Sunrise Reports Fourth-Quarter 2005 Results, Reaffirms Full-Year 2006 Earnings Guidance and Expects 15 to 20 Percent Full-Year 2007 EPS Growth

MCLEAN, Va., March 7 /PRNewswire-FirstCall/ -- Sunrise Senior Living, Inc. , today reported fourth-quarter 2005 earnings of $1.01 per share (diluted) compared to $0.28 (diluted) per share in the fourth quarter of 2004. For the full year 2005, Sunrise reported earnings per share of $1.67 (diluted) compared to earnings per share of $1.12 (diluted) in 2004. These results include several unusual or non-recurring items, including payment by Five Star Quality Care, Inc. of buyout fees related to the cancellation of 12 management contracts as contemplated in the company's third-quarter earnings release. Attached to this release is a supplement that reconciles Sunrise's reported results to its previously disclosed outlook for the quarter and the year.

"The fourth quarter and year closed strongly, as we expected, and positions us for a very good 2006 during which we will be celebrating our 25th anniversary," said Paul Klaassen, Sunrise Senior Living's chairman and CEO. "In 2005 we completed two major acquisitions, occupancy rates rose to near all-time highs, revenues under management exceeded $2 Billion for the first time in our history, development activities grew to a record level and our international momentum accelerated with the opening of our first German communities. The additional investments we made in 2005 in our domestic and international operations, as well as in expanding our development pipeline should help fuel growth for years to come."

Subsequent to the end of the fourth quarter, Sunrise completed the redemption of its remaining 5.25% Convertible Subordinated Notes due February 1, 2009. Prior to the redemption date, all but $7,000 of the approximately $120 million principal amount of the notes outstanding at the time the redemption was announced had been converted into approximately 6.7 million shares of the Company's common stock. The dilutive effect of the issuance of these converted shares has been reflected in Sunrise's fully diluted share count since the notes were issued in the first quarter of 2002.

Portfolio Growth

As of December 31, 2005, Sunrise operated 415 communities. During the fourth quarter of 2005, Sunrise opened four new Sunrise-developed communities and assumed management of one community. Of the five newly managed communities, four are managed for unconsolidated ventures and one is managed for a third party. These five new communities have capacity for approximately 450 residents. There also were 16 management contracts terminated during the fourth quarter of 2005.

During the fourth quarter of 2005, Sunrise began construction on 15 new communities -- nine in the United States, three in the United Kingdom and three in Germany. As of December 31, 2005, Sunrise had 50 communities under construction, with a combined capacity for more than 6,000 additional residents.

Operational Highlights

Revenue under management increased 14 percent to $529.7 million in the fourth quarter of 2005 from $463.7 million in the fourth quarter of 2004. Revenue under management includes revenues generated by Sunrise's consolidated communities, communities owned in unconsolidated ventures and communities owned by third parties that are managed by Sunrise. General and administrative expenses as a percentage of revenue under management increased to 4.6 percent, excluding $3.9 million of transition and restructuring expenses, in the fourth quarter of 2005 compared to 4.1 percent in the fourth quarter of 2004. Including transition and restructuring expenses, general and administrative expenses as a percentage of revenue under management increased to 5.4 percent in the fourth quarter of 2005 compared to 4.1 percent in the fourth quarter of 2004.

During the fourth quarter of 2005, Sunrise had 170 communities (with a resident capacity of 17,457) that were classified as "same-community" owned (communities in which Sunrise has an ownership interest and which were stabilized in both the fourth quarter of 2005 and 2004). Fourth-quarter 2005 revenue for the same-community portfolio increased 6.7 percent over the fourth quarter of 2004 as a result of a 3.6 percent increase in the average daily rate ($136.55 compared to $131.85) and a 3.4 percent increase in occupancy (94.4 percent compared to 91.3 percent). The 94.4 percent "same community" occupancy is the highest level achieved in more than five years. Operating expenses, excluding $2.9 million of hurricane expenses, increased 6.7 percent in the fourth quarter of 2005 over the prior year period which was consistent with revenue growth. Including hurricane expenses, operating expenses increased 9.0 percent in the fourth quarter over the prior year period.

In October 2005, Sunrise was once again recognized by The Washingtonian magazine as a "Great Place to Work." The acknowledgement marks the third consecutive time Sunrise has been honored by the magazine for its work environment and employment practices. Sunrise was one of 55 companies recognized and was chosen from more than 225 candidates.

"We are extremely excited about the opportunities that lie ahead for our business," said Thomas Newell, president of Sunrise Senior Living. "As we move forward, we expect to continue to benefit from our expanded development program and our management services business model. In 2006, we anticipate a record number of community openings and substantial returns from our minority investments in joint venture partnerships. In addition, the strength of our balance sheet is expected to provide significant flexibility as we enter into the next phase of our growth strategy."

Sunrise At Home

During the fourth quarter of 2005, Sunrise wrote down its interest in the Sunrise At Home joint venture by $3.6 million. Sunrise believes this amount will be recovered based on the ultimate performance of the business. Also in the fourth quarter, this joint venture was recapitalized with $7.5 million of additional equity received equally from the original controlling partner in the joint venture, a new independent partner and Sunrise. Sunrise At Home currently operates in seven markets and is expected to generate over $20 million in revenue in fiscal year 2006. All of Sunrise At Home revenue is generated from private pay sources. Sunrise will begin to consolidate Sunrise At Home's operations going forward and expects Sunrise At Home to break-even in fiscal year 2006.

Outlook and Earnings

Sunrise expects 2006 GAAP earnings per share to be $1.16 to $1.20 (diluted). This range is consistent with the previously provided per share range of $1.12 to $1.16 increased for an additional $0.04 of earnings per share generated by payment in the first quarter of a termination fee with respect to one management contract. Sunrise's 2006 EPS guidance includes stock option expenses of approximately $0.04 per share and incentive income deferred from a sale in 2004 of $0.02 per share. Sunrise's 2006 earnings per share is expected to be driven by higher management and professional services revenue resulting from additional construction starts, 24 expected new development openings from Sunrise's expanded development pipeline, full-year contributions from The Fountains and Greystone acquisitions, and by further growth in earnings generated by Sunrise's equity investments in unconsolidated ventures. Sunrise believes that the return from its equity investments in unconsolidated ventures will grow by approximately 15 percent over fiscal year 2005 amounts ($16.8 million excluding the $3.6 million write-down of Sunrise's interest in Sunrise At Home) as ventures mature and additional value is recognized. General and administrative expenses are expected to increase in 2006 by approximately 13 percent over fiscal year 2005 amounts ($85.1 million excluding $5.5 million in transition and restructuring expenses).

Sunrise's earnings per share guidance for the first quarter of 2006 is $0.28 to $0.34 per share. This range includes $0.04 of earnings per share generated by the payment of a termination fee with respect to one management contract and $0.01 of stock option expenses.

For fiscal year 2007, Sunrise expects earnings per share growth to be in the 15 to 20 percent range. This growth is expected to be driven by additional construction starts, new development openings from Sunrise's expanded development pipeline, further international expansion and additional growth in earnings generated by Sunrise's equity investments in unconsolidated ventures. Sunrise expects earnings generated by its equity investments in unconsolidated ventures to continue to play a significant role in its ability to grow overall EPS for the next several years.

Conference Call Information

Sunrise will host a conference call today (Tuesday, March 7, 2006) at 10:00 a.m. ET to discuss the Company's fourth-quarter financial results. Paul Klaassen, chairman and chief executive officer, Thomas Newell, president, Tiffany Tomasso, chief operating officer and Bradley Rush, chief financial officer, will host the call. The call-in number is 913-981-5592 (access code not required). Those interested may also go to the Investor Relations section of the Company's Web site (http://www.sunriseseniorliving.com/) to listen to the earnings call. Those unable to participate in the live call may hear a rebroadcast by dialing 719-457-0820 (access code: 6343532). The rebroadcast will be available through March 14, 2006. In addition, a link to a recording of the call and a copy of this earnings release will be available on the Company's Web site in the Investor Relations section.

Sunrise Senior Living, a McLean, Va. based company, employs more than 40,000 people. As of December 31, 2005, Sunrise operated 415 communities in the United States, Canada, Germany and the United Kingdom with a combined capacity for more than 50,500 residents. Sunrise also had 50 communities under construction in these countries with a combined capacity for more than 6,000 additional residents. Sunrise offers a full range of personalized senior living services, including independent living, assisted living, care for individuals with Alzheimer's and other forms of memory loss, as well as nursing and rehabilitative care. Sunrise's senior living services are delivered by staff trained to encourage the independence, preserve the dignity, enable freedom of choice and protect the privacy of residents. To learn more about Sunrise, please visit http://www.sunriseseniorliving.com/.

Estimates of future earnings are by definition, and certain other matters discussed in this press release may be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Sunrise believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurances that its expectations will be realized. Sunrise's 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 integrate The Fountains and Greystone into our operations, development and construction risks, acquisition risks, licensing risks, business conditions, competition, changes in interest rates, our ability to manage our expenses, market factors that could affect the value of our properties, the risks of downturns in general economic conditions, satisfaction of closing conditions and availability of financing for development and acquisitions. These and other risks are detailed in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Sunrise Senior Living, Inc. Consolidated Balance Sheets (dollars in thousands) December 31, Assets 2005 2004 Current assets: Cash and cash equivalents 225,279 141,883 Short-term investments - 14,900 Accounts receivable, net 59,384 61,999 Notes receivable - affiliates 16,461 2,875 Deferred income taxes 20,721 25,412 Due from unconsolidated senior living communities 58,358 55,823 Prepaid expenses and other current assets 36,569 27,803 Total current assets 416,772 330,695 Property and equipment, net 458,546 369,632 Note receivable - affiliates 6,325 40,700 Management contracts and leaseholds, net 86,241 83,336 Goodwill 165,028 123,713 Investment in unconsolidated senior living communities 137,905 93,016 Investments 7,589 7,416 Investment in Sunrise REIT debentures - 20,757 Other assets 49,870 36,491 Total assets 1,328,276 1,105,756 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses 256,173 185,219 Deferred revenue 8,415 6,202 Lifecare obligations 25,953 25,866 Current maturities of long-term debt 51,368 35,264 Total current liabilities 341,909 252,551 Long-term debt, less current maturities 151,421 156,402 Deferred income taxes 165,957 148,790 Other long-term liabilities 32,131 22,915 Total liabilities 691,418 580,658 Minority Interests 4,181 1,580 Stockholders' equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding - - Common stock, $0.01 par value, 60,000,000 shares authorized, 43,468,462 and 41,666,542 shares issued and outstanding at December 31, 2005 and 2004, respectively 435 412 Additional paid-in capital 294,400 247,999 Retained earnings 351,538 271,796 Deferred compensation - restricted stock (12,323) (4,535) Accumulated other comprehensive income (1,373) 7,846 Total stockholders' equity 632,677 523,518 Total liabilities and stockholders' equity 1,328,276 1,105,756 Sunrise Senior Living Consolidated Statements of Income (in thousands, except per share amounts) Year Ended December 31, 2005 2004 2003 Operating revenue: Management and professional services - operating communities 188,005 90,184 67,560 Community contract services reimbursement 1,235,608 996,726 676,359 Management and professional services - pre-opened communities 40,715 16,775 11,566 Resident fees 355,151 342,786 340,775 Total operating revenues 1,819,479 1,446,471 1,096,260 Operating expenses: Reimbursable community contract services 1,235,608 996,726 676,359 Community development 31,541 14,638 14,852 Community operating 272,616 258,667 254,203 Community lease 48,401 47,085 38,511 General and administrative 90,716 72,362 72,120 Depreciation and amortization 43,432 21,378 16,406 Total operating expenses 1,722,314 1,410,856 1,072,451 Other operating income: Operating communities 411 24,330 75,579 Pre-opened communities 8,819 10,354 10,098 Income from operations 106,395 70,299 109,486 Other non-operating income (expense): Interest income 6,977 8,533 8,869 Interest expense (3,518) (7,069) (25,440) Gain on sale of investment in Sunrise REIT debentures 3,939 - - Other non-operating income (expense), net 7,398 1,464 (16,571) Equity in earnings and return on investment in unconsolidated senior living communities 13,235 9,394 5,343 Minority interests (815) (701) (1,105) Income before provision for income taxes 126,213 80,456 97,153 Provision for income taxes (46,471) (29,769) (34,975) Net income 79,742 50,687 62,178 Net income per common share data: Basic: Basic net income per common share $ 1.92 $ 1.25 $ 1.46 Basic weighted-average shares outstanding 41,456 40,604 42,596 Diluted: Diluted net income $ 84,119 $ 55,073 $ 66,762 Diluted net income per common share $ 1.67 $ 1.12 $ 1.32 Diluted weighted-average shares outstanding 50,385 49,258 50,748 Sunrise Senior Living Consolidated Statements of Income (in thousands, except per share amounts) Three Months Ended 12/31/2005 12/31/2004 Operating revenue: Management and professional services - operating communities 108,863 24,907 Community contract services reimbursement 338,191 261,550 Management and professional services - pre-opened communities 14,298 6,117 Resident fees 93,396 86,541 Total operating revenues 554,748 379,115 Operating expenses: Reimbursable community contract services 338,191 261,550 Community development 11,973 2,954 Community operating 71,524 65,035 Community lease 11,777 12,846 General and administrative 28,505 18,954 Depreciation and amortization 23,325 6,345 Total operating expenses 485,295 367,684 Other operating income: Operating communities - 353 Pre-opened communities 4,580 3,387 Income (loss) from operations 74,033 15,171 Other non-operating income (expense): Interest income 2,191 3,115 Interest expense (596) (1,587) Gain on sale of investment in Sunrise REIT debentures 3,939 - Other non-operating income (expense), net 5,534 1,528 Equity in earnings and return on investment in unconsolidated senior living communities 214 3,559 Minority interests (234) (80) Income before provision for income taxes 79,547 20,178 Provision for income taxes (29,205) (7,466) Net income 50,342 12,712 Net income per common share data: Basic: Basic net income per common share $ 1.19 $ 0.32 Basic weighted-average shares outstanding 42,144 40,251 Diluted: Diluted net income $ 51,446 $ 13,813 Diluted net income per common share $ 1.01 $ 0.28 Diluted weighted-average shares outstanding 50,980 48,888 Sunrise Senior Living, Inc. Supplemental Information As of December 31, 2005 ($ in millions except average daily rate and per share amounts) Communities Resident Capacity Q4 05 Q4 04 Q4 05 Q4 04 Community Data Communities managed for third-party owners 198 195 26,208 24,237 Communities in ventures 156 125 16,485 10,929 Communities consolidated 61 60 7,980 7,943 Total communities operated(1) 415 380 50,673 43,109 Percentage of Total Operating Portfolio Assisted Living 67% 69% Independent Living 24% 22% Skilled Nursing 9% 9% Total 100% 100% Selected Operating Results Same-Community Owned Portfolio Operating Q4 05 Q4 04 % Change Results (2) Number of communities 170 170 - Resident capacity 17,457 17,457 - Revenue $211.5 $198.2 6.7% Community operating expense(3) $139.5 $128.0 9.0% Community operating expense, excluding hurricane(4) $136.6 $128.0 6.7% Occupancy 94.4% 91.3% 3.4% Average daily rate(5) $136.55 $131.85 3.6% Selected Total Portfolio Operating Results(6) Q4 05 Q4 04 Total revenue of communities under management $529.7 $463.7 Total G&A expenses as a percentage of total revenue of communities under management 5.4% 4.1% Total G&A expenses, excluding transition and restructuring expenses, as a percentage of total revenues of communities under management(7) 4.6% 4.1% Q4 05 Q4 04 Development Information Construction in progress $124.3 $68.2 Capitalized interest $1.9 $1.6 Capital expenditures $37.9 $25.8 Start-up losses (8) $(2.1) $(0.7) Number of Development Communities to be Opened (Resident Capacity) Q1 06 Q2 06 Q3 06 Q4 06 Consolidated communities - 1 (94) 1 (91) 3 (284) Venture communities 7 (638) 7 (788) 2 (210) 1 (99) Managed communities 1 (85) 1 (72) - - Sunrise Senior Living, Inc. Supplemental Information (continued) As of December 31, 2005 ($ in millions except average daily rate and per share amounts) Per Share Per Share Guidance As Reported (diluted) (diluted) Q4 2005 Guidance Reconciliation Net income * $1.04 $1.01 Five Star termination fee, net(9) $(0.82) $(0.80) Hurricane-related expenses $0.04 $0.04 One-time acquisition transition expenses $0.04 $0.03 Write down of interest in At Home - $0.05 $0.30 $0.33 Shares used to compute per share amounts (in thousands) 50,529 50,980 Sunrise's fourth quarter 2005 guidance range $0.30 - $0.34 * Low-end of the Company's guidance range of $1.04-$1.08 per share (diluted). Per Share Per Share Guidance As Reported (diluted) (diluted) Full-Year 2005 Guidance Reconciliation Net income * $1.72 $1.67 Five Star termination fee, net(9) $(0.82) $(0.81) Hurricane-related expenses $0.05 $0.05 One-time acquisition transition expenses $0.05 $0.05 Income from operating property sale $(0.01) $(0.01) Write down of interest in At Home - $0.05 $0.99 $1.00 Shares used to compute per share amounts (in thousands) 49,900 50,385 Sunrise's full-year 2005 guidance range $0.99 - $1.02 * Low-end of the Company's guidance range of $1.72-$1.75 per share (diluted). Notes (1) During the fourth quarter of 2005, Sunrise opened four communities and assumed management of one community. There were also 16 management contracts terminated in the fourth quarter. (2) Same-community owned portfolio consists of all communities in which Sunrise has an ownership interest and that were stabilized in the fourth quarter of 2005 and 2004. This includes consolidated and venture communities. (3) Facility operating expense excludes management fees paid to Sunrise with respect to same-community ventures in order to make comparisons between consolidated and venture communities consistent. (4) Excludes hurricane-related expenses of $2.9 million. (5) Average daily rate excludes community fees. (6) Includes revenue for all communities managed by Sunrise. (7) General and administrative expenses used in this calculation exclude transition expenses related to the Greystone and The Fountains acquisitions of approximately $1.6 million for the three months ended December 31, 2005. The calculation also excludes $2.3 million of restructuring expenses for the three months ended December 31, 2005. Sunrise believes this calculation is relevant in understanding its recurring general and administrative expenses as a percentage of revenue under management. (8) Losses incurred during the period for communities opened during the prior 12 months in which Sunrise has an ownership interest. (9) Five Star termination fee, net equals $80.2 million in management and professional services-operating properties fees received less $16.1 million in management contract amortization expense and other costs related to the cancellation of these contracts.