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:

† the risk that we may not be able to successfully execute our plan to sell certain assets mortgaged pursuant to our German restructure transaction or the net sale proceeds of the mortgaged North American properties may not be sufficient to pay the minimum amount guaranteed by Sunrise to the lenders that are party to the German restructure transactions when such payment is required in October 2012;

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

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

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

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

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

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

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

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

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

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

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

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

† the risk that our current and future investments in ventures could be adversely affected by our lack of sole decision-making authority, 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;

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

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

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

†

† the risk of not complying with government regulations;

† the risk of new legislation or regulatory developments;

† the risk of changes in interest rates;

† the risk of unanticipated expenses;

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

† the risks associated with the ownership and operations of assisted living and independent living communities;

and other risk factors detailed in our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2012, as amended on March 15, 2012, 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 our consolidated subsidiaries.

Overview

Operating Communities and Segments

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

At June 30, 2012, we operated 307 communities, including 265 communities in the United States, 15 communities in Canada and 27 communities in the United Kingdom, with a total unit capacity of approximately 29,839.

The following table summarizes our portfolio of operating communities:

                                                               As of        Percent
                                                             June 30,        Change
                                                                            2012 vs.
                                                           2012     2011      2011
Total communities
Owned                                                         21       23       -8.7 %
Leased (1)                                                    26       26        0.0 %
Variable Interest Entity                                       1        1        0.0 %
Consolidated New York communities leased from a venture        6        6        0.0 %
Consolidated venture                                           1        1        0.0 %
Unconsolidated ventures                                       98      115      -14.8 %
Managed                                                      154      144        6.9 %
Total                                                        307      316       -2.8 %
Unit capacity                                             29,839   30,962       -3.6 %

We have three operating segments: North American Management, Consolidated Communities and United Kingdom Management. The operations of the communities we own or manage are reviewed on a community by community basis by our key decision makers. The communities managed for third parties, communities in ventures or communities that are consolidated but held in ventures or

variable interest entities, are aggregated by location into either our North American Management segment or our United Kingdom Management segment. Communities that are wholly owned or leased are included in our Consolidated Communities segment.

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

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

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

2012 Developments

Overview

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

Asset Purchase and Transfers from Certain Ventures and Subsequent Contribution of Those Assets to a New Venture

Santa Monica Purchase

On February 28, 2012, we closed on a purchase and sale agreement with our venture partner who owned an 85% membership interest (the "Partner Interest") in Santa Monica AL, LLC ("Santa Monica"). We owned the remaining 15% membership interest. Pursuant to the purchase and sale agreement, we purchased the Partner Interest for an aggregate purchase price of $16.2 million. Santa Monica indirectly owned one senior living facility located in Santa Monica, California. As a result of the transaction, the assets, liabilities and operating results of Santa Monica were consolidated in our financial results beginning February 28, 2012 until June 29, 2012 (see below).

We acquired the assets in stages. The fair value of our 15% equity interest immediately prior to the acquisition of the Partner Interest was approximately $2.9 million based on the estimated fair value of approximately $19.5 million for the total underlying equity in the venture. The estimated fair value of the equity was calculated based on the acquisition date fair value of the assets and working capital of approximately $32.9 million less the payoff amount of the debt of $13.4 million. As the carrying value of our investment in the venture prior to the acquisition was zero, we recognized a gain of approximately $2.9 million on our pre-existing membership interest as of the acquisition date.

Asset Transfer from Master MetSun Two, LP and Master MetSun Three, LP

On March 20, 2012, two of our existing joint ventures (the "MetSuns") transferred their ownership interest in two venture subsidiaries to us for no cash consideration. The transferred venture subsidiaries indirectly owned five senior living facilities and one land parcel. Prior to the transfer, we had a 20% indirect ownership interest in the assets. As a result of the transfer, the assets were 100% indirectly owned by us and were consolidated in our financial results commencing March 20, 2012 until June 29, 2012 (see below).

We acquired the assets in stages. We calculated the fair value of the total underlying equity of the assets based on the acquisition date fair value of the assets and working capital of approximately $122.3 million less the fair value of the debt assumed of $118.2 million. We recognized a gain of approximately $4.6 million, including a gain of $0.7 million on our pre-existing ownership interest, in connection with the acquisition of the assets.

Contribution of Assets to a New Venture

On June 29, 2012, we and CNL Healthcare Trust, Inc. ("CHT") completed the formation of a new venture. Pursuant to the terms of the transaction, we contributed our ownership interest in the six senior living facilities mentioned above and Connecticut Avenue (the "Facilities") along with our share of transaction and closing costs to the venture. CHT contributed approximately $57 million along with its share of transaction and closing costs to the venture. The venture is owned approximately 55% by CHT and approximately 45% by us, with a gross valuation of approximately $226 million.

Prior to and as a condition to closing, we and CHT obtained new financing for five of the Facilities and modified the existing financing on two of the Facilities (the "Refinancing"). In connection with the Refinancing, approximately $50 million of CHT's contribution to the venture was used to pay down the existing financing on the five Facilities that were refinanced. The venture has approximately $125 million of indebtedness collateralized by the seven Facilities. In addition, we received an approximate $5 million cash distribution from the venture immediately following closing.

As of the closing, the venture owns the Facilities, which will continue to be managed by us under new management agreements that provide for a management fee of six percent of community revenues. We and CHT have entered into a new venture agreement that provides for our respective rights and obligations in the venture, including our right, at our option, to purchase CHT's interest in the venture, subject to certain restrictions and conditions. Accordingly, as a result of our option to purchase CHT's interest, we account for this venture under the profit-sharing method of accounting. The carrying value of our investment at June 30, 2012 was $2.1 million and is reflected in "Investments in unconsolidated communities including accounted for under the profit-sharing method" on our consolidated balance sheets.

Land Sales

In 2012, we sold two land parcels which were part of the liquidating trust in connection with the refinancing of our German debt for approximately $1.8 million in 2012. No gains were recognized. Proceeds of $2.1 million, including $0.3 million paid by us, were distributed to the electing lenders of the liquidating trust, reducing our guarantee to $24.2 million.

In June 2012, we sold a land parcel located in Pasadena, California for $9.5 million. We will use the proceeds from the sale for general corporate purposes and no gain or loss was recognized on this sale.

Venture Sale of 16 Communities

On May 1, 2012, the subsidiaries of ventures between an institutional investor and us sold 16 communities to Ventas Inc. for a purchase price of approximately $362 million. We received approximately $28.7 million of cash at closing and recognized $21.7 million in return on investment which is included in Sunrise's share of earnings and return on investment in unconsolidated communities on our consolidated statement of operations. We are remaining the manager of the 16 communities under the same terms of the pre-existing management agreements with respect to management fees and contract length, which range from 18 to 27 years.

Lease Terminations

On May 29, 2012, we entered into an agreement to terminate 10 operating community leases with the lessor, Senior Housing Properties Trust. The lessor paid us $1.0 million as consideration for the in place leasehold improvements and furniture, fixtures and equipment. The communities will be transitioned to the new manager over the next four to twelve months. As a result, we recorded an impairment charge of approximately $15.6 million in the second quarter of 2012 related to the book value of the leasehold improvements, prepaid rent and furniture, fixtures and equipment.

Assisted Living Venture

In June 2012, an assisted living/amenities venture in which we hold an interest, refinanced its existing mortgage financing with new mortgage financing provided by Eagle Bank (refer to Note 12). The new loan has a principal amount of $26.0 million, a floor interest rate of 5.5% and a term of three years. As a result of the refinancing, we have been released from our obligation to fund operating deficits and to pay default interest previously accrued by us through December 31, 2011 totaling approximately $2.4 million to the prior mortgage lender. Also, in connection with the refinancing, we funded approximately $6 million on behalf of the venture, leading to a modification of joint venture terms. Return of our new funding will have priority over existing equity and the venture partner's total return will be capped at its capital contribution of $6.5 million. Return of outstanding operating deficit and cost overruns of approximately $8.2 million to us will be subordinate to the return of capital of both venture partners.

Results of Operations



Our results of operations for each of the three and six months ended June 30,
2012 and 2011 were as follows:



                                                                                   Percent
                                    For the Three Months Ended        Variance      Change
                                             June 30,                 2012 vs.     2012 vs.     Favorable/
(In thousands)                        2012              2011            2011         2011      (Unfavorable)
                                           (Unaudited)
Operating revenue:
Management fees                  $       25,340    $       24,400    $      940         3.9 %        F
Buyout fees                                 250                 0           250         N/A          F
Resident fees for
consolidated communities                135,699           110,683        25,016        22.6 %        F
Ancillary fees                            8,368             7,513           855        11.4 %        F
Professional fees from
development, marketing and
other                                       278               522          (244 )      46.7 %        U
Reimbursed costs incurred on
behalf of managed communities           167,808           178,265       (10,457 )       5.9 %        U
Total operating revenue                 337,743           321,383        16,360         5.1 %        F
Operating expenses:
Community expense for
consolidated communities                 96,252            78,722        17,530        22.3 %        U
Community lease expense                  19,187            19,108            79         0.4 %        U
Depreciation and amortization            11,464             8,694         2,770        31.9 %        U
Ancillary expenses                        7,681             6,968           713        10.2 %        U
General and administrative               25,227            27,564        (2,337 )       8.5 %        F
Carrying costs of liquidating
trust assets and idle land                  707               635            72        11.3 %        U
Provision for doubtful
accounts                                  1,235                82         1,153      1406.1 %        U
Impairment of long-lived
assets                                   16,308             5,355        10,953       204.5 %        U
Gain on financial guarantees
and other contracts                           0               (12 )          12         N/A          U
Costs incurred on behalf of
managed communities                     167,179           179,294       (12,115 )       6.8 %        F
Total operating expenses                345,240           326,410        18,830         5.8 %        U
Loss from operations                     (7,497 )          (5,027 )      (2,470 )        NM          U
Other non-operating income
(expense):
Interest income                             374               323            51        15.8 %        F
Interest expense                         (8,682 )          (4,654 )      (4,028 )      86.5 %        U
Gain on fair value resulting
from business combinations                  404            11,250       (10,846 )      96.4 %        U
Gain on fair value of
liquidating trust note                        0                88           (88 )       N/A          U
Other expense                              (721 )            (961 )         240        25.0 %        F
Total other non-operating
(expense) income                         (8,625 )           6,046       (14,671 )        NM          U
Gain on the sale and
development of real estate
and equity interests                      3,399             2,598           801        30.8 %        F
Sunrise's share of earnings
and return on investment in
unconsolidated communities               25,088               931        24,157      2594.7 %        F
Loss from investments
accounted for under the
profit sharing method                    (1,151 )          (1,740 )         589        33.9 %        F
Income before provision for
income taxes and discontinued
operations                               11,214             2,808         8,406       299.4 %        F
Provision for income taxes                 (715 )            (773 )          58         7.5 %        F
Income before discontinued
operations                               10,499             2,035         8,464       415.9 %        F
Discontinued operations, net
of tax                                      (75 )            (217 )         142        65.4 %        F
Net income                               10,424             1,818         8,606       473.4 %        F
Less: Net income attributable
to noncontrolling interests                (834 )            (540 )        (294 )      54.4 %        U
Net income attributable to
common shareholders              $        9,590    $        1,278    $    8,312       650.4 %        F

Note: Not Meaningful (NM) is used when there is a positive number in one period and a negative number in another period.

                                                                                Percent
                                    For the Six Months Ended       Variance      Change
                                            June 30,               2012 vs.     2012 vs.     Favorable/
(In thousands)                       2012             2011           2011         2011      (Unfavorable)
                                          (Unaudited)
Operating revenue:
Management fees                  $     49,655    $       48,614    $   1,041         2.1 %        F
Buyout fees                               250                 0          250         N/A          F
Resident fees for
consolidated communities              264,855           212,982       51,873        24.4 %        F
Ancillary fees                         16,294            15,110        1,184         7.8 %        F
Professional fees from
development, marketing and
other                                     478               845         (367 )      43.4 %        U
Reimbursed costs incurred on
behalf of managed communities         341,881           364,130      (22,249 )       6.1 %        U
Total operating revenue               673,413           641,681       31,732         4.9 %        F
Operating expenses:
Community expense for
consolidated communities              187,799           153,211       34,588        22.6 %        U
Community lease expense                38,423            37,805          618         1.6 %        U
Depreciation and amortization          22,222            16,024        6,198        38.7 %        U
Ancillary expenses                     15,139            13,972        1,167         8.4 %        U
General and administrative             53,868            59,953       (6,085 )      10.1 %        F
Carrying costs of liquidating
trust assets and idle land              1,290             1,042          248        23.8 %        U
Provision for doubtful
accounts                                1,997             1,524          473        31.0 %        U
Impairment of long-lived
assets                                 16,863             5,355       11,508       214.9 %        U
Gain on financial guarantees
and other contracts                         0               (12 )         12         N/A          U
Costs incurred on behalf of
managed communities                   341,674           365,678      (24,004 )       6.6 %        F
Total operating expenses              679,275           654,552       24,723         3.8 %        U
Loss from operations                   (5,862 )         (12,871 )      7,009          NM          F
Other non-operating income
(expense):
Interest income                           604             1,163         (559 )      48.1 %        U
Interest expense                      (16,489 )          (6,164 )    (10,325 )     167.5 %        U
Gain on fair value resulting
from business combinations,             7,470            11,250       (3,780 )      33.6 %        U
Gain on fair value of
liquidating trust note                      0                88          (88 )       N/A          U
Other expense                             (89 )             (28 )        (61 )     217.9 %        U
Total other non-operating
(expense) income                       (8,504 )           6,309      (14,813 )        NM          U
Gain on the sale and
development of real estate
and equity interests                    4,457             3,090        1,367        44.2 %        F
Sunrise's share of earnings
(loss) and return on
investment in unconsolidated
communities                            28,549            (6,758 )     35,307          NM          F
Loss from investments
accounted for under the
profit sharing method                  (4,671 )          (4,764 )         93         2.0 %        F
Income (loss) before
provision for income taxes
and discontinued operations            13,969           (14,994 )     28,963          NM          F
Provision for income taxes             (1,295 )          (1,503 )        208        13.8 %        F
Income (loss) before
discontinued operations                12,674           (16,497 )     29,171          NM          F
Discontinued operations, net
of tax                                    344             1,071         (727 )      67.9 %        U
Net income (loss)                      13,018           (15,426 )     28,444          NM          F
Less: Net income attributable
to noncontrolling interests            (1,390 )          (1,001 )       (389 )      38.9 %        U
Net income (loss)
attributable to common
shareholders                     $     11,628    $      (16,427 )  $  28,055          NM          F

Note: Not Meaningful (NM) is used when there is a positive number in one period and a negative number in another period.

Segment results are as follows (in thousands):