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Sunrise Reports Preliminary Selected Financial and Operating Data for Fourth-Quarter 2007
Date:3/3/2008

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 managted 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.

ed 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 anticipa
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SOURCE Sunrise Senior Living, Inc.
Copyright©2008 PR Newswire.
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