1011064--3/24/2008--SUNRISE_SENIOR_LIVING

related topics

{financial, litigation, operation}

{investment, property, distribution}

{acquisition, growth, future}

{debt, indebtedness, cash}

{cost, operation, labor}

{regulation, government, change}

{operation, international, foreign}

{loss, insurance, financial}

{operation, natural, condition}

{cost, regulation, environmental}

{provision, law, control}

{control, financial, internal}

{loan, real, estate}

We have identified material weaknesses in our internal control over financial reporting and expect to incur substantial additional costs to address these control deficiencies and in connection with our ongoing efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Outstanding comments from past SEC staff review and any additional 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. Risks Related to the Pending SEC Investigation and Pending Litigation Arising Out of our Pending Restatement, 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. 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. 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. 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. Our exploration of strategic alternatives may not result in any sale transaction. Risks Relating to Our Business Operations We may be unable to manage effectively our growth and expansion, which may harm our financial condition and operating results. 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. Any delays we experience in developing new communities could impede our growth and adversely affect our revenues and results of operations. Our failure to secure additional financing to fund our development and acquisition activities could slow our growth and could adversely affect our revenues and results of operations. 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. 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. Ownership of the communities we manage is heavily concentrated with three of our business partners. The operations of Sunrise and the operations of entities that we have or may acquire 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. 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 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. 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. 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 correlated Sunrise guarantee obligations. 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. 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. Our hospice revenue is 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. 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. 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. 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. 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.

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1011064--3/24/2008--SUNRISE_SENIOR_LIVING_INC