Sunrise Senior Living 10Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended September 30, 2007
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Transition Period From to

Commission filenumber: 1-16499

SUNRISE SENIOR LIVING, INC.

(Exact name of registrant as specified in its charter)


Delaware		54-1746596
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7902 Westpark Drive

McLean, Virginia 22102

(Address of principal executive offices)

(703) 273-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of accelerated filer and large accelerated filer inRule 12b-2 of the Exchange Act.


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

There were 50,973,087 shares of the Registrant’s common stock outstanding at July 11, 2008.

SUNRISE SENIOR LIVING, INC.

Form 10-Q

For the Quarterly Period Ended September 30, 2007

TABLE OF CONTENTS


			Page

PART I. FINANCIAL INFORMATION
	Item 1.	Condensed Financial Statements
		Consolidated Balance Sheets at September 30, 2007 (unaudited) and December 31, 2006		4
		Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (unaudited)		5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (unaudited)		6
		Notes to Condensed Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
	Item 3.	Quantitative and Qualitative Disclosure About Market Risk		44
	Item 4.	Controls and Procedures		44

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings		45
	Item 1A.	Risk Factors		45
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		46
	Item 3.	Defaults Upon Senior Securities		46
	Item 4.	Submission of Matters to a Vote of Security Holders		46
	Item 5.	Other Information		46
	Item 6.	Exhibits		46
Signatures				47

Explanatory Note

ThisForm 10-Q for the quarter ended September 30, 2007 was delayed due to the time required to perform a comprehensive accounting review to restate our previously filed financial statements for 2005 and prior years to correct various accounting errors (“Accounting Review”), as well as to complete the independent inquiry conducted by the Special Independent Committee of our Board of Directors (“Special Independent Committee inquiry”). For additional information regarding these matters, please refer to ourForm 10-K for the year ended December 31, 2006 filed on March 24, 2008 and the section entitled “Special Independent Committee Inquiry and Accounting Review” under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2007Form 10-K filed on July 31, 2008.

SUNRISE SENIOR LIVING, INC.

CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
	2007		2006
	(Unaudited)		(Restated)
(In thousands, except per share and share amounts)

ASSETS
Current Assets:
Cash and cash equivalents	$	105,531	$	81,990
Accounts receivable, net		69,585		75,055
Notes receivable, net		3,128		4,174
Income taxes receivable		29,973		30,873
Due from unconsolidated communities, net		69,785		80,729
Deferred income taxes, net		29,998		29,998
Restricted cash		49,944		34,293
Prepaid insurance		2,555		5,485
Prepaid expenses and other current assets		27,141		19,401

Total current assets		387,640		361,998
Property and equipment, net		693,650		609,385
Property and equipment subject to a sales contract, net		—		193,158
Property and equipment subject to financing, net		—		62,520
Notes receivable		12,915		17,631
Due from unconsolidated communities		20,460		24,959
Intangible assets, net		93,009		103,771
Goodwill		217,678		218,015
Investments in unconsolidated communities		170,221		104,272
Restricted cash		124,013		143,760
Other assets, net		10,831		8,832

Total assets	$	1,730,417	$	1,848,301


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	133,583	$	91,923
Outstanding draws on bank credit facility		50,000		50,000
Accounts payable and accrued expenses		214,662		216,087
Due to unconsolidated communities		12,731		5,792
Deferred revenue		9,609		8,703
Entrance fees		36,187		38,098
Self-insurance liabilities		50,071		41,379

Total current liabilities		506,843		451,982
Long-term debt, less current maturities		31,378		48,682
Deposits related to properties subject to a sales contract		—		240,367
Liabilities related to properties accounted for under the financing method		—		66,283
Investment accounted for under the profit-sharing method		44,094		29,148
Guarantee liabilities		78,547		75,805
Self-insurance liabilities		78,967		72,993
Deferred gains on the sale of real estate and deferred revenues		66,222		51,958
Deferred income tax liabilities		89,267		78,632
Other long-term liabilities, net		131,284		85,228

Total liabilities		1,026,602		1,201,078

Minority interests		9,813		16,515
Stockholders’ Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding		—		—
Common stock, $0.01 par value, 120,000,000 shares authorized, 50,491,888 and 50,572,092 shares issued and outstanding, net of 103,696 and 27,197 treasury shares, at September 30, 2007 and December 31, 2006, respectively		506		506
Additional paid-in capital		447,611		445,275
Retained earnings		236,100		182,398
Accumulated other comprehensive income		9,785		2,529

Total stockholders’ equity		694,002		630,708

Commitments and contingencies
Total liabilities and stockholders’ equity	$	1,730,417	$	1,848,301

See accompanying notes

SUNRISE SENIOR LIVING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
				(Restated)						(Restated)
	(Unaudited)						(Unaudited)
(In thousands, except per share amounts)

Operating revenue:
Management fees	$	33,420		$	32,763		$	93,948		$	88,346
Buyout fees		—			277			—			94,650
Professional fees from development, marketing and other		15,783			7,189			25,182			18,627
Resident fees for consolidated communities		99,405			97,173			298,394			281,869
Hospice and other ancillary services		30,622			17,849			97,214			44,060
Reimbursed contract services		250,282			224,126			718,679			693,883

Total operating revenues		429,512			379,377			1,233,417			1,221,435
Operating expenses:
Development and venture expense		18,898			13,368			55,472			45,218
Community expense for consolidated communities		71,963			70,654			215,624			202,331
Hospice and other ancillary services expense		31,381			16,818			100,408			44,219
Community lease expense		17,678			15,143			50,467			46,761
General and administrative		70,152			32,198			134,614			86,992
Accounting Restatement, Special Independent Committee inquiry, SEC investigation and pending stockholder litigation		11,957			1,056			32,052			1,328
Loss on financial guarantees and other contracts		4,996			—			5,331			—
Provision for doubtful accounts		1,707			698			3,996			2,222
Impairment of owned communities		3,607			—			3,607			—
Depreciation and amortization		13,205			11,775			42,363			34,989
Write-off of abandoned development projects		15,574			778			24,547			1,312
Write-off of unamortized contract costs		—			—			—			15,488
Reimbursable contract services		250,282			224,126			718,679			693,883

Total operating expenses		511,400			386,614			1,387,160			1,174,743

(Loss) income from operations		(81,888	)		(7,237	)		(153,743	)		46,692
Other non-operating income (expense):
Interest income		2,413			2,084			7,251			6,071
Interest expense		(1,041	)		(482	)		(6,167	)		(4,912	)
Other income (expense)		2,624			7,151			(1,457	)		8,065

Total other non-operating income (expense)		3,996			8,753			(373	)		9,224
Gain on the sale and development of real estate and equity interests		52,753			3,254			99,404			44,549
Sunrise’s share of earnings and return on investment in unconsolidated communities		79,774			23,141			136,288			22,733
Gain (loss) from investments accounted for under the profit-sharing method		48			937			(171	)		74
Minority interests		1,232			1,890			3,391			4,734

Income before provision for income taxes		55,915			30,738			84,796			128,006
Provision for income taxes		(17,685	)		(15,618	)		(31,094	)		(64,914	)

Net income	$	38,230		$	15,120		$	53,702		$	63,092

Earnings per share data:
Basic net income per common share	$	0.77		$	0.30		$	1.08		$	1.44
Diluted net income per common share		0.74			0.29			1.04			1.38

See accompanying notes

SUNRISE SENIOR LIVING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended
	September 30,
	2007			2006
	(Unaudited)
(In thousands)

Operating activities
Net income	$	53,702		$	63,092
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale and development of real estate and equity interests		(99,404	)		(44,549	)
Loss (gain) from investments accounted for under the profit-sharing method		171			(74	)
Write-off of abandoned development projects		24,547			1,312
Write-off of unamortized contract costs		—			15,488
Sunrise’s share of earnings and return on investment in unconsolidated communities		(136,288	)		(22,733	)
Impairment of owned communities		3,607			—
Loss on financial guarantees and other contracts		5,331			—
Distributions of earnings from unconsolidated communities		104,021			43,081
Minority interest in income/loss of controlled entities		(3,391	)		(4,734	)
Provision for doubtful accounts		3,996			2,222
Provision for deferred income taxes		10,635			—
Depreciation and amortization		42,363			34,989
Amortization of financing costs		152			780
Stock-based compensation		2,336			4,384
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable		1,474			(17,059	)
Due from unconsolidated senior living communities		(4,240	)		(11,874	)
Prepaid expenses and other current assets		(4,925	)		(2,251	)
Other assets		(2,311	)		(9,619	)
Increase (decrease) in:
Accounts payable and accrued expenses		35,456			61,121
Entrance fees		(1,911	)		11,417
Self-insurance liabilities		14,666			22,464
Insurance captive restricted cash		(9,120	)		—
Guarantee liabilities		4,705			(913	)
Deferred revenue and gains on the sale of real estate		15,929			9,041

Net cash provided by operating activities		61,501			155,585

Investing activities
Capital expenditures		(180,714	)		(158,869	)
Acquisitions of business assets		(49,021	)		(91,548	)
Dispositions of property		149,488			83,401
Change in restricted cash		13,216			(64,617	)
Purchases of short-term investments		(377,900	)		(76,375	)
Proceeds from short-term investments		377,900			76,375
Increase in investments and notes receivable		(131,412	)		(96,957	)
Proceeds from investments and notes receivable		162,289			49,510
Investments in unconsolidated communities		(32,774	)		(61,504	)
Distributions of capital from unconsolidated communities		601			6,592

Net cash used in investing activities		(68,327	)		(333,992	)

Financing activities
Net proceeds from exercised options		—			4
Additional borrowings of long-term debt		97,103			127,193
Repayment of long-term debt		(65,311	)		(40,713	)
Contribution from minority interests		250			6,172
Distributions to minority interest		(850	)		(577	)
Financing costs paid		(825	)		—

Net cash provided by financing activities		30,367			92,079

Net increase (decrease) in cash and cash equivalents		23,541			(86,328	)
Cash and cash equivalents at beginning of period		81,990			145,078

Cash and cash equivalents at end of period	$	105,531		$	58,750

See accompanying notes

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	Interim Financial Presentation

Our accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the three and nine month periods ended September 30, 2007 and 2006 pursuant to the instructions toForm 10-Q and Article 10 ofRegulation S-X. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read together with our consolidated financial statements and the notes thereto included in our 2007 Annual Report onForm 10-K filed on July 31, 2008. Operating results are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. For information regarding our results of operations for the year ended December 31, 2007, please refer to our 2007 Annual Report onForm 10-K.


2.	2006 Restatement

As discussed in more detail in our 2007Form 10-K filed on July 31, 2008, we restated our 2006 financial statements to correct the accounting for non-refundable entrance fees and rent expense at two continuing care retirement communities. The effect of the restatement was to reduce retained earnings at January 1, 2006 by approximately $11.5 million and to reduce net income in 2006 by approximately $5.1 million. We have restated the 2006 financial statements to correct these errors in accordance with SFAS No. 154,Accounting Changes and Error Corrections.


3.	New Accounting Standards

We adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”), effective January 1, 2007. FIN 48 is an interpretation of FASB Statement No. 109,Accounting for Income Taxes,and it seeks to reduce diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. There was no adjustment to our recorded tax liability as a result of adopting FIN 48.


4.	Investments in Unconsolidated Senior Living Communities

The following is summarized statement of operations information for equity investees for which annual audited financial statements are required underRule 3-09 ofRegulation S-X:

Three Months Ended

September 30, 2007

September 30, 2006

Total

Operating

Net Income

Operating

Net Income

Revenues

(Loss)

Revenues

(Loss)

(In thousands)

PS UK Investment (Jersey) LP

8,304

202,356

N/A

AL US Development Venture, LLC

19,503

(2,584

)

N/A

Sunrise First Assisted Living Holdings, LLC

N/A

14,738

(3,207

)

Sunrise Second Assisted Living Holdings, LLC

N/A

14,847

2,077

Metropolitan Senior Housing, LLC

N/A

14,287

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

Nine Months Ended

September 30, 2007

September 30, 2006

Total

Operating

Net Income

Operating

Net Income

(In thousands)

Revenues

(Loss)

Revenues

(Loss)

PS UK Investment (Jersey) LP

23,548

186,332

N/A

AL US Development Venture, LLC

56,171

(8,971

)

N/A

Sunrise First Assisted Living Holdings, LLC

N/A

43,363

(902

)

Sunrise Second Assisted Living Holdings, LLC

N/A

43,526

5,424

Metropolitan Senior Housing, LLC

N/A

41,835

742

The ventures are treated as partnerships for federal income tax purposes. No provision for federal income taxes is made since taxable income or loss passes through and is reportable by the ventures’ members or partners.

Transactions

In January 2007, we entered into a venture to develop assisted living communities in the United Kingdom (the “UK”) over the next four years, with us serving as the developer and then as the manager of the communities. This is our second venture in the UK. We own 20% of the venture. Property development will be funded through contributions of up to approximately $200.0 million by the partners, based upon their pro rata percentage, with the balance funded by loans provided by third-party lenders.

During the third and fourth quarters of 2007, we entered into two development ventures to develop and build senior living communities in the United States, with us serving as the developer and then as the manager of the communities. We own 20% of the ventures. Property development will be funded through contributions of up to approximately $208.0 million by the partners, based upon their pro rata percentage, with the balance funded by loans provided by third-party lenders. We will develop and manage the communities.

During the third quarter of 2007, our first UK venture in which we have a 20% equity interest sold seven communities to a venture in which we have a 10% interest. Primarily as a result of the gains on these asset sales recorded in the ventures, we recorded equity in earnings in 2007 of approximately $75.5 million. When our UK and Germany ventures were formed, we established a bonus pool in respect to each venture for the benefit of employees and others responsible for the success of these ventures. At that time, we agreed with our partner that after certain return thresholds were met, we would each reduce our percentage interests in venture distributions with such excess to be used to fund these bonus pools. During the third quarter of 2007, we recorded bonus expense of $27.8 million in respect of the bonus pool relating to the UK venture. These bonus amounts are funded from capital events and the cash is retained by us in restricted cash accounts. As of September 30, 2007, approximately $8.7 million of this amount was included in restricted cash. Under this bonus arrangement, no bonuses are payable until we receive distributions at least equal to certain capital contributions and loans made by us to the UK and Germany ventures. We currently expect this bonus distribution limitation will be satisfied in late 2008, at which time bonus payments would become payable.

In October 2000, we formed Sunrise At Home, a venture offering home health assisted living services in several East Coast markets and Chicago. In June 2007, Sunrise At Home was merged into AllianceCare. AllianceCare provides services to seniors, including physician house calls and mobile diagnostics, home care and private duty services through 24 local offices located in seven states. Additionally, AllianceCare operates more than 125 Healthy Lifestyle Centers providing therapeutic rehabilitation and wellness programs in senior living facilities. In the merger, Sunrise received approximately an 8% preferred ownership interest in AllianceCare and Tiffany Tomasso, our chief operating officer, was appointed to the Board of Directors. Our investment in AllianceCare is accounted for under the cost method.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)


5.	Real Estate Sales

Financing Method

In 2004, we sold majority membership interests in two entities which owned partially developed land to two separate ventures. In conjunction with these two sales, we had an option to repurchase the communities from the venture at an amount that was higher than the sales price. At the date of sale, it was deemed likely that we would repurchase the properties, and as a result the financing method of accounting has been applied.

In March 2007, the two separate ventures were recapitalized and merged into one new venture. Per the terms of the transaction, we no longer had an option to repurchase the communities. Thus, there were no longer any forms of continuing involvement that would preclude sale accounting and a gain on sale of $32.8 million was recognized in 2007. No gains were recognized in 2006 or 2005.

Deposit Method

During 2003, we sold a portfolio of 13 operating communities and five communities under development for approximately $158.9 million in cash, after transaction costs, which was approximately $21.5 million in excess of our capitalized costs. In connection with the transaction, we agreed to provide support to the buyer if the cash flows from the communities were below a stated target. The guarantee expired at the end of the 18th full calendar month from the date on which all permits and licenses necessary for the admittance of residents has been obtained for the last development property. The last permits were obtained in January 2006 and the guarantee expired in July 2007. We recorded a gain of $52.5 million upon the expiration of the guarantee.


6.	Sunrise Connecticut Avenue Assisted Living, LLC

In August 2007, we purchased a 90% interest in Sunrise Connecticut Avenue Assisted Living, LLC, a venture in which we previously owned a 10% interest, for approximately $28.9 million and approximately $1.0 million in transaction costs. Approximately $19.9 million of existing debt was paid off at closing and we entered into new debt of $40.0 million. As a result of the acquisition, Sunrise Connecticut Avenue Assisted Living, LLC is our wholly owned subsidiary and the financial results are consolidated as of the acquisition date in August 2007.

The purchase price was allocated to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values. The purchase price values were assigned as follows (in millions):


Net working capital	$	0.6
Property and equipment		40.3
Other assets		0.1
Land		8.8
Less: Debt of venture assumed		(19.9	)

Total purchase price (including transaction costs)	$	29.9

Sunrise Connecticut Avenue Assisted Living, LLC does not meet the definition of a significant subsidiary and therefore historical and pro forma information is not disclosed.


7.	Change in Ownership of Sunrise Communities

In April 2007, Ventas, Inc. (“Ventas”), a large publicly-held healthcare REIT, acquired Sunrise Senior Living Real Estate Investment Trust (“Sunrise REIT”), an independent Canadian real estate investment trust established by us in December 2004. At the time of the acquisition, we managed 77 communities for Sunrise REIT and held a minority interest in 60 of those communities. As of September 30, 2007, we managed 78 communities owned by

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

Ventas and held a minority interest in 61 of those communities. In addition, we have various arrangements with Ventas as successor to Sunrise REIT regarding future development in Canada.


8.	Debt

Long-term debt consists of the following (in thousands):


	September 30,			December 31,
	2007			2006

Outstanding draws on Bank Credit Facility	$	50,000		$	50,000
Borrowings from Sunrise REIT		15,819			35,112
Mortgages, notes payable and other		124,543			80,265
Variable interest entity debt		24,599			25,228

		214,961			190,605
Current maturities		(183,583	)		(141,923	)

	$	31,378		$	48,682

Bank Credit Facility

There were $71.8 million of letters of credit and $50.0 million outstanding under the Bank Credit Facility at September 30, 2007. The letters of credit issued under the Bank Credit Facility expire within one year.

On December 2, 2005, we entered into a $250.0 million secured Bank Credit Facility, which has since been reduced to $160.0 million as described below (the “Bank Credit Facility”), with a syndicate of banks. The Bank Credit Facility replaced our former credit facility. The Bank Credit Facility provides for both cash borrowings and letters of credit. It has an initial term of four years and matures on December 2, 2009, unless extended for an additional one-year period upon satisfaction of certain conditions. The Bank Credit Facility is secured by a pledge of all of the common and preferred stock issued by Sunrise Senior Living Management, Inc., Sunrise Senior Living Investments, Inc., Sunrise Senior Living Services, Inc. and Sunrise Development, Inc., each of which is our wholly-owned subsidiary, (together with us, the “Loan Parties”), and all future cash and non-cash proceeds arising therefrom and accounts and contract rights, general intangibles and notes, notes receivable and similar instruments owned or acquired by the Loan Parties, as well as proceeds (cash and non-cash) and products thereof.

Prior to the amendments described below, cash borrowings in US dollars initially accrued interest at LIBOR plus 1.70% to 2.25% plus a fee to participating lenders subject to certain European banking regulations or the Base Rate (the higher of the Federal Funds Rate plus 0.50% and Prime) plus 0.00% to 0.75%. The Bank Credit Facility also permits cash borrowings and letters of credit in currencies other than US dollars. Prior to the amendments described below, interest on cash borrowings in non-US currencies accrue at the rate of the Banking Federation of the European Union for the Euro plus 1.70% to 2.25%. Letters of credit fees are equal to 1.50% to 2.00% of the maximum available to be drawn on the letters of credit. We pay commitment fees of 0.25% on the unused balance of the Bank Credit Facility. Borrowings are used for general corporate purposes including investments, acquisitions and the refinancing of existing debt.

Borrowings under the Bank Credit Facility are considered short-term debt in our consolidated financial statements.

During 2006 and 2007, we entered into several amendments to our Bank Credit Facility extending the time period for furnishing quarterly and audited annual financial information to the lenders. In connection with these amendments, the interest rate applicable to the outstanding balance under the Bank Credit Facility was also increased effective July 1, 2007 from LIBOR plus 2.25% to LIBOR plus 2.50%.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

On January 31, February 19, March 13, and July 23, 2008, we entered into further amendments to the Bank Credit Facility. These amendments, among other things:


	•	modified to August 20, 2008 the delivery date for the unaudited financial statements for the quarter ended March 31, 2008;

	•	modified to September 10, 2008 the delivery date for the unaudited financial statements for the quarter ending June 30, 2008;

	•	temporarily (in February 2008) and then permanently (in July 2008) reduced the maximum principal amount available under the Bank Credit Facility to $160.0 million; and

	•	waived compliance with financial covenants in the Bank Credit Facility for the year ended December 31, 2007 and for the fiscal quarters ended March 31, 2008 and June 30, 2008, and waived compliance with the leverage ratio and fixed charge coverage ratio covenants for the fiscal quarter ending September 30, 2008.

In addition, pursuant to the July 2008 amendment, until such time as we have delivered evidence satisfactory to the administrative agent that we have timely filed ourForm 10-K for the fiscal year ending December 31, 2008 and that we are in compliance with all financial covenants in the Bank Credit Facility, including the leverage ratio and fixed charge coverage ratio, for the fiscal year ending December 31, 2008, and provided we are not then otherwise in default under the Bank Credit Facility:


	•	we must maintain liquidity of not less than $50.0 million, composed of availability under the Bank Credit Facility plus up to not more than $50.0 million in unrestricted cash and cash equivalents (tested as of the end of each calendar month), and any unrestricted cash and cash equivalents in excess of $50.0 million must be used to pay down the outstanding borrowings under the Bank Credit Facility;

	•	we are generally prohibited from declaring or making directly or indirectly any payment in the form of a stock repurchase or payment of a cash dividend or from incurring any obligation to do so; and

	•	the borrowing rate in US dollars, which was increased effective as of February 1, 2008, will remain LIBOR plus 2.75% or the Base Rate (the higher of the Federal Funds Rate plus 0.50% and Prime) plus 1.25% (through the end of the then-current interest period).

From and after the July 2008 amendment, we will continue to owe and pay fees on the unused amount available under the Bank Credit Facility as if the maximum outstanding amount was $160.0 million. Prior to the July 2008 amendment, fees on the unused amount were based on a $250.0 million outstanding maximum amount.

We paid the lenders an aggregate fee of approximately $0.9 million and $1.9 million for entering into amendments during 2007 and through July 2008, respectively.

On February 20, 2008, Sunrise Senior Living Insurance, Inc., our wholly owned insurance captive directly issued $43.3 million of letters of credit that had been issued under the Bank Credit Facility. As of June 30, 2008, we had outstanding borrowings of $75.0 million, outstanding letters of credit of $26.3 million and borrowing availability of approximately $58.7 million under the Bank Credit Facility.

In connection with the March 13, 2008 amendment, the Loan Parties executed and delivered a security agreement to the administrative agent for the benefit of the lenders under the Bank Credit Facility. Pursuant to the security agreement, among other things, the Loan Parties granted to the administrative agent, for the benefit of the lenders, a security interest in all accounts and contract rights, general intangibles and notes, notes receivable and similar instruments owned or acquired by the Loan Parties, as well as proceeds (cash and non-cash) and products thereof, as security for the payment of obligations under the Bank Credit Facility arrangements.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

certain leverage ratios), maintain certain fixed charge coverage ratios, have a consolidated net worth of at least $450.0 million as adjusted each quarter and to meet other financial ratios, maintain a specified minimum liquidity and use excess cash and cash equivalents to pay down outstanding borrowings; (2) require consent for changes in control; and (3) restrict our ability and our subsidiaries’ ability to borrow additional funds, dispose of all or substantially all assets, or engage in mergers or other business combinations in which Sunrise is not the surviving entity, without lender consent.

At December 31, 2007, we were not in compliance with the following financial covenants in the Bank Credit Facility: leverage ratio (the ratio of consolidated EBITDA to total funded indebtedness of 4.25 as defined in the Bank Credit Facility) and fixed charge coverage ratio (the ratio of consolidated EBITDAR to fixed charges of 1.75 as defined in the Bank Credit Facility). Non-compliance was largely due to additional charges related to losses on financial guarantees which were identified during the 2007 audit that was completed in July 2008. Additionally, as these covenants are based on a rolling, four quarter test, we do not expect to be in compliance with these covenants for the first three quarters of 2008. These covenants were waived on July 23, 2008 through the quarter ending on September 30, 2008.

In the event that we are unable to furnish the lenders with all of the financial information required to be furnished under the amended Bank Credit Facility by the specified dates and are not in compliance with the financial covenants in the Bank Credit Facility, including the leverage ratio and fixed charge coverage ratio, for the quarter ending December 31, 2008, or fail to comply with the new liquidity covenants included in the July 2008 amendment, the lenders under the Bank Credit Facility could, among other things, agree to a further extension of the delivery dates for the financial information or the covenant compliance requirements, exercise their rights to accelerate the payment of all amounts then outstanding under the Bank Credit Facility and require us to replace or provide cash collateral for the outstanding letters of credit or pursue further modification with respect to the Bank Credit Facility.

Mortgages and Notes Payable

As of September 30, 2007, we consolidated debt of $24.6 million related to two communities which we consider to be variable interest entities.

We are obligated to provide annual audited financial statements and quarterly unaudited financial statements to various financial institutions that have made construction loans or provided permanent financing (a) to subsidiaries directly or indirectly owned by us that own our consolidated portfolio of senior living communities and (b) to venture entities that own senior living communities managed by us and in which we hold a minority equity interest, pursuant to the terms of the credit facilities with respect to the loans to such entities or pursuant to documents ancillary to such credit facilities (e.g., operating deficit guarantees, etc.). In some cases, we are also subject to financial covenants that are the same as the leverage ratio and fixed charge coverage ratio covenants in our Bank Credit Facility. In all such instances, the construction loans or permanent financing provided by financial institutions is secured by a mortgage or deed of trust on the financed community. The failure to provide quarterly unaudited financial statements or to comply with financial covenants in accordance with the obligations of the relevant credit facilities or ancillary documents could be an event of default under such documents, and could allow the financial institutions who have extended credit pursuant to such documents to seek the remedies provided for in such documents. In the instances in which we have guaranteed the repayment of the principal amount of the credit extended by these financial institutions, we could be required to repay the loan. All of these loans totaling $86.4 million have been classified as current liabilities as of September 30, 2007.


9.	Income Taxes

We adopted the provisions of FIN 48 on January 1, 2007. There was no adjustment to our recorded tax liability as a result of adopting FIN 48. The total unrecognized tax benefits as of September 30, 2007 was $26.9 million.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

Included in the balance were $14.6 million of tax positions that, if recognized, would favorably impact the effective tax rate. We are under audit by the IRS for the 2006 tax year and it is possible that the amount of the liability for unrecognized tax-benefits could change during the next twelve month period. We file income tax returns, including returns for our subsidiaries, with federal, state, local and foreign jurisdictions.


	(In thousands)

Unrecognized tax benefit at beginning of year (January 1, 2007)	$	25,147
Change attributable to tax positions taken during a prior period		—
Change attributable to tax positions taken during a current period		1,982
Decrease attributable to settlements with taxing authorities		—
Decrease attributable to lapse in statute of limitations		(175	)

Unrecognized tax benefit at end of period (September 30, 2007)	$	26,954

In accordance with our accounting policy, we recognize interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the adoption of FIN 48. Our consolidated statement of operations for the nine months ended September 30, 2007 and our consolidated balance sheet as of that date include interest and penalties of $0.9 million and $3.4 million, respectively.

Our federal income tax returns for the periods prior to 2004 are closed to examination. In July 2008, our 2005 federal income tax return audit was settled with the IRS resulting in a tax liability of approximately $0.2 million. Our 2006 federal tax return is currently being examined by the IRS. We have no other income tax examinations by U.S., state, local or foreign jurisdictions.


10.	Commitments and Contingencies

Guarantees

In conjunction with its development ventures, we have provided project completion guarantees to venture lenders and the venture itself, operating deficit guarantees to the venture lenders whereby after depletion of established reserves we guarantee the payment of the lender’s monthly principal and interest during the term of the guarantee and guarantees to the venture to fund operating shortfalls. In conjunction with the sale of certain operating communities to third parties we have guaranteed a set level of net operating income or guaranteed a certain return to the buyer. As guarantees entered into in conjunction with the sale of real estate prevent us from either being able to account for the transaction as a sale or to recognize profit from that sale transaction, the provisions of FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(“FIN 45”), do not apply to these guarantees.

In conjunction with the formation of new ventures that do not involve the sale of real estate, the acquisition of equity interests in existing ventures, and the acquisition of management contracts, we have provided operating deficit guarantees to venture lendersand/or the venture itself as described above, guarantees of debt repayment to venture lenders in the event that the venture does not perform under the debt agreements, and guarantees of a set level of net operating income to venture partners. The terms of the operating deficit guarantees and debt repayment guarantees match the term of the underlying venture debt and generally range from three to seven years. The terms of the guarantees of a set level of net operating income range from 18 months to seven years. Fundings under the operating deficit guarantees and debt repayment guarantees are generally recoverable either out of future cash flows of the venture or upon proceeds from the sale of communities. Fundings under income support guarantees are generally not recoverable.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

The maximum potential amount of future fundings for guarantees subject to the provisions of FIN 45, the carrying amount of the liability for expected future fundings at September 30, 2007 and fundings during the nine months ended September 30, 2007 are as follows (in thousands):


			FIN 45 Liability		FAS 5 Liability		Total Liability		Fundings
	Maximum		for Future		for Future		for Future		for the Nine
	Potential Amount		Fundings at		Fundings at		Fundings at		Months Ended
	of Future		September 30,		September 30,		September 30,		September 30,
Guarantee Type	Fundings		2007		2007		2007		2007

Debt repayment	$	6,754	$	886	$	—	$	886	$	—
Operating deficit		Uncapped		1,017		53,830		54,847		—
Income support		23,000		1,015		17,649		18,664		4,705
Other				—		4,150		4,150		—

Total			$	2,918	$	75,629	$	78,547	$	4,705

Generally, the financing obtained by our ventures is non-recourse to the venture members, with the exception of the debt repayment guarantees discussed above. However, we have entered into guarantees with the lenders with respect to acts which we believe are in our control, such as fraud, that create exceptions to the non-recourse nature of debt. If such acts were to occur, the full amount of the venture debt could become recourse to us. The combined amount of venture debt underlying these guarantees is approximately $2.9 billion at September 30, 2007. We have not funded under these guarantees, and do not expect to fund under such guarantees in the future.

To the extent that a third party fails to satisfy an obligation with respect to two continuing care retirement communities we manage, we would be required to repay this obligation, the majority of which is expected to be refinanced with proceeds from the issuance of entrance fees as new residents enter the communities. At September 30, 2007, the remaining liability under this obligation is $57.9 million. We have not funded these guarantees, and do not expect to fund under such guarantees in the future.

Legal Proceedings

Trinity OIG Investigation and Qui Tam Action

On September 14, 2006, we acquired all of the outstanding stock of Trinity Hospice, Inc. (“Trinity”). As a result of this transaction, Trinity became an indirect, wholly owned subsidiary of the Company. On January 3, 2007, Trinity received a subpoena from the Phoenix field office of the Office of the Inspector General of the Department of Health and Human Services (“OIG”) requesting certain information regarding Trinity’s operations in three locations for the period January 1, 2000 through June 30, 2006, a period that was prior to the Company’s acquisition of Trinity. The Company was advised that the subpoena was issued in connection with an investigation being conducted by the Commercial Litigation Branch of the U.S. Department of Justice and the civil division of the U.S. Attorney’s office in Arizona. The subpoena indicates that the OIG is investigating possible improper Medicare billing under the Federal False Claims Act (“FCA”). In addition to recovery of any Medicare reimbursements previously paid for false claims, an entity found to have submitted false claims under the FCA may be subject to treble damages plus a fine of between $5,500 and $11,000 for each false claim submitted. Trinity has complied with the subpoena and continues to supplement its responses as requested.

On September 11, 2007, Trinity and the Company were served with a complaint filed on September 5, 2007 in the United States District Court for the District of Arizona. That filing amended a complaint filed under seal on November 21, 2005 by four former employees of Trinity under thequi tam provisions of the FCA. Thequi tamprovisions authorize persons (“relators”) claiming to have evidence that false claims may have been submitted to the United States to file suit on behalf of the United States against the party alleged to have submitted such false claims.Qui tamsuits remain under seal for a period of at least 60 days to enable the government to investigate the allegations and to decide whether to intervene and litigate the lawsuit, or, alternatively, to decline to intervene, in

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

which case thequi tamplaintiff, or “relator,” may proceed to litigate the case on behalf of the United States.Qui tamrelators are entitled to 15% to 30% of the recovery obtained for the United States by trial or settlement of the claims they file on its behalf. On June 6, 2007, the Department of Justice and the U.S. Attorney for Arizona filed a Notice with the Court advising of its decision not to intervene in the case, indicating that its investigation was still ongoing. This action followed previous applications by the U.S. Government for extensions of time to decide whether to intervene. As a result, on July 10, 2007, the Court ordered the complaint unsealed and the litigation to proceed. The matter is therefore currently being litigated by the four individual relators. However, under the FCA, the U.S. Government could still intervene in the future. The amended complaint alleges that during periods prior to the acquisition by the Company, Trinity engaged in certain actions intended to obtain Medicare reimbursement for services rendered to beneficiaries whose medical conditions were not of a type rendering them eligible for hospice reimbursement and violated the FCA by submitting claims to Medicare as if the services were covered services. The relators alleged in their amended complaint that the total loss sustained by the United States is probably in the $75 million to $100 million range. On July 3, 2008, the amended complaint was revised in the form of a second amended complaint which replaced the loss sustained range of $75 to $100 million with an alleged loss by the United States of at least $100 million. The original complaint named KRG Capital, LLC (an affiliate of former stockholders of Trinity) and Trinity Hospice LLC (a subsidiary of Trinity) as defendants. The amended complaint names Sunrise Senior Living, Inc., KRG Capital, LLC and Trinity as defendants. The lawsuit is styled United States ex rel. Joyce Roberts, et al., v. KRG Capital, LLC, et al., CV05 3758 PHX-MEA (D. Ariz.).

On February 13, 2008, Trinity received a subpoena from the Los Angeles regional office of the OIG requesting information regarding Trinity’s operations in 19 locations for the period between December 1, 1998 through February 12, 2008. This subpoena relates to the ongoing investigation being conducted by the Commercial Litigation Branch of the U.S. Department of Justice and the civil division of the U.S. Attorney’s Office in Arizona, as discussed above. Trinity is in the process of complying with the subpoena.

At September 30, 2007, we had a $5.0 million accrual for possible fines, penalties and damages related to this matter. At March 31, 2008, we had a $6.0 million accrual for possible fines, penalties and damages related to this matter.

IRS Audit

The Internal Revenue Service is auditing our federal income tax return for the year ended December 31, 2006 and our federal employment tax returns for 2004, 2005 and 2006. In July 2008, our 2005 federal income tax return audit was settled with the IRS resulting in a tax liability of approximately $0.2 million.

SEC Investigation

We previously announced on December 11, 2006 that we had received a request from the SEC for information about insider stock sales, timing of stock option grants and matters relating to our historical accounting practices that had been raised in media reports in the latter part of November 2006 following receipt of a letter by us from the Service Employees International Union. On May 25, 2007, we were advised by the staff of the SEC that it has commenced a formal investigation. We have fully cooperated, and intend to continue to fully cooperate, with the SEC.

Putative Class Action Litigation

Two putative securities class actions, styled United Food & Commercial Workers Union Local 880-Retail Food Employers Joint Pension Fund, et al. v. Sunrise Senior Living, Inc., et al., Case No. 1:07CV00102, and First New York Securities, L.L.C. v. Sunrise Senior Living, Inc., et al., Case No. 1:07CV000294, were filed in the U.S. District Court for the District of Columbia on January 16, 2007 and February 8, 2007, respectively. Both complaints alleged securities law violations by Sunrise and certain of its current or former officers and directors

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

based on allegedly improper accounting practices and stock option backdating, violations of generally accepted accounting principles, false and misleading corporate disclosures, and insider trading of Sunrise stock. Both sought to certify a class for the period August 4, 2005 through June 15, 2006, and both requested damages and equitable relief, including an accounting and disgorgement. Pursuant to procedures provided by statute, two other parties, the Miami General Employees’ & Sanitation Employees’ Retirement Trust and the Oklahoma Firefighters Pension and Retirement System, appeared and jointly moved for consolidation of the two securities cases and appointment as the lead plaintiffs, which the Court ultimately approved. The cases were consolidated on July 31, 2007. Thereafter, a stipulation was submitted pursuant to which the new putative class plaintiffs filed their consolidated amended complaint (under the caption In re Sunrise Senior Living, Inc. Securities Litigation, CaseNo. 07-CV-00102-RBW) on June 6, 2008. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, andRule 10b-5 promulgated thereunder, and names as defendants the Company, Paul J. Klaassen, Teresa M. Klaassen, Thomas B. Newell, Tiffany L. Tomasso, Larry E. Hulse, Carl G. Adams, Barron Anschutz, and Kenneth J. Abod. The defendants’ motion to dismiss the complaint was filed on August 11, 2008.

Putative Shareholder Derivative Litigation

On January 19, 2007, the first of three putative shareholder derivative complaints was filed in the U.S. District Court for the District of Columbia against certain of our current and former directors and officers, and naming us as a nominal defendant. The three cases are captioned: Brockton Contributory Retirement System v. Paul J. Klaassen, et al., Case No. 1:07CV00143 (USDC); Catherine Molner v. Paul J. Klaassen, et al., Case No. 1:07CV00227 (USDC) (filed1/31/2007); Robert Anderson v. Paul J. Klaassen, et al., Case No. 1:07CV00286 (USDC) (filed2/5/2007). Counsel for the plaintiffs subsequently agreed among themselves to the appointment of lead plaintiffs and lead counsel. On June 29, 2007, the lead plaintiffs filed a Consolidated Shareholder Derivative Complaint, again naming us as a nominal defendant, and naming as individual defendants Paul J. Klaassen, Teresa M. Klaassen, Ronald V. Aprahamian, Craig R. Callen, Thomas J. Donohue, J. Douglas Holladay, William G. Little, David G. Bradley, Peter A. Klisares, Scott F. Meadow, Robert R. Slager, Thomas B. Newell, Tiffany L. Tomasso, John F. Gaul, Bradley G. Rush, Carl Adams, David W. Faeder, Larry E. Hulse, Timothy S. Smick, Brian C. Swinton and Christian B. A. Slavin. The complaint alleges violations of federal securities laws and breaches of fiduciary duty by the individual defendants, arising out of the same matters as are raised in the purported class action litigation described above. The plaintiffs seek damages and equitable relief on behalf of Sunrise. We and the individual defendants filed separate motions to dismiss the consolidated complaint. On the date that their oppositions to those motions were due, the plaintiffs instead attempted to file, over the defendants’ objections, an amended consolidated complaint that does not substantially alter the nature of their claims. The amended consolidated complaint was eventually accepted by the Court and deemed to have been filed on March 28, 2008. We and the individual defendants filed motions to dismiss the amended consolidated complaint on June 16, 2008, and briefing on those motions is continuing. The plaintiffs also have filed a motion to lift the stay on discovery in this derivative suit. The motion has been briefed and is pending.

On March 6, 2007, a putative shareholder derivative complaint was filed in the Court of Chancery in the State of Delaware against Paul J. Klaassen, Teresa M. Klaassen, Ronald V. Aprahamian, Craig R. Callen, Thomas J. Donohue, J. Douglas Holladay, David G. Bradley, Robert R. Slager, Thomas B. Newell, Tiffany L. Tomasso, Carl Adams, David W. Faeder, Larry E. Hulse, Timothy S. Smick, Brian C. Swinton and Christian B. A. Slavin, and naming us as a nominal defendant. The case is captioned Peter V. Young, et al. v. Paul J. Klaassen, et al., CaseNo. 2770-N (CCNCC). The complaint alleges breaches of fiduciary duty by the individual defendants arising out of the grant of certain stock options that are the subject of the purported class action and shareholder derivative litigation described above. The plaintiffs seek damages and equitable relief on behalf of Sunrise. We and the individual defendants separately filed motions to dismiss this complaint on June 6, 2007 and June 13, 2007. The plaintiffs amended their original complaint on September 17, 2007. On November 2, 2007, we and the individual defendants moved to dismiss the amended complaint. In connection with the motions to dismiss, and at plaintiffs’ request, the Chancery Court issued an order on

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

April 25, 2008 directing us to produce a limited set of documents relating to the Special Independent Committee’s findings with respect to historic stock options grants. We produced those documents to the plaintiffs on May 16, 2008. The defendants’ motions to dismiss have been briefed and are pending.

In addition, two putative shareholder derivative suits were filed in August and September 2006, which were subsequently dismissed. The cases were filed in the Circuit Court for Fairfax County, Virginia, captioned Nicholas Von Guggenberg v. Paul J. Klaassen, et al., Case No. CL 200610174 (FCCC) (filed8/11/2006); and Catherine Molner v. Paul J. Klaassen, et al., Case No. CL 200611244 (FCCC) (filed9/6/2006). The complaints were very similar (and filed by the same attorneys), naming certain of our current and former directors and officers as individual defendants, and naming us as a nominal defendant. The complaints both alleged breaches of fiduciary duty by the individual defendants, arising out of the grant of certain stock options that are the subject of the purported class action and shareholder derivative litigation described above. The Von Guggenberg suit was dismissed pursuant to preliminary motions filed by Sunrise (the plaintiff subsequently filed a petition for appeal with the Supreme Court of Virginia, which was denied, thus concluding the case). The Molner suit was dismissed when the plaintiff filed an uncontested notice of non-suit (permitted by right under Virginia law), after the Company had filed preliminary motions making the same arguments that resulted in the dismissal of the Von Guggenberg suit. As described above, the plaintiff in Molner later refiled suit in the U.S. District Court for the District of Columbia.

Resolved or Settled Litigation

As previously disclosed, we were a defendant in a lawsuit filed by CGB Occupational Therapy, Inc. (“CGB”) in September 2000 in the U.S. District Court for the Eastern District of Pennsylvania. CGB provided therapy services to two nursing home communities in Pennsylvania that were owned by RHA Pennsylvania Nursing Homes (“RHA”) and managed by one of our subsidiaries. In 1998, RHA terminated CGB’s contract. In its lawsuit, CGB alleged, among other things, that in connection with that termination, Sunrise tortiously interfered with CGB’s contractual relationships with RHA and several of the therapists that CGB employed on an at-will basis. In a series of court decisions during 2002 through 2005, CGB was awarded compensatory damages of $109,000 and punitive damages of $2 million. In 2005, Sunrise appealed the punitive damages award. On August 23, 2007, a panel of the U.S. Court of Appeals for the Third Circuit vacated the $2 million punitive damages award and remanded the case with instructions that the district court enter a new judgment for punitive damages in the amount of $750,000. On September 5, 2007, CGB filed a petition for rehearing with the U.S. Court of Appeals for the Third Circuit. That petition was denied on September 24, 2007. The Company paid $750,000 in damages and $149,000 in interest to CGB on February 1, 2008 in full and complete satisfaction of the judgment.

As previously disclosed, in September 2005, a bus chartered to evacuate 37 residents from a Sunrise community near Houston, Texas in anticipation of Hurricane Rita caught fire, resulting in the deaths of 23 residents. We were named as one of several defendants in various lawsuits filed in Texas state court as a result of the bus incident. During the first and second quarters of 2007, we settled all claims made against us and all claims against us have been dismissed. We paid a total of $1.5 million, net of insurance payments, to settle the claims made against us, and have incurred approximately $0.1 million of additional expenses related to this litigation.

On July 16, 2007, Millenco, L.L.C. filed suit seeking an order from the Court of Chancery of the State of Delaware pursuant to Section 211 of the Delaware General Corporation Law requiring that we hold our 2007 annual meeting of shareholders within forty-five days after the date on which any such court order was entered. On September 5, 2007, we settled the Millenco litigation by agreeing to a Stipulated Final Order, the material terms of which provided that we would hold our 2007 annual meeting on October 16, 2007 and that each of Paul J. Klaassen and Craig R. Callen, two of our incumbent directors whose terms of office expired at the 2007 annual meeting, and Lynn Krominga, one of the candidates proposed by Millenco and agreed to by our board of directors, would stand for election to a new three-year term that expires at the 2010 annual meeting of stockholders. In connection with the settlement of this litigation, effective September 5, 2007, our board of directors also expanded the size of the board

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

from eight to nine members and appointed Ms. Krominga as a director to an initial term of office expiring at the 2007 annual meeting. On October 10, 2007, we settled a second lawsuit, this one filed by SEIU Master Trust, also in the Court of Chancery of the State of Delaware, regarding our annual meeting of stockholders. This settlement modified, with the Court’s approval, the Stipulated Final Order that had been entered in the Millenco litigation to provide that the business to be conducted at the 2007 annual meeting would consist of election of directors and consideration of two shareholder proposals. Our 2007 annual meeting of stockholders was held on October 16, 2007 pursuant to the Stipulated Final Order. A description of the shareholder proposals, and the results of the votes cast by our stockholders at the 2007 annual meeting with respect to such proposals and for the election of our directors, are set forth in our Current Report onForm 8-K filed with the SEC on October 22, 2007.

As previously disclosed, pursuant to an agreement reached between the parties in May 2008, the Company settled with no admission of fault by either party the previously disclosed litigation filed on September 18, 2007 by Bradley B. Rush, the Company’s former chief financial officer, in connection with the termination of his employment. As previously disclosed, on April 23, 2007, Mr. Rush was suspended with pay. The action was taken by the board of directors following a briefing of the independent directors by WilmerHale, independent counsel to the Special Independent Committee. The Board concluded, among other things, that certain actions taken by Mr. Rush were not consistent with the document retention directives issued by the Company. These actions consisted of Mr. Rush’s deletion of all active electronic files in his user account on one of his Company-issued laptops. Mr. Rush’s employment thereafter was terminated for cause on May 2, 2007. Mr. Rush’s lawsuit asserted that his termination was part of an alleged campaign of retaliation against him for purportedly uncovering and seeking to address accounting irregularities, and it contended that his termination was not for “cause” under the Company’s Long Term Incentive Cash Bonus Plan and the terms of prior awards made to him of certain stock options and shares of restricted stock, to which he claimed entitlement notwithstanding his termination. Mr. Rush asserted five breach of contract claims involving a bonus, restricted stock and stock options. Mr. Rush also asserted a claim for defamation arising out of comments attributed to us concerning the circumstances of his earlier suspension of employment.

Other Pending Lawsuits and Claims

In addition to the lawsuits and litigation matters described above, we are involved in various lawsuits and claims arising in the normal course of business. In the opinion of management, although the outcomes of these other suits and claims are uncertain, in the aggregate they are not expected to have a material adverse effect on our business, financial condition, and results of operations.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)


11.	Net Income per Common Share

The following table summarizes the computation of basic and diluted net income per share amounts presented in the accompanying consolidated statements of operations (in thousands, except per share data):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006

Numerator for basic and diluted net income per share:
Net income	$	38,230	$	15,120	$	53,702	$	63,092

Denominator:
Denominator for basic net income per common share — weighted average shares		49,875		49,715		49,836		43,956
Effect of dilutive securities:
Employee stock options and restricted stock		1,708		1,660		1,627		1,703

Denominator for diluted net income per common share — weighted average shares plus assumed conversions		51,583		51,375		51,463		45,659

Basic net income per common share	$	0.77	$	0.30	$	1.08	$	1.44

Diluted net income per common share		0.74		0.29		1.04		1.38

Options and restricted stock are included under the treasury stock method to the extent they are dilutive. Shares issuable upon exercise of stock options, after applying the treasury stock method, of 2,000 for the three and nine months ended September 30, 2007 have been excluded from the computation because the effect of their inclusion would be anti-dilutive.


12.	Information about Sunrise’s Segments

We have four operating segments for which operating results are regularly reviewed by key decision makers; domestic operations, international operations (including Canada), Greystone and Trinity. We acquired Trinity in September 2006. The domestic, Greystone and international segments develop, acquire, dispose and manage senior living communities. Trinity provides palliative care and support services to terminally ill patients and their families.

Segment results are as follows (in thousands):


	For the Three Months Ended September 30, 2007
	Domestic			Greystone			International		Trinity			Total

Revenues	$	377,998		$	5,150		$	28,843	$	17,521		$	429,512
Interest income		1,989			36			242		146			2,413
Interest expense		894			—			147		—			1,041
Sunrise’s share of earnings and return on investment in unconsolidated communities		(3,192	)		—			82,966		—			79,774
Depreciation and amortization		11,541			853			187		624			13,205
Income (loss) before taxes		1,400			(3,979	)		60,320		(1,826	)		55,915

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)


	For the Three Months Ended September 30, 2006
	Domestic		Greystone			International			Trinity			Total

Revenues	$	361,497	$	4,163		$	10,650		$	3,067		$	379,377
Interest income		1,918		37			114			15			2,084
Interest expense		444		—			24			14			482
Sunrise’s share of earnings and return on investment in unconsolidated communities		25,641		—			(2,500	)		—			23,141
Depreciation and amortization		10,592		882			90			211			11,775
Income (loss) before taxes		35,052		(1,388	)		(2,866	)		(60	)		30,738


	For the Nine Months Ended September 30, 2007
	Domestic		Greystone			International		Trinity			Total

Revenues	$	1,111,339	$	11,213		$	58,914	$	51,951		$	1,233,417
Interest income		6,311		122			486		332			7,251
Interest expense		6,013		—			150		4			6,167
Sunrise’s share of earnings and return on investment in unconsolidated communities		55,614		—			80,674		—			136,288
Depreciation and amortization		37,270		2,907			318		1,868			42,363
Income (loss) before taxes		46,199		(14,858	)		55,883		(2,428	)		84,796


	For the Nine Months Ended September 30, 2006
	Domestic		Greystone			International			Trinity			Total

Revenues	$	1,180,423	$	11,256		$	26,689		$	3,067		$	1,221,435
Interest income		5,606		148			302			15			6,071
Interest expense		4,425		—			473			14			4,912
Sunrise’s share of earnings and return on investment in unconsolidated communities		30,643		—			(7,910	)		—			22,733
Depreciation and amortization		31,924		2,586			268			211			34,989
Income (loss) before taxes		148,199		(11,537	)		(8,596	)		(60	)		128,006


13.	Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007			2006		2007		2006

Net income	$	38,230		$	15,120	$	53,702	$	63,092
Foreign currency translation adjustment		3,006			636		7,218		2,639
Equity interest in investees’ other comprehensive income		(231	)		121		38		548

Comprehensive income	$	41,005		$	15,877	$	60,958	$	66,279

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)


14.	Supplemental Cash Flow Information

Interest paid was $12.5 million and $7.4 million for the nine months ended September 30, 2007 and 2006, respectively. Interest capitalized was $6.5 million and $2.6 million for the nine months ended September 30, 2007 and 2006, respectively. Income taxes paid was $4.1 million and $31.5 million for the nine months ended September 30, 2007 and 2006, respectively.


15.	Subsequent Events

Bank Credit Facility

See Note 8 for information regarding 2008 amendments to our Bank Credit Facility.

New Mortgage Debt

On May 7, 2008, 16 wholly-owned subsidiaries (the “Borrowers”) of Sunrise incurred mortgage indebtedness in the aggregate principal amount of approximately $106.7 million from Capmark Bank (“Lender”) as lender and servicer pursuant to 16 separate cross-collateralized, cross-defaulted mortgage loans (collectively, the “mortgage loans”). Shortly after the closing, the Lender assigned the mortgage loans to Fannie Mae. The mortgage loans bear interest at a variable rate equal to the “Discount” (which is the difference between the loan amount and the price at which Fannie Mae is able to sell its three-month rolling discount mortgage backed securities) plus 2.27% per annum, require monthly principal payments based on a30-year amortization schedule (using an interest rate of 5.92%) and mature on June 1, 2013.

In connection with the mortgage loans, we entered into interest rate protection agreements that provide for payments to us in the event the LIBOR rate exceeds 5.6145%, pursuant to an interest rate cap purchased on May 7, 2008 by each Borrower from SMBC Derivative Products Limited. The LIBOR rate approximates, but is not exactly equal to, the “Discount” rate that is used in determining the interest rate on the mortgage loans; consequently, in the event the “Discount” rate exceeds the LIBOR rate, payments under the interest rate cap may not afford the Borrowers complete interest rate protection. The Borrowers purchased the rate cap for an initial period of three years for a cost of $0.3 million (including fees) and have placed in escrow the amount of $0.7 million to purchase additional interest rate caps to cover years four and five of the mortgage loans which amount will be returned to us in the event the mortgage loans are prepaid prior to the end of the third loan year.

Each mortgage loan is secured by a senior housing facility owned by the applicable Borrower (which facility also secures the other 15 mortgage loans as well), as well as the interest rate cap described above. In addition, our management agreement with respect to each of the facilities is subordinate to the mortgage loan encumbering such facility. In connection with the mortgage loans, we received net proceeds of approximately $103.1 million (after payment of lender fees, third party costs, escrows and other amounts), of which $53.0 million was used to pay down amounts outstanding under our Bank Credit Facility.

The mortgage loans may not be prepaid before May 8, 2009. Thereafter, each mortgage loan is prepayable at the end of each3-month term of the then-current Fannie Mae discount mortgage backed security, upon payment by us of a pre-payment fee in the amount of 1% of the then-outstanding principal amount of the mortgage loan being prepaid (except during the last three months of the loan term when no prepayment premium is payable). In connection with a partial prepayment, the applicable senior housing facility securing the mortgage loan being prepaid may be released only upon the satisfaction of certain conditions, including

(i) the remaining facilities have a 1.4 debt service coverage ratio (during the first 3 years of the loan term) or a 1.45 debt service coverage ratio (during the final 2 years of the loan term), in either case based on12-months trailing net operating income and a fixed rate of interest of 5.92% per annum,

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

(ii) not more than 30% of the then-outstanding principal balance (after prepayment) is secured by senior housing facilities located in a single state, and

(iii) not more than 65% of the then-outstanding principal balance (after prepayment) is secured by senior housing facilities located in the states of Indiana, Michigan and Ohio.

In addition, one or more facilities may be sold and the individual mortgage loan assumed by the buyer so long as the foregoing (i), (ii) and (iii) are satisfied and the assumed mortgage loan has a 1.40 debt service coverage ratio (if the assumed mortgage loan is fixed rate) or a minimum debt service coverage determined by Lender (if the assumed mortgage loan is variable rate) and the buyer is acceptable to the Lender.

Each Borrower has the right to convert the interest rate on its mortgage loan to a fixed rate of interest equal to a then-effective Fannie Mae interest rate plus 1.2% per annum, subject to the satisfaction of certain conditions, including that the applicable facility has sufficient net operating income, as determined in accordance with Fannie Mae’s then applicable underwriting standards. In the event of a conversion, the converted note is prepayable only upon payment of the greater of 1% of the outstanding principal balance and the payment of a yield maintenance premium or, during the 4th through 6th month prior to the maturity date, upon payment of a prepayment premium of 1% of the outstanding principal balance. A conversion may result in an extension of the maturity date of the mortgage loan being converted depending, among other things, on the reference rate used to determine the fixed rate.

The mortgage loans will become immediately due and payable, and the Lender will be entitled to interest on the unpaid principal sum at an increased rate, if any required payment is not paid on or prior to the date when due or on the happening of any other event of default including a misrepresentation by the applicable Borrower or the failure of the applicable Borrower to comply with the covenants contained in the mortgage loan documents. The mortgage loans contain various usual and customary covenants, including restrictions on transfers of the facilities and restrictions on transfers of direct or indirect interests in the Borrowers, and obligations regarding the payment of real property taxes, the maintenance of insurance, compliance with laws, maintenance of licenses in effect, use of the facilities only as permitted by the mortgage loan documents, entering into leases and occupancy agreements in accordance with the mortgage loan documents and preparation and delivery to Lender of the reports required by the mortgage loan documents. The mortgage loans are non-recourse to the Borrowers and us, but are subject to usual and customary exceptions to non-recourse liability for damage suffered by Lender for certain acts, including misapplication of rents, security deposits, insurance proceeds and condemnation awards, failure to comply with obligations relating to delivery of books, records and financial and other reports of Borrower, and fraud or material misrepresentation. The mortgage loans are full recourse to the Borrower and us in the event of a Borrower’s acquisition of any property or operation of any business not permitted by the terms of the applicable mortgage or in the event of a violation of the transfer restrictions contained in the mortgages. During the term of the mortgage loans, we are required to maintain at all times (i) a net worth of not less than $100.0 million and (ii) cash and cash equivalents of not less than $25.0 million.

Trinity Hospice

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

February 12, 2008. This subpoena relates to the ongoing investigation being conducted by the Commercial Litigation Branch of the U.S. Department of Justice and the civil division of the U.S. Attorney’s Office in Arizona. Trinity is in the process of complying with the subpoena. See Note 10, for additional information. In the fourth quarter of 2006, we recorded a loss of $5.0 million for possible fines, penalties and damages related to the Trinity OIG investigation, and in the fourth quarter of 2007 recorded an additional loss of $1.0 million. We expect to incur additional costs, which may be substantial, until this matter is resolved.

As of December 31, 2007, Trinity’s average daily census was approximately 1,300 compared to 1,500 at December 31, 2006. The average daily census was approximately 985 at June 30, 2008. This decline in census was partially the result of the closing of certain operating locations in non-core Sunrise markets and Trinity’s focus on remediation efforts. As a result of a review of the goodwill and intangible assets related to Trinity, we recorded an impairment loss of approximately $56.7 million in the fourth quarter of 2007.

Germany Venture

We provided pre-opening and management services to eight and nine communities in Germany at September 30, 2007 and June 30, 2008, respectively. In connection with the development of these communities, we provided operating deficit guarantees to cover cash shortfalls until the communities reach stabilization. These communities have not performed as well as originally expected. In 2006, we recorded a pre-tax charge of $50.0 million as we did not expect full repayment of the loans from the funding. In the fourth quarter of 2007, we recorded an additional $16.0 million pre-tax charge based on changes in expected future cash flows. Our estimates underlying the pre-tax charge include certain assumptions as tolease-up of the communities. To the extent that suchlease-up is slower than our projections, we could incur significant additional pre-tax charges in subsequent periods as we would be required to fund additional amounts under the operating deficit guarantees. Through September 30, 2007 we have funded $18.7 million and through June 30, we have funded $37.0 million, respectively, under these guarantees and other loans. We expect to fund an additional $62.0 million through 2012, the date at which we estimate no further funding will be required.

Aston Gardens

In September 2006, a venture acquired six senior living communities with a capacity for approximately 2,000 residents in Florida, operated under the Aston Gardens brand name for $450.0 million. The aggregate purchase price for the transaction was $450.0 million (which included approximately $134.0 million of debt assumption), plus $10.0 million in transaction costs for the total of $460.0 million. Our venture partner funded 75% of the equity (approximately $117.0 million) for this transaction and we funded the remaining 25% of the equity (approximately $39.0 million) with the balance of the purchase price (approximately $170.0 million) paid through financing obtained by the joint venture. We funded our $39.0 million portion of the acquisition through our existing cash balances and Bank Credit Facility. We also received an initial 20 year contract to manage these properties. In 2007 and into 2008, the operating results of the Aston Garden communities suffered due to adverse economic conditions in Florida for independent living communities including a decline in the real estate market. These operating results are insufficient to achieve compliance with the debt covenants for the mortgage debt for the properties. In July 2008, the venture received notice of default from the lender of $170.0 million of debt obtained by the venture at the time of the acquisition in September 2006. Later in July 2008, we received notice from our equity partner alleging a default under our management agreement as a result of receiving the notice from the lender. This debt is non-recourse to us. Based on our assessment, we have determined that our investment is impaired and as a result, we recorded a pre-tax impairment charge of approximately $21.6 million in the fourth quarter of 2007.

Sunrise Senior Living, Inc.

Notes to Condensed Consolidated Financial Statements — (Continued)

(Unaudited)

Recapitalizations

During the first quarter of 2008, we completed the recapitalization of a venture with two underlying properties. As a result of this recapitalization, guarantees that required us to use the profit-sharing method of accounting for our previous sale of real estate in 2004 were released and we recorded a pre-tax gain on sale of approximately $6.7 million in the first quarter of 2008 and received cash of approximately $5.4 million.

Senior Living Condominium Developments

In the first quarter of 2008, we suspended the development of three condominium projects and as a result, we recorded pre-tax charges totaling approximately $22.3 million in the first quarter of 2008.

Real Estate Transactions

During December 2007, we decided to withdraw from ventures that owned two pieces of undeveloped land in Florida. We wrote off our remaining investment balance of approximately $1.1 million in the two projects.

In December 2007, we contributed $4.4 million for a 20% interest in an unconsolidated venture with COP Investment Group (Conrad Properties). The venture purchased an existing building for approximately $22.0 million and will renovate the building into a senior independent living facility.

In June 2006, a new unconsolidated venture in which we held a 20% ownership interest acquired three communities and their management contracts from a third party. The total purchase price was $34.3 million, of which we contributed $3.8 million. In the fourth quarter of 2007, due to deteriorating performance for two of the three communities, an impairment charge of $8.9 million was recorded in the venture under SFAS No. 144, and we recorded our proportionate share of the loss, $1.8 million. In addition in the fourth quarter of 2007, we wrote-off our receivables due from the venture of approximately $1.9 million.

In December 2007, we sold a majority membership interest in an entity which owned an operating community. In conjunction with the sale, the buyer had the option to put its interests and shares back to us if certain conditions were not met by June 2008. If the conditions were met prior to June 2008, the buyer’s put option would be extinguished. Due to the existence of the put option that allows the buyer to compel us to repurchase the property, we applied the financing method of accounting. In February 2008, the required conditions were met, the buyer’s put option was extinguished and sale accounting was achieved. In connection with the sale, we also provided a guarantee to support the operations of the property for a limited period of time. Due to this continuing involvement, the gain on sale totaling approximately $8.7 million will be initially deferred and then recognized using the basis of performance of services method. $1.6 million of the gain was recognized in the first quarter of 2008.

Legal and Accounting Fees Related to Accounting Review, Special Independent Committee Inquiry and Related Matters

During the fourth quarter of 2007 and the six months ended June 30, 2008, we incurred or expect to incur legal and accounting fees of approximately $43.1 million related to the Accounting Review, the Special Independent Committee inquiry, the SEC investigation and responding to various shareholder actions.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read together with the information contained in our consolidated financial statements, including the related notes, and other financial information appearing elsewhere herein. This management’s discussion and analysis contains certain forward-looking statements that involve risks and uncertainties. Although we believe the expectations reflected in such forward looking statements are based on reasonable assumptions, there can be no assurance that our expectations will be realized. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, our ability to achieve the anticipated savings from our cost-savings program; the time required for us to prepare, file, complete or amend ourForm 10-Q for the second quarter of 2008 and any requiredForm 10-Qs for the first and second quarters of 2007; any related costs, expenses or consequences, and for Ernst & Young LLP to review theForm 10-Qs; the outcome of the SEC’s investigation; the outcomes of pending putative class action and derivative litigation; the outcome of the Trinity OIG investigation and qui tam proceeding; the outcome of the IRS audit of our tax return for the tax year ended December 31, 2006 and employment tax returns for 2004, 2005 and 2006; the status of the exploration of strategic alternatives; our ability to comply with the terms of the amendment of our bank credit facility or to obtain a further extension of the period for providing the lenders with required financial information and for complying with certain financial covenants; Sunrise’s ability to continue to recognize income from refinancings and sales of communities by ventures; risk of changes in Sunrise’s critical accounting estimates; risk of further write-downs or impairments of its assets; risk of future fundings of guarantees and other support arrangements to some of its ventures, lenders to the ventures or third party owners; risk of declining occupancies in existing communities or slower than expected leasing of new communities; risk resulting from any international expansion; risk associated with any new service offerings; development and construction risks; risks associated with past or any future acquisition; compliance with government regulations; risk of new legislation or regulatory developments; business conditions; competition; changes in interest rates; unanticipated expenses; market factors that could affect the value of our properties; the risks of downturns in general economic conditions; availability of financing for development; and other risks detailed in our 2007 Annual Report onForm 10-K filed with the SEC. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Unless the context suggests otherwise, references herein to “Sunrise”, the “Company,” “we,” “us,” and “our” mean Sunrise Senior Living, Inc. and our consolidated subsidiaries.

Information provided in thisForm 10-Q for periods subsequent to March 31, 2008 is preliminary and remains subject to review by Ernst & Young LLP. As such, this information is not final or complete, and remains subject to change, possibly materially.

Overview

We are a Delaware corporation and are a provider of senior living services in the United States, Canada, the United Kingdom and Germany. Our long-range strategic objectives are set forth in our 2007 Annual Report onForm 10-K.

At September 30, 2007, we operated 436 communities, including 401 communities in the United States, 12 communities in Canada, 15 communities in the United Kingdom and eight communities in Germany, with a total resident capacity of approximately 53,000. We owned or had an ownership interest in 258 of these communities and 178 were managed for third parties. In addition, at September 30, 2007, we provided pre-opening management and professional services to 40 communities under construction, of which 28 communities are in the United States, three communities are in Canada, seven communities are in the United Kingdom, and two communities are in Germany, with a combined capacity for approximately 5,800 residents.

Refer to our 2007 Annual Report onForm 10-K for a discussion of our critical accounting estimates. As a part of our operating strategy, we may provide limited debt guarantees to certain of our business ventures, guarantee that properties will be completed at budgeted costs approved by all partners in a venture, or provide an operating deficit credit facility as a part of certain management contracts. For information regarding these various guarantees, refer to “Liquidity and Capital Resources”.

Results of Operations

Our results of operations for each of the three and nine months ended September 30, 2007 and 2006 were as follows:


										Percent
	For the Three Months Ended						Variance			Change
	September 30,						2007 vs.			2007 vs.
	2007			2006			2006			2006
	(Unaudited)
(In thousands, except per share amounts)

Operating revenue:
Management and buyout fees	$	33,420		$	33,040		$	380			1.2	%
Professional fees from development, marketing and other		15,783			7,189			8,594			119.5	%
Resident fees for consolidated communities		99,405			97,173			2,232			2.3	%
Hospice and other ancillary services		30,622			17,849			12,773			71.6	%
Reimbursed contract services		250,282			224,126			26,156			11.7	%

Total operating revenue		429,512			379,377			50,135			13.2	%

Operating expenses:
Development and venture expense		18,898			13,368			5,530			41.4	%
Community expense for consolidated communities		71,963			70,654			1,309			1.9	%
Hospice and other ancillary services expense		31,381			16,818			14,563			86.6	%
Community lease expense		17,678			15,143			2,535			16.7	%
General and administrative		70,152			32,198			37,954			117.9	%
Accounting Restatement, Special Independent Inquiry, SEC investigation and pending stockholder litigation		11,957			1,056			10,901			1032.3	%
Loss on financial guarantees and other contracts		4,996			—			4,996			n/a
Provision for doubtful accounts		1,707			698			1,009			144.6	%
Impairment of owned communities		3,607			—			3,607			n/a
Depreciation and amortization		13,205			11,775			1,430			12.1	%
Write-off of abandoned development projects		15,574			778			14,796			1901.8	%
Reimbursed contract services		250,282			224,126			26,156			11.7	%

Total operating expenses		511,400			386,614			124,786			32.3	%
Loss from operations		(81,888	)		(7,237	)		(74,651	)		1031.5	%
Other non-operating income (expense):
Interest income		2,413			2,084			329			15.8	%
Interest expense		(1,041	)		(482	)		(559	)		116.0	%
Other income (expense)		2,624			7,151			(4,527	)		(63.3	)%

Total other non-operating income		3,996			8,753			(4,757	)		(54.3	)%
Gain on the sale and development of real estate and equity interests		52,753			3,254			49,499			1521.2	%
Sunrise’s share of earnings and return on investment in unconsolidated communities		79,774			23,141			56,633			244.7	%
Loss from investments accounted for under the profit sharing method		48			937			(889	)		(94.9	)%
Minority interests		1,232			1,890			(658	)		(34.8	)%

Income before provision for income taxes		55,915			30,738			25,177			81.9	%
Provision for income taxes		(17,685	)		(15,618	)		(2,067	)		13.2	%

Net income	$	38,230		$	15,120		$	23,110			152.8	%

Basic net income per share	$	0.77		$	0.30		$	0.47			156.7	%
Diluted net income per share		0.74			0.29			0.45			155.2	%


	For the Nine Months									Percent
	Ended						Variance			Change
	September 30,						2007 vs.			2007 vs.
	2007			2006			2006			2006
	(Unaudited)
(In thousands, except per share amounts)

Operating revenue:
Management fees	$	93,948		$	88,346		$	5,602			6.3	%
Buyout fees		—			94,650			(94,650	)		(100.0	)%
Professional fees from development, marketing and other		25,182			18,627			6,555			35.2	%
Resident fees for consolidated communities		298,394			281,869			16,525			5.9	%
Hospice and other ancillary services		97,214			44,060			53,154			120.6	%
Reimbursed contract services		718,679			693,883			24,796			3.6	%

Total operating revenue		1,233,417			1,221,435			11,982			1.0	%

Operating expenses:
Development and venture expense		55,472			45,218			10,254			22.7	%
Community expense for consolidated communities		215,624			202,331			13,293			6.6	%
Hospice and other ancillary services expense		100,408			44,219			56,189			127.1	%
Community lease expense		50,467			46,761			3,706			7.9	%
General and administrative		134,614			86,232			48,382			56.1	%
Accounting Restatement, Special Independent Inquiry, SEC investigation and pending stockholder litigation		32,052			1,328			30,724			2313.6	%
Loss on financial guarantees		5,331			—			5,331			n/a
Provision for doubtful accounts		3,996			2,222			1,774			79.8	%
Impairment of owned communities		3,607			—			3,607			n/a
Impairment of goodwill and intangible assets		—			760			(760	)		(100.0	)%
Depreciation and amortization		42,363			34,989			7,374			21.1	%
Write-off of abandoned development projects		24,547			1,312			23,235			1771.0	%
Write-off of unamortized contract costs		—			15,488			(15,488	)		(100.0	)%
Reimbursed contract services		718,679			693,883			24,796			3.6	%

Total operating expenses		1,387,160			1,174,743			212,417			18.1	%
(Loss) income from operations		(153,743	)		46,692			(200,435	)		(429.3	)%
Other non-operating income (expense):
Interest income		7,251			6,071			1,180			19.4	%
Interest expense		(6,167	)		(4,912	)		(1,255	)		25.5	%
Other income (expense)		(1,457	)		8,065			(9,522	)		(118.1	)%

Total other non-operating (expense) income		(373	)		9,224			(9,597	)		(104.0	)%
Gain on the sale and development of real estate and equity interests		99,404			44,549			54,855			123.1	%
Sunrise’s share of earnings and return on investment in unconsolidated communities		136,288			22,733			113,555			499.5	%
Loss from investments accounted for under the profit sharing method		(171	)		74			(245	)		(331.1	)%
Minority interests		3,391			4,734			(1,343	)		(28.4	)%

Income before provision for income taxes		84,796			128,006			(43,210	)		(33.8	)%
Provision for income taxes		(31,094	)		(64,914	)		33,820			(52.1	)%

Net income	$	53,702		$	63,092		$	(9,390	)		(14.9	)%

Basic net income per share	$	1.08		$	1.44		$	(0.36	)		(25.0	)%
Diluted net income per share		1.04			1.38			(0.34	)		(24.6	)%

The following table summarizes our portfolio of operating communities September 30, 2007 and 2006:


	As of		As of
	September 30,		September 30,		Percent
	2007		2006		Change

Total communities
Consolidated		63		63		0.0	%
Unconsolidated		195		174		12.1	%
Managed		178		181		(1.7	)%

Total		436		418		4.3	%

Resident capacity		53,000		52,000		1.9	%

The number of communities managed for unconsolidated ventures and other third-party owners increased by 5.1% from September 30, 2006 to September 30, 2007. During the nine months ended September 30, 2007, we added management of 16 communities which we own or in which we have an ownership interest and ceased management of two communities which are owned by a third parties.

In July 2008, we received notice of default from our equity partner alleging a default under our management agreement for six communities as a result of the venture’s receipt of a notice of default from a lender. We dispute the basis for the notice of default from our equity partner. The management fees for the year 2007, the quarter ended March 31, 2008 and the quarter ended June 30, 2008 were $3.7 million, $1.0 million and $1.0 million, respectively.

Also, in July 2008, we were given notice of termination of a management contract covering 11 communities. This termination was not based upon performance and related to contracts that we acquired from Marriott. These contracts were terminable at the discretion of the owner of the communities. We do not own any portion of these facilities. The management fees for the year 2007, the quarter ended March 31, 2008 and the quarter ended June 30, 2008 were $5.0 million, $1.8 million and $1.8 million, respectively.

Income before provision for income taxes increased to $55.9 million during the three months ended September 30, 2007 from $30.7 million for the three months ended September 30, 2006 primarily due to gains recognized on the sale and development of real estate and equity interests and Sunrise’s share of earnings and return on investment in unconsolidated communities partially offset by higher general and administrative expenses, including expenses for the accounting restatement. Diluted net income per common share increased to $0.74 for the three months ended September 30, 2007 from $0.29 for the three months ended September 30, 2006.

Income before provision for income taxes decreased to $84.8 million during the nine months ended September 30, 2007 from $128.0 million for the nine months ended September 30, 2006 primarily due to higher general and administrative expenses, including expenses for the accounting restatement, partially offset by gains recognized on the sale and development of real estate and equity interests and Sunrise’s share of earnings and return on investment in unconsolidated communities. Diluted net income per common share decreased to $1.04 for the nine months ended September 30, 2007 from $1.38 for the nine months ended September 30, 2006.

For the Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006

Operating Revenue

Management and buyout fees

The increase in management fees revenue of $0.4 million, or 1.2%, was primarily comprised of:


	•	$0.5 million from increased average daily rates associated with existing communities;

	•	$2.0 million of incremental revenues from 18 new communities managed for unconsolidated ventures and third parties; and

	•	$1.8 million decrease due to contract terminations and buyout fees of $0.3 million in 2006.

Professional fees from development, marketing and other

The increase in professional fees from development, marketing and other revenue of $8.6 million was primarily comprised of:


	•	$1.5 million in fees paid to us by our ventures or venture partners as compensation for either brokering the sale of venture assets or the sale of the majority partner’s equity interest in a venture;

	•	$3.2 million in North American and international development fees from 23 communities under development in 2007 compared to 17 communities under development in 2006; and

	•	$2.3 million of fees generated by a Greystone seed capital venture. These fees are earned when the initial development services are completed and permanent financing for the project is obtained.

Resident fees for consolidated communities

The increase in resident fees for consolidated communities of $2.2 million, or 2.3%, was primarily comprised of an increase from the acquisition of one community and increases in fees for other services.

Hospice and other ancillary services

The increase in hospice and other ancillary services fees of $12.8 million, or 71.6%, was primarily comprised of revenue from Trinity, which was acquired in September 2006.

Reimbursed contract services

Reimbursed contract services was $250.3 million for the three months ended September 30, 2007 compared to $224.1 million for the three months ended September 30, 2006. The increase of 11.7% in 2007 was primarily due to an increase in the number of communities managed from 355 to 373.

Operating Expenses

Development and venture expense

The increase in development and venture expense of $5.5 million, or 41.4%, was primarily due to:


	•	$1.6 million in salaries and employee benefits due to the increase in the number of employees in the North American development organization;

	•	$2.4 million in marketing costs for communities under development due to the increase in the number of communities under development; and

	•	$0.8 million in European development.

Community expense for consolidated communities

The increase in community expense for consolidated communities of $1.3 million, or 1.9%, was primarily comprised of $0.5 million from the acquisition of one community and increased service costs.

Hospice and other ancillary services

The increase in hospice and other ancillary services expense of $14.6 million, or 86.6%, was primarily comprised of costs associated with the operation of Trinity, which was acquired in September 2006.

Community lease expense

The increase in community lease expense of $2.5 million, or 16.7%, was primarily comprised of the addition of new international communities and increases in contingent rentals. Contingent rent was $2.4 million for the three months ended September 30, 2007 as compared to $2.0 million for the three months ended September 30, 2006.

General and administrative

The increase in general and administrative expense of $38.0 million, or 117.9%, was primarily comprised of:


	•	$28.7 million increase in bonus expense primarily relating to gains at one of our ventures. During the third quarter 2007, our first UK venture in which we have a 20% equity interest sold seven communities to a venture in which we have a 10% interest. Primarily as a result of the gains on these asset sales recorded in the ventures, we recorded equity in earnings in the quarter ended September 30, 2007 of approximately $82.9 million. When our UK and Germany ventures were formed, we established a bonus pool in respect to each venture for the benefit of employees and others responsible for the success of these ventures. At that time, we agreed with our partner that after certain return thresholds were met, we would each reduce our percentage interests in venture distributions with such excess to be used to fund these bonus pools. These bonus amounts are funded from capital events and the cash is retained by us in restricted cash accounts. At September 30, 2007, approximately $8.7 million of this amount was included in restricted cash. Under this bonus arrangement, no bonuses are payable until we receive distributions at least equal to certain capital contributions and loans made by us to the UK and Germany ventures. We currently expect this bonus distribution limitation will be satisfied in late 2008, at which time bonus payments would become payable;

	•	$3.0 million increase in salaries, employee benefits and travel costs as a result of additional employees to support 18 additional communities;

	•	$2.4 million increase related to the implementation of outsourcing our payroll processing function to ADP; and

	•	$4.8 million increase in legal expenses and expenses associated with our exploration of strategic alternatives.

Accounting Restatement, Special Independent Committee Inquiry, SEC investigation and pending stockholder litigation

During the three months ended September 30, 2007 and 2006, we incurred $12.0 million and $1.1 million, respectively, of legal and accounting fees related to the accounting review, the Special Independent Committee inquiry, the SEC investigation and responding to various shareholder actions.

Loss on financial guarantees

Loss on financial guarantees was $5.0 million during the three months ended September 30, 2007, which was due to additional losses recorded related to construction cost overrun guarantees on a condominium project.

Provision for doubtful accounts

The increase in provision for doubtful accounts of $1.0 million was primarily comprised of the write-off of advances to a venture when we purchased the remaining equity interest.

Impairment of owned communities

Impairment losses of owned communities were $3.6 million for the three months ended September 30, 2007 related to a community whose carrying amount is not fully recoverable.

Depreciation and amortization

The increase in depreciation and amortization expense of $1.4 million, or 12.1%, was primarily comprised of:


	•	$1.3 million from fixed assets placed in service and acceleration of certain asset lives;

	•	$1.0 million from the acceleration of amortization related to certain management contracts; and

	•	$1.4 million decrease as the result of community sales in 2007.

Write-off of abandoned development projects

The write-off of abandoned projects was $15.6 million in the third quarter of 2007 and $0.8 million in the third quarter of 2006. The increase primarily relates to $13.8 million write-off of capitalized development costs for condominium projects due to adverse economic conditions.

Reimbursed contract services

Other Non-Operating Income and Expense

Total other non-operating income was $4.0 million and $8.8 million for the three months ended September 30, 2007 and 2006, respectively. During the three months ended September 30, 2006, we recorded $5.0 million of income related to our purchase of Marriott Senior Living Services, Inc. and received a payment of $1.9 million from a third party to satisfy certain management obligations. During the three months ended September 30, 2007, we recorded a gain on debt extinguishment of $1.7 million and a $0.6 million unrealized foreign currency gain.

Gain on the Sale and Development of Real Estate and Equity Interests

Gain on the sale and development of real estate and equity interests was $52.8 million and $3.3 million during the three months ended September 30, 2007 and 2006, respectively. The 2007 gain consisted of $52.8 million relating to a previous sale of real estate in 2003 where sale accounting was not initially achieved due to the provision of a guarantee of a specified level of cash flows to the buyer. The gain was recognized in July 2007 upon expiration of the guarantee.

Sunrise’s Share of Equity in Earnings and Return on Investment in Unconsolidated Communities

Our share of equity in earnings and return on investment in unconsolidated communities represents our allocation of the results of operations and returns on our investments from distributions from operations and proceeds from transactions with our unconsolidated ventures.

The increase in our share of equity in earnings and return on investment in unconsolidated communities of $56.6 million, or 244.7%, for the three months ended September 30, 2007 compared to the three months ended September 30, 2006, was primarily due to one venture in the UK. During 2007, our UK venture in which we have a 20% equity interest sold seven communities to a different UK venture in which we have a 10% interest. As a result of the gains on these asset sales recorded in the ventures, we recorded earnings in unconsolidated communities of approximately $82.9 million during the three months ended September 30, 2007.

Sunrise’s return on investment in unconsolidated communities primarily represents cash distributions from ventures arising from a refinancing of debt within ventures. We first record all equity distributions as a reduction of our investment. Next, we record a liability if there is a contractual obligation or implied obligation to support the venture including in our role as general partner. Any remaining distribution is recorded in income. The recapitalization of two ventures with 24 communities during the three months ended September 30, 2006 resulted in a return on investment of $21.6 million.

Excluding these transactions, Sunrise’s share of losses in unconsolidated communities, which is primarily the result of pre-opening expenses and operating losses during the initiallease-up period, totaled $5.3 million and $2.6 million for the three months ended September 30, 2007 and 2006, respectively.

Provision for Income Taxes

The provision for income taxes was $17.7 million and $15.6 million for the three months ended September 30, 2007 and 2006, respectively. Our effective tax rate was 31.6% and 50.8% for the three months ended September 30, 2007 and 2006, respectively. Multiple factors impacted the changes in the quarterly rates including a larger change

in book income than permanent differences, changes in transfer pricing and foreign permanent items and tax contingencies.

For the Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006

Operating Revenue

Management fees

The increase in management fees revenue of $5.6 million, or 6.3%, was primarily comprised of:


	•	$4.4 million of incremental revenues from 18 new communities managed in 2007 for unconsolidated ventures and third parties;

	•	$2.7 million of incremental revenues from international communities;

	•	$7.8 million decrease due to contract terminations in 2006; and

	•	$6.9 million from increased average daily rates associated with existing communities.

Buyout fees

In 2006, Five Star bought out $94.7 million of their management contracts in the first nine months of 2006.

Professional fees from development, marketing and other

The increase in professional fees from development, marketing and other revenue of $6.6 million, or 35.2%, was primarily comprised of:


	•	$1.2 million in fees paid to us by our ventures or venture partners as compensation for either brokering the sale of venture assets or the sale of the majority partner’s equity interest in a venture;

	•	$2.5 million in North American and international development fees from 23 communities under development in 2007 compared to 17 communities under development in 2006; and

	•	$1.3 million of fees generated by a Greystone seed capital venture. These fees are earned when the initial development services are successful and permanent financing for the project is obtained.

Resident fees for consolidated communities

The increase in resident fees for consolidated communities of $16.5 million, or 5.9%, was primarily comprised of:


	•	$15.7 million from existing consolidated communities due to an increase in average daily rates and fees for other services; and


	•	$0.8 million increase from the acquisition of one community.

Hospice and other ancillary services

The increase in hospice and other ancillary services fees of $53.2 million, or 120.6%, was primarily comprised of revenue from Trinity, which was acquired in September 2006.

Reimbursed contract services

Reimbursed contract services was $718.7 million for the nine months ended September 30, 2007 compared to $693.9 million for the nine months ended September 30, 2006. The increase of 3.6% in 2007 was primarily due to a 5.1% increase in the number of communities managed from 355 to 373.

Operating Expenses

Development and venture expense

The increase in development and venture expense of $10.3 million, or 22.7%, was primarily due to $9.5 million in salaries and employee benefits due to the increase in the number of employees in the North American development organization.

Community expense for consolidated communities

The increase in community expense for consolidated communities of $13.3 million, or 6.6%, was primarily comprised of:


	•	$12.7 million increase due to higher care services costs; and

	•	$0.5 million from the acquisition of one community.

Hospice and other ancillary services expense

The increase in hospice and other ancillary services expense of $56.2 million, or 127.1%, was primarily comprised of costs associated with the operation of Trinity, which was acquired in September 2006.

Community lease expense

The increase in community lease expense of $3.7 million, or 7.9% was primarily comprised of new international communities and increases in contingent rent. Contingent rent was $6.0 million for the nine months ended September 30, 2007 as compared to $5.8 million for the nine months ended September 30, 2006.

General and administrative

The increase in general and administrative expense of $48.4 million, or 56.1%, was primarily comprised of:


	•	$28.7 million increase in bonus expense primarily relating to gains at one of our ventures. During third quarter of 2007, our first UK venture in which we have a 20% equity interest sold seven communities to a venture in which we have a 10% interest. Primarily as a result of the gains on these asset sales recorded in the ventures, we recorded equity in earnings during the nine months ended September 30, 2007 of approximately $80.6 million. When our UK and Germany ventures were formed, we established a bonus pool in respect to each venture for the benefit of employees and others responsible for the success of these ventures. At that time, we agreed with our partner that after certain return thresholds were met, we would each reduce our percentage interests in venture distributions with such excess to be used to fund these bonus pools. These bonus amounts are funded from capital events and the cash is retained by us in restricted cash accounts. At September 30, 2007, approximately $8.7 million of this amount was included in restricted cash. Under this bonus arrangement, no bonuses are payable until we receive distributions at least equal to certain capital contributions and loans made by us to the UK and Germany ventures. We currently expect this bonus distribution limitation will be satisfied in late 2008, at which time bonus payments would become payable;


	•	$2.3 million increase in salaries, employee benefits and travel costs as a result of additional employees to support 14 additional communities;


	•	$8.0 million increase related to the implementation of outsourcing our payroll processing function to ADP; and

	•	$8.3 million increase in legal expenses and expenses associated with our exploration of strategic alternatives.

Accounting Restatement, Special Independent Committee Inquiry, SEC investigation and pending stockholder litigation

During the nine months ended September 30, 2007 and 2006, we incurred $32.1 million and $1.3 million, respectively, of legal and accounting fees related to the accounting review, the Special Independent Committee inquiry, the SEC investigation and responding to various shareholder actions.

Loss on financial guarantees

Loss on financial guarantees was $5.3 million during the nine months ended September 30, 2007 was primarily due to losses recorded related to construction cost overrun guarantees on a condominium project.

Provision for doubtful accounts

The increase in provision for doubtful accounts of $1.8 million was primarily comprised of the write-off of advances to a venture when we purchased the remaining equity interest.

Impairment of owned communities

Impairment losses of owned communities was $3.6 million for the nine months ended September 30, 2007 related to a community whose carrying amount is not fully recoverable.

Depreciation and amortization

The increase in depreciation and amortization expense of $7.4 million, or 21.1%, was primarily comprised of:


	•	$6.1 million from fixed assets placed in service and acceleration of certain asset lives;

	•	$3.3 million from the acceleration of amortization related to certain management contracts; and

	•	$1.3 million and $1.1 million decrease as the result of community sales in 2007 and 2006, respectively.

Write-off of abandoned development projects

The write-off of abandoned projects was $24.5 million in 2007 and $1.3 million for 2006. The increase primarily relates to $21.0 million write-off of capitalized development costs for condominium projects due to adverse economic conditions.

Write-off of unamortized contract costs

The write-off of unamortized contract costs in 2006 primarily related to Five Star’s buyout of their management contracts.

Reimbursed contract services

Other Non-Operating Income and Expense

Total other non-operating (expense) income was $(0.4) million and $9.2 million for the nine months ended September 30, 2007 and 2006, respectively. In 2006, we recorded $5.0 million of income related to our purchase of Marriott Senior Living Services, Inc. and received a payment of $1.9 million from a third party to satisfy certain management obligations. In 2007, we recorded a $3.0 million foreign currency loss.

Gain on the Sale and Development of Real Estate and Equity Interests

Gain on the sale and development of real estate and equity interests fluctuates depending on the timing of dispositions of communities and the satisfaction of certain operating contingencies and guarantees. Gains for the nine months ended September 30, 2007 and 2006 are as follows (in millions):


	Nine Months Ended September 30,
	2007		2006

Properties accounted for under basis of performance of services	$	3.3	$	1.5
Properties accounted for previously under financing method		33.2		—
Properties accounted for previously under deposit method		52.4		31.2
Land sales		—		5.5
Sales of equity interests and other sales		10.5		6.3

Total gains on sale	$	99.4	$	44.5

During the nine months ended September 30, 2007 and 2006, we recognized pre-tax gains of approximately $88.9 million and $32.7 million, respectively, related to previous sales of real estate where sale accounting was not initially achieved due to guarantees and other forms of continuing involvement.

Sunrise’s Share of Equity in Earnings and Return on Investment in Unconsolidated Communities


	Nine Months Ended September 30,
	2007		2006
	(In millions)

Sunrise’s share of earnings (losses) in unconsolidated communities	$	71.2	$	(6.2	)
Return on investment in unconsolidated communities		65.1		28.9

	$	136.3	$	22.7

The increase in our share of equity in earnings and return on investment in unconsolidated communities of $113.6 million, or 499.5%, for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006, was primarily due to one venture in the UK. During 2007, our UK venture in which we have a 20% equity interest sold seven communities to a different UK venture in which we have a 10% interest. As a result of the gains on these asset sales recorded in the ventures, we recorded earnings in unconsolidated communities of approximately $80.4 million during the nine months ended September 30, 2007.

In 2007, our return on investment in unconsolidated communities was primarily the result of three venture recapitalizations. In one transaction, the majority owner of a venture sold their majority interest to a new third party, the debt was refinanced, and the total cash we received and the gain recognized was $53.0 million. In another transaction, in conjunction with a sale by us of a 15% equity interest which gain is recorded in “Gain on the sale and development of real estate and equity interests” and the sale of the majority equity owner’s interest to a new third party, the debt was refinanced, and we received total proceeds of $4.1 million relating to our retained 20% equity interest in the venture, which we recorded as a return on investment in unconsolidated communities.

In 2006, our return on investment in unconsolidated communities was primarily the result of three venture recapitalizations. In one transaction, the majority owner of two ventures sold their majority interests to a new third party, the debt was refinanced, and the total recorded return on investment to us from this combined transaction was approximately $21.6 million.

Provision for Income Taxes

The provision for income taxes was $31.1 million and $64.9 million for the nine months ended September 30, 2007 and 2006, respectively. Our effective tax rate was 36.7% and 50.7% for the nine months ended September 30, 2007 and 2006, respectively. Multiple factors impacted the changes in the quarterly rates including a larger change in book income than permanent differences, changes in transfer pricing and foreign permanent items and tax contingencies.

Liquidity and Capital Resources

Overview

We had $105.5 million and $82.0 million of unrestricted cash and cash equivalents at September 30, 2007 and 2006, respectively.

To date, we have financed our operations primarily with cash generated from operations and both short-term and long-term borrowings. At September 30, 2007, we had 40 communities under construction in North America and Europe and five communities which we were developing through our Greystone subsidiary on behalf of third parties. At June 30, 2008, we had 31 communities under construction in North America and Europe and five communities which we were developing through our Greystone subsidiary on behalf of third parties. We estimate that it will cost approximately $0.7 billion to complete the 31 communities we had in North America and Europe under construction as of June 30, 2008. Of these communities, 28 are either in ventures or committed to ventures and it is expected that the remaining three communities will be put into ventures before the end of 2008. Sunrise’s remaining equity commitments for these projects as of June 30, 2008 is estimated to be as much as $7.0 million. We estimate that existing construction loan financing commitments and existing credit facilities, together with cash generated from operations, will be sufficient to fund communities under construction as of June 30, 2008.

As of June 30, 2008, we had entered into contracts to purchase or lease 86 additional development sites, for a total contracted purchase price of approximately $410 million. Generally, our land purchase commitments are terminable by Sunrise and a substantial portion of our $18.0 million in land deposits is refundable.

Our previously disclosed development plan for 2008 included a development pipeline of 3,200 to 3,400 units. As previously disclosed, based on the current capital market conditions and our focus on our strategic plan, this number will decrease by up to 50 percent.

We do not have firm financing commitments to cover our full 2008 development plan, and no assurance can be made that we will be able to obtain this financing. We do not intend to begin construction on new projects without committed debt financing. We are regularly in negotiations with lenders and venture partners to secure the financing required to fund development activities.

Additional financing resources will be required to complete the development and construction of these communities and to refinance existing indebtedness. Based on current market conditions related to construction debt financing we may be constrained in our ability to begin construction on all units in our revised 2008 plan.

Long-Term Debt and Bank Credit Facility

At September 30, 2007, we had 215.0 million of outstanding debt with a weighted average interest rate of 7.1%. Of the outstanding debt we had $24.9 million of fixed-rate debt with a weighted average interest rate of 8.5% and $190.1 million of variable rate debt with a weighted average interest rate of 7.0%. At September 30, 2007, we had $3.5 million of debt that is due in 2008.

therefrom and accounts and contract rights, general intangibles and notes, notes receivable and similar instruments owned or acquired by the Loan Parties, as well as proceeds (cash and non-cash) and products thereof.

Borrowings under the Bank Credit Facility are considered short-term debt in our consolidated financial statements.

On January 31, February 19, March 13, and July 23, 2008, we entered into further amendments to the Bank Credit Facility. These amendments, among other things:


	•	modified to August 20, 2008 the delivery date for the unaudited financial statements for the quarter ended March 31, 2008;

	•	modified to September 10, 2008 the delivery date for the unaudited financial statements for the quarter ending June 30, 2008;

	•	temporarily (in February 2008) and then permanently (in July 2008) reduced the maximum principal amount available under the Bank Credit Facility to $160.0 million; and

	•	waived compliance with financial covenants in the Bank Credit Facility for the year ended December 31, 2007 and for the fiscal quarters ended March 31, 2008 and June 30, 2008, and waived compliance with the leverage ratio and fixed charge coverage ratio covenants for the fiscal quarter ending September 30, 2008.


	•	we must maintain liquidity of not less than $50.0 million, composed of availability under the Bank Credit Facility plus up to not more than $50.0 million in unrestricted cash and cash equivalents (tested as of the end of each calendar month), and any unrestricted cash and cash equivalents in excess of $50.0 million must be used to pay down the outstanding borrowings under the Bank Credit Facility;

	•	we are generally prohibited from declaring or making directly or indirectly any payment in the form of a stock repurchase or payment of a cash dividend or from incurring any obligation to do so; and

	•	the borrowing rate in US dollars, which was increased effective as of February 1, 2008, will remain LIBOR plus 2.75% or the Base Rate (the higher of the Federal Funds Rate plus 0.50% and Prime) plus 1.25% (through the end of the then-current interest period).

We paid the lenders an aggregate fee of approximately $0.9 million and $1.9 million for entering into amendments during 2007 and through July 2008, respectively.

Our Bank Credit Facility contains various other financial covenants and other restrictions, including provisions that: (1) require us to meet certain financial tests (for example, our Bank Credit Facility requires that we not exceed certain leverage ratios), maintain certain fixed charge coverage ratios, have a consolidated net worth of at least $450.0 million as adjusted each quarter and to meet other financial ratios, maintain a specified minimum liquidity and use excess cash and cash equivalents to pay down outstanding borrowings; (2) require consent for changes in control; and (3) restrict our ability and our subsidiaries’ ability to borrow additional funds, dispose of all or substantially all assets, or engage in mergers or other business combinations in which Sunrise is not the surviving entity, without lender consent.

Mortgages and Notes Payable

As of September 30, 2007, we consolidated debt of $24.6 million related to two communities which we consider to be variable interest entities.

institutions is secured by a mortgage or deed of trust on the financed community. The failure to provide quarterly unaudited financial statements or to comply with financial covenants in accordance with the obligations of the relevant credit facilities or ancillary documents could be an event of default under such documents, and could allow the financial institutions who have extended credit pursuant to such documents to seek the remedies provided for in such documents. In the instances in which we have guaranteed the repayment of the principal amount of the credit extended by these financial institutions, we could be required to repay the loan. All of these loans totaling $86.4 million have been classified as current liabilities as of September 30, 2007.

Mortgage Financing

On May 7, 2008, 16 of our wholly-owned subsidiaries (the “Borrowers”) incurred mortgage indebtedness in the aggregate principal amount of approximately $106.7 million from Capmark Bank (“Lender”) as lender and servicer pursuant to 16 separate cross-collateralized, cross-defaulted mortgage loans (collectively, the “mortgage loans”). Shortly after the closing, the Lender assigned the mortgage loans to Fannie Mae. The mortgage loans bear interest at a variable rate equal to the “Discount” (which is the difference between the loan amount and the price at which Fannie Mae is able to sell its three-month rolling discount mortgage backed securities) plus 2.27% per annum, require monthly principal payments based on a30-year amortization schedule (using an interest rate of 5.92%) and mature on June 1, 2013.

In connection with the mortgage loans, we entered into interest rate protection agreements that provide for payments to us in the event the LIBOR rate exceeds 5.6145%, pursuant to an interest rate cap purchased on May 7, 2008, by each Borrower from SMBC Derivative Products Limited. The LIBOR rate approximates, but is not exactly equal to the “Discount” rate that is used in determining the interest rate on the mortgage loans; consequently, in the event the “Discount” rate exceeds the LIBOR rate, payments under the interest rate cap may not afford the Borrowers complete interest rate protection. The Borrowers purchased the rate cap for an initial period of three years for a cost of $0.3 million (including fees) and have placed in escrow the amount of $0.7 million to purchase additional interest rate caps to cover years four and five of the mortgage loans which amount will be returned to us in the event the mortgage loans are prepaid prior to the end of the third loan year.

Each mortgage loan is secured by a senior housing facility owned by the applicable Borrower (which facility also secures the other 15 mortgage loans as well), as well as the interest rate cap described above. In addition, our management agreement with respect to each of the facilities is subordinate to the mortgage loan encumbering such facility. In connection with the mortgage loans, we received net proceeds of approximately $103.1 million (after payment of lender fees, third party costs, escrows and other amounts), $53.0 million of which was used to pay down amounts outstanding under our Bank Credit Facility. For additional information, see Note 8 to the condensed consolidated financial statements.

Guarantees

In conjunction with the sale of certain operating communities to third parties we have guaranteed a set level of net operating income or guaranteed a certain return to the buyer. As guarantees entered into in conjunction with the sale of real estate prevent us from either being able to account for the transaction as a sale or to recognize profit from that sale transaction, the provisions of FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(“FIN 45”), do not apply to these guarantees.

guarantees match the term of the underlying venture debt and generally range from three to seven years. The terms of the guarantees of a set level of net operating income range from 18 months to seven years. Fundings under the operating deficit guarantees and debt repayment guarantees are generally recoverable either out of future cash flows of the venture or upon proceeds from the sale of communities. Fundings under the income support guarantees are generally not recoverable.


			FIN 45 Liability		FAS 5 Liability		Total Liability		Fundings
	Maximum		for Future		for Future		for Future		for the Nine
	Potential Amount		Fundings at		Fundings at		Fundings at		Months Ended
	of Future		September 30,		September 30,		September 30,		September 30,
Guarantee Type	Fundings		2007		2007		2007		2007

Debt repayment	$	6,754	$	886	$	—	$	886	$	—
Operating deficit		Uncapped		1,017		53,830		54,847		—
Income support		23,000		1,015		17,649		18,664		4,705
Other				—		4,150		4,150		—

Total			$	2,918	$	75,629	$	78,547	$	4,705

To the extent that a third party fails to satisfy an obligation with respect to two continuing care retirement communities managed by us, we would be required to repay this obligation, the majority of which is expected to be refinanced with proceeds from the issuance of entrance fees as new residents enter the communities. At September 30, 2007, the remaining liability under this obligation is $57.9 million. We have not funded under these guarantees, and do not expect to fund such guarantees in the future.

Germany Venture

We provided pre-opening and management services to eight and nine communities in Germany at September 30, 2007 and June 30, 2008, respectively. In connection with the development of these communities, we provided operating deficit guarantees to cover cash shortfalls until the communities reach stabilization. These communities have not performed as well as originally expected. In 2006, we recorded a pre-tax charge of $50.0 million as we did not expect full repayment of the loans from the funding. In the fourth quarter of 2007, we recorded an additional $16.0 million pre-tax charge based on changes in expected future cash flows. Our estimates underlying the pre-tax charge include certain assumptions as tolease-up of the communities. To the extent that suchlease-up is slower than our projections, we could incur significant additional pre-tax charges in subsequent periods as we would be required to fund additional amounts under the operating deficit guarantees. Through September 30, 2007 and June 30, 2008, we have funded $18.7 million and $37.0 million, respectively, under these guarantees and other loans. We expect to fund an additional $62.0 million through 2012, the date at which we estimate no further funding will be required.

We continue to explore alternatives with respect to the Germany venture, including a potential sale or restructuring of venture interests. Should we pursue alternatives in future periods, there may be a material impact on the consolidated financial statements including consolidation of the ventureand/or additional charges based on fair value.

Senior Living Condominium Developments

We began to develop senior living condominium projects in 2004. In 2006, we sold a majority interest in one condominium and assisted living venture to third parties. In conjunction with the development agreement for this

project, we agreed to be responsible for actual project costs in excess of budgeted project costs of more than $10.0 million (subject to certain limited exceptions). Project overruns to be paid by us are projected to be approximately $48.0 million. Of this amount, $10.0 million is recoverable as a loan from the venture. $14.7 million relates to proceeds from the sale of real estate, development fees and pre-opening fees. During 2006, we recorded a loss of approximately $17.2 million due to this commitment. During 2007, we recorded an additional loss of approximately $6.0 million due to increases in the budgeted projected costs. Through June 30, 2008, we have paid approximately $47.0 million in cost overruns. We expect to complete construction of this project prior to year end 2008. To the extent that the pace of sales of condominium units is slower than anticipated or if we are unable to realize the prices projected for the condominium units, we could be subject to additional overruns. No assurance can be given that additional pre-tax charges will not be required in subsequent periods with respect to this condominium venture.

Cash Flows

Our primary sources of cash from operating activities are the collection of management and professional services fees and from operating and pre-opened communities, collection of monthly fees and other billings from services provided to residents of our consolidated communities, and distributions of operating earnings from unconsolidated ventures. The primary uses of cash for our ongoing operations include the payment of community operating and ancillary expenses for our consolidated and managed communities. Changes in operating assets and liabilities such as accounts receivable, prepaids and other current assets, and accounts payable and accrued expenses will fluctuate based on the timing of payment to vendors. Reimbursement for these costs from our managed communities will vary as some costs are pre-funded, such as payroll, while others are reimbursed after they are incurred. Therefore, there will not always be a correlation between increases and decreases of accounts payable and receivables for our managed communities.

Net cash provided by operating activities was $61.5 million and $155.6 million for the nine months ended September 30, 2007 and 2006, respectively. The change in operating assets and liabilities provided cash of $49.7 million for the nine months ended September 30, 2007 and $62.3 million for the nine months ended September 30, 2006.

Net cash used in investing activities was $68.3 million and $334.0 million for the nine months ended September 30, 2007 and 2006, respectively. Acquisitions decreased by approximately $42.5 million for the nine months ended September 30, 2007 as compared to the year ago period. Dispositions of properties increased $66.1 million for the nine months ended September 30, 2007 as compared to the year ago period. Restricted cash decreased $77.8 million for the nine months ended September 30, 2007 as compared to a year ago period.

Net cash provided by financing activities was $30.4 million and $92.1 million for the nine months ended September 30, 2007 and 2006, respectively.

Strategic Alternatives

In July 2007, we announced that our Board of Directors had decided to explore strategic alternatives intended to enhance shareholder value, including a possible sale of the Company. A committee of non-management directors, originally established in April 2007 to explore strategic alternatives, engaged Citigroup Global Markets Inc. to act as its financial advisor. Meanwhile, this committee has determined that the most important factor in enhancing shareholder value at this time is for us to regain our status as a current filer of our public financial statements. Accordingly, shareholder value remains the focus of the committee, but there can be no assurance that the exploration of strategic alternatives will result in any sale transaction.

Subsequent Events

Bank Credit Facility

See “Long-Term Debt and Bank Credit Facility” above for information regarding 2008 amendments to our Bank Credit Facility.

New Mortgage Debt

See “Mortgage Financing” above for information regarding a new mortgage entered into in May 2008.

Trinity Hospice

On September 14, 2006, we acquired Trinity for $75.0 million with the objective of entering the hospice care industry and integrating such services into our core product offering. On January 3, 2007, Trinity received a subpoena from the Phoenix field office of the OIG requesting certain information regarding Trinity’s operations in three locations for the period between January 1, 2000 through June 30, 2006, a period that is prior to our acquisition of Trinity. On September 11, 2007, Trinity and we were served with aqui tamcomplaint filed on September 5, 2007 in the United States District Court for the District of Arizona. That filing amended a complaint filed under seal on November 21, 2005 by four former employees of Trinity under thequi tam provision of the Federal False Claims Act. On February 13, 2008, Trinity received a subpoena from the Los Angeles regional office of the OIG requesting information regarding Trinity’s operations in 19 locations for the period between December 1, 1998 and February 12, 2008. This subpoena relates to the ongoing investigation being conducted by the Commercial Litigation Branch of the U.S. Department of Justice and the civil division of the U.S. Attorney’s Office in Arizona. Trinity is in the process of complying with the subpoena. See Note 10, for additional information. In the fourth quarter of 2007, we recorded a loss of $5.0 million for possible fines, penalties and damages related to the Trinity OIG investigation, and in the fourth quarter of 2007 recorded an additional loss of $1.0 million. We expect to incur additional costs, which may be substantial, until this matter is resolved.

Aston Gardens

Recapitalizations

During the first quarter of 2008, we completed the recapitalization of a venture with two underlying properties. As a result of this recapitalization, guarantees that were requiring us to use the profit-sharing method of accounting for our previous sale of real estate in 2004 were released and we recorded a pre-tax gain on sale of approximately $6.7 million and received cash of approximately $5.4 million.

Senior Living Condominium Developments

Real Estate Transactions

In June 2006, a new unconsolidated venture in which we held a 20% ownership interest acquired three communities and their management contracts from a third party. The total purchase price was $34.3 million, of which we contributed $3.8 million. In the fourth quarter of 2007, due to deteriorating performance for two of the three communities, an impairment charge of $8.9 million was recorded in the venture under SFAS No. 144, and we recorded our proportionate share of the loss, $1.8 million. In addition in the fourth quarter of 2007, we wrote off our receivables due from the venture of approximately $1.9 million.

Legal and Accounting Fees Related to Accounting Review, Special Independent Committee Inquiry and Related Matters

Strategic Plan and Objectives

On July 31, 2008, we announced our strategic plan, which consists of the following key elements:


	•	focus on the core business of building and operating high-quality assisted living and memory care communities to drive profitability;

	•	strengthen our existing portfolios to minimize exposure to future losses;

	•	reduce corporate expenses and operating cost structure;

	•	preserve financial flexibility during difficult capital markets by reducing our development pipeline as needed; and

	•	build Sunrise’s brand and reputation by continuing to provide the highest levels of care and quality.

Our previously disclosed development plan for 2008 included a development pipeline of 3,200 to 3,400 units. Based on current capital market conditions, this number is expected to be decreased by up to 50 percent. Should capital markets improve, we will adjust our pipeline accordingly.

As part of our plan to reduce corporate expenses, we on July 31, 2008 also announced a program that is intended to generate savings of $15 million to $20 million on an annualized basis beginning in 2009. We expect to

achieve this through reorganization of our corporate cost structure, including implementation of a voluntary separation program for certain team members, as well as a reduction of spending related to administrative processes, vendors, consultants and other areas. Projected savings exclude an estimated restructuring charge of at least $7 million in 2008.

Results of Operations for 2007 and the Three Months Ended March 31, 2008

For information on our results of operations for 2007 and the three months ended March 31, 2008, please refer to our 2007Form 10-K and ourForm 10-Q for the quarter ended March 31, 2008 filed on July 31, 2008 and August 20, 2008, respectively.

Impact of Changes in Accounting Standards


Item 3.	Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risk from changes in interest rates primarily through variable rate debt, variable rate notes receivable and variable rate bonds. Our exposure to market risk has not materially changed since December 31, 2006.


Item 4.	Controls and Procedures

An evaluation was conducted under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2007. The Company’s review of its accounting policies and practices and the restatement of its consolidated financial statements for 2005 and prior years resulted in the inability of Sunrise to timely file its 2006 and 2007Form 10-Ks and itsForm 10-Qs since the first quarter of 2006, including thisForm 10-Q. In addition, as described in Item 9A of our 2007Form 10-K, management determined that two of the material weaknesses identified in Sunrise’s internal control over financial reporting at December 31, 2006 relating to the entity-level control environment and process and transaction level controls continued to exist at December 31, 2007. Based on this evaluation, Sunrise’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2007.

As disclosed in Item 9A of our 2006Form 10-K filed on March 24, 2008, from the outset of the Special Independent Committee inquiry, the Board was committed to addressing weaknesses in internal controls and processes that may have caused, or failed to detect, the errors in accounting that were restated in our 2006Form 10-K, and directed the Special Independent Committee to recommend remedial measures, based on its findings, to prevent recurrence of the inappropriate accounting practices that were corrected in the restatement of the Company’s 2005 and prior period financial statements reflected in our 2006Form 10-K and ensure sound, timely and accurate financial reporting and comprehensive disclosure. During the pendency of the Special Independent Committee inquiry, the Board of Directors undertook a careful and critical self-assessment of the ways in which the Company managed itself to determine how existing corporate governance practices could be strengthened. As previously disclosed in our 2006Form 10-K and in our 2007Form 10-K filed on July 31, 2008, as a result of these combined efforts, in March 2008, the Board unanimously adopted and began implementing a

remedial framework, which is summarized in Item 9A of our 2006Form 10-K and in Item 9A of our 2007Form 10-K.

Management, under the direction of the CEO and CFO, has been directing remediation efforts, including implementation of the Board approved remedial framework. In connection with the preparation of our audited financial statements for 2007 and our unaudited financial statements for the three and nine months ended September 30, 2007, we continued performing the compensating controls and procedures that we implemented in 2006 and designed to assure that any weaknesses in internal control did not impact the preparation of our consolidated financial statements. Since the filing of our 2006Form 10-K on March 24, 2008, we have continued to build on the remedial actions undertaken in 2007 and continued to implement the Board adopted remedial framework. While efforts continue, management believes that the Company has made significant improvements to the control environment and to the Company’s accounting operations, primarily through the previously disclosed extensive changes in senior management and other personnel, extensive organizational changes, increased staffing and increased focus on controls. Management believes that the two material weaknesses that existed at December 31, 2007 will be remediated in 2008.

Part II. Other Information


Item 1.	Legal Proceedings

For information regarding pending and resolved or settled legal proceedings, see Note 10 to the condensed consolidated financial statements.


Item 1A.	Risk Factors

There were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report onForm 10-K for the year ended December 31, 2007, except to the extent previously updated. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in our Annual Report onForm 10-K for the fiscal year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our 2007 Annual Report on theForm 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditionand/or operating results.

As disclosed in our 2007Form 10-K filed on July 31, 2008, subsequent to the filing of our 2006Form 10-K on March 24, 2008, we received correspondence from the staff of the SEC relating to our 2006Form 10-K. We engaged in correspondence with the SEC staff and resolved the outstanding comments except that we were not in a position to include the separate financial statements of three ventures that the SEC staff requested be included pursuant toRule 3-09 ofRegulation S-X, and reflected our responses to these comments in our 2007Form 10-K. It is possible that we may receive additional comments from the SEC staff relating to new matters related to our 2007Form 10-K or other periodic reports filed by us with the SEC, including thisForm 10-Q. Such comments may require that we amend or supplement, possibly significantly, the disclosures in our 2007Form 10-K, thisForm 10-Q or other periodic reports filed by us with the SEC.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Our repurchases of shares of our common stock for the three months ended September 30, 2007 were as follows:


					Shares Purchased		Maximum Number
	Total Number		Average		as Part of Publicly		of Shares that May
	of Shares		Price Paid		Announced Plans		Yet be Purchased
	Purchased(1)		per Share		or Programs		Under the Plans

July 1 — July 31, 2007		—	$	—		—		—
August 1 — August 31, 2007		—		—		—		—
September 1 — September 30, 2007		1,037		35.04		—		—

Total		1,037	$	35.04		—		—


(1)		Represents the number of shares acquired by us from employees as payment of applicable statutory minimum withholding taxes owed upon vesting of restricted stock granted under our 2002 Stock Option and Restricted Stock Plan, as amended.


Item 3.	Defaults Upon Senior Securities

None


Item 4.	Submission of Matters to a Vote of Security Holders

None


Item 5.	Other Information

None


Item 6.	Exhibits

The exhibits required by this Item are set forth on the Exhibit Index attached hereto.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, on this 20th day of August 2008.

SUNRISE SENIOR LIVING, INC.
(Registrant)


		/s/ Richard J. Nadeau

Richard J. Nadeau

Chief Financial Officer


		/s/ Julie A. Pangelinan

Julie A. Pangelinan

Chief Accounting Officer

EXHIBIT INDEX


				Incorporated by Reference
Exhibit						Exhibit
Number			Description	Form	Filing Date with SEC	Number

	10	.1	Fourth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Borrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of September 17, 2007.	10-K	March 24, 2008		10	.45
	10	.2	Fifth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Borrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of January 31, 2008.	10-K	March 24, 2008		10	.46
	10	.3	Sixth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Borrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of February 19, 2008.	10-K	March 24, 2008		10	.47
	10	.4	Pledge, Assignment and Security Agreement between Sunrise Senior Living, Inc. and Bank of America, N.A., as Administrative Agent, dated as of February 19, 2008.	10-K	March 24, 2008		10	.48
	10	.5	Seventh Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Borrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of March 13, 2008.	10-K	March 24, 2008		10	.49
	10	.6	Security Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Loan Parties, and Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of March 13, 2008.	10-K	March 24, 2008		10	.50
	10	.7	Eighth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Borrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of July 23, 2008.	10-K	July 31, 2008		10	.48
	10	.8	Stipulated Final Order of the Delaware Court of Chancery, dated September 5, 2007, settling the litigation previously filed by Millenco, L.L.C. seeking an order from the Court of Chancery of the State of Delaware pursuant to Section 211 of the Delaware General Corporation Law.	8-K	September 10, 2007		10	.1
	10	.9	Stipulated Final Order of the Delaware Court of Chancery, dated October 10, 2007, settling certain litigation filed by SEIU Master Trust regarding Sunrise Senior Living Inc.’s 2007 annual meeting of stockholders.	8-K	October 12, 2007		10	.1
	10	.10	Multifamily Mortgage, Assignment of Rents and Security Agreement.	8-K	May 12, 2008		10	.1

Incorporated by Reference

Exhibit

Number

Description

Form

Filing Date with SEC

Number

.11

Discount MBS Multifamily Note.

8-K

May 12, 2008

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

N/A

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

N/A

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

N/A

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

N/A


*		Filed herewith.

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Negative
Uncertain
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Legalese
Litigous
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Sunrise Senior Living Inactive 10-Q2007 Q3 Quarterly report

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