with a combined capacity
for 5,800 additional residents. Sunrise offers a full range of personalized
senior living services, including independent living, assisted living, care
for individuals with Alzheimer's and other forms of memory loss, as well as
nursing, rehabilitative and hospice care. Sunrise's senior living services are
delivered by staff trained to encourage the independence, preserve the
dignity, enable freedom of choice and protect the privacy of residents. To
learn more about Sunrise, please visit http://www.sunriseseniorliving.com.
Forward-Looking Statements
Certain matters discussed in this press release - including the updated
estimate of the cumulative net income impacts of the Company's pending
restatement, the planned filing of the Company's 2006 Form 10-K by March 17,
2008, the anticipated pre-tax charges and impairments, and the Company's
belief that borrowing availability under its bank credit facility,
unrestricted cash balances, and unlevered real estate assets is sufficient to
support the Company's operations over the next twelve months -- may be
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although Sunrise believes the expectations
reflected in such forward- looking statements are based on reasonable
assumptions, there can be no assurances that its expectations will be
realized. Sunrise's actual results could differ materially from those
anticipated in these forward-looking statements as a result of various
factors, including, but not limited to, completion of the Company's
restatement of its historical financial statements; the length of time needed
for Sunrise to complete the restatement and for Ernst & Young LLP to complete
its audit procedures for any reason, including the detection of new errors or
adjustments; the time required for the Company to prepare and file its 2006
Form 10-K, 2007 Form 10-K, Form 10-Q for the quarter ending March 31, 2008 and
Form 10-Qs for the first three quarters of 2007 and for Ernst & Young to
complete its work on its audits of the 2006 and 2007 financial statements and
its reviews of the Form 10-Qs; the Company's ability to remediate material
weaknesses in internal controls over financial reporting; the outcome of the
SEC's investigation; the outcomes of pending putative class action and
derivative litigation; the outcome of the lawsuit filed by the Company's
former CFO; the outcome of the Trinity OIG investigation and qui tam
proceeding; the outcome of the IRS audit of the Company's tax returns for the
tax years ended December 31, 2005 and 2006, and employment tax returns for
2004, 2005 and 2006; the outcome of the exploration of strategic alternatives;
the delisting of the Company's stock from the NYSE in the event the Company
does not file its 2006 Form 10-K by March 17, 2008; the Company's ability to
comply with the terms of the amendment of its bank credit facility or to
obtain a further extension of the period for providing the lenders with
required financial information; development and construction risks and the
Company's ability to complete those projects currently under construction;
acquisition risks; licensing risks; business conditions; competition; changes
in interest rates; the Company's ability to manage its expenses; market
factors that could affect the value of the Company's properties; the risks of
downturns in general economic conditions; availability of financing for
development and acquisitions; and other risks detailed in the Company's latest
annual report on Form 10-K filed with the SEC. The Company assumes no
obligation to update or supplement forward-looking statements that become
untrue because of subsequent events.
Sunrise Senior Living, Inc.
Supplemental Information
As of December 31, 2007
($ in millions except average daily rate)
Communities Resident
Capacity
Q4 07 Q4 06 Q4 07 Q4 06
Community Data
Communities managed for third-party
owners 190 192 22,989 23,091
Communities in ventures 201 183 22,245 20,433
Consolidated communities 66 65 8,683 8,646
Total communities operated (1) 457 440 53,917 52,170
Percentage of Total Operating Portfolio
Assisted Living 72 % 72 %
Independent Living 23 % 23 %
Skilled Nursing 5 % 5 %
Total 100 % 100 %
Selected Operating Results
Same-Community Portfolio Operating Results (2) Q4 07 Q4 06 % Change
Number of communities 206 206 -
Resident capacity 23,687 23,687 -
Same-Community Revenue
Communities in ventures $205.2 $195.3 5.1 %
Consolidated communities 106.3 98.8 7.6 %
Total Same-Community Revenue $311.5 $294.1 5.9 %
Same-Community Expense (3)
Communities in ventures $125.4 $128.5 -2.4 %
Consolidated communities 72.9 76.7 -5.0 %
Total Same-Community Expense $198.3 $205.2 -3.4 %
Same-Community Occupancy
Communities in ventures 90.6 % 91.6 % -1.1 %
Consolidated communities 90.7 % 91.6 % -1.0 %
Total Same-Community Occupancy 90.6 % 91.6 % -1.1 %
Same-Community Average Daily Rate(4)
Communities in ventures $156.85 $148.28 5.8 %
Consolidated communities $148.27 $137.36 7.9 %
Total Same-Community Average Daily Rate $153.82 $144.42 6.5 %
Selected Total Portfolio Revenues under Q4 07 Q4 06
Management (5)
Communities managed for third-party
owners $233.4 $233.0 0.0 %
Communities in ventures 268.4 238.9 12.3 %
Consolidated communities 114.9 104.2 10.3 %
Total revenue of communities under
management $616.7 $576.1 7.0 %
Number of Development Communities to be
Opened (Resident Capacity) Q1 08 Q2 08 Q3 08 Q4 08
Consolidated communities - 3(274) 1(80) 2(194)
Venture communities 6(581) 3(348) 2(580) 3(250)
Managed communities - 2(550) 1(233) -
Notes
(1) During the fourth quarter of 2007, Sunrise opened seven communities.
There were also three management contracts terminated in the fourth
quarter and one Greystone contract that had a change in ownership.
(2) Same-community portfolio consists of all communities in which Sunrise
has an ownership interest and were stabilized in the fourth quarter of
2007 and 2006. This includes consolidated communities and communities
in ventures. The Company defines stabilized communities as
communities that are open for 12 months or achieving 95 percent
occupancy, whichever occurs first.
(3) Community operating expense excludes management fees paid to Sunrise
with respect to same-community ventures in order to make comparisons
between consolidated and venture communities consistent.
(4) Average daily rate is per resident and excludes community fees.
(5) Includes revenue for all communities operated by Sunrise.
SOURCE Sunrise Senior Living, Inc.
-0- 03/03/2008
/CONTACT: Lisa Mayr, Vice President, Investor Relations and Capital
Markets of Sunrise Senior Living, Inc., +1-703-744-1787/
/Web site: http://www.sunriseseniorliving.com /
(SRZ)
CO: Sunrise Senior Living, Inc.
ST: Virginia
IN: RLT CST HEA
SU: ERN SCZ
SP-JD
-- NEM057A --
4820 03/03/2008 09:12 EST http://www.prnewswire.com
