Credit Troubles Force Sunrise to Retrench

Sunrise Senior Living's financial problems deepened in the third quarter as the company said it would abandon new development this year and further cut staff to conserve cash as it struggles to weather the fallout of a worsening economy.

The McLean company is one of the nation's largest providers of residential communities for the elderly. Its stock fell nearly 29 percent yesterday after management, in a conference call with analysts, said the company either would have to refinance a $95 million line of credit or strike a new deal with its lenders by Jan. 31.

To cut costs, Sunrise said it had stopped development of 54 residential projects in the third quarter ending Sept. 30, resulting in a write-down of $47.5 million.

Sunrise said it would not start any projects this year and would only consider new developments in 2009 if it can secure financing. The company added that it was slashing staff in its North American development division from 70 people to 10.

Sunrise also said it would no longer fund its Trinity subsidiary, a hospice business the company bought in 2006, and that Trinity will cease operating by the end of the year. Sunrise is also looking to sublease portions of its office space in McLean as it sheds workers and no longer needs the square footage.

Sunrise's lost $68.7 million, or $1.36 per share in the third quarter, compared with profits of $38.2 million (74 cents) in the same period last year. Revenues were $436.0 million, compared with $429.5 million last year.

"This quarter was very difficult as we incurred a significant net loss," chief executive Mark Ordan said in a statement. "Our team has been fully committed to grinding down cash outflows by reducing overhead, slashing development-related spending and selling or repositioning assets unsuited to the combination of today's capital market environment and our financial condition."

Sunrise is both a manager and developer of residences for seniors. As of the end of the third quarter, Sunrise operated 448 communities in the United States, Canada Britain.

The company borrowed heavily to finance much of its growth and in 2009 must refinance $213.5 million worth of loans, including a $95 million line of credit from its principal lenders, a consortium lead by Bank of America.

The $95 million is the most pressing. Sunrise said yesterday that it was in violation of its terms with its banks, as the company's net worth of $447.1 million has fallen below $450 million and the company has taken on too much leverage, among other issues. Although Sunrise's lenders have waived these conditions until Jan. 31, the company must either refinance the line of credit or strike a new deal with its lenders by then.

Sunrise ended the quarter with $52.8 million worth of cash on its books. The company, which previously tried to sell itself, said it would seek to raise additional money by selling 15 land parcels, refinancing some of its ventures and completing a bond offering for some of its nonprofit projects being developed by the company's Greystone subsidiary.

All of those plans could be complicated by the slumping economy and ongoing credit squeeze, the company said.