Sunrise's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Sunrise Senior Living Inc. (SRZ)

Q2 2012 Results Earnings Call

August 3, 2012 9:00 AM ET

Executives

Tim Smith – Investor Relations

Mark Ordan – Chief Executive Officer

Marc Richards – Chief Financial Officer

Greg Neeb – Chief Investment and Administrative Officer

Analysts

Daniel Bernstein – Stifel Nicolaus

Presentation

Operator

Good day. And welcome to the Sunrise Senior Living Second Quarter Earnings Conference Call. Today’s conference is being recorded.

At this time, I’ll turn the conference over to Mr. Tim Smith. Please go ahead, sir.

Tim Smith

Thank you. And welcome to Sunrise Senior Living’s second quarter 2012 investor conference call. This is Tim Smith of Sunrise’s Investor Relations.

Before we begin, let me remind you that this call is being recorded and the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call.

During the course of this call, the company will make various remarks concerning management’s expectations, predictions, plans and prospects that constitute forward-looking statements.

Actual results may differ materially from those anticipated by these forward-looking statements. Any forward-looking statements reflect management’s current view only and the company undertakes no obligation to revise or update such statements in the future.

I will now turn the call over to Mark Ordan, Sunrise’s Chief Executive Officer. Mark?

Mark Ordan

Thanks Tim. Good morning. We are pleased to speak about another overall solid quarter for Sunrise Senior Living. Our quarter-over-quarter stabilized occupancy increased 90 basis points to 88.1%, which is even with our first quarter results.

Our current quarter is off to a strong start. Our results always vary regionally and we have even very pleased recently by strength in our West Coast communities where we have a large concentration.

Our average revenue per occupied unit grew 2.4% to the second quarter of 2012 over the same period in 2011 and 1.2% sequentially. NOI grew 1.6% quarter-over-quarter for stabilized communities and 2.9% overall.

General and administrative expenses were $25.2 million for the quarter, compared to $27.6 million for the same period in 2011. The decrease in the period is primarily due to $1.1 million of severance expense is paid in 2011 relating to the reduction of 20 positions at our corporate and regional offices, compared to $300,000 in severance cost in 2012.

As a result of those and additional staffing reductions at our corporate and regional offices in 2011, salary expenses decreased by approximately $900,000 in the second quarter of 2012, compared to the second quarter of 2011.

Our adjusted EBITDA for Q2 was $49.7 million versus $39 million for the same period last year. The difference was driven primarily by the 15 community acquisition, which occurred in the latter part of Q2 of 2011, along with our reduced overhead and NOI growth.

As you would expect with very few remaining workout completions to be done, our daily attention in Q2 and beyond is devoted primarily to increasing strength of our operations. While we are reducing our overhead spending, we have been and will continue to spend more on care.

Our costs of care delivery and oversight have increased and are budgeted to continue to grow. Our mission has always in group included the care seniors who are time quite frail. We continue to increase our investment in our care team, including a new quality assurance team and program.

Generally, an information system where we previously lacked resources of steady improvement, we invested more in 2012 and we plan to continue to invest heavily in 2013 and beyond. Here while our spending is broad we are especially focused on short and long-term health care imperatives.

We manage over 300 communities, thanks to the enormous care and efforts of our 30,000 team member. I hope you don’t find my emphasis on my team on an earnings call to mean that’s placed.

We at Sunrise want to do everything we practically can to maximize a happiness and engagement of our team members. In Q2, we launch a new engagement drive in which we spend a great deal of time and effort going around the field, listening to our team members to find better ways to do what we do.

We intend to also to reduce where possible the stress point that is typical on healthcare. Our goal in 2012 and every year forward is to make sure the team members know they are appreciated and their voice counts.

We believe that the benefit of these focus are manifold. Engaged team members stay with us, develop deep ties with our resident and their families, better attract new residents, are more attentive, more innovative and more prepared and eager for career advancement. We all read about the headline positive the senior housing and senior living. It’s our increasingly engaged team that will provide lasting substance to these headlines.

Greg Neeb will shortly describe several key transactions in the second quarter, but I’ll highlight the few of them now. We were pleased to settle our long outstanding litigation with Five Star and to finalize our transition plan for 10 communities to Five Star. While we prefer adding communities, we never want residential team members to be unnecessarily in limbo.

We strengthened Sunrise further with her latest venture with CNL including seven communities. With CNL’s investment, we successfully refinance the debt on these communities. Sunrise received $5 million, while of course, retaining management of these communities.

Next we are happy to have finally begun to make progress on our Fox Hill ventures in Bethesda. We successfully refinance our loans on the assisted living amenity side of this project. Thus closing out with the forked loan, and enabling us to have, we expect to be fruitful discussions with the new lenders on the condominium side.

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