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Executives

Mark Ordan – Chief Executive Officer

Marc Richards – Chief Financial Officer

Greg Neeb – Chief Investment and Administrative Officer

Tim Smith – Vice President, Investor Relations

Analysts

Jerry Doctrow – Stifel, Nicolaus

Prashant Anander – Tilton (phon)

Sunrise Senior Living Inc. (SRZ) Q3 2011 Earnings Call November 8, 2011 9:00 AM ET

Operator

Good day everyone and welcome to the Sunrise Senior Living Third Quarter Earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Tim Smith. Please go ahead, sir.

Tim Smith

Thank you and welcome to Sunrise Senior Living’s investor conference call. This is Tim Smith, Sunrise’s Investor Relations.

Before we begin, let me remind you that this call is being recorded and the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the Company will make various remarks concerning management’s expectations, predictions, plans and prospects that constitute forward-looking statements. Actual results may differ materially from those anticipated by these forward-looking statements. Any forward-looking statements reflect management’s current view only and the Company undertakes no obligation to revise or update such statements in the future.

I will now turn the call over to Mark Ordan, Sunrise’s Chief Executive Officer. Mark?

Mark Ordan

Thank you. Good morning everybody. Amid concerns that senior housing, and certainly high-end seniors’ housing would be in a tailspin – witness the share declines in our sector – we are very pleased by our solid performance in occupancy, rate and NOI both in the third quarter and for the year. As we announced last evening and Greg Neeb will review in greater detail, comparing the third quarter 2011 to the third quarter 2010, stabilized community occupancy is up 10 basis points, average revenue per occupied unit for stabilized communities increased 5%, and NOI increased 4.3% for stabilized communities and 9.2% overall. We continue to enjoy real demand for our need-driven lifestyle and services in this wild economy. We think we know why.

The Sunrise portfolio is a unique collection of communities which support our Company-wide devotion to seniors with varying levels of frailty. For your mom or dad, there’s a room type in one of our communities at Sunrise that will enable their best possible life. We provide a value which we believe cannot be matched. Simply put, if your mom or dad needs the level of service, care and devotion that Sunrise communities provide, our value is unbeatable. This has been in Sunrise’s DNA since its founding 30 years ago this December.

For shareholders, this is not the whole story. In Q3, we continued to fulfill our promise of operating at a lower overhead level. Changes made in this quarter will reduce our annual overhead run rate by over $5 million. This is a result of a difficult process - it must support all we do for seniors but always with a strong sense of economy and efficiency. We recorded both severance and transactions costs in the quarter which pushed us above our $90 million 2011 run rate target. Severance, obviously, is a necessary byproduct of expense reductions that are done professionally with people who are leaving only because we must grow smaller. We believe that our field operations, the envy of senior living, have achieved a proper level efficiency but we continue to find ways to reduce strictly corporate overhead and, as this quarter again demonstrates, we know how to drive down this tough road.

We think our overhead from transaction costs actually represents a great investment. During the past 18 months, we have announced and closed a series of well-priced and transformative transactions which have steadily increased our ownership of the best real estate we manage while cementing long-term management contracts with these communities. These transactions enable us at a fixed and achievable IRR to purchase the remainder of these portfolios. I cannot overstress the great asset quality in these purchases and the upside potential that comes from owing great assets with locked in long-term management contracts. These are prominent in-fill locations concentrated in Tier 1 metropolitan areas. This is another important differentiator between us and others.

We are also very proud of our relationship with CNL, a group who we’ve closely aligned with not just on deal structure but also on how to operate top pride assets and making sure that they’re well maintained and managed. We expect to drive results in these properties and that will directly add great value to Sunrise.

In summary, with these transactions we have been building real net asset value, protecting our future management agreements, and putting us in a position in 2013 and beyond to materially increase our results. We know that our responsibility to our shareholders is to maximize the value of their holdings. Our careers have been built on this. Everything we’re doing as managers is toward this goal. We work to minimize overhead costs and make our operating platform, when viewed standalone, a long-term cash flow and asset value building machine with unmatchable levels of care.

While we build long-term value and we’re pleased with continuing solid demand from families, we also know that the economy’s path is uncertain and may remain depressed for quite some time. This is why we are so determined to always preserve a solid liquidity position, aka cash, so we can keep Sunrise out of harm’s way. While Sunrise is in every measurable way stronger than in many years, we still don’t have Microsoft’s balance sheet. We look to spending money very carefully, balancing long-term value creation while preserving a strong cushion to make sure we get there.

Before Mark and Greg provide color on the quarter’s activities and metrics, I want to share with you our initiatives to keep our core strong, advancing, and prepared to be a first-class partner in a changing healthcare system. We have a dedicated team that knows that our corporate wellbeing goes hand-in-hand with the wellbeing of our residents and communities. We are of course pleased that both Ventas and HCP were able to report improved results in their Sunrise portfolios, mirroring our overall results.

We’ve also totally revamped our budget process during the past year, not to set aspirational guideposts but to reflect an asset-by-asset, room-by-room underwriting of our entire portfolio. We alongside our capital partners and owners work carefully to manage our daily operations and maximize results going forward.

We do continue to work through certain portfolio issues, but even here we seek opportunities to maintain or advance our position. Both in North America and the U.K., we are in discussions with lenders and partners which provide us with comfort that Sunrise’s downside risk is manageable. Greg Neeb will detail these shortly.

I know that in today’s environment people ask, when will all these issues go away? Well, at Sunrise this is part of what we tackle every day and it’s something that we think we’re very good at working through, and it all goes back to defending and building net asset and shareholder value and finding ways to grow profitably.

I’ll turn the call over now to Marc Richards, our Chief Financial Officer, who will provide further details for the quarter, and then Greg Neeb will add detail and color to our restructuring and operating activities. Marc?

Marc Richards

Thank you, Mark. Good morning everyone and thank you all for joining our third quarter conference call. I will focus my discussion this morning on Sunrise’s consolidated operating results for the three and nine months ended September 30, 2011.

During the third quarter, we reported a net loss attributable to common shareholders of 8.7 million or $0.15 per fully diluted share as compared to net income of 18.7 million or $0.33 per fully diluted share in 2010. The change between periods was primarily driven by a $40 million buyout fee paid to us by HCP in the third quarter last year for the right to buy out 27 management contracts which were subsequently bought out in November of 2010.

Adjusted EBITDAR for the quarter was 37 million as compared to 31.8 million for the same period last year. This increase is primarily due to incremental EBITDAR from our ALUS and CC3 acquisitions and lower general and administrative expenses net of non-cash stock compensation expense. We have adjusted net income before interest, taxes, depreciation, amortization and rent expense to further exclude certain non-cash gains and losses and other items of income or expenses, including costs related to our restructuring efforts, in arriving at adjusted EBITDAR.

General and administrative expenses were 28.3 million for the quarter compared to 31.2 million for the same period in 2010. Our Q3 2011 G&A includes 2.1 million of severance expenses, 1.1 million of professional fees associated with our previously announced venture transactions, and 2.2 million of non-cash stock compensation expense. Our Q3 2010 G&A included 1.4 million of severance expenses and $900,000 of stock compensation expense.

Management fees for the quarter were 23.5 million, which includes $300,000 of fee income from management contracts that have since been bought out. For the same period last year, management fees were 28.7 million, which includes 5.9 million of fee income from management contracts that have since been bought out.

Before I move on to net operating income from our consolidated and lease communities, I’d like to remind you that we began consolidating the operating results from the 15 ALUS communities on June 2, 2011. Our third quarter consolidated results include 21.1 million of resident fee income and 13.2 million of community expense for consolidated communities associated with the ALUS portfolio. Also, we consolidate six of the 29 communities within the new CNL venture as of January 2011. Accordingly, we have reflected 10.7 million in resident fee income, 6.1 million of community expense for consolidated communities, and 4.3 million of community lease expense on our consolidated statement of operations for the third quarter of 2011.

In our supplemental disclosure, we have reflected the net operating income from these six consolidated CNL communities in the appropriate joint venture pool rather than in our consolidated leased NOI as the mortgage debt and related assets are all held within the venture; and for comparability purposes, our supplemental disclosures reflect the quarter-over-quarter and year-over-year aggregate operating results of the ALUS communities for the periods prior to June 2, 2011 in our consolidated leased NOI rather than as a venture.

Our third quarter 2011 consolidated and leased community net operating income excluding the impact of the six CNL consolidated venture communities and the 15 ALUS communities decreased by 1.9 million quarter-over-quarter. This is primarily due to an increase in insurance expense of 3.6 million due to the reassessment of our actuarial estimate of ultimate expected losses. We have seen higher than expected workers’ compensation costs and general and professional liability expense. Net operating income is income from operations excluding depreciation, lease expense, and impairment charges related to these communities.

Moving on to our year-over-year results, we reported a net loss attributable to common shareholders of 25.2 million or $0.44 per fully diluted share for the first nine months of 2011 as compared to net income of 49.1 million or $0.86 per fully diluted share for the first nine months of 2010. The significant year-over-year change was driven by a $54.6 million gain associated with our German debt restructuring and 53.5 million of buy-out fees earned in 2010.

Adjusted EBITDAR for the first nine months of 2011 was 104.2 million as compared to 95 million for the same period last year. The increase of 9.2 million was primarily due to incremental EBITDAR from our ALUS and CC3 acquisitions and lower G&A net of non-cash stock compensation expense. These positive results were partially offset by lower management and professional fee income primarily due to bought out management contracts.

General and administrative expenses for the first nine months of 2011 were 88.2 million compared to 92.9 million in 2010. Our 2011 G&A includes 3.1 million in professional fees associated with our venture transactions and 5.9 million of stock compensation expense. Further, G&A expense included 6.5 million in severance costs related to the reduction of 89 positions at our corporate and regional offices as well as a $2 million retention bonus. Our 2010 G&A for the nine month period includes 2.9 million of stock comp expense and 8.4 million of legal fees incurred associated with the HCP litigation that was resolved in the third quarter of 2010.

Management fees for the first nine months of 2011 were 72.1 million, which includes 4.3 million of fee income from management contracts that have since been bought out. For the same period last year, management fees were 89.4 million which includes 18.7 million of fee income from management contracts that have since been bought out.

Our year-to-date 2011 consolidated operating results were also impacted by 94.1 million of NOI from our consolidated and leased communities as compared to 68.8 million during 2010, an increase of 25.3 million. The 2011 consolidation of the six New York CC3 communities accounts for 13 million of this increase and the consolidation of the ALUS portfolio accounts for an additional 10.5 million of this increase.

Moving on to the balance sheet, our unrestricted cash balance at September 30 was 82.9 million. Our outstanding consolidated debt has increased from 163 million at the end of 2010 to 555.7 million at the end of September 2011. We issued 86.3 million of junior subordinated convertible notes in April of 2011. This increase also reflects the now consolidated debt of the ALUS portfolio in the amount of 323 million. The increase on the asset side of the balance sheet reflects the estimated fair value of the acquired real estate of these 15 communities of approximately 412 million.

I will now turn the call over to Greg Neeb.

Greg Neeb

Thanks, Marc. Continuing our goal of providing transparency into our principal business lines, I will provide comments on operating results for our consolidated assets, our leased assets, our joint ventures, and our management agreements, which is a reflection of how we manage our business. I will also elaborate on a number of key transactions within each business line to enhance visibility on the impact to overall value. This information is available in our supplement 8-K filed yesterday.

Let me now turn over to our overall performance for the quarter. Despite sluggish market conditions, overall trends for Sunrise communities were positive. Comparing third quarter 2011 to the third quarter of 2010, stabilized community occupancy is up 10 basis points, average revenue per occupied unit for stabilized communities increased 5%, and NOI increased 4.3% for stabilized communities and 9.2% overall.

Operating trends for the Sunrise leased communities trended lower for the quarter. NOI for the stabilized leased communities was down 11.3%. This decrease was the result of higher insurance costs, specifically the insurance adjustment Marc just discussed earlier on the call. Without this adjustment, NOI in the leased portfolio was essentially flat. Occupancy was slightly lower or 88.2% for the third quarter 2011 versus 89.2% for third quarter 2010, primarily driven down by lower IO occupancy in our larger rental full-service properties.

Our 24 consolidated communities consist of a variety of asset types and other properties we consolidate but don’t own 100%. These include the 15 mansion ALUS portfolio we acquired earlier in the year, our three Quebec communities, and Connecticut Avenue. These communities reported a slight increase in NOI of 1%; however, similar to the leased assets, these assets experienced higher insurance costs related to our modified actuarial estimates. Without these higher costs, NOI spiked over 11%.

As discussed on last quarter’s call, we have engaged with our lender on three Quebec communities to obtain a loan modification and extension. The outstanding loan balance related to these communities is non-recourse to us, but we have provided operating deficit guarantees to the lender. We are not currently funding under these operating deficit guarantees. The principal balance of 45.3 million was due on April 30, 2011. We continue to increase occupancy and NOI while we work through the pending loan modification but have been unable to implement our new business plan that we believe is necessary to drive a successful outcome.

Operating trends for venture and managed communities for the third quarter 2011 were strong with average revenue per occupied unit, occupancy and NOI all up over the third quarter of 2010. Net operating income for stabilized joint ventures was up 6.4% while NOI for stabilized managed communities was up 9%. Joint venture lease-up properties continue to improve as evidenced by occupancy rising to 78.5% and NOI increasing 54%.

As previously mentioned in our last call, on August 2, 2011 we and our venture partner and a portfolio of six communities transferred ownership of the portfolio to a new joint venture owned 70% by a wholly owned subsidiary of CNL and 30% by us. In addition, the new venture modified the existing mortgage loan in the amount of 133.2 million to provide for, among other things, number one, pay down the loan by approximately 28.7 million; and number two, an extension of the loan maturity date to April 2014, which may be extended by two additional years under certain conditions. In connection with the transaction, we contributed $8.1 million and CNL contributed $19 million for the new venture. The agreement secured our long-term management agreement with unlimited cures and control over the assets via a buy-out feature.

Subsequent to the end of the third quarter, in October 2011 we closed the previously announced purchase and sale agreement with Master MorSun Acquisition LLC for its 80% ownership interest in a joint venture that owns seven senior living facilities to a new joint venture owned approximately 68% by CNL Income Partners LP and approximately 32% by us. In connection with the transaction, we transferred our interest in the previous joint venture valued at approximately 16.7 million and CNL Income Partners LP contributed approximately 35.4 million. The purchase was also funded by a $120 million new debt financing in the venture. The agreement secured our long-term 7% management agreement with unlimited cure rights and control over the assets long-term via a buy-out feature.

In the United Kingdom, one venture’s mortgage loan is in default at September 30, 2011 due to a violation of certain loan covenants. The mortgage loan balance was $627.9 million as of September 30, 2011. The loan is collateralized by 15 communities owned by the venture. The lender has rights, which include foreclosure of the communities. The venture is in discussions with the lender regarding the possibility of entering into a loan modification. The lender has verbally expressed their desire to work with the venture and manager to extend and modify the loan terms. We have begun negotiating a standstill agreement with the goal to negotiate a final modification hopefully sometime in 2012.

During the nine months ended September 30, 2011, we recognized $5.7 million in management fees from this venture. Our United Kingdom management segment reported $2.a million in income from operations for the nine months ended September 30, 2011. Our investment balance in this venture was zero at September 30, 2011.

In 2006, we sold a majority interest in two separate entities related to a condominium project for which we provide guarantees to support the operations and debt service of the entities for an extended period of time. We are obligated to the lender and our partners on the assisted living venture to fund operating shortfalls. We are also obligated to our partner on the condominium venture to fund operating shortfalls including sales and marketing costs. The assisted living venture contains the amenities unit for the condominium owners who pay monthly fees for these services. We have funded $7.8 million under the guarantee through September 30, 2011 of which 0.9 million was funded in 2011. The depressed condominium real estate market in Washington, DC area has resulted in lower overall sales and pricing then forecasted, and we believe the partners have no remaining equity in the condominium project. Accordingly, we have informed our partner that we do not intend to fund future operating shortfalls in the condominium venture. As of September 30, 2011, loans of approximately 116 million for the condominium venture and 30 million for the assisted living venture are both in default. We have accrued 2.2 million in default interest relating to these ventures. We are in discussions with the lenders regarding these defaults.

In connection with the restructuring of our German indebtedness, we granted mortgages for the benefit of electing lenders on certain of our unencumbered North America properties, what we call the liquidating trust. As of September 30, 2011, the liquidating trust asset consists of nine land parcels and one closed community. The carrying value of the related notes is subject to our minimum payment guarantee. The balance as of September 30, 2011 was $26.3 million, which represents our minimum payment guarantee at that date. Based on current market conditions and anticipated sales volume, we believe we may be required to fund approximately 5 million under this guarantee.

In total, Sunrise ventures have total debt of 2.5 billion with near-term scheduled debt maturities of 0.4 billion for the remainder of 2011 and 0.2 billion in 2012. Of this, 2.5 billion of debt, there was 0.9 billion that is in default as of September 30, 2011. The debt in the ventures is non-recourse to us with respect to principal payment guarantees, and we and our venture partners are working with the lenders to obtain covenant waivers and to extend the maturity dates, and also (inaudible), the construction loans and permanent financing provided by financial institutions is secured by a mortgage or deed of trust on the financed community. We have provided operating deficit guarantees to the lenders or ventures with respect to 0.7 billion of the total venture debt. Under the operating deficit agreements, we are obligated to pay operating shortfalls, if any, with respect to the ventures. Any such payments could include amounts arising in part from the ventures’ obligations for payment of monthly principal and interest on the venture debt. These operating deficit agreements would not obligate us to repay the principal balance on such venture debt that might become due as a result of acceleration of such indebtedness or maturity. We have non-controlling interest in these ventures.

Back to you, Mark.

Mark Ordan

Thank you, Greg. Thank you, Marc. Operator, we’ll open the call for questions now.

Question and Answer Session

Operator

Thank you. If you’d like to ask a question at this time, please signal by pressing the star key followed by the digit one on your touchtone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that’s star, one for questions. We’ll pause for just a moment to assemble our roster.

Again, that’s star, one for questions. We’ll go first to Jerry Doctrow, Stifel Nicolaus.

Jerry Doctrow – Stifel, Nicolaus

Good morning. Always a lot going on. I guess maybe a broad question first – overall in terms of just occupancy rate and that sort of thing, it looked like—I mean, you’re making very good progress. It looked like things were maybe slowing down a little bit when we start thinking about Q-over-Q. I was just wondering if you could give me any color about how you’re feeling about the market out there. Are you doing any kind of discounting? I think Greg had said that the IL in the CCRC’s was maybe slower than the AL; but just a little more color for sort of the market environment overall.

Mark Ordan

Yeah well, Greg was accurately – it’s Mark – Greg was accurately portraying some of the differences we see, and I think others do, in IL versus AL where AL is obviously much more demand-driven. I would say no, we’re not doing anything promotionally that’s at all outstanding. Demand has been strong. We’ve worked to really manage our inventory well, so we feel pretty good about things. You know, we read the newspapers to then we don’t feel so good about things, so we’re cautious in our outlook; but so far, so good – no special, unusual discounting or anything like that.

Jerry Doctrow – Stifel, Nicolaus

Okay, so if we’re thinking of occupancy and rate continue to trend modestly higher, maybe a little stronger on the lease-up stuff, that’s kind of the right way to be thinking about kind of the next couple quarters, at least?

Mark Ordan

Well, I don’t know. Like I said, so far we feel pretty good. I can’t tell where things are going to trend, but yes, we feel that we have strong enough demand to be able to look at our combination of occupancy and pricing and feel cautiously optimistic.

Jerry Doctrow – Stifel, Nicolaus

Okay. And then sort of a bunch of specific things – Bethesda, obviously you stopped funding the deficit guarantees. Do you expect them to foreclose on that property or you expect it to get worked out, your involvement will continue? Any sense of what’s the most likely outcome there?

Mark Ordan

Actually, I’m not sure what the outcome is going to be. We’re in the middle of active discussions with both our lenders and our partners, and I really don’t have any additional color to provide right now. As we know more, you’ll know more.

Jerry Doctrow – Stifel, Nicolaus

Okay. There’s this little feely lawsuit – I think it’s in California. I think it’s filed as a class action. Big deal, little deal? Any color on how concerned we should be about it?

Mark Ordan

Yeah, that’s been dismissed.

Jerry Doctrow – Stifel, Nicolaus

Oh, okay. Okay. CAPEX – I think it was 2.5 million or so in the current run rate. I think it’s been a little higher in the past. Just a sense of trend line there or what’s the right run rate?

Marc Richards

Yeah, I think where we’ve been running in the past is pretty reflective of where we are. Maybe we’re down a little in this particular quarter, but our spend, I think you’ll see in Q4, will be consistent with our full year.

Jerry Doctrow – Stifel, Nicolaus

Okay. I think this was—JV proportional share of income seemed like it moved around a lot. That’s sort of the shifting—you know, just down from 11.2 million to 4.3 million 2Q to 3Q. It seemed like the CNL stuff and the ALUS obviously moved out a lot earlier, so I was trying to—what was maybe making that—causing that swing. Was that (audio interference) that back offline.

Marc Richards

Jerry, this is Marc. Are you looking at that from an earnings perspective or on an EBITDAR perspective?

Jerry Doctrow – Stifel, Nicolaus

EBITDAR – adjusted EBITDAR.

Marc Richards

Yeah, I don’t have that data right in front of me, but I can get back to you on that.

Jerry Doctrow – Stifel, Nicolaus

Okay. And I guess just on the SNF stuff, I think you had said previously about a $1 million a quarter hit on the skilled nursing because of the Medicare changes and that sort of thing. I know some of the skilled companies, senior housing companies were saying some of that may have already started to be felt in the quarter as you kind of repositioned or sort of adjusted in anticipation. Is that kind of—you know, if we think of it as a one quarter $1 million hit, is that still the right kind of number, or just where are we on that?

Marc Richards

Yeah, based on our current estimates on that, we still feel about $1 million a quarter is right. We’ll know more moving through the fourth quarter as those new rates come into play.

Jerry Doctrow – Stifel, Nicolaus

Okay. And one question sort of Mark raised parenthetically was when will all these issues go away, but I don’t think you answered that, so I was curious to come back to that. It sounded like some of the stuff you were saying, you were starting to talk towards 2013 as being sort of the year we might see substantial growth maybe starting to bring some of these assets back on balance sheet, or buy out some of the JVs and stuff. Just a little bit more on that, thinking about that timing, or am I reading too much into your remarks?

Mark Ordan

Maybe a little bit, but I’d say a couple things. On a lot of the work-out issues, while they pale in comparison to the issues we had to deal with over the last couple of years, there’s still a bunch out there and, as I said, I think we’re pretty good at working through them and having construction dialogues with our lender to make sure that either we can retain upside or in other cases just make sure that we really contain our downside. What I was talking about in 2013 and beyond is that I think that we are adding a lot of value to this company, and whether we buy out our venture partners in the future, we think that by—these transactions have really transformed Sunrise into not just a manager but a manager that has, number one, locked in management contracts and soon would have the ability, especially is we’re really increasing occupancy in the metrics in those communities, to have far more valuable assets in our portfolio that we can purchase at a fixed IRR so that there could be a lot of value unlocked that way.

Jerry Doctrow – Stifel, Nicolaus

Okay. And I think we’ve talked before, Mark – I think a third, roughly, of the JV units, or maybe that was before some leases and buyouts, you had buyout rights on either at some point. Is that kind of the right number, so we would expect more of these transactions to go forward?

Mark Ordan

Well, we like these transactions and when we can do them, we will because we think, again, locking in the management agreements and being able to add value where we see occupancy off of its traditional highs and we think that there are levers that we turn to really improve those values, yeah, I think those are—I think that’s what our shareholders would hope we do.

Jerry Doctrow – Stifel, Nicolaus

Thanks. That’s all for me.

Mark Ordan

Okay. Thanks so much, Jerry.

Operator

As a reminder to our audience, it is star, one if you’d like to ask a question at this time. Again, if you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We’ll pause for just a moment to see if we have any additional questions.

Again, star, one for questions.

We’ll go next to Prashant Anander, Tilton (phon).

Prashant Anander – Tilton

Yeah hi. I have a question that relates to the business trend within the quarter. So did you see the business slow down in September relative to July and August, and can you comment on incentive that you’ve given to residents to attract business relative to, let’s say, Q2?

Mark Ordan

Well, we don’t break it out month by month, but I would say that the third quarter—we announced in the second quarter that there had been some slowdown in the quarter, but then toward the end of the quarter it had picked up and we continued to see that into the third quarter. As I commented earlier in response to Jerry, we really have no special incentive programs. What we do – I’m not trying to be cute about it – but we have many varying room types at Sunrise, so what we really most focus on is how to accommodate somebody’s needs and budget within the various rooms that we have. So it’s been business as usual. I referred to the budget process – I think we’re doing a dramatically better job of really looking at our communities room-by-room and making sure that people in the field think about the potential. But otherwise, nothing else.

Prashant Anander – Tilton

And the follow-up – is 20 million a reasonable quarterly EBITDA run rate for the near term? Can you comment, elaborate on that?

Mark Ordan

Yeah, I can’t comment on that. We don’t issue that, so.

Prashant Anander – Tilton

And finally on the level of debt, where do you see that going? I mean, is 550 million—are you comfortable with the leverage and what’s your plan to adjust that, I guess, in the direction you want it to go?

Mark Ordan

Well, most people like their debt to go down; but I would say that we have—I don’t know how long you have followed Sunrise. We have had a dramatically more difficult debt situation in the past. We think that we are, as I said, very good at working through these issues, but we don’t forecast where that’s going to go. In many of the cases, the leverage that we have on our ventures is very appropriate, and obviously the more real estate we buy the higher our venture debt goes. So are we comfortable? Yeah, I’d say we’re comfortable.

Prashant Anander – Tilton

Thank you.

Operator

And we have no further questions in the queue at this time. I’ll turn the conference back over to Mr. Mark Ordan for any additional or closing remarks.

Mark Ordan

Thank you, Operator. Well, thank you all very much for your continued support and understanding. We appreciate it and we look forward to updating you over the coming months.

Operator

That concludes today’s conference. Thank you all for your participation.

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