EXHIBIT 99.1
NEWS RELEASE Contact: Lisa Mayr
For Immediate Release Vice President, Investor
February 27, 2007 Relations and Capital Markets
(703) 744-1787
SUNRISE REPORTS PRELIMINARY SELECTED FINANCIAL AND OPERATING
DATA FOR FOURTH-QUARTER 2006
OPENS A RECORD 30 NEW COMMUNITIES IN 2006;
GROWS REVENUES UNDER MANAGEMENT 9 PERCENT
McLean, Va.--Sunrise Senior Living, Inc. (NYSE: SRZ), today reported
preliminary selected financial and operating data for the quarter ended December
31, 2006 and provided an update on its pending restatement.
"Despite the challenges related to our financial restatement, the past
year has been one of the most successful in our 25-year history from both
operational and strategy execution perspectives," said Paul Klaassen, chairman
and CEO of Sunrise Senior Living. "We had a record number of openings with 30
new communities, we made a number of significant acquisitions, we recently
launched a $1 billion venture in Europe and we are serving more seniors than
ever. I am also pleased to report that we continue to make progress toward the
completion of our pending restatement and plan to submit our recast financial
information to the SEC shortly. In the meantime, we continue to remain focused
on operations and our mission to improve quality of life for seniors."
OPERATIONAL HIGHLIGHTS
o At December 31, 2006, Sunrise operated 440 communities in four
countries and 40 states, with capacity for more than 52,000
residents, making Sunrise the largest global provider of senior
living services.
o Sunrise opened nine new communities in the fourth quarter of 2006,
for a total of 30 openings during the year. Sunrise had four
construction starts during the quarter and currently has 41
communities under construction, with capacity for approximately
6,000 residents.
o Revenue under management increased approximately 9 percent to $576.1
million in the fourth quarter of 2006 compared to $529.7 million in
the prior year period. This revenue growth occurred despite the loss
of 30 Five Star management contracts, representing a reduction in
revenues under management of $38 million for the quarter. Revenue
under management includes revenues generated by Sunrise's
consolidated communities, communities owned in unconsolidated
ventures and communities owned by third parties that are managed by
Sunrise. Revenue under management increased due to new openings,
acquisitions, increases in occupancy and increases in average daily
rates.
o Sunrise made three strategic acquisitions during the year:
1. On August 1, 2006 Sunrise acquired three San Francisco Bay
Area continuing care retirement communities for
approximately $28 million.
2. On September 15, 2006, Sunrise acquired Trinity Hospice, the
eighth largest hospice provider in the United States, for
approximately $73 million. During the five months since the
acquisition, hospice census has increased 7 percent.
3. On September 27, 2006, a Sunrise and GE Healthcare Financial
Services venture acquired six Aston Gardens communities for
$460 million.
o Same-community revenues continued to grow during the fourth quarter,
increasing 5.7 percent and largely reflecting increases in rates.
During the fourth quarter, occupancy rates remained very strong at
93.9 percent for the same-community owned portfolio. Average daily
rates for the same-community owned portfolio increased 5.9 percent
from $140.13 to $148.41 over prior-year fourth quarter. These
increases resulted from increases in pricing for existing services
as well as from offering additional services to residents.
o Same-community operating expenses increased 5.8 percent in the
fourth quarter of 2006 over the prior-year period, primarily
reflecting increases in labor hours and higher property insurance
costs. Labor hour increases were partially driven by providing
higher levels of care, resulting in an increase in net income per
resident.
o During the fourth quarter of 2006, Sunrise received $40 million from
Five Star Quality Care, Inc. related to the buyout of its remaining
7 management contracts with Sunrise. During 2005 and 2006, Sunrise
received a total of $213 million from Five Star for the buyout of 30
management contracts. These contracts represented 30 of the 126
contracts acquired as part of the Marriott Senior Living Services
acquisition for $150 million in cash and the assumption of
liabilities in 2003. The buyout rights in these management contracts
were unique and were not related to Sunrise's performance at any of
these communities.
o At December 31, 2006, Sunrise had approximately $200 million in cash
and cash equivalents and approximately $160 million in debt,
excluding the impact from Sunrise's accounting review.
In addition to the 2006 highlights above, on January 11, 2007, Sunrise and
Prudential Real Estate Investors (PREI(R)) announced the formation of a $1
billion joint venture to develop an estimated 18 assisted living communities in
the United Kingdom. This new development venture will add to the 12 communities
already opened and 7 under construction in the UK.
UPDATE ON PENDING RESTATEMENT
"Sunrise is near submission of its recast financial information for the
years 2003, 2004 and 2005 to the SEC for its review," said Brad Rush, chief
financial officer. "We look forward to completing this key step in the process
and we are pleased to have done so without compromising the success of our
operations. We believe the majority of our stakeholders - capital partners,
lenders, stockholders, team members and residents - understand that the
restatement relates to the timing of income recognition, and not the existence
of the income itself. We appreciate their support and look forward to bringing
this exhaustive process to a conclusion as quickly as possible."
As previously disclosed, Sunrise is undergoing the restatement of its
financial statements for the years ended December 31, 2003, 2004 and 2005
primarily to adjust the accounting treatment related to ventures that contain
partner preferences and the timing of sale accounting and recognition of income
from sales of real estate.
The cumulative impact of the restatement is anticipated to reduce net
income for all periods impacted, including 1999 through 2005, by approximately
$98 to $107 million. Approximately 50 percent of this amount relates to the
periods from 1999 through 2002 and the remainder during the periods 2003 through
2005. The Company expects the substantial majority of the reduction to be
recorded as income during 2006 through 2008. This income will be recorded
through the extinguishment of obligations and/or the sale or refinance of
impacted ventures.
Sunrise reiterated that the restatement does not affect Sunrise's cash
flow or the cumulative amount of profits and losses it generates from its
venture partnerships or sales of real estate, but rather the timing of the
income it recognizes.
Below is a review of the significant issues that are being addressed in
the restatement as well as recent estimates of net income amounts to be
adjusted:
o Allocation of profits and losses in those ventures in which
Sunrise's partners receive a preference on cash flow. This area of
review has focused on the timing of both the recognition of profits
and losses from ventures and the recognition of development profit
from ventures in which our partners receive a cash flow preference.
Sunrise will account for its equity in earnings of unconsolidated
ventures by a method known as Hypothetical Liquidation at Book Value
(HLBV), rather than on its historical method based upon percentage
of equity ownership. The principal difference between the two
methods is that HLBV presumes liquidation at the depreciated book
value in considering cash flow preferences when allocating income
and losses, while historically Sunrise has allocated profits and
losses on the basis of percentage of equity ownership. The impact of
this restatement will require Sunrise to record additional losses in
prior periods for those ventures with cash flow preferences. The
loss of income from the restatement results in a lower carrying
value of the investment, which in turn, results in greater income
when the venture is recapitalized, refinanced or sold. In the
future, Sunrise will no longer offer capital preferences on cash
flows for its ventures. Based on preliminary management estimates,
the impact of this adjustment is expected to be a reduction of net
income for the periods 1999 through 2005 by approximately $5 million
to $8 million. The substantial majority of this reduction in income
is expected to be recorded as income during the periods 2006 through
2008, when the ventures are sold or refinanced.
o Effect of certain Sunrise guarantees and commitments on timing of
sale accounting and recognition of income upon sale of real estate.
Primarily during the period from 2000 to 2003, Sunrise sold mature
senior living properties to ventures or independent third parties in
connection with transforming the business model to a management
services model. As part of its development program, Sunrise
generally owns real estate during the zoning and permit process
through a 100 percent owned subsidiary and then sells a majority of
the membership interest in the entity to a third-party investor.
Sunrise historically has sold this membership interest at cost and
has recorded as income subsequent development fees paid by the
venture. As Sunrise never intended to develop the projects without a
partner and the legal structure of the transaction was a transfer
and a development fee, the transaction was not considered a sale of
real estate. In connection with some of Sunrise's sales of real
estate, either mature properties or development properties, Sunrise
has provided limited guarantees or commitments. These guarantees or
commitments have included construction completion guarantees,
operating cash flow deficit guarantees to lenders and ventures,
limited guarantees of net operating income (credit support) and
certain limited debt guarantees. The existence of these guarantees,
as well as the amounts funded by Sunrise, have been previously
disclosed in Sunrise's publicly filed financial statements. However,
in accordance with SFAS 66, Accounting for Sale of Real Estate,
based on the nature of these guarantees or commitments, Sunrise is
required to defer income or is unable to immediately record the
transaction as a sale. This deferral of income recognition or delay
in achieving sale accounting does not change the ultimate cash flow
from the transaction or economics of the transaction, but rather the
timing of the recognition of income. Sunrise will recognize this
deferred income when the guarantees or commitments expire or the
ventures are recapitalized, refinanced or sold. In the future,
Sunrise does not expect to offer guarantees or commitments that
would preclude sale accounting. Based on preliminary management
estimates, the impact of this adjustment is expected to be a
reduction of net income for the periods 1999 through 2005 by
approximately $78 million to $82 million. The substantial majority
of this reduction in income is expected to be recorded as income
during the periods 2006 through 2008.
o Capitalization of Indirect Project Costs. As part of Sunrise's
development program, the Company capitalizes both direct and
indirect costs related to the development of real estate projects. A
closer examination of these capitalized indirect costs indicated
that some of the indirect costs should not have been capitalized in
accordance with SFAS 67 Accounting for Costs and Initial Rental
Operations of Real Estate Projects. This change will require Sunrise
to expense additional amounts early on in the development cycle, and
be reimbursed for these costs at the time of sale of the community.
Based on preliminary management estimates, the impact of this
adjustment is expected to be a reduction of net income for the
periods 1999 through 2005 by approximately $7 million to $9 million.
The adjustment results in a lower carrying value of the property,
which will, in turn, result in greater income when the property is
sold. The substantial majority of this reduction in income is
expected to be recorded as income during the periods 2006 through
2008.
o Adjustment to Community Contract Services Reimbursement Revenues and
Expense. The Company will make equal adjustments to both community
contract services revenues and expenses to exclude expenses for
which Sunrise, as manager, is not responsible. Adjustments to the
reimbursed expense and corresponding revenues do not impact the
Company's net income because the adjustment will reduce both revenue
and expense by an equal amount.
o Capitalized Interest. As permitted under SFAS 58 Capitalization of
Interest Cost in Financial Statements That Include Investments
Accounted for by the Equity Method, Sunrise historically has
capitalized interest on our investment in ventures for which the
equity therein is utilized to construct buildings. In the accounting
review, Sunrise found that as the ventures became more complex and
involved multiple projects at various stages of completion, the
Company did not stop capitalizing interest when the first project in
the venture became operational. Instead Sunrise continued
capitalizing interest until the last property in that venture had
been constructed. In conjunction with the restatement, Sunrise will
adjust its financials to cease capitalizing interest on its equity
investment when the first property in a venture portfolio commences
operations. Based on preliminary management estimates, the impact of
this adjustment is expected to be a reduction of net income for the
periods 1999 through 2005 by approximately $3 million. The loss of
income from the restatement results in a lower carrying value of the
investment, which in turn, results in greater income when the
venture is recapitalized, refinanced or sold. The substantial
majority of this increase in expense is expected to be recorded as
income during the periods 2006 through 2008, when the related
ventures are sold or refinanced.
o Other Adjustments. The Company expects to reduce net income for the
periods 1999 through 2005 by approximately $5 million related to
other adjustments during the restatement period. The Company will
restate its financial statements for adjustments that have come to
light as part of its accounting review.
UPDATE ON TIMING OF RESTATEMENT
Sunrise is close to submission of its recast financial information to
the Securities and Exchange Commission (SEC) for its review. This recast
financial information will include a summary of the items to be restated and
their anticipated impact.
As previously announced, the board of directors has appointed a special
independent committee to review recent insider sales of Sunrise stock and the
Company's historical practices related to stock option grants. The special
committee has retained independent outside legal counsel to assist in its
review. The Board's decision to appoint the special committee followed receipt
of a letter from a union shareholder, Service Employees International Union
(SEIU) that was simultaneously sent to news outlets, which resulted in media
coverage and a subsequent request by the SEC for information about matters
raised in the media reports. The Company believes SEIU's actions are designed to
put pressure on management as the union attempts to organize certain of their
team members.
In addition, as previously reported, Sunrise has received comments from
the SEC with respect to certain filings, including its Form 10-K, as originally
filed for the year ended December 31, 2005. Sunrise has responded to the
comments but is unable to predict the timing or outcome of the SEC accounting
staff's review of its response or of its to-be-submitted preliminary recast 2005
financial information. Once this review is completed Sunrise will prepare full
financial statements, including footnotes and disclosures, for completion of
Sunrise's restated 2005 Form 10-K. The filing of this 10-K will also require
completion or substantial completion by the special independent committee of its
review. Sunrise cannot currently predict the timing of these steps.
Sunrise expects to file the 2006 Form 10-Qs and Form 10-K as soon as
possible following the filing of the restated 2005 Form 10-K. Sunrise also is
continuing to cooperate fully with the SEC's information requests and review of
matters raised in the media reports prompted by the letter from Service
Employees International Union (SEIU).
OUTLOOK
Excluding the impact of the accounting restatement, Sunrise's business
has performed in line with expectations during 2006. The Company continues to
experience strong occupancy, increasing average daily rates, the benefits of the
industry leading development pipeline and robust acquisition opportunities.
CONFERENCE CALL INFORMATION
Sunrise will host a conference call today (Tuesday, February 27, 2007)
at 10:00 a.m. ET to discuss the Company's preliminary selected financial and
operating data. Paul Klaassen, chairman and chief executive officer, Thomas
Newell, president, Tiffany Tomasso, chief operating officer and Brad Rush, chief
financial officer, will host the call. The call-in number for the conference
call is (800) 811-0667 or (913) 981-4901 (no password required). Those
interested may also go to the Investor Relations section of the Company's
website, www.sunriseseniorliving.com, to listen to the call. A telephone replay
of the call will be available until March 6, 2007 by dialing (719) 457-0820 or
(888) 203-1112 (passcode: 7022410). The live broadcast of the conference call
will also be available on-line at the Company's website in the Investor
Relations section. The on-line replay will follow shortly after the call and
continue through May 25, 2007.
ABOUT SUNRISE
Sunrise Senior Living, a McLean, Va, based company, employs
approximately 40,000 people. At December 31, 2006, Sunrise operated 440
communities in the United States, Canada, Germany and the United Kingdom, with a
combined capacity for more than 52,000 residents. At year end, Sunrise also had
41 communities under construction in these countries with a combined capacity
for more than 6,000 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 as to the nature of
the restatement adjustments, the timing of completion of the restatement and
filing of Sunrise's restated 2005 Form 10-K, Form 10-Qs for the first three
quarters of 2006 and 2006 Form 10-K, 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; identification of any additional
matters requiring restatement, the length of time needed for Sunrise to complete
the restatement, and for Ernst & Young LLP to complete their procedures for any
reason, including the detection of new errors or adjustments, the time required
to clear comments with the SEC and other risks that are detailed in the
Company's 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, 2006
($ in millions except average daily rate)
COMMUNITIES RESIDENT CAPACITY
-------------------- -------------------
Q4 06 Q4 05 Q4 06 Q4 05
-------- -------- -------- --------
COMMUNITY DATA (1)
Communities managed for third-party owners 193 198 23,462 26,208
Communities in ventures 184 156 20,533 16,485
Communities consolidated 63 61 8,175 7,980
-------- -------- -------- --------
Total communities operated (2) 440 415 52,170 50,673
======== ======== ======== ========
Percentage of Total Operating Portfolio
- ---------------------------------------
Assisted Living 72% 67%
Independent Living 23% 24%
Skilled Nursing 5% 9%
-------- --------
Total 100% 100%
======== ========
Q4 06 Q4 05 % CHANGE
-------- -------- --------
SELECTED OPERATING RESULTS
Same-Community Owned Portfolio
Operating Results (3)
Number of communities 176 176 -
Resident capacity 18,135 18,135 -
Revenue $ 237.6 $ 224.7 5.7%
Community operating expense (4) $ 161.0 $ 152.1 5.8%
Occupancy 93.9% 94.0% -0.1%
Average daily rate (5) $ 148.41 $ 140.13 5.9%
Q4 06 Q4 05 % CHANGE
-------- -------- --------
Selected Total Portfolio Operating Results (6)
- ----------------------------------------------
Total revenue of communities under management $ 576.1 $ 529.7 8.8%
Q1 07 Q2 07 Q3 07 Q4 07
-------- -------- -------- --------
Number of Development Communities to be Opened
- ----------------------------------------------
(Resident Capacity)
-------------------
Consolidated communities (7) 2 (172) - 1 (256) -
Venture communities 4 (297) 7 (704) 3(326) 5 (549)
Managed communities (8) - - 2(439) 4 (1002)
Notes
(1) Community data does not reflect any potential changes in categories
for communities impacted by the accounting review.
(2) During the fourth quarter of 2006, Sunrise opened nine communities
and assumed management of four communities. There were also seven
management contracts terminated in the fourth quarter.
(3) Same-community owned portfolio consists of all communities in which
Sunrise has an ownership interest and that were stabilized in the
fourth quarter of 2006 and 2005. This includes consolidated and
venture communities.
(4) 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.
(5) Average daily rate excludes community fees.
(6) Includes revenue for all communities operated by Sunrise.
(7) Communities have been or are expected to be acquired by a third
party or joint venture prior to opening.
(8) Includes communities developed by Greystone Communities, Inc. a
wholly-owned subsidiary.