Sunrise Senior Living, Inc. (NYSE: SRZ) today reported financial results and operating data for the first quarter of 2011.
Mark Ordan, Sunrise's Chief Executive Officer, commented on the quarter, "We are pleased by our occupancy, ADR, and NOI growth and we are focused on both overhead and direct cost reductions to increase our margins and profitability. Our execution of our business plan continued nicely in the first quarter and in recent weeks."
2011 First Quarter Results
In the first quarter of 2011, Sunrise reported revenues of $320.7 million as compared to $354.3 million for the first quarter of 2010. Net loss for the first quarter of 2011 was $17.7 million or $0.32 per fully diluted share, as compared to net loss of $16.0 million, or $0.29 per fully diluted share, for the first quarter of 2010.
Adjusted EBITDAR for the first quarter of 2011 was $28.1 million as compared to $30.9 million for the first quarter of 2010. Adjusted EBITDAR 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/(loss) from operations or net income/(loss). This measure is used by management to focus on income generated from the ongoing operations of the Company and to help management assess whether adjustments to current spending decisions are needed. For a reconciliation of this measure, please refer to the attached table "Reconciliation for EBITDA, Adjusted EBITDA and Adjusted EBITDAR."
Cash and Liquidity Update
Sunrise had $41.5 million of unrestricted cash at March 31, 2011. As of March 31, 2011, Sunrise reduced its consolidated debt to $154.7 million, as compared to $163.0 million at December 31, 2010, a reduction of $8.3 million. Sunrise is unable to draw against its current Bank Credit Facility. At March 31, 2011, the outstanding balance was zero on the facility and there were $13.5 million in letters of credit outstanding. These letters of credit are fully cash collateralized.
New Venture Transaction
As previously announced on January 10, 2011, Sunrise closed on the purchase and sale agreement with a wholly owned subsidiary of CNL Lifestyle Properties and an affiliate of Arcapita, which was Sunrise's joint venture partner in 29 Sunrise-managed communities. Sunrise contributed its 10 percent ownership interest in the existing venture in exchange for a 40 percent ownership interest in a new venture organized to own the same portfolio of communities. The portfolio was valued at approximately $630 million (excluding transaction costs). As part of its new venture agreement with CNL, from the start of year three to the end of year six following our January 2011 acquisition, Sunrise will have a buyout option to purchase CNL's remaining sixty percent interest in the venture.
AL US Acquisition
As previously announced on April 19, 2011, Sunrise entered into a purchase and sale agreement with a group of funds affiliated with Morgan Stanley for the purchase by the Company of the funds' 80 percent ownership interest in a joint venture entity, AL US Development Venture, LLC ("AL US"), that owns 15 senior living facilities, for a purchase price of approximately $45 million. After the transaction, Sunrise will own 100 percent of the equity interest in the venture.
It is contemplated that, simultaneously with the closing under the purchase agreement, AL US will seek to enter into a loan modification with the bank lender for AL US ("Lender"), pursuant to which the maturity date will be extended from June 14, 2012 to June 14, 2015. The outstanding principal amount of the loan is $365 million at April 30, 2011. Pursuant to a non-binding summary of terms provided by the Lender to AL US, the loan modification would also provide, among other things, for a partial pay down by AL US of $25 million of the loan and the modification of certain debt service coverage ratio tests and other provisions of the loan documents. The closing of the loan modification is subject to definitive documentation and other customary closing conditions.
Junior Subordinated Convertible Notes
In April 2011, Sunrise issued $86.25 million in aggregate principal amount of its 5.00 percent junior subordinated convertible notes due 2041 in a private offering. Sunrise intends to use the net proceeds to purchase the remaining 80 percent joint venture interest in AL US as described above, to reduce the debt in that venture and for general corporate purposes.
Key Bank Facility Commitment Letter
In April 2011, Sunrise entered into a commitment letter with KeyBank National Association regarding the terms of a new $50 million senior revolving line of credit, the closing of which is subject to customary closing conditions and the preparation of definitive documentation. Sunrise may not be able to agree on definitive documentation regarding the KeyBank Facility, or either party may be unable to meet some or all of the closing conditions.
General and Administrative Expenses
In connection with the Company's ongoing efforts to reduce its general and administrative expenses, Sunrise eliminated 42 positions during the quarter ended March 31, 2011 and incurred $3.2 million of severance costs associated with these terminations. Further, during the quarter ended March 31, 2011, Sunrise's general and administrative expenses included $1.5 million in professional expenses associated with its previously announced venture transactions. Sunrise's first quarter general and administrative expenses also include a $2 million retention bonus for its Chief Investment and Administrative Officer.
Operating Data for First Quarter 2011
- Average unit occupancy for total stabilized properties for the first quarter of 2011 was 88.3 percent, which was up 70 basis points from 87.6 percent for the first quarter of 2010, but down 40 basis points as compared to 88.7 percent for the fourth quarter of 2010. Seasonality and flu season account for the slight dip in occupancy quarter-over-quarter.
- Average daily revenue per occupied unit for total stabilized properties increased 3.8 percent from $200.96 for the first quarter of 2010 to $208.54 for the first quarter of 2011.
- Total stabilized property net operating income for the first quarter of 2011 increased 5.8 percent over the first quarter of 2010 from $114.8 million to $121.4 million. Overall net operating income including lease up properties increased 12.2% for the first quarter of 2011 over the first quarter of 2010.