Sunrise Senior Living Real Estate Investment Trust - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - National Instrument 51-102, s. 13.1 -- Continuous Disclosure Obligations -- BAR -- An issuer requires relief from the requirement to include certain financial statements in a business acquisition report. Under s. 8.4 (3)(b)(ii), the issuer is required to include a pro forma income statement for the most recently completed interim period that ended after the issuer's most recently completed financial year for which financial statements are required to have been filed. Pro forma earnings per share for the same period are also required to be filed. The issuer is instead including a pro forma income statement for the interim period that ended immediately before the date of the Acquisition and pro forma earnings per share for the same period. This is consistent with the Proposed Amendments to NI 51-102 to become effective December 29, 2006.

Applicable Legislative Provisions

National Instrument 51-102, Part 8 and s. 13.1.

December 4, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO, QUEBEC, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR AND

NEW BRUNSWICK

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SUNRISE SENIOR LIVING REAL ESTATE

INVESTMENT TRUST (the "Filer")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker", and collectively the "Decision Makers") in each of Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, Newfoundland and Labrador and New Brunswick (the "Jurisdictions") has received an application from Sunrise Senior Living Real Estate Investment Trust for a decision under the securities legislation of the Jurisdictions (the "Legislation") exempting the Filer from the requirement in the Legislation to include certain pro forma financial statements in the business acquisition report ("BAR"), to be filed by the Filer in connection with an acquisition which was completed on September 13, 2006, on condition that the Filer includes: (a) a pro forma income statement for the interim period that ended immediately before the date of the Acquisition (as defined below) and pro forma earnings per share for such period and (b) the historical and pro forma financial statements otherwise required pursuant to National Instrument 51-102 ("N151-102") in the BAR (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission (the "OSC") is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is an unincorporated open-ended real estate investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated August 13, 2004, as amended and restated by a declaration of trust made as of December 21, 2004.

2. The Filer is a reporting issuer, or the equivalent, in each of the Jurisdictions and, to the best of its knowledge, is currently not in default of any applicable requirements under the securities legislation thereunder, except that if this decision is not granted by November 27, 2006 the date the BAR is filed, the Filer will be in default with respect to the BAR as it will not comply with the current requirements of Section 8.43(a) and 8.43(b)(ii) of NI 51-102.

3. The Filer's units are listed on the Toronto Stock Exchange (the "TSX"). The Filer also has Series 2006-1 6.4% Convertible Unsecured Subordinated Debentures and Series 2 7.0% Convertible Unsecured Subordinated Debentures outstanding, each of which series is listed on the TSX.

4. The financial year end of the Filer is December 31.

The Acquisition

5. On September 13, 2006, the Filer acquired an 80% controlling interest in 24 assisted living communities (the "Portfolio") from an institutional investor for approximately $472 million by way of the acquisition of an 80% controlling interest of each of Sunrise First Assisted Living Holdings, LLC and Sunrise Second Assisted Living Holdings, LLC (the "Acquisition"). The Filer filed a material change report in respect of the Acquisition which is available on SEDAR.

6. Using the significance tests set forth in section 8.3 of NI51-102, the Acquisition was determined by the Filer to be significant at the greater than 40% level.

7. The Portfolio acquired by the Filer and the subsequent operation thereof by the Filer does not constitute a material departure from the business or operations of the Filer immediately before the Acquisition.

The BAR Financial Statement Requirements

8. Pursuant to the requirements of Part 8 of NI51-102, the Filer is required to file a BAR relating to the Acquisition on or before November 27, 2006.

9. The Filer's most recently completed financial year for which financial statements are required to have been filed pursuant to NI51-102 is December 31, 2005.

10. As of November 13, 2006, the Filer's most recently completed interim period for which financial statements are required to have been filed pursuant to NI51-102 is June 30, 2006.

11. As of November 14, 2006, the Filer's most recently completed interim period for which financial statements are required to have been filed pursuant to NI51-102 is September 30, 2006.

12. Section 8.4(3)(a) of NI51-102 requires the BAR in respect of the Acquisition to include a pro forma balance sheet of the Filer that gives effect to significant acquisitions completed after the date of the Filer's most recent interim or annual balance sheet, as if they had taken place as at the date of the pro forma balance sheet, but are not reflected in the reporting issuer's most recent annual or interim balance sheet.

13. Section 8.4(3)(b)(ii) of NI51-102 requires the BAR in respect of the Acquisition to include a pro forma income statement of the Filer that gives effect to significant acquisitions completed after the ending date of the Filer's most recently completed financial year for which financial statements are required to have been filed, as if they had taken place at the beginning of the financial year, for the Filer's most recently completed interim period that ended after the Filer's most recently completed financial year for which financial statements are required to have been filed and earnings per share for the same interim period.

14. If the BAR were filed prior to November 14, 2006, the Filer's most recently completed interim period for which financial statements are required to have been filed that ended after the Filer's most recently completed financial year for which financial statements are required to have been filed is the six month period ended June 30, 2006. However, as the BAR will be filed after November 14, 2006, the Filer's most recently completed interim period for which financial statements are required to have been filed that ended after the Filer's most recently completed financial year for which financial statements are required to have been filed is the nine month period ended September 30, 2006.

15. As the BAR will be filed subsequent to November 14, 2006 (being after the deadline for the filing of the Filer's interim financial statements for the nine month period ended September 30, 2006), pursuant to Section 8.4(3)(a) of NI51-102 the Filer will not be required to include a pro forma interim period balance sheet of the Filer in the BAR as the Acquisition will be reflected in the Filer's September 30, 2006 interim balance sheet.

Historical Financial Statements

16. The vendor of the Portfolio did not maintain either audited annual or unaudited interim financial statements for either Sunrise First Assisted Living Holdings, LLC or Sunrise Second Assisted Living Holdings, LLC. The manager of the Portfolio therefore had to prepare historical financial statements in connection with the Acquisition, and those financial statements (in the case of the annual historical financial statements) had to be audited.

17. The Filer intended to file the BAR in connection with the Acquisition prior to November 14, 2006, thereby including a pro forma income statement for the six month period ended June 30, 2006 and earnings per share for the same interim period and a pro forma balance sheet as at June 30, 2006.

18. As a result of the review undertaken by the Filer and its auditors of the historical financial statements of Sunrise First Assisted Living Holdings, LLC and Sunrise Second Assisted Living Holdings, LLC, a number of issues were being reconsidered and, as a result, these financial statements had to be reissued. The Filer was therefore unable to file the BAR in respect of the Acquisition prior to November 14, 2006, being the date on which it is required pursuant to NI51-102 to file its interim financial statements for the nine month period ended September 30, 2006.

19. As a result of the BAR in respect of the Acquisition being filed after the filing by the Filer of its interim financial statements for the nine month period ended September 30, 2006, the BAR is required to include a pro forma income statement and earnings per share for the nine month period ended September 30, 2006 (as opposed to for the six month period ended June 30, 2006); however, the BAR is not required to include a pro forma balance sheet as the Acquisition will be reflected in the Filer's September 30, 2006 interim balance sheet.

20. On October 13, 2006, the Canadian Securities Administrators published proposed amendments to: (i) NI51-102, its related forms and companion policy (the "Proposed Amendments to NI51-102"), (ii) National Instrument 52-107 -- Acceptable Accounting Principles, Auditing Standards and Reporting Currency, and (iii) National Instrument 71-102 -- Continuous Disclosure and Other Exemptions relating to Foreign Issuers and its related companion policy. Provided all necessary ministerial approvals are obtained, the amendments will come into force on December 29, 2006.

21. Section 8.4(5)(b)(i)(B) of the Proposed Amendments to NI51-102 will modify the filing requirements of a pro forma interim income statement in a business acquisition report; namely, to comply with these modified filing requirements, a reporting issuer must include a pro forma income statement for the interim period for which it has filed financial statements that started after the most recently completed financial year that ended immediately before the date of acquisition or, in the reporting issuer's discretion, after the date of acquisition.

22. For the BAR, Section 8.4(5)(c) of the Proposed Amendments to NI51-102 would require pro forma earnings per share for the six-month period ended June 30, 2006.

23. The Requested Relief would satisfy the requirements of sections 8.4(5)(b)(i)(B) and 8.4(5)(c) of the Proposed Amendments to NI51-102.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) the BAR filed by the Filer in respect of the Acquisition includes a pro forma income statement for the interim period that ended immediately before the date of the Acquisition (being June 30, 2006) and pro forma earnings per share for the same interim period; and

(b) the BAR filed by the Filer in respect of the Acquisition includes the historical and pro forma financial statements otherwise required under NI51-102.