The following discussion should be read together with the information contained in our consolidated financial statements, including the related notes, and other financial information appearing elsewhere herein. This management's discussion and analysis contains certain 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, our ability to raise funds and maintain sufficient liquidity; our ability to extend the maturity dates of, obtain waivers with respect to, or refinance, some of our outstanding debt; our ability to achieve the anticipated savings from our cost-savings program; the sale of our German communities and the settlement of the related debt; the outcome of the HCP, Inc. litigation; the outcome of the SEC's investigation; the outcome of the Trinity OIG investigation; 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; development and construction risks; risks associated with past or any future acquisition; 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 further downturns in general economic conditions; availability of financing for development, including under construction loans as to which we are in default; and other risks detailed in our amended 2008 Annual Report on Form 10-K filed with the SEC on February 27, 2009 as amended on March 31, 2009 and April 30, 2009, and, as may be amended or supplemented in our Form 10-Q filings. 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 its consolidated subsidiaries.

Overview

We are a Delaware corporation and a provider of senior living services in the United States, Canada, the United Kingdom and Germany.

At June 30, 2009, we operated 415 communities, including 368 communities in the United States, 15 communities in Canada, 25 communities in the United Kingdom and seven communities in Germany, with a total unit capacity of approximately 43,000.

The following table summarizes our portfolio of operating communities:

                                            As of          As of
                                           June 30,       June 30,      Percent
                                             2009           2008         Change

         Total communities
         Consolidated (owned or leased)           69             63          9.5 %
         Consolidated Variable Interest
         Entity                                    1              1          0.0 %
         Unconsolidated Ventures                 209            206          1.5 %
         Managed                                 136            171        (20.5 )%

         Total                                   415            441         (5.9 )%

During the first half of 2009 we continued to execute a strategy of 1) divesting of non-core assets and unprofitable operations to raise cash, improve our liquidity, avoid significant capital investment and reduce our operating and financial risks and 2) improve the efficiency of our operations and our administrative functions.

We had $37.0 million and $29.5 million of unrestricted cash at June 30, 2009 and December 31, 2008, respectively. The outstanding borrowings on the Bank Credit Facility were $69.2 million at June 30, 2009. On April 28, 2009, we entered into the Twelfth Amendment to the Bank Credit Facility, which amended the financial

covenants through the maturity date of December 2, 2009. We have no borrowing availability under the Bank Credit Facility. We have additional scheduled debt maturities of $138.9 million within one year of which $79.1 million will occur in the last six months of 2009 and $59.8 million will occur in the first six months of 2010. Some of our long-term debt is in default. Long-term debt that is in default totals $386.0 million, includes $190.2 million that is in default as a result of our failure to pay principal and interest on debt related to our German communities and $195.8 million which results from our failure to meet financial covenants and failure to make debt service payments. As a result of this default, this debt is now classified as a current liability on our consolidated balance sheets. We are endeavoring to extend debt maturity dates, re-finance debt and obtain waivers from the applicable lenders. We are engaged in discussions with various venture partners and third parties regarding the sale of certain assets with the purpose of increasing liquidity and reducing obligations to enable us to continue operations. We expect that our cash balances and expected cash flow are sufficient to enable us to meet our operating obligations through December 2, 2009. If we are not able to achieve these objectives, we will not have sufficient financial resources to meet our financial obligations and we could be forced to seek reorganization under the U.S. Bankruptcy Code. Our consolidated financial statements have been prepared on the basis of us continuing as a going concern. These conditions raise substantial doubt about our ability to continue as a going concern.

At the beginning of 2009, we stopped making scheduled principal and interest payments on the debt and are seeking to restructure our debt and guarantee obligations related to our nine German communities. We continue our discussions with the lenders to our German communities with the objective of disposing of the assets and providing to the lenders additional consideration for their claims against us. We have proposed to compromise all claims and liabilities against us under certain unsecured operating deficit agreements, debt guarantees, income support arrangements, funding obligations, or other contractual arrangements. In consideration for relief from these obligations, we would pay cash and deliver value in additional real estate owned by us. We have not yet reached agreement with the lenders.

In the second quarter of 2009, we engaged a broker to assist in the sale of the nine German communities. Initial bids have been received from various potential buyers. We expect a sale to occur within 90 days although there can be no assurance that the initial bids received will result in the consummation of a sale. If a sale does not occur within a reasonable time period, we intend to close the communities. As of June 30, 2009, we have classified the German communities as assets held for sale. As the book value of the majority of the assets was in excess of their fair value less estimated costs to sell, we recorded a charge of $52.4 million which is included in discontinued operations.

We intend to sell 16 land parcels which have a carrying value of $62.7 million and related debt of $34.3 million. Certain of these land loans are in default. Eight of these land parcels, which met all of the criteria to be classified as held for sale at June 30, 2009, are recorded at the lower of their carrying value or fair value of $44.9 million included in the "Assets Held for Sale" line in the Consolidated Financial Statements. We also intend to sell a building and two closed construction sites which have a carrying value of $25.0 million.

We are currently marketing for sale a portfolio of 22 wholly owned assets, which have a carrying value of $185.4 million and related debt of $173.6 million, and five leased assets.

At the beginning of 2009, we stopped making payments under our guarantee obligations relating to the Fountains portfolio. We expect to be terminated as manager for the 16 communities. We are working with our venture partner and lender to resolve these matters and we believe we have made significant progress to this end.

In March 2009, we sold our Greystone subsidiary and our interests in Greystone seed capital partnerships to an entity controlled by Michael Lanahan and Paul Steinhoff, two senior executives of the Greystone subsidiary. Total consideration was (i) $2,000,000 in cash at closing; (ii) $5,700,000 in short-term notes, (iii) a $6,000,000 7-year note (iv) a $2,500,000 note payable, and (v) 35% of the net proceeds received by the seed capital investors for each of the seed capital interests purchased from us. We collected $5.7 million of short-term notes through June 30, 2009.

In April 2009, we sold the equity interest in our Aston Gardens venture and were released from all guarantee obligations. Our management contracts for the six communities in the venture were terminated on April 30, 2009. We received proceeds of approximately $4.8 million for our equity interest and our receivable from the venture for fundings under the operating deficit guarantees. We received management fees of $3.2 million and $3.7 million in 2008 and 2007, respectively.

In June 2009, we were terminated as manager for a portfolio of 15 communities. We will manage these communities through October 1, 2009. The management fees for the years 2008 and 2007 were $3.0 million and $2.9 million, respectively.

In May 2009, we announced a plan to continue to reduce corporate expenses through reorganization of our corporate cost structure, including a reduction in spending related to, among other areas, administrative processes, vendors, and consultants. The plan is designed to reduce our annual recurring general and administrative expenses (including expenses previously classified as venture expense) by over $20 million, from our 2009 budgeted annual recurring level of approximately $120 million (after the sale of Greystone, which is presented in discontinued operations in our financial statements) to approximately $100 million, and to reduce our centrally administered services which are charged to the communities by approximately $1.5 million. Under the plan, approximately 150 positions will be eliminated. As of June 30, 2009, we have eliminated 71 positions and will be eliminating an additional 77 positions by early 2010. We have recorded severance expense of $3.8 million as a result of the plan through June 30, 2009 and expect to record an additional $1.1 million through early 2010. These costs are incremental to the restructuring plan implemented by us in 2008, which provided for the elimination of 165 positions and corresponding expense reductions.

In May 2009, we entered into a separation agreement with our chief financial officer, Richard Nadeau, in connection with this plan. Pursuant to the separation agreement, Mr. Nadeau's employment with us terminated effective as of May 29, 2009. Pursuant to Mr. Nadeau's employment agreement, Mr. Nadeau received severance benefits that included a lump sum cash payment of $1.4 million. In addition, Mr. Nadeau received a bonus in the amount of $0.5 million and Mr. Nadeau's outstanding and unvested stock options, restricted stock and other long-term equity compensation awards were fully vested, resulting in a non-cash compensation expense to us of $0.8 million. The options expire 12 months after the termination of his consulting term, which can be up to nine months after his termination date of May 29, 2009. 70,859 shares of restricted stock and 750,000 options vested. We recorded non-cash compensation expense of $0.8 million as a result of the vesting acceleration.