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Executives

Mark Ordan – Chief Executive Officer

Sunrise Senior Living, Inc. (SRZ) UBS Global Healthcare Services Conference February 7, 2012 3:00 PM ET

Unidentified Analyst

Good afternoon everyone and welcome to the 2012 UBS Healthcare Services Conference. My name is (Victor Tan) and it’s my pleasure to introduce Mark Ordan, CEO of Sunrise Senior Living. As a reminder, I don't think there will be a breakout session following this, but Mark will explain. Thank you.

Mark Ordan – Chief Executive Officer

Thank you again. Because we are reporting earnings in a couple of weeks, so we are going to – we’ll skip the breakout session, but I will be around after this, if people want to talk for a few minutes. Again, my name is Mark Ordan, I’m the CEO of Sunrise Senior Living. I joined Sunrise four years ago and have been the CEO for just over three years.

Sunrise is, as it says, one of the largest senior living operators in the world. We’re the third largest in the United States. We have now 311 communities in independent living, assisted living, and memory care. We are the largest provider of memory care services in our markets. Sunrise just celebrated its 30 Anniversary. Paul and Terry Klaassen started the assisted living movement and Sunrise at the same time they were dedicated from the start to taking care of the frailest of the frail. They anticipated things that probably took 20 years for other people to anticipate like the massive growth in Alzheimer's and dementia care that’s been built into our DNA, it’s built into our buildings.

I’m very proud of our management team. We have tremendous amount of experience and it is a new management team, a tremendous amount of experience in senior living, in real estate, in corporate turnarounds, in capital markets, human resources. We are very proud as a large group and a very long pedigree.

Senior Living is not what many people think having a mom that lives with at a Sunrise and knowing now really what Senior Living is about, we do things a little bit differently than others do. We are very resident-centered, which means that we bring any care that somebody needs to them at Sunrise. We want people to age in place. We want this to be their home. Sunrise don’t feel like institution, that’s very purposeful. We create a home-like atmosphere with thousands of little signatures that have been honed over the last 30 years.

When you walk into a Sunrise, you immediately can tell the difference between a typical healthcare institution and a home and that’s what we have done for 30 years and that’s what our team today makes sure we don’t deviate from it all. Every one of our communities has a dog and a cat, fresh flowers, lots of touches to make people remember different things in their life and to really make a house a home.

Activities of life, but what we do at Sunrise, we don’t want somebody just to live there, we want them to be very, very active. People’s rooms are terrific, but we do everything we can to get people out of their rooms to be part of social settings. Whatever level of care they need, we believe that being part of a really vibrant social setting is going to be really enriching. So, it’s not just breakfast, lunch, and dinner, there are handful of activities during the course of the day, whether it’s baking fresh bread, doing things that really engage people, lectures, field trips, Sunrise is really about making everyday special.

We do have a different focus than many others. We are overwhelmingly in assisted living and memory care. We are overwhelmingly need driven. We are 97% private pay. We are at the high-end of the market and we like that spot. When people come to a Sunrise by and large it's because they need services, this is not just an election, but something that they really need and we have a team of 31,000 people who really know how to take care of those needs. And I think it’s very important and I am very proud and it’s not pride of authorship that this has been in the company’s DNA for such a long time. Our team looks to take care of people who are frail to make their days with us really special. We do have, as I said we are 97% private pay, we do have 3% of our beds are skilled nursing beds, the smallest of the major senior living providers in that regard.

We are very proud of our buildings, starting 30 years ago there was some advantages. We are very concentrated in major metropolitan areas, which I will show you in a minute, but our buildings are very special. They are in infield locations. They are small enough to really be home like to create a real community feel.

We have a variety of different models. We have full service communities, a handful of those. Well, 25 of those are Brighton Garndens are communities that HCP owns that we are very proud of. That we are formally Marriott’s and then we have developed our mansions and our campus mansions to be it is summarized purpose-built homes.

You all know this, I was listening to the last presentation and many people will be buying smartphones, but everybody will be getting older. The aging population, population of over 85 will be growing at about 3% a year. We are in major metropolitan areas, where we look for the high end private pay market and try to maximize our share of market. Clearly we sit in the best demographic spot that I can imagine.

Again, like any kind of real estate, we think that cap rates and value in real estate and market share very much depends on the kind of markets you are in and you can see, we are not just in metropolitan areas, but we are collected in probably the best economies of major metropolitan areas, which gives us tremendous economies of scale, also allows us to provide the activities and level of care and to partner with hospitals and others in the healthcare system more effectively than if we were spread out.

We are very proud of the relationship that we have built over time and in some cases rebuilt over the last few years. Ventas and HCP are two largest partners. In both cases we have done I think a terrific job of going from a troubled situation to now an excellent situation. We are about the highest occupancy portfolio in Ventas’ universe and we are very proud of that.

We have developed a terrific relationship with CNL. Over the last two years we have gone from owning none of our properties to either owning part or all of now 70 communities out of our 300. We have great banking relationships. We are very proud of our relationships with KeyBank. Just a couple of years ago, we had no access to the capital markets and no frozen line of credit.

Now the time I look back on fondly, we are thrilled that now we are the full participants with KeyBank with an active line of credit and we completed earlier in the year, before people knew that problems existed in Greece, we have completed a very successful convertible bond document with the help of Stifel.

We think that now that we have moved form really being a workout company to really looking at how we stabilize and then move forward. We think we have a lot of built-in advantages, which we want to capitalize on. One is that we manage by contract, but in many cases we have had the opportunity in the right to buy some of what we own.

We have a background in real estate. We believe that if we can take real assets, we can add value to them. So, we are possible if they really are great assets. We have look to buy them. That’s not always possible. That’s not always an option for us and we don’t have the lowest cost of capital. We have been able to make real inroads there because we have embedded rights in some of our contracts and we have taken advantage of that, then of course it enables us to add value since these are communities that we own and we have complete control over.

We are the only 30-year-old time tested brand in senior living. That’s not a criticism of others, but we have always been Sunrise. We didn’t grow by acquiring lot in different names, so we think the Sunrise brand is very powerful and there are lots of ways that we can capitalize on that going forward.

We think that now we are a stable company, now solid balance sheet. There will be opportunities to acquire other portfolios and also opportunities to go back into development. Having 311 communities we want to be very careful about how we allocate capital. So, development can found great, but it can tie up capital for a while and not necessarily move the needle so quickly. So, we do watch how we allocate capital. I think that’s something that’s part of a core what we do today.

We have, when it’s been possible, we have looked at buying our joint venture partners for the reason I said before. We see opportunities if we can gain control because of rights embedded in our contracts. We will often exercise those, pretty good at working with the capital markets and with banks to find new ways to refinance strong portfolios. We think there are many things we can do to increase our community income. Others have done a lot of work with ancillary services. These are the services that all of our seniors receive, but in our case, they received them in many cases from outside providers, rehab services, podiatry, a host of things that people need and we work with the network in every one of our areas. To provide that, we are working on ways to bring a lot of that in-house, so that we can have better control and also profit from it.

This management team was brought in because Sunrise while I would say it’s care was always first rate and always front in center of what we do we went through a very difficult financial period. We think we’ve made a tremendous amount of progress. I mentioned before that we closed the revolver with KeyBank and we did a very successful convertible debt offering. We have restructured now over $1 billion of debt that was in default. We still have two existing defaults that we comment on our earnings call, because we still are in a restructuring process. One is in the U.K. and the other is a condominium project in (indiscernible), but this list is obviously way down from where it once was and we are confident in both cases that we’ll find a satisfactory outcome, that’s what we do.

Our revenue stream as many of you who follow the company know that we were at risk in many contracts over the last few years. We work very hard and I think very successfully to stabilize those revenue streams. So, where we had at-risk contracts, we were able to take those at-risk contracts and turn them into solid contracts also without termination rights and also giving us the opportunity in some cases to buy the entire venture in the next year to two years.

We have reduced the G&A significantly. It’s not the fun part of the job, but it’s necessary. We had over 700 people on our corporate office. We now have just over 300 people and throughout the system we have made major cuts. And that’s, I think, made us much stronger and we are now at a point where we feel much more comfortable about where the size of our operations is relative to our revenue stream. I would say that as a team, we are, I mentioned this before, but I think it’s important we are in a capital intensive business. We spend a lot of our time thinking about how to use capital, how to not use capital, where it’s best to manage versus own. We don’t think that it’s necessarily advantageous to own. When we restructured our Ventas contract, we went from being a 20% owner to being a manager only. Since that time, our results in every measurable way have soared. So, whether we are a part owner or manager by fee, I think, that sometimes the word alignment is overstated. We have contractual obligation. We take it very seriously and so far we’ve done pretty well.

In summary, we are, have been, and will be one of the leading providers of senior living services. We are at the high end of the market, but we’ve seen over the last several quarters that at the high end of the market even in the economy like this, because we are so need-driven that we’ve been able to maintain very, very high occupancy levels and we are very proud of that. We have actively recruited top people from around the industry, from outside our industry, and promoted in some cases from within to really lead a turnaround, but to put in place a group that can take this company forward. It’s very important to me and I would hope to anybody looking at the company that our founders Paul and Terry Klaassen are still active supporters of the company. So, when it comes to healthcare issues or the new answers of senior living while we have a new team, we benefit from the active direct involvement of our founders whose passion for this business will last, I would estimate a couple of thousand more years.

The supply demand characteristics of our business we think are terrific. People are living longer. Their needs are greater. And we have been built since 30 years ago to handle those needs. We think because of all that we have strong growth prospects. We start with a terrific care model, a need-driven care model, add to that a solid balance sheet, and I would say, fairly aggressive team. I think that there are great ways to grow both internally in our footprint with redevelopment, with outside development, possible acquisitions. I think there is a large landscape.

In many ways, I think the senior living business resembles the hospitality business 20 years ago. There are the large public operators in senior living have the very small market share. You could see how it forces with large capital providers could propel a lot of consolidation over the coming years. We think now that our recapitalization is substantially complete, but we still have issues that I highlighted two of them before and they are in the material that we have put on our website. We think that we are well-positioned to take advantage of consolidating growing business.

So, with that, I thank you for taking a few minutes out of your afternoon. I invite you to get to know us better. As I said in lieu of a breakout, because we are reporting earnings shortly, I’ll stick around for a couple of minutes after this and look forward to seeing you soon. Thank you.

Question-and-Answer Session

[No Q&A session for this event].

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