Sunrise Senior Living Getting Hammered

October 8, 2008

October 8, 2008
Although we know one die-hard short-seller who always thought Sunrise Senior Living was worth less than $10 per share (she doesn't follow the sector anymore), not many others, either in or outside the industry, thought they would see the shares of Sunrise fall to the current levels. On a split adjusted basis, it has been seven years since they have been this low, closing at $9.82 yesterday after hitting a low of $9.37 per share. On October 6, the shares plunged by 29% at one point during the day before recovering a bit for a 19% loss. One would think the name of the company had changed to Sunrise Senior Bank given the price movements on no news.

It is also curious that Sunrise was one of the firms to be put on the restricted list of stocks that couldn't be sold short for a few weeks, since it is not in the finance business and there was no issue of a "crisis of confidence" that would send depositors running (or perhaps, residents). While we know there were plenty of short-sellers when the shares were in the $25 to $40 range, these days we have to wonder. We have been trying to figure out what the market was telling us, if anything, when it took Sunrise down by 29% on Monday. Panic selling? Giving up on it after the accounting stigma had been removed, because more problems seem to be haunting it, like the German fiasco? Fears that the sale of 29 properties to Health Care REIT, and the pile of cash Sunrise will receive, may blow up in the wake of the capital markets crisis? Our guess is that the oil that drove the Sunrise engine, and cash flow, was development, and with the development pipeline slashed, investors may be wondering how profitable the company will be just managing properties. The planned cut in overhead costs will obviously go straight to the bottom line, but that's not a show of strength and won't fuel growth.

Has Sunrise finally hit bottom, in terms of its share price? Most likely, barring an unforeseen negative announcement by the company or another 2,000-point drop in the Dow. But even if the overall market continues its plunge, Sunrise has already lost nearly 70% of its value since the beginning of the year, far more than its peers as well as the overall market. Therefore, we don't see why it should deteriorate further, unless it starts defaulting on its management agreements and then all bets are off.

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