SUNRISE SENIOR LIVING INC (SRZ)

10-K Annual report pursuant to section 13 and 15(d)

Filed on 03/01/2012Filed Period 12/31/2011

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011Commission File Number 1-16499

SUNRISE SENIOR LIVING, INC.(Exact name of registrant as specified in its charter)

Delaware 54-1746596(State or other jurisdiction

incorporation or organization) (I.R.S. Employer

Identification No.)7900 Westpark Drive

McLean, VA 22102(Address of principal

executive offices) (Zip Code)

Registrant's telephone number, including area code: (703) 273-7500Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which RegisteredCommon stock, $.01 par value per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company

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

The aggregate market value of the Registrant's Common Stock held by non-affiliates based upon the closing price of $9.53 per share on the New YorkStock Exchange on June 30, 2011 was $515.7 million. Solely for the purposes of this calculation, all directors and executive officers of the registrant areconsidered to be affiliates.

The number of shares of Registrant's Common Stock outstanding was 57,662,303 at February 17, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our 2012 annual meeting proxy statement are incorporated by reference into Part III of this report.

Table of Contents

TABLE OF CONTENTS Page PART I

Item 1. Business 4 Item 1A. Risk Factors 15 Item 1B. Unresolved Staff Comments 24 Item 2. Properties 25 Item 3. Legal Proceedings 25 Item 4. Mine Safety Disclosure 26

PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Selected Financial Data 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 61 Item 8. Financial Statements and Supplementary Data 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 115 Item 9A. Controls and Procedures 115 Item 9B. Other Information 117

PART III Item 10. Directors, Executive Officers and Corporate Governance 117 Item 11. Executive Compensation 117 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 117 Item 13. Certain Relationships and Related Transactions, and Director Independence 117 Item 14. Principal Accounting Fees and Services 117

PART IV Item 15. Exhibits and Financial Statement Schedules 117

SIGNATURES 118

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This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Although we believe the expectationsreflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that our expectations will be realized. Ouractual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to:

• the risk that we may not be able to successfully execute our plan to sell certain assets mortgaged pursuant to our German restructure transactionor the net sale proceeds of the mortgaged North American properties may not be sufficient to pay the minimum amount guaranteed by Sunrise tothe lenders that are party to the German restructure transactions;

• the risk that we may be unable to reduce expenses and generate positive operating cash flows;

• the risk that, as a result of our fully drawn line of credit with KeyBank National Association, we may be unable to generate sufficient cash fromoperations to fund our operations;

• the risk of future obligations to fund guarantees to some of our ventures and lenders to the ventures;

• the risk of further write-downs or impairments of our assets;

• the risk that we are unable to obtain waivers, cure or reach agreements with respect to existing or future defaults under our loan, venture andconstruction agreements;

• the risk that we will be unable to repay, extend or refinance our indebtedness as it matures, or that we will not comply with loan covenants;

• the risk that our ventures will be unable to repay, extend or refinance their indebtedness as it matures, or that they will not comply with loancovenants creating a foreclosure risk to our venture interest and a termination risk to our management agreements;

• the risk that we are unable to continue to recognize income from refinancings and sales of communities by ventures;

• the risk of declining occupancies in existing communities or slower than expected leasing of newer communities;

• the risk that we are unable to extend leases on our operating properties at expiration;

• the risk that some of our management agreements, subject to early termination provisions based on various performance measures, could beterminated due to failure to achieve the performance measures;

• the risk that our management agreements can be terminated in certain circumstances due to our failure to comply with the terms of themanagement agreements or to fulfill our obligations thereunder;

• the risk that ownership of the communities we manage is heavily concentrated in a limited number of business partners;

• the risk that our current and future investments in ventures could be adversely affected by our lack of sole decision-making authority, ourreliance on venture partners' financial condition, any disputes that may arise between us and our venture partners and our exposure to potentiallosses from the actions of our venture partners;

• the risk related to operating international communities that could adversely affect those operations and thus our profitability and operatingresults;

• the risk from competition and our response to pricing and promotional activities of our competitors;

• the risk that liability claims against us in excess of insurance limits could adversely affect our financial condition and results of operationsincluding publicity surrounding some claims that may damage our reputation, which would not be covered by insurance;

• the risk of not complying with government regulations;

• the risk of new legislation or regulatory developments;

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• the risk of changes in interest rates;

• the risk of unanticipated expenses;

• the risks of further downturns in general economic conditions including, but not limited to, financial market performance, downturns in thehousing market, consumer credit availability, interest rates, inflation, energy prices, unemployment and consumer sentiment about the economyin general;

• the risks associated with the ownership and operation of assisted living and independent living communities;

• other risk factors contained in this Form 10-K.

We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Unless the contextsuggests otherwise, references herein to "Sunrise," the "Company," "we," "us" and "our" mean Sunrise Senior Living, Inc. and our consolidated subsidiaries.

PART I

Item 1. BusinessOverview

We are a provider of senior living services in the United States, Canada and the United Kingdom. Founded in 1981 and incorporated in Delaware in1994, Sunrise began with a simple but innovative vision — to create an alternative senior living option that would emphasize quality of life and quality ofcare. We offer a full range of personalized senior living services, including independent living, assisted living, care for individuals with Alzheimer's and otherforms of memory loss, nursing and rehabilitative care. In the past, we also developed senior living communities for ourselves, for ventures in which weretained an ownership interest and for third parties. In 2009, due to economic conditions, we suspended all new development.

At December 31, 2011, we operated 311 communities, including 269 communities in the United States, 15 communities in Canada and 27 communitiesin the United Kingdom, with a total unit capacity of approximately 30,733. Of the 311 communities that we operated at December 31, 2011, 22 were whollyowned, 26 were under operating leases, one was consolidated as a variable interest entity, one was a consolidated venture, six were leased from a venture andconsolidated, 113 were owned in unconsolidated ventures and 142 were owned by third parties.

During 2011, we (i) restructured and recapitalized three ventures; (ii) sold six assets in our liquidating trust formed in 2009 in connection withrestructuring the debt for our discontinued German operations and reduced our restructuring obligations by $11.3 million; (iii) raised $86.2 million under aconvertible notes offering; (iv) acquired a venture partner's 80% interest in a 15 community portfolio; (v) secured a new $50.0 million bank credit facility;(vi) further reduced our annual recurring general and administrative expense by eliminating 69 positions and (vii) obtained third party approval to extend fourleases related to operating communities until 2018.

In 2012, we expect to continue to focus on (a) operating high-quality assisted living and memory care communities in the United States, Canada and theUnited Kingdom; (b) increasing occupancy and improving the operating efficiency of our communities; (c) restructuring certain of our venture, leasing andlender relationships to further stabilize our revenue stream and cash flow; (d) seeking strategic investments in attractive real estate opportunities;(e) improving the operating efficiency of our corporate operations; and (f) reducing our operational and financial risk.

The Senior Living IndustryThe senior living industry encompasses a broad spectrum of senior living service and care options, which include independent living, assisted living and

skilled nursing care.

• Independent living is designed to meet the needs of seniors who choose to live in an environment surrounded by their peers where they receiveservices such as housekeeping, meals and activities, but are not reliant on assistance with activities of daily living (for example, bathing, eatingand dressing), although some residents may contract with third parties for those services.

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• Assisted living meets the needs of seniors who seek housing with supportive care and services including assistance with activities of daily livingand other services (for example, housekeeping, meals and activities).

• Memory care meets the needs of seniors with Alzheimer's disease and other cognitive impairments.

• Skilled nursing meets the needs of seniors whose care needs require 24-hour skilled nursing services or who are receiving rehabilitative servicesfollowing an adverse event (for example, a broken hip or stroke).

In all of these settings, seniors may elect to bring in additional care and services as needed, such as home-health care (except in a skilled nursingsetting) and end-of-life or hospice care.

The senior living industry is highly fragmented and characterized predominantly by numerous local and regional senior living operators. Senior livingproviders may operate freestanding independent living, assisted living or skilled nursing residences, or communities that feature a combination of seniorliving options such as continuing care retirement communities ("CCRCs"), which typically consist of large independent living campuses with assisted livingand skilled nursing sections. The level of care and services offered by providers varies along with the size of communities, number of residents served anddesign of communities (for example, purpose-built communities or refurbished structures).

Senior Living ServicesThroughout our history, we have advocated a resident-centered approach to senior living and offered a broad range of service and care options to meet

the needs of our residents. In select communities, we offer independent living services, which include housing, meals, transportation, activities andhousekeeping, and in some communities, we provide licensed skilled nursing services for residents who require 24-hour skilled nursing care. The majority ofour communities currently provide assisted living services, which offer basic care and services for seniors who need assistance with some activities of dailyliving.

Assisted LivingUpon a resident's move-in to an assisted living community, we assess each resident, generally with input from a resident's family and physician, and

develop an individualized service plan for the resident. This individual service plan includes the selection of resident accommodations and a determination ofthe appropriate level of care and service for such resident. The service plan is periodically reviewed and updated by us and communicated to the resident andthe resident's family or responsible party.

We offer a choice of care levels in our assisted living communities based on the frequency and level of assistance and care that a resident needs orprefers. Most of our assisted living communities also offer a Reminiscence neighborhood, which provides specially designed accommodations, service andcare to support cognitively impaired residents, including residents with Alzheimer's disease. By offering a full range of services, we are better able toaccommodate residents' changing needs as they age and develop further physical or cognitive frailties. Daily resident fee schedules are generally revisedannually. Fees for additional care are applied when a change in care arises.

Basic Assisted Living

Our basic assisted living program includes:

• assistance with activities of daily living, such as eating, bathing, dressing, personal hygiene and grooming;

• three meals per day served in a common dining room;

• coordination of special diets;

• emergency call systems in each unit;

• delivery of medication as needed;

• transportation to stores and community services;

• assistance with coordination of medical services;

• health promotion and related programs;

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• housekeeping services; and

• social and recreational activities.

Medication Management

Many of our assisted living residents also require assistance with their medication. To the extent permitted by state law, the medication managementprogram includes the storage of medications, the distribution of medications as directed by the resident's physician and compliance monitoring. Generally, wecharge an additional daily fee for this service although some communities bundle this service into their base rate.

Assisted Living Extended Levels of Care

We also offer various levels of care for assisted living residents who require more frequent or intensive assistance or increased care or supervision. Wecharge an additional daily fee based on increased staff hours of care and services provided. These extended levels of care allow us, through consultation withthe resident, the resident's family and the resident's personal physician, to create an individualized care and supervision program for residents who mightotherwise have to move to a community that offers more intensive services.

Reminiscence Care

We believe our Reminiscence neighborhoods distinguish us from many other senior living providers. Our Reminiscence neighborhoods provide aspecialized environment, extra attention, and care programs and services designed to meet the special needs of people with Alzheimer's disease and othercognitive impairments. Trained staff members provide basic care and other specifically designed care and services to these residents in separate areas of ourcommunities. Residents pay a higher daily care rate based on additional staff hours of care and services provided. As of December 31, 2011, approximately25% of our residents participated in the Reminiscence program.

Independent Living and Skilled NursingIn some of our communities, we offer independent living for residents, and in other communities, we offer skilled nursing care. Independent living

offers the privacy and freedom of home combined with the convenience and security of on-call assistance and a lower maintenance housing environment.Skilled nursing care offers a range of therapies and nursing services to promote our residents' well-being.

Other ServicesWhile we serve the vast majority of a resident's needs with our own staff, some services, such as hospice care, physician care, infusion therapy, physical

and speech therapy and other ancillary care services may be provided to residents in our communities by third parties. Our staff members can assist residentsin locating qualified providers for such health care services.

Managed CommunitiesIn addition to communities we manage for ourselves, we manage 119 communities in which we have a minority ownership interest and 142

communities for third-party owners.

As of December 31, 2011, we managed 79 communities for Ventas, Inc. ("Ventas"), 46 communities for HCP, Inc. ("HCP") and 48 communities forCNL Lifestyle Properties, Inc. ("CNL").

Our management agreements have initial terms ranging from five to 30 years with various performance conditions and have management fees usuallyranging from five to eight percent of community revenues. In addition, in certain management agreements, we have the opportunity to earn incentivemanagement fees based on monthly or annual operating results.

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The following table details our management agreements (management fee revenue in thousands):

Remaining ContractTerm (1)(In years)

Number ofCommunities

2011Management

Fee

Revenue

WeightedAverage

ManagementFee

Percent 0-5 15 $ 5,427 5.08% 6-10 2 336 6.28% 11-15 3 1,267 4.99% 16-20 60 24,034 6.35% 20+ 183 61,256 5.76%

Sold/Terminated in 2010 and 2011 (2) N/A 3,812 6.91%

263 $ 96,132 5.88%

(1) Although our management agreements have stated maturity dates, all of the agreements have provisions that allow early termination by the other partyif certain conditions are not met. We were bought out of four and 32 management contracts in 2011 and 2010, respectively. These contracts generated$0.4 million and $12.8 million of revenue in 2011 and 2010, respectively.

(2) In June 2011, we purchased our partner's interest in a portfolio of 15 communities. Accordingly, we began consolidating these communities andtherefore eliminate the management fee revenue post acquisition.

Investment in VenturesWe have investments in 23 ventures with ownership interests ranging from 9.8% to 50.0%. Our weighted average ownership percentage in our

unconsolidated ventures, including our investments accounted for under the profit sharing method, is approximately 23.5% based on total assets as ofDecember 31, 2011. These ventures own 119 senior living communities. We earned $43.4 million in management fees from these ventures, contributed $21.3million in capital and received $13.8 million in distributions, including returns of capital, in 2011.

These ventures are leveraged and have total debt of $2.5 billion with near-term scheduled debt maturities of $0.3 billion in 2012. Of this $2.5 billion ofdebt, there is $0.9 billion of debt that is in default as of December 31, 2011. The debt in the ventures is non-recourse to us with respect to principal paymentguarantees and we and our venture partners are working with the venture lenders to obtain covenant waivers and to extend the maturity dates. We haveprovided operating deficit guarantees to the lenders or ventures with respect to $0.6 billion of the total venture debt. Under the operating deficit agreements,we are obligated to pay operating shortfalls, if any, with respect to these ventures. Any such payments could include amounts arising in part from the venture'sobligations for payment of monthly principal and interest on the venture debt. We do not believe that these operating deficit agreements would obligate us torepay the principal balance on such venture debt that might become due as a result of acceleration of such indebtedness or maturity.

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The following table summarizes certain key information regarding our ventures:

SUNRISE UNCONSOLIDATED VENTURES AS OF DECEMBER 31, 2011

Ownership

Percentage (1)

Number

of CommunitiesOwned

2011Management

Fees

Earned(000s)

Ventures owning one community (2) 10.00% - 50.00% 7 $ 2,027 CC3 Acquisition, LLC 40.00% 29 5,830 CLPSun Partners III, LLC/CLPSun III Tenant, LP (3) 32.12% 7 2,924 SunVest, LLC 30.00% 2 605 CNLSun Partners II, LLC (4) 30.00% 6 721 Metropolitan Senior Housing, LLC (5) 25.00% 12 4,474 Master MetSun, LP 20.00% 11 3,832 Master MetSun Two, LP 20.00% 7 3,934 Master MetSun Three, LP 20.00% 3 1,195 Sunrise HBLR, LLC (5) 20.00% 4 1,806 PS UK Investment (Jersey) LP 20.00% 3 1,267 Sunrise First Euro Properties LP 20.00% 5 3,161 Master CNL Sun Dev I, LLC 20.00% 4 1,291 PS UK Investment II (Jersey) LP 16.90% 2 1,351 Dawn Limited Partnership 9.81% 17 9,003

119 $ 43,421

(1) In certain situations, our shares of cash distribution, profits or losses, are not equal to our ownership percentage.(2) Includes investments accounted for under the profit sharing method of accounting. Accordingly, we eliminate any management fees earned from these

ventures.(3) In October 2011, CLPSun Parnters III, and CLPSun III Tenant, LP bought the ownership interest in Master MorSun, LP and MorSun Tenant, LP, which

owned seven communities and the ventures were recapitalized.(4) In August 2011, CNLSun Partners II, LLC bought the ownership interest in MetSun Two Pool One, LLC, a subsidiary of Master MetSun Two, LP.

MetSun Two Pool One, LLC owned six communities.(5) Metropolitan Senior Housing, LLC and HBLR, LLC lease the communities to MSH Operating, LLC and HBLR Operating, LLC, respectively. These

amounts include management fees paid to us by the tenant.

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Our Operating Communities2011 Property Information

On December 31, 2011, we operated 311 senior living communities with a unit capacity of approximately 30,733. We manage communities that weown or lease, communities in which we have an ownership interest and communities owned by third parties.

The following tables summarize our portfolio of operating communities on December 31, 2011. "Total Unit Capacity" means the number of units thatcan be occupied in a community. While most of our units are single-occupancy, we do have a number of semi-private rooms, particularly in our skillednursing and Reminiscence areas. Number of Communities

Wholly Owned Leased Other (1) Unconsolidated

Ventures Managed Total Beginning number December 31, 2010 10 26 2 137 144 319 Terminations/Sales/ Closures (3) 0 0 (3) (2) (8) Transfers/Other adjustments 15 0 6 (21) 0 0

Ending number December 31, 2011 22 26 8 113 142 311

Total Unit Capacity

Wholly Owned Leased Other (1) Unconsolidated

Ventures Managed Total Beginning number December 31, 2010 750 5,673 508 10,987 13,252 31,170 Terminations/Sales/ Closures (148) 0 0 (192) (92) (432) Transfers/Other adjustments 1,101 2 449 (1,540) (17) (5)

Ending number December 31, 2011 1,703 5,675 957 9,255 13,143 30,733

(1) Includes one community in a variable interest entity, one community in a consolidated venture and six communities leased from a venture.

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2011 Operating Communities Number of Communities Total Unit Capacity

Location Consolidated (1) Unconsolidated

Ventures Managed Consolidated (1) Unconsolidated

Ventures Managed Arizona 2 3 1 233 298 79 California 16 13 14 1,533 888 1,583 Colorado 2 2 4 143 259 326 Connecticut 0 0 2 0 0 199 District of Columbia 1 0 1 100 0 172 Delaware 1 0 0 69 0 0 Florida 5 1 1 1,687 80 150 Georgia 0 3 8 0 231 868 Illinois 1 8 11 321 600 900 Indiana 0 1 0 0 140 0 Kansas 0 3 1 0 223 152 Kentucky 0 1 0 0 80 0 Louisiana 0 2 1 0 151 58 Maryland 2 3 9 491 529 979 Maine 0 1 0 0 180 0 Massachusetts 0 8 2 0 513 157 Michigan 2 4 7 95 277 535 Minnesota 0 3 7 0 214 532 Missouri 0 1 2 0 74 152 Nebraska 0 0 1 0 0 150 Nevada 0 1 0 0 79 0 New Jersey 2 8 15 495 563 1,434 New York 6 2 7 449 155 597 North Carolina 0 1 7 0 74 734 Ohio 4 2 5 250 98 382 Pennsylvania 3 6 6 688 456 500 Tennessee 0 0 1 0 0 113 Texas 1 4 1 145 386 77 Utah 0 1 1 0 134 79 Virginia 5 3 13 1,390 238 1,003 Washington 0 1 2 0 70 108 United Kingdom 0 27 0 0 2,265 0 Canada 3 0 12 246 0 1,124

Total 56 113 142 8,335 9,255 13,143

(1) Includes 22 owned communities, 26 leased communities, one community in variable interest entity, one community in a consolidated venture and six

communities leased from a venture.

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Company OperationsOperating Structure

Effective in 2011, we revised our operating segments as a result of a change in the manner in which the key decision makers review the operatingresults and the cessation of all development activity. We now have three operating segments: North American Management, Consolidated Communities andUnited Kingdom Management. The operations of the communities we own or manage are reviewed on a community by community basis by our key decisionmakers. The communities managed for third parties, communities in ventures or communities that are consolidated but held in ventures or variable interestentities, are aggregated by location into either our North American Management segment or our United Kingdom Management segment. Communities thatare wholly owned or leased are included in our Consolidated Communities segment. In 2010, we had five operating segments, North American Management,North American Development (the residual activity which is now included with corporate costs), Equity Method Investments (whose community operationsare now included either in North American Management or United Kingdom Management), Consolidated (Wholly-Owned/Leased) and United Kingdom.

North American Management includes the results from the management of third party and venture senior living communities, including sixcommunities in New York owned by a venture but whose operations are included in our consolidated financial statements, a community owned by avariable interest entity and a community owned by a venture which we consolidate, in the United States and Canada.

Consolidated Communities includes the results from the operation of wholly-owned and leased Sunrise senior living communities in the UnitedStates and Canada.

United Kingdom Management includes the results from management of Sunrise senior living communities in the United Kingdom owned inventures.

Our community support office is located in McLean, Virginia, with a smaller regional center located in the U.K. Our North American communitysupport office provides centralized operational functions. As a result, our community-based team members are able to focus on delivering excellent care andservice consistent with our resident-centered operating philosophy.

Senior Living OperationsFor our senior living business, regional and community-based team members are responsible for executing our strategy in local markets. This includes

overseeing all aspects of community operations: resident care and services; the hiring and training of community-based team members; local and salesactivities; and compliance with applicable local and state regulatory requirements.

Our North American operations are organized into five geographic regions: Northeast, Southeast, Midwest, West and Mid-Atlantic. Senior teammembers are based in each of these regions for close oversight of community operations in these locations. A similar organizational structure is in place in theUnited Kingdom.

Each region is headed by a vice president of operations with extensive experience in the health care and senior living industries, who overseesoperations. Each region is supported by sales/marketing specialists, resident care specialists, a human resource specialist, a facilities specialist, a diningspecialist and a financial analyst.

The community support office functions include establishing strategy, systems, policies and procedures related to: resident care and services; teammember recruitment, training, development, benefits and compensation; facility services; purchasing; dining; sales and marketing strategy and support;corporate communications; accounting and finance management, including billing and collections, accounts payable, general finance and accounting and taxplanning and compliance; legal; asset management; and risk management.

Community Staffing

We believe that the quality and size of our communities, along with our strong service-oriented culture, our competitive compensation philosophy andour training and career growth opportunities, have enabled us to attract high-quality team members. Each of our communities has an executive directorresponsible for the day-to-day operations of the community, including quality of care, resident services, sales and marketing, financial performance andregulatory compliance. The executive director is supported by department heads, who oversee the care and services provided to residents in the community

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by "care managers," as well as other specialists such as a nurse, who is responsible for coordinating the services necessary to meet residents' health care needs,and a director of community relations, who is responsible for selling and marketing our services. Other key positions include the dining services coordinator,the activities coordinator and the maintenance coordinator.

Care managers, who work on full-time, part-time and flex-time schedules, provide most of the hands-on resident care, such as bathing, dressing andother personalized care services. As permitted by state law, care managers who complete a special training program also supervise the storage and distributionof medications. The use of care managers to provide substantially all services to residents has the benefit of consistency and continuity in resident care. Assuch, in most cases, the same care manager assists the resident in dressing, dining and coordinating daily activities to encourage seamless and consistent carefor residents. The number of care managers working in a community varies according to the number of residents and their needs.

We believe that our communities can be most efficiently managed by maximizing direct resident and staff contact. Team members involved in residentcare, including the administrative staff, are trained in the care manager duties and participate in supporting the care needs of the residents.

Staff Education and Training

All of our team members receive specialized and ongoing training. We pride ourselves on attracting highly dedicated, experienced personnel. Tosupport this effort, we offer a full schedule of educational programs, job aids and other learning tools to equip every team member with the appropriate skillsthat are required to ensure high-quality resident care. All managers and direct-care staff must complete a comprehensive orientation and the core curriculum,which consists of basic resident-care procedures, Alzheimer's care, communication systems, and activities and dining programming. For the supervisors ofdirect-care staff, additional training provides education in medical awareness and management skills.

For executive directors and department managers, we have developed the "Getting Started 1-2-3" program, which offers a structured curriculum tosupport those either newly hired or promoted to these positions. This program provides them with the tools, support and training necessary for the first180 days on the job, including a self-study program, one-to-one training experience and a series of group trainings with scenario-based opportunities to solvemultiple business case challenges. The program also includes three meetings with a supervisor to review the individual's progress at 30 days, 60 days and180 days into the position.

Quality Improvement Processes

We coordinate quality assurance programs at each of our communities through our regional offices. We have a resident survey program to bolster ourquality assurance process and have added a former regulator to our team as the head of Regulatory Excellence. Our commitment to quality assurance isdesigned to achieve a high degree of resident and family member satisfaction with the care and services we provide.

Sales and Marketing

Our sales and marketing strategy supports the Sunrise brand and is intended to create awareness of and preference for our unique products and servicesamong potential residents, family members and key community referral sources such as hospital discharge planners, physicians, clergy, area agencies for theelderly, skilled nursing communities, home health agencies, social workers, financial planners and consultants, and others. A marketing team from thecommunity support office assists the field and communities by developing overall strategies, systems, processes and programs for promoting Sunrise in localmarkets, and monitors the success of the marketing efforts.

Each community has at least one dedicated sales person responsible for community-specific sales efforts. The community-based sales staff andexecutive director are supported by an area sales manager who is responsible for coaching, development, and performance management of community salesstaff, as well as supporting the development and implementation of the local marketing strategy.

CompetitionWe are a large provider of senior living services. We compete with numerous similar organizations such as Brookdale Senior Living, Inc., Assisted

Living Concepts, Inc., Capital Senior Living Corp., Emeritus Corp. and Five Star Quality Care, Inc. In addition, we compete with regional and local seniorliving providers, home health care agencies, community-based service programs, retirement communities and convalescent centers. We have experienced andexpect to continue to experience competition in our efforts to develop and operate senior living communities. This competition could limit our ability toattract residents or expand our senior living business, which could have a material adverse effect on our revenues and earnings.

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Government RegulationSenior Living. Senior living communities are generally subject to regulation and licensing by federal, state and local health and social service agencies,

and other regulatory authorities. Although requirements vary from state to state and community to community, in general, these requirements may include oraddress:

• personnel hiring, education, training, and records;

• administration and supervision of medication;

• the provision of nursing services;

• admission and discharge criteria;

• documentation, reporting and disclosure requirements;

• staffing requirements;

• monitoring of resident wellness;

• physical plant specifications;

• furnishing of resident units;

• food and housekeeping services;

• emergency evacuation plans; and

• resident rights and responsibilities.

In several of the states in which we operate or intend to operate, laws may require a certificate of need before a senior living community can be opened.In most states, senior living communities are also subject to state or local building codes, fire codes, and food service licensing or certification requirements.

Stand-alone independent living communities typically are not regulated as senior care facilities. However, communities that feature a combination ofsenior living options such as CCRCs, consisting of independent living campuses with a promise of future assisted living and/or skilled nursing services and anentrance fee requirement, are regulated by state governments. The agency with jurisdiction varies from state to state. Examples include departments ofinsurance, health, social services or aging. State regulation of CCRCs typically requires comprehensive disclosure of such things as financial condition of thecommunity, fees and other costs, material events affecting the CCRC and contractual obligations to the residents.

Communities licensed to provide skilled nursing services generally provide significantly higher levels of resident assistance. Communities that arelicensed, or will be licensed, to provide skilled nursing services may participate in federal health care programs, including the Medicare and Medicaidprograms. In addition, some licensed assisted living communities may participate in state Medicaid-waiver programs. Such communities must meet certainfederal and/or state requirements regarding their operations, including requirements related to physical environment, resident rights, and the provision ofhealth services. Communities that participate in federal health care programs are entitled to receive reimbursement from such programs for care furnished toprogram beneficiaries and recipients. We manage 64 communities that participate in these types of programs.

Senior living communities that include assisted living facilities, nursing facilities, or home health care agencies are subject to periodic surveys orinspections by governmental authorities to assess and assure compliance with regulatory requirements. Such unannounced surveys may occur annually or bi-annually, or can occur following a state's receipt of a complaint about the community. As a result of any such inspection, authorities may allege that the seniorliving community has not complied with all applicable regulatory requirements. Typically, senior living communities then have the opportunity to correctalleged deficiencies by implementing a plan of correction. In other cases, the authorities may enforce compliance through imposition of fines, imposition of aprovisional or conditional license, suspension or revocation of a license, suspension or denial of

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admissions, loss of certification as a provider under federal health care programs, or imposition of other sanctions. Failure to comply with applicablerequirements could lead to enforcement action that could materially and adversely affect business and revenues. Like other senior living communities, wehave received notice of deficiencies from time to time in the ordinary course of business. However, we have not, to date, faced enforcement action that hashad a material adverse effect on our revenues.

Regulation of the senior living industry is evolving. Future regulatory developments, such as mandatory increases in the scope of care given toresidents, revisions to licensing and certification standards, or a determination that the care provided by one or more of our communities exceeds the level ofcare for which the community is licensed, could adversely affect or increase the cost of our operations. Increases in regulatory requirements, whether throughenactment of new laws or regulations or changes in the application of existing rules, could also adversely affect our operations. Furthermore, there have beennumerous initiatives on the federal and state levels in recent years for reform affecting payment for health care services. Some aspects of these initiativescould adversely affect us, such as reductions in Medicare or Medicaid program funding.

Other. We are also subject to certain federal and state laws that regulate financial arrangements by health care providers, such as the Federal Anti-Kickback Law. This law makes it unlawful for any person to offer or pay (or to solicit or receive) "any remunerationdirectly or indirectly, overtly or covertly,in cash or in kind" for referring or recommending for purchase any item or service which is eligible for payment under a federal health care program,including, for example, the Medicare and Medicaid programs. Authorities have interpreted this statute very broadly to apply to many practices andrelationships between health care providers and sources of patient referral. If a health care provider were to violate the Anti-Kickback Law, it may facecriminal penalties and civil sanctions, including fines and possible exclusion from government programs such as Medicare and Medicaid. Similarly, healthcare providers are subject to the False Claims Act with respect to their participation in federal health care reimbursement programs. Under the False ClaimsAct, the government or private individuals acting on behalf of the government may bring an action alleging that a health care provider has defrauded thegovernment and seek treble damages for false claims and the payment of additional civil monetary penalties. Many states have enacted similar anti-kickbackand false claims laws that may have a broad impact on health care providers and their payor sources. Under provisions of the Deficit Reduction Act of 2005,Congress has encouraged all states to adopt false claims laws that are substantially similar to the federal law. While we endeavor to comply with all laws thatregulate the licensure and operation of our senior living communities, it is difficult to predict how our revenue could be affected if it were subject to an actionalleging such violations.

We are also subject to federal and state laws designed to protect the confidentiality of patient health information. The U.S. Department of Health andHuman Services has issued rules pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") relating to the privacy of suchinformation. In addition, many states have confidentiality laws, which in some cases may exceed the federal standard. We have adopted procedures for theproper use and disclosure of residents' health information in compliance with the relevant state and federal laws, including HIPAA.

EmployeesAt December 31, 2011, we had approximately 31,600 employees, also referred to as team members throughout this 2011 Form 10-K, of which

approximately 310 were employed at our community support office in McLean, Virginia, 50 in our regional offices and 84 at our community support office inthe U.K. We believe employee relations are good. Certain employees at two Sunrise communities in Canada have voted to be represented by two differentunions. Currently approximately 94 employees at one of the communities are covered by a union contract which is effective until February 28, 2014. Theother community, at which employees voted to be represented by a union, has 82 bargaining employees covered by a contract through March 31, 2014.

WebsiteOur Internet website is http://www.sunriseseniorliving.com. The information contained on our website is not incorporated by reference into this report

and such information should not be considered as part of this report. We make available free of charge on or through our website our annual report onForm 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of theSecurities Exchange Act of 1934 as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may access and read our SEC filings over theInternet at the SEC's website at http://www.sec.gov. This uniform resource locator is an inactive textual reference only and is not intended to incorporate thecontents of the SEC website into this Form 10-K.

You may read and copy any document we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Youmay also request copies of the documents that we file with the SEC by writing to the SEC's Office of Public Reference at the above address, at prescribedrates. Please call the SEC at (800) 732-0330 for further information on the operations of the Public Reference Room and copying charges.

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Item 1A. Risk FactorsIn connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, set forth below are cautionary statements

identifying important factors that could cause actual events or results to differ materially from any forward-looking statements made by or on behalf of us,whether oral or written. We wish to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximizeto the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, any suchstatements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause actual events or results todiffer materially from our forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operationscould be negatively affected, and the trading price of our common stock could decline.

These forward-looking statements are based on management's present expectations and beliefs about future events. As with any projection or forecast,these statements are inherently susceptible to uncertainty and changes in circumstances. There may be additional risks and uncertainties not presently knownto us or that we currently deem immaterial that also may impair our business operations. You should not consider this list to be a complete statement of allpotential risks or uncertainties.

We have separated the risks into the following categories:

• Liquidity risks;

• Risks related to our business operations;

• Risks related to pending litigation;

• Risks related to the senior living industry; and

• Risks related to our organization and structure.

Liquidity RisksOur $50.0 million senior revolving line of credit ("Credit Facility") with KeyBank National Association ("KeyBank") is fully committed and we are

unable to draw against the Credit Facility.

In connection with a December 2011 transaction that required us to post cash collateral for a letter of credit, we have drawn approximately $39.0million against our Credit Facility. We also have committed $10.2 million in letters of credit against our Credit Facility and therefore are unable to drawagainst the Credit Facility to fund operations if needed. If we are unable to generate sufficient cash flow from operations or raise capital from other sources tofund our operations, it may have an adverse impact on our financial condition.

We may not be able to successfully execute our plan to sell certain assets mortgaged pursuant to our German restructure transaction. In addition,the net sales proceeds of the mortgaged North American properties may not be sufficient to pay the minimum amount guaranteed by Sunrise to thelenders that are party to the German restructure transaction.

In 2010, we sold our German communities and executed debt restructuring agreements with certain of our German lenders. In 2011 and 2012, we soldor intend to sell certain communities and land parcels that are held as collateral for the German electing lenders (the "liquidating trust" more fully described inManagement's Discussion and Analysis — Liquidity). We have one closed community and nine land parcels remaining to sell in the liquidating trust whichare reflected in our consolidated balance sheets in "Assets held in the liquidating trust". To the extent we are unable to sell all of these assets at their estimatedvalue by October 2012; we may be required to fund the remaining minimum payment under the guarantee which was $26.3 million as of December 31, 2011.Based on our estimate of likely property sales by October 2012, we believe that we may be required to fund approximately $10 million under the guarantee.

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Our results of operations could be adversely affected if we are required to perform under various financial guarantees or support arrangements thatwe have entered into as part of our past operating strategy.

As part of our normal operations, we provide debt guarantees and operating deficit guarantees to some of our lenders, ventures, lenders to the ventures,or third party owners. The terms of some of these obligations do not include a limitation on the maximum potential future payments. If we are required to fundor perform under these arrangements, the amounts funded either become loans to the venture, or are recorded as a reduction in revenue or as an expense. If weare required to fund any amounts related to these arrangements, our results of operations and cash flows could be adversely affected. In addition, we may notbe able to ultimately recover funded amounts.

Our failure to generate sufficient cash flow to cover required interest, principal and operating lease payments could result in defaults of the relateddebt or operating leases.

At December 31, 2011, we had total indebtedness of $593.7 million and our ventures had total indebtedness of $2.5 billion. We cannot give anyassurance that we or our ventures will generate sufficient cash flow from operations to cover required interest, principal and operating lease payments. Anypayment or other default could cause the lender to foreclose upon the facilities securing the indebtedness or, in the case of an operating lease, could terminatethe lease, with a consequent loss of income and asset value to us. A payment or other default with respect to venture indebtedness also could trigger ourobligations under support arrangements, as described in the risk factor above entitled "Our results of operations could be adversely affected if we are requiredto perform under various financial guarantees or support arrangements that we have entered into as part of our operating strategy". In some cases, theindebtedness is secured by the community and a pledge of our interests in the community, and in other cases capital stock of certain of our subsidiaries hasbeen pledged as security for indebtedness. In the event of a default, the lender could avoid judicial procedures required to foreclose on real property byforeclosing on the pledge instead, thus accelerating the lender's acquisition of the community and impairing our equity interest. Further, because ourmortgages generally contain cross-default and cross-collateralization provisions, nonpayment or other default by us could affect a significant number ofcommunities.

If our ventures default on their indebtedness and the lenders assert their rights to foreclose on any of the communities, we could lose future incomeand asset value.

Sunrise ventures have total debt of $2.5 billion with near-term scheduled debt maturities of $0.3 billion in 2012. Of this $2.5 billion of debt, there is$0.9 billion of long-term debt that is in default as of December 31, 2011. We and our venture partners are working with the venture lenders to obtain covenantwaivers and to extend the maturity date of certain of this indebtedness. However, there is no guarantee that particular ventures will be successful in repayingthe indebtedness or extending the maturity dates. Further, there could be further defaults under financial covenants in connection with such debt. Theconstruction loans or permanent financing provided by the financial institutions is generally secured by a mortgage or deed of trust on the financedcommunity. Events of default could allow the financial institutions who have extended credit to seek acceleration of the loans and potentially foreclose on thecommunities securing the loans and/or terminate our management agreement. In such events, we could lose future income if the community can no longer paymanagement fees to us or if our management agreement is terminated. Further, the value of our equity interest in such communities could be impaired oreliminated.

Our failure to comply with financial obligations contained in debt instruments could result in the acceleration of the debt extended pursuant to suchdebt instruments, trigger other rights and restrict our operating and acquisition activity, and in the case of ventures, may cause acceleration of theventure's debt repayment obligations and any of our correlated guarantee obligations.

There are various financial covenants and other restrictions applicable to us in our debt instruments, including provisions that:

• require us to satisfy financial statement delivery requirements;

• require us to meet certain financial tests;

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• restrict our ability to pay dividends or repurchase our common stock;

• require consent for a change in control; and

• restrict our ability and our subsidiaries' ability to borrow additional funds, dispose of all or substantially all assets, or engage in mergers or otherbusiness combinations in which we are not the surviving entity without lender consent.

These covenants could reduce our flexibility in conducting our operations by limiting our ability to borrow money and may create a risk of default onour debt if we cannot continue to satisfy these covenants. If we default under our debt instruments, the debt extended pursuant to such debt instruments couldbecome due and payable prior to its stated due date. We cannot give any assurance that we could pay this debt if it became due.

There are various financial covenants, financial statement delivery requirements, and other restrictions applicable to us in the debt instruments relatingto certain of our ventures. Failure to comply with these covenants may trigger acceleration of the ventures' debt repayment obligations and any of ourcorrelated guarantee obligations or give rise to any of the other remedies provided for in such debt instruments. Additionally, certain of our ventureagreements provide that an event of default under the venture's debt instruments that is caused by us may also be considered an event of default by us underthe venture agreement, giving our venture partner the right to pursue the remedies provided for in the venture agreement, potentially including a terminationand winding up of the venture.

Certain of our management agreements, both with ventures and with entities owned by third parties, provide that an event of default under the debtinstruments applicable to the ventures or the entities owned by third parties that is caused by us may also be considered an event of default by us under therelevant management agreement, giving the non-Sunrise party to the management agreement the right to pursue the remedies provided for in the managementagreement, potentially including termination of the management agreement. Further, because of our mortgages generally contain cross-default and cross-collateralization provisions, nonpayment or other default by us could affect a significant number of communities.

The current economic environment could affect our ability to obtain financing for various purposes, on reasonable terms which could have otheradverse effects on us and the market price of our common stock.

The United States stock and credit markets have continued to experience price volatility, dislocations and liquidity disruptions. These circumstanceshave materially impacted liquidity in the financial markets, making the terms for certain financings less attractive, and in some cases have resulted in theunavailability of financing. Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional financing for thecontinuation of our operations and other purposes. We may seek to refinance debt due in 2012. If we cannot refinance or pay off debt due in 2012 onreasonable terms, our business may be negatively affected. The current conservative nature of the banking business and financial markets may cause us toseek alternative sources of potentially less attractive financing, and may require us to further adjust our business plan accordingly. These events also maymake it more difficult or costly for us to raise capital, including through the issuance of common stock.

Risks Related to Our Business OperationsDue to the dependency of our revenues on private pay sources, events which adversely affect the ability of seniors to afford our monthly resident

fees or entrance fees (including downturns in housing markets or the economy) could cause our occupancy rates, revenues and results of operations todecline.

Costs to seniors associated with independent and assisted living services are not generally reimbursable under government reimbursement programssuch as Medicare and Medicaid. Only seniors with income or assets meeting or exceeding the comparable median in the regions where our communities arelocated typically can afford to pay our monthly resident fees. Future downturns or changes in demographics could adversely affect the ability of seniors toafford our resident fees. In addition, downturns in the housing markets, such as the one we are currently experiencing, could adversely affect the ability (orperceived ability) of seniors to afford our resident fees as our customers frequently use the proceeds from the sale of their homes to cover the cost of our fees.If we are unable to retain and/or attract seniors with sufficient income, assets or other resources required to pay the fees associated with independent andassisted living services and other service offerings, our occupancy rates, revenues and results of operations could decline. In addition, if the recent volatility inthe housing market continues further, our results of operations and cash flows could be negatively impacted.

If our venture communities experience poor performance, we also may need to write down the value of our investment in such ventures, which wouldadversely affect our financial results.

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Termination of resident agreements and vacancies in communities could adversely affect our revenues and earnings.

State regulations governing assisted living communities generally require written resident agreements with each resident. Most of these regulations alsorequire that each resident have the right to terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, the residentagreements signed by us generally allow residents to terminate their agreement on 30 days' notice. Thus, we cannot contract with residents to stay for longerperiods of time, unlike typical apartment leasing arrangements that involve lease agreements with specified leasing periods of up to a year or longer. If a largenumber of residents elected to terminate their resident agreements at or around the same time, and if our units remained unoccupied, then our revenues andearnings could be adversely affected.

Our international operations are subject to a variety of risks that could adversely affect those operations and thus our profitability and operatingresults.

As of December 31, 2011, we operated 15 communities in Canada and 27 communities in the United Kingdom with a total unit capacity ofapproximately 3,635. Our international operations are subject to numerous risks including: exposure to local economic conditions; varying laws relating to,among other things, employment and employment termination; changes in foreign regulatory requirements; restrictions and taxes on the withdrawal of foreigninvestment and earnings; government policies against businesses owned by foreigners; investment restrictions or requirements; diminished ability to legallyenforce our contractual rights in foreign countries; withholding and other taxes on remittances and other payments by subsidiaries; and changes in andapplication of foreign taxation structures including value-added taxes. In addition, we have limited experience operating senior living facilities in internationalmarkets. If we are not successful in operating in international markets, our results of operations and financial condition may be materially adversely affected.

Early termination or non-renewal of our management agreements could cause a loss in revenues.

We operate senior living communities for third parties and unconsolidated ventures pursuant to management agreements. At December 31, 2011,approximately 82% of our communities were managed for third parties or unconsolidated ventures. The initial terms of our third-party managementagreements usually range from five to 30 years. In most cases, either party to the agreements may terminate upon the occurrence of an event of default causedby the other party. In addition, in some cases, subject to our rights, if any, to cure deficiencies, community owners may terminate us as manager if anylicenses or certificates necessary for operation are revoked, if there is a change in control of Sunrise or if we do not maintain a minimum stabilized occupancylevel in the community or certain designated performance thresholds. Also, in some instances, a community owner may terminate the management agreementrelating to a particular community if we are in default under other management agreements relating to other communities owned by the same owner or itsaffiliates. Certain of our management agreements, both with ventures and with entities owned by third parties, provide that an event of default under the debtinstruments applicable to the ventures or the entities owned by third parties that is caused by us may also be considered an event of default by us under therelevant management agreement, giving the non-Sunrise party to the management agreement the right to pursue the remedies provided for in the managementagreement, potentially including termination of the management agreement. Further, because our mortgages generally contain cross-default and cross-collateralization provisions, nonpayment or other default by us could affect a significant number of communities. Further, in the event of a default on a loan,the lender may terminate us as manager. In some of our agreements, the community owner may have the right to terminate the management agreement for anyreason or no reason provided it pays the termination fee specified in the agreement. Also, in some instances, a community owner may have the right toterminate us as manager of a community or portfolio of communities, subject to our cure right if applicable under the circumstances, if the community or theportfolio of communities fails to achieve various performance measures. With respect to communities held in ventures, in some cases, the managementagreement can be terminated in connection with the sale by the venture partner of its interest in the venture or the sale of properties by the venture. Earlytermination of our management agreements or non-renewal or renewal on less-favorable terms could cause a loss in revenues and could negatively impactearnings.

In conjunction with the sale of our equity interests in the ventures owned by Ventas Inc. ("Ventas") ventures, we and Ventas entered into amended andrestated master and management agreements, which set forth revised terms governing the rights and obligations of the parties with respect to the managementand other matters related to the Ventas portfolio. The amended and restated agreements are terminable in accordance with numerous and various events ofdefault, a number of which have very limited or no cure rights, and no materiality tests associated with them. We manage 79 communities for Ventas. In 2011,we earned $23.1 million in management fees from these communities. If we were terminated as managers in communities owned by Ventas under theamended and restated agreements, our revenues and earnings could be negatively impacted.

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Ownership of the communities we manage is heavily concentrated with three of our business partners.

As of December 31, 2011, we managed 79 communities for Ventas, 46 communities for HCP and 48 communities for CNL. We earned managementfees, excluding contracts previously bought out, of $54.3 million, $38.1 million and $35.3 million in 2011, 2010 and 2009, respectively.

The communities that we manage for these business partners are usually subject to long-term management agreements (up to 30 years) as well as otheragreements related to development, support and other guarantee arrangements. This sizeable concentration could give these partners significant influence overour operating strategies and could therefore heighten the business risks disclosed above. A significant concentration might also make us more susceptible toan adverse impact from the financial distress that might be experienced by a partner. Any inability or unwillingness by any of these business partners tosatisfy their obligations under their respective agreements with us including the obligation to make capital expenditures in the communities or to maintainSunrise's brand standards, could adversely affect our business, financial condition, results of operations and cash flows.

Our current and future investments in ventures could be adversely affected by our lack of sole decision-making authority, our reliance on venturepartners' financial condition, any disputes that may arise between us and our venture partners and our exposure to potential losses from the actions ofour venture partners.

As of December 31, 2011, we had a noncontrolling interest in ventures that we do not control which owned 119 senior living communities. Theseventures involve risks not present with respect to our consolidated communities or the communities that we manage only. These risks include the following:

• we share or have lesser decision-making authority with certain of our venture partners regarding major decisions affecting the ownership oroperation of the venture and the community, such as the sale of the community or the making of additional capital contributions for the benefit ofthe community and the approval of the annual operating and capital budgets, which may prevent us from taking actions that are opposed by ourventure partners;

• prior consent of our venture partners may be required for a sale or transfer to a third party of our interests in a venture, which restricts our abilityto dispose of our interest in that venture;

• our venture partners might become bankrupt or fail to fund their share of required capital contributions, which may delay construction ordevelopment of a community or increase our financial commitment to the venture;

• our venture partners may have business interests or goals with respect to the community that conflict with our business interests and goals, whichcould increase the likelihood of disputes regarding the ownership, management or disposition of the community;

• disputes may develop with our venture partners over decisions affecting the community or the venture, which may result in litigation orarbitration that would increase our expenses and distract our officers and/or directors from focusing their time and effort on our business, andpossibly disrupt the day-to-day operations of the community such as delaying the implementation of important decisions until the conflict ordispute is resolved; and

• we may suffer losses as a result of the actions of our venture partners with respect to our venture investments.

Significant leases expire in 2013 and we may be unable to extend leases on leased properties at expiration.

We operate 26 communities for which we lease the land and/or building. In connection with the acquisition of Marriott Senior Living Services, Inc.("MSLS") in March 2003, we assumed 14 operating leases and renegotiated an existing operating lease agreement for another MSLS community in June2003. We have notified the landlord that 10 of these leases will terminate effective December 31, 2013. Revenue earned in 2011 from the 10 communitieswhose leases will not be renewed was $115.6 million for 2011 and operating expenses were $120.1 million. Rent expense from these 10 leases was $18.5million, $18.3 million and $18.2 million for 2011, 2010 and 2009, respectively. In addition, we may be unable to extend leases on other leased properties atexpiration.

The refinancing or sale of communities held in ventures may not result in future distributions to us.

When the majority equity partner in one of our ventures sells its equity interest to a third party, the venture frequently refinances its senior debt anddistributes the net proceeds to the equity partners. Distributions received by us are first recorded as a reduction of our investment. Next, we record a liability ifthere is a contractual obligation or implied obligation to support the venture including through our role as a general partner. Any remaining distributions arerecorded as income. We refer to these transactions as "recapitalizations." Additionally, most of our ventures are structured to provide a distribution to us uponthe sale of the communities in the ventures. None of the agreements governing our venture arrangements require refinancings of debt in connection with thesale of equity interests by our venture partners. If the venture does not refinance senior debt or

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the property has not appreciated we would not receive any distributions in connection with the sale of equity interests by our venture partners. In addition,there can be no assurance that future "recapitalizations" or asset sales will result in distributions to us. In addition, if market conditions deteriorate or ourcommunities experience poor performance, the amounts distributed to us upon "recapitalizations" or assets sales could be materially reduced or we may notreceive distributions in some cases.

We may be required to recognize impairment losses on our assets or investments.

Our assets and investments are regularly evaluated for any impairment in value. If it is determined that an asset's or investment's carrying value is inexcess of its fair value, we would recognize an impairment charge. We recognized impairment charges of $12.7 million, $5.6 million and $29.4 million incontinuing operations in 2011, 2010 and 2009, respectively. If we are required to recognize impairment losses in the future, it may have an adverse impact onour financial condition, cash flows and results of operations.

Liability claims against us in excess of insurance limits could adversely affect our financial condition and results of operations. Furthermore,publicity surrounding some claims against us may cause damage to our reputation, which would not be covered by insurance, but which could harm ourbusiness, results of operations and financial condition.

The senior living business entails an inherent risk of liability from personal injury claims, abuse and neglect claims and other claims and we, as well asother participants in our industry, are subject to lawsuits alleging these and similar claims. These lawsuits may involve large claims and significant legal costs.Further, the negative publicity that is likely to ensue as a result of significant claims could cause material damage to our reputation and in turn our financialcondition could be adversely affected. We maintain liability insurance policies in amounts we believe are adequate based on the nature and risks of ourbusiness, historical experience and industry standards.

We purchase insurance for property, casualty and other risks from insurers based on published ratings by recognized rating agencies, advice fromnational insurance brokers and consultants and other industry-recognized insurance information sources. Moreover, certain insurance policies cover events forwhich payment obligations and the timing of payments are only determined in the future. Any of these insurers could become insolvent and unable to fulfilltheir obligation to defend, pay or reimburse us for insured claims.

Certain liability risks, including general and professional liability, workers' compensation and automobile liability, and employment practices liabilityare insured under insurance policies with affiliated (i.e., wholly owned captive insurance companies) and unaffiliated insurance companies. We areresponsible for the cost of claims up to a self-insured limit determined by individual policies and subject to aggregate limits in certain prior policy periods.Liabilities within these self-insured limits are estimated annually by management after considering all available information, including expected cash flowsand actuarial analysis. In the event these estimates are inadequate, we may have to fund the shortfall and our operating results could be negatively impacted.

Claims may arise that are in excess of the limits of our insurance policies or that are not covered by our insurance policies. If a successful claim is madeagainst us and it is not covered by our insurance or exceeds the policy limits, our financial condition and results of operations could be materially andadversely affected. Our obligations to pay the cost of claims within our self-insured limits include the cost of claims that arise today but are reported in thefuture. We estimate an amount to reserve for these future claims. In the event these estimates are inadequate, we may have to fund the shortfall and ouroperating results could be negatively affected. Claims against us, regardless of their merit or eventual outcome, also could have a material adverse effect onour ability to attract residents or expand our business and could require our management to devote time to matters unrelated to the operation of our business.We also have to renew our policies periodically and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, includingthe possibility of rate increases, and we cannot be sure that we will be able to obtain insurance in the future at acceptable levels. We have established aliability for outstanding losses and expenses at December 31, 2011, but the liability may ultimately be settled for a greater or lesser amount. Any subsequentchanges are recorded in the period in which they are determined and will be shared with the communities participating in the insurance programs.

Interest rate increases could adversely affect our earnings as some of our debt is floating rate debt.

At December 31, 2011, we had approximately $506.1 million of floating-rate debt at a weighted average interest rate of 3.96%. Debt incurred in thefuture also may bear interest at floating rates. Therefore, increases in prevailing interest rates could increase our interest payment obligations, which wouldnegatively impact earnings.

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We may be adversely affected by fluctuations in currency exchange rates.

We are subject to the impact of foreign exchange translation on our financial statements. To date, we have not hedged against foreign currencyfluctuations; however, we may pursue hedging alternatives in the future. There can be no assurance that exchange rate fluctuations in the future will not havea material adverse effect on our business, operating results, or financial condition. We recorded $1.1 million, net, in exchange losses in 2011 all relating to theCanadian dollar.

The discovery of environmental problems at any of the communities we own or operate could result in substantial costs to us, which would have anadverse effect on our earnings and financial condition.

Under various federal, state and local environmental laws, ordinances and regulations, as a current or previous owner or operator of real property, weare subject to various federal, state and local environmental laws and regulations, including those relating to the handling, storage, transportation, treatmentand disposal of medical waste generated at our facilities; identification and removal of the presence of asbestos-containing materials in buildings; the presenceof other substances in the indoor environment, including mold; and protection of the environment and natural resources in connection with development orconstruction of our communities.

Some of our facilities generate infectious or other hazardous medical waste due to the illness or physical condition of the residents. Each of ourfacilities has an agreement with a waste management company for the proper disposal of all infectious medical waste, but the use of such waste managementcompanies does not immunize us from alleged violations of such laws for operations for which we are responsible even if carried out by such wastemanagement companies, nor does it immunize us from third-party claims for the cost to clean-up disposal sites at which such wastes have been disposed.

If we fail to comply with such laws and regulations in the future, we would face increased expenditures both in terms of fines and remediation of theunderlying problem(s), potential litigation relating to exposure to such materials, and potential decrease in value to our business and in the value of ourunderlying assets, which would have an adverse effect on our earnings, our financial condition and our ability to pursue our growth strategy. In addition, weare unable to predict the future course of federal, state and local environmental regulation and legislation. Changes in the environmental regulatory frameworkcould result in significant increased costs related to complying with such new regulations and result in a material adverse effect on our earnings. In addition,because environmental laws vary from state to state, expansion of our operations to states where we do not currently operate may subject us to additionalrestrictions on the manner in which we operate our communities, further increasing our cost of operations.

Unionization may impact wage rates and work rules.

At December 31, 2011, we had approximately 31,600 employees of which approximately 310 were employed at our community support office. Certainemployees at two communities in Canada are represented by two different unions. Approximately 176 employees are covered by union contracts both ofwhich expire in 2014. We believe that a union free workplace is in the best interest of our residents, our team members and us and accordingly, we plan toexpend significant organizational efforts to maintain a union free workplace.

Risks Related to Pending LitigationWe are involved in litigation matters that could result in substantial monetary damages that could have a material adverse effect on our financial

condition and results of operations if we do not prevail.

As described in Item 3, "Legal Proceedings", we are currently involved in several lawsuits. If we do not prevail in these or other lawsuits, we may berequired to pay substantial monetary damages, which could have a material adverse effect on our financial condition and results of operations.

Risks Related to the Senior Living IndustryCompetition in our industry is high and may increase, which could impede our growth and have a material adverse effect on our revenues and

earnings.

The senior living industry is highly competitive. We compete with numerous other companies that provide similar senior living alternatives, such ashome health care agencies, community-based service programs, retirement communities, convalescent centers and other senior living providers. In general,regulatory and other barriers to competitive entry in the independent and assisted living segments of the senior living industry are not as substantial as in theskilled nursing segment of the senior living industry. In pursuing our growth strategies, we have experienced and expect to continue to experience competitionin our efforts to develop and operate senior living communities. We expect that there will be competition from existing competitors and new market entrants,some of whom may have greater financial resources and lower costs of capital

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than we are able to obtain. Consequently, we may encounter competition that could limit our ability to attract new residents, increase resident fee rates, attractand retain capital partners for our ventures or expand our development activities or our business in general, which could have a material adverse effect on ourrevenues and results of operations. Similarly, overbuilding or oversupply in any of the markets in which we operate could cause us to experience decreasedoccupancy, reduced operating margins and lower profitability. Increased competition for residents could also require us to undertake unbudgeted capitalimprovements or to lower our rates, which could adversely affect our results of operations.

Our success depends on attracting and retaining skilled personnel and increased competition for or a shortage of skilled personnel could increaseour staffing and labor costs, which we may not be able to offset by increasing the rates we charge to our residents.

We compete with various health care service providers, including other senior living providers, in attracting and retaining qualified and skilledpersonnel. We depend on our ability to attract and retain skilled management personnel who are responsible for the day-to-day operations of each community.Turnover rates and the magnitude of the shortage of nurses, therapists or other trained personnel vary substantially from community to community. Increasedcompetition for or a shortage of nurses, therapists or other trained personnel or general inflationary pressures may require that we enhance our pay andbenefits package to compete effectively for such personnel. We may not be able to offset such added costs by increasing the rates we charge to our residentsor our management fees. If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business, including ourability to implement our growth strategy, and operating results could be harmed.

The need to comply with government regulation of senior living communities may increase our costs of doing business and increase our operatingcosts, affect our revenues or result in sanctions.

Senior living communities are generally subject to regulation and licensing by federal, state and local health and social service agencies and otherregulatory authorities. Although requirements vary from state to state and community to community, in general, these requirements may include or address awide variety of aspects of our operations, including training, resident care procedures, services to residents and maintenance and features of our buildings.

In several of the states in which we operate or intend to operate, laws may require a certificate of need before a senior living community can be opened.In most states, senior living communities are also subject to state or local building codes, fire codes, and food service licensing or certification requirements.

Stand-alone independent living communities typically are not regulated as senior care facilities. However, communities that feature a combination ofsenior living options such as CCRCs, consisting of independent living campuses with a promise of future assisted living and/or skilled nursing services and anentrance fee requirement, are regulated by state governments. The agency with jurisdiction varies from state to state. Examples include departments ofinsurance, health, social services or aging. State regulation of CCRCs typically requires comprehensive disclosure of such things as financial condition of thecommunity, fees and other costs, material events affecting the CCRC and contractual obligations to the residents.

Communities licensed to provide skilled nursing services generally provide significantly higher levels of resident assistance. Communities that arelicensed, or will be licensed, to provide skilled nursing services may participate in federal health care programs, including the Medicare and Medicaidprograms. In addition, some licensed assisted living communities may participate in state Medicaid-waiver programs. Such communities must meet certainfederal and/or state requirements regarding their operations, including requirements related to physical environment, resident rights, and the provision ofhealth services. Communities that participate in federal health care programs are entitled to receive reimbursement from such programs for care furnished toprogram beneficiaries and recipients.

Senior living communities that include assisted living facilities, nursing facilities, or home health care agencies are subject to periodic surveys orinspections by governmental authorities to assess and assure compliance with regulatory requirements. Such unannounced surveys may occur annually or bi-annually, or can occur following a state's receipt of a complaint about the community. As a result of any such inspection, authorities may allege that the seniorliving community has not complied with all applicable regulatory requirements. Typically, senior living communities then have the opportunity to correctalleged deficiencies by implementing a plan of correction. In other cases, the authorities may enforce compliance through imposition of fines, imposition of aprovisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federalhealth care programs, or imposition of other sanctions. Failure to comply with applicable requirements could lead to enforcement action that could materiallyand adversely affect our business and revenues. Like other senior living communities, we have received notice of deficiencies from time to time in theordinary course of business.

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Regulation of the senior living industry is evolving. Our operations could suffer if future regulatory developments, such as mandatory increases inscope of care given to residents, licensing and certification standards are revised, or a determination is made that the care provided by one or more of ourcommunities exceeds the level of care for which the community is licensed. If regulatory requirements increase, whether through enactment of new laws orregulations or changes in the application of existing rules, our operations could be adversely affected. Furthermore, there have been numerous initiatives onthe federal and state levels in recent years for reform affecting payment for health care services. Some aspects of these initiatives could adversely affect us,such as reductions in Medicare or Medicaid program funding.

We are also subject to certain federal and state laws that regulate financial arrangements by health care providers, such as the Federal Anti-KickbackLaw. This law makes it unlawful for any person to offer or pay (or to solicit or receive) "any remuneration...directly or indirectly, overtly or covertly, in cashor in kind" for referring or recommending for purchase of any item or service which is eligible for payment under the Medicare or Medicaid programs.Authorities have interpreted this statute very broadly to apply to many practices and relationships between health care providers and sources of patientreferral. If a health care provider were to violate the Anti-Kickback Law, it may face criminal penalties and civil sanctions, including fines and possibleexclusion from government programs such as Medicare and Medicaid. Similarly, health care providers are subject to the False Claims Act with respect to theirparticipation in federal health care reimbursement programs. Under the False Claims Act, the government or private individuals acting on behalf of thegovernment may bring an action alleging that a health care provider has defrauded the government and seek treble damages for false claims and the paymentof additional civil monetary penalties. Many states have enacted similar anti-kickback and false claims laws that may have a broad impact on health careproviders and their payor sources. Recently other health care providers have faced enforcement action under the False Claims Act. It is difficult to predict howour revenue could be affected if we were subject to an action alleging violations.

We are also subject to federal and state laws designed to protect the confidentiality of patient health information. The U.S. Department of Health andHuman Services has issued rules pursuant to HIPAA relating to the privacy of such information. In addition, many states have confidentiality laws, which insome cases may exceed the federal standard. We have adopted procedures for the proper use and disclosure of residents' health information in compliancewith the relevant state and federal laws, including HIPAA.

Risks Related to Our Organization and StructureAnti-takeover provisions in our governing documents and under Delaware law could make it more difficult to effect a change in control.

Our restated certificate of incorporation and amended and restated bylaws and Delaware law contain provisions that could make it more difficult for athird party to obtain control of us or discourage an attempt to do so. In addition, these provisions could limit the price some investors are willing to pay for ourcommon stock. These provisions include:

• Board authority to issue preferred stock without stockholder approval. Our Board of Directors is authorized to issue preferred stock having apreference as to dividends or liquidation over the common stock without stockholder approval. The issuance of preferred stock could adverselyaffect the voting power of the holders of our common stock and could be used to discourage, delay or prevent a change in control of Sunrise;

• Filling of Board vacancies; removal. Any vacancy occurring in the Board of Directors, including any vacancy created by an increase in thenumber of directors, shall be filled for the unexpired term by the vote of a majority of the directors then in office, and any director so chosen shallhold office for a term expiring at the next annual meeting of stockholders. Directors may be removed with or without cause by the affirmativevote of the holders of at least a majority of the outstanding shares of our capital stock then entitled to vote at an election of directors, provided,that no special meeting may be called at the request of the stockholders for the purpose of removing any director without cause;

• Other constituency provision. Our Board of Directors is required under our certificate of incorporation to consider other constituencies, such asemployees, residents, their families and the communities in which we and our subsidiaries operate, in evaluating any proposal to acquire theCompany. This provision may allow our Board of Directors to reject an acquisition proposal even though the proposal was in the best interests ofour stockholders subject to any overriding applicable law;

• Call of special meetings. A special meeting of our stockholders may be called only by the chairman of the board, the president, by a majority ofthe directors or by stockholders possessing at least 25% of the voting power of the issued and outstanding voting stock entitled to vote generallyin the election of directors, provided, that no special meeting may be called at the request of the stockholders for the purpose of removing anydirector without cause. This provision limits the ability of stockholders to call special meetings;

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• Stockholder action instead of meeting by unanimous written consent. Any action required or permitted to be taken by the stockholders must beaffected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, unless suchconsent is unanimous. This provision limits the ability of stockholders to take action by written consent in lieu of a meeting;

• Supermajority vote of stockholders or the directors required for bylaw amendments. A two-thirds vote of the outstanding shares of common stockis required for stockholders to amend the bylaws. Amendments to the bylaws by directors require approval by at least a two-thirds vote of thedirectors. These provisions may make more difficult bylaw amendments that stockholders may believe are desirable;

• Two-thirds stockholder vote required to approve some amendments to the certificate of incorporation. A two-thirds vote of the outstanding sharesof common stock is required for approval of amendments to the provisions described in the preceding bullet points that are contained in ourcertificate of incorporation. All amendments to the certificate of incorporation must first be proposed by a two-thirds vote of directors. Thesesupermajority vote requirements may make more difficult amendments to these provisions of the certificate of incorporation that stockholdersmay believe are desirable; and

• Advance notice bylaw. We have an advance notice bylaw provision requiring stockholders intending to present nominations for directors or otherbusiness for consideration at a meeting of stockholders to notify us by a certain date depending on whether the matters are to be considered at anannual or special meeting. Stockholders proposing matters for consideration at an annual meeting must provide notice not earlier than 120 daysand not later than 90 days prior to the anniversary of the date on which we first mailed our proxy materials for the immediately preceding annualmeeting. If, however, the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, stockholdernotice must be delivered not earlier than 120 days and not later than 90 days prior to the date of such annual meeting, provided, however, that ifthe first public announcement of the date is less than 100 days prior to the date of such annual meeting, then stockholder notice must be deliverednot later than the 10th day following such public announcement. Stockholders proposing matters for consideration at a special meeting mustprovide notice not less than 120 calendar days prior to the date of the special meeting, provided, however, that if the first public announcement ofthe date of such special meeting is less than 130 days prior to the date of such special meeting, stockholder notice must be delivered not later thanthe 10th day following such public announcement.

In addition to the anti-takeover provisions described above, we are subject to Section 203 of the Delaware General Corporation Law. Section 203generally prohibits a person beneficially owning, directly or indirectly, 15% or more of our outstanding common stock from engaging in a businesscombination with us for three years after the person acquired the stock. However, this prohibition does not apply if (A) our Board of Directors approves inadvance the person's ownership of 15% or more of the shares or the business combination or (B) the business combination is approved by our stockholders bya vote of at least two-thirds of the outstanding shares not owned by the acquiring person. When we were formed, Paul Klaassen, currently our Non-ExecutiveChairman of the Board of Directors and his wife Teresa, who were the founders of our company and their respective affiliates and estates were exempted fromthis provision.

Our Board of Directors has adopted a stockholder rights agreement that could discourage a third party from making a proposal to acquire us.

We have a stockholder rights agreement that was adopted in April 2006, as amended in November 2008, January 2010 and December 2011. Thestockholder rights agreement may discourage a third party from making an unsolicited proposal to acquire us. Under the agreement, preferred stock purchaserights, which are attached to our common stock, generally will be triggered upon the acquisition, directly or indirectly through certain derivative positions, of10% or more of our outstanding common stock, except that stockholders who beneficially owned more than 10% of our stock as of November 19, 2008 werepermitted to maintain their existing ownership positions without triggering the preferred stock purchase rights. In addition, we amended the agreement inJanuary 2010 and December 2011 to permit FMR LLC and Carlson Capital, L.P., respectively, to acquire up to 14.9% of our stock under certaincircumstances without triggering the preferred stock purchase rights. If triggered, these rights would entitle our stockholders, other than the person triggeringthe rights, to purchase our common stock, and, under certain circumstances, the common stock of an acquirer, at a price equal to one-half the market value ofour common stock. Item 1B. Unresolved Staff Comments

None.

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Item 2. PropertiesWe lease our community support offices, regional operations and warehouse space under various leases. The leases have remaining terms of one month

to two years.

Of the 311 communities that we operated at December 31, 2011, 22 were wholly owned, 26 were under operating leases, one was consolidated as avariable interest entity, one was a consolidated venture, six were leased from a venture and consolidated, 113 were owned in unconsolidated ventures and 142were owned by third parties. See the "Business – Our Operating Communities" included in Item 1 for a description of the properties. Refer to Note 11 to theconsolidated financial statements for a description of mortgages and notes payable related to certain of our properties. Item 3. Legal ProceedingsPurnell and Miller Lawsuits

On May 14, 2010, Plaintiff LaShone Purnell filed a lawsuit on behalf of herself and others similarly situated in the Superior Court of the State ofCalifornia, Orange County, against Sunrise Senior Living Management, Inc., captioned LaShone Purnell as an individual and on behalf of all employeessimilarly situated v. Sunrise Senior Living Management, Inc. and Does 1 through 50, Case No. 30-2010-00372725 (Orange County Superior Court). Plaintiff'scomplaint is styled as a class action and alleges that Sunrise failed to properly schedule the purported class of care givers and other related positions so thatthey would be able to take meal and rest breaks as provided for under California law. The complaint asserts claims for: (1) failure to pay overtime wages;(2) failure to provide meal periods; (3) failure to provide rest periods; (4) failure to pay wages upon ending employment; (5) failure to keep accurate payrollrecords; (6) unfair business practices; and (7) unfair competition. Plaintiff seeks unspecified compensatory damages, statutory penalties provided for under theCalifornia Labor Code, injunctive relief, and costs and attorneys' fees. On June 17, 2010, Sunrise removed this action to the United States District Court forthe Central District of California (Case No. SACV 10-897 CJC (MLGx)). On July 16, 2010, plaintiff filed a motion to remand the case to state court, whichthe Court denied. The parties have completed briefing on class certification, and the Court held a hearing on plaintiff's motion for class certification onJanuary 23, 2012. On February 27, 2012, the Court denied the plaintiff's motion for class certification.

In addition, on January 31, 2012, the same counsel filed what that counsel characterized as a related lawsuit captioned Cheryl Miller, an individual onbehalf of herself and others similarly situated v. Sunrise Senior Living Management, Inc., a Virginia corporation; and Does 1 through 100, Case No.BC478075 in the Superior Court of the State of California, County of Los Angeles. On or about February 8, 2012, Plaintiff Cheryl Miller filed a FirstAmended Complaint ("FAC"), which was served on Sunrise on February 15, 2012. Plaintiff's FAC is styled as a class action and alleges that Sunrise failed topay all wages owed to employees as a result of allegedly improper "rounding" of time to the nearest quarter hour and that Sunrise failed to comply with theCalifornia Labor Code by issuing "debit cards" to pay wages. The FAC asserts claims for: (1) failure to pay all wages due to illegal rounding; (2) unfair,unlawful and fraudulent business practices; (3) failure to provide accurate pay stubs, (4) failure to pay wages upon ending employment; (5) failure to complywith Labor Code section 212 regarding payment of wages, and (6) seeking penalties under the California Labor Code Private Attorney Generals Act. Plaintiffseeks unspecified compensatory damages, statutory penalties provided for under the California Labor Code, injunctive relief, and costs and attorneys' fees.Sunrise believes that Plaintiff's allegations are not meritorious and that a class action is not appropriate in this case, and intends to defend itself vigorously.Because of the early stage of this suit, we cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

Feely Lawsuit

On July 7, 2011, Plaintiff Janet M. Feely, a former Sunrise employee, filed a lawsuit on behalf of herself and others similarly situated in the SuperiorCourt of the State of California, County of Los Angeles, against Sunrise Senior Living, Inc., captioned Janet M. Feely, individually and on behalf of otherpersons similarly situated v. Sunrise Senior Living, Inc. and Does 1 through 55, Case No. BC 465006 (Los Angeles County Superior Court). Plaintiff'scomplaint is styled as a class action and alleges that Sunrise improperly classified a position formerly held by her as exempt from the overtime obligations ofCalifornia's wage and hour laws. The complaint asserts claims for: (1) failure to pay overtime wages, (2) failure to provide accurate wage statements,(3) unfair competition, and (4) failure to pay all wages owed upon termination. Plaintiff seeks unspecified compensatory damages, statutory penaltiesprovided for under the California Labor Code, restitution and disgorgement of unpaid overtime wages under the California Business and Professions Code,prejudgment interest, costs and attorney's fees. On August 11, 2011, Sunrise removed the case to the United States District Court for the Central District ofCalifornia, Case No. LACV11-6601. On October 19, 2011, the Court entered an order approving the parties' joint stipulation of dismissal of the case, withprejudice as to Ms. Feely and without prejudice as to others similarly situated.

Five Star Lawsuit

On July 10, 2008, Five Star Quality Care, Inc. filed a complaint against Sunrise (and other Sunrise-related entities and affiliates, as well as certainexecutives thereof) in Superior Court for the Commonwealth of Massachusetts, Five Star Quality Care, Inc. v. Sunrise Senior Living, Inc., et al., Civ. A. No.MICV2008-02641. In that action, Five Star Quality Care alleges, among other things, that Sunrise improperly retained payments made by communities ownedby Five Star Quality Care in connection with the participation of such communities in the insurance and health benefit programs. The complaint asserts claimsfor (1) an accounting, (2) conversion, (3) aiding and abetting conversion, (4) unjust enrichment, (5) breach of contract, (6) breach of fiduciary duty, and(7) violation of Mass. Gen Law Chapter 93A. The complaint does not specify a quantum of damages and seeks an accounting, actual damages, trebledamages, interest, costs and attorneys' fees. Sunrise filed a motion for summary judgment on all claims asserted, which the Court denied in a written decisiondated August 23, 2011. The Court also denied Five Star Quality Care, Inc.'s motion for partial summary judgment on its conversion claim.

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On November 15, 2010, subsidiaries of Five Star Quality Care filed a new action, FS Tenant Pool I Trust, et al. v. Sunrise Senior Living, Inc., et al.,Civ. A. No. MICV2010-04318, in Superior Court for the Commonwealth of Massachusetts, in which they asserted claims against Sunrise similar to thoseasserted by Five Star Quality Care.

The Court consolidated the two actions and held a pretrial conference on December 6, 2011. Discovery is ongoing and a final pretrial conference isscheduled for June 21, 2012. A trial date of August 6, 2012 has been set. At this point in time, we estimate that a loss from a negative outcome in the range of$2 million to $4 million is reasonably possible. As we do not believe this loss is probable, we have not accrued a contingent loss related to this matter.

Subpoena From the U.S. Attorney's Office

The U.S. Attorney's Office for the Eastern District of Pennsylvania has issued a subpoena to us for certain documents relating to resident care at one ofour Pennsylvania communities. This community has experienced significant publicity due to an incident occurring in the spring of 2011. We are cooperatingwith the U.S. Attorney's Office and are in the process of producing the requested documents.

Other Pending Lawsuits and Claims

In addition to the matters described above, we are involved in various lawsuits and claims and regulatory and other governmental audits andinvestigations arising in the normal course of business. In the opinion of management, although the outcomes of these other suits and claims are uncertain, inthe aggregate they are not expected to have a material adverse effect on our business, financial condition, and results of operations. Item 4. Mine Safety Disclosures.

Not applicable.

PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange under the symbol "SRZ."

The following table sets forth, for the quarterly periods indicated, the high and low sales prices of our common stock:

Quarterly Market Price Range of Common Stock Quarter Ended High Low March 31, 2011 $ 12.44 $ 5.50 June 30, 2011 $ 11.75 $ 7.62 September 30, 2011 $ 10.17 $ 4.28 December 31, 2011 $ 6.54 $ 3.68 Quarter Ended High Low March 31, 2010 $ 5.99 $ 2.74 June 30, 2010 $ 5.73 $ 2.77 September 30, 2010 $ 4.12 $ 2.18 December 31, 2010 $ 5.85 $ 3.25

HoldersThere were 234 stockholders of record at December 31, 2011.

DividendsNo cash dividends have been paid in the past and we currently have no intention to pay cash dividends in the foreseeable future.

Issuer Purchases of Equity SecuritiesOur repurchases of shares of our common stock for the three months ended December 31, 2011 were as follows:

Total Number

of Shares

Purchased(1)

Average

Price Paid

per Share

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

Maximum Number

of Shares that May

Yet be Purchased

Under the Plans October 1 – October 31, 2011 39,115 $ 4.63 0 0 November 1 – November 30, 2011 16,224 $ 5.13 0 0 December 1 – December 31, 2011 0 0.00 0 0

Total 55,339 $ 4.78 0 0

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(1) Represents the number of shares acquired by us from employees as payment of applicable statutory withholding taxes owed upon vesting of restrictedstock.

Issuance of Common StockNot applicable.

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Item 6. Selected Financial DataThe selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Conditionand Results of Operations" and our consolidated financial statements and notes thereto appearing elsewhere herein. December 31, 2011(1) 2010(1)(2)(3) 2009(1)(2) 2008(1)(2) 2007(1)(2) (Dollars in thousands, except per share amounts) STATEMENTS OF OPERATIONS DATA: Operating revenues $1,312,213 $1,400,486 $1,452,991 $1,550,729 $1,469,747 Operating expenses 1,326,379 1,387,173 1,577,832 1,892,411 1,662,522 (Loss) income from operations (14,166) 13,313 (124,841) (341,682) (192,775) Gain on the sale and development of real estate and equity interests 8,185 27,672 21,651 17,374 105,081 Sunrise's share of (loss) earnings, return on investment in unconsolidated communities and

(loss) gain from investments accounted for under profit-sharing method (7,177) (2,129) (7,135) (15,175) 107,369 (Loss) income from continuing operations (22,299) 31,280 (105,792) (32,646) 2,383 (Loss) income from discontinued operations, net of tax (1,091) 67,787 (28,123) (116,533) (72,658) Net (loss) income (23,390) 99,067 (133,915) (439,179) (70,275) Net (loss) income per common share:

Basic Continuing operations $ (0.39) $ 0.56 $ (2.06) $ (6.41) $ 0.05 Discontinued operations, net of tax (0.02) 1.22 (0.55) (2.31) (1.46)

Net (loss) income $ (0.41) $ 1.78 $ (2.61) $ (8.72) $ (1.41)

Diluted Continuing operations $ (0.39) $ 0.54 $ (2.06) $ (6.41) $ 0.05 Discontinued operations, net of tax (0.02) 1.18 (0.55) (2.31) (1.46)

Net (loss) income $ (0.41) $ 1.72 $ (2.61) $ (8.72) $ (1.41)

BALANCE SHEET DATA: Total current assets $ 189,113 $ 212,810 $ 340,434 $ 304,908 $ 529,964 Total current liabilities 351,103 294,730 673,559 735,421 646,311 Property and equipment, net 624,585 238,674 288,056 681,352 656,211 Property and equipment subject to financing, net 0 0 0 0 58,871 Goodwill 0 0 0 39,025 169,736 Total assets 1,118,368 701,458 910,589 1,381,557 1,798,597 Total debt 593,665 163,000 440,219 636,131 253,888 Liabilities related to properties accounted for under the financing method 0 0 0 0 54,317 Deferred income tax liabilities 19,912 20,318 23,862 28,129 82,605 Total liabilities 1,016,475 576,901 884,355 1,233,643 1,214,826 Total stockholders' equity 96,627 120,151 22,047 138,528 573,563 OPERATING AND OTHER DATA: Cash dividends per common share $ 0 $ 0 $ 0 $ 0 $ 0 Communities (at end of period):

Consolidated communities (4) 56 38 48 72 62 Communities in unconsolidated ventures 113 137 201 203 199 Communities managed for third party owners 142 144 135 160 174

Total 311 319 384 435 435

Unit capacity: Consolidated communities (4) 8,335 6,931 7,743 9,417 8,348 Communities in unconsolidated ventures 9,255 10,987 16,194 20,225 19,765 Communities managed for third party owners 13,143 13,252 16,416 20,209 21,366

Total 30,733 31,170 40,353 49,851 49,479

(1) We recorded impairment charges related to owned communities and land parcels of $12.7 million, $5.9 million, $31.7 million, $27.8 million and $7.6

million in 2011, 2010, 2009, 2008 and 2007, respectively. We recorded impairment of goodwill of $121.8 million in 2008. We recorded restructuringcharges of $11.7 million, $32.5 million and $24.2 million in 2010, 2009 and 2008, respectively. We wrote-off capitalized project costs of $14.9 million,$95.8 million and $28.4 million in 2009, 2008 and 2007, respectively.

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(2) We incurred costs of $3.9 million, $30.2 million and $51.7 million in 2009, 2008 and 2007, respectively, related to the accounting restatement, SpecialIndependent Committee inquiry, SEC investigation and stockholder litigation. In 2010, we received an insurance reimbursement of $1.3 million forprevious costs incurred.

(3) In 2010, we received $63.3 million in management agreement buyout fees.(4) Includes one community in a consolidated venture, one community in a variable interest entity and six communities leased from a venture. These eight

communities are included in our North American Management segment.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe 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.

OverviewWe provide senior living services in the United States, Canada and the United Kingdom. At December 31, 2011, we operated 311 communities,

including 269 communities in the United States, 15 communities in Canada and 27 communities in the United Kingdom, with a total unit capacity ofapproximately 30,733. Of the 311 communities that we operated at December 31, 2011, 22 were wholly owned, 26 were under operating leases, one wasconsolidated as a variable interest entity, one was a consolidated venture, six were leased from a venture and consolidated, 113 were owned in unconsolidatedventures and 142 were owned by third parties.

Effective in 2011, we revised our operating segments as a result of a change in the manner in which the key decision makers review the operatingresults and the cessation of all development activity. We now have three operating segments: North American Management, Consolidated Communities andUnited Kingdom Management. The operations of the communities we own or manage are reviewed on a community by community basis by our key decisionmakers. The communities managed for third parties, communities in ventures or communities that are consolidated but held in ventures or variable interestentities, are aggregated by location into either our North American Management segment or our United Kingdom Management segment. Communities thatare wholly owned or leased are included in our Consolidated Communities segment. In 2010, we had five operating segments, North American Management,North American Development (the residual activity which is now included with corporate costs), Equity Method Investments (whose community operationsare now included either in North American Management or United Kingdom Management), Consolidated (Wholly Owned/Leased) and United Kingdom.

North American Management includes the results from the management of third party and venture senior living communities, including sixcommunities in New York owned by a venture but whose operations are included in our consolidated financial statements, a community owned by avariable interest entity and a community owned by a venture which we consolidate, in the United States and Canada.

Consolidated Communities includes the results from the operation of wholly owned and leased Sunrise senior living communities in the UnitedStates and Canada.

United Kingdom Management includes the results from management of Sunrise senior living communities in the United Kingdom owned inventures.

Our community support office is located in McLean, Virginia, with a smaller regional center located in the U.K. Our North American communitysupport office provides centralized operational functions. As a result, our community-based team members are able to focus on delivering excellent care andservice consistent with our resident-centered operating philosophy.

Significant 2011 DevelopmentsOverviewDuring 2011, we (i) restructured and recapitalized three ventures; (ii) sold six assets in our liquidating trust formed in 2009 in connection with

restructuring the debt for our discontinued German operations and reduced our restructuring obligations by $11.3 million; (iii) raised $86.2 million under aconvertible notes offering; (iv) acquired a venture partner's 80% interest in a 15 community portfolio; (v) secured a new $50.0 million bank credit facility;(vi) further reduced our annual recurring general and administrative expense by eliminating 69 positions and (vii) obtained third party approval to extend fourleases related to operating communities until 2018.

In 2012, we expect to continue to focus on (a) operating high-quality assisted living and memory care communities in the United States, Canada and theUnited Kingdom; (b) increasing occupancy and improving the operating efficiency of our communities; (c) restructuring certain of our venture, leasing andlender relationships to further stabilize our revenue stream and cash flow; (d) seeking strategic investments in attractive real estate opportunities;(e) improving the operating efficiency of our corporate operations; and (f) reducing our operational and financial risk.

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Venture Transactions with CNL

In January 2011, we contributed our 10% ownership interest in an existing venture in exchange for a 40% ownership interest in a new venture, CC3Acquisition, LLC ("CC3"), organized to own the same portfolio of 29 communities that we manage. We recorded our new investment at its carryover basis.The portfolio was valued at approximately $630 million (excluding transaction costs). As part of our new venture agreement with a wholly-owned subsidiaryof CNL, from the start of year three to the end of year six following our January 2011 acquisition, we will have a buyout option to purchase CNL's remaining60% interest in the venture. The purchase price provides a 13% internal rate of return to CNL if we exercise our option in years three and four and a 14%internal rate of return if we exercise our option in years five and six. Our share of the transaction costs for 2011 was approximately $5.0 million, of which$4.0 million was reflected as an expense in Sunrise's share of earnings and return on investment in unconsolidated communities and $1.0 million was reflectedas general and administrative expense. Six communities in the state of New York, whose real estate is owned by the venture, are being leased and operated byus and therefore, the operations are included in our consolidated financial statements.

In August 2011, we and our venture partner in a portfolio of six communities transferred ownership of the portfolio to a new joint venture owned 70%by a wholly-owned subsidiary of CNL different from the above subsidiary and 30% by us. As part of our new venture agreement with the CNL subsidiary,from the start of year four to the end of year six, we will have a buyout option to purchase CNL's 70% interest in the venture for a purchase price that providesa 16% internal rate of return to CNL. In addition, the new venture modified the existing mortgage loan in the amount of $133.2 million to provide for, amongother things, (i) pay down of the loan by approximately $28.7 million and (ii) an extension of the maturity date of the loan to April 2014 which may beextended by two additional years under certain conditions. In connection with the transaction, we contributed $8.1 million and CNL contributed $19.0 millionto the new venture.

In October 2011, we closed on a purchase and sale agreement with Master MorSun Acquisition LLC for its 80% ownership interest in a joint venturethat owned seven senior living facilities to a new joint venture owned approximately 68% by CNL Income Partners, LP and approximately 32% by us. Inconnection with the transaction, we transferred our interest in the previous joint venture valued at approximately $16.7 million and CNL Income Partners, LPcontributed approximately $35.4 million in cash. The purchase was also funded by $120.0 million of new debt financing in the venture. We have the option tobuy out CNL Income Partners, LP's interest during years four to six for a purchase price that provides a 13% internal rate of return to CNL Income Partners,LP.

Liquidating Trust Asset Sales

In 2011, we sold three wholly owned operating communities and three land parcels which were part of the liquidating trust for approximately $12.8million. We recognized a gain of approximately $1.7 million, $1.5 million of which is included in discontinued operations. Proceeds of $11.3 million weredistributed to the electing lenders of the liquidating trust. We have one closed community and nine land parcels remaining to sell in the liquidating trust whichare reflected in our consolidated balance sheets in "Assets held in the liquidating trust". To the extent we are unable to sell all of these assets at their estimatedvalue by October 2012, we may be required to fund the minimum payment under the guarantee which was $26.3 million as of December 31, 2011 (refer toNote 11). Based on our estimate of likely property sales by October 2012, we believe that we may be required to fund approximately $10 million under theguarantee.

Junior Subordinated Convertible Notes

In April 2011, we issued $86.25 million in aggregate principal amount of our 5.00% junior subordinated convertible notes due in 2041 in a privateoffering. See "Liquidity and Capital Resources" below. We used the net proceeds to purchase an additional 80% interest in a venture as described under "ALUS Acquisition" below, to pay down the debt in the venture and for general corporate purposes.

AL US Acquisition

In June 2011, we closed on a purchase and sale agreement with Morgan Stanley Real Estate Fund VII Global-F (U.S.), L.P., Morgan Stanley RealEstate Fund VII Special Global (U.S.), L.P., MSREF VII Global-T Holding II, L.P., and Morgan Stanley Real Estate Fund VII Special Global-TE (U.S.), L.P.(collectively, the "MS Parties"). The MS Parties collectively owned 80% of the membership interest (the "MS Interest") in AL US Development Venture,LLC ("AL US") and we owned the remaining 20% membership interest. Pursuant to the purchase and sale agreement, we purchased the MS Interest for anaggregate purchase price of $45 million. AL US indirectly owns 15 assisted and independent living facilities which we managed before the transaction. As aresult of the transaction, the assets, liabilities and operating results of AL US are now consolidated.

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In connection with the AL US transaction in June 2011, we assumed $364.8 million of debt with an approximate fair value of $350.1 million (refer toNote 11). Immediately following the closing of the transaction, we entered into an amendment to the loan and paid down the principal balance by $25.0million. The face amount balance of the loan as of December 31, 2011 was $334.6 million and is reflected on our balance sheet at $322.0 million.

KeyBank Credit Facility

In June 2011, we entered into a credit agreement for a $50.0 million senior revolving line of credit ("Credit Facility") with KeyBank NationalAssociation ("KeyBank"), as administrative agent and lender, and other lenders which may become parties thereto from time to time. The Credit Facilityincludes a $20 million sublimit to support standby letters of credit and is expandable to $65.0 million if (i) additional lenders commit to participate in theCredit Facility and (ii) there are no defaults. We have no borrowing availability under the Credit Facility as of December 31, 2011. As of December 31, 2011,we had outstanding draws of $39.0 million and $10.2 million in letters of credit. We entered into a termination agreement with regards to our Bank ofAmerica credit facility at the time we entered into the Credit Facility.

Lease Extension and Lease Termination Notice

In December 2011, we closed the transactions contemplated by the Agreement Regarding Leases, dated December 22, 2011 (the "ARL"), by andamong us, Marriott International, Inc. ("Marriott"), Marriott Senior Holding Co. and Marriott Magenta Holding Company, Inc. (collectively, the "MarriottParties"). The ARL relates to a portfolio of 14 leases (the "Leases") for senior living facilities that are leased by SPTMRT Properties Trust, as landlord to usas tenant and guaranteed by Marriott pursuant to certain lease guarantees (collectively, the "Lease Guarantees"). Each of the Leases is scheduled to expire onDecember 31, 2013 and, pursuant to a prior agreement between us and the Marriott Parties, we are not permitted to exercise our option under the Leases toextend our terms for an additional five-year term unless Marriott is released from its obligations under the Lease Guarantees.

Pursuant to the terms of the ARL, among other things, Marriott consented to the extension of the term of four of the Leases (the "Continuing Leases")for an additional five-year term commencing January 1, 2014 and ending December 31, 2018 (the "Extension Term"). We provided Marriott with a letter ofcredit (the "Letter of Credit") issued by KeyBank, NA ("KeyBank") with a face amount of $85.0 million to secure Marriott's exposure under the LeaseGuarantees for the Continuing Leases during the Extension Term and certain other of our obligations (collectively, the "Secured Obligations"). During theExtension Term, we will be required to pay Marriott an annual payment in respect of the cash flow of the Continuing Lease facilities, subject to a $1 millionannual minimum. We have notified the landlord that the other ten Leases will terminate effective December 31, 2013.

Marriott may draw on the Letter of Credit in order to pay any of the Secured Obligations if not paid by us when due. We have provided KeyBank withcash collateral of $85.0 million as security for its Letter of Credit obligations. Marriott has agreed to reduce the face amount of the Letter of Creditproportionally on a quarterly basis during the Extension Term as we pay our rental obligations under the Continuing Leases. As the face amount of the Letterof Credit is reduced, KeyBank will return a proportional amount of its cash collateral to us. Following closing, to the extent that we elect not to extend any orall of the Continuing Leases, the face amount of the Letter of Credit will be reduced proportionally in respect of the rent obligations under the ContinuingLeases that are not extended.

Subsequent Event – Santa MonicaOn February 28, 2012, we closed on a purchase and sale agreement with our venture partner who owned 85% of the membership interests (the "Partner

Interest") in Santa Monica AL, LLC ("Santa Monica"). We owned the remaining 15% membership interest. Pursuant to the purchase and sale agreement, wepurchased the Partner Interest for an aggregate purchase price of $16.2 million. Santa Monica indirectly owns one senior living facility located in SantaMonica, California. As a result of the transaction, effective February 28, 2012, the assets, liabilities and operating results of Santa Monica are consolidated.

Simultaneously, with the closing of the transaction, we entered into a new loan with Prudential Insurance Company of America to pool Santa Monicawith Connecticut Avenue, and senior debt financed the two assets. The principal amount of the new loan in the aggregate is $55.0 million with an interest rateof 4.66%. It is a seven year loan that matures on March 1, 2019. The proceeds of the new loan were applied (i) to pay off $27.8 million of the ConnecticutAvenue debt; (ii) to pay off $13.4 million of the Santa Monica debt; and (iii) towards the $16.2 million purchase price of the Partner Interest.

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Results of OperationsOur results of operations for each of the three years in the period ended December 31 were as follows: Year Ended December 31, Percent Change

(In thousands) 2011 2010 2009 2011 vs.

2010 2010 vs.

2009 Operating revenue:

Management fees $ 96,132 $ 107,832 $ 112,467 -10.9% -4.1% Buyout fees 3,685 63,286 0 -94.2% N/A Resident fees for consolidated communities 464,064 354,714 339,125 30.8% 4.6% Ancillary fees 30,544 43,136 45,397 -29.2% -5.0% Professional fees from development, marketing and other 2,498 4,278 13,193 -41.6% -67.6% Reimbursed costs incurred on behalf of managed communities 715,290 827,240 942,809 -13.5% -12.3%

Total operating revenue 1,312,213 1,400,486 1,452,991 -6.3% -3.6% Operating expenses:

Community expense for consolidated communities 333,491 262,893 257,968 26.9% 1.9% Community lease expense 76,444 59,715 59,315 28.0% 0.7% Depreciation and amortization 37,523 40,637 45,778 -7.7% -11.2% Ancillary expense 28,396 40,504 42,457 -29.9% -4.6% General and administrative 114,474 126,566 126,940 -9.6% -0.3% Carrying cost of liquidating trust assets 2,456 3,146 0 -21.9% N/A Write-off of capitalized project costs 0 0 14,879 N/A N/A Accounting Restatement and Special Independent Committee inquiry, SEC investigation and

stockholder litigation 0 (1,305) 3,887 N/A NM Restructuring costs 0 11,690 32,534 N/A -64.1% Provision for doubtful accounts 3,802 6,154 13,251 -38.2% -53.6% (Gain) loss on financial guarantees and other contracts (2,100) 518 2,053 NM -74.8% Impairment of long-lived assets 12,734 5,647 29,439 125.5% -80.8% Costs incurred on behalf of managed communities 719,159 831,008 949,331 -13.5% -12.5%

Total operating expenses 1,326,379 1,387,173 1,577,832 -4.4% -12.1%

(Loss) income from operations (14,166) 13,313 (124,841) NM NM Other non-operating income (expense):

Interest income 2,060 1,096 1,341 88.0% -18.3% Interest expense (18,320) (7,707) (10,273) 137.7% -25.0% Gain on investments 0 932 3,556 N/A -73.8% Gain on fair value of pre-existing equity interest from a business combination 11,250 0 0 N/A N/A Gain on fair value of liquidating trust notes 88 5,240 0 -98.3% N/A Other (expense) income (615) 1,181 6,553 NM -82.0%

Total other non-operating (expense) income (5,537) 742 1,177 NM -37.0% Gain on the sale of real estate and equity interests 8,185 27,672 21,651 -70.4% 27.8% Sunrise's share of earnings and return on investment in unconsolidated communities 2,629 7,521 5,673 -65.0% 32.6% Loss from investments accounted for under the profit sharing method (9,806) (9,650) (12,808) 1.6% -24.7%

(Loss) income before (provision for) benefit from income taxes and discontinuedoperations (18,695) 39,598 (109,148) NM NM

(Provision for) benefit from income taxes (1,771) (6,559) 3,942 -73.0% NM

(Loss) income before discontinued operations (20,466) 33,039 (105,206) NM NM Discontinued operations, net of tax (1,091) 67,787 (28,309) NM NM

Net (loss) income (21,557) 100,826 (133,515) NM NM Less: Income attributable to noncontrolling interests, net of tax (1,833) (1,759) (400) 4.2% 339.8%

Net (loss) income attributable to common shareholders $ (23,390) $ 99,067 $ (133,915) NM NM

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Segment results are as follows (in thousands): For the Year Ended December 31, 2011

North

AmericanManagement

ConsolidatedCommunities

United

KingdomManagement Corporate Total

Operating revenue: Management fees $ 81,350 $ 0 $ 14,782 $ 0 $ 96,132 Buyout fees 3,685 0 0 0 3,685 Resident fees for consolidated communities 66,124 397,940 0 0 464,064 Ancillary fees 30,544 0 0 0 30,544 Professional fees from development, marketing and other 0 0 843 1,655 2,498 Reimbursed costs incurred on behalf of managed communities 706,934 0 8,356 0 715,290

Total operating revenues 888,637 397,940 23,981 1,655 1,312,213 Operating expenses:

Community expense for consolidated communities 40,793 292,698 0 0 333,491 Community lease expense 17,961 58,483 0 0 76,444 Depreciation and amortization 3,076 26,141 0 8,306 37,523 Ancillary expenses 28,396 0 0 0 28,396 General and administrative 0 0 13,899 100,575 114,474 Carrying costs of liquidating trust assets 0 0 0 2,456 2,456 Gain on financial guarantees (2,100) 0 0 0 (2,100) Provision for doubtful accounts 1,886 1,308 0 608 3,802 Impairment of long-lived assets 0 4,623 0 8,111 12,734 Costs incurred on behalf of managed communities 710,674 0 8,485 0 719,159

Total operating expenses 800,686 383,253 22,384 120,056 1,326,379

Income (loss) from operations $ 87,951 $ 14,687 $ 1,597 $ (118,401) $ (14,166)

Interest expense $ 0 $ 0 $ 0 $ (18,320) $ (18,320) Sunrise's share of earnings (loss) and return on investment in unconsolidated entities 0 0 4,592 (1,963) 2,629 Investments in unconsolidated communities 0 0 28,062 14,863 42,925 Segment assets 218,031 649,540 42,899 207,898 1,118,368 Expenditures for long-lived assets 0 3,348 0 8,013 11,361 For the Year Ended December 31, 2010

North

AmericanManagement

ConsolidatedCommunities

United

KingdomManagement Corporate Total

Operating revenue: Management fees $ 95,807 $ 0 $ 12,025 $ 0 $ 107,832 Buyout fees 63,286 0 0 0 63,286 Resident fees for consolidated communities 23,507 331,207 0 0 354,714 Ancillary fees 43,136 0 0 0 43,136 Professional fees from development, marketing and other 0 0 3,177 1,101 4,278 Reimbursed costs incurred on behalf of managed communities 815,221 0 12,019 0 827,240

Total operating revenues 1,040,957 331,207 27,221 1,101 1,400,486 Operating expenses:

Community expense for consolidated communities 16,446 246,447 0 0 262,893 Community lease expense 1,582 58,133 0 0 59,715 Depreciation and amortization 12,441 15,992 0 12,204 40,637 Ancillary expenses 40,504 0 0 0 40,504 General and administrative 0 0 11,325 115,241 126,566 Carrying costs of liquidating trust assets 0 0 0 3,146 3,146 Accounting Restatement, Special Independent Committee inquiry, SEC investigation

and stockholder litigation 0 0 0 (1,305) (1,305) Restructuring costs 0 0 0 11,690 11,690 Provision for doubtful accounts 3,824 921 0 1,409 6,154 Loss on financial guarantees and other contracts 518 0 0 0 518 Impairment of long-lived assets 0 826 0 4,821 5,647 Costs incurred on behalf of managed communities 818,987 0 12,021 0 831,008

Total operating expenses 894,302 322,319 23,346 147,206 1,387,173

Income (loss) from operations $ 146,655 $ 8,888 $ 3,875 $(146,105) $ 13,313

Interest expense $ 0 $ 0 $ 0 $ (7,707) $ (7,707) Sunrise's share of earnings (loss) and return on investment in unconsolidated entities 0 0 9,373 (1,852) 7,521

Investments in unconsolidated communities 0 0 27,007 11,668 38,675 Segment assets 155,884 242,229 36,626 266,719 701,458 Expenditures for long-lived assets 380 10,121 0 5,062 15,563

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For the Year Ended December 31, 2009

NorthAmerican

Management ConsolidatedCommunities

UnitedKingdom

Management Corporate Total Operating revenue:

Management fees $ 101,755 $ 0 $ 10,712 $ 0 $ 112,467 Buyout fees 0 0 0 0 0 Resident fees for consolidated communities 21,403 317,722 0 0 339,125 Ancillary fees 43,630 0 1,767 0 45,397 Professional fees from development, marketing and other 0 0 5,995 7,198 13,193 Reimbursed costs incurred on behalf of managed communities 931,867 0 10,942 0 942,809

Total operating revenues 1,098,655 317,722 29,416 7,198 1,452,991 Operating expenses:

Community expense for consolidated communities 15,913 242,055 0 0 257,968 Community lease expense 1,525 57,790 0 0 59,315 Depreciation and amortization 13,243 15,443 0 17,092 45,778 Ancillary expenses 40,594 0 1,863 0 42,457 General and administrative 0 0 15,438 111,502 126,940 Write-off of capitalized project costs 0 0 0 14,879 14,879 Accounting Restatement, Special Independent Committee inquiry, SEC investigation

and stockholder litigation 0 0 0 3,887 3,887 Restructuring costs 0 0 1,577 30,957 32,534 Provision for doubtful accounts 10,664 1,609 0 978 13,251 Loss on financial guarantees and other contracts 2,053 0 0 0 2,053 Impairment of long-lived assets 0 0 0 29,439 29,439 Costs incurred on behalf of managed communities 938,389 0 10,942 0 949,331

Total operating expenses 1,022,381 316,897 29,820 208,734 1,577,832

Income (loss) from operations $ 76,274 $ 825 $ (404) $(201,536) $ (124,841)

Interest expense $ 0 $ 0 $ 0 $ (10,273) $ (10,273) Sunrise's share of earnings (loss) and return on investment in unconsolidated entities 0 0 15,977 (10,304) 5,673 Investments in unconsolidated communities 0 0 32,596 32,375 64,971 Segment assets 174,708 245,364 46,458 444,059 910,589 Expenditures for long-lived assets 264 9,526 0 9,839 19,629

The following table summarizes our portfolio of operating communities at December 31, 2011, 2010 and 2009: As of December 31, Percent Change

2011 2010 2009 2011 vs.

2010 2010 vs.

2009 Total communities

Owned 22 10 20 120.0% -50.0% Leased 26 26 26 0.0% 0.0% Variable Interest Entity 1 1 1 0.0% 0.0% Consolidated New York communities leased from a venture 6 0 0 N/A N/A Consolidated venture 1 1 1 0.0% 0.0% Unconsolidated ventures 113 137 201 -17.5% -31.8% Managed 142 144 135 -1.4% 6.7%

Total 311 319 384 -2.5% -16.9%

Unit capacity 30,733 31,170 40,353 -1.4% -22.8%

2011 Compared to 2010Operating RevenueManagement fees

Management fees were $96.1 million in 2011 compared to $107.8 million in 2010, a decrease of $11.7 million or 10.9%.

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North American Management variance

• $13.4 million decrease as a result of 32 management contracts being bought out in 2010 and an additional four contracts bought out in 2011;

• $3.8 million decrease as a result of six communities leased from a venture whose operations are now consolidated effective January 2011, andnew management agreements for the other 23 communities owned by that venture;

• $3.4 million decrease as a result of the June 2011 purchase of our partner's 80% interest in a venture owning 15 communities;

• $3.6 million increase from stabilized communities;

• $1.7 million increase as a result of a non-recurring 2010 agreement to settle certain management agreement disputes with one of our venturepartners;

• $0.7 million increase in incentive management fees;

• $0.4 million increase as a result of management fee reductions in 2010 due to the operating performance of one of our portfolios;

• $0.3 million increase from communities in the lease-up phase;

United Kingdom Management variance

• $2.0 million increase related to communities in the U.K. due to continued lease-up;

• $0.8 million increase as a result of management fee reductions in 2010 due to the operating performance of one of our portfolios.

Buyout feesBuyout fees were $3.7 million in 2011 as a result of the buyout of four management contracts compared to $63.3 million in 2010 as a result of the

buyout of 32 management contracts.

Resident fees for consolidated communitiesResident fees for consolidated communities were $464.1 million in 2011 compared to $354.7 million in 2010, an increase of $109.4 million or 30.8%.

North American Management variance

• $41.5 million increase as a result of six communities in a venture whose operations are now consolidated effective January 2011;

• $1.2 million increase from two domestic controlling interest properties;

Consolidated Communities variance

• $49.3 million increase as a result of the June 2011 purchase of our partner's 80% interest in a venture owning 15 communities;

• $15.0 million increase from increases in average daily rates;

• $3.0 million increase from three Canadian communities in the lease-up phase;

• $0.6 million decrease from lower average occupancy.

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Ancillary feesAncillary fees were comprised of the following, all of which are included in our North American Management segment (in millions):

2011 2010 New York Health Care Services $ 30.5 $ 41.1 Fountains Health Care Services 0.0 2.0

$ 30.5 $ 43.1

The decrease in ancillary revenue of $12.6 million in 2011 compared to 2010 resulted from a decrease of $12.2 million from the leasing of the sixcommunities in a venture whose operations are now consolidated effective January 2011 and a $2.1 million decrease from the cessation of our Fountainshealth care services in 2010 partially offset by an increase of $1.6 million from our New York health care properties.

Professional fees from development, marketing and otherProfessional fees from development, marketing and other were $2.5 million in 2011 compared to $4.3 million in 2010. The decrease relates primarily to

the completion of all development activities in 2010.

Reimbursed costs incurred on behalf of managed communitiesReimbursed costs incurred on behalf of managed communities were $715.3 million in 2011 compared to $827.2 million in 2010.

North American Management variance

• $108.2 million decrease primarily due to 26 fewer communities being managed in 2011;

United Kingdom Management variance

• $3.7 million decrease due to the types of costs being reimbursed.

Operating ExpensesCommunity expense for consolidated communities

Community expense for consolidated communities was $333.5 million in 2011 compared to $262.9 million in 2010, an increase of $70.6 million or26.9%.

Consolidated Communities variance

• $30.5 million increase as a result of the June 2011 purchase of our partner's 80% interest in a venture owning 15 communities;

• $10.1 million increase in costs in existing communities;

• $3.3 million increase in insurance expense;

• $1.8 million increase from three Canadian communities in the lease-up phase;

• $0.6 million increase from one domestic community for prior year excess profit transfers to a capital reserve trust to benefit all unit owners in thecommunity;

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North American Management variance

• $23.7 million increase as a result of six communities leased from a venture whose operations are now consolidated effective January 2011;

• $0.6 million increase from two domestic controlling interest communities.

Community lease expenseCommunity lease expense increased $16.7 million from $59.7 million in 2010 to $76.4 million in 2011. This increase in lease expense relates primarily

to the six communities leased from a venture whose operations are now consolidated effective in January 2011 (North American Management).

Depreciation and amortizationDepreciation and amortization expense was $37.5 million in 2011 and $40.6 million in 2010, a decrease of $3.1 million or 7.6%.

North American Management variance

• $9.4 million decrease was primarily related to the accelerated amortization of management contracts due to terminations in 2010;

Consolidated Communities variance

• $10.2 million increase was primarily related to the June 2011 purchase of our partner's 80% interest in a venture owning 15 communities;

Corporate variance

• $3.9 million decrease was primarily related to certain computer hardware and software being fully depreciated in 2010.

Ancillary expensesAncillary expenses were comprised of the following, all of which are included in our North American Management segment (in millions):

2011 2010 New York Health Care Services $ 28.4 $ 38.5 Fountains Health Care Services 0.0 2.0

$ 28.4 $ 40.5

The decrease in ancillary expense of $12.1 million in 2011 compared to 2010 resulted from a decrease of $11.5 million from six communities leasedfrom a venture whose operations are now consolidated effective January 2011 and a $2.0 million decrease from the cessation of our Fountains health careservices in 2010 partially offset by an increase of $1.4 million from our New York health care properties.

General and administrativeGeneral and administrative expense was $114.5 million in 2011 compared to $126.6 million in 2010, a decrease of $12.1 million or 9.6%.

Corporate variance

• $8.4 million decrease in legal and professional fees relating to our litigation with affiliates of HCP which was settled in August 2010;

• $7.0 million decrease in salaries and bonuses;

• $5.5 million decrease in legal and professional fees relating to our transaction costs with venture partners in the third quarter of 2010;

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• $4.1 million decrease in costs related to general corporate expense as a result of cost containment initiatives including a reduction of office leaseexpense, travel, training and other general office expenses;

• $5.8 million increase in severance expense;

• $3.5 million increase in stock and deferred compensation expense;

• $3.2 million increase in legal and professional fees primarily related to our 2011 transactions;

• $2.1 million increase in legal and professional fees primarily related to litigation proceedings;

United Kingdom Management variance

• $4.5 million increase related to higher intercompany cost allocations as the result of the 2010 restructuring program;

• $1.8 million decrease related to cost containment initiatives.

Carrying costs of liquidating trust assetsCarrying costs of liquidating trust assets were $2.4 million in 2011 and $3.1 million in 2010. The decrease of $0.7 million was the result of land parcels

being sold.

Accounting Restatement, Special Independent Committee Inquiry, SEC Investigation and Stockholder LitigationLegal and accounting fees related to the accounting restatement, Special Independent Committee inquiry, SEC investigation and stockholder litigation

were a reimbursement of $1.3 million in 2010. The SEC investigation was settled in July 2010.

Restructuring costsCosts associated with our 2008 and 2009 corporate restructuring plans were $11.7 million in 2010. Our restructuring program was substantially

completed in 2010.

Provision for doubtful accountsThe provision for doubtful accounts was $3.8 million in 2011 compared to $6.2 million in 2010. The decrease of $2.4 million or 38.7% was primarily

due to the recovery of previously written off venture receivables in 2011 and decreases in reserves related to advances to ventures.

Gain (loss) on financial guarantees and other contractsWe recorded a gain on our financial guarantees of $2.1 million in 2011 and a loss of $0.5 million in 2010. In 2011, we received a settlement payment

from the architect of a condominium project in which we experienced significant cost overruns. The proceeds received, in excess of legal expenses incurred,were offset against previously recognized cost overrun losses on the project. In 2010, the loss related to a construction cost overrun guarantee on acondominium project and a guarantee to fund certain amounts towards an expansion project for one of our ventures.

Impairment of long-lived assetsImpairment of long-lived assets was $12.7 million in 2011 related to one operating community, one condominium development project and ten land

parcels. Impairment of long-lived assets was $5.6 million in 2010 relating to ten land parcels, one operating community and one condominium developmentproject.

Costs incurred on behalf of managed communitiesCosts incurred on behalf of managed communities were $719.2 million in 2011 compared to $831.0 million in 2010.

North American Management variance

• $108.3 million decrease primarily due to 26 fewer communities being managed in 2011;

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United Kingdom Management variance

• $3.5 million decrease due to the types of costs being incurred on behalf of the communities.

Other Non-Operating (Expense) IncomeTotal other non-operating (expense) income was $(5.5) million and $0.7 million in 2011 and 2010, respectively. The decrease in other non-operating

(expense) income was primarily due to:

• $1.0 million increase in interest income primarily related to a deposit and a tax refund;

• $10.6 million increase in interest expense due to the issuance of junior subordinated convertible notes in April 2011 and the assumption of thedebt in our AL US transaction;

• $0.9 million decrease of gain on our investments in auction rate securities that were sold in 2010;

• $11.3 million increase of gain on fair value of pre-existing equity interest from a business combination related to the AL US transaction;

• $5.2 million decrease in the adjustments to the fair value of the liquidating trust notes;

• $2.8 million increase in net foreign exchange losses detailed in the following table (in millions): 2011 2010 Canadian Dollar $ (1.1) $ 2.2 British Pound 0.0 (0.5)

Total $ (1.1) $ 1.7

Gain on the Sale and Development of Real Estate and Equity InterestsGain on the sale and development of real estate and equity interests was $8.2 million and $27.7 million for 2011 and 2010, respectively. In 2011, a $2.0

million gain was recognized relating to a land parcel sold in 2010 when we received a payment from the buyer after the buyer received zoning approval forthe land parcel upon which the payment was dependent. In addition, a $0.9 million gain was recognized, which had been previously deferred, when wedetermined that our obligations relating to certain environmental and structural problems at a property had been fully satisfied and no additional amountswould be incurred. In 2010, we sold our equity interest in nine limited liability companies in the U.S. and two limited partnerships in Canada to our venturepartner and recognized a $25.0 million gain on the transaction. The remaining gains in 2011 and 2010 primarily resulted from transactions which occurred inprior years for which recognition of gain had been deferred due to various forms of continuing involvement.

Sunrise's Share of Earnings and Return on Investment in Unconsolidated Communities (in millions) 2011 2010 Sunrise's share of (losses) earnings in unconsolidated communities $ (2.5) $ 8.6 Return on investment in unconsolidated communities 7.1 9.9 Impairment of investment (2.0) (11.0)

$ 2.6 $ 7.5

The increase in our share of losses in unconsolidated communities of $11.1 million was primarily due to our share of losses of $9.9 million from one ofour CNL ventures which incurred recapitalization and transaction costs in January 2011 when we increased our ownership percentage from 10% to 40% andthe venture obtained new debt (refer to Note 10). In 2010, an amendment of the cash distributions provisions of a venture agreement for one of our U.K.ventures resulted in $7.9 million higher income in 2010. Also, in 2010, our U.K. venture, in which we have a 20% interest, sold two communities to a venturein which we have an approximate 10% interest, resulting in a gain of which we recognized $4.6 million. In 2011, the same U.K. venture received additionalcontingent sale proceeds on the two communities. As a result, the venture recorded an additional gain, of which we recognized $4.9 million for our equityinterest. Also, in 2010, we recognized $3.4 million of losses from two ventures in which our investments were impaired and were written off in 2010 and2011. We also had lower operating losses from our ventures in 2011 compared to 2010.

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Distributions from investments where the equity method has been suspended were $0.7 million lower in 2011 than 2010 primarily as a result of our2010 sale of our equity interests in eleven ventures to Ventas. Also, 2011 and 2010, we recognized $2.7 million and $0.3 million, respectively, of gain whencertain contractual obligations expired. Proceeds from the sale of two communities within a venture where the book value was zero resulted in a return oninvestment of $1.1 million in 2011.

In 2011, based on economic challenges and defaults under the venture's construction loan agreements, we considered our equity investment in one ofour ventures to be impaired and wrote down the equity investment by $2.0 million.

In 2010, (i) based on an event of default under the loan agreement of a venture in which we own a 20% interest, we considered our equity to be otherthan temporarily impaired and wrote off the remaining investment balance of $1.9 million and wrote down the equity balance of the other venture by $1.2million; (ii) we received notification from one of our capital partners that our interest in two ventures, in which we had a 20% interest, had been reduced tozero and extinguished, thus resulting in the write off of the remaining equity investment of $1.8 million; (iii) based on poor operating performance of twocommunities in one venture in which we have a 20% interest, we considered our equity to be other than temporarily impaired and wrote off the remainingequity balance of $0.7 million; and (iv) we considered one cost method investment, in which we have an approximate 9% interest, to be impaired and wroteoff $5.5 million.

Loss from Investments Accounted for Under the Profit-Sharing MethodLoss from investments accounted for under the profit-sharing method was $9.8 million and $9.6 million in 2011 and 2010, respectively. These losses

are being generated from a condominium community where profits associated with condominium sales are being deferred until a certain sales threshold ismet.

Provision for Income TaxesThe provision for income taxes allocated to continuing operations was $1.8 million and $6.6 million in 2011 and 2010, respectively. Our effective tax

rate from continuing operations was (9.5)% and 16.6% in 2011 and 2010, respectively. As of December 31, 2011, we are continuing to offset our net deferredtax asset by a full valuation allowance.

Discontinued Operations(Loss) income from discontinued operations was $(1.1) million and $67.8 million in 2011 and 2010, respectively. Discontinued operations consist

primarily of three communities sold in 2011, our German operations which were sold in 2010 and two communities sold in 2010.

2010 Compared to 2009Operating RevenueManagement fees

Management fees were $107.8 million in 2010 compared to $112.5 million in 2009, a decrease of $4.7 million or 4.2%.

North American Management variance

• $9.9 million decrease as a result of terminated management agreements;

• $1.7 million decrease as a result of our agreement to settle certain management agreement disputes with one of our venture partners;

• $0.4 million decrease as a result of contractual obligations to meet specified operating thresholds on two of our portfolios;

• $3.3 million increase from communities in the lease-up phase;

• $1.8 million increase in incentive management fees;

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United Kingdom Management variance

• $2.5 million increase from international communities in the lease-up phase;

• $0.8 million decrease as a result of contractual obligations to meet specified operating thresholds on one of our portfolios.

Buyout feesBuyout fees were $63.3 million in 2010 as a result of the buyout of management agreements. We received no buyout fees in 2009.

Resident fees for consolidated communitiesResident fees for consolidated communities were $354.7 million in 2010 compared to $339.1 million in 2009, an increase of $15.6 million or 4.6%.

Consolidated Communities variance

• $7.7 million increase from increases in average daily rates;

• $4.0 million increase from three Canadian communities in the lease-up phase;

• $1.8 million increase from higher occupancy;

North American Management variance

• $1.9 million increase due to a 2009 nonrecurring charge to entrance fee income amortization;

• $0.2 million increase from two domestic controlling interest properties.

Ancillary feesAncillary fees were comprised of the following (in millions):

2010 2009 New York Health Care Services $ 41.1 $ 38.5 Fountains Health Care Services 2.0 5.1 International Health Care Services 0.0 1.8

$ 43.1 $ 45.4

The decrease in ancillary services of $2.3 million, or 5.1% in 2010 compared to 2009 resulted primarily from a decrease of $4.9 million as the result ofceasing operations of three Fountains home care units, the sale of our Fountains Home and Hospital home care business during 2010 and the sale of certainU.K. properties to a venture during 2009. These decreases were partially offset by a $2.9 million increase in revenue from our New York health care services.

Professional fees from development, marketing and otherProfessional fees from development, marketing and other were $4.3 million in 2010 compared to $13.2 million in 2009, a decrease of $8.9 million or

67.4%. This decrease was primarily comprised of:

• $2.9 million decrease in international fees due to the cessation of international development activity; and

• $6.0 million decrease in domestic design and development fees from the reduction of domestic projects from 15 communities in 2009 to none in2010.

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Reimbursed costs incurred on behalf of managed communitiesReimbursed costs incurred on behalf of managed communities were $827.2 million in 2010 compared to $942.8 million in 2009, a decrease of $115.6

million or 12.3%.

North American Management variance

• $116.6 million decrease from 55 fewer communities being managed in 2010;

United Kingdom Management variance

• $1.1 million increase from the types of costs being reimbursed.

Operating ExpensesCommunity expense for consolidated communities

Community expense for consolidated communities was $262.9 million in 2010 compared to $258.0 million in 2009, an increase of $4.9 million or1.9%.

Consolidated Communities variance

• $6.2 million increase from higher expenses in existing communities;

• $1.4 million increase from the addition of three Canadian communities and one domestic community;

• $3.2 million decrease primarily from insurance adjustments in 2009 that did not recur in 2010;

North American Management variance

• $0.5 million increase from two domestic controlling interest properties.

Community leaseCommunity lease expense increased $0.4 million from $59.3 million in 2009 to $59.7 million in 2010 primarily related to rent associated with one

ceased development project in 2010.

Depreciation and amortizationDepreciation and amortization expense was $40.6 million in 2010 and $45.8 million in 2009, a decrease of $5.2 million or 11.4%.

Corporate variance

• $4.9 million decrease primarily from certain computer hardware and software being fully depreciated in 2010;

North American Management variance

• $0.8 million decrease related to the accelerated amortization of management contracts;

Consolidated Communities variance

• $0.5 million increase related to new assets being placed in service.

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Ancillary expensesAncillary expenses were comprised of the following (in millions):

2010 2009 New York Health Care Services $ 38.5 $ 35.8 Fountains Health Care Services 2.0 4.8 International Health Care Services 0.0 1.9

$ 40.5 $ 42.5

The decrease in ancillary services of $2.0 million, or 4.7% in 2010 compared to 2009 resulted primarily from a decrease of $4.8 million as the result ofceasing operations of three Fountains home care units, the sale of our Fountains Home and Hospital home care business during 2010 and the sale of certainU.K. properties to a venture during 2009. These decreases were partially offset by a $2.8 million increase from our New York health care related to higherlabor costs.

General, administrative and venture expenseGeneral and administrative expense was $126.6 million in 2010 compared to $126.9 million in 2009, a decrease of $0.3 million or 0.2%.

Corporate variance

• $13.9 million increase related to legal and professional fees associated with the HCP litigation and our transactions with HCP and Ventas;

• $2.0 million increase in insurance related costs;

• $6.3 million decrease in salaries as a result of our cost reduction program;

• $5.2 million decrease in costs related to general corporate expenses as a result of cost containment initiatives including a reduction of informationtechnology costs, training and education and temporary help;

• $1.9 million decrease in costs related to our executive deferred compensation plan;

United Kingdom variance

• $4.1 million decrease in costs related to cost containment initiative.

Write-off of capitalized project costsProjects that were no longer deemed probable had $14.9 million of costs written off in 2009. In 2010, no project costs were written off.

Accounting Restatement, Special Independent Committee Inquiry, SEC Investigation and Stockholder LitigationLegal and accounting fees related to the accounting restatement, Special Independent Committee inquiry, SEC investigation and stockholder litigation

were $(1.3) million in 2010 compared to $3.9 million in 2009. The stockholder litigation was settled in the second quarter of 2009. The SEC investigation wassettled in July 2010. In 2010, we received an insurance reimbursement for previously incurred costs.

Restructuring costsCosts associated with our 2008 and 2009 corporate restructuring plans were $11.7 million in 2010 and $32.5 million in 2009. The reduction in

restructuring costs was due to the finalization of our corporate restructuring in 2010.

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Provision for doubtful accountsThe provision for doubtful accounts was $6.2 million in 2010 compared to $13.3 million in 2009, a decrease of $7.1 million or 53.4%. In 2009, we took

a reserve of $8.0 million related to advances to a venture and an operating deficit guarantee for Aston Gardens.

Loss on financial guarantees and other contractsWe recorded a loss on our financial guarantees of $0.5 million and $2.1 million in 2010 and 2009, respectively. In 2010, the loss related to construction

cost overrun guarantees on a condominium project and a guarantee to fund certain amounts towards an expansion project for one of our ventures. In 2009, theloss related to the condominium project mentioned, a completion guarantee on an operating property and a settlement of operating deficit guarantees to aventure.

Impairment of long-lived assetsImpairment of long-lived assets was $5.6 million in 2010 relating to ten land parcels, one operating community and one condominium project.

Impairment of owned communities and land parcels was $29.4 million in 2009 relating to 13 land parcels and one condominium project.

Costs incurred on behalf of managed communitiesCosts incurred on behalf of managed communities were $831.0 million in 2010 compared to $949.3 million in 2009, a decrease of $118.3 million or

12.5%.

North American Management variance

• $119.4 million decrease due to 55 fewer communities being managed in 2010;

United Kingdom variance

• $1.1 million decrease due to the types of costs being reimbursed.

Other Non-Operating Income and ExpenseTotal other non-operating income was $0.7 million and $1.2 million in 2010 and 2009, respectively. The decrease in other non-operating income was

primarily due to:

• $2.6 million decrease in interest expense due to lower debt levels;

• $2.6 million decrease in gains on the fair value of our marketable securities;

• $5.2 million gain on the fair value of our liquidating trust note; and

• $1.7 million for net foreign exchange gains in 2010 compared to $7.4 million for net foreign exchange gains in 2009 detailed in the followingtable (in millions):

2010 2009 Canadian Dollar $ 2.2 $ 8.0 British Pound (0.5) (0.6)

Total $ 1.7 $ 7.4

Gain on the Sale of Real Estate and Equity InterestsGain on the sale of real estate and equity interests was $27.7 million and $21.7 million for 2010 and 2009, respectively. In 2010, we sold our equity

interest in nine limited liability companies in the U.S. and two limited partnerships in Canada to our venture partner and recognized a $25.0 million gain onthe transaction. The remaining gains recognized in 2010 resulted from transactions which occurred in prior years for which the recognition of gain had beendeferred due to various forms of continuing involvement. In 2009, the gains primarily resulted from transactions which occurred in prior years for which therecognition of gain had been deferred due to various forms of continuing involvement.

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Sunrise's Share of Earnings and Return on Investment in Unconsolidated Communities (in millions) 2010 2009 Sunrise's share of earnings in unconsolidated communities $ 8.6 $ 4.3 Return on investment in unconsolidated communities 9.9 10.6 Impairment of equity investments (11.0) (9.2)

$ 7.5 $ 5.7

The increase in our share of earnings in unconsolidated communities of $4.3 million was primarily due to the amendment of the cash distributionprovisions of a venture agreement for one of our U.K. ventures resulting in $7.9 million higher income in 2010 and approximately $10.8 million in loweroperating losses from our ventures in 2010 compared to 2009. This is partially offset by our U.K. venture, in which we have a 20% interest, selling twocommunities and three communities to a venture in which we have an approximate 10% interest for 2010 and 2009, respectively. As a result of the sale, theventure recorded gains of which we recognized $4.6 million and $19.0 million for our equity interest in the earnings for 2010 and 2009, respectively.

Distributions from operations from investments where the book value is zero and we have no contractual or implied obligation to support the venture(return on investment in unconsolidated communities) were $1.0 million lower in 2010 than 2009. In 2010, the expiration of contractual obligations resultedin the recognition of $0.3 million of gain.

In 2010, based on an event of default under the loan agreements of two ventures in which we own a 20% interest, we considered our equity to be otherthan temporarily impaired and wrote-off the remaining equity balance of $1.9 million for one venture and wrote down the equity balance of the other ventureby $1.2 million. Also in 2010, we chose not to participate in a capital call for two ventures in which we had a 20% interest and as a result our initial equityinterest in those ventures was diluted to zero. Accordingly, we wrote off our remaining investment balance of $1.8 million which is reflected in Sunrise'sshare of earnings and return on investment in unconsolidated communities in our consolidated statement of operations. In addition, based on poor operatingperformance of two communities in one venture in which we have a 20% interest, we considered our equity to be other than temporarily impaired and wroteoff the remaining equity balance of $0.7 million.

We have one cost method investment in a company in which we have an approximate 9% interest. In 2010, based on the inability of this company tosecure continued financing and having significant debt maturing in 2010, we considered our equity to be other than temporarily impaired and wrote off ourequity balance of $5.5 million which is recorded as part of Sunrise's share of earnings and return on investment in unconsolidated communities.

In 2009, we wrote-down our equity investments in two of our development ventures by $7.4 million based on poor performance and defaults under theventures' construction loan agreements. In 2009, based on the receipt of a notice of default from the lender to a venture in which we own a 20% interest andthe poor rental experience in the venture, we considered our equity to be other than temporarily impaired and wrote off the remaining equity balance of $1.1million. Also in 2009, we chose not to participate in a capital call for a venture in which we had a 20% interest and we wrote off our remaining investmentbalance of $0.6 million and as a result our initial equity interest in the venture was diluted to zero. We determined the fair value of our investment in a venturein which we had a 1% interest had decreased to zero and was other than temporarily impaired, resulting in an impairment charge of $0.1 million.

Loss from Investments Accounted for Under the Profit-Sharing MethodLoss from investments accounted for under the profit-sharing method was $9.7 million and $12.8 million for 2010 and 2009, respectively. These losses

are being generated from a condominium community where profits associated with condominium sales are being deferred until a certain sales threshold ismet. The decrease in losses in 2010 is primarily the result of the stabilization and increased profitability of the operations of the health care and amenities unitwithin the condominium community and the reversal of default interest accrued in 2009 for which a default waiver was obtained in October 2010.

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(Provision for) Benefit from Income TaxesThe (provision for) or benefit from income taxes allocated to continuing operations was $(6.6) million and $3.9 million for 2010 and 2009, respectively.

Our effective tax (rate) benefit from continuing operations was (16.6)% and 3.6% for 2010 and 2009, respectively, primarily relating to alternative minimumtax, tax contingencies and state income taxes. As of December 31, 2010, we are continuing to offset our net deferred tax assets by a full valuation allowance.

Discontinued OperationsIncome/(loss) from discontinued operations was $67.8 million and $(28.3) million for 2010 and 2009, respectively. Discontinued operations consists

primarily of three communities sold in 2011; our German operations which were sold in 2010; two communities sold in 2010; 22 communities sold in 2009;one community closed in 2009; our Greystone subsidiary sold in 2009; and our Trinity subsidiary which ceased operations in the fourth quarter of 2008. In2010, we recognized a gain of $56.8 million related to the German debt restructuring which is included in discontinued operations.

Liquidity and Capital ResourcesOverviewWe had $49.5 million and $66.7 million of unrestricted cash and cash equivalents at December 31, 2011 and December 31, 2010, respectively. As of

December 31, 2011, we have $39.0 million of draws and $10.2 million of letters of credit outstanding against our Credit Facility.

In October 2012, our German restructure note will mature and we may be required to pay under the guarantee if we are unable to sell the mortgagedassets (see German Restructure Notes below). As of December 31, 2011, the amount of this guarantee is $26.3 million. We believe that our operations,available cash and asset sales will generate sufficient cash to meet this obligation.

We have no borrowing availability under the Credit Facility at December 31, 2011. As a result, we will be required to finance our operations in 2012primarily with cash on hand and cash generated from operations.

Debt

At December 31, 2011 and December 31, 2010, we had $593.7 million and $163.0 million, respectively, of outstanding debt with a weighted averageinterest rate of 4.12% and 2.78%, respectively, as follows (in thousands):

December 31,

2011 December 31,

2010 AL US debt, at fair value (1) $ 321,992 $ 0 Community mortgages 94,641 96,942 Liquidating trust notes 26,255 38,264 Convertible subordinated notes 86,250 0 Credit facility 39,000 0 Other 3,757 5,284 Variable interest entity 21,770 22,510

$ 593,665 $ 163,000

(1) The principal amount of the debt at December 31, 2011 was $334.6 million.

Of the outstanding debt at December 31, 2011, we had $87.6 million of fixed-rate debt with a weighted average interest rate of 5.03% and$506.1 million of variable rate debt with a weighted average interest rate of 3.96%.

Of our total debt of $593.7 million, $47.3 million was in default as of December 31, 2011. We are in compliance with the covenants on all our otherconsolidated debt and expect to remain in compliance in the near term.

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Principal maturities of debt at December 31, 2011 are as follows (in thousands):

Mortgages,Wholly-Owned

Properties

VariableInterest

Entity Debt

LiquidatingTrust

Note

ConvertibleSubordinated

Notes Other Total Default $ 45,907 $ 1,365 $ 0 $ 0 $ 0 $ 47,272 2012 27,713 775 26,255 0 1,610 56,353 2013 21,021 810 0 0 1,610 23,441 2014 0 840 0 0 39,537 40,377 2015 321,992 880 0 0 0 322,872 2016 0 915 0 0 0 915 Thereafter 0 16,185 0 86,250 0 102,435

$ 416,633 $ 21,770 $ 26,255 $ 86,250 $ 42,757 $ 593,665

Canadian Debt

Three communities in Canada that are wholly owned have been slow to lease up. The outstanding loan balance relating to these communities is non-recourse to us but we have provided operating deficit guarantees to the lender. We are not currently funding under these operating deficit guarantees. The loanmatured in April 2011 and had a balance of $45.9 million as of December 31, 2011. In February 2012, we entered into a loan modification that, among otherthings: (i) extended the loan on our three Canadian communities two years from the modification date; (ii) provided for a termination of our operating deficitguarantee 42 months from the modification date; (iii) cross collateralized the three communities; (iv) increased the interest rate from the TD Bank Prime rateplus 175 bps to TD Bank Prime rate plus 200 bps; and (v) obligated us to complete a reminiscence conversion in a section of one of the communities.

AL US Debt

In connection with the AL US transaction (refer to Note 6), on June 2, 2011, we assumed $364.8 million of debt with an estimated fair value of $350.1million. Immediately following the closing of the transaction, we entered into an amendment to the loan. The loan amendment, among other matters,(i) extended the maturity date to June 14, 2015; (ii) provided for a $25.0 million principal repayment; (iii) set the interest rate on amounts outstanding fromthe effective date of the amendment to LIBOR plus 1.75% with respect to LIBOR advances and the base rate (i.e. the higher of the Federal Funds Rate plus0.50% or the prime rate announced daily by HSH Nordbank AG ("Nordbank")) plus 1.25% with respect to base rate advances; (iv) instituted a permanent cashsweep of all excess cash at the communities securing the loan on an aggregated and consolidated basis, which will be used by Nordbank to pay down theoutstanding principal balance; (v) released certain management fees that were escrowed and eliminated the requirement for any further subordination ordeferral of management fees provided no event of default under the loan occurs; (vi) provided for a $5.0 million escrow for certain indemnificationobligations; (vii) provided relief under current debt service coverage requirements; and (viii) modified certain other covenants and terms of the loan. Inconnection with the amendment, we entered into a new interest rate swap arrangement that extended an existing swap with a fixed notional amount of $259.4million at 3.2% plus the applicable spread of 175 basis points, down from 5.61% on the previous swap. The new swap arrangement terminates at loanmaturity in June 2015. The remaining outstanding balance on the loan will continue to float over LIBOR as described above. The amendment also containsrepresentations, warranties, covenants and events of default customary for transactions of this type. We recorded this loan on our consolidated balance sheet atits estimated fair value on the acquisition and assumption date. The fair value balance of the loan as of December 31, 2011 was $322.0 million and the faceamount was $334.6 million.

Junior Subordinated Convertible Notes

In April 2011, we issued $86.25 million in aggregate principal amount of our 5.00% junior subordinated convertible notes due 2041 in a privateoffering. We received an aggregate $83.7 million of net proceeds. The notes are junior subordinated obligations and bear a cash interest rate of 5.0% perannum, subject to our right to defer interest payments on the notes for up to 10 consecutive semi-annual interest periods. The notes will be convertible intoshares of our common stock at an initial conversion rate of 92.2084 shares of common stock per $1,000 principal amount of the notes (which represents theissuance of approximately 8.0 million shares at an equivalent to an initial conversion price of approximately $10.845 per share), subject to adjustment uponthe occurrence of specified events. We do not have the right to redeem the notes prior to maturity and no sinking fund is provided. We may terminate theholders' conversion rights at any time on or after April 6, 2016 if the closing price of our common stock exceeds 130% of the conversion price for at least 20trading days during any consecutive 30 trading day period, including the last day of such period. The notes will mature on April 1, 2041, unless purchased orconverted in accordance with their terms prior to such date.

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Germany Restructure Notes

We previously owned nine communities in Germany. In 2009, we entered into a restructuring agreement, in the form of a binding term sheet, with threeof our lenders ("electing lenders") to seven of the nine communities, to settle and compromise their claims against us, including under operating deficit andprincipal repayment guarantees provided by us in support of our German subsidiaries. These three lenders contended that these claims had an aggregate valueof approximately $148.1 million. The binding term sheet contemplated that, on or before the first anniversary of the execution of definitive documentation forthe restructuring, certain other of our identified lenders could elect to participate in the restructuring with respect to their asserted claims. The claims beingsettled by the three lenders represented approximately 85.2% of the aggregate amount of claims asserted by the lenders that could elect to participate in therestructuring transaction.

The restructuring agreement provided that the electing lenders would release and discharge us from certain claims they may have had against us. Weissued to the electing lenders 4.2 million shares of our common stock, their pro rata share of up to 5 million shares of our common stock which would havebeen issued if all eligible lenders had become electing lenders. The fair value of the 4.2 million shares at the time of issuance was $11.1 million. In addition,we granted mortgages for the benefit of all electing lenders on certain of our unencumbered North American properties (the "liquidating trust").

In April 2010, we executed the definitive documentation with the electing lenders. As part of the restructuring agreements, we also guaranteed that,within 30 months of the execution of the definitive documentation for the restructuring, the electing lenders would receive a minimum of $49.6 million fromthe net proceeds of the sale of the liquidating trust, which equals 80 percent of the appraised value of these properties at the time of the restructuringagreement. If the electing lenders did not receive at least $49.6 million by such date, we would make payment to cover any shortfall or, at such lenders'option, convey to them the remaining unsold properties in satisfaction of our remaining obligation to fund the minimum payments. We have sold 10 NorthAmerican properties in the liquidating trust for gross proceeds of approximately $26.7 million with an aggregate appraised value of $33.2 million throughDecember 31, 2011. As of December 31, 2011, the electing lenders have received net proceeds of $23.4 million as a result of sales from the liquidating trust.

In April 2010, we entered into a settlement agreement with another lender of one of our German communities (a "non-electing lender" for purposes ofthe restructuring agreement). The settlement released us from certain of our operating deficit funding and payment guarantee obligations in connection withthe loans. Upon execution of the agreement, the lender's recourse, with respect to the community mortgage, was limited to the assets owned by the Germansubsidiaries associated with the community. In exchange for the release of these obligations, we agreed to pay the lender approximately $9.9 million over fouryears, with $1.3 million of the amount paid at signing. The payment is secured by a non-interest bearing note. We have recorded the note at a discount byimputing interest on the note using an estimated market interest rate. The balance on the note was recorded at $5.3 million and is being accreted to the note'sstated amount over the remaining term of the note. The balance of the note as of December 31, 2011 was $3.8 million.

In addition to the consideration paid to the German lenders described above, in 2010, we sold the real property and certain related assets of eight of ournine German communities. The aggregate purchase price was €60.8 million (approximately $74.5 million as of the signing date) which was paid directly tothe German lenders.

In addition to the restructuring agreements, we entered into a settlement agreement with the last remaining non-electing lender of one of our Germancommunities. In 2010, we closed on the sale of this community and we were released from the obligations related to the community.

We elected the fair value option to measure the financial liabilities associated with and which originated from the restructuring of our German loans.The fair value option was elected for these liabilities to provide an accurate economic reflection of the offsetting changes in fair value of the underlyingcollateral. As a result of our election of the fair value option, all changes in fair value of the elected liabilities are recorded with changes in fair valuerecognized through earnings. As of December 31, 2011, the notes for the liquidating trust assets are accounted for under the fair value option. The carryingvalue of the financial liabilities for which the fair value option was elected was estimated applying certain data points including the value of the underlyingcollateral. However, the carrying value of the notes, while under the fair value option, is subject to our minimum payment guarantee. The balance as ofDecember 31, 2011 was $26.3 million, which represents our minimum payment guarantee at that date.

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KeyBank Credit FacilityOn June 16, 2011, we entered into a credit agreement for a $50 million senior revolving line of credit ("Credit Facility") with KeyBank National

Association ("KeyBank"), as administrative agent and lender, and other lenders which may become parties thereto from time to time. The Credit Facilityincludes a $20.0 million sublimit to support standby letters of credit and it is also expandable to $65.0 million if (i) additional lenders commit to participate inthe Credit Facility and (ii) there are no defaults.

The Credit Facility is secured by our 40% equity interest in CC3, our joint venture with a wholly owned subsidiary of CNL, which owns 29 seniorliving communities managed by us. The Credit Facility replaced our previous credit facility with Bank of America ("BoA Bank Credit Facility").

The Credit Facility matures on June 16, 2014, subject to our one-time right to extend the maturity date for one year, with ninety days' notice, providedno material event of default has occurred and we pay a 25 basis point extension fee. Payments on the Credit Facility will be interest only, payable monthly,with outstanding principal and interest due at maturity. Prepayment is permitted at any time, subject to make whole provisions for breakage of certain LIBORcontracts. Pricing for the Credit Facility is KeyBank's base rate or LIBOR plus an applicable margin depending on our leverage ratio. The LIBOR marginsrange from 5.25% to 3.25%, and the base rate margins range from 3.75% to 1.75%. We are obligated to pay a fee, payable quarterly in arrears, equal to0.45% per annum of the average unused portion of the Credit Facility, or 0.35% per annum of the average unused portion for any quarter in which usage isgreater than or equal to 50% throughout the quarter. In addition, at closing, we paid KeyBank a commitment fee of 1.0% of the Credit Facility and certainother administrative fees. The Credit Facility requires us to use KeyBank and its affiliates as our primary relationship bank, including for primary depositoryand cash management purposes, except as required by agreements with other entities.

The Credit Facility requires us to meet several covenants which include:

• Maximum corporate leverage ratio of 5.25 to 1.0 in 2012 and thereafter;

• Minimum corporate fixed charge coverage ratio of 1.25 to 1.0 in 2012 and 1.45 to 1.0 in 2013 and thereafter;

• Minimum liquidity of $15.0 million;

• Minimum collateral loan to value of 75%; and

• Maximum permitted development obligations of $60.0 million per year after January 1, 2012.

In addition the covenants stated above, the Credit Facility also contains various covenants and events of default which could trigger early repaymentobligations and early termination of the lenders' commitment obligations. Events of default include, among others: nonpayment, failure to perform certaincovenants beyond a cure period, incorrect or misleading representations or warranties, cross-default to any recourse indebtedness of ours in an aggregateamount outstanding in excess of $30.0 million, and a change of control. Our ability to borrow under the Credit Facility is subject to these covenants.

The Credit Facility also includes limitations and prohibitions on our ability to incur or assume liens and debt except in specified circumstances, makeinvestments except in specified circumstances, make restricted payments except in certain circumstances, make dispositions except in specified situations,incur recourse indebtedness in connection with the development of a new senior living project in excess of specified threshold amounts, use the proceeds topurchase or carry margin stock, enter into business combination transactions or liquidate us and engage in new lines of business and transactions withaffiliates except in specified circumstances.

As of December 31, 2011, there were $39.0 million of draws against the Credit Facility and $10.2 million in letters of credit outstanding. We have noborrowing availability under the Credit Facility at December 31, 2011.

Terminated Bank Credit Facility

We entered into a termination agreement with regards to our BoA Bank Credit Facility in June 2011 at the time we entered into the Credit Facility withKeyBank. The termination agreement provided, among other things, that we would use good faith efforts to cause any outstanding letters of credit under theBoA Bank Credit Facility to be returned promptly to Bank of America for cancellation. As each letter of credit was cancelled, Bank of America returned to usthe cash collateral proportionate to the letter of credit cancelled and released any lien it had upon our assets in connection with the BoA Bank Credit Facility.At December 31, 2011, there were no longer any letters of credit outstanding under the BoA Bank Credit Facility.

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Mortgage Financing

In February 2011, we extended the maturity date for a loan secured by a wholly owned community to June 2012 in exchange for a principal payment of$1.0 million plus fees and expenses. The loan balance at December 31, 2011 was $27.7 million.

Other

In addition to the debt discussed above, Sunrise ventures have total debt of $2.5 billion with near-term scheduled debt maturities of $0.3 billion in 2012,and there is $0.9 billion of debt that is in default as of December 31, 2011. The debt in the ventures is non-recourse to us with respect to principal paymentguarantees and we and our venture partners are working with the venture lenders to obtain covenant waivers and to extend the maturity dates. In all suchinstances, the construction loans or permanent financing provided by financial institutions is secured by a mortgage or deed of trust on the financedcommunity. We have provided operating deficit guarantees to the lenders or ventures with respect to $0.6 billion of the total venture debt. Under the operatingdeficit agreements, we are obligated to pay operating shortfalls, if any, with respect to these ventures. Any such payments could include amounts arising inpart from the venture's obligations for payment of monthly principal and interest on the venture debt. These operating deficit agreements would not obligateus to repay the principal balance on such venture debt that might become due as a result of acceleration of such indebtedness or maturity. We have non-controlling interests in these ventures.

One of the ventures mortgage loans described above is in default at December 31, 2011 due to a violation of certain loan covenants. The mortgage loanbalance was $621.0 million as of December 31, 2011. The loan is collateralized by 15 communities owned by the venture located in the United Kingdom. Thelender has rights which include foreclosure on the communities and/or termination of our management agreements. The venture is in discussions with thelender regarding the possibility of entering into a loan modification. During 2011, we recognized $9.0 million in management fees from this venture. OurUnited Kingdom Management segment reported $1.6 million in income from operations in 2011. Our investment balance in this venture was zero atDecember 31, 2011.

Guarantees

We have provided operating deficit guarantees to the venture lenders with respect to $0.6 billion of venture debt, whereby after depletion of establishedreserves, we guarantee the payment of the lender's monthly principal and interest during the term of the guarantee and have provided guarantees to ventures tofund operating shortfalls. The terms of the guarantees generally match the terms of the underlying venture debt and generally range from three to five years, tothe extent we are able to refinance the venture debt. Fundings under the operating deficit guarantees and debt repayment guarantees are generally recoverableeither out of future cash flows of the venture or from proceeds of the sale of communities.

Excluding the impact of our senior living condominium project, which is accounted for under the profit sharing method, the maximum potential amountof future fundings for outstanding guarantees, the carrying amount of the liability for expected future fundings at December 31, 2011 and fundings in 2011were immaterial.

Senior Living Condominium Project

In 2006, we sold a majority interest in two separate ownership entities to two separate partners related to a project consisting of a residentialcondominium component and an assisted living component with each component owned by a different venture. In connection with the equity sale and relatedfinancings, we undertook certain obligations to support the operations of the project for an extended period of time. We account for the condominium andassisted living ventures under the profit-sharing method of accounting, and our liability carrying value at December 31, 2011 was $12.2 million for the twoventures. We recorded losses of $9.8 million, $9.6 million and $13.6 million for 2011, 2010 and 2009, respectively.

We are obligated to our partner and the lender on the assisted living venture to fund future operating shortfalls. We are also obligated to our partner onthe condominium venture to fund operating shortfalls. We have funded $8.1 million under the guarantees through December 31, 2011, of whichapproximately $1.2 million was funded in 2011. In addition, we are required to fund sales and marketing costs associated with the sale of the condominiums.

The depressed condominium real estate market in the Washington D.C. area has resulted in lower sales and pricing than forecasted and we believe thepartners have no remaining equity in the condominium project. Accordingly, we have informed our partner that we do not intend to fund future operatingshortfalls.

As of December 31, 2011, loans of $116.4 million for the residential condominium venture and $29.9 million for the assisted living venture are both indefault. We have accrued $3.3 million in default interest relating to these loans. In February 2012, the lenders for the residential condominium venturecommenced legal proceedings necessary to foreclose on the assets of the residential condominium venture. We are still in discussion with the lender for theassisted living venture regarding the default on the loan.

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Agreements with Marriott International, Inc.

In December 2011, we closed on an agreement with Marriott International, Inc. ("Marriott") permitting us to extend for an additional five year termcommencing January 1, 2014, certain lease obligations that would have otherwise expired effective December 31, 2013. Pursuant to the terms of theagreement, we provided Marriott with a letter of credit issued by KeyBank with a face amount of $85.0 million to secure Marriott's exposure under the LeaseGuarantee and entrance fee obligations that remain outstanding (approximately $5.6 million at December 31, 2011). Marriott may draw on the letter of creditin order to pay any of the secured obligations if they are not paid by us when due. We have provided KeyBank with cash collateral of $85.0 million as securityfor its letter of credit obligations (refer to Note 16).

Other

Generally, the financing obtained by our ventures is non-recourse to the venture members, with the exception of the debt repayment guaranteesdiscussed above. However, we have entered into guarantees with the lenders with respect to acts which we believe are in our control, such as fraud orvoluntary bankruptcy of the venture. If such acts were to occur, the full amount of the venture debt could become recourse to us. The combined amount ofventure debt underlying these guarantees is approximately $1.7 billion at December 31, 2011. We have not funded under these guarantees, and do not expectto 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 berequired to repay this obligation, the majority of which is expected to be refinanced with proceeds from the issuance of entrance fees as new residents enterthe communities. At December 31, 2011, the remaining liability under this obligation is $31.5 million. We have not funded under these guarantees, and do notexpect to fund under such guarantees in the future.

Contractual ObligationsOur current contractual obligations include long-term debt, operating leases for our corporate and regional offices, operating leases for our

communities, and building and land lease commitments. In addition, we have commitments to fund ventures in which we are a partner. Refer Note 16 to ourConsolidated Financial Statements for a discussion of our commitments.

Principal maturities of debt, equity investments in unconsolidated entities and future minimum lease payments at December 31, 2011 are as follows (inthousands): Payments due by period

Contractual Obligations Total Less Than

1 Year 1-3 Years 4-5 Years More Than

5 Years Long-Term Debt Obligations

Debt $ 593,665 $ 103,625 $ 63,818 $ 323,787 $ 102,435 Capital Lease Obligations 0 0 0 0 0 Operating Lease Obligations 344,837 71,179 105,769 62,746 105,143 Purchase Obligations (1) 23,450 7,600 12,200 3,650 0 Other Long-Term Liabilities

Equity investments in unconsolidated entities (2) 1,243 1,243 0 0 0

Total $ 963,195 $ 183,647 $ 181,787 $ 390,183 $ 207,578

(1) Represents primarily telecommunications contracts. We also have various standing or renewable contracts with vendors. These contracts are allcancellable with minimal or no cancellation penalties which have terms that are generally one year or less.

(2) Our contractual obligation was funded through a reduction in our distributions received in January 2012.

Cash Flows

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

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2011 compared to 2010

Net cash provided by operating activities was $39.2 million and $62.9 million for 2011 and 2010, respectively, a decrease of $23.7 million. This changein cash provided by operations was primarily due to a decrease in distributions of earnings from unconsolidated communities of $23.0 million.

Net cash (used in) provided by investing activities was $(130.6) million and $176.3 million for 2011 and 2010, respectively, a change of $306.9 million.The change in cash used in investing activities was primarily due to the purchase of AL US for $45.3 million, a $19.6 million decrease in proceeds from short-term investments, $85.0 million increase in restricted cash, a $107.1 million decrease in cash provided by discontinued operations, a decrease of $35.9 millionin proceeds from the sale of equity interests, a $12.2 million decrease in the proceeds from the disposition of assets and an increase of $7.8 million ininvestments in unconsolidated communities; partially offset by a $6.8 million decrease in capital expenditures and fundings for condominium projects.

Net cash provided by (used in) financing activities was $74.2 million and $(211.7) million for 2011 and 2010, respectively, an increase of $285.9million. This change was primarily due to the issuance of $86.3 million of junior subordinated convertible notes, draws on our Credit Facility of $39.0million, a reduction in debt repayments net of borrowings of $66.5 million, a decrease in cash used in discontinued operations of $96.5 million and $1.1million increase in proceeds from the exercise of stock options partially offset by an increase of $3.1 million in financing costs paid.

2010 compared to 2009

Net cash provided by operating activities was $62.9 million and $33.4 million for 2010 and 2009, respectively, an increase of $29.5 million. Thischange in cash provided by operations was primarily due to $63.3 million of buyout fee revenue, $16.9 million increase from distributions of earnings fromunconsolidated entities and an increase in cash provided by discontinued operations of $3.6 million partially offset by a reduction in cash provided by workingcapital of $66.1 million.

Net cash provided by investing activities was $176.3 million and $84.4 million for 2010 and 2009, respectively, an increase of $91.9 million. Thechange in cash provided by investing activities was primarily due to a decrease in capital expenditures and funding of condominium projects of $9.0 million,an increase in proceeds from the disposition of property and venture interests of $43.6 million, a decrease in restricted cash of $23.8 million and a $14.7million increase in cash provided by discontinued operations.

Net cash used in financing activities was $211.7 million and $108.0 million for 2010 and 2009, respectively, an increase of $103.7 million. This changewas primarily due to an increase in net debt repayments of $43.1 million and an increase of $59.2 million in cash used in discontinued operations.

Market RiskWe are exposed to market risk from changes in interest rates primarily through variable rate debt. The fair market value estimates for debt securities are

based on discounting future cash flows utilizing current rates offered to us for debt of the same type and remaining maturity. The following table details bycategory the principal amount, the average interest rate and the estimated fair market value of our debt (in thousands): Maturity DateThrough December 31,

Fixed RateDebt

Variable RateDebt

Past due $ 1,365 $ 45,907 2012 0 56,354 2013 0 23,441 2014 0 40,377 2015 0 322,872 2016 0 915 Thereafter 86,250 16,184

Total Carrying Value $ 87,615 $ 506,050

Average Interest Rate 5.03% 3.96%

Estimated Fair Market Value $ 87,640 $ 497,506

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At December 31, 2011, we had approximately $506.1 million of floating-rate debt at a weighted average interest rate of 3.96%. Debt incurred in thefuture also may bear interest at floating rates. Therefore, increases in prevailing interest rates could increase our interest payment obligations, which wouldnegatively impact earnings. A one-percent change in interest rates would increase or decrease annual interest expense by approximately $5.1 million based onthe amount of floating-rate debt at December 31, 2011. A five-percent change in interest rates would increase or decrease annual interest expense byapproximately $25.3 million based on the amount of floating-rate debt at December 31, 2011.

We are subject to the impact of foreign exchange translation on our financial statements. To date, we have not hedged against foreign currencyfluctuation; however, we may pursue hedging alternatives in the future. In 2011, we recorded $1.1 million, net, in exchange losses all relating to the Canadiandollar.

Critical Accounting EstimatesWe consider an accounting estimate to be critical if: 1) the accounting estimate requires us to make assumptions about matters that were highly

uncertain at the time the accounting estimate was made, and 2) changes in the estimate that are reasonably likely to occur from period to period, or use ofdifferent estimates than we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. Inaddition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates usedin these and other items could have a material impact on our financial statements.

Impairment of Intangible Assets, Long-Lived Assets and Investments in VenturesIntangibles and long-lived asset groups are tested for recoverability when changes in circumstances indicate the carrying value may not be

recoverable. Events that trigger a test for recoverability include material adverse changes in the projected revenues and expenses, significantunderperformance relative to historical or projected future operating results, and significant negative industry or economic trends. A test for recoverabilityalso is performed when management has committed to a plan to sell or otherwise dispose of an asset group and the plan is expected to be completed within ayear. Recoverability of an asset group is evaluated by comparing its carrying value to the future net undiscounted cash flows expected to be generated by theasset group. If the comparison indicates that the carrying value of an asset group is not recoverable, an impairment loss is recognized. The impairment loss ismeasured at the lowest level of cash flows which is typically at the community or land parcel level, by the amount by which the carrying amount of the assetgroup exceeds the estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amount of those assets isdepreciated over its remaining useful life.

Assumptions and Approach Used. We estimate the fair value of an intangible asset, or asset group based on market prices (i.e., the amount for which theintangible asset or asset group could be bought by or sold to a third party), when available. When market prices are not available, we estimate the fair valueusing the income approach and/or the market approach. The income approach uses cash flow projections. Inherent in our development of cash flowprojections are assumptions and estimates derived from a review of our operating results, approved business plans, expected growth rates, cost of capital, andtax rates. We also make certain assumptions about future economic conditions, interest rates, and other market data. Many of the factors used in assessing fairvalue are outside the control of management, and these assumptions and estimates can change in future periods.

Changes in assumptions or estimates could materially affect the determination of fair value of a reporting unit, intangible asset or asset group andtherefore could affect the amount of potential impairment of the asset. The following key assumptions to our income approach include:

• Business Projections – We make assumptions regarding the levels of revenue from communities and services. We also make assumptions aboutour cost levels (e.g., capacity utilization, labor costs, etc.). Finally, we make assumptions about the amount of cash flows that we will receiveupon a future sale of the communities using estimated cap rates. These assumptions are key inputs for developing our cash flowprojections. These projections are derived using our internal business plans and budgets;

• Growth Rate – A growth rate is used to calculate the terminal value of the business, and is added to budgeted earnings before interest, taxes,depreciation and amortization. The growth rate is the expected rate at which earnings are projected to grow beyond the planning period;

• Economic Projections – Assumptions regarding general economic conditions are included in and affect our assumptions regarding pricingestimates for our communities and services. These macro-economic assumptions include, but are not limited to, industry projections, inflation,interest rates, price of labor, and foreign currency exchange rates; and

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• Discount Rates – When measuring a possible impairment, future cash flows are discounted at a rate that is consistent with a weighted averagecost of capital for a potential market participant. The weighted average cost of capital is an estimate of the overall after-tax rate of return requiredby equity and debt holders of a business enterprise.

The market approach is one of the other primary methods used for estimating fair value of a reporting unit, asset, or asset group. This assumption relieson the market value (market capitalization) of companies that are engaged in the same or similar line of business.

In 2011, units in a condominium project were classified as assets held for sale. They were recorded at the lower of their carrying value or fair value lessestimated costs to sell. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value. As the carrying valuesof the units were in excess of their fair value less estimated costs to sell, we recorded an impairment charge of $0.1 million in 2011, which is included inoperating expenses under impairment of owned communities and land parcels.

In 2010, land parcels and a closed community classified as assets held for sale had been held for sale for over a year. Therefore, the requirements to beclassified as held for sale were no longer being met and the assets were reclassified to held and used or to the liquidating trust. However, we continue tomarket the land parcels and closed community.

In 2010, we recorded impairment charges of $1.1 million for a land parcel and an operating community as the carrying value of these assets was inexcess of their fair value. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value. The impairmentcharges are included in operating expenses under impairment of owned communities and land parcels.

In connection with the restructuring of our German indebtedness (refer to Note 11), we granted mortgages for the benefit of the electing lenders oncertain of our unencumbered North American properties. As of December 31, 2011, the liquidating trust assets consist of nine land parcels and one closedcommunity. In 2011, we recorded impairment charges of $7.2 million on eight assets held in the liquidating trust as the carrying value of these assets were inexcess of the fair value. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value. The impairmentcharges are included in operating expenses under impairment of owned communities and land parcels.

Nature of Estimates Required – Investments in Ventures. We hold a minority equity interest in ventures established to develop or acquire and ownsenior living communities. Those ventures are generally limited liability companies or limited partnerships. The equity interest in these ventures generallyranges from 10% to 50%.

Our investments in ventures accounted for using the equity and cost methods of accounting are impaired when it is determined that there is "other than atemporary" decline in the fair value as compared to the carrying value of the venture or for equity method investments when individual long-lived assetsinside the venture meet the criteria specified above. A commitment to a plan to sell some or all of the assets in a venture would cause a recoverabilityevaluation for the individual long-lived assets in the venture and possibly the venture itself. Our evaluation of the investment in the venture would be triggeredwhen circumstances indicate that the carrying value may not be recoverable due to loan defaults, significant under performance relative to historical orprojected future operating performance and significant industry or economic trends.

Assumptions and Approach Used. The assumptions and approach for the evaluation of the individual long-lived assets inside the venture are describedabove. Our approach for evaluation of an investment in a venture would be based on market prices, when available, or an estimate of the fair value using themarket approach. The assumptions and related risks are identical to those used for goodwill, intangible assets and long-lived assets described above.

In 2011, based on economic challenges and defaults under the venture's construction loan agreements, we considered our equity investment in one ofour ventures to be other than temporarily impaired and wrote down the equity investment by $2.0 million.

In 2010, based on an event of default under the loan agreements of two ventures in which we own a 20% interest, we considered our equity to be otherthan temporarily impaired and wrote-off the remaining equity balance of $1.9 million for one venture and wrote down the equity balance of the other ventureby $1.2 million. Also in 2010, we chose not to participate in a capital call for two ventures in which we had a 20% interest and as a result our initial equityinterest in those ventures was diluted to zero. Accordingly, we wrote off our remaining investment balance of $1.8 million which is reflected in Sunrise's

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share of earnings and return on investment in unconsolidated communities in our consolidated statement of operations. In addition, based on poor operatingperformance of two communities in one venture in which we have a 20% interest, we considered our equity to be other than temporarily impaired and wroteoff the remaining equity balance of $0.7 million.

We have one cost method investment in a company in which we have an approximate 9% interest. In 2010, based on the inability of this company tosecure continued financing and having significant debt maturing in 2010, we considered our equity to be other than temporarily impaired and wrote off ourequity balance of $5.5 million which is recorded as part of Sunrise's share of earnings and return on investment in unconsolidated communities.

In 2009, we wrote-down our equity investments in two of our development ventures by $7.4 million based on poor performance and defaults under theventures' construction loan agreements. In 2009, based on the receipt of a notice of default from the lender to a venture in which we own a 20% interest andthe poor rental experience in the venture, we considered our equity to be other than temporarily impaired and wrote off the remaining equity balance of $1.1million. Also in 2009, we chose not to participate in a capital call for a venture in which we had a 20% interest and we wrote off our remaining investmentbalance of $0.6 million and as a result our initial equity interest in the venture was diluted to zero. We determined the fair value of our investment in a venturein which we had a 1% interest had decreased to zero and was other than temporarily impaired, resulting in an impairment charge of $0.1 million.

Loss Reserves for Self-Insured ProgramsNature of Estimates Required. We utilize large deductible blanket insurance programs in order to contain costs for certain lines of insurance risks

including workers' compensation and employers' liability risks, automobile liability risk, employment practices liability risk and general and professionalliability risks ("Self-Insured Risks"). The design and purpose of a large deductible insurance program is to reduce the overall premium and claims costs byinternally financing lower cost claims that are more predictable from year to year, while buying insurance only for higher-cost, less predictable claims.

We have self-insured a portion of the Self-Insured Risks through a wholly owned captive insurance subsidiary, Sunrise Senior Living Insurance, Inc.("Sunrise Captive"). Sunrise Captive issues policies of insurance to and receives premiums from Sunrise that are reimbursed through expense allocation toeach operated community and us. Sunrise Captive pays the costs for each claim above a deductible up to a per claim limit. Third-party insurers are responsiblefor claim costs above this limit. These third-party insurers carry an A.M. Best rating of A-/VII or better.

We also offer our employees an option to participate in self-insured health and dental plans. The cost of our employee health and dental benefits, net ofemployee contributions, is shared by us and the communities based on the respective number of participants working directly either at our community supportoffice or at the communities. Funds collected are used to pay the actual program costs which include estimated annual claims, third-party administrative fees,network provider fees, communication costs, and other related administrative costs incurred by us. Claims are paid as they are submitted to the planadministrator.

Assumptions and Approach Used for Self-Insured Risks. We record outstanding losses and expenses for the Self-Insured Risks and for our health anddental plans based on the recommendations of an appointed actuary and management's judgment. We believe that the allowance for outstanding losses andexpenses is appropriate to cover the ultimate cost of losses incurred at December 31, 2011, but the allowance may ultimately be settled for a greater or lesseramount. Any subsequent changes in estimates are recorded in the period in which they are determined. While a single value is recorded on Sunrise's balancesheet, loss reserves are based on estimates of future contingent events and as such contain inherent uncertainty. A quantification of this uncertainty wouldreflect a range of reasonable favorable and unfavorable scenarios. Sunrise's annual estimated cost for Self-Insured Risks is determined using managementjudgment including actuarial analyses at various confidence levels. The confidence level is the likelihood that the recorded expense will exceed the ultimateincurred cost.

Sensitivity Analysis for Self-Insured Risks. The recorded liability for Self-Insured Risks was approximately $89.9 million and $91.0 million atDecember 31, 2011 and 2010, respectively. The expected liability is based on a 50% confidence level. We believe the 50% confidence level provides our bestestimate of our expected liability due to our sufficient history of paid and incurred claims associated with our Sunrise Captive. If we had used a 75%confidence level, the recorded liability would be approximately $14.5 million higher. If we had used a 90% confidence level, the recorded liability would beapproximately $30.5 million higher.

We share any revisions to prior estimates with the communities participating in the insurance programs based on their proportionate share of anychanges in estimates. Accordingly, the impact of changes in estimates on Sunrise's income from operations would be much less sensitive than the differenceabove.

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Assumptions and Approach Used for Health and Dental Plans. For our self-insured health and dental plans, we record a liability for outstanding claimsand claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insuranceclaims and is based on the recommendations of an independent actuary. The variability in the liability for unpaid claims including incurred but not yetreported claims is much less significant than the self-insured risks discussed above because the claims are more predictable as they generally are knownwithin 90 days and the high and the low end of the range of estimated cost of individual claims is much closer than the workers' compensation and employers'liability risks, automobile liability risk, employment practices liability risk and general and professional liability risks discussed above.

Sensitivity Analysis for Self-Insured Health and Dental Plan Costs. The liability for self-insured incurred but not yet reported claims for the self-insuredhealth and dental plan is included in "Accrued expenses" in the consolidated balance sheets and was $9.1 million and $9.7 million at December 31, 2011 and2010, respectively. We believe that the liability for outstanding losses and expenses is appropriate to cover the ultimate cost of losses incurred atDecember 31, 2011, but actual claims may differ. We record any subsequent changes in estimates in the period in which they are determined and will sharewith the communities participating in the insurance programs based on their proportionate share of any changes in estimates.

Variable Interest EntitiesNature of Estimates Required. We hold a minority equity interest in ventures established to develop or acquire and own senior living communities.

Those ventures are generally limited liability companies or limited partnerships. Our equity interest in these ventures generally ranges from 10% to 50%.

We review all of our ventures to determine if they are variable interest entities ("VIEs"). If a venture meets the requirements and is a VIE, we must thendetermine if we are the primary beneficiary of the VIE.

Assumptions. The primary beneficiary is the party that has both the power to direct activities of a VIE that most significantly impact the entity'seconomic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could both potentially be significantto the VIE. We perform ongoing qualitative analysis to determine if we are the primary beneficiary of a VIE. At December 31, 2011, we are the primarybeneficiary of one VIE and therefore consolidate that entity.

Valuation of Deferred Tax AssetsNature of Estimates Required. Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary

differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax creditcarryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which weexpect the temporary differences to be recovered or paid.

ASC Income Tax Topic requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the availableevidence, it is more likely than not (defined by as a likelihood of more than 50 percent) such assets will not be realized. The valuation of deferred tax assetsrequires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and futureprofitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due tounanticipated events or otherwise, could have a material impact on our financial condition and results of operations.

Assumptions and Approach Used. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to thelikelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is "more likely than not" the deferred tax assets will not berealized, we would be required to establish a valuation allowance. The weight given to the positive and negative evidence is commensurate with the extent towhich the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive ofreversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. ASC Income Tax Topic states that acumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not neededagainst deferred tax assets.

This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following:

• Nature, frequency, and severity of current and cumulative financial reporting losses – A pattern of objectively measured recent financialreporting losses are a source of negative evidence. In certain circumstances, historical information may not be as relevant due to changedcircumstances;

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• Sources of future taxable income – Future reversals of existing temporary differences are verifiable positive evidence. Projections of futuretaxable income exclusive of reversing temporary differences are a source of positive evidence but such projections are more subjective and whensuch projections are combined with a history of recent losses it is difficult to reach verifiable conclusions and, accordingly, we give little or noweight to such projections when combined recent financial reporting losses; and

• Tax planning strategies – If necessary and available, tax planning strategies would be implemented to accelerate taxable amounts to utilizeexpiring carryforwards. These strategies would be a source of additional positive evidence and, depending on their nature, could be heavilyweighted.

We have experienced significant losses for three of the last four years. The income earned in 2010 was primarily a result of specific non-recurringtransactions. As indicated above, in making our assessment of the realizability of tax assets we assess reversing temporary differences, available tax planningstrategies and estimates of future taxable income. We more heavily weight recent financial reporting losses and, accordingly, as of December 31, 2011 havegiven little or no weight to subjectively determined projections of future taxable income exclusive of reversing temporary differences. Tax planning strategieshave been considered historically but due to the significant net operating loss carryforwards as of December 31, 2011 we have not considered such strategiesto be reasonably viable. As a result of changes in judgment on the realizability of future tax benefits, a valuation allowance was established on all deferred taxassets net of reversing deferred tax liabilities.

At December 31, 2011 and 2010, our deferred tax assets, net of the valuation allowances of $149.7 million and $148.6 million, respectively, were$39.1 million and $55.9 million, respectively. At December 31, 2011 and 2010, our deferred tax liabilities were $39.1 million and $55.9 million, respectively,and therefore the net deferred tax liabilities recorded were zero as of December 31, 2011 and 2010, respectively.

A return to profitability by us in future periods may result in a reversal of the valuation allowance relating to certain recorded deferred tax assets.

Liability for Possible Tax ContingenciesLiabilities for tax contingencies are recognized based on the requirements of ASC Income Tax Topic. This topic requires us to analyze the technical

merits of our tax positions and determine the likelihood that these positions will be sustained if they were ever examined by the taxing authorities. If wedetermine that it is unlikely that our tax positions will be sustained, a corresponding liability is created and the tax benefit of such position is reduced forfinancial reporting purposes.

Evaluation and Nature of Estimates Required. The evaluation of a tax position is a two-step process. The first step in the evaluation process isrecognition. The enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of anyrelated appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-notrecognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that has full knowledge of allrelevant information.

The second step in the evaluation process is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured todetermine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of tax benefit that is greater than50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold shouldbe recognized in the first subsequent financial reporting period in which:

(a) the threshold is met (for example, by virtue of another taxpayer's favorable court decision);

(b) the position is "effectively settled" where the likelihood of the taxing authority reopening the examination of that position is remote; or

(c) the relevant statute of limitations expires.

Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financialreporting period in which that threshold is no longer met.

Interest and Penalties. We are also required to accrue interest and penalties that, under relevant tax law, we would incur if the uncertain tax positionsultimately were not sustained. Accordingly, interest would start to accrue for financial statement purposes in the period in which it would begin accruingunder relevant tax law, and the amount of interest expense to be

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recognized would be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amountpreviously taken or expected to be taken in a tax return. Penalties would be accrued in the first period in which the position was taken on a tax return thatwould give rise to the penalty.

Assumptions. In determining whether a tax benefit can be recorded, we must make assessments of a position's sustainability and the likelihood ofultimate settlement with a taxing authority. Changes in our assessments would cause a change in our recorded position and changes could be significant. As ofDecember 31, 2011 and 2010, we had recorded liabilities for possible losses on uncertain tax positions including related interest and penalties of $20.4million.

Accounting for Financial GuaranteesWhen we historically entered into guarantees in connection with the sale of real estate, we were prevented from initially either accounting for the

transaction as a sale of an asset or recognizing in earnings the profit from the sale transaction. For guarantees that are not entered into in conjunction with thesale of real estate, we recognize at the inception of a guarantee or the date of modification, a liability for the fair value of the obligation undertaken in issuinga guarantee which require us to make various assumptions to determine the fair value. On a quarterly basis, we review and evaluate the estimated liabilitybased upon operating results and the terms of the guarantee. If it is probable that we will be required to fund additional amounts than previously estimated, aloss is recorded. Fundings that are recoverable as a loan from a venture are considered in the determination of the loss recorded. Loan amounts are evaluatedfor impairment at inception and then quarterly.

Assumptions and Approach Used. We calculate the estimated loss based on projected cash flows during the remaining term of the guarantee. Inherent inour development of cash flow projections are assumptions and estimates derived from a review of our operating results, approved business plans, expectedgrowth rates, cost of capital, and tax rates. We also make certain assumptions about future economic conditions, interest rates, and other market data. Many ofthe factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods.

Changes in assumptions or estimates could materially affect the determination of fair value of an asset. The following key assumptions to our incomeapproach include:

• Business Projections – We make assumptions regarding the levels of revenue from communities and services. We also make assumptions aboutour cost levels (e.g., capacity utilization, labor costs, etc.). Finally, we make assumptions about the amount of cash flows that we will receiveupon a future sale of the communities using estimated cap rates. These assumptions are key inputs for developing our cash flowprojections. These projections are derived using our internal business plans and budgets;

• Growth Rate – A growth rate is used to calculate the terminal value of the business, and is added to budgeted earnings before interest, taxes,depreciation and amortization. The growth rate is the expected rate at which earnings is projected to grow beyond the planning period;

• Economic Projections – Assumptions regarding general economic conditions are included in and affect our assumptions regarding pricingestimates for our communities and services. These macro-economic assumptions include, but are not limited to, industry projections, inflation,interest rates, price of labor, and foreign currency exchange rates; and

• Discount Rates – When measuring a possible loss, future cash flows are discounted at a rate that is consistent with a weighted average cost ofcapital for a potential market participant. The weighted average cost of capital is an estimate of the overall after-tax rate of return required byequity and debt holders of a business enterprise.

LitigationLitigation is subject to uncertainties and the outcome of individual litigated matters is not fully predictable. Various legal actions, claims and

proceedings are pending against us, some for specific matters described in Note 16 to the financial statements and others arising in the ordinary course ofbusiness. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. In other instances, we are not able tomake a reasonable estimate of any liability because of uncertainties related to the outcome and/or the amount or range of losses.

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New Accounting StandardsThe following Accounting Standards Update ("ASU") was issued in 2009:

The Financial Accounting Standards Board ("FASB") issued ASU 2009-13, Revenue Recognition (Topic 605) – Multiple-Deliverable RevenueArrangements ("ASU 2009-13"). It requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables basedon their relative selling prices. It eliminated the use of the residual method of allocation and requires the relative-selling-price method in all circumstances inwhich an entity recognized revenue for an arrangement with multiple deliverables subject to Accounting Standards Codification ("ASC") Subtopic 605-25 –Revenue – Multiple Element Arrangements. It no longer requires third party evidence. ASU 2009-13 was effective for us January 1, 2011 and did not have amaterial impact on our consolidated financial position, results of operations or cash flows.

The following ASUs were issued in 2010:

ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements, requires separatedisclosures of transfers in and out of Level 1 and Level 2 fair value measurements along with the reason for the transfer. ASU 2010-06 also requiresseparately presenting in the reconciliation for Level 3 fair value measurements purchases, sales, issuances and settlements. It clarifies the disclosure regardingthe level of disaggregation and input and valuation techniques. Certain portions of ASU 2010-06 were effective in the first quarter of 2010, and the portions ofASU 2010-06 which effect Level 3 reconciliation was effective for us January 1, 2011 and did not have a material impact on our consolidated financialposition, results of operations or cash flows.

ASU 2010-13, Compensation – Stock Compensation (Topic 718), Effect of Denominating the Exercise Price of a Share-Based Payment Award in theCurrency of the Market in Which the Underlying Security Trades, clarifies that a share-based payment award with an exercise price denominated in thecurrency of the market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that would requirethe share-based payment award to be classified as a liability. ASU 2010-13 was effective for us on January 1, 2011 and did not have a material impact on ourconsolidated financial position, results of operations or cash flows.

ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, specifies that if apublic entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the businesscombination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29also expands the supplemental pro forma disclosures under Topic 805. ASU 2010-29 was effective for us on January 1, 2011 and did not have a materialimpact on our consolidated financial position, results of operations or cash flows.

The following ASUs were issued in 2011:

ASU 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRS, clarifies some existing rules but does not require additional fair value measurements, is not intended to establish valuation standards oraffect valuation practices outside of financial reporting. A specific clarification relates to the concepts of "highest and best use" and "valuation premise" whichare relevant only when measuring the fair value of nonfinancial assets and are not relevant when measuring fair value of financial assets or liabilities.Additional disclosures for Level 3 measurements include the valuation process used and the sensitivity of the fair value measurement to changes inunobservable inputs and the interrelationships between those unobservable inputs. ASU 2011-04 is effective for us January 1, 2012 and is not expected tohave a material impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, gives an entity the option to present the total ofcomprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement ofcomprehensive income or in two separate but consecutive statements. The amendment does not change the items that must be reported in other comprehensiveincome or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is effective for us January 1, 2012 and will not havea material impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-10, Property, Plant and Equipment (Topic 360), Derecognition of in Substance Real Estate – a Scope Clarification, requires when a parentceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, thereporting entity should apply the guidance of Subtopic 360-20 to determine whether it should derecognize in the in substance real estate. Generally, areporting entity would not

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satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of therelated nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest, the reporting entity would continue toinclude the real estate, debt and results of the subsidiary's operations in its consolidated financial statements until legal title of the real estate is transferred tolegally satisfy the debt. ASU 2011-10 is effective for us July 1, 2012 and is not expected to have a material impact on our consolidated financial position,results of operations or cash flows.

ASU 2011-11, Balance Sheet (Topic 210), Disclosure about Offsetting Assets and Liabilities, requires an entity to disclose information about offsettingand related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 iseffective for us January 1, 2013 and is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Outof Accumulated Other Comprehensive Income in ASU No. 2011-05 defers the presentation of the reclassification adjustments in and out of othercomprehensive income, but requires entities to report reclassification out of accumulated other comprehensive income consistent with the presentationrequirements in effect before ASU 2011-05. ASU 2011-05 is effective for us January 1, 2012 and will not have a material impact on our consolidatedfinancial position, results of operations or cash flows.

Impact of InflationManagement fees from communities operated by us for third parties and resident and ancillary fees from owned senior living communities are

significant sources of our revenue. These revenues are affected by daily resident fee rates and community occupancy rates. The rates charged for the deliveryof senior living services are highly dependent upon local market conditions and the competitive environment in which the communities operate. In addition,employee compensation expense is the principal cost element of community operations. Employee compensation, including salary and benefit increases andthe hiring of additional staff to support our growth initiatives, have previously had a negative impact on operating margins and may again do so in theforeseeable future.

Substantially all of our resident agreements are for terms of one year, but are terminable by the resident at any time upon 30 day notice, and allow, atthe time of renewal, for adjustments in the daily fees payable, and thus may enable us to seek increases in daily fees due to inflation or other factors. Anyincrease would be subject to market and competitive conditions and could result in a decrease in occupancy of our communities. We believe, however, thatthe short-term nature of our resident agreements generally serves to reduce the risk to us of the adverse effect of inflation. There can be no assurance thatresident and ancillary fees will increase or that costs will not increase due to inflation or other causes. Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Quantitative and qualitative disclosure about market risk appears in the "Market Risk" section of "Management's Discussion and Analysis of FinancialCondition and Results of Operations."

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Item 8. Financial Statements and Supplementary DataThe following information is included on the pages indicated:

Page Sunrise Senior Living, Inc. Report of Independent Registered Public Accounting Firm 63 Consolidated Balance Sheets 64 Consolidated Statements of Operations 65 Consolidated Statements of Changes in Stockholders' Equity 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 68

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of DirectorsSunrise Senior Living, Inc.

We have audited the accompanying consolidated balance sheets of Sunrise Senior Living, Inc. as of December 31, 2011 and 2010, and the relatedconsolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011.These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statementsbased on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sunrise SeniorLiving, Inc. as of December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2011, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sunrise Senior Living,Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLPMcLean, VirginiaFebruary 29, 2012

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SUNRISE SENIOR LIVING, INC.CONSOLIDATED BALANCE SHEETS

(In thousands, except per share and share amounts) December 31,

2011 December 31,

2010 ASSETS

Current Assets: Cash and cash equivalents $ 49,549 $ 66,720 Accounts receivable, net 38,251 37,484 Income taxes receivable 2,287 4,532 Due from unconsolidated communities 17,926 19,135 Deferred income taxes, net 19,912 20,318 Restricted cash 47,873 43,355 Assets held for sale 1,025 1,099 Prepaid expenses and other current assets 12,290 20,167

Total current assets 189,113 212,810 Property and equipment, net 624,585 238,674 Due from unconsolidated communities 0 3,868 Intangible assets, net 38,726 40,749 Investments in unconsolidated communities 42,925 38,675 Restricted cash 183,622 103,334 Restricted investments in marketable securities 2,479 2,509 Assets held in the liquidating trust 23,649 50,750 Other assets, net 13,269 10,089

Total assets $ 1,118,368 $ 701,458

LIABILITIES AND EQUITY Current Liabilities:

Current maturities of debt $ 77,861 $ 80,176 Outstanding draws on bank credit facility 39,000 0 Liquidating trust notes, at fair value 26,255 0 Accounts payable and accrued expenses 134,157 131,904 Due to unconsolidated communities 404 502 Deferred revenue 11,804 15,946 Entrance fees 19,618 30,688 Self-insurance liabilities 42,004 35,514

Total current liabilities 351,103 294,730 Debt, less current maturities 450,549 44,560 Liquidating trust notes, at fair value 0 38,264 Investments accounted for under the profit-sharing method 12,209 419 Self-insurance liabilities 43,611 51,870 Deferred gains on the sale of real estate and deferred revenues 8,184 16,187 Deferred income tax liabilities 19,912 20,318 Interest rate swap 21,359 0 Other long-term liabilities, net 109,548 110,553

Total liabilities 1,016,475 576,901

Equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding 0 0 Common stock, $0.01 par value, 120,000,000 shares authorized, 57,640,010 and 56,453,192 shares issued and

outstanding, net of 509,577 and 428,026 treasury shares, at December 31, 2011 and 2010, respectively 576 565 Additional paid-in capital 487,277 478,605 Retained loss (385,294) (361,904) Accumulated other comprehensive (loss) income (5,932) 2,885

Total stockholders' equity 96,627 120,151

Noncontrolling interests 5,266 4,406

Total equity 101,893 124,557

Total liabilities and equity $ 1,118,368 $ 701,458

See accompanying notes

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SUNRISE SENIOR LIVING, INC.CONSOLIDATED STATEMENTS OF OPERATIONS

Twelve Months Ended

December 31, (In thousands, except per share amounts) 2011 2010 2009 Operating revenue:

Management fees $ 96,132 $ 107,832 $ 112,467 Buyout fees 3,685 63,286 0 Resident fees for consolidated communities 464,064 354,714 339,125 Ancillary fees 30,544 43,136 45,397 Professional fees from development, marketing and other 2,498 4,278 13,193 Reimbursed costs incurred on behalf of managed communities 715,290 827,240 942,809

Total operating revenue 1,312,213 1,400,486 1,452,991 Operating expenses:

Community expense for consolidated communities 333,491 262,893 257,968 Community lease expense 76,444 59,715 59,315 Depreciation and amortization 37,523 40,637 45,778 Ancillary expenses 28,396 40,504 42,457 General and administrative 114,474 126,566 126,940 Carrying costs of liquidating trust assets 2,456 3,146 0 Write-off of capitalized project costs 0 0 14,879 Accounting Restatement, Special Independent Committee inquiry, SEC investigation and stockholder litigation 0 (1,305) 3,887 Restructuring costs 0 11,690 32,534 Provision for doubtful accounts 3,802 6,154 13,251 (Gain) loss on financial guarantees and other contracts (2,100) 518 2,053 Impairment of long-lived assets 12,734 5,647 29,439 Costs incurred on behalf of managed communities 719,159 831,008 949,331

Total operating expenses 1,326,379 1,387,173 1,577,832

(Loss) income from operations (14,166) 13,313 (124,841) Other non-operating income (expense):

Interest income 2,060 1,096 1,341 Interest expense (18,320) (7,707) (10,273) Gain on investments 0 932 3,556 Gain on fair value of pre-existing equity interest from a business combination 11,250 0 0 Gain on fair value of liquidating trust notes 88 5,240 0 Other (expense) income (615) 1,181 6,553

Total other non-operating (expense) income (5,537) 742 1,177 Gain on the sale of real estate and equity interests 8,185 27,672 21,651 Sunrise's share of earnings and return on investment in unconsolidated communities 2,629 7,521 5,673 Loss from investments accounted for under the profit-sharing method (9,806) (9,650) (12,808)

(Loss) income before (provision for) benefit from income taxes and discontinued operations (18,695) 39,598 (109,148) (Provision for) benefit from income taxes (1,771) (6,559) 3,942

(Loss) income before discontinued operations (20,466) 33,039 (105,206) Discontinued operations, net of tax (1,091) 67,787 (28,309)

Net (loss) income (21,557) 100,826 (133,515) Less: Income attributable to noncontrolling interests, net of tax (1,833) (1,759) (400)

Net (loss) income attributable to common shareholders $ (23,390) $ 99,067 $ (133,915)

Earnings per share data: Basic net (loss) income per common share

(Loss) income from continuing operations $ (0.39) $ 0.56 $ (2.06) Discontinued operations, net of tax (0.02) 1.22 (0.55)

Net (loss) income $ (0.41) $ 1.78 $ (2.61)

Diluted net (loss) income per common share (Loss) income from continuing operations $ (0.39) $ 0.54 $ (2.06) Discontinued operations, net of tax (0.02) 1.18 (0.55)

Net (loss) income $ (0.41) $ 1.72 $ (2.61)

See accompanying notes

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SUNRISE SENIOR LIVING, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands)

Shares ofCommon

Stock

CommonStock

Amount

AdditionalPaid-inCapital

Retained(Loss) Earnings

AccumulatedOther

ComprehensiveIncome (Loss)

TotalStockholders'

Equity

EquityAttributable

to Noncontrolling

Interests Total

Equity Balance at January 1, 2009 50,872 $ 509 $458,404 $ (327,056) $ 6,671 $ 138,528 $ 9,386 $ 147,914

Net (loss) income 0 0 0 (133,915) 0 (133,915) 400 (133,515) Foreign currency translation loss, net of tax 0 0 0 0 (4,813) (4,813) 0 (4,813) Sunrise's share of investee's other

comprehensive income 0 0 0 0 6,324 6,324 0 6,324 Distributions to noncontrolling interests 0 0 (142) 0 0 (142) (1,341) (1,483) Sale of Greystone 0 0 0 0 0 0 (6,371) (6,371) Consolidation of a controlled entity 0 0 0 0 120 120 2,113 2,233 Issuance of restricted stock 4,175 42 11,064 0 0 11,106 0 11,106 Forfeiture or surrender of restricted stock (59) (1) (116) 0 0 (117) 0 (117) Stock option exercises 764 8 1,020 0 0 1,028 0 1,028 Stock-based compensation expense 0 0 3,928 0 0 3,928 0 3,928

Balance at December 31, 2009 55,752 558 474,158 (460,971) 8,302 22,047 4,187 26,234 Net income 0 0 0 99,067 0 99,067 1,759 100,826 Foreign currency translation loss, net of tax 0 0 0 0 (6,940) (6,940) 0 (6,940) Sunrise's share of investee's other

comprehensive income 0 0 0 0 1,418 1,418 0 1,418 Unrealized gain on investments 0 0 0 0 105 105 0 105 Distributions to noncontrolling interests 0 0 0 0 0 0 (1,540) (1,540) Issuance of restricted stock 475 5 (5) 0 0 0 0 0 Forfeiture or surrender of restricted or

common stock (39) (1) (116) 0 0 (117) 0 (117) Stock option exercises 265 3 370 0 0 373 0 373 Stock-based compensation expense 0 0 4,348 0 0 4,348 0 4,348 Tax effect from stock-based compensation 0 0 (150) 0 0 (150) 0 (150)

Balance at December 31, 2010 56,453 565 478,605 (361,904) 2,885 120,151 4,406 124,557 Net (loss) income 0 0 0 (23,390) 0 (23,390) 1,833 (21,557) Foreign currency translation gain, net of tax 0 0 0 0 1,330 1,330 0 1,330 Sunrise's share of investee's other

comprehensive loss 0 0 0 0 (1,894) (1,894) 0 (1,894) Unrealized gain on investments 0 0 0 0 72 72 0 72 Unrealized losses on interest rate swap 0 0 0 0 (8,325) (8,325) 0 (8,325) Distributions to noncontrolling interests 0 0 0 0 0 0 (1,778) (1,778) Noncontrolling interest reserve fund 0 0 0 0 0 0 805 805 Issuance of restricted stock 337 3 (3) 0 0 0 0 0 Forfeiture or surrender of restricted or

common stock (81) (1) (409) 0 0 (410) 0 (410) Stock option exercises 931 9 1,470 0 0 1,479 0 1,479 Stock-based compensation expense 0 0 7,614 0 0 7,614 0 7,614

Balance at December 31, 2011 57,640 $ 576 $487,277 $ (385,294) $ (5,932) $ 96,627 $ 5,266 $ 101,893

See accompanying notes.

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SUNRISE SENIOR LIVING, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31, (In thousands) 2011 2010 2009 Operating activities

Net (loss) income $ (21,557) $ 100,826 $ (133,515) Less: Net loss (income) from discontinued operations 1,091 (67,787) 28,309 Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Gain on the sale of real estate and equity interests (8,185) (27,672) (21,651) Gain on fair value of liquidating trust note (88) (5,240) 0 Loss from investments accounted for under the profit-sharing method 9,806 9,650 12,808 Gain on investments 0 (932) (3,556) Gain on fair value of pre-existing equity interest from a business combination (11,250) 0 0 Impairment of long-lived assets 12,734 5,647 29,439 Write-off of capitalized project costs 0 0 14,879 Provision for doubtful accounts 3,802 6,154 13,251 Benefit from deferred income taxes 0 0 (2,790) (Gain) loss on financial guarantees and other contracts (2,100) 518 2,053 Sunrise's share of earnings and return on investment in unconsolidated communities (2,629) (7,521) (5,673) Distributions of earnings from unconsolidated communities 12,826 35,863 18,998 Depreciation and amortization 37,523 40,637 45,778 Amortization of financing costs and debt discount 3,562 1,003 1,261 Stock-based compensation 7,614 4,232 3,812

Changes in operating assets and liabilities: (Increase) decrease in:

Accounts receivable (4,969) 779 13,617 Due from unconsolidated senior living communities 1,385 (830) 23,997 Prepaid expenses and other current assets 136 (4,237) 11,829 Captive insurance restricted cash 8,535 (8,837) (722) Other assets 1,751 871 23,922

Increase (decrease) in: Accounts payable, accrued expenses and other liabilities 1,305 (11,390) (37,105) Entrance fees (1,653) 968 (2,159) Self-insurance liabilities (1,493) (15,725) (3,714) Guarantee liabilities 0 (500) (125) Deferred revenue and gains on the sale of real estate (6,745) 4,024 1,676

Net cash (used in) provided by discontinued operations (2,239) 2,431 (1,200)

Net cash provided by operating activities 39,162 62,932 33,419

Investing activities Capital expenditures (11,361) (15,563) (19,629) Net proceeds (funding) for condominium projects 2,521 (61) (4,963) Acquisition of AL US Development Venture, LLC , net of cash acquired (45,292) 0 0 Dispositions of property 6,226 18,411 10,758 Proceeds from the sale of equity interests 0 35,936 0 Change in restricted cash (75,706) 9,247 (14,549) Proceeds from short-term investments 0 19,618 15,950 Increase in investments and notes receivable 0 0 (89,473) Proceeds from investments and notes receivable 0 1,431 94,968 Investments in unconsolidated communities (13,728) (5,952) (6,760) Distributions of capital from unconsolidated communities 963 314 (142) Net cash provided by discontinued operations 5,813 112,869 98,213

Net cash (used in) provided by investing activities (130,564) 176,250 84,373

Financing activities Net proceeds from exercised options 1,479 373 1,028 Issuance of junior subordinated convertible debt 86,250 0 0 Borrowings on Credit Facility 39,000 0 0 Additional borrowings of long-term debt 0 4,010 4,969 Repayment of long-term debt (34,554) (71,794) (13,561) Net repayments on Bank Credit Facility 0 (33,728) (61,272) Repayment of liquidating trust notes (11,921) (11,482) 0 Distributions to noncontrolling interests (1,778) (1,540) (1,341) Financing costs paid (4,245) (1,111) (590) Net cash used in discontinued operations 0 (96,473) (37,255)

Net cash provided by (used in) financing activities 74,231 (211,745) (108,022)

Net (decrease) increase in cash and cash equivalents (17,171) 27,437 9,770 Cash and cash equivalents at beginning of period 66,720 39,283 29,513

Cash and cash equivalents at end of period $ 49,549 $ 66,720 $ 39,283

See accompanying notes.

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Sunrise Senior Living, Inc.Notes to Consolidated Financial Statements

1. Organization and PresentationOrganization

We are a provider of senior living services in the United States, Canada and the United Kingdom. Founded in 1981 and incorporated in Delaware in1994, we began with a simple but innovative vision — to create an alternative senior living option that would emphasize quality of life and quality of care.We offer a full range of personalized senior living services, including independent living, assisted living, care for individuals with Alzheimer's and otherforms of memory loss, nursing and rehabilitative care. In the past, we also developed senior living communities for ourselves, for ventures in which weretained an ownership interest and for third parties. Due to economic conditions, we have suspended all new development.

At December 31, 2011, we operated 311 communities, including 269 communities in the United States, 15 communities in Canada and 27 communitiesin the United Kingdom, with a total unit capacity of approximately 30,733. Of the 311 communities that we operated at December 31, 2011, 22 were whollyowned, 26 were under operating leases, one was consolidated as a variable interest entity, one was a consolidated venture, six were leased from a venture andconsolidated, 113 were owned in unconsolidated ventures and 142 were owned by third parties.

Basis of Presentation

The consolidated financial statements which are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") include ourwholly owned and controlled subsidiaries. Variable interest entities ("VIEs") in which we have an interest have been consolidated when we have beenidentified as the primary beneficiary. Entities in which we hold the managing member or general partner interest are consolidated unless the other members orpartners have either (1) the substantive ability to dissolve the entity or otherwise remove us as managing member or general partner without cause or(2) substantive participating rights, which provide the other partner or member with the ability to effectively participate in the significant decisions that wouldbe expected to be made in the ordinary course of business. Investments in ventures in which we have the ability to exercise significant influence but do nothave control over are accounted for using the equity method. All intercompany transactions and balances have been eliminated in consolidation.

Discontinued operations consist primarily of three communities sold in 2011, our German operations which were sold in 2010, two communities sold in2010, 22 communities sold in 2009, one community closed in 2009, our Greystone subsidiary sold in 2009 and our Trinity subsidiary which ceased operationsin the fourth quarter of 2008. 2. Significant Accounting Policies

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider cash and cash equivalents to include currency on hand, demand deposits, and all highly liquid investments with a maturity of three monthsor less at the date of purchase.

Restricted Cash

We utilize large deductible blanket insurance programs in order to contain costs for certain lines of insurance risks including workers' compensation andemployers' liability risks, automobile liability risk, employment practices liability risk and general and professional liability risks ("Self-Insured Risks"). Wehave self-insured a portion of the Self-Insured Risks through our wholly owned captive insurance subsidiary, Sunrise Senior Living Insurance, Inc. (the"Sunrise Captive"). The Sunrise Captive issues policies of insurance on behalf of us and each community we operate and receives premiums from us and eachcommunity we operate. The Sunrise Captive pays the costs for each claim above a deductible up to a per claim limit. Cash held by the Sunrise Captive was$95.4 million and $103.9 million at December 31, 2011 and 2010, respectively. The earnings from the investment of the cash of the Sunrise Captive are usedto reduce future costs and pay the liabilities of the Sunrise Captive. Interest income in the Sunrise Captive was $0.1 million, $0.2 million and $0.7 million for2011, 2010 and 2009, respectively.

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Also included in restricted cash is $85.0 million related to a lease extension. In December 2011, we closed the transactions contemplated by theAgreement Regarding Leases, dated December 22, 2011 (the "ARL"), by and among us, Marriott International, Inc. ("Marriott"), Marriott Senior Holding Co.and Marriott Magenta Holding Company, Inc. (collectively, the "Marriott Parties"). The ARL relates to a portfolio of 14 leases (the "Leases") for senior livingfacilities that are leased by SPTMRT Properties Trust, as landlord to us as tenant and guaranteed by Marriott pursuant to certain lease guarantees (collectively,the "Lease Guarantees"). Each of the Leases is scheduled to expire on December 31, 2013 and, pursuant to a prior agreement between us and the MarriottParties, we are not permitted to exercise our option under the Leases to extend our terms for an additional five-year term unless Marriott is released from itsobligations under the Lease Guarantees.

Pursuant to the terms of the ARL, among other things, Marriott consented to the extension of the term of four of the Leases (the "Continuing Leases")for an additional five-year term commencing January 1, 2014 and ending December 31, 2018 (the "Extension Term"). We provided Marriott with a letter ofcredit (the "Letter of Credit") issued by KeyBank, NA ("KeyBank") with a face amount of $85.0 million to secure Marriott's exposure under the LeaseGuarantees for the Continuing Leases during the Extension Term and certain other of our obligations (collectively, the "Secured Obligations"). During theExtension Term, we will be required to pay Marriott an annual payment in respect of the cash flow of the Continuing Lease facilities, subject to a $1 millionannual minimum. We have notified the landlord that the other ten Leases will terminate effective December 31, 2013.

Marriott may draw on the Letter of Credit in order to pay any of the Secured Obligations if not paid by us when due. We have provided KeyBank withcash collateral of $85.0 million as security for its Letter of Credit obligations. Marriott has agreed to reduce the face amount of the Letter of Creditproportionally on a quarterly basis during the Extension Term as we pay our rental obligations under the Continuing Leases. As the face amount of the Letterof Credit is reduced, KeyBank will return a proportional amount of its cash collateral to us. Following closing, to the extent that we elect not to extend any orall of the Continuing Leases, the face amount of the Letter of Credit will be reduced proportionally in respect of the rent obligations under the ContinuingLeases that are not extended.

The details of our restricted cash as of December 31, 2011 and 2010 are as follows (in thousands): 2011 2010 Self insurance restricted cash $ 95,406 $ 103,941 Cash collateral for letters of credit 89,002 13,765 AL US Development restricted cash 19,313 0 CC3 restricted cash 4,211 0 Other restricted cash 23,563 28,983

$ 231,495 $ 146,689

Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts on our outstanding receivables based on an analysis of collectability, including our collection historyand generally do not require collateral to support outstanding balances.

Due from Unconsolidated Communities

Due from unconsolidated communities represents amounts due from unconsolidated ventures for development and management costs, includingdevelopment fees, operating costs such as payroll and insurance costs, and management fees. Operating costs are generally reimbursed within thirty days.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the lesser of the estimated useful lives of therelated assets or the remaining lease term. Repairs and maintenance are charged to expense as incurred.

We review the carrying amounts of long-lived assets for impairment when indicators of impairment are identified. If the carrying amount of the long-lived asset exceeds the undiscounted expected cash flows that are directly associated with the use and eventual disposition of the asset, we record animpairment charge to the extent the carrying amount of the asset exceeds the fair value of the assets. We determine the fair value of long-lived assets basedupon valuation techniques that include prices for similar assets.

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Business Combinations

Our consolidated financial statements include the operations of an acquired business from the date of acquisition. We account for acquired businessesusing the acquisition method of accounting. The acquisition method of accounting for acquired businesses requires, among other things, that most assetsacquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Also, transaction costs are expensed as incurred.

Assets Held for Sale

As of December 31, 2011 and 2010, approximately $1.0 million and $1.1 million of assets, respectively, were held for sale. The assets are certaincondominium units that were acquired through an acquisition. We classify an asset as held for sale when all of the following criteria are met:

• executive management has committed to a plan to sell the asset;

• the asset is available for immediate sale in its present condition;

• an active program to locate a buyer and other actions required to complete the sale have been initiated;

• the asset is actively being marketed; and

• the sale of the asset is probable and it is unlikely that significant changes to the sale plan will be made.

We classify land as held for sale when it is being actively marketed. For wholly owned operating communities, binding purchase and sale agreementsare generally subject to substantial due diligence and historically these sales have not always been consummated. As a result, we generally do not believe thatthe "probable" criteria are met until the community is sold. Upon designation as an asset held for sale, we record the asset at the lower of its carrying value orits estimated fair value, less estimated costs to sell, and we cease depreciation. If assets classified as assets held for sale have been held for sale for over a year,the requirements to be classified as held for sale are no longer being met and the assets are reclassified to held and used and depreciation resumed and broughtcurrent. However, we usually will continue to market the assets for sale.

Real Estate Sales

We account for sales of real estate in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")Property, Plant and Equipment Topic. For sales transactions meeting the requirements of the Topic for full accrual profit recognition, the related assets andliabilities are removed from the balance sheet and the gain or loss is recorded in the period the transaction closes. For sales transactions that do not meet thecriteria for full accrual profit recognition, we account for the transactions in accordance with the methods specified in the ASC Property, Plant and EquipmentTopic. For sales transactions that do not contain continuing involvement following the sale or if the continuing involvement with the property is contractuallylimited by the terms of the sales contract, profit is recognized at the time of sale. This profit is then reduced by the maximum exposure to loss related to thecontractually limited continuing involvement. Sales to ventures in which we have an equity interest are accounted for in accordance with the partial saleaccounting provisions as set forth in the ASC Property, Plant and Equipment Topic.

For sales transactions that do not meet the full accrual sale criteria, we evaluate the nature of the continuing involvement and account for the transactionunder an alternate method of accounting rather than full accrual sale, based on the nature and extent of the continuing involvement. Some transactions mayhave numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.

In transactions accounted for as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as tocash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, profit, including our development fee, is only recognizableto the extent that proceeds from the sale of the majority equity interest exceeds the costs related to the entire property.

We also may provide guarantees to support the operations of the properties. If the guarantees are for an extended period of time, we apply the profit-sharing method and the property remains on our books, net of any cash proceeds received from the buyer. If support is required for a limited period of time,sale accounting is achieved and profit on the sale may begin to be recognized on the basis of performance of the services required when there is reasonableassurance that future operating revenues will cover operating expenses and debt service.

Under the profit-sharing method, the property portion of our net investment is amortized over the life of the property. Results of operations of thecommunities before depreciation and fees paid to us is recorded as "Loss from investments accounted for under the profit-sharing method" in the consolidatedstatements of operations. The net income from operations as adjusted is added to the investment account and losses are reflected as a reduction of the netinvestment. Distributions of operating cash flows to other venture partners are reflected as an additional expense. All cash paid or received by us is recordedas an adjustment to the net investment. The net investment is reflected in "Investments accounted for under the profit-sharing method" in the consolidatedbalance sheets. At December 31, 2011 and 2010, we have two ventures accounted for under the profit-sharing method.

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Intangible Assets

We capitalize costs incurred to acquire management, development and other contracts. We use the acquisition method of accounting in determining theallocation of the purchase price to net tangible and intangible assets acquired, we make estimates of the fair value of the tangible and intangible assets usinginformation obtained as a result of pre-acquisition due diligence, marketing, leasing activities and independent appraisals.

Intangible assets are valued using expected discounted cash flows and are amortized using the straight-line method over the remaining contract term,generally ranging from one to 30 years. The carrying amounts of intangible assets are reviewed for impairment when indicators of impairment are identified.If the carrying amount of the asset (group) exceeds the undiscounted expected cash flows that are directly associated with the use and eventual disposition ofthe asset (group), an impairment charge is recognized to the extent the carrying amount of the asset exceeds the fair value.

Investments in Unconsolidated Communities

We hold a noncontrolling equity interest in ventures established to develop or acquire and own senior living communities. Those ventures are generallylimited liability companies or limited partnerships. Our equity interest in these ventures generally ranges from 10% to 50%.

In accordance with ASC Consolidation Topic, we review all of our ventures to determine if they are VIEs and require consolidation. The primarybeneficiary is the party that has both the power to direct activities of a VIE that most significantly impact the entity's economic performance and theobligation to absorb losses of the entity or the right to receive benefits from the entity that could both potentially be significant to the VIE. We performongoing qualitative analysis to determine if we are the primary beneficiary of a VIE. At December 31, 2011 and 2010, we are the primary beneficiary of oneVIE and therefore consolidate that entity.

In accordance with ASC Consolidation Topic, the general partner or managing member of a venture consolidates the venture unless the limited partnersor other members have either (1) the substantive ability to dissolve the venture or otherwise remove the general partner or managing member without cause or(2) substantive participating rights in significant decisions of the venture, including authorizing operating and capital decisions of the venture, includingbudgets, in the ordinary course of business. We have reviewed all ventures that are not VIEs where we are the general partner or managing member and havedetermined that in all cases the limited partners or other members have substantive participating rights such as those set forth above and, therefore, no suchventures are consolidated.

For ventures not consolidated, we apply the equity method of accounting in accordance with ASC Investments – Equity Method and Joint VenturesTopic. Equity method investments are initially recorded at cost and subsequently are adjusted for our share of the venture's earnings or losses and cashdistributions. In accordance with this Topic, the allocation of profit and losses should be analyzed to determine how an increase or decrease in net assets of theventure (determined in conformity with GAAP) will affect cash payments to the investor over the life of the venture and on its liquidation. Because certainventure agreements contain preferences with regard to cash flows from operations, capital events and/or liquidation, we reflect our share of profits and lossesby determining the difference between our "claim on the investee's book value" at the end and the beginning of the period. This claim is calculated as theamount that we would receive (or be obligated to pay) if the investee were to liquidate all of its assets at recorded amounts determined in accordance withGAAP and distribute the resulting cash to creditors and investors in accordance with their respective priorities. This method is commonly referred to as thehypothetical liquidation at book value method.

Our reported share of earnings is adjusted for the impact, if any, of basis differences between our carrying value of the equity investment and our shareof the venture's underlying assets. We generally do not have future requirements to contribute additional capital over and above the original capitalcommitments, and therefore, we discontinue applying the equity method of accounting when our investment is reduced to zero barring an expectation of animminent return to profitability. If the venture subsequently reports net income, the equity method of accounting is resumed only after our share of that netincome equals the share of net losses not recognized during the period the equity method was suspended.

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When the majority equity partner in one of our ventures sells its equity interest to a third party, the venture frequently refinances its senior debt anddistributes the net proceeds to the equity partners. All distributions received by us are first recorded as a reduction of our investment. Next, we record aliability for any contractual or implied future financial support to the venture including obligations in our role as a general partner. Any remainingdistributions are recorded as "Sunrise's share of earnings (loss) and return on investment in unconsolidated communities" in the consolidated statements ofoperations.

We evaluate realization of our investment in ventures accounted for using the equity method if circumstances indicate that our investment is other thantemporarily impaired.

Derivative Instruments

The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determines how we reflect the change in fairvalue of the derivative instrument in our financial statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative to be highlyeffective in offsetting the underlying hedged cash flows and we fulfill the hedge documentation standards at the time we enter into the derivative contract. Wehave designated an interest rate swap as a cash flow hedge. The asset or liability value of the derivative will change in tandem with its fair value. For theeffective portion of the hedge, we record changes in fair value in other comprehensive income ("OCI"). We release the derivative's gain or loss from OCI tomatch the timing of the underlying hedged item's effect on earnings.

We review the effectiveness of our hedging instruments on a quarterly basis, recognize current period hedge ineffectiveness immediately in earningsand discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives notdesignated as hedges or those not qualifying for hedge accounting in current period earnings. Upon termination of cash flow hedges, we will release gains andlosses from OCI based on the timing of the underlying cash flows.

Deferred Financing Costs

Costs incurred in connection with obtaining financing for our consolidated communities are deferred and amortized over the term of the financing usingthe effective interest method. Deferred financing costs are included in "Other assets" in the consolidated balance sheets.

Loss Reserves For Certain Self-Insured Programs

We offer a variety of insurance programs to the communities we operate. These programs include property insurance, general and professional liabilityinsurance, excess/umbrella liability insurance, crime insurance, automobile liability and physical damage insurance, workers' compensation and employers'liability insurance and employment practices liability insurance (the "Insurance Program"). Substantially all of the communities we operate that participate inthe Insurance Program are charged their proportionate share of the cost of the Insurance Program.

We utilize large deductible blanket insurance programs in order to contain costs for certain of the lines of insurance risks in the Insurance Programincluding self-insured risks. The design and purpose of a large deductible insurance program is to reduce overall premium and claim costs by internallyfinancing lower cost claims that are more predictable from year to year, while buying insurance only for higher-cost, less predictable claims.

We have self-insured a portion of the self-insured risks through the Sunrise Captive. The Sunrise Captive issues policies of insurance on behalf of usand each community we operate and receive premiums from us and each community we operate. The Sunrise Captive pays the costs for each claim above adeductible up to a per claim limit. Third-party insurers are responsible for claim costs above this limit. These third-party insurers carry an A.M. Best rating ofA-/VII or better.

We record outstanding losses and expenses for all self-insured risks and for claims under insurance policies based on management's best estimate of theultimate liability after considering all available information, including expected future cash flows and actuarial analyses. We review our sensitivity analysisannually and our annual estimated cost for self-insured risks is determined using management judgment including actuarial analyses at various confidencelevels. Our confidence level, based on our annual review, is currently at 50%. We believe the 50% confidence level provides our best estimate of our expectedliability due to our sufficient history of paid and incurred claims associated with our Sunrise Captive. The confidence level is the likelihood that the recordedexpense will exceed the ultimate incurred cost.

We believe that the allowance for outstanding losses and expenses is appropriate to cover the ultimate cost of losses incurred at December 31, 2011 and2010 based on our best estimate at that date. The allowance may ultimately be settled for a greater or lesser amount. Any subsequent changes in estimates arerecorded in the period in which they are determined and will be shared with the communities participating in the Insurance Programs based on theproportionate share of any changes.

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Employee Health and Dental Benefits

We offer employees an option to participate in our self-insured health and dental plans. The cost of our employee health and dental benefits, net ofemployee contributions, is shared between us and the communities based on the respective number of participants working either at our community supportoffice or at the communities. Funds collected are used to pay the actual program costs including estimated annual claims, third-party administrative fees,network provider fees, communication costs, and other related administrative costs incurred by us. Claims are paid as they are submitted to the planadministrator. We also record a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historicalclaim reporting lag and payment trends of health insurance claims. We believe that the liability for outstanding losses and expenses is adequate to cover theultimate cost of losses incurred at December 31, 2011 and 2010, but actual claims may differ. Any subsequent changes in estimates are recorded in the periodin which they are determined and will be shared with the communities participating in the program based on their proportionate share of any changes.

Continuing Care Agreements

We lease communities under operating leases and own communities that provide life care services under various types of entrance fee agreements withresidents ("Entrance Fee Communities" or "Continuing Care Retirement Communities"). Residents of Entrance Fee Communities are required to sign acontinuing care agreement with us. The care agreement stipulates, among other things, the amount of all entrance and monthly fees, the type of residential unitbeing provided, and our obligation to provide both health care and non-health care services. In addition, the care agreement provides us with the right toincrease future monthly fees. The care agreement is terminated upon the receipt of a written termination notice from the resident or the death of the resident.Refundable entrance fees are returned to the resident or the resident's estate depending on the form of the agreement either upon re-occupancy or terminationof the care agreement.

When the present value of estimated costs to be incurred under care agreements exceeds the present value of estimated revenues, the present value ofsuch excess costs is accrued. The calculation assumes a future increase in the monthly revenue commensurate with the monthly costs. The calculationcurrently results in an expected positive net present value cash flow and, as such, no liability was recorded as of December 31, 2011 or December 31, 2010.

Refundable entrance fees are primarily non-interest bearing and, depending on the type of plan, can range from between 30% to 100% of the totalentrance fee less any additional occupant entrance fees. As these obligations are considered security deposits, interest is not imputed on these obligations.Deferred entrance fees were $19.6 million and $30.7 million at December 31, 2011 and 2010, respectively.

Non-refundable portions of entrance fees are deferred and recognized as revenue using the straight-line method over the actuarially determinedexpected term of each resident's contract.

Accounting for Guarantees

Guarantees entered into in connection with the sale of real estate often prevent us from either accounting for the transaction as a sale of an asset orrecognizing in earnings the profit from the sale transaction. Guarantees not entered into in connection with the sale of real estate are considered financialinstruments. For guarantees considered financial instruments we recognize at the inception of a guarantee or the date of modification, a liability for the fairvalue of the obligation undertaken in issuing a guarantee. On a quarterly basis, we evaluate the estimated liability based on the operating results and the termsof the guarantee. If it is probable that we will be required to fund additional amounts than previously estimated a loss is recorded. Fundings that arerecoverable as a loan from a venture are considered in the determination of the contingent loss recorded. Loan amounts are evaluated for impairment atinception and then quarterly.

Asset Retirement Obligations

In accordance with ASC Asset Retirement and Environmental Obligations Topic, we record a liability for a conditional asset retirement obligation if thefair value of the obligation can be reasonably estimated.

Certain of our operating real estate assets contain asbestos. The asbestos is appropriately contained, in accordance with current environmentalregulations, and we have no current plans to remove the asbestos. When, and if, these properties are demolished, certain environmental regulations are inplace which specify the manner in which the asbestos must be handled and disposed of. Because the obligation to remove the asbestos has an indeterminablesettlement date, we are not able to reasonably estimate the fair value of this asset retirement obligation.

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In addition, certain of our long-term ground leases include clauses that may require us to dispose of the leasehold improvements constructed on thepremises at the end of the lease term. These costs, however, are not estimable due to the range of potential settlement dates and variability among properties.Further we believe, the present value of any such costs would be insignificant as the remaining term of each of the leases is fifty years or more.

Income Taxes

Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reportingpurposes and such amounts recognized for tax purposes. We record the current year amounts payable or refundable, as well as the consequences of events thatgive rise to deferred tax assets and liabilities based on differences in how these events are treated for tax purposes. We base our estimate of deferred tax assetsand liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. We provide a valuationallowance against the net deferred tax assets when it is more likely than not that sufficient taxable income will not be generated to utilize the net deferred taxassets.

Revenue Recognition

"Management fees" is comprised of fees from management agreements for operating communities owned by unconsolidated ventures and third parties,which consist of base management fees and incentive management fees. The management fees are generally between five and eight percent of a managedcommunity's total operating revenue. Fees are recognized in the month they are earned in accordance with the terms of the management agreement.

"Buyout fees" is comprised of fees from the buyout of management agreements.

"Resident fees from consolidated communities" are recognized monthly as services are provided. Agreements with residents are generally for a term ofone year and are cancelable by residents with 30 day notice. Approximately 16.0%, 19.4% and 21.1% of our resident fees from our consolidated communitiesfor 2011, 2010 and 2009, respectively, were derived from governmental reimbursement programs. Revenues from these programs are recorded net ofcontractual adjustments as dictated under the specific program guidelines. Retroactive adjustments or assessments from program cost report audits conductedby governmental agencies are recorded against net revenues in the month we are given notice, without regard to whether we intend to appeal suchassessments.

"Ancillary services" is comprised of fees for providing care services to residents of certain communities owned by ventures and fees for providing homehealth assisted living services.

"Professional fees from development, marketing and other" is comprised of fees received for services provided prior to the opening of anunconsolidated community and fees received for renovation projects. Our development fees related to building design and construction oversight arerecognized using the percentage-of-completion method and the portion related to marketing services is recognized on a straight-line basis over the estimatedperiod the services are provided. The cost-to-cost method is used to measure the extent of progress toward completion for purposes of calculating thepercentage-of-completion portion of the revenues. Fees for renovation projects are recognized when earned.

"Reimbursed costs incurred on behalf of managed communities" is comprised of reimbursements for expenses incurred by us, as the primary obligor,on behalf of communities operated by us under long-term management agreements. Revenue is recognized when the costs are recorded on the books of themanaged communities and we are due the reimbursement. If we are not the primary obligor, certain costs, such as interest expense, real estate taxes,depreciation, ground lease expense, bad debt expense and cost incurred under local area contracts, are not included. The related costs are included in "Costsincurred on behalf of managed communities".

We considered the indicators in ASC Revenue Recognition Topic, in making our determination that revenues should be reported gross versus net.Specifically, we are the primary obligor for certain expenses incurred at the communities, including payroll costs, insurance and items such as food andmedical supplies purchased under national contracts entered into by us. We, as manager, are responsible for setting prices paid for the items underlying thereimbursed expenses, including setting pay-scales for our employees. We select the supplier of goods and services to the communities for the nationalcontracts that we enter into on behalf of the communities. We are responsible for the scope, quality and extent of the items for which we are reimbursed.Based on these indicators, we have determined that it is appropriate to record revenues gross versus net.

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Stock-Based Compensation

We record compensation expense for our employee stock options and restricted stock awards in accordance with ASC Equity Topic. This Topicrequires that all share-based payments to employees be recognized in the consolidated statements of operations based on their grant date fair values with theexpense being recognized over the requisite service period. We use the Black-Scholes model to determine the fair value of our awards at the time of grant. Forawards with both performance and service conditions, we start recognizing compensation cost over the remaining service period, when it is probable theperformance condition will be met.

Foreign Currency Translation

Our reporting currency is the U.S. dollar. Certain of our subsidiaries' functional currencies are the local currency of their respective country. Inaccordance with ASC Foreign Currency Matters Topic, balance sheets prepared in their functional currencies are translated to the reporting currency atexchange rates in effect at the end of the accounting period except for stockholders' equity accounts and intercompany accounts with consolidated subsidiariesthat are considered to be of a long-term nature, which are translated at rates in effect when these balances were originally recorded. Revenue and expenseaccounts are translated at a weighted average of exchange rates during the period. The cumulative effect of the translation is included in "Accumulated othercomprehensive income" in the consolidated balance sheets. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functionalcurrency rate of exchange at the balance sheet date. All differences are recorded as "Other income (expense)" in the consolidated statements of operations.

Advertising Costs

We expense advertising costs as incurred. Total advertising expense for the years ended December 31, 2011, 2010 and 2009 was $2.5 million, $4.1million and $4.8 million, respectively.

Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. We record an accrual for losscontingencies when a loss is probable and the amount of the loss can be reasonably estimated. We review these accruals quarterly and make revisions basedon changes in facts and circumstances.

Reclassifications

Certain amounts have been reclassified to conform to the current year presentation. The majority of the reclassifications are to discontinued operationswhich includes three communities sold in 2011, our German operations which were sold in 2010, two communities sold in 2010, 22 communities sold in2009, one community closed in 2009, our Greystone subsidiary sold in 2009 and our Trinity subsidiary which ceased operations in 2008.

New Accounting Standards

The following Accounting Standards Update ("ASU") was issued in 2009:

The FASB issued ASU 2009-13, Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements ("ASU 2009-13"). It requires anentity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. It eliminated theuse of the residual method of allocation and requires the relative-selling-price method in all circumstances in which an entity recognized revenue for anarrangement with multiple deliverables subject to Accounting Standards Codification ("ASC") Subtopic 605-25 – Revenue – Multiple Element Arrangements.It no longer requires third party evidence. ASU 2009-13 was effective for us January 1, 2011 and did not have a material impact on our consolidated financialposition, results of operations or cash flows.

The following ASUs were issued in 2010:

ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements, requires separatedisclosures of transfers in and out of Level 1 and Level 2 fair value measurements along with the reason for the transfer. ASU 2010-06 also requiresseparately presenting in the reconciliation for Level 3 fair value measurements purchases, sales, issuances and settlements. It clarifies the disclosure regardingthe level of disaggregation and input and valuation techniques. Certain portions of ASU 2010-06 were effective in the first quarter of 2010, and the portions ofASU 2010-06 which effect Level 3 reconciliation was effective for us January 1, 2011 and did not have a material impact on our consolidated financialposition, results of operations or cash flows.

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ASU 2010-13, Compensation – Stock Compensation (Topic 718), Effect of Denominating the Exercise Price of a Share-Based Payment Award in theCurrency of the Market in Which the Underlying Security Trades, clarifies that a share-based payment award with an exercise price denominated in thecurrency of the market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that would requirethe share-based payment award to be classified as a liability. ASU 2010-13 was effective for us on January 1, 2011 and did not have a material impact on ourconsolidated financial position, results of operations or cash flows.

ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, specifies that if apublic entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the businesscombination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29also expands the supplemental pro forma disclosures under Topic 805. ASU 2010-29 was effective for us on January 1, 2011 and did not have a materialimpact on our consolidated financial position, results of operations or cash flows.

The following ASUs were issued in 2011.

ASU 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRS, clarifies some existing rules but does not require additional fair value measurements, is not intended to establish valuation standards oraffect valuation practices outside of financial reporting. A specific clarification relates to the concepts of "highest and best use" and "valuation premise" whichare relevant only when measuring the fair value of nonfinancial assets and are not relevant when measuring fair value of financial assets or liabilities.Additional disclosures for Level 3 measurements include the valuation process used and the sensitivity of the fair value measurement to changes inunobservable inputs and the interrelationships between those unobservable inputs. ASU 2011-04 is effective for us January 1, 2012 and is not expected tohave a material impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, gives an entity the option to present the total ofcomprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement ofcomprehensive income or in two separate but consecutive statements. The amendment does not change the items that must be reported in other comprehensiveincome or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is effective for us January 1, 2012 and will not havea material impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-10, Property, Plant and Equipment (Topic 360), Derecognition of in Substance Real Estate – a Scope Clarification, requires when a parentceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, thereporting entity should apply the guidance of Subtopic 360-20 to determine whether it should derecognize in the in substance real estate. Generally, areporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and theextinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest, the reporting entitywould continue to include the real estate, debt and results of the subsidiary's operations in its consolidated financial statements until legal title of the real estateis transferred to legally satisfy the debt. ASU 2011-10 is effective for us July 1, 2012 and is not expected to have a material impact on our consolidatedfinancial position, results of operations or cash flows.

ASU 2011-11, Balance Sheet (Topic 210), Disclosure about Offsetting Assets and Liabilities, requires an entity to disclose information about offsettingand related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 iseffective for us January 1, 2013 and is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Outof Accumulated Other Comprehensive Income in ASU No. 2011-05 defers the presentation of the reclassification adjustments in and out of othercomprehensive income, but requires entities to report reclassification out of accumulated other comprehensive income consistent with the presentationrequirements in effect before ASU 2011-05. ASU 2011-05 is effective for us January 1, 2012 and will not have a material impact on our consolidatedfinancial position, results of operations or cash flows.

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3. Fair Value MeasurementsFair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date. The ASC Fair Value Measurements Topic established a fair value hierarchy that prioritizes observable and unobservable inputs usedto measure fair value into three broad levels. These levels, in order of highest priority to lowest priority, are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs that are used when little or no market data is available.

Interest Rate SwapIn connection with our purchase of our partner's interest in AL US Development Venture, LLC ("AL US") (refer to Note 11), we assumed the mortgage

debt and an interest rate swap. We then entered into a new interest rate swap arrangement that extended the term of the existing interest rate swap to becoterminous with the maturity extension of the mortgage debt (extended from June 2012 to June 2015). We entered into the swap in order to hedge againstchanges in cash flows (interest payments) attributable to fluctuations in the one-month LIBOR rate. As a result, we will pay a fixed rate of 3.2% plus theapplicable spread of 175 basis points as opposed to a floating rate equal to the one-month LIBOR rate plus the applicable spread of 175 basis points on anotional amount of $259.4 million through the maturity date of the loan. The agreement includes a credit-risk-related contingency feature whereby thederivative counterparty has incorporated the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparty. The failure tocomply with the loan covenant provisions would result in being in default on any derivative instrument obligations covered by the agreement. We have notposted any collateral related to this agreement. As of December 31, 2011, the derivative is in a liability position and has a fair value of $21.4 million. If wehad breached any of these loan covenant provisions at December 31, 2011, we could have been required to settle our obligations under the agreement at theirtermination value of approximately $22.3 million. The difference between the fair value liability and the termination liability represents an adjustment foraccrued interest.

We have designated the derivative as a cash flow hedge. The derivative value is based on the prevailing market yield curve on the date of measurement.We also consider counterparty credit risk in the calculation of the fair value of the swap. We evaluate the hedging effectiveness of the derivative both atinception and on an on-going basis. For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on thederivative is reported as a component of other comprehensive income, and reclassified into earnings in the same period, or periods, during which the hedgedtransaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessmentof effectiveness are recognized in earnings. Approximately $3.2 million of losses, which are included in accumulated other comprehensive (loss) income("AOCI"), are expected to be reclassified into earnings in the next 12 months as an increase to interest expense.

The following table details the fair market value as of December 31, 2011 (in thousands): Fair Value Measurements at Reporting Date Using

Liabilities December 31,

2011

Quoted Prices inActive Markets for

Identical Assets(Level 1)

Significant OtherObservable

Inputs

(Level 2)

SignificantUnobservable

Inputs

(Level 3) Interest rate swap $ 21,359 $ 0 $ 21,359 $ 0

The following table details the impact of the derivative instrument on the consolidated statements of operations and other comprehensive income for thetwelve months ended December 31 (in thousands): Location 2011 2010 2009 Loss on interest rate swap recognized in OCI OCI $ 10,665 $ 0 $ 0 Loss reclassified from AOCI into income (effective portion) Interest expense 2,340 0 0 (Loss) gain recognized in income (ineffective portion and amount excluded from effectiveness testing) Other (expense) income (135) 0 0

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Restricted Investments in Marketable Securities

The following table details the restricted investments in marketable securities measured at fair value as of December 31, 2011 (in thousands):

Assets December 31,

2011

Active Markets forIdentical Assets

(Level 1)

ObservableInputs

(Level 2)

UnobservableInputs

(Level 3)

Restricted investments in marketable securities $ 2,479 $ 2,479 $ 0 $ 0

The restricted investments in marketable securities relates to a consolidated entity in which we have control but no ownership interest.

Assets Held for Sale, Assets Held and Used and Liquidating Trust AssetsThe following table details the assets impaired in 2011 (in thousands):

Assets December 31,

2011

Active Markets forIdentical Assets

(Level 1)

ObservableInputs

(Level 2)

UnobservableInputs

(Level 3)

TotalImpairment

Losses in 2011 Assets held and used $ 22,879 $ 0 $ 0 $ 22,879 $ 5,359 Assets held for sale 1,025 0 0 1,025 139 Liquidating trust assets (1) 19,135 0 0 19,135 6,305

$ 43,039 $ 0 $ 0 $ 43,039 $ 11,803

(1) Excludes assets sold in 2011. Impairment losses of $0.9 million relate to land parcels sold in 2011 included in operating expenses under impairment of

long-lived assets.

Assets Held for Sale

Assets held for sale with a lower of carrying value or fair value less estimated costs to sell consists of the following (in thousands):

December 31,

2011 December 31,

2010 Assets held for sale (condominium units) $ 1,025 $ 1,099

In 2011, we classified the assets of a condominium project as held for sale. The assets are recorded at the lower of their carrying value or fair value lessestimated costs to sell. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value. As the carrying value ofthe assets were in excess of their fair value less estimated costs to sell, we recorded an impairment charge of $0.1 million, which is included in operatingexpenses under impairment of long-lived assets.

In 2010, certain land parcels, a closed community and a condominium project were classified as assets held for sale. They were recorded at the lower oftheir carrying value or fair value less estimated costs to sell. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value todetermine fair value. As the carrying value of an asset was in excess of its fair value less estimated costs to sell, we recorded an impairment charge of $0.7million in 2010, which is included in operating expenses under impairment of long-lived assets.

In 2010, land parcels and a closed community classified as assets held for sale had been held for sale for over a year. Therefore, the requirements to beclassified as held for sale were no longer being met and the assets were reclassified to held and used or to the liquidating trust.

In 2009, we recorded certain land parcels (including two closed construction sites), a condominium project and a closed property as held for sale at thelower of their carrying value or fair value less estimated costs to sell. We used appraisals, bona fide offers, market knowledge and broker opinions of value todetermine fair value. As the carrying value of some of the assets was in excess of the fair value less estimated costs to sell, we recorded a charge of $4.5million. At the end of 2009, seven land parcels classified as assets held for sale had been held for sale for over a year. Therefore, the requirements to beclassified as held for sale were not met and the assets were re-classified to held and used as of December 31, 2009.

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Assets Held and Used

In 2011, we recorded impairment charges of $5.4 million for a land parcel and an operating community as the carrying value of each of the assets wasin excess of its fair value. We used recent comparable sales, market knowledge, brokers' opinions of value and the income approach to determine fair value.The impairment loss is included in operating expenses under impairment of long-lived assets.

In 2010, we recorded impairment charges of $1.1 million for a land parcel and an operating community as the carrying value of these assets was inexcess of their fair value. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value. The impairmentcharges are included in operating expenses under impairment of long-lived assets.

In 2009, we recorded impairment charges of $24.9 million related to certain operating communities that are held and used as the carrying value of theseassets was in excess of the fair value. We used appraisals, recent sale and a cost of capital rate to the communities' average net income to estimate fair value ofall of these assets. We subsequently sold 21 operating communities that were classified as assets held and used and the $22.6 million impairment chargerelated to certain of these communities was included in discontinued operations.

In 2009, we also recorded impairment charges of $24.9 million for certain land parcels held and used as the carrying value of these assets was in excessof the fair value. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value.

Liquidating Trust Assets

In connection with the restructuring of our German indebtedness (refer to Note 11), we granted mortgages for the benefit of the electing lenders oncertain of our unencumbered North American properties (the "liquidating trust"). As of December 31, 2011, the liquidating trust assets consist of nine landparcels and one closed community. In 2011, we recorded $6.3 million of impairment charges on seven land parcels held in the liquidating trust as the carryingvalue of each of the assets was in excess of its estimated fair value. We used recent comparable sales, market knowledge, brokers' opinions of value and theincome approach to estimate the fair value. Our estimate of fair value also considered the short-term maturity of the liquidating trust notes. The impairmentloss is included in operating expenses under impairment of long-lived assets.

In 2010, we recorded impairment charges of $4.1 million on ten assets held in the liquidating trust as the carrying value of these assets were in excess ofthe fair value. We used appraisals, bona fide offers, market knowledge and brokers' opinions of value to determine fair value. The impairment charge isincluded in operating expenses under impairment of long-lived assets.

DebtThe fair value of our debt has been estimated based on current rates offered for debt with the same remaining maturities and comparable collateralizing

assets. Changes in assumptions or methodologies used to make estimates may have a material effect on the estimated fair value. We have applied Level 2 andLevel 3 type inputs to determine the estimated fair value of our debt. The following table details by category the principal amount, the average interest rateand the estimated fair market value of our debt (in thousands):

Fixed Rate

Debt Variable Rate

Debt Total Carrying Value $ 87,615 $ 506,050(1)

Average Interest Rate 5.03% 3.96%

Estimated Fair Market Value $ 87,640 $ 497,506

(1) Includes $259.4 million of debt that has been fixed by a separate interest rate swap instrument.

Disclosure about fair value of financial instruments is based on pertinent information available to us at December 31, 2011.

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Liquidating Trust Notes

We elected the fair value option to measure the financial liabilities associated with and which originated from the restructuring of our German loans(refer to Note 11). The notes for the liquidating trust assets are accounted for under the fair value option. The carrying value of the financial liabilities forwhich the fair value option was elected was estimated applying certain data points including the underlying value of the collateral and the expected timing andamount of repayment. However, the carrying value of the notes, while under the fair value option, is subject to our minimum payment guarantee. Fair Value Measurements at Reporting Date Using

(In thousands)Liabilities

December 31,2011

Quoted Prices inActive Markets for

Identical Assets(Level 1)

Significant OtherObservable

Inputs

(Level 2)

SignificantUnobservable

Inputs

(Level 3) TotalGain

Liquidating trust notes, at fair value $ 26,255 $ 0 $ 0 $ 26,255 $ 88

The following table reconciles the beginning and ending balances for the notes for the liquidating trust assets using fair value measurements based onsignificant unobservable inputs for 2011 (in thousands):

LiquidatingTrust Notes

Beginning balance - 1/1/11 $ 38,264 Total gains (88) Payments (11,921)

Ending balance - 12/31/11 $ 26,255

Other Fair Value InformationCash equivalents, accounts receivable, notes receivable, accounts payable and accrued expenses, equity investments and other current assets and

liabilities are carried at amounts which reasonably approximate their fair values. 4. Allowance for Doubtful Accounts

Allowance for doubtful accounts consists of the following (in thousands):

Accounts

Receivable OtherAssets Total

Balance January 1, 2009 $ 35,033 $ 8,000 $ 43,033 Provision for doubtful accounts (1) 14,931 0 14,931 Write-offs (25,900) (8,000) (33,900)

Balance December 31, 2009 24,064 0 24,064 Provision for doubtful accounts (1) 6,156 0 6,156 Write-offs (13,891) 0 (13,891)

Balance December 31, 2010 (1) 16,329 0 16,329 Provision for doubtful accounts (1) 3,845 0 3,845 Write-offs (5,676) 0 (5,676)

Balance December 31, 2011 (1) $ 14,498 $ 0 $ 14,498

(1) Includes provision associated with discontinued operations.

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5. Property and EquipmentProperty and equipment consists of the following (in thousands):

December 31, Asset Lives 2011 2010 Land and land improvements 15 years $ 120,803 $ 50,806 Building and building improvements 40 years 579,064 205,822 Furniture and equipment 3-10 years 166,517 144,970

866,384 401,598 Less: Accumulated depreciation (241,799) (162,924)

Property and equipment, net $ 624,585 $ 238,674

Depreciation expense was $32.4 million, $27.3 million and $31.0 million in 2011, 2010 and 2009, respectively.

In 2011, we sold three wholly owned operating communities with a net book value of $15.8 million and three land parcels with a net book value of $4.0million for total proceeds of $12.8 million. We also recorded impairment charges of $12.7 million related to ten land parcels, one condominium project andone operating community. Refer to Note 3.

In addition, we received $2.0 million in 2011 relating to the sale of a land parcel sold in 2010. The receipt of the amount was contingent on the buyerreceiving zoning approval for the property which the buyer received in 2011.

In 2010, we sold two communities with a net book value of $5.7 million and four land parcels with a net book value of $14.7 million for total proceedsof $24.4 million. We also recorded impairment charges of $5.9 million related to eight land parcels, two operating communities, one condominium projectand two ceased development projects. Refer to Note 3.

In 2009, we sold 21 non-core communities with a net book value of $142.5 million for an aggregate purchase price of $204 million. We recorded a gainof approximately $48.9 million after a deduction of $5.0 million related to potential future indemnification obligations which expired in November 2010. Werecognized $5.0 million of gain related to expiration of this indemnification obligation in 2010 which is included in discontinued operations. In 2009, we alsosold one community with a net book value of zero for $2.0 million and we recorded a gain of $0.5 million in 2009 with additional gain of $1.5 millionrecorded in 2010 when a note receivable was collected. 6. Acquisition of AL US

On June 2, 2011, we closed on a purchase and sale agreement with Morgan Stanley Real Estate Fund VII Global-F (U.S.), L.P., Morgan Stanley RealEstate Fund VII Special Global (U.S.), L.P., MSREF VII Global-T Holding II, L.P., and Morgan Stanley Real Estate Fund VII Special Global-TE (U.S.), L.P.(collectively, the "MS Parties") to purchase the MS Parties' 80% membership interest ("MS Interest") in the AL US Development Venture, LLC ("AL US")venture in which we already owned the remaining 20% membership interest. AL US indirectly owns 15 assisted and independent living facilities which wemanaged prior to the purchase. Pursuant to the purchase and sale agreement, we purchased the MS Interest for an aggregate purchase price of $45 million. Asa result of the transaction, we own 100% of the membership interest of AL US and accordingly, have consolidated the assets, liabilities and operating resultsof AL US from the date of acquisition.

We acquired AL US in stages. The fair value of our 20% membership interest immediately prior to the acquisition of the MS Interest was calculated tobe approximately $11.3 million based on an estimated fair value of approximately $56.3 million for the total underlying equity of AL US. The estimated fairvalue of the equity was calculated based on the acquisition date fair value of the assets and working capital of approximately $421.5 million less the fair valueof the debt and interest rate swap assumed of $365.2 million. As the carrying value of our investment in AL US prior to the acquisition was zero, werecognized a gain of approximately $11.3 million on our pre-existing membership interest as of the acquisition date.

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The following table summarizes the recording, at fair value, of the assets and liabilities as of the acquisition date (in thousands):

AmountsRecognized as ofAcquisition Date

Property and equipment $ 412,560 Other assets 16,069 Debt (350,069) Interest rate swap (15,130) Other liabilities (7,180)

Net assets acquired 56,250 Gain on fair value of pre-existing equity interest from a business combination (11,250) Net transaction costs 292

Total consideration paid $ 45,292

The estimated fair value of the real estate assets at acquisition was approximately $412.6 million. To determine the fair value of the real estate, weexamined various data points including (i) transactions with similar assets in similar markets and (ii) independent appraisals of the acquired assets. As of theacquisition date, the fair value of working capital approximated its carrying value.

The estimated fair value of the assumed debt and interest rate swap at acquisition was approximately $350.1 million and $15.1 million, respectively.The fair value of the debt was estimated based on current rates offered for debt with the same remaining maturities and comparable collateralizing assets.Immediately following the closing of the transaction, we entered into an amendment to the loan agreement with HSH Nordbank AG (refer to Note 11) andmade a $25.0 million principal payment on the debt.

The following table presents information for AL US that is included in our consolidated statement of operations from the acquisition date, June 2, 2011,through December 31, 2011 (in thousands).

AL USIncluded inSunrise's

2011Results

Revenues $ 49,286 Income attributable to common shareholders 854

The following table presents our supplemental consolidated pro forma information as if the acquisition had occurred on January 1, 2010 (in thousandsexcept per share amounts): 2011 2010 Revenues $ 1,326,300 $ 1,434,561 (Loss) income from continuing operations (32,398) 49,024 Diluted (loss) earnings per share $ (0.60) $ 0.82

The unaudited pro forma consolidated results do not purport to project the future results of operations. The unaudited pro forma consolidated resultsreflect the historical financial information of us and AL US, adjusted for the following pro forma pre-tax amounts:

• Elimination of our revenue earned from the management of the communities prior to acquisition of $2.4 million and $5.8 million for 2011 and2010, respectively.

• Elimination of direct expenses from the management of the communities prior to acquisition of $18.3 million and $41.9 million for 2011 and2010, respectively.

• Elimination of equity in earnings from the AL US venture of $2.7 million and $(2.7) million for 2011 and 2010, respectively.

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• Addition of revenue from the operation of the communities prior to acquisition of $34.8 million and $81.8 million for 2011 and 2010,respectively.

• Addition of expenses from the operation of the communities prior to acquisition of $15.6 million and $34.8 million for 2011 and 2010,respectively.

• Adjustments to depreciation of $4.2 million and $15.0 million for 2011 and 2010, respectively, related to the property and equipment acquired.

• Interest adjustment of $5.9 million and $15.3 million for 2011 and 2010, respectively, related to the debt assumed. 7. Sales of Real Estate

Total gains (losses) on sale recognized are as follows (in thousands): December 31, 2011 2010 2009 Properties accounted for under basis of performance of services $ 5,236 $ 1,269 $ 10,451 Properties accounted for previously under deposit method 0 1,900 3,439 Properties accounted for under the profit-sharing method 0 0 8,853 Land and community sales 2,101 (241) (360) Sales of equity interests 0 25,013 0 Condominium sales 0 (171) (1,032) Other sales 848 (98) 300

Total gains on the sale of real estate and equity interests $ 8,185 $ 27,672 $ 21,651

Basis of Performance of Services

In connection with certain transactions where we sold majority membership interests in entities owning partially developed land or sold partiallydeveloped land to ventures, we provided guarantees to support the operations of the underlying communities for a limited period of time. In addition, we haveoperated the communities under long-term management agreements since their opening. Due to our continuing involvement, all gains on the sale and feesreceived after the sale are initially deferred. Any fundings under the cost overrun guarantees and the operating deficit guarantees are recorded as a reduction ofthe deferred gain. Gains and development fees are recognized on the basis of performance of the services required. Gains of $5.2 million, $1.3 million and$10.5 million were recognized in 2011, 2010 and 2009, respectively.

Deposit Method

In 2003, we sold a portfolio of 13 operating communities and five communities under development for approximately $158.9 million in cash, aftertransaction costs, which was approximately $21.5 million in excess of our capitalized costs. In connection with the transaction, we agreed to provide incomesupport to the buyer if the cash flows from the communities were below a stated target. We recorded a gain of $52.5 million upon the expiration of theguarantee in 2007. In 2011, 2010 and 2009, the buyer reimbursed us for some of the income support payments previously made. We recorded additional gainsof zero, $1.9 million and $3.4 million in 2011, 2010 and 2009, respectively, relating to these reimbursements.

Installment Method

In 2009, we sold a wholly owned community to an unrelated third party for approximately $2.0 million. We received $0.3 million in cash and a notereceivable for $1.7 million when the transaction closed. The cash received did not meet the minimum initial investment required to adequately demonstratethe buyer's commitment to purchase this type of asset. Therefore, we applied the installment method of accounting to this transaction. Under the installmentmethod, the seller recognizes a sale of real estate. However, profit is recognized on a reduced basis. As of December 31, 2010, the note receivable had beenpaid back in full. Gains of $1.5 million and $0.5 million were recognized in 2010 and 2009, respectively, relating to this transaction. This community sale isincluded in discontinued operations as we have no continuing involvement.

Investments Accounted for Under the Profit-Sharing Method, net

In 2009, a guarantee we provided in conjunction with the sale of three communities in 2004 expired. The guarantee stated that we would make monthlypayments to the buyer equal to the amount by which a net operating income target exceeded actual net operating income for the communities until a certaincoverage ratio was reached. In 2004, we had concluded that the guarantee would be for an extended period of time and applied the profit-sharing method ofaccounting. Upon the expiration of the guarantee, we recorded a gain of approximately $8.9 million.

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In a different transaction in 2006, we sold a majority interest in two separate entities related to a project consisting of a residential condominiumcomponent and an assisted living component with each component owned by a different entity. We provided guarantees to support the operations of theentities for an extended period of time. We account for the condominium and assisted living ventures under the profit-sharing method of accounting, and ourliability carrying value at December 31, 2011 was $12.2 million for the two ventures. We recorded a loss of $9.8 million, $9.6 million and $13.6 million in2011, 2010 and 2009, respectively.

In connection with the condominium project, we are obligated to our partner and the lender on the assisted living venture to fund future operatingshortfalls. We are also obligated to our partner on the condominium venture to fund operating shortfalls. We have funded $8.1 million under the guaranteesthrough December 31, 2011, of which approximately $1.2 million was funded in 2011. In addition, we are required to fund sales and marketing costsassociated with the sale of the condominiums (refer to Note 16).

The depressed condominium real estate market in the Washington, D.C. area has resulted in lower sales and pricing than forecasted. We believe thepartners have no remaining equity in the condominium project. Accordingly, we have informed our partner that we do not intend to fund future operatingshortfalls. However, under the profit sharing method, we will continue to incur losses associated with the venture.

As of December 31, 2011, loans of $116.4 million for the residential condominium venture and of $29.9 million for the assisted living venture are bothin default. We have accrued $3.3 million in default interest relating to these loans. We are in discussions with the lenders regarding these defaults.

Relevant details are as follows (in thousands): Year Ended December 31, 2011 2010 2009 Revenue $ 15,208 $ 13,012 $ 14,219 Operating expenses (18,643) (17,934) (18,849) Interest expense (7,082) (5,826) (6,195) Impairment loss (396) (462) (1,146)

Loss from operations before depreciation (10,913) (11,210) (11,971) Depreciation expense 1,562 1,560 1,489 Other non-operating expense (455) 0 0 Distributions to other investors 0 0 (2,326)

Loss from investments accounted for under the profit-sharing method $ (9,806) $ (9,650) $ (12,808)

Investments accounted for under the profit-sharing method, net $ (12,209) $ (419) $ 11,031 Amortization expense on investments accounted for under the profit-sharing method $ 0 $ 0 $ 363

Land and Community Sales

In 2011, 2010 and 2009, we sold three, four and one parcels of undeveloped land, respectively. We recognized gains (losses) of $0.2 million, $(0.2)million and $(0.4) million, in 2011, 2010 and 2009, respectively, related to these land sales.

In addition, we received $2.0 million in 2011 relating to the sale of a land parcel sold in 2010. The receipt of the amount was contingent on the buyerreceiving zoning approval for the property which the buyer received in 2011. A gain of approximately $2.0 million was recognized in 2011.

In 2011, we sold three operating communities which were part of the liquidating trust for approximately $8.3 million and recognized gains ofapproximately $1.5 million which is included in discontinued operations. This gain is after a reduction of $0.1 million related to potential futureindemnification obligations which expire in 2012. These properties, in addition to three land parcels sold in 2011, were part of the liquidating trust held ascollateral for the electing lenders and a prorated portion of the net proceeds from the sales were distributed to the electing lenders and reduced the principalbalance of our restructure note by $11.3 million (refer to Note 11).

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In 2010, we sold two operating properties for approximately $10.8 million and we recognized a net gain of approximately $4.0 million which isreflected in discontinued operations in our consolidated statements of operations. This gain is after a reduction of $0.7 million related to potential futureindemnification obligations which expire in 2011. These properties, in addition to two land parcels sold in 2010, were part of the liquidating trust held ascollateral for the electing lenders and a prorated portion of the net proceeds from the sales were distributed to the electing lenders and reduced the principalbalance of our restructure note by $10.7 million. In 2011, a gain of $0.7 million was recognized when the indemnification period expired. The gain is includedin discontinued operations.

In 2009, we sold 21 non-core assisted living communities, located in 11 states, to Brookdale Senior Living, Inc. for an aggregate purchase price of$204 million. At closing, we received approximately $59.6 million in net proceeds after we paid or the purchaser assumed approximately $134.1 million ofmortgage loans, the posting of required escrows, various prorations and adjustments, and payments of expenses by us, recognizing a gain of $48.9 million.This gain was after a reduction of $5.0 million related to potential future indemnification obligations which expired in November 2010. In 2010, a gain of $5.0million was recognized when the indemnification period expired and is included in discontinued operations.

Condominium Sales

In 2006, we acquired the long-term management agreements of two San Francisco Bay area continuing care retirement communities ("CCRC") and theownership of one community. As part of the acquisition, we also received ten vacant condominium units from the seller that we could renovate and sell. In2007, we purchased an additional 37 units. Of the 47 units acquired, three were converted into a fitness center for the community, 14 were converted intoseven double units and three were converted into a triple unit. In 2011, 2010 and 2009, we sold one, nine and nine of the 35 renovated units in each respectiveyear and recognized losses on those sales totaling zero, $(0.2) million and $(1.0) million in 2011, 2010 and 2009, respectively.

Sales of Equity Interests

We sold our equity interest in nine limited liability companies in the U.S. and two limited partnerships in Canada in 2010 and one venture in 2009whose underlying assets were real estate. In accordance with ASC Property, Plant and Equipment Topic, the sale of an investment in the form of a financialasset that is in substance real estate should be accounted for in accordance with this Topic. For all of the transactions, we did not provide any forms ofcontinuing involvement that would preclude sale accounting or gain recognition. We recognized gains on sale of $25.0 million and zero in 2010 and 2009,respectively, related to these sales.

Other

In 2011, we recognized a $0.8 million gain when it was determined that our obligations relating to certain environmental and structural issues at aproperty previously sold by us had been fully satisfied and no further amounts would be incurred. 8. Variable Interest Entities

GAAP requires that a variable interest entity ("VIE"), defined as an entity subject to consolidation according to the provisions of the ASCConsolidation Topic, must be consolidated by the primary beneficiary. The primary beneficiary is the party that has both the power to direct activities of aVIE that most significantly impact the entity's economic performance and the obligation to absorb losses of the entity or the right to receive benefits from theentity that could both potentially be significant to the VIE. We perform ongoing qualitative analysis to determine if we are the primary beneficiary of aVIE. At December 31, 2011, we are the primary beneficiary of one VIE and therefore consolidate that entity.

VIEs where Sunrise is the Primary Beneficiary

We have a management agreement with a not-for-profit corporation established to own and operate a continuing care retirement community ("CCRC")in New Jersey. This entity is a VIE. The CCRC contains a 60-bed skilled nursing unit, a 32-bed assisted living unit, a 27-bed Alzheimer's care unit and 252independent living apartments. We have included $16.1 million and $17.1 million, respectively, of net property and equipment and debt of $21.8 million and$22.5 million, respectively, of which $1.4 million was in default as of December 31, 2011, in our December 31, 2011 and December 31, 2010 consolidatedbalance sheets for this entity. The majority of the debt is bonds that are secured by a pledge of and lien on revenues, a letter of credit with the Bank of NewYork and by a leasehold mortgage and security agreement. We guarantee the letter of credit. Proceeds from the bonds' issuance were used to acquire andrenovate the CCRC. As of December 31, 2011 and December 31, 2010, we guaranteed $20.4 million and $21.1 million, respectively, of thebonds. Management fees earned by us were $0.7 million, $0.6 million and $0.6 million for 2011, 2010 and 2009, respectively. The management agreementalso

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provides for reimbursement to us for all direct cost of operations. Payments to us for direct operating expenses were $12.4 million, $10.1 million and $11.1million for 2011, 2010 and 2009, respectively. The entity obtains professional and general liability coverage through our affiliate, Sunrise Senior LivingInsurance, Inc. The entity incurred $0.2 million per year in 2011, 2010 and 2009, respectively, related to the professional and general liability coverage. Theentity also has a ground lease with us. Rent expense is recognized on a straight-line basis at $0.7 million per year. Deferred rent relating to this agreement was$7.0 million and $6.6 million at December 31, 2011 and December 31, 2010, respectively. These amounts are eliminated in our consolidated financialstatements.

VIEs Where Sunrise Is Not the Primary Beneficiary but Holds a Significant Variable Interest in the VIEs

In July 2007, we formed a venture with a third party which purchased 17 communities from our first U.K. development venture. The entity has£439.4 million ($679.0 million) of debt of which $621.0 million is in default. This debt is non-recourse to us. Our equity investment in the venture is zero atDecember 31, 2011. The line item "Due from unconsolidated communities" on our consolidated balance sheet as of December 31, 2011 contains $1.4 milliondue from the venture. Our maximum exposure to loss is $1.4 million. We calculated the maximum exposure to loss as the maximum loss (regardless ofprobability of being incurred) that we could be required to record in our consolidated statements of operations as a result of our involvement with the VIE.

This VIE is a limited partnership in which the general partner ("GP") is owned by our venture partner and us in proportion to our equity investment of90% and 10%, respectively. The GP is supervised and managed under a board of directors and all of the powers of the GP are vested in the board of directors.The board of directors is made up of six directors. Four directors are appointed by our venture partner and two directors are appointed by us. Actions thatrequire the approval of the board of directors include approval and amendment of the annual operating budget. Material decisions, such as the sale of anyfacility, require approval by 75% of the board of directors. We have determined that the board of directors has power over financing decisions, capitaldecisions and operating decisions. These are the activities that most impact the entity's economic performance, and therefore, neither equity holder has powerover the venture. We have determined that power is shared within this venture as no one partner has the ability to unilaterally make significant decisions andtherefore we are not the primary beneficiary.

In 2007, we formed another venture with a third party which owned 13 communities. Upon its formation, the entity was not considered a VIE. InAugust 2011, the venture transferred ownership of six communities in the venture to another entity. This was a reconsideration event for the venture and theentity was deemed to be a VIE because it no longer had sufficient equity to finance its activities without additional subordinated financial support. The entityhas $138.7 million of debt which is non-recourse to us. Our equity investment in the venture is zero at December 31, 2011. Our maximum exposure to loss iszero. We calculated the maximum exposure to loss as the maximum loss (regardless of the probability of being incurred) that we could be required to recordin our consolidated statements of operations as a result of our involvement with the VIE.

This VIE is a limited partnership in which the general partner is owned by us. However, material decisions, such as approval and amendment of theannual operating budget and the sale of any facility, require unanimous approval by both venture partners. These are the activities that most impact the entity'seconomic performance, and therefore, neither equity holder has power over the venture. We have determined that power is shared within this venture as noone partner has the ability to unilaterally make significant decisions for the venture and therefore, we are not the primary beneficiary.

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9. Intangible Assets and GoodwillIntangible assets consist of the following (in thousands):

Estimated December 31, Useful Life 2011 2010 Management contracts less accumulated amortization of $11,612 and $42,143 1 - 30 years $ 34,413 $ 36,739 Leaseholds less accumulated amortization of $5,237 and $4,822 10 - 29 years 2,646 3,062 Other intangibles less accumulated amortization of $2,360 and $1,033 1 - 40 years 1,667 948

$ 38,726 $ 40,749

Amortization was $3.5 million, $11.7 million and $13.0 million in 2011, 2010 and 2009, respectively. These amounts include $0.5 million, $9.5 millionand $10.2 million of accelerated amortization of certain terminated management contracts. Amortization is expected to be approximately $3.6 million in 2012and $1.7 million per year from 2013 to 2016. 10. Investments in Unconsolidated Communities

The following are our investments in unconsolidated communities as of December 31, 2011:

Sunrise

Ownership Karrington of Findlay 50.00% CC3 Acquisition, LLC 40.00% Sunrise/Inova McLean Assisted Living, LLC 40.00% CLPSun III Tenant, LP 32.12% CLPSun Partners III, LLC 32.12% CNLSun Partners II, LLC 30.00% AU-HCU Holdings, LLC 30.00% RCU Holdings, LLC 30.00% SunVest, LLC 30.00% Metropolitan Senior Housing, LLC 25.00% Sunrise at Gardner Park, LP 25.00% Master CNL Sun Dev I, LLC 20.00% Master MetSun, LP 20.00% Master MetSun Two, LP 20.00% Master MetSun Three, LP 20.00% PS UK Investment (Jersey) LP 20.00% Sunrise Beach Cities Assisted Living, LP 20.00% Sunrise First Euro Properties LP 20.00% Sunrise HBLR, LLC 20.00% PS UK Investment II (Jersey) LP 16.90% Santa Monica AL, LLC 15.00% Cortland House, LP 10.00% Dawn Limited Partnership 9.81%

Our weighted average ownership percentage in our unconsolidated ventures, including our investments accounted for under the profit sharing method,is approximately 23.5% based on total assets as of December 31, 2011.

Included in "Due from unconsolidated communities" are net receivables and advances from unconsolidated ventures of $17.5 million and $22.5 millionat December 31, 2011 and 2010, respectively. Net receivables from these ventures relate primarily to development and management activities.

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Summary financial information for unconsolidated ventures accounted for by the equity method, which excludes our venture accounted for under theprofit sharing method, is as follows (in thousands and unaudited): December 31, 2011 2010 2009 Current assets $ 117,375 $ 115,970 $ 146,468 Noncurrent assets, principally property and equipment 2,747,355 2,664,564 3,842,919 Current liabilities, excluding current portion of mortgage debt 73,953 84,845 121,868 Total mortgage debt 2,392,623 2,672,506 3,569,246 Noncurrent liabilities, excluding mortgage debt 24,240 51,177 104,810 Equity 373,914 (27,994) 193,463 Revenue 577,829 513,349 443,318 Loss from continuing operations (29,679) (38,763) (87,363) Net loss (51,513) (43,850) (40,727)

Accounting policies used by the unconsolidated ventures are the same as those used by us.

Total management fees and reimbursed contract services from related unconsolidated ventures was $319.2 million, $500.5 million and $572.7 millionin 2011, 2010 and 2009, respectively.

Our share of earnings and return on investment in unconsolidated communities consists of the following (in thousands): December 31, 2011 2010 2009 Sunrise's share of (loss) earnings in unconsolidated communities $ (2,435) $ 8,599 $ 4,245 Return on investment in unconsolidated communities 7,110 9,956 10,612 Impairment of equity and cost investments (2,046) (11,034) (9,184)

Sunrise's share of earning and return on investment in unconsolidated communities $ 2,629 $ 7,521 $ 5,673

Various transactions, such as recapitalizations, and other adjustments, which can vary significantly year to year, account for differences in the amount atwhich our investments are carried and the amount of our underlying equity in the net assets of those investments. Our investment in unconsolidatedcommunities was (less than) greater than our portion of the underlying equity in the ventures by $(76.0) million and $60.4 million as of December 31, 2011and 2010, respectively.

Return on Investment in Unconsolidated Communities

Sunrise's return on investment in unconsolidated communities includes cash distributions from ventures arising from a refinancing of debt withinventures. We first record all equity distributions as a reduction of our investment. Next, we record a liability if there is a contractual obligation or impliedobligation to support the venture including in our role as general partner. Any remaining distribution is recorded in income.

In 2011, our return on investment in unconsolidated communities was primarily the result of distributions of $4.4 million from operations of theinvestments where the book value is zero and we have no contractual or implied obligation to support the venture. Also, in 2011, we recognized $2.7 millionin conjunction with the expiration of a contractual obligation.

In 2010, our return on investment in unconsolidated communities was primarily the result of distributions of $9.4 million from operations of theinvestments where the book value is zero and we have no contractual or implied obligation to support the venture. Also, in 2010, we recognized $0.4 millionin conjunction with the sale of a community within a venture in which we own a 25.0% interest, and we recognized $0.3 million in conjunction with theexpiration of a contractual obligation.

In 2009, our return on investment in unconsolidated communities was primarily the result of distributions of $10.6 million from operations frominvestments where the book value is zero and we have no contractual or implied obligation to support the venture.

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TransactionsCNL

In January 2011, we contributed our 10% ownership interest in an existing venture in exchange for a 40% ownership interest in a new venture, CC3Acquisition, LLC ("CC3"), organized to own the same portfolio of 29 communities that we manage. We recorded our new investment at its carryover basis.We made an additional capital contribution of $9.9 million of which $7.6 million was funded as a deposit into escrow in 2010 and $2.3 million was fundedupon transaction closing. The portfolio was valued at approximately $630 million (excluding transaction costs). As part of our new venture agreement with awholly-owned subsidiary of CNL Lifestyle Properties ("CNL"), from the start of year three to the end of year six following our January 2011 acquisition, wewill have a buyout option to purchase CNL's remaining 60% interest in the venture. The purchase price provides a 13% internal rate of return to CNL if weexercise our option in years three and four and a 14% internal rate of return if we exercise our option in years five and six. Our share of the transaction costsfor 2011 was approximately $5.0 million, of which $4.0 million was reflected as an expense in Sunrise's share of loss and return on investment inunconsolidated communities and $1.0 million was reflected as general and administrative expense. Six communities in the state of New York, whose realestate is owned by the venture, are being leased and operated by us and therefore, the operations are included in our consolidated financial statements.

In August 2011, we and our venture partner in a portfolio of six communities transferred ownership of the portfolio to a new joint venture owned 70%by a wholly-owned subsidiary of CNL different from the above subsidiary and 30% by us. As part of our new venture agreement with the CNL subsidiary,from the start of year four to the end of year six, we will have a buyout option to purchase CNL's 70% interest in the venture for a purchase price that providesa 16% internal rate of return to CNL. In addition, the new venture modified the existing mortgage loan in the amount of $133.2 million to provide for, amongother things, (i) pay down of the loan by approximately $28.7 million and (ii) an extension of the maturity date of the loan to April 2014 which may beextended by two additional years under certain conditions. In connection with the transaction, we contributed $8.1 million and CNL contributed $19.0 millionto the new venture.

In October 2011, we closed on a purchase and sale agreement with Master MorSun Acquisition LLC for its 80% ownership interest in a joint venturethat owned seven senior living facilities to a new joint venture owned approximately 68% by CNL Income Partners, LP and approximately 32% by us. Inconnection with the transaction, we transferred our interest in the previous joint venture valued at approximately $16.7 million and CNL Income Partners, LPcontributed approximately $35.4 million. The purchase was also funded by $120.0 million of new debt financing in the venture. We have the option to buy outCNL Income Partners, LP's interest during years four to six for a purchase price that provides a 13% internal rate of return to CNL Income Partners, LP.

Ventas

In 2010, we sold to Ventas, Inc. ("Ventas") all of our venture interests in nine limited liability companies in the U.S. and two limited partnerships inCanada, which collectively owned 58 communities managed by us. The aggregate purchase price for the venture interests was approximately $41.5 million. Inconnection with this transaction, we recorded a $25.0 million gain on the sale and deferred $5.7 million of the payment, as of December 31, 2010, which wasrecognized as management fee income in 2011.

U.K. Venture

In 2010 and 2009, our first U.K. development venture in which we have a 20% equity interest sold two and four communities, respectively, to a venturein which we have an approximate 10% interest. We recorded equity in earnings in 2010 and 2009 of approximately $13.0 million and $19.5 million,respectively. In 2010, we entered into an amendment to the partnership agreement for our first U.K. development venture. Under the amendment, we and ourventure partner agreed to amend the partnership agreement as it related to distributions and acknowledged that we had received distributions less than what wewere entitled to. In December 2010, we received a distribution of $15.2 million. In addition, our venture partner agreed to release $7.3 million of undistributedproceeds from previous sales that had been held on our behalf in an escrow account within the venture. Our equity in earnings from this venture is composedof (i) gains on the sale of the communities, (ii) the amendment to the cash distribution waterfall in 2010 and (iii) earnings and losses from the communityoperations.

When our U.K. ventures were formed, we established a bonus pool in respect to each venture for the benefit of employees and others responsible for thesuccess of these ventures. At that time, we agreed with our partner that after certain return thresholds were met, we would each reduce our percentage interestsin venture distributions with such excess to be used to fund this bonus pool. In 2010 and 2009, we recorded bonus expense of $0.2 million and $0.7 million,respectively, in respect of the bonus pool relating to the U.K. venture.

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Non-Participation in Capital Calls and Debt Defaults

In 2011, based on economic challenges and defaults under the venture's construction loan agreements, we considered our equity investment in one ofour ventures to be other than temporarily impaired and wrote down the equity investment by $2.0 million. The impairment charge is included in ourconsolidated statements of operations in "Sunrise's share of earnings and return on investment in unconsolidated communities."

In 2010, based on an event of default under the loan agreements of two ventures in which we own a 20% interest, we considered our equity to be otherthan temporarily impaired and wrote-off the remaining equity balance of $1.9 million for one venture and wrote down the equity balance of the other ventureby $1.2 million. Also in 2010, we chose not to participate in a capital call for two ventures in which we had a 20% interest and as a result our initial equityinterest in those ventures was diluted to zero. Accordingly, we wrote off our remaining investment balance of $1.8 million which is reflected in Sunrise'sshare of earnings and return on investment in unconsolidated communities in our consolidated statements of operations. In addition, based on poor operatingperformance of two communities in one venture in which we have a 20% interest, we considered our equity to be other than temporarily impaired and wroteoff the remaining equity balance of $0.7 million.

We have one cost method investment in a company in which we have an approximate 9% interest. In 2010, based on the inability of this company tosecure continued financing and having significant debt maturing in 2010, we considered our equity to be other than temporarily impaired and wrote off ourequity balance of $5.5 million which is recorded as part of Sunrise's share of earnings and return on investment in unconsolidated communities.

In 2009, we wrote-down our equity investments in two of our development ventures by $7.4 million based on poor performance and defaults under theventures' construction loan agreements. In 2009, based on the receipt of a notice of default from the lender to a venture in which we own a 20% interest andthe poor rental experience in the venture, we considered our equity to be other than temporarily impaired and wrote off the remaining equity balance of $1.1million. Also in 2009, we chose not to participate in a capital call for a venture in which we had a 20% interest and we wrote off our remaining investmentbalance of $0.6 million and as a result our initial equity interest in the venture was diluted to zero. We determined the fair value of our investment in a venturein which we had a 1% interest had decreased to zero and was other than temporarily impaired, resulting in an impairment charge of $0.1 million.

Aston Gardens

In 2008, we received a notice of default from our equity partner alleging a default under our management agreement for six communities as a result ofthe venture's receipt of a notice of default from a lender. In December 2008, the venture's debt was restructured and we entered into an agreement with ourventure partner under which we agreed to sell our 25% equity interest and to resign as managing member of the venture and manager of the communitieswhen we were released from various guarantees provided to the venture's lender.

In 2009, we sold our 25% equity interest in the venture and were released from all guarantee obligations. Our management agreement was terminatedon April 30, 2009. We received proceeds of approximately $4.8 million for our equity interest and our receivable from the venture for fundings under theoperating deficit guarantees. We had previously written down our equity interest and our receivable to these expected amounts in 2008 so there was no gain orloss on the transaction in 2009.

Fountains Venture

In 2008, the Fountains venture, in which we held a 20% interest, failed to comply with the financial covenants in the venture's loan agreement. Thelender had been charging a default rate of interest since April 2008. At loan inception, we provided the lender a guarantee of operating deficits includingpayments of monthly principal and interest payments, and in 2008 we funded payments under this guarantee as the venture did not have enough available cashflow to cover the full amount of the interest payments at the default rate. Advances under this guarantee were recoverable in the form of a loan to the venture,which was to be repaid prior to the repayment of equity capital to the partners, but was subordinate to the repayment of other venture debt. We funded $14.2million under this operating deficit guarantee which had been written-down to zero as of December 31, 2008. These advances under the operating deficitguarantee were in addition to the $12.8 million we funded under our income support guarantee to our venture partner, which was written-down to zero as ofDecember 31, 2008.

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In 2009, we informed the venture's lenders and our venture partner that we were suspending payment of default interest and payments under the incomesupport guarantee, and that we would seek a comprehensive restructuring of the loan, our operating deficit guarantees and our income support guarantee. Ourfailure to pay default interest on the loan was an additional default of the loan agreement. In October 2009, we entered into agreements with our venturepartner, as well as with the lender, to release us from all claims that our venture partner and the lender had against us prior to the date of the agreements andfrom all of our future funding obligations in connection with the Fountains portfolio.

Pursuant to these agreements, the lender and our venture partner released us from all past and future funding commitments in connection with theFountains portfolio, as well as from all other liabilities prior to the date of the agreements arising under the Fountains venture, loan and managementagreements, including obligations under operating deficit and income support obligations. We retain certain management and operating obligations withrespect to one community until regulatory approval is obtained to transfer management. Regulatory approval was received in January 2012 and we are nolonger managing the community.

In exchange for these releases, we have, among other things:

• Transferred our 20-percent ownership interest in the Fountains venture to our venture partner in 2009;

• Contributed vacant land parcels adjacent to six of the Fountains communities and owned by us to the Fountains venture in 2009;

• Transferred management of 15 of the 16 Fountains communities in 2010 and will transfer management of the remaining community as soon asregulatory approval is obtained; and

• Repaid the venture the management fee we had earned in 2009 of $1.8 million.

The contributed vacant land parcels were carried on our consolidated balance sheets at a book value of $12.9 million, in addition to a guarantee liabilityof $12.9 million, both of which was written off upon closing of the transaction resulting in no gain or loss.

Other

In 2010, a venture in which we own 25% interest sold its only property. We received proceeds of approximately $0.4 million. 11. Debt

At December 31, 2011 and December 31, 2010, we had $593.7 million and $163.0 million, respectively, of outstanding debt with a weighted averageinterest rate of 4.12% and 2.78%, respectively, as follows (in thousands): December 31, December 31, 2011 2010 AL US debt, at fair value (1) $ 321,992 $ 0 Community mortgages 94,641 96,942 Liquidating trust notes 26,255 38,264 Convertible subordinated notes 86,250 0 Credit facility 39,000 0 Other 3,757 5,284 Variable interest entity 21,770 22,510

$ 593,665 $ 163,000

(1) The principal amount of the debt at December 31, 2011 was $334.6 million.

Of the outstanding debt at December 31, 2011, we had $87.6 million of fixed-rate debt with a weighted average interest rate of 5.03% and$506.1 million of variable rate debt with a weighted average interest rate of 3.96%.

Of our total debt of $593.7 million, $47.3 million was in default as of December 31, 2011. We are in compliance with the covenants on all our otherconsolidated debt and expect to remain in compliance in the near term.

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Principal maturities of debt at December 31, 2011 are as follows (in thousands):

Mortgages,Wholly-Owned

Properties

VariableInterest

Entity Debt

LiquidatingTrust

Note

ConvertibleSubordinated

Notes Other Total Default $ 45,907 $ 1,365 $ 0 $ 0 $ 0 $ 47,272 2012 27,713 775 26,255 0 1,610 56,353 2013 21,021 810 0 0 1,610 23,441 2014 0 840 0 0 39,537 40,377 2015 321,992 880 0 0 0 322,872 2016 0 915 0 0 0 915 Thereafter 0 16,185 0 86,250 0 102,435

$ 416,633 $ 21,770 $ 26,255 $ 86,250 $ 42,757 $ 593,665

Canadian Debt

Three communities in Canada that are wholly owned have been slow to lease up. The outstanding loan balance relating to these communities is non-recourse to us but we have provided operating deficit guarantees to the lender. We are not currently funding under these operating deficit guarantees. The loanmatured in April 2011 and had a balance of $45.9 million as of December 31, 2011. In February 2012, we entered into a loan modification that, among otherthings: (i) extended the loan on our three Canadian communities two years from the modification date; (ii) provided for a termination of our operating deficitguarantee 42 months from the modification date; (iii) cross collateralized the three communities; (iv) increased the interest rate from the TD Bank Prime rateplus 175 bps to TD Bank Prime rate plus 200 bps; and (v) obligated us to complete a reminiscence conversion in a section of one of the communities.

AL US Debt

In connection with the AL US transaction (refer to Note 6), on June 2, 2011, we assumed $364.8 million of debt with an estimated fair value of $350.1million. Immediately following the closing of the transaction, we entered into an amendment to the loan. The loan amendment, among other matters,(i) extended the maturity date to June 14, 2015; (ii) provided for a $25.0 million principal repayment; (iii) set the interest rate on amounts outstanding fromthe effective date of the amendment to LIBOR plus 1.75% with respect to LIBOR advances and the base rate (i.e. the higher of the Federal Funds Rate plus0.50% or the prime rate announced daily by HSH Nordbank AG ("Nordbank")) plus 1.25% with respect to base rate advances; (iv) instituted a permanent cashsweep of all excess cash at the communities securing the loan on an aggregated and consolidated basis, which will be used by Nordbank to pay down theoutstanding principal balance; (v) released certain management fees that were escrowed and eliminated the requirement for any further subordination ordeferral of management fees provided no event of default under the loan occurs; (vi) provided for a $5.0 million escrow for certain indemnificationobligations; (vii) provided relief under current debt service coverage requirements; and (viii) modified certain other covenants and terms of the loan. Inconnection with the amendment, we entered into a new interest rate swap arrangement that extended an existing swap with a fixed notional amount of $259.4million at 3.2% plus the applicable spread of 175 basis points, down from 5.61% on the previous swap. The new swap arrangement terminates at loanmaturity in June 2015. The remaining outstanding balance on the loan will continue to float over LIBOR as described above. The amendment also containsrepresentations, warranties, covenants and events of default customary for transactions of this type. We recorded this loan on our consolidated balance sheet atits estimated fair value on the acquisition and assumption date. The fair value balance of the loan as of December 31, 2011 was $322.0 million and the faceamount was $334.6 million.

Junior Subordinated Convertible Notes

In April 2011, we issued $86.25 million in aggregate principal amount of our 5.00% junior subordinated convertible notes due 2041 in a privateoffering. We received an aggregate $83.7 million of net proceeds. The notes are junior subordinated obligations and bear a cash interest rate of 5.0% perannum, subject to our right to defer interest payments on the notes for up to 10 consecutive semi-annual interest periods. The notes will be convertible intoshares of our common stock at an initial conversion rate of 92.2084 shares of common stock per $1,000 principal amount of the notes (which represents theissuance of approximately 8.0 million shares at an equivalent to an initial conversion price of approximately $10.845 per share), subject to adjustment uponthe occurrence of specified events. We do not have the right to redeem the notes prior to maturity and no sinking fund is provided. We may terminate theholders' conversion rights at any time on or after April 6, 2016 if the closing price of our common stock exceeds 130% of the conversion price for at least 20trading days during any consecutive 30 trading day period, including the last day of such period. The notes will mature on April 1, 2041, unless purchased orconverted in accordance with their terms prior to such date.

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Germany Restructure Notes

We previously owned nine communities in Germany. In 2009, we entered into a restructuring agreement, in the form of a binding term sheet, with threeof our lenders ("electing lenders") to seven of the nine communities, to settle and compromise their claims against us, including under operating deficit andprincipal repayment guarantees provided by us in support of our German subsidiaries. These three lenders contended that these claims had an aggregate valueof approximately $148.1 million. The binding term sheet contemplated that, on or before the first anniversary of the execution of definitive documentation forthe restructuring, certain other of our identified lenders could elect to participate in the restructuring with respect to their asserted claims. The claims beingsettled by the three lenders represented approximately 85.2% of the aggregate amount of claims asserted by the lenders that could elect to participate in therestructuring transaction.

The restructuring agreement provided that the electing lenders would release and discharge us from certain claims they may have had against us. Weissued to the electing lenders 4.2 million shares of our common stock, their pro rata share of up to 5 million shares of our common stock which would havebeen issued if all eligible lenders had become electing lenders. The fair value of the 4.2 million shares at the time of issuance was $11.1 million. In addition,we granted mortgages for the benefit of all electing lenders on certain of our unencumbered North American properties (the "liquidating trust").

In April 2010, we executed the definitive documentation with the electing lenders. As part of the restructuring agreements, we also guaranteed that,within 30 months of the execution of the definitive documentation for the restructuring, the electing lenders would receive a minimum of $49.6 million fromthe net proceeds of the sale of the liquidating trust, which equals 80 percent of the appraised value of these properties at the time of the restructuringagreement. If the electing lenders did not receive at least $49.6 million by such date, we would make payment to cover any shortfall or, at such lenders'option, convey to them the remaining unsold properties in satisfaction of our remaining obligation to fund the minimum payments. We have sold 10 NorthAmerican properties in the liquidating trust for gross proceeds of approximately $26.7 million with an aggregate appraised value of $33.2 million throughDecember 31, 2011. As of December 31, 2011, the electing lenders have received net proceeds of $23.4 million as a result of sales from the liquidating trust.

In April 2010, we entered into a settlement agreement with another lender of one of our German communities (a "non-electing lender" for purposes ofthe restructuring agreement). The settlement released us from certain of our operating deficit funding and payment guarantee obligations in connection withthe loans. Upon execution of the agreement, the lender's recourse, with respect to the community mortgage, was limited to the assets owned by the Germansubsidiaries associated with the community. In exchange for the release of these obligations, we agreed to pay the lender approximately $9.9 million over fouryears, with $1.3 million of the amount paid at signing. The payment is secured by a non-interest bearing note. We have recorded the note at a discount byimputing interest on the note using an estimated market interest rate. The balance on the note was recorded at $5.3 million and is being accreted to the note'sstated amount over the remaining term of the note. The balance of the note as of December 31, 2011 was $3.8 million.

In addition to the consideration paid to the German lenders described above, in 2010, we sold the real property and certain related assets of eight of ournine German communities. The aggregate purchase price was €60.8 million (approximately $74.5 million as of the signing date) which was paid directly tothe German lenders.

In addition to the restructuring agreements, we entered into a settlement agreement with the last remaining non-electing lender of one of our Germancommunities. In 2010, we closed on the sale of this community and we were released from the obligations related to the community.

We elected the fair value option to measure the financial liabilities associated with and which originated from the restructuring of our German loans.The fair value option was elected for these liabilities to provide an accurate economic reflection of the offsetting changes in fair value of the underlyingcollateral. As a result of our election of the fair value option, all changes in fair value of the elected liabilities are recorded with changes in fair valuerecognized through earnings. As of December 31, 2011, the notes for the liquidating trust assets are accounted for under the fair value option. The carryingvalue of the financial liabilities for which the fair value option was elected was estimated applying certain data points including the value of the underlyingcollateral. However, the carrying value of the notes, while under the fair value option, is subject to our minimum payment guarantee. The balance as ofDecember 31, 2011 was $26.3 million, which represents our minimum payment guarantee at that date.

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KeyBank Credit FacilityOn June 16, 2011, we entered into a credit agreement for a $50 million senior revolving line of credit ("Credit Facility") with KeyBank National

Association ("KeyBank"), as administrative agent and lender, and other lenders which may become parties thereto from time to time. The Credit Facilityincludes a $20.0 million sublimit to support standby letters of credit and it is also expandable to $65.0 million if (i) additional lenders commit to participate inthe Credit Facility and (ii) there are no defaults.

The Credit Facility is secured by our 40% equity interest in CC3, our joint venture with a wholly owned subsidiary of CNL, that owns 29 senior livingcommunities managed by us. The Credit Facility replaced our previous credit facility with Bank of America ("BoA Bank Credit Facility").

The Credit Facility matures on June 16, 2014, subject to our one-time right to extend the maturity date for one year, with ninety days' notice, providedno material event of default has occurred and we pay a 25 basis point extension fee. Payments on the Credit Facility will be interest only, payable monthly,with outstanding principal and interest due at maturity. Prepayment is permitted at any time, subject to make whole provisions for breakage of certain LIBORcontracts. Pricing for the Credit Facility is KeyBank's base rate or LIBOR plus an applicable margin depending on our leverage ratio. The LIBOR marginsrange from 5.25% to 3.25%, and the base rate margins range from 3.75% to 1.75%. We are obligated to pay a fee, payable quarterly in arrears, equal to0.45% per annum of the average unused portion of the Credit Facility, or 0.35% per annum of the average unused portion for any quarter in which usage isgreater than or equal to 50% throughout the quarter. In addition, at closing, we paid KeyBank a commitment fee of 1.0% of the Credit Facility and certainother administrative fees. The Credit Facility requires us to use KeyBank and its affiliates as our primary relationship bank, including for primary depositoryand cash management purposes, except as required by agreements with other entities.

The Credit Facility requires us to meet several covenants which include:

• Maximum corporate leverage ratio of 5.25 to 1.0 in 2012 and thereafter;

• Minimum corporate fixed charge coverage ratio of 1.25 to 1.0 in 2012 and 1.45 to 1.0 in 2013 and thereafter;

• Minimum liquidity of $15.0 million;

• Minimum collateral loan to value of 75%; and

• Maximum permitted development obligations of $60.0 million per year after January 1, 2012.

In addition the covenants stated above, the Credit Facility also contains various covenants and events of default which could trigger early repaymentobligations and early termination of the lenders' commitment obligations. Events of default include, among others: nonpayment, failure to perform certaincovenants beyond a cure period, incorrect or misleading representations or warranties, cross-default to any recourse indebtedness of ours in an aggregateamount outstanding in excess of $30.0 million, and a change of control. Our ability to borrow under the Credit Facility is subject to these covenants.

The Credit Facility also includes limitations and prohibitions on our ability to incur or assume liens and debt except in specified circumstances, makeinvestments except in specified circumstances, make restricted payments except in certain circumstances, make dispositions except in specified situations,incur recourse indebtedness in connection with the development of a new senior living project in excess of specified threshold amounts, use the proceeds topurchase or carry margin stock, enter into business combination transactions or liquidate us and engage in new lines of business and transactions withaffiliates except in specified circumstances.

As of December 31, 2011, there were $39.0 million of draws against the Credit Facility and $10.2 million in letters of credit outstanding. We have noborrowing availability under the Credit Facility at December 31, 2011.

Terminated Bank Credit Facility

We entered into a termination agreement with regards to our BoA Bank Credit Facility in June 2011 at the time we entered into the Credit Facility withKeyBank. The termination agreement provided, among other things, that we would use good faith efforts to cause any outstanding letters of credit under theBoA Bank Credit Facility to be returned promptly to Bank of America for cancellation. As each letter of credit was cancelled, Bank of America returned to usthe cash collateral proportionate to the letter of credit cancelled and released any lien it had upon our assets in connection with the BoA Bank Credit Facility.At December 31, 2011, there were no longer any letters of credit outstanding under the BoA Bank Credit Facility.

Mortgage Financing

In February 2011, we extended the maturity date for a loan secured by a wholly owned community to June 2012 in exchange for a principal payment of$1.0 million plus fees and expenses. The loan balance at December 31, 2011 was $27.7 million.

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Other

In addition to the debt discussed above, Sunrise ventures have total debt of $2.5 billion with near-term scheduled debt maturities of $0.3 billion in 2012,and there is $0.9 billion of debt that is in default as of December 31, 2011. The debt in the ventures is non-recourse to us with respect to principal paymentguarantees and we and our venture partners are working with the venture lenders to obtain covenant waivers and to extend the maturity dates. In all suchinstances, the construction loans or permanent financing provided by financial institutions is secured by a mortgage or deed of trust on the financedcommunity. We have provided operating deficit guarantees to the lenders or ventures with respect to $0.6 billion of the total venture debt. Under the operatingdeficit agreements, we are obligated to pay operating shortfalls, if any, with respect to these ventures. Any such payments could include amounts arising inpart from the venture's obligations for payment of monthly principal and interest on the venture debt. These operating deficit agreements would not obligateus to repay the principal balance on such venture debt that might become due as a result of acceleration of such indebtedness or maturity. We have non-controlling interests in these ventures.

One of the ventures mortgage loans described above is in default at December 31, 2011 due to a violation of certain loan covenants. The mortgage loanbalance was $621.0 million as of December 31, 2011. The loan is collateralized by 15 communities owned by the venture located in the United Kingdom. Thelender has rights which include foreclosure on the communities and/or termination of our management agreements. The venture is in discussions with thelender regarding the possibility of entering into a loan modification. During 2011, we recognized $9.0 million in management fees from this venture. OurUnited Kingdom Management segment reported $1.6 million in income from operations in 2011. Our investment balance in this venture was zero atDecember 31, 2011.

Value of Collateral and Interest Paid

At December 31, 2011 and 2010, the net book value of properties pledged as collateral for mortgages payable was $542.3 million and $196.8 million,respectively.

Interest paid totaled $12.3 million, $6.9 million and $12.6 million in 2011, 2010 and 2009, respectively. Interest capitalized was zero for both 2011 and2010 and $0.5 million in 2009.

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12. Income TaxesDeferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting

purposes and the amount recognized for income tax purposes. The significant components of our deferred tax assets and liabilities are as follows (inthousands): December 31, 2011 2010 Deferred tax assets:

Sunrise operating loss carryforwards - federal $ 71,544 $ 66,303 Sunrise operating loss carryforwards - state 20,072 15,851 Sunrise operating loss carryforwards - foreign 15,313 11,519 Financial guarantees 1 21 Accrued health insurance 856 1,145 Self-insurance liabilities 4,452 4,763 Stock-based compensation 8,240 6,242 Allowance for doubtful accounts 4,923 4,169 Tax credits 7,734 7,734 Accrued expenses and reserves 29,246 30,896 Basis difference in property and equipment and intangibles 0 24,496 Entrance fees 17,310 15,536 Liability - Liquidating trust 6,825 14,023 Other 2,352 1,788

Gross deferred tax assets 188,868 204,486 U.S. federal and state valuation allowance (134,476) (134,232) Canadian valuation allowance (15,182) (14,063) U.K. valuation allowance (79) (282)

Net deferred tax assets 39,131 55,909

Deferred tax liabilities: Investments in ventures (27,272) (49,649) Basis difference in property and equipment and intangibles (6,839) 0 Other (5,020) (6,260)

Total deferred tax liabilities (39,131) (55,909)

Net deferred tax liabilities $ 0 $ 0

Our worldwide taxable (loss) income for 2011 and 2010 was estimated to be $(31.0) million and $105.2 million, respectively. All available sources ofpositive and negative evidence were evaluated to determine if there should be a valuation allowance on our net deferred tax asset. In 2011 and 2010, werecorded a full valuation allowance on the deferred tax asset as deferred tax assets in excess of reversing deferred tax liabilities were not likely to be realized.At December 31, 2011 and 2010, our total valuation allowance on deferred tax assets was $149.7 million and $148.6 million, respectively.

At December 31, 2011, we have estimated U.S. federal net operating loss carryforwards of $203.7 million which are carried forward to offset futuretaxable income in the U.S. for up to 20 years. At December 31, 2011, we had state net operating loss carryforwards valued at $20.1 million, which areexpected to expire from 2012 through 2027. At December 31, 2011, we had German net operating loss carryforwards to offset future foreign taxable incomeof $70.7 million, which have an unlimited carryforward period. At December 31, 2011, we had Canadian net operating loss carryforwards of $47.1 million tooffset future foreign taxable income, which are carried forward to offset future taxable income in Canada for up to 20 years. In 2011, 2010 and 2009, weprovided income taxes for unremitted earnings of our foreign subsidiaries that are not considered permanently reinvested.

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At December 31, 2011, we had $1.3 million of foreign tax credit carryforwards expire in 2013. In addition, we have general business creditscarryforwards of $6.5 million at December 31, 2011. At December 31, 2008, we had Alternative Minimum Tax credits of $4.7 million. In 2009, we elected tocarryback the 2008 Alternative Minimum Tax losses and received a refund related to the credits. The major components of the provision for income taxesattributable to continuing operations are as follows (in thousands): Years Ended December 31, 2011 2010 2009 Current:

Federal $ 641 $ 4,094 $ (952) State 1,225 1,975 799 Foreign (95) 640 (1,201)

Total current expense 1,771 6,709 (1,354) Deferred:

Federal 0 (150) (5,412) State 0 0 2,824 Foreign 0 0 0

Total deferred benefit 0 (150) (2,588)

Provision for (benefit from) income taxes $ 1,771 $ 6,559 $ (3,942)

The income tax benefit allocated to discontinued operations was zero, $(1.4) million and zero for 2011, 2010 and 2009, respectively. Taxes paid(refunded) were $(0.6) million, $0.7 million and $(29.2) million in 2011, 2010 and 2009, respectively.

The differences between the amount that would have resulted from applying the domestic federal statutory tax rate (35%) to pre-tax income fromcontinuing operations and the reported income tax expense from continuing operations recorded for each year are as follows: Years Ended December 31, (In thousands) 2011 2010 2009 (Loss) income before tax benefit (expense) taxed in the U.S. $ (11,575) $ 37,366 $ (105,892) (Loss) income before tax benefit (expense) taxed in foreign jurisdictions (7,120) 2,232 (3,656)

(Loss) income from continuing operations before tax benefit (expense) $ (18,695) $ 39,598 $ (109,548)

Tax at US federal statutory rate 35.0% 35.0% 35.0% State taxes, net -4.3% 3.2% -2.9% Work opportunity credits 0.0% -12.2% 0.0% Change in valuation allowance -26.7% -20.5% -40.5% Nondeductible wages -7.3% 3.6% 0.0% Tax exempt interest 0.1% -0.2% 0.2% Tax contingencies -0.1% 3.5% 1.8% Write-off of non-deductible goodwill 0.0% 0.0% 9.1% Foreign rate differential -0.2% -0.5% -0.2% Unremitted foreign earnings 5.3% 0.0% -0.3% Transfer pricing -4.8% 3.6% -2.0% Other -6.5% 1.1% -3.8%

-9.5% 16.6% -3.6%

The table below details our unrecognized tax benefits (in thousands): 2011 2010 2009 Gross unrecognized tax benefit at beginning of year $ 13,920 $ 13,920 $ 17,817

Additions based on tax positions taken during a prior period 0 0 0 Reductions based on tax positions taken during a prior period 0 0 (3,897) Additions based on tax positions taken during the current period 0 0 0 Reductions based on tax positions taken during the current period 0 0 0 Reductions related to settlement of tax matters 0 0 0 Reductions related to a lapse of applicable statute of limitations (261) 0 0

Gross unrecognized tax benefit at end of year $ 13,659 $ 13,920 $ 13,920

Included in the balances of unrecognized tax benefits at December 31, 2011 and 2010 were approximately $13.7 million and $13.9 million,respectively, of tax positions that, if recognized, would decrease our effective tax rate.

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We reflect interest and penalties, if any, on unrecognized tax benefits in the consolidated statements of operations as income tax expense. The amountof interest recognized in the consolidated statements of operations for 2011, 2010 and 2009 related to unrecognized tax benefits was a pre-tax expense of $0.5million, $1.4 million and $1.2 million, respectively. The amount of penalties recognized in the consolidated statements of operations for 2011, 2010 and 2009related to unrecognized tax benefits was a pre-tax (expense) income of $(0.2) million, zero and $0.1 million, respectively.

The total amount of accrued liabilities for interest recognized in the consolidated balance sheets related to unrecognized tax benefits as of December 31,2011 and 2010 was $6.5 million and $6.0 million, respectively. The total amount of accrued liabilities for penalties recognized in the consolidated balancesheets related to unrecognized tax benefits as of December 31, 2011 and 2010 was $1.6 million and $1.8 million, respectively. To the extent that uncertainmatters are settled favorably, this amount could reverse and decrease our effective tax.

Taxing Jurisdictions Audits

Within the next twelve months, it is reasonably possible that approximately $1.1 million of uncertain tax positions may be released into income due tothe expiration of state statute of limitations.

In 2010, the IRS completed the field audits for the 2005 through 2008 federal income tax returns and all related net operating loss carryback claimswithout any modifications to our refund claim. Our case was officially closed in March 2011 when the IRS notified us that their review of the field agents'assessments was complete. The German government has concluded its income tax audit for the years 2006 through 2008. There are no income tax returnsunder audit by the Canadian government with years after 2006 remaining open and subject to audit. In addition, the years after 2003 are subject to transferpricing adjustments only. There are no returns under audit by the U.K. government with years after 2008 remaining open and subject to audit. At this time, wedo not expect the results from any income tax audit to have a material impact on our financial statements. We do not believe that it is reasonably possible thatthe amount of unrecognized tax benefits will significantly change in 2012. 13. Stockholders' EquityGerman Debt Restructuring

In 2009, we issued 4.2 million shares of the 5.0 million shares of common stock to three electing lenders in connection with the German debtrestructuring discussed in Note 11. The common stock had a fair value at the time of issuance of $11.1 million.

2008 Omnibus Plan, As Amended

Our 2008 Omnibus Incentive Plan, as amended (the "2008 Omnibus Plan") permits the grant of incentive and nonincentive stock options, stockappreciation rights ("SARs"), restricted stock, stock units, unrestricted stock, dividend equivalent rights, performance stock and performance units to eligibleemployees, officers, directors, consultants and advisors.

The number of shares of common stock available for award under the 2008 Omnibus Plan is 7,300,000, increased by the number of shares covered byawards granted under our Prior Plans (as defined below) that are not purchased or are forfeited or expire, or otherwise terminate without delivery of anyshares, after September 17, 2008. The term "Prior Plans" consists of our 1995 Stock Option Plan, as amended; 1996 Non-Incentive Stock Option Plan, asamended, 1997 Stock Option Plan, as amended; 1998 Stock Option Plan, as amended; 1999 Stock Option Plan, as amended; 2000 Stock Option Plan, asamended; 2001 Stock Option Plan, as amended; 2002 Stock Option and Restricted Stock Plan, as amended; and 2003 Stock Option and Restricted Stock Plan,as amended. Pursuant to the terms of the 2008 Omnibus Plan, no further awards may be made under the Prior Plans.

As of December 31, 2011, there were a total of 352,732 shares of common stock available for award under the 2008 Omnibus Plan. In addition, up toan additional 1,043,660 shares that remain subject to outstanding awards under the Prior Plans at December 31, 2011 could at a future date become availablefor award under the 2008 Omnibus Plan to the extent the shares subject to the awards are not purchased or the awards are forfeited or expire or otherwiseterminate without any delivery of shares.

Shares of common stock that are subject to awards in any form other than stock options or SARs under the 2008 Omnibus Plan are counted against themaximum number of shares of common stock available for issuance under the 2008 Omnibus Plan as 1.21 common shares for each share of common stockgranted. Any shares of common stock that are subject to awards of stock options under the 2008 Omnibus Plan are counted against the 2008 Omnibus Planshare limit as one share for every one share subject to the award of options. With respect to any SARs awarded under the 2008 Omnibus Plan, the number ofshares subject to an award of SARs are counted against the aggregate number of shares available for issuance regardless of the number of shares actuallyissued to settle the SAR upon exercise.

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Under the terms of the 2008 Omnibus Plan, the option exercise price and vesting provisions are fixed when the option is granted. The options typicallyexpire ten years from the date of grant and vest typically over a three-year period. The option exercise price is not less than the fair market value of a share ofcommon stock on the date the option is granted. Fair market value is generally determined as the closing price on (i) the date of grant (if grant is made beforeor during trading hours) or (ii) the next trading day after the date of grant (if grant is made after the securities market closes on a trading day).

Stock Options

The fair value of stock options is estimated as of the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in thefollowing table. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term (estimated period of timeoutstanding) is estimated using the historical exercise behavior of employees and directors. Expected volatility is based on historical volatility for a periodequal to the stock option's expected term, ending on the day of grant, and calculated on a monthly basis. Compensation expense is recognized ratably usingthe straight-line method for options with graded vesting. 2011 2010 2009Risk free interest rate 2.09% - 3.49% 2.63% - 3.63% 3.0% - 3.7%Expected dividend yield 0 0 0Expected term (years) 6.5 6.5 6.5Expected volatility 94.6% - 95.7% 92.9% - 94.7% 81.8% - 92.0%

A summary of our stock option activity and related information for the year ended December 31, 2011 is presented below (share amounts are shown inthousands):

Shares

WeightedAverage

Exercise Price

RemainingContractual

Term in Years Outstanding - 1/1/09 7,807 $ 6.72 Granted 890 2.58 Exercised (763) 1.37 Forfeited (397) 1.25 Expired (865) 15.67

Outstanding - 12/31/09 6,672 6.45 Granted 1,420 3.97 Exercised (264) 1.34 Forfeited (329) 1.60 Expired (1,149) 14.09

Outstanding - 12/31/10 6,350 5.00 Granted 705 7.65 Exercised (931) 1.59 Forfeited (113) 3.44 Expired (212) 18.32

Outstanding - 12/31/11 5,799 5.39 7.0

Vested and expected to vest - 12/31/11 5,799 5.39 7.0

Exercisable - 12/31/11 3,888 5.13 6.2

The weighted average grant date fair value of options granted was $6.09, $3.15 and $1.94 per share in 2011, 2010 and 2009, respectively. The totalintrinsic value of options exercised was $10.3 million, $1.2 million and $1.7 million for 2011, 2010 and 2009, respectively. The fair value of shares vestedwas $3.0 million, $2.0 million and $2.3 million for 2011, 2010 and 2009, respectively. Unrecognized compensation expense related to the unvested portion ofour stock options was approximately $6.9 million as of December 31, 2011, and is expected to be recognized over a weighted-average remaining term ofapproximately 1.9 years.

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The amount of cash received from the exercise of stock options was approximately $1.5 million in 2011. We generally issue shares for the exercise ofstock options from authorized but unissued shares.

In 2011, we granted 17 recently promoted or newly hired employees non-qualified stock options to purchase 205,000 shares of common stock at grantprices ranging from $5.82 to $9.68. One-third of the options vest yearly beginning in 2012.

In January 2011, our chief investment and administrative officer was granted an award of 500,000 stock options. The options have a term of 10 yearsand an exercise price per share of $7.31. One-third of the stock options will vest on each of the first three anniversaries of the date of grant, subject tocontinued employment on the applicable vesting date.

In March 2011, in connection with our former chief financial officer's termination of employment, 166,666 stock options held by her vested pursuant tothe terms of her employment agreement. The options expire 12 months after her termination of employment. We recorded non-cash compensation expense of$0.1 million as a result of the vesting acceleration pursuant to the terms of her employment agreement.

In December 2010, our chief executive officer was granted an award of 1,000,000 stock options. The options have a term of 10 years and an exerciseprice per share of $3.94. One-third of the stock options will vest on each of the first three anniversaries of the date of grant, subject to continued employmenton the applicable vesting date.

In May 2010, we accelerated the vesting of a former executive's stock options and restricted stock pursuant to the terms of his separation agreement.Upon termination, 3,000 shares of restricted stock and 91,324 options vested. The options expire 12 months after the termination of employment. We recordednon-cash compensation expense of $0.3 million as a result of the vesting acceleration.

In May 2009, we accelerated the vesting of our former chief financial officer's stock options and restricted stock pursuant to the terms of his separationagreement. Upon his termination, 70,859 shares of restricted stock and 750,000 options vested. The options expire 12 months after the termination of hisconsulting term, which can be up to nine months after his termination date of May 29, 2009. We recorded non-cash compensation expense of $0.8 million as aresult of the vesting acceleration.

Restricted Stock

Restricted stock awards typically vest over three years. Compensation expense is recognized ratably using the straight-line method for restricted stockwith graded vesting.

A summary of our restricted stock activity and related information for the years ended December 31, 2011, 2010 and 2009 is presented below (shareamounts are shown in thousands):

Shares

Weighted AverageGrant DateFair Value

Nonvested, January 1, 2009 324 $ 24.91 Granted 0 0.00 Vested (138) 28.77 Canceled (43) 32.38

Nonvested, December 31, 2009 143 19.05 Granted 475 3.53 Vested (67) 14.87 Canceled (2) 24.00

Nonvested, December 31, 2010 549 6.11 Granted 337 9.88 Vested (190) 6.24 Canceled (12) 9.68

Nonvested, December 31, 2011 684 7.87

The total fair value of restricted shares vested was $6.24 per share and $14.87 per share for 2011 and 2010, respectively. Unrecognized compensationexpense related to the unvested portion of our restricted stock was approximately $4.1 million as of December 31, 2011, and is expected to be recognized overa weighted-average remaining term of approximately 2.0 years.

Restricted stock shares are generally issued from authorized but unissued shares.

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In 2011, connection with a new incentive program for certain of our employees, we also granted 237,074 shares of restricted stock to 65 employees atgrant date fair values ranging from $5.82 to $9.68. The grants vest yearly over three years beginning in 2012, with the exception of one employee whose firsttranche vested immediately.

In March 2011, we made a grant of 100,000 shares of restricted stock at a grant date fair value of $11.51 to our new chief financial officer. Therestricted stock vests at a rate of one-third on each of first three anniversaries of the date of grant, subject to continued employment on the applicable vestingdate.

In May 2010, our chief investment and administrative officer was granted 25,000 shares of restricted stock which vested immediately at a price of $5.13per share. In October 2010, we granted our Chief Investment and Administrative Officer and our General Counsel 200,000 shares and 100,000 shares ofrestricted stock, respectively, which vest ratably over three years at a price of $3.52 per share.

Restricted Stock Units

In 2011, half of our non-employee directors' retainer fee was paid in restricted stock units. Accordingly, a total of 71,880 restricted stock units weregranted to our six non-employee directors (11,980 each) in January 2011 at a grant date fair value of $6.26 per share. One-quarter of the restricted stock unitsvested immediately upon grant and the remainder vested quarterly during 2011. All compensation expense for these awards was recognized in 2011.

In 2011, 441,616 restricted stock units were granted in the second quarter of 2011 at a grant date fair value of $9.34. One-third of the units vest yearlybeginning in 2012. Compensation expense for these restricted stock units is recognized ratably over the vesting period. As of December 31, 2011, theunrecognized compensation expense for these awards totaled $3.3 million and is expected to be recognized over the remaining term of 2.4 years. A total of45,499 restricted stock units were forfeited during 2011.

Shares used to satisfy restricted stock unit awards are expected to be issued from authorized but unissued shares.

Performance Units

In 2011, an aggregate of 671,816 performance units were granted for performance periods 2011, 2012 and 2013 to employees at a grant date fair valueof $9.34 per share. There were a total of 12,024 performance units forfeited during 2011. The performance units are allocated 25% in 2011, 25% in 2012 and50% in 2013, with the number of performance units earned each year based upon the achievement of specified adjusted earnings before interest, taxes,depreciation and amortization ("EBITDA") targets. Vesting of any earned performance units is subject to the employee remaining employed by us throughJune 1, 2014. The adjusted EBITDA targets were established for the 2011 performance units on the date of grant. The adjusted EBITDA targets for 2012 and2013 performance units will be established within the first 90 days of each respective year. We recorded a total of $0.3 million in stock compensation expensewith regard to the 2011 performance units in 2011 based upon the probable outcome of the performance condition for 2011. As of December 31, 2011, theunrecognized compensation expense for the 2011 performance units totaled $1.2 million, and is expected to be recognized over the remaining service periodof 2.4 years. No compensation expense for the 2012 and 2013 performance units was recorded in 2011 because the grant dates for these awards are notdeemed to occur until the respective adjusted EBITDA targets for these performance units have been established. Once the adjusted EBITDA targets for 2012and 2013 are established, the 2012 and 2013 performance units will be accounted for using the same methodology as applied to the 2011 performance units.

Shares used to satisfy performance units are expected to be issued from authorized but unissued shares.

Stockholder Rights Agreement

We have a Stockholders Rights Agreement ("Rights Agreement") that was adopted effective as of April 24, 2006, as amended in November 2008 andJanuary 2010. All shares of common stock issued by us between the effective date of the Rights Agreement and the Distribution Date (as defined below) haverights attached to them. The rights expire on April 24, 2016. The Rights Agreement replaced our prior rights plan, dated as of April 25, 1996, which expiredby its terms on April 24, 2006. Each right, when exercisable, entitles the holder to purchase one one-thousandth of a share of Series D Junior ParticipatingPreferred Stock at a price of $170.00 per one one-thousand of a share (the "Purchase Price"). Until a right is exercised, the holder thereof will have no rightsas a stockholder of us.

The rights initially attach to the common stock. The rights will separate from the common stock and a distribution of rights certificates will occur (a"Distribution Date") upon the earlier of (1) ten days following a public announcement that a person or group (an "Acquiring Person") has acquired, orobtained the right to acquire, directly or through certain derivative positions, 10% or more of the outstanding shares of common stock (the "Stock AcquisitionDate") or (2) ten business days (or such later date as the Board of Directors may determine) following the commencement of, or the first public announcementof the intention to commence, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person of 10% ormore of the outstanding shares of common stock.

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In general, if a person acquires, directly or through certain derivative positions, 10% or more of the then outstanding shares of common stock, eachholder of a right will, after the end of the redemption period referred to below, be entitled to exercise the right by purchasing for an amount equal to thePurchase Price common stock (or in certain circumstances, cash, property or other securities of us) having a value equal to two times the Purchase Price. Allrights that are or were beneficially owned by the Acquiring Person will be null and void. If at any time following the Stock Acquisition Date (1) we areacquired in a merger or other business combination transaction, or (2) 50% or more of our assets or earning power is sold or transferred, each holder of a rightshall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the Purchase Price. Our Board ofDirectors generally may redeem the rights in whole but not in part at a price of $.005 per right (payable in cash, common stock or other consideration deemedappropriate by our Board of Directors) at any time until ten days after a Stock Acquisition Date. In general, at any time after a person becomes an AcquiringPerson, the Board of Directors may exchange the rights, in whole or in part, at an exchange ratio of one share of common stock for each outstanding right.

The Rights Agreement was amended in November 2008 to: (1) modify the definition of beneficial ownership so that it covers, with certain exceptions(including relating to swaps dealers), interests in shares of common stock created by derivative positions in which a person is a receiving party to the extentthat actual shares of common stock are directly or indirectly held by the counterparties to such derivative positions; and (2) decrease from 20% to 10% thethreshold of beneficial ownership of common stock above which investors become "Acquiring Persons" under the Rights Agreement and thereby trigger theissuance of the rights. Pursuant to the amendment, stockholders who beneficially owned more than 10% of our common stock as of November 19, 2008 werepermitted to maintain their existing ownership positions without triggering the preferred stock purchase rights.

The Rights Agreement was further amended in January 2010 to exclude FMR LLC (and its affiliates and associates) from the definition of "AcquiringPerson" so long as (1) FMR is the beneficial owner of 14.9% or less of our outstanding common stock, (2) FMR acquired, and continues to beneficially own,such shares of common stock in the ordinary course of business with no purpose of changing or influencing the control, management or policies of theCompany, and not in connection with or as a participant to any transaction having such purpose, and (3) FMR is not required to report its beneficial ownershipon Schedule 13D under the Securities Exchange Act, and, if FMR is the beneficial owner of shares representing 10% or more of the shares of common stockthen outstanding, is eligible to file a Schedule 13G to report its beneficial ownership of such shares.

The Rights Agreement was further amended in December 2011 to exclude Carlson Capital, L.P., together with its Affiliates and Associates (as definedin the Rights Agreement) (together, "CCLP"), but only so long as CCLP is the beneficial owner of our outstanding common stock constituting in theaggregate 14.9% or less of our outstanding common stock, inclusive of the shares of common stock currently beneficially owned by CCLP. In conjunction,CCLP agreed to certain standstill provisions with respect to our common stock for a period of one year. 14. Buyout of Management Agreements and Settlement of Management Agreement Disputes

In 2011, we earned $3.7 million in buyout fees as the result of the termination of four management contracts.

In 2010, we entered into a settlement and restructuring agreement with HCP regarding certain senior living communities owned by HCP and operatedby us. Pursuant to the agreement, we gave HCP the right to terminate us as manager of 27 communities owned by HCP for a $50.0 million cash paymentwhich we recognized as buyout fee revenue in our consolidated statements of operations. In addition, we recognized $8.9 million of amortization expenserelating to the remaining unamortized management agreement intangible assets for these communities in 2010. The agreement also provided for the release ofall claims between HCP, ourselves and third party tenants including the settlement of litigation already commenced. We were terminated as manager of thesecommunities on November 1, 2010.

Also in 2010, two property owners bought out five management agreements for which we were the manager. We recognized $13.3 million in buyoutfees in connection with these transactions. We also wrote off the remaining $1.0 million unamortized management agreement intangible asset.

As a result of these management agreement buyouts, we have been terminated as manager on 36 communities. We earned $0.4 million, $12.8 millionand $17.9 million of management fees from these communities in 2011, 2010 and 2009, respectively. We will not earn these fees in 2012 and thereafter.

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Settlement of Management Agreement Disputes

In 2010, we reached an agreement to settle certain management agreement disputes with one of our venture partners and recorded a $2.8 million chargerelated to this settlement, $1.1 million of which was accrued in 2009. This charge is reflected as a reduction to management fee income in our consolidatedstatements of operations. 15. Net Income (Loss) Per Common Share

The following table summarizes the computation of basic and diluted net income (loss) per common share amounts presented in the accompanyingconsolidated statements of operations (in thousands, except per share amounts): Years Ended December 31, 2011 2010 2009 Numerator for basic and diluted income (loss) per share:

(Loss) income from continuing operations $ (22,299) $ 31,280 $ (105,792) (Loss) income from discontinued operations (1,091) 67,787 (28,123)

Total net (loss) income $ (23,390) $ 99,067 $ (133,915)

Denominator: Weighted-average shares outstanding - basic 56,725 55,787 51,391 Effect of dilutive securities - Employee stock options and restricted stock 0 1,654 0

56,725 57,441 51,391

Basic net (loss) income per common share (Loss) income from continuing operations $ (0.39) $ 0.56 $ (2.06) (Loss) income from discontinued operations (0.02) 1.22 (0.55)

Total net (loss) income $ (0.41) $ 1.78 $ (2.61)

Diluted net income (loss) per common share (Loss) income from continuing operations $ (0.39) $ 0.54 $ (2.06) (Loss) income from discontinued operations (0.02) 1.18 (0.55)

Total net (loss) income $ (0.41) $ 1.72 $ (2.61)

Options are included under the treasury stock method to the extent they are dilutive. Shares issuable upon exercise of stock options after applying thetreasury stock method of 1,724,840, zero and 513,025 for 2011, 2010 and 2009, respectively, have been excluded from the computation because the effect oftheir inclusion would be anti-dilutive. 16. Commitments and Contingencies

Leases for Office Space

Rent expense for office space, excluding Trinity, for 2011, 2010 and 2009 was $3.3 million, $4.0 million and $7.6 million, respectively. We lease ourcommunity support office and regional offices under various leases which expire through September 2013. In 2008, we ceased using approximately 40,276square feet of office space at our community support office. In 2011 and 2009, we terminated additional portions of our lease at our community support officeand recorded charges of $0.1 million and $2.7 million related to the terminations.

Trinity Leases

Trinity and each of its subsidiaries (together, "the Trinity Companies") filed plans of liquidation and dissolution ("Plans") before the DelawareChancery Court in January 2009 and November 2009, respectively. Pursuant to a federal statute that gives claims held by divisions of the federal governmentpriority over other unsecured creditor claims, Trinity paid all of its then remaining cash to the federal government in 2010 and the Trinity Companies had noremaining assets at December 31, 2010. We currently expect that any obligations related to the Trinity Companies' long-term leases for office space will beeliminated three years from the dates that the Plans were filed for each of the respective Trinity Companies.

When the Trinity Companies ceased operations in December 2008, all leased premises were vacated and leasehold improvements and furniture, fixturesand equipment were abandoned. As a result, we recorded a charge of $0.7 million, $1.0 million and $1.2 million in 2011, 2010 and 2009, respectively, relatedto the lease abandonment which is included in loss from discontinued operations.

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Leases for Operating Communities

We have operating leases for ten communities (excluding the Marriott leases discussed below) with terms ranging from 15 to 20 years, with two ten-year extension options. We have three other ground leases related to operating communities with lease terms ranging from 25 to 99 years. These leases aresubject to annual increases based on the consumer price index and/or stated increases in the lease. In addition, we have one ground lease related to anabandoned project.

In connection with the acquisition of MSLS in March 2003, we assumed 14 operating leases and renegotiated an existing operating lease agreement foranother MSLS community in June 2003. We also entered into two new leases with a landlord who acquired two continuing care retirement communities fromMSLS on the same date. Fifteen of the leases expire in 2013, while the remaining two leases expire in 2018. The extension of 14 of these leases beyond the2013 expiration date requires third party approval. Rent expense from these 17 leases was $51.0 million, $50.8 million and $50.4 million for 2011, 2010 and2009, respectively. The leases had initial terms of 20 years, and contain one or more renewal options, generally for five to 15 years. The leases provide forminimum rentals and additional rentals based on the operations of the leased community.

In December 2011, we closed the transactions contemplated by the Agreement Regarding Leases, dated December 22, 2011 (the "ARL"), by andamong us, Marriott International, Inc. ("Marriott"), Marriott Senior Holding Co. and Marriott Magenta Holding Company, Inc. (collectively, the "MarriottParties"). The ARL relates to a portfolio of 14 leases (the "Leases") for senior living facilities that are leased by SPTMRT Properties Trust, as landlord to usas tenant and guaranteed by Marriott pursuant to certain lease guarantees (collectively, the "Lease Guarantees"). Each of the Leases is scheduled to expire onDecember 31, 2013 and, pursuant to a prior agreement between us and the Marriott Parties, we are not permitted to exercise our option under the Leases toextend our terms for an additional five-year term unless Marriott is released from its obligations under the Lease Guarantees.

Pursuant to the terms of the ARL, among other things, Marriott consented to the extension of the term of four of the Leases (the "Continuing Leases")for an additional five-year term commencing January 1, 2014 and ending December 31, 2018 (the "Extension Term"). We provided Marriott with a letter ofcredit (the "Letter of Credit") issued by KeyBank, NA ("KeyBank") with a face amount of $85.0 million to secure Marriott's exposure under the LeaseGuarantees for the Continuing Leases during the Extension Term and certain other of our obligations (collectively, the "Secured Obligations"). During theExtension Term, we will be required to pay Marriott an annual payment in respect of the cash flow of the Continuing Lease facilities, subject to a $1 millionannual minimum. We have notified the landlord that the other ten Leases will terminate effective December 31, 2013.

Marriott may draw on the Letter of Credit in order to pay any of the Secured Obligations if not paid by us when due. We have provided KeyBank withcash collateral of $85.0 million as security for its Letter of Credit obligations. Marriott has agreed to reduce the face amount of the Letter of Creditproportionally on a quarterly basis during the Extension Term as we pay our rental obligations under the Continuing Leases. As the face amount of the Letterof Credit is reduced, KeyBank will return a proportional amount of its cash collateral to us. Following closing, to the extent that we elect not to extend any orall of the Continuing Leases, the face amount of the Letter of Credit will be reduced proportionally in respect of the rent obligations under the ContinuingLeases that are not extended.

Rent expense for communities subject to operating leases was $76.4 million, $59.7 million and $59.3 million for 2011, 2010 and 2009, respectively,including contingent rent expense of $5.7 million, $5.6 million and $5.5 million for 2011, 2010 and 2009, respectively.

Future minimum lease payments under office, ground and other operating leases at December 31, 2011 are as follows (in thousands): 2012 $ 71,179 2013 67,883 2014 37,886 2015 39,176 2016 23,570 Thereafter 105,143

$ 344,837

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Letters of Credit

At December 31, 2011, in addition to $10.2 million in letters of credit secured by our Credit Facility, we have letters of credit outstanding of $91.7million relating to our insurance programs and $85.0 million related to the Marriott lease guarantee discussed above. These letters of credit are fully cashcollateralized.

Guarantees

We have provided operating deficit guarantees to the venture lenders, whereby after depletion of established reserves, we guarantee the payment of thelender's monthly principal and interest during the term of the guarantee and have provided guarantees to ventures to fund operating shortfalls. The terms of theguarantees generally match the terms of the underlying venture debt and generally range from three to five years, to the extent we are able to refinance theventure debt. Fundings under the operating deficit guarantees and debt repayment guarantees are generally recoverable either out of future cash flows of theventure or from proceeds of the sale of communities.

Excluding the impact of our senior living condominium project, which is accounted for under the profit sharing method, the maximum potential amountof future fundings for outstanding guarantees, the carrying amount of the liability for expected future fundings at December 31, 2011 and fundings in 2011were immaterial.

Senior Living Condominium Project

In 2006, we sold a majority interest in two separate ownership entities to two separate partners related to a project consisting of a residentialcondominium component and an assisted living component with each component owned by a different venture. In connection with the equity sale and relatedfinancings, we undertook certain obligations to support the operations of the project for an extended period of time. We account for the condominium andassisted living ventures under the profit-sharing method of accounting, and our liability carrying value at December 31, 2011 was $12.2 million for the twoventures. We recorded losses of $9.8 million, $9.6 million and $13.6 million for 2011, 2010 and 2009, respectively.

We are obligated to our partner and the lender on the assisted living venture to fund future operating shortfalls. We are also obligated to our partner onthe condominium venture to fund operating shortfalls. We have funded $8.1 million under the guarantees through December 31, 2011, of whichapproximately $1.2 million was funded in 2011. In addition, we are required to fund sales and marketing costs associated with the sale of the condominiums.

The depressed condominium real estate market in the Washington D.C. area has resulted in lower sales and pricing than forecasted and we believe thepartners have no remaining equity in the condominium project. Accordingly, we have informed our partner that we do not intend to fund future operatingshortfalls.

As of December 31, 2011, loans of $116.4 million for the residential condominium venture and $29.9 million for the assisted living venture are both indefault. We have accrued $3.3 million in default interest relating to these loans. In February 2012, the lenders for the residential condominium venturecommenced legal proceedings necessary to foreclose on the assets of the residential condominium venture. We are still in discussion with the lender for theassisted living venture regarding the default on the loan.

Agreements with Marriott International, Inc.

In December 2011, we closed on an agreement with Marriott International, Inc. ("Marriott") permitting us to extend for an additional five year termcommencing January 1, 2014, certain lease obligations that would have otherwise expired effective December 31, 2013. Pursuant to the terms of theagreement, we provided Marriott with a letter of credit issued by KeyBank with a face amount of $85.0 million to secure Marriott's exposure under the LeaseGuarantee and entrance fee obligations that remain outstanding (approximately $5.6 million at December 31, 2011). Marriott may draw on the letter of creditin order to pay any of the secured obligations if they are not paid by us when due. We have provided KeyBank with cash collateral of $85.0 million as securityfor its letter of credit obligations.

Other

Generally, the financing obtained by our ventures is non-recourse to the venture members, with the exception of the debt repayment guaranteesdiscussed above. However, we have entered into guarantees with the lenders with respect to acts which we believe are in our control, such as fraud orvoluntary bankruptcy of the venture. If such acts were to occur, the full amount of the venture debt could become recourse to us. The combined amount ofventure debt underlying these guarantees is approximately $1.7 billion at December 31, 2011. We have not funded under these guarantees, and do not expectto fund under such guarantees in the future.

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To the extent that a third party fails to satisfy an obligation with respect to two continuing care retirement communities we manage, we would berequired to repay this obligation, the majority of which is expected to be refinanced with proceeds from the issuance of entrance fees as new residents enterthe communities. At December 31, 2011, the remaining liability under this obligation is $31.5 million. We have not funded under these guarantees, and do notexpect to fund under such guarantees in the future.

Employment Agreements

We have employment agreements with Mark S. Ordan, Chief Executive Officer, C. Marc Richards, Chief Financial Officer, Greg Neeb, ChiefInvestment and Administrative Officer, and David Haddock, General Counsel and Secretary.

On December 1, 2010, we entered into an amended and restated employment agreement with Mark S. Ordan, our Chief Executive Officer. UnderMr. Ordan's amended and restated employment agreement, his employment term was extended from November 1, 2011 (as provided in this originalemployment agreement) to December 1, 2012, with automatic one-year renewals at the end of that term and each year thereafter unless either party otherwiseprovides notice to the other at least 120 days prior to the next renewal. In connection with the execution of his amended and restated employment agreement,Mr. Ordan received a cash re-signing bonus of $3 million and a grant of a ten-year option to purchase 1,000,000 shares of our common stock at an exerciseprice of $3.94 per share. The re-signing option vests as to one-third of the shares subject to the option on each of December 1, 2011, 2012 and 2013, so longas Mr. Ordan continues to be employed by us on the applicable vesting date. The golden parachute excise tax gross-up provision also was eliminated from hisoriginal employment agreement.

On January 25, 2011, we entered into an amended and restated employment agreement with Greg Neeb, our Chief Investment and AdministrativeOfficer. Under Mr. Neeb's amended and restated employment agreement, Mr. Neeb's employment term was extended from January 21, 2012 (as provided inhis original employment agreement) to January 25, 2013, with automatic one-year renewals at the end of that term and each year thereafter unless either partyotherwise provides notice to the other at least 120 days prior to the next renewal. In connection with the execution of his amended and restated employmentagreement, Mr. Neeb received a cash re-signing bonus of $2 million and a grant of a ten-year option to purchase 500,000 shares of our common stock at anexercise price of $7.31 per share. The re-signing option vests as to one-third of the shares subject to the option on each of January 25, 2012, 2013 and 2014, solong as Mr. Neeb continues to be employed by us on the applicable vesting date. The golden parachute excise tax gross-up provision also was eliminated fromhis original employment agreement.

We also entered into an employment agreement with Mr. Haddock, our General Counsel and Secretary, on October 1, 2010. The employmentagreement provides for an initial three-year employment term, with automatic one-year renewals at the end of the initial term and each year thereafter unlesseither party provides notice to the other, at least 120 days prior to the next renewal date, that the term will not be extended.

We also entered into an employment agreement with Mr. Richards, our Chief Financial Officer, on March 11, 2011. The employment agreementprovides for an initial three-year employment term, with automatic one-year renewals at the end of the initial term and each year thereafter unless either partyprovides notice to the other, at least 120 days prior to the next renewal date, that the term will not be extended.

Under the employment agreements, Mr. Ordan, Mr. Neeb, Mr. Haddock and Mr. Richards are entitled to receive an annual base salary of $650,000,$450,000, $350,000 and $300,000 per year, respectively, subject to increase as may be determined by the Compensation Committee of our Board of Directors.Each of these executives is eligible for an annual bonus under the terms of their employment agreements. Currently, none of the employment agreements withour named executive officers contain a golden parachute excise tax gross-up provision.

Legal ProceedingsPurnell and Miller Lawsuits

On May 14, 2010, Plaintiff LaShone Purnell filed a lawsuit on behalf of herself and others similarly situated in the Superior Court of the State ofCalifornia, Orange County, against Sunrise Senior Living Management, Inc., captioned LaShone Purnell as an individual and on behalf of all employeessimilarly situated v. Sunrise Senior Living Management, Inc. and Does 1 through 50, Case No. 30-2010-00372725 (Orange County Superior Court). Plaintiff'scomplaint is styled as a class action and alleges that Sunrise failed to properly schedule the purported class of care givers and other related positions so thatthey would be able to take meal and rest breaks as provided for under California law. The complaint asserts claims for: (1) failure to pay overtime wages;(2) failure to provide meal periods; (3) failure to provide rest periods; (4) failure to pay wages upon ending

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employment; (5) failure to keep accurate payroll records; (6) unfair business practices; and (7) unfair competition. Plaintiff seeks unspecified compensatorydamages, statutory penalties provided for under the California Labor Code, injunctive relief, and costs and attorneys' fees. On June 17, 2010, Sunrise removedthis action to the United States District Court for the Central District of California (Case No. SACV 10-897 CJC (MLGx)). On July 16, 2010, plaintiff filed amotion to remand the case to state court, which the Court denied. The parties have completed briefing on class certification, and the Court held a hearing onplaintiff's motion for class certification on January 23, 2012. On February 27, 2012, the Court denied the plaintiff's motion for class certification.

In addition, on January 31, 2012, the same counsel filed what that counsel characterized as a related lawsuit captioned Cheryl Miller, an individual onbehalf of herself and others similarly situated v. Sunrise Senior Living Management, Inc., a Virginia corporation; and Does 1 through 100, Case No.BC478075 in the Superior Court of the State of California, County of Los Angeles. On or about February 8, 2012, Plaintiff Cheryl Miller filed a FirstAmended Complaint ("FAC"), which was served on Sunrise on February 15, 2012. Plaintiff's FAC is styled as a class action and alleges that Sunrise failed topay all wages owed to employees as a result of allegedly improper "rounding" of time to the nearest quarter hour and that Sunrise failed to comply with theCalifornia Labor Code by issuing "debit cards" to pay wages. The FAC asserts claims for: (1) failure to pay all wages due to illegal rounding; (2) unfair,unlawful and fraudulent business practices; (3) failure to provide accurate pay stubs, (4) failure to pay wages upon ending employment; (5) failure to complywith Labor Code section 212 regarding payment of wages, and (6) seeking penalties under the California Labor Code Private Attorney Generals Act. Plaintiffseeks unspecified compensatory damages, statutory penalties provided for under the California Labor Code, injunctive relief, and costs and attorneys' fees.Sunrise believes that Plaintiff's allegations are not meritorious and that a class action is not appropriate in this case, and intends to defend itself vigorously.Because of the early stage of this suit, we cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

Feely Lawsuit

On July 7, 2011, Plaintiff Janet M. Feely, a former Sunrise employee, filed a lawsuit on behalf of herself and others similarly situated in the SuperiorCourt of the State of California, County of Los Angeles, against Sunrise Senior Living, Inc., captioned Janet M. Feely, individually and on behalf of otherpersons similarly situated v. Sunrise Senior Living, Inc. and Does 1 through 55, Case No. BC 465006 (Los Angeles County Superior Court). Plaintiff'scomplaint is styled as a class action and alleges that Sunrise improperly classified a position formerly held by her as exempt from the overtime obligations ofCalifornia's wage and hour laws. The complaint asserts claims for: (1) failure to pay overtime wages, (2) failure to provide accurate wage statements,(3) unfair competition, and (4) failure to pay all wages owed upon termination. Plaintiff seeks unspecified compensatory damages, statutory penaltiesprovided for under the California Labor Code, restitution and disgorgement of unpaid overtime wages under the California Business and Professions Code,prejudgment interest, costs and attorney's fees. On August 11, 2011, Sunrise removed the case to the United States District Court for the Central District ofCalifornia, Case No. LACV11-6601. On October 19, 2011, the Court entered an order approving the parties' joint stipulation of dismissal of the case, withprejudice as to Ms. Feely and without prejudice as to others similarly situated.

Five Star Lawsuit

On July 10, 2008, Five Star Quality Care, Inc. filed a complaint against Sunrise (and other Sunrise-related entities and affiliates, as well as certainexecutives thereof) in Superior Court for the Commonwealth of Massachusetts, Five Star Quality Care, Inc. v. Sunrise Senior Living, Inc., et al., Civ. A. No.MICV2008-02641. In that action, Five Star Quality Care alleges, among other things, that Sunrise improperly retained payments made by communities ownedby Five Star Quality Care in connection with the participation of such communities in the insurance and health benefit programs. The complaint asserts claimsfor (1) an accounting, (2) conversion, (3) aiding and abetting conversion, (4) unjust enrichment, (5) breach of contract, (6) breach of fiduciary duty, and(7) violation of Mass. Gen Law Chapter 93A. The complaint does not specify a quantum of damages and seeks an accounting, actual damages, trebledamages, interest, costs and attorneys' fees. Sunrise filed a motion for summary judgment on all claims asserted, which the Court denied in a written decisiondated August 23, 2011. The Court also denied Five Star Quality Care, Inc.'s motion for partial summary judgment on its conversion claim.

On November 15, 2010, subsidiaries of Five Star Quality Care filed a new action, FS Tenant Pool I Trust, et al. v. Sunrise Senior Living, Inc., et al.,Civ. A. No. MICV2010-04318, in Superior Court for the Commonwealth of Massachusetts, in which they asserted claims against Sunrise similar to thoseasserted by Five Star Quality Care.

The Court consolidated the two actions and held a pretrial conference on December 6, 2011. Discovery is ongoing and a final pretrial conference isscheduled for June 21, 2012. A trial date of August 6, 2012 has been set. At this point in time, we estimate that a loss from a negative outcome in the range of$2 million to $4 million is reasonably possible. As we do not believe this loss is probable, we have not accrued a contingent loss related to this matter.

Subpoena From the U.S. Attorney's Office

The U.S. Attorney's Office for the Eastern District of Pennsylvania has issued a subpoena to us for certain documents relating to resident care at one ofour Pennsylvania communities. This community has experienced significant publicity due to an incident occurring in the spring of 2011. We are cooperatingwith the U.S. Attorney's Office and are in the process of producing the requested documents.

Other Pending Lawsuits and Claims

In addition to the matters described above, we are involved in various lawsuits and claims and regulatory and other governmental audits andinvestigations arising in the normal course of business. In the opinion of management, although the outcomes of these other suits and claims are uncertain, inthe aggregate they are not expected to have a material adverse effect on our business, financial condition, and results of operations. 17. Related-Party Transactions

Day Care Center Sublease

J127 Foundation (formerly Sunrise Senior Living Foundation) is an independent, not-for-profit organization whose purpose is to operate schools andday care facilities, provide low and moderate income assisted living housing and own and operate a corporate conference center. Paul Klaassen, our Non-Executive Chairman of the Board of Directors and his wife are the

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primary contributors to, and serve on the board of directors and serve as officers of, J127 Foundation. One or both of them also serve as directors and asofficers of various J127 Foundation subsidiaries. Certain other of our employees also serve as directors and/or officers of J127 Foundation and its subsidiaries.Since November 2006, the Klaassens' daughter has been the Director of J127 Foundation. She was previously employed by J127 Foundation from June 2005to July 2006. Since October 2007, the Klaassens' son-in-law has also been employed by J127 Foundation and beginning in August 2010, the Klaassens' sonwas also employed by J127 Foundation.

J127 Foundation's stand-alone day care center, which provides day care services for a fee for our employees and non-Sunrise employees, is located inthe same building complex as our community support office. The day care center subleases space from us under a sublease that commenced in April 2004,expires September 30, 2013, and was amended in January 2007 to include additional space. The sublease payments, which equal the payments we are requiredto make under our lease with our landlord for this space, are required to be paid monthly and are subject to increase as provided in the sublease. J127Foundation paid Sunrise approximately $0.2 million in sublease payments in each 2011, 2010 and 2009.

Fairfax Community Ground Lease

We lease the real property on which our Fairfax, Virginia community is located from Paul and Teresa Klaassen pursuant to a 99-year ground leaseentered into in June 1986, as amended in August 2003. The amended ground lease provided for monthly rent of $12,926 when signed in 2003, and is adjustedannually based on the consumer price index. Annual rent expense paid by us under this lease was approximately $0.2 million for 2011, 2010 and 2009. Theaggregate dollar amount of the scheduled lease payments through the remaining term of the lease is approximately $13.9 million.

Consulting Agreements

In November 2008, we entered into an oral consulting arrangement with Mr. Klaassen. Under the consulting arrangement, we agreed to payMr. Klaassen a fee of $25,000 per month for consulting with us and our chief executive officer, on senior living matters. This was in addition to any benefitsMr. Klaassen was entitled to under his employment agreement. Fees totaling $87,500 were paid to Mr. Klaassen for three and a half months commencing inNovember 2008 and ending in February 2009. Mr. Klaassen did not receive any consulting fees for the period March 2009 to July 2010.

In 2010, Mr. Klaassen earned an advisory fee of $125,000 for the period August 2010 through December 2010.

Effective May 1, 2010, we entered into an independent contractor agreement with Teresa M. Klaassen to provide the following consulting services tous: advise our chief executive officer and other officers on matters relating to quality of care, training, morale and product development; and at the request ofour chief executive officer, visit regions and communities, and attend and speak at quarterly meetings and other company functions. Ms. Klaassen waspreviously our employee and acted as our chief cultural officer. The agreement had a one-year term and expired on April 30, 2011. Under this agreement, wepaid Ms. Klaassen $8,333 per month. In 2011 and 2010, we paid Ms. Klaassen $33,333 and $66,667, respectively, under the agreement.

SecureNet Payment Systems LLC

In October 2008, we entered into a contract with SecureNet Payment Systems LLC ("SecureNet") to provide consulting services in connection with theprocessing of direct deposit and credit card payments by community residents of their monthly fees. The sales agent representing SecureNet, whosecompensation on the contract is based on SecureNet's revenue from the contract, is the wife of a then Sunrise employee. In November 2008, after the award ofthe contract, that employee became Senior Vice President, North American Operations and an officer of the Company. The Governance Committee reviewedthis transaction at its meeting on July 20, 2009 and concluded that the bidding process was done with integrity, that the award to SecureNet appeared to havebeen in our best interest and that our employee's relationship to the SecureNet sales representative did not have any influence over the decision to selectSecureNet. In 2010 and 2009, $0.3 million and $0.2 million of fees were paid, respectively, to SecureNet. The Senior Vice President ceased to be anemployee in 2010. 18. Employee Benefit Plans

401k PlanWe have a 401(k) Plan ("the Plan") covering all eligible employees. Under the Plan, eligible employees may make pre-tax contributions up to 100% of

the IRS limits. The Plan provides an employer match dependent upon compensation levels and years of service. The Plan does not provide for discretionarymatching contributions. Matching contributions were $1.6 million, $1.5 million and $1.6 million in 2011, 2010 and 2009, respectively.

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Sunrise Executive Deferred Compensation Plan

We had an executive deferred compensation plan (the "Executive Plan") for employees who met certain eligibility criteria. Under the Plan, eligibleemployees may make pre-tax contributions in amounts up to 25% of base compensation and 100% of bonuses. We may make discretionary matchingcontributions to the Executive Plan. Employees vest in the matching employer contributions, and interest earned on such contributions, at a date determinedby the Benefit Plan Committee. Matching contributions were zero in 2010 and 2009 and 2008. We terminated the Executive Plan in January 2010 anddistributions were made in January 2011.

Deferred Compensation Plan with the former Chief Executive Officer

Pursuant to Mr. Klaassen's prior employment agreement, we are required to make contributions of $150,000 per year for 12 years, beginning onSeptember 12, 2000 into a non-qualified deferred compensation account, notwithstanding Mr. Klaassen's termination of his employment in November 2008.At the end of the 12-year period, any net gains accrued or realized from the investment of the amounts contributed by us are payable to Mr. Klaassen and wewill receive any remaining amounts. As of December 31, 2011, we had contributed an aggregate of $1.8 million into this plan which fully funded the account.Refer to Note 16 for further information regarding executive compensation plans. 19. Discontinued Operations

Discontinued operations consist primarily of three communities sold in 2011, our German operations, two communities sold in 2010, 22 communitiessold in 2009, one community closed in 2009, our Greystone subsidiary sold in 2009 and our Trinity subsidiary which ceased operations in 2008. Thefollowing amounts related to those communities and businesses that have been segregated from continuing operations and reported as discontinued operations(in thousands): For the Years Ended December 31, 2011 2010 2009 Revenue $ 1,809 $ 28,177 $ 118,797 Expenses (3,341) (40,960) (129,729) Impairments (1,031) (3,316) (74,770) Other (expense) income (1,143) 10,035 (16,669) Gain on sale of real estate or business 2,615 15,542 74,124 Gain on German transaction 0 56,819 0 Income taxes 0 1,490 (62)

(Loss) income from discontinued operations $ (1,091) $ 67,787 $ (28,309)

20. Information about Sunrise's Segments

Effective in 2011, we revised our operating segments as a result of a change in the manner in which the key decision makers review the operatingresults and the cessation of all development activity. We now have three operating segments: North American Management, Consolidated Communities andUnited Kingdom Management. The operations of the communities we own or manage are reviewed on a community by community basis by our key decisionmakers. The communities managed for third parties, communities in ventures or communities that are consolidated but held in ventures or variable interestentities, are aggregated by location into either our North American Management segment or our United Kingdom Management segment. Communities thatare wholly owned or leased are included in our Consolidated Communities segment. In 2010, we had five operating segments, North American Management,North American Development (the residual activity which is now included with corporate costs), Equity Method Investments (whose community operationsare now included either in North American Management or United Kingdom Management), Consolidated (Wholly-Owned/Leased) and United Kingdom.

North American Management includes the results from the management of third party and venture senior living communities, including sixcommunities in New York owned by a venture but whose operations are included in our consolidated financial statements, a community owned by avariable interest entity and a community owned by a venture which we consolidate, in the United States and Canada.

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Consolidated Communities includes the results from the operation of wholly-owned and leased Sunrise senior living communities in the UnitedStates and Canada, excluding allocated management fees from our North American Management segment of $12.8 million, $10.0 million and $8.3million for 2011, 2010 and 2009, respectively.

United Kingdom Management includes the results from management of Sunrise senior living communities in the United Kingdom owned inventures.

Our community support office is located in McLean, Virginia, with a smaller regional center located in the U.K. Our North American communitysupport office provides centralized operational functions. As a result, our community-based team members are able to focus on delivering excellent care andservice consistent with our resident-centered operating philosophy.

Segment results are as follows (in thousands): For the Year Ended December 31, 2011

NorthAmerican

Management ConsolidatedCommunities

UnitedKingdom

Management Corporate Total Operating revenue:

Management fees $ 81,350 $ 0 $ 14,782 $ 0 $ 96,132 Buyout fees 3,685 0 0 0 3,685 Resident fees for consolidated communities 66,124 397,940 0 0 464,064 Ancillary fees 30,544 0 0 0 30,544 Professional fees from development, marketing and other 0 0 843 1,655 2,498 Reimbursed costs incurred on behalf of managed communities 706,934 0 8,356 0 715,290

Total operating revenues 888,637 397,940 23,981 1,655 1,312,213 Operating expenses:

Community expense for consolidated communities 40,793 292,698 0 0 333,491 Community lease expense 17,961 58,483 0 0 76,444 Depreciation and amortization 3,076 26,141 0 8,306 37,523 Ancillary expenses 28,396 0 0 0 28,396 General and administrative 0 0 13,899 100,575 114,474 Carrying costs of liquidating trust assets 0 0 0 2,456 2,456 Gain on financial guarantees (2,100) 0 0 0 (2,100) Provision for doubtful accounts 1,886 1,308 0 608 3,802 Impairment of long-lived assets 0 4,623 0 8,111 12,734 Costs incurred on behalf of managed communities 710,674 0 8,485 0 719,159

Total operating expenses 800,686 383,253 22,384 120,056 1,326,379

Income (loss) from operations $ 87,951 $ 14,687 $ 1,597 $ (118,401) $ (14,166)

Interest expense $ 0 $ 0 $ 0 $ (18,320) $ (18,320) Sunrise's share of earnings (loss) and return on investment in unconsolidated entities 0 0 4,592 (1,963) 2,629 Investments in unconsolidated communities 0 0 28,062 14,863 42,925 Segment assets 218,031 649,540 42,899 207,898 1,118,368 Expenditures for long-lived assets 0 3,348 0 8,013 11,361

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For the Year Ended December 31, 2010

NorthAmerican

Management ConsolidatedCommunities

UnitedKingdom

Management Corporate Total Operating revenue:

Management fees $ 95,807 $ 0 $ 12,025 $ 0 $ 107,832 Buyout fees 63,286 0 0 0 63,286 Resident fees for consolidated communities 23,507 331,207 0 0 354,714 Ancillary fees 43,136 0 0 0 43,136 Professional fees from development, marketing and other 0 0 3,177 1,101 4,278 Reimbursed costs incurred on behalf of managed communities 815,221 0 12,019 0 827,240

Total operating revenues 1,040,957 331,207 27,221 1,101 1,400,486 Operating expenses:

Community expense for consolidated communities 16,446 246,447 0 0 262,893 Community lease expense 1,582 58,133 0 0 59,715 Depreciation and amortization 12,441 15,992 0 12,204 40,637 Ancillary expenses 40,504 0 0 0 40,504 General and administrative 0 0 11,325 115,241 126,566 Carrying costs of liquidating trust assets 0 0 0 3,146 3,146 Accounting Restatement, Special Independent Committee inquiry, SEC investigation

and stockholder litigation 0 0 0 (1,305) (1,305) Restructuring costs 0 0 0 11,690 11,690 Provision for doubtful accounts 3,824 921 0 1,409 6,154 Loss on financial guarantees and other contracts 518 0 0 0 518 Impairment of long-lived assets 0 826 0 4,821 5,647 Costs incurred on behalf of managed communities 818,987 0 12,021 0 831,008

Total operating expenses 894,302 322,319 23,346 147,206 1,387,173

Income (loss) from operations $ 146,655 $ 8,888 $ 3,875 $(146,105) $ 13,313

Interest expense $ 0 $ 0 $ 0 $ (7,707) $ (7,707) Sunrise's share of earnings (loss) and return on investment in unconsolidated entities 0 0 9,373 (1,852) 7,521 Investments in unconsolidated communities 0 0 27,007 11,668 38,675 Segment assets 155,884 242,229 36,626 266,719 701,458 Expenditures for long-lived assets 380 10,121 0 5,062 15,563 For the Year Ended December 31, 2009

NorthAmerican

Management ConsolidatedCommunities

UnitedKingdom

Management Corporate Total Operating revenue:

Management fees $ 101,755 $ 0 $ 10,712 $ 0 $ 112,467 Buyout fees 0 0 0 0 0 Resident fees for consolidated communities 21,403 317,722 0 0 339,125 Ancillary fees 43,630 0 1,767 0 45,397 Professional fees from development, marketing and other 0 0 5,995 7,198 13,193 Reimbursed costs incurred on behalf of managed communities 931,867 0 10,942 0 942,809

Total operating revenues 1,098,655 317,722 29,416 7,198 1,452,991 Operating expenses:

Community expense for consolidated communities 15,913 242,055 0 0 257,968 Community lease expense 1,525 57,790 0 0 59,315 Depreciation and amortization 13,243 15,443 0 17,092 45,778 Ancillary expenses 40,594 0 1,863 0 42,457 General and administrative 0 0 15,438 111,502 126,940 Write-off of capitalized project costs 0 0 0 14,879 14,879 Accounting Restatement, Special Independent Committee inquiry, SEC investigation

and stockholder litigation 0 0 0 3,887 3,887 Restructuring costs 0 0 1,577 30,957 32,534 Provision for doubtful accounts 10,664 1,609 0 978 13,251 Loss on financial guarantees and other contracts 2,053 0 0 0 2,053 Impairment of long-lived assets 0 0 0 29,439 29,439 Costs incurred on behalf of managed communities 938,389 0 10,942 0 949,331

Total operating expenses 1,022,381 316,897 29,820 208,734 1,577,832

Income (loss) from operations $ 76,274 $ 825 $ (404) $(201,536) $ (124,841)

Interest expense $ 0 $ 0 $ 0 $ (10,273) $ (10,273)

Sunrise's share of earnings (loss) and return on investment in unconsolidated entities 0 0 15,977 (10,304) 5,673 Investments in unconsolidated communities 0 0 32,596 32,375 64,971 Segment assets 174,708 245,364 46,458 444,059 910,589 Expenditures for long-lived assets 264 9,526 0 9,839 19,629

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We recorded $1.1 million, net, in exchange losses all relating to the Canadian dollar in 2011; $1.7 million, net, in exchange gains in 2010 ($2.2 millionin gains related to the Canadian dollar and $(0.5) million in losses related to the British pound); and $7.4 million, net, in foreign exchange gains in 2009 ($8.0million in gains related to the Canadian dollar and $(0.6) million in losses related to the British pound).

Upon designation as assets held for sale, we recorded the German assets at the lower of their carrying value or their fair value less estimated costs tosell. We used the bids received to date in the determination of fair value. As the carrying value of a majority of the assets was in excess of the fair value lessestimated costs to sell, in 2009 we recorded an impairment charge of $49.9 million which is included in discontinued operations.

We generated 16.3%, 16.9% and 14.2% of revenue from Ventas in 2011, 2010 and 2009, respectively; 13.7%, 19.8% and 23.2%, from HCP in 2011,2010 and 2009, respectively; and 11.4% in 2009 from a private capital partner for senior living communities which we manage. 21. Accounts Payable and Accrued Expenses and Other Long-Term Liabilities

Accounts payable and accrued expenses consist of the following (in thousands):

December 31,

2011 December 31,

2010 Accounts payable and accrued expenses $ 36,920 $ 38,095 Accrued salaries and bonuses 28,594 23,690 Accrued employee health and other benefits 33,498 34,145 Other accrued expenses 35,145 35,974

$ 134,157 $ 131,904

Other long-term liabilities consist of the following (in thousands):

December 31,

2011 December 31,

2010 Deferred revenue from nonrefundable entrance fees $ 44,225 $ 39,693 Lease liabilities 26,466 25,527 Executive deferred compensation 16,317 19,516 Uncertain tax positions 20,375 20,360 Other long-term liabilities 2,165 5,457

$ 109,548 $ 110,553

22. Severance and Restructuring Plan

In 2008, we implemented a program to reduce corporate expenses, including a voluntary separation program for certain team members, as well as areduction of spending related to administrative processes, vendors, consultants and other costs. As a result of this program and other staffing reductions, weeliminated 182 positions in overhead and development, primarily in our McLean, Virginia community support office. We have recorded severance chargesrelated to this program of $0.1 million, and $3.0 million for 2010 and 2009, respectively.

In 2009, we announced a plan to continue to reduce corporate expenses through a further reorganization of our corporate cost structure, including areduction in spending related to, among others, administrative processes, vendors, and consultants. The plan was designed to reduce our annual recurringgeneral and administrative expenses (including expenses previously classified as venture expense) to approximately $100 million, and to reduce our centrallyadministered services which are charged to the communities by approximately $1.5 million. Under this plan, approximately 177 positions were eliminated.We recorded severance expense of $2.1 million and $7.5 million in 2010 and 2009, respectively, as a result of the plan.

In May 2009, we entered into a separation agreement with our then chief financial officer in connection with this plan. Pursuant to his employmentagreement, our then chief financial officer received severance benefits that included a lump sum cash payment of $1.4 million. In addition, he received abonus in the amount of $0.5 million and his outstanding and unvested stock options, restricted stock and other long-term equity compensation awards werefully vested, resulting in a non-cash compensation expense to us of $0.8 million.

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In September 2009, we terminated a portion of our lease on our community support office in McLean, Virginia. We recorded a charge of $2.7 millionrelated to the termination.

In January 2010, we entered into a separation agreement with our Senior Vice President, North American Operations, in connection with this plan,effective as of May 31, 2010. Pursuant to his employment agreement, he received severance benefits of $1.0 million and his outstanding and unvested stockoptions, restricted stock and other long-term equity compensation awards were fully vested, resulting in a non-cash compensation expense to us of $0.3million.

Mr. Paul Klaassen resigned as our chief executive officer effective November 1, 2008 and became our non-executive Chair of the Board. Upon hisresignation as our chief executive officer, under his employment agreement, he became entitled to receive:

• annual payments for three years, beginning on the first anniversary of the date of termination, equal to Mr. Klaassen's annual salary ($0.5 million)and bonus ($0) for the year of termination;

• continuation of the medical insurance and supplemental coverage provided to Mr. Klaassen and his family until Mr. Klaassen attains or, in thecase of his death, would have attained, age of 65 (but to his children only through their attainment of age 22); and

• continued participation in his deferred compensation plan in accordance with the terms of his employment agreement.

The fair value of the continued participation of Mr. Klaassen in the deferred compensation plan cannot be reasonably estimated, as it is dependent uponMr. Klaassen's selection of available investment options and the future performance of those selections. Accordingly, no additional accrual was recorded withrespect to the continued participation by Mr. Klaassen in his deferred compensation plan. At December 31, 2011, we had a deferred compensation liability of$0.2 million. Refer to Note 18 of the Notes to the Consolidated Financial Statements for more information regarding Mr. Klaassen's deferred compensationaccount.

The following table reflects the activity related to our severance and restructuring plans during 2011:

(in thousands)

Liability atJanuary 1,

2011 Additional

Charges Adjustments

Cash Paymentsand Other

Settlements

Liability atDecember 31,

2011 Severance $ 425 $ 0 $ 12 $ (350) $ 87 CEO retirement compensation 632 0 45 (500) 177 Lease termination costs 2,748 0 0 (1,000) 1,748

$ 3,805 $ 0 $ 57 $ (1,850) $ 2,012

We incurred $8.1 million in 2011 in severance costs in general and administrative expense unrelated to this plan which includes $1.1 million related to ourthen chief financial officer's termination in March 2011. 23. Comprehensive (Loss) Income

Comprehensive (loss) income for the twelve months ended December 31, 2011, 2010 and 2009 was as follows (in thousands): 2011 2010 2009 Net (loss) income attributable to common shareholders $ (23,390) $ 99,067 $ (133,915) Foreign currency translation adjustment 1,330 (6,940) (4,813) Equity interest in investees' other comprehensive (loss) income (1,894) 1,418 6,324 Unrealized loss on interest rate swap (8,325) 0 0 Unrealized gain on investments 72 105 120

Comprehensive (loss) income (32,207) 93,650 (132,284)

Comprehensive income attributable to noncontrolling interest - Unrealized gain on investments (72) (105) (120)

Comprehensive (loss) income attributable to common shareholders $ (32,279) $ 93,545 $ (132,404)

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24. Quarterly Results of Operations (Unaudited)The following is a summary of quarterly results of operations for the fiscal quarter (in thousands, except per share amounts): Q1 Q2 (2) Q3 (2) Q4 (2) Total 2011 Operating revenue $ 320,298 $ 321,383 $ 339,951 $ 330,581 $ 1,312,213 Impairment charges 0 5,355 2,899 4,480 12,734 (Loss) income from continuing operations (18,830) 1,656 (6,958) 1,833 (22,299) Income (loss) from discontinued operations 1,125 (378) (1,776) (62) (1,091) Net (loss) income (17,705) 1,278 (8,734) 1,771 (23,390) Basic net (loss) income per common share (1)

Continuing operations $ (0.34) $ 0.03 $ (0.12) $ 0.03 $ (0.39) Discontinued operations 0.02 (0.01) (0.03) 0.00 (0.02)

Net (loss) income (0.32) 0.02 (0.15) 0.03 (0.41) Diluted net (loss) income per common share (1)

Continuing operations $ (0.34) $ 0.03 $ (0.12) $ 0.03 $ (0.39) Discontinued operations 0.02 (0.01) (0.03) 0.00 (0.02)

Net (loss) income (0.32) 0.02 (0.15) 0.03 (0.41) 2010 Operating revenue $ 353,885 $ 347,688 $ 381,664 $ 317,249 $ 1,400,486 Impairment charges 700 2,659 1,014 1,274 5,647 (Loss) income from continuing operations (13,567) (5,471) 19,469 30,849 31,280 (Loss) income from discontinued operations (2,450) 51,799 (726) 19,164 67,787 Net (loss) income (16,017) 46,328 18,743 50,013 99,067 Basic net (loss) income per common share (1)

Continuing operations $ (0.24) $ (0.10) $ 0.35 $ 0.55 $ 0.56 Discontinued operations (0.05) 0.93 (0.01) 0.35 1.22

Net (loss) income (0.29) 0.83 0.34 0.90 1.78 Diluted net (loss) income per common share (1)

Continuing operations $ (0.24) (0.10) 0.34 0.54 0.54 Discontinued operations (0.05) 0.91 (0.01) 0.33 1.18

Net (loss) income (0.29) 0.81 0.33 0.87 1.72 (1) The sum of per share amounts for the quarters may not equal the per share amount for the year due to a variance in shares used in the calculations or

rounding.(2) In the second quarter of 2010, we restructured our German debt, recognizing a gain of $56.8 million which is included in discontinued operations. In

the second, third and fourth quarters of 2010, we had management agreement buyout fees of $13.5 million, $40.0 million and $9.8 million, respectively.In the fourth quarter of 2010, we sold venture interests to Ventas and recognized a gain of approximately $25.0 million.

25. Subsequent Event

On February 28, 2012, we closed on a purchase and sale agreement with our venture partner who owned 85% of the membership interests (the "PartnerInterest") in Santa Monica AL, LLC ("Santa Monica"). We owned the remaining 15% membership interest. Pursuant to the purchase and sale agreement, wepurchased the Partner Interest for an aggregate purchase price of $16.2 million. Santa Monica indirectly owns one senior living facility located in SantaMonica, California. As a result of the transaction, effective February 28, 2012, the assets, liabilities and operating results of Santa Monica are consolidated.

Simultaneously, with the closing of the transaction, we entered into a new loan with Prudential Insurance Company of America to pool Santa Monicawith Connecticut Avenue, and senior debt financed the two assets. The principal amount of the new loan in the aggregate is $55.0 million with an interest rateof 4.66%. It is a seven year loan that matures on March 1, 2019. The proceeds of the new loan were applied (i) to pay off $27.8 million of the ConnecticutAvenue debt; (ii) to pay off $13.4 million of the Santa Monica debt; and (iii) towards the $16.2 million purchase price of the Partner Interest.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.

Item 9A. Controls and ProceduresEvaluation of Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluatedthe effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the "ExchangeAct")). Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that, as of December 31, 2011, our disclosurecontrols and procedures were effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls andother procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulatedand communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, asappropriate, to allow timely decisions regarding required disclosure.

Management's Report on Internal Control over Financial ReportingManagement of Sunrise is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the

effectiveness of internal control over financial reporting. As defined by rules of the SEC, internal control over financial reporting is a process designed by, orunder the supervision of, the Company's principal executive and principal financial officer and effected by the Company's Board of Directors, managementand other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financialstatements in accordance with U.S. generally accepted accounting principles.

A system of internal control over financial reporting (1) pertains to the maintenance of records that, in reasonable detail, should accurately and fairlyreflect the Company's transactions and dispositions of the Company's assets; (2) provides reasonable assurance that transactions are recorded as necessary topermit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures ofthe Company are being made only in accordance with authorizations of the Company's management and directors; and (3) provides reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on theconsolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company's annual consolidated financial statements, management undertook an assessment of theeffectiveness of the Company's internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Management'sassessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of keyfinancial reporting controls. Management has concluded that, as of December 31, 2011, our internal control over financial reporting was effective based onthese criteria.

Our independent registered public accounting firm, Ernst & Young LLP, which audited the financial statements in this report has issued an attestationreport expressing an opinion on the effectiveness of internal control over financial reporting at December 31, 2011, which appears at the end of this Item 9A.

Changes in Internal Control over Financial ReportingNone.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of DirectorsSunrise Senior Living, Inc.

We have audited Sunrise Senior Living, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sunrise SeniorLiving, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibilityis to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, Sunrise Senior Living, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31,2011 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Sunrise Senior Living, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders'equity, and cash flows for each of the three years in the period ended December 31, 2011 of Sunrise Senior Living, Inc. and our report dated February 29,2012 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP

McLean, VirginiaFebruary 29, 2012

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Item 9B. Other Information.None.

PART III

Item 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item is included under the captions "Election of Directors," "Executive Officers," "Corporate Governance –

Overview," "– Revised Code of Conduct and Integrity" and "–Audit Committee," and "Section 16(a) Beneficial Ownership Reporting Compliance" in our2012 Annual Meeting Proxy Statement, which we intend to file within 120 days after our fiscal year end, and is incorporated by reference herein. Item 11. Executive Compensation

The information required by this item is included under the captions "Corporate Governance – 2011 Director Compensation," "CompensationDiscussion and Analysis," "Report of Compensation Committee," "Summary Compensation Table," "Grants of Plan-Based Awards in Fiscal Year 2011,""Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table," "Outstanding Equity Awards at Fiscal Year-End 2011," "OptionExercises and Stock Vested in Fiscal Year 2011," Nonqualified Deferred Compensation for Fiscal Year 2011," "Potential Payments Upon Termination orChange of Control," "Narrative Disclosure of the Company's Compensation Policies and Practices as They Relate to the Company's Risk Management," and"Compensation Committee Interlocks and Insider Participation" in our 2012 Annual Meeting Proxy Statement, which we intend to file within 120 days afterour fiscal year end, and is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this item is included under the captions "Stock Owned by Directors and Executive Officers," "Principal Holders of VotingSecurities" and "Equity Compensation Plan Information" in our 2012 Annual Meeting Proxy Statement, which we intend to file within 120 days after ourfiscal year end, and is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is included under the captions "Certain Relationships and Related Transactions" and "Corporate Governance –Director Independence" in our 2012 Annual Meeting Proxy Statement, which we intend to file within 120 days after our fiscal year end, and is incorporatedby reference herein. Item 14. Principal Accounting Fees and Services

The information required by this item is included under the captions "Ratification of Appointment of Independent Registered Public Accounting Firm –Independent Registered Public Accountant's Fees" and "– Pre-Approval of Audit and Non-Audit Fees" in our 2012 Annual Meeting Proxy Statement, whichwe intend to file within 120 days after our fiscal year end, and is incorporated by reference herein.

PART IV

Item 15. Exhibits and Financial Statement Schedulesa. (1) All financial statements

Consolidated financial statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K.

(2) Financial statement schedulesNo schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of theschedule, or because the information is included in the consolidated financial statements or the notes thereto.

b. ExhibitsThe exhibits listed in the accompanying index are filed as part of this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on this 1st day of March 2012. SUNRISE SENIOR LIVING, INC.By: /S/ MARK S. ORDAN

Mark S. Ordan, Director and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant inthe capacities and on the date indicated above. PRINCIPAL EXECUTIVE OFFICERBy: /S/ MARK S. ORDAN

Mark S. Ordan, Director and Chief Executive Officer

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERBy: /S/ C. MARC RICHARDS

C. Marc Richards Chief Financial Officer

DIRECTORSBy: /S/ PAUL J. KLAASSEN

Paul J. Klaassen, Non-Executive Chair of the BoardBy: /S/ GLYN F. AEPPEL

Glyn F. Aeppel, DirectorBy: /S/ THOMAS J. DONOHUE

Thomas J. Donohue, DirectorBy: /S/ STEPHEN D. HARLAN

Stephen D. Harlan, DirectorBy: /S/ LYNN KROMINGA

Lynn Krominga, DirectorBy: /S/ WILLIAM G. LITTLE

William G. Little, Director

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EXHIBIT INDEX [TO BE UPDATED] INCORPORATED BY REFERENCE

ExhibitNumber Description Form Filing Date with SEC

Exhibit

Number 2.1

Master Agreement (CNL Q3 2003 Transaction) dated as of the 30th day of September, 2003 by and among(i) Sunrise Development, Inc., (ii) Sunrise Senior Living Management, Inc., (iii) Twenty Pack ManagementCorp., Sunrise Madison Senior Living, L.L.C. and Sunrise Development, Inc. (collectively, as the Tenant),(iv) CNL Retirement Sun1 Cresskill NJ, LP, CNL Retirement Edmonds WA, LP, CNL Retirement Sun1Lilburn GA, LP and CNL Retirement Sun1 Madison NJ LP, and (v) Sunrise Senior Living, Inc.

8-K

October 15, 2003

2.4

2.2

Purchase and Sale Agreement by and among Sunrise Senior Living Investments, Inc., Sunrise Senior LivingManagement, Inc., SZR USInvestments, Inc., Ventas REIT US Holdings, Inc. and Ventas, Inc., dated October 1, 2010.

8-K

December 7, 2010

2.1

2.3

Purchase and Sale Agreement by and among Sunrise North Senior Living, Ltd., Sunrise Senior LivingManagement, Inc., Ventas SSLOntario II, Inc. and Ventas, Inc., dated October 1, 2010.

8-K

December 7, 2010

2.2

2.4

PropCo Agreement by and among Sunrise Senior Living, Inc., certain of its subsidiaries as set forth therein,GHS Pflegeresidenzen Grundstücks GmbH, and TMW Pramerica Property Investment GmbH, dated as ofMay 27, 2010.

8-K

June 3, 2010

10.1

2.5

Purchase and Sale Agreement for Membership Interests in AL US Development Venture, LLC by and amongSunrise Senior Living Investments, Inc., Sunrise Senior Living Management, Inc., Morgan Stanley RealEstate Fund VII Global-F (U.S.), L.P., Morgan Stanley Real Estate Fund VII Special Global (U.S.), L.P.,MSREF VII Global-T Holding II, L.P., and Morgan Stanley Real Estate Fund VII Special Global-TE (U.S.),L.P., dated April 19, 2011

10-Q

May 6, 2011

10.4

3.1 Amended and Restated Certificate of Incorporation of Sunrise, effective as of November 14, 2008. Def 14A October 20, 2008 A 3.2 Amended and Restated Bylaws of Sunrise, effective as of November 14, 2008. 8-K November 19, 2008 3.1 4.1 Form of Common Stock Certificate. 10-K March 24, 2008 4.1 4.2

Rights Agreement between Sunrise Senior Living, Inc. and American Stock Transfer & Trust Company, asrights agent, dated April 24, 2006.

8-K

April 21, 2006 4.1

4.3 First Amendment to the Rights Agreement, dated as of November 19, 2008, between Sunrise Senior Living,Inc. and American Stock Transfer & Trust Company, as rights agent.

8-K November 19, 2008

4.1

4.4 Second Amendment to the Rights Agreement, dated as of January 27, 2010, between Sunrise Senior Living,Inc. and American Stock Transfer & Trust Company, as rights agent.

8-K

January 27, 2010 4.1

4.5

Third Amendment, dated as of December 16, 2011, to the Rights Agreement, dates as of April 24, 2006, asamended as of November 19, 2008 and January 27, 2010, between the Company and American StockTransfer & Trust Company, LLC, as rights agent.

8-K

December 16, 2011

4.1

4.6 Indenture, dated as of April 20, 2011, by and between Sunrise Senior Living, Inc. and The Bank of New YorkMellon Trust Company, N.A., as Trustee.

8-K

April 20, 2011 4.1

10.1 1996 Non-Incentive Stock Option Plan, as amended.+ 10-Q May 15, 2000 10.8 10.2 1997 Stock Option Plan, as amended.+ 10-K March 31, 1998 10.25

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10.3 1998 Stock Option Plan.+ 10-K March 31, 1999 10.41 10.4 1999 Stock Option Plan.+ 10-Q May 13, 1999 10.1 10.5 2000 Stock Option Plan.+ 10-K March 12, 2004 10.4 10.6 2001 Stock Option Plan.+ 10-Q August 14, 2001 10.15 10.7 2002 Stock Option and Restricted Stock Plan.+ 10-Q August 14, 2002 10.1 10.8 2003 Stock Option and Restricted Stock Plan.+ 10-Q August 13, 2002 10.1 10.9 Forms of equity plan amendment adopted on March 19, 2008 regarding determination of option exercise price.+ 10-K July 31, 2008 10.11 10.10 2008 Omnibus Incentive Plan.+ Def 14A October 20, 2008 B 10.11 2008 Omnibus Incentive Plan, as amended.+ Def 14A March 22, 2010 A 10.12 Form of Executive Restricted Stock Agreement (2003 Stock Option and Restricted Stock Plan, as amended).+ 10-K February 25, 2011 10.12 10.13 Form of Executive Restricted Stock Agreement (2008 Omnibus Incentive Plan).+ 10-K February 25, 2011 10.13 10.14 Form of Director Stock Option Agreement.+ 8-K September 14, 2005 10.2 10.15 Form of Stock Option Certificate.+ 10-K March 24, 2008 10.14 10.16 Form of Non-Qualified Stock Option Agreement. (2008 Omnibus Incentive Plan).+ 10-K March 2, 2009 10.17 10.17 Form of Executive Non-Qualified Stock Option Agreement (2008 Omnibus Incentive Plan).+ 10-K February 25, 2011 10.17 10.18 Form of Director Restricted Stock Unit Agreement.+ 10-K February 25, 2011 10.18 10.19 Form of Executive Performance Unit Agreement (2008 Omnibus Incentive Plan, as amended). 10-Q November 7, 2011 10.4 10.20 Sunrise Executive Deferred Compensation Plan, effective January 1, 2009.+ 10-K/A March 31, 2009 10.23 10.21 First Amendment to Sunrise Executive Deferred Compensation Plan, effective December 31, 2009.+ 10-K February 25, 2011 10.20 10.22 Sunrise Senior Living, Inc. Senior Executive Severance Plan.+ 10-K February 25, 2011 10.53 10.23 Amendment to Sunrise Senior Living, Inc. Senior Executive Severance Plan.+ 10-K/A March 31, 2009 10.30 10.24 Form of Indemnification Agreement.+ 10-K March 16, 2006 10.54 10.25

Amended and Restated Employment Agreement dated as of November 13, 2003 by and between Sunrise SeniorLiving, Inc. and Paul J. Klaassen.+

10-K

March 12, 2004 10.1

10.26 Amendment No. 1 to Amended and Restated Employment Agreement by and between Sunrise Senior Living,Inc. and Paul J. Klaassen.+

10-K

March 24, 2008 10.30

10.27 Employment Agreement between Sunrise Senior Living, Inc. and Mark S. Ordan, dated November 13, 2008.+ 8-K November 19, 2008 10.1 10.28

Amended and Restated Employment Agreement between Sunrise Senior Living, Inc. and Mark Ordan, effectiveas of December 1, 2010.

8-K

December 2, 2010 10.1

10.29 Employment Agreement between Sunrise Senior Living, Inc. and Greg Neeb, dated January 21, 2009.+ 8-K January 21, 2009 10.4 10.30

Amendment to Employment Agreement between Sunrise Senior Living, Inc. and Greg Neeb, dated October 1,2010.+

10-K

February 25, 2011 10.29

10.31 Amended and Restated Employment Agreement between Sunrise Senior Living, Inc. and Greg Neeb, datedJanuary 25, 2011.+

10-K

February 25, 2011 10.30

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10.32 Employment Agreement between Sunrise Senior Living, Inc. and David Haddock, dated October 1, 2010.+ 10-K February 25, 2011 10.31 10.33 Employment Agreement between Sunrise Senior Living, Inc. and C. Marc Richards, dated March 22, 2011.+ 10-Q May 6, 2011 10.1 10.34 Employment Agreement between Sunrise Senior Living, Inc. and Julie A. Pangelinan, dated January 14, 2009.+ 8-K January 21, 2009 10.2 10.35

Amendment to Employment Agreement between Sunrise Senior Living, Inc. and Julie A. Pangelinan, dated July 9,2009.+

10-K February 25, 2010

10.115

10.36 Employment Agreement between Sunrise Senior Living, Inc. and Daniel J. Schwartz, dated January 16, 2009.+ 8-K January 21, 2009 10.3 10.37 Separation Agreement between Sunrise Senior Living, Inc. and Daniel J. Schwartz, dated February 15, 2010.+ 10-K February 25, 2010 10.116 10.38 Employment Agreement between Sunrise Senior Living, Inc. and Richard J. Nadeau, dated February 25, 2009.+ 8-K February 26, 2009 10.1 10.39 Sunrise Senior Living, Inc. 2010 Annual Incentive Plan – NEO Individual Goals.+ 8-K June 23, 2010 99.1 10.40 2010 Partial Bonus payments to Executive Officers. 10-Q August 5, 2010 10.4 10.41 Performance Metrics for 2011 Annual Incentive Bonuses for Named Executive Officers.+* N/A N/A N/A 10.42 2010 Director Fees.+ 10-K February 25, 2011 10.44 10.43 2011 Director Fees.+ 10-K February 25, 2011 10.45 10.44 2012 Director Fees.+* N/A N/A N/A 10.45

Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Borrowers, thesubsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as the AdministrativeAgent, Swing Line Lender and L/C Issuer, Wachovia Bank, National Association, as Syndication Agent, and otherlender parties thereto, dated as of December 2, 2005.

8-K

December 8, 2005

10.1

10.46 Pledge, Assignment and Security Agreement between Sunrise Senior Living, Inc. and Bank of America, N.A., asAdministrative Agent, dated as of December 2, 2005.

10-K

March 24, 2008 10.41

10.47

First Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of March 6,2006.

10-K

March 24, 2008

10.42

10.48

Second Amendment to the Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, asthe Borrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., asthe Administrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as ofJanuary 31, 2007.

10-K

March 24, 2008

10.43

10.49

Third Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of June 27,2007.

10-K

March 24, 2008

10.44

10.50

Fourth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as ofSeptember 17, 2007.

10-K

March 24, 2008

10.45

121

Table of Contents

10.51

Fifth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative 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

10.52

Sixth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative 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

10.53 Pledge, Assignment and Security Agreement between Sunrise Senior Living, Inc. and Bank of America, N.A., asAdministrative Agent, dated as of February 19, 2008.

10-K

March 24, 2008 10.48

10.54

Seventh Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative 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

10.55

Security Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as the Loan Parties, and Bankof 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

10.56

Eighth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative 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

10.57

Ninth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of November 6,2008.

10-Q

November 7, 2008

10.2

10.58

Tenth Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of January 20,2008.

8-K

January 21, 2009

10.1

10.59

Eleventh Amendment to Credit Agreement by and among Sunrise Senior Living, Inc. and certain subsidiaries, as theBorrowers, the subsidiaries of the Borrower as identified therein, as the Guarantors, Bank of America, N.A., as theAdministrative Agent, Swing Line Lender and L/C Issuer, and other lender parties thereto, dated as of January 20,2008.

8-K

March 23, 2009

10.1

10.60

Twelfth Amendment to the Credit Agreement, dated April 28, 2009, by and among Sunrise Senior Living, Inc.,certain subsidiaries of Sunrise Senior Living, Inc. party thereto, the lenders from time to time party thereto and Bankof America, N.A.

8-K

April 28, 2009

10.1

10.61

Thirteenth Amendment to the Credit Agreement, dated October 19, 2009, by and among Sunrise Senior Living, Inc.,certain subsidiaries of Sunrise Senior Living, Inc. party thereto, the lenders from time to time party thereto and Bankof America, N.A.

8-K

October 20, 2009

10.1

10.62

Fourteenth Amendment to Credit Agreement, dated August 31, 2010, by and among Sunrise Senior Living, Inc.,certain subsidiaries of Sunrise Senior Living, Inc. party thereto, the lenders from time to time party thereto and Bankof America, N.A.

8-K

September 3, 2010

10.2

10.63

Termination Agreement by and among Bank of America, N.A., as Administrative Agent, Swingline Lender and L/Cissuer, Sunrise Senior Living, Inc., certain subsidiaries of Sunrise Senior Living, Inc. and KeyBank NationalAssociation, dated as of June 16, 2011.

8-K

June 20, 2011

10.4

122

Table of Contents

10.64 Commitment Letter between Sunrise Senior Living, Inc. and KeyBank National Association and KeyBank CapitalMarkets, Inc., effective April 8, 2011.

10-Q

May 6, 2011 10.2

10.65 Credit Agreement by and among Sunrise Senior Living, Inc., as borrower, KeyBank National Association, asadministrative agent, and certain other lenders, dated as of June 16, 2011.

8-K

June 20, 2011 10.1

10.66 Pledge Agreement by Sunrise Senior Living, Inc., as pledger, and KeyBank National Association, as agent for thebenefit of the Lenders, dated as of June 16, 2011.

8-K

June 20, 2011 10.2

10.67

Guaranty Agreement by Sunrise Senior Living Services, Inc., Sunrise Senior Living Management, Inc., SunriseSenior Living Investments, Inc. and Sunrise Development, Inc., as guarantors, in favor of certain Lenders, datedJune 16, 2011.

8-K

June 20, 2011

10.3

10.68

Assumption and Reimbursement Agreement made effective as of March 28, 2003, by and among MarriottInternational, Inc., Sunrise Assisted Living, Inc., Marriott Senior Living Services, Inc. and Marriott Continuing Care,LLC.

10-Q

May 15, 2003

10.4

10.69

Assumption and Reimbursement Agreement (CNL) made effective as of March 28, 2003, by and among MarriottInternational, Inc., Marriott Continuing Care, LLC, CNL Retirement Properties, Inc., CNL Retirement MA3Pennsylvania, LP, and CNL Retirement MA3 Virginia, LP.

10-Q

May 15, 2003

10.5

10.70 Amended and Restated Ground Lease, dated August 29, 2003, by and between Sunrise Fairfax Assisted Living,L.L.C. and Paul J. Klaassen and Teresa M. Klaassen.

10-K

March 24, 2008 10.62

10.71 Multifamily Mortgage, Assignment of Rents and Security Agreement. 8-K May 12, 2008 10.1 10.72

Settlement Agreement, dated as of October 26, 2009, by and among Sunrise Senior Living Investments, Inc., SeniorLiving Management, Inc., Sunrise Senior Living, Inc., US Senior Living Investments, LLC and Sunrise IV SeniorLiving Holdings, LLC.

8-K

October 28, 2009

10.2

10.73

Settlement Agreement, dated as of October 26, 2009, by and among Sunrise Senior Living Investments, Inc., SunriseSenior Living, Inc., Fountains Senior Living Holdings, LLC, Sunrise Senior Living Management, Inc., US SeniorLiving Investments, LLC, HSH Nordbank AG, New York Branch.

8-K

October 28, 2009

10.2

10.74 Restructure Term Sheet, dated October 22, 2009, by and among Sunrise Senior Living, Inc. and the creditors partythereto.

8-K

October 28, 2009 10.1

10.75 Settlement Agreement between Barclays Bank PLC and Sunrise Senior Living, Inc. dated as of April 29, 2010. 8-K May 3, 2010 10.1 10.76

Loan Agreement, dated as of September 28, 2007, by and among Sunrise Pasadena CA Senior Living, LLC andSunrise Pleasanton CA Senior Living, LP, as borrowers, and Wells Fargo Bank, National Association, as lender.

10-Q November 9, 2009

10.2

10.77

Letter Agreement, dated October 1, 2009, by and among Sunrise Pasadena CA Senior Living, LLC and SunrisePleasanton CA Senior Living, L.P., as borrowers, Sunrise Senior Living, Inc., as guarantor, and Wells Fargo Bank,National Association, as lender.

10-Q

November 9, 2009

10.3

10.78

Letter Agreement, dated December 1, 2009, by and among Sunrise Pasadena CA Senior Living, LLC and SunrisePleasanton CA Senior Living, L.P., as borrowers, Sunrise Senior Living, Inc., as guarantor, and Wells Fargo Bank,National Association, as lender.

8-K

December 7, 2009

10.1

10.79

Modification Agreement (Secured Loan), dated February 10, 2010, by and between Sunrise Pasadena CA SeniorLiving, LLC and Sunrise Pleasanton CA Senior Living, L.P., as borrowers, and Wells Fargo Bank, NationalAssociation, as lender.

8-K

February 19, 2010

10.1

123

Table of Contents

10.80

Second Modification Agreement (Secured Loan), dated August 31, 2010, by and between Sunrise Pasadena CASenior Living, LLC and Sunrise Pleasanton CA Senior Living, L.P., as borrowers, and Wells Fargo Bank, NationalAssociation, as lender.

8-K

September 3, 2010

10.3

10.81 Loan and Security Agreement (Loan A), dated as of August 28, 2007, by and among Sunrise Connecticut AvenueAssisted Living, L.L.C., as borrower, and Chevy Chase Bank, F.S.B., as agent for the lenders party thereto.

10-Q November 9, 2009

10.4

10.82 Guaranty of Payment (Loan A), dated as of August 28, 2007, by and among Sunrise Senior Living, Inc. and ChevyChase Bank, F.S.B.

10-Q November 9, 2009

10.5

10.83 Deed of Trust Note A, dated as of August 28, 2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., asborrower, to MB Financial Bank, N.A.

10-Q November 9, 2009

10.6

10.84 Deed of Trust Note A, dated as of August 28, 2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., asborrower, to Chevy Chase Bank, F.S.B.

10-Q November 9, 2009

10.7

10.85

Deed of Trust, Assignment, Security Agreement and Fixture Filing (Loan A), dated as of August 28, 2007, bySunrise Connecticut Avenue Assisted Living, L.L.C., as grantor, Alexandra Johns and Ellen-Elizabeth Lee, astrustees, and Chevy Chase Bank, F.S.B., as agent.

10-Q

November 9, 2009

10.8

10.86 Loan and Security Agreement (Loan B), dated as of August 28, 2007, by and among Sunrise Connecticut AvenueAssisted Living, L.L.C., as borrower, and Chevy Chase Bank, F.S.B., as lender.

10-Q November 9, 2009

10.9

10.87 Guaranty of Payment (Loan B), dated as of August 28, 2007, by and among Sunrise Senior Living, Inc. and ChevyChase Bank, F.S.B.

10-Q November 9, 2009

10.10

10.88 Deed of Trust Note B, dated as of August 28, 2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., asborrower, to Chevy Chase Bank, F.S.B.

10-Q November 9, 2009

10.11

10.89

Deed of Trust, Assignment, Security Agreement and Fixture Filing (Loan B), dated as of August 28, 2007, bySunrise Connecticut Avenue Assisted Living, L.L.C., as grantor, Alexandra Johns and Ellen-Elizabeth Lee, astrustees, and Chevy Chase Bank, F.S.B.

10-Q

November 9, 2009

10.12

10.90 First Amendment to Loan Agreement (Loan A), dated as of April 15, 2008, by and among Sunrise ConnecticutAvenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, F.S.B., as agent to the lenders party thereto.

10-Q November 9, 2009

10.13

10.91 First Amendment to Guaranty of Payment (Loan A), dated as of September 2008, by and between Sunrise SeniorLiving, Inc. and Chevy Chase Bank, F.S.B.

10-Q November 9, 2009

10.14

10.92 First Amendment to Loan Agreement (Loan B), dated as of April 15, 2008, by and among Sunrise ConnecticutAvenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, F.S.B. as lender.

10-Q November 9, 2009

10.15

10.93 First Amendment to Guaranty of Payment (Loan B), dated as of September 2008, by and between Sunrise SeniorLiving, Inc. and Chevy Chase Bank, F.S.B.

10-Q November 9, 2009

10.16

10.94

Second Amendment to Loan Agreement (Loan A), dated as of August 28, 2009, by and among Sunrise ConnecticutAvenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One, N.A., as agent forthe lenders party thereto.

10-Q

November 9, 2009

10.17

10.95 Second Amendment to Guaranty of Payment (Loan A), dated as of August 28, 2009, by and between Sunrise SeniorLiving, Inc. and Chevy Chase Bank, a division of Capital One, N.A.

10-Q November 9, 2009

10.18

10.96 First Amendment to Deed of Trust Note A (Loan A), dated as of August 28, 2009,by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and MB Financial Bank, N.A., as lender.

10-Q November 9, 2009

10.19

124

Table of Contents

10.97

First Amendment to Deed of Trust Note A (Loan A), dated as of August 28, 2009, by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One,N.A., as lender.

10-Q

November 9, 2009

10.20

10.98

Second Amendment to Loan Agreement (Loan B), dated as of August 28, 2009, by and among SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One,N.A., as lender.

10-Q

November 9, 2009

10.21

10.99 Second Amendment to Guaranty of Payment (Loan B), dated as of August 28, 2009, by and between SunriseSenior Living, Inc. and Chevy Chase Bank, a division of Capital One, N.A.

10-Q

November 9, 2009 10.22

10.100

First Amendment to Deed of Trust Note A (Loan B), dated as of August 28, 2009, by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One,N.A., as lender.

10-Q

November 9, 2009

10.23

10.101

Third Amendment to Loan Agreement and Settlement Agreement (Loan A), effective as of December 2, 2009, byand among Sunrise Connecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a divisionof Capital One, N.A., as agent for the lenders party thereto.

8-K

December 24, 2009

10.1

10.102 Third Amendment to Guaranty of Payment (Loan A), effective as of December 2, 2009, by and between SunriseSenior Living, Inc. and Chevy Chase Bank, a division of Capital One, N.A.

8-K December 24, 2009

10.2

10.103 Second Amendment to Deed of Trust Note A (Loan A), effective as of December 2, 2009, by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and MB Financial Bank, N.A., as lender.

8-K December 24, 2009

10.3

10.104

Second Amendment to Deed of Trust Note A (Loan A), effective as of December 2, 2009, by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One,N.A., as lender.

8-K

December 24, 2009

10.4

10.105

Third Amendment to Loan Agreement and Settlement Agreement (Loan B), effective as of December 2, 2009, byand among Sunrise Connecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a divisionof Capital One, N.A., as lender.

8-K

December 24, 2009

10.5

10.106 Third Amendment to Guaranty of Payment (Loan B), effective as of December 2, 2009, by and between SunriseSenior Living, Inc. and Chevy Chase Bank, a division of Capital One, N.A.

8-K December 24, 2009

10.6

10.107

Second Amendment to Deed of Trust Note B (Loan B), effective as of December 2, 2009, by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One,N.A., as lender.

8-K

December 24, 2009

10.7

10.108

Fourth Amendment to Loan Agreement and Settlement Agreement (Loan A), dated August 30, 2010, by andamong Sunrise Connecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division ofCapital One, N.A., as gent for the lender party thereto.

8-K

September 3, 2010

10.5

10.109 Third Amendment to Deed of Trust Note A (Loan A), dated August 30, 2010, by and between Sunrise ConnecticutAvenue Assisted Living, L.L.C., as borrower, and MB Financial Bank, N.A., as lender.

8-K

September 3, 2010 10.6

10.110 Third Amendment to Deed of Trust Note A (Loan A), dated August 30, 2010, by and between Sunrise ConnecticutAvenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One, N.A., as lender.

8-K

September 3, 2010 10.7

10.111

Fourth Amendment to Loan Agreement and Settlement Agreement (Loan B), dated August 30, 2010, by andamong Sunrise Connecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division ofCapital One, N.A., as lender.

8-K

September 3, 2010

10.8

125

Table of Contents

10.112

Third Amendment to Deed of Trust Note B (Loan B), dated August 30, 2010, by and between SunriseConnecticut Avenue Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a division of Capital One,N.A., as lender.

8-K

September 3, 2010

10.9

10.113

Building Loan Agreement dated April 10, 2008, by and between Sunrise Monterey Senior Living, LP, asborrower, Wells Fargo Bank, National Association, as administrative agent, and the financial institutions fromtime to time parties thereto, as lenders.

8-K

February 19, 2010

10.2

10.114 Modification Agreement (Secured Loan), dated February 10, 2010, by and between Sunrise Monterey SeniorLiving, LP, as borrower, and Wells Fargo Bank, National Association, as administrative agent.

8-K February 19, 2010

10.3

10.115 Second Modification Agreement (Secured Loan), dated August 31, 2010, by and between Sunrise MontereySenior Living, LP, as borrower, and Wells Fargo Bank, National Association, as administrative agent.

8-K September 3, 2010

10.4

10.116 Settlement and Restructuring Agreement by and among HCP, Inc. and the Landlords as set forth therein andSunrise Senior Living, Inc. and the Operators set forth therein, dated as of August 31, 2010.

8-K September 3, 2010

10.1

10.117 Purchase and Sale Agreement dated as of December 8, 2010 by and among US Assisted Living Facilities III,Inc., Sunrise Senior Living Investments, Inc., CC3 Acquisition, LLC, and CNL Income Partners, LP.

10-K February 25, 2011

10.120

10.118 Form of First Amended and Restated Management Agreement for Sunrise communities owned by Ventas, Inc.** 10-K February 25, 2011 10.121 10.119

First Amended and Restated Master Agreement by and among Sunrise Senior Living Management, Inc., SunriseNorth Senior Living Ltd., Sunrise Senior Living, Inc. and Ventas SSL, Inc., dated December 1, 2010.**

10-K February 25, 2011

10.122

10.120 Purchas Agreement between Sunrise Senior Living, Inc. and Stifel, Nicolaus & Company, Incorporated on behalfof itself and several Initial Purchasers named in Schedule I, dated April 14, 2011.

10-Q

May 6, 2011 10.3

10.121 Loan Agreement, dated as of June 14, 2007, by and among AL US Development Venture, LLC, as Borrower,HSH Nordbank AG, as Administrative Agent, Sole Arranger and Lender, and other lender parties thereto.***

8-K/A

July 14, 2011 10.1

10.122 First Amendment to Loan Agreement, dated as of April 22, 2009, by and between AL US Development Venture,LLC, as Borrower, and HSH Nordbank AG, as Administrative Agent and Lender.

8-K

June 8, 2011 10.2

10.123 Second Amendment to Loan Agreement, dated as of July 2010, by and between AL US Development Venture,LLC, as Borrower, and HSH Nordbank AG, as Administrative Agent and Lender.

8-K

June 8, 2011 10.3

10.124

Third Amendment to Loan Agreement and Omnibus Amendment and Reaffirmation of Loan Documents, datedas of June 2, 2011, by and among AL US Development Venture, LLC, as Borrower, Sunrise Senior LivingInvestments, Inc., Sunrise Senior Living, Inc., certain indirect subsidiaries of Sunrise Senior Living Investments,Inc. and HSH Nordbank AG, as Administrative Agent and Lender.***

8-K/A

July 14, 2011

10.4

10.125 Agreement Regarding Transfer of Partnership Interests (Ownco), dated as of August 15, 2011 by and betweenMaster MorSun Acquisition LLC and Sunrise Senior Living Investments, Inc.

10-Q November 7, 2011

10.3

10.126

Agreement Regarding Leases, dated December 22, 2011, by and among Sunrise Senior Living, Inc., SunriseSenior Living Services, Inc. and Sunrise Continuing Care, LLC and Marriott International, Inc., Marriott SeniorHolding Co. and Marriott Magenta Holding Company, Inc.*

N/A

N/A

N/A

126

Table of Contents

21 Subsidiaries of the Registrant.* N/A N/A N/A 23.1 Consent of Ernst & Young LLP.* N/A N/A N/A 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* N/A N/A N/A 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* N/A N/A N/A 32.1

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

N/A

N/A

N/A

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

N/A

N/A

N/A

101.INS XBRL Instance Document Furnished with this report 101.SCH XBRL Taxonomy Extension Schema Document Submitted electronically with this report 101.CAL XBRL Taxonomy Calculation Linkbase Document Submitted electronically with this report 101.LAB XBRL Taxonomy Label Linkbase Document Submitted electronically with this report 101.PRE XBRL Taxonomy Presentation Linkbase Document Submitted electronically with this report + Represents management contract or compensatory plan or arrangement.* Filed herewith.** Confidential treatment has been afforded for portions of this document through December 1, 2015. The omitted portions of this document have been

filed separately with the Securities and Exchange Commission.*** Confidential treatment has been afforded for portions of this document through June 2, 2016. The omitted portions of this document have been filed

separately with the Securities and Exchange Commission.

We have attached the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this report: (i) theConsolidated Statements of Income for the twelve months ended December 31, 2011, 2010 and 2009, respectively; (ii) the Consolidated Balance Sheetsat December 31, 2011, and December 31, 2010; and (iii) the Consolidated Statements of Cash Flows for the twelve months ended December 31, 2011,2010 and 2009, respectively, and (iv) the Notes to the Consolidated Financial Statements, tagged as blocks of text. We advise users of this data thatpursuant to Rule 406T of Regulation S-T this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes ofSections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise isnot subject to liability under these sections.

127

Exhibit 10.41

Performance Metrics for 2011 Annual Incentive Bonuses for Named Executive Officers

The performance metrics for 2011 consist of two components:

1. Adjusted EBITDA

• an "adjusted EBITDA" performance measure with the threshold, target and maximum annual incentive bonus payouts depending on achievementof specified threshold, target and maximum levels of adjusted EBITDA (with no amounts payable if threshold performance is not achieved andpayout amounts interpolated on a straight line basis if actual adjusted EBITDA falls between the specified adjusted EBITDA amounts forthreshold and target achievement or between target and maximum achievement);

• The target bonus opportunity for 2011 is as set forth in each executive officer's employment agreement (150% of base salary for Mr. Ordan,100% of base salary for Messrs. Neeb and Haddock and $265,500 for Mr. Richards reflecting his target annual bonus of 50% of his $235,000annual base salary during the portion of 2011 during which he served as chief accounting officer and a target annual bonus of 100% of his$300,000 annual salary for the balance of 2011 during which he is serving as chief financial officer, pro-rated). The threshold bonus opportunityrepresents 50% of the target bonus opportunity. The maximum bonus opportunity represents 200% of target for Mr. Ordan and 150% of target forMessrs. Neeb, Haddock and Richards.

; subject to:

2. Discretionary Adjustment

• a discretionary adjustment of -100% to +25% after the adjusted EBITDA payout amounts are calculated based on the Company's performance, asdetermined by the Compensation Committee, against budgeted occupancy levels, budgeted community revenue growth, budgeted community netoperating income, budgeted general and administrative expenses (total and recurring), peer shareholder returns and an assessment by theCompensation Committee of the fulfillment of the Company's mission and standards of care, which factors the Company believes are critical toits 2011 operations.

For purposes of calculating the adjusted EBITDA payout, "EBITDA" is net income (loss) attributable to common shareholders but excludesdepreciation and amortization, interest income, interest expense and (provision for) benefit from income taxes. "Adjusted EBITDA" further excludesstockholder litigation, buyout fees, restructuring costs, write-off of capitalized project costs, allowance for uncollectible receivables from owners, impairmentof long-lived assets, gain (loss) on investments, gain on fair value of liquidating trust note, other income

(expense), stock compensation, gain on the sale and development of real estate and equity interests, loss from investments accounted for under the profit-sharing method, discontinued operations (net of tax) and includes our proportionate share of joint venture interest, taxes, depreciation, rent, and amortization.Any incremental adjusted EBITDA from the acquisition of real estate or venture interests that was not contemplated in arriving at the specified adjustedEBITDA targets for 2011 will be excluded from the final calculation of adjusted EBITDA in determining the threshold/ target/maximum payout. However,the incremental recurring cash flow (to be determined by arriving at net income per generally accepted accounting principles and excluding depreciation andamortization expense) from unbudgeted acquisitions will be added to the final adjusted EBITDA computation.

Exhibit 10.44

2012 Director Fees

For 2012, our non-employee directors will receive the following annual Board fees. These fees are paid on a calendar-year basis, quarterly in advance.No separate meeting attendance fees are paid for attending meetings of Board committees.

Board Retainer $ 150,000(1)Committee Chair Retainer:

Audit Committee $ 25,000 Compensation Committee $ 15,000

Fee for Serving on Audit Committee (other than the Committee Chair) $ 10,000 Lead Director Fee $ 50,000 Non-Executive Chair of the Board Fee $ 100,000 (1) For 2012, the annual Board retainer is being paid 50% in cash and 50% in the form of a grant of 11,664 restricted stock units to each of our non-

employee directors. The grant was made on January 4, 2012 under our 2008 Omnibus Incentive Plan, as amended. The restricted stock units representthe right to receive an equivalent number of shares of our common stock and have a value of $75,000 based on the closing price of our common stockon January 4, 2012 of $6.43 per share. The restricted stock units vest in four equal quarterly installments on January 4, 2012, April 1, 2012, July 1, 2012and October 1, 2012, subject to continued service as a director on the applicable vesting date. For Ms. Lynn Krominga, vested shares will be deliveredwithin three days after December 31, 2012 or, if earlier, the date she ceases to be a director. For Ms. Glyn F. Aeppel and Messrs. Thomas J. Donohue,Stephen D. Harlan, Paul J. Klaassen and William G. Little, who each elected to defer delivery of their vested shares, vested shares will be deliveredwithin three days after they cease to be directors, if later than December 31, 2012. Vesting of the restricted stock units will accelerate uponconsummation of a "Change of Control", as defined in our 2008 Omnibus Incentive Plan, as amended.

In addition, all non-employee directors will be reimbursed for reasonable expenses incurred in attending meetings of the Board or Board committees.

Mark S. Ordan, our chief executive officer, does not receive fees for serving on our Board.

Exhibit 10.126EXECUTION COPY

AGREEMENT REGARDING LEASES

DATED AS OF DECEMBER 22, 2011

BY AND AMONG

MARRIOTT INTERNATIONAL, INC.,

MARRIOTT SENIOR HOLDING CO.,

MARRIOTT MAGENTA HOLDING COMPANY, INC.,

SUNRISE SENIOR LIVING, INC.,

SUNRISE SENIOR LIVING SERVICES, INC.

AND

SUNRISE CONTINUING CARE, LLC

TABLE OF CONTENTS

1. Certain Defined Terms and Rules of Interpretation 2 2. Transactions; Closing 7 3. Closing Conditions 8 4. Letter of Credit 9 5. NCF Payments 13 6. No Collateral Event 14 7. Reduction Option; Early Release of Marriott 15 8. Security Interests 16 9. Representations and Warranties 19 10. Covenants 22 11. Survival; Specific Performance 23 12. Miscellaneous 24 SCHEDULES:Schedule 1 Continuing Leases and Continuing Lease GuarantiesSchedule 2 Terminating LeasesSchedule 3 Lifecare AgreementsSchedule 4 Letter of Credit Available Amount Reductions (Lease Rental Payments)EXHIBITS:Exhibit A Marriott ConsentExhibit B Terminating Lease NoticeExhibit C Continuing Lease NoticeExhibit D Letter of CreditExhibit E Cash Collateral AgreementExhibit F Landlord Estoppel Certificate

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AGREEMENT REGARDING LEASES

THIS AGREEMENT REGARDING LEASES (this "Agreement") is made and entered into this 22nd day of December, 2011 (the "Effective Date"),by and among MARRIOTT INTERNATIONAL, INC., a Delaware corporation ("Marriott"), MARRIOTT SENIOR HOLDING CO., a Delawarecorporation ("Marriott Holdco"), and MARRIOTT MAGENTA HOLDING COMPANY, INC., a Delaware corporation ("Marriott Magenta"), on theone hand, and SUNRISE SENIOR LIVING, INC., a Delaware corporation formerly known as Sunrise Assisted Living, Inc. ("Sunrise"), SUNRISESENIOR LIVING SERVICES, INC., a Delaware corporation formerly known as Marriott Senior Living Services, Inc. ("SSLS"), and SUNRISECONTINUING CARE, LLC, a Delaware limited liability company formerly known as Marriott Continuing Care, LLC ("SCC"), on the other hand.Marriott, Marriott Holdco and Marriott Magenta shall collectively be known, jointly and severally, as the "Marriott Parties". Sunrise, SSLS and SCC shallcollectively be known, jointly and severally, as the "Sunrise Parties". Each of the Marriott Parties and the Sunrise Parties may also sometimes be referred toherein collectively, as the "Parties", and individually, as a "Party."

RECITALS

A. On or about March 28, 2003, the Marriott Parties sold certain assets and all of the stock of SSLS to Sunrise pursuant to that certain Stock PurchaseAgreement, dated as of December 30, 2002 (as amended, supplemented or otherwise modified, collectively, the "Stock Purchase Agreement").

B. In connection with the sale transaction in 2003, Sunrise acquired the Tenants (as hereinafter defined) under the leases described in Part A ofSchedule 1 attached hereto, as may be amended in accordance with Section 7(a) hereof (the "Continuing Leases") and the leases described in Part A ofSchedule 2 attached hereto, as may be amended in accordance with Section 7(a) hereof (the "Terminating Leases"; the Continuing Leases and theTerminating Leases, collectively, the "Leases"). The current term of each of the Leases expires December 31, 2013, and each Lease has an option on the partof the relevant Tenant to extend the term for an additional five-year term (each, a "First Extended Term") and additional options to extend the term for three(3) additional five-year terms beyond the First Extended Term.

C. Marriott continues to have liability with respect to the Leases pursuant to Guaranties of Tenant Obligations with respect to the Leases, which areidentified in Part B of Schedule 1 attached hereto and Part B of Schedule 2 attached hereto (as amended, supplemented or otherwise modified, collectively,the "Lease Guaranties"), and certain obligations with respect to the Lifecare Agreements (as hereinafter defined) with respect to the facilities known as TheColonnades and Bedford Court.

D. To the extent Marriott incurs any liabilities pursuant to the Lease Guaranties and the Lifecare Agreements, Sunrise is obligated to reimburse Marriottfor such liabilities pursuant to the terms of the Assumption and Reimbursement Agreement, dated as of March 28, 2003, by and among Marriott, Sunrise,SSLS and SCC (as amended, supplemented or otherwise modified from time to time, the "Reimbursement Agreement").

E. The Sunrise Parties and the Marriott Parties now desire to agree upon certain matters relating to the Leases, Lease Guaranties and LifecareAgreements on the terms and conditions set forth herein.

NOW, THEREFORE, in furtherance of the foregoing Recitals and in consideration of the mutual promises, representations, warranties and covenantscontained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows:

1. Certain Defined Terms and Rules of Interpretation. For all purposes of this Agreement, except as otherwise expressly provided herein or unless thecontext otherwise requires, (i) the terms defined in this Section 1 have the meanings assigned to them or cross-referenced in this Section 1 and include theplural as well as the singular; (ii) all references in this Agreement to designated "Sections" and other subdivisions are to the designated Sections and othersubdivisions of this Agreement; (iii) the word "including" shall have the same meaning as the phrase "including, without limitation," and other phrases ofsimilar import; and (iv) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to anyparticular Section or other subdivision:

"Affiliate", with respect to any Person, means a Person that directly, or indirectly through one or more intermediaries, Controls, or is Controlledby, or is under common Control (each as hereinafter defined) with, such Person. For purposes of this definition, (a) "Control" means the possession,direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of votingsecurities, by contract, or otherwise and (b) "Controlled by", "Controlling" and "Controlled" shall have correlative meanings.

"Agreement" has the meaning set forth in the preamble.

"Agreements of Undertaking" means the agreements described in Part C of Schedule 3 attached hereto.

"ARL Event of Default" means:

(a) Marriott is unable to withdraw any of the L/C Proceeds and/or to retain any of the L/C Proceeds for its account pursuant to Section 4(e)(ii) hereof;

(b) the indebtedness under Sunrise's principal bank credit facility is accelerated due to an event of default thereunder; or

(c) any Sunrise Party or any material subsidiary of Sunrise voluntarily files for bankruptcy protection or any involuntary bankruptcyproceeding is commenced against any Sunrise Party or any of Sunrise's material subsidiaries that is not dismissed or stayed within ninety(90) days after commencement thereof.

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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which national banks in the City of NewYork, New York are authorized, or obligated, by applicable Laws to close.

"Cash" means U.S. Dollars.

"Cash Collateral Agreement" has the meaning set forth in Section 3(a)(iii) hereof.

"Change of Control" means any transaction or series of transactions (as a result of a tender offer, merger, consolidation or otherwise) that resultsin, or that is in connection with, (i) any person, entity or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, asamended) acquiring beneficial ownership, directly or indirectly, of a majority of the then issued and outstanding ownership interests of Sunrise or(ii) the sale, lease, exchange, conveyance, transfer or other disposition (for cash, shares of stock, securities or other consideration) of all or substantiallyall of the property or assets of Sunrise and its subsidiaries (if any) to any person, entity or "group" (within the meaning of Section 13(d)(3) of theSecurities Exchange Act of 1934, as amended).

"Closing" has the meaning set forth in Section 2(c) hereof.

"Closing Date" has the meaning set forth in Section 2(c) hereof.

"Collateral" has the meaning set forth in Section 8(a) hereof.

"Collateral Event" has the meaning given to it in the Reimbursement Agreement.

"Continuing Care Agreements" means the agreements described in Part B of Schedule 3 attached hereto.

"Continuing Lease Guaranties" means the Lease Guaranties set forth in Part B of Schedule 1 attached hereto.

"Continuing Lease Notice" has the meaning set forth in Section 2(b) hereof.

"Continuing Leases" has the meaning set forth in the Recitals.

"Control" means "control" as defined in Sections 8-106 and 9-106 of the UCC.

"Effective Date" has the meaning set forth in the preamble.

"Expenses" means any and all costs and expenses (including, without limitation, fees and expenses of counsel, accountants, advisors, consultants,financing costs and other expenses) incurred in good faith by or on behalf of the Marriott Parties in connection with (a) the enforcement of the MarriottParties' rights or other claims pursuant to any Relevant Agreement or (b) the performance of Marriott's obligations (other than Lease Rental Payments)under any Relevant Agreement.

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"Facility Bonds" means the bonds described in Part A of Schedule 3 attached hereto.

"Facility Expenses" has the meaning set forth in Section 5(c) hereof.

"Facility Revenues" has the meaning set forth in Section 5(c)(ii) hereof.

"First Extended Term" has the meaning set forth in the Recitals.

"Governmental Authority" means the United States of America or any State or Commonwealth, county, parish, city or political subdivisionthereof, and any court administrator, agency, department, commission, board, bureau or instrumentality of any of them.

"Initial L/C Proceeds" has the meaning set forth in Section 3(a)(ii) hereof.

"L/C Issuer" has the meaning set forth in Section 4(a) hereof.

"L/C Proceeds" has the meaning set forth in Section 4(e)(i) hereof.

"L/C Proceeds Drawing" has the meaning set forth in Section 4(e)(i) hereof.

"L/C Validity Period" means the period from the Closing Date until April 30, 2019.

"Landlord Estoppel Certificate" means, with respect to any Continuing Lease, an estoppel certificate from the Landlord in the form set forth onExhibit F attached hereto.

"Landlord" has the meaning set forth in Section 2(b) hereof.

"Laws" means any federal, state or local laws, statutes, rules, regulations, ordinances, orders or requirements, including of any GovernmentalAuthority having jurisdiction over the business of any Person, the ownership, management or operation of any facility leased pursuant to anyContinuing Lease or the matters which are the subject of this Agreement, including any resident care or health care, building, zoning or use laws,ordinances, regulations or orders, environmental protection laws and fire department rules.

"Lease Guaranties" has the meaning set forth in the Recitals.

"Lease Rental Payments" means payments of Rental (as defined in such Lease) pursuant to any Continuing Lease.

"Leases" has the meaning set forth in the Recitals.

"Letter of Credit" has the meaning set forth in Section 4(a) hereof.

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"Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge orsecurity interest or any preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other titleretention agreement, and any obligations under capital leases having substantially the same economic effect as any of the foregoing).

"Lifecare Agreements" means the Agreements of Undertaking, the Facility Bonds and the Continuing Care Agreements.

"Marriott" has the meaning set forth in the preamble, and shall include its permitted successors and assigns.

"Marriott Consent" has the meaning set forth in Section 2(a) hereof.

"Marriott Holdco" has the meaning set forth in the preamble, and shall include its permitted successors and assigns.

"Marriott Magenta" has the meaning set forth in the preamble, and shall include its permitted successors and assigns.

"Marriott Parties" has the meaning set forth in the preamble.

"Material Adverse Change" means any material adverse change to the business, operations, assets, condition (financial or otherwise) orprospects of the Sunrise Parties.

"Minimum Payment" has the meaning set forth in Section 5(b) hereof.

"Moody's" means Moody's Investors Service, Inc.

"NCF Payment" has the meaning set forth in Section 5(b) hereof.

"NCF Payment Date" has the meaning set forth in Section 5(a) hereof.

"Net Cash Flow" has the meaning set forth in Section 5(c)(iii) hereof.

"Option Facilities" has the meaning set forth in Section 7(a) hereof.

"Organizational Documents" means, collectively, as applicable, the articles or certificate of incorporation, certificate of limited partnership orcertificate of limited liability company, by-laws, partnership agreement, operating company agreement, trust agreement, statement of partnership,fictitious business name filings and all other organizational documents relating to the creation, formation and/or existence of a Person, together withresolutions of the board of directors, partner or member consents, trustee certificates, incumbency certificates and all other documents or instrumentsapproving or authorizing the Transactions, the Exhibits and Schedules attached hereto and any document executed and delivered in connectionherewith.

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"Parties" and "Party" have the meanings set forth in the preamble, and shall include each of their permitted (as applicable) successors andassigns.

"Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, other entity,trust, unincorporated organization, government or any agency or political subdivision thereof or any other form of entity.

"Ratings Notice" has the meaning set forth in Section 4(g)(ii) hereof.

"Reduction Option Notice" has the meaning set forth in Section 7(a) hereof.

"Reduction Option Outside Date" has the meaning set forth in Section 7(a) hereof.

"Reimbursement Agreement" has the meaning set forth in the Recitals.

"Release Date" has the meaning set forth in Section 7(b) hereof.

"Relevant Agreement" means this Agreement, the Stock Purchase Agreement, the Reimbursement Agreement, the Leases, the Lease Guaranties,the Agreements of Undertaking, the Facility Bonds, the Continuing Care Agreements and the Cash Collateral Agreement.

"Replacement L/C" has the meaning set forth in Section 4(g)(ii) hereof.

"S&P" means Standard & Poor's Ratings Services.

"SCC" has the meaning set forth in the preamble, and shall include its permitted successors and assigns.

"Scheduled Closing Date" has the meaning set forth in Section 2(c) hereof.

"Secured Obligations" means, at any time, any and all obligations, covenants and agreements of any kind whatsoever of any Sunrise Party toMarriott under any Relevant Agreement of any nature or kind, whether now in existence or hereafter arising.

"Security Interests" means the security interests in the Collateral created pursuant to Section 8 hereof.

"SSLS" has the meaning set forth in the preamble, and shall include its permitted successors and assigns.

"Stock Purchase Agreement" has the meaning set forth in the Recitals.

"Subject Year" has the meaning set forth in Section 5(a) hereof.

"Sunrise" has the meaning set forth in the preamble, and shall include its permitted successors and assigns.

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"Sunrise Parties" has the meaning set forth in the preamble.

"Sunrise Security Expenses" has the meaning set forth in Section 5(c)(iv) hereof.

"Tenants" means, collectively, the lessees under the Leases.

"Terminating Lease Notice" has the meaning set forth in Section 2(b) hereof.

"Terminating Leases" has the meaning set forth in the Recitals.

"Transactions" has the meaning set forth in Section 2(a) hereof.

"UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York.

"Work Fee Letter" means that certain letter agreement executed by and between Marriott and Sunrise as of November 4, 2011, as the same maybe amended, supplemented or otherwise modified from time to time.

2. Transactions; Closing.

(a) Transactions. On the terms set forth in this Agreement and subject to the conditions set forth in Section 3 hereof, at the Closing, the MarriottParties shall execute for the benefit of, and deliver to, Sunrise a written consent to the extension of the Continuing Leases in the form set forth on Exhibit Aattached hereto (the "Marriott Consent"). The execution and delivery of the Marriott Consent and the actions resulting in the satisfaction (or waiver, asapplicable) of the conditions set forth in Section 3 hereof shall be referred to as the "Transactions".

(b) Lease Notices. After Marriott confirms in writing that the Closing has occurred, but subject to Section 7(a) hereof, Sunrise shall send writtennotices to the lessor under each of the Leases (the "Landlord"), with a copy to Marriott, as follows: (i) to the Landlord under each Terminating Lease, anotice (each such notice, a "Terminating Lease Notice") in the form set forth on Exhibit B attached hereto not later than December 29, 2011 and (ii) to theLandlord under each Continuing Lease, a notice (each such notice, a "Continuing Lease Notice") in the form set forth on Exhibit C attached hereto as andwhen required, to the extent applicable, pursuant to Section 7(a) hereof.

(c) Closing. The closing of the Transactions (the "Closing") shall be held at the offices of Baker Botts L.L.P., 1299 Pennsylvania Avenue, N.W.,Washington, D.C. 20004-2400, at 2:00 p.m. local time on December 29, 2011 (the "Scheduled Closing Date") or such earlier date as the Parties maymutually agree. The date on which the Closing occurs shall be hereinafter referred to as the "Closing Date". If, as of the Closing Date, all of the conditions setforth in Sections 3(a) and 3(b) hereof have been satisfied or waived in writing by the applicable Party for whom such conditions are benefiting, and neitherSunrise nor Marriott has exercised its termination right pursuant to Section 3(c)(ii) or 3(c)(iii) hereof (as applicable), then the Parties shall consummate theTransactions.

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3. Closing Conditions.

(a) Marriott Parties Closing Conditions. The obligations of each of the Marriott Parties to consummate the Transactions shall be subject to thefulfillment on or before the Closing Date of all of the conditions set forth in this Section 3(a).

(i) Letter of Credit. Sunrise shall provide to Marriott the Letter of Credit executed and delivered by the L/C Issuer.

(ii) Initial L/C Proceeds. Sunrise shall provide to Marriott one million dollars ($1,000,000) as initial L/C Proceeds (the "Initial L/C Proceeds").Such amount shall be paid to an account that is designated in writing by Marriott to Sunrise.

(iii) Cash Collateral Agreement. (A) Each Sunrise Party shall have executed and delivered to Marriott the Cash Collateral Funding andForbearance Agreement, substantially in the form provided on Exhibit E attached hereto (the "Cash Collateral Agreement"), (B) the Cash CollateralAgreement shall be in full force and effect with no default thereunder and (C) Sunrise shall have funded in full the Required Collateral Amount (asdefined in the Cash Collateral Agreement).

(iv) Work Fee Letter. All amounts payable by Sunrise pursuant to the Work Fee Letter on or prior to the Closing Date shall have been paid infull.

(v) Accuracy of Representations and Warranties. All of the representations and warranties of the Sunrise Parties contained in this Agreementshall be true and correct in all material respects on and as of the Closing Date.

(b) Sunrise Closing Conditions. The obligations of each of the Sunrise Parties to consummate the Transactions shall be subject to the fulfillmenton or before the Closing Date of all of the conditions set forth in this Section 3(b).

(i) Marriott Consent. Marriott shall have provided to Sunrise a fully executed copy of the Marriott Consent.

(ii) Accuracy of Representations and Warranties. All of the representations and warranties of the Marriott Parties contained in this Agreementshall be true and correct in all material respects on and as of the Closing Date.

(c) Termination of Agreement; Waiver of Conditions.

(i) Termination for Failure of Closing. If the Closing fails to occur on or prior to the Scheduled Closing Date for any reason, then, unlessotherwise agreed to in writing, this Agreement shall automatically terminate in its entirety.

(ii) Sunrise Termination Right. Sunrise may, at its sole option, terminate this Agreement at any time prior to the Closing by written notice toMarriott so long as Sunrise complies with the terms of the Work Fee Letter.

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(iii) Marriott Termination Right. Marriott may, at its sole option, terminate this Agreement at any time prior to the Closing by written notice toSunrise in the event of any Material Adverse Change, as determined by Marriott in its sole discretion.

(iv) Effect of Termination. If this Agreement is terminated pursuant to Section 3(c)(i), 3(c)(ii) or 3(c)(iii) hereof, (A) Marriott may deliver to theLandlord Terminating Lease Notices with respect to each Lease (including each Continuing Lease, unless Marriott is released from its obligations underthe related Lease Guaranty at or prior to the time of such termination) and (B) all further obligations of each Party under this Agreement shall terminateunless they specifically survive termination by the terms hereof. Simultaneously with the execution and delivery of this Agreement, Sunrise shalldeliver undated Terminating Lease Notices with respect to each Lease (including each Continuing Lease), which Marriott shall be entitled to deliver tothe Landlord pursuant to this Section 3(c)(iv) or Section 10(g) hereof.

(v) Waiver of Conditions. If any condition specified in Section 3(a) or 3(b) hereof is not satisfied on or prior to the Closing Date, the Closingshall occur if all Parties for whom any such condition is benefiting elect, in their sole discretion, to waive such condition in writing. Any election towaive a condition and to proceed to Closing shall be evidenced by a written document executed on behalf of all Parties waiving such condition.

4. Letter of Credit.

(a) Delivery. At Closing, Sunrise will cause KeyBank National Association (the "L/C Issuer") to issue a letter of credit (the "Letter of Credit")in the stated amount of eighty-five million dollars ($85,000,000), which shall be substantially in the form provided on Exhibit D attached hereto, for thebenefit of Marriott.

(b) Validity. Sunrise shall ensure that the Letter of Credit is valid and enforceable during the L/C Validity Period. If the terms of the Letter ofCredit specify an expiry date that is prior to the end of the L/C Validity Period, Sunrise shall extend the validity of the Letter of Credit at least thirty (30) daysbefore such expiry date. If Sunrise does not extend the validity of the Letter of Credit at least thirty (30) days before such expiry date, Marriott shall beentitled to make a drawing under the Letter of Credit in full.

(c) Obligations Under the Lifecare Agreements. On or prior to the later of (i) November 30, 2018 and (ii) the date that is thirty (30) days prior tothe stated expiration date of the Letter of Credit, Sunrise shall provide Marriott with credit support reasonably acceptable to Marriott in its sole discretion or,alternatively, cash, in each case to secure any then-remaining contingent obligations of Marriott under the Lifecare Agreements. If Sunrise does not do so,Marriott shall be entitled to make a drawing under the Letter of Credit in the amount of such obligations and retain such amount for Marriott's own account, assecurity for any such obligations.

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(d) Reductions of the Available Amount. The available amount of the Letter of Credit shall be reduced as follows:

(i) During each calendar year of the First Extended Term, the available amount of the Letter of Credit shall be reduced on a quarterly basis to theextent that Sunrise has made Lease Rental Payments with respect to such quarter from its own funds (and not pursuant to a drawing under the Letter ofCredit) on a timely basis; provided that:

(A) Sunrise provides to Marriott evidence of such Lease Rental Payments;

(B) Sunrise delivers to Marriott an officer's certificate, dated not less than two (2) days prior to such reduction, certifying that (1) therelevant Tenant has satisfied all of its payment obligations under such Lease, (2) such Tenant has complied in all material respects with all of itsother obligations under such Lease, (3) such Lease is in full force and effect and unmodified and (4) to its actual knowledge, no Event of Default(as defined in such Lease) exists under such Lease; and

(C) not more than thirty (30) days prior to such reduction, Sunrise delivers to Marriott (1) a Landlord Estoppel Certificate in accordancewith Section 10(c)(i) hereof or (2) so long as Landlord has not provided a notice of default under the Continuing Leases that remains uncured, thedocuments contemplated in Section 10(c)(ii) hereof (which documents are acceptable to Marriott in its sole discretion).

Schedule 4 attached hereto, which is provided for illustrative purposes only, sets forth expected Lease Rental Payments and reductions of the availableamount of the Letter of Credit if such Lease Rental Payments are made.

(ii) Upon payment by Sunrise to Marriott of the NCF Payment as set forth in Section 5 hereof in respect of any year, the available amount of theLetter of Credit shall be reduced by $1,000,000.

(iii) If Sunrise provides an updated Schedule 3 to Marriott pursuant to Section 10(f) hereof, the available amount of the Letter of Credit shall bereduced by an amount equal to Marriott's determination of any reduction of Marriott's aggregate contingent liability under the Facility Bonds since theprior Schedule 3.

(iv) Upon the exercise of the Reduction Option pursuant to Section 7(a) hereof, the available amount of the Letter of Credit shall be reduced asprovided in Section 7(a)(iv) hereof.

If the available amount of the Letter of Credit will be reduced in accordance with the foregoing, upon the request of Sunrise, Marriott shall, within ten(10) Business Days after such request, remit to Sunrise the Initial L/C Proceeds to the extent of such reduction and, after all of the Initial L/C Proceeds havebeen returned to Sunrise, execute and deliver to Sunrise an Available

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Amount Reduction Certificate in the form attached to the Letter of Credit to effect such reduction, which executed certificate Marriott hereby authorizesSunrise to send to the L/C Issuer.

(e) L/C Proceeds.

(i) Receipt of L/C Proceeds. If Marriott makes a drawing under the Letter of Credit as provided in Section 4(b) or 4(c), 4(g)(ii) or 4(h) hereof(any such drawing, a "L/C Proceeds Drawing"), Marriott shall hold the proceeds of such drawing (together with the Initial L/C Proceeds and less anywithdrawals therefrom in accordance with this Section 4(e), collectively, the "L/C Proceeds") as cash collateral for the Secured Obligations. Marriottshall have no obligation to hold the L/C Proceeds in any segregated or otherwise designated account. All interest or other income in respect of the L/CProceeds shall be for Marriott's account; provided that to the extent that Marriott is holding the L/C Proceeds as a result of a drawing in accordance withSection 4(g)(ii) hereof, then interest on such L/C Proceeds shall be calculated at a rate determined in Marriott's sole discretion and held by Marriott asL/C Proceeds in accordance with this Section 4(e). Marriott shall send or cause to be sent to Sunrise quarterly statements in respect of the L/C Proceedsand shall notify Sunrise promptly of any withdrawals made from the L/C Proceeds.

(ii) Use of the L/C Proceeds. Marriott shall use the L/C Proceeds for the following purposes and for no other purpose:

(A) If Marriott makes any payment or performance in respect of the First Extended Term of a Lease pursuant to any Lease Guaranty,Marriott shall be permitted to withdraw from the L/C Proceeds, and retain for its account, to be held or applied by Marriott in accordance withthis Section 4(e), an amount equal to the amount of such payment or, in the case of performance, any costs, expenses and damages sustained byMarriott in respect thereof except to the extent previously reimbursed by Sunrise.

(B) If Sunrise makes any Lease Rental Payment in respect of the First Extended Term of a Continuing Lease after an L/C ProceedsDrawing is made, within ten (10) Business Days after Marriott's receipt of evidence of such payment, Marriott shall withdraw from the L/CProceeds and reimburse Sunrise for any such amounts; provided that Marriott may, in its reasonable discretion, elect not to reimburse Sunrisefrom the L/C Proceeds if the remaining L/C Proceeds would be insufficient to satisfy all remaining Secured Obligations.

(C) Marriott shall be permitted to withdraw from the L/C Proceeds, and retain for its account, such amounts equal to Sunrise's obligationsto pay the Minimum Payments, as and when they become due pursuant to and in accordance with the terms of this Agreement.

(D) If Marriott makes any payment or performance pursuant to any Lifecare Agreement, Marriott shall be permitted to withdraw from theL/C

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Proceeds, and retain for its account, to be held or applied by Marriott in accordance with this Section 4(e), an amount equal to the amount of suchpayment or, in the case of performance, any costs, expenses and damages sustained by Marriott in respect thereof except to the extent previouslyreimbursed by Sunrise.

(E) If Sunrise makes any payment pursuant to the Facility Bonds after an L/C Proceeds Drawing is made, within ten (10) Business Daysafter Marriott's receipt of evidence of such payment, Marriott shall withdraw from the L/C Proceeds and reimburse Sunrise for such amounts;provided that Marriott may, in its reasonable discretion, elect not to reimburse Sunrise from the L/C Proceeds if the remaining L/C Proceedswould be insufficient to satisfy all remaining Secured Obligations.

(F) Marriott shall be permitted to withdraw from the L/C Proceeds, and retain for its account, an amount equal to any Expenses and forwhich it has provided invoices or other appropriate supporting documentation to Sunrise.

(iii) Remittance of Remaining L/C Proceeds and Letter of Credit. On or before the first to occur of (a) April 30, 2019 and (b) one hundred twenty(120) days following the Release Date, Marriott shall remit to Sunrise any remaining L/C Proceeds and the Letter of Credit except (A) as provided inSection 4(c) hereof and (B) to the extent otherwise required to secure any then-remaining Secured Obligations.

(f) Letter of Credit Notices. Marriott shall send Sunrise a simultaneous copy of any notice or correspondence it sends to the L/C Issuer and shallpromptly send Sunrise a copy of any notice or correspondence it receives from the L/C Issuer. Sunrise shall send Marriott a simultaneous copy of any noticeor correspondence it sends to the L/C Issuer relating to the Letter of Credit and shall promptly send Marriott a copy of any notice or correspondence itreceives from the L/C Issuer relating to the Letter of Credit.

(g) Drawings Under the Letter of Credit.

(i) Marriott may only make drawings under the Letter of Credit in accordance with the terms thereof. Marriott shall send or cause to be sent toSunrise quarterly statements in respect of drawings under the Letter of Credit, specifying the reason for each drawing.

(ii) If:

(A) during the period commencing on the date hereof and ending on December 31, 2013, either of the following conditions are satisfied:

(1) the L/C Issuer is rated less than "BBB+" by S&P or less than "Baa-1" by Moody's; or

(2) the L/C Issuer is rated less than "A-" by S&P and less than "A3" by Moody's; or

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(B) after December 31, 2013, the L/C Issuer is rated less than "A-" by S&P or less than "A3" by Moody's,

Marriott shall be entitled to make a drawing under the Letter of Credit in full. If Marriott intends to make a drawing under the Letter of Credit as aresult thereof, Marriott shall give Sunrise written notice thereof (a "Ratings Notice"). Sunrise shall have fifteen (15) Business Days following the dateof such Ratings Notice to provide Marriott with a replacement letter of credit on the same terms as the Letter of Credit issued by a financial institutionwith a credit rating not less than "A-" by S&P and "A3" by Moody's (a "Replacement L/C"). Notwithstanding anything to the contrary set forth in theLetter of Credit, Marriott agrees that it shall not make a drawing as a result of any such rating reduction of the L/C Issuer unless such fifteen(15) Business Day period has lapsed and Sunrise has not provided the Replacement L/C within such period. Any Replacement L/C provided to Marriotthereunder shall be deemed to be the "Letter of Credit" for all purposes of this Agreement.

(h) Payment of Additional Cash Collateral. If the "Stated Expiration Date" of the Letter of Credit has not been extended until at least April 30,2019, then on or before December 15, 2018, Sunrise shall provide to Marriott an additional cash amount in an amount equal to the then-available amountunder the Letter of Credit as additional L/C Proceeds. If Sunrise does not provide such additional cash amount by such date, Marriott shall be entitled to makea drawing under the Letter of Credit in full.

5. NCF Payments.

(a) Payment. Subject to Section 7 hereof, on or before the date that is sixty (60) days following the last day of each calendar year occurringduring the First Extended Term (each such date, an "NCF Payment Date", and each such year, a "Subject Year"), Sunrise shall pay Marriott the NCFPayment, together with a statement showing the calculation thereof and reasonable backup documentation with respect thereto.

(b) NCF Payment. The "NCF Payment", as calculated for each NCF Payment Date, shall mean an amount equal to:

(i) Thirty percent (30%) multiplied by the Net Cash Flow with respect to the related Subject Year for the facilities leased pursuant to theContinuing Leases, reduced by

(ii) The Sunrise Security Expenses incurred with respect to such Subject Year;

provided that in no event shall the NCF Payment payable on any NCF Payment Date be less than $1,000,000 (the "Minimum Payment").

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(c) Financial Definitions.

(i) "Facility Expenses" shall mean the sum of the following:

(A) All expenses of Sunrise, the Tenants and their Affiliates with respect to the facilities leased pursuant to the Continuing Leases,consistently allocated among all properties owned, leased or managed by Sunrise in accordance with its system-wide financial allocations,practices and policies, provided that for purposes of calculating Facility Expenses the following shall be excluded: (i) any management feepayable to the manager or operator (whether or not Sunrise or its Affiliate is the manager or operator); (ii) depreciation; and (iii) amortization;

(B) Cash lease payments made by a Tenant (including, without limitation, with respect to the ground lease for the facility known as TheColonnades); and

(C) An annual capital expenditure reserve of $2,500 per unit, based on 2011 numbers, which reserve shall be increased by three percent(3%) annually.

(ii) "Facility Revenues" shall mean all revenues to Tenant from the facilities leased pursuant to the Continuing Leases, provided that forpurposes of calculating Facility Revenues, any entrance fee amortization and net entrance fee cash with respect to The Colonnades and Bedford Courtshall be excluded.

(iii) "Net Cash Flow" shall mean Facility Revenues minus Facility Expenses.

(iv) "Sunrise Security Expenses" shall mean the lesser of (A) Sunrise's actual costs and expenses relating to the issuance of the Letter of Credit,including letter of credit fees and costs of, and expenses relating to, credit enhancement in connection therewith and (B) the following amounts withrespect to the specified calendar years occurring during the First Extended Term: 2014 - $8,498,274; 2015 - $6,953,133; 2016 - $5,021,707; 2017 -$2,000,000; 2018 - $1,000,000. For the purposes of calculating Sunrise's actual costs and expenses, (a) the aggregate costs and expenses incurred bySunrise in 2012 and 2013 relating to the issuance of the Letter of Credit, including letter of credit fees and costs of, and expenses relating to, creditenhancement in connection therewith will be allocated to the First Extended Term on the following basis: 2014 = 32.4%; 2015 = 26.5%, 2016 = 19.1%,2017 = 13.2%, 2018 = 8.8%, and (b) Sunrise's actual costs and expenses will include the implied cost of all cash provided by Sunrise to secure theLetter of Credit, such implied cost to be calculated at (1) a rate as if the amount of cash collateral had been drawn on Sunrise's line of credit or (2) ifSunrise does not have a line of credit, at five percent (5%). Documentation supporting all actual costs and expenses shall be submitted to Marriott andcertified by an officer of Sunrise.

6. No Collateral Event. The Marriott Parties hereby agree that, notwithstanding anything to the contrary set forth in the Reimbursement Agreement,commencing January 1, 2014, no Collateral Event shall be deemed to have occurred with respect to the Continuing Leases, the Continuing Lease Guarantiesor the Lifecare Agreements so long as, and at any time that, the Letter of Credit is in effect or Marriott is in possession of L/C Proceeds, in each case sufficientto satisfy the Secured Obligations in full.

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7. Reduction Option; Early Release of Marriott.

(a) Reduction Option. Notwithstanding anything to the contrary set forth in this Agreement, Sunrise may, by written notice to Marriott (the"Reduction Option Notice") on or before the Reduction Option Outside Date, elect not to extend the terms of any or all of the Continuing Leases (the Leasesthat the Tenants have so elected not to extend, the "Option Facilities"), in which case Sunrise shall deliver to the Landlord, with a copy to Marriott, on orbefore the Reduction Option Outside Date, Terminating Lease Notices in respect of the Option Facilities and Continuing Lease Notices in respect of any otherContinuing Leases that are not Option Facilities, if any, for which Sunrise had not previously sent to Landlord a Continuing Lease Notice. To the extentSunrise so elects and complies with the notice requirements set forth in the immediately preceding sentence, then the following provisions shall be effective:

(i) The definition of "Terminating Leases" shall automatically be deemed to include the Option Facilities;

(ii) The definition of "Continuing Leases" shall automatically be deemed to exclude the Option Facilities;

(iii) Schedules 1 and 2 attached hereto shall automatically be deemed to be amended accordingly;

(iv) The available amount of the Letter of Credit shall be reduced consistent with Schedule 4 in respect of the Option Facilities and Marriott shallauthorize such reduction in accordance with Section 4(d) hereof within ten (10) business days of the date of the Reduction Option Notice;

(v) Marriott shall be authorized to send to the Landlord the Terminating Lease Notices and the Continuing Lease Notices, if any, that weredelivered by Sunrise in connection with the Reduction Option Notice, as set forth above; and

(vi) If the Option Facilities constitute all of the Continuing Leases, then Sunrise shall pay to Marriott an amount equal to five hundred thousanddollars ($500,000) as a reduction fee.

The "Reduction Option Outside Date" shall mean the earlier to occur of (a) March 31, 2012 and (b) ten (10) days following receipt by any Tenant of anyrequest by the Landlord, pursuant to Section 3.03 of each of the Leases, to notify it as to whether such Tenant intends to terminate a Continuing Lease.

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(b) Early Release of Marriott. Except as otherwise provided in Section 7(a) hereof, if following the Closing and prior to the end of the FirstExtended Term, the Landlord releases Marriott completely from its past, present and future obligations and liabilities under all of the Lease Guaranties inrespect of the Continuing Leases (the effective date of such release, the "Release Date"), then:

(i) on the Release Date, Sunrise shall pay to Marriott:

(A) If the Release Date occurs on or prior to the date that is ninety (90) days following the Closing Date, an amount equal to five hundredthousand dollars ($500,000) as an early termination fee;

(B) if the Release Date occurs following the date that is ninety (90) days following the Closing Date but on or before December 31, 2013,an amount equal to two million dollars ($2,000,000) as an early termination fee; or

(C) if the Release Date occurs after December 31, 2013, an amount equal to the sum of:

(1) the prorated NCF Payment for the period beginning on January 1 of the year in which the Release Date occurs and ending onthe Release Date; plus

(2) one million dollars ($1,000,000) as an early termination fee;

(ii) Sunrise shall thereafter have no obligation to make any further NCF Payments;

(iii) Sunrise shall provide Marriott with credit support reasonably acceptable to Marriott in its sole discretion or, alternatively, cash, in each caseto secure any then-remaining contingent obligations of Marriott under the Lifecare Agreements; and

(iv) within one hundred twenty (120) days following (A) Marriott's receipt of the amount payable pursuant to clause (i) above and (B) satisfactionof the condition in clause (iii) above, Marriott shall return the Letter of Credit to Sunrise or remit any L/C Proceeds to Sunrise, as the case may be.

8. Security Interests.

(a) In order to secure the full and punctual observance and performance by each Sunrise Party of all of the Secured Obligations, each SunriseParty hereby assigns and pledges to Marriott, and grants to Marriott, a first priority security interest in and to, and a lien upon and right of set-off against, andtransfers to Marriott, with power of sale, all of each Sunrise Party's right, title and interest in and to:

(i) the L/C Proceeds; and

(ii) all interest, income, proceeds, distributions and collections received or to be received, or derived or to be derived, now or any time hereafter(whether before or after the commencement of any proceeding under applicable bankruptcy, insolvency or similar law, by or against any Sunrise Partyor with respect to any Sunrise Party) from or in connection with any of the foregoing (including, without limitation, any security entitlements in respectof any of the foregoing)

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(the items described in clauses (i) and (ii) above being herein collectively called the "Collateral"). Marriott shall have all of the rights, remedies and recourseswith respect to the Collateral afforded a secured party by the UCC, in addition to, and not in limitation of, the other rights, remedies and recourses afforded toMarriott by this Agreement.

(b) The Security Interests are granted as security only and shall not subject Marriott to, or transfer or in any way affect or modify, any obligationor liability of any Sunrise Party with respect to any of the Collateral or any transaction in connection with the Secured Obligations.

(c) The Parties expressly agree that, in accordance with Section 4(e)(i) hereof, upon Marriott's receipt of the L/C Proceeds, Marriott shall havepossession of the L/C Proceeds and consequently the Security Interests therein shall be perfected by possession in accordance with Section 3-313(a) of theUCC.

(d) Each Sunrise Party shall, at the expense of such Sunrise Party and in such manner and form as Marriott may require, give, execute, deliver,file and record any financing statement, notice, instrument, document, instruments of transfer or other papers that may, in Marriott's sole discretion, benecessary or desirable in order (i) to create, preserve, perfect, substantiate or validate any Security Interest or (ii) to enable Marriott to exercise and enforce itsrights hereunder with respect to Security Interest.

(e) Each Sunrise Party shall warrant and defend such Sunrise Party's title to the Collateral, subject to the rights of Marriott, against the claims anddemands of all Persons. Marriott may elect, but without an obligation to do so, to discharge any Lien of any third party on any of the Collateral.

(f) No Sunrise Party shall change its (i) name or identity in any manner or (ii) principal place of residence, unless in any such case (A) suchSunrise Party shall have given Marriott not less than thirty (30) days' prior notice thereof and (B) such change shall not cause any of the Security Interests tobecome unperfected or subject any Collateral to any other Lien.

(g) No Sunrise Party shall (i) create or permit to exist any Lien (other than the Security Interests) with respect to the Collateral, (ii) sell orotherwise dispose of, or grant any option with respect to, any of the Collateral or (iii) enter into or consent to any agreement pursuant to which any Person hasor will have Control in respect of any Collateral.

(h) No Sunrise Party has performed nor shall perform any act that might prevent Marriott from enforcing any of the terms of this Agreement orthat might limit Marriott in any such enforcement.

(i) Each Sunrise Party shall, forthwith upon demand, pay to Marriott (i) the amount of any taxes that Marriott may have been required to pay byreason of the Security Interests or to free any of the Collateral from any Lien thereon and (ii) the amount of any and all out-of-pocket expenses, including thefees and disbursements of counsel and of any other experts, that Marriott may incur in connection with (A) the enforcement of this Agreement, including suchexpenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of the Security Interests, (B) the collection, sale orother disposition of

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any of the Collateral, (C) the exercise by Marriott of any of the rights conferred upon it hereunder or (D) any ARL Event of Default. Any such amount notpaid on demand shall bear interest (computed on the basis of a year of 360 days and payable for the actual number of days elapsed) at a rate per annum equalto five percent (5%) plus the prime rate as published in The Wall Street Journal, Eastern Edition in effect from time to time during the period from the datehereof to the date of the termination of this Agreement.

(j) If any ARL Event of Default shall have occurred and be continuing, Marriott may exercise all the rights of a secured party under the UCC(whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, without being required to give any notice, except as hereinprovided or as may be required by mandatory provisions of law, may, subject to the provisions of Section 8(k) hereof:

(i) deliver or cause to be delivered to itself or to an Affiliate from the Collateral, Collateral sufficient to satisfy in full all Secured Obligations,whereupon Marriott shall hold Collateral absolutely free from any claim or right of whatsoever kind, including any equity or right of redemption of anySunrise Party that may be waived or any other right or claim of any Sunrise Party, and each Sunrise Party, to the extent permitted by law, herebyspecifically waives all rights of redemption, stay or appraisal that each Sunrise Party has or may have under any law now existing or hereafter adopted;

(ii) sell any Collateral as may be necessary to generate proceeds sufficient to satisfy in full all Secured Obligations, at public or private sale or atany broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as Marriott may deemsatisfactory;

(iii) apply any Cash then existing as Collateral to any Secured Obligation; and

(iv) take any combination of the actions described in clauses (i) through (iii) above;

provided that Marriott shall give Sunrise not less than one day's prior written notice of the time and place of any sale or other intended disposition of any ofthe Collateral, except any Collateral that threatens to decline speedily in value or is of a type customarily sold on a recognized market. Marriott and eachSunrise Party agrees that such notice constitutes "reasonable authenticated notification of disposition" within the meaning of Section 9-611 of the UCC.

(k) If an ARL Event of Default shall have occurred and be continuing, Marriott may proceed to realize upon the Security Interests in theCollateral against any one or more of the types of Collateral, at any time, as Marriott shall determine in its sole discretion subject to the foregoing provisionsof this Section 8. The proceeds of any sale of, or other realization upon, or other receipt from, any of the Collateral shall be applied by Marriott in thefollowing order of priorities:

(i) first, to the payment to Marriott of the expenses of such sale or other realization, including reasonable compensation to the agents and counselof Marriott, and all expenses, liabilities and advances incurred or made by Marriott in connection therewith, including brokerage fees in connectionwith the sale by Marriott of any Collateral;

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(ii) second, to the payment to Marriott of the aggregate amount (or the value of any delivery or other performance) owed by each Sunrise Party toMarriott under the Secured Obligations;

(iii) third, to Sunrise in an amount equal to any payments made by Sunrise of Lease Rental Payments in respect of the First Extended Term of aContinuing Lease or pursuant to the Facility Bonds, in each case after an L/C Proceeds Drawing is made and within ten (10) Business Days afterMarriott's receipt of evidence of such payment; provided that Marriott may, in its reasonable discretion, elect not to reimburse Sunrise for any suchpayments if the remaining proceeds would be insufficient to satisfy all remaining Secured Obligations; and

(iv) finally, if all of the Secured Obligations have been fully discharged or sufficient funds have been set aside by Marriott at the request ofSunrise for the discharge thereof, any remaining proceeds shall be released to Sunrise on behalf of all of the Sunrise Parties.

9. Representations and Warranties.

(a) Representations and Warranties of the Marriott Parties. Each of the Marriott Parties represents and warrants to Sunrise that the representationsand warranties contained in this Section 9(a) are true and correct as of the Effective Date.

(i) Organization of the Marriott Parties. Such Marriott Party is duly incorporated or formed, validly existing and in good standing under the Lawsof the state of its organization or formation and is qualified to do business in each jurisdiction in which the nature of its business or the propertiesowned or leased by it requires such qualification, except where the failure to be so qualified would not have a material adverse affect on such MarriottParty.

(ii) Power and Authority. Each Marriott Party has all necessary corporate power and authority to own, lease and operate its properties and assets,to carry on its businesses as now conducted, to enter into this Agreement and the other documents contemplated hereby to which it is a party and toconsummate the Transactions.

(iii) Due Authorization; Enforceability. This Agreement and each other document contemplated hereby to which such Marriott Party is a partyhas been duly authorized, executed and delivered by such Marriott Party and constitutes the legal, valid and binding obligation of such Marriott Party,enforceable against it in accordance with the terms thereof.

(iv) Noncontravention. Neither the execution and the delivery of this Agreement nor the consummation of the Transactions will (A) violate anyLaw, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which such Marriott Party is subject orany provision of its

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Organizational Documents, (B) result in the creation of any security interest or Lien upon any of the properties or assets of such Marriott Party, or(C) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate,modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, loan, financing or other arrangement to which suchMarriott Party or any of its Affiliates is a party or by which it is bound or to which any of its assets is subject.

(v) Consents. The execution and delivery by each Marriott Party of this Agreement and the consummation of the Transactions, do not require anyauthorization, registration or filing with, or consent or approval of, any Governmental Authority, or any other Person, other than such authorization,consent or approval which has been received by such Marriott Party prior to the Effective Date.

(vi) Litigation. There are no actions, proceedings or investigations, pending against or affecting any Marriott Party (A) seeking to enjoin,challenge or collect damages in connection with the Transactions or (B) that could reasonably be expected to materially and adversely affect the abilityof such Marriott Party to consummate the Transactions.

(vii) Brokers' Fees. None of the Marriott Parties nor any of their Affiliates has had any contact or dealings with any Person or broker whichwould give rise to the payment of any fee or brokerage commission in connection with this Agreement, the Exhibits and Schedules attached hereto orany other document to be executed and delivered in connection herewith or the Transactions.

(b) Representations and Warranties of the Sunrise Parties. Each of the Sunrise Parties represents and warrants to the Marriott Parties that therepresentations and warranties contained in this Section 9(b) are true and correct as of the Effective Date.

(i) Organization of the Sunrise Parties. Such Sunrise Party is duly incorporated or formed, validly existing and in good standing under the Lawsof the state of its organization or formation and is qualified to do business in each jurisdiction in which the nature of its business or the propertiesowned or leased by it requires such qualification, except where the failure to be so qualified would not have a material adverse affect on such SunriseParty.

(ii) Power and Authority. Each Sunrise Party has all necessary corporate or limited liability company power and authority to own, lease andoperate its properties and assets, to carry on its businesses as now conducted, to enter into this Agreement and the other documents contemplated herebyto which it is a party and to consummate the Transactions.

(iii) Due Authorization; Enforceability. This Agreement and each other document contemplated hereby to which such Sunrise Party is a party hasbeen duly authorized, executed and delivered by such Sunrise Party and constitutes the legal, valid and binding obligation of such Sunrise Party,enforceable against it in accordance with the terms thereof.

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(iv) Noncontravention. Neither the execution and the delivery of this Agreement nor the consummation of the Transactions will (A) violate anyLaw, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which such Sunrise Party is subject orany provision of its Organizational Documents, (B) result in the creation of any security interest or Lien upon any of the properties or assets of suchSunrise Party, or (C) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Person the right toaccelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, loan, financing or otherarrangement to which such Sunrise Party or any of its Affiliates is a party or by which it is bound or to which any of its assets is subject.

(v) Consents. The execution and delivery by each Sunrise Party of this Agreement and the consummation of the Transactions, do not require anyauthorization, registration or filing with, or consent or approval of, any Governmental Authority, or any other Person, other than such authorization,consent or approval which has been received by such Sunrise Party prior to the Effective Date.

(vi) Litigation. There are no actions, proceedings or investigations, pending against or affecting any Sunrise Party (A) seeking to enjoin,challenge or collect damages in connection with the Transactions or (B) that could reasonably be expected to materially and adversely affect the abilityof such Sunrise Party to consummate the Transactions.

(vii) Brokers' Fees. None of the Sunrise Parties nor any of their Affiliates has had any contact or dealings with any Person or broker which wouldgive rise to the payment of any fee or brokerage commission in connection with this Agreement, the Exhibits and Schedules attached hereto or anyother document to be executed and delivered in connection herewith or the Transactions.

(viii) Leases. (A) Each Tenant has satisfied all of its payment obligations under each Lease to which it is a party and has complied in all materialrespects with all of its other obligations under each such Lease, (B) each Lease is in full force and effect and unmodified (except as set forth in Schedule1 or 2 attached hereto), (C) as of the Closing Date, all Lease Rental Payments theretofore due and payable has been paid in full, (D) to their actualknowledge, no Event of Default (as defined in such Lease) then exists under such Lease and (E) each Tenant is a wholly-owned subsidiary of Sunrise.

(ix) Lifecare Agreements. (A) Each Sunrise Party has satisfied all of its payment obligations under each Lifecare Agreement to which it is a partyand has complied in all material respects with all of its other obligations under each such Lifecare Agreement and (B) each Lifecare Agreement is infull force and effect and unmodified (except as set forth in Schedule 3 attached hereto).

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(x) Leases, Lease Guaranties and Lifecare Agreements. Schedule 1 attached hereto lists all of the Continuing Leases and Continuing LeaseGuaranties and all amendments, supplements and other material modifications thereof. Schedule 2 attached hereto lists all of the Terminating Leasesand related Lease Guaranties and all amendments, supplements and other material modifications thereof. Schedule 3 attached hereto lists all of theLifecare Agreements, all amendments, supplements and other material modifications thereof and sets forth an accurate calculation of Marriott'saggregate contingent liability with respect to the Facility Bonds. Sunrise has delivered to Marriott true, complete and correct copies of each Lease.

(xi) The Collateral. Each Sunrise Party (A) owns and, at all times prior to the release of the Collateral pursuant to the terms of this Agreement,will own the Collateral free and clear of any Liens (other than the Security Interests) and (B) is not and will not become a party to or otherwise bebound by any agreement, other than this Agreement, that (1) restricts in any manner the rights of any present or future owner of the Collateral in respectthereof or (2) provides any Person with Control with respect to any Collateral. No financing statement, security agreement or similar or equivalentdocument or instrument covering all or any part of the Collateral is on file or of record in any jurisdiction in which such filing or recording would beeffective to perfect a Lien, security interest or other encumbrance of any kind on such Collateral.

(xii) Security Interests. Upon Marriott's receipt of the L/C Proceeds in accordance with Section 4(e)(i) hereof, Marriott will have a valid andperfected Security Interest in such Collateral. No registration, recordation or filing with any governmental body, agency or official is required inconnection with the perfection or enforcement of the Security Interests.

(c) Indemnification. Each of the Marriott Parties, on the one hand, and the Sunrise Parties, on the other hand, agrees to indemnify and holdharmless the other from any losses, claims, damages, costs and expenses arising from any of its representations and warranties made in this Section 9 beinguntrue in any material respect as of the Effective Date or as of the Closing Date.

10. Covenants.

(a) No Extension/Termination Notices. Marriott shall not send to the Landlord any notice terminating any Lease, except as provided inSection 3(c)(iv) or 10(g) hereof. No Sunrise Party shall send to the Landlord any notice extending the term of any Lease, except for any Continuing LeaseNotice pursuant to Section 2(b) hereof.

(b) Assignment of Leases, Etc. Unless and until Marriott has been released from the Lease Guaranties or the Leases have expired:

(i) no Tenant may assign or otherwise transfer any Lease, except to an entity Controlled (as defined in the definition of "Affiliate") by Sunrise;and

(ii) Sunrise shall not sell, assign or otherwise transfer its direct or indirect interest in any Tenant without the consent of Marriott.

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(c) Landlord Estoppel Certificates. Unless and until Marriott has been released from the Lease Guaranties, within thirty (30) days after theEffective Date, and once between January 1st and February 15th of each calendar year thereafter, the relevant Tenant shall request from the Landlord aLandlord Estoppel Certificate with respect to each Continuing Lease, each of which shall be dated not more than ten (10) days earlier than the date receivedby Marriott. If any Landlord Estoppel Certificate is:

(i) delivered to such Tenant, Sunrise shall deliver to Marriott such Landlord Estoppel Certificate; or

(ii) not delivered to such Tenant, Sunrise shall provide to Marriott (A) a Landlord Estoppel Certificate executed by Sunrise and (B) a writtenexplanation as to why the Landlord did not deliver such Landlord Estoppel Certificate.

(d) Notices of Default, Etc. Sunrise shall promptly, and in any event within five (5) days, notify Marriott of (i) any ARL Event of Defaultdescribed in clause (b) or (c) of the definition thereof, (ii) any Event of Default under any Lease (as defined in such Lease) or (iii) any default under anyFacility Bond or Continuing Care Agreement.

(e) Notices Under the Leases, Lease Guaranties and Facility Bonds. Sunrise shall provide to Marriott copies of each material notice it sends orreceives with respect to any Lease, Lease Guaranty or Facility Bond.

(f) Updated Schedule 3. On or before March 31, June 30, September 30 and December 31 of each year, Sunrise shall deliver to Marriott anupdated Schedule 3, including a revised calculation of Marriott's aggregate contingent liability under the Facility Bonds as of such date.

(g) Terminating Lease Notices. Sunrise hereby authorizes Marriott to deliver, on or after October 1, 2016, Terminating Lease Notices to theLandlord with respect to the Continuing Leases relating to lease terms commencing after December 31, 2018.

(h) Amendments to Work Fee Letter. The Work Fee Letter is amended as follows: (i) Section 2 of the Work Fee Letter is amended by replacingthe date of "December 15, 2011" therein with "December 29, 2011" and by replacing the date of "December 20, 2011" therein with "January 3, 2012"; and(ii) Section 4 of the Work Fee Letter is amended by replacing the date of "December 15, 2011" therein with "December 29, 2011". Except for suchamendments, the Work Fee Letter shall remain in full force and effect and unchanged.

11. Survival; Specific Performance.

(a) The representations and warranties made by the Marriott Parties in Section 9(a) hereof and the representations and warranties made by theSunrise Parties in Section 9(b) hereof shall survive the Closing until the expiration of the applicable period of limitations. All of the other covenants andagreements of the Parties in this Agreement to be observed or performed, in whole or in part, after the Closing Date shall, except as otherwise set forth herein,survive the Closing without limitation to the extent required to effectuate the relevant post-Closing performance. The termination of the representations,warranties and indemnification

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provided herein shall not affect the rights of the Parties hereunder in respect of any claim made in reasonable detail in a writing received by a Party to whomsuch claim is made prior to the expiration of the applicable survival period provided herein.

(b) Each of the Parties acknowledges and agrees that (i) the terms and provisions of this Agreement are unique and complex in nature, and (ii) inaddition to any other remedy available at law, or in equity, or both, any Party may and shall be entitled to seek the remedy of specific performance against aParty in default or breach of its obligations under this Agreement and such remedy is fair, equitable and practicable.

12. Miscellaneous.

(a) Notices. Any notice, consent, approval, demand or other communication required or permitted to be given hereunder (a "notice") must be inwriting and may be served personally, by facsimile or by a nationally recognized overnight courier service that provides written proof of delivery (such asUPS or Federal Express), addressed as follows: If to a Marriott Partyto:

c/o Marriott International, Inc.10400 Fernwood RoadBethesda, MD 20817Attention: General CounselFacsimile No.: (301) 380-6727

With a copy to:

Baker Botts L.L.P.1299 Pennsylvania Avenue, N.W.Washington, D.C. 20004Attention: David G. PommereningFacsimile No.: (202) 585-1012

If to a Sunrise Party:

c/o Sunrise Senior Living, Inc.7900 Westpark Drive, Suite T-900McLean, Virginia 22102Attn: Chief Executive OfficerFacsimile: (703) 744-1628

With a copy to:

c/o Sunrise Senior Living, Inc.7900 Westpark Drive, Suite T-900McLean, Virginia 22102Attn: General CounselFacsimile: (703) 744-1628

and to:

Willkie Farr & Gallagher LLP787 Seventh AvenueNew York, NY 10019Attention: Eugene A. Pinover, Esq.Facsimile: (212) 728-9254

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Any notice which is (a) personally served shall be effective upon the date of service, (b) sent by facsimile shall be effective upon confirmation of receipt inlegible form and (c) sent by a nationally recognized overnight courier shall be effective on the date of delivery to the Party at its address specified above as setforth in the courier's delivery receipt. Any Party may, by notice to the others from time to time in the manner herein provided, specify a different address fornotice purposes.

(b) Counterparts; Facsimile or Electronic Signatures. This Agreement may be executed in any number of counterparts and by the Parties inseparate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the sameagreement. Each Party shall become bound by this Agreement immediately upon affixing its signature hereto. Signatures transmitted by facsimile orelectronic transmission may be used in place of original signatures on this Agreement, and the Parties intend to be bound by the signatures on any suchdocument transmitted by facsimile or electronic transmission.

(c) Entire Agreement. This Agreement, the Reimbursement Agreement, the Purchase Agreement, the Confidentiality Agreement, the CashCollateral Agreement and the Work Fee Letter constitute the entire understandings and agreements among the Parties with respect to the subject matter hereofand thereof and supersede all prior agreements, representations or understandings between or among them relating to the subject matter hereof and thereof.All preceding agreements relating to the subject matter hereof or thereof, whether written or oral are hereby merged into this Agreement. This Agreement maynot be modified in any manner except by an instrument in writing signed by all of the Parties.

(d) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York withoutgiving effect to any choice or conflict of law provision or rule, whether of the State of New York or any other jurisdiction, that would cause the application ofthe laws of any jurisdiction other than the State of New York.

(e) Waiver. No delay in exercising any right or remedy shall constitute a waiver thereof, and no waiver by any Marriott Party or Sunrise Party ofa breach of any representation, warranty or covenant of this Agreement shall be construed as a waiver of any preceding or succeeding breach of the same orany other representation, warranty, covenant or condition of this Agreement. No waiver by any Marriott Party or Sunrise Party shall be effective exceptpursuant to an instrument in writing signed by such Party.

(f) Severability. In the event any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal orunenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement.

(g) Attorneys' Fees. If any Marriott Party or Sunrise Party brings an action at law or other proceeding (including arbitration) against the other toenforce or interpret any of the terms, covenants or conditions hereof or any instrument executed pursuant to this Agreement, or by reason of any breach ordefault hereunder or thereunder, the Party(ies) prevailing in any such action or proceeding and any appeal thereupon shall be paid all of its reasonable out-ofpocket costs and reasonable out-of-pocket attorneys' fees.

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(h) Successors and Assigns. This Agreement shall be binding upon the Parties and their respective permitted successors and assigns. No Partyshall be permitted to assign this Agreement except that, in connection with the direct or indirect sale or transfer of all or substantially all of the stock or assetsof such Party to another Person, any Party may assign this Agreement to such Person.

(i) Confidentiality. The provisions of this Agreement (and any other discussions or other matters relating to the subject matter hereof) areconfidential and shall not be disclosed by any Sunrise Party or Marriott Party without the prior written consent of the other than (i) to the Parties' respectiveadvisers (including legal and financial advisers), (ii) as required by law or any applicable regulatory body or the rules of any stock exchange with whose rulesSunrise or the Marriott Parties (as the case may be) are obliged to comply, including, without limitation, any accounting rules or financial disclosure rules;provided that, except for disclosures by Sunrise or Marriott of any Relevant Agreement or its subject matter in Sunrise's or Marriott's financial statements, asapplicable, where legally permitted, the disclosing Party notify the other Party in writing of such required disclosure as much in advance as practicable andreasonably cooperate with the other Party to limit the scope of such disclosure, (iii) to the Landlord or to the L/C Issuer and their respective advisers(including legal and financial advisers) on a need to know basis or (iv) to any prospective or existing lenders. Notwithstanding the foregoing, each Partyacknowledges that the effect of the Transactions (if consummated) will require public disclosure by the other Party. Subject to clause (ii) of the first sentenceof this Section 12(i) and the immediately preceding sentence, any press release or other written release to the public of information with respect to theTransactions contemplated by this Agreement, or any matters set forth in this Agreement, made by any Party on or as of the Effective Date will be made onlyin the form approved in writing by all Parties, which approval shall not be unreasonably withheld, conditioned or delayed, except to the extent required byapplicable Law.

(j) Further Assurances. Subject to the terms and conditions of this Agreement, whether before, at or following the Closing, each of the Partiesshall execute such further documents and shall take such further actions as may be reasonably necessary or desirable to accomplish the Transactions at thesole cost of the requesting Party, unless otherwise provided herein to be without charge to the requesting Party or at the cost or expense of the respondingParty.

(k) No Third-Party Beneficiaries. The provisions of this Agreement are and will be for the benefit of the Parties and their permitted successorsand assigns only and are not for the benefit of any other Person unless expressly set forth to the contrary herein or therein; and, accordingly, no third partyshall have the right to enforce the provisions of this Agreement except as set forth herein or therein.

(l) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning orinterpretation of this Agreement.

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(m) No Presumption. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity orquestion of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shallarise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules attached hereto are incorporated herein by reference and made a parthereof, but are expressly not included in the term "Agreement" as used herein, except as otherwise specified.

(o) Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force andeffect until the payment and performance in full of the Secured Obligations, (ii) be binding upon each Sunrise Party and each Sunrise Party's heirs,distributees, executors, administrators, guardians and conservators and upon Marriott and its successors, transferees and assigns and (iii) inure to the benefitof, and be enforceable by, Marriott and its successors, transferees and assigns and by each Sunrise Party and each Sunrise Party's heirs, distributees, executors,administrators, guardians and conservators.

(p) Change of Control. In connection with any Change of Control, Sunrise shall provide to Marriott (i) reasonable prior written notice of suchChange of Control and (ii) an officer's certificate, certifying that this Agreement and the Letter of Credit will remain unchanged and in full force and effectand enforceable against each of the parties thereto (other than the Marriott Parties) and any transferee or successor thereof.

[Signature pages follow]

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date set forth above. MARRIOTT PARTIES: MARRIOTT INTERNATIONAL, INC.

/s/ Carolyn B. Handlon Name: Carolyn B. Handlon Title: Vice President MARRIOTT SENIOR HOLDING CO. /s/ Carolyn B. Handlon Name: Carolyn B. Handlon Title: Authorized Signatory MARRIOTT MAGENTA HOLDING COMPANY, INC. /s/ Carolyn B. Handlon Name: Carolyn B. Handlon Title: Authorized Signatory

SUNRISE PARTIES: SUNRISE SENIOR LIVING, INC. /s/ Greg Neeb Name: Greg Neeb Title: Chief Investment and Administrative Officer SUNRISE SENIOR LIVING SERVICES, INC. /s/ David Haddock Name: David Haddock Title: Vice President and Secretary SUNRISE CONTINUING CARE, LLC /s/ David Haddock Name: David Haddock Title: Vice President and Secretary

SCHEDULE 1

Continuing Leases and Related Lease Guaranties

Part A: Continuing Leases

1. Bedford Court (Montgomery County, Maryland)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of July 25, 1994, by HMC Retirement Properties, Inc.(Assignor) in favor of Health and Retirement Properties Trust (Assignee), the Assignment and Assumption of Lease and Acknowledgement of Guarantee,dated as of February 16, 1999, among Marriott Senior Living Services, Inc. (Assignor), Marriott Continuing Care, Inc. (Assignee) and Marriott International,Inc. (Guarantor), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements, dated as of June 30, 1999, by HRPT PropertiesTrust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 2. Boca Pointe (Palm Beach, Florida)

Facilities Lease Agreement, dated as of February 14, 1994, by and between HMH Properties, Inc. and Marriott Senior Living Services, Inc., as amended bythe First Amendment to the Lease, dated as of May 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the ThirdAmendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMH Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements,dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 3. The Colonnades (Albemarle County, Virginia)

Facilities Sublease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. (Sublandlord) and Marriott Senior LivingServices, Inc. (Subtenant), as amended by the First Amendment to the Sublease, dated January 19, 1994, the Second Amendment of Sublease, dated as ofMay 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Sublease, dated as ofAugust 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases and Contracts, dated as of May 16, 1994, between HMC Retirement Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), the Assignment and Assumption of Sublease, dated as of May 4, 1998, betweenMarriott Senior Living Services, Inc. (Assignor) and Marriott

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Continuing Care, Inc. (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements, dated as of June 30, 1999, byHRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

Underlying Lease: Retirement Community Development and Lease Agreement, dated as of April 1, 1989, by and between UREF Retirement Corporation(Lessor) and Marriott Corporation (Lessee), as assigned pursuant to the Assignment of Lease, dated as of October 7, 1993, by Marriott Corporation (Assignor)to HMC Retirement Properties, Inc. (Assignee).

Non-Disturbance and Recognition Agreement, dated as of October 8, 1993, by and among UREF Retirement Corporation, Host Marriott Corporation, HMCRetirement Properties, Inc., Marriott International Inc. and Marriott Senior Living Services Inc. (The Colonnades). 4. The Jefferson (Arlington County, Virginia)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of July 25, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Retirement Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

Part B: Continuing Lease Guaranties1. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Bedford Court).

2. Guaranty, by Marriott International, Inc. in favor of HMH Properties, Inc., dated as of February 14, 1994, as amended by the First Amendment of Guaranty,dated as of May 16, 1994 (Boca Pointe).

3. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (The Colonnades).

Non-Disturbance and Recognition Agreement, dated as of October 8, 1993, by and among UREF Retirement Corporation, Host Marriott Corporation, HMCRetirement Properties, Inc., Marriott International, Inc. and Marriott Senior Living Services Inc. (The Colonnades).

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4. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (The Jefferson).

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SCHEDULE 2

Terminating Leases and Related Lease Guaranties

Part A: Terminating Leases

1. Bellaire/Houston (Harris County, Texas)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, by and between HMC RetirementProperties, Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contractsand Agreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 2. Calusa Harbour (Lee County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the ThirdAmendment to Lease, dated as of June 30, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fifth Amendmentof Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of August 16, 1994, between HMC RetirementProperties, Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), the Assignment and Assumption of Lease, dated as October 7, 1998,between Marriott Senior Living Services, Inc. (Assignor) and Marriott Continuing Care, Inc. (Assignee), the Amendment to Assignment and Assumption ofLease, dated as of November 6, 2000, by and between Marriott Continuing Care, LLC and Marriott Senior Living Services, Inc., and the Bill of Sale,Assignment and Assumption of Leases, Contracts and Agreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRTProperties Trust (Assignee). 3. Church Creek (Cook County, Illinois)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 16, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the ThirdAmendment to Lease, dated as of June 30, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fifth Amendmentof Lease, dated as of August 4, 2000.

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As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of September 7, 1994, between HMC RetirementProperties, Inc. (Assignor) and Church Creek Corporation (Assignee), the Assignment and Assumption of Lease, dated as of January 7, 1999, betweenMarriott Senior Living Services, Inc. (Assignor) and Marriott Continuing Care, Inc. (Assignee), and the Bill of Sale, Assignment and Assumption of Leases,Contracts and Agreements, dated as of June 30, 1999, by Church Creek Corporation (Assignor) in favor of SPTMRT Properties Trust. 4. Deerfield Beach/Horizon Club (Broward County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMH Properties, Inc. and Marriott Senior Living Services, Inc., as amended by theFirst Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent and Modification Agreement(HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMH Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements,dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 5. Palm Harbour (Pinellas County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 6. Port St. Lucie (St. Lucie County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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7. Scottsdale (Maricopa County, Arizona)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 8. Sun City (Maricopa County, Arizona)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of June 16, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 9. Villa Valencia (Orange County, California)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement, dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of September 7, 1994, between HMC RetirementProperties, Inc. (Assignor) and Health and Retirement Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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10. Virginia Beach (City of Virginia Beach, Virginia)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

Part B: Terminating Lease Guaranties1. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Bellaire).

2. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Calusa Harbour).

3. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Church Creek).

4. Guaranty, by Marriott International, Inc. in favor of HMH Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment of Guaranty,dated as of May 16, 1994 (Horizon Club).

5. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Palm Harbour).

6. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc. dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Port St. Lucie).

7. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Scottsdale).

8. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Sun City).

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9. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Villa Valencia).

10. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendmentof Guaranty, dated as of May 16, 1994 (Virginia Beach).

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SCHEDULE 3

Lifecare Agreements

Part A: Facility BondsSee attached Schedules 3.1 and 3.2.

Part B: Continuing Care AgreementsSCC operates the continuing care retirement communities known as "The Colonnades" and "Bedford Court" and enters into individual Continuing CareAgreements with individuals who will reside in the Community. The Continuing Care Agreements set forth the obligations and duties of SCC to provideindividual living accommodations, common areas, recreational facilities, meals, and services, including certain health services to and for residents, andresidents' obligations and duties, including financial obligations to SCC.

Part C: Agreements of UndertakingThe Colonnades:

• Agreement of Undertaking, dated as of December 1, 1988, between Marriott Corporation and Marriott Retirement Communities, Inc., as amended byan Amendment dated April 23, 1991, regarding The Colonnades.

• Agreement of Undertaking, dated October 9, 1993, between Marriott International, Inc., as successor to Marriott Corporation, and Marriott RetirementCommunities, Inc. regarding The Colonnades.

• Letter Agreement, dated March 17, 1998, between Marriott International, Inc. as successor to Marriott International, Inc. and Marriott Senior LivingServices, Inc. regarding the Agreement of Undertaking with respect to The Colonnades, dated October 9, 1993.

• Agreement of Undertaking, dated April 1, 1998, between Marriott International, Inc. and Marriott Continuing Care, LLC regarding The Colonnades.

Bedford Court:

• Agreement of Undertaking, dated May 1, 1998, between Marriott International, Inc. and Marriott Continuing Care, LLC regarding Bedford Court.

• Agreement of Undertaking, dated February 16, 1999, between Marriott International, Inc. and Marriott Continuing Care, LLC regarding Bedford Court.

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Part D: Marriott's Aggregate Contingent Liability with respect to the Facility BondsMarriott's aggregate contingent liability with respect to the Facility Bonds is $5,813,156.10, which is calculated by totaling the face amount of the FacilityBonds as of November, 2011 listed on Schedules 3.1 and 3.2.

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SCHEDULE 3.1

Facility Bonds (The Colonnades)

RESIDENTLAST NAME

RESIDENTFIRST NAME

BALANCE

Nov-11 [Resident] [Resident] 125,394.00 [Resident] [Resident] 263,296.80 [Resident] [Resident] 85,005.00 [Resident] [Resident] 143,683.20 [Resident] [Resident] 198,135.00 [Resident] [Resident] 75,425.00 [Resident] [Resident] 37,345.50 [Resident] [Resident] 37,345.50 [Resident] [Resident] 77,625.00 [Resident] [Resident] 91,813.50 [Resident] [Resident] 170,038.80 [Resident] [Resident] 217,908.00 [Resident] [Resident] 155,358.00 [Resident] [Resident] 155,250.00 [Resident] [Resident] 209,529.00 [Resident] [Resident] 158,850.00 [Resident] [Resident] 146,898.00 [Resident] [Resident] 95,409.90 [Resident] [Resident] 118,289.00 [Resident] [Resident] 171,009.00 [Resident] [Resident] 148,606.00 [Resident] [Resident] 218,428.20 [Resident] [Resident] 156,150.00 [Resident] [Resident] 194,917.50 [Resident] [Resident] 136,841.40 [Resident] [Resident] 240,817.00 [Resident] [Resident] 244,548.00 [Resident] [Resident] 131,859.00 [Resident] [Resident] 86,544.00 [Resident] [Resident] 234,018.00 [Resident] [Resident] 90,009.00 [Resident] [Resident] 283,070.00 [Resident] [Resident] 189,603.00 [Resident] [Resident] 263,296.80 [Resident] [Resident] 240,840.00

Grand Total $ 5,593,156.10

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SCHEDULE 3.2

Facility Bonds (Bedford Court)

RESIDENTLAST NAME

RESIDENTFIRST NAME

BALANCE

Nov-11 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 7,000.00

Grand Total $ 220,000.00

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SCHEDULE 4

Letter of Credit Available Amount Reductions (Lease Rental Payments)

$ 18,294.69 $18,160.97 $14,382.99 $23,669.57 $74,508.22 $5,000.00 $2,000.00 $81,508.22 $4,259.20 $220.00 $85,987.42 3/31/2014 $ 17,379.96 $17,266.75 $13,677.88 $22,500.82 $70,825.41 $5,000.00 $2,000.00 $77,825.41 $3,682.81 TBD TBD TBD 6/30/2014 $ 16,465.22 $16,372.52 $12,972.78 $21,332.07 $67,142.59 $5,000.00 $2,000.00 $74,142.59 $3,682.81 TBD TBD TBD 9/30/2014 $ 15,550.49 $15,478.30 $12,267.67 $20,163.33 $63,459.78 $5,000.00 $2,000.00 $70,459.78 $3,682.81 TBD TBD TBD 12/31/2014 $ 14,635.75 $14,584.08 $11,562.56 $18,994.58 $59,776.97 $5,000.00 $2,000.00 $66,776.97 $3,682.81 TBD TBD TBD 3/31/2015 $ 13,721.02 $13,683.14 $10,850.64 $17,818.68 $56,073.49 $4,000.00 $2,000.00 $62,073.49 $4,703.48 TBD TBD TBD 6/30/2015 $ 12,806.28 $12,782.21 $10,138.72 $16,642.79 $52,370.00 $4,000.00 $2,000.00 $58,370.00 $3,703.48 TBD TBD TBD 9/30/2015 $ 11,891.55 $11,881.28 $ 9,426.80 $15,466.89 $48,666.52 $4,000.00 $2,000.00 $54,666.52 $3,703.48 TBD TBD TBD 12/31/2015 $ 10,976.81 $10,980.35 $ 8,714.88 $14,291.00 $44,963.04 $4,000.00 $2,000.00 $50,963.04 $3,703.48 TBD TBD TBD 3/31/2016 $ 10,062.08 $10,072.51 $ 7,995.94 $13,107.74 $41,238.27 $3,000.00 $2,000.00 $46,238.27 $4,724.77 TBD TBD TBD 6/30/2016 $ 9,147.35 $ 9,164.67 $ 7,277.00 $11,924.48 $37,513.49 $3,000.00 $2,000.00 $42,513.49 $3,724.77 TBD TBD TBD 9/30/2016 $ 8,232.61 $ 8,256.83 $ 6,558.06 $10,741.23 $33,788.72 $3,000.00 $2,000.00 $38,788.72 $3,724.77 TBD TBD TBD 12/31/2016 $ 7,317.88 $ 7,348.98 $ 5,839.12 $ 9,557.97 $30,063.95 $3,000.00 $2,000.00 $35,063.95 $3,724.77 TBD TBD TBD 3/31/2017 $ 6,403.14 $ 6,434.03 $ 5,112.95 $ 8,367.13 $26,317.25 $2,000.00 $2,000.00 $30,317.25 $4,746.70 TBD TBD TBD 6/30/2017 $ 5,488.41 $ 5,519.07 $ 4,386.79 $ 7,176.29 $22,570.55 $2,000.00 $2,000.00 $26,570.55 $3,746.70 TBD TBD TBD 9/30/2017 $ 4,573.67 $ 4,604.11 $ 3,660.62 $ 5,985.45 $18,823.85 $2,000.00 $2,000.00 $22,823.85 $3,746.70 TBD TBD TBD 12/31/2017 $ 3,658.94 $ 3,689.15 $ 2,934.45 $ 4,794.61 $15,077.15 $2,000.00 $2,000.00 $19,077.15 $3,746.70 TBD TBD TBD 3/31/2018 $ 2,744.20 $ 2,766.86 $ 2,200.84 $ 3,595.95 $11,307.86 $1,000.00 $2,000.00 $14,307.86 $4,769.29 TBD TBD TBD 6/30/2018 $ 1,829.47 $ 1,844.58 $ 1,467.23 $ 2,397.30 $ 7,538.57 $1,000.00 $2,000.00 $10,538.57 $3,769.29 TBD TBD TBD 9/30/2018 $ 914.73 $ 922.29 $ 733.61 $ 1,198.65 $ 3,769.29 $1,000.00 $2,000.00 $ 6,769.29 $3,769.29 TBD TBD TBD

12/31/2018 ($ 0.00) $ 0.00 $ 0.00 $ 0.00 $ 0.00 $1,000.00 $2,000.00 $ 3,000.00 $3,769.29 TBD TBD TBD 4/30/2009 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $2,000.00 $ 2,000.00 $1,000.00 TBD TBD TBD 6/30/2019 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $2,000.00 TBD TBD TBD 9/30/2019 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 TBD TBD TBD

12/31/2019 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 TBD TBD TBD

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EXHIBIT A

Marriott Consent

Marriott International, Inc.10400 Fernwood RoadBethesda, MD 20817

December , 2011

Sunrise Senior Living, Inc.7900 Westpark Drive, Suite T-900McLean, Virginia 22102Attn: Chief Executive Officer Re: Consent to Extension of Leases

Dear ladies and gentlemen:

Reference is hereby made to that certain Agreement Regarding Leases, dated as of December [ ], 2011 (as amended, supplemented or otherwise modifiedfrom time to time, the "ARL"), by and among Marriott International, Inc. ("MI"), Marriott Senior Holding Co. ("MSHC"), Marriott Magenta HoldingCompany, Inc. ("MMHC"; MI, MSHC and MMHC, collectively, "Marriott"), Sunrise Senior Living, Inc. (f/k/a Sunrise Assisted Living, Inc.) ("Sunrise"),Sunrise Senior Living Services, Inc. (f/k/a Marriott Senior Living Services, Inc.) ("SSLS") and Sunrise Continuing Care, LLC (f/k/a Marriott ContinuingCare, LLC) ("SCC"; Sunrise, SSLS and SCC, collectively, the "Sunrise Parties"). Any capitalized term used but not defined herein shall have the meaninggiven to it in the ARL.

Pursuant to the Stock Purchase Agreement, dated as of December 30, 2002, by and among Marriott and Sunrise, as amended (the "Purchase Agreement"),Marriott sold SSLS, the lessee under certain leases (the "Leases"), to Sunrise. Pursuant to Section 5.7(b) of the Purchase Agreement, Sunrise agreed not tocause or permit the term of any Lease to be extended beyond the term in effect as of the closing date of the Purchase Agreement.

Pursuant to the terms set forth further in this consent letter, Marriott hereby consents to the extension of the leases set forth on Schedule 1 attached hereto (the"Continuing Leases") for the First Extended Term on the same terms and conditions as set forth in the documents described on such Schedule 1 pursuant tothe Continuing Lease Notices.

SSLS must continue to satisfy all of its obligations under the Continuing Leases, including the obligation to pay timely all Lease Rental Payments and othercharges under the Continuing Leases.

Notwithstanding this consent letter, SSLS shall remain fully responsible for the prompt payment of all sums payable by the tenant under the ContinuingLeases, and for the performance of all of the terms, covenants, conditions and provisions of the Continuing Leases required to be performed on the part of thetenant thereunder for the remainder of the term of the Continuing Leases, including the First Extended Term.

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Marriott has executed this consent letter for the sole purpose of evidencing its consent to the extension of the Continuing Leases for the First Extended Termonly. Marriott's consent under this consent letter shall not be construed (a) to modify, waive, impair or affect any of the covenants, agreements, terms,provisions, obligations or conditions contained in the ARL, the Purchase Agreement, the Continuing Leases, any other Relevant Agreement or any otheragreement to which Marriott and any Sunrise Party are parties, (b) to waive any breach thereof or any rights of Marriott against any party liable or responsiblefor the performance thereof, (c) to increase the obligations or diminish the rights of Marriott under any Relevant Agreement or any other agreement to whichMarriott and any Sunrise Party are parties, or (d) to, in any way, be construed as giving any Sunrise Party any greater rights than those possessed by theoriginal tenant named in the Continuing Leases.

This consent letter is for consent to the extension of the Continuing Leases for the First Extended Term and does not constitute the consent of Marriott to anyother additional term.

Very truly yours, MARRIOTT INTERNATIONAL, INC.By:

Name: Title:

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Schedule 1 1. Bedford Court (Montgomery County, Maryland)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of July 25, 1994, by HMC Retirement Properties, Inc.(Assignor) in favor of Health and Retirement Properties Trust (Assignee), the Assignment and Assumption of Lease and Acknowledgement of Guarantee,dated as of February 16, 1999, among Marriott Senior Living Services, Inc. (Assignor), Marriott Continuing Care, Inc. (Assignee) and Marriott International,Inc. (Guarantor), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements, dated as of June 30, 1999, by HRPT PropertiesTrust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 2. Boca Pointe (Palm Beach, Florida)

Facilities Lease Agreement, dated as of February 14, 1994, by and between HMH Properties, Inc. and Marriott Senior Living Services, Inc., as amended bythe First Amendment to the Lease, dated as of May 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the ThirdAmendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMH Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements,dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 3. The Colonnades (Albemarle County, Virginia)

Facilities Sublease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. (Sublandlord) and Marriott Senior LivingServices, Inc. (Subtenant), as amended by the First Amendment to the Sublease, dated January 19, 1994, the Second Amendment of Sublease, dated as ofMay 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Sublease, dated as ofAugust 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases and Contracts, dated as of May 16, 1994, between HMC Retirement Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee)[, the Assignment and Assumption of Sublease, dated as of May 4, 1998, betweenMarriott Senior Living Services, Inc. (Assignor) and Marriott Continuing Care, Inc. (Assignee),] and the Bill of Sale, Assignment and Assumption of Leases,Contracts and Agreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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Underlying Lease: Retirement Community Development and Lease Agreement, dated as of April 1, 1989, by and between UREF Retirement Corporation(Lessor) and Marriott Corporation (Lessee), as assigned pursuant to the Assignment of Lease, dated as of October 7, 1993, by Marriott Corporation (Assignor)to HMC Retirement Properties, Inc. (Assignee).

Non-Disturbance and Recognition Agreement, dated as of October 8, 1993, by and among UREF Retirement Corporation, Host Marriott Corporation, HMCRetirement Properties, Inc., Marriott International Inc. and Marriott Senior Living Services Inc. (The Colonnades). 4. The Jefferson (Arlington County, Virginia)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of July 25, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Retirement Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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EXHIBIT B

Terminating Lease Notice

[SSLS/SCC Letterhead]

, 20

SPTMRT Properties Trust[Insert address] Re: Notice of Lease Termination

Ladies and Gentlemen:

Reference is hereby made to the Facilities Lease Agreement between [ ], as Landlord, and [ ], as Tenant, dated as of [ ], as amended by[ ] for premises located in [ ] (the "Lease"). Capitalized terms used and not defined herein shall have the meanings set forth in theLease.

Pursuant to Section 3.03 of the Lease, we hereby notify you that Tenant is exercising its right to terminate the Lease at the end of the Initial Term. The Leaseshall terminate and be of no further force and effect as of December 31, 2013. Sincerely,[SUNRISE SENIOR LIVING SERVICES, INC.][SUNRISE CONTINUING CARE LLC] Name:Title: cc: [Insert SPTMRT cc parties]

Marriott International, Inc. 10400 Fernwood Road Bethesda, Maryland 20871 Attn: General Counsel [Senior Mortgagee]

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EXHIBIT C

Continuing Lease Notice

[SSLS/SCC Letterhead]

, 2011

SPTMRT Properties Trust[Insert notice address] Re: Notice of Lease Extension

Ladies and Gentlemen:

Reference is hereby made to the Facilities Lease Agreement between [ ], as Landlord, and [ ], as Tenant, dated as of [ ], as amended by[ ] for premises located in [ ] (the "Lease"). Capitalized terms used and not defined herein shall have the meanings set forth in theLease.

Pursuant to Section 3.02 of the Lease, we hereby notify you of our election as Tenant to extend the Term of the Lease for the First Extended Term. The FirstExtended Term shall commence on January 1, 2014 and terminate on December 31, 2018. Sincerely,[SUNRISE SENIOR LIVING SERVICES, INC.][SUNRISE CONTINUING CARE LLC] Name:Title: cc: [Insert SPTMRT cc parties]

Marriott International, Inc. 10400 Fernwood Road Bethesda, Maryland 20871 Attn: General Counsel

[Senior Mortgagee]

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EXHIBIT D

Letter of Credit

IRREVOCABLE LETTER OF CREDIT NO.

, 20

Marriott International, Inc.10400 Fernwood RoadBethesda, MD 20817Attention: General Counsel

Gentlemen:

1. Stated Amount; Available Amount. We hereby establish in favor of Marriott International, Inc. ("you" or the "Beneficiary") an irrevocable Letter ofCredit whereby you are authorized to draw on KeyBank National Association (the "Issuer") Irrevocable Letter of Credit No. , issued for theaccount of Sunrise Senior Living, Inc. (the "Company"), for an aggregate amount not exceeding $85,000,000 (the "Stated Amount"). This Letter ofCredit is issued pursuant to the Agreement Regarding Leases, dated as of December , 2011, among the Beneficiary, Marriott Senior Holding Co.,Marriott Magenta Holding Company, Inc., the Company, Sunrise Senior Living Services, Inc. and Sunrise Continuing Care, LLC (as amended, restated,supplemented or otherwise modified from time to time, the "Agreement"). In the case of any drawing under this Letter of Credit, as of the date suchdrawing is honored, the amount available to be drawn hereunder (the "Available Amount") shall automatically be reduced by an amount equal to suchhonored/paid drawing.

2. Term. This Letter of Credit is effective immediately and expires at the close of banking business at our office at KeyBank National Association,Standby Letter of Credit Services, Mail Code: OH-01-51-0531, 4910 Tiedeman Road, Cleveland, OH 44144-2338 designated in or pursuant toParagraph 3 hereof on the earliest to occur of the following:

(a) (the "Stated Expiration Date"); or

(b) the payment by us of the final drawing available to be made hereunder.

3. Drawing Documentation. Funds under this Letter of Credit are available to you upon your delivery of (a) the original of this Letter of Credit and allamendments thereto (if any) and (b) your drawing certificate in the form of Annex A attached hereto (which certificate shall (i) be on your letterhead,(ii) have all blanks appropriately filled in and (iii) be signed by your authorized officer), presented to us at our office located at KeyBank NationalAssociation, Standby Letter of Credit Services, Mail Code: OH-01-51-0531, 4910 Tiedeman Road, Cleveland, OH 44144-2338, or at any other office in

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that may be designated by us by written notice delivered to you; provided that such certificate may be presented along with a copy of the Letter ofCredit and all amendments thereto (if any) by fax transmission to 216-813-3719 (or such other number as shall be notified to you) so long as receipt ofsuch transmission is simultaneously confirmed by telephone at 216-813-3696 or 216-813-3703 (or such other number as shall be notified by us). In theevent of a presentation via facsimile transmission, no mail confirmation is necessary and the facsimile transmission will constitute the operativedrawing documents.

4. Drawing Procedures.

(a) Generally. Partial and multiple drawings are permitted under this Letter of Credit. The Issuer hereby agrees with you that, to the extent of itsliability as provided herein, any drawing request submitted in compliance with the terms of this Letter of Credit will be duly honored upondelivery of the compliant documents as specified in Paragraph 3 hereof if presented at the aforesaid office on a Business Day (as hereinafterdefined) on or before the expiration date hereof. If a drawing is made by you hereunder:

(i) at or prior to 11:00 a.m. (Eastern Standard Time), payment shall be made of the amount specified in immediately available funds by10:00 a.m. (Eastern Standard Time) on the next Business Day; or

(ii) after 11:00 a.m. (Eastern Standard Time), payment shall be made of the amount specified in immediately available funds by 10:00 a.m.(Eastern Standard Time) on the second next succeeding Business Day;

provided that, in each case, such drawing and the documents presented in connection therewith conform to the terms and conditions hereof.

(b) Non-Conforming Drawings. If a drawing request hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit,we shall give prompt notice to the person submitting such drawing request that (i) the demand for payment was not effected in accordance withthe terms and conditions of this Letter of Credit, stating the reasons therefor, and (ii) we will, upon our receipt of instructions from such person,hold any documents at his disposal or return the same to him. Upon being notified that the drawing request was not effected in conformity withthis Letter of Credit, the person who submitted the drawing request may attempt to correct any such non-conforming drawing request; providedhowever, in such event, conforming documents for payment must be timely made in accordance with the terms of the Letter of Credit and on orbefore the Stated Expiration Date.

(c) Payments. The Issuer shall pay each drawing under this Letter of Credit with its own funds (and not, directly or indirectly, with any funds orcollateral deposited or pledged with the Issuer, or for the Issuer's account, in each case, by the Company or any other entity), in immediatelyavailable funds. Payment for such

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drawing shall be made by the Issuer by immediately available funds as specified in the drawing certificate delivered in accordance withParagraph 3 hereof. All payments hereunder shall be made free and clear of, and without deduction for or on account of, any present or futurecharges, taxes, duties, withholdings, fees, liens, set-offs or other deductions of any kind and regardless of any objection of any third party(including, without limitation, the Company).

(d) Obligation of the Issuer. Our only obligation with regard to a drawing under this Letter of Credit shall be to examine it and to pay in accordancetherewith if compliant, and we shall not be obligated to make any inquiry in connection with the presentation of such drawing.

(e) Business Days. As used in this Letter of Credit, the term "Business Day" shall mean any day other than a Saturday or Sunday or legal holiday ora day on which banking institutions in Cleveland, Ohio are authorized or required by law or executive order to close.

5. Reduction of the Available Amount. Upon our receipt from time to time of a certificate in the form of Annex B attached hereto, the Available Amountshall automatically be reduced to the amount specified therein. Such certificate shall have all blanks appropriately filled in and shall be signed by one ofyour authorized officers, and shall be in the form of a letter on your letterhead.

6. Transfer. This Letter of Credit is transferable in its entirety, but not in part, and may be transferred upon your written request to the Issuer. Transfer ofthis Letter of Credit is subject to our receipt of the original of this Letter of Credit and all amendments thereto (if any) along with the original of ourusual Transfer request form, which will be provided to you via facsimile per your written request to the Issuer indicating your facsimile telephonenumber. Transfer charges are for the account of the Applicant. This Letter of Credit may not be transferred to any person with which U.S. persons areprohibited from doing business under U.S. foreign assets control regulations or other applicable U.S. laws and regulations.

7. Surrender. This Letter of Credit and all amendments thereto (if any) shall promptly be surrendered by the Beneficiary to the Issuer (i) upon the StatedExpiration Date of this Letter of Credit in accordance with Paragraph 2 hereof or (ii) in the event this Letter of Credit is no longer required pursuant tothe terms of the Agreement, in each case along with a signed letter on the Beneficiary's letterhead addressed to KeyBank National Association agreeingto its cancellation.

8. Governing Law. This Letter of Credit shall be governed by the International Standby Practices (1998 Revision), International Chamber of CommercePublication No. 590 (the "ISP98"), which shall in all respects be deemed a part hereof as fully as if incorporated in full herein, except as modifiedhereby. This Letter of Credit shall be deemed to be a contract made under the laws of the State of New York and shall, as to matters not governed by theISP98, be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law that maydirect the application of the laws of another jurisdiction.

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9. Notices. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to the Issuer at KeyBank National Association,Standby Letter of Credit Services, Mail Code: OH-01-51-0531, Tiedeman Road, Cleveland, OH 44144-2338 (or otherwise as designated by the Issuerto the Beneficiary by written communication) specifically referring thereon to "KeyBank National Association Irrevocable Letter of Credit No. ".

10. Integration Clause. This Letter of Credit (including Annexes A and B hereto) sets forth in full our undertaking, and such undertaking shall not in anyway be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein (including, withoutlimitation, the Agreement) or in Annex A or B hereto, and any such reference shall not be deemed to incorporate herein or therein by reference any suchdocument, instrument or agreement.

Very truly yours,KEYBANK NATIONAL ASSOCIATIONBy

Authorized Officer

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ANNEX A

[Beneficiary Letterhead]

DRAWING CERTIFICATE

[Date]

KeyBank National AssociationStandby Letter of Credit of ServicesMail Code: OH-01-51-05314910 Tiedeman Road,Cleveland, OH 44144-2338

Address] Re: Irrevocable Letter of Credit No.

Gentlemen:

, a duly authorized officer of (the "Beneficiary"), hereby certifies to KeyBank National Association, with reference toIrrevocable Letter of Credit No. (the "Letter of Credit"), that: 1. Defined Terms. The term Letter of Credit and other capitalized terms used herein and not otherwise defined shall have the meanings ascribed within the

Letter of Credit.

2. Beneficiary. The undersigned is the Beneficiary of the Letter of Credit. The person signing on behalf of the undersigned is a duly authorized officer ofthe undersigned.

3. Demand for Payment. The Beneficiary is making a demand for payment under the Letter of Credit in the amount of $ , which amount is not inexcess of the Available Amount.

4. Payment Instructions. Payment of the amount demanded hereby shall be made by [wire transfer to the following account: ].

5. Reason for Drawing. [CHOOSE ONE OF THE FOLLOWING:]

[The Beneficiary has made a payment or performance pursuant to the Lease Guaranty in respect of the First Extended Term of the Lease relating to thefacility known as [Bedford Court in Maryland] [The Jefferson in Virginia] [The Colonnades in Virginia] [Boca Pointe in Florida]

[The Beneficiary has made a payment or performance pursuant to a Lifecare Agreement.]

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[An NCF Payment Date is at least ten (10) days prior to the date of this Certificate, and Sunrise has not paid the Minimum Payment that was due andpayable on such NCF Payment Date.]

[The Beneficiary has incurred Expenses]

[The Beneficiary is entitled to make a drawing under the Letter of Credit pursuant to the Agreement.]

[The Issuer is rated less than ["A-" by Standard & Poor's Ratings Services.] ["A3" by Moody's Investors Service, Inc.]]

[The Stated Expiration Date is less than thirty (30) days after the date of this Certificate.]

IN WITNESS WHEREOF, the Beneficiary has executed and delivered this Certificate as of , 201 . [Beneficiary]By

Name: Title:

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ANNEX B

[Beneficiary Letterhead]

AVAILABLE AMOUNT REDUCTION CERTIFICATE

[Date]

KeyBank National AssociationStandby Letter of Credit of ServicesMail Code: OH-01-51-05314910 Tiedeman Road,Cleveland, OH 44144-2338 Re: Irrevocable Letter of Credit No.

Gentlemen:

Reference is made to your Irrevocable Letter of Credit No. (the "Letter of Credit"). Capitalized terms used herein and not otherwisedefined herein shall have the meanings ascribed within the Letter of Credit.

We hereby agree that, as of the date hereof, the Available Amount of the Letter of Credit shall be reduced by $ .

IN WITNESS WHEREOF, the Beneficiary has executed and delivered this Certificate as of , 201 . [Beneficiary]By

Name: Title:

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EXHIBIT E

Cash Collateral Agreement

EXECUTION COPY

CASH COLLATERAL FUNDINGAND FORBEARANCE AGREEMENT

This Cash Collateral Funding and Forbearance Agreement (this "Agreement") is made as of the 22nd day of December, 2011, by and among SUNRISESENIOR LIVING SERVICES, INC., a Delaware corporation formerly known as Marriott Senior Living Services, Inc. ("SSL"), SUNRISE SENIOR LIVING,INC., a Delaware corporation formerly known as Sunrise Assisted Living, Inc. ("Sunrise"), SUNRISE CONTINUING CARE, LLC, a Delaware limitedliability company formerly known as Marriott Continuing Care, LLC ("SCC," and together with Sunrise and SSL, "Sunrise Entities"), and MARRIOTTINTERNATIONAL, INC., a Delaware corporation ("Marriott").

RECITALS

A. The parties to this Agreement are parties to that certain Assumption and Reimbursement Agreement dated as of March 28, 2003 (as amended,supplemented or otherwise modified, the "Reimbursement Agreement").

B. The Reimbursement Agreement requires Sunrise to fund cash into a separate cash collateral account for the benefit of Marriott under specifiedcircumstances.

C. The parties to this Agreement are parties to that certain Agreement Regarding Leases, dated as of the date hereof, among Marriott, Marriott SeniorHolding Co., Marriott Magenta Holding Company, Inc. and the Sunrise Entities (as amended, supplemented or otherwise modified, the "AgreementRegarding Leases").

D. The parties to this Agreement have agreed on certain cash collateral funding and forbearance arrangements as set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the premises, the agreements and covenants herein contained and other valuable consideration, the receiptand sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Capitalized Terms

Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Reimbursement Agreement. 2. Reimbursement Agreement

The parties hereto agree and acknowledge that the Reimbursement Agreement is in full force and effect and is binding on and enforceable against theparties hereto in accordance with its terms, has not been amended or modified, and none of the rights or obligations thereunder of the parties hereto have beenexpressly or impliedly waived.

3. Collateral Event and Cash Collateral Funding Obligation

(i) Collateral Event. Section 8(f) of the Reimbursement Agreement provides that a "Collateral Event" occurs if the implied senior unsecured debt ratingof Sunrise shall be "B-" or less by Standard and Poor's Corporation, or "B1" or less by Moody's Investors Service, Inc. Marriott has claimed that the currentfinancial condition of Sunrise has caused a Collateral Event to occur under Section 8(f) of the Reimbursement Agreement.

(ii) Cash Collateral Funding Obligations under Reimbursement Agreement. The parties agree and acknowledge that, under the ReimbursementAgreement, upon the occurrence of a Collateral Event, upon request by Marriott, Sunrise is required to promptly (x) deposit into a cash collateral account forthe benefit of Marriott, pursuant to documentation in form and substance satisfactory to Marriott, or, at Marriott's election, or (y) deliver to Marriott a letter ofcredit in form and substance, and from an institution, satisfactory to Marriott, in either case, in an aggregate amount equal to the sum of (i) the aggregateamount of rent payable for one year under each of the Leases, and (ii) an amount equal to 10% of the outstanding Lifecare Obligations. 4. Cash Collateral Funding Agreement

(i) Cash Collateral Arrangement. Notwithstanding Sunrise's existing obligation, if any, to fund the amount of cash collateral set forth in Section 3(ii)above, Sunrise has offered and Marriott has agreed to accept the cash collateral arrangement as set forth herein, and subject to the terms, provisions andconditions set forth herein.

(ii) Initial Funding; Collateral. On the date hereof, Sunrise shall transfer an amount equal to Three Million Dollars ($3,000,000), which shall constitute"Collateral" under the Reimbursement Agreement (and as further described herein), by wire transfer of immediately available federal funds to the followingaccount of Marriott or its designee: Bank Name: Mellon Bank

500 Ross Street Pittsburgh, PA 15262

ABA Number: 0430 0026 1Swift: MELNUS3PAccount Name: Marriott International, Inc.Account Number: Reference: Treasury Accounting Services Notes

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The Collateral shall be used to make prompt payments to Marriott of any Assignee Reimbursement Obligations that are not paid when due under theReimbursement Agreement in accordance with the terms and provisions set forth in Section 5 below. The amount required to be maintained as Collateral fromtime to time hereunder is referred to as the "Required Collateral Amount," and the initial Required Collateral Amount shall be Three Million Dollars($3,000,000), with disbursements to be replenished pursuant to Section 4(iv) below. Marriott shall have no obligation to hold the Collateral in any segregatedor otherwise designated account. All interest or other income in respect of the Collateral shall be for Marriott's account.

(iii) Increases in Required Collateral Amount. Without regard to the then-existing cash balance of the Collateral, but subject to Section 4(v) below,Sunrise shall make an additional payment of Collateral (and the Required Collateral Amount shall automatically increase by the applicable amount) upon theoccurrence of either of the following:

(A) A Change in Control (as defined below) of Sunrise, in which case the amount of such increase in the Required Collateral Amount shall equal $2million and Sunrise shall pay such amount as Collateral; or

(B) Aggregate Negative Cash Flow (as defined below) exceeds $3.5 million for any 12-month measurement period in which case the amount of suchincrease in the Required Collateral Amount shall equal (x) $1 million if the Aggregate Negative Cash Flow is greater than $3.5 million but notgreater than $4.5 million, and (y) an additional $1 million if the Aggregate Negative Cash Flow exceeds $4.5 million, in each case for such 12-month measurement period (prorated for any partial measuring period). Such payment shall not be made in duplication (e.g., if the AggregateNegative Cash Flow is $4 million in Year 1, and $4.2 million in Year 2, an additional $1 million payment of Collateral shall be required only inrespect of Year 1 and not Year 2).

For purposes of this Agreement, the term "Change in Control" shall mean either of the following:

(1) an event or series of events by which any Person or two or more Persons acting in concert, which Person or Persons are not individuallyor collectively in control of Sunrise on the date of this Agreement, shall have acquired, by contract or otherwise, directly or indirectly,control over the equity securities of Sunrise entitled to vote for members of the board of directors or equivalent governing body ofSunrise on a fully-diluted basis representing fifty percent (50%) or more of the combined voting power of such securities, or

(2) Sunrise is a party to a merger or consolidation, or series of related transactions, regardless of whether Sunrise is the surviving entityfollowing such merger or consolidation, if, prior to the next annual meeting of shareholders of the surviving entity in the event thesurviving

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entity files reports pursuant to the Securities Act of 1934 or within twelve (12) months after such merger or consolidation in the event thesurviving entity does not file reports pursuant to the Securities Act of 1934, the individuals constituting the board of directors of Sunriseimmediately prior to closing of such transaction (the "Incumbent Board") cease for any reason to constitute at least 50% of the membersof the board of directors of the surviving entity; provided, however, that if the election, or nomination for election by such survivingentity's stockholders, of any new director was approved by a vote of the Incumbent Board, such new director shall be considered amember of the Incumbent Board; provided, further, however, that if a new director is elected by the incumbent board as a result of theretirement or death of a director, such new director shall be considered a member of the Incumbent Board.

"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority orother entity.

For purposes of this Agreement, the term "Aggregate Negative Cash Flow" means the aggregate total of the Negative Cash Flows of all the NegativeProperties; the term "Negative Cash Flow" means, as to any given Property, the excess, if any, of the Actual Cash Lease Payments thereof over the NetOperating Income thereof; the term "Actual Cash Lease Payments" as to any given Property means the cash lease payment obligations owed by the tenant asprovided in the respective Lease thereof (whether or not paid and not taking into account any straight-line adjustments that are not reflected in such cash leasepayment obligations); and the term "Net Operating Income" as to any given Property means Total Revenue less Total Operating Expenses (using themethodology and definitions used to prepare the sample Statement of Profit and Loss as of November 30, 2011 attached hereto as Exhibit A).

Aggregate Negative Cash Flow shall be calculated for each twelve month period ending on June 30 and December 31 of each year; such calculation shall beprovided by Sunrise not later than 91 days after each June 30 and December 31 for the six months then ended; provided that the first measurement period shallbegin on January 1, 2011. For purposes of this Agreement, the "Properties" are all of the 14 leased properties listed on Exhibit B attached hereto which areleased pursuant to the leases listed thereon (each, a "Lease" and, collectively, the "Leases"); and the "Negative Properties" are those Properties that haveNegative Cash Flow for the applicable rolling 12 month period.

(iv) Replenishment of Collateral. Any disbursements of amounts held by Marriott as Collateral, in accordance with this Agreement, shall be replenishedby Sunrise by transferring, by wire transfer of immediately available federal funds to the account set forth in Section 4(ii) above, not later than the 15th day ofeach month, an amount equal to Twenty Percent (20%) of the aggregate Net Cash Flow for the preceding month derived from the 14 leased properties listedon Exhibit B attached hereto until the full amount of all disbursements is replenished and the amount of Collateral held by Marriott is equal to the RequiredCollateral Amount. The term "Net Cash Flow" means Net Operating Income less Actual Cash Lease Payments.

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(v) Decrease in Required Collateral Amount.

(A) If the Agreement Regarding Leases is terminated pursuant to Section 3(c)(i), Section 3(c)(ii) or Section 3(c)(iii) thereof, then, effective April 30,2014, the Required Collateral Amount shall be reduced to Eight Hundred Thousand Dollars ($800,000). In such event, any excess funds above$800,000 that are held by Marriott as Collateral at such time shall be returned to Sunrise, and no additional funds shall be required to bedeposited pursuant to Section 4(iii) above.

(B) The Required Collateral Amount shall be reduced by $800,000 in the event that all of the Lifecare Bonds expire or are terminated. In such event,any excess funds above the Required Collateral Amount that are held by Marriott as Collateral at such time shall be returned to Sunrise. "LifecareBonds" means those bonds listed on Exhibit C attached hereto.

(C) In the event that the Required Collateral Amount has previously been increased by the applicable amount pursuant to Section 4(iii)(B) above (the"Cash Flow Adjustment"), the Required Collateral Amount thereafter shall be reduced as follows: (A) if the Required Collateral Amount hadpreviously been increased by $2 million and no part thereof has been returned under this clause, and the Aggregate Negative Cash Flow for themost recent measurement period is greater than $3.5 million but not greater than $4.5 million, then the Required Collateral Amount shall bedecreased by $1 million; (B) if the Required Collateral Amount had previously been increased by $2 million and no part thereof has beenreturned under this clause, and the Aggregate Negative Cash Flow for the most recent measurement period is not greater than $3.5 million, thenthe Required Collateral Amount shall be decreased by $2 million; and (C) if the Required Collateral Amount had previously been increased by $1million (and such $1 million has not been returned under this clause), and the Aggregate Negative Cash Flow for the most recent measurementperiod is not greater than $3.5 million, then the Required Collateral Amount shall be decreased by $1 million. In any such event, such fundsabove the Required Collateral Amount that are held by Marriott as Collateral at such time shall be returned to Sunrise.

(D) All of the funds then held by Marriott as Collateral shall be returned to Sunrise, upon satisfaction of the conditions for reduction in bothparagraphs (A) and (A) above.

(vi) Return of All Collateral To Sunrise.

(A) All of the funds then held by Marriott as Collateral (subject to possible reinstatement under Section 4(vi)(B) below) shall be returned to Sunriseupon the occurrence of both of the following: (i) Sunrise's independent public accountant shall render an "unqualified" opinion relating to theannual consolidated financial statements of Sunrise, and (ii) Sunrise's ratio of Consolidated EBITDAR (as defined in Exhibit D) to ConsolidatedFixed Charges (as defined in Exhibit D) is not less than 1.75 to 1.0 for the four most recent completed fiscal quarters (measured as one 12-monthperiod).

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(B) Notwithstanding anything to the contrary contained herein, if the Closing (as defined in the Agreement Regarding Leases) has occurred, all of thefunds then held by Marriott as Collateral shall be returned to Sunrise on the first to occur of the following:

(1) April 30, 2014; provided that the Agreement Regarding Leases remains in full force and effect and the Sunrise Parties are in materialcompliance with the terms thereof, and either:

(a) the following conditions are satisfied:

(a) the Letter of Credit (as defined in the Agreement Regarding Leases) remains in full force and effect or Marriott has drawnthe Letter of Credit and the available amount thereunder or the L/C Proceeds held by Marriott, as applicable, are not less thanthe sum of (1) the remaining rental payments and known outstanding performance obligations under the Continuing Leases(as defined in the Agreement Regarding Leases) and (2) the remaining exposure under the Facility Bonds (as defined in theAgreement Regarding Leases); and

(b) Sunrise delivers to Marriott the documents contemplated by clauses (B) and (C) of Section 4(d)(i) of the AgreementRegarding Leases; or

(b) the following conditions are satisfied:

(a) Sunrise has exercised the "Reduction Option" set forth in Section 7(a) of the Agreement Regarding Leases with respect to allof the Option Facilities as defined therein; and

(b) the Letter of Credit remains in full force and effect or Marriott has drawn the Letter of Credit and the available amountthereunder or the L/C Proceeds held by Marriott, as applicable, are not less than the sum of the remaining exposure under theFacility Bonds; or

(2) The occurrence of the Release Date (as defined in the Agreement Regarding Leases) and satisfaction of Sunrise's obligations pursuant toSection 7(b) of the Agreement Regarding Leases with respect thereto.

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(vii) Reinstatement of Collateral and Required Collateral Funding. In the event that, at any time following a return of funds held by Marriott asCollateral to Sunrise under Section 4(vi) above (but subject to Section 4(v) above), either:

(A) Sunrise's independent public accountant shall render an opinion with a "going concern" qualifier (or refuse to issue an opinion) relating to theannual consolidated financial statements of Sunrise for any fiscal year after such return, or

(B) Sunrise maintains a ratio of Consolidated EBITDAR (as defined in Exhibit D) to Consolidated Fixed Charges (as defined in Exhibit D) of lessthan 1.75 to 1.0 for any fiscal year after such return.

then, in either case, Marriott may at its option either (by giving written notice to Sunrise) (A) reinstate Sunrise's obligation to replenish the Collateral held byMarriott with the Required Collateral Amount, such replenishment to be effected as provided in Section 4(iv) above after such notice is sent to Sunrise, or(B) terminate the Forbearance as provided in Section 6 below. Not later than 91 days after the end of each of Sunrise's fiscal years, beginning with fiscal year2011, Sunrise shall prepare a worksheet showing its calculation of Consolidated EBITDAR to Consolidated Fixed Charges. At Marriott's request, Sunriseshall promptly answer any reasonable questions and provide such supporting data reasonably requested by Marriott to validate such calculation. 5. Payments from the Collateral

If Marriott makes any payment or performance in respect of any Assignee Reimbursement Obligation, Marriott shall be permitted to withdraw from theCollateral, and retain for its account, an amount equal to the amount of such payment or, in the case of performance, any costs, expenses and damagessustained by Marriott in respect thereof except to the extent previously reimbursed by Sunrise. 6. Forbearance

Marriott hereby agrees to forbear from (i) exercising its right to demand, under the Reimbursement Agreement, cash collateral in excess of the cashcollateral required to be funded and replenished by Sunrise hereunder, and (ii) on or prior to December 28, 2011, sending to the Lessor any notice terminatingany of the Leases (subsections (i) and (ii), the "Forbearance," it being understood that Marriott shall have no such obligation to forbear under subsection (i) ofthis paragraph after December 28, 2011), until the occurrence of any one of the following events:

(a) Any Sunrise Entity fails to perform or observe any of its obligations under this Agreement, and such failure is not fully cured within five(5) business days after written notice thereof is given to Sunrise;

(b) The indebtedness under Sunrise's principal bank credit facility is accelerated due to an event of default thereunder (it being understood that thecurrent principal bank facility is the Credit Agreement dated as of June 16, 2011 between Sunrise, KeyBank, National Association, asadministrative agent thereunder, and the other Lenders as defined therein party thereto, as amended from time to time);

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(c) The termination, after the date hereof, of senior living facility leases, management agreements or similar agreements to which Sunrise or anaffiliate is a party, which generate an aggregate of at least $50 million in annual revenues to Sunrise on a consolidated basis (measured using thelast full calendar year's revenues prior to such termination), excluding any such management agreements, leases or similar agreements as towhich Sunrise received a termination fee or similar payment designed to compensate Sunrise for the fair value of such terminated agreement forthe remaining term thereof;

(d) Sunrise or any material subsidiary of Sunrise voluntarily files for bankruptcy protection or any involuntary bankruptcy proceeding is commencedagainst Sunrise or any of its material subsidiaries that is not dismissed or stayed within ninety (90) days after commencement thereof; or

(e) Either of the events occur as described in Section 4(vii) above, following a return of funds to Sunrise under Section 4(vi) above.

Following the occurrence of any one or more of such events (a "Forbearance Termination Event"), the Forbearance shall no longer have any force or effect,and Marriott shall be free to demand, at its option and at any time or from time to time, that Sunrise make such cash collateral payments, or take such otheractions, as are then required under the Reimbursement Agreement, without regard to any of the provisions herein establishing the amount of cash collateralSunrise is required to provide or maintain hereunder but taking into account the amounts on deposit at the relevant time as provided herein. The occurrence ofa Forbearance Termination Event shall not diminish or affect Sunrise's rights or obligations hereunder. Except as expressly set forth in this Agreement, eachparty retains all of its rights and remedies and defenses under the Reimbursement Agreement. 7. Security Interest

(i) In order to secure the full and punctual observance and performance by each Sunrise Entity of all of its obligations under this Agreement and theReimbursement Agreement (the "Secured Obligations"), each Sunrise Entity hereby assigns and pledges to Marriott, and grants to Marriott, a first prioritysecurity interest in and to, and a Lien (as hereinafter defined) upon and right of set-off against, and transfers to Marriott, with power of sale, all of eachSunrise Entity's right, title and interest in and to:

(A) the Collateral; and

(B) all interest, income, proceeds, distributions and collections received or to be received, or derived or to be derived, now or any time hereafter(whether before or after the commencement of any proceeding under applicable bankruptcy, insolvency or similar law, by or against any SunriseEntity or with respect to any Sunrise Entity) from or in connection with any of the foregoing (including, without limitation, any securityentitlements in respect of any of the foregoing)

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(the items described in clauses (i) and (ii) above shall (A) be herein collectively called the "Collateral" and (B) constitute "Collateral" under theReimbursement Agreement). Marriott shall have all of the rights, remedies and recourses with respect to the Collateral afforded a secured party by theUniform Commercial Code as in effect from time to time in the State of New York (the "UCC"), in addition to, and not in limitation of, the other rights,remedies and recourses afforded to Marriott by this Agreement.

(ii) The Security Interests are granted as security only and shall not subject Marriott to, or transfer or in any way affect or modify, any obligation orliability of any Sunrise Entity with respect to any of the Collateral or any transaction in connection with the Secured Obligations. As used in this Agreement,"Security Interests" means the security interests in the Collateral created pursuant to this Section 7.

(iii) The parties hereto expressly agree that, in accordance with Section 4(ii) hereof, upon Marriott's receipt of the Collateral, Marriott shall havepossession of the Collateral and consequently the Security Interests therein shall be perfected by possession in accordance with Section 3-313(a) of the UCC.

(iv) Each Sunrise Entity shall, at the expense of such Sunrise Entity and in such manner and form as Marriott may require, give, execute, deliver, fileand record any financing statement, notice, instrument, document, instruments of transfer or other papers that may, in Marriott's sole discretion, be necessaryor desirable in order (i) to create, preserve, perfect, substantiate or validate any Security Interest or (ii) to enable Marriott to exercise and enforce its rightshereunder with respect to Security Interest.

(v) Each Sunrise Entity shall warrant and defend such Sunrise Entity's title to the Collateral, subject to the rights of Marriott, against the claims anddemands of all Persons. Marriott may elect, but without an obligation to do so, to discharge any mortgage, pledge, hypothecation, assignment, depositarrangement, encumbrance, lien (statutory or other), other charge or security interest or any preferential arrangement of any kind or nature whatsoever(including, without limitation, any conditional sale or other title retention agreement, and any obligations under capital leases having substantially the sameeconomic effect as any of the foregoing) (each, a "Lien") of any third party on any of the Collateral.

(vi) No Sunrise Entity shall (i) change its name or identity in any manner or (ii) principal place of residence, unless in any such case (A) such SunriseEntity shall have given Marriott not less than thirty (30) days' prior notice thereof and (B) such change shall not cause any of the Security Interests to becomeunperfected or subject any Collateral to any other Lien.

(vii) No Sunrise Entity shall (i) create or permit to exist any Lien (other than the Security Interests) with respect to the Collateral, (ii) sell or otherwisedispose of, or grant any option with respect to, any of the Collateral or (iii) enter into or consent to any agreement pursuant to which any Person has or willhave Control in respect of any Collateral. As used in this Agreement, "Control" means "control" as defined in Sections 8-106 and 9-106 of the UCC.

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(viii) No Sunrise Entity has performed nor shall perform any act that might prevent Marriott from enforcing any of the terms of this Agreement or thatmight limit Marriott in any such enforcement.

(ix) Each Sunrise Entity shall, forthwith upon demand, pay to Marriott (i) the amount of any taxes that Marriott may have been required to pay byreason of the Security Interests or to free any of the Collateral from any Lien thereon and (ii) the amount of any and all out-of-pocket expenses, including thefees and disbursements of counsel and of any other experts, that Marriott may incur in connection with (A) the enforcement of this Agreement, including suchexpenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of the Security Interests, (B) the collection, sale orother disposition of any of the Collateral, (C) the exercise by Marriott of any of the rights conferred upon it hereunder or (D) any Forbearance TerminationEvent. Any such amount not paid on demand shall bear interest (computed on the basis of a year of 360 days and payable for the actual number of dayselapsed) at a rate per annum equal to five percent (5%) plus the prime rate as published in The Wall Street Journal, Eastern Edition in effect from time to timeduring the period from the date hereof to the date of the termination of this Agreement.

(x) If any Forbearance Termination Event shall have occurred and be continuing, Marriott may exercise all the rights of a secured party under the UCC(whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, without being required to give any notice, except as hereinprovided or as may be required by mandatory provisions of law, may:

(A) deliver or cause to be delivered to itself or to an affiliate from the Collateral, Collateral sufficient to satisfy in full all Secured Obligations,whereupon Marriott shall hold Collateral absolutely free from any claim or right of whatsoever kind, including any equity or right of redemptionof any Sunrise Entity that may be waived or any other right or claim of any Sunrise Entity, and each Sunrise Entity, to the extent permitted bylaw, hereby specifically waives all rights of redemption, stay or appraisal that each Sunrise Entity has or may have under any law now existing orhereafter adopted;

(B) sell any Collateral as may be necessary to generate proceeds sufficient to satisfy in full all Secured Obligations, at public or private sale or at anybroker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as Marriott may deemsatisfactory;

(C) apply any Cash then existing as Collateral to any Secured Obligation; and

(D) take any combination of the actions described in clauses (i) through (iii) above;

provided that Marriott shall give Sunrise not less than one day's prior written notice of the time and place of any sale or other intended disposition of any ofthe Collateral, except any Collateral that threatens to decline speedily in value or is of a type customarily sold on a recognized market. Marriott and eachSunrise Entity agrees that such notice constitutes "reasonable authenticated notification of disposition" within the meaning of Section 9-611 of the UCC.

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(xi) If a Forbearance Termination Event shall have occurred and be continuing, Marriott may proceed to realize upon the Security Interests in theCollateral against any one or more of the types of Collateral, at any time, as Marriott shall determine in its sole discretion subject to the foregoing provisionsof this Section 7. The proceeds of any sale of, or other realization upon, or other receipt from, any of the Collateral shall be applied by Marriott in thefollowing order of priorities:

(A) first, to the payment to Marriott of the expenses of such sale or other realization, including reasonable compensation to the agents and counsel ofMarriott, and all expenses, liabilities and advances incurred or made by Marriott in connection therewith, including brokerage fees in connectionwith the sale by Marriott of any Collateral;

(B) second, to the payment to Marriott of the aggregate amount (or the value of any delivery or other performance) owed by each Sunrise Entity toMarriott in respect of the Secured Obligations; and

(C) finally, if all of the Secured Obligations have been fully discharged or sufficient funds have been set aside by Marriott at the request of Sunrisefor the discharge thereof, any remaining proceeds shall be released to Sunrise on behalf of all of the Sunrise Entities.

8. Further Assurances

Each party hereto consents to this Agreement. Each party hereto shall promptly execute, acknowledge and deliver, and shall cause its affiliates toexecute, acknowledge and deliver, to the other parties hereto any assurances, documents, instruments or conveyances reasonably requested by any partyhereto, or necessary for the parties hereto to effectuate the transactions contemplated hereby. 9. Governing Law

This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Delawareapplicable to contracts made and performed in such State and without regard to conflicts of law principles. 10. Time of the Essence

Time is of the essence in the performance of all obligations of Sunrise and Marriott hereunder. 11. Representations and Warranties of Sunrise and Marriott

(i) Each party to this Agreement represents and warrants as follows. Such party has not, in whole or in part, assigned or encumbered its rights under theReimbursement Agreement. The execution, delivery and performance of this Agreement by such party has been duly and validly authorized by all necessarycorporate or as the case may be other entity action on the part of such party. This Agreement constitutes a legally valid and binding obligation of such party,

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enforceable against such party in accordance with its terms except as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similarlaws and equitable principles relating to or limiting creditors' rights generally. The execution, delivery and performance of this Agreement by such party willnot (i) violate or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under the charterdocuments or by-laws or as the case may be organizational agreement of such party; (ii) result in the imposition of any Encumbrance against any materialassets or properties of such party except as created hereunder; or (iii) violate any Law, except for any such violations, breaches, defaults and impositions aswould not reasonably be expected to have a material adverse effect on the business operations, assets or financial condition of such party or performance bysuch party of its obligations hereunder. The execution, delivery and performance of this Agreement by such party will not require any Approvals to beobtained except for (A) Approvals already obtained by such party, or (B) any such Approvals the failure of which to receive would not in the aggregate have amaterial adverse effect on the ability of such party to perform its obligations hereunder.

(ii) Each of the Sunrise Entities represents and warrants to Marriott that each Sunrise Entity (i) owns and, at all times prior to the release of theCollateral pursuant to the terms of this Agreement, will own the Collateral free and clear of any Liens (other than the Security Interests) and (ii) is not and willnot become a party to or otherwise be bound by any agreement, other than this Agreement, that (A) restricts in any manner the rights of any present or futureowner of the Collateral in respect thereof or (B) provides any Person with Control with respect to any Collateral. No financing statement, security agreementor similar or equivalent document or instrument covering all or any part of the Collateral is on file or of record in any jurisdiction in which such filing orrecording would be effective to perfect a Lien, security interest or other encumbrance of any kind on such Collateral.

(iii) Each of the Sunrise Entities represents and warrants to Marriott that upon Marriott's receipt of the Collateral in accordance with Section 4 above,Marriott will have a valid and perfected security interest in such Collateral. No registration, recordation or filing with any governmental body, agency orofficial is required in connection with the perfection or enforcement of the Security Interests. 12. Miscellaneous

(i) This Agreement and any Schedule or Exhibit attached hereto may be modified or amended only by agreement in writing of the Sunrise Entities andMarriott.

(ii) Nothing herein, express or implied, is intended to confer upon or give any Person other than the parties hereto any rights or remedies of any natureunder or by reason of this Agreement.

(iii) If any provision of this Agreement is determined to be invalid, illegal or unenforceable, the remaining provisions of this Agreement to the extentpermitted by law shall remain in full force and effect.

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(iv) This Agreement, the Reimbursement Agreement, the Purchase Agreement, the Confidentiality Agreement, the Agreement Regarding Leases andthe Work Fee Letter (as defined in the Agreement Regarding Leases) constitute the entire agreement among the parties with respect to the subject matterhereof.

(v) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned or delegated, in whole or in part, byoperation of law or otherwise by any party without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall bebinding upon and inure to the benefit of the parties and their respective successors and assigns.

(vi) This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when soexecuted and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

(vii) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment andperformance in full of the Secured Obligations, (ii) be binding upon each Sunrise Entity and each Sunrise Entity's heirs, distributees, executors,administrators, guardians and conservators and upon Marriott and its successors, transferees and assigns and (iii) inure to the benefit of, and be enforceableby, Marriott and its successors, transferees and assigns and by each Sunrise Entity and each Sunrise Entity's heirs, distributees, executors, administrators,guardians and conservators.

[SIGNATURES BEGIN ON NEXT PAGE]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first set forth above. SUNRISE SENIOR LIVING, INC.By:

Name: Title:

SUNRISE SENIOR LIVING SERVICES, INC.By:

Name: Title:

SUNRISE CONTINUING CARE, LLCBy:

Name: Title:

MARRIOTT INTERNATIONAL, INC.By:

Name: Title:

EXHIBIT A

Form of Statement of Profit and Loss

[see attached]

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Sunrise Senior Living, Inc.Period: 11 Community statement of Profit and Loss as of: November 30, 2011

Operating Unit: Bellaire-62041

Ledger: SR_ACT_Requesting Bus. Unit Currency: USD Year to Date Actual Metrics 2011-1 2011-2 2011-3 2011-4 2011-5 2011-6 2011-7 2011-8 2011-9 2011-10 2011-11 $ By Acct

Total Revenues 1,004,128 926,389 987,039 983,360 1,035,949 924,471 980,595 973,267 987,497 1,048,635 934,223 10,785,553 Total Cost of Sales 142,014 142,994 157,298 162,702 171,982 162,313 159,618 131,222 216,899 194,655 175,694 1,817,392

Total Net Revenues 862,114 783,395 829,741 820,658 863,966 762,158 820,977 842,046 770,597 853,980 758,528 8,968,160

ProductiveLabor(excludingContractTemp) 287,139 254,434 277,439 282,288 287,386 300,944 297,618 273,123 287,327 293,203 289,639 3,130,540

Non ProductiveLabor 32,694 22,707 21,890 17,981 27,679 24,933 23,585 27,785 26,334 24,705 23,038 273,332

Benefits 35,107 33,493 37,271 33,623 33,493 32,531 33,604 32,965 35,992 34,987 33,217 376,283 PR Tax 32,765 28,707 29,469 25,927 26,888 24,141 25,834 22,971 24,176 25,104 24,576 290,557 PR Tax and

Benefits 67,872 62,199 66,740 59,549 60,381 56,672 59,438 55,936 60,168 60,091 57,793 666,839 Total Labor 387,705 339,341 366,070 359,817 375,445 382,549 380,640 356,844 373,830 377,999 370,471 4,070,711

Key ControllableOperatingExpenses 63,493 89,765 67,422 84,673 95,038 98,892 131,546 127,294 138,245 115,870 73,534 1,085,773

Other DeptControllableOperatingExpenses 30,360 29,681 33,969 31,363 37,587 44,826 39,336 37,695 28,985 29,074 42,550 385,425

Total ControllableOperatingExpenses 623,572 601,781 624,759 638,555 680,052 688,581 711,139 653,056 757,959 717,599 662,249 7,359,302

House Profit 380,557 324,608 362,280 344,805 355,896 235,890 269,456 320,212 229,537 331,036 271,974 3,426,251

Non DepartmentExpense 7,444 20,410 44,895 21,527 23,765 21,722 22,041 22,037 22,188 22,046 22,050 250,126

Total OperatingExpenses 631,016 622,191 669,654 660,082 703,817 710,302 733,180 675,093 780,148 739,645 684,299 7,609,427

Net Operating Income 373,112 304,198 317,385 323,278 332,131 214,169 247,415 298,175 207,349 308,990 249,924 3,176,126

EXHIBIT B

Leases 1. Bedford Court (Montgomery County, Maryland)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of July 25, 1994, by HMC Retirement Properties, Inc.(Assignor) in favor of Health and Retirement Properties Trust (Assignee), the Assignment and Assumption of Lease and Acknowledgement of Guarantee,dated as of February 16, 1999, among Marriott Senior Living Services, Inc. (Assignor), Marriott Continuing Care, Inc. (Assignee) and Marriott International,Inc. (Guarantor), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements, dated as of June 30, 1999, by HRPT PropertiesTrust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 2. Bellaire/Houston (Harris County, Texas)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, by and between HMC RetirementProperties, Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contractsand Agreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 3. Boca Pointe (Palm Beach, Florida)

Facilities Lease Agreement, dated as of February 14, 1994, by and between HMH Properties, Inc. and Marriott Senior Living Services, Inc., as amended bythe First Amendment to the Lease, dated as of May 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the ThirdAmendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMH Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements,dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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4. Calusa Harbour (Lee County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the ThirdAmendment to Lease, dated as of June 30, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fifth Amendmentof Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of August 16, 1994, between HMC RetirementProperties, Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), the Assignment and Assumption of Lease, dated as October 7, 1998,between Marriott Senior Living Services, Inc. (Assignor) and Marriott Continuing Care, Inc. (Assignee), the Amendment to Assignment and Assumption ofLease, dated as of November 6, 2000, by and between Marriott Continuing Care, LLC and Marriott Senior Living Services, Inc., and the Bill of Sale,Assignment and Assumption of Leases, Contracts and Agreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRTProperties Trust (Assignee). 5. Church Creek (Cook County, Illinois)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated as of January 16, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the ThirdAmendment to Lease, dated as of June 30, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fifth Amendmentof Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of September 7, 1994, between HMC RetirementProperties, Inc. (Assignor) and Church Creek Corporation (Assignee), the Assignment and Assumption of Lease, dated as of January 7, 1999, betweenMarriott Senior Living Services, Inc. (Assignor) and Marriott Continuing Care, Inc. (Assignee), and the Bill of Sale, Assignment and Assumption of Leases,Contracts and Agreements, dated as of June 30, 1999, by Church Creek Corporation (Assignor) in favor of SPTMRT Properties Trust. 6. The Colonnades (Albemarle County, Virginia)

Facilities Sublease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. (Sublandlord) and Marriott Senior LivingServices, Inc. (Subtenant), as amended by the First Amendment to the Sublease, dated January 19, 1994, the Second Amendment of Sublease, dated as ofMay 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Sublease, dated as ofAugust 4, 2000.

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As assigned pursuant to the Assignment and Assumption of Leases and Contracts, dated as of May 16, 1994, between HMC Retirement Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), the Assignment and Assumption of Sublease, dated as of May 4, 1998, betweenMarriott Senior Living Services, Inc. (Assignor) and Marriott Continuing Care, Inc. (Assignee), and the Bill of Sale, Assignment and Assumption of Leases,Contracts and Agreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

Underlying Lease: Retirement Community Development and Lease Agreement, dated as of April 1, 1989, by and between UREF Retirement Corporation(Lessor) and Marriott Corporation (Lessee), as assigned pursuant to the Assignment of Lease, dated as of October 7, 1993, by Marriott Corporation (Assignor)to HMC Retirement Properties, Inc. (Assignee).

Non-Disturbance and Recognition Agreement, dated as of October 8, 1993, by and among UREF Retirement Corporation, Host Marriott Corporation, HMCRetirement Properties, Inc., Marriott International Inc. and Marriott Senior Living Services Inc. (The Colonnades). 7. Deerfield Beach/Horizon Club (Broward County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMH Properties, Inc. and Marriott Senior Living Services, Inc., as amended by theFirst Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent and Modification Agreement(HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMH Properties, Inc.(Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts and Agreements,dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 8. The Jefferson (Arlington County, Virginia)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of July 25, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Retirement Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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9. Palm Harbour (Pinellas County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 10. Port St. Lucie (St. Lucie County, Florida)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 11. Scottsdale (Maricopa County, Arizona)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 12. Sun City (Maricopa County, Arizona)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment

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to the Lease, dated as of January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent and Modification Agreement (HRPT),dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of June 16, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 13. Villa Valencia (Orange County, California)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement, dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of September 7, 1994, between HMC RetirementProperties, Inc. (Assignor) and Health and Retirement Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee). 14. Virginia Beach (City of Virginia Beach, Virginia)

Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., asamended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent andModification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000.

As assigned pursuant to the Assignment and Assumption of Leases, Guarantees and Permits, dated as of May 13, 1994, between HMC Retirement Properties,Inc. (Assignor) and Health and Rehabilitation Properties Trust (Assignee), and the Bill of Sale, Assignment and Assumption of Leases, Contracts andAgreements, dated as of June 30, 1999, by HRPT Properties Trust (Assignor) in favor of SPTMRT Properties Trust (Assignee).

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EXHIBIT C

Lifecare Bonds

The Colonnades

RESIDENTLAST NAME

RESIDENTFIRST NAME

BALANCE

Nov-11 [Resident] [Resident] 125,394.00 [Resident] [Resident] 263,296.80 [Resident] [Resident] 85,005.00 [Resident] [Resident] 143,683.20 [Resident] [Resident] 198,135.00 [Resident] [Resident] 75,425.00 [Resident] [Resident] 37,345.50 [Resident] [Resident] 37,345.50 [Resident] [Resident] 77,625.00 [Resident] [Resident] 91,813.50 [Resident] [Resident] 170,038.80 [Resident] [Resident] 217,908.00 [Resident] [Resident] 155,358.00 [Resident] [Resident] 155,250.00 [Resident] [Resident] 209,529.00 [Resident] [Resident] 158,850.00 [Resident] [Resident] 146,898.00 [Resident] [Resident] 95,409.90 [Resident] [Resident] 118,289.00 [Resident] [Resident] 171,009.00 [Resident] [Resident] 148,606.00 [Resident] [Resident] 218,428.20 [Resident] [Resident] 156,150.00 [Resident] [Resident] 194,917.50 [Resident] [Resident] 136,841.40 [Resident] [Resident] 240,817.00 [Resident] [Resident] 244,548.00 [Resident] [Resident] 131,859.00 [Resident] [Resident] 86,544.00 [Resident] [Resident] 234,018.00 [Resident] [Resident] 90,009.00 [Resident] [Resident] 283,070.00 [Resident] [Resident] 189,603.00 [Resident] [Resident] 263,296.80 [Resident] [Resident] 240,840.00

Grand Total $ 5,593,156.10

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Bedford Court

RESIDENTLAST NAME

RESIDENTFIRST NAME

BALANCE

Nov-11 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 7,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 8,000.00 [Resident] [Resident] 9,500.00 [Resident] [Resident] 7,000.00

Grand Total $ 220,000.00

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EXHIBIT D

Certain Definitions

"Consolidated EBITDAR" means the sum of: (a) Consolidated EBITDA plus (b) rent paid or payable under all operating leases as determined in accordancewith GAAP.

"Consolidated Fixed Charges" means the sum of: (a) Consolidated Interest Expense, (b) Capitalized Cash Interest Expense (c) scheduled payments ofprincipal on Total Funded Indebtedness (excluding balloon payments), (d) rent payable under all operating leases (other than capital leases) as determined inaccordance with GAAP, and (e) dividends payable on stock.

"Consolidated EBITDA" means the sum of: (a) (i) net income; (ii) Consolidated Interest Expense; (iii) income taxes; (iv) depreciation and amortization;(v) the non-cash component of any unusual or non-recurring item of loss or expense which was deducted in determining net income (in accordance withGAAP), and (vi) income (or loss) in respect of minority interest (assuming it was deducted in the calculation of net income); minus (b) "other income -operating properties" as shown on the Company's financial statements in accordance with GAAP as of the date of Sunrise's principal bank credit facility (or assuch category may be categorized in future financial statements) in each case for the Borrower and its Subsidiaries on a consolidated basis.

"Consolidated Interest Expense" means total interest expense (whether paid or accrued), including the amortization of debt discounts and premiums as well asthe interest component under capital leases, on a consolidated basis in accordance with GAAP.

"Capitalized Cash Interest Expense" means capitalized interest on construction or development loans, to the extent not funded from an interest reserve as partof third party construction financing.

"GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting PrinciplesBoard and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or suchother principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as ofthe date of determination, consistently applied.

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EXHIBIT E

Marriott Guarantees

1. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Bedford Court).

2. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Bellaire).

3. Guaranty, by Marriott International, Inc. in favor of HMH Properties, Inc., dated as of February 14, 1994, as amended by the First Amendment of Guaranty,dated as of May 16, 1994 (Boca Pointe).

4. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Calusa Harbour).

5. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Church Creek).

6. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (The Colonnades).

Non-Disturbance and Recognition Agreement, dated as of October 8, 1993, by and among UREF Retirement Corporation, Host Marriott Corporation, HMCRetirement Properties, Inc., Marriott International, Inc. and Marriott Senior Living Services Inc. (The Colonnades)

7. Guaranty, by Marriott International, Inc. in favor of HMH Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment of Guaranty,dated as of May 16, 1994 (Horizon Club).

8. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (The Jefferson).

9. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Palm Harbour).

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10. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc. dated as of October 8, 1993, as amended by the First Amendment ofGuaranty, dated as of May 16, 1994 (Port St. Lucie).

11. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendmentof Guaranty, dated as of May 16, 1994 (Scottsdale).

12. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendmentof Guaranty, dated as of May 16, 1994 (Sun City).

13. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendmentof Guaranty, dated as of May 16, 1994 (Villa Valencia).

14. Guaranty, by Marriott International, Inc. in favor of HMC Retirement Properties, Inc., dated as of October 8, 1993, as amended by the First Amendmentof Guaranty, dated as of May 16, 1994 (Virginia Beach).

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EXHIBIT F

Landlord Estoppel Certificate

Date:

Sunrise Senior Living Services, Inc.7900 Westpark Drive, Suite T-900McLean, Virginia 22102Attn: Chief Executive Officer Re: The Lease (as hereinafter defined)

Ladies and Gentlemen:

Reference is made to the [Facilities Lease Agreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. andMarriott Senior Living Services, Inc., as amended by the First Amendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as ofMay 16, 1994, the Consent and Modification Agreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4,2000 (Bedford Court)][ Facilities Lease Agreement, dated as of February 14, 1994, by and between HMH Properties, Inc. and Marriott Senior LivingServices, Inc., as amended by the First Amendment to the Lease, dated as of May 16, 1994, the Consent and Modification Agreement (HRPT), dated as ofOctober 10, 1997, and the Third Amendment of Lease, dated as of August 4, 2000 (Boca Pointe)][ Facilities Sublease Agreement, dated as of October 8,1993, by and between HMC Retirement Properties, Inc. (Sublandlord) and Marriott Senior Living Services, Inc. (Subtenant), as amended by the FirstAmendment to the Sublease, dated January 19, 1994, the Second Amendment of Sublease, dated as of May 16, 1994, the Consent and ModificationAgreement (HRPT), dated as of October 10, 1997, and the Fourth Amendment of Sublease, dated as of August 4, 2000 (The Colonnades)][ Facilities LeaseAgreement, dated as of October 8, 1993, by and between HMC Retirement Properties, Inc. and Marriott Senior Living Services, Inc., as amended by the FirstAmendment to the Lease, dated January 19, 1994, the Second Amendment of Lease, dated as of May 16, 1994, the Consent and Modification Agreement(HRPT), dated as of October 10, 1997, and the Fourth Amendment of Lease, dated as of August 4, 2000 (The Jefferson)][NOTE TO DRAFT: EXECUTEONE CERTIFICATE FOR EACH LEASE] (the "Lease").

This Landlord Estoppel Certificate (this "Certificate") is executed by Landlord at the request of Tenant pursuant to Section 18.01 of the Lease.Each capitalized term used but not defined herein shall have the meaning given to it in the Lease.

Landlord hereby certifies to Tenant as follows:

1. Attached hereto as Annex 1 is a true, complete and correct copy of the Lease.

2. The Lease is in full force and effect and unmodified.

3. As of the date of such certificate, all Rental theretofore due and payable has been paid in full.

4. Landlord has no knowledge of any Event of Default then existing.

[5. To Landlord's knowledge, neither Landlord nor Tenant is in default of the Retirement Community Development and Lease Agreement, dated as ofApril 1, 1989, by and between UREF Retirement Corporation (Lessor) and Marriott Corporation (Lessee), as assigned pursuant to the Assignment ofLease, dated as of October 7, 1993, by Marriott Corporation (Assignor) to HMC Retirement Properties, Inc. (Assignee).] [FOR COLONNADESONLY.]

EXECUTED as of the date first written above. SPTMRT PROPERTIES TRUSTBy: Name: Title:

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ANNEX 1

Exhibit 21

Entity Name State of IncorporationAL California GP, LLC DelawareAL California GP-II, LLC DelawareAL California GP-III, LLC DelawareAL U.S. Development Venture, LLC DelawareAL U.S. Pool One, LLC DelawareAL U.S. Pool Three, LLC DelawareAL U.S. Pool Two, LLC DelawareAL U.S./Bonita Senior Housing, L.P. CaliforniaAL U.S./Bonita II Senior Housing, L.P. CaliforniaAL U.S./G.P. Woods II Senior Housing, LLC DelawareAL U.S./Huntington Beach Senior Housing, L.P. CaliforniaAL U.S./La Jolla Senior Housing , L.P. CaliforniaAL U.S./La Jolla II Senior Housing, L.P. CaliforniaAL U.S./La Palma Senior Housing, L.P. CaliforniaAL U.S./La Palma II Senior Housing CaliforniaAL U.S./Playa Vista Senior Housing, L.P. CaliforniaAL U.S./Sacramento Senior Housing, L.P. CaliforniaAL U.S./Sacramento II Senior Housing, L.P. CaliforniaAL U.S./San Gabriel Senior Housing, L.P. CaliforniaAL U.S./Seal Beach Senior Housing , L.P. CaliforniaAL U.S./Studio City Senior Housing, L.P. CaliforniaAL U.S./Woodland Hills Senior Housing, L.P. CaliforniaBoulder Assisted Living, L.L.C. DelawareDignity Home Care, Inc. New YorkGCI Malden, L.P. DelawareG.P. Woods Assisted Living, LLC DelawareHearthside Operations, Inc. DelawareJefferson Senior Living Condominium Community VirginiaKarrington Health, Inc. OhioKarrington of Findlay Ltd. OhioKarrington Operating Company, Inc. OhioKensington Cottages Corporation of America MinnesotaLandCal Investments SSL, Inc. CaliforniaMaster CNLSun Manager I, LLC DelawareMaster MetSun GP, LLC DelawareMaster MetSun Three GP, LLC DelawareMaster MetSun Two GP, LLC DelawareNAH/Sunrise Severna Park, LLC MarylandNewtown Square Senior Living, LLC DelawarePS Assisted Living SarL LuxembourgPS Germany Investment (Jersey) LP JerseyPS Germany (Jersey) Gen Ptr Ltd JerseySCIC Investments, LLC DelawareSCICMM, Inc. Delaware

1

Entity Name State of IncorporationSCIC, LLC VermontSSL Grosse Pointe Woods Senior Living, LLC MichiganSSLMI-MD Realty, LLC DelawareSunCo, LLC DelawareSunCo II, LLC DelawareSunCo II, LLP United KingdomSunrise Assisted Living Limited Partnership VirginiaSunrise Assisted Living Limited Partnership VIII CaliforniaSunrise Aurora Assisted Living, L.L.C. ColoradoSunrise Billerica MA Senior Living, LLC DelawareSunrise Boynton Beach FL Senior Living, LLC DelawareSunrise Burlingame Senior Living, LLC DelawareSunrise Carlisle GP, LLC DelawareSunrise Carlisle, LP DelawareSunrise Carmel Assisted Living, L.L.C. IndianaSunrise Cedar Park SL, LLC DelawareSunrise Chanate Assisted Living, L.P. CaliforniaSunrise Connecticut Avenue Assisted Living, L.L.C. Washington, D.C.Sunrise Continuing Care, LLC DelawareSunrise Development, Inc. VirginiaSunrise Fairfax Assisted Living, L.L.C. VirginiaSunrise Farmington Hills Assisted Living, L.L.C. MichiganSunrise Floral Vale Senior Living, LLC PennsylvaniaSunrise Hamilton Assisted Living, L.L.C. OhioSunrise Holbrook Assisted Living, LLC New YorkSunrise Home Help Bagshot II Limited United KingdomSunrise Home Help Beaconsfield Limited United KingdomSunrise Home Help Sonning Limited United KingdomSunrise Houston TX Senior Living, LLC TexasSunrise Investment LLC DelawareSunrise IV of CA, Inc. CaliforniaSunrise Mezz A, LLC DelawareSunrise Mezz B, LLC DelawareSunrise Mezz C, LLC DelawareSunrise Mezz D, LLC DelawareSunrise Mezz E, LLC DelawareSunrise Monroeville Assisted Living, LLC PennsylvaniaSunrise Monterey Senior Living, LP DelawareSunrise Napa Assisted Living Limited Partnership CaliforniaSunrise North Senior Living LTD New Brunswick, CanadaSunrise NY Tenant, LLC DelawareSunrise of Beaconsfield GP Inc. New Brunswick, CanadaSunrise of Beaconsfield, LP Ontario, CanadaSunrise of Blainville GP Inc. New Brunswick, CanadaSunrise of Blainville, LP Ontario, CanadaSunrise of Dollard Des Ormeaux GP, Inc. New Brunswick, Canada

2

Entity Name State of IncorporationSunrise of Dollard Des Ormeaux, LP Ontario, CanadaSunrise of Rowland GP, Inc. British Columbia, CanadaSunrise of Rowland, LP Ontario, CanadaSunrise Partners LP VirginiaSunrise Pasadena CA Senior Living, LLC CaliforniaSunrise Pleasanton GP, LLC DelawareSunrise Pleasanton Senior Living, LP DelawareSunrise Properties Germany GmbH GermanySunrise Senior Living Germany GmbH GermanySunrise Senior Living Insurance, Inc. VermontSunrise Senior Living International, LP JerseySunrise Senior Living Investments, Inc. VirginiaSunrise Senior Living Jersey LTD JerseySunrise Senior Living Limited United KingdomSunrise Senior Living Management, Inc. VirginiaSunrise Senior Living Services, Inc. DelawareSunrise Senior Living Ventures, Inc. DelawareSunrise Shaker Heights Assisted Living, L.L.C. OhioSunrise Shorewood WI Senior Living, LLC DelawareSunrise St. Johns Assisted Living, L.L.C. LouisianaSunrise Stratford GP, LLC DelawareSunrise Stratford, LP DelawareSunrise Torrance Senior Living, LLC DelawareSunrise Webster House GP, LLC DelawareSunrise Webster House, LP DelawareSunrise West Assisted Living Limited Partnership CaliforniaSunrise West Orange NJ Senior Living, LLC DelawareSunrise Willow Lake Assisted Living, L.L.C. IndianaSZR Beaconsfield, Inc. New Brunswick, CanadaSZR Blainville, Inc New Brunswick, CanadaSZR Dollard Des Ormeaux, Inc. New Brunswick, CanadaSZR Rowland Inc. British Columbia, CanadaTH 1330, L.L.C. Washington, D.C.The Good Samaritan Fund, Inc. VirginiaWilmington Assisted Living, L.L.C. Delaware

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements, as listed below, of Sunrise Senior Living, Inc. of our reports dated February 29,2012, with respect to the consolidated financial statements of Sunrise Senior Living, Inc., and the effectiveness of internal control over financial reporting ofSunrise Senior Living, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2011.

RegistrationStatementNumber Form Description

333-38430 Form S-8 1996 Non-Incentive Stock Option Plan, as Amended333-26837 Form S-8 1997 Stock Option Plan333-57293 Form S-8 1998 Stock Option Plan333-78313 Form S-8 1999 Stock Option Plan333-38432 Form S-8 2000 Stock Option Plan333-61918 Form S-8 2001 Stock Option Plan333-88570 Form S-8 2002 Stock Option and Restricted Stock Plan333-109228 Form S-8 2003 Stock Option and Restricted Stock Plan333-160796 Form S-8 2008 Omnibus Incentive Plan333-167023 Form S-8 2008 Omnibus Incentive Plan, as Amended McLean, Virginia /s/ Ernst & Young LLPFebruary 29, 2012

Exhibit 31.1

I, Mark S. Ordan, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sunrise Senior Living, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.

Date: March 1, 2012 /s/ Mark S. Ordan

Mark S. Ordan Chief Executive Officer

Exhibit 31.2

I, C. Marc Richards, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sunrise Senior Living, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.

Date: March 1, 2012 /s/ C. Marc Richards

C. Marc Richards Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive OfficerPursuant to Section 906

of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

The undersigned, the Chief Executive Officer of Sunrise Senior Living, Inc. (the "Company"), hereby certifies that, to his knowledge on the datehereof:

(a) the Annual Report on Form 10-K of the Company for the year ended December 31, 2011 filed on the date hereof with the Securities and ExchangeCommission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark S. OrdanMark S. OrdanChief Executive Officer

Date: March 1, 2012

Exhibit 32.2

Certification of Chief Financial OfficerPursuant to Section 906

of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

The undersigned, the Chief Financial Officer of Sunrise Senior Living, Inc. (the "Company"), hereby certifies that, to her knowledge on the date hereof:

(a) the Annual Report on Form 10-K of the Company for the year ended December 31, 2011 filed on the date hereof with the Securities and ExchangeCommission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ C. Marc RichardsC. Marc RichardsChief Financial Officer

Date: March 1, 2012