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Tuesday, August 10, 2010

Sunrise Senior Living (SRZ): June 2010 Results Review

SRZ Sunrise Senior living is one of the largest Assisted living Services provider's with revenues of 1.4 billion Dollars TTM (Twelve Trailing Months).

Let us look at the 10Q filing data for June 2010. here are some observations.
SRZ Debt Total Debt as of June 2010: 323.932 million. Total annual interest payment of debt would be 11.70 million. SRZ has cash in hand of 42.75million.

Out of 323.932 million dollars of debt 70.281 million of debt is in default.

Looking at the info I would conclude only 22.87 million in Variable Interest Entity is of concern.
The community mortgage debt of 41.8 million is non recourse to SRZ.

Yes the important question is that how many communities would fall under the 42.21 million mortgage are we looking at 100% of remaining consolidated communities??
(The worst case scenario of loosing the revenues if the mortgages are not renegotiated.)

Another interesting fact is the "Schedule" of remaining 253.65 million debt of SRZ.

1. 3rd Qtr 2010 has only German debt schedule so we should see good positive numbers (my take) as we have only one major German debt related cash outflows (which will be paid by the assets so we should see an increase in cash in hand)
2. 4th Qtr 2010 is where we will see a lot of action cause you have 90.76 million of scheduled debt maturities. 4th Qtr will also give SRZ a chance to prove its viability by getting the debt renegotiated.
3. "Thereafter" SRZ will be looking slim and trim with debt of 90.6 million

My Take: SRZ management might start paying off Q4 debt in Q3 itself (specially Bank Credit Facility) and we might see some of the renegotiation of community mortgages in Q3 which would really show that SRZ management is working hard in the right direction. It will also help confirm that creditors are supportive of SRZ's long term viability.

We get a glimpse of SRZ's current state of affairs.. Operating deficit guarantee.. from Jan 2010 to June 2010 SRZ has not paid a cent in Operating Deficit Guarantee.

I would conclude targets that were set for the year 2010-11 have been met for the past 6 months as far as Managed communities are concerned. This is good news cause managed communities are the largest source of earnings for SRZ.
Another important fact is "Any payments made as part of operating deficit guarantee and debt payment guarantee is recoverable out of future cash flows of the venture or from the proceeds of the sale of the communities."

Major expenses of payment of debt and operating deficit guarantee that are incurred when the communities are new and being stabilized are finally deducted when the communities become cash flow positive or the community is sold. So all the debt payment guarantees and operating deficit guarantee expenses in Germany and other non performing communities will flow back into SRZ when the community is sold?? Bonus cash flows when German communities are sold!!

Segment results show us that SRZ has really made some good progress in Qtr ending June 2010 from an operations perspective.

- North American Operations have an operating profit of 20.89 Million.
- The Consolidated communities, North American Development, Unallocated Corporate and eliminations are dragging down the results.
- The real surprise is "The German Management Company" is showing 0.39 million profit due to weak dollar (Thanks Ben!! - Not you  "Obi-Wan Kenobi" The Jedi Master .. I was talking to "Ben Bernanke")

Conclusion: SRZ has progressed well on the path of recovery. Once the cleanup expenses are paid for we should be doing good. Considering the fact that current Enterprise value is 547.56 million which includes 323.9 million of debt. After the cleanup.. in year 2011 SRZ could be a company with 120 million debt.. so fast forward to Jan 2011 right now you can buy SRZ with a Jan 2011 Enterprise value of 300million a much more lean and mean SRZ.

SRZ is a case of finance gone awry.. look at Ford as a brand and look at SRZ as a brand. Ford survived bankruptcy due to good financial planning. SRZ has a much stronger brand (within the assisted living space) and once the financial planning is in place (hopefully by mid 2011) I would expect SRZ to be a 22.91 dollar stock (1.4 Billion Enterprise value)

Link to Original SEC Filing
Link to Old SRZ Blog

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