Sunrise Senior Living Files 2006 10-K

March 25, 2008

March 25, 2008
At long last, and just before its shares were going to be de-listed, Sunrise Senior Living filed its 2006 10-K, which included revised numbers for 2005 and 2004. It will still be difficult to value the company until more recent numbers are released, and even then it will not be easy. One of the things that confused us was that the cash balances in the restated 2005 numbers were significantly lower than in the previously reported financial statements. We can understand the revenues and expenses changing as the accounting treatment for property sales, development projects and joint venture agreements was changed, but we always thought cash was cash. I guess we were wrong.

So the good news is that Sunrise's shares will continue to trade on the NYSE, and they jumped 14% on the news of the 10-K filing, but jumped 43% from the low of $16.27 on March 18 after the company initially failed to meet the NYSE deadline. Think of that lucky investor who bought at a two and a half year low! But what are the shares really worth? They are now trading about where they were before the filing deadline, so investors apparently were not impressed with the 2006 numbers, or else relieved, if they can even understand them. The net income per share was a relatively low $0.42 for the year, with the four quarters posting earnings of $0.05, $0.98, $0.33 and ($0.94) per share. Our guess is that no one will be using this for any kind of trend analysis (I know, the GAAP earnings per share is not meaningful for them). The only valuation attempt we have seen comes from Stifel Nicolaus, which lowered its net asset value (NAV) estimate to about $34 per share from $37 per share, which means the current trading value is at a 35% discount to the NAV. They have to rely on many assumptions to come to that number, and we may explore those assumptions in the April issue of The SeniorCare Investor, using a little sensitivity analysis.

The other news that came out was the hiring of Mark Ordan as the Chief Investment and Administrative Officer. He's got a great resume, dominated by starting companies or serving as CEO of companies, and then selling some of them. So.....the fact that in an earlier release it was stated that the Board was working to formalize a CEO succession plan, we have to assume that Mr. Ordan may be that successor, whether to run the company or sell it. As a former CEO of three companies, Mr. Ordan is probably not used to playing second fiddle to anyone for very long. And our guess is that this accounting restatement has taken its toll on Paul Klaassen, and that he may be ready for something else. What that something else may be is anyone's guess.


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