Sunrise Senior Living Caitlin Bizzotto Ben Hier Patricia Shongedza Zhihao Tong Gleb Zarkh November 27, 2007

Agenda Company & Industry Overview Macroeconomic Outlook Position in portfolio Accounting & Financial Restatement Issues DCF Comparable Multiples Analysis Recommendation

Company Overview Offers short and long term personalized care to seniors including medical care Services include Assisted living Independent living Memory care (including Alzheimer's) Skilled nursing and rehabilitation services

Resident Focused Approach

Profile Largest global provider for the elderly Founded in 1981 by Paul & Terry Klaassen Publicly traded for 11 years Headquartered in McLean, Virginia Expanded internationally in 1999 Operations in United States, Canada, United Kingdom, & Germany Over 480 facilities serving 52,000 seniors

Business Model

Keys to Success Rigorous training program for employees Continuous improvement Sunrise University Gallups Q12C13 Mystery Shopping Quality Assurance Audits

One Year Stock Performance

Long Term Care Facilities Industry Part of the Health Care sector Increasing demand for retirement options in the next 5-10 years Sunrise’s top three competitors: Assisted Living Concepts, Inc. (ALC) GGNSC Holdings LLC. (Private) Manor Care Inc. (HCR)

Aging Population In 2006 people age 65 or older accounted for 12.4% of the population or 37.3 million people Within the next three years it is estimated that over 40 million people will be over 65 In 2030 those over 65 will grow to 20% of the population

Recent Trends Downsizing: Seniors are choosing to move into smaller houses or condos which require less maintenance and up-keep. Independent Living: Seniors are leading more active lifestyles and opting to stay independent. Many communities are catering to their changing lifestyle.

More Trends Alzheimer’s and Mental Disorders: As more people are diagnosed with mental diseases, there will be an increased demand for specialized care. Respect, Dignity, and Values: Many residents are moving from traditional ideals to modern living arrangements.

Industry Analysis Rivalry: Low rivalry between competitors. Companies compete on a diversification strategy rather than on price. The large aging population and increasing demand allow each company to have their share. Barriers to Entry: Barriers are high due to the specialized nature and large expenditures of the business.

Industry Analysis Continued Power of Buyers: Power of buyers is moderate. Individual residents do not have much power in affecting prices. However, large insurance companies can influence what a company charges their residents. Power of Suppliers: Power of suppliers is high because a community needs their employees to function. If they cannot keep and attract a professional and caring staff, their residency rates will decrease. Threat of Substitutes: This threat is moderate. When it comes to retirement, a person has many options. They can chose to move into a retirement community, continue with their current living situation or move in with their children. Finances play a major role in what option a person chooses.

Macroeconomic- Real Estate Sunrise either acquires or develops its living communities As of Sept. 2007: 40 Communities under development Past quarter decided to discontinue four development projects due to “adverse economic conditions”

Macroeconomic Overview U.S. Housing Market Weak Dollar & Inflation High Crude Oil Prices ($96.90) Declining Consumer Confidence Sources: NAHB & Conference-Board.org

Macroeconomic Effects Seniors may be willing to hold off selling their primary homes and move to an assisted living community The average daily rate per senior citizen is $155--- worsening economic conditions can limit seniors to pay the high expenses

RCMP Transaction History May 1, 2006 Bought 600 @ $37.00 Initial Investment of $22,200 April 5, 2007 Held 600 @ $40.39

Portfolio

Correlation

Preliminary Charges (2006-2007) Project Pretax Charge Joint Venture (Germany) $30M Luxury Condo Loss Restatement $26.5M 20% Joint Venture Shortfall $21M Discontinued 4 Condo Developments Total $98.5M 22-Story Sunrise Condo Dallas, TX

Accounting Issues (1999-2005) $130M Cumulative reduction in net income Will not affect cash flow or current cash balance 44% of Communities are joint ventures $26M After tax stock option expense Offset by an increase in contributed capital to SE Assume $7-$8M future annual expense

Restatement – Item explanation Revenue from managing the communities Reimbursable expenses for Managed communities Services (construction supervision, training, marketing) after transferring of property to JV Delivery of senior living services to the residents Services (site selection, zoning & design) prior to transferring of land to JV

Restatement – Income Statement Adjustment according to the 3Q 07 report and statement made by Sunrise

Restatement – Income Statement Net income (loss) as reported is the NI in former report Adjusted NET INCOME report is the NI reported deducts the adjustment in 3Q07 report. The last line is the Net Income computed from the restated income statement.

Restatement – Ratios

Forecast

Valuation SRZ current price: $31.92 Current Mkt Cap: 1,680,287,000 Rf – 10 years treasury yield Rm-Rf – Historical risk premium

Discounted Cash Flow DCF for 2006 and 2007 Capex keeps stable as Sunrise changes focus to management model.

Sensitivity Analysis

Sensitivity Analysis DCF Sensitivity Analysis Growth Rate is 5% WACC is 9.85%

P/E Multiple P/E for the industry is about 22, as P/E for Sunrise is normally lower than the industry from history data, P/E is 21 for 2007 estimation.

Multiples Valuation Rough estimate because TTM Earnings, Sales, Book, and Cash Flow figures for Sunrise are estimates

Recommendation Sell 300 Shares (Market Order) Stock is within DCF/ Multiples range Do not see a short term (1yr) catalyst Challenging economic environment Financial reporting issues Tax loss advantage