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 September 30, 2009, we operated 418 communities, including 371 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
                                      September 30,       September 30,      Percent
                                          2009                2008            Change

    Total communities
    Consolidated (owned or leased)                68                  64          6.3 %
    Consolidated Variable Interest
    Entity                                         1                  10        (90.0 )%
    Unconsolidated Ventures                      213                 200          6.5 %
    Managed                                      136                 170        (20.0 )%

    Total                                        418                 444         (5.9 )%

During the first nine months 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 $43.4 million and $29.5 million of unrestricted cash at September 30, 2009 and December 31, 2008, respectively. The outstanding borrowings on the Bank Credit Facility were $68.9 million at September 30, 2009. On October 19, 2009, we entered into the Thirteenth Amendment to the Bank Credit Facility, which extended the

maturity date to December 2, 2010 (subject to certain conditions as discussed more fully under Liquidity and Capital Resources). We have no borrowing availability under the Bank Credit Facility.

Debt that is in default at September 30, 2009 consists of the following (in thousands):

                                                September 30,
                                                    2009

                    German communities(1)      $       200,034
                    Community mortgages                147,930
                    Variable interest entity            23,225
                    Land loans                          12,420
                    Other                               28,286

                                               $       411,895

(1) The face amount of the debt related to the German communities was $219.3 million at September 30, 2009.

We are working with our lenders to extend the maturities of, or otherwise either re-schedule obligations under debt in default or to obtain waivers.

For debt that is not in default, we have scheduled debt maturities as follows (in thousands):

                                                           1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.
                                               2009          2010          2010          2010          2010         Thereafter        Total

Bank Credit Facility(1)                      $  68,878     $       -     $       -     $       -     $       -     $          -     $  68,878
Community mortgages                             39,796        40,573           195           497           198           19,766       101,025
Land loans                                      21,907             -             -             -             -                -        21,907
Margin loan (auction rate securities)           20,920             -             -             -             -                -        20,920

                                             $ 151,501     $  40,573     $     195     $     497     $     198     $     19,766     $ 212,730

(1) As of 10/19/09, maturity date changed to 12/2/10 (subject to certain conditions).

As discussed more fully in Liquidity and Capital Resources, we are in default of the loan agreements relating to our German communities and the Hoesel land, but have entered into standstill agreements with the lenders pursuant to which the lenders have agreed not to foreclose on the communities that are collateral for their loans or to commence or prosecute any action or proceeding to enforce their demand for payment by us pursuant to our operating deficit agreements until the earliest of the occurrence of certain other events relating to the loans.

In October 2009, we entered into a restructuring agreement, in the form of a binding term sheet, with two of our lenders to seven of the nine communities, to settle and compromise their claims against us, including under operating deficit and principal repayment guarantees provided by us in support of our German subsidiaries. These two lenders contended that these claims had an aggregate value of approximately $121.6 million. The binding term sheet is discussed more fully in Liquidity and Capital Resources.

The restructuring agreement provides that the electing lenders will release and discharge us from certain claims they may have against us. We will issue to the lenders that elect to participate in the restructuring on or before the first execution of the definitive documentation, their pro rata share of up to an aggregate of 5 million shares of our common stock and will grant mortgages for the benefit of all electing lenders on certain of our unencumbered North American properties. Following the first execution of the definitive documentation for the restructuring, we will pursue the sale of such mortgaged properties and distribute the net sale proceeds to the electing lenders. We have guaranteed that, within 30 months of the first execution of the definitive documentation for the restructuring, the electing lenders will receive a minimum of $58.3 million from the net proceeds of any such sale, which equals 80 percent of the most recent aggregate appraised value of these properties. If the electing lenders do not receive at least $58.3 million by such date, we will make payment to cover any shortfall or, at such lenders' option, convey to

them the remaining unsold properties. As any gain or loss on the transaction is dependent upon the values at closing of the aforementioned consideration, we are unable to estimate any gain or loss at this time.

In addition, we will market for sale the German assisted living communities subject to loan agreements with the electing lenders and will remain responsible for all costs of operating, preserving and maintaining these communities until the earlier of either their sale or December 31, 2010.

The closing of the transaction, including the execution of the definitive documentation, the release of claims and the issuance of Sunrise common stock, is conditioned upon receipt of consent for the transaction from Bank of America, N.A., as the administrative agent under our Bank Credit Facility, on or before November 11, 2009. In accordance with the binding term sheet, definitive documentation shall be executed as soon as reasonably possible (but no later than 40 days) after the receipt of such required consent.

We continue to be liable under certain operating deficit and repayment guarantees for the Klein Flottbeck and Wiesbaden communities, and certain principal repayment guarantees for the Hoesel land which is not part of the restructuring agreement.

In the second quarter of 2009, we engaged a broker to assist in the sale of the nine German communities and at that time, classified the German assets as 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 in the second quarter of 2009 which is included in discontinued operations.

In January 2009, we suspended payment of default interest and payments under the income support guarantee for the Fountains venture. Our failure to pay default interest on the loan was an additional default of the loan agreement. In October 2009 as described in Note 10 to the Financial Statements, we entered into agreements with our venture partner, as well as with the lender to release us from all claims that our venture partner and the lender had against us prior to the date of the agreements and from all of our future funding obligations in connection with the Fountains portfolio in exchange for which we have, among other things:

• Transferred our 20-percent ownership interest in the Fountains joint venture to our joint venture partner;

• Contributed vacant land parcels adjacent to six of the Fountains communities and owned by us to the Fountains venture;

• Agreed to transition from management of the 16 Fountains communities as soon as the transition closing conditions are met and the new manager has obtained the regulatory approvals necessary to assume control of the facilities (we expect to transition from management of the Fountains communities during the course of 2010); and

• Agreed to repay the venture the management fee we had earned to date in 2009 of $1.8 million.

The contributed vacant land parcels were carried on our consolidated balance sheet at a book value of $12.9 million at September 30, 2009, in addition to a guarantee liability of $12.9 million both of which will be written off upon closing of the transaction resulting in no gain or loss.

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 September 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 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 September 30, 2009, we have eliminated 114 positions and will be eliminating an additional 49 positions by early 2010. We have recorded severance expense of $5.6 million as a result of the plan through September 30, 2009 and expect to record an additional $0.6 million through early 2010. The costs from the 2009 restructuring plan are in addition to the costs incurred in 2009 related to the 2008 restructuring plan, 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.

In June 2009, we were terminated as manager for a portfolio of 15 communities. We managed these communities through October 1, 2009. The management fees for the years 2008, 2007 and the nine months ended September 30, 2009 were $3.0 million, $2.9 million and $2.3 million, respectively.

In August 2009, a wholly owned community was sold to an unrelated third party for approximately $2.0 million. We received $0.3 million of cash and a note receivable for $1.7 million, recognizing gain of $0.3 million.

In September 2009, we terminated our lease on a portion of our corporate headquarters in McLean, Virginia. We recorded a charge of $2.7 million which is reflected in restructuring expense on our consolidated statement of operations. We expect to save $5.6 million in cash over four years as a result of terminating this portion of the lease.

In October 2009, we entered into an agreement to sell 21 wholly owned assisted living communities, located in 11 states, to Brookdale Senior Living Inc. ("Brookdale") for $204 million. Brookdale placed into escrow an earnest money deposit of $5 million toward the purchase price. The closing date is currently scheduled for November 16, 2009. At the closing of the sale, we expect to receive approximately $60 million in proceeds after payment or assumption by Brookdale of certain mortgage loans, the posting of required escrows, and payment of expenses by us. We will use $25 million of proceeds to pay down our Bank Credit Facility and will place $20 million into a collateral account for the benefit of other creditors.

In addition to selling the German communities and the 21 communities to Brookdale, we intend to sell 11 operating communities, of which eight are located in the United States and three in Canada. Of the 11 operating communities, five are collateral for the German lenders and future net proceeds of the remaining six operating communities would be split equally between us and the lenders of the Bank Credit Facility. We also intend to sell one closed community in the United States which is collateral for the German lenders.

We intend to sell 16 parcels of land, of which 12 are located in the United States and four in Canada. Of the 16 land parcels, 11 are collateral for the German lenders and future proceeds of the remaining five land parcels after repayment of related debt would be split equally between us and the lenders of the Bank Credit Facility. In addition, we intend to sell two closed construction sites and one building located in the United States which are collateral for the German lenders.