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Sunrise Senior Living Inc. Reports Operating Results (10-K)

February 25, 2011 | About:

Sunrise Senior Living Inc. (SRZ) filed Annual Report for the period ended 2010-12-31.

Sunrise Senior Living Inc. has a market cap of $514.7 million; its shares were traded at around $9.15 with and P/S ratio of 0.3. Hedge Fund Gurus that owns SRZ: Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

The aggregate market value of the Registrants Common Stock held by non-affiliates based upon the closing price of $2.78 per share on the New York Stock Exchange on June 30, 2010 was $144.5 million. Solely for the purposes of this calculation, all directors and executive officers of the registrant are considered to be affiliates.

In 2010, we (i) sold our German communities, (ii) executed debt restructuring agreements with the German lenders, (iii) sold land parcels, (iv) sold our venture interests in certain communities to Ventas, Inc. (Ventas), (v) modified, extended and amended certain venture and management agreements, and (vi) entered into management agreement buyouts. We used the majority of the proceeds from these transactions to reduce outstanding indebtedness. As a result of these management agreement buyouts, we have been terminated as manager on 32 communities. We earned $13.0 million, $17.2 million and $17.7 million of management fees from the 32 terminated communities in 2010, 2009 and 2008, respectively. We will not earn these fees in 2011 and thereafter. We will continue to seek ways to reduce our corporate overhead in an attempt to offset our reduced management fee income.

Our net income attributable to common shareholders in 2010 was $99.1 million which included $63.3 million of buyout fees and $68.5 million of income from discontinued operations. Due to the non-recurring nature of these items, we do not expect to earn this level of net income in the foreseeable future. A significant portion of our ongoing management fee income (refer to Note 19) is heavily concentrated with four business partners.

Our management agreements have initial terms ranging from five to 30 years with various performance conditions and have management fees usually ranging from five to eight percent of community revenues. However, with respect to our amended and restated management agreements with Ventas, our management fee will be reduced to 3.75 percent of community revenues during 2011. In addition, in certain management agreements, we have the opportunity to earn incentive management fees based on monthly or annual operating results. As a result of these management agreement buyouts, we have been terminated as manager on 32 communities. We earned management fees of $13.0 million, $17.2 million and $17.7 million from the 32 terminated communities in 2010, 2009 and 2008, respectively. We will not earn these fees in 2011 and thereafter.

We have investments in 25 ventures with ownership interests ranging from 10% to 50%. Our weighted average ownership percentage in our unconsolidated ventures, including our investments accounted for under the profit sharing method, is approximately 13.6% based on total assets as of December 31, 2010. These ventures own 137 senior living communities. We earned $49.3 million in management fees from these ventures, contributed $5.8 million in capital and received $36.2 million in distributions, including returns of capital, in 2010.

These ventures are leveraged and have total debt of $2.8 billion with near-term scheduled debt maturities of $0.7 billion in 2011. Of this $2.8 billion of debt, there is $0.3 billion of debt that is in default as of December 31, 2010. The debt in the ventures is non-recourse to us with respect to principal payment guarantees and we and our venture partners are working with the venture lenders to obtain covenant waivers and to extend the maturity dates. We have provided operating deficit guarantees to the lenders or ventures with respect to $0.9 billion of the total venture debt. Under the operating deficit agreements, we are obligated to pay operating shortfalls, if any, with respect to these ventures. Any such payments could include amounts arising in part from the ventures obligations for payment of monthly principal and interest on the venture debt. We do not believe that these operating deficit agreements would obligate us to repay the principal balance on such venture debt that might become due as a result of acceleration of such indebtedness or maturity.

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