UNITED STATES SECURITIES AND EXCHANGE COMMISSION
    Washington, 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, 2007
  Commission 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.)7902 Westpark Drive
    McLean, VA

22102(Address of principal
    executive offices)

(Zip Code)   (703) 273-7500
    Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, $.01 par value per share

New York Stock Exchange     o þ
  o þ
  o þ
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


5Item 1A.


Risk Factors


24Item 1B.


Unresolved Staff Comments


43Item 2.


Properties


43Item 3.


Legal Proceedings


44Item 4.


Submission of Matters to a Vote of Security Holders


47PART IIItem 5.


Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities


48Item 6.


Selected Financial Data


50Item 7.


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


51Item 7A.


Quantitative and Qualitative Disclosures About Market Risk


81Item 8.


Financial Statements and Supplementary Data


82Item 9.


Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


142Item 9A.


Controls and Procedures


142Item 9B.


Other Information


151PART IIIItem 10.


Directors, Executive Officers and Corporate Governance


152Item 11.


Executive Compensation


157Item 12.


Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters


191Item 13.


Certain Relationships and Related Transactions, and Director
    Independence


196Item 14.


Principal Accountant Fees and Services


201PART IVItem 15.


Exhibits and Financial Statement Schedules


203SIGNATURES









204  2




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This Annual Report on
    Form 10-K
    contains forward-looking statements that involve risks and
    uncertainties. Although we believe the expectations reflected in
    such forward-looking statements are based on reasonable
    assumptions, there can be no assurance that our expectations
    will be realized. Our actual results could differ materially
    from those anticipated in these forward-looking statements as a
    result of various factors, including, but not limited to:
  
    the outcome of the Securities and Exchange Commissions
    (SEC) investigation;
    the outcomes of pending putative class action and derivative
    litigation;
    the outcome of the Trinity OIG investigation and qui tam
    proceeding;
    the outcome of the IRS audit of our tax return for the tax
    year ended December 31, 2006 and employment tax returns for
    2004, 2005 and 2006;
    the status of strategic alternatives;
    our ability to comply with the terms of the amendments to our
    bank credit facility or to obtain any necessary further
    extension of the period for providing the lenders with required
    financial information and for complying with certain financial
    covenants;
    our ability to continue to recognize income from refinancings
    and sales of communities by ventures;
    risk of changes in our critical accounting estimates;
    risk of further write-downs or impairments of our assets;
    risk of future fundings of guarantees and other support
    arrangements to some of our ventures, lenders to the ventures or
    third party owners;
    risk of declining occupancies in existing communities or
    slower than expected leasing of new communities;
    risk resulting from any international expansion;
    risk associated with any new service offerings;
    development and construction risks;
    risks associated with past or any future acquisitions;
    compliance with government regulations;
    risk of new legislation or regulatory developments;
    business conditions;
    competition;
    changes in interest rates;
    unanticipated expenses;
    market factors that could affect the value of our
    properties;
    the risks of downturns in general economic conditions;
    availability of financing for development; and
    other risk factors contained in this
    Form 10-K.  Information provided in this
    Form 10-K
    for 2008 is preliminary and remains subject to review by
    Ernst & Young LLP. As such, this information is not
    final or complete, and remains subject to change, possibly
    materially.
  We assume no obligation to update or supplement
    forward-looking statements that become untrue because of
    subsequent events. Unless the context suggests otherwise,
    references herein to Sunrise, the
    Company, we, us and
    our mean Sunrise Senior Living, Inc. and our
    consolidated subsidiaries.
  Explanatory
    Note
  Accounting
    Restatement
  Form 10-K Form 10-K
 3




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Form 10-K. Form 10-Q Form 10-K Form 10-Q
  Internal
    Control Over Financial Reporting and Disclosure Controls and
    Procedures
  Form 10-K, Internal
    Control-Integrated Framework Issued by the Committee of
    Sponsoring Organizations of the Treadway Commission Form 10-K Form 10-K,
  Restatement
    Related to Accounting for Lease Payments and Non-Refundable
    Entrance Fees for Two Continuing Care Retirement
    Communities
  Form 10-K, Accounting Changes
    and Error Corrections.
  SEC
    Investigation
  Form 10-K,
  Pending
    Putative Securities Class Actions and Derivative
    Litigation
  Form 10-K,
 4




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PART I  Item 1.
    Business  Overview
        
    management fees for operating communities, which can also
    include incentive management fees;
    resident fees for communities that are owned by us;
    development and pre-opening fees related to the development of
    new Sunrise communities;
    our share of income and losses for those communities in which we
    have an ownership interest;
    recapitalizations and sales of communities by ventures in which
    we own an equity interest; and
    fees for hospice services.    Form 10-K
  Significant
    2007 Developments
  Ventures
   5




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Change
    in Ownership of Sunrise Communities
    Real
    Estate Gains
    Bank
    Credit Facility
    Trinity
    Hospice
  qui tam
 6




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qui tam qui tam
        Germany
    Venture
  lease-up
  Senior
    Living Condominium Developments
     7




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##### 



Aston
    Gardens
    Legal
    and Accounting Fees Related to Accounting Review, Special
    Independent Committee Inquiry and Related Matters
  qui tam
  Strategic
    Alternatives
    Significant
    2008 Developments
  Bank
    Credit Facility
    
    modified to August 20, 2008 the delivery date for the
    unaudited financial statements for the quarter ended
    March 31, 2008;
    modified to September 10, 2008 the delivery date for the
    unaudited financial statements for the quarter ending
    June 30, 2008;
    temporarily (in February 2008) and then permanently (in
    July 2008) reduced the maximum principal amount available
    under the Bank Credit Facility to $160.0 million; and
    waived compliance with financial covenants in the Bank Credit
    Facility for the year ended December 31, 2007 and for the
    fiscal quarters ended March 31, 2008 and June 30,
    2008, and waived compliance with the leverage ratio and fixed
    charge coverage ratio covenants for the fiscal quarter ending
    September 30, 2008.  Form 10-K
 8




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
    we must maintain liquidity of not less than $50.0 million,
    composed of availability under the Bank Credit Facility plus up
    to not more than $50.0 million in unrestricted cash and
    cash equivalents (tested as of the end of each calendar month),
    and any unrestricted cash and cash equivalents in excess of
    $50.0 million must be used to pay down the outstanding
    borrowings under the Bank Credit Facility;
    we are generally prohibited from declaring or making directly or
    indirectly any payment in the form of a stock repurchase or
    payment of a cash dividend or from incurring any obligation to
    do so; and
    the borrowing rate in US dollars, which was increased effective
    as of February 1, 2008, will remain LIBOR plus 2.75% or the
    Base Rate (the higher of the Federal Funds Rate plus 0.50% and
    Prime) plus 1.25% (through the end of the then-current interest
    period).      Mortgage
    Financing
  30-year
    Form 10-K
 9




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The
    Senior Living Industry
    
    Independent livingis designed to meet the needs of
    seniors who choose to live in an environment surrounded by their
    peers where they receive services such as housekeeping, meals
    and activities, but are not reliant on assistance with
    activities of daily living (for example, bathing, eating and
    dressing), although some residents may contract out for those
    services.
    Assisted livingmeets the needs of seniors who seek
    housing with supportive care and services including assistance
    with activities of daily living, Alzheimers care and other
    services (for example, housekeeping, meals and activities).
    Skilled nursingmeets the needs of seniors whose care
    needs require
    24-hour
    skilled nursing services or who are receiving rehabilitative
    services following an adverse event (for example, a broken hip
    or stroke).  home-health end-of-life
    Senior
    Living Services
  24-hour
  Assisted
    Living
     10




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Basic
    Assisted Living
    
    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;
    transportation to stores and community services;
    assistance with coordination of physician care, physical therapy
    and other medical services;
    health promotion and related programs;
    housekeeping services; and
    social and recreational activities.  Medication
    Management
    Assisted
    Living Extended Levels of Care
    Reminiscence
    Care
    Independent
    Living and Skilled Nursing
    Hospice
    Services
   11




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
    supervision of the patients medical needs;
    nurses that make regular visits and address the medical concerns
    of the patient. They explain the progression of the disease,
    teach family members how to perform physical care and coordinate
    medications. A certified nurses aide may also assist with
    personal care needs such as bathing, changing bed linens and
    perhaps light housekeeping;
    social workers help patients and family members cope with
    life-limiting illnesses and ascertain their impact on the
    family. They foster open communication and find ways to fulfill
    individual and family needs while providing guidance about loss
    and grief;
    pastoral care and religious services in the home;
    volunteers who provide patient companionship, relief for the
    caregiver and patient assistance with tasks important to
    them; and
    bereavement services.    Other
    Services
      Managed
    Communities
        New
    Community Development
   12




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
    market area demographics;
    market area demand and competitive supply;
    target site characteristics;
    probability of obtaining zoning approvals; and
    the ability to cluster our communities to optimize management
    resources.        
    site selection and contract signing;
    zoning, site plan approval and building permits;
    construction; and
    community opening.      long-term
    
    as a source of financing for the development of new communities;
    obtaining development and management fees; and
    potential appreciation in the underlying real estate of our
    communities. 13




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Form 10-K.
  Greystone
    Development Activities
  not-for-profit
        and/or
 14




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2007
    Property Information
      2007
    Change in Operating Communities
  Number of CommunitiesUnconsolidatedConsolidated (1)


Ventures (2)


Managed (3)


TotalBeginning number December 31, 2006


62



180



180



422Opened (developed by us)






19



3



22Acquisitions


2







1



3Terminations






(1
)


(5
)


(6
)Expansion/Other Adjustments(4)


(1
)






(1
)


(2
)Ending number December 31, 2007


63



198



178



439   Total Resident CapacityUnconsolidatedConsolidated (1)


Ventures (2)


Managed (3)


TotalBeginning number December 31, 2006


8,646



20,433



23,091



52,170Opened (developed by us)






1,867



691



2,558Acquisitions










106



106Terminations






(100
)


(838
)


(938
)Expansion/Other Adjustments(4)


37



45



(61
)


21Ending number December 31, 2007


8,683



22,245



22,989



53,917   (1)
    Activity in 2007 includes the acquisition of one community from
    venture partners and one formerly managed community and the
    contribution of one community to a venture.(2)
    Activity in 2007 includes 19 communities developed by Sunrise in
    which we maintained an ownership interest and one contract
    termination.(3)
    Activity in 2007 includes the opening of three communities
    managed by Greystone and the acquisition of one management
    contract. Five other contracts were also terminated and we
    acquired one managed community.(4)
    Changes in resident capacity include unit expansions for
    existing communities. 15




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2007
    Operating Communities
  Number of Communities


Total Resident CapacityUnconsolidated








UnconsolidatedLocation

Consolidated


Ventures


Managed


Consolidated


Ventures


ManagedAlabama










1











194Arizona


2



3



1



257



575



386Arkansas










1











163California


8



31



19



919



2,994



2,826Colorado


1



7



3



74



623



476Connecticut


2



1



3



168



102



518District of Columbia


1



1



1



110



233



137Delaware






1











82



Florida


5



8



5



1,687



2,745



1,570Georgia


3



5



11



98



630



970Hawaii










1











392Illinois


1



14



11



303



1,473



1,130Indiana


4







2



279







403Kansas






3



2







268



406Kentucky










3











327Louisiana


1



1



2



91



70



98Maryland


2



2



11



513



233



1,276Maine






1











185



Massachusetts






9



8







699



802Michigan


1



12



3



77



1,376



300Minnesota






4



6







358



562Missouri


1



2



2



77



296



179Nebraska










1











166Nevada










2











306New Jersey


2



14



14



495



1,218



1,526New Mexico


1











97







New York






15



2







1,499



243North Carolina


2



1



7



166



207



750Ohio


13



4



4



840



236



410Oklahoma






1



3







291



419Pennsylvania


4



17



2



765



1,513



283South Carolina


1







5



39







511Tennessee










1











115Texas


1



4



11



145



434



2,049Utah










2











263Virginia


7



7



12



1,483



765



1,168Washington






2



5







226



407West Virginia










1











167Wisconsin










1











192United Kingdom






17











1,642



Germany






8











841



Canada






3



9







431



899Total


63



198



178



8,683



22,245



22,989  16




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##### 



2007
    Communities Under Construction
  Number of Communities


Total Resident CapacityUnconsolidated








UnconsolidatedLocation

Consolidated


Ventures


Managed


Consolidated


Ventures


ManagedAlabama






















18Arizona






2











268



California


2



2







194



128



Colorado






1











80



Florida






1



1







80



60Georgia






2











168



Illinois


1







1



142







344Indiana






1











140



48Kentucky






1











80



Louisiana






2











151



Maryland






1











407



Michigan






1











80



Nevada






1











96



New Jersey






1











93



New York










1











332North Carolina






1











74



Pennsylvania


1



1







76



79



South Carolina










1











222Texas






1



2







80



439Utah






1











159



Virginia






1











89



Washington










1











309United Kingdom






8











800



Germany






1











110



Canada


3











278







Total


7



30



7



690



3,162



1,772   Company
    Operations
  Operating
    Structure
  Form 10-K
    Senior
    Living Operations
    Midwest/Northwest/Canada
 17




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##### 



Community
    Staffing
  day-to-day
      Staff
    Education and Training
      one-to-one
 18




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##### 



Quality
    Improvement Processes
    Family and Resident Feedback.
  Regular Quality Assurance Inspections.
  Third-Party Reviews. on-site
  Sales and
    Marketing
      e-newsletter,
 19




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Development
    Greystone
    Operations
  not-for-profit
  not-for-profit
      not-for-profit
  Trinity
    Operations
  end-of-life
    Competition
   20




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Government
    Regulation
  Senior Living.
  
    personnel education, training, and records;
    administration and supervision of medication;
    the provision of limited 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.    and/or
  and/or
   21




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Hospice.
  
    personnel education, training, and records;
    administration and supervision of medication;
    the provision of nursing services;
    admission and discharge criteria;
    documentation and reporting requirements;
    staffing requirements; and
    resident rights and responsibilities.       22




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qui tam
  Other
    Employees
  Form 10-K,
  Website
  http://www.sunriseseniorliving.com. Form 10-K, Form 10-Q, Form 8-K,
 23




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##### 



Item 1A.
    Risk
    Factors  In 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 maximize to the fullest extent possible the
    protections of the safe harbor established in the Private
    Securities Litigation Reform Act of 1995. Accordingly, any such
    statements are qualified in their entirety by reference to, and
    are accompanied by, the following important factors that could
    cause actual events or results to differ materially from our
    forward-looking statements. If any of the following risks
    actually occur, our business, financial condition or results of
    operations could 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 known to 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 all potential
    risks or uncertainties.
  We have separated the risks into the following categories:
  
    Risks related to our failure to timely file periodic reports
    with the SEC and the state of our internal controls over
    financial reporting;
    Risks related to the pending SEC investigation and pending
    litigation arising out of the previous announcement of our
    recently completed restatement of our historical financial
    statements for 2005 and prior periods, other pending government
    proceedings and other pending litigation;
    Risks related to our business operations;
    Risks related to the senior living industry; and
    Risks related to our organization and structure.  Risks
    Related to our Failure to Timely File Periodic Reports with the
    SEC and the State of our Internal Controls over Financial
    Reporting
  Our failure to timely prepare and file our financial
    reports precludes us from accessing the public markets to raise
    debt or equity capital and could result in the acceleration of
    amounts outstanding under our existing Bank Credit Facility,
    construction loans and permanent financing and our need to
    replace existing letters of credit.
  Form 10-K Form 10-Q Form 10-Q
    
    modified to August 20, 2008 the delivery date for the
    unaudited financial statements for the quarter ended
    March 31, 2008
    modified to September 10, 2008 the delivery date for the
    unaudited financial statements for the quarter ending
    June 30, 2008; 24




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
    temporarily (in February 2008) and then permanently (in
    July 2008) reduced the maximum principal amount available
    under the Bank Credit Facility to $160.0 million; and
    waived compliance with financial covenants in the Bank Credit
    Facility for the year ended December 31, 2007 and for the
    fiscal quarters ended March 31, 2008 and June 30,
    2008, and waived compliance with the leverage ratio and fixed
    charge coverage ratio covenants for the fiscal quarter ending
    September 30, 2008.  Form 10-K
  
    we must maintain liquidity of not less than $50.0 million,
    composed of availability under the Bank Credit Facility plus up
    to not more than $50.0 million in unrestricted cash and
    cash equivalents (tested as of the end of each calendar month),
    and any unrestricted cash and cash equivalents in excess of
    $50.0 million must be used to pay down the outstanding
    borrowings under the Bank Credit Facility;
    we are generally prohibited from declaring or making directly or
    indirectly any payment in the form of a stock repurchase or
    payment of a cash dividend or from incurring any obligation to
    do so; and
    the borrowing rate in US dollars, which was increased effective
    as of February 1, 2008, will remain LIBOR plus 2.75% or the
    Base Rate (the higher of the Federal Funds Rate plus 0.50% and
    Prime) plus 1.25% (through the end of the then-current interest
    period).         25




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##### 



We have identified material weaknesses in our internal
    control over financial reporting and expect to incur substantial
    additional costs in connection with our ongoing efforts to
    comply with Section 404 of the
    Sarbanes-Oxley
    Act of 2002.
  Form 10-K
  Form 10-K,
    Comments from future SEC staff review may require that we
    amend our periodic reports filed with the SEC, which could lead
    to significant changes in our past and current
    disclosure.
  Form 10-K Form 10-K. Rule 3-09 Regulation S-X, Form 10-K. Form 10-K Form 10-K
 26




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##### 



Risks
    Related to the Pending SEC Investigation and Pending Litigation
    Arising Out of the Prior Announcement of Our Recently Completed
    Restatement of Our Historical Financial Statements for 2005 and
    Prior Periods, Other Pending Government Proceedings and Other
    Pending Litigation
  The SECs formal investigation and pending putative
    securities class action and derivative litigation have resulted
    in significant costs and expenses, diverted resources and could
    have a material adverse effect on our business, financial
    condition and results of operations.
  Form 10-K, Form 10-K, Form 10-K
    We are involved in other litigation matters that will
    continue to divert our resources and attention, and 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.
  Form 10-K, qui tam
  The Trinity OIG investigation and IRS audit may result in
    substantial fines and penalties, which could harm our financial
    condition, results of operations and cash flow.
  Form 10-K,
 27




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##### 



Our potential indemnification obligations and limitations
    of our director and officer liability insurance may have a
    material adverse effect on our financial condition and results
    of operations.
  Form 10-K,
      Our exploration of strategic alternatives may not result
    in any sale transaction.
    Risks
    Relating to Our Business Operations
  Our failure to secure additional financing to fund our
    development activities could further slow our growth and could
    adversely affect our revenues and results of operations.
   28




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##### 



We may be unable to manage effectively our growth and
    expansion, which may harm our financial condition and operating
    results.
   29




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##### 



Due 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 to
    decline.
  and/or
  and/or
  
    Our results of operations could be adversely affected
    if we are required to perform under various financial guarantees
    or support arrangements that we have entered into as part of our
    operating strategy;
    Our failure to comply with financial obligations
    contained in debt instruments could result in the acceleration
    of the debt extended pursuant to such debt instruments, trigger
    other rights and restrict our operating and acquisition
    activity, and in the case of ventures, may cause acceleration of
    the ventures debt repayment obligations and any of our
    correlated guarantee obligations; and
    Early termination or non-renewal of our management
    agreements could cause a loss in revenues.    Any delays we experience or failure to achieve the
    projections we established for the developments of new
    communities could impede our growth and adversely affect our
    revenues and results of operations.
      
    difficulties or delays in obtaining zoning, land use, building,
    occupancy, licensing and other required governmental permits for
    the construction of new communities;
    failure to complete construction of new communities on budget
    and on schedule; 30




---



##### 




    failure of third-party contractors and subcontractors to perform
    under their contracts;
    shortages of labor or materials that could delay projects or
    make them more expensive;
    adverse weather conditions or acts of God that could delay
    construction projects;
    difficulties in developing new types of senior living products
    with which we have less experience;
    difficulties in finding suitable sites for future development
    activities at acceptable prices;
    lease up rates for projects;
    increased costs resulting from changes in general economic
    conditions or increases in the costs of materials;
    increased costs as a result of addressing changes in laws and
    regulations or how existing laws and regulations are
    applied; and
    overbuilding or over supply in any other markets in which we
    operate.      Our international operations are subject to a variety of
    risks that could adversely affect those operations and thus our
    profitability and operating results.
    Our expansion into new offerings may not be successful and
    could adversely impact our growth.
     31




---



##### 



Our failure to lease up our Germany facilities would
    negatively impact our results of operations and cash
    flows.
  lease-up
  Our failure to attract partners for developing senior
    living communities in the future could adversely affect our
    revenues and results of operations, and harm our ability to
    finance the construction of new communities.
    Early termination or non-renewal of our management
    agreements could cause a loss in revenues.
   32




---



##### 



Ownership of the communities we manage is heavily
    concentrated with three of our business partners.
      Our operations and the operations of entities that we have
    acquired or may acquire, directly or through an ownership
    interest in a venture, may not be integrated successfully or the
    intended benefits of such transactions may not be realized or
    may be subject to unforeseen liabilities, any of which could
    have a negative impact on our revenues, expenses and operating
    results.
    
    the business operations may continue to deteriorate due to
    various factors, including disruptions caused by the integration
    of operations with us and changes in macro-economic conditions;
    the diversion of management attention to the integration of the
    operations of the acquisitions could have a material adverse
    effect on the continued operation and expansion of our existing
    business;
    we may not effectively integrate the operations of these
    acquisitions;
    we may experience difficulties and incur greater than
    anticipated expenses related to the assimilation and retention
    of the employees from these acquisitions; and
    following any one of these acquisitions, we may not achieve any
    expected cost savings and operating efficiencies in connection
    with such acquisition, such as the elimination of redundant
    administrative costs and community management costs.  and/or
 33




---



##### 



Our current and future investments in ventures could be
    adversely affected by our lack of sole
    decision-making
    authority, our reliance on venture partners financial
    condition, any disputes that may arise between us and our
    venture partners and our exposure to potential losses from the
    actions of our venture partners.
    
    we share decision-making authority with our venture partners
    regarding major decisions affecting the ownership or operation
    of the venture and the community, such as the sale of the
    community or the making of additional capital contributions for
    the benefit of the community and the approval of the annual
    operating and capital budgets, which may prevent us from taking
    actions that are opposed by our venture partners;
    prior consent of our venture partners may be required for a sale
    or transfer to a third party of our interests in the venture,
    which restricts our ability to dispose of our interest in the
    venture;
    our venture partners might become bankrupt or fail to fund their
    share of required capital contributions, which may delay
    construction or development 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, which could 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 or arbitration that would increase our expenses and
    distract our officers
    and/or
    directors from focusing their time and effort on our business,
    and possibly disrupt the day-to-day operations of the community
    such as delaying the implementation of important decisions until
    the conflict or dispute is resolved; and
    we may suffer losses as a result of the actions of our venture
    partners with respect to our venture investments.  The refinancing or sale of communities held in ventures
    may not result in future distributions to us.
    Liability claims against us in excess of insurance limits
    could adversely affect our financial condition and results of
    operations.
   34




---



##### 



Our results of operations could be adversely affected if
    we are required to perform under various financial guarantees or
    support arrangements that we have entered into as part of our
    operating strategy.
    Our failure to generate sufficient cash flow to cover
    required interest, principal and operating lease payments could
    result in defaults of the related debt or operating
    leases.
   35




---



##### 



Our results of operations could
    be adversely affected if we are required to perform under
    various financial guarantees or support arrangements that we
    have entered into as part of our operating strategy
  Our failure to comply with financial obligations contained
    in debt instruments could result in the acceleration of the debt
    extended pursuant to such debt instruments, trigger other rights
    and restrict our operating and acquisition activity, and in the
    case of ventures, may cause acceleration of the ventures
    debt repayment obligations and any of our correlated guarantee
    obligations.
    
    require us to satisfy financial statement delivery requirements;
    require us to meet certain financial tests. For example, our
    Bank Credit Facility requires us not to exceed certain leverage
    ratios, to maintain certain fixed-charges coverage ratios, have
    a consolidated net worth of at least $450.0 million as
    adjusted each quarter and to meet other financial ratios,
    maintain liquidity of not less than $50.0 million (composed
    of availability of under the Bank Credit Facility plus up to not
    more than $50.0 million in unrestricted cash and cash
    equivalents), and use any unrestricted cash and cash equivalents
    in excess of $50.0 million to pay down the outstanding
    borrowings under the Bank Credit Facility;
    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 other business combinations in
    which we are not the surviving entity without lender consent.     36




---



##### 



Interest rate increases could adversely affect our
    earnings because a portion of our total debt is floating rate
    debt.
    We may be adversely affected by fluctuations in currency
    exchange rates.
  non-U.S. dollar
  Our accounting policies and methods are fundamental to how
    we report our financial condition and results of operations and
    they may require management to make estimates about matters that
    are inherently uncertain.
   37




---



##### 



Form 10-K.
  Termination of resident agreements and vacancies in
    communities could adversely affect our revenues and
    earnings.
    The discovery of environmental problems at any of the
    communities we own or operate could result in substantial costs
    to us, which would have an adverse effect on our earnings and
    financial condition.
    clean-up
    Our hospice revenues are highly dependent on payments from
    Medicare and Medicaid. If there are changes in the rates or
    methods governing these payments for our services, our net
    patient service revenue and profits could materially
    decline.
   38




---



##### 



Our hospice business is subject to a Medicare cap amount
    which is calculated by Medicare. Our hospice revenue and
    profitability could be adversely affected by limitations on
    Medicare payments.
  program-by-program
  If any of our hospice programs fail to comply with the
    Medicare conditions of participation, that program could be
    terminated from the Medicare program, thereby adversely
    affecting our net patient service revenue and
    profitability.
    Risks
    Related to the Senior Living Industry
  Competition in our industry is high and may increase,
    which could impede our growth and have a material adverse effect
    on our revenues and earnings.
   39




---



##### 



Our success depends on attracting and retaining skilled
    personnel, and increased competition for or a shortage of
    skilled personnel could increase our staffing and labor costs,
    which we may not be able to offset by increasing the rates we
    charge to our residents.
    The need to comply with government regulation of senior
    living communities may increase our costs of doing business and
    increase our operating costs.
    
    personnel education, training, and records;
    administration and supervision of medication;
    the provision of limited 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.    and/or
 40




---



##### 



and/or
      Anti-Kickback
   41




---



##### 



Risks
    Relating to our Organization and Structure
  Anti-takeover provisions in our governing documents and
    under Delaware law could make it more difficult to effect a
    change in control.
    
    Board authority to issue preferred stock without stockholder
    approval. Our Board of Directors is authorized to issue
    preferred stock having a preference as to dividends or
    liquidation over the common stock without stockholder approval.
    The issuance of preferred stock could adversely affect 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;
    Staggered Board and Board size fixed within
    range. Our Board of Directors is currently divided into
    three classes. The total number of directors is fixed by a
    two-thirds vote of the Board within a range of minimum of two
    and a maximum of 11. These provisions may make it more difficult
    for a third party to gain control of our Board of Directors. At
    least two annual meetings of stockholders, instead of one, would
    generally be required to affect a change in a majority of our
    Board of Directors. As indicated in the Board of Directors
    remedial framework, the Board of Directors has decided to
    discontinue staggered terms for Board members pursuant to an
    amendment to our certificate of incorporation to be submitted
    for stockholder approval at the 2008 annual meeting. If the
    amendment is approved by our stockholders, all Board members
    will be elected annually by 2010;
    Filling of Board vacancies; removal. Any vacancy
    occurring in the Board of Directors, including any vacancy
    created by an increase in the number 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 shall hold
    office for the remainder of the full term of the class in which
    the new directorship was created or the vacancy occurred. Due to
    our current classified Board structure, directors may only be
    removed with cause by the affirmative vote 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. If
    stockholders approve the declassification of our Board at the
    2008 annual meeting, directors may be removed with or without
    cause by such vote of stockholders;
    Other constituency provision. Our Board of Directors
    is required under our certificate of incorporation to consider
    other constituencies, such as employees, residents, their
    families and the communities in which we and our subsidiaries
    operate, in evaluating any proposal to acquire the Company. This
    provision may allow our Board of Directors to reject an
    acquisition proposal even though the proposal was in the best
    interests of our 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 of the directors or by stockholders
    possessing at least 25% of the voting power of the issued and
    outstanding voting stock entitled to vote generally in the
    election of directors. This provision limits the ability of
    stockholders to call special meetings;
    Stockholder action instead of meeting by unanimous written
    consent. Any action required or permitted to be taken
    by the stockholders must be affected at a duly called annual or
    special meeting of such holders and may not be affected by any
    consent in writing by such holders, unless such consent 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 stock is required for stockholders
    to amend the bylaws. Amendments to the bylaws by directors
    require approval by at least a two-thirds vote of the directors.
    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 shares of common stock is
    required for approval of amendments to the foregoing provisions
    that are contained in our certificate of incorporation. All
    amendments to the certificate 42




---



##### 



of incorporation must first be proposed by a two-thirds vote of
    directors. These supermajority vote requirements may make more
    difficult amendments to these provisions of the certificate of
    incorporation that stockholders may believe are
    desirable; and  
    Advance notice bylaw. We have an advance notice
    bylaw provision requiring stockholders intending to present
    nominations for directors or other business for consideration at
    a meeting of stockholders to notify us no later than
    60 days before the meeting or 15 days after the notice
    of the meeting date is mailed or public notice of the meeting is
    given, if less than 75 days notice of the meeting
    date is given or made to stockholders. This provision limits the
    ability of stockholders to make nominations for directors or
    introduce other proposals that are not timely received for
    consideration at a meeting.    Our Board of Directors has adopted a stockholder rights
    plan that could discourage a third party from making a proposal
    to acquire us.
    Our management has influence over matters requiring the
    approval of stockholders.
    Item 1B.
    Unresolved
    Staff Comments  Form 10-K Form 10-K Rule 3-09 Regulation S-X. Form 10-K Form 10-K
  Item 2.
    Properties   43




---



##### 



SFAS 66
    Accounting for the Sales of Real Estate
  Item 3.
    Legal
    Proceedings  Trinity
    OIG Investigation and Qui TamAction
    qui tam qui tam Qui tam qui tam Qui tam United States ex rel. Joyce Roberts, et al., v. KRG
    Capital, LLC, et al.
   44




---



##### 



IRS
    Audit
    SEC
    Investigation
    Putative
    Class Action Litigation
  United
    Food & Commercial Workers Union Local 880-Retail Food
    Employers Joint Pension Fund, et al. v. Sunrise Senior
    Living, Inc., et al. First New York Securities, L.L.C. v. Sunrise Senior
    Living, Inc., et al. In re
    Sunrise Senior Living, Inc. Securities Litigation No. 07-CV-00102-RBW) Rule 10b-5
  Putative
    Shareholder Derivative Litigation
  Brockton Contributory Retirement System v. Paul J.
    Klaassen, et al. Catherine Molner v. Paul J. Klaassen, et al. 1/31/2007); Robert Anderson v. Paul J. Klaassen, et al. 2/5/2007).
 45




---



##### 



Peter V. Young, et al. v. Paul J. Klaassen, et
    al. No. 2770-N
  Nicholas Von
    Guggenberg v. Paul J. Klaassen, et al. 8/11/2006); Catherine Molner v. Paul J. Klaassen, et al. 9/6/2006). Von Guggenberg Molner Von Guggenberg Molner
  Other
    Pending Lawsuits and Claims
    Settled
    or Resolved Litigation
   46




---



##### 



Item 4.
    Submission
    of Matters to a Vote of Security Holders  Form 8-K
 47




---



##### 



PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities      Quarterly
    Market Price Range of Common Stock
  Quarter Ended

High


LowJune 30, 2008

$
27.21


$
20.19March 31, 2008

$
30.65


$
24.64   Quarter Ended

High


LowMarch 31, 2007

$
41.50


$
30.10June 30, 2007

$
42.97


$
36.43September 30, 2007

$
41.05


$
33.00December 31, 2007

$
39.70


$
26.78   Quarter Ended

High


LowMarch 31, 2006

$
39.68


$
31.64June 30, 2006

$
39.62


$
26.29September 30, 2006

$
32.12


$
24.40December 31, 2006

$
33.68


$
29.05   Holders
    Dividends
    Issuer
    Purchases of Equity Securities
    Shares Purchased


Maximum NumberTotal Number


Average


as Part of Publicly


of Shares that Mayof Shares


Price Paid


Announced Plans


Yet be PurchasedPurchased(1)


per Share


or Programs


Under the PlansOctober 1  October 31, 2007





$








November 1  November 30, 2007














December 1  December 31, 2007


61,716



28.12







Total


61,716


$
28.12







     (1)
    
    Represents the number of shares acquired by us from two former
    employees as payment of applicable statutory minimum withholding
    taxes owed upon vesting of restricted stock granted under our
    2002 Stock Option and Restricted Stock Plan, as amended. 48




---



##### 



Stock
    Performance Graph
  COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN* Among
    Sunrise Senior Living, Inc., The S&P Smallcap 600 Index,
    A New Peer Group And An Old Peer Group
  
  * $100
    invested on 12/31/02 in stock or index-including reinvestment of
    dividends.
       12/02


12/03


12/04


12/05


12/06


12/07Sunrise Senior Living, Inc.



100.00




155.64




186.26




270.87




246.85




246.52S&P Smallcap 600



100.00




138.79




170.22




183.30




211.01




210.38New Peer Group



100.00




202.71




269.44




422.03




640.30




431.09Old Peer Group



100.00




230.59




221.96




405.49




417.25




389.41  49




---



##### 



Item 6.
    Selected
    Financial Data    December 31,2006


2005





2003(Dollars in thousands, except per share amounts)

2007


(1)(2)(3)


(4)(5)


2004


(6)(Restated)


(Restated)


(Restated)


(Restated)(Unaudited)


(Unaudited)STATEMENTS OF INCOME DATA:Operating revenues(2)

$
1,652,550


$
1,651,081


$
1,511,022


$
1,268,361


$
998,148Operating expenses(2)


1,947,762



1,724,162



1,476,351



1,285,525



1,008,400(Loss) income from operations


(295,212
)


(73,081
)


34,671



(17,164
)


(10,252
)Gain on the sale and development of real estate and equity
    interests


105,081



51,347



81,723



14,025



51,276Sunrises share of earnings, return on investment in
    unconsolidated communities and gain (loss) from investments
    accounted for under profit-sharing method


108,969



42,845



12,615



(70
)


962Net (loss) income


(70,275
)


15,284



83,064



(3,467
)


11,793Net (loss) income per common share(3)(5):Basic

$
(1.41
)

$
0.31


$
2.00


$
(0.08
)

$
0.28Diluted


(1.41
)


0.30



1.74



(0.08
)


0.23BALANCE SHEET DATA:Total current assets

$
529,964


$
361,998


$
326,888


$
282,524


$
204,726Total current liabilities


646,311



451,982



280,684



203,998



137,526Property and equipment, net


656,211



609,385



494,069



359,070



509,833Property and equipment subject to a sales contract, net






193,158



255,231



473,485



459,187Property and equipment subject to financing, net


58,871



62,520



64,174



28,988



Goodwill


169,736



218,015



153,328



121,825



104,475Total assets


1,798,597



1,848,301



1,587,785



1,506,453



1,501,608Total debt


253,888



190,605



248,396



191,666



270,332Deposits related to properties subject to a sale contract






240,367



324,782



599,071



540,382Liabilities related to properties accounted for under the
    financing method


54,317



66,283



64,208



24,247



Deferred income tax liabilities


82,605



78,632



70,638



60,692



63,155Total liabilities


1,214,826



1,201,078



1,094,209



1,139,750



1,086,236Stockholders equity


573,563



630,708



480,864



365,122



386,278OPERATING AND OTHER DATA:Cash dividends per common share

$



$



$



$



$
Communities (at end of period):Consolidated communities


63



62



59



57



63Communities in unconsolidated ventures


198



180



153



122



118Communities managed for third party owners


178



180



186



183



175Total


439



422



398



362



356Resident capacity:Consolidated communities


8,683



8,646



7,980



7,943



8,539Communities in unconsolidated ventures


22,245



20,433



16,485



10,929



10,561Communities managed for third party owners


22,989



23,091



26,208



24,237



23,651Total


53,917



52,170



50,673



43,109



42,751  50




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##### 



(1)
    
    In September 2006, we acquired 100% of the equity interests in
    Trinity, a large provider of hospice services in the United
    States. The operating results of Trinity are included in our
    consolidated statements of income beginning September 13,
    2006.(2)
    
    In 2006, Five Star bought out 18 management contracts and we
    received $134.7 million related to their buyout. We also
    wrote off $25.4 in unamortized management contract intangible
    assets. In 2005, Five Star bought out 12 management contracts
    and we received $83.0 million related to their buyout. We
    also wrote off $14.6 million in unamortized management
    contract intangible assets.(3)
    
    In February 2006, we completed the redemption of our remaining
    5.25% convertible subordinated notes due February 1, 2009
    through the issuance of common stock. Prior to the redemption
    date, substantially all of the approximately $120.0 million
    principal amount of the notes outstanding at the time the
    redemption was announced had been converted into approximately
    6.7 million shares of common stock. The conversion price
    was $17.92 per share in accordance with the terms of
    the indenture governing the notes.(4)
    
    In May 2005, we acquired 100% of the equity interests in
    Greystone, a developer and manager of CCRCs. The operating
    results of Greystone are included in our restated consolidated
    statement of income beginning May 10, 2005.(5)
    
    In October 2005, we completed a two-for-one stock split in the
    form of a 100% stock dividend. As a result of the stock split,
    each stockholder received one additional share of common stock
    for each share on that date. All per share amounts have been
    adjusted to reflect the stock split for all periods presented.(6)
    
    In March 2003, we completed the acquisition of all of the
    outstanding stock of Marriott International, Inc.s wholly
    owned subsidiary, MSLS, which owns and operates senior
    independent full-service and assisted living communities. The
    operating results of MSLS are included in our restated
    consolidated statement of income beginning March 28, 2003.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
      
    management fees for operating communities, which can also
    include incentive management fees;
    resident fees for communities that we own;
    development and pre-opening fees related to the development of
    new Sunrise communities;
    our share of income and losses for those communities in which we
    have an ownership interest;
    recapitalizations and sales of communities by ventures in which
    we have an equity interest; and
    fees for hospice services.   51




---



##### 



Management
    of Communities
    Development
    of Communities
      and/or
    Senior
    Living Condominium Developments
   52




---



##### 



Special
    Independent Committee Inquiry and Accounting Review
  Form 10-K.
      
    no evidence of backdating or other intentional misconduct with
    respect to the grants on the 38 grant dates examined, including
    those specifically questioned by the SEIU, or the possible
    errors identified by the Special Independent Committee in the
    accounting for stock options;
    no evidence of an intention to reach an inappropriate accounting
    result with respect to the two categories of real estate
    accounting errors reviewed, no knowledge that these accounting
    errors were incorrect at the time they were made, and no
    evidence that information was concealed from review by the
    external auditors at the time the accounting judgments were
    made; and
    no evidence that any director or officer who traded in the
    months prior to the announcement of the Accounting Review had
    material non-public information relating to either of these two
    categories of real estate accounting errors.    and/or
 53




---



##### 



and/or Form 10-K,
  Form 10-K. Form 10-K.
  Form 10-K.
  Significant
    Developments
   54




---



##### 



Restatement Related to Accounting for Lease Payments and
    Non-Refundable Entrance Fees for Two Continuing Care Retirement
    Communities
  Form 10-K, Accounting Changes
    and Error Corrections.
  Results
    of Operations
    
    management fees related to services provided to operating and
    pre-opened communities for unconsolidated ventures and
    third-party owners;
    professional fees from development, marketing and other services;
    resident fees for consolidated communities;
    hospice and other ancillary fees; and
    reimbursed contract service revenue related to unconsolidated
    ventures and third party owners.    
    development and venture expense for site selection, zoning,
    community design, construction management and financing incurred
    for development communities;
    community expense for our consolidated communities, which
    includes labor, food, marketing and other direct community
    expense;
    hospice and other ancillary expense;
    lease expense for certain consolidated communities;
    general and administrative expense related to headquarters and
    regional staff expenses and other administrative costs;
    loss on financial guarantees and other contracts;
    provision for doubtful accounts;
    impairment of communities;
    impairment of goodwill and intangible assets;
    depreciation and amortization;
    write-off of abandoned projects;
    write-off of unamortized contract costs; and
    reimbursed contract service expense related to unconsolidated
    ventures and third-party owners.  Accounting for Sales of Real Estate
 55




---



##### 



Percent ChangeYear Ended December 31,


2007 vs.


2006 vs.(In thousands, except per share amounts)

2007


2006


2005


2006


2005(Restated)


(Restated)Operating revenue:Management fees

$
127,830


$
117,228


$
104,823



9.0
%


11.8
%Buyout fees


1,626



134,730



83,036



(98.8
)%


62.3
%Professional fees from development, marketing and other


38,855



28,553



24,920



36.1
%


14.6
%Resident fees for consolidated communities


402,396



381,709



341,610



5.4
%


11.7
%Hospice and other ancillary services


125,796



76,882



44,641



63.6
%


72.2
%Reimbursed contract services


956,047



911,979



911,992



4.8
%


Total operating revenue


1,652,550



1,651,081



1,511,022



0.1
%


9.3
%Operating expenses:Development and venture expense


79,203



69,145



41,064



14.5
%


68.4
%Community expense for consolidated communities


290,203



276,833



251,058



4.8
%


10.3
%Hospice and other ancillary services expense


134,634



74,767



45,051



80.1
%


66.0
%Community lease expense


68,994



61,991



57,946



11.3
%


7.0
%General and administrative


187,325



131,473



106,601



42.5
%


23.3
%Accounting Restatement and Special Independent Committee
    inquiry, SEC investigation and pending stockholder litigation


51,707



2,600







1888.7
%


N/ALoss on financial guarantees and other contracts


22,005



89,676







(75.5
)%


N/AProvision for doubtful accounts


9,564



14,632



1,675



(34.6
)%


773.6
%Impairment of owned communities


7,641



15,730



2,472



(51.4
)%


536.3
%Impairment of goodwill and intangible assets


56,729











N/A



N/AWrite-off of abandoned development projects


28,430



1,329



902



2039.2
%


47.3
%Depreciation and amortization


55,280



48,648



42,981



13.6
%


13.2
%Write-off of unamortized contract costs






25,359



14,609



(100.0
)%


73.6
%Reimbursed contract services


956,047



911,979



911,992



4.8
%


0.0
%Total operating expenses


1,947,762



1,724,162



1,476,351



13.0
%


16.8
%(Loss) income from operations


(295,212
)


(73,081
)


34,671



304.0
%


(310.8
)%Other non-operating income (expense):Interest income


9,894



9,577



6,231



3.3
%


53.7
%Interest expense


(6,647
)


(6,204
)


(11,882
)


7.1
%


(47.8
)%(Loss) gain on investments






(5,610
)


2,036



(100.0
)%


(375.5
)%Other (expense) income


(6,089
)


6,706



3,105



(190.8
)%


116.0
%Total other non-operating income (expense)


(2,842
)


4,469



(510
)


(163.6
)%


(976.3
)%Gain on the sale and development of real estate and equity
    interests


105,081



51,347



81,723



104.6
%


(37.2
)%Sunrises share of earnings and return on investment in
    unconsolidated communities


108,947



43,702



13,472



149.3
%


224.4
%Gain (loss) from investments accounted for under the profit
    sharing method


22



(857
)


(857
)


(102.6
)%


0.0
%Minority interests


4,470



6,916



6,721



(35.4
)%


2.9
%(Loss) income before provision for income taxes


(79,534
)


32,496



135,220



(344.8
)%


(76.0
)%Benefit from (provision for) income taxes


9,259



(17,212
)


(52,156
)


(153.8
)%


(67.0
)%Net (loss) income

$
(70,275
)

$
15,284


$
83,064



(559.8
)%


(81.6
)%Basic net (loss) income per share

$
(1.41
)

$
0.31


$
2.00



(554.8
)%


(84.5
)%Diluted net (loss) income per share


(1.41
)


0.30



1.74



(570.0
)%


(82.8
)%  56




---



##### 



Percent ChangeAs of December 31,


2007 vs.


2006 vs.2007


2006


2005


2006


2005Total communitiesConsolidated


63



62



59



1.6
%


5.1
%Unconsolidated


198



180



153



10.0
%


17.6
%Managed


178



180



186



(1.1
)%


(3.2
)%Total


439



422



398



4.0
%


6.0
%Resident capacity


53,917



52,170



50,673



3.3
%


3.0
%         (In millions)

2007


2006


2005Buyout of Five Star management contracts

$



$
135


$
83Write-off of intangible assets associated with buyout of
    Five-Star management contracts






(25
)


(15
)Loss on guarantees related to our Germany venture


(16
)


(50
)


Loss on guarantees related to The Fountains venture






(22
)


Impairment of Trinity goodwill and intangible assets


(57
)






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


(52
)


(3
)


Loss on guarantees related to the condominium project


(6
)


(17
)


Write-off of other condominium projects


(21
)






Write-down of Aston Gardens and other equity investments


(25
)






Net impact on (loss) income from operations


(177
)


18



68Real estate gains from prior years recognized in the current
    period


85



35



81Venture recapitalizations


57



48



17Net impact on (loss) income before benefit from (provision for)
    income taxes

$
(35
)

$
101


$
166  57




---



##### 



Operating
    Revenue
  Management
    fees
      
    $7.2 million from fees associated with existing North
    American communities primarily due to increases in rates;
    $3.1 million of incremental revenues from existing
    international communities;
    $3.8 million of incremental revenues from 31 new
    communities managed in 2007 for unconsolidated ventures and
    third parties;
    $5.1 million in incremental incentive management
    fees; and
    $6.6 million decrease due to contract terminations.      
    $6.9 million of incremental revenues in 2006 from 31
    management contracts obtained in 2005 from the Greystone and The
    Fountains acquisitions that were included for a full year in
    2006;
    $7.7 million from increased fees associated with existing
    communities due to increases in rates and occupancy;
    $4.8 million of incremental revenues from 36 new
    communities managed in 2006 for unconsolidated ventures and
    third parties that were included for a full year in 2006;
    $5.1 million of incremental revenues from international
    communities;
    $2.3 million decrease in guarantee amortization due to the
    expirations of guarantees in 2006; and
    $9.7 million decrease due to contract terminations in 2005.  Buyout
    fees
    Professional
    fees from development, marketing and other
    (In millions)

2007


2006


2005North America

$
8.2


$
4.5


$
2.9International


18.9



12.5



14.8Greystone


11.8



11.6



7.2$
38.9


$
28.6


$
24.9  58




---



##### 




    $5.2 million in fees paid to us by our ventures or venture
    partners as compensation for either brokering the sale of
    venture assets or the sale of the majority partners equity
    interest in a venture;
    $3.2 million in North American and international
    development fees from 23 communities under development in 2007
    compared to 17 communities under development in 2006; and
    $2.6 million of fees generated by a Greystone seed capital
    venture. These fees are earned when the initial development
    services are successful and permanent financing for the project
    is obtained.      Resident
    fees for consolidated communities
      
    $17.3 million from existing communities due to an increase
    in the average daily rate and fees for other services; and
    $3.4 million from the acquisition of one community.      
    $37.6 million from existing consolidated communities of
    which $34.2 million is due to increases in rate and
    $4.3 million is due to increases in occupancy;
    $4.1 million from the acquisition of three consolidated
    communities; and
    $1.3 million decrease from the disposition of two
    consolidated communities in 2006.  Hospice
    and other ancillary services
     59




---



##### 



Reimbursed
    contract services
    Operating
    Expenses
  Development
    and venture expense
          
    $13.0 million from activity of Greystone that was included
    for a full year in 2006;
    $10.0 million from North American development. There were
    29 North American communities under development in 2006 compared
    to 28 in 2005; and
    $3.0 million from European development. The increase was
    primarily due to continuing development in the United Kingdom
    and the weakening of the U.S. dollar against the British
    pound and Euro from 2005 to 2006.  Community
    expense for consolidated communities
      
    $11.4 million increase from existing communities resulting
    primarily from increased labor costs; and
    $2.0 million increase from the acquisition of one community.      
    $22.8 million from existing communities resulting primarily
    from increased labor costs;
    $4.0 million from the acquisition of three communities;
    $1.0 million decrease from the closing of two communities
    in 2005.  Hospice
    and other ancillary services
   60




---



##### 



Community
    lease expense
          General
    and administrative
      
    $29.2 million increase in bonus expense primarily relating
    to gains at one of our ventures. During 2007, our first UK
    venture in which we have a 20% equity interest sold seven
    communities to a venture in which we have a 10% interest.
    Primarily as a result of the gains on these asset sales recorded
    in the ventures, we recorded equity in earnings in 2007 of
    approximately $75.5 million. When our UK and Germany
    ventures were formed, we established a bonus pool in respect to
    each venture for the benefit of employees and others responsible
    for the success of these ventures. At that time, we agreed with
    our partner that after certain return thresholds were met, we
    would each reduce our percentage interests in venture
    distributions with such excess to be used to fund these bonus
    pools. During 2007, we recorded bonus expense of
    $27.8 million in respect of the bonus pool relating to the
    UK venture. These bonus amounts are funded from capital
    events and the cash is retained by us in restricted cash
    accounts. As of December 31, 2007, approximately
    $18.0 million of this amount was included in restricted
    cash. Under this bonus arrangement, no bonuses are payable until
    we receive distributions at least equal to certain capital
    contributions and loans made by us to the UK and Germany
    ventures. We currently expect this bonus distribution limitation
    will be satisfied in late 2008, at which time bonus payments
    would become payable. See Item 1,
    Business  Significant 2007
    Developments  Ventures.
    $8.9 million increase in legal expense related to the
    Trinity OIG investigation, our exploration of strategic
    alternatives and the settlement of litigation;
    $2.6 million increase related to costs associated with
    potential acquisitions that we decided not to pursue;
    $9.0 million increase related to the implementation of
    outsourcing of our payroll processing function to ADP; and
    $5.7 million increase in salaries, employee benefits and
    travel costs as the result of additional employees to support 17
    additional communities in 2007. 61




---



##### 




    $9.0 million in salaries, employee benefits, travel and
    related costs associated with additional employees to support
    the increased number of communities we manage;
    $5.0 million loss for possible damages related to the
    Trinity OIG investigation and qui tamaction;
    $5.1 million of expense to support new communities in
    Canada, the UK and Germany; and
    $1.8 million in transition costs for the terminated Five
    Star contracts.  Accounting
    Restatement, Special Independent Committee Inquiry, SEC
    investigation and pending stockholder litigation
    Loss on
    financial guarantees and other contracts
      Provision
    for doubtful accounts
          Impairment
    of owned communities
    Impairment
    of goodwill and intangible assets
   62




---



##### 



Write-off
    of abandoned projects
    Depreciation
    and amortization
    (In thousands)

2007


2006


2005North America

$
47,843


$
44,115


$
40,791Greystone


4,068



3,462



1,992International (including Canada)


886



240



198Hospice


2,483



831



$
55,280


$
48,648


$
42,981             Write-off
    of unamortized contract costs
    Other
    Non-operating Income (Expense)
    fully-reserved
 63




---



##### 



Gain
    on the Sale and Development of Real Estate and Equity
    Interests
    December 31,2007


2006


2005Properties accounted for under basis of performance of services

$
3.6


$
1.8


$
0.6Properties accounted for previously under financing method


32.8







Properties accounted for previously under deposit method


52.4



35.3



81.3Land sales


5.7



5.4



(0.2
)Sales of equity interests and other sales


10.6



8.8



Total gains on sale

$
105.1


$
51.3


$
81.7     Sunrises
    Share of Earnings and Return on Investment in Unconsolidated
    Communities
  December 31,2007


2006


2005(In millions)Sunrises share of earnings (losses) in unconsolidated
    communities

$
60.7


$
(12.0
)

$
(13.1
)Return on investment in unconsolidated communities


72.7



55.7



26.5Impairment of equity investments


(24.5
)






$
108.9


$
43.7


$
13.4     lease-up
   64




---



##### 



Benefit
    from (Provision for) Income Taxes
      Liquidity
    and Capital Resources
  Overview
     65




---



##### 



Long-Term
    Debt and Bank Credit Facility
     66




---



##### 




    modified to August 20, 2008 the delivery date for the
    unaudited financial statements for the quarter ended
    March 31, 2008;
    modified to September 10, 2008 the delivery date for the
    unaudited financial statements for the quarter ending
    June 30, 2008;
    temporarily (in February 2008) and then permanently (in
    July 2008) reduced the maximum principal amount available
    under the Bank Credit Facility to $160.0 million; and
    waived compliance with financial covenants in the Bank Credit
    Facility for the year ended December 31, 2007 and for the
    fiscal quarters ended March 31, 2008 and June 30,
    2008, and waived compliance with the leverage ratio and fixed
    charge coverage ratio covenants for the fiscal quarter ending
    September 30, 2008.  Form 10-K
  
    we must maintain liquidity of not less than $50.0 million,
    composed of availability under the Bank Credit Facility plus up
    to not more than $50.0 million in unrestricted cash and
    cash equivalents (tested as of the end of each calendar month),
    and any unrestricted cash and cash equivalents in excess of
    $50.0 million must be used to pay down the outstanding
    borrowings under the Bank Credit Facility;
    we are generally prohibited from declaring or making directly or
    indirectly any payment in the form of a stock repurchase or
    payment of a cash dividend or from incurring any obligation to
    do so; and
    the borrowing rate in US dollars, which was increased effective
    as of February 1, 2008, will remain LIBOR plus 2.75% or the
    Base Rate (the higher of the Federal Funds Rate plus 0.50% and
    Prime) plus 1.25% (through the end of the then-current interest
    period).     67




---



##### 



Mortgage
    Financing
  30-year
   68




---



##### 



Form 10-K
  Guarantees
  Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others,
  and/or
    FIN 45


FAS 5


TotalLiability


Liability


Liabilityfor Future


for Future


for FutureMaximum Potential


Fundings at


Fundings at


Fundings at


FundingsAmount of Future


December 31,


December 31,


December 31,


duringGuarantee type

Fundings


2007


2007


2007


2007Debt repayment

$
16,832


$
785


$



$
785


$
Operating deficit


Uncapped



1,371



42,023



43,394



Income support


Uncapped



960



16,525



17,485



5,829Other










4,150



4,150



Total





$
3,116


$
62,698


$
65,814


$
5,829    69




---



##### 



Senior
    Living Condominium Developments
    The
    Fountains
    Germany
    Venture
  lease-up
  Other
    Guarantees
   70




---



##### 



Contractual
    Obligations
      Payments due by periodMoreLess Than








ThanContractual Obligations

Total


1 Year


1-3 Years


4-5 Years


5 YearsLong-term debt

$
153,888


$
122,541


$
3,203


$
2,474


$
25,670Bank Credit Facility


100,000



100,000











Equity investments in unconsolidated entities


61,123



22,105



38,792



226



Operating leases


727,773



68,532



143,997



138,272



376,972Total

$
1,042,784


$
313,178


$
185,992


$
140,972


$
402,642       Cash
    Flows
   71




---



##### 



Accounting for Sales of Real Estate.
             72




---



##### 



Stock
    Repurchase Programs
  and/or and/or and/or
  Market
    Risk
    Maturity Date

Fixed Rate


Variable RateThrough December 31,

Debt


Debt2008

$
4,074


$
218,4672009


1,147



8802010


159



1,0152011


171



1,0402012


183



1,080Thereafter


3,347



22,325Total Carrying Value

$
9,081


$
244,807Average Interest Rate


7.3
%


6.7
%Estimated Fair Market Value

$
9,207


$
244,807     Interest Rate


2007Note V with international venture


4.37
%

$
592Promissory Note XIV


Euribor + 4.25
%


8,837$
9,429Estimated fair market value





$
9,336       Critical
    Accounting Estimates
   73




---



##### 



Impairment
    of Goodwill, Intangible Assets, Long-Lived Assets and
    Investments in Ventures
  Nature of Estimates Required 
    Goodwill.
  Nature of Estimates Required  Intangibles and
    Long-Lived Assets.
  Assumptions and Approach Used. and/or
    
    Business Projections We make assumptions
    regarding the levels of revenue from communities and services.
    We also make assumptions about our cost levels (e.g., capacity
    utilization, labor costs, etc.). Finally, we make assumptions
    about the amount of cash flows that we will receive upon a
    future sale of the communities using estimated cap rates. These
    assumptions are key inputs for developing our cash flow
    projections. 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; 74




---



##### 




    Economic Projections Assumptions regarding
    general economic conditions are included in and affect our
    assumptions regarding pricing estimates 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
    impairment, future cash flows are discounted at a rate that is
    consistent with a weighted average cost of capital for a
    potential market participant. The weighted average cost of
    capital is an estimate of the overall after-tax rate of return
    required by equity and debt holders of a business enterprise.        Nature of Estimates Required  Investments in
    Ventures.
    Assumptions and Approach Used.
  Loss
    Reserves for Self-Insured Programs
  Nature of Estimates Required.
     75




---



##### 



Assumptions and Approach Used for Self-Insured
    Risks.
  Sensitivity Analysis for Self-Insured
    Risks.
    Assumptions and Approach Used for Health and Dental
    Plans.
  Sensitivity Analysis for Self-Insured Health and Dental Plan
    Costs. self-insured
  Variable
    Interest Entities
  Nature of Estimates Required.
   76




---



##### 



Assumptions.
  Valuation
    of Deferred Tax Assets
  Nature of Estimates Required.
  Accounting for Income Taxes ,
  Assumptions and Approach Used.
    
    Nature, frequency, and severity of current and cumulative
    financial reporting losses A pattern of
    objectively measured recent financial reporting losses is a
    source of negative evidence. In certain circumstances,
    historical information may not be as relevant due to changed
    circumstances;
    Sources of future taxable income Future
    reversals of existing temporary differences are verifiable
    positive evidence. Projections of future taxable income
    exclusive of reversing temporary differences are a source of
    positive evidence only when the projections are combined with a
    history of recent profits and can be reasonably
    estimated; and
    Tax planning strategies If necessary and
    available, tax planning strategies would be implemented to
    accelerate taxable amounts to utilize expiring carryforwards.
    These strategies would be a source of additional positive
    evidence and, depending on their nature, could be heavily
    weighted.     77




---



##### 



Liability
    for Possible Tax Contingencies
    Evaluation and Nature of Estimates
    Required.
            Interest and Penalties.
  Assumptions.
 78




---



##### 



Accounting
    for Financial Guarantees
      Assumptions and Approach Used.
    
    Business Projections We make assumptions
    regarding the levels of revenue from communities and services.
    We also make assumptions about our cost levels (e.g., capacity
    utilization, labor costs, etc.). Finally, we make assumptions
    about the amount of cash flows that we will receive upon a
    future sale of the communities using estimated cap rates. These
    assumptions are key inputs for developing our cash flow
    projections. 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 pricing estimates 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 of capital for a
    potential market participant. The weighted average cost of
    capital is an estimate of the overall after-tax rate of return
    required by equity and debt holders of a business enterprise.   79




---



##### 



Assumptions and Approach Used in Calculating our Loss on
    Completion Guarantees
  Litigation
  and/or qui tam
  Impact of
    Changes in Accounting Standards
  Accounting for Uncertainty in Income Taxes Accounting for Income
    Taxes,
  Fair Value Measurements
  No. 06-8, Applicability of the Assessment of a Buyers
    Continuing Investment under FASB Statement No. 66,
    Accounting for Sales of Real Estate, for Sales of
    Condominiums (EITF 06-8). EITF 06-8 EITF 06-8 EITF 06-8.
  The
    Fair Value Option for Financial Assets and Liabilities
 80




---



##### 



Business Combinations
  Non-controlling Interests in
    Consolidated Financial Statements  an Amendment of
    ARB No. 51
  Impact of
    Inflation
      Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk   81




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data    PageSunrise Senior Living, Inc.Report of Independent Registered Public Accounting Firm


83Consolidated Balance Sheets


84Consolidated Statements of Income


85Consolidated Statements of Changes in Stockholders Equity


86Consolidated Statements of Cash Flows


87Notes to Consolidated Financial Statements


88PS UK Investment (Jersey) LPReport of Independent Auditors


142Consolidated Income Statement


143Consolidated Balance Sheet


144Consolidated Statement of Changes in Partners Capital


145Consolidated Statement of Cash Flows


146Notes to Consolidated Financial Statements


147AL US Development Venture, LLCIndependent Auditors Report


168Consolidated Balance Sheets


169Consolidated Statements of Operations


170Consolidated Statements of Changes in Members Capital
    (Deficit)


171Consolidated Statements of Cash Flows


172Notes to Consolidated Financial Statements


173Sunrise First Assisted Living Holdings, LLCIndependent Auditors Report


179Consolidated Balance Sheets


180Consolidated Statements of Operations


181Consolidated Statements of Changes in Members (Deficit)
    Capital


182Consolidated Statements of Cash Flows


183Notes to Consolidated Financial Statements


184Sunrise Second Assisted Living Holdings, LLCIndependent Auditors Report


189Consolidated Balance Sheets


190Consolidated Statements of Operations


191Consolidated Statements of Changes in Members (Deficit)
    Capital


192Consolidated Statements of Cash Flows


193Notes to Consolidated Financial Statements


194Metropolitan Senior Housing, LLCReport of Independent Auditors


199Consolidated Balance Sheets


200Consolidated Statements of Operations


201Consolidated Statements of Changes in Members (Deficit)
    Capital


202Consolidated Statements of Cash Flows


203Notes to Consolidated Financial Statements


204Sunrise Aston Gardens Venture, LLC*PS Germany Investment (Jersey) LP*Sunrise IV Senior Living Holdings, LLC*    *
    
    To be filed by amendment as soon as these financial statements
    become available. See Item 1B, Unresolved Staff
    Comments. 82




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   
          Accounting for
    Uncertainty in Income Taxes Applicability of the Assessment of a Buyers Continuing
    Investment under FASB Statement No. 66, Accounting for
    Sales of Real Estate for Sales of Condominiums,
  Share-Based Payment,
      
 83




---



##### 



SUNRISE
    SENIOR LIVING, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,(In thousands, except per share and share amounts)

2007


2006(Restated)ASSETSCurrent Assets:Cash and cash equivalents

$
138,212


$
81,990Accounts receivable, net


76,909



75,055Notes receivable






4,174Income taxes receivable


63,624



30,873Due from unconsolidated communities, net


61,854



80,729Deferred income taxes, net


33,567



29,998Restricted cash


61,999



34,293Prepaid insurance


23,720



5,485Prepaid expenses and other current assets


70,079



19,401Total current assets


529,964



361,998Property and equipment, net


656,211



609,385Property and equipment subject to a sales contract, net






193,158Property and equipment subject to financing, net


58,871



62,520Notes receivable


9,429



17,631Due from unconsolidated communities


19,555



24,959Intangible assets, net


83,769



103,771Goodwill


169,736



218,015Investments in unconsolidated communities


97,173



104,272Restricted cash


165,386



143,760Other assets, net


8,503



8,832Total assets

$
1,798,597


$
1,848,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt

$
122,541


$
91,923Outstanding draws on bank credit facility


100,000



50,000Accounts payable and accrued expenses


275,362



216,087Due to unconsolidated communities


37,344



5,792Deferred revenue


9,285



8,703Entrance fees


34,512



38,098Self-insurance liabilities


67,267



41,379Total current liabilities


646,311



451,982Long-term debt, less current maturities


31,347



48,682Deposits related to properties subject to a sales contract






240,367Liabilities related to properties accounted for under the
    financing method


54,317



66,283Investment accounted for under the profit-sharing method


51,377



29,148Guarantee liabilities


65,814



75,805Self-insurance liabilities


74,971



72,993Deferred gains on the sale of real estate and deferred revenues


74,367



51,958Deferred income tax liabilities


82,605



78,632Other long-term liabilities, net


133,717



85,228Total liabilities


1,214,826



1,201,078Minority interests


10,208



16,515Stockholders Equity:Preferred stock, $0.01 par value, 10,000,000 shares
    authorized, no shares issued and outstanding






Common stock, $0.01 par value, 120,000,000 shares
    authorized, 50,556,925 and 50,572,092 shares issued and
    outstanding, net of 103,696 and 27,197 treasury shares, at
    December 31, 2007 and 2006, respectively


506



506Additional paid-in capital


452,640



445,275Retained earnings


112,123



182,398Accumulated other comprehensive income


8,294



2,529Total stockholders equity


573,563



630,708Commitments and contingenciesTotal liabilities and stockholders equity

$
1,798,597


$
1,848,301    84




---



##### 



SUNRISE
    SENIOR LIVING, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  Year Ended December 31,(In thousands, except per share amounts)

2007


2006


2005(Restated)


(Restated)Operating revenue:Management fees

$
127,830


$
117,228


$
104,823Buyout fees


1,626



134,730



83,036Professional fees from development, marketing and other


38,855



28,553



24,920Resident fees for consolidated communities


402,396



381,709



341,610Hospice and other ancillary services


125,796



76,882



44,641Reimbursed contract services


956,047



911,979



911,992Total operating revenues


1,652,550



1,651,081



1,511,022Operating expenses:Development and venture expense


79,203



69,145



41,064Community expense for consolidated communities


290,203



276,833



251,058Hospice and other ancillary services expense


134,634



74,767



45,051Community lease expense


68,994



61,991



57,946General and administrative


187,325



131,473



106,601Accounting Restatement and Special Independent Committee Inquiry


51,707



2,600



Loss on financial guarantees and other contracts


22,005



89,676



Provision for doubtful accounts


9,564



14,632



1,675Impairment of owned communities


7,641



15,730



2,472Impairment of goodwill and intangible assets


56,729







Depreciation and amortization


55,280



48,648



42,981Write-off of abandoned development projects


28,430



1,329



902Write-off of unamortized contract costs






25,359



14,609Reimbursed contract services


956,047



911,979



911,992Total operating expenses


1,947,762



1,724,162



1,476,351(Loss) income from operations


(295,212
)


(73,081
)


34,671Other non-operating income (expense):Interest income


9,894



9,577



6,231Interest expense


(6,647
)


(6,204
)


(11,882
)(Loss) gain on investments






(5,610
)


2,036Other (expense) income


(6,089
)


6,706



3,105Total other non-operating (expense) income


(2,842
)


4,469



(510
)Gain on the sale and development of real estate and equity
    interests


105,081



51,347



81,723Sunrises share of earnings and return on investment in
    unconsolidated communities


108,947



43,702



13,472Gain (loss) from investments accounted for under the
    profit-sharing method


22



(857
)


(857
)Minority interests


4,470



6,916



6,721(Loss) income before provision for income taxes


(79,534
)


32,496



135,220Benefit from (provision for) income taxes


9,259



(17,212
)


(52,156
)Net (loss) income

$
(70,275
)

$
15,284


$
83,064Earnings per share data:Basic net (loss) income per common share

$
(1.41
)

$
0.31


$
2.00Diluted net (loss) income per common share


(1.41
)


0.30



1.74    85




---



##### 



SUNRISE
    SENIOR LIVING, INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
  AccumulatedShares of


Common


Additional








OtherCommon


Stock


Paid-in


Retained


Deferred


Comprehensive(In thousands)

Stock


Amount


Capital


Earnings


Compensation


Income (Loss)


TotalBalance at January 1, 2005 (As previously stated)


41,138


$
412


$
279,116


$
91,545


$
(4,535
)

$
3,165


$
369,703Effect of restatement














(7,495
)










(7,495
)Balance at January 1, 2005 (Restated)


41,138



412



279,116



84,050



(4,535
)


3,165



362,208Net income (Restated)














83,064











83,064Foreign currency translation loss, net of tax






















(3,231
)


(3,231
)Sunrises share of investees other comprehensive loss






















(503
)


(503
)Total comprehensive income (Restated)


























79,330Issuance of common stock to employees


2,248



22



31,307















31,329Repurchase of common stock


(348
)


(3
)


(8,709
)














(8,712
)Conversion of convertible debt


3







55















55Issuance of restricted stock


412



4



10,995







(10,997
)






2Amortization of restricted stock


















3,209







3,209Tax effect of stock-based compensation










13,443















13,443Balance at December 31, 2005 (Restated)


43,453



435



326,207



167,114



(12,323
)


(569
)


480,864Net income (Restated)














15,284











15,284Foreign currency translation income, net of tax






















2,205



2,205Sunrises share of investees other comprehensive
    income






















893



893Total comprehensive income (Restated)


























18,382Issuance of common stock to employees


374



3



5,161















5,164Conversion of convertible debt


6,700



67



117,917















117,984Issuance of restricted stock


45



1



532















533Forfeiture of restricted stock










(5
)














(5
)Adoption of SFAS 123R










(12,323
)






12,323







Stock-based compensation expense










5,846















5,846Tax effect of stock-based compensation










1,940















1,940Balance at December 31, 2006 (Restated)


50,572



506



445,275



182,398







2,529



630,708Net loss














(70,275
)










(70,275
)Foreign currency translation income, net of tax






















5,865



5,865Sunrises share of investees other comprehensive
    income






















(100
)


(100
)Total comprehensive loss


























(64,510
)Issuance of restricted stock


88



1



















1Forfeiture or surrender of restricted stock


(103
)


(1
)


(1,818
)














(1,819
)Stock-based compensation expense










7,020















7,020Tax effect of stock-based compensation










2,163















2,163Balance at December 31, 2007


50,557


$
506


$
452,640


$
112,123


$



$
8,294


$
573,563    86




---



##### 



SUNRISE
    SENIOR LIVING, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005(In thousands)

2007


(Restated)


(Restated)Operating activitiesNet (loss) income

$
(70,275
)

$
15,284


$
83,064Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Non-cash gain on sale and development of real estate and equity
    interests


(61,635
)


(51,347
)


(81,723
)(Gain) loss from investments accounted for under the
    profit-sharing method


(22
)


857



857Gain from application of financing method






(1,155
)


(528
)Gain on sale of investment in Sunrise REIT debentures










(2,036
)Loss on sale of investments






5,610



Impairment of goodwill and other intangible assets


56,729







Write-off of abandoned development projects


28,430



1,329



902Provision for doubtful accounts


9,564



14,632



1,675Provision for deferred income taxes


733



(3,853
)


29,357Impairment of long-lived assets


7,641



15,730



2,472Loss on financial guarantees and other contracts


22,005



89,676



Sunrises share of earnings and return on investment in
    unconsolidated communities


(108,947
)


(11,997
)


(13,073
)Distributions of earnings from unconsolidated communities


168,322



66,381



26,545Minority interest in income/loss of controlled entities


(4,470
)


(6,916
)


(6,721
)Depreciation and amortization


55,280



48,648



42,981Write-off of unamortized contract costs






25,359



14,609Amortization of financing costs


1,051



1,404



1,483Stock-based compensation


7,020



6,463



5,465Changes in operating assets and liabilities:(Increase) decrease in:Accounts receivable


(16,536
)


(23,242
)


3,850Due from unconsolidated communities


102,996



(83,451
)


(6,279
)Prepaid expenses and other current assets


(55,443
)


(4,041
)


(3,425
)Other assets


(1,177
)


6,694



(6,189
)Increase (decrease) in:Accounts payable and accrued expenses


78,576



22,204



68,820Captive insurance restricted cash


(32,930
)


(48,840
)


(28,130
)Entrance fees


(3,586
)


913



1,095Self-insurance liabilities


27,866



30,186



21,885Guarantee liabilities


(5,806
)






Deferred revenue and gains on the sale of real estate


29,621



983



33,034Net cash provided by operating activities


235,007



117,511



189,990Investing activitiesCapital expenditures


(240,309
)


(188,655
)


(132,857
)Acquisitions of business assets


(49,917
)


(103,491
)


(75,532
)Dispositions of property


171,338



83,290



56,246Cash obtained in acquisition of Greystone










10,922Change in restricted cash


(20,579
)


(11,428
)


(15,701
)Purchases of short-term investments


(448,900
)


(172,575
)


(62,825
)Proceeds from short-term investments


448,900



172,575



77,725Increase in investments and notes receivable


(181,451
)


(343,286
)


(158,697
)Proceeds from investments and notes receivable


136,744



376,061



187,042Investments in unconsolidated communities


(51,940
)


(77,371
)


(64,080
)Distributions of capital from unconsolidated communities


601



5,954



9,273Net cash used in investing activities


(235,513
)


(258,926
)


(168,484
)Financing activitiesNet proceeds from exercised options






4



29,065Additional borrowings of long-term debt


229,688



154,140



149,539Repayment of long-term debt


(170,860
)


(90,781
)


(137,296
)Contribution from minority interests


3,210



15,669



5,000Distributions to minority interests


(5,310
)


(630
)


(1,021
)Financing costs paid






(75
)


(2,622
)Repurchases of common stock










(8,712
)Net cash provided by financing activities


56,728



78,327



33,953Net increase (decrease) in cash and cash equivalents


56,222



(63,088
)


55,459Cash and cash equivalents at beginning of year


81,990



145,078



89,619Cash and cash equivalents at end of year

$
138,212


$
81,990


$
145,078    87




---



##### 



Sunrise
    Senior Living, Inc.
  Notes
    to Consolidated Financial Statements
  1.
    Organization
    and Presentation  Organization
      Basis
    of Presentation
  EITF 04-5, Determining Whether a General Partner, or the General
    Partners as a Group, Controls a Limited Partnership or Similar
    Entity When the Limited Partners Have Certain Rights
    ( EITF 04-5 ) EITF 04-5 EITF 04-5.
  2.
    Significant
    Accounting Policies    Cash
    and Cash Equivalents
    Restricted
    Cash
   88




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Allowance
    for Doubtful Accounts
    Notes
    Receivable
    Due
    from Unconsolidated Communities
    Property
    and Equipment
         89




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Real
    Estate Sales
  Accounting for Sales of Real Estate
           90




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Capitalization
    of Interest Related to Development Projects
  Capitalization of Interest Cost,
    ( Capitalization of Interest Cost in
    Financial Statements That Include Investments Accounted for by
    the Equity Method
  Goodwill
    and Intangible Assets
       91




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Investments
    in Unconsolidated Communities
    Consolidation of Variable Interest Entities
  EITF 04-5 ,
    Determining Whether a General Partner, or the General Partners
    as a Group, Controls a Limited Partnership or Similar Entity
    When the Limited Partners Have Certain Rights, EITF 04-5.
  The
    Equity Method of Accounting for Investments in Common Stock No. 78-9, Accounting for Investments in Real Estate Ventures (SOP 78-9). SOP 78-9, and/or
       92




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Deferred
    Financing Costs
    Loss
    Reserves For Certain Self-Insured Programs
          Employee
    Health and Dental Benefits
   93




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Continuing
    Care Agreements
          Accounting
    for Guarantees
    Asset
    Retirement Obligations
  Accounting for Conditional Asset Retirement
    Obligations  an interpretation of FASB Statement
    No. 143, Asset Retirement Obligations
   94




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Income
    Taxes
    Revenue
    Recognition
             95




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent,
  Stock-Based
    Compensation
  Share-Based Payments Accounting for Stock-Based
    Compensation Accounting for Stock Issued to Employees,
    Foreign
    Currency Translation
  Foreign Currency Translation,
  Advertising
    Costs
    Legal
    Contingencies
   96




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Reclassifications
    New
    Accounting Standards
  Accounting for
    Uncertainty in Income Taxes Accounting for Income Taxes,
  No. 06-8, Applicability of the Assessment of a Buyers Continuing
    Investment under FASB Statement No. 66, Accounting for
    Sales of Real Estate, for Sales of Condominiums (EITF 06-8). EITF 06-8 EITF 06-8 EITF 06-8
  Future
    Adoption of Accounting Standards
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Liabilities
  Business Combinations
  Non-controlling Interests in
    Consolidated Financial Statements  an Amendment of
    ARB No. 51
 97




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    3.
    Restatement
    Related to Accounting for Lease Payments and Non-Refundable
    Entrance Fees for Two Continuing Care Retirement
    Communities           98




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  pre-tax Accounting Changes and Error
    Corrections.
  4.
    Allowance
    for Doubtful Accounts    AccountsReceivable


Other Assets


TotalBalance January 1, 2005 (restated)

$
1,888


$



$
1,888Provision for doubtful accounts


1,675







1,675Write-offs


(1,065
)






(1,065
)Balance December 31, 2005 (restated)


2,498







2,498Provision for doubtful accounts


6,632



8,000



14,632Write-offs


(1,626
)






(1,626
)Balance December 31, 2006 (restated)


7,504



8,000



15,504Provision for doubtful accounts


7,644



1,920



9,564Write-offs


(4,708
)






(4,708
)Balance December 31, 2007

$
10,440


$
9,920


$
20,360   5.
    Property
    and Equipment    December 31,Asset Lives


2007


2006Land and land improvements


15 years


$
77,709


$
76,456Building and building improvements


40 years



337,310



330,431Furniture and equipment


3-10 years



148,829



122,479563,848



529,366Less: Accumulated depreciation






(157,744
)


(125,315
)406,104



404,051Construction in progress






250,107



205,334Property and equipment, net





$
656,211


$
609,385      99




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    6.
    Acquisitions  Sunrise
    Connecticut Avenue Assisted Living, LLC
      Net working capital

$
0.6Property and equipment


40.3Other assets


0.1Land


8.8Less: Debt of venture assumed


(19.9
)Total purchase price (including transaction costs)

$
29.9     Raiser
    Portfolio
      Net working capital

$
0.9Land, property and equipment


17.0Entrance fee liability and future service obligations


(11.5
)Management contracts and other assets


21.0Total purchase price (including transaction costs)

$
27.4     Trinity
    Hospice, Inc.
   100




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Net working capital

$
3.7Property and equipment


1.5Intangible assets


9.7Goodwill


59.3Other assets


0.4Total purchase price (including transaction costs)

$
74.6       2005
    Acquisitions
      7.
    Sales of
    Real Estate    December 31,2007


2006


2005Properties accounted for under basis of performance of services

$
3.6


$
1.8


$
0.6Properties accounted for previously under financing method


32.8







Properties accounted for previously under deposit method


52.4



35.3



81.3Land sales


5.7



5.4



(0.2
)Sales of equity interests and other sales


10.6



8.8



Total gains on the sale and development of real estate and
    equity interests

$
105.1


$
51.3


$
81.7   Basis
    of Performance of Services
   101




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Financing
    Method
        December 31,2007


2006


2005Property and equipment subject to financing, net

$



$
62,520


$
64,174Liabilities relating to properties subject to the financing
    method






(66,283
)


(64,208
)Depreciation expense


505



1,959



363Development fees received, net of costs










1,335Management fees received


230



981



93       Deposit
    method
   102




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31,2007


2006


2005Property subject to sales contract, net

$



$



$
10,142Deposits related to properties subject to a sales contract










(13,843
)Depreciation expense






296



331Development fees received, net of costs










Management fees received






198



192       December 31,2007


2006


2005Properties subject to sales contract, net

$



$
193,158


$
197,781Deposits related to properties subject to a sales contract






(240,367
)


(236,692
)Depreciation expense


4,876



8,257



7,168Development fees received, net of costs






20



1,412Management fees received


2,331



3,738



3,023   18-month
    December 31,2007


2006


2005Properties subject to sales contract, net

$



$



$
47,308Deposits related to properties subject to a sales contract










(74,247
)Depreciation expense






848



6,644Development fees received, net of costs










Management fees received






617



4,548    103




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Land
    Sales
    Sales
    of Equity Interests
  No. 98-8, Accounting for Transfers of Investments That Are in Substance
    Real Estate (EITF 98-8),
  Gain
    (Loss) from Investments Accounted for Under the Profit-Sharing
    Method, net
            Year Ended December 31,2007


2006


2005Revenue

$
23,791


$
19,902


$
11,077Expenses


(17,450
)


(16,528
)


(10,310
)Income from operations before depreciation


6,341



3,374



767Depreciation expense










1,964Distributions to other investors


(6,319
)


(4,231
)


(3,588
)Income (loss) from investments accounted for under the
    profit-sharing method

$
22


$
(857
)

$
(857
)Investments accounted for under the profit-sharing method, net

$
(51,377
)

$
(29,148
)

$
(5,106
)Amortization expense on investments accounted for under the
    profit-sharing method

$
1,800


$
1,800


$
   Condominium
    Sales
   104




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  8.
    Variable
    Interest Entities    Consolidated
    VIEs
  
    The entity that we have a management agreement with is a
    continuing care retirement community located in the
    U.S. comprised of 254 continuing care retirement community
    apartments, 32 assisted living units, 27 Alzheimer care
    apartments and 60 skilled nursing beds. We have included
    $20.1 million and $21.4 million, respectively, of net
    property and equipment related to this entity in our 2007 and
    2006 consolidated balance sheets and $24.6 million and
    $25.2 million, respectively, of debt. We guaranteed in 2007
    and 2006 $23.2 million and $23.8 million,
    respectively, of this debt. We included $1.5 million,
    $1.5 million and $1.1 million, respectively, of
    depreciation and amortization expense related to this entity in
    our 2007, 2006 and 2005 consolidated statements of income.
    Six of the seven consolidated VIEs are investment partnerships
    formed with third-party partners to invest capital in the
    pre-finance stage of certain Greystone projects. When the
    initial development services are successful and permanent
    financing for the project is obtained, the partners are repaid
    their initial invested capital plus fees generally between 50%
    and 75% of their investment. Greystone, which was acquired by us
    in May 2005, is a developer and manager of CCRCs. We have
    included $9.0 million and $13.8 million of cash
    related to these ventures in our 2007 and 2006 consolidated
    balance sheets, respectively. At December 31, 2006, six
    Greystone VIEs were consolidated. During 2007, two of these six
    ventures were no longer considered VIEs and were deconsolidated.
    Two new Greystone investment partnerships were formed to invest
    seed capital in 2007 and at December 31, 2007, six
    Greystone VIEs were consolidated.  Unconsolidated
    VIEs
  
    Sunrise At Home Senior Living Services, Inc. (Sunrise At
    Home) was a venture between Sunrise and two third parties.
    The venture offered home health services by highly trained staff
    members in customers homes and had annual revenue of
    approximately $19.0 million in 2006. In June 2007, Sunrise
    At Home was merged with Alliance Care and we received a
    preferred equity interest in Alliance Care. Alliance Care
    provides services to seniors, including physician house calls
    and mobile diagnostics, home care and private duty services
    through 24 local offices located in seven states. Additionally,
    Alliance Care operates over 125 Healthy Lifestyle Centers
    providing therapeutic rehabilitation and wellness programs in
    senior living facilities. As a result of the merger, we are no
    longer the primary beneficiary and deconsolidated Sunrise At
    Home as of the merger date. At December 31, 2007, Alliance
    Care has total assets of $41.2 million, total liabilities
    of $38.1 million, and annual revenue of $84.3 million.
    In July 2007, we formed a venture with a partner to purchase six
    communities from our first UK venture. The new venture also
    entered into a firm commitment to purchase 11 additional
    communities from the venture which are currently under
    development in the UK. At December 31, 2007, this venture
    has total assets of $562.7 million, total liabilities of
    $472.0 million, and annual revenue of $17.0 million.     105




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  9.
    Buyout of
    Management Contracts      10.
    Notes
    Receivable    December 31,Interest Rate(1)


2007


2006Note V with international venture


4.37
%

$
592


$
1,030Promissory Note XIV


Euribor + 4.25
%


8,837



4,834Promissory Note XIII


7.50
%






11,767Note VI, revolving credit agreement


10.00
%






4,1749,429



21,805Current maturities










(4,174
)$
9,429


$
17,631     (1)
    
    Interest rate at December 31, 2007      lease-up
     106




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      11.
    Intangible
    Assets and Goodwill    Estimated


December 31,Useful Life


2007


2006Management contracts less accumulated amortization of $23,084
    and $13,242


1-30 years


$
76,909


$
88,581Leaseholds less accumulated amortization of $3,577 and $3,162


10-29 years



4,307



4,721Other intangibles less accumulated amortization of $628 and
    $1,173


1-40 years



2,553



10,469$
83,769


$
103,771      107




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  12.
    Investments
    in Unconsolidated Communities    SunriseVenture

OwnershipKarrington of Findlay Ltd.


50.00
%MorSun Tenant LP


50.00
%Sunrise/Inova McLean Assisted Living, LLC


40.00
%AU-HCU Holdings, LLC(1)


30.00
%RCU Holdings, LLC(1)


30.00
%SunVest, LLC(1)


30.00
%AL One Investments, LLC


25.36
%Metropolitan Senior Housing, LLC


25.00
%Sunrise at Gardner Park, LP


25.00
%Sunrise Floral Vale Senior Living, LP


25.00
%Cheswick & Cranberry, LLC


25.00
%BG Loan Acquisition LP


25.00
%Sunrise Aston Gardens Venture, LLC


25.00
%Master MorSun, LP


20.00
%Master MetSun, LP


20.00
%Master MetSun Two, LP


20.00
%Master MetSun Three, LP


20.00
%Sunrise First Assisted Living Holdings, LLC


20.00
%Sunrise Second Assisted Living Holdings, LLC


20.00
%Sunrise Beach Cities Assisted Living, LP


20.00
%AL U.S. Development Venture, LLC


20.00
%Sunrise HBLR, LLC


20.00
%Sunrise IV Senior Living Holdings, LLC


20.00
%COPSUN Clayton MO, LLC


20.00
%Sunrise of Aurora, LP


20.00
%Sunrise of Erin Mills, LP


20.00
%Sunrise of North York, LP(2)


20.00
%PS Germany Investment (Jersey) LP


20.00
%PS UK Investment (Jersey) LP


20.00
%PS UK Investment II (Jersey) LP


20.00
%Sunrise First Euro Properties LP


20.00
%Master CNL Sun Dev I, LLC


20.00
%Sunrise Bloomfield Senior Living, LLC


20.00
%Sunrise Hillcrest Senior Living, LLC


20.00
%Sunrise New Seasons Venture, LLC


20.00
%Sunrise Rocklin Senior Living, LLC


20.00
%Sunrise Sandy Senior Living, LLC


20.00
%Sunrise Scottsdale Senior Living, LLC


20.00
%Sunrise Staten Island SL LLC


20.00
%Sunrise US UPREIT, LLC


15.40
%SunKap Coral Gables, LLC


15.00
%SunKap Boca Raton, LLC


15.00
%Santa Monica AL, LLC


15.00
%Sunrise Third Senior Living Holdings, LLC


10.00
%Cortland House, LP


10.00
%AEW/Sunrise Senior Housing Portfolio, LLC


10.00
%Dawn Limited Partnership


10.00
%     (1)
    
    Properties related to investments are accounted for under the
    profit-sharing method of accounting. See Note 7.(2)
    
    Properties related to investments are accounted for under the
    financing method of accounting. See Note 7. 108




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
       December 31,2007


2006


2005Assets, principally property and equipment

$
5,183,922


$
4,370,376


$
3,283,725Long-term debt


4,075,993



2,971,318



2,076,734Liabilities, excluding long-term debt


549,628



583,008



409,986Equity


558,301



816,050



797,005Revenue


1,021,112



846,479



625,371Net income (loss)


(15,487
)


(56,968
)


24,051         December 31,2007


2006


2005Sunrises share of earnings (losses) in unconsolidated
    communities

$
60,700


$
(11,997
)

$
(13,073
)Return on investment in unconsolidated communities


72,710



55,699



26,545Impairment of equity investments


(24,463
)






$
108,947


$
43,702


$
13,472     Return
    on Investment in Unconsolidated Communities
       109




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Transactions
             110




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      13.
    Bank
    Credit Facility       111




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      
    modified to August 20, 2008 the delivery date for the
    unaudited financial statements for the quarter ended
    March 31, 2008;
    modified to September 10, 2008 the delivery date for the
    unaudited financial statements for the quarter ending
    June 30, 2008;
    temporarily (in February 2008) and then permanently (in
    July 2008) reduced the maximum principal amount available
    under the Bank Credit Facility to $160.0 million; and
    waived compliance with financial covenants in the Bank Credit
    Facility for the year ended December 31, 2007 and for the
    fiscal quarters ended March 31, 2008 and June 30,
    2008, and waived compliance with the leverage ratio and fixed
    charge coverage ratio covenants for the fiscal quarter ending
    September 30, 2008.  Form 10-K
  
    we must maintain liquidity of not less than $50.0 million,
    composed of availability under the Bank Credit Facility plus up
    to not more than $50.0 million in unrestricted cash and
    cash equivalents (tested as of the end of each calendar month),
    and any unrestricted cash and cash equivalents in excess of
    $50.0 million must be used to pay down the outstanding
    borrowings under the Bank Credit Facility;
    we are generally prohibited from declaring or making directly or
    indirectly any payment in the form of a stock repurchase or
    payment of a cash dividend or from incurring any obligation to
    do so; and
    the borrowing rate in US dollars, which was increased effective
    as of February 1, 2008, will remain LIBOR plus 2.75% or the
    Base Rate (the higher of the Federal Funds Rate plus 0.50% and
    Prime) plus 1.25% (through the end of the then-current interest
    period).         112




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          14.
    Long-Term
    Debt    December 31,2007


2006Outstanding draws on Bank Credit Facility

$
100,000


$
50,000Borrowings from Sunrise REIT






35,112Mortgages, notes payable and other


153,888



105,493253,888



190,605Current maturities


(222,541
)


(141,923
)$
31,347


$
48,682   Borrowings
    from Sunrise REIT
   113




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Other
    Mortgage and Notes Payable
                2008

$
222,5412009


2,0272010


1,1742011


1,2112012


1,263Thereafter


25,672$
253,888      114




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    15.
    Income
    Taxes    December 31,2007


2006Deferred tax assets:Sunrise operating loss carryforwards  federal

$
1,910


$
1,910Sunrise operating loss carryforwards  state


7,903



4,476Sunrise operating loss carryforwards  foreign


5,650



2,515Sunrise At Home loss carryforwards  federal and state






5,891Sunrise At Home deferred tax assets, net






1,302Financial guarantees


25,893



38,719Accrued health insurance


14,872



17,159Self-insurance liabilities


6,989



8,826Stock-based compensation


7,636



7,518Deferred development fees


29,258



5,923Allowance for doubtful accounts


6,178



6,441Tax credits


6,729



6,277Accrued expenses and reserves


20,593



8,560Entrance fees


14,228



10,661Other


1,898



11,401Gross deferred tax assets


149,737



137,579Sunrise valuation allowances


(6,165
)


(3,800
)Foreign deferred tax valuation allowance


(6,243
)


(2,071
)Sunrise At Home valuation allowance






(7,193
)Net deferred tax assets


137,329



124,515Deferred tax liabilities:Investments in ventures


(96,333
)


(80,093
)Basis difference in property and equipment and intangibles


(74,826
)


(84,599
)Prepaid expenses


(8,133
)


(5,932
)Other


(7,075
)


(2,525
)Total deferred tax liabilities


(186,367
)


(173,149
)Net deferred tax liabilities

$
(49,038
)

$
(48,634
)    115




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
             116




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2007


2006


2005Current:Federal

$
(14,904
)

$
15,837


$
15,140State


2,814



5,202



5,563Foreign


2,098



26



2,096Total current expense


(9,992
)


21,065



22,799Deferred:Federal


121



(4,178
)


27,236State


(614
)


553



(337
)Foreign


1,226



(228
)


2,458Total deferred expense (benefit)


733



(3,853
)


29,357Total tax (benefit) expense

$
(9,259
)

$
17,212


$
52,156       Years Ended December 31,(In thousands)

2007


2006


2005(Loss) income before tax benefit (expense) taxed in the
    U.S.

$
(78,816
)

$
38,535


$
125,095(Loss) income before tax benefit (expense) taxed in foreign
    jurisdictions


(718
)


(6,039
)


10,125Total (loss) income before tax benefit (expense)

$
(79,534
)

$
32,496


$
135,220Tax at US federal statutory rate


(35.0
)%


35.0
%


35.0
%State taxes, net


(4.3
)%


4.2
%


3.9
%Work opportunity credits


(0.6
)%


(1.3
)%


(1.2
)%Change in valuation allowance


8.4
%


11.1
%


1.0
%Tax exempt interest


(2.2
)%


(4.5
)%


(0.1
)%Tax contingencies


2.3
%


4.4
%


(1.0
)%Write-off of non-deductible goodwill


12.1
%


0.0
%


0.0
%Foreign rate differential


(0.8
)%


0.0
%


0.0
%U.S. tax related to foreign earnings


4.3
%


0.0
%


0.0
%Other


4.2
%


4.1
%


1.0
%(11.6
)%


53.0
%


38.6
%   Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109, Accounting for
    Income Taxes
 117




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (In thousands)Unrecognized tax benefit at beginning of year (January 1,
    2007)

$
25,147Change attributable to tax positions taken during a prior period


Change attributable to tax positions taken during a current
    period


2,643Decrease attributable to settlements with taxing authorities


Decrease attributable to lapse in statute of limitations


(234
)Unrecognized tax benefit at end of year (December 31, 2007)

$
27,556     16.
    Stockholders
    Equity  Stock
    Option Plans
  Share-Based Payment Statement of Cash Flows
   118




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Twelve Months EndedDec. 31,(In thousands, except per share data)

2005(Restated)Net income

$
83,064Add: Compensation expense included in net income, net of tax


3,331Less: Total share-based employee compensation expense determined
    under fair-value method for all awards, net of tax


(9,359
)Pro forma net income

$
77,036Basic net income per share:As reported

$
2.00Pro forma

$
1.86Diluted net income per share:As reported

$
1.74Pro forma

$
1.62   Stock
    Options
        2007

2006

2005Risk free interest rate

3.6%

4.8% - 5.2%

4.3% - 4.5%Expected dividend yield





Expected term (years)

1.0

5.1 - 9.1

3.9 - 5.6Expected volatility

25.5%

56.1% - 60.7%

32.3% - 62.0%  119




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Weighted


RemainingAverage


ContractualShares


Exercise Price


TermOutstanding  beginning of year


3,767


$
14.96Granted






Exercised






Forfeited


(33
)


16.27Expired


(180
)


20.91Outstanding  end of year


3,554



14.64



3.6Vested and expected to vest  end of year


3,535



14.64



3.6Exercisable  end of year


3,502



14.56



3.5         Restricted
    Stock
   120




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Weighted AverageGrant DateShares


Fair ValueNonvested, January 1, 2005


531


$
13.18Granted


412



26.67Vested


(101
)


13.12Canceled






Nonvested, December 31, 2005


842



19.79Granted


45



35.75Vested


(37
)


24.48Canceled


(16
)


25.22Nonvested, December 31, 2006


834



20.34Granted


88



33.87Vested


(288
)


14.01Canceled


(108
)


27.38Nonvested, December 31, 2007


526



24.64         Restricted
    Stock Units
   121




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Repurchase
    of Outstanding Shares
  and/or
  Stockholder
    Rights Agreement
       122




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  17.
    Net
    (Loss) Income Per Common Share    Years Ended December 31,2007


2006


2005(Restated)


(Restated)Numerator for basic net (loss) income per share:Net (loss) income

$
(70,275
)

$
15,284


$
83,064Numerator for diluted net (loss) income per share:Net (loss) income

$
(70,275
)

$
15,284


$
83,064Assumed conversion of convertible notes, net of tax










4,376Diluted net (loss) income

$
(70,275
)

$
15,284


$
87,440Denominator:Denominator for basic net (loss) income per common
    share  weighted average shares


49,851



48,947



41,456Effect of dilutive securities:Employee stock options and restricted stock






1,775



2,234Convertible notes










6,695Denominator for diluted net (loss) income per common
    share  weighted average shares plus assumed
    conversions


49,851



50,722



50,385Basic net (loss) income per common share

$
(1.41
)

$
0.31


$
2.00Diluted net (loss) income per common share


(1.41
)


0.30



1.74     18.
    Commitments
    and Contingencies  Leases
    for Office Space
     123




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Leases
    for Operating Communities
  and/or
      2008

$
68,5322009


71,8112010


72,1852011


69,4302012


68,843Thereafter


376,972$
727,773   Letters
    of Credit
    Land
    Purchase Commitments
   124




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Guarantees
  Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others
  and/or
    FIN 45


FAS 5


TotalLiability


Liability


Liabilityfor Future


for Future


for FutureMaximum Potential


Fundings at


Fundings at


Fundings at


FundingsAmount of Future


December 31,


December 31,


December 31,


duringGuarantee Type

Fundings


2007


2007


2007


2007Debt repayment

$
16,832


$
785


$



$
785


$
Operating deficit


Uncapped



1,371



42,023



43,394



5,829Income support


Uncapped



960



16,525



17,485



Other










4,150



4,150



Total





$
3,116


$
62,698


$
65,814


$
5,829      125




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  The
    Fountains
    Germany
    Venture
  lease-up lease-up
  Legal
    Proceedings
  Trinity
    OIG Investigation and Qui Tam Action
    qui tam qui tam Qui tam qui tam Qui tam
 126




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  United States ex rel.
    Joyce Roberts, et al., v. KRG Capital, LLC, et al.
      IRS
    Audit
    SEC
    Investigation
    Putative
    Class Action Litigation
  United
    Food & Commercial Workers Union Local 880-Retail Food
    Employers Joint Pension Fund, et al. v. Sunrise Senior
    Living, Inc., et al. First New York Securities, L.L.C. v. Sunrise Senior
    Living, Inc., et al.
 127




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  In re Sunrise Senior Living, Inc. Securities
    Litigation No. 07-CV-00102-RBW) Rule 10b-5
  Putative
    Shareholder Derivative Litigation
  Brockton Contributory Retirement System v. Paul J.
    Klaassen, et al. Catherine Molner v. Paul J. Klaassen, et al. 1/31/2007); Robert Anderson v. Paul J. Klaassen, et al. 2/5/2007).
  Peter V. Young, et al. v. Paul J. Klaassen, et al. No. 2770-N
 128




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Nicholas Von Guggenberg v.
    Paul J. Klaassen, et al. 8/11/2006); Catherine Molner v. Paul J. Klaassen, et al. 9/6/2006). Von Guggenberg Molner Von Guggenberg Molner
  Resolved
    Litigation
    Other
    Pending Lawsuits and Claims
    19.
    Related-Party
    Transactions  Sunrise
    Senior Living Real Estate Investment Trust
     129




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  30-year
  lease-up
      Years Ended December 31,2007


2006


2005Management fees

$
5,518


$
16,448


$
11,443Reimbursed contract services


77,277



130,455



70,525Gain on sale and development of real estate


8,854



43,223



575Interest income received from Sunrise REIT convertible debentures










1,028Interest incurred on borrowings from Sunrise REIT


414



3,312



2,611Sunrises share of earnings and return on investment in
    unconsolidated communities


180



4,326



718   Sunrise
    Senior Living Foundation
  and/or son-in-law
 130




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    12-month
     131




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Fairfax
    Community Ground Lease
  99-year
  Corporate
    Use of Residence
  99-year 99-year
  Purchase
    of Condominium Unit
   132




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Service
    Evaluators Incorporated
  brother-in-law sister-in-law
  on-site on-site on-site
  Greystone
    Earnout Payments
    Unconsolidated
    Ventures
      Aetna
    Healthcare
   133




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Purchase
    of Aircraft Interest by Mr. Klaassen
    20.
    Employee
    Benefit Plans  401k
    Plan
    Sunrise
    Executive Deferred Compensation Plans
      Chief
    Executive Officer Deferred Compensation Plan
  12-year
  21.
    Fair
    Value of Financial Instruments       134




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      22.
    Information
    about Sunrises Segments      For the Year Ended and as of December 31, 2007Domestic


Greystone


International


Trinity


TotalOperating revenues

$
1,491,373


$
16,471


$
77,555


$
67,151


$
1,652,550Interest income


8,144



208



1,162



380



9,894Interest expense


5,521







1,123



3



6,647Sunrises share of earnings and return on investment in
    unconsolidated communities


31,812



1,600



75,535







108,947Depreciation and amortization


47,843



4,068



886



2,483



55,280(Loss) income before taxes


(13,433
)


(19,693
)


23,984



(70,392
)


(79,534
)Investments in unconsolidated communities


80,423







16,750







97,173Goodwill


121,828



39,025







8,883



169,736Segment assets


1,476,420



61,312



247,499



13,366



1,798,597Expenditures for long-lived assets


185,924



4,680



49,047



658



240,309Deferred gains on the sale of real estate and deferred revenues


19,793



54,574











74,367   135




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  For the Year Ended and as of December 31, 2006
    (Restated)Domestic


Greystone


International


Trinity


TotalOperating revenues

$
1,575,108


$
16,920


$
38,844


$
20,209


$
1,651,081Interest income


8,799



194



483



101



9,577Interest expense


5,732







462



10



6,204Sunrises share of earnings (losses) and return on
    investment in unconsolidated communities


54,950







(11,248
)






43,702Depreciation and amortization


44,115



3,462



240



831



48,648Income (loss) before taxes


113,619



(14,490
)


(66,768
)


135



32,496Investments in unconsolidated communities


93,327







10,945







104,272Goodwill


121,827



36,525







59,663



218,015Segment assets


1,571,769



55,206



138,091



83,235



1,848,301Expenditures for long-lived assets


137,396



714



49,120



1,425



188,655Deferred gains on the sale of real estate and deferred revenue


23,811



28,147











51,958   For the Year Ended and as of December 31, 2005
    (Restated)Domestic


Greystone


International


TotalOperating revenues

$
1,472,836


$
10,413


$
27,773


$
1,511,022Interest income


4,855



69



1,307



6,231Interest expense


9,368







2,514



11,882Sunrises share of earnings (losses) and return on
    investment in unconsolidated communities


31,919







(18,447
)


13,472Depreciation and amortization


40,791



1,992



198



42,981Income (loss) before taxes


149,543



(8,180
)


(6,143
)


135,220Investments in unconsolidated communities


52,962



150



10,228



63,340Goodwill


124,256



29,072







153,328Segment assets


1,437,365



67,076



83,344



1,587,785Expenditures for long-lived assets


112,153



1,514



19,190



132,857Deferred gains on the sale of real estate and deferred revenue


15,192



13,034







28,226      136




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
            23.
    Accounts
    Payable and Accrued Expenses    December 31,2007


2006Accounts payable and accrued expenses

$
71,240


$
65,460Accrued salaries and bonuses


64,441



47,346Accrued employee health and other benefits


67,096



64,487Accrued legal, audit and professional fees


37,555



9,056Other accrued expenses


35,030



29,738$
275,362


$
216,087   24.
    Subsequent
    Events  Bank
    Credit Facility
    
    modified to August 20, 2008 the delivery date for the
    unaudited financial statements for the quarter ending
    March 31, 2008;
    modified to September 10, 2008 the delivery date for the
    unaudited financial statements for the quarter ending
    June 30, 2008; 137




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   
    temporarily (in February 2008) and then permanently (in
    July 2008) reduced the maximum principal amount available
    under the Bank Credit Facility to $160.0 million; and
    waived compliance with financial covenants in the Bank Credit
    Facility for the year ended December 31, 2007 and for the
    fiscal quarters ended March 31, 2008 and June 30,
    2008, and waived compliance with the leverage ratio and fixed
    charge coverage ratio covenants for the fiscal quarter ending
    September 30, 2008.  Form 10-K
  
    we must maintain liquidity of not less than $50.0 million,
    composed of availability under the Bank Credit Facility plus up
    to not more than $50.0 million in unrestricted cash and
    cash equivalents (tested as of the end of each calendar month),
    and any unrestricted cash and cash equivalents in excess of
    $50.0 million must be used to pay down the outstanding
    borrowings under the Bank Credit Facility;
    we are generally prohibited from declaring or making directly or
    indirectly any payment in the form of a stock repurchase or
    payment of a cash dividend or from incurring any obligation to
    do so; and
    the borrowing rate in US dollars, which was increased effective
    as of February 1, 2008, will remain LIBOR plus 2.75% or the
    Base Rate (the higher of the Federal Funds Rate plus 0.50% and
    Prime) plus 1.25% (through the end of the then-current interest
    period).      New
    Mortgage Debt
  30-year
   138




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      3-month
  12-months
           139




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Senior
    Living Condominium Developments
    Legal
    and Accounting Fees Related to Accounting Review, Special
    Independent Committee Inquiry and Related Matters
    Real
    Estate Gains
   140




---



##### 



Sunrise
    Senior Living, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  25.
    Quarterly
    Results of Operations (Unaudited)    Q1


Q2


Q3


Q4(2)


Total2007Operating revenue

$
395,887


$
408,018


$
429,512


$
419,133


$
1,652,550Net income (loss)


7,480



7,992



38,230



(123,977
)


(70,275
)Basic net income (loss) per common share

$
0.15


$
0.16


$
0.77


$
(2.48
)

$
(1.41
)Diluted net income (loss) per common share


0.15



0.15



0.74



(2.48
)


(1.41
)2006 (as restated)Operating revenue

$
377,341


$
464,717


$
379,377


$
429,646


$
1,651,081Net income (loss)


901



47,071



15,120



(47,808
)


15,284Basic net income (loss) per common share

$
0.02


$
0.95


$
0.30


$
(0.96
)

$
0.31Diluted net income (loss) per common share


0.02



0.91



0.29



(0.96
)


0.302006 (as previously reported)Operating revenue

$
376,671


$
464,047


$
378,706


$
428,975


$
1,648,399Net income (loss)


2,320



48,685



16,304



(46,952
)


20,357Basic net income (loss) per common share

$
0.05


$
0.98


$
0.33


$
(0.94
)

$
0.42Diluted net income (loss) per common share


0.05



0.95



0.32



(0.94
)


0.40     (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)
    
    During the fourth quarter of 2007, we recorded an impairment
    charge of $56.7 million relating to Trinitys goodwill
    and intangible assets and a $21.6 million charge to
    write-off our investment in Aston Gardens.   141




---



##### 



REPORT OF
    INDEPENDENT AUDITORS
  To the
    Partners of
          
    142




---



##### 



PS UK
    INVESTMENT (JERSEY) LIMITED PARTNERSHIP
  CONSOLIDATED
    INCOME STATEMENT
  For the Year Ended December 31,Notes


2007


2006


2005(Unaudited)


(Unaudited)Operating revenue:Resident fees





£
14,176,377


£
6,583,409


£
Total operating revenue






14,176,377



6,583,409



Operating expenses:Facility operating expenses






12,191,116



7,256,183



Facility development and pre-rental expenses






6,394,516



4,535,897



2,438,240General and administrative expenses






597,968



131,926



112,217Facility lease expenses






26,042



40,626



Management fees


6



775,441



355,960



Depreciation


3



3,324,095



2,084,776



595Total operating expenses






(23,309,178
)


(14,405,368
)


(2,551,052
)Net operating loss






(9,132,801
)


(7,821,959
)


(2,551,052
)Other income/(expense):Financial income






973,715



194,676



132,916Interest expense






(11,459,235
)


(4,425,643
)


Loss on extinguishment of debt






(238,122
)






Foreign exchange gain






5,808







Gain on sale of subsidiaries


5



114,437,152







Total other income/(expense)






103,719,318



(4,230,967
)


132,916Profit/(loss) before tax






94,586,517



(12,052,926
)


(2,418,136
)Income tax expense


9











Profit/(loss) for the year after tax


10


£
94,586,517


£
(12,052,926
)

£
(2,418,136
)    143




---



##### 



PS UK
    INVESTMENT (JERSEY) LIMITED PARTNERSHIP
  CONSOLIDATED
    BALANCE SHEET
  At December 31,Notes


2007


2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents





£
20,421,691


£
8,848,123Accounts receivable






344,149



531,713Net receivables due from affiliates


6



336,986



Prepaid expenses and other current assets






2,560,883



1,504,638Total current assets






23,663,709



10,884,474Non current assetsProperty and equipment


3



216,704,854



285,285,526Restricted cash


5



11,588,218



Total non current assets






228,293,072



285,285,526Assets held for sale


4







4,184,152Total assets





£
251,956,781


£
300,354,152LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesTrade payables





£
100,018


£
328,467Accrued expenses


7



9,479,017



8,400,856Deferred revenue






309,658



220,758Net payables due to affiliates


6







4,084,417Other current liabilities


5



4,487,885



Current maturities of long-term debt


8



19,452,506



2,923,000Total current liabilities






33,829,084



15,957,498Non current liabilitiesPartner loan


6







1,275,000Long-term debt, net of finance costs


8



172,494,910



167,080,122Derivative financial instruments






529,885



173,024,795



168,355,122Partners capital


10



45,102,902



116,041,532Total non current liabilities






218,127,697



284,396,654Total liabilities and partners capital





£
251,956,781


£
300,354,152    144




---



##### 



PS UK
    INVESTMENT (JERSEY) LIMITED PARTNERSHIP
  CONSOLIDATED
    STATEMENT OF CHANGES IN PARTNERS CAPITAL
  For the Year Ended 31 December 2007Partners


Accumulated





Foreign





TotalCapital


Surplus/


Other


Currency


Distribution


PartnersContributions


(Deficit)


Reserves


Translation


to Partners


CapitalAt 1 January 2005 (unaudited)

£
20,814,613


£
(1,713,007
)

£
-


£
740


£



£
19,102,346Foreign currency translation














(919
)






(919
)Total income and expense for the year recognized directly in
    equity














(919
)






(919
)Loss for the year






(2,418,136
)














(2,418,136
)Total income and expense for the year






(2,418,136
)






(919
)






(2,419,055
)Partner contributions


20,084,077



















20,084,077At 31 December 2005 (unaudited)


40,898,690



(4,131,143
)






(179
)






36,767,368Foreign currency translation














(305
)






(305
)Revaluation of property and equipment










70,636,697











70,636,697Total income and expense for the year recognized directly in
    equity










70,636,697



(305
)






70,636,392Loss for the year






(12,052,926
)














(12,052,926
)Total income and expense for the year






(12,052,926
)


70,636,697



(305
)






58,583,466Partner contributions


20,690,698



















20,690,698At 31 December 2006 (unaudited)


61,589,388



(16,184,069
)


70,636,697



(484
)






116,041,532Cash flow hedge (note 11)










(529,885
)










(529,885
)Distribution to partners


















(159,675,550
)


(159,675,550
)Disposal of property and equipment revaluation










(70,636,697
)










(70,636,697
)Revaluation of property and equipment










39,079,729











39,079,729Total income and expense for the year recognized directly in
    equity










(32,086,853
)






(159,675,550
)


(191,762,403
)Profit for the year






94,586,517















94,586,517Total income and expense for the year






94,586,517



(32,086,853
)






(159,675,550
)


(97,175,886
)Partner contributions


26,237,256



















26,237,256At 31 December 2007

£
87,826,644


£
78,402,448


£
38,549,844


£
(484
)

£
(159,675,550
)

£
45,102,902    145




---



##### 



PS UK
    INVESTMENT (JERSEY) LIMITED PARTNERSHIP
  CONSOLIDATED
    STATEMENT OF CASH FLOWS
  For the Year Ended December 31,2007


2006


2005(Unaudited)


(Unaudited)Operating activitiesProfit/(loss) for the year before tax

£
94,586,517


£
(12,052,926
)

£
(2,418,136
)Adjustments to reconcile profit/(loss) for the year before tax
    to net cash flows from operating activities:Net finance costs


10,717,833



4,230,967



(132,916
)Depreciation


3,324,095



2,084,776



595Provision for bad debt


29,819



16,658



Gain on sale of subsidiaries


(114,437,152
)






Loss on extinguishment of debt


(238,122
)






Changes in assets and liabilities:Accounts receivable


157,745



(463,246
)


Prepaid expenses and other current assets


(1,056,246
)


(1,043,983
)


1,010,057Trade payables and accrued expenses


849,712



268,812



7,082,358Deferred revenue


88,880



220,758



Other current liabilities


4,487,885







Net cash flows (used in)/from operating activities


(1,489,034
)


(6,738,184
)


5,541,958Investing activitiesIncrease in restricted cash


(11,588,218
)






Purchase of property and equipment


(89,329,492
)


(94,680,104
)


(93,843,506
)Proceeds from sale of subsidiaries


245,381,485







Interest paid and capitalised


(4,695,605
)


(3,572,894
)


(2,219,469
)Interest received


973,715



194,676



132,916Net cash flows from/(used in) investing activities


140,741,885



(98,058,322
)


(95,930,059
)Financing activitiesContributions by partners


26,237,256



20,690,698



20,084,077Distributions to partners


(159,675,550
)






Net (repayments to)/borrowings from affiliates


(4,415,153
)


940,315



(616,500
)Net repayments to partners


(1,275,000
)






Borrowings of long-term debt


148,153,886



93,235,075



69,937,922Repayments of long-term debt


(126,918,499
)






Interest paid and expensed


(9,785,802
)


(4,279,290
)


Net cash flows (used in)/from financing activities


(127,678,862
)


110,586,798



89,405,499Net increase/(decrease) in cash and cash equivalents before
    effect of exchange rate on cash


11,573,989



5,790,292



(982,602
)Effect of exchange rate on cash


(421
)


(305
)


(919
)Net increase/(decrease) in cash and cash equivalents


11,573,568



5,789,987



(983,521
)Cash and cash equivalents at beginning of year


8,848,123



3,058,136



4,041,657Cash and cash equivalents at end of year

£
20,421,691


£
8,848,123


£
3,058,136  146




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial Statements
 At 31 December 2007
  1.
    Organization    2.1
    Basis of
    Preparation    Statement
    of Compliance
    Principles
    of Consolidation
    2.2  Changes
    in Accounting Policies
  IFRS 7
    Financial Instruments: Disclosures
    Amendment
    to IAS Presentation of Financial Statements  Capital
    Disclosures
   147




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  2.3  Significant
    Accounting Estimates
  Estimation
    Uncertainty
    Deferred
    Tax Assets
    2.4  Summary
    of Significant Accounting Policies
  Cash
    and Cash Equivalents
    Property
    and Equipment
         148




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Impairment
    of Assets
    Restricted
    Cash
    Revenue
    Recognition
    Operating
    Expenses
    
    Facility operating expenses including labour, food, marketing
    and other direct costs of operating the communities.
    Facility development and pre-rental expenses associated with the
    development and marketing of communities prior to opening.
    General and administrative expense related to costs of the
    Partnership itself.
    Management fees paid to subsidiaries of Sunrise for managing the
    communities (note 6).  Taxes
  Income
    and Corporation Taxes
    Sales
    Taxes
    
    where the sales tax incurred on a purchase of assets or services
    is not recoverable from the taxation authority, in which case
    the sales tax is recognised as part of the cost of acquisition
    of the asset or as part of the expense item as
    applicable; and
    receivables and payables that are stated with the amount of
    sales tax included.   149




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Deferred
    Income Tax
      
    where the deferred income tax liability arises from the initial
    recognition of goodwill or of an asset or liability in a
    transaction that is not a business combination and, at the time
    of the transaction, affects neither the accounting profit nor
    taxable profit or loss; and
    in respect of taxable temporary differences associated with
    investments in subsidiaries, associates and interests in joint
    ventures, where the timing of the reversal of the temporary
    differences can be controlled and it is probable that the
    temporary differences will not reverse in the foreseeable future.    
    where the deferred income tax asset relating to the deductible
    temporary differences arises from the initial recognition of an
    asset or liability in a transaction that is not a business
    combination and, at the time of the transaction, affects neither
    the accounting profit nor taxable profit or loss; and
    in respect of deductible temporary differences associated with
    investments in subsidiaries, associates and interests in joint
    ventures, deferred income tax assets are recognised only to the
    extent that it is probable that the temporary differences will
    reverse in the foreseeable future and taxable profit will be
    available against which the temporary differences can be
    utilized.        Derivative
    Financial Instruments and Hedging
   150




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
        
    fair value hedges when hedging the exposure to changes in the
    fair value of a recognised asset or liability or an unrecognised
    firm commitment (except for foreign currency risk); or
    cash flow hedges when hedging exposure to variability in cash
    flows that is either attributable to a particular risk
    associated with a recognised asset or liability or a highly
    probably forecast transaction or the foreign currency risk in a
    unrecognised firm commitment; or
    hedges of a net investment in a foreign operation.      Cash Flow
    Hedges
        Foreign
    Currency Translation
     151




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Borrowing
    Costs
    
    Expenditure for the asset and borrowing costs are being
    incurred; and
    Activities necessary to prepare the asset for its intended use
    are in progress.      New
    Standards and Interpretations not Applied
    IASB (IAS / IFRSs)

Effective dateIFRS 2

Amendment to IFRS 2  Vesting Conditions and
    Cancellations

1 January 2009IFRS 3

Business Combinations (revised January 2008)

1 July 2009IFRS 8

Operating Segments

1 January 2009IAS 1

Presentation of Financial Statements (revised September 2007)

1 January 2009IAS 23

Borrowing Costs (revised March 2007)

1 January 2009IAS 32

Amendment  Financial Instruments: Presentation

I January 2009IAS 27

Consolidated and Separate Financial Statements (revised January
    2008)

1 July 2009IAS 28

Amendment  Investments in Associates

1 July 2009IAS 31

Amendment  Interests in Joint Ventures

1 July 2009   IFRIC

Effective dateIFRIC 12

Service Concession Arrangements

1 January 2008IFRIC 13

Customer Loyalty Programmes

1 July 2008IFRIC 14

IAS 19  The Limit on a Defined Benefit Asset, Minimum
    Funding Requirements and their Interaction

1 January 2008IFRIC 15

Agreements for the Construction of Real Estate

1 January 2009        152




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  3.  Property
    and Equipment
    Land and


Furniture and


ConstructionBuildings


Equipment


in Progress


TotalAs at 1 January 2007, net of accumulated depreciation and
    exchange adjustment

£
191,135,829


£
7,504,926


£
86,644,771


£
285,285,526Additions, including interest capitalised


72,184,932



3,175,714



18,664,452



94,025,098Disposals, net of revaluations and accumulated depreciation


(190,318,356
)


(7,078,522
)






(197,396,878
)Revaluations


37,231,561



1,848,168







39,079,729Depreciation charge for the year


(2,337,772
)


(986,323
)






(3,324,095
)Transfer of net deferred financing costs










(964,526
)


(964,526
)As at 31 December 2007, net of accumulated depreciation and
    exchange adjustment

£
107,896,194


£
4,463,963


£
104,344,697


£
216,704,854   Land and


Furniture and


ConstructionBuildings


Equipment


in Progress


TotalAs at 1 January 2007Cost

£
192,580,010


£
8,146,986


£
86,644,771


£
287,371,767Accumulated depreciation


(1,444,181
)


(641,985
)






(2,086,166
)Exchange adjustment






(75
)






(75
)Net carrying amount

£
191,135,829


£
7,504,926


£
86,644,771


£
285,285,526As at 31 December 2007Cost or fair value


108,254,315



5,300,970



104,344,697



217,899,982Accumulated depreciation


(358,121
)


(837,007
)






(1,195,128
)Net carrying amount

£
107,896,194


£
4,463,963


£
104,344,697


£
216,704,854       Land and


Furniture andBuildings


Equipment


TotalCost

£
71,477,319


£
2,973,916


£
74,451,235Accumulated depreciation


(832,008
)


(358,120
)


(1,190,128
)Net carrying amount

£
70,645,311


£
2,615,796


£
73,261,107  153




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Land and


Furniture and


ConstructionBuildings


Equipment


in Progress


TotalAs at 1 January 2006, net of accumulated depreciation and
    exchange adjustment

£



£
1,344


£
124,087,897


£
124,089,241Additions, including interest capitalised


125,174,145



4,913,341



(31,834,492
)


98,252,994Revaluations


67,405,865



3,230,832







70,636,697Depreciation charge for the year


(1,444,181
)


(640,595
)






(2,084,776
)Transfer of assets held for sale










(4,184,152
)


(4,184,152
)Transfer of net deferred financing costs










(1,424,482
)


(1,424,482
)Exchange adjustment






4







4As at 31 December 2006, net of accumulated depreciation and
    exchange adjustment

£
191,135,829


£
7,504,926


£
86,644,771


£
285,285,526As at 1 January 2006Cost






2,813



124,087,897



124,090,710Accumulated depreciation






(1,390
)






(1,390
)Exchange adjustment






(79
)






(79
)Net carrying amount

£



£
1,344


£
124,087,897


£
124,089,241As at 31 December 2006Cost or fair value


192,580,010



8,146,986



86,644,771



287,371,767Accumulated depreciation


(1,444,181
)


(641,985
)






(2,086,166
)Exchange adjustment






(75
)






(75
)Net carrying amount

£
191,135,829


£
7,504,926


£
86,644,771


£
285,285,526      154




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Furniture and


ConstructionEquipment


in Progress


TotalAs at 1 January 2005, net of accumulated depreciation and
    exchange adjustment

£
1,999


£
28,024,862


£
28,026,861Additions, including interest capitalised






96,063,035



96,063,035Depreciation charge for the year


(595
)






(595
)Exchange adjustment


(60
)






(60
)As at 31 December 2005, net of accumulated depreciation and
    exchange adjustment

£
1,344


£
124,087,897


£
124,089,241As at 1 January 2005Cost


2,813



28,024,862



28,027,675Accumulated depreciation


(795
)






(795
)Exchange adjustment


(19
)






(19
)Net carrying amount

£
1,999


£
28,024,862


£
28,026,861As at 31 December 2005Cost


2,813



124,087,897



124,090,710Accumulated depreciation


(1,390
)






(1,390
)Exchange adjustment


(79
)






(79
)Net carrying amount

£
1,344


£
124,087,897


£
124,089,241     4.
    Assets
    Held for Sale    5.
    Sale of
    Subsidiaries   155




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
          2007


2006


2005(Unaudited)


(Unaudited)Revenue

£
18,561,984


£
13,739,973


£
Expenses


(19,321,416
)


(19,465,988
)


(2,183,985
)Net operating loss


(759,432
)


(5,726,015
)


(2,183,985
)Other (expense)/income


(7,137,281
)


(4,343,129
)


65,147Book loss before taxes


(7,896,713
)


(10,069,144
)


(2,118,838
)Taxes payable related to book income:Related to pre-tax profit/(loss)(1)










Related to gain on disposal(2)










Total taxes on book income for the subsidiaries sold

£



£



£
     (1)
    
    No taxes are due on operations, as the subsidiaries are in a tax
    loss position, and there is a net operating loss carry-forward
    of £13,717,412.(2)
    
    Note that the gain on disposal of the subsidiaries was
    recognized at the level of PS UK Sarl, and no Luxembourg tax was
    due on that gain.    2007


2006


2005(Unaudited)


(Unaudited)Operating

£
(1,182,337
)

£
(8,235,124
)

£
4,915,227Investing


146,018,109



(28,283,577
)


(72,225,290
)Financing


(149,412,223
)


40,585,176



64,396,505Net cash (outflow)/inflow

£
(4,576,451
)

£
4,066,475


£
(2,913,558
)  156




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  6.
    Affiliate
    Transactions    Country of

% Equity InterestName

Incorporation

2007


2006(Unaudited)PS UK Sarl

Luxembourg


100



100Property Companies:Sunrise of Fleet Limited

Jersey


0



100Sunrise of Cardiff Limited

Jersey


100



100Sunrise of Guildford Limited

Jersey


0



100Sunrise of Westbourne Limited

Jersey


0



100Sunrise of Edgbaston Limited

Jersey


0



100Sunrise of Bassett Limited

Jersey


0



100Sunrise of Mobberley Limited

Jersey


0



100Sunrise of Esher Limited

Jersey


0



100Sunrise of Solihull Limited

Jersey


100



100Sunrise of Chorleywood Limited

Jersey


100



100Sunrise of Weybridge Limited

Jersey


100



100Sunrise of Bristol Leigh Woods Limited

Jersey


100



100Sunrise of Brooklands Limited

Jersey


100



100Sunrise of Tettenhall Limited

Jersey


100



100Sunrise of Chichester Limited

Jersey


100



100Sunrise of Morningside Limited

Jersey


100



100Sunrise of Sonning Limited

Jersey


100



100Sunrise of Sevenoaks Limited

Jersey


100



100Sunrise of Southbourne Limited

Jersey


100



100Sunrise of Eastbourne Limited

Jersey


100



100Sunrise of Haywards Heath Limited

Jersey


0



100Sunrise of Surbiton Limited

Jersey


100



100Sunrise of Winchester Limited

Jersey


100



100Sunrise of Bramhall II Limited

Jersey


100



100Sunrise of Beaconsfield Limited

Jersey


100



100Sunrise of Bagshot II Limited

Jersey


100



0Sunrise of Brighton Limited

Jersey


100



0Operating Companies:Sunrise Operations Fleet Limited

England and Wales


0



100Sunrise Operations Cardiff Limited

England and Wales


100



100Sunrise Operations Guildford Limited

England and Wales


0



100Sunrise Operations Westbourne Limited

England and Wales


0



100Sunrise Operations Edgbaston Limited

England and Wales


0



100Sunrise Operations Bassett Limited

England and Wales


0



100Sunrise Operations Mobberley Limited

England and Wales


0



100Sunrise Operations Esher Limited

England and Wales


0



100Sunrise Operations Solihull Limited

England and Wales


100



100Sunrise Operations Chorleywood Limited

England and Wales


100



100Sunrise Operations Weybridge Limited

England and Wales


100



0Sunrise Operations Tettenhall Limited

England and Wales


100



100Sunrise Operations Southbourne Limited

England and Wales


100



100Sunrise Operations Eastbourne Limited

England and Wales


100



0Sunrise Operations Morningside Limited

England and Wales


100



0Sunrise Operations Bramhall II Limited

England and Wales


100



0Sunrise Operations Sonning Limited

England and Wales


100



0Sunrise Operations Beaconsfield Limited

England and Wales


100



0    157




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Other
    Related Parties
    2007


2006(Unaudited)Amounts due (from)/to other related partiesSunrise and its wholly owned subsidiaries

£
(372,366
)

£
3,964,787General Partner


(40,801
)


(40,801
)Home Help Companies:Sunrise Home Help Fleet Limited






24,894Sunrise Home Help Westbourne Limited






23,315Sunrise Home Help Guildford Limited






(24,987
)Sunrise Home Help Edgbaston Limited






23,457Sunrise Home Help Bassett Limited






32,149Sunrise Home Help Mobberley Limited






27,354Sunrise Home Help Esher Limited






54,249Sunrise Home Help Cardiff Limited


(5,275
)


Sunrise Home Help Tettenhall Limited


14,447



Sunrise Home Help Solihull Limited


46,199



Sunrise Home Help Chorleywood Limited


20,810



£
(336,986
)

£
4,084,417   Sunrise
    and its Wholly Owned Subsidiaries
         158




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  General
    Partner
    Home
    Help Companies
    Partner
    Loan
    7.
    Accrued
    Expenses    2007


2006(Unaudited)Contractor accruals including retainage

£
7,411,190


£
8,050,741Interest payable on mortgage debt


1,369,186



Other accrued expenses


698,641



350,115£
9,479,017


£
8,400,856   8.
    Long-Term
    Debt and Commitments   159




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Current

Effective Interest Rate %


Maturity


2007


2006(Unaudited)£1,862,000 bank loan


LIBOR + 2.00



2007


£



£
1,862,000£12,195,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007







221,000£15,200,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007







250,000£18,536,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007







295,000£16,298,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007







295,000£63,945,752 bank loan


7.87 to 8.25



2008



19,227,570



£19,500,000 bank loan


LIBOR + 1.75



2008



224,936



£
19,452,506


£
2,923,000Non-current£12,195,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007 - 2011







11,859,467£15,200,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007 - 2011







14,803,173£18,536,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007 - 2011







18,059,257£16,298,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2007 - 2012







15,797,234£63,945,752 bank loan


7.87 to 8.25



2008 - 2010



32,456,816



£19,500,000 bank loan


LIBOR + 1.75



2008 - 2011



17,216,880



12,378,738£20,346,000 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2008 - 2012







17,164,974£15,300,000 bank loan


LIBOR + 1.25 to LIBOR + 2.50



2009 - 2010



15,152,016



12,002,214£18,451,680 bank loan


LIBOR + 1.25 to LIBOR + 1.75



2009 - 2011



13,313,696



3,040,186£19,677,500 bank loan


LIBOR + 1.25 to LIBOR + 2.50



2009 - 2011



17,642,085



4,198,000£21,034,664 bank loan


LIBOR + 1.25 to LIBOR + 1.75



2009 - 2012



10,051,651



£15,320,712 bank loan


LIBOR + 1.25 to LIBOR + 2.25



2009 - 2013



15,090,332



6,401,440£15,953,000 bank loan


LIBOR + 1.35 to LIBOR + 1.75



2010







15,482,341£17,157,644 bank loan


LIBOR + 2.15



2010







15,299,298£19,472,082 bank loan


LIBOR + 0.85 to LIBOR + 1.50



2010



6,109,329



£21,428,205 bank loan


LIBOR + 0.85 to LIBOR + 1.50



2010



7,952,225



£16,729,000 bank loan


LIBOR + 1.35 to LIBOR + 1.75



2011



16,253,740



11,321,900£22,252,592 bank loan


LIBOR + 1.35 to LIBOR + 1.75



2011



19,487,621



9,271,900£20,664,096 bank loan


LIBOR + 1.25 to LIBOR + 1.50



2012



1,768,519



£
172,494,910


£
167,080,122           160




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
                                           161




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
            Commitments
    9.
    Income
    Taxes      2007


2006


2005(Unaudited)


(Unaudited)Partnership income

£
88,569,571


£
436,676


£
236,951Operating and property company profit/(loss)


6,016,946



(12,489,602
)


(2,655,087
)Consolidated net profit/(loss)

£
94,586,517


£
(12,052,926
)

£
(2,418,136
)     2007


2006(Unaudited)Deferred tax assetsNet operating losses for Operating and Property Companies

£
3,768,480


£
4,306,775Pre-rental expense carry-forward


397



327,584Total deferred tax assets


3,768,877



4,634,359Deferred tax liabilities Capital allowances


(88,563
)


(158,710
)Total deferred tax liabilities


(88,563
)


(158,710
)Net deferred tax asset

£
3,680,314


£
4,475,649      162




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
            10.
    Partners
    Capital       163




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Sunrise LP


SHIP


SunCo


TotalBalance at 1 January 2005  unaudited

£
3,820,468


£
15,281,877


£
1


£
19,102,346Contributions


4,016,816



16,067,261







20,084,077Net loss for the year


(483,627
)


(1,934,509
)






(2,418,136
)Foreign currency translation adjustment


(184
)


(735
)






(919
)Balance at 1 January 2006  unaudited


7,353,473



29,413,894



1



36,767,368Contributions


4,138,139



16,552,559







20,690,698Net loss for the year


(2,410,585
)


(9,642,341
)






(12,052,926
)Other reserves


14,127,339



56,509,358







70,636,697Foreign currency translation adjustment


(61
)


(244
)






(305
)Balance at 31 December 2006  unaudited


23,208,305



92,833,226



1



116,041,532Contributions


5,247,452



20,989,804







26,237,256Net profit for the year


18,917,303



75,669,214







94,586,517Other reserves


(6,417,371
)


(25,669,482
)






(32,086,853
)Distributions


(37,638,798
)


(113,064,757
)


(8,971,995
)


(159,675,550
)At 31 December 2007

£
3,316,891


£
50,758,005


£
(8,971,994
)

£
45,102,902   11.
    Financial
    Risk Management Objectives and Policies  Interest
    Rate Risk
  lease-up
       164




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Year
    Ended 31 December 2007
  On


Less Than


Three to


One to


More ThanDemand


Three Months


Twelve Months


Five Years


Five Years


TotalInterest bearing loans and borrowings

£



£
2,417,845


£
28,363,541


£
186,260,389


£
13,093,982


£
230,135,757Trade payables


100,018



















100,018Accrued expenses






6,929,574



1,131,609



1,417,834







9,479,017£
100,018


£
9,347,419


£
29,495,150


£
187,678,223


£
13,093,982


£
239,714,792   Year
    Ended 31 December 2006
  On


Less Than


Three to


One to


More ThanDemand


Three Months


Twelve Months


Five Years


Five Years


TotalInterest bearing loans and borrowings

£



£
1,905,293


£
10,507,059


£
175,256,666


£
34,273,990


£
221,943,008Trade payables


328,467



















328,467Accrued expenses






5,564,572



753,532



2,082,752







8,400,856Partner loan


















1,275,000



1,275,000£
328,467


£
7,469,865


£
11,260,591


£
177,339,418


£
35,548,990


£
231,947,331   Hedging
    Activities
  Cash Flow
    Hedges
    3-month
  Credit
    Risk
    Capital
    Management
     165




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      2007


2006(Unaudited)General partnership expenses

£
45,546


£
116,892Initial site investigation costsInitial investment approved projects:Sunrise of Bath Limited


(11,065
)


194,197Sunrise of Bristol Leigh Woods Limited


(2,263,093
)


471,056Sunrise of Brooklands Limited


306,301



238,208Sunrise of Chichester Limited


135,485



144,514Sunrise of Haywards Heath Limited


123,493



226,891Sunrise of High Wycombe Limited


(1,828
)


(118,501
)Sunrise of Morningside Limited


(42,397
)


201,473Sunrise of Murrayfield Limited






(291,500
)Sunrise of Sevenoaks Limited


302,030



819,800Sunrise of Surbiton Limited


387,664



380,637Sunrise of Winchester Limited


270,544



316,843Final investment approved projects:Sunrise of Bagshot II Limited


5,166,024



Sunrise of Beaconsfield Limited


5,078,287



278,764Sunrise of Bramhall II Limited


4,810,438



448,228Sunrise of Cardiff Limited






683,924Sunrise of Chorleywood Limited






2,297,153Sunrise of Eastbourne Limited


3,021,973



1,590,947Sunrise of Mobberley Limited






1,015,867Sunrise of Sonning Limited


4,481,506



386,514Sunrise of Solihull Limited






2,108,214Sunrise of Southborne Limited


2,025,701



2,893,676Sunrise of Tettenhall Limited


386,011



3,140,666Sunrise of Weybridge Limited


2,014,636



3,146,235£
26,237,256


£
20,690,698   12.
    Pensions
    and Other Post-Employment Benefit Plans   166




---



##### 



PS UK
    Investment (Jersey) Limited Partnership
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  13.
    Subsequent
    Events   167




---



##### 



INDEPENDENT
    AUDITORS REPORT
               168




---



##### 



AL U.S.
    DEVELOPMENT VENTURE, LLC
  CONSOLIDATED
    BALANCE SHEETS
  As of December 31,2007


2006


2005(Unaudited)


(Unaudited)ASSETSProperty and Equipment:Land and land improvements

$
47,836,752


$
47,800,833


$
40,931,428Building and building improvements


179,175,098



178,962,371



153,486,626Furniture and equipment


13,302,079



13,107,160



11,230,326Construction in progress






19,135



31,197,641240,313,929



239,889,499



236,846,021Less accumulated depreciation


(23,501,494
)


(16,610,470
)


(14,658,439
)Property and equipment  net


216,812,435



223,279,029



222,187,582Cash and Cash Equivalents


7,547,327



6,539,184



Cash Held by AEW Member






3,416,771



11,094,765Restricted Cash


6,000,000







Accounts Receivable  Less allowance for doubtful
    accounts of $383,057, $243,343, and $175,571, respectively


1,079,174



1,224,655



875,388Prepaid Expenses and Other Current Assets


564,679



761,107



641,110Deferred Financing Costs  Less accumulated
    amortization of $529,572, $2,359,258, and $1,489,611,
    respectively


4,085,851



1,572,757



2,243,958Total

$
236,089,466


$
236,793,503


$
237,042,803LIABILITIES AND MEMBERS (DEFICIT) CAPITALLiabilities:Long-term debt

$
370,500,000


$
202,313,581


$
185,425,293Derivative liability


17,039,343







Notes payable to affiliate






4,173,724



2,338,490Accounts payable and accrued expenses


2,728,431



2,973,211



5,857,310Payables to affiliates


3,197,737



9,145,059



4,829,679Deferred revenue


3,953,863



3,250,730



3,114,810Security and reservation deposits


44,301



85,341



91,645Accrued interest


1,270,845



630,337



37,843Total liabilities


398,734,520



222,571,983



201,695,070Members (Deficit) Capital


(162,645,054
)


14,221,520



35,347,733Total

$
236,089,466


$
236,793,503


$
237,042,803    169




---



##### 



AL U.S.
    DEVELOPMENT VENTURE, LLC
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2007


2006


2005(Unaudited)


(Unaudited)Operating revenue:Resident fees

$
76,325,155


$
64,822,893


$
51,029,044Other income


379,149



226,946



137,805Total operating revenue


76,704,304



65,049,839



51,166,849Operating expenses:Labor


27,361,910



25,044,073



19,529,473Depreciation and amortization


6,766,201



6,431,137



7,801,309Management fees


5,198,041



4,418,473



3,461,584General and administrative


4,647,867



3,646,605



2,729,632Insurance


2,526,045



4,066,943



2,812,243Food


2,722,483



2,334,825



1,746,597Taxes and license fees


2,701,310



1,878,673



1,391,581Utilities


2,006,454



1,960,423



1,595,469Repairs and maintenance


1,996,821



1,277,319



938,150Advertising and marketing


994,128



1,117,188



594,066Ancillary expenses


535,929



386,746



332,132Bad debt


163,929



96,053



134,009Total operating expenses


57,621,118



52,658,458



43,066,245Income from operations


19,083,186



12,391,381



8,100,604Other income (expense):Amortization of financing cost


(914,656
)


(869,647
)


(738,748
)Loss on extinguishment of debt


(1,188,688
)






Prepayment penalty


(4,154,962
)






Change in fair value of interest rate hedge instruments


(17,039,343
)






Interest expense


(20,637,838
)


(12,739,257
)


(9,033,706
)Interest income


331,620



232,701



13,631Total other expense


(43,603,867
)


(13,376,203
)


(9,758,823
)Net loss

$
(24,520,681
)

$
(984,822
)

$
(1,658,219
)    170




---



##### 



AL U.S.
    DEVELOPMENT VENTURE, LLC
  CONSOLIDATED
    STATEMENTS OF CHANGES IN MEMBERS CAPITAL
    (DEFICIT)
  For the Years Ended December 31MS SeniorSSLII


AEW Member


Living, LLC


TotalMembers capital  December 31, 2004
    (unaudited)

$
11,341,244


$
32,059,380


$



$
43,400,624Cash contributions


653,703



2,673,560







3,327,263Non-cash contribution adjustment


(35,062
)


(140,247
)






(175,309
)Cash distributions


(512,414
)


(7,884,476
)






(8,396,890
)Non-cash distributions


(229,947
)


(919,789
)






(1,149,736
)Net loss


(331,644
)


(1,326,575
)






(1,658,219
)Members capital  December 31, 2005
    (unaudited)


10,885,880



24,461,853







35,347,733Distributions


(8,030,842
)


(12,110,549
)






(20,141,391
)Net loss


(196,964
)


(787,858
)






(984,822
)Members capital  December 31, 2006
    (unaudited)


2,658,074



11,563,446







14,221,520Contributions


1,200,000







4,800,000



6,000,000Distributions


(30,746,046
)


856,509



(128,456,356
)


(158,345,893
)Transfer of equity






(12,584,916
)


12,584,916



Net loss


(4,904,136
)


164,961



(19,781,506
)


(24,520,681
)Members deficit  December 31, 2007

$
(31,792,108
)

$



$
(130,852,946
)

$
(162,645,054
)    171




---



##### 



AL U.S.
    DEVELOPMENT VENTURE, LLC
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Years Ended December 31,2007


2006


2005(Unaudited)


(Unaudited)Cash flows from operating activities:Net loss

$
(24,520,681
)

$
(984,822
)

$
(1,658,219
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization


6,766,201



6,431,137



7,801,309Amortization and loss on extinguishment of debt


2,103,344



869,647



738,748Provision for bad debts


163,929



96,053



134,009Changes in assets and liabilities:Change in fair value of interest rate hedge instruments


17,039,343







Cash held by AEW Member


3,416,771



7,677,994



(6,355,684
)Accounts receivable


(18,448
)


(445,320
)


(497,767
)Prepaid expenses and other current assets


196,428



(119,997
)


(214,635
)Accounts payable and accrued expenses


(244,780
)


(2,884,099
)


460,871Payable to affiliates  net


(5,947,322
)


4,315,380



2,489,875Accrued interest


640,508



592,494



37,843Deferred revenue


703,133



135,920



790,935Security and reservation deposits


(41,040
)


(6,304
)


(9,995
)Net cash provided by operating activities


257,386



15,678,083



3,717,290Cash flows from investing activities:Restricted cash


(6,000,000
)






9,652,233Investment in property and equipment


(299,607
)


(7,522,584
)


(32,264,573
)Net cash used in investing activities


(6,299,607
)


(7,522,584
)


(22,612,340
)Cash flows from financing activities:Payment of financing costs


(4,616,438
)


(198,446
)


(33,493
)Proceeds from note to affiliate


47,708



4,859,176



17,751,344Repayment of note to affiliate


(4,221,432
)


(3,023,942
)


(24,565,140
)Proceeds from long-term debt


371,330,817



17,032,214



30,808,064Payment on long-term debt


(203,144,398
)


(143,926
)


Contributions


6,000,000







3,327,263Distributions


(158,345,893
)


(20,141,391
)


(8,396,890
)Net cash provided by (used in) financing activities


7,050,364



(1,616,315
)


18,891,148Net increase (decrease) in cash and cash equivalents


1,008,143



6,539,184



(3,902
)Cash and cash equivalents  Beginning of year


6,539,184







3,902Cash and cash equivalents  End of year

$
7,547,327


$
6,539,184



Supplemental disclosure of non-cash flow information Change in derivative valuation

$
17,039,343


$



$
SSLII capital contribution accrued but unpaid in 2004










(175,309
)Capital distributions accrued but unpaid










(1,149,736
)$
17,039,343


$



$
(1,325,045
)Supplemental disclosure of cash flow information Cash paid for interest

$
19,997,330


$
12,146,763


$
9,032,386    172




---



##### 



AL U.S.
    Development Venture, LLC
    Notes to Consolidated Financial Statements
    As of and for the Years Ended December 31, 2007, 2006
    (Unaudited), and 2005
    (Unaudited)
  1.
    Organization        Operator Entity

Location

Date OpenedAL US/Bonita Senior Housing, LP

San Diego (Bonita), California

April 2003Boulder Assisted Living, LLC

Boulder, Colorado

May 2003AL US/Huntington Beach Senior Housing, LP

Huntington Beach, California

February 2004AL US/La Jolla Senior Housing, LP

Chula Vista (La Jolla/Pacific Beach), California

May 2003AL US/La Palma Senior Housing, LP

La Palma, California

July 2003Newtown Square Assisted Living, LLC

Newton Square, Pennsylvania

March 2004AL US/Sacramento Senior Housing, LP

Sacramento, California

December 2003AL US/Seal Beach Senior Housing, LP

Seal Beach, California

February 2004AL US/Studio City Senior Housing, LP

Los Angeles (Studio City), California

June 2004Wilmington Assisted Living, LLC

Wilmington, Delaware

December 2003AL US/Woodland Hills Senior Housing, LP

Woodland Hills, California

May 2005AL US/Playa Vista Senior Housing, LP

La Playa Vista, California

June 2006GP Woods Assisted Living, LLC

Grosse Point Woods, Michigan

January 2005AL US/GP Woods II Senior Housing, LLC

Grosse Point Woods II, Michigan

June 2006AL/US San Gabriel Senior Housing, LP

San Gabriel, California

February 2005     2.
    Summary
    of Significant Accounting Policies  Basis of Accounting
 173




---



##### 



AL U.S.
    Development Venture, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Use of Estimates
  Property and Equipment
  Land improvements


10-15 yearsBuilding and improvements


40 yearsFurniture, fixtures, and equipment


3-10 years     Cash and Cash Equivalents
  Restricted Cash
  Allowance for Doubtful Accounts
  Deferred Financing Costs
  Revenue Recognition and Deferred Revenue
 174




---



##### 



AL U.S.
    Development Venture, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Income Taxes
  Accounting for Derivatives for Derivative Instruments and
    Hedging Activity
    Fair Value of Financial Instruments and/or
    3.
    Transactions
    with Affiliates       175




---



##### 



AL U.S.
    Development Venture, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
            4.
    Concentrations
    of Credit Risk    5.
    Long-Term
    Debt       176




---



##### 



AL U.S.
    Development Venture, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
                  6.
    Contingencies    7.
    New
    Accounting Pronouncements  Fair Value Measurements
 177




---



##### 



AL U.S.
    Development Venture, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    The
    Fair Value Option for Financial Assets and Financial
    Liabilities-Including an amendment of FASB Statement
    No. 115,
   178




---



##### 



INDEPENDENT
    AUDITORS REPORT
                179




---



##### 



SUNRISE
    FIRST ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(Unaudited)ASSETSReal Estate, net

$
123,270,368


$
126,263,066Other AssetsCash and cash equivalents


1,946,157



2,505,286Accounts receivable, less allowance for doubtful accounts of
    $577,928 and $367,187, respectively


1,125,070



1,066,950Due from affiliates, net


1,660,615



Other assets


154,136



444,750Restricted cash


634,013



1,698,613Deferred financing costs, less accumulated amortization of
    $1,080,266 and $1,225,645, respectively


3,887,248



1,080,141Total other assets


9,407,239



6,795,740Total assets

$
132,677,607


$
133,058,806LIABILITIES AND MEMBERS DEFICITMortgages Payable

$
175,254,051


$
128,391,460Other LiabilitiesAccounts payable and accrued expenses


2,871,358



1,912,382Due to affiliates, net






639,358Deferred revenue


2,367,289



2,303,331Note payable to affiliate






2,576,062Deferred rent


1,225,126



944,812Total other liabilities


6,463,773



8,375,945Total liabilities


181,717,824



136,767,405Members Deficit


(49,040,217
)


(3,708,599
)Total liabilities and members deficit

$
132,677,607


$
133,058,806    180




---



##### 



SUNRISE
    FIRST ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(Unaudited)


(Unaudited)Operating Revenue

$
58,308,339


$
55,833,049


$
53,205,622Operating expensesLabor


20,672,041



19,699,558



19,350,475Food


2,379,689



2,239,177



2,127,080General and administrative


7,357,504



6,652,993



5,668,457Insurance


2,148,863



2,131,013



1,994,847Utilities


1,901,748



1,744,987



1,612,499Repair and maintenance


2,036,785



1,656,012



1,217,212Management fees


3,911,592



3,964,787



3,785,251Depreciation


3,849,154



3,717,927



3,654,742Lease expense


409,294



412,178



413,169Total operating expenses


44,666,670



42,218,632



39,823,732Income from Operations


13,641,669



13,614,417



13,381,890Other (expense) incomeInterest income


150,191



105,477



14,192Interest expense


(14,510,145
)


(9,487,888
)


(9,610,197
)Total other expense


(14,359,954
)


(9,382,411
)


(9,596,005
)Net (loss) income

$
(718,285
)

$
4,232,006


$
3,785,885    181




---



##### 



SUNRISE
    FIRST ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED
    STATEMENTS OF CHANGES IN MEMBERS (DEFICIT)
    CAPITAL
    Balance, January 1, 2004 (unaudited)

$
670,484Distributions (unaudited)


(5,899,677
)Net Income (unaudited)


3,785,885Balance, December 31, 2004 (unaudited)


(1,443,308
)Distributions (unaudited)


(6,497,297
)Net Income (unaudited)


4,232,006Balance, December 31, 2005


(3,708,599
)Distributions


(44,613,333
)Net Loss


(718,285
)Balance, December 31, 2006

$
(49,040,217
)    182




---



##### 



SUNRISE
    FIRST ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(Unaudited)


(Unaudited)Cash flows from operating activitiesNet (loss) income

$
(718,285
)

$
4,232,006


$
3,785,885Reconciling adjustments:Provision for bad debts


210,741



(12,112
)


198,051Depreciation


3,849,154



3,717,927



3,654,742Amortization of financing costs


757,512



286,999



322,328Changes in:Accounts receivable


(268,861
)


(163,036
)


129,934Other assets


290,614



(18,456
)


(185,255
)Accounts payable and accrued expenses


958,976



279,142



475,493Due from/to affiliates


(2,299,973
)


383,224



(302,042
)Deferred revenue


63,958



(279,620
)


2,133,976Deferred rent


280,314



246,564



254,063Net cash provided by operating activities


3,124,150



8,672,638



10,467,175Cash flows from investing activitiesDecrease (increase) in restricted cash


1,064,600



(389,203
)


40,269Investment in property and equipment


(856,456
)


(917,792
)


(391,350
)Net cash used in (provided by) investing activities


208,144



(1,306,995
)


(351,081
)Cash flows from financing activitiesFinancing costs paid


(3,564,619
)


(46,779
)


(44,688
)Borrowing of long-term debt


175,977,070







Repayments of long-term debt


(129,114,479
)


(2,463,233
)


(2,306,781
)Repayments of note payable to affiliate


(2,576,062
)


(53,957
)


(50,420
)Distributions to members


(44,613,333
)


(6,224,676
)


(5,907,920
)Net cash used in financing activities


(3,891,423
)


(8,788,645
)


(8,309,809
)Net (decrease) increase in cash and cash equivalents


(559,129
)


(1,423,002
)


1,806,285Cash and cash equivalents, beginning of year


2,505,286



3,928,288



2,122,003Cash and cash equivalents, end of year

$
1,946,157


$
2,505,286


$
3,928,288Supplemental disclosure of cash flow informationCash paid for interest

$
13,504,120


$
9,200,890


$
9,286,049    183




---



##### 



Sunrise
    First Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial Statements
 December 31, 2006, 2005 and 2004
  Note 1 
    Organization          Note 2 
    Summary
    of Significant Accounting Policies  Principles of Consolidation
    Use of Estimates
  Cash and Cash Equivalents
 184




---



##### 



Sunrise
    First Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Restricted Cash
  Allowance for Doubtful Accounts
  Real Estate
  Deferred Financing Costs
  EITF 96-19, Debtors Accounting for a Modification or Exchange of
    Debt Instruments,
  Revenue Recognition and Deferred
    Revenue
  Advertising Costs
  Income Taxes
 185




---



##### 



Sunrise
    First Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Note 3 
    Real
    Estate    Asset Lives


2006


2005(Unaudited)Land and land improvements


10-15 years


$
28,450,690


$
28,384,989Building and building improvements


40 years



102,127,099



101,541,601Furniture and equipment


3-10 years



10,148,030



9,942,773140,725,819



139,869,363Less accumulated depreciation






(17,455,451
)


(13,606,297
)$
123,270,368


$
126,263,066   Note 4 
    Affiliate
    Transactions  Management Services
          2006


2005(Unaudited)(Payable to) receivable from:USALF

$



$
(217,900
)SSLI and its subsidiaries


1,660,615



(421,458
)$
1,660,615


$
(639,358
)  186




---



##### 



Sunrise
    First Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      Note Payable to Affiliate 30-day
  Note 5 
    Mortgages
    Payable    2006


2005(Unaudited)Notes payable to finance institutions, due in monthly
    installments, with the remaining balance of the notes maturing
    from November 1, 2008 through January 2012. The notes bear
    interest at rates ranging from 6.49 percent to
    7.42 percent. The notes were refinanced on
    September 13, 2006

$



$
119,395,941Note payable to a finance institution, due in monthly
    installments, with the remaining balance of the note maturing
    January 1, 2007. The note bears interest at the
    30-day LIBOR
    plus 3 percent (8.33 percent and 7.39 percent at
    December 31, 2006 and 2005, respectively). This note was
    repaid on September 13, 2006






8,995,519Notes payable to a finance institution, due in monthly
    installments, with the remaining balance of the notes maturing
    October 1, 2016. The notes bear interest at
    6.05 percent


50,756,905



Notes payable to a finance institution, due in monthly
    installments, with the remaining balance of the notes maturing
    October 1, 2013. The notes bear interest at
    5.99 percent


124,497,146



Long-term debt

$
175,254,051


$
128,391,460   Note 6 
    Mortgage
    Note Payable    Year ending December 31, 2007

$
3,091,6522008


3,273,7072009


3,477,6702010


3,694,3422011


3,924,513Thereafter


157,792,167$
175,254,051  187




---



##### 



Sunrise
    First Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
   Note 7 
    Members
    Capital        Note 8 
    Fair
    Value of Financial Instruments        Note 9 
    Commitments      Year ending December 31, 2007

$
165,0002008


165,0002009


165,0002010


173,2502011


181,500Thereafter


35,688,255$
36,538,005   Note 10 
    Contingencies     188




---



##### 



INDEPENDENT
    AUDITORS REPORT
                189




---



##### 



SUNRISE
    SECOND ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED BALANCE SHEETS
  December 31,2006


2005(Unaudited)ASSETSReal Estate, net

$
117,998,402


$
125,791,597Other AssetsCash and cash equivalents


4,722,364



2,034,094Accounts receivable, less allowance for doubtful accounts of
    $268,733 and $265,965, respectively


1,159,789



927,889Due from affiliates, net






681,673Insurance claims receivable






3,632,827Other assets


42,814



252,815Prepaid rent


2,202,696



2,230,638Restricted cash






851,913Deferred financing costs, less accumulated amortization of
    $719,756 and $494,062, respectively


4,373,953



672,473Total other assets


12,501,616



11,284,322Total assets

$
130,500,018


$
137,075,919LIABILITIES AND MEMBERS (DEFICIT) CAPITALMortgages Payable

$
169,786,761


$
123,733,851Other LiabilitiesAccounts payable and accrued expenses


2,660,135



2,628,201Due to affiliates, net


1,007,323



Deferred revenue


2,344,826



2,154,370Deferred rent






457,325Total other liabilities


6,012,284



5,239,896Total liabilities


175,799,045



128,973,747Members (Deficit) Capital


(45,299,027
)


8,102,172Total liabilities and members (deficit) capital

$
130,500,018


$
137,075,919    190




---



##### 



SUNRISE
    SECOND ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(Unaudited)


(Unaudited)Operating Revenue

$
58,683,362


$
56,993,261


$
56,105,019Operating expensesLabor


21,444,384



22,425,562



21,521,840Food


2,442,275



2,348,003



2,295,342General and administrative


5,472,770



5,239,771



5,255,072Insurance


1,837,703



2,492,301



1,898,269Utilities


2,118,585



1,967,640



1,769,388Repair and maintenance


1,692,775



1,430,900



1,137,823Management fees


3,808,151



3,846,488



3,816,149Depreciation


3,968,698



3,931,837



3,899,256Impairment loss on property and equipment






3,587,827



Gain on insurance recovery






(3,587,827
)


Total operating expenses


42,785,341



43,682,502



41,593,139Income from Operations


15,898,021



13,310,759



14,511,880Other (expense) incomeInterest income


167,624



99,223



23,404Interest expense


(8,992,769
)


(7,855,583
)


(7,998,871
)Total other expense


(8,825,145
)


(7,756,360
)


(7,975,467
)Net income

$
7,072,876


$
5,554,399


$
6,536,413    191




---



##### 



SUNRISE
    SECOND ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED
    STATEMENTS OF CHANGES IN MEMBERS (DEFICIT) CAPITAL
 Years
    Ended December 31, 2006, 2005 and 2004
  Balance, January 1, 2004 (unaudited)

$
11,470,850Distributions (unaudited)


(8,647,408
)Net Income (unaudited)


6,536,413Balance, December 31, 2004 (unaudited)


9,359,855Distributions (unaudited)


(6,812,082
)Net Income (unaudited)


5,554,399Balance December 31, 2005


8,102,172Distributions


(60,474,075
)Net Income


7,072,876Balance December 31, 2006

$
(45,299,027
)    192




---



##### 



SUNRISE
    SECOND ASSISTED LIVING HOLDINGS, LLC
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years Ended December 31,2005


20042006


(Unaudited)


(Unaudited)Cash flows from operating activitiesNet income

$
7,072,876


$
5,554,399


$
6,536,413Reconciling adjustments:Provision for bad debts


27,710



(6,093
)


183,584Depreciation


3,968,698



3,931,837



3,899,256Amortization of prepaid rent


27,941



27,941



27,941Amortization of financing costs


315,148



163,446



167,116Impairment loss on property and equipment






3,587,827



Gain on insurance recovery






(3,587,827
)


Changes in:Accounts receivable


(259,610
)


(165,700
)


30,296Insurance claims receivable


51,386



(45,000
)


Other assets


210,001



(4,754
)


(149,816
)Accounts payable and accrued expenses


31,934



634,732



387,337Due to (from) affiliates


1,688,996



(558,123
)


(843,911
)Deferred revenue


190,456



(872,068
)


2,776,451Deferred rent


(457,325
)


149,464



116,217Net cash provided by operating activities


12,868,211



8,810,081



13,130,884Cash flows from investing activitiesIncrease (decrease) in restricted cash


851,913



(625,943
)


(212,602
)Investment in property and equipment


(527,876
)


(534,584
)


(664,889
)Net cash provided by (used in) investing activities


324,037



(1,160,527
)


(877,491
)Cash flows from financing activitiesFinancing costs paid


(4,227,644
)


4,395



Borrowing of long-term debt


170,523,000







Repayments of long-term debt


(124,470,089
)


(2,563,252
)


(2,410,937
)Distributions to members


(52,329,245
)


(7,573,684
)


(8,334,605
)Net cash used in financing activities


(10,503,978
)


(10,132,541
)


(10,745,542
)Net increase (decrease) in cash and cash equivalents


2,688,270



(2,482,987
)


1,507,851Cash and cash equivalents, beginning of year


2,034,094



4,517,081



3,009,230Cash and cash equivalents, end of year

$
4,722,364


$
2,034,094


$
4,517,081Supplemental disclosure of cash flow informationCash paid for interest

$
8,994,268


$
7,698,584


$
7,837,900Non-cash financing activitiesDistribution of property

$
8,144,830


$



$
    193




---



##### 



Sunrise
    Second Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial Statements
 December 31,
    2006, 2005 and 2004
  Note 1 
    Organization          Note 2 
    Summary
    of Significant Accounting Policies  Principles of Consolidation
    Use of Estimates
  Cash and Cash Equivalents
 194




---



##### 



Sunrise
    Second Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Restricted Cash
  Allowance for Doubtful Accounts
  Real Estate
  Deferred Financing Costs
  EITF 96-19, Debtors Accounting for a Modification or Exchange of
    Debt Instruments,
  Revenue Recognition
  Advertising Costs
  Income Taxes
 195




---



##### 



Sunrise
    Second Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Note 3 
    Real
    Estate    Asset Lives


2006


2005(Unaudited)Land and land improvements


10-15 years


$
21,496,934


$
22,254,425Building and building improvements


40 years



100,901,038



105,103,984Furniture and equipment


3-10 years



10,333,547



10,175,429132,731,519



137,533,838Less accumulated depreciation






(14,733,117
)


(11,742,241
)$
117,998,402


$
125,791,597   Note 4 
    Affiliate
    Transactions  Management Services
          2006

2005(Unaudited)(Payable to) receivable from:SSLI and its subsidiaries

$
(1,007,323
)

$
681,673    196




---



##### 



Sunrise
    Second Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Note 5 
    Mortgages
    Payable        Year ending December 31, 2007

$
3,058,5872008


3,248,8502009


3,450,9482010


3,665,6182011


3,893,642Thereafter


152,469,116$
169,786,761   Note 6 
    Members
    Capital        Note 7 
    Fair
    Value of Financial Instruments        Note 8 
    Commitments   197




---



##### 



Sunrise
    Second Assisted Living Holdings, LLC
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Note 9 
    Contingencies      Note 10 
    Bayou St.
    John Facility     198




---



##### 



REPORT OF
    INDEPENDENT AUDITORS
  
    
    199




---



##### 



METROPOLITAN
    SENIOR HOUSING, LLC
  CONSOLIDATED
    BALANCE SHEETS
  As of December 31,2006


2005(Not covered byauditors report)ASSETSLand and land improvements

$
35,662,196


$
35,602,008Building and building improvements


123,431,038



122,975,248Furniture and equipment


18,352,996



17,812,295177,446,230



176,389,551Less accumulated depreciation


(32,672,264
)


(27,325,076
)Rental property, net


144,773,966



149,064,475Cash


2,205,398



160,000Receivable from affiliates, net of allowance for doubtful
    accounts of $0 and $474,763, respectively


1,454,864



7,797,879Prepaid expenses and other current assets


92,809



211,415Deferred rent receivable






2,156,571Restricted cash


1,216,530



528,012Deferred financing costs, less accumulated amortization of
    $359,098 and $918,554, respectively


3,882,647



711,425Total assets

$
153,626,214


$
160,629,777LIABILITIES AND MEMBERS (DEFICIT) CAPITALNotes payable

$
190,000,000


$
107,215,679Accounts payable and accrued expenses


261,355



106,618Payables to affiliates






804,399Total liabilities


190,261,355



108,126,696Members (deficit) capital


(36,635,141
)


52,503,081Total liabilities and members (deficit) capital

$
153,626,214


$
160,629,777    200




---



##### 



METROPOLITAN
    SENIOR HOUSING, LLC
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2006


2005


2004(Not covered


(Not coveredby auditors


by auditorsreport)


report)Operating revenueLease income from affiliates

$
18,193,626


$
21,466,735


$
23,759,822Operating expensesTaxes and insurance


1,831,921



1,708,480



2,447,948General and administrative


337,205



65,396



121,320Depreciation


5,347,188



5,359,582



5,332,778Bad debt expense


6,728,816



474,763



Total expenses


14,245,130



7,608,221



7,902,046Other income (expense)Interest income


44,928



8,380



2,695Interest expense


(8,552,697
)


(8,455,779
)


(8,679,689
)Net (loss) income

$
(4,559,273
)

$
5,411,115


$
7,180,782    201




---



##### 



METROPOLITAN
    SENIOR HOUSING, LLC
  CONSOLIDATED
    STATEMENTS OF CHANGES IN MEMBERS (DEFICIT)
    CAPITAL
  For the Years Ended December 31, 2006, 2005, and 2004Sunrise SeniorLiving


Federal Street


HVP SunInvestments, Inc.


Operating, LLC


Investing, LLC


TotalMembers capital at December 31, 2003 (not covered by
    auditors report)

$
23,524,689


$
31,225,059


$



$
54,749,748Contributions


85,537



89,028







174,565Distributions


(2,684,185
)


(5,810,976
)






(8,495,161
)Net income


2,944,121



4,236,661







7,180,782Members capital at December 31, 2004 (not covered by
    auditors report)


23,870,162



29,739,772







53,609,934Distributions


(2,691,852
)


(3,826,116
)






(6,517,968
)Net income


2,218,557



3,192,558







5,411,115Members capital at December 31, 2005 (not covered by
    auditors report)


23,396,867



29,106,214







52,503,081Contributions


432,355



1,297,069







1,729,424Distributions


(2,548,424
)


(3,627,303
)






(6,175,727
)Net loss through December 12, 2006


(1,766,435
)


(2,541,941
)






(4,308,376
)Transfer of members interest






(24,234,039
)


24,234,039



Distributions


(29,956,969
)






(50,175,677
)


(80,132,646
)Net loss from December 12, 2006 through December 31,
    2006


(62,724
)






(188,173
)


(250,897
)Members deficit at December 31, 2006

$
(10,505,330
)

$



$
(26,129,811
)

$
(36,635,141
)    202




---



##### 



METROPOLITAN
    SENIOR HOUSING, LLC
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Years Ended December 31,2006


2005


2004(Not covered


(Not coveredby auditors


by auditorsreport)


report)Operating activitiesNet (loss) income

$
(4,559,273
)

$
5,411,115


$
7,180,782Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Depreciation


5,347,188



5,359,582



5,332,778Amortization of financing costs


285,856



232,854



293,228Provision for bad debts


6,728,816



474,763



Changes in assets and liabilities:Receivable from affiliates


(385,801
)


(869,056
)


(4,645,829
)Prepaid expenses and other current assets


118,606



41,620



58,222Restricted cash


(688,518
)


(27,419
)


2,123,053Deferred rent receivable


2,156,571



5,862



519,766Accounts payable and accrued expenses


154,737



23,520



45,656Payables to affiliates


(804,399
)


(1,474,319
)


(609,597
)Net cash provided by operating activities


8,353,783



9,178,522



10,298,059Investing activitiesInvestment in leased property


(1,056,679
)


(1,045,999
)


(913,120
)Net cash used in investing activities


(1,056,679
)


(1,045,999
)


(913,120
)Financing activitiesFinancing costs paid


(3,457,078
)






(46,000
)Proceeds from notes payable


190,000,000







Repayment of notes payable


(107,215,679
)


(2,097,770
)


(1,939,333
)Contributions from members


1,729,424







174,565Distributions to members


(86,308,373
)


(5,974,804
)


(7,951,242
)Net cash used in financing activities


(5,251,706
)


(8,072,574
)


(9,762,010
)Net increase (decrease) in cash


2,045,398



59,949



(377,071
)Cash at beginning of year


160,000



100,051



477,122Cash at end of year

$
2,205,398


$
160,000


$
100,051Supplemental disclosures of cash flow information:Cash paid for interest

$
7,629,491


$
8,222,925


$
8,386,461Accrued distribution to members

$



$
543,164


$
543,919    203




---



##### 



Metropolitan
    Senior Housing, LLC
    Notes to Consolidated Financial Statements
    December 31, 2006 and 2005 (Information as of
    December 31, 2005 and for the
    years ended December 31, 2005 and 2004 not covered by
    auditors report included herein)
  1.
    Organization        Owner Entity

Location

Date PurchasedMetropolitan/Hunter Mill Senior Housing, LLC

Oakton, Virginia

6/29/2000Metropolitan/West Essex Senior Housing, LLC

Fairfield, New Jersey

6/29/2000Metropolitan/Wayland Senior Housing, LLC

Wayland, Massachusetts

6/29/2000Metropolitan/Bellevue Senior Housing, LLC

Bellevue, Washington

9/29/2000Metropolitan/Cohasset Senior Housing, LLC

Cohasset, Massachusetts

9/29/2000Metropolitan/Decatur Senior Housing, LLC

Decatur, Georgia

9/29/2000Metropolitan/Glen Cove Senior Housing, LLC

Glen Cove, New York

9/29/2000Sunrise Lafayette Hills Assisted Living Limited Partnership

Whitemarsh, Pennsylvania

9/29/2000Sunrise Paoli Assisted Living Limited Partnership

Malvern, Pennsylvania

9/29/2000Metropolitan/Paramus Senior Housing, LLC

Paramus, New Jersey

9/29/2000Metropolitan/Walnut Creek Senior Housing, LLC

Walnut Creek, California

9/29/2000Sunrise Oakland Assisted Living Limited Partnership

Oakland Hills, California

10/30/2001     2.
    Significant
    Accounting Policies  Basis
    of Accounting
   204




---



##### 



Metropolitan
    Senior Housing, LLC
  Notes to
    Consolidated Financial Statements 
    (Continued)
  Use of
    Estimates
    Rental
    Property
      Building and building improvements


40 yearsLand and land improvements


10-15 yearsFurniture and equipment


3-10 years   Cash
    and Cash Equivalents
    Allowance
    for Doubtful Accounts
    Deferred
    Financing Costs
    Revenue
    Recognition
   205




---



##### 



Metropolitan
    Senior Housing, LLC
  Notes to
    Consolidated Financial Statements 
    (Continued)
  Income
    Taxes
    Fair
    Value of Financial Instruments
        3.
    Affiliate
    Transactions  Operating
    Lease Agreements
          2007

$
20,046,0922008


20,046,0922009


20,046,092$
60,138,276  206




---



##### 



Metropolitan
    Senior Housing, LLC
  Notes to
    Consolidated Financial Statements 
    (Continued)
  Receivable
    and Payable to Affiliates
    2006


2005(Not covered byauditors report)Receivable from affiliatesOperator

$
1,384,050


$
7,797,879SSLI and its subsidiaries


70,814



$
1,454,864


$
7,797,879         2006


2005(Not covered byauditors report)Payable to affiliatesFederal Street

$



$
318,839SSLI and its subsidiaries






485,560$



$
804,399       4.
    Debt   207




---



##### 



Metropolitan
    Senior Housing, LLC
  Notes to
    Consolidated Financial Statements 
    (Continued)
      PrincipalBorrower

BalanceMetropolitan/Cohasset Senior Housing, LLC

$
12,200,000Metropolitan/Glen Cove Senior Housing, LLC


25,750,000Metropolitan/Paramus Senior Housing, LLC


15,510,000Sunrise Lafayette Hills Assisted Living Limited Partnership


12,800,000Sunrise Paoli Assisted Living Limited Partnership


12,888,000Metropolitan/Decatur Senior Housing, LLC


13,810,000Metropolitan/Bellevue Senior Housing, LLC


18,200,000Metropolitan/Walnut Creek Senior Housing, LLC


13,500,000Metropolitan/West Essex Senior Housing, LLC


20,200,000Metropolitan/Hunter Mill Senior Housing, LLC


13,226,000Sunrise Oakland Assisted Living Partnership


26,400,000Metropolitan/Wayland Senior Housing, LLC


5,516,000$
190,000,000        208




---



##### 



Metropolitan
    Senior Housing, LLC
  Notes to
    Consolidated Financial Statements 
    (Continued)
    2007

$
2008


2009


2,173,1752010


2,309,1262011


2,453,580Thereafter


183,064,119$
190,000,000   5.
    Members
    (Deficit) Capital (Information as of and for the Years Ended
    Prior to December 31, 2006 not Covered by Auditors
    Report Included Herein)               209




---



##### 



Metropolitan
    Senior Housing, LLC
  Notes to
    Consolidated Financial Statements 
    (Continued)
      6.
    Contingencies   210




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Form 10-K Form 10-K, Form 10-K Form 10-K,
  
    Set clear standards of ethical business conduct that are
    understood throughout the Company and uniformly enforced;
    Establish a compliance program that is appropriately staffed and
    funded;
    Enhance the technical skills and experience of the finance and
    accounting functions and strengthen internal controls and
    processes to prevent and detect future accounting
    errors; and
    Achieve best practices in corporate governance and improve Board
    oversight.  Board
    Remedial Framework
    Personal Accountability
  Form 10-K, Form 10-K
 211




---



##### 



Culture of Compliance.
        
    Designing and implementing a company wide compliance program to
    facilitate adherence to applicable laws, statutes, regulations,
    the Code of Conduct and internal policies and controls;
    Training on the Code of Conduct, including clear communication
    of what behavior is acceptable and unacceptable;
    Monitoring compliance with the Code of Conduct;
    Monitoring receipt of annual employee acknowledgements of intent
    to adhere to the Code of Conduct;
    Re-emphasizing the availability of the anonymous Hotline through
    which employees at all levels can anonymously submit information
    or express concerns regarding accounting, financial reporting,
    or other irregularities of which they have become aware or have
    observed;
    Monitoring operation of the Hotline, which will continue to be
    answered by an independent vendor, including the processing of
    complaints
    and/or
    reported violations, and determining how to address each call in
    a timely manner, including review and investigation, as
    appropriate; and
    Reporting, on a regular basis, to the Governance and Compliance
    Committee. 212




---



##### 



Enhanced internal controls and processes.
  
    Assess the quality and resource levels of the finance staff, and
    hire, as needed, industry skilled and technically experienced
    finance employees to supplement the existing employee base;
    Provide mandatory training to all finance employees on
    accounting issues addressed in the restatement to enhance
    awareness and understanding of accounting principles;
    Provide on-going training to all finance employees on evolving
    interpretations of accounting standards and best practices under
    GAAP and on Sunrises written accounting policies;
    Review and, to the extent needed, revise existing accounting
    policies, and create new written accounting policies in all
    critical accounting areas, including management judgment and
    discretion, and post each accounting policy on Sunrises
    intranet where it can be readily accessed by employees;
    Enhance the controls regarding manual journal entries, including
    requirements for written documentation for all proposed entries;
    Establish clear, written lines of authority within the finance
    and accounting functions of the Company;
    Require segregation of duties for manual journal entries so that
    an individual who reviews and approves any proposed journal
    entry is separate from the person who initiated it;
    Establish a formal close calendar for each financial reporting
    period that is sufficient to provide appropriate time to process
    the close of the accounting records and analyze the reported
    results;
    Create a quarterly balance sheet review process, to be
    supervised by the Controller or Assistant Controller, to ensure
    that quarterly reconciliations of all balance sheet accounts are
    performed, documented and reviewed;
    Create a formal Disclosure Committee, consisting of senior
    management, that is responsible for reviewing all disclosures
    and filings for accuracy and compliance with applicable laws and
    regulations and for providing those draft disclosures to the
    Audit Committee with sufficient time for thorough review;
    Enhance the Internal Audit function to test the efficacy of
    controls around key accounting processes, including the
    existence of written accounting analyses, approved by the CAO or
    CFO, prior to any binding commitment of the Company to a deal;
    manual journal entries and supporting documentation; and account
    reconciliations; and
    Cause a review of existing information technology systems to be
    performed, and invest in the improvements recommended by the
    review so that the systems are commensurate with the complexity
    of Sunrises business and financial reporting requirements
    and can improve the reliability of Sunrises financial
    reporting by reducing the need for manual processes, reducing
    the opportunities for errors and omissions, and decreasing
    reliance on manual controls to detect and correct inaccuracies.  Strengthen Corporate Governance.
     213




---



##### 



214




---



##### 




    Quarterly meetings with the CEO, CFO, CAO/CIO (since March
    2008), COO, Internal Auditor, and General Counsel, and with the
    external auditors, in separate executive sessions, to provide a
    forum in which concerns and issues can be candidly raised;
    Review of all draft disclosures timely provided by
    managements Disclosure Committee; and
    Monitoring corporate performance against managements
    strategic and business plans, including reviewing the operating
    results on a regular basis to evaluate whether the business is
    being properly managed, which it will report to the Board.      
    Fixed annual date for consideration of grants to executive
    officers and other employees;
    Grants for new hires or grants for promotion or retention will
    be made only at a regularly scheduled meeting subsequent to the
    event;
    Formalizing, in a written document, the stock option and equity
    award granting procedures;
    Establishing the process to be followed for nominating employees
    for stock option and equity awards;
    Directing management to automate appropriate functions in order
    to minimize the potential for human error; and
    Directing management to provide mandatory training and education
    to ensure that all employees involved in the administration of
    equity awards understand the Companys equity award
    granting processes.    
    Management submission of written bonus objectives, by February 1
    of the year in which bonuses are to be considered, and prompt
    consideration of those objectives;
    Quarterly review of managements progress in meeting its
    bonus objectives;
    Year end review of individual performance against objectives,
    including demonstrable commitment to a strong control
    environment; and 215




---



##### 




    Development of a long term equity incentive plan aligned with
    satisfaction of the Companys long term goals and
    objectives.        MANAGEMENT
    CONCLUSIONS CONCERNING DISCLOSURE CONTROLS AND
    PROCEDURES
    Form 10-K, Rule 13a-15(e) Form 10-K Form 10-Qs Form 10-K.
  MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rules 13a-15(f)
     216




---



##### 



Conclusion
      Remediation
    Steps to Address Material Weaknesses
  Form 10-K,
            Form 10-K
 217




---



##### 



CHANGES
    IN INTERNAL CONTROL OVER FINANCIAL REPORTING DURING FOURTH
    QUARTER OF 2007
   218




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              Entity-Level Control
    Environment
    Process
    and Transaction Level Controls
   219




---



##### 



Item 9B.
    Other
    Information   220




---



##### 



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Information
    Regarding Directors
    Age atJune 30,

Director

Term

Position(s) HeldNominees:

2008

Since(1)

Expires

With
    SunriseRonald V. Aprahamian


61



1995



2008


DirectorTeresa M. Klaassen (2)


53



1981



2008


Director and Chief Cultural OfficerStephen D. Harlan


74



2007



2008


DirectorThomas J. Donohue


69



1995



2009


DirectorJ. Douglas Holladay


61



2000



2009


DirectorWilliam G. Little


66



2004



2009


DirectorPaul J. Klaassen (2)


50



1981



2010


Director and Chief Executive OfficerLynn Krominga (3)


58



2007



2010


Non-Executive Chair of the BoardMark S. Ordan (4)


49



2008



2010


Director and Chief Investment and
    Administrative Officer     (1)
    The dates shown reflect the year in which these persons were
    first elected as directors of Sunrise or its predecessors.(2)
    Paul J. Klaassen and Teresa M. Klaassen are related as husband
    and wife. On July 15, 2008, Mr. Klaassen resigned as
    Sunrises chief executive officer effective at the next
    annual meeting of stockholders expected to take place in
    November 2008. At that time, he will become non-executive Chair
    of the Board.(3)
    Ms. Krominga was first appointed as a director in September
    2007 for an initial term expiring at the 2007 annual meeting of
    stockholders in connection with the settlement of litigation
    previously filed by Millenco, L.L.C. pursuant to
    Section 211 of the Delaware General Corporation Law.
    Ms. Krominga was elected to a new three-year term of office
    at the 2007 annual meeting held on October 16, 2007. On
    March 16, 2008, Ms. Krominga was appointed as the
    non-executive Chair of the Board. Effective at the next annual
    meeting of stockholders expected to take place in November 2008,
    she will become the lead independent director.(4)
    On July 15, 2008, Mr. Ordan was appointed as a
    director to fill a vacancy on the board with a remaining term of
    office expiring at the 2010 annual meeting of stockholders.
    Mr. Ordan will become Sunrises chief executive
    officer effective at the next annual meeting of stockholders
    expected to take place in November 2008.    Ronald V. Aprahamian
  Teresa M. Klaassen
 221




---



##### 



Stephen D. Harlan community-based
  Thomas J. Donohue
  J. Douglas Holladay
  William G. Little
  Paul J. Klaassen Netherland-American
  Lynn Krominga start-up
 222




---



##### 



Mark S. Ordan
  Information
    Regarding Executive Officers
    Tiffany L. Tomasso,
  Richard J. Nadeau
 223




---



##### 



John F. Gaul,
  Michael B. Lanahan
    Corporate
    Governance Guidelines, Committee Charters and Codes of
    Conduct
      Annual
    Certifications
  Form 10-K.
  Executive
    Sessions of Non-Management Directors
    Communications
    with the Board of Directors
       224




---



##### 



Audit
    Committee
    Audit
    Committee Financial Experts
  33-year
  Section 16(a)
    Beneficial Ownership Reporting Compliance
   225




---



##### 



Item 11.
    Executive
    Compensation  COMPENSATION
    DISCUSSION AND ANALYSIS
    Current

FormerPaul J. Klaassen, Chief Executive Officer

Bradley B. Rush, Chief Financial OfficerRichard J. Nadeau, Chief Financial Officer

Thomas B. Newell, PresidentJulie A. Pangelinan, Chief Accounting Officer (and former Acting
    Chief Financial Officer)*Tiffany L. Tomasso, Chief Operating OfficerMichael B. Lanahan, Chairman of GreystoneJohn F. Gaul, General Counsel     *
    
    Ms. Pangelinan served as Acting Chief Financial Officer
    from April 2007 to September 2007.      Compensation
    Program Objectives
    2007
    Compensation Committee Process
       226




---



##### 



Elements
    of 2007 Executive Compensation
      Element

Purpose

FormBase Salary

Provide market-competitive base compensation to attract and
    retain highly talented executives

CashAnnual Incentive Bonus

Motivate executives to achieve superior company and individual
    performance during the year

CashRecognize special contributions not reflected in other elements
    of compensationEquity Awards

Motivate executives to achieve and sustain long-term company
    performance and align executives interests with
    stockholders interests

Restricted stock (restricted stock and stock options in prior
    years)Retain executives through potential wealth accumulationPerquisites and Benefits

Provide market-competitive compensation components to attract
    and retain executive talent

Various (as described below)Deferred Compensation

Provide tax-deferred means to save for retirement or increased
    stock ownership through deferrals in company stock

Eligibility to participate in 401(k) plan, Bonus Deferral
    Program and non-qualified deferred compensation plansLong-Term Incentive Cash Bonus Plan

Provide long-term incentive and retention benefit

Cash     Use of
    Peer Group Data
   227




---



##### 



American Retirement Corporation

Genesis Healthcare Corp.Apria Healthcare Group Inc.

Health Management AssociationBrookdale Senior Living Inc.

Interstate Hotels & ResortsCommunity Health Management Systems, Inc.

Kindred Healthcare Inc.Ecolab Inc.

Lifepoint HospitalsExtendicare Inc.

Manor Care Inc.Fairmont Hotels & Resorts 
    Gaylord Entertainment

Universal Health Services     2007 Base
    Salaries
    
    executives skill set and market value of the skill set;
    scope of the executives role;
    executives performance;
    period the executive served in his or her role;
    overall budget for base salary increases to allow salary
    increases to retain successful performers while maintaining
    affordability within our business plan;
    executives current salary;
    executives duties and responsibilities relative to other
    executive officers;
    relationship of base salary relative to the mix of overall
    compensation;
    other elements of compensation available to the
    executive; and
    the significant effort required of executive management to
    address certain unique challenges facing the company (including
    the pending restatement of the Companys financial
    statements) and the need to retain such executives to
    successfully address such challenges while at the same time
    continuing to focus on the operations of the Company.    Executive

2006 Salary


2007 Salary


% ChangePaul J. Klaassen

$
500,000


$
500,000



0
%Richard J. Nadeau





$
450,000



Julie A. Pangelinan

$
213,200


$
330,000



+55
%Bradley B. Rush

$
375,000


$
450,000



+20
%Thomas B. Newell

$
425,000


$
425,000



0
%Tiffany L. Tomasso

$
390,000


$
465,600



+19
%Michael B. Lanahan

$
364,000


$
378,560



+4
%John F. Gaul

$
300,000


$
375,000



+25
%    228




---



##### 



2007
    Annual Incentive Bonuses
          2003-2005
 229




---



##### 



2003-2005 Form 10-K,
  2007 Target


2007 Bonus


2007 BonusSalary Paid


Bonus


Earned


EarnedExecutive

For 2007


(% Salary)


(% Salary)


($ Amount)Paul J. Klaassen

$
501,923



125
%


0
%

$
0Richard J. Nadeau

$
145,385
*


75
%


77
%

$
112,500Bradley B. Rush

$
139,615
*


75
%


0
%

$
0Thomas B. Newell

$
415,191
*


100
%


0
%

$
0Julie A. Pangelinan

$
293,439



75
%


78
%

$
228,242Tiffany L. Tomasso

$
452,365



75
%


0
%

$
0Michael B. Lanahan

$
378,560



100
%


100
%

$
378,560John F. Gaul

$
362,019



75
%


0
%

$
0     *
    
    Partial year service  Special
    Incentive Bonus
    Equity
    Incentive Compensation
  Types
    of Equity Incentive Compensation
  and/or
   230




---



##### 



Timing
    of Equity Grants
    2007
    Equity Awards
    Other
    Compensation
  Perquisites
    
    supplemental medical and dental insurance for himself and his
    family;
    use of an automobile reasonably acceptable to him and the
    Compensation Committee (or an automobile allowance as determined
    by the Compensation Committee); and
    the payment or reimbursement for other benefits (such as
    executive air travel and health club or other membership fees or
    dues) as may be approved by the Compensation Committee.     231




---



##### 



Sunrise
    and Greystone Deferred Compensation Plans
          Nonqualified
    Deferred Compensation for CEO
  12-year
  Severance
    and Change in Control Plans
       232




---



##### 



Long-Term
    Incentive Cash Bonus Plan
            Compensation
    Deductibility Policy
    2008
    Updates and Enhancements
   233




---



##### 



Engagement
    of Independent Compensation Consultant
  Form 10-K.
  Return
    of CEO Equity Awards and Bonus Opportunities
  Form 10-K, 2003-2005
  Annual
    Bonuses and Incentive Compensation
    
    management submission of written bonus objectives, by February 1
    of the year in which bonuses are to be considered, and prompt
    consideration of those objectives;
    quarterly review of managements progress in meeting its
    bonus objectives;
    year end review of individual performance against objectives,
    including demonstrable commitment to a strong control
    environment; and
    development of a long term equity incentive plan aligned with
    satisfaction of the Companys long term goals and
    objectives.  Equity
    Awards
    
    fixed annual date for consideration of grants to executive
    officers and other employees;
    grants for new hires or grants for promotion or retention will
    be made only at a regularly scheduled meeting subsequent to the
    event;
    formalizing, in a written document, the stock option and equity
    award granting procedures;
    establishing the process to be followed for nominating employees
    for equity awards;
    directing management to automate appropriate functions in order
    to minimize the potential for human error; and
    directing management to provide mandatory training and education
    to ensure that all employees involved in the administration of
    equity awards understand the Companys equity award
    granting processes.  Recoupment
    Policy
   234




---



##### 



Automobile
    Allowances
    Personal
    Use of Company Aircraft
   235




---



##### 



REPORT OF
    THE COMPENSATION COMMITTEE
    OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
  Form 10-K Form 10-K.
                    *
    
    On July 15, 2008, Ms. Krominga was appointed the
    interim Chair of the Compensation Committee. Ms. Krominga
    has served as a member of the Compensation Committee since
    November 2007.**
    
    Member of the Compensation Committee since March 2008.***
    
    Mr. Callen was appointed Chair of the Compensation
    Committee on March 16, 2008. He resigned as a director of
    the Company on May 22, 2008. 236




---



##### 



SUMMARY
    COMPENSATION TABLE
  Change inPension ValueandNonqualifiedNon-Equity

DeferredStock

Option

Incentive Plan

Compensation

All OtherName and



Salary

Bonus

Awards

Awards

Compensation

Earnings

Compensation

TotalPrincipal Position

Year

($)

($)(1)

($)(2)

($)(3)

($)

($)

($)(4)

($)Paul J. Klaassen


2007


$
501,923


$



$
388,653


$



$



$



$
888,698


$
1,779,274Chairman of the Board and Chief Executive Officer(5)


2006



501,923







553,206















686,476



1,741,605Richard J. Nadeau


2007



145,385



112,500



100,000















48,225



406,110Chief Financial Officer(6)


2006































Julie A. Pangelinan


2007



293,439



228,242



















4,936



526,617Acting Chief Financial Officer and Chief Accounting Officer(7)


2006































Bradley B. Rush


2007



139,615







(371,275
)


(112,005
)














(343,665
)Chief Financial Officer(8)


2006



367,596







371,275



112,005











3,979



854,855Thomas B. Newell


2007



415,191







1,002,137



















1,417,328President(9)


2006



426,635







547,632















21,919



996,186Tiffany L. Tomasso


2007



452,365







374,851















3,375



830,591Chief Operating Officer


2006



388,846



292,500



399,233



106,862











11,415



1,198,856Michael B. Lanahan


2007



378,560



378,560



317,231















54,702



1,129,053Chairman of Greystone


2006



364,000



364,000



634,410















38,320



1,400,730John F. Gaul


2007



362,019







96,624















2,683



461,326General Counsel


2006































   2003-2005 Form 10-K,
  Form 10-K. Form 10-K, 2003-2005
  Form 10-K.
 237




---



##### 




    For Mr. Klaassen, the amount set forth in this column for
    2007 is comprised of:  °
    $761,767, representing the aggregate incremental cost during
    2007 to Sunrise of personal use by Mr. and Mrs. Klaassen of
    fractional interests in aircraft purchased by Sunrise under
    several fractional interest ownership programs and an additional
    charter flight. We calculated the incremental cost of personal
    use of the aircraft fractional ownership interests by adding
    (a) the variable operating cost of the flights for personal
    travel (e.g., hourly charges, fuel adjustment costs, landing
    fees, catering charges and ground transportation), (b) a
    pro-rated portion, based on the total flight hours flown for
    personal as compared to business use, of the fixed costs for the
    aircraft (i.e., the monthly management fees for flight crews,
    aircraft maintenance, storage and other fixed program costs
    relating to the use and operation of the aircraft in 2007 and
    the depreciation expense recorded in the 2007 financial
    statements relating to the purchase price paid for the
    fractional ownership interests and aircraft upgrades) and
    (c) miscellaneous other travel related expenses. The
    incremental cost for personal use of the charter flight equals
    the amount billed and paid by the Company for such flight;°
    $27,607, representing the aggregate incremental cost during 2007
    to Sunrise of personal use by Mr. Klaassen of a
    Company-owned automobile. We calculated the incremental cost of
    the personal use of the automobile by adding the insurance
    premium and depreciation expense we recorded in the
    Companys 2007 financial statements relating to the
    automobile;°
    $330, representing supplemental medical and dental insurance
    payments for Mr. Klaassen and his family, as required by
    his employment agreement for 2007;°
    $3,846, representing the Companys 401(k) match for
    2007; and°
    $95,148, representing 2007 earnings on a non-qualified deferred
    compensation plan established for Mr. Klaassen pursuant to
    his employment agreement.  
    For Mr. Nadeau, the amount set forth in this column for
    2007 is comprised of:  °
    $1,558, representing the Companys contribution to the
    Sunrise DCP for 2007; and°
    $46,667, representing consulting fees received by
    Mr. Nadeau during 2007, but prior to his appointment as our
    Chief Financial Officer.  
    For Ms. Pangelinan, the amount set forth in this column for
    2007 is comprised of:  °
    $1,473, representing the Companys 401(k) match for
    2007; and°
    $3,463, representing the Companys contributions to the
    Sunrise DCP for 2007.  
    For Ms. Tomasso, the amount set forth in this column for
    2007 is comprised of $3,375, representing the Companys
    401(k) match for 2007.
    For Mr. Lanahan, the amount set forth in this column for
    2007 is comprised of:  °
    $16,267, representing the cost to the Company of dues and fees
    for two club memberships during 2007;°
    $7,553 representing the Greystone 401(k) match for 2007;°
    $18,882, representing the Greystone DCP contributions for
    2007; and°
    $12,000, representing the car allowance provided to
    Mr. Lanahan in 2007 pursuant to his employment agreement. 238




---



##### 




    For Mr. Gaul, the amount set forth in this column for 2007
    is comprised of $2,683, representing the Companys 401(k)
    match for 2007.           239




---



##### 



GRANTS OF
    PLAN-BASED AWARDS
  All Other StockEstimated Possible Payouts Under


Awards: Number of


Grant Date FairNon-Equity Incentive Plan Awards


Shares of Stocks or


Value of Stock andGrant


Threshold


Target


Maximum


Units


Option AwardsName

Date


($)


($)


($)


(#)


($)(1)Paul J. Klaassen





$



$



$







$
Richard J. Nadeau


11/13/07







75,000
(2)






88,573



2,999,968Julie A. Pangelinan










75,000
(2)










Bradley B. Rush






















Thomas B. Newell






















Tiffany L. Tomasso






















Michael B. Lanahan






















John F. Gaul










2,700,000
(3)










         Narrative
    to Summary Compensation Table and Grants of Plan-Based Awards
    Table
  Employment
    Agreements
    Paul J. Klaassen Employment Agreement
     240




---



##### 



and/or and/or
  12-year
    Michael B. Lanahan Employment Agreement
       241




---



##### 



Return of
    CEO Equity Awards
  Form 10-K, 2003-2005
  Automobile
    Allowances
  Form 10-K,
  Personal
    Use of Company Aircraft
    LTIC
    Bonus Plan
         242




---



##### 



OUTSTANDING
    EQUITY AWARDS AT FISCAL YEAR-END
  Option Awards


Stock AwardsEquityIncentive


EquityEquity














Plan


Incentive PlanIncentive














Awards:


Awards:Plan














Number of


Market orAwards:











Market


Unearned


Payout ValueNumber of


Number of


Number of








Number of


Value of


Shares,


of UnearnedSecurities


Securities


Securities








Shares or


Shares or


Units or


Shares, UnitsUnderlying


Underlying


Underlying








Units of


Units of


Other


or OtherUnexercised


Unexercised


Unexercised


Option





Stock That


Stock That


Rights That


Rights ThatOptions


Options


Unearned


Exercise


Option


Have Not


Have Not


Have Not


Have Not(#)


(#)


Options


Price


Expiration


Vested


Vested


Vested


VestedName

Exercisable


Unexercisable


(#)


($)


Date


(#)


($)(1)


(#)


($)Paul J. Klaassen


500,000










$
8.50



9/11/2010



4,478
(2)

$
137,385






$
200,000











8.50



9/11/2010



27,777
(3)


852,198



























5,090
(4)


156,161







Richard J. Nadeau






















88,573
(5)


2,717,420







Julie A. Pangelinan


































Bradley B. Rush


































Thomas B. Newell(6)


221,272











12.50



3/3/2008















140,000











10.00



3/19/2008















100,000











30.02



3/19/2008















Tiffany L. Tomasso


15,000











10.00



5/11/2011



83,892
(7)


2,573,807







60,000











13.58



5/17/2012



18,750
(8)


575,250







100,000











30.02



9/8/2015



744
(9)


22,826







Michael B. Lanahan






















37,000
(10)


1,135,160







John F. Gaul


50,000











10.50



10/15/2012



33,558
(11)


1,029,559







60,000











30.02



9/8/2015



1,500
(12)


46,020







     Form 10-K,
  Form 10-K,
  Form 10-K,
     243




---



##### 



244




---



##### 



OPTION
    EXERCISES AND STOCK VESTED
  Options Awards


Stock AwardsNumber of Shares





Number of SharesAcquired on


Value Realized


Acquired on


Value RealizedExercise


on Exercise


Vesting


on VestingName

(#)


($)


(#)


($)(3)Paul J. Klaassen










4,478
(1)

$
156,909Richard J. Nadeau














Julie A. Pangelinan














Bradley B. Rush














Thomas B. Newell










253,000
(2)


8,544,980Tiffany L. Tomasso














Michael B. Lanahan














John F. Gaul














   Form 10-K,
      Deferred
    Compensation
  Sunrise and Greystone Deferred Compensation Plans
  General.
    Investment and Earnings.
   245




---



##### 



Payouts and Distributions. st
  15-year
        th th
  Mr. Klaassens
    Deferred Compensation Account
   246




---



##### 



12-year
  NONQUALIFIED
    DEFERRED COMPENSATION
  Aggregate





AggregateExecutive


Registrant


Earnings


Aggregate


BalanceContributions


Contributions


in Last


Withdrawals/


at Lastin Last FY


in Last FY


FY


Distributions


FYEName

($)(1)


($)(2)


($)


($)


($)Sunrise DCP:Paul J. Klaassen

$



$



$
9,405


$



$
236,704Richard J. Nadeau


22,500



1,558



113







24,171Julie A. Pangelinan


16,564



3,463



(343
)






19,684Bradley B. Rush










2,379







50,874
(3)Thomas B. Newell


42,664







(7,499
)






307,300
(4)Tiffany L. Tomasso










24,469







556,519John F. Gaul










(132
)






28,876Greystone DCP:Michael B. Lanahan


71,887



18,882



1,714







92,483Klaassen Account:Paul J. Klaassen






150,000



95,148







1,564,373
(5)            247




---



##### 



Potential
    Payments Upon Termination and Change in Control
  Severance
    and Change in Control Payments
        
    accrued base salary and any bonus amount earned but not yet paid;
    any base units issued to the named executive officer pursuant to
    our Bonus Deferral Program that were vested upon grant;
    any reimbursement for outstanding business expenses incurred but
    not yet paid;
    accrued vacation pay;
    amounts payable pursuant to the Companys (or, in the case
    of Mr. Lanahan, Greystones) 401(k) plan; and
    amounts set forth in the Aggregate Balance at Last
    FYE column of the Nonqualified Deferred Compensation Table
    above.    Mr. Klaassen
  Mr. Klaassen - Employment Agreement
    
    Mr. Klaassen, annual payments, for three consecutive years,
    equal to the sum of his annual base salary and bonus for the
    year of termination; and
    Ms. Klaassen (and his children through their attainment of
    age 22) in the event of his death (including after
    termination for one of the reasons set forth above), and to
    Mr. Klaassen in the event of his disability (including
    after termination for one of the reasons set forth above),
    medical insurance through the date he attains, or would have
    attained (in the case of death), age 65.    
    Mr. Klaassen (or his beneficiaries), immediately after the
    effective date of termination, an amount equal to his base
    salary and annual bonus amount for the remaining portion of the
    rolling five-year 248




---



##### 



term of the employment agreement (as if there had been no early
    termination due to the reasons set forth above);  
    Mr. Klaassen (or his beneficiaries), annual payments, for
    three consecutive years, equal to the sum of his annual base
    salary and bonus for the year of termination; and
    Ms. Klaassen (and his children through their attainment of
    age 22) in the event of his death (after termination of his
    employment agreement for one of the reasons set forth above),
    and to Mr. Klaassen (including his children through their
    attainment of age 22) in the event of his disability,
    medical insurance through the date he attains, or would have
    attained (in the case of death), age 65.      
    Mr. Klaassen (or his beneficiaries), immediately after the
    effective date of termination, an amount equal to his base
    salary and annual bonus amount for the remaining portion of the
    rolling five-year term of the employment agreement (as if there
    had been no early termination after the change in control);
    Mr. Klaassen (or his beneficiaries), annual payments, for
    three consecutive years, equal to the sum of his annual base
    salary and bonus for the year of termination; and
    Ms. Klaassen (and his children through their attainment of
    age 22) in the event of his death (after termination of his
    employment agreement following a change in control), and to
    Mr. Klaassen in the event of his disability (after
    termination of his employment agreement following a change in
    control), medical insurance through the date he attains, or
    would have attained (in the case of death), age 65.      Mr. Klaassen - Equity Agreements
   249




---



##### 



Mr. Klaassen - Estimate of Payments
    Termination by Death orTermination by Sunrise


Disability, byfor Good Cause, or by


Klaassen for GoodKlaassen Other Than for


Reason, or by


Termination withinGood Reason, Death or


Sunrise Other Than


Six Months After aDisability


for Good Cause


Change in ControlPresent Value of Severance(1)

$
1,371,636


$
3,804,969
(2)

$
3,804,969
(2)Present Value of Medical Insurance(3)


415,438



415,438



415,438Equity Acceleration(4)


1,008,360



1,008,360



1,008,360Disposition Fee(5)










18,049,748Tax Gross-Up










11,438,998Total

$
2,795,434


$
5,228,767


$
34,717,513               
    annual payments for three years, beginning on the first
    anniversary of the date of termination, equal to
    Mr. Klaassens annual salary and bonus for the year of
    termination;
    a continuation of the medical insurance and supplemental
    coverage currently provided to Mr. Klaassen and his family
    under the employment agreement until Mr. Klaassen attains
    or, in the case 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 account in
    accordance with the terms of his employment agreement. 250




---



##### 




    good reason is generally defined to mean:  °
    the assignment by the board of directors to Mr. Klaassen of
    duties materially inconsistent with the duties of chief
    executive officer;°
    a material change in the nature or scope of
    Mr. Klaassens authority (although not with respect to
    the separation of the roles of Chairman and CEO);°
    the occurrence of material acts or conduct on the part of
    Sunrise or its officers and representatives which have as their
    purpose forcing the resignation of Mr. Klaassen or
    preventing him from performing his duties and responsibilities;°
    a material breach by Sunrise of any material provision of the
    employment agreement; or°
    requiring Mr. Klaassen to be based more than 50 miles
    from McLean, Virginia.  
    good cause is generally defined to mean:  °
    any material breach by Mr. Klaassen of the terms of
    employment agreement;°
    Mr. Klaassens willful commission of acts of
    dishonesty in connection with his position;°
    chronic absenteeism (other than by reason of disability);°
    Mr. Klaassens willful failure or refusal to perform
    the essential duties of his position;°
    conviction of a felony; or°
    Mr. Klaassens engaging in illegal or other wrongful
    conduct substantially detrimental to the business or reputation
    of Sunrise.  
    change in control is generally defined to mean:  °
    any person or group becomes the beneficial owner of 20% or more
    of the common stock of Sunrise;°
    a change in the composition of a majority of the board of
    directors of Sunrise (with certain specified exceptions);°
    a merger, reorganization or similar transaction in which the
    owners of the outstanding common stock of Sunrise immediately
    before the transaction are not expected to own immediately after
    the transaction, in substantially the same proportions as
    immediately before the transaction, more than 60% of the common
    stock entitled to vote generally in the election of
    directors; or°
    a plan of liquidation, or a plan or agreement for the sale or
    other disposition of all or substantially all of the assets of
    Sunrise.  
    disability is generally defined to mean the
    inability of Mr. Klaassen, due to illness, accident or any
    other physical or mental incapacity, to perform his duties in a
    normal manner for a period of six consecutive months.  Mr. Lanahan
  Mr. Lanahan - Employment Agreement
    
    a severance payment equal to the remaining salary payments due
    to Mr. Lanahan during the remaining four-year employment
    agreement (based on his base salary as of termination), plus 50% 251




---



##### 



of the annual average bonus payments paid to Mr. Lanahan,
    which severance payment is required to be paid over the
    remaining initial term of the employment agreement; and  
    health insurance premiums for COBRA coverage for the one-year
    period following the date of such termination or resignation
    (excluding the premiums Mr. Lanahan would have paid if he
    was still employed by us during the one-year period).      Mr. Lanahan - Equity Agreement
    Mr. Lanahan - Estimate of Payments
    Termination by Sunrise Other Than forCause on or after January 1, 2008, or


Termination by Sunrise Other Than forby Mr. Lanahan for Good Reason


Cause or for Permanent DisabilityPrior to May 10, 2009


Prior to January 1, 2008(1)Severance(2)

$
704,947


$
704,947Health Insurance(3)


15,850



15,850Equity Acceleration(4)


1,135,160



1,135,160Total

$
1,855,957


$
1,855,957    252




---



##### 




    cause is generally defined to mean:  °
    a material breach by Mr. Lanahan of any of his obligations
    under his employment agreement;°
    the willful failure by Mr. Lanahan to comply with the
    reasonable directions of the President of Sunrise in achieving
    the objectives of Sunrise or any of its subsidiaries or
    affiliates to which Mr. Lanahan is assigned pursuant to his
    employment agreement;°
    Mr. Lanahans failure to adhere to any written policy
    of Sunrise or any of its subsidiaries or affiliates if
    Mr. Lanahan has been given a reasonable opportunity to
    comply with such policy or cure his failure to comply;°
    the appropriation (or attempted appropriation) of a material
    business opportunity of Sunrise or any of its subsidiaries or
    affiliates, including attempting to secure or securing any
    personal profit in connection with any transaction entered into
    on behalf of Sunrise or any of its subsidiaries or affiliates;°
    the misappropriation (or attempted misappropriation) of any of
    the funds or property of Sunrise or any of its subsidiaries or
    affiliates;°
    reporting to work under the influence of alcohol or illegal
    drugs, or using alcohol or illegal drugs, whether or not at the
    workplace, in such fashion as to cause economic harm to Sunrise
    or any of its subsidiaries or affiliates;°
    a willful act by Mr. Lanahan which has a materially
    detrimental effect on the reputation or business of Sunrise or
    any of its subsidiaries or affiliates;°
    any breach of fiduciary duty, gross negligence or willful
    misconduct with respect to Sunrise or any of its subsidiaries or
    affiliates which is not cured (if possible) to the reasonable
    satisfaction of Sunrise within 15 days after notice to
    Mr. Lanahan; or°
    Mr. Lanahans conviction of, indictment for, pleading
    guilty to, entering a plea of no contest with respect to, or
    being charged with (where such charge is not dismissed or
    otherwise resolved favorably to Mr. Lanahan in six months)
    any felony or any charge of fraud, embezzlement, theft, offense
    involving moral turpitude or a violation of any federal or state
    securities or tax law.  
    good reason is generally defined to mean:  °
    a material failure by Sunrise to perform its obligations under
    the employment agreement which continues and is uncured for
    15 days after written notice thereof has been given to
    Sunrise by Mr. Lanahan; or°
    a material and adverse change in Mr. Lanahans duties
    and responsibilities not agreed to by Mr. Lanahan (other
    than termination for cause). 253




---



##### 




    permanent disability is generally defined to mean
    the inability, for a period of six consecutive months, of
    Mr. Lanahan to adequately perform his regular duties, with
    reasonable accommodations, due to a physical or mental illness,
    condition or disability.  Mr. Nadeau, Ms. Pangelinan, Ms. Tomasso and
    Mr. Gaul
  Senior Executive Severance Plan
      
    two times the sum of (i) the executive officers
    annual base salary (calculated as the greater of the annual base
    salary payable at the time of termination or 12 times the
    highest monthly base salary paid or payable to the executive
    officer over the preceding 12 months), plus (ii) the
    executive officers annual bonus (calculated as the highest
    amount paid as bonus payments in a single year during the last
    three years); and
    two years of continued welfare benefits coverage pursuant to the
    Companys benefit plans.        gross-up
  Equity Agreements
  and/or
 254




---



##### 



Estimate of Payments
    Richard J. Nadeau


Julie A. Pangelinan


Tiffany L. Tomasso


John F. GaulSeverance(1)

$
900,000


$
850,000


$
1,339,432


$
1,012,036Welfare Benefits(2)










31,924



31,924Equity Acceleration(3)


2,717,420







3,171,882



1,075,579Total

$
3,617,420


$
850,000


$
4,543,238


$
2,119,539           
    change in control is generally defined to mean:  °
    the acquisition by a third party of more than 50% of the
    outstanding common stock of Sunrise;°
    a change in the composition of the board of directors of Sunrise
    pursuant to which the members of the Sunrise board on the
    effective date of the severance plan, or any successor board
    member approved by a majority of the then-existing Sunrise board
    members, cease to constitute at least a majority of the board of
    directors;°
    a liquidation or dissolution of Sunrise approved by its
    stockholders; or°
    the consummation of a reorganization, merger or sale or other
    disposition of substantially all of the assets of Sunrise
    unless, following the transaction, (i) the holders of the
    outstanding common stock immediately prior to the transaction
    own more than 50% of the outstanding common stock of the
    resulting entity in substantially the same proportions as their
    ownership of the outstanding common stock immediately prior to
    the transaction, and (ii) no person or entity who did not
    previously own 35% or more of the outstanding common stock of
    all voting securities of Sunrise owns 35% or more of the
    outstanding common stock of the resulting entity, and
    (iii) at least a majority of the members of the Sunrise
    board prior to the transaction continue to serve as members of
    the board of the resulting entity. 255




---



##### 




    good reason is generally defined to mean:  °
    a reduction in the executives base salary, fringe benefits
    or bonus eligibility;°
    a substantial reduction in the executives responsibilities
    or areas of supervision, or a request for the executive to
    report to a lower level supervisor;°
    a substantial increase in responsibilities or areas of
    supervision without an appropriate increase in compensation;°
    relocation outside the executives existing metropolitan
    area; or°
    a requirement to report to a new supervisor where the executive
    and new supervisor have irreconcilable working relationship
    problems.  
    cause is generally defined to mean:  °
    an executives conviction for fraud or theft against
    Sunrise, or a crime involving moral turpitude, compromise of
    trade secrets or other valuable proprietary information of
    Sunrise; or°
    gross or willful misconduct that causes and will continue to
    cause substantial and material harm to the business and
    operations of Sunrise or any of its affiliates.  Mr. Gaul 
    LTIC Bonus Plan Interest
      
    change in control is defined generally to mean:  °
    any person, other than Paul J. Klaassen, Teresa M. Klaassen or
    their respective affiliates, associates or estates, becoming the
    beneficial owner, directly or indirectly, of securities of the
    Company representing 40% or more of the combined voting power of
    the Companys then outstanding securities;°
    during any two-year period, individuals who at the beginning of
    such period constitute the Board (including, for this purpose,
    any director who after the beginning of such period filled a
    vacancy on the Board caused by the resignation, mandatory
    retirement, death, or disability of a director and whose
    election or appointment was approved by a vote of at least
    two-thirds of the directors then in office who were directors at
    the beginning of such period) cease for any reason to constitute
    a majority thereof;°
    notwithstanding the first or fifth bullet below, the Company
    consummates a merger or consolidation of the Company with or
    into another corporation, the result of which is that the
    persons who were stockholders of the Company at the time of the
    execution of the agreement to merge or consolidate own less than
    50% of the total equity of the corporation surviving or
    resulting from the merger or consolidation or of a corporation
    owning, directly or indirectly, 100% of the total equity of such
    surviving or resulting corporation;°
    the sale in one or a series of transactions of all or
    substantially all of the assets of the Company;°
    any person, other than Paul J. Klaassen, Teresa M. Klaassen or
    their respective affiliates, associates or estates, has
    commenced a tender or exchange offer, or entered into an
    agreement or received an option, to acquire beneficial ownership
    of securities of the Company representing 40% or more of the
    combined voting power of the Companys then outstanding
    securities, unless the Board has made a determination that such
    action does not constitute and will not constitute a material
    change in the persons having control of the Company; 256




---



##### 



°
    the consummation by the Company or a subsidiary of a merger
    (including a triangular merger involving a subsidiary) or other
    business combination transaction in which the Company issues
    equity securities representing 50% or more of its then
    outstanding common stock in such merger or other
    transaction; or°
    there is a change of control in the Company of a nature that
    would be required to be reported in response to Item 6(e)
    of Schedule 14A of Regulation 14A promulgated under
    the Securities Exchange Act of 1934, as amended, other than in
    circumstances specifically covered above.  
    good reason is generally defined to mean:  °
    a reduction in a Participants base salary unless
    comparable adjustments are made for all officers and significant
    employees of the Company and subsidiaries;°
    a material reduction in a Participants duties,
    responsibilities or authority, unless such reduction is for
    Cause (as defined below), provided, however, that such material
    reduction will not be considered to have occurred as long as a
    participant is an executive officer of the Company with
    substantial responsibilities in the operation of the
    Company; or°
    relocation of the principal place of a participants
    performance of the services contemplated by his or her position
    (the Original Location) to an area more than
    50 miles from the Original Location; provided, however, if
    the participant agrees to relocate, the new location shall
    become the Original Location for purposes of the LTIC Bonus Plan
    and the related bonus agreement.  
    cause is generally defined to mean, as determined by
    the Board:  °
    fraud or theft against the Company or a subsidiary or conviction
    (no longer subject to appeal) for a felony offense;°
    conviction (no longer subject to appeal) for a criminal offense
    involving moral turpitude;°
    compromising trade secrets or other proprietary information of
    the Company, a subsidiary, or the PRICOA/Sunrise JVs that would
    result in material harm to the Company, a subsidiary, or the
    PRICOA/Sunrise JVs;°
    willful or repeated failure or refusal to perform material
    assigned duties that would result in material harm to the
    Company, a subsidiary, or the PRICOA/Sunrise JVs; or°
    gross or willful misconduct that causes substantial and material
    harm to the business and operations of the Company, a
    subsidiary, or the PRICOA/Sunrise JVs.  
    normal retirement generally means:  °
    termination of employment after attainment of age 65.
    However, the Compensation Committee with respect to executive
    officers and the Administrative Committee with respect to
    non-executive officers, within their discretion, may determine
    that a Participant who terminates employment prior to
    age 65 has terminated by virtue of normal retirement.  Messrs. Rush and Newell
     257




---



##### 



Compensation
    Committee Interlocks and Insider Participation
    Director
    Compensation
    Annual Retainer

$
75,000
*Audit, Compensation and Nominating and Corporate Governance
    Committee Meeting Fees (telephonic and in-person)

$
1,000Committee Chair Annual Retainer:Audit Committee

$
20,000Compensation Committee

$
5,000Nominating and Corporate Governance Committee

$
5,000Fee for serving on Special Independent Committee

$
50,000         Form 10-K.
  DIRECTOR
    COMPENSATION
  Change inPensionValue andNon-Equity


NonqualifiedFees








Incentive


DeferredEarned or


Stock


Option


Plan


Compensation


All OtherPaid in


Awards


Awards


Compensation


Earnings


Compensation


TotalName

Cash ($)


($)


($)(1)


($)


($)


($)


($)Ronald V. Aprahamian

$
124,000


$



$
443,600
(2)

$



$



$



$
567,600Craig R. Callen(3)


105,000























105,000Thomas J. Donohue


104,000























104,000J. Douglas Holladay


85,000























85,000William G. Little


135,000























135,000Lynn Krominga(4)


185,000























185,000Stephen D. Harlan(5)


246,000























246,000  258




---



##### 



Ronald V. Aprahamian


188,000Craig Callen


132,000Thomas Donohue


158,000J. Douglas Holladay


76,000William G. Little


40,000          259




---



##### 



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Stock
    Owned By Management
    Amount andNature of


Percent ofBeneficial


Common StockName and Position(s) with
    Sunrise

Ownership(1)


OutstandingPaul J. Klaassen(2)
    Chief Executive Officer and Director


5,943,852



11.5
%Teresa M. Klaassen(2)
    Chief Cultural Officer and Director


5,943,852



11.5
%Thomas B. Newell(3)
    President


362,272



*Tiffany L. Tomasso(4)
    Chief Operating Officer


293,623



*Richard J. Nadeau(5)
    Chief Financial Officer


142,967



*Julie A. Pangelinan(6)
    Chief Accounting Officer


0



*Bradley B. Rush(7)
    Chief Financial Officer


0



*Michael B. Lanahan(8)
    Chairman of Greystone


37,926



*John F. Gaul(9)
    General Counsel


145,197



*Lynn Krominga(10)
    Chair of the Board


0



*Ronald V. Aprahamian(11)
    Director


190,000



*Thomas J. Donohue(12)
    Director


199,510



*Stephen D. Harlan(13)
    Director


0



*J. Douglas Holladay(14)
    Director


76,000



*William G. Little(15)
    Director


62,000



*Mark S. Ordan(16)
    Director and Chief Investment and Administrative Officer


164,383



*All current executive officers and directors as a group
    (13 persons)(17)


7,255,458



13.8
%   ­
    ­
  *
    
    Less than one percent.(1)
    
    Under
    Rule 13d-3
    under the Securities Exchange Act of 1934, a person has
    beneficial ownership of any securities as to which such person,
    directly or indirectly, through any contract, arrangement,
    undertaking, relationship or otherwise has or shares voting
    power and/or investment power and as to which such person has
    the right to acquire such voting and/or investment power within
    60 days. Percentage of beneficial ownership as 260




---



##### 



to any person as of a particular date is calculated by dividing
    the number of shares beneficially owned by such person by the
    sum of the number of shares outstanding as of such date and the
    number of shares as to which such person has the right to
    acquire voting and/or investment power within 60 days.(2)
    
    Represents 5,071,494 shares held jointly by the Klaassens,
    as tenants by the entirety, 51,212 shares held directly by
    Mr. Klaassen, 700,000 shares issuable upon exercise of
    stock options held by Mr. Klaassen that are exercisable
    within 60 days of June 30, 2008 and
    121,146 shares held by The Klaassen Family Private
    Foundation. Of the 5,071,494 shares held jointly by the
    Klaassens, 1,500,000 shares are pledged to the counterparty
    of a prepaid variable forward contract relating to the forward
    sale of up to 1,500,000 shares of common stock in five
    tranches. See Principal Holders of Voting
    Securities. On July 15, 2008, Mr. Klaassen
    resigned as our chief executive officer effective at the next
    annual meeting of stockholders expected to take place in
    November 2008. At that time, he will become our non-executive
    Chair of the Board.(3)
    
    Represents 362,272 shares held directly. The date of
    Mr. Newells separation as the Companys
    President was December 19, 2007.(4)
    
    Represents 12,259 shares held directly, 102,642 shares
    of restricted stock, 175,000 shares issuable upon the
    exercise of stock options that are exercisable within
    60 days of June 30, 2008 and 3,722 restricted stock
    units that are exercisable within 60 days of June 30,
    2008.(5)
    
    Represents 88,573 shares of restricted stock and
    54,394 shares issuable upon the exercise of stock options
    that are exerciseable within 60 days of June 30, 2008.
    Mr. Nadeau became the Companys Chief Financial
    Officer on September 6, 2007.(6)
    
    Ms. Pangelinan served as the Companys Acting Chief
    Financial Officer from April 23, 2007 through
    September 5, 2007. She continues to serve as the
    Companys Chief Accounting Officer, a position she has held
    since April 2006.(7)
    
    Mr. Rushs employment terminated on May 2, 2007.(8)
    
    Represents 37,000 shares of restricted stock and
    926 shares of common stock held directly.(9)
    
    Represents 35,058 shares of restricted stock,
    139 shares of common stock held directly and
    110,000 shares issuable upon the exercise of stock options
    that are exercisable within 60 days of June 30, 2008.(10)
    
    Ms. Krominga became a director of Sunrise on
    September 5, 2007 and became Chair of the Board on
    March 16, 2008. She will become lead independent director
    effective at our next annual meeting of stockholders expected to
    take place in November 2008.(11)
    
    Represents 188,000 shares issuable upon the exercise of
    stock options that are exercisable within 60 days of
    June 30, 2008 and 2,000 shares which
    Mr. Aprahamian has the power to vote and the power to
    dispose of as trustee.(12)
    
    Represents 158,000 shares issuable upon the exercise of
    stock options that are exercisable within 60 days of
    June 30, 2008 and 41,510 shares of common stock held
    directly.(13)
    
    Mr. Harlan became a director of Sunrise on June 20,
    2007.(14)
    
    Represents 76,000 shares issuable upon the exercise of
    stock options that are exercisable within 60 days of
    June 30, 2008.(15)
    
    Represents 22,000 shares held directly and
    40,000 shares issuable upon the exercise of stock options
    that are exercisable within 60 days of June 30, 2008.(16)
    
    Represents 164,383 shares of restricted stock.
    Mr. Ordan will become our chief executive officer at our
    next annual meeting of stockholders expected to take place in
    November 2008.(17)
    
    Includes 1,501,394 shares issuable upon the exercise of
    stock options that are exercisable within 60 days of
    June 30, 2008 and 3,722 restricted stock units that are
    exercisable within 60 days of June 30, 2008. 261




---



##### 



Principal
    Holders of Voting Securities
    Amount and

Percent ofNature of

CommonName and Address of

Beneficial

StockBeneficial Owner

Ownership

OutstandingPaul J. and Teresa M. Klaasen(1)


5,943,852



11.5
%7902 Westpark Drive
    McLean, VA 22102Earnest Partners, LLC(2)


3,504,501



6.9
%Fourteenth Street, Suite 2300
    Atlanta, GA 30309T. Rowe Price Associates, Inc. and T. Rowe Price Small-
    Cap Stock Fund, Inc.(3)


4,397,600



8.6
%100 E. Pratt Street
    Baltimore, MD 21202Scoggin Capital Management, L.P. II(4)


2,825,000



5.5
%Scoggin, LLC
    Craig Effron
    Curtis Schenker660 Madison Avenue
    New York, NY 10021Scoggin International Fund, Ltd.c/o Swiss
    Financial Services (Bahamas) Ltd.
    One Montague Place, 4th Floor
    East Bay Street P.O. Box EE-17758
    Nassau, BahamasScoggin Worldwide Fund, Ltd.c/o Q&H
    Corporate Services, Ltd.
    3rd Floor, Harbor Centre
    P.O. Box 1348
    George Town, Grand Cayman, Cayman IslandsWesley Capital Management, LLC(5)


2,824,076



5.5
%Arthur Wrubel
    John Khoury717 5th Avenue, 14th Floor
    New York, NY 10022High Rise Partners II, L.P.(6)


2,777,944



5.4
%High Rise Institutional Partners, L.P.
    Cedar Bridge Realty Fund, L.P.
    Cedar Bridge Institutional Fund, L.P.
    High Rise Capital Advisors, L.L.C.
    Bridge Realty Advisors, L.L.C.David OConner
    Charles Fitzgerald535 Madison Avenue, 27th Floor
    New York, NY 10022Weiss Multi-Strategy Advisers LLC(7)


2,600,000



5.1
%George A. Weiss
    Frederick E. Doucette IIIOne State Street, 20th Floor
    Hartford, CT 06103  262




---



##### 



­
    ­
  (1)
    
    Based on the Schedule 13G/A dated February 13, 2008 of
    the reporting persons, the reporting persons have shared voting
    power over the entire number of such shares and shared
    dispositive power with respect to 4,443,852 of such shares.(2)
    
    The Schedule 13G/A dated January 30, 2008 of Earnest
    Partners, LLC states that it has sole power to vote
    1,088,067 shares of Sunrise common stock, shared voting
    power with respect to 1,051,234 shares of Sunrise common
    stock and sole dispositive power with respect to
    3,504,501 shares of Sunrise common stock.(3)
    
    The Schedule 13G/A dated February 14, 2008 of T. Rowe
    Price Associates, Inc. and T. Rowe Price Small-Cap Stock Fund,
    Inc. states that (a) T. Rowe Price Associates, Inc. has
    sole voting power with respect to 439,000 shares of Sunrise
    common stock and sole dispositive power with respect to
    4,397,600 shares of Sunrise common stock and (b) T.
    Rowe Price Small-Cap Stock Fund, Inc. has sole voting power with
    respect to 2,639,600 shares of Sunrise common stock. T.
    Rowe Price Associates, Inc. states in its Schedule 13G/A
    that the filing of the Schedule 13G/A shall not be
    construed as an admission that it is the beneficial owner of the
    securities referred to, which beneficial ownership is expressly
    denied by T. Rowe Price Associates, Inc.(4)
    
    The Schedule 13G/A dated February 12, 2008 states
    that the reporting persons have sole or shared voting or
    dispositive power with respect to the shares as follows:  Sole Voting


Shared Voting


Sole


Shared DispositiveReporting Person

Power


Power


Dispositive Power


PowerScoggin CapitalManagement, L.P. II


1,000,000







1,000,000



Scoggin, LLC


1,495,000



330,000



1,495,000



330,000Craig Effron






2,825,000







2,825,000Curtis Schenker






2,825,000







2,825,000Scoggin International Fund, Ltd.


1,300,000







1,300,000



Scoggin Worldwide Fund, Ltd.


195,000







195,000



   (5)
    
    The Schedule 13G/A dated February 13, 2008 of Wesley
    Capital Management, LLC, Mr. Arthur Wrubel and
    Mr. John Khoury states that they each have shared power to
    vote and to dispose of 2,824,076 shares of Sunrise common
    stock.(6)
    
    The Schedule 13G dated April 3, 2008 states that
    the reporting persons have sole or shared voting or dispositive
    power with respect to the shares as follows:  Sole Voting


Shared Voting


Sole


Shared DispositiveReporting Person

Power


Power


Dispositive Power


PowerHigh Rise Partners II, L.P.






1,501,354







1,501,354High Rise Institutional Partners, L.P.






964,400







964,400Cedar Bridge Realty Fund, L.P.






167,590







167,590Cedar Bridge Institutional Fund, L.P.






144,600







144,600High Rise Capital Advisors, L.L.C.






2,777,944







2,777,944Bridge Realty Advisors, LLC






312,190







312,190David OConner






2,777,944







2,777,944Chares Fitzgerald






2,777,944







2,777,944   (7)
    
    The Schedule 13G dated April 17, 2008 states that
    the reporting persons have sole or shared voting or dispositive
    power with respect to the shares as follows:  Sole Voting


Shared Voting


Sole


Shared DispositiveReporting Person

Power


Power*


Dispositive Power


Power*Weiss Multi-Strategy Advisers LLC






1,809,622







1,809,622George A. Weiss






1,809,622







1,809,622Frederick E. Doucette III






1,809,622







1,809,622     *
    
    The reporting persons disclaim beneficial ownership of the
    shares except to the extent of their pecuniary interest. 263




---



##### 



Equity
    Compensation Plan Information
    
    The number of securities to be issued upon the exercise of
    outstanding options, warrants and rights;
    The weighted-average exercise price of such outstanding options,
    warrants and rights; and
    Other than securities to be issued upon the exercise of such
    outstanding options, warrants and rights, the number of
    securities remaining available for future issuance under the
    plans.  Number of





Number of SecuritiesSecurities to be


Weighted


Remaining AvailableIssued Upon


Average Exercise


for Future IssuanceExercise of


Price of


Under EquityOutstanding


Outstanding


Compensation PlansOptions,


Options,


(ExcludingWarrants


Warrants and


Securities ReflectedPlan Category

and Rights


Rights


in Column(A))(A)


(B)


(C)Equity compensation plans approved by stockholders(1)


3,372,763
(2)

$
14.86



2,133,243
(3)Equity compensation plans not approved by stockholders(4)


219,027


$
11.40



93,942Total


3,591,790


$
14.64



2,227,185     (1)
    
    Consists of the Sunrise Senior Living, Inc. 1995 Stock Option
    Plan, as amended, 1997 Stock Option Plan, as amended, 1998 Stock
    Option Plan, as amended, 1999 Stock Option Plan, as amended,
    2000 Stock Option Plan, as amended, 2001 Stock Option Plan, as
    amended, 2002 Stock Option and Restricted Stock Plan, as
    amended, 2003 Stock Option and Restricted Stock Plan, as
    amended, Employee Stock Purchase Plan, as amended, and options
    to purchase up to 100,000 shares of Sunrise common stock
    under the 1996 Directors Option Plan, as amended.(2)
    
    Includes 37,953 restricted stock units. The weighted-average
    exercise price in column (B) does not take these restricted
    stock units into account.(3)
    
    Includes 1,303,044 shares available for issuance under the
    Sunrise Employee Stock Purchase Plan, as amended and 830,199
    available for issuance under the stock option plans.(4)
    
    Consists of Sunrises 1996 Non-Incentive Stock Option Plan,
    as amended, and options to purchase 50,000 shares of
    Sunrise common stock under a 1997 amendment to the
    1996 Directors Option Plan, which amendment was not
    approved by Sunrises stockholders. We refer to
    Sunrises 1996 Non-Incentive Stock Option Plan, as amended,
    in this
    Form 10-K
    as the 1996 Non-Incentive Plan, and Sunrises
    1996 Directors Stock Option Plan, as amended, in this
    Form 10-K
    as the 1996 Director Plan.  1996
    Non-Incentive Plan
       264




---



##### 



split-up,
    1996 Director
    Plan
    split-ups,
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Transactions
    with Related Persons
  Sunrise
    Senior Living Foundation
  and/or son-in-law
   265




---



##### 



12-month
    Fairfax
    Community Ground Lease
  99-year
 266




---



##### 



Corporate
    Use of Residence
  99-year 99-year
  Purchase
    of Condominium Unit
    Service
    Evaluators Incorporated
  brother-in-law sister-in-law
  on-site on-site on-site
  Compensation
    to Teresa Klaassen
    Greystone
    Earnout Payments
   267




---



##### 



Purchase
    of Aircraft Interest by Mr. Klaassen
    Review,
    Approval or Ratification of Transactions with Related
    Persons
      
    any transaction, regardless of amount, in which (1) the
    Company or any of its subsidiaries is or will be a participant
    and (2) any related party (which includes, without
    limitation, directors, director nominees, executive officers,
    greater than 5% stockholders and any of their respective
    immediate family members) has or will have a direct or indirect
    material interest, and
    any amendment or modification to an existing Related Party
    Transaction (regardless of whether it had previously been
    approved under the written policy and procedures).     268




---



##### 



and/or
      
    executive officer compensation arrangements that are approved by
    the Board or the Compensation Committee of the Board and
    director compensation paid for services as a director;
    transactions where the related partys interest arises
    solely from the ownership of the Companys common stock and
    all holders of common stock receive the same benefit on a pro
    rata basis;
    ordinary course travel and expenses, advances and reimbursements;
    indemnification arrangements under the Companys charter or
    bylaws, or under agreements to which the Company is a party;
    previously approved or disclosed Related Party Transactions that
    were in existence as of May 6, 2008, the date the written
    policy and procedures were approved and adopted. However, these
    Related Party Transactions remain subject to the annual review
    process mentioned above, and any amendments or modifications
    would be subject to approval under the written policy and
    procedures;
    transactions with entities in which the Company has an
    investment and for which a related party serves as director or
    executive officer at the request of the Company; and
    dues paid by the Company for membership in the U.S. Chamber
    of Commerce or any of its affiliates.    Director
    Independence
  Independence
    Standards
   269




---



##### 



Annual
    Independence Review
          Item 14.
    Principal
    Accountant Fees and Services  Independent
    Registered Public Accountants Fees
    Fiscal Year EndedDecember 31,Type of Fee

2007


2006Audit Fees(1)

$
3,274,280


$
5,004,450Audit Related Fees(2)






49,650Tax Fees(3)


1,819,413



174,693All Other Fees






Total

$
5,093,693


$
5,228,793   (1)
    
    Audit fees include audits of consolidated financial statements,
    Sarbanes-Oxley Section 404 attest services and international
    statutory audits.(2)
    
    Audit related fees include assurance and related services
    provided by our independent auditors that are reasonably related
    to the performance of the audit or review of our consolidated
    financial statements and are not included above under
    Audit Fees. These services principally include
    accounting consultations.(3)
    
    Tax services principally include tax compliance, tax advice, and
    tax planning.  Pre-Approval
    of Audit and Non-Audit Services
   270




---



##### 



271




---



##### 



Part IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K:
    PageSunrise Senior Living, Inc.Report of Independent Registered Public Accounting Firm


83Consolidated Balance Sheets


84Consolidated Statements of Income


85Consolidated Statements of Changes in Stockholders Equity


86Consolidated Statements of Cash Flows


87Notes to Consolidated Financial Statements


88PS UK Investment (Jersey) LPReport of Independent Auditors


142Consolidated Income Statement


143Consolidated Balance Sheet


144Consolidated Statement of Changes in Partners Capital


145Consolidated Statement of Cash Flows


146Notes to Consolidated Financial Statements


147AL US Development Venture, LLCIndependent Auditors Report


168Consolidated Balance Sheets


169Consolidated Statements of Operations


170Consolidated Statements of Changes in Members Capital
    (Deficit)


171Consolidated Statements of Cash Flows


172Notes to Consolidated Financial Statements


173Sunrise First Assisted Living Holdings, LLCIndependent Auditors Report


179Consolidated Balance Sheets


180Consolidated Statements of Operations


181Consolidated Statements of Changes in Members (Deficit)
    Capital


182Consolidated Statements of Cash Flows


183Notes to Consolidated Financial Statements


184Sunrise Second Assisted Living Holdings, LLCIndependent Auditors Report


189Consolidated Balance Sheets


190Consolidated Statements of Operations


191Consolidated Statements of Changes in Members (Deficit)
    Capital


192Consolidated Statements of Cash Flows


193Notes to Consolidated Financial Statements


194Metropolitan Senior Housing, LLCReport of Independent Auditors


199Consolidated Balance Sheets


200Consolidated Statements of Operations


201Consolidated Statements of Changes in Members (Deficit)
    Capital


202Consolidated Statements of Cash Flows


203Notes to Consolidated Financial Statements


204Sunrise Aston Gardens Venture, LLC*PS Germany Investment (Jersey) LP*Sunrise IV Senior Living Holdings, LLC*    272




---



##### 



Form 10-K
 273




---



##### 



SIGNATURES      By:
    /s/  Paul
    J. Klaassen       PRINCIPAL EXECUTIVE OFFICER

PRINCIPAL FINANCIAL OFFICERBy:

/s/ Paul J. Klaassen

By:

/s/ Richard J. NadeauPaul J. Klaassen, Director and



Richard J. Nadeau, Chief Financial OfficerChief Executive OfficerPRINCIPAL ACCOUNTING OFFICERBy:

/s/ Julie A. PangelinanJulie A. Pangelinan,Chief Accounting OfficerDIRECTORSBy:

/s/ Lynn KromingaLynn Krominga, Chair of the BoardBy:

/s/ Ronald V. AprahamianRonald V. Aprahamian, DirectorBy:

/s/ Thomas J. DonohueThomas J. Donohue, DirectorBy:

/s/ Stephen D. HarlanStephen D. Harlan, DirectorBy:

/s/ J. Douglas HolladayJ. Douglas Holladay, DirectorBy:

/s/ Paul J. KlaassenPaul J. Klaassen, Director and Chief Executive OfficerBy:

/s/ Teresa M. KlaassenTeresa M. Klaassen, DirectorBy:

/s/ William G. LittleWilliam G. Little, DirectorBy:

/s/ Mark S. OrdanMark S. Ordan, Director and Chief Investment and Administrative
    Officer  274




---



##### 



EXHIBIT INDEX
  INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number2
.1

Stock Purchase Agreement dated as of December 30, 2002 by
    and among Marriott International, Inc., Marriott Senior Holding
    Co., Marriott Magenta Holding Company, Inc. and Sunrise Assisted
    Living, Inc.

10-K

March 27, 2003


2
.32
.2

Amendment No. 1 to Stock Purchase Agreement, dated as of
    March 28, 2003, by and among Marriott International, Inc.,
    Marriott Senior Holding Co., Marriott Magenta Holding Company,
    Inc. and Sunrise Assisted Living, Inc.

8-K

April 9, 2003


2
.22
.3

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 Management Corp., 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
    Sun1 Lilburn GA, LP and CNL Retirement Sun1 Madison NJ LP, and
    (v) Sunrise Senior Living, Inc.

8-K

October 15, 2003


2
.42
.4

Securities Purchase Agreement by and among Sunrise Senior
    Living, Inc., Greystone Partners, Ltd., Concorde Senior Living,
    LLC, Mahalo Limited, Westport Advisors, Ltd., Greystone
    Development Company, LLC, Michael B. Lanahan, Paul F. Steinhoff,
    Jr., Mark P. Andrews and John C. Spooner, dated as of
    May 2, 2005.

10-Q

August 9, 2005


2
.12
.5

Asset Purchase Agreement by and among Sunrise Senior Living
    Investments, Inc., Fountains Continuum of Care Inc. and various
    of its subsidiaries and affiliates, and George B. Kaiser, dated
    as of January 19, 2005.

10-Q

May 10, 2005


10
.12
.6

Facilities Purchase and Sale Agreement by and among Sunrise
    Senior Living Investments, Inc., and Fountains Charitable Income
    Trust and various of its subsidiaries and affiliates, dated as
    of January 19, 2005.

10-Q

May 10, 2005


10
.22
.7

Purchaser Replacement and Release Agreement by and among Sunrise
    Senior Living, Inc. and various of its subsidiaries and
    affiliates and Fountains Charitable Income Trust and various of
    its subsidiaries and affiliates, dated as of February 18,
    2005.

10-Q

May 10, 2005


10
.32
.8

Agreement and Plan of Merger, dated as of August 2, 2006,
    by and among Sunrise Senior Living, Inc., a newly-formed
    indirect wholly owned subsidiary of Sunrise and Trinity Hospice,
    Inc., American Capital Strategies, Ltd. and certain affiliates
    of KRG Capital Partners, LLC, as the principal stockholders of
    Trinity Hospice, Inc.

10-K

March 24, 2008


2
.83
.1

Restated Certificate of Incorporation of Sunrise.

S-1

October 8, 1996


3
.1 275




---



##### 



INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number3
.2

Certificate of Amendment to Restated Certificate of
    Incorporation of Sunrise regarding name change.

10-Q

August 13, 2003


3
.13
.3

Certification of Elimination of the Series C Junior
    Participation Preferred Stock of Sunrise Senior Living,
    Inc.

8-K

April 27, 2006


3
.13
.4

Certification of Designation of the Series D Junior
    Participating Preferred Stock.

8-K

April 21, 2006


3
.13
.5

Certificate of Amendment to Restated Certificate of
    Incorporation of Sunrise regarding increase in authorized shares
    of common stock.*

N/A

N/A


N/A3
.6

Amended and Restated Bylaws of Sunrise, as amended.

8-K

March 18, 2008


3
.14
.1

Form of Common Stock Certificate.

10-K

March 24, 2008


4
.14
.2

Rights Agreement between Sunrise Senior Living, Inc. and
    American Stock Transfer & Trust Company, as
    Rights Agent dated April 24, 2006.

8-K

April 21, 2006


4
.110
.1

1995 Stock Option Plan, as amended.+

10-K

March 31, 1998


10
.2010
.2

1996 Directors Stock Option Plan, as amended.+

10-K

March 31, 1999


10
.3610
.3

1996 Non-Incentive Stock Option Plan, as amended.+

10-Q

May 15, 2000


10
.810
.4

1997 Stock Option Plan, as amended.+

10-K

March 31, 1998


10
.2510
.5

1998 Stock Option Plan.+

10-K

March 31, 1999


10
.4110
.6

1999 Stock Option Plan.+

10-Q

May 13, 1999


10
.110
.7

2000 Stock Option Plan.+

10-K

March 12, 2004


10
.410
.8

2001 Stock Option Plan.+

10-Q

August 14, 2001


10
.1510
.9

2002 Stock Option and Restricted

10-Q

August 14, 2002


10
.1Stock Plan.+10
.10

2003 Stock Option and Restricted Stock Plan.+

10-Q

August 13, 2002


10
.110
.11

Forms of equity plan amendment adopted on March 19, 2008
    regarding determination of option exercise price.*+

N/A

N/A


N/A10
.12

Form of Executive Restricted Stock Agreement.+

10-Q

May 10, 2005


10
.410
.13

Form of Restricted Stock Unit Agreement.+

8-K

March 14, 2006


10
.110
.14

Form of Director Stock Option Agreement.+

8-K

September 14, 2005


10
.210
.15

Form of Stock Option Certificate.+

10-K

March 24, 2008


10
.14 276




---



##### 



INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number10
.16

Restricted Stock Agreement by and between Sunrise Senior Living,
    Inc. and Michael B. Lanahan, dated as of May 10, 2005.+

10-Q

August 9, 2005


10
.210
.17

Form of Sunrise Assisted Living Holdings, L.P. Class A
    Limited Partner Unit Agreement.+

10-K

March 29, 2002


10
.8910
.18

Sunrise Employee Stock Purchase Plan, as amended.+

Def 14A

April 7, 2005


B10
.19

Sunrise Executive Deferred Compensation Plan, effective
    June 1, 2001.+

10-Q

August 14, 2001


10
.1410
.20

Amendment to Sunrise Assisted Living Executive Deferred
    Compensation Plan.+

10-Q

August 13, 2003


10
.210
.21

Second Amendment to Sunrise Assisted Living Executive Deferred
    Compensation Plan.+

10-K

March 24, 2008


10
.2010
.22

Third Amendment to Sunrise Assisted Living Executive Deferred
    Compensation Plan.+

10-K

March 24, 2008


10
.2110
.23

Fourth Amendment to Sunrise Assisted Living Executive Deferred
    Compensation Plan.+

10-K

March 24, 2008


10
.2210
.24

Fifth Amendment to Sunrise Assisted Living Executive Deferred
    Compensation Plan.+

10-K

March 24, 2008


10
.2310
.25

Greystone Communities Nonqualified Deferred Compensation Plan.*+

N/A

N/A


N/A10
.26

Bonus Deferral Programs for Certain Executive Officers.+

8-K

March 14, 2006


10
.210
.27

Sunrise Assisted Living, Inc. Long Term Incentive Cash Bonus
    Plan effective August 23, 2002.+

10-Q

November 13, 2002


10
.110
.28

Amendment 1 to the Sunrise Assisted Living, Inc. Long Term
    Incentive Cash Bonus Plan.+

10-K

March 16, 2005


10
.3210
.29

Sunrise Senior Living, Inc. Senior Executive Severance Plan.+

10-K

March 16, 2006


10
.5310
.30

Form of Indemnification Agreement.+

10-K

March 16, 2006


10
.5410
.31

Amended and Restated Employment Agreement dated as of
    November 13, 2003 by and between Sunrise and Paul J.
    Klaassen.+

10-K

March 12, 2004


10
.110
.32

Amendment No. 1 to Amended and Restated Employment
    Agreement by and between Sunrise and Paul J. Klaassen.+

10-K

March 24, 2008


10
.3010
.33

Employment Agreement by and between Sunrise Senior Living, Inc.
    and Michael B. Lanahan, dated as of May 10, 2005.+

10-Q

August 9, 2005


10
.1 277




---



##### 



INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number10
.34

2007 Non-Employee Director Fees and Other Compensation.*+

N/A

N/A


N/A10
.35

2007 Summary of Certain Compensation Arrangements for Named
    Executive Officers.*+

N/A

N/A


N/A10
.36

Master Credit Facility Agreement by and between Sunrise
    Riverside Assisted Living, L.P., Sunrise Parma Assisted Living,
    L.L.C., Sunrise Wilton Assisted Living, L.L.C., Sunrise Wall
    Assisted Living, L.L.C., Sunrise Weston Assisted Living, Limited
    Partnership and Glaser Financial Group, Inc. dated as of
    November 29, 2001, as amended.

10-Q

May 14, 2002


10
.610
.37

Credit Agreement by and among Sunrise Senior Living, Inc. and
    certain subsidiaries, as the Borrowers, the subsidiaries of the
    Borrower as identified therein, as the Guarantors, Bank of
    America, N.A., as the Administrative Agent, Swing Line Lender
    and L/C Issuer, Wachovia Bank, National Association, as
    Syndication Agent, and other lender parties thereto, dated as of
    December 2, 2005.

8-K

December 8, 2005


10
.110
.38

Pledge, Assignment and Security Agreement between Sunrise Senior
    Living, Inc. and Bank of America, N.A., as Administrative Agent,
    dated as of December 2, 2005.

10-K

March 24, 2008


10
.4110
.39

First Amendment to Credit Agreement by and among Sunrise Senior
    Living, Inc. and certain subsidiaries, as the Borrowers, the
    subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of March 6, 2006.

10-K

March 24, 2008


10
.4210
.40

Second Amendment to the Credit Agreement by and among Sunrise
    Senior Living, Inc. and certain subsidiaries, as the Borrowers,
    the subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of January 31, 2007.

10-K

March 24, 2008


10
.4310
.41

Third Amendment to Credit Agreement by and among Sunrise Senior
    Living, Inc. and certain subsidiaries, as the Borrowers, the
    subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of June 27, 2007.

10-K

March 24, 2008


10
.4410
.42

Fourth Amendment to Credit Agreement by and among Sunrise Senior
    Living, Inc. and certain subsidiaries, as the Borrowers, the
    subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of September 17, 2007.

10-K

March 24, 2008


10
.45 278




---



##### 



INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number10
.43

Fifth Amendment to Credit Agreement by and among Sunrise Senior
    Living, Inc. and certain subsidiaries, as the Borrowers, the
    subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of January 31, 2008.

10-K

March 24, 2008


10
.4610
.44

Sixth Amendment to Credit Agreement by and among Sunrise Senior
    Living, Inc. and certain subsidiaries, as the Borrowers, the
    subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of February 19, 2008.

10-K

March 24, 2008


10
.4710
.45

Pledge, Assignment and Security Agreement between Sunrise Senior
    Living, Inc. and Bank of America, N.A., as Administrative Agent,
    dated as of February 19, 2008.

10-K

March 24, 2008


10
.4810
.46

Seventh Amendment to Credit Agreement by and among Sunrise
    Senior Living, Inc. and certain subsidiaries, as the Borrowers,
    the subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of March 13, 2008.

10-K

March 24, 2008


10
.4910
.47

Security Agreement by and among Sunrise Senior Living, Inc. and
    certain subsidiaries, as the Loan Parties, and Bank of America,
    N.A., as the Administrative Agent, Swing Line Lender and L/C
    Issuer, and other lender parties thereto, dated as of
    March 13, 2008.

10-K

March 24, 2008


10
.5010
.48

Eighth Amendment to Credit Agreement by and among Sunrise Senior
    Living, Inc. and certain subsidiaries, as the Borrowers, the
    subsidiaries of the Borrower as identified therein, as the
    Guarantors, Bank of America, N.A., as the Administrative Agent,
    Swing Line Lender and L/C Issuer, and other lender parties
    thereto, dated as of July 23, 2008.*

N/A

N/A


N/A10
.49

Second Amended and Restated Operating Agreement of Sunrise
    Second Assisted Living Holdings, LLC dated as of
    December 20, 2002 by and between Sunrise Assisted Living
    Investments, Inc. and US Assisted Living Facilities II,
    Inc.

10-K

March 27, 2003


10
.10010
.50

Amended and Restated Master Owner/Manager Agreement dated as of
    December 20, 2002 by and between Sunrise Second Assisted
    Living Holdings, LLC, together with its subsidiaries, and
    Sunrise Assisted Living Management, Inc.

10-K

March 27, 2003


10
.103 279




---



##### 



INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number10
.51

Limited Liability Agreement of AL U.S. Development Venture, LLC
    dated as of December 23, 2002 by and between Sunrise
    Assisted Living Investments, Inc. and AEW Senior Housing
    Company, LLC.

10-K

March 27, 2003


10
.9810
.52

ROFO Agreement dated as of December 23, 2002 by and between
    AEW Capital Management, L.P., Sunrise Assisted Living, Inc.,
    Sunrise Assisted Living Investments, Inc., Sunrise Assisted
    Living Management, Inc., and Sunrise Development, Inc.

10-K

March 27, 2003


10
.9910
.53

Development Agreement dated as of December 23, 2002 by and
    between Sunrise Development, Inc. and certain Sunrise affiliates.

10-K

March 27, 2003


10
.10210
.54

Operating Deficit Loan Agreement dated as of December 23,
    2002 by and between Sunrise Assisted Living Management, Inc. and
    certain Sunrise affiliates.

10-K

March 27, 2003


10
.10410
.55

Pre-Opening Services and Management Agreement dated as of
    December 23, 2002 by and between Sunrise Assisted Living
    Management, Inc. and certain Sunrise affiliates.

10-K

March 27, 2003


10
.10510
.56

Assumption and Reimbursement Agreement made effective as of
    March 28, 2003, by and among Marriott International, Inc.,
    Sunrise Assisted Living, Inc., Marriott Senior Living Services,
    Inc. and Marriott Continuing Care, LLC.

10-Q

May 15, 2003


10
.410
.57

Assumption and Reimbursement Agreement (CNL) made effective as
    of March 28, 2003, by and among Marriott International,
    Inc., Marriott Continuing Care, LLC, CNL Retirement Properties,
    Inc., CNL Retirement MA3 Pennsylvania, LP, and CNL Retirement
    MA3 Virginia, LP.

10-Q

May 15, 2003


10
.510
.58

Ground Lease, dated June 7, 1994, by and between Sunrise
    Assisted Living Limited Partnership and Paul J. Klaassen and
    Teresa M. Klaassen.

S-1

March 20, 1996


10
.1610
.59

Termination of Lease Agreement by and between Sunrise Assisted
    Living Limited Partnership and Paul J. Klaassen and Teresa M.
    Klaassen, dated as of December 13, 2007.

10-K

March 24, 2008


10
.6110
.60

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
.6210
.61

Stipulated Final Order of the Delaware Court of Chancery, dated
    September 5, 2007, settling the litigation previously filed
    by Millenco, L.L.C. seeking an order from the Court of Chancery
    of the State of Delaware pursuant to Section 211 of the
    Delaware General Corporation Law.

8-K

September 10, 2007


10
.1 280




---



##### 



INCORPORATED BY REFERENCEExhibit







ExhibitNumber

Description

Form

Filing Date with SEC

Number10
.62

Stipulated Final Order of the Delaware Court of Chancery, dated
    October 10, 2007, settling certain litigation filed by SEIU
    Master Trust regarding Sunrise Senior Living Inc.s 2007
    annual meeting of stockholders.

8-K

October 12, 2007


10
.110
.63

Letter dated March 16, 2008 regarding surrender of bonus
    compensation.+

10-K

March 24, 2008


10
.6510
.64

Multifamily Mortgage, Assignment of Rents and Security Agreement.

8-K

May 12, 2008


10
.110
.65

Discount MBS Multifamily Note.

8-K

May 12, 2008


10
.121


Subsidiaries of the Registrant.*

N/A

N/A


N/A31
.1

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

N/A

N/A


N/A31
.2

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

N/A

N/A


N/A32
.1

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

N/A

N/A


N/A32
.2

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

N/A

N/A


N/A    +
    
    Represents management contract or compensatory plan or
    arrangement.*
    
    Filed herewith. 281