300 likes | 492 Views
Sunrise Senior Living (SRZ). Ross Pevitz Dave Wetherell RCMP Presentation April 5, 2007. Position. Purchased on May 21, 2006 600 shares at $37.00 Original Value of $22,200 Current Stock Price at $40.65 Current Value of $24,390 $2,190 unrealized gain (9.86%) 7.4% of Portfolio.
E N D
Sunrise Senior Living(SRZ) Ross Pevitz Dave Wetherell RCMP Presentation April 5, 2007
Position • Purchased on May 21, 2006 • 600 shares at $37.00 • Original Value of $22,200 • Current Stock Price at $40.65 • Current Value of $24,390 • $2,190 unrealized gain (9.86%) • 7.4% of Portfolio
Sunrise Senior Living • Mission: “Champion the quality of life for all seniors” • Full range of personalized senior living services • Independent Living • Assisted Living • Alzheimer’s Care • Skilled Nursing • Meals, Transportation, Hospice, Emergency Response, Monitoring, Rehab, Daily Activities, etc….
Company History • 1981- Founded by Paul and Terry Klaassen • 1996- Initial Public Stock Offering (IPO) • 1999- Expand International (UK), launch Frognal • 2000- Canada • 2004- Established Sunrise REIT • 2005- Germany • 2007- Pending Sale of Sunrise REIT (Ventas vs HCP) • Acquired companies, Participated in JV’s
Company Background • Headquartered in McLean, Va. • Largest global senior living provider • 440 communities open, 50 more under construction • 5 in UK, 2 in Germany, 16 under construction in EU • 176 have ownership interest • Over 52,000 seniors • $2.3 billion in revenues under management • 40,000 team members
Ownership Style • 176 communities have equity interest including consolidated and JV • Consolidated Communities • Wholly Owned • Joint Venture Communities • Management Fees (5-8%) • Equity (20-25%) • Managed Communities • Management Fees (5-8%) • Equity (0%) • Over 60% of Portfolio • Leased • Acquired and Leased to 3rd Party
Economic Forecast • Mixed Reviews • Flat GDP Growth • Flat Interest Rates • Steady Inflation (2.5%)
Long-Term Care Industry • 16.4 Billion Industry • Existing supply is old, institutional, poor quality • Nursing homes, Hospitals • Source of Pay • Medicare/Medicaid pays for 60% of LT care expenses • 36% out of pocket, 4% Private LTCi (↑21% annually) • Assisted Living market, 96% revenues are private funds • Regulation • Training of Nurses, Licensing, Safety Precautions • Benefit Big Firms
Long-Term Care Supply • Short of demand • Highly fragmented market • High barriers to entry • Capital and Time • Management expertise • Economies of scale • Regulations • Escalating costs of care • Healthcare costs growing 2× CPI, (5% annually)
Long-Term Care Demand • Attractive Demographics • Baby Boomers Retiring • Over 15 million 80+ population by 2020 • Better Health Care • 1/3 of 80+ require LTC • Avg. Resident 80-85 yrs old • Seniors Increase Income • ↑ Proportion of Women
Trend of Market • Consolidation • Benefit big firms • Shift from Nursing Homes (NH) to ALF • ALF charge 66% of nursing homes • More autonomous lifestyle • Beginning separation between ALF and NH • Improve ALF credit
Competitive Advantage • Market Leadership • Strong Brand Name • Operational Excellence and Innovation • 39K community, 1K headquartered team members • Quality Assurance, Sunrise University • Principles of Service and Environment • Award winning architecture design • Fresh cut flowers, “Yes” policy
Strong Financial Position Sustainable Growth Strategic Partners Management Services Model 1 of the only in the industry Management Contracts Less Debt Reduce Risk Profile Stable Revenue Stream Business Relationships JPMorgan Fleming MetLife Pramerica Prudential Public Pension Funds Sunrise Living REIT Investcorp Healthcare Properties GE Healthcare Financial Carlyle Group Arcapita HSH Nordbank AEW / CaIPERS Competitive Advantage
Management Services Model • Enter into Management Contracts • Professional fees from Development • Market feasibility analysis • Site selection, zoning approvals • Management fees, Post-opening • Training, HR, IT • Resident Care, Dining, Facilities Service • Sales, Accounting • Incentive Fees • Equity of Earnings • Recapitalization Potential
Growth Drivers • Metropolitan Focus • Deep Markets • Regional Infrastructure • Same Community Growth • Occupancy (↑ 3.5%) • Ancillary Services • Return on Invested Capital • Interest Income • Repurchase Shares Communities with ownership interest
New Construction 2,000 to 2,500 units per year (8-10 communities) Joint Venture Acquisition and Development September ’06- Trinity Hospice, $73 million September ’06- 6 Aston Gardens communities, $460 million Growth Drivers
Growth Drivers • New Management Contracts!! Consolidated, JV, and 3rd party managed community revenues
Ratios • Transferred Property to Sunrise REIT in ’04 • Reduction in Working Capital • Huge Reduction in Debt levels will continue this trend going forward
Trends • Shift from Owned to Managed Communities
Trends • Strong & Increasing ROE • Operating Margin reflects shift to Management Model
Trends • Reflects Shift to Management Model • Away from Wholly Owned • Flattening of Resident Fees
Sensitivity Analysis • Net Income to Operating Income and Operating Expenses • Two major inputs • Highly sensitive to both
Share Price Sensitivity • CapEx minimal effect • WACC significant impact
Comparables • Outperform Competitors and Industry • Reflect DCF and current Market Evaluation • Lower margin due to inclusion of “reimbursable contracts/expenses” • Netted line item with NO • effect on bottom line BUT • reduces perceived margin
Recommendation: • Strong Hold • Fierce Demand • Advantageous Supply • Good Model and Growth • Solid Financials • Positive DCF • Dominant Comparables • Marginal Benefit from Purchase • Stock price at High, post-Sunrise REIT Sale
Citations • Allan Coukell, Business is Booming for Assisted Living Industry, WBUR, (Feb. 15, 2007), available at <http://www.wbur.org/news/2006/55876_20060215.asp> (last visited Apr. 1, 2007). • Assisted Living Rates Increase Slightly After Big Jump Last Year, Retirement Planning News, (Nov. 3, 2006), available at <http://www.seniorjournal.com/NEWS/Retirement/6-11-03-AssistedLiving.htm> (last visited Mar. 29, 2007). • Christine Bonney, ASSISTED LIVING RATES INCREASE SLIGHTLY, MetLife (Jan. 2007), available at <http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,4132,P250%255ES883,00.html> (last visited Apr. 1, 2007). • Industry Performance and Statistics, National Investment Center,(2007), available at <http://www.nic.org/data/faq.asp> (last visited Mar. 28, 2007). • Karen Stevenson, Assisted Living Facilities, ElderWeb, (Dec., 2006), available at <http://www.elderweb.com/home/node/2699> (last visited Mar. 28, 2007). • Reuters Research Inc., Sunrise Senior Living – Competitors Report, OneSource Information Services, Inc., (Mar. 29, 2007), available at <http://businessbrowser.onesource.com/HomePage.asp> (last visited Mar. 29, 2007). • Sunrise Senior Living, Investor Relations, Investor Relations Home, (Mar. 25, 2007), available at <http://phx.corporate-ir.net/phoenix.zhtml?c=115860&p=irol-irhome> (last visited Mar. 28, 2007).