SRZ:May 8, Clarification regards Foxhill assisted living and condominium project

Fox Hill Assisted Living and Condominium project is a Sunrise Senior Living Community. In the earnings call there were some questions raised with regards to Sunrise Fox hill community and hence this 8k filing.

Following are some salient points.
- Foxhill is a new Sunrise community located in Bethesda Maryland which is still under construction/development phase.
- The Fox Hill community loan agreement and budget provide for the lender to fund construction costs and operating and interest shortfalls during the lease up and condominium sale period. If the lenders ceases to fund the load agreement, SRZ would have to incur additional obligations in connection with Fox hill.
- SRZ has provided project completion guarantee to the lenders. Construction of FoxHill is substantially complete but there are unpaid invoices of approximately 3 million. The company has paid approximately $ 51.1million in cost overruns under the project completion guarantee.
- SRZ has also provided an operating deficit guarantee to the lenders on the assisted living amenities portion of Fox hill to fund operating shortfalls and interest payments to the extent they exceed the amounts in the Fox Hill budget
- SRZ has provided an operating deficit guarantee to the condominium venture to fund cash shortfalls defined as interest on loan, real estate taxes, condominium assessment and any other expenses in excess of reserves established to pay such expenses in the Fox Hill budget.

My Views: There seems to be some difference of opinion between SRZ and the lenders. SRZ is of the view that there are legitimate invoices of 3 million which are unpaid by the lenders. SRZ has funded the project with additional $51.1 million in cost overruns under project guarantee.

Another point to be made is that 51.1 million in cost overruns are considered as subordinate debt. Subordinate to the debt taken for funding the project but paid before the owners are paid for their investment. This is the standard for all sunrise development projects.

I think this is part and parcel of being in the assisted living community development field and not an abnormal situation. The credit crisis would have caused the lenders to be more tight fisted but this is part and parcel of doing business where there are differences of opinion. there is a possibility that SRZ might have to make additional investment to see the project to completion.

PN: These are my views and interpretation of the 8k filing. The original documents are here . Link to Sunrise Foxhill community website