Development Pipeline for next 12 months Till Q32009)

Additional inputs from the Nov 2008 Q3 presentation. Basically we are looking at project pipeline for SRZ:

Q4 08
Consolidated communities -
Venture communities 5 (826 Resident capacity)
Greystone communities 1 (344 Resident Capacity)
Total 6 (1170 Resident Capacity)

Q1 09
Consolidated communities 1 (115 Resident Capacity)
Venture communities 9 (821 Resident Capacity)
Greystone communities 1 (222 Resident Capacity)
Total 11 (1158 Resident Capacity)

Q2 09
Consolidated communities -
Venture communities 3 (296 Resident Capacity)
Greystone communities 1 (309 Resident Capacity)
Total 4 (605 Resident Capacity)

Q3 09
Consolidated communities -
Venture communities 4 (380 Resident Capacity)
Greystone communities -
Total 4 (380 Resident Capacity)

So what we can see is that the already committed properties are scheduled for completion and the development pipeline is still healthy for 2009. Considering that the average development pipeline is close to 5 years the impact of the credit squeeze is going to impact the future 2-3 years down the line.

Another important fact to be considered is that most of the additional development are in "Venture" communities. These are communities where the primary owners are other parties.

This is the model/strategy that has been used by SRZ.

- Build their brand "Sunrise" in assisted living space.
- Manage properties for institutions (REIT) and earn management fees and minority shareholder profit from the ventures.

This has a positive and negative spin on SRZ.
- Positive spin: SRZ is not constrained by its own financial size(leverage potential) for growth.
- Negative spin: There exist a possibility that the property owners can change the management contract with a potentially negative implication for SRZ.

I think the negative spin is actually good for the company as the company has to maintain its standards else it might loose its contract which will result in better quality care to the residents and the SRZ management has to be innovative in cutting cost with out a reduction in long term brand value. (The other assisted living communities donot have this "stretch/risk" inbuilt in their system and can relax rules having potential long term negative implications)