No 10-K From Sunrise Senior Living

March 18, 2008

March 18, 2008
My apologies for my absence from this page during the past few weeks. Admittedly, there hasn't been much news, or "fun" news, but that shouldn't be an excuse. But the hibernation is over, and the Bear is back from it's slumber. I'm not referring to Bear as in the opposite of Bull, nor am I referring to that "other" Bear, which has been in the news of late. Actually, I still remain somewhat bullish on the senior care industry, partly because the fundamentals are strong, and partly because in an environment where everything else seems to be out of order, the senior care sector is a pretty good place to be, and to put one's money. The one caveat is that filling new independent living units is going to be tough for the rest of the year in many markets, and some innovation may be necessary.

That being said, all is not well everywhere. Take the case of Sunrise Senior Living. After waiting months.....and months, the final deadline for Sunrise to file its Form 10-K for 2006 with the SEC came and went yesterday, with no 10-K. The stock dropped nearly 6%, which could have been anticipated with no financial statements. But today, a lengthy news release was issued, which has put a date of "by April 15" as the next deadline when we may see the 2006 10-K, with 2007 financial statements by July 31, first quarter 2008 by August 20 and second quarter by September 10. So, we get to see the 2006 10-K and pay our taxes on the same day. Great. The market's reaction? As of this writing the shares dropped another 10% and hit a new 52-week low of $19.62 per share.

Investors could not have been happy to read that the impairment loss on the acquisition of Trinity Hospice is now expected to be $50 million, or that the company has suspended all but one of its senior living condo developments, taking a pre-tax charge of $22.3 million in the first quarter of 2008. Under the category of "strengthening corporate governance," one interesting item was that the Board has decided to develop a CEO succession plan. We don't know if there is anything to read between the lines on that one, although we suspect Paul Klaassen has not been a happy camper trudging to work every day in this environment. Besides, it always makes sense to have a succession plan, but who that successor would be is unclear.

So, the wait continues, and we assume that shares of Sunrise will be de-listed and trade in the Pink Sheets by next week, although we don't know the details of that procedure. One thing that continues to bother us in this whole mess is that the supposed accounting "errors" that are constantly being referred to have been blamed on former personnel of the company who have all been "separated" from the company, but they have not been accused of any actual wrongdoing, or fraud, or cooking the books. Shareholders deserve an explanation from the Board as to what they supposedly did. And, after all is said and done, where were the auditors all these years? Were they blind, incompetent, or both as to what was happening in the books? And were they "errors," or matters of interpretation for little used rules in complicated structures? We don't know, but as we have said before, this is not rocket science and it should not take this long to provide 2006 financial statements, once they discovered what the "error" was. Period.


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