Tuesday, February 22, 2005


The best tool for improving investment returns is to keep score!

In the coming weeks, I will post a number of score cards. My hope is that you and I will benefit by learning more about strategies that work well and learning to avoid strategies that do not work well. Becoming a better investor is a journey. There is always room for improvement.

At least a few of the score cards will be in regard to mutual funds. Millions of dollars are spent annually on mutual fund sales fees and on mutual fund management fees. Many of you already know that mutual funds have historically under-performed the markets in which they invest. On the other hand, there are millions of investors who have become extremely wealthy by regularly and routinely investing in mutual funds.

In all cases, the wealthy investors could have and perhaps should have done better, but there are certainly no guarantees that any one of them would have done better. Many studies have documented the poor average relative performance of the actively managed mutual funds. For example, a Morningstar study as reported in "What Works on Wall Street" by James P. O'Shaughnessy, calculated that in the ten years ended September 30, 1995, equity funds with 10 year track records beating the Vanguard 500 index fund was 22%!

Seventy-Eight percent of these "professionally managed" mutual funds lost money relative to the "whole basket of stocks". Of the 22 percent that beat the "basket" more than half of those just barely beat the average. Only 10% of all funds beat the "basket" by 2% or more!

For many years, although I have done well investing in stocks, bonds and real estate, I have failed to keep or calculate precise scores. In recent weeks, I dug out detailed receipts for several years. The results are quite good. I will post them as another scorecard. In addition, I plan to do a regular column called "STOCK OF THE WEEK". When time permits, I will do more than one per week. I will track the performance over-time. I will note when either I or members of my family have invested real money in these stocks.

As always, the articles should not be considered purchase or sale recommendations. The purpose is to educate and entertain. Should you decide to invest money in any stock mentioned, I recommend that you invest no more than 4% of your portfolio in any one of these ideas. I believe many of the selected stocks will perform well. By tracking the results relative to the broad market averages, we all might learn to be better investors.

To that end, I have selected Sunrise Senior Living as the first STOCK OF THE WEEK. Much of the information presented was taken directly from the company's web page. I have also used CBS.MarketWatch.com and Morningstar.com as sources of financial information. While I do not claim to be an accountant or an analyst, I see value in the companies financial statements.

The selection of this company was made more on "gut feeling" than for any other reason. Call it reasoning if you like. One might expect a leader in assisted living services for senior citizens to do well if one expects life expectancy to increase. Numerous authoritative sources and my own experiences suggests that life expectancies will continue to increase. One of my dearest friends has lived in an assisted living facility for a number of years. He does his own laundry, drives his own car and goes out regularly. He has the right to eat three meals a day at the facility but, like many other residents, he jumps at an invitation to dine elsewhere. The facility says and my friend has come to accept that the average cost of food for all tenants works out to be about the same in the long run. The healthiest tenants get out more but having an open pre-paid dining facility for all tenants is a nice way to handle food. Guests pay modest prices to dine at the facility.

Sunrise Senior Living is the nation's largest provider of senior living services. The McLean, Va.-based Company employs more than 35,000 people. As of December 31, 2004, Sunrise operates 381 communities that are open in the United States, Canada, Germany and the United Kingdom with a combined capacity for approximately 43,000 residents. Sunrise also has 32 communities under construction in these countries with a combined capacity for approximately 2,900 residents.


Independent living is a lifestyle option for active seniors -- without the worries of household maintenance. Independent living may offer apartment-style or condo-style living.

Assisted living is ideal for seniors who need assistance with activities of daily living, including eating, bathing, dressing and medication management, but do not require 24-hour skilled nursing care. Working closely with residents, their family members and physicians, Sunrise staff members create individualized personal care plans intended to meet each resident´s specific needs and preferences.

Alzheimer's care is generally offered through the Sunrise Reminiscence program and is provided in secure, homelike environments delivered by staff members who are specially trained to understand and meet memory-impaired residents' unique needs.

Nursing and rehabilitative care is available to individuals who need 24-hour skilled nursing services, post-hospital or post-surgical care. Individualized care plans and regular health assessments are offered along with physical, occupational and speech therapies.

At Home Assisted Living is offered in eight markets and provides assisted living services for seniors in their own homes. In addition to assistance with activities of daily living, customers of the At Home program also have access to housekeeping, home care and meal services.

Hospice is available in most Sunrise communities through the use of a network of preferred providers who have agreed to abide by established best practices.

Short-term Stays provides service to seniors when family members are away or need a short break from caring for the senior in their life or for seniors needing assistance after a hospital visit or during an illness.

General amenities and services at most communities include dining options, activities, programs, transportation and housekeeping and are offered in a comfortable environment.


Located in 33 states and the District of Columbia. States include: AZ, AR, CA, CO, CT, DE, DC, FL, GA, IL, IN, KS, KY, LA, MD, MA, MI, MN, MO, NE, NJ, NM, NY, NC, ND, OH, OK, PA, SC, TN, TX, UT, VA and WA.

Operates in the United States, Canada, the United Kingdom and Germany


Paul Klaassen
Founder, Chairman and CEO
Teresa Klaassen
Founder, Executive Vice President and Chief Cultural Officer
Tom Newell
Tiffany Tomasso
Chief Operating Officer
Brad Rush
Chief Investment Officer
John Gaul
General Counsel
Larry Hulse
Chief Financial Officer
Jeff Jasnoff
Senior Vice President for Human Resources
Ken Abod
Senior Vice President and Treasurer


Founders Paul and Terry Klaassen developed and opened the first Sunrise community more than 23 years ago to create a senior living alternative that centered on the resident. A contrast to traditional senior living and long term care alternatives. The resident-centered model practiced by Sunrise focuses on each unique person and his or her needs and preferences.

1981 -- First Sunrise opens in Oakton, Virginia
1982 -- Sunrise's first training manual developed and includes Principles of Service
1985 -- Two more Sunrise communities open in Virginia
1988 -- First signature Victorian-styled mansion opens in Arlington, Virginia
1995 -- Sunrise's recognized Reminiscence Program for the memory impaired is developed
1999 -- First community outside the United States opens in the United Kingdom
2000 -- First community in Canada opens; Sunrise At Home launched
2001 -- Sunrise (NYSE:SRZ) listed on the New York Stock Exchange
2003 -- Marriott Senior Living Services acquired
2005 -- First community in Germany opens outside of Hamburg

The symbol is SRZ and the closing price Friday was $47.07. This is a fragmented business that is partially dependent upon government health care programs. It has not be a particularly profitable business for the past 10 years. Marriott tried its hand at the business but sold out to Sunrise in 2003. For the past couple of years, Sunrise has experienced slower growth and lower margins as it has worked to consolidate the Marriott locations into its system.

Genesis Health Care (GHCI) is a competitor of about equal size and Five Star Quality Care is growing quickly through acquisitions. Kevan H. Namazi author of "Assisted Living" says the average age of residents in assisted living centers is 84 years.

In 41 states, states allow Medicare to be used on assisted living costs. The average cost of assisted living is $1,800 month whereas the average cost of nursing home residency is $5,000 per month. Many folks have the preference of living at "home" for as long as they can so a number of programs have been started to offer what is referred to as res care. Sunrise operates a res care division.

The leading edge of baby boomers will turn 60 this year. My wife and I will turn 55. We have put our four-bedroom four and a half bath home up for sale. We plan to buy a one level cluster home. We will pay homeowners dues in order to avoid maintenance and yard work. We may spend as much as half our time at the beach or traveling elsewhere. The point is that baby boomers need to start planning for old age now. Marilyn and I can picture ourselves enjoying staying in an upscale assisted living condo or apartment when we are no longer ready to cook and clean house.

It seems there are a number of economies of scale in the business and a number of small proprietors have recently sold out. I expect this trend to continue.

There are things not to like. Several insiders sold shares last year, the price earnings ratio is high at about 25 times next years estimate and operating margins are trending down. The company pays no dividend. The company has good cash flow, excess cash and relatively low debt but I suspect it will buy additional facilities if it gets the chance.

I see this one as an attractive long-term investment. I am likely to buy shares within a month and will post a table to the web soon.