Sunrise Senior Living, Inc. (NYSE: SRZ) today reported financial results and operating data for the third quarter of 2010. Sunrise will host a conference call and webcast Thursday, November 4, 2010, at 9:00 a.m. ET, to discuss the financial results.
"We continue to be pleased with our structural improvements," said Mark Ordan, Sunrise's chief executive officer. "Our results and trends make us optimistic about our short- and long-term future."
Financial Results for Third-Quarter 2010
Sunrise reported revenues of $383.3 million in the third quarter of 2010 as compared to $361.5 million for the third quarter of 2009. Net income for the third quarter of 2010 was $18.7 million, or $0.33 per fully diluted share, as compared to net loss of ($44.4) million, or ($0.88) per fully diluted share, for the third quarter of 2009. For the third quarter of 2010, net income from operations was $24.8 million, which includes $40 million in buyout fees related to the HCP transaction described below, as compared to a net loss from operations of ($32.3) million in the third quarter of 2009. Excluding the $40 million in buyout fees and adding back non-cash charges including depreciation and amortization of $12.1 million, allowance for uncollectable receivables from owners of $1.4 million, stock compensation of $0.9 million and impairment of long-lived assets of $1.3 million, as well as residual costs associated with the SEC investigation of $0.3 million and restructuring costs of $1.2 million, the adjusted income from ongoing operations was $2.0 million as compared to a loss of ($7.5) million in the third quarter of 2009. Adjusted income from ongoing operations is a measure of operating performance that is not calculated in accordance with U.S. GAAP and should not be considered as a substitute for income or loss from operations or net income or loss. Adjusted income from ongoing operations is used by management to focus on income generated from the ongoing operations of the Company and to help management assess if adjustments to current spending decisions are needed. For a reconciliation of these items, please refer to the attached table "Adjusted Income from Ongoing Operations."
Cash and Liquidity Update
Sunrise had $41.5 million of unrestricted cash at September 30, 2010. As of September 30, 2010, Sunrise had consolidated debt of $267.2 million, compared to $440.2 million at December 31, 2009, a reduction of $173.0 million. Subsequent to quarter end, an additional $77.3 million of debt relating to our German communities was repaid and the remaining balance outstanding under the bank credit facility was repaid, as discussed in more detail below.
HCP
In August 2010, Sunrise entered into a settlement and restructuring agreement with HCP regarding certain senior living communities owned by HCP and operated by Sunrise. Pursuant to the agreement, Sunrise gave HCP the right to terminate the Company as manager of 27 communities owned by HCP. The agreement also provided for the release of all claims between HCP, Sunrise and third-party tenants including the settlement of ongoing litigation between the parties. Upon signing the agreement, HCP made a cash payment to Sunrise of $40.0 million with an additional $10.0 million to be paid upon transition of the communities to a new third-party operator. During the third quarter of 2010, Sunrise recognized the $40.0 million as buyout fee revenue in its consolidated statement of operations. In addition, Sunrise recognized $8.6 million of amortization expense relating to management contract intangible assets for these communities from August through October 2010. As previously announced, the initial $40.0 million payment was used to pay down Sunrise's bank credit facility and various other debt obligations.
As of November 1, 2010, the management of all 27 communities has been transitioned to the new third-party operator and HCP has paid Sunrise the remaining $10.0 million. This payment was primarily used to pay down the remaining balance on Sunrise's bank credit facility.
Ventas
In October 2010, Sunrise entered into purchase and sale agreements with Ventas, Inc. and certain of its affiliates to sell to Ventas all of Sunrise's joint venture interests in nine limited liability companies in the U.S. and two limited partnerships in Canada, which collectively own 58 communities managed by Sunrise. The aggregate purchase price for the joint venture interests is approximately $41.5 million and is payable at closing, which is expected to occur before the end of 2010. Sunrise intends to use the proceeds from the transaction, after expenses, to pay down its debt obligations and for working capital.
After closing, Sunrise will continue to manage the 58 senior living communities, together with the other 21 senior living communities in the Ventas portfolio that are already wholly owned by Ventas. As a condition of the purchase agreement, Sunrise and Ventas will amend the existing master agreement and management agreements to set forth their revised rights and obligations with respect to the management and other matters related to these communities.
Germany
On August 31, 2010, Sunrise and certain of its affiliates closed into escrow the previously announced sale of the real property and related assets of eight of Sunrise's nine German assisted living facilities to GHS Pflegeresidenzen Grundstucks GmbH and TMW Pramerica Property Investment GmbH, the Munich-based business of Prudential Real Estate Investors, pursuant to a purchase and sale agreement dated May 27, 2010, as amended. As of November 1, 2010, liens have been discharged on the remaining seven communities and Sunrise has removed $66.0 million in assets and $66.0 million of mortgage liabilities from Sunrise's balance sheet during the fourth quarter of 2010. The consideration for the Wiesbaden property was paid to the lender that held a lien on the property, and Sunrise has removed the property and related debt from its balance sheet as of September 30, 2010.
On October 1, 2010, Sunrise entered into an agreement to sell its one remaining German community, and on November 1, 2010, Sunrise closed on the sale of this community and the Company has removed $11.3 million in assets and $11.3 million of mortgage liabilities from its balance sheet during the fourth quarter of 2010.
Comparable Community Operating Data for Third-Quarter 2010
The nine German communities have been excluded from Sunrise's third-quarter 2010 comparable community operating results set forth below because they are considered discontinued operations. The two remaining Fountains communities have also been excluded.
- Comparable community revenues for the third quarter of 2010 increased by 2.9 percent, from $481.0 million for the third quarter of 2009 to $495.1 million for the third quarter of 2010. Excluding the impact of foreign exchange rates in 2010, comparable community revenues for the third quarter of 2010 increased 3.2 percent to $496.6 million year-over-year.
- Average unit occupancy in comparable communities for the third quarter of 2010 was 87.0 percent, which was up 40 basis points from 86.6 percent for the third quarter of 2009, and up 80 basis points as compared to 86.2 percent in the second quarter of 2010.
- Average daily revenue per occupied unit in comparable communities increased 2.4 percent from $197.28 for the third quarter of 2009 to $202.05 for the third quarter of 2010. Excluding the impact of foreign exchange rates in 2010, average daily revenue per occupied unit for the comparable community portfolio increased 2.7 percent to $202.66 for the third quarter of 2010 as compared to the third quarter of 2009.
- Comparable community operating expenses for the third quarter of 2010 increased 3.3 percent over the third quarter of 2009 from $352.0 million to $363.7 million. Excluding the foreign exchange rates in 2010, these operating expenses increased 3.7 percent to $364.9 million in the third quarter of 2010.
Sunrise's comparable community portfolio consists of communities that were open and operating as of January 1, 2008, and include consolidated, unconsolidated venture, and managed communities in the United States, Canada and the United Kingdom. Sunrise's management believes that total comparable-community revenues, average daily revenue per occupied unit, average unit occupancy rates and total comparable-community expenses are useful indicators of trends in Sunrise's management business.