UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
September 30,
2009
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
From to
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Commission file
number: 1-16499
SUNRISE SENIOR LIVING,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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54-1746596
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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7902 Westpark Drive
McLean, Virginia 22102
(Address of principal executive
offices)
(703) 273-7500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the proceeding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
|
Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
There were 51,565,282 shares of the Registrants
common stock outstanding at October 31, 2009.
SUNRISE
SENIOR LIVING, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2009
TABLE OF CONTENTS
2
SUNRISE
SENIOR LIVING, INC.
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September 30,
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December 31,
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2009
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2008
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|
(In thousands, except per share and share amounts)
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(Unaudited)
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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43,382
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$
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29,513
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Accounts receivable, net
|
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37,265
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|
|
|
54,842
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|
Income taxes receivable
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7,330
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|
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|
30,351
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|
Due from unconsolidated communities
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24,146
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|
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45,255
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Deferred income taxes, net
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14,999
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25,341
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Restricted cash
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31,857
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|
37,392
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Assets held for sale
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88,254
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|
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|
49,076
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|
German assets held for sale
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105,554
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|
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Prepaid insurance
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3,838
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|
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|
9,512
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Prepaid expenses and other current assets
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17,058
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|
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23,626
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Total current assets
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373,683
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304,908
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Property and equipment, net
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419,871
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681,352
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Due from unconsolidated communities
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18,978
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|
|
|
31,693
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|
Intangible assets, net
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|
54,400
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|
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70,642
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Goodwill
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|
|
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39,025
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Investments in unconsolidated communities
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71,161
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|
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66,852
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Investments accounted for under the profit-sharing method
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13,531
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22,005
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Restricted cash
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100,966
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123,772
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Restricted investments in marketable securities
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33,670
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31,080
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Other assets, net
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9,893
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10,228
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|
|
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Total assets
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$
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1,096,153
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$
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1,381,557
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LIABILITIES AND EQUITY
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Current Liabilities:
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Current maturities of debt
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$
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335,749
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$
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377,449
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Outstanding draws on bank credit facility
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68,878
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|
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|
95,000
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Debt relating to German assets held for sale
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200,034
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|
|
|
|
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Accounts payable and accrued expenses
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155,332
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|
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184,144
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|
Liabilities associated with German assets held for sale
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9,908
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|
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Due to unconsolidated communities
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1,883
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|
|
|
914
|
|
Deferred revenue
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|
|
7,398
|
|
|
|
7,327
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|
Entrance fees
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|
|
35,158
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|
|
|
35,270
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|
Self-insurance liabilities
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46,174
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|
|
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35,317
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|
|
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Total current liabilities
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860,514
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|
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735,421
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|
Debt, less current maturities
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19,964
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|
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163,682
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Investment accounted for under the profit-sharing method
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|
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8,332
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|
Guarantee liabilities
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13,777
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|
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13,972
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|
Self-insurance liabilities
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62,947
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|
|
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68,858
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Deferred gains on the sale of real estate and deferred revenues
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17,480
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88,706
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Deferred income tax liabilities
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14,999
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28,129
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Other long-term liabilities, net
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102,442
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126,543
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|
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|
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Total liabilities
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1,092,123
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1,233,643
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Equity:
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Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding
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Common stock, $0.01 par value, 120,000,000 shares
authorized, 51,072,275 and 50,872,711 shares issued and
outstanding, net of 392,961 and 342,525 treasury shares, at
September 30, 2009 and December 31, 2008, respectively
|
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|
511
|
|
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|
509
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|
Additional paid-in capital
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461,945
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|
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|
458,404
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|
Retained loss
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|
(471,407
|
)
|
|
|
(327,056
|
)
|
Accumulated other comprehensive income
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|
|
8,864
|
|
|
|
6,671
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|
|
|
|
|
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Total stockholders (deficit) equity
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|
|
(87
|
)
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|
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138,528
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|
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|
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Noncontrolling interests
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|
4,117
|
|
|
|
9,386
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
4,030
|
|
|
|
147,914
|
|
|
|
|
|
|
|
|
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|
Total liabilities and equity
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|
$
|
1,096,153
|
|
|
$
|
1,381,557
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|
|
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See accompanying notes
3
SUNRISE
SENIOR LIVING, INC.
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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|
2009
|
|
|
2008
|
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2009
|
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|
2008
|
|
(In thousands, except per share amounts)
|
|
(Unaudited)
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|
|
(Unaudited)
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|
|
Operating revenue:
|
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|
|
|
|
|
|
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|
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Management fees
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$
|
26,795
|
|
|
$
|
36,179
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|
|
$
|
84,305
|
|
|
$
|
101,071
|
|
Resident fees for consolidated communities
|
|
|
106,098
|
|
|
|
106,112
|
|
|
|
319,842
|
|
|
|
314,462
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|
Ancillary fees
|
|
|
11,067
|
|
|
|
11,235
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|
|
|
34,148
|
|
|
|
32,197
|
|
Professional fees from development, marketing and other
|
|
|
809
|
|
|
|
12,631
|
|
|
|
11,343
|
|
|
|
33,632
|
|
Reimbursed costs incurred on behalf of managed communities
|
|
|
237,810
|
|
|
|
246,460
|
|
|
|
709,158
|
|
|
|
751,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
382,579
|
|
|
|
412,617
|
|
|
|
1,158,796
|
|
|
|
1,232,520
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community expense for consolidated communities
|
|
|
80,761
|
|
|
|
81,248
|
|
|
|
242,384
|
|
|
|
234,389
|
|
Community lease expense
|
|
|
15,608
|
|
|
|
15,184
|
|
|
|
44,765
|
|
|
|
44,916
|
|
Depreciation and amortization
|
|
|
11,659
|
|
|
|
11,630
|
|
|
|
41,454
|
|
|
|
34,264
|
|
Ancillary expenses
|
|
|
10,378
|
|
|
|
9,480
|
|
|
|
31,880
|
|
|
|
28,339
|
|
General and administrative
|
|
|
34,024
|
|
|
|
37,147
|
|
|
|
91,829
|
|
|
|
116,017
|
|
Development expense
|
|
|
1,797
|
|
|
|
7,995
|
|
|
|
10,462
|
|
|
|
28,417
|
|
Write-off of capitalized project costs
|
|
|
652
|
|
|
|
47,512
|
|
|
|
14,147
|
|
|
|
84,209
|
|
Accounting Restatement, Special Independent Committee inquiry,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation and stockholder litigation
|
|
|
1,108
|
|
|
|
5,072
|
|
|
|
3,541
|
|
|
|
26,436
|
|
Restructuring costs
|
|
|
8,960
|
|
|
|
7,219
|
|
|
|
25,883
|
|
|
|
7,219
|
|
Provision for doubtful accounts
|
|
|
331
|
|
|
|
2,280
|
|
|
|
11,335
|
|
|
|
5,716
|
|
Loss on financial guarantees and other contracts
|
|
|
809
|
|
|
|
975
|
|
|
|
1,463
|
|
|
|
1,703
|
|
Impairment of long-lived assets
|
|
|
9,922
|
|
|
|
|
|
|
|
34,962
|
|
|
|
2,349
|
|
Costs incurred on behalf of managed communities
|
|
|
240,494
|
|
|
|
246,076
|
|
|
|
719,735
|
|
|
|
749,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
416,503
|
|
|
|
471,818
|
|
|
|
1,273,840
|
|
|
|
1,363,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(33,924
|
)
|
|
|
(59,201
|
)
|
|
|
(115,044
|
)
|
|
|
(130,838
|
)
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
572
|
|
|
|
1,000
|
|
|
|
1,428
|
|
|
|
3,973
|
|
Interest expense
|
|
|
(3,661
|
)
|
|
|
(3,997
|
)
|
|
|
(10,809
|
)
|
|
|
(7,937
|
)
|
Gain (loss) on investments
|
|
|
95
|
|
|
|
720
|
|
|
|
904
|
|
|
|
(4,000
|
)
|
Other income (expense)
|
|
|
2,957
|
|
|
|
780
|
|
|
|
4,276
|
|
|
|
(4,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense
|
|
|
(37
|
)
|
|
|
(1,497
|
)
|
|
|
(4,201
|
)
|
|
|
(12,830
|
)
|
Gain on the sale and development of real estate and equity
interests
|
|
|
3,627
|
|
|
|
4,717
|
|
|
|
20,330
|
|
|
|
19,029
|
|
Sunrises share of (loss) earnings and return on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in unconsolidated communities
|
|
|
(4,613
|
)
|
|
|
(15,549
|
)
|
|
|
9,362
|
|
|
|
(7,207
|
)
|
(Loss) income from investments accounted for under the
profit-sharing method
|
|
|
(2,897
|
)
|
|
|
594
|
|
|
|
(9,157
|
)
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before (provision for) benefit from income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes and discontinued operations
|
|
|
(37,844
|
)
|
|
|
(70,936
|
)
|
|
|
(98,710
|
)
|
|
|
(131,751
|
)
|
(Provision for) benefit from income taxes
|
|
|
(1,010
|
)
|
|
|
33,248
|
|
|
|
1,449
|
|
|
|
49,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(38,854
|
)
|
|
|
(37,688
|
)
|
|
|
(97,261
|
)
|
|
|
(82,275
|
)
|
Discontinued operations, net of tax
|
|
|
(5,523
|
)
|
|
|
(32,035
|
)
|
|
|
(46,959
|
)
|
|
|
(54,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(44,377
|
)
|
|
|
(69,723
|
)
|
|
|
(144,220
|
)
|
|
|
(137,220
|
)
|
Less: Net (income) loss attributable to noncontrolling interests
|
|
|
(25
|
)
|
|
|
1,057
|
|
|
|
(131
|
)
|
|
|
3,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(44,402
|
)
|
|
$
|
(68,666
|
)
|
|
$
|
(144,351
|
)
|
|
$
|
(133,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
$
|
(0.77
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(1.93
|
)
|
|
$
|
(1.64
|
)
|
Discontinued operations, net of tax
|
|
|
(0.11
|
)
|
|
|
(0.61
|
)
|
|
|
(0.92
|
)
|
|
|
(1.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.88
|
)
|
|
$
|
(1.36
|
)
|
|
$
|
(2.85
|
)
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
$
|
(0.77
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(1.93
|
)
|
|
$
|
(1.64
|
)
|
Discontinued operations, net of tax
|
|
|
(0.11
|
)
|
|
|
(0.61
|
)
|
|
|
(0.92
|
)
|
|
|
(1.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.88
|
)
|
|
$
|
(1.36
|
)
|
|
$
|
(2.85
|
)
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
4
SUNRISE
SENIOR LIVING, INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
(Unaudited)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(144,220
|
)
|
|
$
|
(137,220
|
)
|
Less: Net loss from discontinued operations
|
|
|
46,959
|
|
|
|
54,945
|
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
Gain on sale and development of real estate and equity interests
|
|
|
(20,330
|
)
|
|
|
(19,029
|
)
|
Loss (income) from investments accounted for under the
profit-sharing method
|
|
|
9,157
|
|
|
|
(95
|
)
|
(Gain) loss on investments
|
|
|
(904
|
)
|
|
|
4,000
|
|
Unrealized gain on interest rate swap
|
|
|
|
|
|
|
(313
|
)
|
Impairment of long-lived assets
|
|
|
34,962
|
|
|
|
2,349
|
|
Sunrises share of (earnings) loss and return on investment
in unconsolidated communities
|
|
|
(9,362
|
)
|
|
|
7,207
|
|
Loss on financial guarantees and other contracts
|
|
|
1,463
|
|
|
|
1,703
|
|
Distributions of earnings from unconsolidated communities
|
|
|
15,438
|
|
|
|
12,690
|
|
Provision for doubtful accounts
|
|
|
11,335
|
|
|
|
5,716
|
|
Benefit from deferred income taxes
|
|
|
(2,788
|
)
|
|
|
(76,083
|
)
|
Depreciation and amortization
|
|
|
41,454
|
|
|
|
34,264
|
|
Amortization of financing costs, debt discount and guarantee
liabilities
|
|
|
1,007
|
|
|
|
1,815
|
|
Write-off of capitalized project costs
|
|
|
14,147
|
|
|
|
84,209
|
|
Stock-based compensation
|
|
|
3,480
|
|
|
|
2,490
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
7,521
|
|
|
|
(5,031
|
)
|
Due from unconsolidated communities
|
|
|
19,601
|
|
|
|
(4,839
|
)
|
Prepaid expenses and other current assets
|
|
|
11,312
|
|
|
|
36,683
|
|
Captive insurance restricted cash
|
|
|
891
|
|
|
|
7,639
|
|
Other assets
|
|
|
21,946
|
|
|
|
(4,120
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(28,989
|
)
|
|
|
(79,473
|
)
|
Entrance fees
|
|
|
(112
|
)
|
|
|
159
|
|
Self-insurance liabilities
|
|
|
5,135
|
|
|
|
(658
|
)
|
Guarantee liabilities
|
|
|
(125
|
)
|
|
|
(34,924
|
)
|
Deferred gains on the sale of real estate and deferred revenues
|
|
|
560
|
|
|
|
(460
|
)
|
Net cash used in discontinued operations
|
|
|
(753
|
)
|
|
|
(10,636
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
38,785
|
|
|
|
(117,012
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(17,226
|
)
|
|
|
(167,162
|
)
|
Net funding for condominium project
|
|
|
(2,927
|
)
|
|
|
(49,323
|
)
|
Dispositions of assets
|
|
|
8,595
|
|
|
|
54,402
|
|
Change in restricted cash
|
|
|
7,641
|
|
|
|
59,575
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
(102,800
|
)
|
Proceeds from short-term investments
|
|
|
500
|
|
|
|
62,800
|
|
Increase in advances to communities under development and notes
receivable
|
|
|
(74,589
|
)
|
|
|
(136,387
|
)
|
Proceeds from advances to communities under development and
notes receivable
|
|
|
83,637
|
|
|
|
154,742
|
|
Investments in unconsolidated communities
|
|
|
(4,820
|
)
|
|
|
(16,869
|
)
|
Distributions of capital (to) from unconsolidated communities
|
|
|
(142
|
)
|
|
|
6,655
|
|
Consolidation of German communities
|
|
|
|
|
|
|
25,557
|
|
Net cash provided by (used in) discontinued operations
|
|
|
3,711
|
|
|
|
(41,096
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
4,380
|
|
|
|
(149,906
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
206
|
|
|
|
4,165
|
|
Additional borrowings of debt
|
|
|
3,614
|
|
|
|
194,826
|
|
Repayment of debt
|
|
|
(7,181
|
)
|
|
|
(12,096
|
)
|
Net repayments on Bank Credit Facility
|
|
|
(24,800
|
)
|
|
|
(5,000
|
)
|
Financing costs paid
|
|
|
(65
|
)
|
|
|
(2,465
|
)
|
Distributions to noncontrolling interests
|
|
|
(1,070
|
)
|
|
|
(967
|
)
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
3,080
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(29,296
|
)
|
|
|
181,543
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
13,869
|
|
|
|
(85,375
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
29,513
|
|
|
|
138,212
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
43,382
|
|
|
$
|
52,837
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
Sunrise
Senior Living, Inc.
(Unaudited)
|
|
1.
|
Interim
Financial Presentation
|
Our accompanying unaudited consolidated financial statements
include all normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the
results for the three and nine month periods ended
September 30, 2009 and 2008 pursuant to the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with
U.S. Generally Accepted Accounting Principles
(GAAP) have been condensed or omitted pursuant to
such rules and regulations. These consolidated financial
statements should be read together with our consolidated
financial statements and the notes thereto for the year ended
December 31, 2008 included in our 2008
Form 10-K,
as amended on March 31, 2009. Operating results are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2009. We have reclassified
certain amounts to conform with the current period presentation.
The accompanying consolidated financial statements have been
prepared on the basis of us continuing as a going concern. In
our Annual Report on
Form 10-K
for the year ended December 31, 2008 filed with the
Securities and Exchange Commission (SEC) on
March 2, 2009, we disclosed that there was substantial
doubt regarding our ability to continue as a going concern. In
response, we have undertaken or expect to commence certain
efforts to reduce expenses and preserve liquidity including:
(i) extending the term of our Bank Credit Facility to
December 2, 2010 (subject to certain conditions as
discussed more fully in Note 6); (ii) seeking to
reduce operating costs; (iii) seeking to restructure the
terms of our other indebtedness including extension of scheduled
maturity dates; and (iv) pursuing sales of selected assets.
No assurance can be given that we will be successful in
achieving any of these efforts.
|
|
2.
|
New and
Future Accounting Standards
|
New
Accounting Standards
We adopted provisions of Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) Fair Value Measurements Topic for
non-financial assets and liabilities on January 1, 2009. We
had previously adopted the other provisions of fair value
measurement for financial assets and liabilities on
January 1, 2008. The provisions are required to be applied
prospectively as of the beginning of the first fiscal year in
which the provisions are applied. Adoption of these provisions
of the ASC did not have a material impact on our reported
consolidated financial position, results of operations or cash
flows.
We adopted provisions of the ASC Business Combination Topic on
January 1, 2009. These provisions require most identifiable
assets, liabilities, non-controlling interests and goodwill
acquired in business combinations to be recorded at full
fair value. Transaction costs are no longer be included in
the measurement of the business acquired and instead should be
expensed as incurred. These provisions apply prospectively to
business combinations occurring on or after 2009.
We adopted provisions of the ASC Consolidation Topic on
January 1, 2009. These provisions establish new accounting
and reporting requirements for a non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary.
Specifically, these provisions require the recognition of a
non-controlling interest (minority interest) as equity in the
consolidated financial statements separate from the
parents equity. The amount of net income attributable to
the non-controlling interest is now included in consolidated net
income on the face of the income statement. The provisions also
clarify that changes in a parents ownership interest in a
subsidiary that do not result in deconsolidation are equity
transactions. In addition, the provisions require that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the
fair value of the non-controlling equity investment on the
deconsolidation date. The provisions also include expanded
disclosure requirements regarding the interests of the parent
and its non-controlling interest. Adoption of the provisions
under
6
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
the Consolidation Topic regarding non-controlling interests on
January 1, 2009 did not have a material impact on our
reported consolidated financial position, results of operations
or cash flows.
On January 1, 2009, we adopted provisions of the ASC
Derivative and Hedging Topic which provides guidance on certain
disclosures about credit derivatives and certain guarantees.
Adoption of these provisions did not have a material impact on
our reported consolidated financial position, results of
operations or cash flows.
We adopted provisions of the ASC Investments Equity
Method and Joint Venture Topic effective on January 1,
2009. The intent of these provisions is to clarify the
accounting for certain transactions and impairment
considerations related to equity method investments. The
adoption of these provisions did not have a material impact on
our reported consolidated financial position, results of
operations or cash flows.
We adopted each of the following provisions to the ASC in the
second quarter of 2009. These provisions did not have a material
impact on our reported consolidated financial position, results
of operations or cash flows.
In April 2009, we adopted provisions of the ASC
Investments Debt and Equity Securities Topic which
modifies the
other-than-temporary
impairment guidance for debt securities through increased
consistency in the timing of impairment recognition and enhanced
disclosures related to the credit and non-credit components of
impaired debt securities that are not expected to be sold. In
addition, increased disclosures are required for both debt and
equity securities regarding expected cash flows, credit losses,
and an aging of securities with unrealized losses.
In April 2009, we adopted provisions of the ASC Financial
Instruments Topic which requires fair value disclosures for
financial instruments that are not reflected in the consolidated
balance sheets at fair value. Prior to these provisions, the
fair values of those assets and liabilities were disclosed only
once each year. With the adoption of these provisions, we are
now required to disclose this information on a quarterly basis,
providing quantitative and qualitative information about fair
value estimates for all financial instruments not measured in
the consolidated balance sheets at fair value.
In April 2009, we adopted provisions of the ASC Fair Value
Measurements Topic which clarifies the methodology used to
determine fair value when there is no active market or where the
price inputs being used represent distressed sales. These
provisions also reaffirm the objective of fair value
measurement, which is to reflect how much an asset would be sold
for in an orderly transaction. They also reaffirm the need to
use judgment to determine if a formerly active market has become
inactive, as well as to determine fair values when markets have
become inactive.
In May 2009, we adopted provisions of the ASC Subsequent Events
Topic. These provisions establish general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued or available to be issued.
In the third quarter of 2009, we adopted the ASC as the single
source of authoritative nongovernmental generally accepted
accounting principles. The adoption of the ASC did not have a
material impact on our consolidated financial position, results
of operations or cash flows.
Future
Adoption of Accounting Standards
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167). SFAS 167 requires an
analysis to be performed to determine whether a variable
interest entity gives an enterprise a controlling financial
interest in a variable interest entity. The analysis identifies
the primary beneficiary of a variable interest entity.
Additionally, SFAS 167 requires ongoing assessments as to
whether an enterprise is the primary beneficiary and eliminates
the quantitative approach of FIN 46(R) in determining the
primary beneficiary. SFAS 167 is effective for us
January 1, 2010. We are currently evaluating whether
SFAS 167 will have a material impact on our consolidated
financial position, results of operations or cash flows.
7
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
In August 2009, the FASB issued Accounting Standards Update
(ASU)
2009-05,
Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value
(ASU
2009-05).
ASU 2009-05
amends the Fair Value Measurement Topic by providing additional
guidance clarifying the measurement of liabilities at fair value
including how the price of a traded debt security should be
considered in estimating the fair value of the issuers
liability. ASU
2009-05 is
effective for us for the fourth quarter of 2009. We are
currently evaluating whether ASU
2009-05 will
have a material impact on our consolidated financial position,
results of operations or cash flows.
In October 2009, the FASB issued ASU
2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
It requires an entity to allocate arrangement consideration at
the inception of an arrangement to all of its deliverables based
on their relative selling prices. It eliminated the use of the
residual method of allocation and requires the
relative-selling-price method in all circumstances in which an
entity recognized revenue for an arrangement with multiple
deliverables subject to ASU
605-25. ASU
2009-13 is
effective for us for the year beginning January 1, 2011. We
are currently evaluating whether ASU
2009-13 will
have a material impact on our consolidated financial position,
results of operations or cash flows.
|
|
3.
|
Fair
Value Measurements
|
Fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
In order to increase consistency and comparability in fair value
measurements, the ASC Fair Value Measurements Topic establishes
a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad
levels. These levels, in order of highest priority to lowest
priority, are described below:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for
assets or liabilities.
Level 2: Observable prices that are based
on inputs not quoted on active markets, but corroborated by
market data.
Level 3: Unobservable inputs are used
when little or no market data is available.
Auction
Rate Securities, Marketable Securities and Interest Rate
Caps
The following table details the auction rate securities,
marketable securities and interest rate caps measured at fair
value as of September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
September 30,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Asset
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Auction rate securities
|
|
$
|
31,484
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,484
|
|
Marketable securities
|
|
|
2,186
|
|
|
|
2,186
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,734
|
|
|
$
|
2,186
|
|
|
$
|
64
|
|
|
$
|
31,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009, we held investments in five Student
Loan Auction-Rate Securities (SLARS), four with a
face amount of $8.0 million and one with a face amount of
$6.4 million, for a total of $38.4 million. These
SLARS are issued by non-profit corporations and their proceeds
are used to purchase portfolios of student loans. The SLARS
holders are repaid from cash flows resulting from the student
loans in a trust estate. The student loans are 98% guaranteed by
the Federal government against default. The interest rate for
these five SLARS are reset every 7 to 35 days. The interest
rates at September 30, 2009 ranged from 0.63% to 0.88%.
Uncertainties in the credit markets have prevented us and other
investors from liquidating our holdings of auction rate
securities in recent
8
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
auctions. We classify our investments in auction rate securities
as trading securities and carry them at fair value. The fair
value of the securities at September 30, 2009 was
determined to be $31.5 million and we recorded unrealized
gains (losses) of $0.1 million and $0.7 million for
the three months ended September 30, 2009 and 2008,
respectively, and $0.9 million and $(4.0) million for
the nine months ended September 30, 2009 and 2008,
respectively.
Due to the lack of actively traded market data, the valuation of
these securities was based on Level 3 unobservable inputs.
These inputs include an analysis of sales discounts realized in
the secondary market, as well as assumptions about risk after
considering recent events in the market for auction rate
securities. The discount range of SLARS in the secondary market
ranged from 16% to 38% at September 30, 2009 with an
average SLARS discount on closed deals of 23% at
September 30, 2009.
In October 2009, $8.0 million of our auction rate
securities were called and redeemed at par. These securities
were carried at an estimated fair value of $6.4 million on
our consolidated balance sheet as of September 30, 2009. As
a result, we will recognize a gain on the redemption of those
securities of $1.6 million in the fourth quarter of 2009.
The proceeds from the disposition of these securities will be
reflected as restricted cash as it relates to our insurance
reserves.
The following table reconciles the beginning and ending balances
for the auction rates securities using fair value measurements
based on significant unobservable inputs for the nine months
ended September 30, 2009 (in thousands):
|
|
|
|
|
|
|
Auction
|
|
|
|
Rate Securities
|
|
|
Beginning balance - 1/1/09
|
|
$
|
31,080
|
|
Total gains
|
|
|
904
|
|
Sales
|
|
|
(500
|
)
|
|
|
|
|
|
Ending balance - 9/30/09
|
|
$
|
31,484
|
|
|
|
|
|
|
At September 30, 2009, we have an investment in marketable
securities related to a consolidated entity in which we have
control but no ownership interest. The fair value of the
investment is approximately $2.2 million. The valuation was
based on Level 1 data.
At September 30, 2009, we have interest rate caps relating
to mortgage debt for 16 of our wholly owned communities. The
fair value of the interest rate caps is approximately
$0.1 million at September 30, 2009. The valuation was
based on Level 2 prevailing market data.
German
Assets Held for Sale, Assets Held for Sale and Assets Held and
Used
German
Assets Held for Sale
The German assets held for sale at September 30, 2009
consists of the following (in thousands):
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
Cash and cash equivalents
|
|
$
|
897
|
|
Accounts receivable, net
|
|
|
3,216
|
|
Property and equipment, net
|
|
|
101,032
|
|
Prepaid and other assets
|
|
|
409
|
|
|
|
|
|
|
German assets held for sale
|
|
$
|
105,554
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
9,908
|
|
|
|
|
|
|
9
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Assets
Held for Sale
Other assets held for sale with a lower of carrying value or
fair value less estimated costs to sell consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
79,049
|
|
|
$
|
46,018
|
|
Closed community
|
|
|
2,514
|
|
|
|
|
|
Condominium units
|
|
|
6,691
|
|
|
|
3,058
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
88,254
|
|
|
$
|
49,076
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of 2009, we recorded our land parcels held
for sale at the lower of their carrying value or fair value less
estimated costs to sell. We used appraisals, market knowledge
and broker opinions of value to determine fair value. As the
carrying value of some of the assets was in excess of the fair
value less estimated costs to sell, we recorded a charge of
$1.3 million which is included in operating expenses under
impairment of long-lived assets.
In the third quarter of 2009, all of the criteria were met for
additional parcels of land, two closed construction sites and a
closed property to be classified as assets held for sale. We
recorded them at the lower of their carrying value or fair value
less estimated costs to sell. We used appraisals, market
knowledge and brokers opinions of value to determine fair value.
As the carrying value of some of the assets was in excess of the
fair value less estimated costs to sell, we recorded a charge of
$0.8 million which is included in operating expenses under
impairment of long-lived assets.
Assets
Held and Used
In the second quarter of 2009, we recorded impairment charges of
$15.8 million related to certain operating communities that
are held and used as the carrying value of these assets was in
excess of the fair value. We also recorded impairment charges of
$7.9 million for certain land parcels held and used as the
carrying value of these assets was in excess of the fair value.
We used appraisals and recent sales to estimate fair value of
all of these assets. The charges are included in operating
expenses under impairment of long-lived assets.
In the third quarter of 2009, we recorded impairment charges of
$9.1 million related to certain operating communities that
are held and used as the carrying value of these assets was in
excess of the fair value. We used an appraisal for one community
and applied a cost of capital rate to the communities
average net operating income to arrive at fair value for all the
other communities. The impairment charge is included in
operating expenses under impairment of long-lived assets.
10
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Fair
Value Measurements of German Assets Held for Sale, Assets Held
for Sale and Assets Held and Used
Upon designation as assets held for sale, we recorded the assets
at the lower of carrying value or their fair value less
estimated costs to sell. The following table details only assets
held for sale and assets held and used where fair value was
lower than the carrying value and an impairment loss was
recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
September 30,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Impairment
|
|
Asset
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Losses
|
|
|
German assets held for sale
|
|
$
|
82,669
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
82,669
|
|
|
$
|
(52,414
|
)
|
Other assets held for sale
|
|
|
37,301
|
|
|
|
|
|
|
|
|
|
|
|
37,301
|
|
|
|
(2,142
|
)
|
Assets held and used
|
|
|
61,659
|
|
|
|
|
|
|
|
|
|
|
|
61,659
|
|
|
|
(32,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
181,629
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
181,629
|
|
|
$
|
(87,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Fair Value Information
Cash equivalents, accounts receivable, notes receivable,
accounts payable and accrued expenses, equity investments and
other current assets and liabilities are carried at amounts
which reasonably approximate their fair values. At
September 30, 2009, the carrying amount of our cost method
investment is $5.5 million. The fair value of the cost
method investment was not estimated as there were no events or
changes in circumstances that may have a significant adverse
effect on the fair value of the investment, and we determined
that it is not practicable to estimate the fair value of the
investment.
The fair value of our debt has been estimated based on current
rates offered for debt with the same remaining maturities and
comparable collateralizing assets. Changes in assumptions or
methodologies used to make estimates may have a material effect
on the estimated fair value. We have applied Level 2 and
Level 3 type inputs to determine the estimated fair value
of our debt. Note that debt is reflected on the face of our
consolidated balance sheets at the stated value, except for the
German debt which was initially recorded at fair value at
September 1, 2008. The following table details by category
the principal amount, the average interest rate and the
estimated fair market value of our debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
|
Debt
|
|
|
Debt
|
|
|
Total Carrying Value
|
|
$
|
5,270
|
|
|
$
|
619,355
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate
|
|
|
6.8
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
Estimated Fair Market Value
|
|
$
|
5,489
|
|
|
$
|
530,037
|
|
|
|
|
|
|
|
|
|
|
Disclosure about fair value of financial instruments is based on
pertinent information available to us at September 30, 2009.
|
|
4.
|
Investments
in Unconsolidated Communities
|
During the first quarter of 2009, a U.K. venture in which we
have a 20% interest sold three communities to a different U.K.
venture in which we have a 10% interest. As a result of the
gains on these asset sales recorded in the venture, we recorded
earnings in unconsolidated communities of $19.0 million.
When the first U.K. venture was formed, we established a bonus
pool in respect to the venture for the benefit of employees and
others responsible for the success of the venture. At the time,
we agreed with our venture partner that after certain return
thresholds were met, we would each reduce our percentage
interests in the venture distributions with such excess to be
used to fund
11
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
these bonus pools. During the first quarter of 2009, we recorded
bonus expense of $1.1 million with respect to the bonus
pool relating to the U.K. venture. We did not record any
additional bonus expense related to this venture in the second
and third quarters of 2009.
In March 2009, a venture in which we have a 20% interest
received a notice of default from its lender for alleged
violation of financial covenants and other matters. Based on the
notice of default from the lender and poor rental experience in
the venture, we considered our equity to be other than
temporarily impaired and wrote off the balance,
$1.1 million, in March 2009. In addition, based on
discussions with the lender as of March 31, 2009, we
believed that the lender did not intend to fund to the venture
the amount that would be necessary to repay our receivables and
accordingly, any repayment of our receivables from advances we
made to the venture would need to be from excess proceeds from
the ultimate sale of the community after the loan has been
repaid. We did not believe that collectability of our receivable
was reasonably assured and we wrote-down the carrying value of
our receivable, $5.4 million, to zero in March 2009. We
made additional advances of $0.8 million in the second and
third quarters of 2009 which are fully reserved at
September 30, 2009. In the third quarter of 2009, the
residents were relocated to other senior living facilities and
the facility was shut down. The lender is in the process of
foreclosing on the asset.
Summarized
S-X
Rule 3-09
Income Statement Information
The following is summarized income statement information for an
equity investee, PS UK Investment (Jersey) LP, a U.K. venture in
which we own a 20% interest, for which annual audited financial
statements are expected to be required for the year 2009 under
S-X
Rule 3-09
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss)
|
|
|
|
|
|
|
Total
|
|
|
Income Before
|
|
|
Net
|
|
|
|
Operating
|
|
|
Provision for
|
|
|
(loss)
|
|
|
|
Revenues
|
|
|
Income Taxes
|
|
|
Income
|
|
|
Three Months Ended September 30, 2009
|
|
$
|
4,115
|
|
|
$
|
(1,411
|
)
|
|
$
|
(1,411
|
)
|
Three Months Ended September 30, 2008
|
|
|
3,910
|
|
|
|
(6,809
|
)
|
|
|
(6,809
|
)
|
Nine Months Ended September 30, 2009
|
|
|
9,869
|
|
|
|
18,414
|
|
|
|
18,414
|
|
Nine Months Ended September 30, 2008
|
|
|
14,761
|
|
|
|
15,634
|
|
|
|
15,634
|
|
The venture is treated as a partnership for federal income tax
purposes. No provision for federal income taxes is made since
taxable income or loss passes through and is reportable by the
ventures members.
|
|
5.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable and accrued expenses
|
|
$
|
41,272
|
|
|
$
|
66,760
|
|
Accrued salaries and bonuses
|
|
|
38,403
|
|
|
|
30,123
|
|
Accrued employee health and other benefits
|
|
|
39,676
|
|
|
|
47,685
|
|
Accrued legal, audit and professional fees
|
|
|
6,719
|
|
|
|
8,933
|
|
Other accrued expenses
|
|
|
29,262
|
|
|
|
30,643
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
155,332
|
|
|
$
|
184,144
|
|
|
|
|
|
|
|
|
|
|
12
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
|
|
6.
|
Bank
Credit Facility and Debt
|
Bank
Credit Facility
On March 23, 2009, we entered into the Eleventh Amendment
to our Bank Credit Facility. The Eleventh Amendment, among other
matters, suspended until May 1, 2009 the obligation of the
lenders under the Bank Credit Facility to (1) advance any
additional proceeds of the loans to the borrowers under the Bank
Credit Facility or (2) issue any new letters of credit.
However, the lenders agreed to renew certain scheduled
outstanding letters of credit in accordance with the annual
renewal provisions of such letters of credit. The Eleventh
Amendment also waived compliance with certain financial
covenants of the Bank Credit Facility through April 29,
2009 and the applicability of certain cross-default provisions
through April 30, 2009.
The Eleventh Amendment also permanently reduced the aggregate
commitments of the lenders under the Bank Credit Facility from
$160.0 million to $118.0 million (outstanding
borrowings of $93.5 million plus outstanding letters of
credit of $24.5 million at the time of the Eleventh
Amendment).
On April 28, 2009, we entered into the Twelfth Amendment to
the Bank Credit Facility. The significant terms include:
|
|
|
|
|
waiver of all existing financial covenants through
December 2, 2009, the maturity date of the Bank Credit
Facility;
|
|
|
|
agreement for renewal of existing letters of credit;
|
|
|
|
an amendment fee of $0.5 million;
|
|
|
|
authorization to consummate certain transactions;
|
|
|
|
restriction on the disposition of assets except to permit the
transfer of scheduled assets;
|
|
|
|
requirement to maintain minimum cash balance as of the last day
of each month and of not less than $5 million at any time;
|
|
|
|
a cash sweep as of the last day of October and November 2009 to
reduce principal equal to the greater of consolidated cash in
excess of $35 million or $2 million; and
|
|
|
|
a permanent reduction of the commitment after an
agreed-upon
repayment of the outstanding balance from dispositions consented
to by our lenders, federal income tax refunds of
$20.8 million and payments received from the cash sweep.
|
On October 19, 2009, we entered into the Thirteenth
Amendment to the Bank Credit Facility. The significant terms
include:
|
|
|
|
|
an extension of the maturity date from December 2, 2009 to
December 2, 2010;
|
|
|
|
renewal of existing letters of credit;
|
|
|
|
an amendment fee of $0.5 million of which $250,000 was paid
on October 19, 2009 and $250,000 to be paid upon the
earlier of the sale of properties or January 4, 2010;
|
|
|
|
principal payment of $6.0 million which was paid on
October 19, 2009;
|
|
|
|
principal payments previously due on October 31 and
November 30, 2009 are no longer due;
|
|
|
|
modifies the minimum liquidity covenant to not less than
$10.0 million of unrestricted cash on hand the last day of
the month;
|
13
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
|
|
|
|
|
modifies the restriction on the disposal of assets to permit
disposition of certain assets as long as 50% of the net sale
proceeds are allocated to the lenders;
|
|
|
|
the proceeds from the pending sale of 21 properties are
allocated as follows:
|
|
|
|
|
|
a principal payment of $25 million;
|
|
|
|
$20 million deposited into a collateral account for the
benefit of other creditors;
|
|
|
|
either cause a return of $3.7 million in letters of credit
or make a principal payment of that same amount;
|
|
|
|
|
|
if the pending sale of the 21 properties does not close by
June 30, 2010, we will either make a principal payment of
$28.7 million or make a $5 million principal payment,
pay an additional $1 million extension fee and grant
mortgage liens junior to existing mortgages or a perfected first
priority pledge of and security interest in, the equity
interests in the entities owning 16 certain properties (the
granting of such mortgages of security interest is subject to
the existing mortgage lenders consent). If we are unable
to deliver these items, the Bank Credit Facility will be in
default and become due and payable; and
|
|
|
|
a permanent reduction of the commitment after future principal
repayments or cancellation of letters of credit.
|
We have no borrowing availability under the Bank Credit
Facility, and we have significant scheduled debt maturities in
2009 and 2010 and significant long-term debt that is in default.
We are endeavoring to extend debt maturity dates, re-finance
debt and obtain waivers from applicable lenders. We are engaged
in discussions with various venture partners and third parties
regarding the sale of certain assets with the purpose of
increasing liquidity and reducing obligations to enable us to
continue operations.
In April 2009, we received federal income tax refunds of
$20.8 million which was used to pay down the Bank Credit
Facility and $1 million of the proceeds from the sale of
our equity interest and receivable from the Aston Gardens
venture was also used to pay down the Bank Credit Facility. In
June 2009, $2.5 million of proceeds from an agreement with
Trinitys prior owners (Note 12) was used to pay
down the Bank Credit Facility. At September 30, 2009, the
outstanding borrowings under the Bank Credit Facility were
$68.9 million. On October 19, 2009, after paying
$6.0 million of principal in connection with the Thirteenth
Amendment, the outstanding borrowings under the Bank Credit
Facility were $62.9 million.
Debt
At September 30, 2009, we had $624.6 million of
outstanding debt with a weighted average interest rate of 3.13%
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Community mortgages
|
|
$
|
248,955
|
|
|
$
|
241,851
|
|
German communities(1)
|
|
|
200,034
|
|
|
|
185,901
|
|
Bank Credit Facility
|
|
|
68,878
|
|
|
|
95,000
|
|
Land loans
|
|
|
34,327
|
|
|
|
37,407
|
|
Other
|
|
|
28,286
|
|
|
|
30,655
|
|
Variable interest entity
|
|
|
23,225
|
|
|
|
23,905
|
|
Margin loan (auction rate securities)
|
|
|
20,920
|
|
|
|
21,412
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
624,625
|
|
|
$
|
636,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The face amount of the debt related to the German communities
was $219.3 million at September 30, 2009. |
14
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Of the outstanding debt we had $5.3 million of fixed-rate
debt with a weighted average interest rate of 6.82% and
$619.3 million of variable rate debt with a weighted
average interest rate of 3.10%.
Debt that is in default at September 30, 2009 consists of
the following (in thousands):
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
German communities(1)
|
|
$
|
200,034
|
|
Community mortgages
|
|
|
147,930
|
|
Variable interest entity
|
|
|
23,225
|
|
Land loans
|
|
|
12,420
|
|
Other
|
|
|
28,286
|
|
|
|
|
|
|
|
|
$
|
411,895
|
|
|
|
|
|
|
|
|
|
(1) |
|
The face amount of the debt related to the German communities
was $219.3 million at September 30, 2009. |
We are working with our lenders to either re-schedule certain of
these obligations or obtain waivers.
For debt that is not in default, we have scheduled debt
maturities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Qtr.
|
|
|
2nd Qtr.
|
|
|
3rd Qtr.
|
|
|
4th Qtr.
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Bank Credit Facility(1)
|
|
$
|
68,878
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
68,878
|
|
Community mortgages
|
|
|
39,796
|
|
|
|
40,573
|
|
|
|
195
|
|
|
|
497
|
|
|
|
198
|
|
|
|
19,766
|
|
|
|
101,025
|
|
Land loans
|
|
|
21,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,907
|
|
Margin loan (auction rate securities)
|
|
|
20,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
151,501
|
|
|
$
|
40,573
|
|
|
$
|
195
|
|
|
$
|
497
|
|
|
$
|
198
|
|
|
$
|
19,766
|
|
|
$
|
212,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of 10/19/09, maturity date changed to 12/2/10 (subject to
certain conditions, refer to discussion above). |
Sunrise ventures have total debt of $4.2 billion with
near-term scheduled debt maturities of $69.7 million in
2009 and $576.1 million in 2010. Of this $4.2 billion
of debt, there is long-term debt that is in default of
$1.4 billion. 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. However, in certain cases, we have provided
operating deficit and completion guarantees to the lenders or
ventures. We have minority non-controlling interests in these
ventures. See Note 12 of the Notes to Consolidated
Financial Statements of our 2008
Form 10-K,
as amended, for a list of our ventures and our related ownership
interest.
|
|
7.
|
Gains on
the Sale of Real Estate
|
We accounted for the sale of three communities in 2004 under the
profit-sharing method of accounting as we provided a guarantee
to make monthly payments to the buyer equal to the amount by
which a net operating income target exceeded actual net
operating income for the communities for an extended period of
time. The guarantee expired in the second quarter of 2009 and we
recorded a gain of approximately $8.9 million. In addition,
we recognized gains of approximately $2.3 million and
$9.9 million during the three and nine months ended
September 30, 2009, respectively, relating to transactions
which recognition of gain had been previously deferred due to
various forms of continuing involvement and are being accounted
for under the basis of performance method of accounting.
15
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
The (provision for) benefit from income taxes related to
continuing operations was $(1.0) million and
$33.2 million for the three months ended September 30,
2009 and 2008, respectively, and $1.4 million and
$49.5 million for the nine months ended September 30,
2009 and 2008, respectively. Our effective tax (rate) benefit
from continuing operations was (2.63)% and 46.9% for the three
months ended September 30, 2009 and 2008, respectively, and
1.56% and 37.6% for the nine months ended September 30,
2009 and 2008, respectively. At December 31, 2008, we
determined that deferred tax assets in excess of reversing tax
liabilities were not likely to be realized and we recorded a
valuation allowance on net deferred tax assets. Income tax
expense of $4.8 million attributable to gains in
discontinued operations recorded in the first quarter of 2009
reversed in the second quarter due to current period losses in
discontinued operations. As of September 30, 2009, we are
continuing to offset our net deferred tax asset by a full
valuation allowance.
The IRS is currently examining our U.S. federal income tax
returns for 2005 through 2008. There are no income tax returns
under audit by the Canadian government with the years after 2004
remaining open and subject to audit. The German government is
currently auditing income tax returns for the years 2006 through
2008. During the third quarter, the
2003-2005
German audits were closed resulting in no significant
adjustments. There are no returns under audit by the U.K.
government with years after 2004 remaining open and subject to
audit. At this time, we do not expect the results from any
income tax audit to have a material impact on our financial
statements; however, it is reasonably possible that the amount
of the FIN 48 state liability for unrecognized tax
benefits could decrease by $2 to $3 million during the
remainder of 2009.
|
|
9.
|
Stock-Based
Compensation
|
In February 2009, we granted 14 employees non-qualified
stock options to purchase 360,000 shares of common stock at
a price of $0.77. One-third of the options vest yearly beginning
in 2010. In 2009, 131,998 shares of restricted stock have
vested.
In addition in May 2009, we accelerated the vesting of our
former chief financial officers stock options and
restricted stock per the terms of his separation agreement
(refer to Note 11). The options expire 12 months after
the termination of his consulting term, which can be up to nine
months after his termination date of May 29, 2009.
70,859 shares of restricted stock and 750,000 options
vested. We recorded non-cash compensation expense of
$0.8 million as a result of the vesting acceleration.
In August 2009, we granted three employees non-qualified stock
options to purchase 150,000 shares of common stock at a
price of $2.34. These options vest one-third per year beginning
in 2010.
16
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
|
|
10.
|
Commitments
and Contingencies
|
Guarantees
The maximum potential amount of future fundings for outstanding
guarantees, the carrying amount of the liability for expected
future fundings at September 30, 2009 and fundings during
2009 are as follows (in thousands):
|
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|
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|
ASC
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|
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ASC
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|
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|
|
|
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|
|
Guarantee
|
|
|
Contingencies
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|
|
|
|
|
|
|
Maximum
|
|
|
Topic
|
|
|
Topic
|
|
|
Total
|
|
|
Fundings
|
|
|
|
Potential
|
|
|
Liability
|
|
|
Liability
|
|
|
Liability
|
|
|
from
|
|
|
|
Amount
|
|
|
for Future
|
|
|
for Future
|
|
|
for Future
|
|
|
January 1, 2009
|
|
|
|
of Future
|
|
|
Fundings at
|
|
|
Fundings at
|
|
|
Fundings at
|
|
|
through
|
|
Guarantee Type
|
|
Fundings
|
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
|
Operating deficit
|
|
|
Uncapped
|
|
|
$
|
476
|
|
|
$
|
500
|
|
|
$
|
976
|
|
|
$
|
|
|
Income support
|
|
|
Uncapped
|
|
|
|
560
|
|
|
|
12,241
|
|
|
|
12,801
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,036
|
|
|
$
|
12,741
|
|
|
$
|
13,777
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aston
Gardens
In July 2008, we received notice of default from our equity
partner alleging a default under our management agreement for
six communities as a result of the ventures receipt of a
notice of default from a lender. In December 2008, the
ventures debt was restructured and we entered into an
agreement with our venture partner under which we agreed to
resign as managing member of the venture and manager of the
communities when we are released from various guarantees
provided to the ventures lender.
At loan inception, we provided the lender a guarantee of monthly
principal and interest payments and during 2008 we made payments
under this guarantee since the venture did not have enough
available cash flow to cover the default interest payments.
Advances under this guarantee are recoverable in the form of a
loan in a capital or refinancing event prior to the repayment of
capital to the partners but subordinate to the repayment of the
debt. Through April 30, 2009, the date we sold our equity
interest in Aston Gardens, we had funded $7.0 million under
this guarantee which was fully reserved at the time of sale.
On April 30, 2009, we sold our 25% equity interest in the
venture and were released from all guarantee obligations. Our
management contract was terminated on April 30, 2009. We
received proceeds of approximately $4.8 million for our
equity interest and our receivable from the venture for fundings
under the operating deficit guarantees. We received management
fees of $3.2 million and $3.7 million in 2008 and
2007, respectively.
Fountains
In 2008, the Fountains venture, in which we hold a 20% interest,
failed to comply with the financial covenants in the
ventures loan agreement. The lender has been charging a
default rate of interest (5.51% at September 30,
2009) since April 2008. At loan inception, we provided the
lender a guarantee of operating deficits including payments of
monthly principal and interest payments, and in 2008 we funded
payments under this guarantee as the venture did not have enough
available cash flow to cover the full amount of the interest
payments at the default rate. Advances under this guarantee are
recoverable in the form of a loan to the venture, which must be
repaid prior to the repayment of equity capital to the partners,
but is subordinate to the repayment of other venture debt.
Through September 30, 2009, we have funded
$14.2 million under this operating deficit guarantee which
also has been written-down to zero. These advances under the
operating deficit guarantee are in addition to the
$12.8 million we have funded under our income support
guarantee to our venture partner, which has been written-down to
zero.
17
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
In January 2009, we informed the ventures lenders and our
venture partner that we were suspending payment of default
interest and payments under the income support guarantee, and
that we would seek a comprehensive restructuring of the loan,
our operating deficit guarantees and our income support
guarantee. Our failure to pay default interest on the loan was
an additional default of the loan agreement. In October 2009, we
entered into agreements with our venture partner, as well as
with the lender to release us from all claims that our venture
partner and the lender had against us prior to the date of the
agreements and from all of our future funding obligations in
connection with the Fountains portfolio.
Pursuant to the agreements relating to the Fountains portfolio,
the lender and our venture partner released us from all past and
future funding commitments in connection with the Fountains
portfolio, as well as from all other liabilities prior to the
date of the agreements arising under the Fountains joint
venture, loan and management agreements, including obligations
under operating deficit and income support obligations. We will
retain certain management and operating obligations going
forward during a temporary transition period.
In exchange for these releases, we have, among other things:
|
|
|
|
|
Transferred our 20-percent ownership interest in the Fountains
joint venture to our joint venture partner;
|
|
|
|
Contributed vacant land parcels adjacent to six of the Fountains
communities and owned by us to the Fountains venture;
|
|
|
|
Agreed to transition from management of the 16 Fountains
communities as soon as the transition closing conditions are met
and the new manager has obtained the regulatory approvals
necessary to assume control of the facilities (we expect to
transition from management of the Fountains communities during
the course of 2010); and
|
|
|
|
Agreed to repay the venture the management fee we had earned to
date in 2009 of $1.8 million.
|
The contributed vacant land parcels were carried on our
consolidated balance sheet at a book value of $12.9 million
at September 30, 2009, in addition to a guarantee liability
of $12.9 million both of which will be written off upon
closing of the transaction resulting in no gain or loss.
Senior
Living Condominium Project
In 2006, we sold a majority interest in one condominium venture
and one related assisted living venture to third parties. In
conjunction with the development agreement for this project, we
agreed to be responsible for actual project costs in excess of
budgeted project costs of more than $10.0 million (subject
to certain limited exceptions). The $10.0 million is
recoverable as a loan from the venture. Through
September 30, 2009, we have paid $50.7 million in cost
overruns. Construction of this project is now complete. We
account for the condominium and assisted living ventures under
the profit-sharing method of accounting, and our investment
carrying value at September 30, 2009 is $13.5 million
for the two ventures, which includes our $10.0 million
recoverable loan and advances we have made to the ventures. We
recorded a loss of $2.9 million and $9.9 million from
the two ventures in the three and nine months ended
September 30, 2009, respectively. The pace of sales of
condominium units and prices could impact the recovery of our
investment carrying value. The weak economy in the
Washington, D.C. area will require us to implement more
aggressive marketing and sales plans. No assurance can be given
that additional pre-tax charges will not be required in
subsequent periods with respect to this condominium venture.
In July 2009, the lender notified us that an event of default
had occurred. The event of default was related to providing
certain financial information for the venture that the lender
had previously requested. In October 2009, we received a notice
of default related to the nonpayment of interest. We are in
discussions with the lender on these matters.
18
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Agreements
with Marriott International, Inc.
Our agreements with Marriott International, Inc.
(Marriott) related to our purchase of Marriott
Senior Living Services, Inc. in 2003 provide that Marriott has
the right to demand that we provide cash collateral security for
Assignee Reimbursement Obligations, as defined in the
agreements, in the event that our implied debt rating is not at
least B- by Standard and Poors or B1 by Moodys Investor
Services. Assignee Reimbursement Obligations relate to possible
liability with respect to leases assigned to us in 2003 and
entrance fee obligations assumed by us in 2003 that remain
outstanding (approximately $53.4 million at
September 30, 2009). Marriott has informed us that they
reserve all of their rights to issue a Notice of Collateral
Event under the Assignment and Reimbursement Agreement.
Other
Generally, the financing obtained by our ventures is
non-recourse to the venture members, with the exception of the
debt repayment guarantees discussed above. However, we have
entered into guarantees with the lenders with respect to acts
which we believe are in our control, such as fraud or voluntary
bankruptcy of the venture, that create exceptions to the
non-recourse nature of debt. If such acts were to occur, the
full amount of the venture debt could become recourse to us. The
combined amount of venture debt underlying these guarantees is
approximately $3.3 billion at September 30, 2009. We
have not funded under these guarantees, and do not expect to
fund under such guarantees in the future.
To the extent that a third party fails to satisfy an obligation
with respect to two continuing care retirement communities we
manage, we would be required to repay this obligation, the
majority of which is expected to be refinanced with proceeds
from the issuance of entrance fees as new residents enter the
communities. At September 30, 2009, the remaining liability
under this obligation is $45.2 million. We have not funded
under these guarantees, and do not expect to fund under such
guarantees in the future.
Legal
Proceedings
HCP,
Inc.
In June 2009, various affiliates of HCP, Inc. and their
associated tenant entities filed nine complaints in the Delaware
Court of Chancery naming the Company and several of its
subsidiaries as defendants. The complaints allege monetary and
non-monetary defaults under a series of owner and management
agreements that govern nine portfolios comprised of 64
properties with annual management fees of approximately
$25.4 million in 2008 and $15.5 million for the nine
months ended September 30, 2009. We have $18.5 million
of unamortized management contract intangibles relating to these
contracts. In each case, the plaintiffs include (a) the HCP
affiliates that own various assisted living community properties
that are managed by Sunrise, and (b) certain tenant
entities alleged to be independent from HCP that lease those
properties from HCP affiliates and have management agreements
with Sunrise. The complaints assert claims for
(1) declaratory judgment; (2) injunctive relief;
(3) breach of contract; (4) breach of fiduciary
duties; (5) aiding and abetting breach of fiduciary duty;
(6) equitable accounting; and (7) constructive trust.
The complaints seek equitable relief, including a declaration of
a right to terminate the agreements, disgorgement, unspecified
money damages, and attorneys fees. Plaintiffs filed a
motion to expedite the proceedings. Following briefing by the
parties, the Delaware Court of Chancery on July 9, 2009
denied the Plaintiffs motion. In July 2009, various
affiliates of HCP, Inc. and their associated tenant entities
refiled a complaint, which had been voluntarily withdrawn in the
Delaware actions, in the federal district court for the Eastern
District of Virginia (the Virginia action). On
August 17, 2009, Sunrise answered all of the complaints in
both jurisdictions and asserted counterclaims.
19
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Trinity
OIG Investigation and Qui Tam Action
As previously disclosed, on September 14, 2006, we acquired
all of the outstanding stock of Trinity Hospice Inc.
(Trinity). As a result of this transaction, Trinity
became an indirect, wholly owned subsidiary of the Company. On
January 3, 2007, Trinity received a subpoena from the
Phoenix field office of the OIG requesting certain information
regarding Trinitys operations in three locations for the
period January 1, 2000 through June 30, 2006, a period
that was prior to the Companys acquisition of Trinity. The
Company was advised that the subpoena was issued in connection
with an investigation being conducted by the Commercial
Litigation Branch of the U.S. Department of Justice and the
civil division of the U.S. Attorneys office in
Arizona. The subpoena indicates that the OIG is investigating
possible improper Medicare billing under the FCA. In addition to
recovery of any Medicare reimbursements previously paid for
false claims, an entity found to have submitted false claims
under the FCA may be subject to treble damages plus a fine of
between $5,500 and $11,000 for each false claim submitted.
Trinity has complied with the subpoena and continues to
supplement its responses as requested.
On September 11, 2007, Trinity and the Company were served
with a complaint filed on September 5, 2007 in the United
States District Court for the District of Arizona. That filing
amended a complaint filed under seal on November 21, 2005
by four former employees of Trinity under the qui tam
provisions of the FCA. On July 3, 2008, an amended
complaint was revised in the form of a second amended complaint
which replaced the loss sustained range of $75 million to
$100 million with an alleged loss by the United States of
at least $100 million. The original complaint named KRG
Capital, LLC (an affiliate of former stockholders of Trinity)
and Trinity Hospice LLC (a subsidiary of Trinity) as defendants.
The second amended complaint names Sunrise Senior Living, Inc.,
KRG Capital, LLC, aka KRG Capital Partners, LLC, KRG Capital,
LLC, KRG Capital Fund II, L.P., KRG Capital Fund II
(PA), L.P., KRG Capital Fund II (FF), L.P., KRG
Co-Investment, L.L.C., American Capital Strategies, LTD, and
Trinity as defendants. On October 21, 2008, the United
States, through the Civil Division of the U.S. Department
of Justice, and the U.S. Attorneys Office for the
District of Arizona, filed a motion with the District Court to
intervene in the pending case, but only as the case relates to
defendant Trinity Hospice, Inc.
All parties entered into a settlement agreement on June 3,
2009 which was subsequently approved by the District Court. The
lawsuit is styled United States ex rel. Joyce Roberts, et
al., v. KRG Capital, LLC, et al., CV05 3758 PHX-MEA
(D. Ariz.).
On February 13, 2008, Trinity received a subpoena from the
Los Angeles regional office of the OIG requesting information
regarding Trinitys operations in 19 locations for the
period between December 1, 1998 through February 12,
2008. It is anticipated that further response to this subpoena,
as well as the subpoena issued by the OIG Phoenix field office
noted above, will be unnecessary upon final closure of the
Qui Tam action.
IRS
Audit
The Internal Revenue Service is auditing our federal income tax
returns for the years ended December 31, 2005 through 2008.
In July 2008, our 2005 federal income tax return audit was
settled with the IRS, resulting in a tax liability of
approximately $0.2 million. In January 2009, the IRS
reopened the audit of our 2005 federal income tax return as a
result of a refund claim filed with our 2007 federal income tax
return relating to the 2007 net operating loss carryback
for which we were seeking reimbursement of a certain portion of
the federal income taxes we had paid in 2005.
In February 2009, we settled with the IRS on our employment tax
audits and paid a penalty of $0.2 million in November 2008
for the years 2004, 2005, and 2006. The IRS determined that we
were liable for payroll tax deposit penalties on stock option
exercises during 2004, 2005, and 2006 for certain withholdings
that were made after the prescribed due dates.
20
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
SEC
Investigation
We previously announced on December 11, 2006 that we had
received a request from the SEC for information about insider
stock sales, timing of stock option grants and matters relating
to our historical accounting practices that had been raised in
media reports in the latter part of November 2006 following
receipt of a letter by us from the Service Employees
International Union. On May 25, 2007, we were advised by
the staff of the SEC that it had commenced a formal
investigation. We have fully cooperated, and intend to continue
to fully cooperate, with the SEC. The Company has commenced
discussions with the SEC staff concerning potential resolution
of the matter and conclusion of the investigation.
Putative
Class Action Litigation
Two putative securities class actions, styled United
Food & Commercial Workers Union Local 880-Retail Food
Employers Joint Pension Fund, et al. v. Sunrise Senior
Living, Inc., et al., Case No. 1:07CV00102, and First New
York Securities, L.L.C. v. Sunrise Senior Living, Inc., et
al., Case No. 1:07CV000294, were filed in the
U.S. District Court for the District of Columbia on
January 16, 2007 and February 8, 2007, respectively.
Both complaints alleged securities law violations by Sunrise and
certain of its current or former officers and directors based on
allegedly improper accounting practices and stock option
backdating, violations of generally accepted accounting
principles, false and misleading corporate disclosures, and
insider trading of Sunrise stock. Both sought to certify a class
for the period August 4, 2005 through June 15, 2006,
and both requested damages and equitable relief, including an
accounting and disgorgement. Pursuant to procedures provided by
statute, two other parties, the Miami General Employees
& Sanitation Employees Retirement Trust and the
Oklahoma Firefighters Pension and Retirement System, appeared
and jointly moved for consolidation of the two securities cases
and appointment as the lead plaintiffs, which the Court
ultimately approved. The cases were consolidated on
July 31, 2007. Thereafter, a stipulation was submitted
pursuant to which the new putative class plaintiffs filed their
consolidated amended complaint (under the caption In re Sunrise
Senior Living, Inc. Securities Litigation, Case
No. 07-CV-00102-RBW)
on June 6, 2008. The complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and
Rule 10b-5
promulgated thereunder, and names as defendants the Company,
Paul J. Klaassen, Teresa M. Klaassen, Thomas B. Newell, Tiffany
L. Tomasso, Larry E. Hulse, Carl G. Adams, Barron Anschutz, and
Kenneth J. Abod.
On February 27, 2009, Sunrise and its current or former
directors or officers who were named individually as defendants
entered into an agreement. The settlement calls for the
certification by the court of a class consisting of persons
(with certain exceptions) who purchased Sunrise common stock
between February 26, 2004 and July 28, 2006, and
payment of $13.5 million in cash into an interest-bearing
escrow account by March 6, 2009.
Concurrently with entering into the settlement agreement,
Sunrise and the Individual Defendants also are entering into
agreements and releases with two of its insurance carriers,
which provided primary and excess insurance coverage,
respectively, under certain Directors and Officers
Liability insurance policies for the relevant periods. The two
insurance carriers are combining to pay $13.4 million
toward the settlement amount, which will exhaust the coverage
limits under the primary policy (after taking account of prior
payments for related defense costs), but will not exhaust
coverage limits under the excess policy. These payments pursuant
to the settlement were made under the then applicable policies
and, therefore, do not reduce the amount of insurance proceeds
available under current policies now in effect. Sunrise and the
Individual Defendants have provided releases to the carrier.
Taking into account the insurance contribution, the net cost of
the settlement of the putative securities class action lawsuit
to Sunrise is expected to be approximately $0.1 million. No
amounts are to be paid by the Individual Defendants.
The settlement agreement was approved by the U.S. District
Court for the District of Columbia on June 26, 2009 and
follows the settlement agreement entered into on
February 19, 2009 by Sunrise and the individuals named as
defendants in two putative stockholder derivative actions
brought by certain alleged stockholders of Sunrise for the
21
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
benefit of the company, entitled In re Sunrise Senior Living
Derivative Litigation, Inc., Case
No. 1:07CV00143-RBW
and Young, et al. v. Klaassen, et al., Case
No. 2770-N
(CCNCC) which settlement agreement and related funding
arrangements are described in greater detail below.
Putative
Shareholder Derivative Litigation
On January 19, 2007, the first of three putative
shareholder derivative complaints was filed in the
U.S. District Court for the District of Columbia against
certain of our current and former directors and officers, and
naming us as a nominal defendant. Counsel for the plaintiffs
subsequently agreed among themselves to the appointment of lead
plaintiffs and lead counsel. On June 29, 2007, the lead
plaintiffs filed a Consolidated Shareholder Derivative
Complaint, again naming us as a nominal defendant, and naming as
individual defendants Paul J. Klaassen, Teresa M. Klaassen,
Ronald V. Aprahamian, Craig R. Callen, Thomas J. Donohue, J.
Douglas Holladay, William G. Little, David G. Bradley, Peter A.
Klisares, Scott F. Meadow, Robert R. Slager, Thomas B. Newell,
Tiffany L. Tomasso, John F. Gaul, Bradley G. Rush, Carl Adams,
David W. Faeder, Larry E. Hulse, Timothy S. Smick, Brian C.
Swinton and Christian B. A. Slavin. The consolidated case is
captioned: In re Sunrise Senior Living Derivative Litigation,
Inc, Case No. 1:07CV00143 (the District of
Columbia action). The consolidated complaint alleges
violations of federal securities laws and breaches of fiduciary
duty by the individual defendants, arising out of the same
matters as are raised in the purported class action litigation
described above. The plaintiffs seek damages and equitable
relief on behalf of Sunrise. We and the individual defendants
filed separate motions to dismiss the consolidated complaint.
Subsequently, the plaintiffs filed an amended consolidated
complaint that did not substantially alter the nature of their
claims. The amended consolidated complaint was accepted by the
Court and deemed to have been filed on March 28, 2008. We
and the individual defendants filed motions to dismiss the
amended consolidated complaint on June 16, 2008. The
plaintiffs also filed a motion to lift the stay on discovery in
this derivative suit. The motion was denied after briefing.
On March 6, 2007, a putative shareholder derivative
complaint was filed in the Court of Chancery in the State of
Delaware against Paul J. Klaassen, Teresa M. Klaassen, Ronald V.
Aprahamian, Craig R. Callen, Thomas J. Donohue, J. Douglas
Holladay, David G. Bradley, Robert R. Slager, Thomas B. Newell,
Tiffany L. Tomasso, Carl Adams, David W. Faeder, Larry E. Hulse,
Timothy S. Smick, Brian C. Swinton and Christian B. A. Slavin,
and naming us as a nominal defendant. The case is captioned
Peter V. Young, et al. v. Paul J. Klaassen, et
al., Case
No. 2770-N
(CCNCC) (the Delaware action). The complaint alleges
breaches of fiduciary duty by the individual defendants arising
out of the grant of certain stock options that are the subject
of the purported class action and shareholder derivative
litigation described above. The plaintiffs seek damages and
equitable relief on behalf of Sunrise. We and the individual
defendants separately filed motions to dismiss this complaint on
June 6, 2007 and June 13, 2007. The plaintiffs amended
their original complaint on September 17, 2007. On
November 2, 2007, we and the individual defendants moved to
dismiss the amended complaint. In connection with the motions to
dismiss, and at plaintiffs request, the Chancery Court
issued an order on April 25, 2008 directing us to produce a
limited set of documents relating to the Special Independent
Committees findings with respect to historic stock option
grants. We produced those documents to the plaintiffs on
May 16, 2008. Supplemental briefing on defendants
motions to dismiss has been completed and, while the motions
were pending, the plaintiffs requested that the Chancery Court
stay the action, at least temporarily. The defendants did not
oppose that request, and the Chancery Court granted an
indefinite stay of proceedings on November 19, 2008, and
directed the parties to provide a further status report by
February 1, 2009. Following the parties status
report, in which it was proposed that the stay remain in place,
the Chancery Court extended the stay on February 17, 2009,
and directed the parties to provide a further report by
May 4, 2009.
On February 19, 2009, the Company and the individual
defendants entered into an agreement to settle the District of
Columbia and Delaware actions. Under the terms of this
settlement, the Company, in addition to corporate governance
measures that it already has implemented or is in the process of
implementing, has agreed to (1) require independent
directors to certify that they are independent under the rules
of the New York Stock
22
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Exchange and to give prompt notification of any changes in their
status that would render them no longer independent and
(2) implement a minimum two-year vesting period, with
appropriate exceptions, for stock option awards to employees. In
addition, Paul J. Klaassen, the Companys non-executive
chairman, and the Company have agreed that the 700,000 stock
options granted to Mr. Klaassen in conjunction with his
previous employment agreement executed in September 2000 will be
repriced from (a) $8.50 per share, the price set on
September 11, 2000 by the Compensation Committee of the
Companys Board based on the prior days closing
price, to (b) $13.09 per share, the closing price on the
business day prior to November 10, 2000, the date on which
the Companys full Board approved the terms of the
employment agreement. The agreement also provides that if
plaintiffs in the District of Columbia action apply to the court
for an award of attorneys fees and expenses, the Company
and/or its
insurers will pay the amount so awarded, not to exceed
$1.0 million, within 10 days following final approval
of the settlement and the fee and expense award. Plaintiffs in
the Delaware action will not make any separate application for
an award of fees or expenses. The amount of attorneys fees
and expenses that the court awards to plaintiffs is to be funded
by one of the Companys directors and officers
liability insurance carriers under an applicable policy of
insurance. No amounts are to be paid by the Company or by the
individual defendants in the District of Columbia and Delaware
actions. The settlement was approved by the U.S. District
Court for the District of Columbia on June 26, 2009. On
August 4, 2009, the court in the Delaware action entered an
order formally dismissing that action.
Other
Pending Lawsuits and Claims
In addition to the lawsuits and litigation matters described
above, we are involved in various lawsuits and claims arising in
the normal course of business. In the opinion of management,
although the outcomes of these other suits and claims are
uncertain, in the aggregate they are not expected to have a
material adverse effect on our business, financial condition,
and results of operations.
|
|
11.
|
Severance
and Restructuring Plan
|
In May 2009, we announced a plan to continue to reduce corporate
expenses through reorganization of our corporate cost structure,
including a reduction in spending related to, among other areas,
administrative processes, vendors, and consultants. The plan is
designed to reduce our annual recurring general and
administrative expenses (including expenses previously
classified as venture expense) by over $20 million, from
our 2009 budgeted annual recurring level of approximately
$120 million (after the sale of Greystone, which is
presented in discontinued operations in our financial
statements) to approximately $100 million, and to reduce
our centrally administered services which are charged to the
communities by approximately $1.5 million. Under the plan,
approximately 150 positions will be eliminated. As of
September 30, 2009, we have eliminated 114 positions and
will be eliminating an additional 49 positions by early 2010. We
have recorded severance expense of $5.6 million as a result
of the plan through September 30, 2009 and expect to record
an additional $0.6 million through early 2010. These costs
are incremental to the restructuring plan implemented by us in
2008, which provided for the elimination of 165 positions and
corresponding expense reductions.
In May 2009, we entered into a separation agreement with our
chief financial officer, Richard Nadeau, in connection with this
plan. Pursuant to the separation agreement,
Mr. Nadeaus employment with us terminated effective
as of May 29, 2009. Pursuant to Mr. Nadeaus
employment agreement, Mr. Nadeau received severance
benefits that included a lump sum cash payment of
$1.4 million. In addition, Mr. Nadeau received a bonus
in the amount of $0.5 million and Mr. Nadeaus
outstanding and unvested stock options, restricted stock and
other long-term equity compensation awards were fully vested,
resulting in a non-cash compensation expense to us of
$0.8 million.
In September 2009, we terminated a portion of our lease on our
corporate headquarters in McLean, Virginia. We recorded a charge
of $2.7 million related to the termination.
23
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
The following table reflects the activity related to our
severance and restructuring plans during the nine months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at
|
|
|
|
|
|
|
|
|
Cash Payments
|
|
|
Liability at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
|
|
|
and Other
|
|
|
September 30,
|
|
|
|
2009
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Settlements
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary severance
|
|
$
|
3,312
|
|
|
$
|
1,066
|
|
|
$
|
|
|
|
$
|
(4,105
|
)
|
|
$
|
273
|
|
Involuntary severance
|
|
|
1,518
|
|
|
|
9,045
|
|
|
|
|
|
|
|
(8,781
|
)
|
|
|
1,782
|
|
CEO retirement compensation
|
|
|
1,523
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
1,564
|
|
Professional fees
|
|
|
|
|
|
|
12,523
|
|
|
|
|
|
|
|
(12,523
|
)
|
|
|
|
|
Lease termination costs
|
|
|
2,394
|
|
|
|
3,208
|
|
|
|
591
|
|
|
|
(2,576
|
)
|
|
|
3,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,747
|
|
|
$
|
25,883
|
|
|
$
|
591
|
|
|
$
|
(27,985
|
)
|
|
$
|
7,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above table is legal and professional fees of
$4.3 million, $3.7 million and $4.6 million in
the first, second and third quarters, respectively, relating to
corporate restructuring.
|
|
12.
|
German
Assets Held for Sale and Discontinued Operations
|
German
Assets Held for Sale
We own nine communities (two of which are closed) in Germany.
The debt related to these communities has partial recourse to us
as the debt for four of the communities of
50.0 million ($73.0 million at
September 30, 2009) has a stipulated release price for
each community and for the remaining five communities, we have
provided guarantees to the lenders of the repayment of the
monthly interest payments and principal amortization and
operating shortfalls until the maturity dates of the loans. As a
result of the violation of a covenant in one of the loan
documents, one of the lenders has asserted that we are
effectively obligated to repay a portion of the principal at
this time. Subsequent to September 30, 2009, in connection
with the German debt restructure, we have settled with this
lender. The face amount of the total debt related to the German
communities at September 30, 2009 is $219.3 million.
In January 2009, we informed the lenders to our German
communities and the Hoesel land, an undeveloped land parcel,
that our German subsidiary was suspending payment of principal
and interest on all loans for our German communities and that we
would seek a comprehensive restructuring of the loans and our
operating deficit guarantees. As a result of the failure to make
payments of principal and interest on the loans for our German
communities, we are in default of the loan agreements but have
entered into standstill agreements with the lenders pursuant to
which the lenders have agreed not to foreclose on the
communities that are collateral for their loans or to commence
or prosecute any action or proceeding to enforce their demand
for payment by us pursuant to our operating deficit agreements
until the earliest of the occurrence of certain other events
relating to the loans.
In October 2009, we entered into a restructuring agreement, in
the form of a binding term sheet, with two of our lenders to
seven of the nine communities, to settle and compromise their
claims against us, including under operating deficit and
principal repayment guarantees provided by us in support of our
German subsidiaries. These two lenders contended that these
claims had an aggregate value of approximately
$121.6 million. The binding term sheet contemplates that,
on or before the first anniversary of the execution of
definitive documentation for the restructuring, certain other of
our identified lenders may elect to participate in the
restructuring with respect to their asserted claims. The claims
being settled by the two lenders represent approximately
77.5 percent of the aggregate amount of claims asserted by
the lenders that may elect to participate in the restructuring
transaction.
The restructuring agreement provides that the electing lenders
will release and discharge us from certain claims they may have
against us. We will issue to the lenders that elect to
participate in the restructuring on or before
24
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
the first execution of the definitive documentation, their pro
rata share of up to an aggregate of 5 million shares of our
common stock and will grant mortgages for the benefit of all
electing lenders on certain of our unencumbered North American
properties. Following the first execution of the definitive
documentation for the restructuring, we will pursue the sale of
such mortgaged properties and distribute the net sale proceeds
to the electing lenders. We have guaranteed that, within
30 months of the first execution of the definitive
documentation for the restructuring, the electing lenders will
receive a minimum of $58.3 million from the net proceeds of
any such sale, which equals 80 percent of the most recent
aggregate appraised value of these properties. If the electing
lenders do not receive at least $58.3 million by such date,
we will make payment to cover any shortfall or, at such
lenders option, convey to them the remaining unsold
properties.
In addition, we will market for sale the German assisted living
communities subject to loan agreements with the electing lenders
and will remain responsible for all costs of operating,
preserving and maintaining these communities until the earlier
of either their sale or December 31, 2010.
The closing of the transaction, including the execution of the
definitive documentation, the release of claims and the issuance
of Sunrise common stock, is conditioned upon receipt of consent
for the transaction from Bank of America, N.A., as the
administrative agent under our Bank Credit Facility, on or
before November 11, 2009. In accordance with the binding
term sheet, definitive documentation shall be executed as soon
as reasonably possible (but no later than 40 days) after
the receipt of such required consent.
We continue to be liable under certain operating deficit and
repayment guarantees for the Klein Flottbeck and Wiesbaden
communities, and certain principal repayment guarantees for the
Hoesel land which is not part of the restructuring agreement.
As of September 30, 2009, we have classified the German
communities as assets held for sale. During the second quarter
of 2009, we classified the German communities as assets held for
sale as all of the following criteria were met:
|
|
|
|
|
Executive management has committed to a plan to sell the assets;
|
|
|
|
The assets are available for immediate sale in their present
condition;
|
|
|
|
There is an active program to locate a buyer and other actions
required to complete the sale have been initiated;
|
|
|
|
The assets are being actively marketed; and
|
|
|
|
The sale of the assets is probable and it is unlikely that
significant changes to the sale plan will be made.
|
Upon designation as assets held for sale, we recorded the assets
at the lower of their carrying value or their fair value less
estimated costs to sell. We used the average of the bids
received to date in the determination of fair value. As the
carrying value of a majority of the assets was in excess of the
fair value less estimated costs to sell, during the second
quarter of 2009 we recorded a charge of $52.4 million which
is included in discontinued operations. Also, upon designation
as assets held for sale, the results of operations for the
German communities are reported as discontinued operations.
25
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
The German assets held for sale at September 30, 2009
consists of the following (in thousands):
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
Cash and cash equivalents
|
|
$
|
897
|
|
Accounts receivable, net
|
|
|
3,216
|
|
Property and equipment, net
|
|
|
101,032
|
|
Prepaid and other assets
|
|
|
409
|
|
|
|
|
|
|
German assets held for sale
|
|
$
|
105,554
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
9,908
|
|
|
|
|
|
|
Discontinued
Operations
In March 2009, we sold our Greystone subsidiary and our
interests in Greystone seed capital partnerships to an entity
controlled by Michael Lanahan and Paul Steinhoff, two senior
executives of the Greystone subsidiary. Total consideration was
(i) $2,000,000 in cash at closing; (ii) $5,700,000 in
short-term notes, (iii) a $6,000,000
7-year note
(iv) a $2,500,000 note payable, and (v) 35% of the net
proceeds received by the seed capital investors for each of the
seed capital interests purchased from us. We collected
$5.7 million of short-term notes through September 30,
2009.
As Greystones contracts were multiple element arrangements
and there was not sufficient objective and reliable evidence of
the fair value of undelivered elements at each billing
milestone, revenue recognition was deferred until the completion
of the development contract. The sale of Greystone generated a
book gain resulting from the realization of previously deferred
revenue. The sale of Greystone generated a tax loss of
approximately $40 million. Due to the uncertainty of
collectability of the $6.0 million note, initial gain
recognition is not appropriate and gain will be recognized as
payment is received. The $2.5 million note payable is
contingent on future income of Greystone and gain will be
recognized when the contingency is resolved and consideration is
received.
In the fourth quarter of 2008, we determined not to provide any
additional funding to our Trinity subsidiary due to our review
of our future cash requirements. As of December 31, 2008,
Trinity had ceased operations. In order to resolve and settle
the claims among us and Trinitys prior owners, in June
2009, we entered into a settlement agreement with the former
majority stockholders of Trinity, which, among other matters,
provides for the release and discharge of all claims and causes
of action between the parties to the settlement agreement. In
consideration of the settlement agreement, the former majority
stockholders of Trinity paid us an aggregate amount of
approximately $9.8 million. The parties to the settlement
agreement also agreed to cooperate to achieve voluntary
dismissal of certain litigation matters.
We had previously recorded a receivable of $2.7 million
from the former stockholders of Trinity for various liabilities
relating to events occurring prior to our purchase of Trinity.
Accordingly, $2.7 million of the proceeds were applied
against the receivable and the remaining amount of
$7.1 million has been recorded as income from discontinued
operations.
In December 2008, two wholly owned communities were sold to
unrelated third parties for which we have no continuing
involvement. In the second quarter of 2009, a wholly owned
community ceased operations. All three of these communities are
classified as discontinued operations. In the third quarter of
2009, a wholly owned community was sold to an unrelated third
party for approximately $2.0 million. We received
$0.3 million of cash and a note receivable for
$1.7 million, recognizing gain of $0.3 million. We
have no continuing involvement with this property.
26
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
The results of operations for our German communities, Greystone,
Trinity and the four communities have been reclassified to
discontinued operations. The following amounts related to our
German communities, Greystone, Trinity and the four communities
have been segregated from continuing operations and reported as
discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
8,231
|
|
|
$
|
23,355
|
|
|
$
|
29,975
|
|
|
$
|
70,635
|
|
Expenses
|
|
|
(9,432
|
)
|
|
|
(41,486
|
)
|
|
|
(42,200
|
)
|
|
|
(123,745
|
)
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
(52,414
|
)
|
|
|
|
|
Other expense
|
|
|
(4,666
|
)
|
|
|
(2,923
|
)
|
|
|
(6,412
|
)
|
|
|
(2,884
|
)
|
Gain on sale
|
|
|
344
|
|
|
|
|
|
|
|
24,092
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
2,274
|
|
|
|
|
|
|
|
14,304
|
|
Extraordinary loss, net of tax
|
|
|
|
|
|
|
(13,255
|
)
|
|
|
|
|
|
|
(13,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(5,523
|
)
|
|
$
|
(32,035
|
)
|
|
$
|
(46,959
|
)
|
|
$
|
(54,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Net Loss
per Common Share
|
The following table summarizes the computation of basic and
diluted net loss per share amounts presented in the accompanying
consolidated statements of operations (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Loss attributable to common shareholders:
|
|
|
|
|
|
|
|
|
Loss before discontinued operations, net of noncontrolling
interests
|
|
$
|
(38,879
|
)
|
|
$
|
(37,884
|
)
|
Loss from discontinued operations, net of noncontrolling
interests
|
|
|
(5,523
|
)
|
|
|
(30,782
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(44,402
|
)
|
|
$
|
(68,666
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic and diluted
|
|
|
50,682
|
|
|
|
50,346
|
|
Basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
Loss before discontinued operations, net of noncontrolling
interests
|
|
$
|
(0.77
|
)
|
|
$
|
(0.75
|
)
|
Loss from discontinued operations, net of noncontrolling
interests
|
|
|
(0.11
|
)
|
|
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common shareholders
|
|
$
|
(0.88
|
)
|
|
$
|
(1.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Loss attributable to common shareholders:
|
|
|
|
|
|
|
|
|
Loss before discontinued operations, net of noncontrolling
interests
|
|
$
|
(97,578
|
)
|
|
$
|
(82,583
|
)
|
Loss from discontinued operations, net of noncontrolling
interests
|
|
|
(46,773
|
)
|
|
|
(50,984
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(144,351
|
)
|
|
$
|
(133,567
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic and diluted
|
|
|
50,620
|
|
|
|
50,317
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
Loss before discontinued operations, net of noncontrolling
interests
|
|
$
|
(1.93
|
)
|
|
$
|
(1.64
|
)
|
Loss from discontinued operations, net of noncontrolling
interests
|
|
|
(0.92
|
)
|
|
|
(1.01
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common shareholders
|
|
$
|
(2.85
|
)
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
27
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Options and restricted stock are included under the treasury
stock method to the extent they are dilutive. Shares issuable
upon exercise of stock options of 4,668,152 and 3,239,297 for
the three months ended September 30, 2009 and 2008,
respectively, and 4,751,099 and 3,261,235 for the nine months
ended September 30, 2009 and 2008, respectively, have been
excluded from the computation because the effect of their
inclusion would be anti-dilutive.
|
|
14.
|
Information
about Sunrises Segments
|
Effective in 2009, we changed our operating
segments. In 2008, we reported five operating
segments: domestic operations, international operations (Canada
and the United Kingdom), Germany, Greystone and Trinity. We now
have six operating segments for which operating results are
regularly reviewed by our chief operating decision makers:
North American Management, which is the results from the
management of third party, joint venture and wholly owned/leased
Sunrise senior living communities in the United States and
Canada.
North American Development, which is the results from the
development of Sunrise senior living communities in the United
States and Canada.
Equity Method Investments, which is the results from our
investment in domestic and international ventures.
Consolidated (Wholly Owned/Leased), which is the results
from the operation of wholly owned and leased Sunrise senior
living communities in the United States and Canada net of an
allocated management fee of $6.9 million and
$7.8 million for the three months ended September 30,
2009 and 2008, respectively, and $20.6 million and
$21.2 million for the nine months ended September 30,
2009 and 2008, respectively.
United Kingdom, which is the results from the development
and management of Sunrise senior living communities in the
United Kingdom.
Germany, which is the results from the management of nine
(two of which are closed) Sunrise senior living communities in
Germany through September 1, 2008. The operation of nine
Sunrise senior living communities after September 1, 2008
when we began consolidating the communities are included in
discontinued operations.
The old North American segment was split into the new North
American Management, North American Development, Equity Method
Investments and Consolidated (Wholly Owned/Leased) segments.
Results from Canadian operations are now included in the North
American Management and Wholly Owned/Leased segments, while
previously they were included in the International segment. The
operating results from the United Kingdom development and
management activities are now its own separate segment. The
Germany segment remains unchanged. Greystone, which was sold in
March 2009, and Trinity, which ceased operations in December
2008, are now reported as discontinued operations.
Our historical segment reporting has been restated to reflect
the changes made in 2009.
28
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
Segment results are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
(Wholly
|
|
|
|
|
|
Germany
|
|
|
Corporate
|
|
|
|
|
|
|
North American
|
|
|
North American
|
|
|
Method
|
|
|
Owned/
|
|
|
United
|
|
|
Management
|
|
|
and
|
|
|
|
|
|
|
Management
|
|
|
Development
|
|
|
Investments
|
|
|
Leased)
|
|
|
Kingdom
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
276,835
|
|
|
$
|
802
|
|
|
$
|
134
|
|
|
$
|
106,047
|
|
|
$
|
6,145
|
|
|
$
|
57
|
|
|
$
|
(7,441
|
)
|
|
$
|
382,579
|
|
Community expense
|
|
|
218
|
|
|
|
6
|
|
|
|
7
|
|
|
|
87,150
|
|
|
|
|
|
|
|
|
|
|
|
(6,620
|
)
|
|
|
80,761
|
|
Development expense
|
|
|
(201
|
)
|
|
|
2,787
|
|
|
|
58
|
|
|
|
11
|
|
|
|
476
|
|
|
|
7
|
|
|
|
(1,341
|
)
|
|
|
1,797
|
|
Depreciation and amortization
|
|
|
1,904
|
|
|
|
430
|
|
|
|
|
|
|
|
5,676
|
|
|
|
147
|
|
|
|
28
|
|
|
|
3,474
|
|
|
|
11,659
|
|
Other operating expenses
|
|
|
271,082
|
|
|
|
2,932
|
|
|
|
2,186
|
|
|
|
24,983
|
|
|
|
6,829
|
|
|
|
976
|
|
|
|
13,298
|
|
|
|
322,286
|
|
Income (loss) from operations
|
|
|
3,832
|
|
|
|
(5,353
|
)
|
|
|
(2,117
|
)
|
|
|
(11,773
|
)
|
|
|
(1,307
|
)
|
|
|
(954
|
)
|
|
|
(16,252
|
)
|
|
|
(33,924
|
)
|
Interest income
|
|
|
181
|
|
|
|
326
|
|
|
|
2
|
|
|
|
57
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
572
|
|
Interest expense
|
|
|
(119
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
(2,124
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,193
|
)
|
|
|
(3,661
|
)
|
Foreign exchange gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,717
|
|
|
|
74
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
2,767
|
|
Sunrises share of losses and return on investment
in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
(4,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
(4,613
|
)
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
5,459
|
|
|
|
(5,810
|
)
|
|
|
(6,687
|
)
|
|
|
(11,408
|
)
|
|
|
(1,232
|
)
|
|
|
(968
|
)
|
|
|
(17,198
|
)
|
|
|
(37,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
(Wholly
|
|
|
|
|
|
Germany
|
|
|
Corporate
|
|
|
|
|
|
|
North American
|
|
|
North American
|
|
|
Method
|
|
|
Owned/
|
|
|
United
|
|
|
Management
|
|
|
and
|
|
|
|
|
|
|
Management
|
|
|
Development
|
|
|
Investments
|
|
|
Leased)
|
|
|
Kingdom
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
294,500
|
|
|
$
|
8,633
|
|
|
$
|
(211
|
)
|
|
$
|
106,563
|
|
|
$
|
9,141
|
|
|
$
|
2,930
|
|
|
$
|
(8,939
|
)
|
|
$
|
412,617
|
|
Community expense
|
|
|
2,079
|
|
|
|
194
|
|
|
|
31
|
|
|
|
87,056
|
|
|
|
|
|
|
|
450
|
|
|
|
(8,562
|
)
|
|
|
81,248
|
|
Development expense
|
|
|
1,035
|
|
|
|
4,911
|
|
|
|
626
|
|
|
|
|
|
|
|
1,261
|
|
|
|
48
|
|
|
|
114
|
|
|
|
7,995
|
|
Depreciation and amortization
|
|
|
2,018
|
|
|
|
234
|
|
|
|
|
|
|
|
5,565
|
|
|
|
50
|
|
|
|
31
|
|
|
|
3,732
|
|
|
|
11,630
|
|
Other operating expenses
|
|
|
276,639
|
|
|
|
51,248
|
|
|
|
2,850
|
|
|
|
15,371
|
|
|
|
6,090
|
|
|
|
3,887
|
|
|
|
14,860
|
|
|
|
370,945
|
|
Income (loss) from operations
|
|
|
12,729
|
|
|
|
(47,954
|
)
|
|
|
(3,718
|
)
|
|
|
(1,429
|
)
|
|
|
1,740
|
|
|
|
(1,486
|
)
|
|
|
(19,083
|
)
|
|
|
(59,201
|
)
|
Interest income
|
|
|
242
|
|
|
|
34
|
|
|
|
197
|
|
|
|
92
|
|
|
|
(21
|
)
|
|
|
25
|
|
|
|
431
|
|
|
|
1,000
|
|
Interest expense
|
|
|
(70
|
)
|
|
|
(344
|
)
|
|
|
|
|
|
|
(3,671
|
)
|
|
|
|
|
|
|
94
|
|
|
|
(6
|
)
|
|
|
(3,997
|
)
|
Foreign exchange gain (loss)
|
|
|
|
|
|
|
(2,001
|
)
|
|
|
|
|
|
|
(121
|
)
|
|
|
(601
|
)
|
|
|
4,414
|
|
|
|
|
|
|
|
1,691
|
|
Sunrises share of earnings and return on investment in
unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
(15,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
(15,549
|
)
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
13,201
|
|
|
|
(45,394
|
)
|
|
|
(19,022
|
)
|
|
|
(5,009
|
)
|
|
|
1,084
|
|
|
|
3,046
|
|
|
|
(18,842
|
)
|
|
|
(70,936
|
)
|
29
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
(Wholly
|
|
|
|
|
|
Germany
|
|
|
Corporate
|
|
|
|
|
|
|
North American
|
|
|
North American
|
|
|
Method
|
|
|
Owned/
|
|
|
United
|
|
|
Management
|
|
|
and
|
|
|
|
|
|
|
Management
|
|
|
Development
|
|
|
Investments
|
|
|
Leased)
|
|
|
Kingdom
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
832,715
|
|
|
$
|
6,649
|
|
|
$
|
1,594
|
|
|
$
|
319,704
|
|
|
$
|
19,534
|
|
|
$
|
114
|
|
|
$
|
(21,514
|
)
|
|
$
|
1,158,796
|
|
Community expense
|
|
|
1,500
|
|
|
|
(94
|
)
|
|
|
34
|
|
|
|
259,919
|
|
|
|
32
|
|
|
|
158
|
|
|
|
(19,165
|
)
|
|
|
242,384
|
|
Development expense
|
|
|
(244
|
)
|
|
|
10,608
|
|
|
|
1,187
|
|
|
|
48
|
|
|
|
1,257
|
|
|
|
127
|
|
|
|
(2,521
|
)
|
|
|
10,462
|
|
Depreciation and amortization
|
|
|
10,849
|
|
|
|
1,514
|
|
|
|
|
|
|
|
17,570
|
|
|
|
281
|
|
|
|
82
|
|
|
|
11,158
|
|
|
|
41,454
|
|
Other operating expenses
|
|
|
815,662
|
|
|
|
34,352
|
|
|
|
5,666
|
|
|
|
71,155
|
|
|
|
18,466
|
|
|
|
3,422
|
|
|
|
30,817
|
|
|
|
979,540
|
|
Income (loss) from operations
|
|
|
4,948
|
|
|
|
(39,731
|
)
|
|
|
(5,293
|
)
|
|
|
(28,988
|
)
|
|
|
(502
|
)
|
|
|
(3,675
|
)
|
|
|
(41,803
|
)
|
|
|
(115,044
|
)
|
Interest income
|
|
|
305
|
|
|
|
1,098
|
|
|
|
2
|
|
|
|
181
|
|
|
|
8
|
|
|
|
8
|
|
|
|
(174
|
)
|
|
|
1,428
|
|
Interest expense
|
|
|
(165
|
)
|
|
|
(653
|
)
|
|
|
|
|
|
|
(6,812
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
(3,166
|
)
|
|
|
(10,809
|
)
|
Foreign exchange gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,567
|
|
|
|
(301
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
4,223
|
|
Sunrises share of earnings (losses) and return on
investment in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
9,509
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(131
|
)
|
|
|
9,362
|
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
8,758
|
|
|
|
(30,254
|
)
|
|
|
4,224
|
|
|
|
(31,850
|
)
|
|
|
(1,167
|
)
|
|
|
(3,868
|
)
|
|
|
(44,553
|
)
|
|
|
(98,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
(Wholly
|
|
|
|
|
|
Germany
|
|
|
Corporate
|
|
|
|
|
|
|
North American
|
|
|
North American
|
|
|
Method
|
|
|
Owned/
|
|
|
United
|
|
|
Management
|
|
|
and
|
|
|
|
|
|
|
Management
|
|
|
Development
|
|
|
Investments
|
|
|
Leased)
|
|
|
Kingdom
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
884,342
|
|
|
$
|
20,765
|
|
|
$
|
1,801
|
|
|
$
|
314,906
|
|
|
$
|
25,772
|
|
|
$
|
10,225
|
|
|
$
|
(25,291
|
)
|
|
$
|
1,232,520
|
|
Community expense
|
|
|
898
|
|
|
|
762
|
|
|
|
39
|
|
|
|
255,255
|
|
|
|
(45
|
)
|
|
|
813
|
|
|
|
(23,333
|
)
|
|
|
234,389
|
|
Development expense
|
|
|
8,298
|
|
|
|
18,363
|
|
|
|
2,767
|
|
|
|
9
|
|
|
|
3,384
|
|
|
|
140
|
|
|
|
(4,544
|
)
|
|
|
28,417
|
|
Depreciation and amortization
|
|
|
5,373
|
|
|
|
789
|
|
|
|
|
|
|
|
16,231
|
|
|
|
150
|
|
|
|
105
|
|
|
|
11,616
|
|
|
|
34,264
|
|
Other operating expenses
|
|
|
842,563
|
|
|
|
92,054
|
|
|
|
10,006
|
|
|
|
48,404
|
|
|
|
17,171
|
|
|
|
13,085
|
|
|
|
43,005
|
|
|
|
1,066,288
|
|
Income (loss) from operations
|
|
|
27,210
|
|
|
|
(91,203
|
)
|
|
|
(11,011
|
)
|
|
|
(4,993
|
)
|
|
|
5,112
|
|
|
|
(3,918
|
)
|
|
|
(52,035
|
)
|
|
|
(130,838
|
)
|
Interest income
|
|
|
696
|
|
|
|
78
|
|
|
|
726
|
|
|
|
244
|
|
|
|
590
|
|
|
|
40
|
|
|
|
1,599
|
|
|
|
3,973
|
|
Interest expense
|
|
|
(168
|
)
|
|
|
(834
|
)
|
|
|
(365
|
)
|
|
|
(7,316
|
)
|
|
|
|
|
|
|
|
|
|
|
746
|
|
|
|
(7,937
|
)
|
Foreign exchange gain (loss)
|
|
|
|
|
|
|
(1,886
|
)
|
|
|
|
|
|
|
(85
|
)
|
|
|
(1,030
|
)
|
|
|
212
|
|
|
|
|
|
|
|
(2,789
|
)
|
Sunrises share of earnings (losses) and return on
investment in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
(7,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
(7,207
|
)
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
28,041
|
|
|
|
(76,234
|
)
|
|
|
(17,037
|
)
|
|
|
(11,741
|
)
|
|
|
4,639
|
|
|
|
(3,670
|
)
|
|
|
(55,749
|
)
|
|
|
(131,751
|
)
|
30
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
|
|
15.
|
Comprehensive
Loss and Capital Structure
|
Comprehensive loss for the three and nine months ended
September 30, 2009 and 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(44,402
|
)
|
|
$
|
(68,666
|
)
|
|
$
|
(144,351
|
)
|
|
$
|
(133,567
|
)
|
Foreign currency translation adjustment
|
|
|
(5,306
|
)
|
|
|
2,479
|
|
|
|
(5,268
|
)
|
|
|
66
|
|
Unrealized gain on investments
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
Equity interest in investees other comprehensive loss
|
|
|
633
|
|
|
|
1,045
|
|
|
|
7,358
|
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to common shareholders
|
|
$
|
(48,972
|
)
|
|
$
|
(65,142
|
)
|
|
$
|
(142,158
|
)
|
|
$
|
(133,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details changes in shareholders
equity, including changes in equity attributable to common
shareholders and changes in equity attributable to the
noncontrolling interests.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Attributable
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
to Noncontrolling
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Loss
|
|
|
Income(Loss)
|
|
|
Interests
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
50,872
|
|
|
$
|
509
|
|
|
$
|
458,404
|
|
|
$
|
(327,056
|
)
|
|
$
|
6,671
|
|
|
$
|
9,386
|
|
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144,351
|
)
|
|
|
|
|
|
|
218
|
|
Foreign currency translation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,268
|
)
|
|
|
|
|
Sunrises share of investees other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,358
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
Exercise of stock options
|
|
|
250
|
|
|
|
3
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surrender of shares for taxes
|
|
|
(16
|
)
|
|
|
(1
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,069
|
)
|
Consolidation of controlling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,215
|
|
Sale of Greystone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
51,072
|
|
|
$
|
511
|
|
|
$
|
461,945
|
|
|
$
|
(471,407
|
)
|
|
$
|
8,864
|
|
|
$
|
4,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Supplemental
Cash Flow Information
|
Interest paid was $10.2 million and $16.2 million for
the nine months ended September 30, 2009 and 2008,
respectively. Interest capitalized was $0.5 million and
$5.6 million for the nine months ended September 30,
2009 and 2008, respectively. Income taxes (refunded) paid was
$(23.9) million and $2.1 million for the nine months
ended September 30, 2009 and 2008, respectively.
31
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
For the nine months ended September 30, 2008, significant
non-cash transactions included the addition of
$166.1 million of fixed assets and $216.7 million of
long-term debt as the result of the consolidation of our German
venture.
|
|
17.
|
Variable
Interest Entities
|
Generally accepted accounting principles require if an entity is
determined to be a variable interest entity (VIE),
it must be consolidated by the primary beneficiary. The primary
beneficiary is the party that absorbs a majority of the
entitys expected losses, receives a majority of the
entitys expected residual returns or both. We perform a
qualitative and quantitative analysis using the methodology as
described under the ASC Consolidation Topic to calculate
expected losses to determine if the entity is a VIE. If the
entity is a VIE, we determine which party has the greater
variability and is the primary beneficiary. At
September 30, 2009, we are the primary beneficiary of one
VIE and therefore consolidate that entity.
VIEs
where Sunrise is the Primary Beneficiary
We have a management agreement with a
not-for-profit
corporation established to own and operate a continuing care
retirement community (CCRC) in New Jersey. This
entity is a VIE. The CCRC contains a 60-bed skilled nursing
unit, a 32-bed assisted living unit, a 27-bed Alzheimers
care unit and 252 independent living apartments. We have
included $18.4 million and $19.2 million,
respectively, of net property and equipment and debt of
$23.2 million and $23.9 million, respectively, in our
September 30, 2009 and December 31, 2008 consolidated
balance sheets for this entity. The majority of the debt is
bonds that are secured by a pledge of and lien on revenues, a
letter of credit with Bank of New York and by a leasehold
mortgage and security agreement. We guarantee the letter of
credit. Proceeds from the bonds issuance were used to
acquire and renovate the CCRC. As of September 30, 2009, we
guaranteed $21.9 million of the bonds. The entity has
incurred losses and has experienced negative working capital for
several years and has failed the debt service coverage ratio
related to the bonds. Management fees earned by us were
$0.1 million for both the three months ended
September 30, 2009 and 2008, respectively, and
$0.4 million for both the nine months ended
September 30, 2009 and 2008, respectively. The management
agreement also provides for reimbursement to us for all direct
cost of operations. Payments to us for direct operating expenses
were $2.4 million and $1.7 million for the three
months ended September 30, 2009 and 2008, respectively, and
$8.3 million and $5.6 million for the nine months
ended September 30, 2009 and 2008, respectively. The entity
obtains professional and general liability coverage through our
affiliate, Sunrise Senior Living Insurance, Inc. The entity
incurred $39,334 and $47,992 for the three months ended
September 30, 2009 and 2008, respectively, and
$0.1 million and $0.2 million for the nine months
ended September 30, 2009 and 2008, respectively, related to
the professional and general liability coverage. The entity also
has a ground lease with us. Rent expense is recognized on a
straight-line basis at $0.7 million per year. Deferred rent
relating to this agreement is $6.0 million and
$5.6 million at September 30, 2009 and
December 31, 2008, respectively. These amounts are
eliminated in our consolidated financial statements.
Beginning in September 2008, we consolidated the German
communities. In January 2009, we exercised our option and
acquired a controlling interest of 94.9% in the German
communities. In June 2009, we exercised our option and acquired
the remaining 5.1% interest in our German communities therefore
wholly owning those communities.
We previously consolidated six VIEs that were investment
partnerships formed with third-party partners to invest capital
in the pre-financing stage of Greystone projects. Five of these
investment partnerships were sold as part of the Greystone
transaction in March 2009 (refer to Note 12) and we
retained ownership in one which we deconsolidated as we are no
longer affiliated with the general partner and do not control
the entity. We expect that this entity will be dissolved by year
end. We own 49.5% of the investment partnership with 50.5% owned
by third-parties. The purpose of the venture had been to develop
a senior living community owned by a nonprofit entity.
32
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
VIEs
Where We Are Not the Primary Beneficiary but Hold a Significant
Variable Interest in the VIEs
In July 2007, we formed a venture with a third party to purchase
six communities from our first U.K. development venture. The
entity was financed with £187.6 million of debt. The
venture also entered into a firm commitment to purchase 11
additional communities from our first U.K. development venture.
As of September 30, 2009, the venture has 14 operating
communities in the U.K. Our equity investment in the venture is
$1.0 million at September 30, 2009. The line item
Due from unconsolidated communities on our
consolidated balance sheet contains $0.7 million due from
the venture. Our maximum exposure to loss is our equity
investment of $1.0 million. We calculated the maximum
exposure to loss as the maximum loss (regardless of probability
of being incurred) that we could be required to record in our
statement of operations as a result of our involvement with the
VIE.
In September 2006, a venture was formed to acquire and operate
six senior living facilities located in Florida. We owned a 25%
interest in the venture as managing member and our venture
partner owned the remaining 75% interest. The venture was
financed with $156 million of equity and $304 million
of debt. In December 2008, the ventures debt was
restructured and we entered into an agreement with our venture
partner under which we agreed to resign as managing member of
the venture and manager of the communities when we are released
from various guarantees provided to the ventures lender.
On April 30, 2009, we sold our equity interest in the
venture and were released from all guarantee obligations. Our
management contract was terminated on April 30, 2009. We
received proceeds of approximately $4.8 million for our
equity interest and our receivable from the venture for fundings
under the operating deficit guarantees.
In October 2008, we entered into a contract with SecureNet
Payment Systems LLC (SecureNet) to provide
consulting services in connection with the processing of direct
deposit and credit card payments by community residents of their
monthly fees. The sales agent representing SecureNet, whose
compensation will be based on SecureNets revenue from the
contract, is the wife of a Sunrise employee. In November 2008,
after the award of the contract, that employee became Senior
Vice President, North American Operations and an officer of the
Company. The Governance Committee reviewed this transaction at
its meeting on July 20, 2009 and concluded that the bidding
process was done with integrity, that the award to SecureNet
appeared to have been in our best interest and that our
employees relationship to the SecureNet sales
representative did not have any influence over the decision to
select SecureNet. As of September 30, 2009,
$0.1 million of fees were paid to SecureNet.
In November 2008, we entered into an oral consulting arrangement
with Mr. Klaassen. Under the consulting arrangement, we
agreed to pay Mr. Klaassen a fee of $25,000 per month for
consulting with us and Mr. Ordan, our new chief executive
officer, on senior living matters. This was in addition to any
benefits Mr. Klaassen was entitled to under his employment
agreement. Fees totaling $87,500 were paid to Mr. Klaassen
for three and a half months commencing in November 2008.
For additional discussion of related parties transactions, refer
to Note 18 to the Consolidated Financial Statements of our
2008
Form 10-K,
as amended.
Sale
of 21 Communities
In October 2009, we entered into an agreement to sell 21 wholly
owned assisted living communities, located in 11 states, to
Brookdale Senior Living Inc. (Brookdale) for
$204 million. Brookdale placed into escrow an earnest money
deposit of $5 million toward the purchase price. The
closing date is currently scheduled for November 16, 2009.
At the closing of the sale, we expect to receive approximately
$60 million in proceeds after payment or assumption by
Brookdale of certain mortgage loans, the posting of required
escrows, and payment of expenses by
33
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial Statements (Continued)
(Unaudited)
us. We will use $25 million of proceeds to pay down our
Bank Credit Facility and will place $20 million into a
collateral account for the benefit of other creditors.
We recorded an impairment charge of $6.8 million in the
third quarter of 2009 to write down five of the 21 communities
to fair value. We expect to record a gain on the sale of real
estate of approximately $50 million upon closing of the
transaction.
Bank
Credit Facility
See Note 6 for a discussion of the Thirteenth Amendment to
our Bank Credit Facility.
Germany
See Note 12 for a discussion of the debt restructuring
agreements with two of our lenders for our German communities.
Fountains
See Note 10 for a discussion regarding the release of our
obligations related to the Fountains venture.
Other
See Note 3 for a discussion regarding the sale of auction
rate securities.
We have evaluated all other events occurring after
September 30, 2009 through November 8, 2009, the date
our financial statements are issued.
34
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read together with the
information contained in our consolidated financial statements,
including the related notes, and other financial information
appearing elsewhere herein. This managements discussion
and analysis contains certain forward-looking statements that
involve risks and uncertainties. Although we believe the
expectations reflected in such forward looking statements are
based on reasonable assumptions, there can be no assurance that
our expectations will be realized. Our actual results could
differ materially from those anticipated in these
forward-looking statements as a result of various factors
including, but not limited to, our ability to raise funds and
maintain sufficient liquidity; our ability to extend the
maturity dates of, obtain waivers with respect to, or refinance,
some of our outstanding debt; our ability to achieve the
anticipated savings from our cost-savings program; the sale of
our German communities and the settlement of the related debt;
the outcome of the HCP, Inc. litigation; the outcome of the
SECs investigation; the outcome of the Trinity OIG
investigation; risk of changes in our critical accounting
estimates; risk of further write-downs or impairments of our
assets; risk of future fundings of guarantees and other support
arrangements to some of our ventures, lenders to the ventures or
third party owners; risk of declining occupancies in existing
communities or slower than expected leasing of new communities;
development and construction risks; risks associated with past
or any future acquisition; compliance with government
regulations; risk of new legislation or regulatory developments;
business conditions; competition; changes in interest rates;
unanticipated expenses; market factors that could affect the
value of our properties; the risks of further downturns in
general economic conditions; availability of financing for
development, including under construction loans as to which we
are in default; and other risks detailed in our amended 2008
Annual Report on
Form 10-K
filed with the SEC on February 27, 2009 as amended on
March 31, 2009 and April 30, 2009, and, as may be
amended or supplemented in our
Form 10-Q
filings. We assume no obligation to update or supplement
forward-looking statements that become untrue because of
subsequent events.
Unless the context suggests otherwise, references herein to
Sunrise, the Company, we,
us, and our mean Sunrise Senior Living,
Inc. and its consolidated subsidiaries.
Overview
We are a Delaware corporation and a provider of senior living
services in the United States, Canada, the United Kingdom
and Germany.
At September 30, 2009, we operated 418 communities,
including 371 communities in the United States, 15 communities
in Canada, 25 communities in the United Kingdom and seven
communities in Germany, with a total unit capacity of
approximately 43,000.
The following table summarizes our portfolio of operating
communities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Total communities
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated (owned or leased)
|
|
|
68
|
|
|
|
64
|
|
|
|
6.3
|
%
|
Consolidated Variable Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity
|
|
|
1
|
|
|
|
10
|
|
|
|
(90.0
|
)%
|
Unconsolidated Ventures
|
|
|
213
|
|
|
|
200
|
|
|
|
6.5
|
%
|
Managed
|
|
|
136
|
|
|
|
170
|
|
|
|
(20.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
418
|
|
|
|
444
|
|
|
|
(5.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first nine months of 2009 we continued to execute a
strategy of 1) divesting of non-core assets and
unprofitable operations to raise cash, improve our liquidity,
avoid significant capital investment and reduce our operating
and financial risks and 2) improve the efficiency of our
operations and our administrative functions.
We had $43.4 million and $29.5 million of unrestricted
cash at September 30, 2009 and December 31, 2008,
respectively. The outstanding borrowings on the Bank Credit
Facility were $68.9 million at September 30, 2009. On
October 19, 2009, we entered into the Thirteenth Amendment
to the Bank Credit Facility, which extended the
35
maturity date to December 2, 2010 (subject to certain
conditions as discussed more fully under Liquidity and Capital
Resources). We have no borrowing availability under the Bank
Credit Facility.
Debt that is in default at September 30, 2009 consists of
the following (in thousands):
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
German communities(1)
|
|
$
|
200,034
|
|
Community mortgages
|
|
|
147,930
|
|
Variable interest entity
|
|
|
23,225
|
|
Land loans
|
|
|
12,420
|
|
Other
|
|
|
28,286
|
|
|
|
|
|
|
|
|
$
|
411,895
|
|
|
|
|
|
|
|
|
|
(1) |
|
The face amount of the debt related to the German communities
was $219.3 million at September 30, 2009. |
We are working with our lenders to extend the maturities of, or
otherwise either re-schedule obligations under debt in default
or to obtain waivers.
For debt that is not in default, we have scheduled debt
maturities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Qtr.
|
|
|
2nd Qtr.
|
|
|
3rd Qtr.
|
|
|
4th Qtr.
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Bank Credit Facility(1)
|
|
$
|
68,878
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
68,878
|
|
Community mortgages
|
|
|
39,796
|
|
|
|
40,573
|
|
|
|
195
|
|
|
|
497
|
|
|
|
198
|
|
|
|
19,766
|
|
|
|
101,025
|
|
Land loans
|
|
|
21,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,907
|
|
Margin loan (auction rate securities)
|
|
|
20,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
151,501
|
|
|
$
|
40,573
|
|
|
$
|
195
|
|
|
$
|
497
|
|
|
$
|
198
|
|
|
$
|
19,766
|
|
|
$
|
212,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of 10/19/09, maturity date changed to 12/2/10 (subject to
certain conditions). |
As discussed more fully in Liquidity and Capital Resources, we
are in default of the loan agreements relating to our German
communities and the Hoesel land, but have entered into
standstill agreements with the lenders pursuant to which the
lenders have agreed not to foreclose on the communities that are
collateral for their loans or to commence or prosecute any
action or proceeding to enforce their demand for payment by us
pursuant to our operating deficit agreements until the earliest
of the occurrence of certain other events relating to the loans.
In October 2009, we entered into a restructuring agreement, in
the form of a binding term sheet, with two of our lenders to
seven of the nine communities, to settle and compromise their
claims against us, including under operating deficit and
principal repayment guarantees provided by us in support of our
German subsidiaries. These two lenders contended that these
claims had an aggregate value of approximately
$121.6 million. The binding term sheet is discussed more
fully in Liquidity and Capital Resources.
The restructuring agreement provides that the electing lenders
will release and discharge us from certain claims they may have
against us. We will issue to the lenders that elect to
participate in the restructuring on or before the first
execution of the definitive documentation, their pro rata share
of up to an aggregate of 5 million shares of our common
stock and will grant mortgages for the benefit of all electing
lenders on certain of our unencumbered North American
properties. Following the first execution of the definitive
documentation for the restructuring, we will pursue the sale of
such mortgaged properties and distribute the net sale proceeds
to the electing lenders. We have guaranteed that, within
30 months of the first execution of the definitive
documentation for the restructuring, the electing lenders will
receive a minimum of $58.3 million from the net proceeds of
any such sale, which equals 80 percent of the most recent
aggregate appraised value of these properties. If the electing
lenders do not receive at least $58.3 million by such date,
we will make payment to cover any shortfall or, at such
lenders option, convey to
36
them the remaining unsold properties. As any gain or loss on the
transaction is dependent upon the values at closing of the
aforementioned consideration, we are unable to estimate any gain
or loss at this time.
In addition, we will market for sale the German assisted living
communities subject to loan agreements with the electing lenders
and will remain responsible for all costs of operating,
preserving and maintaining these communities until the earlier
of either their sale or December 31, 2010.
The closing of the transaction, including the execution of the
definitive documentation, the release of claims and the issuance
of Sunrise common stock, is conditioned upon receipt of consent
for the transaction from Bank of America, N.A., as the
administrative agent under our Bank Credit Facility, on or
before November 11, 2009. In accordance with the binding
term sheet, definitive documentation shall be executed as soon
as reasonably possible (but no later than 40 days) after
the receipt of such required consent.
We continue to be liable under certain operating deficit and
repayment guarantees for the Klein Flottbeck and Wiesbaden
communities, and certain principal repayment guarantees for the
Hoesel land which is not part of the restructuring agreement.
In the second quarter of 2009, we engaged a broker to assist in
the sale of the nine German communities and at that time,
classified the German assets as held for sale. As the book value
of the majority of the assets was in excess of their fair value
less estimated costs to sell, we recorded a charge of
$52.4 million in the second quarter of 2009 which is
included in discontinued operations.
In January 2009, we suspended payment of default interest and
payments under the income support guarantee for the Fountains
venture. Our failure to pay default interest on the loan was an
additional default of the loan agreement. In October 2009 as
described in Note 10 to the Financial Statements, we
entered into agreements with our venture partner, as well as
with the lender to release us from all claims that our venture
partner and the lender had against us prior to the date of the
agreements and from all of our future funding obligations in
connection with the Fountains portfolio in exchange for which we
have, among other things:
|
|
|
|
|
Transferred our 20-percent ownership interest in the Fountains
joint venture to our joint venture partner;
|
|
|
|
Contributed vacant land parcels adjacent to six of the Fountains
communities and owned by us to the Fountains venture;
|
|
|
|
Agreed to transition from management of the 16 Fountains
communities as soon as the transition closing conditions are met
and the new manager has obtained the regulatory approvals
necessary to assume control of the facilities (we expect to
transition from management of the Fountains communities during
the course of 2010); and
|
|
|
|
Agreed to repay the venture the management fee we had earned to
date in 2009 of $1.8 million.
|
The contributed vacant land parcels were carried on our
consolidated balance sheet at a book value of $12.9 million
at September 30, 2009, in addition to a guarantee liability
of $12.9 million both of which will be written off upon
closing of the transaction resulting in no gain or loss.
In March 2009, we sold our Greystone subsidiary and our
interests in Greystone seed capital partnerships to an entity
controlled by Michael Lanahan and Paul Steinhoff, two senior
executives of the Greystone subsidiary. Total consideration was
(i) $2,000,000 in cash at closing; (ii) $5,700,000 in
short-term notes, (iii) a $6,000,000
7-year note
(iv) a $2,500,000 note payable, and (v) 35% of the net
proceeds received by the seed capital investors for each of the
seed capital interests purchased from us. We collected
$5.7 million of short-term notes through September 30,
2009.
In April 2009, we sold the equity interest in our Aston Gardens
venture and were released from all guarantee obligations. Our
management contracts for the six communities in the venture were
terminated on April 30, 2009. We received proceeds of
approximately $4.8 million for our equity interest and our
receivable from the venture for fundings under the operating
deficit guarantees. We received management fees of
$3.2 million and $3.7 million in 2008 and 2007,
respectively.
37
In May 2009, we announced a plan to continue to reduce corporate
expenses through reorganization of our corporate cost structure,
including a reduction in spending related to, among other areas,
administrative processes, vendors, and consultants. The plan is
designed to reduce our annual recurring general and
administrative expenses (including expenses previously
classified as venture expense) by over $20 million, from
our 2009 budgeted annual recurring level of approximately
$120 million (after the sale of Greystone, which is
presented in discontinued operations in our financial
statements) to approximately $100 million, and to reduce
our centrally administered services which are charged to the
communities by approximately $1.5 million. Under the plan,
approximately 150 positions will be eliminated. As of
September 30, 2009, we have eliminated 114 positions and
will be eliminating an additional 49 positions by early 2010. We
have recorded severance expense of $5.6 million as a result
of the plan through September 30, 2009 and expect to record
an additional $0.6 million through early 2010. The costs
from the 2009 restructuring plan are in addition to the costs
incurred in 2009 related to the 2008 restructuring plan, which
provided for the elimination of 165 positions and corresponding
expense reductions.
In May 2009, we entered into a separation agreement with our
chief financial officer, Richard Nadeau, in connection with this
plan. Pursuant to the separation agreement,
Mr. Nadeaus employment with us terminated effective
as of May 29, 2009. Pursuant to Mr. Nadeaus
employment agreement, Mr. Nadeau received severance
benefits that included a lump sum cash payment of
$1.4 million. In addition, Mr. Nadeau received a bonus
in the amount of $0.5 million and Mr. Nadeaus
outstanding and unvested stock options, restricted stock and
other long-term equity compensation awards were fully vested,
resulting in a non-cash compensation expense to us of
$0.8 million. The options expire 12 months after the
termination of his consulting term, which can be up to nine
months after his termination date of May 29, 2009.
70,859 shares of restricted stock and 750,000 options
vested. We recorded non-cash compensation expense of
$0.8 million as a result of the vesting acceleration.
In June 2009, we were terminated as manager for a portfolio of
15 communities. We managed these communities through
October 1, 2009. The management fees for the years 2008,
2007 and the nine months ended September 30, 2009 were
$3.0 million, $2.9 million and $2.3 million,
respectively.
In August 2009, a wholly owned community was sold to an
unrelated third party for approximately $2.0 million. We
received $0.3 million of cash and a note receivable for
$1.7 million, recognizing gain of $0.3 million.
In September 2009, we terminated our lease on a portion of our
corporate headquarters in McLean, Virginia. We recorded a charge
of $2.7 million which is reflected in restructuring expense
on our consolidated statement of operations. We expect to save
$5.6 million in cash over four years as a result of
terminating this portion of the lease.
In October 2009, we entered into an agreement to sell 21 wholly
owned assisted living communities, located in 11 states, to
Brookdale Senior Living Inc. (Brookdale) for
$204 million. Brookdale placed into escrow an earnest money
deposit of $5 million toward the purchase price. The
closing date is currently scheduled for November 16, 2009.
At the closing of the sale, we expect to receive approximately
$60 million in proceeds after payment or assumption by
Brookdale of certain mortgage loans, the posting of required
escrows, and payment of expenses by us. We will use
$25 million of proceeds to pay down our Bank Credit
Facility and will place $20 million into a collateral
account for the benefit of other creditors.
In addition to selling the German communities and the 21
communities to Brookdale, we intend to sell 11 operating
communities, of which eight are located in the United States and
three in Canada. Of the 11 operating communities, five are
collateral for the German lenders and future net proceeds of the
remaining six operating communities would be split equally
between us and the lenders of the Bank Credit Facility. We also
intend to sell one closed community in the United States which
is collateral for the German lenders.
We intend to sell 16 parcels of land, of which 12 are located in
the United States and four in Canada. Of the 16 land
parcels, 11 are collateral for the German lenders and future
proceeds of the remaining five land parcels after repayment of
related debt would be split equally between us and the lenders
of the Bank Credit Facility. In addition, we intend to sell two
closed construction sites and one building located in the United
States which are collateral for the German lenders.
38
Results
of Operations
Our results of operations for each of the three and nine months
ended September 30, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
Variance
|
|
|
Change
|
|
|
|
|
|
|
September 30,
|
|
|
2009 vs.
|
|
|
2009 vs.
|
|
|
Favorable/
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
(Unfavorable)
|
|
(In thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and buyout fees
|
|
$
|
26,795
|
|
|
$
|
36,179
|
|
|
$
|
(9,384
|
)
|
|
|
25.9
|
%
|
|
|
U
|
|
Resident fees for consolidated communities
|
|
|
106,098
|
|
|
|
106,112
|
|
|
|
(14
|
)
|
|
|
0.0
|
%
|
|
|
U
|
|
Ancillary fees
|
|
|
11,067
|
|
|
|
11,235
|
|
|
|
(168
|
)
|
|
|
1.5
|
%
|
|
|
U
|
|
Professional fees from development, marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
809
|
|
|
|
12,631
|
|
|
|
(11,822
|
)
|
|
|
93.6
|
%
|
|
|
U
|
|
Reimbursed costs incurred on behalf of managed communities
|
|
|
237,810
|
|
|
|
246,460
|
|
|
|
(8,650
|
)
|
|
|
3.5
|
%
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
382,579
|
|
|
|
412,617
|
|
|
|
(30,038
|
)
|
|
|
7.3
|
%
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community expense for consolidated communities
|
|
|
80,761
|
|
|
|
81,248
|
|
|
|
(487
|
)
|
|
|
0.6
|
%
|
|
|
F
|
|
Community lease expense
|
|
|
15,608
|
|
|
|
15,184
|
|
|
|
424
|
|
|
|
2.8
|
%
|
|
|
U
|
|
Depreciation and amortization
|
|
|
11,659
|
|
|
|
11,630
|
|
|
|
29
|
|
|
|
0.2
|
%
|
|
|
U
|
|
Ancillary expenses
|
|
|
10,378
|
|
|
|
9,480
|
|
|
|
898
|
|
|
|
9.5
|
%
|
|
|
U
|
|
General and administrative
|
|
|
34,024
|
|
|
|
37,147
|
|
|
|
(3,123
|
)
|
|
|
8.4
|
%
|
|
|
F
|
|
Development expense
|
|
|
1,797
|
|
|
|
7,995
|
|
|
|
(6,198
|
)
|
|
|
77.5
|
%
|
|
|
F
|
|
Write-off of capitalized project costs
|
|
|
652
|
|
|
|
47,512
|
|
|
|
(46,860
|
)
|
|
|
98.6
|
%
|
|
|
F
|
|
Accounting Restatement, Special Independent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committee inquiry, SEC investigation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholder litigation
|
|
|
1,108
|
|
|
|
5,072
|
|
|
|
(3,964
|
)
|
|
|
78.2
|
%
|
|
|
F
|
|
Restructuring costs
|
|
|
8,960
|
|
|
|
7,219
|
|
|
|
1,741
|
|
|
|
24.1
|
%
|
|
|
U
|
|
Provision for doubtful accounts
|
|
|
331
|
|
|
|
2,280
|
|
|
|
(1,949
|
)
|
|
|
85.5
|
%
|
|
|
F
|
|
Loss on financial guarantees and other contracts
|
|
|
809
|
|
|
|
975
|
|
|
|
(166
|
)
|
|
|
17.0
|
%
|
|
|
F
|
|
Impairment of long-lived assets
|
|
|
9,922
|
|
|
|
|
|
|
|
9,922
|
|
|
|
NA
|
|
|
|
U
|
|
Costs incurred on behalf of managed communities
|
|
|
240,494
|
|
|
|
246,076
|
|
|
|
(5,582
|
)
|
|
|
2.3
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
416,503
|
|
|
|
471,818
|
|
|
|
(55,315
|
)
|
|
|
11.7
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(33,924
|
)
|
|
|
(59,201
|
)
|
|
|
25,277
|
|
|
|
42.7
|
%
|
|
|
F
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
572
|
|
|
|
1,000
|
|
|
|
(428
|
)
|
|
|
42.8
|
%
|
|
|
U
|
|
Interest expense
|
|
|
(3,661
|
)
|
|
|
(3,997
|
)
|
|
|
336
|
|
|
|
8.4
|
%
|
|
|
F
|
|
Gain on investments
|
|
|
95
|
|
|
|
720
|
|
|
|
(625
|
)
|
|
|
NM
|
|
|
|
U
|
|
Other income
|
|
|
2,957
|
|
|
|
780
|
|
|
|
2,177
|
|
|
|
279.1
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense
|
|
|
(37
|
)
|
|
|
(1,497
|
)
|
|
|
1,460
|
|
|
|
NM
|
|
|
|
F
|
|
Gain on the sale and development of real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and equity interests
|
|
|
3,627
|
|
|
|
4,717
|
|
|
|
(1,090
|
)
|
|
|
23.1
|
%
|
|
|
U
|
|
Sunrises share of loss and return on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment in unconsolidated communities
|
|
|
(4,613
|
)
|
|
|
(15,549
|
)
|
|
|
10,936
|
|
|
|
70.3
|
%
|
|
|
F
|
|
(Loss) income from investments accounted for under the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
profit sharing method
|
|
|
(2,897
|
)
|
|
|
594
|
|
|
|
(3,491
|
)
|
|
|
NM
|
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before (provision for) benefit from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes and discontinued operations
|
|
|
(37,844
|
)
|
|
|
(70,936
|
)
|
|
|
33,092
|
|
|
|
46.7
|
%
|
|
|
F
|
|
(Provision for) benefit from income taxes
|
|
|
(1,010
|
)
|
|
|
33,248
|
|
|
|
(34,258
|
)
|
|
|
NM
|
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(38,854
|
)
|
|
|
(37,688
|
)
|
|
|
(1,166
|
)
|
|
|
3.1
|
%
|
|
|
F
|
|
Discontinued operations, net of tax
|
|
|
(5,523
|
)
|
|
|
(32,035
|
)
|
|
|
26,512
|
|
|
|
82.8
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(44,377
|
)
|
|
|
(69,723
|
)
|
|
|
25,346
|
|
|
|
36.4
|
%
|
|
|
F
|
|
Less: Net (income) loss attributable to noncontrolling interests
|
|
|
(25
|
)
|
|
|
1,057
|
|
|
|
(1,082
|
)
|
|
|
NM
|
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(44,402
|
)
|
|
$
|
(68,666
|
)
|
|
$
|
24,264
|
|
|
|
35.3
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Not Meaningful (NM) is used when there is a positive
number in one period and a negative number in another period.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
Variance
|
|
|
Change
|
|
|
|
|
|
|
September 30,
|
|
|
2009 vs.
|
|
|
2009 vs.
|
|
|
Favorable/
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
(Unfavorable)
|
|
(In thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and buyout fees
|
|
$
|
84,305
|
|
|
$
|
101,071
|
|
|
$
|
(16,766
|
)
|
|
|
16.6
|
%
|
|
|
U
|
|
Resident fees for consolidated communities
|
|
|
319,842
|
|
|
|
314,462
|
|
|
|
5,380
|
|
|
|
1.7
|
%
|
|
|
F
|
|
Ancillary fees
|
|
|
34,148
|
|
|
|
32,197
|
|
|
|
1,951
|
|
|
|
6.1
|
%
|
|
|
F
|
|
Professional fees from development, marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
11,343
|
|
|
|
33,632
|
|
|
|
(22,289
|
)
|
|
|
66.3
|
%
|
|
|
U
|
|
Reimbursed costs incurred on behalf of managed communities
|
|
|
709,158
|
|
|
|
751,158
|
|
|
|
(42,000
|
)
|
|
|
5.6
|
%
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
1,158,796
|
|
|
|
1,232,520
|
|
|
|
(73,724
|
)
|
|
|
6.0
|
%
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community expense for consolidated communities
|
|
|
242,384
|
|
|
|
234,389
|
|
|
|
7,995
|
|
|
|
3.4
|
%
|
|
|
U
|
|
Community lease expense
|
|
|
44,765
|
|
|
|
44,916
|
|
|
|
(151
|
)
|
|
|
0.3
|
%
|
|
|
F
|
|
Depreciation and amortization
|
|
|
41,454
|
|
|
|
34,264
|
|
|
|
7,190
|
|
|
|
21.0
|
%
|
|
|
U
|
|
Ancillary expenses
|
|
|
31,880
|
|
|
|
28,339
|
|
|
|
3,541
|
|
|
|
12.5
|
%
|
|
|
U
|
|
General and administrative
|
|
|
91,829
|
|
|
|
116,017
|
|
|
|
(24,188
|
)
|
|
|
20.8
|
%
|
|
|
F
|
|
Development expense
|
|
|
10,462
|
|
|
|
28,417
|
|
|
|
(17,955
|
)
|
|
|
63.2
|
%
|
|
|
F
|
|
Write-off of capitalized project costs
|
|
|
14,147
|
|
|
|
84,209
|
|
|
|
(70,062
|
)
|
|
|
83.2
|
%
|
|
|
F
|
|
Accounting Restatement, Special Independent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committee inquiry, SEC investigation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholder litigation
|
|
|
3,541
|
|
|
|
26,436
|
|
|
|
(22,895
|
)
|
|
|
86.6
|
%
|
|
|
F
|
|
Restructuring costs
|
|
|
25,883
|
|
|
|
7,219
|
|
|
|
18,664
|
|
|
|
258.5
|
%
|
|
|
U
|
|
Provision for doubtful accounts
|
|
|
11,335
|
|
|
|
5,716
|
|
|
|
5,619
|
|
|
|
98.3
|
%
|
|
|
U
|
|
Loss on financial guarantees and other contracts
|
|
|
1,463
|
|
|
|
1,703
|
|
|
|
(240
|
)
|
|
|
14.1
|
%
|
|
|
F
|
|
Impairment of long-lived assets
|
|
|
34,962
|
|
|
|
2,349
|
|
|
|
32,613
|
|
|
|
1388.4
|
%
|
|
|
U
|
|
Costs incurred on behalf of managed communities
|
|
|
719,735
|
|
|
|
749,384
|
|
|
|
(29,649
|
)
|
|
|
4.0
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,273,840
|
|
|
|
1,363,358
|
|
|
|
(89,518
|
)
|
|
|
6.6
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(115,044
|
)
|
|
|
(130,838
|
)
|
|
|
15,794
|
|
|
|
12.1
|
%
|
|
|
F
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,428
|
|
|
|
3,973
|
|
|
|
(2,545
|
)
|
|
|
64.1
|
%
|
|
|
U
|
|
Interest expense
|
|
|
(10,809
|
)
|
|
|
(7,937
|
)
|
|
|
(2,872
|
)
|
|
|
36.2
|
%
|
|
|
U
|
|
Gain (loss) on investments
|
|
|
904
|
|
|
|
(4,000
|
)
|
|
|
4,904
|
|
|
|
NM
|
|
|
|
F
|
|
Other expense
|
|
|
4,276
|
|
|
|
(4,866
|
)
|
|
|
9,142
|
|
|
|
NM
|
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense
|
|
|
(4,201
|
)
|
|
|
(12,830
|
)
|
|
|
8,629
|
|
|
|
67.3
|
%
|
|
|
F
|
|
Gain on the sale and development of real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and equity interests
|
|
|
20,330
|
|
|
|
19,029
|
|
|
|
1,301
|
|
|
|
6.8
|
%
|
|
|
F
|
|
Sunrises share of earnings (loss) and return on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment in unconsolidated communities
|
|
|
9,362
|
|
|
|
(7,207
|
)
|
|
|
16,569
|
|
|
|
NM
|
|
|
|
F
|
|
(Loss) gain from investments accounted for under the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
profit sharing method
|
|
|
(9,157
|
)
|
|
|
95
|
|
|
|
(9,252
|
)
|
|
|
NM
|
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes and discontinued operations
|
|
|
(98,710
|
)
|
|
|
(131,751
|
)
|
|
|
33,041
|
|
|
|
25.1
|
%
|
|
|
F
|
|
Benefit from income taxes
|
|
|
1,449
|
|
|
|
49,476
|
|
|
|
(48,027
|
)
|
|
|
97.1
|
%
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(97,261
|
)
|
|
|
(82,275
|
)
|
|
|
(14,986
|
)
|
|
|
18.2
|
%
|
|
|
U
|
|
Discontinued operations, net of tax
|
|
|
(46,959
|
)
|
|
|
(54,945
|
)
|
|
|
7,986
|
|
|
|
14.5
|
%
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(144,220
|
)
|
|
|
(137,220
|
)
|
|
|
(7,000
|
)
|
|
|
5.1
|
%
|
|
|
U
|
|
Less: Net (income) loss attributable to noncontrolling interests
|
|
|
(131
|
)
|
|
|
3,653
|
|
|
|
(3,784
|
)
|
|
|
NM
|
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(144,351
|
)
|
|
$
|
(133,567
|
)
|
|
$
|
(10,784
|
)
|
|
|
8.1
|
%
|
|
|
U
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Not Meaningful (NM) is used when there is a positive
number in one period and a negative number in another period.
40
Results
of Operations
Loss attributable to common shareholders was $44.4 million
for the three months ended September 30, 2009 from
$68.7 million for the three months ended September 30,
2008 and $144.4 million for the nine months ended
September 30, 2009 from $133.6 million for the nine
months ended September 30, 2008.
Adjusted
(Loss) Income from Ongoing Operations
In the third quarter, net loss from operations for the three
months ended September 30, 2009, was $33.9 million.
Excluding the SEC investigation costs of $1.1 million and
restructuring costs of $9.0 million and non-cash charges
including depreciation and amortization of $11.7 million,
the provision for doubtful accounts of $0.3 million,
write-off of capitalized project costs of $0.7 million and
impairment of long-lived assets of $9.9 million, adjusted
loss from ongoing operations was $1.3 million. The
following table reconciles adjusted (loss) income from ongoing
operations to loss from operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Loss from operations
|
|
$
|
(33,924
|
)
|
|
$
|
(59,201
|
)
|
|
$
|
(115,044
|
)
|
|
$
|
(130,838
|
)
|
Non-cash expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,659
|
|
|
|
11,630
|
|
|
|
41,454
|
|
|
|
34,264
|
|
Write-off of capitalized project costs
|
|
|
652
|
|
|
|
47,512
|
|
|
|
14,147
|
|
|
|
84,209
|
|
Provision for doubtful accounts
|
|
|
331
|
|
|
|
2,280
|
|
|
|
11,335
|
|
|
|
5,716
|
|
Impairment of long-lived assets
|
|
|
9,922
|
|
|
|
|
|
|
|
34,962
|
|
|
|
2,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before non-cash expenses
|
|
|
(11,360
|
)
|
|
|
2,221
|
|
|
|
(13,146
|
)
|
|
|
(4,300
|
)
|
Accounting Restatement, Special Independent Committee inquiry,
SEC investigation and stockholder litigation
|
|
|
1,108
|
|
|
|
5,072
|
|
|
|
3,541
|
|
|
|
26,436
|
|
Restructuring costs
|
|
|
8,960
|
|
|
|
7,219
|
|
|
|
25,883
|
|
|
|
7,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted (loss) income from ongoing operations
|
|
$
|
(1,292
|
)
|
|
$
|
14,512
|
|
|
$
|
16,278
|
|
|
$
|
29,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted (loss) income from ongoing operations is a measure of
operating performance that is not calculated in accordance with
U.S. generally accepted accounting principles and should
not be considered as a substitute for income/loss from
operations or net income/loss. Adjusted income from ongoing
operations is used by management to focus on cash generated from
our ongoing operations and to help management assess if
adjustments to current spending decisions are needed. As further
outlined below, total revenue has decreased without
proportionate decreases to expense. As a result, we incurred a
loss from ongoing operations for the third quarter of 2009. We
are continuing to focus on our cost restructuring initiative as
further discussed in Note 11.
Three
Months Ended September 30, 2009 Compared to the Three
Months Ended September 30, 2008
Operating
Revenue
Management
and buyout fees
The decrease in management and buyout fees of $9.4 million,
or 25.9%, was primarily comprised of:
|
|
|
|
|
$3.5 million decrease related to subordinating management
fees from a venture;
|
|
|
|
$2.0 million decrease primarily due to lower occupancy;
|
|
|
|
$1.8 million decrease as a result of terminated management
contracts;
|
|
|
|
$2.1 million decrease in incentive management fees;
|
41
|
|
|
|
|
$0.2 million decrease related to international communities;
partially offset by
|
|
|
|
$0.9 million increase from communities in the
lease-up
phase.
|
Resident
fees for consolidated communities
Resident fees for consolidated communities were relatively
unchanged due to the following:
|
|
|
|
|
$2.1 million from the addition of three consolidated
Canadian communities and one domestic community;
|
|
|
|
$2.6 million from increases in average daily rates; offset
by a
|
|
|
|
$3.0 million decrease from lower occupancy.
|
Ancillary
fees
Ancillary fees were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
New York Health Care Services
|
|
$
|
9.7
|
|
|
$
|
9.1
|
|
Fountains Health Care Services
|
|
|
1.2
|
|
|
|
1.4
|
|
International Health Care Services
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.1
|
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
|
Professional
fees from development, marketing and other
The decrease in professional fees from development, marketing
and other revenue of $11.8 million was primarily comprised
of:
|
|
|
|
|
$3.6 million decrease from the reduction of international
projects from six unopened communities in 2008 to two unopened
communities in 2009; and
|
|
|
|
$7.4 million decrease from domestic design and development
fees from the reduction of domestic projects from 33 unopened
communities in 2008 to three unopened communities in 2009.
|
Reimbursed
costs incurred on behalf of managed communities
Reimbursed costs incurred on behalf of managed communities were
$237.8 million in the third quarter of 2009 compared to
$246.5 million in the third quarter of 2008. The decrease
of 3.5% was due primarily to 32 fewer communities in the third
quarter of 2009 than the third quarter of 2008.
Operating
Expenses
Community
expense for consolidated communities
The decrease in community expense of $0.5 million, or 0.6%,
was primarily comprised of:
|
|
|
|
|
$2.6 million decrease from lower expenses in existing
communities; offset by a
|
|
|
|
$1.4 million increase from the addition of three Canadian
communities and one domestic community; and
|
|
|
|
$0.7 million from increased net insurance costs as
insurance credits received in 2008 did not recur in 2009.
|
Community
lease
Community lease expense increased $0.4 million primarily
related to increases of $0.5 million in contingent rent.
42
Depreciation
and amortization
The depreciation and amortization expense was $11.7 million
in the third quarter of 2009 and $11.6 million in the third
quarter of 2008. The expense was comparable as the number of
consolidated communities remained constant.
Ancillary
expenses
Ancillary expenses were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
New York Health Care Services
|
|
$
|
8.9
|
|
|
$
|
8.0
|
|
Fountains Health Care Services
|
|
|
1.3
|
|
|
|
1.3
|
|
International Health Care Services
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10.4
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
General,
administrative and venture expense
The decrease in general and administrative expenses of
$3.1 million is primarily due to:
|
|
|
|
|
$1.8 million decrease in salaries and bonus as result of
our cost reduction program resulting in the elimination of 40
positions to date;
|
|
|
|
$1.3 million decrease in general corporate expenses as a
result of cost containment initiatives including a reduction of
information technology costs, training and education and
temporary help;
|
|
|
|
$0.9 million decrease in travel; partially offset by
|
|
|
|
$0.9 million increase related to our executive deferred
compensation plan.
|
Development
expense
The $6.2 million decrease in development expense related to
the reduction of development activity, 39 unopened communities
in 2008 compared to five unopened communities in 2009, was
primarily comprised of:
|
|
|
|
|
$3.5 million decrease in development labor costs; and
|
|
|
|
$2.0 million decrease in development related expenses
including travel, insurance, professional fees, legal,
telecommunication, and other costs.
|
Write-off
of capitalized project costs
Write-off of capitalized project costs was $0.7 million and
$47.5 million in the third quarter of 2009 and 2008,
respectively. We ceased all new development at the end of 2008
until suitable construction financing becomes available.
Accounting
Restatement, Special Independent Committee Inquiry, SEC
Investigation and Stockholder Litigation
Legal and accounting fees related to the accounting restatement,
Special Independent Committee inquiry, SEC investigation and
stockholder litigation decreased to $1.1 million in the
third quarter of 2009 compared to $5.1 million in the third
quarter of 2008. The Special Independent Committee activities
and the accounting restatement were completed during the first
quarter of 2008. However, we continue to incur legal fees and
related expenses in connection with the SEC investigation. The
stockholder litigation was settled in the second quarter of 2009.
43
Restructuring
costs
Costs associated with our 2008 and corporate 2009 restructuring
plans were $9.0 million in the third quarter of 2009 which
includes $4.6 million of legal and professional fees
relating to corporate restructuring activities. In the third
quarter of 2008, restructuring costs were $7.2 million.
Provision
for doubtful accounts
The provision for doubtful accounts decreased $1.9 million
during the three months ended September 30, 2009 compared
to the three months ended September 30, 2008 primarily due
to a $1.8 million reserve for operating advances to five
ventures recorded in the third quarter of 2008.
Loss on
financial guarantees and other contracts
We recorded a loss on our financial guarantees of
$0.8 million and $1.0 million during the three months
ended September 30, 2009 and 2008, respectively, related to
construction cost overrun guarantees on a condominium project
and a completion guarantee on an operating property.
Impairment
of long-lived assets
Impairment of long-lived assets was $9.9 million in the
third quarter 2009. This impairment charge related to six
communities, one land parcel and two discontinued development
projects.
Costs
incurred on behalf of managed communities
Cost incurred on behalf of managed communities were
$240.5 million in the third quarter of 2009 compared to
$246.1 million in the third quarter of 2008. The decrease
of 2.3% was due primarily to 32 fewer communities in the third
quarter of 2009 than the third quarter of 2008.
Other
Non-Operating Income and Expense
Total other non-operating expense was $37,000 and
$1.5 million for the three months ended September 30,
2009 and 2008, respectively. The decrease in other non-operating
expense was primarily due to:
|
|
|
|
|
$0.4 million decrease in interest expense;
|
|
|
|
$0.4 million decrease in interest income;
|
|
|
|
$2.8 million for net foreign exchange gains in 2009
comprised of the $2.7 million and $0.1 million of gain
related to the Canadian dollar and British pound, respectively,
compared to $1.5 million of net foreign exchange gains in
2008 comprised of $(2.1) million and $(0.6) million of
loss related to the Canadian dollar and British pound,
respectively and $4.2 million of gain related to the
Euro; and
|
|
|
|
$0.1 million unrealized gain compared to a $0.7 unrealized
gain on our investments in auction rate securities which are
classified as trading securities and carried at fair value.
|
Gain
on the Sale and Development of Real Estate and Equity
Interests
Gain on the sale and development of real estate and equity
interests was $3.6 million and $4.7 million for the
three months ended September 30, 2009 and 2008,
respectively. The gains primarily resulted from transactions
which occurred in prior years for which the recognition of gain
had been deferred due to various forms of continuing involvement.
44
Sunrises
Share of (Loss) Earnings and Return on Investment in
Unconsolidated Communities
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Sunrises share of losses in unconsolidated communities
|
|
$
|
(7.2
|
)
|
|
$
|
(20.5
|
)
|
Return on investment in unconsolidated communities
|
|
|
2.6
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4.6
|
)
|
|
$
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
The decrease in our share of losses in unconsolidated
communities of $13.3 million was primarily due to
non-recurring losses in the third quarter of 2008 of
$10.2 million and $1.6 million from the Fountains and
Aston Gardens ventures, respectively, and incrementally smaller
operating losses from our unconsolidated communities.
Distributions from operations from investments where the book
value is zero and we have no contractual or implied obligation
to support the venture were $2.6 million and
$5.0 million in the third quarter of 2009 and 2008,
respectively.
(Loss)
Income from Investments Accounted for Under the Profit-Sharing
Method
(Loss) income from investments accounted for under the
profit-sharing method was $(2.9) million and
$0.6 million for the three months ended September 30,
2009 and 2008, respectively. The losses in the third quarter of
2009 were generated from our condominium community that recently
opened and where profits associated with condominium sales are
required to be deferred.
(Provision
for) Benefit from Income Taxes
The (provision for) benefit from income taxes allocated to
continuing operations was $(1.0) million and
$33.2 million for the three months ended September 30,
2009 and 2008, respectively. Our effective tax (rate) benefit
was (2.63)% and 46.9% for the three months ended
September 30, 2009 and 2008, respectively. As of
September 30, 2009, we are continuing to offset our net
deferred tax asset by a full valuation allowance.
Discontinued
Operations
Discontinued operations consists of our German communities which
we are marketing for sale, our Greystone subsidiary which was
sold in the first quarter of 2009, our Trinity subsidiary which
ceased operations in the fourth quarter of 2008, one community
sold in the third quarter of 2009, one community which was
closed in the second quarter of 2009 and two communities which
were sold in 2008 and for which we have no continuing
involvement.
Germanys loss included in discontinued operations was
$5.2 million for the three months ended September 30,
2009.
Nine
Months Ended September 30, 2009 Compared to the Nine Months
Ended September 30, 2008
Operating
Revenue
Management
and buyout fees
The decrease in management and buyout fees of
$16.8 million, or 16.6%, was primarily comprised of:
|
|
|
|
|
$6.7 million decrease related to subordinating management
fees for a venture;
|
|
|
|
$2.4 million decrease in incentive management fees;
|
|
|
|
$3.4 million decrease as a result of terminated management
contracts;
|
|
|
|
$3.3 million decrease due primarily to lower occupancy;
|
|
|
|
$0.8 million decrease associated with international
communities; partially offset by
|
45
|
|
|
|
|
$1.7 million increase from communities in the
lease-up
phase.
|
Resident
fees for consolidated communities
The increase in resident fees for consolidated communities of
$5.4 million, or 1.7%, was primarily comprised of:
|
|
|
|
|
$5.6 million from the addition of three consolidated
Canadian communities and one domestic community;
|
|
|
|
$6.1 million from increases in average daily rates; offset
by a
|
|
|
|
$4.4 million decrease due to lower occupancy.
|
Ancillary
fees
Ancillary fees were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
New York Health Care Services
|
|
$
|
28.5
|
|
|
$
|
26.2
|
|
Fountains Health Care Services
|
|
|
3.9
|
|
|
|
4.1
|
|
International Health Care Services
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34.1
|
|
|
$
|
32.2
|
|
|
|
|
|
|
|
|
|
|
Professional
fees from development, marketing and other
The decrease in professional fees from development, marketing
and other revenue of $22.3 million was primarily comprised
of:
|
|
|
|
|
$8.2 million decrease from the reduction of six unopened
international communities in 2008 to two unopened communities in
2009;
|
|
|
|
$1.1 million decrease from international financing
guarantee fees; and
|
|
|
|
$12.1 million decrease from domestic design and development
fees due to a decrease in unopened communities from 33 in 2008
to three in 2009.
|
Reimbursed
costs incurred on behalf of managed communities
Reimbursed costs incurred on behalf of managed communities were
$709.2 million in the first nine months of 2009 compared to
$751.2 million in the first nine months of 2008. The
decrease of 5.6% was due primarily to 32 fewer communities in
2009 than 2008.
Operating
Expenses
Community
expense for consolidated communities
The increase in community expense of $8.0 million, or 3.4%,
was primarily comprised of:
|
|
|
|
|
$5.8 million from the consolidation of three Canadian
communities and one domestic community; and
|
|
|
|
$2.2 million from increased insurance, labor, utilities and
other costs.
|
Community
lease
Community lease expense decreased $0.2 million primarily
related to a lease termination.
46
Depreciation
and amortization
The depreciation and amortization expense was $41.5 million
in 2009 and $34.3 million in 2008. The increase of
$7.2 million was primarily due to $5.8 million of
additional amortization expense related to a change in the
estimated life of a management contract intangible and
$1.5 million of incremental depreciation expense related to
four new communities (the three Canadian communities referred to
above and a completed project in California which opened in
January 2009).
Ancillary
expenses
Ancillary expenses were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
New York Health Care Services
|
|
$
|
26.5
|
|
|
$
|
22.9
|
|
Fountains Health Care Services
|
|
|
3.6
|
|
|
|
4.0
|
|
International Health Care Services
|
|
|
1.8
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31.9
|
|
|
$
|
28.3
|
|
|
|
|
|
|
|
|
|
|
General,
administrative and venture expense
The decrease in general and administrative expenses of
$24.2 million is primarily due to:
|
|
|
|
|
$9.1 million decrease in salaries and bonus as a result of
our cost reduction program resulting in the elimination of 169
positions to date;
|
|
|
|
$8.2 million decrease in general corporate expenses as a
result of cost containment initiatives including information
technology costs, training and education and temporary help;
|
|
|
|
$3.6 million decrease in travel;
|
|
|
|
$2.0 million decrease in bonus expense related to one of
our ventures;
|
|
|
|
$1.5 million decrease related to an employee litigation
settlement;
|
|
|
|
$1.2 million decrease due to a 2008 penalty related to one
of our communities; partially offset by
|
|
|
|
$1.9 million increase in executive deferred compensation
costs.
|
Development
expense
The $18.0 million decrease in development expense related
to the reduction of development activity, 39 unopened
communities in 2008 compared to five unopened communities in
2009, was primarily comprised of:
|
|
|
|
|
$8.6 million decrease in development labor costs; and
|
|
|
|
$9.5 million decrease in development related expenses
including travel, insurance, professional fees, legal,
telecommunication, and other costs.
|
Write-off
of capitalized project costs
Write-off of capitalized project costs was $14.1 million
and $84.2 million in 2009 and 2008, respectively. We ceased
all new development at the end of 2008 until suitable
construction financing becomes available.
47
Accounting
Restatement, Special Independent Committee Inquiry, SEC
Investigation and Stockholder Litigation
Legal and accounting fees related to the accounting restatement,
Special Independent Committee inquiry, SEC investigation and
stockholder litigation decreased to $3.5 million in 2009
compared to $26.4 million in 2008. The Special Independent
Committee activities and the accounting restatement were
completed during the first quarter of 2008. However, we continue
to incur legal fees and related expenses in connection with the
SEC investigation and stockholder litigation. The stockholder
litigation was settled in the second quarter of 2009.
Restructuring
costs
Costs associated with our 2008 and corporate 2009 restructuring
plans were $25.9 million in 2009. Costs in 2008 were
$7.2 million.
Provision
for doubtful accounts
The provision for doubtful accounts increased $5.6 million
during 2009 compared to 2008 primarily due to a reserve of
$6.2 million for advances to a venture and a
$1.6 million reserve write-off of the remaining Aston
Gardens operating deficit guarantee. These increases were
partially offset by a decrease in other reserves.
Loss on
financial guarantees and other contracts
We recorded a loss on our financial guarantees of
$1.5 million and $1.7 million during 2009 and 2008,
respectively, related to construction cost overrun guarantees on
a condominium project and a completion guarantee on an operating
property.
Impairment
of long-lived assets
Impairment of long-lived assets was $35.0 million in 2009
and $2.3 million in 2008. The 2009 impairment charge
related to 10 operating communities, two discontinued
development projects and nine land parcels and in 2008, one
community.
Costs
incurred on behalf of managed communities
Costs incurred on behalf of managed communities were
$719.7 million in 2009 compared to $749.4 million in
2008. The decrease of 4.0% was due primarily to 32 fewer
communities in 2009 than 2008 and higher insurance charges.
Other
Non-Operating Income and Expense
Total other non-operating expense was $4.2 million and
$12.8 million for the nine months ended September 30,
2009 and 2008, respectively. The decrease in other non-operating
expense was primarily due to:
|
|
|
|
|
$2.9 million increase in interest expense due to increased
borrowings;
|
|
|
|
$2.5 million decrease in interest income;
|
|
|
|
$4.2 million for net foreign exchange gains in 2009
comprised of the $4.6 million of gain related to the
Canadian dollar, $(0.3) million and $(0.1) million of
loss related to the British pound and Euro, respectively,
compared to $(2.9) million of net foreign exchange losses
in 2008 comprised of $(2.0) million and $(1.0) million
of loss related to the Canadian dollar and British pound,
respectively, and $0.1 million of gain related to the
Euro; and
|
|
|
|
$4.9 million decrease in the unrealized loss on our
investments in auction rate securities which are classified as
trading securities and carried at fair value.
|
48
Gain
on the Sale and Development of Real Estate and Equity
Interests
Gain on the sale and development of real estate and equity
interests was $20.3 million and $19.0 million for the
nine months ended September 30, 2009 and 2008,
respectively. The gain in 2009 primarily resulted from
transactions which occurred in prior years for which the
recognition of gain had been deferred due to various forms of
continuing involvement. We accounted for the sale of three
communities in 2004 under the profit-sharing method of
accounting as we provided guarantees to make monthly payments to
the buyer equal to the amount by which a net operating income
target exceeded actual net operating income for the community
for an extended period of time. The guarantee expired in the
second quarter of 2009 and we recorded a gain of approximately
$8.9 million. During the first nine months of 2008, we
completed the recapitalization of a venture with two underlying
properties. As a result of this recapitalization, guarantees
that were requiring us to use the profit-sharing method were
released and we recorded a pre-tax gain on sale of approximately
$6.7 million. In addition, we recognized a gain of
$1.1 million from the sale of three land parcels.
Sunrises
Share of Earnings and Return on Investment in Unconsolidated
Communities
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Sunrises share of income (losses) in unconsolidated
communities
|
|
$
|
2.2
|
|
|
$
|
(30.2
|
)
|
Return on investment in unconsolidated communities
|
|
|
8.4
|
|
|
|
23.0
|
|
Impairment of equity investment
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.4
|
|
|
$
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
The increase in our share of income (losses) in unconsolidated
communities of $32.4 million was primarily due to our UK
venture, in which we have a 20% interest, selling three
communities to a venture in which we have a 10% interest. As a
result of sales, the venture recorded a gain of which we
recognized $19.0 million for our equity interest in the
earnings. In addition, there were non-recurring losses in 2008
of $11.6 million and $2.4 million from our Fountains
and Aston Gardens ventures, respectively, and operating losses
from joint ventures were smaller in 2009 compared to 2008.
Distributions from operations from investments where the book
value is zero and we have no contractual or implied obligation
to support the venture were $2.1 million lower in 2009 than
2008. During the first nine months of 2008, the expiration of
contractual obligations resulted in the recognition of
$9.2 million of gain and the recapitalization of one
venture resulting in a return on investment of $3.3 million.
In March 2009, based on the receipt of a notice of default from
the lender to a venture in which we own a 20% interest and the
poor rental experience in the venture, we consider our equity to
be other than temporarily impaired and wrote off the remaining
equity balance of $1.1 million.
In June 2009, we determined the fair value of our investment in
a venture in which we had a 1% interest had decreased to zero
and was other than temporarily impaired. We wrote our investment
down to zero and recorded an impairment charge of
$0.1 million.
(Loss)
Income from Investments Accounted for Under the Profit-Sharing
Method
(Loss) income from investments accounted for under the
profit-sharing method was $(9.2) million and
$0.1 million for the nine months ended September 30,
2009 and 2008, respectively. The losses in 2009 were generated
from our condominium community that recently opened and where
profits associated with condominium sales are required to be
deferred until such time as 50 percent of units are sold.
Benefit
from Income Taxes
The benefit from income taxes allocated to continuing operations
was $1.4 million and $49.5 million for the nine months
ended September 30, 2009 and 2008, respectively. Our
effective tax benefit was 1.56% and 37.6% for
49
the nine months ended September 30, 2009 and 2008,
respectively. At December 31, 2008, we determined that
deferred tax assets in excess of reversing tax liabilities were
not likely to be realized and we recorded a valuation allowance
on net deferred tax assets. Income tax expense of
$4.8 million attributable to gains in discontinued
operations recorded in the first quarter of 2009 was reversed in
the second quarter due to current period losses in discontinued
operations. As of September 30, 2009, we are continuing to
offset our net deferred tax asset by a full valuation allowance.
Discontinued
Operations
Discontinued operations consists of our German communities which
we are marketing for sale, our Greystone subsidiary which was
sold in the first quarter of 2009, our Trinity subsidiary which
ceased operations in the fourth quarter of 2008, one community
sold in the third quarter of 2009, one community which was
closed in the second quarter of 2009 and two communities which
were sold in 2008 and for which we have no continuing
involvement.
Germanys loss, included in discontinued operations, was
$73.9 million for the nine months ended September 30,
2009 which included an impairment charge of $52.4 million.
Greystones income includes $23.7 million of gain
related to its sale.
In order to resolve and settle the claims among us and
Trinitys prior owners, in June 2009, we entered into a
settlement agreement with the former majority stockholders of
Trinity, which, among other matters, provides for the release
and discharge of all claims and causes of action between the
parties to the settlement agreement.
In consideration of the settlement agreement, the former
majority stockholders of Trinity paid us an aggregate amount of
approximately $9.8 million. The parties to the settlement
agreement also agreed to cooperate to achieve voluntary
dismissal of certain litigation matters.
In exchange for the consideration, we and the former majority
stockholders of Trinity have reciprocally released each other
from any and all claims that each such parties had against other
such parties relating to any matters through the date of the
settlement agreement.
We had previously recorded a receivable of $2.7 million
from the former stockholders of Trinity for various liabilities
relating to events occurring prior to our purchase of Trinity.
Accordingly, $2.7 million of the proceeds were applied
against the receivable and the remaining amount of
$7.1 million has been recorded as income from discontinued
operations.
Liquidity
and Capital Resources
We had $43.4 million and $29.5 million of unrestricted
cash and cash equivalents at September 30, 2009 and
December 31, 2008, respectively. Since January 1,
2009, we have had no borrowing availability under the Bank
Credit Facility; as a result, during 2009, we have been and
currently are financing our operations primarily with cash
generated from operations and sales of assets, including the
sale of our Greystone subsidiary in March 2009 and the sale of
our Aston Gardens equity interest in April 2009.
In connection with communities under construction, we have
provided project completion guarantees to venture lenders. In
addition, we have provided operating deficit guarantees to
venture lenders. These financial guarantees are designed to
assure completion of development projects in the event of cost
overruns, and, after depletion of reserves established in the
loan agreements, guarantee scheduled principal amortization and
interest during the term of the guarantee. We are not in
compliance with one of these construction loans, and, as a
result the lenders could cease funding the projects. Five
communities remain under construction at September 30,
2009. We are working with our lenders and venture partners to
address the defaults. Although we believe that completion of the
projects will not involve material cost overruns and that
established reserves are adequate to fund the
lease-up
period once the projects are completed, there can be no
assurance that these lenders will continue to fund the
construction and development of these projects. We estimate that
completion of the five communities (two in the U.K. and three in
the U.S.) we have under construction in ventures as of
September 30, 2009 will require an additional
$14.5 million, which we anticipate funding with the
proceeds of committed construction financing. We have no further
equity contribution commitments for projects under construction
as of September 30, 2009,
50
assuming the lenders continue to fund under existing
construction loan financing commitments and we incur no cost
overruns.
We do not currently have plans to commence any new projects in
the U.S. or the U.K. Our U.S. and U.K. development
team has been reduced to 10 people at September 30,
2009. We will reconsider future development when market
conditions stabilize and the cost of capital for development
projects is in line with projected returns.
In October 2009, we entered into an agreement to sell 21 wholly
owned assisted living communities, located in 11 states, to
Brookdale Senior Living Inc. for $204 million. Brookdale
placed into escrow an earnest money deposit of $5 million
toward the purchase price. The closing date is currently
scheduled for November 16, 2009. At the closing of the
sale, we expect to receive approximately $60 million in
proceeds after payment or assumption by Brookdale of certain
mortgage loans, the posting of required escrows, and payment of
expenses by us. We anticipate that approximately
$130 million of our debt will be assumed or repaid at
closing. We will use $25 million of proceeds to pay down
our Bank Credit Facility and will place $20 million into a
collateral account for the benefit of other creditors.
In addition to selling the German communities and the 21
communities to Brookdale, we intend to sell 11 operating
communities, of which eight are located in the United States and
three in Canada. Of the 11 operating communities, five are
collateral for the German lenders and future net proceeds of the
remaining six operating communities would be split equally
between us and the lenders of the Bank Credit Facility. We also
intend to sell one closed community in the United States which
is collateral for the German lenders.
We intend to sell 16 parcels of land, of which 12 are located in
the United States and four in Canada. Of the 16 land
parcels, 11 are collateral for the German lenders and future
proceeds of the remaining five land parcels after repayment of
related debt would be split equally between us and the lenders
of the Bank Credit Facility. In addition, we intend to sell two
closed construction sites and one building located in the United
States which are collateral for the German lenders.
Additional financing resources will be required to refinance
existing indebtedness that comes due within the next
12 months. We have undertaken or expect to commence certain
efforts to reduce expenses and preserve liquidity including;
(i) extending the term of our Bank Credit Facility to
December 2, 2010 (subject to certain conditions as
discussed more fully below), (ii) seeking to reduce
operating costs; (iii) seeking to restructure the terms of
our other indebtedness including extension of scheduled maturity
dates; and (iv) pursuing sales of selected assets. No
assurance can be given that we will be successful in achieving
any of these efforts.
In April 2009, we received federal income tax refunds of
$20.8 million and $1 million of the proceeds from the
sale of our equity interest and receivable from the Aston
Gardens venture which were used to pay down the Bank Credit
Facility. In June 2009, $2.5 million of proceeds from an
agreement with Trinitys prior owners
(Note 12) was used to pay down the Bank Credit
Facility. At September 30, 2009, the outstanding borrowings
were $68.9 million.
Bank
Credit Facility
On March 23, 2009, we entered into the Eleventh Amendment
to our Bank Credit Facility. The purpose of the Eleventh
Amendment is to provide the parties with an additional period of
time to negotiate the terms of a Twelfth Amendment to the Bank
Credit Facility which would comprehensively address any
remaining issues between the parties with respect to the Bank
Credit Facility through the Bank Credit Facilitys current
stated maturity date of December 2, 2009. The Eleventh
Amendment is described in Note 6 to the Financial
Statements.
On April 28, 2009, we entered into the Twelfth Amendment to
the Bank Credit Facility. The significant terms include:
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waiver of all existing financial covenants through
December 2, 2009, the maturity date of the Bank Credit
Facility;
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agreement for renewal of existing letters of credit;
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an amendment fee of $0.5 million;
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authorization to consummate certain transactions;
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51
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restriction on the disposition of assets except to permit the
transfer of scheduled assets;
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requirement to maintain minimum cash balance as of the last day
of each month and of not less than $5 million at any time;
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a cash sweep as of the last day of October and November 2009 to
reduce principal equal to the greater of consolidated cash in
excess of $35 million or $2 million; and
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a permanent reduction of the commitment after an
agreed-upon
repayment of the outstanding balance from dispositions consented
to by our lenders, federal income tax refunds of
$20.8 million and payments received from the cash sweep.
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On October 19, 2009, we entered into the Thirteenth
Amendment to the Bank Credit Facility. The significant terms
include:
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an extension of the maturity date from December 2, 2009 to
December 2, 2010;
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renewal of existing letters of credit;
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an amendment fee of $0.5 million of which $250,000 was paid
on October 19, 2009 and $250,000 to be paid upon the
earlier of the sale of properties or January 4, 2010;
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principal payment of $6.0 million which was paid on
October 19, 2009;
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principal payments previously due on October 31 and
November 30, 2009 are no longer due;
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modifies the minimum liquidity covenant to not less than
$10.0 million of unrestricted cash on hand the last day of
the month;
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modifies the restriction on the disposal of assets to permit
disposition of certain assets as long as 50% of the net sale
proceeds are allocated to the lenders;
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the proceeds from the pending sale of 21 properties are
allocated as follows:
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a principal payment of $25 million;
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$20 million deposited into a collateral account for the
benefit of other creditors;
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either cause a return of $3.7 million in letters of credit
or make a principal payment of that same amount;
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if the pending sale of the 21 properties does not close by
June 30, 2010, we will either make a principal payment of
$28.7 million or make a $5 million principal payment,
pay an additional $1 million extension fee and grant
mortgage liens junior to existing mortgages or a perfected first
priority pledge of and security interest in, the equity
interests in the entities owning 16 certain properties (the
granting of such mortgages or security interest is subject to
the existing mortgage lenders consent). If we are unable
to deliver these items, the Bank Credit Facility will be in
default and become due and payable; and
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a permanent reduction of the commitment after future principal
repayments or cancellation of letters of credit.
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We have no borrowing availability under the Bank Credit
Facility, and we have significant scheduled debt maturities in
2009 and 2010 and significant long-term debt that is in default.
We are endeavoring to extend debt maturity dates, re-finance
debt and obtain waivers from applicable lenders. We are engaged
in discussions with various venture partners and third parties
regarding the sale of certain assets with the purpose of
increasing liquidity and reducing obligations to enable us to
continue operations.
In April 2009, we received federal income tax refunds of
$20.8 million which was used to pay down the Bank Credit
Facility and $1 million of the proceeds from the sale of
our equity interest and receivable from the Aston Gardens
venture was also used to pay down the Bank Credit Facility. In
June 2009, $2.5 million of proceeds from an agreement with
Trinitys prior owners (Note 12) was used to pay
down the Bank Credit Facility. At September 30, 2009, the
outstanding borrowings under the Bank Credit Facility were
$68.9 million and there were $23.1 million of letters
of credit outstanding.
52
Debt
At September 30, 2009, we had $624.6 million of
outstanding debt with a weighted average interest rate of 3.13%
as follows (in thousands):
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September 30,
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December 31,
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2009
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2008
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Community mortgages
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$
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248,955
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$
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241,851
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German communities(1)
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200,034
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185,901
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Bank Credit Facility
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68,878
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95,000
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Land loans
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34,327
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37,407
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Other
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28,286
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30,655
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Variable interest entity
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23,225
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23,905
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Margin loan (auction rate securities)
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20,920
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21,412
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$
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624,625
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$
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636,131
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(1) |
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The face amount of the debt related to the German communities
was $219.3 million at September 30, 2009. |
Of the outstanding debt we had $5.3 million of fixed-rate
debt with a weighted average interest rate of 6.82% and
$619.3 million of variable rate debt with a weighted
average interest rate of 3.10%.
Debt that is in default at September 30, 2009 consists of
the following (in thousands):
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September 30,
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2009
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German communities(1)
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$
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200,034
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Community mortgages
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147,930
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Variable interest entity
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23,225
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Land loans
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12,420
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Other
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28,286
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$
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411,895
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(1) |
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The face amount of the debt related to the German communities
was $219.3 million at September 30, 2009. |
We are working with our lenders to either re-schedule certain of
these obligations or obtain waivers.
For debt that is not in default, we have scheduled debt
maturities as follows (in thousands):
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1st Qtr.
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2nd Qtr.
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3rd Qtr.
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4th Qtr.
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2009
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2010
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2010
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2010
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2010
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Thereafter
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Total
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Bank Credit Facility(1)
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$
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68,878
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$
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$
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$
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$
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$
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$
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68,878
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Community mortgages
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39,796
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40,573
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|
195
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497
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|
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198
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19,766
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101,025
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Land loans
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21,907
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21,907
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Margin loan (auction rate securities)
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20,920
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20,920
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$
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151,501
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$
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40,573
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|
$
|
195
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|
$
|
497
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|
$
|
198
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|
$
|
19,766
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|
$
|
212,730
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(1) |
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As of 10/19/09, maturity date changed to 12/2/10 (subject to
certain conditions). |
Sunrise ventures have total debt of $4.2 billion with
near-term scheduled debt maturities of $69.7 million in
2009 and $576.1 million in 2010. Of this $4.2 billion
of debt, there is long-term debt that is in default of
$1.4 billion. 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. However, in certain cases, we have provided
operating deficit and completion guarantees to the lenders and
joint ventures. We have minority non-
53
controlling interests in these ventures. See Note 12 of the
Notes to Consolidated Financial Statements of our 2008
Form 10-K,
as amended, for a list of our ventures and our related ownership
interest.
Germany
Venture
We own nine communities (two of which are closed) in Germany.
The debt related to these communities has partial recourse to us
as the debt for four of the communities of
50.0 million ($73.0 million at
September 30, 2009) has a stipulated release price for
each community and for the remaining five communities, we have
provided guarantees to the lenders of the repayment of the
monthly interest payments and principal amortization and
operating shortfalls until the maturity dates of the loans. As a
result of the violation of a covenant in one of the loan
documents, one of the lenders has asserted that we are
effectively obligated to repay a portion of the principal at
this time. Subsequent to September 30, 2009, in connection
with the German debt restructure, we have settled with this
lender. The face amount of the total debt related to the German
communities at September 30, 2009 is $219.3 million.
In January 2009, we informed the lenders to our German
communities and the Hoesel land, an undeveloped land parcel,
that our German subsidiary was suspending payment of principal
and interest on all loans for our German communities and that we
would seek a comprehensive restructuring of the loans and our
operating deficit guarantees. As a result of the failure to make
payments of principal and interest on the loans for our German
communities, we are in default of the loan agreements but have
entered into standstill agreements with the lenders pursuant to
which the lenders have agreed not to foreclose on the
communities that are collateral for their loans or to commence
or prosecute any action or proceeding to enforce their demand
for payment by us pursuant to our operating deficit agreements
until the earliest of the occurrence of certain other events
relating to the loans.
In October 2009, we entered into a restructuring agreement, in
the form of a binding term sheet, with two of our lenders to
seven of the nine communities, to settle and compromise their
claims against us, including under operating deficit and
principal repayment guarantees provided by us in support of our
German subsidiaries. These two lenders contended that these
claims had an aggregate value of approximately
$121.6 million. The binding term sheet contemplates that,
on or before the first anniversary of the execution of
definitive documentation for the restructuring, certain other of
our identified lenders may elect to participate in the
restructuring with respect to their asserted claims. The claims
being settled by these two lenders represent approximately
77.5 percent of the aggregate amount of claims asserted by
the lenders that may elect to participate in the restructuring
transaction.
The restructuring agreement provides that the electing lenders
will release and discharge us from certain claims they may have
against us. We will issue to the lenders that elect to
participate in the restructuring on or before the first
execution of the definitive documentation, their pro rata share
of up to an aggregate of 5 million shares of our common
stock and will grant mortgages for the benefit of all electing
lenders on certain of our unencumbered North American
properties. Following the first execution of the definitive
documentation for the restructuring, we will pursue the sale of
such mortgaged properties and distribute the net sale proceeds
to the electing lenders. We have guaranteed that, within
30 months of the first execution of the definitive
documentation for the restructuring, the electing lenders will
receive a minimum of $58.3 million from the net proceeds of
any such sale, which equals 80 percent of the most recent
aggregate appraised value of these properties. If the electing
lenders do not receive at least $58.3 million by such date,
we will make payment to cover any shortfall or, at such
lenders option, convey to them the remaining unsold
properties. As any gain or loss on the transaction is dependent
upon the values at closing of the aforementioned consideration,
we are unable to estimate any gain or loss at this time.
In addition, we will market for sale the German assisted living
communities subject to loan agreements with the electing lenders
and will remain responsible for all costs of operating,
preserving and maintaining these communities until the earlier
of either their sale or December 31, 2010.
The closing of the transaction, including the execution of the
definitive documentation, the release of claims and the issuance
of Sunrise common stock, is conditioned upon receipt of consent
for the transaction from Bank of America, N.A., as the
administrative agent under our Bank Credit Facility, on or
before November 11, 2009. In accordance with the binding
term sheet, definitive documentation shall be executed as soon
as reasonably possible (but no later than 40 days) after
the receipt of such required consent.
54
We continue to be liable under certain operating deficit and
repayment guarantees for the Klein Flottbeck and Wiesbaden
communities, and certain principal repayment guarantees for the
Hoesel land which is not part of the restructuring agreement.
In the second quarter of 2009, we engaged a broker to assist in
the sale of the nine German communities and at that time,
classified the German assets as held for sale.
Guarantees
See Note 10, Commitments and Contingencies, for a
discussion of other guarantees outstanding at September 30,
2009.
Cash
Flows
Net cash provided by (used in) operating activities was
$38.8 million and $(117.0) million for the nine months
ended September 30, 2009 and 2008, respectively, an
increase of $155.8 million. This increase in cash provided
by operations was primarily due to an increase of cash from net
working capital of $122.8 million and a decrease in cash
used in discontinued operations of $9.9 million.
Net cash provided by (used in) investing activities was
$4.4 million and $(149.9) million for the nine months
ended September 30, 2009 and 2008, respectively, an
increase of $154.3 million. The increase in cash provided
by investing activities was primarily due to a decrease of
$196.3 million in capital expenditures and condominium
fundings partially offset by a decrease of $45.8 million in
proceeds from the disposition of assets.
Net cash (used in) provided by financing activities was
$(29.3) million and $181.5 million for the nine months
ended September 30, 2009 and 2008, respectively, a decrease
of $210.8 million. This decrease was primarily due to a
decrease in net borrowings of $206.1 million.
New
and Future Accounting Standards
See Note 2, New and Future Accounting Standards, for
information related to the adoption of new accounting standards
in the first nine months of 2009, none of which had a material
impact on our financial statements, and the future adoption of
recently issued standards, which we do not expect or have not
yet evaluated whether the new standards will have a material
impact on our consolidated financial position or results of
operations.
Critical
Accounting Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect reported amounts and related disclosures. We have
discussed those estimates that we believe are critical and
require the use of complex judgment in their application in our
2008
Form 10-K
as amended on March 31, 2009. Since the date of our 2008
Form 10-K
as amended, there has been no material changes to our critical
accounting policies or the methodologies or assumptions we apply
under them.
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Item 3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Our exposure to market risk has not materially changed since
December 31, 2008.
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Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
As of the end of the period covered by this quarterly report, we
carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
(as such term is defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934 (the Exchange
Act)), and management necessarily applied its judgment in
assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only reasonable
assurance regarding managements control objectives. You
should note that the design of any system of controls is based
in part upon certain assumptions about the likelihood of future
events, and
55
we cannot assure you that any design will succeed in achieving
its stated goals under all potential future conditions,
regardless of how remote. Based upon the foregoing evaluation,
our Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were
effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in
the rules and forms of the SEC, and to provide reasonable
assurance that such information is accumulated and communicated
to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Internal
Control Over Financial Reporting
There were no changes in internal control over financial
reporting that occurred during the first nine months of 2009
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Part II.
Other Information
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Item 1.
|
Legal
Proceedings
|
For information regarding pending and resolved or settled legal
proceedings, see Note 10 to the condensed consolidated
financial statements.
There were no material changes, other than those that follow, to
the risk factors disclosed in Part I, Item 1A.
Risk Factors of our 2008 Annual Report on
Form 10-K
for the year ended December 31, 2008.
The
failure of our 2009 cost reduction plan to achieve sufficient
expense savings.
In May 2009, we announced a plan to continue to reduce corporate
expenses through reorganization of our corporate cost structure,
including a reduction in spending related to, among other areas,
administrative processes, vendors, and consultants. The plan is
designed to reduce our annual recurring general and
administrative expenses (including expenses previously
classified as venture expense) by over $20 million, from
our 2009 budgeted annual recurring level of approximately
$120 million (after the sale of Greystone, which is
presented in discontinued operations in our financial
statements) to approximately $100 million, and to reduce
our centrally administered services which are charged to the
communities by approximately $1.5 million. Under the plan,
approximately 150 positions will be eliminated. If we are unable
to fully effect the expense reduction plan or if the plan fails
to achieve the anticipated results, we may not have sufficient
operating cash to meet our obligations.
If the
sale of our German assets is not consummated, we may not have
sufficient cash to meet our obligations.
We continue to be liable under certain operating deficit and
repayment guarantees for the Klein Flottbeck and Wiesbaden
communities, and certain principal repayment guarantees for the
Hoesel land which is not part of the restructuring agreement. If
we are unable to sell our German assets in the required time
frame or for sufficient proceeds, we may be required to pay the
lenders the difference of the proceeds and $58.3 million.
We may not have sufficient operating cash to meet this
obligation at the time it becomes due.
Our
ability to execute our plan to sell certain
assets.
In October 2009, we entered into an agreement to sell 21 wholly
owned assisted living communities, located in 11 states, to
Brookdale Senior Living Inc. (Brookdale) for
$204 million. Brookdale placed into escrow an earnest money
deposit of $5 million toward the purchase price. The
closing date is currently scheduled for November 16, 2009.
At the closing of the sale, we expect to receive approximately
$60 million in proceeds after payment or assumption by
Brookdale of certain mortgage loans, the posting of required
escrows, and payment of expenses by
56
us. We will use $25 million of proceeds to pay down our
Bank Credit Facility and will place $20 million into a
collateral account for the benefit of other creditors.
In addition to selling the German communities and the 21
communities to Brookdale, we intend to sell 11 operating
communities, of which eight are located in the United States and
three in Canada. Of the 11 operating communities, five are
collateral for the German lenders and future net proceeds of the
remaining six operating communities would be split equally
between us and the lenders of the Bank Credit Facility. We also
intend to sell one closed community in the United States which
is collateral for the German lenders.
We intend to sell 16 parcels of land, of which 12 are located in
the United States and four in Canada. Of the 16 land
parcels, 11 are collateral for the German lenders and future
proceeds of the remaining five land parcels after repayment of
related debt would be split equally between us and the lenders
of the Bank Credit Facility. In addition, we intend to sell two
closed construction sites and one building located in the United
States which are collateral for the German lenders.
If we are unable to sell certain assets as planned, we may not
have sufficient cash to meet our obligations.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None
|
|
Item 5.
|
Other
Information
|
None
The exhibits required by this Item are set forth on the Index of
Exhibits attached hereto.
57
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this
10-Q to be
signed on its behalf by the undersigned, thereunto duly
authorized, on this 9th day of November 2009.
SUNRISE SENIOR LIVING, INC.
(Registrant)
Julie A. Pangelinan
Chief Financial Officer
C. Marc Richards
Chief Accounting Officer
58
INDEX OF
EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
Filing Date
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
with SEC
|
|
Number
|
|
|
2
|
.1
|
|
Purchase and Sale Agreement, dated as of October 7, 2009,
by and among various subsidiaries of Sunrise Senior Living, Inc.
and BLC Acquisitions, Inc.* #
|
|
N/A
|
|
N/A
|
|
N/A
|
|
2
|
.2
|
|
First Amendment to Purchase and Sale Agreement, dated as of
October 7, 2009, by and among various subsidiaries of
Sunrise Senior Living, Inc. and BLC Acquisitions, Inc.* #
|
|
N/A
|
|
N/A
|
|
N/A
|
|
2
|
.3
|
|
Second Amendment to Purchase and Sale Agreement, dated as of
October 7, 2009, by and among various subsidiaries of
Sunrise Senior Living, Inc. and BLC Acquisitions, Inc.* #
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.1
|
|
Settlement Agreement, dated as of June 12, 2009, by and
among Sunrise Senior Living, Inc. and the former majority
stockholders of Trinity.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.2
|
|
Loan Agreement, dated as of September 28, 2007, by and
among Sunrise Pasadena CA Senior Living, LLC and Sunrise
Pleasanton CA Senior Living, LP, as borrowers, and Wells Fargo
Bank, National Association, as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.3
|
|
Letter Agreement, dated October 1, 2009, by and among
Sunrise Pasadena CA Senior Living, LLC and Sunrise Pleasanton CA
Senior Living, L.P., as borrowers, Sunrise Senior Living, Inc.,
as guarantor, and Wells Fargo Bank, National Association, as
lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.4
|
|
Loan and Security Agreement (Loan A), dated as of
August 28, 2007, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B., as agent for the lenders party thereto.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.5
|
|
Guaranty of Payment (Loan A), dated as of August 28, 2007,
by and among Sunrise Senior Living, Inc. and Chevy Chase Bank,
F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.6
|
|
Deed of Trust Note A, dated as of August 28,
2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., as
borrower, to MB Financial Bank, N.A.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.7
|
|
Deed of Trust Note A, dated as of August 28,
2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., as
borrower, to Chevy Chase Bank, F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.8
|
|
Deed of Trust, Assignment, Security Agreement and Fixture Filing
(Loan A), dated as of August 28, 2007, by Sunrise
Connecticut Avenue Assisted Living, L.L.C., as grantor,
Alexandra Johns and Ellen-Elizabeth Lee, as trustees, and Chevy
Chase Bank, F.S.B., as agent.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.9
|
|
Loan and Security Agreement (Loan B), dated as of
August 28, 2007, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B., as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.10
|
|
Guaranty of Payment (Loan B), dated as of August 28, 2007,
by and among Sunrise Senior Living, Inc. and Chevy Chase Bank,
F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.11
|
|
Deed of Trust Note B, dated as of August 28,
2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., as
borrower, to Chevy Chase Bank, F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
Filing Date
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
with SEC
|
|
Number
|
|
|
10
|
.12
|
|
Deed of Trust, Assignment, Security Agreement and Fixture Filing
(Loan B), dated as of August 28, 2007, by Sunrise
Connecticut Avenue Assisted Living, L.L.C., as grantor,
Alexandra Johns and Ellen-Elizabeth Lee, as trustees, and Chevy
Chase Bank, F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.13
|
|
First Amendment to Loan Agreement (Loan A), dated as of
April 15, 2008, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B., as agent to the lenders party thereto.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.14
|
|
First Amendment to Guaranty of Payment (Loan A), dated as of
September 2008, by and between Sunrise Senior Living, Inc. and
Chevy Chase Bank, F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.15
|
|
First Amendment to Loan Agreement (Loan B), dated as of
April 15, 2008, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B. as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.16
|
|
First Amendment to Guaranty of Payment (Loan B), dated as of
September 2008, by and between Sunrise Senior Living, Inc. and
Chevy Chase Bank, F.S.B.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.17
|
|
Second Amendment to Loan Agreement (Loan A), dated as of
August 28, 2009, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a
division of Capital One, N.A., as agent for the lenders party
thereto.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.18
|
|
Second Amendment to Guaranty of Payment (Loan A), dated as of
August 28, 2009, by and between Sunrise Senior Living, Inc.
and Chevy Chase Bank, a division of Capital One, N.A.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.19
|
|
First Amendment to Deed of Trust Note A (Loan A),
dated as of August 28, 2009,by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and MB
Financial Bank, N.A., as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.20
|
|
First Amendment to Deed of Trust Note A (Loan A),
dated as of August 28, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.21
|
|
Second Amendment to Loan Agreement (Loan B), dated as of
August 28, 2009, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a
division of Capital One, N.A., as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.22
|
|
Second Amendment to Guaranty of Payment (Loan B), dated as of
August 28, 2009, by and between Sunrise Senior Living, Inc.
and Chevy Chase Bank, a division of Capital One, N.A.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.23
|
|
First Amendment to Deed of Trust Note A (Loan B),
dated as of August 28, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.24
|
|
Thirteenth Amendment to the Credit Agreement, dated as of
October 19, 2009, by and among Sunrise Senior Living Inc.,
certain subsidiaries of Sunrise Senior Living, Inc. party
thereto, the lenders from time to time party thereto and Bank of
America, N.A.
|
|
8-K
|
|
October 20, 2009
|
|
10.1
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
Filing Date
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
with SEC
|
|
Number
|
|
|
10
|
.25
|
|
Restructure Term Sheet, dated as of October 22, 2009, by
and among Sunrise Senior Living, Inc. and the creditors party
thereto.
|
|
8-K
|
|
October 28, 2009
|
|
10.1
|
|
10
|
.26
|
|
Settlement Agreement, dated as of October 26, 2009, by and
among Sunrise Senior Living Investments, Inc., Sunrise Senior
Living Management, Inc., Sunrise Senior Living, Inc., US Senior
Living Investments, LLC and Sunrise IV Senior Living
Holdings, LLC.
|
|
8-K
|
|
October 28, 2009
|
|
10.2
|
|
10
|
.27
|
|
Settlement Agreement, dated as of October 26, 2009, by and
among Sunrise Senior Living Investments, Inc., Sunrise Senior
Living, Inc., Fountains Senior Living Holdings, LLC, Sunrise
Senior Living Management, Inc., US Senior Living Investments,
LLC and HSH Nordbank AG, New York Branch.
|
|
8-K
|
|
October 28, 2009
|
|
10.3
|
|
10
|
.28
|
|
2009 Annual Bonus Performance Metrics Applicable to Executive
Officers.*+
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.29
|
|
Consulting Arrangement with Paul J. Klaassen.*+
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.30
|
|
2009 Special Bonus Payments to Executive Officers.*+
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.31
|
|
2009 Partial Bonus Payments to Executive Officers.*+
|
|
N/A
|
|
N/A
|
|
N/A
|
|
10
|
.32
|
|
2009 Director Fees.*+
|
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
31
|
.2
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
32
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
32
|
.2
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
* |
|
Filed herewith. |
|
# |
|
Schedules and exhibits have been omitted pursuant to
Item 601(b)(2) of
Regulation S-K.
Sunrise hereby undertakes to furnish supplementally copies of
any of the omitted schedules and exhibits upon request by the
Securities and Exchange Commission. |
|
+ |
|
Represents management contract or compensatory plan or
arrangement. |
61