RCMP Spring 2006 – Gaurav Ghoge SUNRISE SENIOR LIVING, Inc. April 27, 2006

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge INTRODUCTION Sunrise Senior Living, Inc is a provider of senior living services Business Model ─ Provide range of Senior Living Services ─ Develop Senior Living communities for third parties Geographies covered ─ US, Canada, UK & Germany Stock Ticker : SRZ

RCMP Spring 2006 – Gaurav Ghoge COMPANY BACKGROUND Approximately 3/4 th of the company held by Institutionals Component of ─ S&P Small Cap 600 Index, ─ NYSE Healthcare Index, ─ S&P 1500 Composite Index Founded in 1981 by current CEO Paul J Klaassen Listed in 1996

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge STOCK MARKET REVIEW US markets have returned < 10% in last 5 years US Stock Markets lagging behind world markets YTD MSCI US Index is the second worst performer

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge INDUSTRY REVIEW Sunrise Senior Living (SRZ) is classified under : – Long Term Care Facilities (Yahoo Finance) – Health Care Facilities (GICS) CCRC – Continued Care Retirement Centers, Source: American Senior Housing Association, Citigroup

RCMP Spring 2006 – Gaurav Ghoge INDUSTRY REVIEW Fragmented Industry with 2.8% market share for SRZ ─ Top 10 companies control only 12.5% of the market Recent consolidation in the Industry ─ Average price paid for Assisted Living Facility in M&A transactions increased 54% in 2005 to $115,600 per bed Over last 2 years the industry has seen a rebound ─ Beds have grown by 0.7% CAGR ─ Revenues have grown by 3% CAGR (Source: American Senior Housing Association, Citigroup)

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge COMPANY REVIEW Largest Operator of Senior Living Communities 415 ‘communities’ across the globe – Canada – 11 UK – 5Germany – 2 (Source: American Senior Housing Association, Citigroup) 11 new communities added in Q1 of 2006 Upscale metropolitan presence Only company in the industry focusing on ‘Management Model’

RCMP Spring 2006 – Gaurav Ghoge SERVICES & COMMUNITIES Managed communities share increased from 10% in 2000 to 47% in 2005 Presence in Skilled Nursing limited Source: 10k, Citigroup

RCMP Spring 2006 – Gaurav Ghoge OWNERSHIP PATTERN Consolidated Communities – Owned & Leased by SRZ Joint Ventures Communities – 5 – 8% Management Fees + 20 – 25% equity income Managed Communities – No ownership – 5 – 8% Management Fees

RCMP Spring 2006 – Gaurav Ghoge INCOME STATEMENT SNAPSHOT Reimbursable expenses for Managed communities – pass through Services (site selection, zoning & design) prior to transferring of land to JV Services (construction supervision, training, marketing) after transferring of property to JV Delivery of senior living services to the residents Income statement for year ended Dec 2005 Removing the effect of the reimbursements

RCMP Spring 2006 – Gaurav Ghoge GROWING PHASE FOR SUNRISE Revenue CAGR of 49% over last 4 years Acquisitions propelled managed communities in 2003

RCMP Spring 2006 – Gaurav Ghoge GROWTH THROUGH ACQUISITIONS TargetPeriodPrice ($ million) Details The FountainsJul properties (16 JV, 1 wholly-owned, and 1 managed with no ownership) Greystone Communities May management service properties Eden CareNov-03n/a22 management services properties Marriott Senior Living Mar properties (including 108 management services and 21 leased properties)

RCMP Spring 2006 – Gaurav Ghoge RETURNS ON AN UPSCALE Net Income increasing as margin bounced back in 2005 Decline in margins because of shift to Managed Communities ROE & ROIC showing an uptrend

RCMP Spring 2006 – Gaurav Ghoge STRONG BALANCE SHEET Net Debt in 2005 is in negative territory Cash locked in Net Working Capital reducing Falling Free Cash Flow suggests expansion mode

RCMP Spring 2006 – Gaurav Ghoge STOCK PERFORMANCE Outperformed the S&P 500 by 9% in the past 6 months Outperformed the S&P Healthcare Index by approx 130% in the past 5 years

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Competitors Analysis Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge OUTPERFORMED COMPETITION CONSISTENTLY No dividends paid by SRZ Stock Split of 2:1 on Oct 4, 2005

RCMP Spring 2006 – Gaurav Ghoge COMPETITORS ANALYSIS Third largest player in terms of Market Capitalization One of the highest Return on Assets Trading at highest 5 yr PEG ratio (estimates by Yahoo Finance) Source: Yahoo Finance

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge STRONG INDUSTRY GROWTH OVER 15 YRS Elderly population expected to grow at CAGR of 1.3% No of beds expected to grow at 1.6% CAGR (Source: American Senior Housing Association, American Healthcare Association, National Investment Center, Citigroup)

RCMP Spring 2006 – Gaurav Ghoge STRONG BUSINESS MODEL 415 communities with beds in 35 states Future expansion into International locations Insulated from reimbursement risks About 91% of revenues of 2005 derived from private pay Growth through acquisitions could continue Management Model Sale and long-term management contracts

RCMP Spring 2006 – Gaurav Ghoge CONSERVATIVE REVENUE GROWTH

RCMP Spring 2006 – Gaurav Ghoge MARGINS EXPANDING EBITDA Margin expansion - Moving to management model Increasing expertise in operating communities EBIT Margin expansion because of minimal capex

RCMP Spring 2006 – Gaurav Ghoge CONSERVATIVE CAPITAL STRUCTURE Increasing ROA due to decreasing debt & limited capex Net Income growth higher than EBIT Income from excess cash

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Valuation Recommendation

RCMP Spring 2006 – Gaurav Ghoge VALUATION Beta0.77Debt11.1% Rf4.75%Equity88.9% Rm – Rf5.00%g4.0% Re8.60%Tax Rate33% Rd6.40% Rf – 6 month Treasury rate Rm - Rf – Historical Risk Premium WACC = 8.12%

RCMP Spring 2006 – Gaurav Ghoge DISCOUNTED CASH FLOW Terminal Value assumptions EBIT – growing at sustained growth rate Working Capital – assumed to be 20% of 2009 Capex – Maintenance caped because of move to management model

RCMP Spring 2006 – Gaurav Ghoge DCF SENSITIVE TO WACC & GROWTH RATE DCF value sensitive to WACC & growth rate Sustained growth rate of 4%

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Portfolio Diversification Recommendation

RCMP Spring 2006 – Gaurav Ghoge PORTFOLIO DIVERSIFICATION Low correlation with all the stocks Highest correlation with MVSN of

RCMP Spring 2006 – Gaurav Ghoge AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation

RCMP Spring 2006 – Gaurav Ghoge BUY 600 SHARES At $37.53 – represents 7.13% of portfolio (as on April 26, 2006) Portfolio standard deviation drops from 1.38 to 1.27 INVESTMENT THESIS 1. Largest Operator of Senior Living 2. Strong Industry growth 3. Move to Management Model 4. Conservative Capital Structure 5. Net Income growth ~ 14% for next couple of years 6.Stock price includes $6.61 cash as of Dec 2005

RCMP Spring 2006 – Gaurav Ghoge

AGENDA Introduction Stock Market Review Industry Review Company Review Investment Thesis Recommendation Appendix

RCMP Spring 2006 – Gaurav Ghoge RECOMMENDATION ANALYSIS No of Shares% of Portfolio Portfolio  % % % % % %1.2795

RCMP Spring 2006 – Gaurav Ghoge STANDARD DEVIATION (WITHOUT SRZ) Portfolio standard deviation = SQRT ( ) Portfolio standard deviation =

RCMP Spring 2006 – Gaurav Ghoge STANDARD DEVIATION (WITHOUT SRZ)

RCMP Spring 2006 – Gaurav Ghoge STANDARD DEVIATION (WITH SRZ) Portfolio standard deviation = SQRT ( ) Portfolio standard deviation =

RCMP Spring 2006 – Gaurav Ghoge STANDARD DEVIATION (WITH SRZ)