The SeniorCare Investor: Sunrise Senior Living Is Back–

The Sun Is Beginning To Shine On Senior Living Provider
At the risk of being a little premature, especially since fourth quarter and full-year earnings for 2010 have yet to be released, it certainly does appear that Sunrise Senior Living (NYSE: SRZ) is finally emerging from its prolonged slump and may be poised for a little growth (acquisitions) later this year.  Several years ago, we and practically everyone else in the seniors housing market and the investment community, wrote the company off, believing the only two choices were a bankruptcy filing or a distressed sale.  A bankruptcy filing made little sense at the time and would only have worsened the reputation and the ability to put “heads in the beds.”  A sale made little sense because the price would have been too low and any buyers, if there were any, really wouldn’t know the extent of the liabilities they would be assuming.  We were never sure whether management at the time fully understood the magnitude of the potential liabilities.
In a story 10 years ago on Sunrise that we called “Raining on Sunrise,” which the company was not very happy with, our “rain” was a negative analysis of the then practice of selling many of their trophy properties and booking the sales gains as ordinary income, under the theory that this was something they would be doing every quarter as a normal course of business.  Without the sales gains, the company was unprofitable, which we had a difficult time with.  And, sure enough, the sales and their gains came to an end, and the market cap of Sunrise ultimately dropped by about 99%, but for a variety or reasons. 
So, perhaps we should be calling this story, “The Sun is Shining on Sunrise,” but that too may be a bit of an overstatement.  Investors, however, have been clamoring to buy Sunrise shares, and after a 48% surge in price in December, the shares jumped another 47% in January with several days of very heavy trading volume.  The rumors, of course, were flying, with people assuming the company was in talks with a potential buyer.  There has been no word from management, but we do not see that as happening right now, and the share price may have gotten a little ahead of operating performance, but isn’t the value supposed to be what investors believe a company can do?  We will see, but we do know what the company has done.
When the current CEO, Mark Ordan, came on board a few years ago as the chief investment officer and administrative officer, the typical snide comment we heard was, “Just what Sunrise needs, a grocer.”  This was a reference to his past experience, which included founding a grocery chain and serving as CEO of another one, among other things.  But while many of us thought Sunrise needed an industry person to straighten things out, company founder Paul Klaassen perhaps realized he needed something that he was not: a hard-nosed business executive who knew how to stand up to the banks, landlords, SEC and anyone else who was going to get in the way of a turnaround.  Mr. Klaassen was the visionary, and it was best to leave that aspect of the business to him.  As it turns out, it was the right decision, but few people knew it at the time.  And as we like to say, the rest is history…Want to read more? Click here for a free trial and download the current issue today