Sunrise Senior Living Real Estate Investment Trust - Acquisitions and property results drive solid year results tempered by foreign exchange, corporate charges



    TORONTO, April 2, 2007 /CNW/ - Sunrise Senior Living Real Estate
Investment Trust (the "REIT") (TSX: SZR.UN) today announced its financial
results for the three months and year ended December 31, 2006. A copy of the
2006 audited annual financial statements (the "Audited Financial Statements")
and related management's discussion and analysis ("MD&A") will be filed today
and will be available on SEDAR at www.sedar.com and also available on the
REIT's website at www.sunrisereit.com. This press release should be read
together with the Audited Financial Statements and MD&A, both of which are
incorporated herein by reference. In lieu of an earnings conference call, see
the more fulsome disclosure in this release. All financial information set out
in this press release is in thousands of Canadian dollars, unless otherwise
specified.
    R. Michael Warren, Chairman of the REIT, said "2006 was an exciting and
very productive year. We made a number of strategic acquisitions and the
portfolio is now recognized as one of the premier private pay senior living
portfolios in North America. In the process we have created substantial value
for our unitholders."
    Douglas MacLatchy, President and Chief Executive Officer continued,
"Although distributable income and funds from operations did not meet our
expectations, when adjustments are made for income support, corporate charges,
currency fluctuations and special transaction costs, it is evident that the
REIT had a solid year. Net operating income before management fees and
excluding foreign exchange impacts for the Base Properties increased by
approximately 6.7%. However, Base Properties (being those properties held by
the REIT for at least 24 months) now only comprise approximately 32% of our
income-producing portfolio. Were we to include the balance of the REIT's
income-producing portfolio on a comparable historical basis, we believe that
our total net operating income before management fees and excluding foreign
exchange impacts would have moderately exceeded this growth rate."


    
                       Selected Financial Information


    ($000s except unit and      Three-months ended      Twelve-months ended
     per unit amounts)             December 31,             December 31,
                                 2006        2005        2006        2005
                                 ----        ----        ----        ----

    Resident revenues         $  106,239  $   58,828  $  311,433  $  171,263
    Net operating income
     ("NOI")(1)                   40,414      22,223     119,667      64,954
    Distributable income
     ("DI")(2)                    10,599      10,821      43,578      29,787
    Funds from operations
     ("FFO")(3)                    9,321       9,264      37,812      26,145

    Per unit data (diluted)
      DI                      $     0.18  $     0.24  $     0.83  $     0.85
      FFO                     $     0.16  $     0.21  $     0.72  $     0.77
      Distributions           $   0.2187  $   0.2187  $    0.875  $    0.875

    Diluted units:
      Weighted average        58,517,920  44,279,996  52,649,404  34,040,133

    Adjusted gross book
     value(4)                  1,943,578   1,225,732
    Total debt                 1,212,535     699,939
    Debt-to-adjusted gross
     book value                      62%         57%

    Units outstanding at end
     of period                58,587,107  45,497,056

    Average Occupancy Rate           95%         93%

    Footnotes

    (1) NOI                        Resident revenues less labour and facility
                                   operating expenses

    (2) DI                         Distributable Income, which is defined in
                                   our Declaration of Trust

    (3) FFO                        Funds from operations, which is defined by
                                   the Real Property Association of Canada
                                   ("RealPac") as adjusted to reflect gains
                                   and losses actually earned on foreign
                                   currency hedging contracts, and excluding
                                   costs related to the strategic review

    (4) Adjusted gross book value  As defined in our Declaration of Trust
    

    The above terms are key measures of performance used by real estate
companies in the seniors housing industry. These terms are not defined by
Canadian generally accepted accounting principles (GAAP), do not have standard
meanings and may not be comparable with other industries and companies. See
our MD&A for a reconciliation of DI and FFO to the comparable GAAP measure.
See also our Supplemental Information Package for the quarter ended
December 31, 2006 and available on the REIT's website at www.sunrisereit.com
for a comparison of the 2006 fourth quarter NOI, DI and FFO to the 2006 third
quarter NOI, DI and FFO.

    Our communities performed well throughout 2006 with continued occupancy
growth, rate growth and positive same store and total portfolio results. Same
store properties are income-producing properties that were owned by the REIT
for the entirety of each comparable quarter and that either: (a) were open at
least three years prior to the first day of the prior year comparable quarter,
or (b) had a 92% occupancy before the first day of the prior comparable
quarter. In addition, we were able to access the capital markets and complete
a number of significant acquisitions. In fact, during 2006, the REIT raised
$713,000 in convertible debt, equity capital and first mortgage financing and
acquired 25 income producing properties and two properties under development.
This was on top of the 22 income-producing properties that we acquired in
2005.
    As of December 31, 2006, we owned 72 income-producing properties which
together have just over 5,800 suites with the ability to serve almost 7,000
residents. We also own two development properties which together have
approximately 150 suites with the ability to serve just over 180 residents,
both of which are currently in lease-up. On March 30, 2007, we acquired three
development properties from Sunrise as part of our loan-to-own program. We are
scheduled to acquire one additional development property from Sunrise
concurrent with the completion of the proposed transaction with Ventas, also
as part of our loan-to-own program. These four development properties together
have 300 suites with the ability to serve approximately 368 residents, all of
which are currently in lease-up. A list of all of the REIT's properties is
contained in the MD&A.
    The markets that the REIT operates in have a number of positive
fundamentals. The market income and age demographics generally are very
positive and occupancy levels have continued to climb. Combined with limited
introduction of competing properties, we are enjoying a climate of enhanced
pricing power that is translating into higher rates. Together these "value
drivers" have generated significant period over period revenue growth. In
addition, all our properties are fully branded with the best in class
"Sunrise" reputation for providing quality resident-centred care and
excellence in operations.

    REIT Portfolio Performance:

    As previously mentioned our properties have performed positively when
results are compared on a pre-management fee basis and before foreign exchange
to either the three months or the year ended 2006 against the comparable
periods in 2005. We have significant investments in US income-producing
properties and the strengthening Canadian dollar has negatively impacted how
our US property performance is reflected for financial statement purposes. As
to the management fee, we have a complex fee structure that reflects a
variable rate based on property performance. As well, the management fee is
reduced by amounts received under income support agreements. Therefore to
better analyze our property performance, we do so without taking into account
either of these items. However, we have provided a discussion on net operating
income below, as well as a more fulsome discussion addressing these two items
under "Accounting Highlights".
    Using information provided in the MD&A filed for the year ended
December 31, 2006, fourth quarter and year-to-date pre-management fee net
operating income at our Base Properties increased by approximately 4.0% and
6.7%, respectively, excluding the impact of foreign exchange. These amounts
are computed as follows:


    
                     Base Property Portfolio Performance
                         (excluding foreign exchange)
                                 (unaudited)

                                                          2006
                                                      Operations  Percentage
                                              2005      Increase    Increase
    Three-Months Ended December 31
    ------------------------------
    Resident fees                           $ 32,544    $  2,357        7.2%
    Labour and facility operating expenses    20,283       1,872        9.2%
                                            --------    --------    --------
    Pre-management fee net operating
     income                                 $ 12,261    $    485        4.0%
    Management fees                              605       1,439      237.9%
                                            --------    --------    --------
    Net operating income                    $ 11,656    $   (954)     (8.2)%
                                            --------    --------    --------
                                            --------    --------    --------


                                                          2006
                                                      Operations  Percentage
                                              2005      Increase    Increase
    Twelve-Months Ended December 31
    -------------------------------
    Resident fees                           $128,327    $  8,573        6.7%
    Labour and facility operating expenses    79,736       5,305        6.7%
                                            --------    --------    --------
    Pre-management fee net operating
     income                                 $ 48,591    $  3,268        6.7%
    Management fees                            2,907       3,631      124.9%
                                            --------    --------    --------
    Net operating income                    $ 45,684    $   (363)     (0.8)%
                                            --------    --------    --------
                                            --------    --------    --------
    


    Resident Fees
    -------------

    Resident fees at our Base Properties increased approximately 7.2% and
6.7% for the three and twelve months-ended December 31, respectively. The
primary value drivers are increases in occupancy and rates and higher
utilization of extended care services. Average occupancy increased from 94% to
96% and 92% to 95% for the three and twelve months-ended December 31,
respectively.

    Pre-Management Fee Net Operating Income
    ---------------------------------------

    The accounting for amounts received under the now-expired income support
agreements make comparing period over period operating results difficult. As a
result we believe a pre-management fee metric provides a more direct
perspective of property performance.
    Revenue growth at our Base Properties translated into equally strong
growth in net operating income (computed before management fees, which are
discussed below, and excluding foreign exchange). This metric increased
approximately 4.0% and 6.7% for the three and twelve months-ended December 31.
Although the above noted value drivers were key to this improvement, we also
believe the increases reflect the efficiency of our operating model which
benefits from economies of scale with an increased number of properties.
    As a result of our rapid growth over the past two years, Base Properties
now only comprise approximately 32% of our portfolio. Were we to include the
balance of the REIT's income-producing portfolio on a historical comparable
basis, we believe that the growth rate in net operating income before
management fees and excluding foreign exchange for the entire portfolio for
the twelve month period would have moderately exceeded the Base Property
twelve month period growth rate of approximately 6.7%. We have access to
historical data for our acquired properties since all of our acquired
properties were managed by Sunrise over this two year period.

    Management Fees
    ---------------

    Period over comparable period management fees increased as a result of
three items, the most significant of which is the expiration of the income
support agreements during 2006. In addition, revenue growth and the increase
of the applicable management fee rate (from 5.5% to 6.0%) also caused the
increase of the management fee. See Income Support discussion in "Accounting
Highlights" below for further discussion of this item.

    Net Operating Income
    --------------------

    Net operating income at Base Properties for the three-months and year
ended December 31, 2006 fell short of those amounts reported for the same
periods in 2005 by $954 and $363, or 8.2% and 0.8%, respectively, excluding
the impact of foreign exchange. These results differ from the pre-management
fee net operating income due to the impact of various items on management fees
as are described above. See Income Support discussion in "Accounting
Highlights" below for further discussion of this item.

    Same Store Results

    Over the course of the past several quarters we have introduced and
discussed a same store results concept. Fourteen additional properties met
this definition in the fourth quarter, allowing for a comparison of 37 of our
72 properties.
    Comparing the quarter ended December 31, 2006 to that ended December 31,
2005, and using actual results measured in home currency to eliminate the
foreign currency impact, pre-management fee net operating income increased for
US and Canadian properties by approximately 5.7% and 10.1%, respectively.
    Once again, the value drivers were occupancy and rates. In the US, we
experienced occupancy and revenue growth of approximately 1.8% and 7.7%,
respectively. In Canada, these items grew by approximately 3.3% and 9.6%,
respectively.
    The Canadian performance was especially notable as comparable average
occupancy grew from 94% in 2005 to 97% in 2006. We believe this is due in
large part to the increased recognition of our product and the "Sunrise" brand
in the Canadian marketplace. We also believe the REIT is well positioned for
future growth from the Canadian market from both its existing properties and
from development properties for which it has an exclusive right to purchase
from Sunrise.

    Accounting Highlights:

    As noted above, year over year property operating results were solid.
However, the REIT's reported results were impacted by four significant factors
in comparing period over period reported earnings. These items were income
support, the strengthening Canadian dollar, increases in general and
administrative expenses and special transaction costs.

    Income Support
    --------------

    As we have previously discussed, many of the properties acquired at our
initial public offering were subject to income support agreements. Under these
agreements Sunrise agreed to support operating results at a target level for a
period of time. Amounts received under these agreements are accounted for as a
reduction of management fee. Earnings growth up to the supported earnings
target reduced the income support received by the REIT. As a result, earnings
growth up to the earnings target did not result in bottom line earnings
improvement.
    Year over year the management fee (excluding foreign exchange) increased
by $12,030 due to increased revenues arising from acquisitions and improved
property operations and the expiration of the income support agreements. In
2005, the expected management fee computed at 6% was reduced by $4,799
reflecting: (a) a $644 reduction in the 6% management fee rate due to
properties performing below the targeted level, and (b) $4,155 received as
income support for the Base Property portfolio. In 2006, the expected
management fee computed at 6% was reduced by income support of $1,715 in the
Base Property Portfolio. We have no income support after June 2006 (or October
2006 in respect of one property).

    Strengthening Canadian Dollar
    -----------------------------

    The second item was the strengthening Canadian dollar. The Canadian
dollar value improvement began in late September 2005 and continued throughout
2006. Year over year, the value of the US dollar declined against the Canadian
dollar by over 5%. For financial reporting purposes this reduced the value of
our US earnings by a like amount. During the fourth quarter this trend
reversed and there was very little difference to the average translation rate
for the comparable 2005 quarter. Were we to translate 2006 US operating
results using 2005 rates FFO (DI) would increase by $315 ($331) and $1,934
($2,159) for the quarter and the year ended December 31, 2006, respectively.
See the MD&A for the relevant exchange rates and specific foreign exchange
impacts on our results.

    General and Administrative Expenses
    -----------------------------------

    Our general and administrative expenses increased. There were three
reasons for this increase. First, we filled key REIT organizational positions.
We have now grown to 15 full time employees in the corporate office and are
now fully staffed in our corporate office. As a result, we do not see these
expenses growing appreciably in the future.
    We also have variable costs, such as tax return preparation fees and a
variety of other state, franchise and similar non-income taxes, all of which
fluctuate relative to the number of properties we own. These costs will
continue to increase with portfolio growth.
    In addition, we incurred financial statement restatement costs, process
documentation costs (such as those in connection with Multilateral Instrument
52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings
("52-109"), that are expected to be non-recurring), and internal costs related
to the September 2006 acquisition of 24 income-producing properties that if
paid to a third party would have been capitalized.
    Summarizing the discussion on annual general and administrative expenses
contained in the MD&A, significant non-recurring charges include: (a) $390 (Q4
- $340) incurred to document and test the design of internal control
procedures so as to comply with 52-109, (b) approximately $400 (Q4 - $nil) for
professional fees related to the financial statement restatement at
December 31, 2005, and (c) approximately $525 (Q4 - $525) of internal costs
associated with the September 2006 acquisition. Significant recurring charges
to annual general and administrative expenses related to portfolio growth
include approximately $245 of other state, franchise and similar non-income
taxes and professional fees associated with additional tax compliance costs
for newly acquired assets. The remaining increase was due to infrastructure
growth.

    Special Transaction Costs
    -------------------------

    During the fourth quarter, we reported a new income statement line item
for transaction costs. This category includes the professional costs incurred
in connection with the REIT's strategic review and the resulting announced
sale to Ventas ($2,422, which has been added back into DI and FFO - See the
MD&A). Also included are costs related to discontinued acquisitions ($302)
(the majority of which go back over 18 months).

    Corporate Results Recap:

    Using the reported results for the quarter ended December 31, 2006 and
the above information, we can adjust both FFO and DI to reflect the exclusion
of these charges as follows:


    
                                                             FFO       DI
                                                             ---       --
    As reported in our MD&A                               $  9,321  $ 10,599
      Translation rate impact                                  315       331
      52-109 costs                                             340       340
      Internal acquisition costs                               525       525
      Transaction cost adjustment                              302       302
                                                          --------  --------
    As adjusted                                           $ 10,803  $ 12,097
                                                          --------  --------
                                                          --------  --------

    Per unit (diluted, as adjusted)                       $   0.18  $   0.21
                                                          --------  --------
                                                          --------  --------
    Per unit (diluted, as reported in our MD&A)           $   0.16  $   0.18
                                                          --------  --------
                                                          --------  --------
    


    Conclusion:

    We achieved many milestones in 2006 which was a pivotal year for the
REIT. Capital market and acquisition activity coupled with growing the
organization made for a rewarding year. In addition, we saw strong property
operating performance. However, these strong results were tempered by foreign
exchange and corporate charges. Occupancy continued to climb which has allowed
us to drive rates and, combined with the lack of new supply on the near term
horizon, we believe that this growth can be extended into the future.

    Transaction with Ventas:

    The special meeting of unitholders to consider the proposed transaction
with Ventas will be held on April 11, 2007. The board of trustees of the REIT
(excluding Messrs. Paul Klaassen and Thomas Newell, who abstained) unanimously
recommends that unitholders vote in favour of the proposed transaction with
Ventas. Further details regarding the proposed transaction are contained in
the Management Information Circular of the REIT, dated March 6, 2007, and
subsequent news releases of the REIT relating to the proposed Ventas
transaction and special meeting, copies of which are available on SEDAR at
www.sedar.com and on the REIT's website at www.sunrisereit.com.

    About Sunrise Senior Living REIT:

    Sunrise REIT was formed to indirectly acquire, own and invest in
income-producing senior living communities in major metropolitan markets and
their surrounding suburban areas in Canada and the United States. The REIT
will also indirectly acquire interests in newly developed senior living
communities through development and financing arrangements with Sunrise Senior
Living, Inc.

    Certain statements contained in this news release may include
forward-looking information with respect to the REIT's operations and future
financial results. Such statements are based on current expectations, are
subject to a number of uncertainties and risks, and actual results may differ
materially from those contained in such statements. These uncertainties and
risks include, but are not limited to, availability of resources, competitive
pressures, changes in market activity and regulatory requirements. Further
information can be found in disclosure documents filed by the REIT with
regulatory authorities, available at www.sedar.com.





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