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

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

4. 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

5. Resident Focused Approach

6. 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

7. Business Model

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

9. One Year Stock Performance

10. 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)

11. 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

12. 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.

13. 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.

14. 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.

15. 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.

16. 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”

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

18. 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 $ worsening economic conditions can limit seniors to pay the high expenses

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

20. Portfolio

21. Correlation

22. 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

23. 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

24. 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

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

26. 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.

27. Restatement – Ratios

28. Forecast

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

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

31. Sensitivity Analysis

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

33. 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.

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

35. 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