UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





**FORM
10-K**


*(Mark
One)*





þ
    ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the fiscal year ended:
    **December
      31, 2004**





OR





o
    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the transition period from
    
    to





Commission
file number 000-32607





**CNL
RETIREMENT PROPERTIES, INC.**


*(Exact
name of registrant as specified in its charter)*





**Maryland**
    
    **59-3491443**(State
      of other jurisdiction
      of
      incorporation or organization)
    
    (I.R.S.
      Employer
      Identification
      No.)





**450
      South Orange Avenue**
      **Orlando,
      Florida**
    
    **32801**(Address
      of principal executive offices)
    
    (Zip
      Code)





Registrant's
      telephone number (including area code):
    
    **(407)
      650-1000**





Securities
registered pursuant to Section 12(b) of the Act:





*Title
      of each class:*
      None
    *Name
      of exchange on which registered:*
      Not
      Applicable





Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, $0.01 par value per share


*(Title
of class)*





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes þ No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o





Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes þ No o





*Aggregate
market value of the common stock held by nonaffiliates of the
registrant:* No
established market exists for the Registrant's shares of common stock, so there
is no market value for such shares. Each share was originally sold at $10 per
share. Based on the $10 offering price of the shares, $2,208,812,472 of our
common stock was held by non-affiliates as of June 30, 2004.





The
number of shares of common stock outstanding as of February 28, 2005 was
241,700,270.





*DOCUMENTS
INCORPORATED BY REFERENCE*





Registrant
incorporates by reference portions of the CNL Retirement Properties, Inc.
Definitive Proxy Statement for the 2005 Annual Meeting of Stockholders (Items
10, 11, 12, 13 and 14 of Part III) to be filed no later than April 30,
2005.








****


**Contents**





PagePart
      I.Item
      1.
    Business
    1-
      6Item
      2.
    Properties
    7-10Item
      3.
    Legal Proceedings
    10Item
      4.
    Submission of Matters to a Vote of Security
      Holders
    10Part
      II.Item
      5.
    Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
    11-12Item
      6.
    Selected Financial Data
    13-14Item
      7.
    Management's Discussion and Analysis of Financial Condition
      and Results of Operations
    15-28Item
      7A.
    Quantitative and Qualitative Disclosures About Market
      Risk
    28Item
      8.
    Financial Statements and Supplementary
    Data
    29-55Item
      9.
    Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
    56Item
      9A.
    Controls and Procedures
    56Item
      9B.
    Other Information
    56Part
      III.Item
      10.
    Directors and Executive Officers of the
      Registrant
    56Item
      11.
    Executive Compensation
    56Item
      12.
    Security Ownership of Certain Beneficial Owners and
      Management
    56Item
      13.
    Certain Relationships and Related
      Transactions
    56Item
      14.
    Principal Accountant Fees and Services
    57Part
      IV.Item
      15.
    Exhibits, Financial Statement Schedules
    57-61





Signatures
    62-63Schedule II - Valuation and Qualifying
      Accounts
    64Schedule III - Real Estate and Accumulated
      Depreciation
    65-71Exhibits






















**PART
I**





**Item 1. Business**





***General***





CNL
Retirement Properties, Inc. is a corporation that was organized pursuant to the
laws of the State of Maryland on December 22, 1997. Various wholly owned
subsidiaries have been and will be formed in the future by CNL Retirement
Properties, Inc. for the purpose of acquiring and owning real estate properties.
The terms "we," "us" and "our" includes CNL Retirement Properties, Inc., each of
its subsidiaries and several consolidated partnerships and joint ventures. We
operate as a real estate investment trust (a "REIT") for federal income tax
purposes. We have retained CNL Retirement Corp. (the "Advisor") as our advisor
to provide management, acquisition, advisory and administrative
services.





We
acquire real estate properties related to seniors' housing and health care
facilities (the "Properties") located primarily across the United States. The
Properties may include independent living, assisted living and skilled nursing
facilities, continuing care retirement communities ("CCRC") and life care
communities (collectively "Seniors' Housing"), medical office buildings
("MOBs"), specialty clinics, walk-in clinics and other types of health
care-related facilities. Our Seniors’ Housing facilities are generally leased on
a long-term, triple-net basis and our MOBs are generally leased on a
shorter-term, gross or triple-net basis. We may provide mortgage financing loans
("Mortgage Loans") and furniture, fixture and equipment financing ("Secured
Equipment Leases") to operators of Seniors' Housing and other health
care-related facilities. In addition, we may invest up to a maximum of 5% of
total assets in equity interests in businesses, including those that provide
services to or are otherwise ancillary to the retirement and health care
industries. As of December 31, 2004, we owned 222 Properties located in 32
states consisting of 170 Seniors’ Housing facilities, including one Seniors'
Housing facility held for sale, and 52 MOBs.





In August
2004, we acquired a 55% controlling interest in The DASCO Companies, LLC
("DASCO"), a development and property management company that manages 27 and is
developing three of our MOBs. DASCO may also provide development and property
management services to third parties.





We
operate in one business segment which is the ownership, development, management
and leasing of health care-related real estate.





As of
December 31, 2004, we have made five best efforts public offerings and received
aggregate subscriptions of $2.4 billion (representing 237.5 million shares). Our
fourth offering closed in April 2004. Our fifth public offering of up to 400
million shares of common stock commenced in May 2004 (the "2004
Offering").





Our
primary investment objectives are to preserve, protect and enhance our assets
while (i) making distributions to stockholders; (ii) obtaining fixed income
through the receipt of base rent, increasing income (and distributions to
stockholders) and providing protection against inflation through automatic
increases in base rent, or increases in base rent based on increases in consumer
price indices over the terms of the leases and obtaining fixed income through
the receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
continuing to qualify as a REIT for federal income tax purposes; and (iv)
providing our stockholders with liquidity of their investment, through (a)
listing of our shares on a national securities exchange or over-the-counter
market ("Listing" or "Listed"), or (b) if Listing does not occur by December 31,
2008, the commencement of orderly sales of our assets and distribution of the
proceeds.





We intend
to capitalize on the growing real estate needs in the Seniors' Housing and
health care industries by investing in additional Properties or Mortgage Loans
using proceeds received from our public offerings and permanent financings. We
expect to acquire Properties with a view to diversify among facility types,
tenants, operators, and in the geographic location of the Properties.





1





***Investment
Properties***





*Portfolio
of Properties.* At
December 31, 2004, we owned 222 Properties, located in 32 states. The following
table summarizes the types of facilities, amounts invested, number of
facilities, and units or square footage for the Properties owned as of December
31, 2004. Seniors' Housing facilities are apartment-like facilities and are
therefore stated in units. MOBs are measured in square feet (dollars in
thousands):





Type
      of Facility
    
    Investment
    
    Percentage
      of Portfolio
    
    Number
      of Facilities
    
    Units
    
    Square
      FeetSeniors’
      Housing:Assisted
      Living
    
    $
    1,386,899
    
    
    44
    %
    
    126
    
    
    11,997
    
    
    —Independent
      Living
    
    
    885,384
    
    
    28
    %
    
    32
    
    
    6,906
    
    
    —CCRC
    
    
    191,073
    
    
    6
    %
    
    2
    
    
    1,029
    
    
    —Land
      Only Leases
    
    
    131,076
    
    
    4
    %
    
    6
    
    
    —
    
    
    —Properties
      Under Development
    
    
    79,997
    
    
    2
    %
    
    3
    
    
    —
    
    
    —2,674,429
    
    
    84
    %
    
    169
    
    
    19,932
    
    
    —Medical
      Office Buildings:Medical
      Office Buildings
    
    
    473,501
    
    
    15
    %
    
    49
    
    
    —
    
    
    2,618,069Properties
      Under Development
    
    
    26,415
    
    
    1
    %
    
    3
    
    
    —
    
    
    —499,916
    
    
    16
    %
    
    52
    
    
    —
    
    
    2,618,069$
    3,174,345
    
    
    100
    %
    
    221
    
    
    19,932
    
    
    2,618,069Held
      for Sale
    
    $
    1,578
    
    
    —
    
    
    1
    
    
    55
    
    
    —





*Characteristics
of Our Seniors’ Housing* *Leases.* Seniors'
Housing Properties are leased on a long-term (generally 15 years), triple-net
basis, whereby the tenants are generally responsible for all operating expenses
relating to the Property, including property taxes, maintenance, repairs,
utilities and insurance as well as capital expenditures that may be reasonably
necessary to maintain the leasehold in a manner that allows operation for its
intended purpose. These
leases provide for minimum annual base rent payments, generally payable monthly
in arrears. The leases provide that the minimum base rent will increase at
predetermined intervals (typically on an annual basis) during the terms of the
leases. In
addition to minimum annual base rent, many tenants are subject to contingent
rent if the Properties achieve specified operating performance thresholds. The
amount of contingent rent payable is based on factors such as percentage of
gross revenues, occupancy rates of the Properties or a percentage of our
investment in the Property. Substantially all of the leases provide options that
allow the tenants to renew the leases for 5 to 20 successive years subject to
the same terms and conditions as the initial leases. The
majority of the leases also provide for the tenant to fund, in addition to its
lease payments, a furniture, fixture and equipment ("FF&E") reserve fund. In
such cases, the tenant deposits funds into the FF&E reserve account and
periodically uses these funds to cover the cost of the replacement, renewal and
additions to FF&E. We may be responsible for capital expenditures or repairs
in excess of the amounts in the reserve fund, and the tenant generally will be
responsible for replenishing the reserve fund and for paying a specified return
on the amount of capital expenditures or repairs paid for by us in excess of
amounts in the reserve fund.






At
December 31, 2004, thirty-three of our Seniors’ Housing Properties were
accounted for as direct financing leases with terms that range from 10 to 35
years (expiring between 2013 and 2038). Certain of these direct financing leases
contain provisions that allow the lessee to elect to purchase the Property
during or at the end of the lease term for our initial investment amount.
Certain of the leases also permit us to require the tenants to purchase the
Properties at the end of the lease terms for our initial investment amount.




The
Seniors’ Housing lessees' ability to satisfy the lease obligations depends
primarily on the Properties' operating results. We select our Properties for
investment based on a credit underwriting process designed to identify those
Properties that management believes will be able to fund such lease obligations. To
mitigate credit risk, certain leases are combined into portfolios that contain
cross-default terms, meaning that if a tenant of any of the Properties in a
portfolio defaults on its obligations under its lease, we may pursue remedies
under the lease with respect to any of the tenant's Properties in the portfolio
("Cross-Default"). In addition, certain portfolios contain terms whereby the net
operating profits of the Properties are combined for the purpose of funding
rental payments due under each lease ("Pooling"). For certain Properties, we
require security deposits, tenant or operator guarantees or additional types of
income support. Guarantees or other forms of credit support may be necessary if
a Seniors’ Housing facility is still in the process of achieving a stable
occupancy rate, in which case the Property would not be able to generate minimum
rent until reaching occupancy stabilization. In order to determine the amount of
the guarantee that would be needed to fund minimum rent, we estimate future cash
flows available to the tenant to pay minimum rent based on projected occupancies
and an analysis of the surrounding real estate market, including demographic
information and industry standards, to predict operating expenses. Our estimates
are based on assumptions and there can be no assurances as to what actual
amounts will need to be paid under the guarantees.


2


*Characteristics
of Our MOB Leases.* We own
both single-tenant and multi-tenant office buildings that are leased on either a
triple-net or gross basis, primarily to tenants in the health care industry. The
leases have initial terms of 5 to 15 years, provide for minimum rent and are
generally subject to renewal options. Substantially all leases require minimum
annual rents to increase at predetermined intervals during the lease terms.
Tenants subject to triple-net leases are generally responsible for their
proportionate share of all operating expenses relating to the Property. Tenants
subject to gross leases generally pay their proportionate share of operating
expenses above a contractual base amount.





*Major
Tenants and Operators.* As of
December 31, 2004, we leased our Seniors’ Housing Properties to 21 tenants. One
of our two tenants affiliated with Horizon Bay Management, LLC ("Horizon
Bay")  contributed
21% of our total revenues for the year ended December 31, 2004. As of December
31, 2004, ten of our tenants, each of which is a subsidiary or affiliate of
Harbor Retirement Associates, LLC (the "HRA Tenants"), contributed 30% of total
revenues. No other Seniors’ Housing tenant contributed more than 10% of total
revenues. Our other
tenants include other affiliates of Horizon Bay and subsidiaries or affiliates
of: American Retirement Corporation ("ARC"); Aureus Group, LLC; Eby Realty
Group, LLC; Erickson Retirement Communities, LLC; Greenwalt Corporation; Prime
Care Properties, LLC; Summit Companies, Incorporated; Solomon Senior Living
Holdings, LLC; and Sunrise Senior Living Services, Inc. ("Sunrise"). Several of
our Seniors' Housing tenants, including the HRA Tenants, are thinly capitalized
corporations that rely on the cash flow generated from the Seniors' Housing
facilities to fund rent obligations under their leases. Our MOBs
are leased to more than 500 tenants. Tenancy in the MOBs is generally a mix of
physician practices, however, we also lease space to several large hospital
systems and other health care providers.





On
September 1, 2004, a company which is owned by our chairman of the Board of
Directors sold its 30% voting membership interest in a limited liability company
which is affiliated with the HRA Tenants to the remaining members of the limited
liability company. The HRA Tenants contributed 30%, 35% and 32% of our total
revenues for the years ended December 31, 2004, 2003 and 2002, respectively.





The
following tables summarize information about our operator and manager
concentration, excluding one Property which is held for sale, as of December 31,
2004 (dollars in thousands):





Operator
      or Manager
    
    Number
      of Facilities
    
    Total
      Investment
    
    Annualized
      Revenue (1)
    
    Percent
      of RevenueSeniors’
      Housing:Sunrise
      Senior Living Services, Inc.
    
    
    109
    
    $
    1,472,689
    
    $
    148,536
    
    
    45
    %Horizon
      Bay Management, LLC
    
    
    26
    
    
    735,115
    
    
    77,526
    
    
    24
    %Harbor
      Assisted Living, LLC
    
    
    9
    
    
    117,980
    
    
    9,021
    
    
    3
    %American
      Retirement Corporation
    
    
    8
    
    
    149,758
    
    
    17,594
    
    
    5
    %Eby
      Realty Group, LLC
    
    
    6
    
    
    34,976
    
    
    4,033
    
    
    1
    %Erickson
      Retirement Communities, LLC (2)
    
    
    6
    
    
    131,077
    
    
    19,247
    
    
    6
    %CateredLife
      Communities, Inc.
    
    
    5
    
    
    32,834
    
    
    3,833
    
    
    1
    %169
    
    
    2,674,429
    
    
    279,790
    
    
    85
    %Medical
      Office Buildings:DASCO
    
    
    30
    
    
    236,212
    
    
    21,336
    
    
    6
    %Nine
      third-party managers
    
    
    22
    
    
    263,704
    
    
    28,708
    
    
    9
    %52
    
    
    499,916
    
    
    50,044
    
    
    15
    %221
    
    $
    3,174,345
    
    $
    329,834
    
    
    100
    %





(1)
    For
      operating leases, reflects annual base rent and for direct financing
      leases, reflects annual interest earned, straight-lined over the term of
      the lease in accordance with generally accepted accounting
      principles.(2)
    Land
      only leases





Although
we acquire Properties located in various states and regions and screen our
tenants in order to reduce risks of default, failure of Horizon Bay, the HRA
Tenants or our other tenants, their guarantors or the Sunrise or Horizon Bay
brands would significantly impact our results of operations. It is expected that
the percentage of total rental income contributed by Horizon Bay and the HRA
Tenants will decrease as additional Properties are acquired and leased to
diversified tenants during subsequent periods.





3





***Other
Permitted Investments***





We may
also provide Mortgage Loans to operators of Properties collateralized by real
estate owned by the borrower. We expect that the interest rates and terms of the
Mortgage Loans will be similar to those of its leases. However, because we
prefer to focus on investing in Properties which have the potential to
appreciate, we currently expect to provide Mortgage Loans in the aggregate
principal amount of no more than 5% to 10% of our total assets. We had no
investment in Mortgage Loans at December 31, 2004.





To a
lesser extent, we also may provide Secured Equipment Leases to operators,
pursuant to which we will finance the equipment through loans or direct
financing leases. It is expected that the leases or loans will have a term of no
more than seven years, will be secured by the personal property and include an
option for the lessee to acquire the subject equipment at the end of the term.
The aggregate outstanding principal amount of Secured Equipment Leases is not
expected to exceed 10% of our total assets. We had no Secured Equipment Leases
at December 31, 2004.





In
addition, we may invest up to a maximum of 5% of our total assets in equity
interests in businesses, including those that provide services to or are
otherwise ancillary to the retirement and health care industries.





***Advisory
Services***





Pursuant
to an advisory agreement (the "Advisory Agreement"), the Advisor provides
management services relating to our administration, the Properties, the Mortgage
Loans and the Secured Equipment Lease program. Under this agreement, the Advisor
is responsible for assisting us in negotiating leases, Mortgage Loans, Secured
Equipment Leases, lines of credit and permanent financing; collecting rental,
Mortgage Loan and Secured Equipment Lease payments; inspecting the Properties
and the tenants' books and records; and responding to tenants' inquiries and
notices. The Advisor is also responsible for providing information to us about
the status of the leases, Properties, Mortgage Loans, Secured Equipment Leases,
any lines of credit and any permanent financing. In exchange for these services,
the Advisor is entitled to receive certain fees from us. For supervision of the
Properties and the Mortgage Loans, the Advisor receives an asset management fee,
which is payable monthly, in an amount equal to 0.05% of the total amount
invested in the Properties, exclusive of acquisition fees and acquisition
expenses, plus 0.05% of the outstanding principal amount of any Mortgage Loans,
as of the end of the preceding month. For negotiating Secured Equipment Leases
and supervising the Secured Equipment Lease program, the Advisor will receive,
upon entering into each lease, a Secured Equipment Lease servicing fee, payable
out of the proceeds of borrowings, equal to 2% of the purchase price of the
equipment subject to each Secured Equipment Lease. For identifying the
Properties, structuring the terms of the acquisition and leases of the
Properties and structuring the terms of the Mortgage Loans, the Advisor receives
an acquisition fee on the gross proceeds from the offerings and loan proceeds
from permanent financing, excluding that portion of the permanent financing used
to finance Secured Equipment Leases, equal to 4% with respect to the 2004
Offering and 4.5% with respect to prior offerings. In addition, if there is a
Listing, the Advisor will receive an acquisition fee of 4% of amounts
outstanding on the line of credit, if any, at the time of Listing.





In
accordance with the Advisory Agreement, the Advisor is required to reimburse us
the amount by which the total operating expenses incurred by us in any four
consecutive fiscal quarters (the "Expense Year") exceed the greater of 2% of
average invested assets or 25% of net income (the "Expense Cap").





The
Advisory Agreement continues until May 3, 2005, and thereafter may be extended
annually upon mutual consent of the Advisor and our Board of Directors unless
terminated at an earlier date upon 60 days prior written notice by either party.
As the expiration date of the current Advisory Agreement approaches, the Board
of Directors will evaluate the performance of the Advisor and the terms of the
agreement to determine what action to take, which may include: (i) the renewal
of the agreement under substantially the same terms as the current Advisory
Agreement; (ii) the execution of a new Advisory Agreement under re-negotiated
terms; or (iii) termination of the agreement.





***Borrowings***





We have
and will continue to borrow money to acquire Properties, make Mortgage Loans and
pay certain fees, and we intend to encumber Properties in connection with these
borrowings. We may also borrow money to enter into Secured Equipment Leases. We
have obtained an $85 million line of credit that may
be amended to allow the line of credit to be increased by $40
million . The line
of credit may be increased at the discretion of the Board of Directors and may
be repaid with offering proceeds, proceeds from the sale of assets, working
capital or permanent financing . We have
also obtained permanent financing. The Board
of Directors anticipates that the aggregate amount of any permanent financing
will not exceed 50% of our total assets . As of
December 31, 2004, permanent financing and bonds payable represented 31% of our
total assets. The line
of credit and permanent financing are the only sources of funds for making
Secured Equipment Leases. We have and may continue to use our line of credit to
pay distributions that are in excess of our cash flow generated from
operations.





4





***Competition***





We
compete with other REITs, real estate partnerships, health care providers and
other investors, including, but not limited to, banks and insurance companies,
many of which may have greater financial resources than ours, in the
acquisition, leasing and financing of seniors' housing and health care-related
facilities. Further, non-profit entities are particularly suited to make
investments in health care facilities because of their ability to finance
acquisitions through the issuance of tax-exempt bonds, providing non-profit
entities with a relatively lower cost of capital as compared to for-profit
purchasers. In addition, in certain states, facilities owned by non-profit
entities are exempt from taxes on real property. Recently, competition to
acquire seniors' housing and health care-related real estate has increased due,
in part, to the renewed interest in the sector from private equity sources,
including foreign investors. In some cases, this competition has caused
acquisition prices to increase making it more challenging for us to be
competitive in the acquisition of new investments.





***Risk
Factors***





*Company-Related
Risks.* The
Advisor, subject to approval by the Board of Directors, is responsible for our
investments and daily management. The Advisor and its affiliates may be engaged
in other activities that would result in potential conflicts of interest with
the services that the Advisor and affiliates provide to us. Those officers could
take actions that are more favorable to other entities than to us. The
resolution of conflicts in favor of other entities could have a negative impact
on our financial performance.





A REIT
generally is not taxed at the federal corporate level on income provided it
distributes at least 90% of its annual taxable income to its stockholders and
meets certain other requirements under sections 856 through 860 of the Internal
Revenue Code of 1986. If we fail to qualify as a REIT, we would be subject to
federal income tax at regular corporate rates and the funds available for
distribution to stockholders would be reduced by the amount of federal taxes
owed.





At
December 31, 2004, we had aggregate outstanding borrowings, including permanent
financing, bonds payable, construction loans, our outstanding line of credit and
our term loan, equal to approximately 33% of our total assets. Pursuant to our
Amended and Restated Articles of Incorporation, we are entitled to borrow up to
75% of our total assets (which is the approximate equivalent of 300% of our "net
assets," as defined in our Amended and Restated Articles of Incorporation),
although we do not presently expect to borrow more than 50% of our total assets.
Borrowing may be risky if the cash flow from the Properties and other
investments is insufficient to meet our debt obligations.





*Real
Estate and Other Investment Risks.* Lack of
diversification increases investment risk. Our profitability and ability to
diversify investments is limited by the amount of future funds we receive
through our public offerings and borrowings, as well as the cost of the
investments. We may not be able to achieve diversification by tenant, operator,
brand, facility type or geographic location. There is no limit on the number of
Properties of a particular brand or facility type which we may acquire, and we
are not obligated to invest in more than one type of facility. Presently, our
investments are concentrated in certain tenants, operators, brands and types of
facilities and any adverse development affecting any of them could materially
adversely affect our financial condition and our ability to make distributions.
In addition, to the extent our assets are geographically concentrated, an
economic downturn in one or more of the markets in which we have invested could
have an adverse effect on our financial condition and our ability to make
distributions.





Under our
triple-net lease agreements, our tenants are responsible for maintenance and
other day-to-day management of the Properties either directly or by entering
into operating agreements with third-party operators. Our financial condition is
dependent on the ability of tenants or third-party operators to operate the
Properties successfully. Failure of our tenants or third-party operators to
operate the Properties successfully or adapt to dominant trends in the health
care and seniors' housing industry may limit their ability to pay their rent,
which could adversely affect our financial condition.





In some
states, advocacy groups have been created to monitor the quality of care at
health care facilities, and these groups have brought litigation against
operators. Additionally, in some instances, private litigation by patients has
succeeded in winning large demand awards for alleged abuses. The effect of this
litigation and potential litigation has increased the costs of monitoring and
reporting quality of care compliance incurred by our tenants. In addition, the
cost of liability and medical malpractice insurance has increased and may
continue to increase as long as the present litigation environment affecting the
operations of health care facilities continues. Continued cost increases could
cause our tenants to be unable to pay their lease payments, potentially
decreasing our revenues.





5





The value
of our Properties depends principally upon the value of the underlying leases.
Tenants may lease more than one Property, and as a result, a default by the
tenant could cause more than one Property to become vacant. Vacancies would
reduce our revenue and could decrease the Properties' value until we are able to
re-lease the affected Properties. ** Generally,
the Seniors' Housing facilities are special purpose properties and may not be
readily converted into general residential, retail or office use.





We
require our tenants to maintain the appropriate level of comprehensive liability
and property insurance that covers us, as well as the tenants on all of our
Properties. Some types of losses, however, either may be uninsurable or too
expensive to insure against. Should an uninsured loss or a loss in excess of
insured limits occur, we could lose all or a portion of the capital we have
invested in a property, as well as the anticipated future revenue from the
Property. In such an event, we might nevertheless remain obligated for any
mortgage debt or other financial obligation related to the Property. We cannot
be assured that material losses in excess of insurance proceeds will not occur
in the future.





*Industry-Related
Risks.* The
health care industry is highly regulated by federal, state and local licensing
requirements, facility inspections, reimbursement policies, regulations
concerning capital and other expenditures, certification requirements and other
laws, regulations and rules. In addition, regulators require compliance with a
variety of safety, health, staffing and other requirements relating to the
design and conditions of the licensed facility and quality of care provided.
Additional laws and regulations may be enacted or adopted that could require
changes in the design of the Properties and certain operations of our tenants
and third-party operators. The failure of any tenant or operator to comply with
such laws, requirements and regulations could affect a tenant's or operator's
ability to operate the retirement facilities that we own.





The
health care industry is facing various challenges, including increased
government and private payor pressure on health care providers to control costs
and the vertical and horizontal consolidation of health care providers. The
pressure to control health care costs has intensified in recent years as a
result of the national health care reform debate and has continued as Congress
attempts to slow the rate of growth of federal health care expenditures as part
of its effort to balance the federal budget. Similar debates are ongoing at the
state level in many states. These trends are likely to lead to reduced or slower
growth in reimbursement for services provided by some of our tenants. Management
cannot predict whether governmental reforms will be adopted and, if adopted,
whether the implementation of these reforms will have a material adverse effect
on our financial condition or results of operations.





Our
tenants, particularly those operating skilled nursing facilities and those
leasing space in medical office buildings, may derive a significant portion of
their revenues from governmentally funded programs, such as Medicaid and
Medicare. Although our lease payments are not linked to the level of government
reimbursement received by the tenants, to the extent that changes in government
funding programs adversely affect the revenues received by those tenants, such
changes could adversely affect the ability of the tenants to make lease payments
to us.





***Employees***





Reference
is made to Item 10. Directors and Executive Officers of the Registrant for a
listing of our Executive Officers. We have no employees, other than our
executive officers who are not compensated by us. We have retained the Advisor
to provide management, acquisition, advisory and certain administrative services
and have retained certain other affiliates of the Advisor to provide additional
administrative services.





***Available
Information***





We make
available free of charge on or through our Internet website ( http://www.cnlonline.com/retirement/ ) our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and, if applicable, amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after we electronically file such
material with, or furnish it to the Securities and Exchange Commission (the
"Commission"). The
public may read and copy any materials that we file with the Commission at the
Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549 and may obtain information on the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission ( http://www.sec.gov ).





6





**Item 2. Properties**





As of
December 31, 2004, we had invested approximately $3.2 billion in 222 Properties
located in 32 states. Generally, our Properties conform to the following
specifications of size and type of land and buildings:





*Independent
Living Facilities* .
Independent living facilities offer a lifestyle choice, including residential
accommodations with access to services, such as housekeeping, transportation,
dining and social activities, for those who wish to maintain their lifestyles
independently. The independent living facilities are primarily apartment
buildings which contain a significant amount of common space to accommodate
dining, recreation, activities and other support services for senior citizens.
These properties range in size from 100 to 500 units with an average size of
approximately 225 units. Units include studios and one and two bedroom units
ranging in size from 450 square feet to over 1,500 square feet. Residents
generally pay a base rent for their housing, which includes a meal program. In
addition, a menu of other services is provided at an additional charge. The cost
of independent living facilities generally ranges from $10 million to $60
million.





*Assisted
Living Facilities* .
Assisted living facilities provide a special combination of housing, supportive
services, personalized assistance and health care to their residents in a manner
which is designed to respond to individual needs. These facilities generally
offer a lower-cost alternative to skilled nursing facilities for those who do
not require intensive nursing care. Assisted living facilities may include units
for residents with Alzheimer's and related memory disorders. Current industry
practice generally is to build freestanding assisted living facilities with an
average of between 40 and 150 units, depending on such factors as market forces,
site constraints and program orientation. Current economics place the size of
the private living space of a unit in the range of 300 gross square feet for an
efficiency unit to 750 square feet for a large one bedroom unit. Units are
typically private, allowing residents the same general level of control over
their units as residents of a rental apartment would typically have. Common
areas of the most recently developed assisted living facilities may total as
much as 30% to 40% of the gross square footage of a facility. The cost of
assisted living facilities generally ranges from $5 million to $25
million.





*Skilled
Nursing Facilities* . In
addition to housing, meals, transportation and housekeeping, skilled nursing
facilities provide comprehensive nursing and long-term care to their residents.
Skilled nursing facilities may be freestanding or attached to a larger facility.
The facilities are designed to meet institutional standards for safety. The
rooms in skilled nursing facilities are equipped with patient monitoring devices
and emergency call systems. Oxygen systems may also be present. Both multiple
floor and single floor designs are common. Individual rooms in skilled nursing
facilities may be as small as 100 square feet, with common areas varying greatly
in size. The cost of skilled nursing facilities generally ranges from $5 million
to $10 million.





*Continuing
Care Retirement Communities* .
Independent living facilities sometimes have assisted living and/or skilled
nursing facilities attached or adjacent to their locations. When this occurs,
the projects are often referred to as continuing care retirement communities
("CCRC") or life care communities. The intent of CCRCs or life care communities
is to provide a continuum of care to the residents. As residents age and their
health care needs increase, they can receive the care they need without having
to move away from the "community" which has become their home. CCRCs typically
operate on a fee-for-service basis and the units are rented on a monthly basis
to residents, while life care communities generally charge an entrance fee that
may be partially refundable, plus a monthly maintenance fee. CCRCs and life care
communities are the most expensive type of seniors’ housing with prices for each
facility generally ranging from $40 million to over $200 million.





*Medical
Office Buildings* . Medical
office buildings, including physicians’ offices, special purpose facilities,
such as laboratories, diagnostic, cancer treatment and outpatient centers, and
walk-in clinics, are conventional office buildings with additional plumbing,
mechanical and electrical service amenities which facilitate physicians and
medical delivery companies in the practice of medicine, laboratory research and
delivery of health care services. These facilities can range in size from 3,000
square feet (walk-in clinic) to up to 150,000 square feet (medical office
building) with costs generally ranging from $1 million to $10 million. It is
common for medical office buildings to be located in close proximity to
hospitals where physicians have practice privileges.





*Specialty
Clinics.* Specialty
clinics are facilities that provide health services such as outpatient
surgeries, dialysis treatments and MRI screenings in a less institutional
environment than hospital facilities.








7





Generally,
Properties acquired consist of both land and building, however, in certain cases
we may acquire only the land underlying the building with the building owned by
the tenant or a third party, and we also may acquire the building only with the
land owned by a third party. We own fee title to all Properties, except for
Properties which are owned by certain partnerships and joint ventures. The
partnerships or joint ventures have fee title ownership. In general, the
Properties are freestanding and surrounded by paved parking areas and
landscaping. Although buildings may be suitable for conversion to various uses
through modifications, some Properties may not be economically convertible to
other uses.








The
following table summarizes the facility type, location, number of units or
square footage, our investment amount at December 31, 2004, and the annualized
rental income and rental income for the year ended December 31, 2004, excluding
one Property held for sale. Seniors' Housing facilities are apartment-like
facilities and are therefore stated in units. MOBs are measured in square feet
(dollars in thousands):


Rental
      IncomeFacility
      Type and Location
    
    Number
      of Facilities
    
    Number
      of Units
    
    Square
      Feet
    
    Total
      Investment
    
    Annualized
      (1)
    
    For
      Year Ended December 31, 2004**Assisted
      Living Facilities:**Alabama
    
    
    2
    
    
    198
    
    
    —
    
    $
    16,969
    
    $
    1,950
    
    $
    1,870California
    
    
    12
    
    
    1,590
    
    
    —
    
    
    164,877
    
    
    18,624
    
    
    11,896Colorado
    
    
    4
    
    
    635
    
    
    —
    
    
    72,783
    
    
    8,409
    
    
    8,409Connecticut
    
    
    2
    
    
    228
    
    
    —
    
    
    22,862
    
    
    2,638
    
    
    1,973Florida
    
    
    11
    
    
    1,045
    
    
    —
    
    
    91,661
    
    
    10,797
    
    
    10,694Georgia
    
    
    10
    
    
    774
    
    
    —
    
    
    74,242
    
    
    8,107
    
    
    8,107Illinois
    
    
    9
    
    
    666
    
    
    —
    
    
    87,595
    
    
    9,721
    
    
    8,260Indiana
    
    
    3
    
    
    175
    
    
    —
    
    
    17,036
    
    
    2,057
    
    
    2,057Iowa
    
    
    2
    
    
    80
    
    
    —
    
    
    12,078
    
    
    1,402
    
    
    498Kansas
    
    
    1
    
    
    152
    
    
    —
    
    
    19,924
    
    
    2,300
    
    
    2,300Kentucky
    
    
    2
    
    
    188
    
    
    —
    
    
    13,440
    
    
    1,612
    
    
    1,612Massachusetts
    
    
    4
    
    
    395
    
    
    —
    
    
    63,050
    
    
    6,796
    
    
    2,327Maryland
    
    
    8
    
    
    776
    
    
    —
    
    
    115,239
    
    
    13,188
    
    
    12,307Michigan
    
    
    4
    
    
    330
    
    
    —
    
    
    44,340
    
    
    5,009
    
    
    4,468Missouri
    
    
    2
    
    
    152
    
    
    —
    
    
    40,970
    
    
    2,134
    
    
    1,022North
      Carolina
    
    
    6
    
    
    584
    
    
    —
    
    
    49,271
    
    
    5,731
    
    
    5,731Nebraska
    
    
    1
    
    
    150
    
    
    —
    
    
    12,282
    
    
    1,425
    
    
    1,425New
      Jersey
    
    
    7
    
    
    756
    
    
    —
    
    
    115,941
    
    
    12,076
    
    
    9,932New
      York
    
    
    2
    
    
    202
    
    
    —
    
    
    50,873
    
    
    5,408
    
    
    5,408Ohio
    
    
    6
    
    
    508
    
    
    —
    
    
    45,350
    
    
    5,146
    
    
    4,741Oklahoma
    
    
    2
    
    
    212
    
    
    —
    
    
    8,475
    
    
    999
    
    
    999Rhode
      Island
    
    
    1
    
    
    128
    
    
    —
    
    
    19,734
    
    
    2,105
    
    
    1,852South
      Carolina
    
    
    6
    
    
    474
    
    
    —
    
    
    36,941
    
    
    4,467
    
    
    4,467Tennessee
    
    
    2
    
    
    205
    
    
    —
    
    
    16,128
    
    
    1,946
    
    
    1,946Texas
    
    
    6
    
    
    487
    
    
    —
    
    
    66,394
    
    
    8,144
    
    
    8,144Utah
    
    
    1
    
    
    158
    
    
    —
    
    
    15,064
    
    
    1,929
    
    
    1,929Virginia
    
    
    5
    
    
    382
    
    
    —
    
    
    46,019
    
    
    4,845
    
    
    2,304Washington
    
    
    5
    
    
    367
    
    
    —
    
    
    47,361
    
    
    3,798
    
    
    3,798126
    
    
    11,997
    
    
    —
    
    
    1,386,899
    
    
    152,763
    
    
    130,476








8








Rental
      IncomeFacility
      Type and Location
    
    Number
      of Facilities
    
    Number
      of Units
    
    Square
      Feet
    
    Total
      Investment
    
    Annualized
      (1)
    
    For
      Year Ended December 31, 2004**Independent
      Living Facilities:**Alabama
    
    
    2
    
    
    540
    
    
    —
    
    $
    75,038
    
    $
    8,783
    
    $
    8,783Arkansas
    
    
    1
    
    
    163
    
    
    —
    
    
    10,916
    
    
    1,365
    
    
    1,365Arizona
    
    
    1
    
    
    211
    
    
    —
    
    
    47,435
    
    
    5,103
    
    
    4,588California
    
    
    2
    
    
    346
    
    
    —
    
    
    54,986
    
    
    5,867
    
    
    5,275Florida
    
    
    4
    
    
    1,149
    
    
    —
    
    
    209,517
    
    
    22,441
    
    
    20,176Illinois
    
    
    4
    
    
    742
    
    
    —
    
    
    129,515
    
    
    13,977
    
    
    12,294Kentucky
    
    
    1
    
    
    120
    
    
    —
    
    
    12,784
    
    
    1,570
    
    
    1,570Rhode
      Island
    
    
    6
    
    
    725
    
    
    —
    
    
    106,681
    
    
    11,360
    
    
    8,771Texas
    
    
    9
    
    
    2,635
    
    
    —
    
    
    195,129
    
    
    20,084
    
    
    4,376Virginia
    
    
    2
    
    
    275
    
    
    —
    
    
    43,383
    
    
    4,431
    
    
    4,43132
    
    
    6,906
    
    
    —
    
    
    885,384
    
    
    94,981
    
    
    71,629**CCRCs:**Pennsylvania
    
    
    1
    
    
    542
    
    
    —
    
    
    111,772
    
    
    7,536
    
    
    7,536Virginia
    
    
    1
    
    
    487
    
    
    —
    
    
    79,301
    
    
    5,263
    
    
    5,2632
    
    
    1,029
    
    
    —
    
    
    191,073
    
    
    12,799
    
    
    12,799**Land
      Only Leases:**Illinois
    
    
    1
    
    
    —
    
    
    —
    
    
    28,440
    
    
    4,099
    
    
    1,977Massachusetts
    
    
    2
    
    
    —
    
    
    —
    
    
    39,822
    
    
    5,943
    
    
    5,943Michigan
    
    
    1
    
    
    —
    
    
    —
    
    
    17,901
    
    
    2,567
    
    
    2,567Pennsylvania
    
    
    1
    
    
    —
    
    
    —
    
    
    20,840
    
    
    3,138
    
    
    3,138Texas
    
    
    1
    
    
    —
    
    
    —
    
    
    24,073
    
    
    3,500
    
    
    2916
    
    
    —
    
    
    —
    
    
    131,076
    
    
    19,247
    
    
    13,916**Seniors’
      Housing Properties**
      **Under
      Development:**California
    
    
    1
    
    
    —
    
    
    —
    
    
    19,871
    
    
    —
    
    
    —Florida
    
    
    1
    
    
    —
    
    
    —
    
    
    41,655
    
    
    —
    
    
    —New
      Jersey
    
    
    1
    
    
    —
    
    
    —
    
    
    18,471
    
    
    —
    
    
    —3
    
    
    —
    
    
    —
    
    
    79,997
    
    
    —
    
    
    —**Medical
      Office Buildings:**Arizona
    
    
    3
    
    
    —
    
    
    286,686
    
    
    40,954
    
    
    4,978
    
    
    1,340California
    
    
    3
    
    
    —
    
    
    165,434
    
    
    38,216
    
    
    4,458
    
    
    2,972Colorado
    
    
    4
    
    
    —
    
    
    215,644
    
    
    43,964
    
    
    4,369
    
    
    2,466Florida
    
    
    11
    
    
    —
    
    
    550,357
    
    
    90,257
    
    
    9,995
    
    
    5,371Georgia
    
    
    1
    
    
    —
    
    
    14,680
    
    
    2,727
    
    
    295
    
    
    104Illinois
    
    
    4
    
    
    —
    
    
    190,250
    
    
    29,145
    
    
    3,484
    
    
    1,227Kentucky
    
    
    2
    
    
    —
    
    
    115,975
    
    
    15,004
    
    
    1,336
    
    
    471Maryland
    
    
    2
    
    
    —
    
    
    78,940
    
    
    14,970
    
    
    1,701
    
    
    1,134Mississippi
    
    
    2
    
    
    —
    
    
    90,154
    
    
    17,325
    
    
    1,402
    
    
    494North
      Carolina
    
    
    4
    
    
    —
    
    
    104,889
    
    
    21,796
    
    
    1,553
    
    
    1,035Oklahoma
    
    
    1
    
    
    —
    
    
    60,565
    
    
    9,761
    
    
    870
    
    
    292Texas
    
    
    10
    
    
    —
    
    
    596,703
    
    
    113,488
    
    
    11,620
    
    
    6,664Virginia
    
    
    2
    
    
    —
    
    
    147,792
    
    
    35,894
    
    
    3,983
    
    
    2,65549
    
    
    —
    
    
    2,618,069
    
    
    473,501
    
    
    50,044
    
    
    26,225











9








Rental
      IncomeFacility
      Type and Location
    
    Number
      of Facilities
    
    Number
      of Units
    
    Square
      Feet
    
    Total
      Investment
    
    Annualized
      (1)
    
    For
      Year Ended December 31, 2004**Medical
      Office Buildings**
      **Under
      Development:**California
    
    
    1
    
    
    —
    
    
    —
    
    $
    21,661
    
    $
    —
    
    $
    —Mississippi
    
    
    1
    
    
    —
    
    
    —
    
    
    1,352
    
    
    —
    
    
    —Nebraska
    
    
    1
    
    
    —
    
    
    —
    
    
    3,402
    
    
    —
    
    
    —3
    
    
    —
    
    
    —
    
    
    26,415
    
    
    —
    
    
    —221
    
    
    19,932
    
    
    2,618,069
    
    $
    3,174,345
    
    $
    329,834
    
    $
    255,045


(1)
    Annualized
      rental income reflects annual base rent for operating leases and annual
      interest earned for direct financing leases per the lease agreements,
      straight-lined over the term of the lease in accordance with generally
      accepted accounting principles.





**Item 3. Legal Proceedings**





On
February 6, 2004, a complaint was filed in the Superior Court of the State of
California for the County of Los Angeles by California Public Interest Research
Group, Inc. and Congress of California Seniors, Inc. against 94 named
defendants, including us, the Advisor and two operators that manage certain
Properties we own. The plaintiffs sought restitution with respect to deposits
and fees collected from residents by the operators of the senior living
facilities that, the complaint alleges, were designated and treated as
nonrefundable deposits and fees in violation of the California Civil Code. We
and the Advisor were made parties to the litigation by receipt of service of
process on April 27, 2004, and in May 2004, we submitted a written response to
the plaintiffs. In September 2004, the plaintiffs dismissed us and the Advisor
from the litigation.





From time
to time, we are exposed to litigation arising from an unidentified
pre-acquisition contingency or from the operation of our business. Although
currently exposed to such litigation, we do not believe that resolution of these
matters will have a material adverse effect on our financial condition or
results of operations.





**Item 4. Submission of Matters to a Vote of Security
Holders**





None.










10





**PART
II**


**Item
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities**


As of
January 31, 2005, there were 87,118 stockholders of record of our common stock.
There is no public trading market for the shares of common stock, and even
though we intend to list the shares on a national securities exchange or
over-the-counter market on or before December 31, 2008, if market conditions are
satisfactory, there is no assurance that a public market for the shares will
develop, even if Listed. We have a
redemption plan under which we may elect to redeem shares, subject to certain
conditions and limitations. Under the redemption plan, p rior to
such time, if any, as Listing occurs, any stockholder (other than the Advisor)
who has held shares for at least one year may present all or any portion equal
to at least 25% of his or her shares to us for redemption at any time, in
accordance with the procedures outlined in our redemption plan. Upon
presentation , we may,
at our sole option, redeem such shares for cash subject to certain conditions
and limitations. Redemptions are limited to the extent sufficient funds are
available, h owever,
at no time during a 12-month period may the number of shares redeemed by us
exceed 5% of the number of shares of our outstanding common stock at the
beginning of such 12-month period . The
full amount of proceeds available from our distribution reinvestment plan is
available for redemptions. In addition, we may, at our discretion, use up to
$100,000 per calendar quarter of the proceeds of any public offering of our
common stock for redemptions. There is no assurance that there will be
sufficient funds available for redemptions and, accordingly, a stockholder's
shares may not be redeemed. Any shares we acquire pursuant to the redemption
plan will be retired and no longer available for re-issuance. Our Board of
Directors, in its discretion, may amend or suspend the redemption plan at any
time they determine that such amendment or suspension is in our best interest.
The redemption price under the 2004 Offering is $9.50 per share and was $9.20
per share under the prior offerings. Because the 2004 Offering began in May
2004, shares were redeemed at $9.20 per share during the first quarter of 2004.
During the year ended December 31, 2004, 641,229 shares were redeemed at $9.50
per share for a total of $6.1 million. During
the years ended December 31, 2004, 2003 and 2002, 44,167 shares, 131,781 shares
and 37,306 shares, respectively, were redeemed at $9.20 per share (for a total
of $0.4 million, $1.2 million and $0.3 million, respectively) and retired from
shares outstanding of common stock.





The
following table contains information related to all common stock purchased by us
during the year ended December 31, 2004, which consisted of shares redeemed
pursuant to the redemption plan:





Period
    
    Total
      Number of Shares Purchased
    
    Average
      Price Paid per Share (1)
    
    Total
      Number of Shares Purchased as Part of a Publicly Announced
      Plan
    
    Maximum
      Dollar Value of Shares that May Yet Be Purchased Under the
      PlanJanuary
      1-31, 2004
    
    
    —
    
    $
    —
    
    
    —
    
    $
    —February
      1-29, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —March
      1-31, 2004
    
    
    44,167
    
    
    9.20
    
    
    44,167
    
    
    18,852,447April
      1-30, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —May
      1-31, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —June
      1-30, 2004
    
    
    105,535
    
    
    9.50
    
    
    105,535
    
    
    29,743,014July
      1-31, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —August
      1-31, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —September
      1-30, 2004
    
    
    211,953
    
    
    9.50
    
    
    211,953
    
    
    40,542,696October
      1-31, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —November
      1-30, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    —December
      1-31, 2004
    
    
    323,741
    
    
    9.50
    
    
    323,741
    
    
    50,753,961685,396
    
    $
    9.48
    
    
    685,396
    
    $
    50,753,961





(1)
    The
      redemption price under the 2004 Offering is $9.50 per share and was $9.20
      per share under the prior offerings. Because the 2004 Offering began in
      May 2004, shares were redeemed at $9.20 per share during the first quarter
      of 2004.








11





As of
December 31, 2004, the offering price per share of common stock was $10. The
offering price per share was determined by us in our sole discretion based upon
the price we believed investors would pay for the shares and on certain other
considerations. Our shares are not publicly traded and there is no public market
for the shares on which to base market value. We did not take into account the
value of the underlying assets in determining the price per share. Investors are
cautioned that common stock not publicly traded is generally considered illiquid
and the estimated value per share may not be realized when an investor seeks to
liquidate his or her common stock.





For the
years ended December 31, 2004, 2003 and 2002, we are aware of total shares of
29,801, 6,000 and zero that were traded between stockholders. The price paid for
the shares traded was subject to negotiation by the purchaser and the
selling stockholder. We are not aware of any other trades of our shares, other
than purchases made in our public offerings and redemptions of shares by us. The
following table reflects, for each calendar quarter, the high, the low and the
average sales prices for transfers of shares that we are aware of during 2004
and 2003:
  2004High
    
    Low
    
    AverageFirst
      Quarter
    
    $
    10.00
    
    $
    10.00
    
    $
    10.00Second
      Quarter
    
    
    10.00
    
    
    9.50
    
    
    9.52Third
      Quarter
    
    
    9.25
    
    
    6.50
    
    
    7.09Fourth
      Quarter
    
    
    10.00
    
    
    6.89
    
    
    8.362003High
    
    
    Low
    
    
    AverageFirst
      Quarter
    
    $
    —
    
    $
    —
    
    $
    —Second
      Quarter
    
    
    8.48
    
    
    8.48
    
    
    8.48Third
      Quarter
    
    
    —
    
    
    —
    
    
    —Fourth
      Quarter
    
    
    7.20
    
    
    7.20
    
    
    7.20





We expect
to make distributions to the stockholders pursuant to the provisions of our
Amended and Restated Articles of Incorporation. For the years ended December 31,
2004 and 2003, we declared cash distributions of $147.2 million and $59.8
million, respectively, to stockholders. For the years ended December 31, 2004
and 2003, approximately 60% and 71%, respectively, of distributions paid to
stockholders were considered ordinary income and approximately 40% and 29%,
respectively, were considered a return of capital for federal income tax
purposes. No amounts distributed to stockholders for the years ended December
31, 2004 and 2003, were required to be or have been treated by us as a return of
capital for purposes of calculating the stockholders' return on their invested
capital.





The
following table presents total distributions (in thousands) and distributions
per share:





2004
      Quarter
    
    First
    
    Second
    
    Third
    
    Fourth
    
    YearTotal
      distributions declared
    
    $
      28,841
    
    $
      37,344
    
    $
      39,755
    
    $
      41,216
    
    $
      147,156Distributions
      per share
    
    $
      0.1776
    
    $
      0.1776
    
    $
      0.1776
    
    $
      0.1776
    
    $
      0.71042003
      Quarter
    
    First
    
    Second
    
    Third
    
    Fourth
    
    YearTotal
      distributions declared
    
    $  
      8,689
    
    $
      12,031
    
    $
      16,591
    
    $
      22,473
    
    $
      59,784Distributions
      per share
    
    $
      0.1766
    
    $
      0.1766
    
    $
      0.1766
    
    $
      0.1769
    
    $
      0.7067


On
January 1, February 1 and March 1, 2005, we declared distributions to
stockholders totaling $14.2 million, $14.3 million and $14.4 million,
respectively ($0.0592 per share), payable by March 31, 2005, to stockholders of
record as of each respective date.


We intend
to continue to declare cash distributions to stockholders on a monthly basis
during the offering period, and quarterly thereafter. We are
required to distribute annually at least 90% of our real estate investment trust
taxable income to maintain our objective of qualifying as a REIT. Distributions
will be made at the discretion of the Board of Directors, depending primarily on
net cash from operating activities and our general financial condition, subject
to the obligation of the Board of Directors to cause us to remain qualified as a
REIT for federal income tax purposes. We have and may continue to use our line
of credit to pay distributions to stockholders.








12





**Item 6. Selected Financial Data**





The
following selected financial data should be read in conjunction with the
consolidated financial statements and related notes in Item 8 hereof (amounts in
thousands except per share data):





For
      the Year Ended December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000**Operating
      Data:**Revenues
    
    $
    264,541
    
    $
    93,927
    
    $
    16,939
    
    $
    1,764
    
    $
    982General
      and administrative expenses
    
    
    14,778
    
    
    5,482
    
    
    1,389
    
    
    395
    (1)
    
    340
    (1)Income
      from continuing operations
    
    
    119,506
    
    
    58,435
    
    
    11,372
    
    
    916
    
    
    225(Loss)/income
      from discontinued operations
    
    
    (1,588
    )
    
    25
    
    
    —
    
    
    —
    
    
    —Net
      income
    
    
    117,918
    
    
    58,460
    
    
    11,372
    
    
    916
    
    
    225Cash
      distributions paid (2)
    
    
    147,156
    
    
    59,784
    
    
    14,379
    
    
    1,507
    
    
    502Cash
      from operating activities
    
    
    139,398
    
    
    60,658
    
    
    16,785
    
    
    2,173
    
    
    1,096Cash
      used in investing activities
    
    
    (1,309,694
    )
    
    (1,012,600
    )
    
    (358,090
    )
    
    (22,931
    )
    
    (14,429
    )Cash
      from financing activities
    
    
    1,054,987
    
    
    1,078,232
    
    
    355,384
    
    
    47,301
    
    
    8,766Funds
      from operations (3)
    
    
    181,186
    
    
    76,256
    
    
    14,610
    
    
    1,440
    
    
    528Income
      from continuing operations per share
    
    $
    0.57
    
    $
    0.66
    
    $
    0.52
    
    $
    0.38
    
    $
    0.27Loss
      from discontinued operations per share
    
    $
    (0.01
    )
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —Net
      income per share
    
    $
    0.56
    
    $
    0.66
    
    $
    0.52
    
    $
    0.38
    
    $
    0.27Cash
      distributions paid per shareper
      share
    
    $
    0.71
    
    $
    0.71
    
    $
    0.70
    
    $
    0.70
    
    $
    0.58Weighted
      average number of shares outstanding (basic and diluted)
    
    
    210,343
    
    
    88,840
    
    
    22,035
    
    
    2,391
    
    
    846**At
      December 31:**Real
      estate investment properties
    
    $
    3,174,345
    
    $
    1,528,497
    
    $
    380,367
    
    $
    35,233
    
    $
    14,418Total
      assets
    
    
    3,369,641
    
    
    1,761,899
    
    
    441,765
    
    
    64,447
    
    
    14,689Debt
      obligations
    
    
    1,193,548
    
    
    392,583
    
    
    45,327
    
    
    —
    
    
    3,795Total
      liabilities
    
    
    1,263,923
    
    
    415,958
    
    
    51,970
    
    
    3,537
    
    
    5,485Minority
      interests
    
    
    2,361
    
    
    —
    
    
    —
    
    
    —
    
    
    —Stockholders'
      equity
    
    
    2,103,357
    
    
    1,345,941
    
    
    389,795
    
    
    60,910
    
    
    9,204Properties
      owned at end of period
    
    
    222
    
    
    119
    
    
    37
    
    
    3
    
    
    1Properties
      acquired during period
    
    
    103
    
    
    82
    
    
    34
    
    
    2
    
    
    1


(1)
    During
      the Expense Years ended June 30, 2001 and June 30, 2000, operating
      expenses exceeded the Expense Cap by $0.1 million and $0.2 million,
      respectively; therefore, the Advisor reimbursed us such amounts in
      accordance with the Advisory Agreement.





(2)
    Cash
      distributions are declared by the Board of Directors and generally are
      based on various factors, including cash available from operations. For
      the years ended December 31, 2004, 2003, 2002, 2001 and 2000,
      approximately 20%, 2%, 21%, 39% and 55% of cash distributions,
      respectively, represent a return of capital in accordance with generally
      accepted accounting principles ("GAAP"). Cash distributions treated as a
      return of capital on a GAAP basis represent the amount of cash
      distributions in excess of net income on a GAAP basis, including
      deductions for depreciation expense. We have not treated such amounts as a
      return of capital for purposes of calculating the stockholders' return on
      their invested capital.





(3)
    We
      consider funds from operations ("FFO") to be an indicative measure of
      operating performance due to the significant effect of depreciation of
      real estate assets on net income. FFO, based on the revised definition
      adopted by the Board of Governors of the National Association of Real
      Estate Investment Trusts ("NAREIT") and as used herein, means net income
      determined in accordance with GAAP, excluding gains or losses from sales
      of property, plus depreciation and amortization of real estate assets and
      after adjustments for unconsolidated partnerships and joint ventures. (Net
      income determined in accordance with GAAP includes the non-cash effect of
      straight-lining rent increases throughout the lease terms. This
      straight-lining is a GAAP convention requiring real estate companies to
      report rental revenue based on the average rent per year over the life of
      the leases.During
      the years ended December 31, 2004, 2003 and 2002, net income included
      $40.6 million, $10.4 million and $1.2 million, respectively, of these
      amounts.) We believe that by excluding the effect of depreciation,
      amortization and gains or losses from sales of real estate, all of which
      are based on historical costs and which may be of limited relevance in
      evaluating current performance, FFO can facilitate comparisons of
      operating performance between periods and between other equity REITs. FFO
      was developed by NAREIT as a relative measure of performance and liquidity
      of an equity REIT in order to recognize that income-producing real estate
      historically has not depreciated on the basis determined under GAAP.
      However, FFO (i) does not represent cash generated from operating
      activities determined in accordance with GAAP (which, unlike FFO,
      generally reflects all cash effects of transactions and other events that
      enter into the determination of net income), (ii) is not necessarily
      indicative of cash flow available to fund cash needs and (iii) should not
      be considered as an alternative to net income determined in accordance
      with GAAP as an indication of our operating performance, or to cash flow
      from operating activities determined in accordance with GAAP as a measure
      of either liquidity or our ability to make distributions. FFO as presented
      may not be comparable to amounts calculated by other companies.
      Accordingly, we believe that in order to facilitate a clear understanding
      of the consolidated historical operating results, FFO should be considered
      in conjunction with our net income and cash flows as reported in the
      accompanying consolidated financial statements and notes
      thereto.





13


The
following is a reconciliation of net income to FFO for each of the years in the
five-year period ended December 31, 2004 (in thousands):





Year
      Ended December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000Net
      income
    
    $
    117,918
    
    $
    58,460
    
    $
    11,372
    
    $
    916
    
    $
    225Adjustments:Depreciation
      of real estate assetsContinuing
      operations
    
    
    54,262
    
    
    16,354
    
    
    3,068
    
    
    524
    
    
    303Discontinued
      operations
    
    
    89
    
    
    13
    
    
    —
    
    
    —
    
    
    —Amortization
      of lease intangiblesContinuing
      operations
    
    
    8,606
    
    
    1,167
    
    
    254
    
    
    —
    
    
    —Discontinued
      operations
    
    
    7
    
    
    1
    
    
    —
    
    
    —
    
    
    —Amortization
      of deferred leasing costsContinuing
      operations
    
    
    32
    
    
    —
    
    
    —
    
    
    —
    
    
    —Discontinued
      operations
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    —Effect
      of unconsolidated entity
    
    
    428
    
    
    261
    
    
    150
    
    
    —
    
    
    —Effect
      of minority interests
    
    
    (156
    )
    
    —
    
    
    (234
    )
    
    —
    
    
    —$
    181,186
    
    $
    76,256
    
    $
    14,610
    
    $
    1,440
    
    $
    528











14





**Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations**





Overview





Our focus
during 2004 was the acquisition of Properties using the proceeds received from
our public offerings and loan facilities and the management of our existing
portfolio of Properties. During the year ended December 31, 2004, we received
gross offering proceeds of $880.3 million and invested $1.7 billion in 103
Properties, including 52 MOBs and 51 Seniors' Housing Properties consisting
primarily of assisted living and independent living facilities. We also acquired
a 55% ownership interest in a development and property management company that
manages 30 of our MOBs. We obtained or assumed $690.8 million of permanent
financing, drew $74.0 million under our construction loan facilities and drew
$60.0 million under a term loan.


As of
December 31, 2004, we held real estate assets located in 32 states consisting of
(dollars in thousands):





Number
      of Properties
    
    Investment
      at December 31, 2004Seniors’
      Housing facilities:Operating
    
    
    166
    
    $
    2,594,432Under
      development
    
    
    3
    
    
    79,997Medical
      Office Buildings:Operating
    
    
    49
    
    
    473,501Under
      development
    
    
    3
    
    
    26,415221
    
    $
    3,174,345Real
      estate held for sale
    
    
    1
    
    $
    1,578





During
2005, our primary focus will be stabilizing the operating performance of our
Properties and developing and enhancing relationships with our tenants,
operators, managers and lenders. In addition, we expect to continue to raise
capital through equity offerings and the placement of permanent financing on new
or unencumbered Properties, and we expect to invest these proceeds in Properties
and other permitted investments.





**Liquidity
and Capital Resources**





We
primarily acquire or develop Properties. We may also provide Mortgage Loans to
operators of Seniors' Housing or other health care-related facilities, however,
we have not entered into any Mortgage Loans as of December 31, 2004. We rely on
the sale of our common stock to fund a significant portion of our Property
acquisitions and other permitted investments. We also obtain funds through
borrowings under permanent or construction financing, operating activities and
draws on our revolving line of credit. We are required to distribute at least
90% of our taxable income to stockholders in order to maintain our REIT
qualifications.





***Common
Stock Offerings***





Upon
formation in December 1997, we received an initial capital contribution of
$200,000 for 20,000 shares of common stock from the Advisor. Since our inception
through December 31, 2004, we have made five public offerings and received
subscriptions as follows (in thousands):





Offering
    
    SubscriptionsOffering
    
    Date
      Completed
    
    Shares
      (a)
    
    Amount
    
    Shares
      (b)
    
    AmountInitial
      Offering
    
    September
      2000
    
    15,500
    
    $
      155,000
    
    972
    
    $
      9,7192000
      Offering
    
    May
      2002
    
    15,500
    
    155,000
    
    15,500
    
    155,0002002
      Offering
    
    April
      2003
    
    45,000
    
    450,000
    
    45,000
    
    450,0002003
      Offering
    
    April
      2004
    
    175,000
    
    1,750,000
    
    156,793
    
    1,567,9252004
      Offering
    
    Open
    
    400,000
    
    4,000,000
    
    20,201
    
    202,014651,000
    
    $
      6,510,000
    
    238,466
    
    $
      2,384,658





(a)
    Includes
      distribution reinvestment plan shares of 500 in each of the Initial and
      2000 Offerings, 5,000 in the 2002 Offering, 25,000 in the 2003 Offering
      and 15,000 in the 2004 Offering.





(b)
    Includes
      distribution reinvestment plan shares of 5 in the Initial Offering, 42 in
      the 2000 Offering, 129 in the 2002 Offering, 1,728 in the 2003 Offering
      and 3,964 in the 2004 Offering.





15





In July
2004, at our 2004 annual meeting, the stockholders approved a resolution to
amend our Amended and Restated Articles of Incorporation to increase the number
of authorized shares of common stock from 450 million to one
billion.





The price
per share of all of our equity offerings has been $10 per share. Selling
commissions, marketing support fees, due diligence expense reimbursements and
other offering expenses have not and will not exceed 13% of gross
proceeds.





As of
December 31, 2004, net proceeds from our offerings of shares and capital
contributions from the Advisor, after deduction of selling commissions,
marketing support fees, due diligence expense reimbursements and organizational
and offering expenses, totaled approximately $2.1 billion. We have used net
offering proceeds, proceeds from permanent and construction financing and
advances from our revolving line of credit to invest in 222 Properties located
in 32 states.





During
the period January 1, 2005 through February 28, 2005, we received additional net
offering proceeds of $35.9 million, proceeds from new permanent financing of
$143.7 million and incurred acquisition fees and costs of $7.2 million,
including $5.5 million related to acquisition fees on the new permanent
financing. We also used $81.7 million in connection with the acquisition of
three MOBs, one Seniors' Housing facility and a parcel of land which we will
hold for sale.





The
number of Properties to be acquired and Mortgage Loans and other permitted
investments in which we may invest will depend on the amount of net offering
proceeds and loan proceeds available to us and the availability of reasonably
priced Properties. During 2005, we expect to have access to capital through our
2004 Offering and the leveraging of our unencumbered or newly acquired
Properties that will be sufficient to take advantage of acquisition
opportunities.





Under our
Amended and Restated Articles of Incorporation, if we do not list our shares on
a national securities exchange or over-the-counter market by December 31, 2008,
we will commence an orderly liquidation of our assets and the distribution of
net proceeds to our stockholders.





***Redemptions***





We have a
redemption plan under which we may elect to redeem shares, subject to certain
conditions and limitations. Under the
redemption plan, prior to such time, if any, as a Listing occurs, any
stockholder who has held shares for at least one year may present all or any
portion equal to at least 25% of their shares to us for redemption in accordance
with the procedures outlined in the redemption plan. Upon presentation, we may,
at our option, redeem the shares for cash, subject to certain conditions and
limitations. Redemptions
are limited to the extent sufficient funds are available, h owever,
at no time during any 12-month period may the number of shares we redeem exceed
5% of the number of shares of our outstanding common stock at the beginning of
the 12-month period. The full
amount of proceeds from our distribution reinvestment plan is available for
redemptions. In addition, we may, at our discretion, use up to $100,000 per
calendar quarter of the proceeds of any public offering of our common stock for
redemptions. In the second quarter of 2004, we amended our redemption plan to
change our redemption price from $9.20 per share to $9.50 per share. During the
years ended December 31, 2004, 2003 and 2002, 685,396 shares, 131,781
shares and 37,306 shares ,
respectively, were redeemed and retired for $6.5 million, $1.2 million and $0.3
million, respectively.





***Property
Acquisitions***





At
December 31, 2004, our investment portfolio consisted of 222 Properties located
in 32 states with an aggregate investment amount of approximately $3.2 billion
compared to 119 Properties located in 27 states with an aggregate investment
amount of approximately $1.5 billion at December 31, 2003. During the year ended
December 31, 2004, we invested $1.7 billion in 103 Properties. The Properties
acquired were 51 Seniors' Housing Properties, consisting primarily of assisted
living and independent living facilities, including three facilities in various
stages of development, and 52 MOBs containing approximately 2.6 million square
feet, including two parcels of land on which MOBs are being constructed. With
the exception of one Seniors' Housing Property under development, we, as lessor,
have entered into long-term, triple-net lease agreements relating to the
Seniors' Housing Properties and shorter-term, gross or triple-net lease
agreements relating to the MOBs.





Of the
Properties acquired during the year ended December 31, 2004, 101 Properties are
subject to operating leases. Operating leases related to Seniors' Housing
facilities generally provide for initial terms of 15 years with options that
allow the tenants to renew the leases for 5 to 20 successive years subject to
the same terms and conditions as the initial leases. In addition to minimum
annual base rent, substantially all of the Seniors' Housing leases require
contingent rent if operating performance or occupancy rate thresholds, as
defined in the lease agreements, are achieved. The leases also provide for the
tenant to fund, in addition to minimum rent payments, an FF&E reserve fund.
The tenant deposits funds into the FF&E reserve account and periodically
uses these funds to cover the cost of the replacement, renewal and additions to
furniture, fixtures and equipment. Operating leases related to MOBs include both
triple-net and gross basis leases and have initial terms of 5 to 15 years,
provide for minimum rent and are generally subject to renewal options. The gross
basis leases allow us to recover a portion of the MOB operating expenses from
the tenants, as specified in the lease agreements. Substantially all Property
leases require minimum annual base rent to be paid in monthly installments and
increase at predetermined intervals (typically on an annual basis) during the
terms of the leases.





16


Twenty of
the MOBs acquired during 2004 are subject to ground leases with initial terms
ranging from 41 to 80 years, and 16 of the ground leases contain renewal options
for terms of 30 to 50 years.





During
the year ended December 31, 2004, we also acquired two parcels of land through
direct financing transactions and entered into 10-year lease agreements relating
to the Properties. Each lease contains a bargain purchase option that may be
exercised by the tenant at the beginning of the fifth lease year. Minimum lease
payments related to the direct financing leases are subordinate to first
mortgage construction loans entered into by the tenants to fund development
costs related to the Properties.





In
accordance with SFAS 141, we allocate the value associated with having in-place
operating leases at the date of acquisition to an intangible lease asset or
liability considering factors associated with lease origination costs, customer
relationships and above or below market leases. During the years ended December
31, 2004 and 2003, we allocated $69.6 million and $31.6 million, respectively,
of acquired real estate value to in-place lease origination costs and customer
relationships, which are amortized over the remaining terms of the leases
acquired with each Property. In addition, for the year ended December 31, 2004,
we allocated $8.5 million to an intangible lease asset related to above market
lease values and $4.5 million to an intangible lease liability related to below
market lease values. These components are amortized to rental income from
operating leases over the remaining terms of the leases acquired with each
Property.





During
the year ended December 31, 2004, three Properties that were under construction
at December 31, 2003, and three Properties that were under construction when
acquired in March 2004, commenced operations.





At
December 31, 2004, our restricted cash balance included $2.0 million being held
in escrow to fund the acquisition of Properties that we had entered into initial
commitments to acquire. In January and February 2005, we used the entire
escrowed amount to acquire three MOBs and a parcel of vacant land.





***Other
Investments***





On May
30, 2002, we acquired a 10% interest in a limited partnership that owns an
office building located in Orlando, Florida in which the Advisor and its
Affiliates lease office space. Our equity investment in the partnership was
$300,000. Our share in the limited partnership's distributions is equivalent to
its equity interest in the limited partnership. The remaining interest in the
limited partnership is owned by several Affiliates of the Advisor. In connection
with this acquisition, we have severally guaranteed our 16.67% share of a $15.5
million unsecured promissory note of the limited partnership. At December 31,
2004, the note had an outstanding balance of $14.2 million.





In August
2004, we acquired a 55% interest in DASCO for $6.0 million including closing
costs. We allocated $5.8 million to goodwill which represents the excess of the
purchase price paid plus closing costs over the fair market value of the
tangible assets (office furniture and equipment) acquired in the business
acquisition. The purchase of the 55% interest in DASCO has provided and may
continue to provide opportunities for us to participate in new medical office
development and acquisition opportunities as well as enter the business of
managing MOBs. DASCO operated 27 and is developing three of our MOBs
at December 31, 2004.





***Investments
Subsequent to December 31, 2004 and Pending
Investments***





In
January and February 2005, we acquired equity interests in three entities that
own MOBs for an aggregate purchase price of $28.6 million and assumed a $7.1
million mortgage loan in connection with the purchases. One of the MOBs is
currently under construction. The MOBs are located in Illinois, Indiana and
Texas, contain approximately 161,900 square feet and are managed or being
developed by DASCO. In February 2005, we also acquired a Seniors' Housing
facility located in Illinois for $50 million, consisting of 274 independent and
assisted living units, and an undeveloped parcel of land located in Texas for
$3.1 million which we intend to hold for sale. The Seniors' Housing facility is
leased to and operated by Horizon Bay. In connection with the acquisition of the
Seniors' Housing facility, we borrowed $30 million in new permanent financing.
We used cash available at December 31, 2004, plus additional offering and debt
proceeds received in January and February 2005 to purchase these Properties.





17


As of
February 28, 2005, we had commitments to acquire 17 Seniors' Housing facilities
for $139 million and four MOBs for $18.1 million, subject to the fulfillment of
certain conditions. It is expected that the Seniors' Housing facilities,
consisting primarily of independent and assisted living units, will be leased to
and managed by Encore Senior Living. Three of the MOBs contain an aggregate of
118,000 square feet and are leased to various third-party physicians and health
care providers. The remaining MOB is under construction, and we expect to obtain
construction funding or use our revolving line of credit to fund construction
costs. The MOBs are expected to be managed by DASCO.





***Borrowings***





*Line
of Credit.* We have
an $85.0 million revolving line of credit that may be amended to allow the line
of credit to be increased to $125.0 million. Eleven Properties with an aggregate
real estate value of $121.6 million collateralize the $85.0 million revolving
line of credit; however, the collateral provided by these 11 Properties only
allows us to draw up to $71.4 million. This credit facility requires payments of
interest only at LIBOR plus a percentage that fluctuates until maturity (4.84%
at December 31, 2004), depending on our aggregate amount of debt outstanding in
relation to our total assets. The line has several covenants typically found in
revolving loan facilities, including covenants to maintain a minimum net worth
and minimum collateral value. We may use the revolving line of credit to fund
acquisitions, pay fees, make distributions and fund working capital for general
business purposes. Periodically, we expect to repay amounts drawn under the
revolving line of credit with proceeds received from equity offerings, permanent
financing, the sale of assets or working capital. As of December 31, 2004, we
had an outstanding balance of $20.0 million on the line of credit, which matures
in September 2005. We are able to extend the September 2005 maturity date for an
additional six month period with comparable terms as permitted under the loan
agreement.





*Term
Loan.* On
December 30, 2004, we borrowed $60.0 million on a 14-day term loan to purchase
Properties for which permanent financing was obtained in January 2005. This
facility bore interest at 5.02% at December 31, 2004, and was repaid and
terminated on January 13, 2005.





As of May
1, 2004, we elected to terminate a $50.0 million unused credit facility which we
had entered into in September 2003.





*Permanent
Financing.* During
the year ended December 31, 2004, we obtained $690.8 million in permanent
financing by assuming existing debt on various Properties acquired and by
encumbering certain existing Properties with new debt. In addition, we
extinguished $25.6 million in variable rate debt using proceeds from new
permanent financing. As of December 31, 2004, our aggregate permanent financing
was $937.6 million and was collateralized by Properties with an aggregate net
book value of $1.8 billion. We have approximately $118.2 million in principal
amortization due in 2005. Several loans that mature in 2005 contain extension
options that we expect to exercise. We also expect to refinance certain loans
and, to a lesser extent, use offering proceeds to repay the maturing
loans.





Approximately
46% of our mortgage notes payable at December 31, 2004 were subject to variable
interest rates; therefore, we are exposed to market changes in interest rates as
explained in Item 7A., Quantitative and Qualitative Disclosures About Market
Risk. Fixed interest rates range from 4.91% to 8.42% with a weighted average
rate of 6.18%. Certain fixed rate loans we assumed contain substantial
prepayment penalties and/or defeasance provisions that may preclude repayment of
the loans prior to their maturity dates. Many of the loans have financial
covenants which are typically found in commercial loans and which are primarily
based on the operations of the Properties. Certain loans contain extension
options with terms similar to the initial loan terms. In addition, certain loans
contain provisions that allow us to convert variable interest rates to fixed
interest rates based on U.S. Treasury rates plus a premium at the time the
conversion option is exercised.





During
the year ended December 31, 2004, we incurred $10.1 million in loan costs in
connection with the placement and assumption of permanent financing
facilities.





18





The table
below summarizes permanent financing that we obtained during the year ended
December 31, 2004 (dollars in thousands):





Funded
      or Assumed
    
    Amount
    
    Maturity
      Date
    
    Interest
      RateFixed
      Rate Debt:January
      - December 2004
    
    $
      130,000
    
    January
      2009
    
    5.79%January
      2004
    
    74,645
    
    February
      2011
    
    5.96%February
      2004
    
    33,139
    
    May
      2010
    
    8.17%April
      2004
    
    84,247
    
    August
      2008 - February 2013
    
    5.09%
      - 8.35%August
      2004
    
    6,361
    
    July
      2010 - September 2011
    
    7.21%
      - 8.42%November
      2004 (1)
    
    10,561
    
    July
      2007
    
    4.91%338,953Variable
      Rate Debt:February
      2004
    
    48,740
    
    June
      2008
    
    30-day
      LIBOR plus 3.70%; 5.95% floorFebruary
      2004
    
    192,680
    
    October
      2005 - April 2008
    
    Fannie
      Mae Discount MBS rate plus .90% to 1.04%March
      2004
    
    20,400
    
    March
      2007
    
    30-day
      commercial paper rate plus 3.15%December
      2004
    
    90,000
    
    January
      2010
    
    Freddie
      Mac Reference Bill Index plus 1.12%351,820$
      690,773





(1)
    The
      stated interest rate of 7.42% on this loan was greater than that available
      to us in the open capital market for comparable debt at the time of
      assumption. Consequently, we recognized $0.8 million in debt premium that
      will be amortized over the period of the loan which reduces the effective
      interest rate to 4.91%. During the year ended December 31, 2004, we
      recognized $47,000 in debt premium amortization that is included in
      interest and loan cost amortization expense in the accompanying financial
      statements.





*Construction
Financing.* During
the year ended December 31, 2004, we drew $74.0 million under our construction
loan facilities related to Properties under various stages of development. Total
construction loans outstanding at December 31, 2004, were $81.5 million, and
total liquidity remaining was $63.9 million. The loans are variable interest
rate loans and mature from November 2006 to July 2009. We anticipate that we
will obtain permanent financing or use proceeds from our offerings to pay the
construction loans as they become due.





*Bonds
Payable.* We have
non-interest bearing life care bonds payable to certain residents of our two
CCRCs. Generally, the bonds are refundable to a resident upon the resident
moving out of the CCRC or to a resident's estate upon the resident's death. In
some instances, the bonds are not refunded until the unit has been successfully
remarketed to a new resident. During the year ended December 31, 2004, we issued
new bonds to new residents of these retirement facilities totaling $12.1
million, and used the proceeds from the new bonds to retire $7.7 million of the
existing bonds. As of December 31, 2004, the bonds payable had an outstanding
balance of $94.5 million.





***Contractual
Obligations and Commitments***





The
following table presents our contractual cash obligations and related payment
periods as of December 31, 2004 (in thousands):





Less
      than 1 Year
    
    2-3
      Years
    
    4-5
      Years
    
    Thereafter
    
    TotalMortgages
      payable
    
    $
    118,160
    
    $
    129,626
    
    $
    414,799
    
    $
    275,004
    
    $
    937,589Revolving
      line of credit
    
    
    20,000
    
    
    —
    
    
    —
    
    
    —
    
    
    20,000Term
      loan
    
    
    60,000
    
    
    —
    
    
    —
    
    
    —
    
    
    60,000Bonds
      payable (1)
    
    
    —
    
    
    —
    
    
    —
    
    
    94,451
    
    
    94,451Construction
      loans payable
    
    
    —
    
    
    79,486
    
    
    2,022
    
    
    —
    
    
    81,508Ground
      leases
    
    
    320
    
    
    765
    
    
    771
    
    
    19,225
    
    
    21,081Security
      deposits and rent support
    
    
    —
    
    
    —
    
    
    —
    
    
    26,253
    
    
    26,253$
    198,480
    
    $
    209,877
    
    $
    417,592
    
    $
    414,933
    
    $
    1,240,882





19


(1)
    It
      is expected that the proceeds from the issuance of new refundable life
      care bonds will be used to retire the existing bonds; therefore, bond
      redemptions are not expected to create a current net cash obligation.





The
following table presents our commitments, contingencies and guarantees, and
related expiration periods as of December 31, 2004 (in thousands):





Less
      than
      1
      Year
    
    2-3
      Years
    
    4-5
      Years
    
    Thereafter
    
    TotalGuarantee
      of uncollateralized promissory note of unconsolidated entity
      (1)
    
    $
    2,366
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    2,366Earnout
      provisions (2)
    
    
    33,479
    
    
    2,000
    
    
    —
    
    
    —
    
    
    35,479Capital
      improvements to investment Properties (3)
    
    
    78,003
    
    
    3,152
    
    
    —
    
    
    —
    
    
    81,155Pending
      investments (4)
    
    
    47,370
    
    
    —
    
    
    —
    
    
    —
    
    
    47,370$
    161,218
    
    $
    5,152
    
    $
    —
    
    $
    —
    
    $
    166,370





(1)
    In
      connection with the acquisition of a 10% limited partnership interest in
      CNL Plaza, Ltd., we severally guaranteed 16.67%, or $2.6 million, of a
      $15.5 million unsecured promissory note of the limited partnership that
      matures April 2005. As of December 31, 2004, the unsecured promissory note
      had an outstanding balance of $14.2 million. We have not been required to
      fund any amounts under this guarantee. In the event we are required to
      fund amounts under the guarantee, management believes that such amounts
      would be recoverable either from operations of the related asset or
      proceeds upon liquidation.





(2)
    In
      connection with the acquisition of 41 Properties, we may be required to
      make additional payments if earnout provisions are achieved by the earnout
      date for each Property. The calculation generally considers the net
      operating income for the Property, our initial investment in the Property
      and the fair value of the Property. In the event an amount is due, the
      applicable lease will be amended and annual minimum rent will increase
      accordingly. Amounts presented represent maximum exposure to additional
      payments. Earnout amounts related to six additional Properties are subject
      to future values and events which are not quantifiable at December 31,
      2004, and are not included in the table
above.





(3)
    Commitments
      for the funding of Properties under development are expected to be funded
      with draws from construction loan
facilities.





(4)
    As
      of December 31, 2004, we had commitments to acquire five MOBs and a parcel
      of undeveloped land subject to the fulfillment of certain
      conditions.





***Market
Risk***





See Item
7A. Quantitative and Qualitative Disclosures About Market Risk
below.





***Cash
and Cash Equivalents***





Until
Properties are acquired or developed or Mortgage Loans are entered into, we may
accumulate significant amounts of cash from offering proceeds or permanent
financing. The cash is held in short-term (defined as investments with a
maturity of three months or less), highly liquid investments which we believe to
have appropriate safety of principal. This investment strategy provides high
liquidity in order to facilitate our use of these funds to acquire Properties at
such time as Properties suitable for acquisition are identified or to fund
Mortgage Loans and take advantage of favorable capital market conditions. At
December 31, 2004, we had $51.8 million invested in short-term investments as
compared to $167.1 million at December 31, 2003. The decrease was primarily
attributable to the cash used to purchase 103 Properties, offset by offering
proceeds received from the sale of shares of common stock and placement of
permanent financing during the year ended December 31, 2004.





20





***Accounts
and Other Receivables***





Our
accounts and other receivables balance increased from $12.2 million at December
31, 2003 to $20.5 million as of December 31, 2004. The increase was primarily
due to an increase in rental revenues receivable from $11.2 million at December
31, 2003 to $21.8 million at December 31, 2004, offset by a $3.9 million reserve
for doubtful accounts. Past due amounts aggregated $10.7 million at December 31,
2004. We have experienced delays in receiving current rent amounts due on
certain Seniors' Housing facilities as a result of several tenants experiencing
higher than expected property operating expenses. These tenants are thinly
capitalized and rely on the net operating income generated from the Seniors'
Housing facilities to fund rent obligations under their leases. Based on our
analysis of estimated future cash flows to be generated by the facilities, we
anticipate that certain delinquent amounts will be collected in the upcoming
year. We have been and will continue to work with these tenants and the
operators of the respective Properties to implement a plan to increase operating
efficiencies in order to enhance cash flow generated from the Properties to fund
current and past due rent obligations under the leases. In addition, we are
evaluating strategic alternatives for certain facilities. The results of actual
facility operations or implementation of one or more of these alternatives could
result in additional reserves for doubtful accounts or impairment losses that
may impact our results of operations in future periods.





***Loan
Costs***


**





Net loan
costs increased from $7.4 million at December 31, 2003 to $12.6 million at
December 31, 2004, as a result of us borrowing or assuming $690.8 million in
mortgage loans. Loan costs of $1.1 million were written off due to the early
termination of debt. Loan cost amortization was $5.1 million and $1.4 million
for the years ended December 31, 2004 and 2003, respectively.





***Distributions***





During
the years ended December 31, 2004, 2003 and 2002, we generated cash from
operations of $139.4 million, $60.7 million and $16.8 million, respectively,
which included the draw on operator rent guarantees of $21.6 million, $5.6
million and $2.9 million, respectively, and unrestricted security deposits
received from tenants of $8.7 million, $3.1 million and $3.5 million,
respectively. We declared and paid distributions to our stockholders of $147.1
million, $59.8 million and $14.4 million during the years ended December 31,
2004, 2003 and 2002, respectively. In addition, on January 1, February
1 and March 1, 2005, we declared distributions to stockholders of
record on those dates of $0.0592 per share of common stock (aggregating $42.9
million) which are payable by March 31, 2005.





During
the year ended December 31, 2004, $7.7 million of distributions paid to
stockholders was supported by borrowings on our line of credit. Our distribution
policy is based on a balanced analysis of both current and long-term stabilized
cash flows of our Properties and value creation, and our objective of continuing
to qualify as a REIT for federal income tax purposes. During the year ended
December 31, 2004, distributions paid to stockholders were greater than cash
flows generated from operations. This occurred primarily because of a build up
in accounts receivable due to several of our tenants experiencing higher than
expected property operating expenses, as described above under "Accounts and
Other Receivables." In addition, our acquisition strategy has focused on
opportunistically investing in larger portfolios, which allows us to obtain
increased efficiencies as we invest the proceeds received from the sale of
shares of common stock. As a result, large cash outlays are required at the time
of purchase which causes equity proceeds to accumulate for longer periods of
time in cash and short-term investments at lower returns prior to making these
purchases. Therefore, distributions paid to stockholders may periodically be
greater than cash flows generated from operations. We expect to continue a large
portfolio investment strategy during 2005, and may borrow funds from the
revolving line of credit to make distributions to stockholders.





For the
years ended December 31, 2004, 2003 and 2002, approximately 60%, 71% and 65%,
respectively, of the distributions received by stockholders were considered to
be ordinary income and approximately 40%, 29% and 35%, respectively, were
considered a return of capital for federal income tax purposes. No amounts
distributed to stockholders for the years ended December 31, 2004, 2003 and
2002, were required to be or have been treated by us as a return of capital for
purposes of calculating the stockholders’ return on their invested capital. We
intend to continue to declare distributions of cash available for such purpose
to the stockholders on a monthly basis, payable monthly or
quarterly.





***Liquidity
Requirements***





We
believe that cash flow provided by operating activities will be sufficient to
fund normal recurring operating expenses, regular debt service requirements and
a significant portion of the distributions to stockholders. To the extent that
cash flow provided by operating activities is not sufficient to meet such
short-term liquidity requirements as a result, for example, of our portfolio
investment strategy or expenses due to the tenants defaulting under the terms of
their lease agreements, we will use borrowings under our revolving line of
credit. We expect to meet our other short-term liquidity requirements, including
payment of offering expenses, the acquisition and development of Properties, the
investment in Mortgage Loans and other permitted investments, and the scheduled
maturities of permanent financings with proceeds from our offerings, advances
under our revolving line of credit and new permanent financing. We expect to
meet our long-term liquidity requirements through short- or long-term,
collateralized or uncollateralized debt financing or equity
financing.





21


Seniors'
Housing facilities are generally leased on a long-term, triple-net basis,
meaning the tenants are required to pay repairs and maintenance, property taxes,
insurance and utilities. Generally, these tenants are also required to maintain
an FF&E reserve account which is used to fund expenditures to refurbish
buildings, premises and equipment to maintain the leasehold in a manner that
allows operation for its intended purpose. In the event that the FF&E
reserve is not sufficient, we may make fixed asset expenditures, in which case
the annual minimum rent will be increased. We believe that current tenant
reserves are sufficient to meet foreseen FF&E repairs. The MOBs are leased
on either a triple-net or gross basis. With respect to the gross leases, we
generally recover increases in building operating expenses (including real
estate taxes, insurance, repairs, maintenance and utilities) over a specified
base amount from the tenants, as specified in the lease agreements.





**Results
of Operations**





***Comparison
of the year ended December 31, 2004 to the year ended December 31,
2003***





Net
income for the year ended December 31, 2004 totaled $117.9 million or $0.56 per
share of common stock, as compared to net income of $58.5 million or $0.66 per
share of common stock for 2003. The increase in net income is primarily due to
an increase in rental income from the Properties that we acquired during the
latter part of 2003 and in 2004 offset by increases in interest expense and loan
cost amortization as a result of an increase in our average outstanding debt,
provisions for accounts receivable reserves and an impairment charge related to
the proposed sale of a Seniors' Housing facility. These changes are discussed in
further detail below. Although net income increased significantly for the year
ended December 31, 2004, it decreased on a per share basis primarily due to a
larger average accumulated amount of cash during 2004. This cash was invested in
short-term, highly liquid investments that earned a lower return than if the
cash had been invested in Properties.





***Revenues***





At
December 31, 2004, we owned 222 Properties, including 103 Properties that were
acquired in 2004, compared to owning 119 Properties at December 31, 2003. As a
result of the increase in the number and value of owned Properties, we earned
rental and earned income from our leases of $255.0 million, including $40.6
million as a result of straight-lining rent increases throughtout the lease
terms, for the year ended December 31, 2004, compared to $91.3 million,
including $10.4 million of straight-line rent revenue, for the year ended
December 31, 2003. We also earned $4.7 million and $2.6 million in FF&E
reserve income during the years ended December 31, 2004 and 2003, respectively.
Because 103 Properties were owned for only a portion of 2004 and we expect to
acquire additional Properties during 2005, results of operations are not
expected to be indicative of future periods. Rental income from operating
leases, earned income from direct financing leases and FF&E reserve income
are expected to increase in subsequent periods.





During
the years ended December 31, 2004 and 2003, rental income included draws on
operator rent guarantees of $21.6 million and $5.6 million, respectively. To
mitigate credit risk, certain Seniors' Housing leases are combined into
portfolios that contain Cross-Default and Pooling terms. In addition, as of
December 31, 2004, we held $26.3 million in security deposits and rent support
related to certain Properties. We also have limited guarantees from certain
tenants and operators that aggregate $10.7 million as of December 31, 2004,
related to 12 of our Properties.





In
connection with three and 19 of our Properties, Sunrise has guaranteed rent
payments until the earlier of June 30, 2005 and December 31, 2005, respectively,
or the Properties achieving certain specified performance thresholds. Based on
our review of the 2005 projected, Pooled net operating cash flow generated from
these Properties, we do not believe that the performance thresholds will be
achieved prior to the expiration of the Sunrise guarantees. We identified one
Property within the 22-Property portfolio that we determined would be held for
sale. In conjunction with this decision, we recognized a $1.9 million impairment
loss. We are
working with the tenant and operator of the 22-Property portfolio to implement a
plan to enhance cash flow generated from the Properties. Failure of these
Properties to enhance cash flow from operations may result in the non-payment of
a portion of our rent after the guarantees expire, and as a result, the
recognition of additional provisions for doubtful accounts beginning in the
third quarter of 2005.





22





In
connection with eight Properties leased to wholly owned subsidiaries of ARC, ARC
has unconditionally guaranteed all of the tenants' obligations under the terms
of the leases, including the payment of minimum rent.





In
connection with the purchase of five Seniors' Housing facilities that are in
various stages of development and are being developed by Sunrise Development,
Inc., Sunrise has guaranteed the tenants' obligations to pay minimum rent and
the FF&E reserve due under the leases from the date of acquisition until the
later of (i) 30 months (March 2007) or (ii) 18 months after the final
development date, as defined in the lease agreement. During 2004, three of these
five Properties commenced operations. In addition, Sunrise has guaranteed the
tenant's rent obligations related to three additional Seniors' Housing
facilities for which construction was completed in 2004, until such time the
operating performance of the Properties achieves predetermined rent coverage
thresholds.





There
are six Seniors' Housing Properties that are experiencing operating
performance deficiencies. These Properties are included in various portfolios
that contain Cross-Defaulted and Pooling terms. Some of these portfolios do not
have tenant guarantees or security deposits. We are evaluating strategic
alternatives for these facilities. These alternatives include the transition of
the facility's management to another operator, lease restructure and sale. If it
is determined that any of these Properties should be sold, we may incur
impairment losses. In addition, the failure of these Properties to generate cash
flow sufficient to pay all or a portion of our rent may result in additional
provisions for doubtful accounts in 2005.





Although
we acquire Properties located in various states and regions and screen our
tenants in order to reduce risks of default, failure of certain lessees, their
guarantors, or the Sunrise or Horizon Bay brands would significantly impact the
results of our operations.





We
recorded $4.7 million in tenant expense reimbursement revenue, representing
contractual recoveries from tenants of 42% of our MOB operating
expenses.





During
the years ended December 31, 2004 and 2003, we also earned $3.0 million and $1.6
million, respectively, in interest income from investments in money market
accounts and other short-term, highly liquid investments. The increase in
interest income is due to an increase in the average amount invested in
short-term investments during the year ended December 31, 2004, as compared to
the year ended December 31, 2003. As net offering proceeds are used to invest in
Properties and make Mortgage Loans, the percentage of our total revenues earned
from interest income from investments in money market accounts or other
short-term, highly liquid investments is expected to decrease.





During
the year ended December 31, 2004, interest and other income also included $1.5
million in development, marketing and property management fees.





***Expenses***





Interest
and loan cost amortization expense was $42.8 million and $9.6 million for the
years ended December 31, 2004 and 2003, respectively. The increase was a result
of our increasing the average amount of debt outstanding from $151.4 million for
the year ended December 31, 2003, to $722.2 million for the year ended December
31, 2004. The weighted average interest rate was approximately 5.1% for the year
ended December 31, 2004 and 5.8% for the year ended December 31, 2003. In
addition, we wrote off $1.1 million in loan costs during the year ended December
31, 2004, as a result of the early extinguishment of debt and capitalized $0.7
million in interest to Properties under development during 2004.





General
and administrative expenses and asset management fees were $27.3 million and
$9.9 million for the years ended December 31, 2004 and 2003, respectively,
representing 10.7% and 10.8% of net revenues, respectively. The increase in
expenses is directly related to the increased number and value of Properties
owned as well as the general and administrative expenses related to DASCO. The
dollar amount of general and administrative expenses and asset management fees
is expected to increase as we acquire additional Properties and invest in
Mortgage Loans; however, expenses as a percentage of net revenues are expected
to decrease.





Total
property-related operating expenses for the years ended December 31, 2004 and
2003, were $12.9 million and $136,000, respectively. The increase was primarily
due to the acquisition of the MOBs in the second and third quarters of 2004,
where we are generally responsible for property operating expenses; however,
under the terms of the leases, we recover a portion of the expenses from the
tenants. Property operating expenses related to MOBs were $11.2 million for the
year ended December 31, 2004. Property expenses related to Seniors' Housing
facilities increased proportionately to the increase in the number of Seniors'
Housing facilities owned during the year ended December 31, 2004.





23





During
the year ended December 31, 2004, we recognized a provision for loss of $3.9
million related to doubtful accounts receivable as discussed in the "Accounts
and Other Receivables" section above.





In
November 2004, we determined that one of our Seniors' Housing facilities would
be held for sale. In conjunction with this decision, we recognized a loss from
discontinued operations of $1.6 million for the year ended December 31, 2004,
representing $0.3 million in net operating income, offset by a $1.9 million
impairment loss for the write-down of the Property to its estimated fair value
less selling costs. To conform with the December 31, 2004 presentation, $25,000
in net operating income was reclassified to income from discontinued operations
for the year ended December 31, 2003.





Depreciation
and amortization expense was $63.0 million for the year ended December 31, 2004,
compared to $17.6 million for the year ended December 31, 2003, as a result of
our owning 96 additional operating Properties subject to operating leases during
2004.





***Comparison
of the year ended December 31, 2003 to the year ended December 31,
2002***





Net
income for the year ended December 31, 2003 totaled $58.5 million or $0.66 per
share of common stock. This compares to net income of $11.4 million or $0.52 per
share of common stock in 2002. The increase in net income and net income per
share was the result of the various factors described below.





For the
years ended December 31, 2003 and 2002, we earned $91.3 million and $16.8
million, respectively, in rental income from our Properties under operating
leases and earned income from our Properties subject to direct financing leases.
We also earned $2.6 million and $0.2 million in FF&E reserve income during
the years ended December 31, 2003 and 2002, respectively. The increase in rental
and FF&E reserve income was due to our owning 118 Properties subject to
lease agreements during the year ended December 31, 2003, as compared to 36
Properties during the year ended December 31, 2002. Since 82 Properties were
owned for only a portion of 2003 and additional Property acquisitions are
expected to occur, results of operations are not expected to be indicative of
future periods and rental income from operating leases, earned income from
direct financing leases and FF&E reserve income are expected to increase in
subsequent periods .





During
the years ended December 31, 2003 and 2002, we also earned $1.6 million and $1.9
million, respectively, in interest income from investments in money market
accounts and other short-term, highly liquid investments. Although the average
amount invested in short-term investments increased during the year ended
December 31, 2003, as compared to the year ended December 31, 2002, interest
income decreased due to a decrease in interest rates earned on the short-term
investments. As net offering proceeds are used to invest in Properties and make
Mortgage Loans, the percentage of our total revenues earned from interest income
from investments in money market accounts or other short-term, highly liquid
investments is expected to decrease. Included in interest and other income for
the years ended December 31, 2003 and 2002, was $0.1 million and $0.2 million,
respectively, in interest income related to accounts and other
receivables.





Operating
expenses, excluding depreciation expense, were $10.0 million and $2.2 million
for the years ended December 31, 2003 and 2002, respectively (10.5% and 11.6%,
respectively, of total revenues). The increase in operating expenses for the
year ended December 31, 2003, as compared to the year ended December 31, 2002,
was the result of incurring asset management fees and general and administrative
expenses relating to our acquiring 82 additional Properties during 2003.
Interest and loan amortization expense increased from $1.5 million for the year
ended December 31, 2002 to $9.6 million for the year ended December 31, 2003, as
a result of increasing the average amount of debt outstanding during 2003,
offset partially by a decrease in interest rates. Depreciation and amortization
increased from $3.3 million for the year ended December 31, 2002 to $17.6
million for the year ended December 31, 2003, as a result of our acquiring 82
additional Properties during 2003. The dollar amount of operating expenses is
expected to increase as we acquire additional Properties, invest in Mortgage
Loans, obtain permanent financing and draw funds on our revolving line of
credit. However, general and administrative expenses as a percentage of total
revenues are expected to decrease as we acquire additional Properties and invest
in Mortgage Loans.





**Other**





***Inflation
and Trends***





Our
Seniors' Housing leases are triple-net leases and contain provisions that we
believe will mitigate the effect of inflation. These provisions include clauses
requiring automatic increases in base rent at specified times during the term of
the lease (generally on an annual basis) and the payment of contingent rent if
Properties achieve specified operating thresholds (based on factors such as a
percentage of gross revenue above a specified level). We have also invested in
MOBs, which include both triple-net and gross basis leases. These leases also
contain provisions that mitigate the effect of inflation, such as scheduled base
rent increases during the lease terms and with respect to gross leases, the
reimbursement of future increases in operating expenses (including real estate
taxes, insurance, repairs, maintenance and utilities) over a specified base
amount. Inflation and changing prices may have an adverse impact on the
potential disposition of the Properties and on appreciation of the
Properties.





24


We believe
that changes and trends in the health care industry will continue to create
opportunities for growth of seniors' housing and other health care facilities,
including (i) the growth of operators serving specific health care niches, (ii)
the consolidation of providers and facilities through mergers, integration of
physician practices, and elimination of duplicative services, (iii) the
pressures to reduce the cost of providing quality health care, (iv) more
dual-income and single-parent households leaving fewer family members available
for in-home care of aging parents and necessitating more senior care facilities,
and (v) an anticipated increase in the number of insurance companies and health
care networks offering privately funded long-term care insurance. Additionally,
we believe that demographic trends are significant when looking at the potential
for future growth in the health care industry. Today's baby boomers (those born
between 1946 and 1964) will begin reaching age 65 as early as 2011. According to
the U.S. Census Bureau, the age 65 plus population is projected to more than
double between now and the year 2050, to 82 million. Most of this growth is
expected to occur between 2010 and 2030 when the number of older adults is
projected to grow by an average of 2.8% annually.





We
believe that during 2004, the seniors' housing industry experienced increased
occupancies and average daily rates, and generally the facilities operated at a
higher level of efficiency. The success of the future operations of our
Properties will depend largely on each tenant's and operator's ability to adapt
to dominant trends in the industry in each specific region, including, among
others, greater competitive pressures, increased consolidation and changing
demographics.





We are
not aware of any material trends, favorable or unfavorable, in either capital
resources or the outlook for long-term cash generation, nor do we expect any
material changes in the availability and relative cost of such capital
resources. Assuming the inflation rate remains low and long-term interest rates
do not increase significantly, we believe that inflation will not impact the
availability of equity and debt financings.





***Related
Party Transactions***





Certain
of our directors and officers hold similar positions with the Advisor, the
parent company of the Advisor and the managing dealer of our public offerings,
CNL Securities Corp. Our chairman of the board indirectly owns a controlling
interest in the parent company of the Advisor. These affiliates receive fees and
compensation in connection with the offerings, permanent financing and the
acquisition, management and sale of our assets.





We have
entered into an Advisory Agreement with the Advisor pursuant to which the
Advisor and its affiliates earn certain fees and are entitled to receive
reimbursement of certain expenses. During the years ended December 31, 2004,
2003 and 2002, the Advisor and its affiliates earned fees and incurred
reimbursable expenses as follows (in thousands):





Years
      ended December 31,2004
    
    2003
    
    2002Acquisition
      fees (1):From
      offering proceeds
    
    $
    38,286
    
    $
    47,644
    
    $
    16,685From
      debt proceeds
    
    
    29,952
    
    
    11,277
    
    
    2,05268,238
    
    
    58,921
    
    
    18,737Asset
      management fees (2)
    
    
    13,047
    
    
    4,372
    
    
    771Reimbursable
      expenses (3):Acquisition
      expenses
    
    
    331
    
    
    403
    
    
    228General
      and administrative expenses
    
    
    4,313
    
    
    2,255
    
    
    9874,644
    
    
    2,658
    
    
    1,215$
    85,929
    
    $
    65,951
    
    $
    20,723





(1)
    Acquisition
      fees for identifying Properties and structuring the terms of the leases
      and Mortgage Loans equal to 4.0% of gross offering proceeds under the 2004
      Offering and loan proceeds from permanent financing (4.5% under the prior
      offerings gross offering proceeds and loan proceeds), excluding that
      portion of the permanent financing used to finance Secured Equipment
      Leases.





25





If we
list our common stock on a national securities exchange or over-the-counter
market, the Advisor will receive an acquisition fee equal to 4.0% of amounts
outstanding on the line of credit, if any, at the time of listing. Certain fees
payable to the Advisor upon listing, orderly liquidation or other sales of
Properties are subordinate to the return of 100% of the stockholders' invested
capital plus the achievement of a cumulative, noncompounded annual 8% return on
stockholders' invested capital.





(2)
    Monthly
      asset management fee of 0.05% of our real estate asset value, as defined
      in the Advisory Agreement dated May 3, 2004, and the outstanding principal
      balance of any Mortgage Loan as of the end of the preceding
      month.





(3)
    Reimbursement
      for administrative services, including services related to accounting;
      financial, tax and regulatory compliance reporting; stockholder
      distributions and reporting; due diligence and marketing; and investor
      relations.





Pursuant
to the Advisory Agreement, the Advisor is required to reimburse us the amount by
which the total operating expenses paid or incurred by us exceed the Expense Cap
in any Expense Year. Operating expenses for the Expense Years ended December 31,
2004, 2003 and 2002, did not exceed the Expense Cap.





CNL
Securities Corp. received fees based on the amounts raised from our offerings
equal to: (i) selling commissions of 6.5% of gross proceeds under the 2004
Offering and 7.5% under the prior offerings, (ii) a marketing support fee of
2.0% of gross proceeds under the 2004 Offering and 0.5% under the prior
offerings and (iii) beginning on December 31, 2003, an annual soliciting dealer
servicing fee equal to 0.2% of the aggregate proceeds raised in a prior
offering. The majority of these fees were re-allowed to other broker dealers. Affiliates
of the Advisor are reimbursed for certain offering expenses incurred on our
behalf. Offering expenses paid by us, together with selling commissions, the
marketing support fee and due diligence expense reimbursements incurred by the Advisor and its affiliates on our
behalf ****** will not
exceed 13% of the proceeds raised in connection with the offerings.





During
the years ended December 31, 2004, 2003 and 2002, we incurred the following fees
and costs (in thousands):





Years
      ended December 31,2004
    
    2003
    
    2002Selling
      commissions
    
    $
    61,830
    
    $
    79,499
    
    $
    27,835Marketing
      support fee
    
    
    6,648
    
    
    5,300
    
    
    1,856Offering
      and due diligence costs
    
    
    18,328
    
    
    16,190
    
    
    9,208Soliciting
      dealer service fee
    
    
    310
    
    
    310
    
    
    —$
    87,116
    
    $
    101,299
    
    $
    38,899





Amounts
due to related parties consisted of the following at December 31 (in
thousands):





2004
    
    2003Due
      to the Advisor and its affiliates:Expenditures
      incurred for offering expenses
    
    $
    21
    
    $
    372Accounting
      and administrative services
    
    
    761
    
    
    304Acquisition
      fees and expenses
    
    
    656
    
    
    8151,438
    
    
    1,491Due
      to CNL Securities Corp.:Selling
      commissions
    
    
    149
    
    
    1,366Marketing
      support fees and due diligence expense reimbursements
    
    
    45
    
    
    91Soliciting
      dealer servicing fee
    
    
    —
    
    
    310194
    
    
    1,767$
    1,632
    
    $
    3,258





CNL
Capital Corp., an affiliate of the Advisor, is a non-voting Class C member of
Century Capital Markets, LLC ("CCM"). In March 2004 and June 2002, CCM made the
arrangements for the two commercial paper loans totaling $43.9 million, as
described in Note 10 of the accompanying financial statements. During the years
ended December 31, 2004 and 2003, CCM was paid $0.2 million and $0.5 million in
structuring fees, respectively. These amounts are included in deferred costs as
of December 31, 2004 and 2003, and are being amortized over the terms of the
loans. In addition, the monthly interest payments due under these loans include
an annual margin of 40 and 30 basis points, payable to CCM for the monthly
services it provides related to the administration of the commercial paper
loans. During the years ended December 31, 2004, 2003 and 2002, $0.1 million,
$0.2 million and $0.2 million, respectively, was paid to CCM related to these
services.





26


During
the year ended December 31, 2003, we also paid CCM a $0.2 million finder's fee
related to the acquisition of two Properties.





We
maintain bank accounts in a bank in which certain of our officers and directors
serve as directors and are majority stockholders. The amounts deposited with
this bank were $22.9 million and $15.8 million at December 31, 2004 and 2003,
respectively.





We own a
10% interest in a limited partnership, CNL Plaza, Ltd., that owns an office
building located in Orlando, Florida, in which the Advisor and its affiliates
lease office space. The remaining interest in the limited partnership is owned
by several affiliates of the Advisor. During the years ended December 31, 2004
and 2003, we received $0.2 million and $0.1 million, respectively, in
distributions from the partnership.





On
September 1, 2004, a company which is owned by our chairman of the Board sold
its 30% voting membership interest in a limited liability company which is
affiliated with the HRA Tenants to the remaining members of the limited
liability company. The HRA Tenants contributed 30% and 35% of our total revenues
for the years ended December 31, 2004 and 2003, respectively.





Our
chairman of the board is also a director in a hospital that leases office space
in seven of our MOBs that were acquired in August 2004. Additionally, one of our
independent directors is a director in a health system that leases office space
in one of our MOBs that was acquired in April 2004. During the year ended
December 31, 2004, these hospitals contributed less than 1% of our total
revenues.





***Critical
Accounting Policies***





*Allocation
of Purchase Price for Acquisition of Properties* . We
allocate the purchase costs of Properties to the tangible and intangible assets
acquired and the liabilities assumed as provided by SFAS 141, "Business
Combinations." For each acquisition, we assess the value of the land, the as-if
vacant building, equipment and intangible assets, including in-place lease
origination costs, the above or below market lease values and the value of
customer relationships based on their estimated fair values. The values
determined are based on independent appraisals, discounted cash flow models and
our estimates reflecting the facts and circumstances of each
acquisition.





*Acquisition
Fees and Costs* .
Acquisition fees and miscellaneous acquisition costs that are directly
identifiable with Properties that are probable of being acquired are capitalized
and included in other assets. Upon the purchase of a Property, the fees and
costs directly identifiable with that Property are reclassified to land,
building, equipment and lease intangibles or to investment in direct financing
leases. In the event a Property is not acquired or no longer is expected to be
acquired, costs directly related to the Property are charged to expense.





*Leases* . Our
leases are accounted for under the provisions of Statement of Accounting
Standard No. 13, "Accounting for Leases," and have been accounted for as either
operating leases or direct financing leases. This statement requires management
to estimate the economic life of the leased property, the residual value of the
leased property and the present value of minimum lease payments to be received
from the tenant. In addition, we assume that all payments to be received under
our leases are collectible. Changes in our estimates or assumptions regarding
collectibility of lease payments could result in a change in accounting for the
lease.





*Impairments* . We
evaluate our Properties and other long-lived assets on a quarterly basis, or
upon the occurrence of significant changes in operations, to assess whether any
impairment indications are present that affect the recovery of the carrying
amount of an individual asset by comparing the sum of expected undiscounted cash
flows from the asset over its anticipated holding period, including the asset's
estimated residual value, to the carrying value. If impairment is indicated, a
loss is provided to reduce the carrying value of the property to its estimated
fair value.





*Allowance
for Doubtful Accounts.* We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our tenants to make required rent payments. We base our
estimates on historical experience, projected cash flows generated from the
tenants' operations of the Properties and various other assumptions that we
believe to be reasonable under the circumstances of a specific Property or
portfolio of Properties. If the financial condition of any of our tenants
deteriorates, resulting in the impairment of their ability to make required rent
payments, additional allowances may be required.





27





*Goodwill.* We
allocate the excess of the aggregate purchase price paid over the fair market
value of the tangible and identifiable intangible assets acquired in a business
combination accounted for as a purchase to goodwill. Goodwill is not subject to
amortization but is subject to quarterly impairment analysis.  If quoted
market prices are not available for our impairment analysis, we use other
valuation techniques that involve measurement based on projected net earnings of
the underlying reporting unit.





***REIT
Qualification***





We made
an election under Internal Revenue Code Section 856(c)(1), to be taxed as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended,
and related regulations. As a REIT, for federal income tax purposes, we
generally will not be subject to federal income tax on income that we distribute
to our stockholders. If we fail to qualify as a REIT in any taxable year, we
will be subject to federal income tax on our taxable income at regular corporate
rates and will not be permitted to qualify for treatment as a REIT for federal
income tax purposes for four years following the year during which qualification
is lost. Such an event could materially affect our net income. However, we
believe that we are organized and have operated in such a manner as to qualify
for treatment as a REIT since our formation in 1997 and specifically for the
years ended December 31, 2004, 2003 and 2002. In addition, we intend to continue
to operate so as to remain qualified as a REIT for federal income tax
purposes.





**Statement
Regarding Forward Looking Information**





The
preceding information contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by the use of terms such as "believe," "intend," "expect" and
"may." Although we believe that the expectations reflected in such forward
looking statements are based upon reasonable assumptions, our actual results
could differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include the following:
changes in general economic conditions, changes in local and national real
estate conditions, availability of capital from borrowings under our line of
credit, continued availability of proceeds from our equity offerings, our
ability to obtain permanent financing on satisfactory terms, our ability to
continue to locate suitable Properties and borrowers for our Mortgage Loans and
Secured Equipment Leases, and the ability of tenants and borrowers to make
payments under their respective leases, Mortgage Loans or Secured Equipment
Leases. Given these uncertainties, readers are cautioned not to place undue
reliance on such statements.





**Item 7A. Quantitative and Qualitative Disclosures About Market
Risk**





Approximately
46% of our mortgage notes payable and all of our construction loans payable at
December 31, 2004 were subject to variable interest rates, therefore, we are
exposed to market changes in interest rates. At
December 31, 2004, a hypothetical 100 basis point increase in the US Treasury
and LIBOR rates would have resulted in additional interest costs of
approximately $5.1 million. This sensitivity analysis contains certain
simplifying assumptions (for example, it does not consider the impact of changes
in prepayment risk or credit spread risk). Therefore, although it gives an
indication of our exposure to interest rate change, it is not intended to
predict future results and our actual results will likely vary.





We are
also subject to interest rate risk through outstanding balances on our variable
rate line of credit. We had $20.0 million outstanding at December 31,
2004.





To
mitigate interest rate risk, we may pay down the mortgages or the line of credit
prior to their maturity dates with offering proceeds should interest rates rise
substantially and offering proceeds be available. Certain loans contain
substantial prepayment penalties and/or defeasance provisions that could
preclude the repayment of the loans prior to their maturity dates.





Following
is a summary of our permanent financing, construction loans, line of credit and
term loan obligations at December 31, 2004 (in thousands):





Expected
      Maturities2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    Fair
      ValueFixed
      Rate Debt:
    
    $
    —
    
    $
    —
    
    $
    10,543
    
    $
    82,194
    
    $
    143,875
    
    $
    269,722
    
    $
    506,334
    
    $
    507,058Average
      Interest Rate
    
    
    —
    
    
    —
    
    
    7.42
    %
    
    6.98
    %
    
    6.02
    %
    
    6.07
    %
    
    6.23
    %
    
    6.18
    %Variable
      Rate Debt:
    
    $
    190,445
    
    $
    92,079
    
    $
    86,877
    
    $
    130,617
    
    $
    2,021
    
    $
    90,000
    
    $
    592,039Average
      Interest Rate
    
    
    4.24
    %
    
    4.79
    %
    
    6.04
    %
    
    4.63
    %
    
    4.17
    %
    
    3.39
    %
    
    4.55
    %








28





**Item
8.****Financial
Statements and Supplementary Data**








CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES





CONTENTS





PageReport
      of Independent Registered Certified Public Accounting Firm
    30-31Financial
      Statements:Consolidated
      Balance Sheets
    32Consolidated
      Statements of Income
    33Consolidated
      Statements of Stockholders' Equity
    34Consolidated
      Statements of Cash Flows
    35-36Notes
      to Consolidated Financial Statements
    37-55





29








Report
of Independent Registered Certified Public Accounting Firm








To the
Board of Directors and Shareholders of CNL Retirement Properties,
Inc.





We have
completed an integrated audit of CNL Retirement Properties, Inc. and its
subsidiaries' December 31, 2004 consolidated financial statements and of its internal control over financial reporting as of
December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.





Consolidated **** financial statements and financial statement schedules





In our
opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of CNL Retirement Properties, Inc and its
subsidiaries **** at
December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
2004 **** in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedules listed
in the index appearing under Item 15(a)(2) presen ts fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated **** financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules
based on our
audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.





Internal
control over financial reporting





Also, in
our opinion, management’s assessment, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting appearing under Item
9A **,** **** that the
Company maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management’s assessment and on the
effectiveness of the Company’s internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.





30


Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


As
described in Management’s Report on Internal Control Over Financial Reporting,
management has excluded the following consolidated entities which were acquired
during 2004 from its assessment of internal control over financial reporting as
of December 31, 2004: The DASCO Companies, LLC, including a DASCO-related
portfolio of 30 medical office buildings, and a portfolio of 22 medical office
buildings. We have also excluded these consolidated entities from our audit of
internal control over financial reporting. Total assets and total revenues of
these consolidated entities represent 15.6% and 12.1%, respectively, of the
related consolidated financial statement amounts as of and for the year ended
December 31, 2004.











/s/
PRICEWATERHOUSECOOPERS LLP





Orlando,
Florida


March 9,
2005





31





CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except per share data)





**December
      31,**
      **2004**
    
    December
      31,
      2003**Assets**Real
      estate investment properties:Accounted
      for using the operating method, net
    
    **$**
    **2,595,513**
    
    $
    1,080,062Accounted
      for using the direct financing method
    
    
    **480,051**
    
    
    418,347Intangible
      lease costs, net
    
    
    **98,781**
    
    
    30,088**3,174,345**
    
    
    1,528,497Cash
      and cash equivalents
    
    
    **51,781**
    
    
    167,090Restricted
      cash
    
    
    **34,430**
    
    
    14,812Accounts
      and other receivables, net
    
    
    **20,545**
    
    
    12,223Deferred
      costs, net
    
    
    **17,469**
    
    
    7,386Accrued
      rental income
    
    
    **52,290**
    
    
    14,603Other
      assets
    
    
    **11,412**
    
    
    13,800Real
      estate held for sale
    
    
    **1,578**
    
    
    3,488Goodwill
    
    
    **5,791**
    
    
    —**$**
    **3,369,641**
    
    $
    1,761,899**Liabilities
      and stockholders’ equity**Liabilities:Mortgages
      payable
    
    **$**
    **937,589**
    
    $
    275,056Bonds
      payable
    
    
    **94,451**
    
    
    90,125Construction
      loans payable
    
    
    **81,508**
    
    
    7,402Line
      of credit
    
    
    **20,000**
    
    
    20,000Term
      loan
    
    
    **60,000**
    
    
    —Due
      to related parties
    
    
    **1,632**
    
    
    3,258Accounts
      payable and other liabilities
    
    
    **33,937**
    
    
    11,657Intangible
      lease liability, net
    
    
    **3,742**
    
    
    —Deferred
      income
    
    
    **4,811**
    
    
    476Security
      deposits
    
    
    **26,253**
    
    
    7,984Total
      liabilities
    
    
    **1,263,923**
    
    
    415,958Commitments
      and contingenciesMinority
      interests
    
    
    **2,361**
    
    
    —Stockholders’
      equity:Preferred
      stock, without par value
      Authorized
      and unissued 3,000 shares
    
    
    —
    
    
    —Excess
      shares, $.01 par value per share
      Authorized
      and unissued 103,000 shares
    
    
    —
    
    
    —Common
      stock, $.01 par value per share
      Authorized
      one billion and 450,000 shares, respectively,
      issued
      238,485 and 150,253 shares, respectively, outstanding 237,547 and 150,077
      shares, respectively
    
    
    **2,376**
    
    
    1,501Capital
      in excess of par value
    
    
    **2,135,498**
    
    
    1,349,719Accumulated
      distributions in excess of net income
    
    
    **(34,517**
    **)**
    
    (5,279
    )Total
      stockholders’ equity
    
    
    **2,103,357**
    
    
    1,345,941**$**
    **3,369,641**
    
    $
    1,761,899














See
accompanying notes to consolidated financial statements.





32





CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


(in
thousands, except per share data)





Years
      Ended December 31,**2004**
    
    2003
    
    2002Revenues:Seniors’
      Housing:Rental
      income from operating leases
    
    **$**
    **173,947**
    
    $
    60,166
    
    $
    12,412Earned
      income from direct financing leases
    
    
    **54,873**
    
    
    31,107
    
    
    4,366FF&E
      reserve income
    
    
    **4,671**
    
    
    2,607
    
    
    153Contingent
      rent
    
    
    **90**
    
    
    47
    
    
    8Medical
      Office Buildings:Rental
      income from operating leases
    
    
    **26,225**
    
    
    —
    
    
    —Tenant
      expense reimbursements
    
    
    **4,735**
    
    
    —
    
    
    —**264,541**
    
    
    93,927
    
    
    16,939Expenses:Seniors’
      Housing property expenses
    
    
    **1,663**
    
    
    136
    
    
    23Medical
      Office Buildings operating expenses
    
    
    **11,234**
    
    
    —
    
    
    —General
      and administrative
    
    
    **14,778**
    
    
    5,482
    
    
    1,389Provision
      for doubtful accounts
    
    
    **3,900**
    
    
    —
    
    
    —Asset
      management fees to related party
    
    
    **12,552**
    
    
    4,370
    
    
    771Depreciation
      and amortization
    
    
    **62,978**
    
    
    17,553
    
    
    3,336**107,105**
    
    
    27,541
    
    
    5,519Operating
      income
    
    
    **157,436**
    
    
    66,386
    
    
    11,420Interest
      and other income
    
    
    **4,768**
    
    
    1,626
    
    
    1,913Interest
      and loan cost amortization expense
    
    
    **(42,783**
    **)**
    
    (9,588
    )
    
    (1,534
    )Income
      before equity in income of unconsolidated entity, minority interests in
      income of consolidated subsidiaries and discontinued
      operations
    
    
    **119,421**
    
    
    58,424
      5858,424
    
    
    11,799Equity
      in earnings of unconsolidated entity
    
    
    **178**
    
    
    11
    
    
    6Minority
      interests in income of consolidated subsidiaries
    
    
    **(93**
    **)**
    
    —
    
    
    (433
    )Income
      from continuing operations, net
    
    
    **119,506**
    
    
    58,435
    
    
    11,372Discontinued
      operations:Income
      from discontinued operations, net
    
    
    **295**
    
    
    25
    
    
    —Impairment
      provisions
    
    
    **(1,883**
    **)**
    
    —
    
    
    —Income
      (loss) from discontinued operations
    
    
    **(1,588**
    **)**
    
    25
    
    
    —Net
      income
    
    **$**
    **117,918**
    
    $
    58,460
    
    $
    11,372Net
      income (loss) per share of common
      stock
      (basic and diluted)From
      continuing operations
    
    **$**
    **0.57**
    
    $
    0.66
    
    $
    0.52From
      discontinued operations
    
    
    **(0.01**
    **)**
    
    —
    
    
    —**$**
    **0.56**
    
    $
    0.66
    
    $
    0.52Weighted
      average number of shares of
      common
      stock outstanding (basic and diluted)
    
    
    **210,343**
    
    
    88,840
    
    
    22,035





See
accompanying notes to consolidated financial statements.





33





CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


Years
Ended December 31, 2004, 2003 and 2002


(in
thousands, except per share data)





AccumulatedCommon
      stock
    
    Capital
      in
    
    distributions
      inNumber
    
    Par
    
    excess
      of
    
    excess
      of netof
      shares
    
    value
    
    par
      value
    
    income
    
    TotalBalance
      at December 31, 2001
    
    
    7,135
    
    $
    71
    
    $
    61,786
    
    $
    (948
    )
    $
    60,909Subscriptions
      received for common stock through public offerings and reinvestment
      plan
    
    
    37,113
    
    
    371
    
    
    370,764
    
    
    —
    
    
    371,135Retirement
      of common stock
    
    
    (37
    )
    
    —
    
    
    (343
    )
    
    —
    
    
    (343
    )Stock
      issuance costs
    
    
    —
    
    
    —
    
    
    (38,899
    )
    
    —
    
    
    (38,899
    )Net
      income
    
    
    —
    
    
    —
    
    
    —
    
    
    11,372
    
    
    11,372Distributions
      declared and paid ($0.7002 per share)
    
    
    —
    
    
    —
    
    
    —
    
    
    (14,379
    )
    
    (14,379
    )Balance
      at December 31, 2002
    
    
    44,211
    
    
    442
    
    
    393,308
    
    
    (3,955
    )
    
    389,795Subscriptions
      received for common stock through public offerings and reinvestment
      plan
    
    
    105,998
    
    
    1,060
    
    
    1,058,921
    
    
    —
    
    
    1,059,981Retirement
      of common stock
    
    
    (132
    )
    
    (1
    )
    
    (1,211
    )
    
    —
    
    
    (1,212
    )Stock
      issuance costs
    
    
    —
    
    
    —
    
    
    (101,299
    )
    
    —
    
    
    (101,299
    )Net
      income
    
    
    —
    
    
    —
    
    
    —
    
    
    58,460
    
    
    58,460Distributions
      declared and paid ($0.7067 per share)
    
    
    —
    
    
    —
    
    
    —
    
    
    (59,784
    )
    
    (59,784
    )Balance
      at December 31, 2003
    
    
    150,077
    
    
    1,501
    
    
    1,349,719
    
    
    (5,279
    )
    
    1,345,941Subscriptions
      received for common stock through public offerings and reinvestment
      plan
    
    
    88,155
    
    
    882
    
    
    879,386
    
    
    —
    
    
    880,268Retirement
      of common stock
    
    
    (685
    )
    
    (7
    )
    
    (6,491
    )
    
    —
    
    
    (6,498
    )Stock
      issuance costs
    
    
    —
    
    
    —
    
    
    (87,116
    )
    
    —
    
    
    (87,116
    )Net
      income
    
    
    —
    
    
    —
    
    
    —
    
    
    117,918
    
    
    117,918Distributions
      declared and paid ($0.7104 per share)
    
    
    —
    
    
    —
    
    
    —
    
    
    (147,156
    )
    
    (147,156
    )**Balance
      at December 31, 2004**
    
    
    **237,547**
    
    **$**
    **2,376**
    
    **$**
    **2,135,498**
    
    **$**
    **(34,517**
    **)**
    **$**
    **2,103,357**

















See
accompanying notes to consolidated financial statements.





34





CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)





Years
      Ended December 31,**2004**
    
    2003
    
    2002Increase
      (decrease) in cash and cash equivalents:Operating
      activities:Net
      income
    
    **$**
    **117,918**
    
    $
    58,460
    
    $
    11,372Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
    
    
    **54,350**
    
    
    16,367
    
    
    3,068Amortization
    
    
    **13,760**
    
    
    2,558
    
    
    394Minority
      interests in income
    
    
    **93**
    
    
    —
    
    
    433Accretion
      of notes payable premium
    
    
    **(48**
    **)**
    
    —
    
    
    —Impairment
      provisions
    
    
    **1,883**
    
    
    **—**
    
    
    **—**Above
      market lease amortization
    
    
    **742**
    
    
    **—**
    
    
    **—**Below
      market lease accretion
    
    
    **(721**
    **)**
    
    **—**
    
    
    **—**Lease
      incentive cost amortization
    
    
    **90**
    
    
    **—**
    
    
    **—**Provision
      for doubtful accounts
    
    
    **3,900**
    
    
    **—**
    
    
    **—**Equity
      in income of unconsolidated entity
    
    
    **(178**
    **)**
    
    (11
    )
    
    (6
    )Changes
      in operating assets and liabilities:Accounts
      and other receivables
    
    
    **(10,171**
    **)**
    
    (11,031
    )
    
    (827
    )Accrued
      rental income
    
    
    **(40,727**
    **)**
    
    (13,426
    )
    
    (1,375
    )Accrued
      direct financing lease income
    
    
    **(8,793**
    **)**
    
    **—**
    
    
    **—**Ground
      lease straight-line
    
    
    **14**
    
    
    **—**
    
    
    **—**Deferred
      lease incentives
    
    
    **(2,678**
    **)**
    
    **—**
    
    
    **—**Other
      assets
    
    
    **(4,528**
    **)**
    
    (1,906
    )
    
    (31
    )Interest
      payable
    
    
    **3,058**
    
    
    696
    
    
    115Accounts
      payable and other liabilities
    
    
    **(1,198**
    **)**
    
    5,254
    
    
    484Deferred
      income
    
    
    **3,335**
    
    
    476
    
    
    —Due
      to related parties
    
    
    **457**
    
    
    195
    
    
    (332
    )Security
      deposits
    
    
    **7,839**
    
    
    3,117
    
    
    3,503Rents
      paid in advance
    
    
    **1,001**
    
    
    (91
    )
    
    (13
    )Net
      cash provided by operating activities
    
    
    **139,398**
    
    
    60,658
    
    
    16,785Investing
      activities:Investment
      in land, buildings and equipment
    
    
    **(921,698**
    **)**
    
    (661,946
    )
    
    (193,176
    )Investment
      in direct financing leases
    
    
    **(50,230**
    **)**
    
    (263,330
    )
    
    (128,065
    )Investment
      in intangible lease costs
    
    
    **(50,064**
    **)**
    
    (23,220
    )
    
    (8,408
    )Purchase
      of minority interest
    
    
    —
    
    
    —
    
    
    (8,500
    )DASCO
      Acquisition
    
    
    **(204,441**
    **)**
    
    **—**
    
    
    **—**Investment
      in note receivable
    
    
    **—**
    
    
    —
    
    
    (2,000
    )Proceeds
      from note receivable
    
    
    **—**
    
    
    2,000
    
    
    —Investment
      in unconsolidated entity
    
    
    **—**
    
    
    —
    
    
    (350
    )Distributions
      received from unconsolidated entity
    
    
    **175**
    
    
    149
    
    
    191Payment
      of acquisition fees and costs
    
    
    **(73,124**
    **)**
    
    (53,126
    )
    
    (16,132
    )Payment
      of deferred leasing costs
    
    
    **(864**
    **)**
    
    —
    
    
    —Increase
      in restricted cash
    
    
    **(9,448**
    **)**
    
    (13,127
    )
    
    (1,650
    )Net
      cash used in investing activities
    
    
    **(1,309,694**
    **)**
    
    (1,012,600
    )
    
    (358,090
    )Financing
      activities:Proceeds
      from borrowings on mortgages payable
    
    
    **315,045**
    
    
    170,800
    
    
    32,620Principal
      payments on mortgages payable
    
    
    **(28,964**
    **)**
    
    (13,832
    )
    
    (268
    )Proceeds
      from construction loans payable
    
    
    **73,618**
    
    
    7,402
    
    
    —Proceeds
      from borrowings on line of credit
    
    
    **—**
    
    
    71,370
    
    
    —Repayments
      on line of credit
    
    
    **—**
    
    
    (51,370
    )
    
    —Proceeds
      from term loan
    
    
    **60,000**
    
    
    —
    
    
    —Proceeds
      from issuance of life care bonds
    
    
    **12,063**
    
    
    8,203
    
    
    —





35





CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS - CONTINUED


(in
thousands)





Year
      Ended December 31,**2004**
    
    2003
    
    2002Financing
      activities - continued:Retirement
      of life care bonds
    
    **$**
    **(7,736**
    **)**
    $
    (6,589
    )
    $
    —Payment
      of loan costs
    
    
    **(10,149**
    **)**
    
    (7,523
    )
    
    (1,309
    )Contributions
      from minority interests
    
    
    **997**
    
    
    —
    
    
    8,500Distributions
      to minority interest
    
    
    **(45**
    **)**
    
    —
    
    
    (509
    )Subscriptions
      received from stockholders
    
    
    **880,268**
    
    
    1,059,981
    
    
    371,135Distributions
      to stockholders
    
    
    **(147,138**
    **)**
    
    (59,784
    )
    
    (14,379
    )Retirement
      of common stock
    
    
    **(3,933**
    **)**
    
    (1,117
    )
    
    (174
    )Payment
      of stock issuance costs
    
    
    **(89,039**
    **)**
    
    (99,309
    )
    
    (40,232
    )Net
      cash provided by financing activities
    
    
    **1,054,987**
    
    
    1,078,232
    
    
    355,384Net
      (decrease) increase in cash and cash equivalents
    
    
    **(115,309**
    **)**
    
    126,290
    
    
    14,079Cash
      and cash equivalents at beginning of year
    
    
    **167,090**
    
    
    40,800
    
    
    26,721Cash
      and cash equivalents at end of year
    
    **$**
    **51,781**
    
    $
    167,090
    
    $
    40,800Supplemental
      disclosure of cash flow information:Cash
      paid during the year for interest
    
    **$**
    **34,658**
    
    $
    7,534
    
    $
    1,294Amounts
      incurred by the Company and paid by related parties on behalf of the
      Company were as follows:Acquisition
      costs
    
    **$**
    **331**
    
    $
    403
    
    $
    451Stock
      issuance costs
    
    
    **18,987**
    
    
    17,246
    
    
    5,613**$**
    **19,318**
    
    $
    17,649
    
    $
    6,064Supplemental
      schedule of non-cash investing and financing activities:DASCO
      AcquisitionPurchase
      accounting:Assets
      acquired:Real
      estate properties accounted for using the operating method
    
    **$**
    **189,111**
    
    $
    —
    
    $
    —Intangible
      lease costs
    
    
    **25,623**Cash
      and cash equivalents
    
    
    **470**Restricted
      cash
    
    
    **633**
    
    
    —
    
    
    —Deferred
      costs
    
    
    **124**
    
    
    —
    
    
    —Other
      assets
    
    
    **1,088**
    
    
    —
    
    
    —Goodwill
    
    
    **5,487**
    
    
    —
    
    
    —Total
    
    **$**
    **222,536**
    
    $
    —
    
    $
    —Liabilities
      assumed:Mortgages
      payable
    
    **$**
    **10,562**
    
    $
    —
    
    $
    —Construction
      loans payable
    
    
    **487**Accounts
      payable and other liabilities
    
    
    **3,379**
    
    
    —
    
    
    —Intangible
      lease liability
    
    
    **2,304**
    
    
    —
    
    
    —Security
      deposits
    
    
    **893**
    
    
    —
    
    
    —Total
    
    **$**
    **17,625**
    
    $
    —
    
    $
    —Net
      assets acquired
    
    **$**
    **204,911**
    
    $
    —
    
    $
    —Net
      assets acquired, net of cash
    
    **$**
    **204,441**
    
    $
    —
    
    $
    —Mortgage
      loans assumed on properties acquired
    
    **$**
    **365,166**
    
    $
    72,762
    
    $
    12,974Bonds
      assumed on properties acquired
    
    $
    —
    
    $
    88,511
    
    $
    —








See
accompanying notes to consolidated financial statements.







36





1. Organizational and Basis of Presentation :





Organization - CNL
Retirement Properties, Inc., a Maryland corporation, was organized in December
1997 to operate as a real estate investment trust (a "REIT") for federal income
tax purposes. The term "Company" includes CNL Retirement Properties, Inc. and
each of its subsidiaries and several consolidated partnerships and joint
ventures. Various other wholly owned or majority owned subsidiaries are expected
to be formed in the future for the purpose of acquiring or developing real
estate properties.





The
Company acquires real estate properties related to seniors' housing and health
care facilities (the "Properties") located primarily across the United States.
The Properties may include independent living, assisted living and skilled
nursing facilities, continuing care retirement communities ("CCRC") and life
care communities (collectively "Seniors' Housing") and medical office buildings
("MOBs"), specialty clinics, walk-in clinics and other types of health
care-related facilities. Seniors’ Housing facilities are generally leased on a
long-term, triple-net basis and MOBs are generally leased on a shorter-term,
gross or triple-net basis. The Company may provide mortgage financing loans
("Mortgage Loans") and furniture, fixture and equipment financing ("Secured
Equipment Leases") to operators of Seniors' Housing and other health
care-related facilities. In addition, the Company may invest up to a maximum of
5% of total assets in equity interests in businesses, including those that
provide services to or are otherwise ancillary to the retirement and health care
industries. The Company operates in one business segment which is the ownership,
development, management and leasing of health care-related real estate. As of
December 31, 2004, the Company owned 170 Seniors’ Housing Facilities and 52
MOBs.





In August
2004, the Company acquired a 55% controlling interest in The DASCO Companies,
LLC ("DASCO"), a development and property management company that manages 30 of
the Company's MOBs. DASCO may also provide development and property management
services to unrelated third parties.





The
Company has retained CNL Retirement Corp. (the "Advisor") as its advisor to
provide management, acquisition, advisory and administrative
services.





Basis
of Presentation - The
accompanying consolidated financial statements include the accounts of the
Company, each of its wholly owned subsidiaries, DASCO and other entities in
which the Company owns a majority and controlling interest. Interests of
unaffiliated third parties in less than 100% owned and majority controlled
entities are reflected as minority interests. All significant inter-company
balances and transactions have been eliminated in consolidation.





2. Summary
of Significant Accounting Policies :





Investment
Properties and Lease Accounting - Seniors’
Housing Properties are leased on a long-term, triple-net basis whereby the
tenants are responsible for all operating expenses relating to the Property,
including property taxes, insurance, maintenance, repairs and utilities.
Seniors' Housing leases generally provide for minimum and contingent rent and
contain renewal options from 5 to 20 successive years subject to the same terms
and conditions as the initial term. MOBs are leased on either a triple-net or
gross basis, have initial lease terms of 5-15 years and are generally subject to
renewal options. In addition, MOB gross leases provide for the recovery of a
portion of the properties' operating expenses from the tenants. Substantially
all leases require minimum annual rents to increase at predetermined intervals
during the lease terms. For the years ended December 31, 2004, 2003 and 2002,
the Company's tenants paid $21.5 million, $8.1 million and $1.1 million,
respectively, in property taxes on behalf of the Company. The leases are
accounted for using either the operating or direct financing
method.





*Operating
method* - For
leases accounted for as operating leases, Properties are recorded at cost.
Minimum rent payments contractually due under the leases are recognized as
revenue on a straight-line basis over the lease terms so as to produce constant
periodic rent recognition over the lease terms. The excess of rents recognized
over amounts contractually due are included in accrued rental income in the
accompanying financial statements. Buildings, land improvements and equipment
are depreciated on the straight-line method over their estimated useful lives of
39-40 years, 15 years and 3-7 years, respectively. Expenditures for ordinary
maintenance and repairs are charged to operations as incurred, while significant
renovations and enhancements that improve and/or extend the useful life of an
asset are capitalized and depreciated over the estimated useful
life.







37
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





2. Summary of
Significant Accounting Policies - Continued:





*Direct
financing method* - For
leases accounted for as direct financing leases, future minimum lease payments
are recorded as a receivable. The difference between the rents receivable and
the estimated residual values less the cost of the Properties is recorded as
unearned income. Unearned income is deferred and amortized to income over the
lease terms to provide a constant rate of return. Investments in direct
financing leases are presented net of unamortized unearned income.





*Impairment
of Long-Lived Assets* - The
Company evaluates its Properties and other long-lived assets on a quarterly
basis, or upon the occurrence of significant changes in operations, to assess
whether any impairment indications are present that affect the recovery of the
carrying amount of an individual asset. Management compares the sum of expected
undiscounted cash flows from the asset over its anticipated holding period,
including the asset's estimated residual value, to the carrying value. If
impairment is indicated, a loss is provided to reduce the carrying value of the
property to the lower of its cost or its estimated fair value.





When a
Property is sold, the related costs and accumulated depreciation, plus any
accrued rental income, are removed from the accounts and any gain or loss from
sale is reflected in income.





Intangible
Lease Costs - In
accordance with Statement of Financial Accounting Standard No. 141, Business
Combinations ("SFAS 141"), the Company allocates the purchase price of acquired
Properties to tangible and identified intangible assets based on their
respective fair values. The allocation to tangible assets (building and land) is
based upon management’s determination of the value of the Property as if it were
vacant using discounted cash flow models similar to those used by independent
appraisers. The allocation to intangible assets is based upon factors considered
by management including an estimate of carrying costs during the expected
lease-up periods considering current market conditions and costs to execute
similar leases. Additionally, the purchase price is allocated to the above or
below market value of in-place leases and the value of customer
relationships.





The value
allocable to the above or below market component of the acquired in-place lease
is determined based upon the present value (using a discount rate which reflects
the risks associated with the acquired leases) of the difference between (i) the
contractual amounts to be paid pursuant to the lease over its remaining term,
and (ii) management’s estimate of the amounts that would be paid using fair
market rates over the remaining term of the lease. The amounts allocated to
above market leases are included in intangible lease costs and below market
lease values are included in an intangible lease liability in the accompanying
consolidated financial statements and are amortized to rental income over the
remaining terms of the leases acquired with each Property.





The total
amount of other intangible assets acquired is further allocated to in-place
lease origination costs and customer relationship values based on management’s
evaluation of the specific characteristics of each tenant’s lease and the
Company’s overall relationship with that respective tenant. Characteristics
considered by management in allocating these values include the nature and
extent of the credit quality and expectations of lease renewals, among other
factors.





Cash
and Cash Equivalents -
A ll highly
liquid investments with a maturity of three months or less when purchased are
considered cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are backed by
government securities). Cash equivalents are stated at cost plus accrued
interest, which approximates market value.





Cash
accounts maintained in demand deposits at commercial banks and money market
funds may exceed federally insured levels; however, the Company has not
experienced any losses in such accounts. Management believes the Company is not
exposed to any significant credit risk on cash and cash
equivalents.








38
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





2. Summary
of Significant Accounting Policies - Continued :





Accounts
and Other Receivables -
Accounts and other receivables consist primarily of lease payments contractually
due from tenants. On a monthly basis, the Company reviews the contractual
payments versus the actual cash received. When management identifies
delinquencies, an estimate is made as to the amount of provision for loss
related to doubtful accounts, if any, that may be needed based on its review of
Property specific circumstances, including the analysis of the Property's
operations and operating trends, current economic conditions and tenant payment
history. At December 31, 2004, the Company had a $3.9 million reserve for
doubtful accounts and other receivables. The total amount of the reserve, which
represents the cumulative provisions less write-offs of uncollectible rent, if
any, is recorded against accounts and other receivables in the consolidated
financial statements. At December 31, 2003 and 2002, there were no reserves for
doubtful accounts.





Deferred
Loan Costs - Loan
costs are capitalized and are amortized as interest over the terms of the
respective loan agreements using the effective interest method. Unamortized loan
costs are expensed when the associated debt is retired before
maturity.





Goodwill - In
connection with the acquisition of DASCO, the Company allocated $5.8 million to
goodwill, which represents the excess of the purchase price plus closing costs
paid by the Company over the fair market value of the tangible assets acquired
in the business acquisition (see Note 17). Goodwill is not subject to
amortization but is subject to the Company’s quarterly impairment
analysis.  If quoted market prices are not available for the impairment
analysis, other valuation techniques that involve measurement based on projected
net earnings of the underlying reporting unit are used.





Investment
in Unconsolidated Entity - The
Company owns a 10% interest in a limited partnership that owns an office
building located in Orlando, Florida, in which the Advisor and its affiliates
lease office space. The Company's investment in the partnership is accounted for
using the equity method as the Company has significant influence.





Development
Costs -
Development costs, including interest, real estate taxes, insurance and other
costs incurred in developing new Properties, are capitalized during
construction. Upon completion of construction, development costs are amortized
on a straight-line basis over the useful lives of the respective
assets.





Capitalized
Interest -
Interest, including loan costs for borrowings used to fund development and
construction, is capitalized as construction in progress and allocated to the
individual Property costs. For the years ended December 31, 2004 and 2003,
interest of $0.7 million and $36,800, respectively, was capitalized to
construction in progress.





Deferred
Income - Rental
income contractually due under leases from Properties that are under development
are recorded as deferred income. Upon completion of construction, deferred
income is amortized to revenue on a straight-line basis over the remaining lease
term. For the years ended December 31, 2004 and 2003, rental income of $3.2
million and $0.5 million, respectively, related to eight Properties under
various stages of development has been deferred and included as deferred income
in the accompanying consolidated financial statements.





Bonds
Payable - In
connection with the acquisition of two CCRCs, the Company assumed non-interest
bearing life care bonds payable to certain residents of the CCRCs. Generally,
the bonds are refundable to the resident or to the resident's estate upon
termination or cancellation of the CCRC agreement. Proceeds from the issuance of
new bonds are used to retire existing bonds. As the maturity of these
obligations is not determinable, no interest is imputed.





Minority
Interests -
Minority interests in consolidated real estate partnerships represents the
minority partners' share of the underlying net assets of the consolidated real
estate partnerships. Net income or net losses, contributions and distributions
for each partnership are allocated to the minority partner in accordance with
the partnership agreement.





FF&E
Reserve Income - A
furniture, fixture and equipment ("FF&E") cash reserve has been established
in accordance with substantially all of the Seniors’ Housing lease agreements.
In accordance with the agreements, the tenants deposit funds into restricted
FF&E cash reserve accounts and periodically use these funds to cover the
cost of the replacement, renewal and additions to FF&E. In the event that
the FF&E reserve is not sufficient to maintain the Property in good working
condition and repair, the Company may make fixed asset expenditures, in which
case annual rent would be increased.





39
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





2. Summary
of Significant Accounting Policies - Continued :





All funds
in the FF&E reserve accounts, including the interest earned on the funds and
all property purchased with the funds from the FF&E reserve are the property
of the Company; therefore, the Company recognizes the FF&E reserve payments
as income. FF&E purchased with FF&E reserve funds that improve or extend
the useful lives of the respective Properties are capitalized. All other
FF&E costs are recorded as property operating expenses in the accompanying
consolidated financial statements. In accordance with the terms of a few leases,
FF&E reserve accounts are held by each tenant until the end of the lease
term at which time all property purchased with funds from the FF&E reserve
accounts will become the property of the Company.





With
respect to 13 Properties subject to direct financing leases, FF&E reserve
accounts are held by each tenant and all property purchased with funds from the
FF&E accounts will remain the property of the tenants. Accordingly, the
Company does not recognize FF&E reserve income relating to these direct
financing leases.





Income
Taxes - The
Company is taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, and related regulations. As a REIT, the
Company generally will not be subject to federal corporate income taxes on
amounts distributed to stockholders, providing it distributes at least 90% of
its REIT taxable income and meets certain other requirements for qualifying as a
REIT. At December 31, 2004, 2003 and 2002, the Company was in compliance with
all REIT requirements and was not subject to federal income taxes.





Income
Per Share - Basic
income per common share is calculated based upon net income (income available to
common stockholders) divided by the weighted average number of shares of common
stock outstanding during the period. As of December 31, 2004, 2003 and 2002, the
Company did not have any potentially dilutive common shares.





Use of
Estimates -
Management has made estimates and assumptions relating to the reporting of
assets and liabilities to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.





Reclassifications -
Certain items in the prior years' financial statements have been reclassified to
conform with the 2004 presentation. These reclassifications had no effect on
reported equity or net income.





3. Public
Offerings :





Upon
formation in December 1997, the Company received an initial capital contribution
of $200,000 for 20,000 shares of common stock from the Advisor. Since its
inception through December 31, 2004, the Company has made five public offerings
and received subscriptions as follows (in thousands):





Offering
    
    SubscriptionsOffering
    
    Date
      Completed
    
    Shares
      (a)
    
    Amount
    
    Shares
      (b)
    
    AmountInitial
      Offering
    
    September
      2000
    
    15,500
    
    $
      155,000
    
    972
    
    $
      9,7192000
      Offering
    
    May
      2002
    
    15,500
    
    155,000
    
    15,500
    
    155,0002002
      Offering
    
    April
      2003
    
    45,000
    
    450,000
    
    45,000
    
    450,0002003
      Offering
    
    April
      2004
    
    175,000
    
    1,750,000
    
    156,793
    
    1,567,9252004
      Offering
    
    Open
    
    400,000
    
    4,000,000
    
    20,201
    
    202,014651,000
    
    $
      6,510,000
    
    238,466
    
    $
      2,384,658





(a)
    Includes
      distribution reinvestment plan shares of 500 in each of the Initial and
      2000 Offerings, 5,000 in the 2002 Offering, 25,000 in the 2003 Offering
      and 15,000 in the 2004 Offering.(b)
    Includes
      distribution reinvestment plan shares of 5 in the Initial Offering, 42 in
      the 2000 Offering, 129 in the 2002 Offering, 1,728 in the 2003 Offering
      and 3,964 in the 2004 Offering.





The price
per share of all of the equity offerings of our common stock, other than shares
offered pursuant to our distribution reinvestment plan, has been $10 per share.





40
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





3. Public
Offerings - Continued:





In July
2004, at the Company’s 2004 annual meeting, the stockholders approved a
resolution to amend the Company’s Amended and Restated Articles of Incorporation
to increase the number of authorized shares of common stock from 450 million to
one billion.





The
Company incurred offering expenses, including selling commissions, marketing
support fees, due diligence expense reimbursements, filing fees, legal,
accounting, printing and escrow fees, which have been deducted from the gross
proceeds of the offerings. Under the Company's first four public offerings
("Prior Offerings"), the Advisor and its affiliates were entitled to selling
commissions of 7.5%, a marketing support fee of 0.5% and an acquisition fee of
4.5% of gross offering and debt proceeds. Under the 2004 Offering, the Advisor
and its affiliates are entitled to selling commissions of 6.5%, a marketing
support fee of 2.0% and an acquisition fee of 4.0% of gross offering and debt
proceeds.





Offering
expenses together with selling commissions, marketing support fees and due
diligence expense reimbursements will not exceed 13% of the proceeds raised in
connection with the Company’s public offerings. During the years ended December
31, 2004, 2003 and 2002, the Company incurred $87.1 million, $101.3 million and
$38.9 million, respectively, in offering costs, including $68.8 million, $85.1
million and $29.7 million, respectively, in selling commissions and marketing
support fees. These amounts are treated as stock issuance costs and charged to
stockholders’ equity.





4. Investment
Properties:





Accounted
for Using the Operating Method  - Properties
subject to operating leases consisted of the following at December 31 (dollars
in thousands):





2004
    
    2003Land
      and land improvements
    
    $
    312,751
    
    $
    141,079Buildings
      and building improvements
    
    
    2,131,187
    
    
    881,914Tenant
      improvements
    
    
    62,641
    
    
    —Equipment
    
    
    66,641
    
    
    41,5442,573,220
    
    
    1,064,537Less
      accumulated depreciation
    
    
    (74,510
    )
    
    (20,248
    )2,498,710
    
    
    1,044,289Construction
      in progress
    
    
    96,803
    
    
    35,773$
    2,595,513
    
    $
    1,080,062Number
      of Properties (1):Seniors'
      Housing:Operating
    
    
    133
    
    
    82Under
      construction
    
    
    3
    
    
    6136
    
    
    88Medical
      Office Buildings (2):Operating
    
    
    49
    
    
    —Under
      construction
    
    
    3
    
    
    —52
    
    
    —188
    
    
    88





(1)
    Excludes
      one Property held for sale.(2)
    Includes
      20 Properties subject to long-term ground lease
  agreements.





For the
years ended December 31, 2004, 2003 and 2002, the Company recognized $40.6
million, $10.4 million and $1.2 million, respectively, of revenue from the
straight-lining of lease revenues over current contractually due amounts. These
amounts are included in rental income from operating leases in the accompanying
consolidated statements of income.





41
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





4. Investment
Properties - Continued:





During
2004, the Company made the decision to sell a Seniors' Housing Property based on
the review of the facility's operating performance. In connection with this
decision, the Company recorded an impairment provision of $1.9 million to reduce
the carrying value to estimated fair value less the estimated selling costs. No
impairment loss was recognized for the years ended December 31, 2003 and
2002.





Future
minimum lease payments contractually due under the noncancellable operating
leases at December 31, 2004, exclusive of renewal option periods and contingent
rents, were as follows (in thousands):





2005
    
    $
    223,5622006
    
    
    229,8542007
    
    
    233,3282008
    
    
    235,7832009
    
    
    236,701Thereafter
    
    
    2,229,035$
    3,388,263





Accounted
for Using the Direct Financing Method — The
components of net investment in direct financing leases consisted of the
following at December 31 (dollars in thousands):





2004
    
    2003Minimum
      lease payments receivable
    
    $
    1,529,171
    
    $
    1,491,957Estimated
      residual values
    
    
    449,099
    
    
    399,099Less
      unearned income
    
    
    (1,498,219
    )
    
    (1,472,709
    )Net
      investment in direct financing leases
    
    $
    480,051
    
    $
    418,347Properties
      subject to direct financing leases
    
    
    33
    
    
    31





Direct
financing leases have initial terms that range from 10 to 35 years and provide
for minimum annual rent. Certain leases contain provisions that allow the
tenants to elect to purchase the Properties during or at the end of the lease
terms for the Company's aggregate initial investment amount plus adjustments, if
any, as defined in the lease agreements. Certain leases also permit the Company
to require the tenants to purchase the Properties at the end of the lease terms
for the same amount . Lease
payments relating to six direct financing leases with a carrying value of $131.1
million are subordinate to first mortgage construction loans entered into by the
tenants to fund development costs related to the Properties.





Future
minimum lease payments contractually due on direct financing leases at December
31, 2004, were as follows (in thousands):





2005
    
    $
    52,4562006
    
    
    54,1792007
    
    
    55,1672008
    
    
    56,2552009
    
    
    58,083Thereafter
    
    
    1,253,031$
    1,529,171








42
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





5. Intangible
Lease Costs:





Intangible
lease costs included the following at December 31 (in thousands):





2004
    
    2003Intangible
      lease origination costs:In-place
      lease costs
    
    $
    89,370
    
    $
    31,510Customer
      relationship values
    
    
    11,698
    
    
    —101,068
    
    
    31,510Less
      accumulated amortization
    
    
    (10,020
    )
    
    (1,422
    )91,048
    
    
    30,088Above
      market lease values
    
    
    8,475
    
    
    —Less
      accumulated amortization
    
    
    (742
    )
    
    —7,733
    
    
    —$
    98,781
    
    $
    30,088





The
estimated aggregate amortization expense for intangible lease origination costs
is as follows at December 31, 2004 (in thousands):





2005
    
    $
    12,2112006
    
    
    10,9542007
    
    
    8,5162008
    
    
    7,6992009
    
    
    6,963Thereafter
    
    
    44,705$
    91,048





Above
market lease values are amortized to rental income over the remaining terms of
the leases acquired in connection with each applicable Property acquisition. For
the year ended December 31, 2004, $0.7 million was charged against rental income
from operating leases in the accompanying consolidated financial statements.
There were no above market lease costs at December 31, 2003 and
2002.





6. Restricted
Cash:





Restricted
cash included the following at December 31 (in thousands):





2004
    
    2003Transfer
      agent escrows
    
    $
    13,214
    
    $
    —Property
      acquisition deposits
    
    
    1,950
    
    
    9,852Horizon
      Bay tenant rent deposit
    
    
    9,537
    
    
    —FF&E
      reserves
    
    
    4,894
    
    
    3,229Lender
      escrow reserves
    
    
    3,808
    
    
    —Other
    
    
    1,027
    
    
    1,731$
    34,430
    
    $
    14,812








43
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





7. Accounts
and Other Receivables :





Accounts
and other receivables include the following at December 31 (in
thousands):





2004
    
    2003Rental
      revenues receivable
    
    $
    21,790
    
    $
    11,215Other
      receivables
    
    
    2,655
    
    
    1,00824,445
    
    
    12,223Allowance
      for doubtful accounts
    
    
    (3,900
    )
    
    —$
    20,545
    
    $
    12,223





At
December 31, 2004 and 2003, past due rents aggregated $10.7 million and $4.3
million, respectively.





8. Deferred
Costs:





Deferred
costs included the following at December 31 (in thousands):





2004
    
    2003Financing
      costs
    
    $
    17,989
    
    $
    8,815Leasing
      commissions
    
    
    523
    
    
    —Other
      lease costs
    
    
    341
    
    
    —18,853
    
    
    8,815Less
      accumulated amortization
    
    
    (5,408
    )
    
    (1,429
    )13,445
    
    
    7,386Lease
      incentives
    
    
    4,114
    
    
    —Less
      accumulated amortization
    
    
    (90
    )
    
    —4,024
    
    
    —$
    17,469
    
    $
    7,386





Lease
incentive costs are amortized to rental income over the terms of the leases. For
the year ended December 31, 2004, $0.1 million was charged against rental income
from operating leases in the accompanying consolidated financial
statements.





9. Other
Assets :





Other
assets as of December 31, 2004 and 2003, were $11.4 million and $13.8 million,
respectively, and consisted of miscellaneous prepaid expenses, office equipment
and prepaid acquisition costs.





44
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





10. Indebtedness :





Mortgage
Notes Payable - Mortgage
notes payable and the Net Book Value ("NBV") of the associated collateral as of
December 31, 2004, consisted of the following at December 31 (in
thousands):





2004
    
    2003
    
    NBVFive
      mortgages payable, interest only payments at variable rates based on the 3
      to 9 month Fannie Mae Discount MBS rate plus 0.9% (3.70% at December 31,
      2004), maturing October 2005
    
    $
    110,445
    
    $
    —
    
    $
    229,244Twenty-five
      mortgages payable, interest only payments at variable rates ranging from
      LIBOR plus 1.0% to 3.9% (4.35% weighted average interest rate at December
      31, 2004), maturing from November 2006 to January 2010 (1)
    
    
    276,166
    
    
    81,463
    
    
    508,381Two
      mortgages payable, interest only payments at a 30-day commercial paper
      rate plus 1.82% or 3.15% (4.85% weighted interest rate at December 31,
      2004), maturing March 2007 and May 2007
    
    
    43,920
    
    
    23,520
    
    
    109,116Twenty-six
      fixed rate mortgages, interest only payments, bearing interest at rates
      ranging from 5.96% to 6.06%, (6.02% weighted average interest rate at
      December 31, 2004), maturing September 2010 through February 2011
      (2)
    
    
    167,145
    
    
    92,500
    
    
    355,145Forty-seven
      fixed rate mortgages payable, principal and interest payments, bearing
      interest at rates ranging from 4.91% to 8.42% (6.25% weighted interest
      average rate at December 31, 2004), maturing July 2007 through November
      2038 (3)
    
    
    339,913
    
    
    77,573
    
    
    567,336$
    937,589
    
    $
    275,056
    
    $
    1,769,222





(1)
    Three
      mortgages payable totaling $25.7 million at December 31, 2003, were repaid
      in full in January 2004.(2)
    Includes
      fourteen loans, each bearing interest at a current rate of 6.06% with
      rates increasing annually to a maximum of 7.16%.(3)
    The
      stated interest rate of 7.42% on one loan was greater than that available
      to the Company in the open capital market for comparable debt at the time
      of assumption. Consequently, the Company recognized $0.8 million in debt
      premium that will be amortized over the period of the loan, which reduces
      the effective interest rate to 4.91%. During the year ended December 31,
      2004, the Company recognized $47,000 in debt premium amortization that is
      included in interest and loan cost amortization expense in the
      accompanying financial statements.





Certain
loans contain substantial prepayment penalties and/or defeasance provisions that
could preclude the repayment of the loans prior to their maturity
dates.











45
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





10. Indebtedness
- Continued :





Maturities
for all mortgage notes payable at December 31, 2004 is as follows (in
thousands):





2005
    
    $
    118,1602006
    
    
    54,4002007
    
    
    75,2262008
    
    
    185,0732009
    
    
    229,726Thereafter
    
    
    275,004$
    937,589





Bonds
Payable  - The
Company has non-interest bearing life care bonds payable to certain residents of
its two CCRCs. Generally, the bonds are refundable to a resident upon the
resident moving out of the CCRC or to a resident's estate upon the resident's
death. In some instances, the bonds are not refunded until the unit has been
successfully remarketed to a new resident. During the years ended December 31,
2004 and 2003, the Company issued new bonds to new residents of these retirement
facilities totaling $12.1 million and $8.2 million, respectively, and used the
proceeds from the new bonds to retire $7.7 million and $6.6 million,
respectively, of the existing bonds. As of December 31, 2004, $94.5 million was
outstanding in bonds payable.





Line
of Credit  - The
Company has a revolving line of credit (the "Revolving LOC") that it may use to
fund the acquisition and development of Properties, purchase other permitted
investments and for general corporate purposes, including the funding of
distributions. Under the terms of the Revolving LOC, the Company is entitled to
receive cash advances of up to $85.0 million until maturity in September 2005.
The Revolving LOC requires payment of interest only at LIBOR plus a percentage
that fluctuates depending on the Company's aggregate amount of debt outstanding
in relation to the Company's total assets until maturity (4.84% at December 31,
2004), and is collateralized by Properties with a carrying value of
approximately $121.6 million. The Revolving LOC has financial covenants,
including maintaining a minimum net worth and minimum collateral value, and
contains provisions that allow for a six month extension and for the facility to
be increased to $125.0 million upon the Company pledging additional Properties
as collateral. At December 31, 2004, $20.0 million was outstanding under the
Revolving LOC.





Term
Loan *.* - On
December 30, 2004, the Company drew $60.0 million on a 14-day term loan to
purchase Properties for which permanent financing was secured in January 2005.
This facility bore interest at 5.02% at December 31, 2004, and was repaid and
terminated on January 13, 2005.





Construction
Loans Payable -
Construction loans payable consisted of the following at December 31 (in
thousands):





Total
      Facility
    
    2004
    
    2003Six
      construction loans payable, each bearing interest at 30-day LIBOR plus
      1.75% to 2.75% basis points, (4.62% weighted average interest rate at
      December 31, 2004), with monthly interest only payments, maturing November
      2006 and July 2009
    
    $
    97,387
    
    $
    49,169
    
    $
    6,766Construction
      loan payable bearing interest at the lender’s base rate, as defined, plus
      2.25% with a minimum rate of 6.50% (7.5% at December 31, 2004), with
      monthly interest only payments, maturing December 2007
    
    
    48,000
    
    
    32,339
    
    
    636$
    145,387
    
    $
    81,508
    
    $
    7,402








46
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





10. Indebtedness
- Continued:





Interest
and loan cost amortization expense was $42.8 million, $9.6 million and $1.5
million for the years ended December 31, 2004, 2003 and 2002, respectively,
including $1.1 million of loan costs written off related to the early
termination of debt for the year ended December 31, 2004. No loan cost amounts
were written off for the years ended December 31, 2003 and 2002. For the years
ended December 31, 2004 and 2003, interest of $0.7 million and $0, respectively,
was capitalized to construction in progress.





The fair
market value of the Company’s outstanding mortgage notes and construction loans
payable was $1.1 billion at December 31, 2004.





The
Company was in compliance with all its financial covenants as of December 31,
2004.





11. Intangible
Lease Liability:





Intangible
lease liability at December 31, 2004, was $3.7 million consisting of the
unamortized carrying value of below market rate leases associated with
Properties acquired. For the year ended December 31, 2004, $0.7 million was
accreted to rental income from operating leases in the accompanying consolidated
financial statements. There was no intangible lease liability at December 31,
2003 and 2002.





12. Commitments
and Contingencies :





Commitments - The
following table presents the Company's commitments, contingencies and guarantees
by expiration period as of December 31, 2004 (in thousands):





Less
      than 1 Year
    
    2-3
      Years
    
    4-5
      Years
    
    Thereafter
    
    TotalGuarantee
      of uncollateralized promissory note of unconsolidated entity
      (1)
    
    $
    2,366
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    2,366Earnout
      provisions (2)
    
    
    33,479
    
    
    2,000
    
    
    —
    
    
    —
    
    
    35,479Capital
      improvements to investment Properties
    
    
    78,003
    
    
    3,152
    
    
    —
    
    
    —
    
    
    81,155Pending
      investments (3)
    
    
    47,370
    
    
    —
    
    
    —
    
    
    —
    
    
    47,370$
    161,218
    
    $
    5,152
    
    $
    —
    
    $
    —
    
    $
    166,370





(1)
    In
      connection with the acquisition of a 10% limited partnership interest in
      CNL Plaza, Ltd., the Company severally guaranteed 16.67%, or $2.6 million,
      of a $15.5 million uncollateralized promissory note of the limited
      partnership that matures April 2005. As of December 31, 2004, the
      uncollateralized promissory note had an outstanding balance of
      approximately $14.2 million. The Company has not been required to fund any
      amounts under this guarantee. In the event the Company is required to fund
      amounts under the guarantee, management believes that such amounts would
      be recoverable either from operations of the related asset or proceeds
      upon liquidation.(2)
    In
      connection with the acquisition of 41 Properties, the Company may be
      required to make additional payments if earnout provisions are achieved by
      the earnout date for each Property. The calculation generally considers
      the net operating income for the Property, the Company's initial
      investment in the Property and the fair value of the Property. In the
      event an amount is due, the respective lease will be amended and minimum
      annual rent will increase accordingly. Amounts presented represent maximum
      exposure to additional payments. Earnout amounts related to six additional
      Properties are subject to future values and events which are not
      quantifiable at December 31, 2004, and accordingly are not included in the
      table above.(3)
    As
      of December 31, 2004, the Company had commitments to acquire five MOBs and
      a parcel of undeveloped land subject to the fulfillment of certain
      conditions.





47
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





12. Commitments
and Contingencies - Continued :





Ground
Leases - During the year ended December 31, 2004, the Company acquired 20
MOBs that are subject to ground leases. These ground leases, which were assumed
by the Company, have termination dates ranging from 2045 to 2084, have
predetermined rent increases based on the CPI index or a defined percentage and
16 of the ground leases contain renewal options for terms of 30 to 50 years.
During the year ended December 31, 2004, the Company recognized ground lease
expense of $0.2 million, including $13,000 of the straight-lining of ground
lease expense which is included in MOB operating expenses in the accompanying
financial statements. There was no ground lease expense for the years ended
December 31, 2003 and 2002.





Future
minimum lease payments due under ground leases at December 31, 2004, exclusive
of renewal option periods, were as follows (in thousands):





2005
    
    $
    3202006
    
    
    3822007
    
    
    3832008
    
    
    3852009
    
    
    386Thereafter
    
    
    19,225$
    21,081





Legal
Matters - From
time to time, the Company is exposed to litigation arising from an unidentified
pre-acquisition contingency or from the operation of its business. Management
does not believe that resolution of these matters will have a material adverse
effect on the Company's financial condition or results of
operations.





13. Redemption
of Shares :





The
Company has a redemption plan under which the Company may elect to redeem
shares, subject to certain conditions and limitations. Under the
redemption plan, prior to such time, if any, as listing of the Company's common
stock on a national securities exchange or over-the-counter market occurs, any
stockholder who has held shares for at least one year may present all or any
portion equal to at least 25% of their shares to the Company for redemption in
accordance with the procedures outlined in the redemption plan. Upon
presentation, the Company may, at its option, redeem the shares, subject to
certain conditions and limitations. However, at no time during a 12-month period
may the number of shares redeemed by the Company exceed 5% of the number of
shares of the Company's outstanding common stock at the beginning of the
12-month period. During
the years ended December 31, 2004, 2003 and 2002, 685,396 shares, 131,781 shares
and 37,306 shares of common stock were redeemed and retired for $6.5 million,
$1.2 million and $0.3 million, respectively. The Company amended its redemption
plan in the second quarter of 2004 to change its redemption price from $9.20 per
share to $9.50 per share.





14. Distributions :





For the
years ended December 31, 2004, 2003 and 2002, approximately 60%, 71% and 65%,
respectively, of the distributions paid to stockholders were considered ordinary
income and approximately 40%, 29% and 35%, respectively, were considered a
return of capital to stockholders for federal income tax purposes. No amounts
distributed to the stockholders for the years ended December 31, 2004, 2003 and
2002, are required to be or have been treated by the Company as a return of
capital for purposes of calculating the stockholders' return on their invested
capital.








48
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





15. Related Party
Arrangements :





Certain
directors and officers of the Company hold similar positions with the Advisor,
the parent company of the Advisor and the managing dealer of the Company’s
public offerings, CNL Securities Corp. The Company's chairman of the board
indirectly owns a controlling interest in the parent company of the Advisor.
These affiliates receive fees and compensation in connection with the offerings,
permanent financing and the acquisition, management and sale of the Company's
assets.





The
Company and the Advisor have entered into an advisory agreement pursuant to
which the Advisor and its affiliates earn certain fees and are entitled to
receive reimbursement of certain expenses. During the years ended December 31,
2004, 2003 and 2002, the Advisor and its affiliates earned fees and incurred
reimbursable expenses as follows (in thousands):





Years
      ended December 31,2004
    
    2003
    
    2002Acquisition
      fees (1):From
      offering proceeds
    
    $
    38,286
    
    $
    47,644
    
    $
    16,685From
      debt proceeds
    
    
    29,952
    
    
    11,277
    
    
    2,05268,238
    
    
    58,921
    
    
    18,737Asset
      management fees (2)
    
    
    13,047
    
    
    4,372
    
    
    771Reimbursable
      expenses (3):Acquisition
      expenses
    
    
    331
    
    
    403
    
    
    228General
      and administrative expenses
    
    
    4,313
    
    
    2,255
    
    
    9874,644
    
    
    2,658
    
    
    1,215$
    85,929
    
    $
    65,951
    
    $
    20,723





(1)
    Acquisition
      fees for identifying Properties and structuring the terms of the leases
      and Mortgage Loans equal to 4.0% of gross offering proceeds and loan
      proceeds from permanent financing under the 2004 Offering (4.5% of gross
      offering and loan proceeds under the Prior Offerings), excluding that
      portion of the permanent financing used to finance Secured Equipment
      Leases. These fees are included in other assets in the accompanying
      balance sheets prior to being allocated to individual Properties or
      intangible lease costs.If
      there is a listing of the Company’s common stock on a national securities
      exchange or over-the-counter market, ("List" or "Listing") the Advisor
      will receive an acquisition fee equal to 4.0% of amounts outstanding on
      the line of credit, if any, at the time of Listing. Certain fees payable
      to the Advisor upon Listing, orderly liquidation or other sales of
      Properties are subordinate to the return of 100% of the stockholders'
      invested capital plus the achievement of a cumulative, noncompounded
      annual 8% return on stockholders' invested capital.(2)
    Monthly
      asset management fee of 0.05% of the Company’s real estate asset value, as
      defined in the advisory agreement dated May 3, 2004, and the outstanding
      principal balance of any Mortgage Loan as of the end of the preceding
      month.(3)
    Reimbursement
      for administrative services, including services related to accounting;
      financial, tax and regulatory compliance reporting; stockholder
      distributions and reporting; due diligence and marketing; and investor
      relations.Pursuant
      to the advisory agreement, the Advisor is required to reimburse the
      Company the amount by which the total operating expenses paid or incurred
      by the Company exceeds in any four consecutive fiscal quarters (the
      "Expense Year") the greater of 2% of average invested assets or 25% of net
      income (the "Expense Cap"). Operating expenses for the Expense Years ended
      December 31, 2004, 2003 and 2002, did not exceed the Expense
      Cap.





49
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





15. Related
Party Arrangements - Continued :





CNL
Securities Corp. received fees based on the amounts raised from the Company's
offerings equal to: (i) selling commissions of 6.5% of gross proceeds under the
2004 Offering and 7.5% under the Prior Offerings, (ii) a marketing support fee
of 2.0% of gross proceeds under the 2004 Offering and 0.5% under the Prior
Offerings and (iii) beginning on December 31, 2003, an annual
soliciting dealer servicing fee equal to 0.2% of the aggregate proceeds raised
in a prior offering . Affiliates
of the Advisor are reimbursed for certain offering expenses incurred on behalf
of the Company. Offering expenses incurred
by the Advisor and its affiliates on behalf of the Company ,
together with selling commissions, the marketing support fee and due diligence
expense reimbursements will not exceed 13% of the proceeds raised in connection with the
offerings.





During
the years ended December 31,
2004, 2003 and 2002, the Company incurred the following fees and costs (in
thousands):





Years
      ended December 31,2004
    
    2003
    
    2002Selling
      commissions
    
    $
    61,830
    
    $
    79,499
    
    $
    27,835Marketing
      support fee
    
    
    6,648
    
    
    5,300
    
    
    1,856Offering
      and due diligence costs
    
    
    18,328
    
    
    16,190
    
    
    9,208Soliciting
      dealer service fee
    
    
    310
    
    
    310
    
    
    —$
    87,116
    
    $
    101,299
    
    $
    38,899





Amounts
due to related parties consisted of the following at December 31 (in
thousands):





2004
    
    2003Due
      to the Advisor and its affiliates:Expenditures
      incurred for offering expenses
    
    $
    21
    
    $
    372Accounting
      and administrative services
    
    
    761
    
    
    304Acquisition
      fees and expenses
    
    
    656
    
    
    8151,438
    
    
    1,491Due
      to CNL Securities Corp.:Selling
      commissions
    
    
    149
    
    
    1,366Marketing
      support fees and due diligence expense reimbursements
    
    
    45
    
    
    91Soliciting
      dealer servicing fee
    
    
    —
    
    
    310194
    
    
    1,767$
    1,632
    
    $
    3,258





CNL
Capital Corp., an affiliate of the Advisor, is a non-voting Class C member of
Century Capital Markets, LLC ("CCM"). In March 2004 and June 2002, CCM made the
arrangements for the two commercial paper loans totaling $43.9 million, as
described in Note 10. During the years ended December 31, 2004 and 2003, CCM was
paid $0.2 million and $0.5 million in structuring fees, respectively. These
amounts are included in deferred costs as of December 31, 2004 and 2003, and are
being amortized over the terms of the loans. In addition, the monthly interest
payments due under these loans include an annual margin of 40 and 30 basis
points, payable to CCM for the monthly services it provides related to the
administration of the commercial paper loans. During the years ended December
31, 2004, 2003 and 2002, $0.1 million, $0.2 million and $0.2 million,
respectively, was paid to CCM related to these services.





During
the year ended December 31, 2003, the Company also paid CCM a $0.2 million
finder's fee related to the acquisition of two Properties.








50
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





15. Related
Party Arrangements - Continued :





The
Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors and are majority stockholders. The
amounts deposited with this bank were $22.9 million and $15.8 million at
December 31, 2004 and 2003, respectively.





The
Company owns a 10% interest in a limited partnership, CNL Plaza, Ltd., that owns
an office building located in Orlando, Florida, in which the Advisor and its
affiliates lease office space. The remaining interest in the limited partnership
is owned by several affiliates of the Advisor. During the years ended December
31, 2004 and 2003, the partnership distributed $0.2 million and $0.1 million to
the Company, respectively.





On
September 1, 2004, a company which is owned by the Company's chairman of the
board sold its
30% voting membership interest in a limited liability company which is
affiliated with ten of the Company’s tenants (the "HRA Tenants") to the
remaining members of the limited liability company. The HRA Tenants contributed
30%, 35% and 32% of the Company's total revenues for the years ended December
31, 2004, 2003 and 2002, respectively.





The
Company's chairman of the board is a director in a hospital that leases office
space in seven of the Company's MOBs that were acquired in August 2004. Additionally,
one of the Company's independent directors is a director in a health system that
leases office space in one of the Company's MOBs that was acquired in April
2004. During the year ended December 31, 2004, these hospitals contributed less
than 1% of the Company's total revenues.





16. Concentration
of Credit Risk:





At
December 31, 2004, the Company leased its Seniors' Housing facilities to 21
tenants, one of which contributed 21% of the Company's total revenues for the
year ended December 31, 2004. The HRA Tenants contributed 30%, 35% and 32% of
the Company's total revenues for the years ended December 31, 2004, 2003 and
2002, respectively. No other Seniors’ Housing tenant contributed more than 10%
of total revenues. Several of the Company's tenants, including the HRA Tenants,
are thinly capitalized corporations that rely on the cash flow generated from
the Seniors' Housing facilities to fund rent obligations under their leases. At
December 31, 2004, the Company's MOBs were leased to more than 500
tenants.





At
December 31, 2004, 108 of the 170 Seniors’ Housing facilities were operated by
Sunrise Senior Living Services, Inc. ("Sunrise"), a wholly owned subsidiary of
Sunrise Senior Living, Inc. Additionally, as of December 31, 2004, two
Properties are being developed by Sunrise Development, Inc., a wholly owned
subsidiary of Sunrise Senior Living, Inc. Upon completion of each development,
each facility will be operated by Sunrise. Horizon Bay operates 26 Seniors'
Housing facilities and five additional operators manage the remaining 34
Seniors' Housing facilities. At December 31, 2004, DASCO managed 30 of the
Company's 52 MOBs and the remaining 22 are managed by 9 third-party property
managers.





To
mitigate credit risk, certain Seniors' Housing leases are combined into
portfolios that contain cross-default terms, so that if a tenant of any of the
Properties in a portfolio defaults on its obligations under its lease, the
Company may pursue its remedies under the lease with respect to any of the
Properties in the portfolio. Certain portfolios also contain terms whereby the
net operating profits of the Properties are combined for the purpose of funding
rental payments due under each lease. In addition, as of December 31, 2004, the
Company held $26.3 million in security deposits and rental support related to
certain Properties. The Company had limited guarantees from certain tenants and
operators that aggregated $10.7 million as of December 31, 2004, related to 12
of its Properties. In
connection with three and 19 of the Company’s Properties, Sunrise has guaranteed
rent payments until the earlier of June 30, 2005 and December 31, 2005,
respectively, or the Properties achieving specified performance
thresholds.





In
connection with eight Properties leased to wholly owned subsidiaries of American
Retirement Corporation ("ARC"), ARC has unconditionally guaranteed all of the
tenants' obligations under the terms of the leases, including the payment of
minimum rent.











51
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





16. Concentration
of Credit Risk - Continued:





In
connection with the purchase of five Seniors' Housing facilities that were in
various stages of development and were being developed by Sunrise Development,
Inc., Sunrise has guaranteed the tenants' obligations to pay minimum rent and
the FF&E reserve due under the leases from the date of acquisition until the
later of (i) 30 months (March 2007) or (ii) 18 months after the final
development date, as defined in the lease agreement. During 2004, three of these
five Properties commenced operations. In addition, Sunrise has guaranteed the
tenant's rent obligations related to three additional Seniors' Housing
facilities for which construction was completed in 2004 until such time as the
operating performance of the Properties achieves predetermined rent coverage
thresholds.





Although
the Company acquires Properties located in various states and regions and
screens its tenants in order to reduce risks of default, failure of certain
lessees, their guarantors, or the Sunrise or Horizon Bay brands would
significantly impact the results of operations.





17. Medical
Office Building Acquisitions:





In April
2004, the Company acquired 22 MOBs for an aggregate purchase price of $272.0
million, including closing costs (the "MOP Acquisition").





In August
2004, the Company acquired ownership interests in entities that own 28 MOBs and
a 55% interest in DASCO for $212.6 million, including closing costs. In November
2004, the Company acquired an additional two MOBs for $19.4 million, including
closing costs (collectively, the "DASCO Acquisition"). The DASCO Acquisition is
expected to provide opportunities for the Company to participate in new medical
office development and acquisition opportunities as well as to enter the
business of managing MOBs.


Included
in the DASCO Acquisition were certain limited partnerships with finite lives.
Therefore, the minority interests in these partnerships meet the definition of
mandatorily redeemable noncontrolling interests as specified in Statement of
Financial Accounting Standard No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The Company
estimates that the settlement value of these mandatorily redeemable
noncontrolling interests at December 31, 2004 was $5.1 million, based on the
sale or disposition of all or substantially all of the assets of the
partnerships and the repayments of outstanding liabilities as of that date.





In
addition, certain partnerships that own MOBs provide for non-equity
participation to various lessees or affiliates of lessees. Certain lessees in
the MOBs are entitled to receive a percentage of the pro rata net cash flow, as
defined, for the term of their lease, calculated as the percentage of each lease
with respect to the total leasable square footage. Such amounts are paid
periodically, such as monthly or quarterly. Certain lessees are also entitled to
a percentage of their pro rata share of net capital proceeds, as defined, upon
the occurrence of a capital transaction (including, but not limited to, the sale
or refinancing of the property). Such pro rata share is calculated as the
percentage of each lease with respect to the total leasable square
footage.








52
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





17. Medical
Office Building Acquisitions - Continued:





The fair
value of assets acquired and liabilities assumed at the date of the MOP and
DASCO Acquisitions are based on independent appraisals and valuation studies
from independent third-party consultants. The aggregate value of the assets
acquired, including closing costs, and liabilities assumed were as follows (in
thousands):





**Assets:**Real
      estate investment properties:Accounted
      for using the operating method
    
    $
    455,194Intangible
      lease costs
    
    
    47,372502,566Cash
      and cash equivalents
    
    
    530Restricted
      cash
    
    
    2,485Deferred
      costs, net
    
    
    1,018Other
      assets
    
    
    1,698Goodwill
    
    
    5,791Total
      assets acquired
    
    
    514,088**Liabilities:**Mortgages
      payable
    
    
    94,808Construction
      loan payable
    
    
    487Accounts
      payable and other liabilities
    
    
    8,117Intangible
      lease liability
    
    
    4,463Security
      deposits
    
    
    2,011Total
      liabilities assumed
    
    
    109,886Minority
      interests
    
    
    1,967Net
      assets acquired
    
    $
    402,235


The
amortization periods of the intangible lease costs acquired range from less
than one year to 15 years.


The
following condensed pro forma (unaudited) information assumes that the MOP and
DASCO Acquisitions had occurred on January 1, 2003.





Years
      Ended December 31,2004
    
    2003Revenues
    
    $
    298,164
    
    $
    145,322Expenses
    
    
    178,495
    
    
    92,623Net
      income
    
    
    118,396
    
    
    51,903Basic
      and diluted income per share
    
    $
    0.56
    
    $
    0.52Weighted
      average number of common shares outstanding (basic and
      diluted)
    
    
    210,343
    
    
    99,815








53
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





18. Selected
Quarterly Financial Data (unaudited):





The
following table presents selected unaudited quarterly financial data for each
full quarter during the years ended December 31, 2004 and 2003 (in
thousands):





2004
      Quarter
    
    First
    
    Second
    
    Third
    
    Fourth
    
    YearContinuing
      Operations:Revenues
    
    $
    50,830
    
    $
    63,428
    
    $
    70,831
    
    $
    79,452
    
    $
    264,541Income
      from continuing operations
    
    
    27,722
    
    
    29,618
    
    
    30,724
    
    
    31,442
    
    
    119,506Discontinued
      Operations:Revenues
    
    
    112
    
    
    109
    
    
    109
    
    
    95
    
    
    425Income
      (loss) from discontinued operations
    
    
    79
    
    
    73
    
    
    (1,810
    )
    
    70
    
    
    (1,588
    )Net
      income (loss) per share, basic and diluted:Continuing
      operations
    
    $
    0.16
    
    $
    0.14
    
    $
    0.13
    
    $
    (0.14
    )
    $
    (0.57
    )Discontinued
      operations
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    (0.01
    )
    $
    (0.01
    )Net
      income
    
    $
    0.16
    
    $
    0.14
    
    $
    0.13
    
    $
    0.13
    
    $
    0.562003
      Quarter
    
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    YearContinuing
      Operations:Revenues
    
    $
    12,091
    
    $
    20,948
    
    $
    25,070
    
    $
    35,818
    
    $
    93,927Income
      from continuing operations
    
    
    8,503
    
    
    12,913
    
    
    15,814
    
    
    21,230
    
    
    58,460Discontinued
      Operations:Revenues
    
    
    —
    
    
    —
    
    
    —
    
    
    41
    
    
    41Income
      from discontinued operations
    
    
    —
    
    
    —
    
    
    —
    
    
    25
    
    
    25Net
      income per share, basicand
      diluted:Continuing
      operations
    
    $
    0.16
    
    $
    0.18
    
    $
    0.16
    
    $
    0.16
    
    $
    0.66Discontinued
      operations
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —Net
      income
    
    $
    0.16
    
    $
    0.18
    
    $
    0.16
    
    $
    0.16
    
    $
    0.66





19. Subsequent
Events:





Property
Acquisitions - In
January and February 2005, the Company acquired equity interests in three
entities that own MOBs for an aggregate purchase price of $28.6 million and
assumed a $7.1 million mortgage loan in connection with the purchases. One of
the MOBs is currently under construction. The MOBs are located in Illinois,
Indiana and Texas, contain approximately 161,900 square feet and are managed or
are being developed by DASCO. In February 2005, the Company also acquired a
Seniors' Housing facility located in Illinois for $50 million, consisting of 274
independent and assisted living units, and an undeveloped parcel of land located
in Texas for $3.1 million which the Company intends to hold for sale. The
Seniors' Housing facility is leased to and operated by Horizon Bay. In
connection with the acquisition of the Seniors' Housing facility, the Company
borrowed $30 million in new permanent financing. The Company used cash available
at December 31, 2004, plus additional offering and debt proceeds received in
January and February 2005 to purchase these Properties.





54
 CNL
RETIREMENT PROPERTIES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 Years
Ended December 31, 2004, 2003 and 2002





19. Subsequent
Events - Continued :




On
January 13, 2005, the Company obtained a $100.0 million mortgage loan
collateralized by 11 Properties owned by the Company. The loan has a term of
five years, bears interest at LIBOR plus 1.25% and requires interest only
payments through maturity in January 2010.





On
February 28, 2005, the Company obtained a $30.0 million mortgage loan in
connection with the acquisition of one Property. The loan requires interest only
payments at a variable rate based on the 3- to 9-month Fannie Mae Discount
MBS rate plus 0.9% and matures in October 2005. The loan contains provisions
that allow for a term extension to October 2010.


On March
4, 2004, the Company obtained eight mortgage loans aggregating $39.0 million
collateralized by 13 Properties. The loans require interest only payments at a
fixed rate of 4.85% until September 2007, and principal and interest payments
thereafter until maturity in March 2012.


Other ** - ** During
the period January 1, 2005 through February 28, 2005, the Company received
subscription proceeds for an additional 4.0 million shares ($40.5 million) of
common stock.


On
January 1, February 1 and March 1, 2005, the Company declared distributions to
stockholders of record on those dates, totaling $14.2 million, $14.3 million and
$14.4 million, respectively, or $0.0592 per share of common stock, payable by
March 31, 2005.


55


**Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure**





None.





**Item
9A. Controls and Procedures**
****
**Evaluation
of Disclosure Controls and Procedures**
****
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), under the supervision and with the participation of our
management, including our principal executive officer and principal financial
and accounting officer, we conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as defined under Rule 13a-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, our management, including our principal executive officer and
principal financial and accounting officer, concluded that our disclosure
controls and procedures are effective as of the end of the period covered by
this annual report.
****
**Management's
Report on Internal Control Over Financial Reporting**
****
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in the Exchange Act
Rules 13a - 15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
and accounting officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in*Internal
Control - Integrated Framework*issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation under the framework in the*Internal Control - Integrated Framework*, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2004. Our management has excluded DASCO, including
a DASCO-related portfolio of 30 medical office buildings, and a portfolio of 22
medical office buildings from its assessment of internal control over financial
reporting as of December 31, 2004 because we acquired these consolidated
entities during 2004. Total assets and total revenues of these consolidated
entities represent 15.6% and 12.1%, respectively, of the related consolidated
financial statement amounts as of and for the year ended December 31,
2004.

Our
management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered certified public
accounting firm, as stated in their report which is included
herein.


**Item 9B. Other Information**





None.





**PART
III**





**Item 10. Directors and Executive Officers of the
Registrant**





The
information required by this Item is incorporated by reference to the Company's
Definitive Proxy Statement to be filed with the Commission no later than April
30, 2005.





**Item 11. Executive Compensation**





The
information required by this Item is incorporated by reference to the Company's
Definitive Proxy Statement to be filed with the Commission no later than April
30, 2005.





**Item 12. Security Ownership of Certain Beneficial Owners and
Management**





The
information required by this Item is incorporated by reference to the Company's
Definitive Proxy Statement to be filed with the Commission no later than April
30, 2005.





**Item 13. Certain Relationships and Related
Transactions**





The
information required by this Item is incorporated by reference to the Company's
Definitive Proxy Statement to be filed with the Commission no later than April
30, 2005.





56


**Item 14. Principal Accountant Fees and
Services**





The
information required by this Item is incorporated by reference to the Company's
Definitive Proxy Statement to be filed with the Commission no later than April
30, 2005.





**PART
IV**





**Item 15. Exhibits, Financial Statement
Schedules**





(a)
    The
      following documents are filed as part of this report.





1.  Financial
Statements





Report
      of Independent Registered Certified Public Accounting
  Firm





Consolidated
      Balance Sheets atDecember
      31, 2004and 2003





Consolidated
      Statements of Income for the years endedDecember
      31, 2004,
      2003 and 2002





Consolidated
      Statements of Stockholders' Equity for the years endedDecember
      31, 2004,
      2003 and 2002





Consolidated
      Statements of Cash Flows for the years endedDecember
      31, 2004,
      2003 and 2002





Notes
      to Consolidated Financial Statements





2.
    Financial
      Statement Schedules





Schedule
II - Valuation and Qualifying Accounts for the years ended December 31, 2004,
2003 and 2002





Schedule
      III - Real Estate and Accumulated Depreciation atDecember
      31, 2004





Notes
      to Schedule III - Real Estate and Accumulated Depreciation atDecember
      31, 2004





All
      other Schedules are omitted as the required information is inapplicable or
      is presented in the financial statements or notes
  thereto.





3.  Exhibits





3.1
    Articles
      of Amendment and Restatement of CNL Retirement Properties, Inc. dated July
      28, 2003.*(Included
      as Exhibit 3.8 to the Registrant's Registration Statement on Form S-11
      (Registration No. 333-107486) filed on July 30, 2003, and incorporated
      herein by reference.)*





3.2
    CNL
      Health Care Properties, Inc. Bylaws.*(Included
      as Exhibit 3.2 to the Registrant's 1998 Report on Form 10-K filed with the
      Securities and Exchange Commission on March 5, 1999, and incorporated
      herein by reference.)*





3.3
    Amendment
      No. 1 to the Bylaws of CNL Health Care Properties, Inc.*(Included
      as Exhibit 3.6 to Pre-effective Amendment No. One to the Registrant's
      Registration Statement on Form S-11 filed March 31, 2000, and incorporated
      herein by reference.)*





3.4
    Amendment
      No. 2 to the Bylaws of CNL Retirement Properties, Inc.*(Included
      as Exhibit 3.7 to Post-effective Amendment No. One to the Registrant's
      Registration Statement on Form S-11 (Registration No. 333-100347) filed
      June 25, 2003, and incorporated herein by
  reference.)*








57





3.5
    Articles
      of Amendment of CNL Retirement Properties, Inc. dated July 19, 2004.*(Included
      as Exhibit 3.5 to the Registrant's September 30, 2004, Report on Form 10-Q
      filed on November 5, 2004 and incorporated herein by
      reference.)*





4.1
    Form
      of Reinvestment Plan*(Included
      as Exhibit 4.4 to Registrant's Registration Statement on Form S-11
      (Registration No. 333-37480) and incorporated herein by
      reference.)*





10.1
    Advisory
      Agreement, dated as of May 3, 2004, between CNL Retirement Properties,
      Inc. and CNL Retirement Corp.*(Included
      as Exhibit 10.2 to Post-Effective Amendment No. One to the Registrant's
      Registration Statement on Form S-11 filed June 14, 2004, and incorporated
      herein by reference.)*





10.2
    Indemnification
      Agreement between CNL Health Care Properties, Inc. and Thomas J. Hutchison
      III dated February 29, 2000. Each of the following directors and/or
      officers has signed a substantially similar agreement as follows: James M.
      Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy S. Smick, Edward
      A. Moses, Jeanne A. Wall, and Lynn E. Rose dated September 15, 1998,
      Phillip M. Anderson, Jr. dated February 19, 1999, James W. Duncan dated
      February 22, 2002, Stuart J. Beebe dated July 15, 2002, and Marcel Verbaas
      dated April 19, 2004.*(Included
      as Exhibit 10.2 to the Registrant’s Form 10-Q filed on May 3, 2000, and
      incorporated herein by reference.)*





10.3
    Agreement
      of Limited Partnership of CNL Health Care Partners, LP.*(Included
      as Exhibit 10.10 to Post-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2000, and incorporated
      herein by reference.)*





10.4
    Credit
      Agreement between CNL Retirement Partners, LP as Borrower, CNL Retirement
      GP Corp., CNL Retirement LP Corp. and CNL Retirement Properties, Inc., as
      Guarantors, Bank of America, NA, as Administrative Agent and Bank of
      America Securities, LLC as Sole Lead Arranger and Book Manager dated March
      17, 2003.*(Included
      as Exhibit 10.47 to the Registrant's March 31, 2003, Report on Form 10-Q
      filed on May 15, 2003, and incorporated herein by
      reference.)*





10.5
    Purchase
      and Sale Agreement by and among Riverchase Assisted Living, Ltd., Senior
      Lifestyle Heritage, L.L.C., Integrated Management - Carrington Pointe,
      L.L.C., Integrated Living Communities of West Palm Beach, L.L.C., Senior
      Lifestyle Newport Limited Partnership, Senior Lifestyle Pinecrest Limited
      Partnership, Senior Lifestyle Prosperity Limited Partnership, Integrated
      Living Communities of Sarasota, L.L.C., Olympia Fields Senior Housing,
      L.L.C., Senior Lifestyle East Bay Limited Partnership, Senior Lifestyle
      Emerald Bay Limited Partnership, Greenwich Bay, L.L.C., Senior Lifestyle
      North Bay Limited Partnership, Senior Lifestyle Sakonnet Bay Limited
      Partnership, South Bay Manor, L.L.C., West Bay Manor, L.L.C. and
      Integrated Living Communities of Dallas, L.P., collectively, as Sellers,
      and CNL Retirement Corp., as Purchaser dated December 19, 2003.*(Included
      as Exhibit 10.62 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.6
    First
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      December 30, 2003.*(Included
      as Exhibit 10.63 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





58





10.7
    Second
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      December 31, 2003.*(Included
      as Exhibit 10.64 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.8
    Third
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      January 5, 2004.*(Included
      as Exhibit 10.65 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.9
    Fourth
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      January 16, 2004.*(Included
      as Exhibit 10.66 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.10
    Fifth
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      January 20, 2004.*(Included
      as Exhibit 10.67 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





59





10.11
    Sixth
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      February 2, 2004.*(Included
      as Exhibit 10.68 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.12
    Seventh
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      February 6, 2004.*(Included
      as Exhibit 10.69 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.13
    Purchase
      and Sale Agreement by and between Niles Lifestyle Limited Partnership, as
      Seller, and CNL Retirement Corp., as Purchaser dated December 19, 2003.*(Included
      as Exhibit 10.70 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*




10.14
    First
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated December 31, 2003. *(Included
      as Exhibit 10.71 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*


10.15
    Second
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated January 5, 2004.*(Included
      as Exhibit 10.72 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by
reference.)*  10.16
    Third
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated January 20, 2004.*(Included
      as Exhibit 10.73 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by
reference.)*





10.17
    Fourth
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated February 6, 2004.*(Included
      as Exhibit 10.74 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by
      reference.)*
 21.
    Subsidiaries
      of the Registrant.*(Filed
      herewith.)*





60





31.1
    Certification
      of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002*.
      (Filed herewith.)*




31.2
    Certification
      of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.
      (Filed herewith.)*


32.1
    Certification
      of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*(Filed
      herewith.)*





32.2
    Certification
      of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*.
      (Filed herewith.)*








61








**SIGNATURES**








Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 9 th day of
March 2005.








CNL RETIREMENT
PROPERTIES, INC.


By:
    /s/
      Thomas J. Hutchison, IIITHOMAS
      J. HUTCHISON, IIIChief
      Executive Officer andPresident(Principal
      Executive Officer)By:
    /s/
      Clark HettingaCLARK
      HETTINGAChief
      Financial Officer(PrincipalFinancial
      and Accounting Officer)





62





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.





Signature
    Title
    Date





/s/
      James M. Seneff,
      Jr.
      James
      M. Seneff, Jr.
    Chairman
      of the Board
    March
      9, 2005








/s/
      Robert A.
      Bourne
      Robert
      A. Bourne
    Vice
      Chairman of the Board and Treasurer
    March
      9, 2005








/s/
      David W.
      Dunbar
      David
      W. Dunbar
    Independent
      Director
    March
      9, 2005








/s/
      James W. Duncan,
      Jr.
      James
      W. Duncan, Jr.
    Independent
      Director
    March
      9, 2005








/s/
      Edward A.
      Moses
      Edward
      A. Moses
    Independent
      Director
    March
      9, 2005








/s/
      Thomas J. Hutchison,
      III
      Thomas
      J. Hutchison, III
    Chief
      Executive Officer and President
      (Principal
      Executive Officer)
    March
      9, 2005








/s/
      Clark
      Hettinga
      Clark
      Hettinga
    Chief
      Financial Officer
      (Principal
      Financial and Accounting Officer)
    March
      9, 2005










63





CNL
RETIRMENT PROPERTIES, INC.


Schedule II - Valuation and Qualifying Accounts


Years
Ended December 31, 2004, 2003, and 2002


(dollars
in thousands)





Additions
    
    DeductionsYear
    
    Description
    
    Balance
      at
      Beginning
      of
      Year
    
    Charged
      to
      Costs
      and
      Expenses
    
    Charged
      to
      Other
      Accounts
    
    Deemed
      Uncollectible
    
    Collected
      or
      Determined
      to
      be
      Collectible
    
    Balance
      at
      End
      of
      Year2002
    
    
    Allowance
      for
      doubtful
      accounts
      (a
    )
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —2003
    
    
    Allowance
      for
      doubtful
      accounts
      (a
    )
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —2004
    
    
    Allowance
      for
      doubtful
      accounts
      (a
    )
    $
    --
    
    $
    3,900
    
    $
    —
    
    $
    --
    
    $
    --
    
    $
    3,900




(a)
    Deducted
      from receivables on the balance sheet.
















64





CNL
Retirement Properties, Inc.


Schedule III - Real Estate and Accumulated
Depreciation


December
31, 2004


(dollars
in thousands)





Initial
      Cost to Company (2)
    
    Costs
      Capitalized
      Subsequent
      to Acquisition
    
    Gross
      Amount at Which Carried at Close
      of
      PeriodEncum-brances
      (1)
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Total
    
    Accumulated
      Depreciation
      (a)
    
    Date
      Constructed
    
    Date
      AcquiredBrighton
      Gardens of Orland Park, IL
    
    $
    —
    
    $
    2,162
    
    $
    12,577
    
    $
    —
    
    $
    35
    
    $
    2,162
    
    $
    12,612
    
    
    14,774
    
    $
    2,062
    
    
    1999
    
    
    Apr-00Broadway
      Plaza at Pecan Park - TX
    
    
    3,600
    
    
    1,344
    
    
    9,425
    
    
    —
    
    
    —
    
    
    1,344
    
    
    9,425
    
    
    10,769
    
    
    960
    
    
    2000
    
    
    Nov-01Homewood
      Residence at Boca Raton, FL
    
    
    4,400
    
    
    1,144
    
    
    8,734
    
    
    —
    
    
    —
    
    
    1,144
    
    
    8,734
    
    
    9,878
    
    
    887
    
    
    2000
    
    
    Nov-01Holley
      Court Terrace, IL
    
    
    —
    
    
    2,144
    
    
    16,850
    
    
    —
    
    
    —
    
    
    2,144
    
    
    16,850
    
    
    18,994
    
    
    1,366
    
    
    1992
    
    
    Feb-02Homewood
      Residence at Coconut Creek, FL
    
    
    2,602
    
    
    1,683
    
    
    8,193
    
    
    —
    
    
    —
    
    
    1,683
    
    
    8,193
    
    
    9,876
    
    
    779
    
    
    2000
    
    
    Feb-02Heritage
      Club at Greenwood Village, CO
    
    
    10,618
    
    
    1,965
    
    
    18,025
    
    
    —
    
    
    180
    
    
    1,965
    
    
    18,205
    
    
    20,170
    
    
    1,562
    
    
    1999
    
    
    Mar-02Mapleridge
      of Dartmouth, MA
    
    
    3,243
    
    
    920
    
    
    8,799
    
    
    —
    
    
    23
    
    
    920
    
    
    8,822
    
    
    9,742
    
    
    646
    
    
    1999
    
    
    May-02Mapleridge
      of Laguna Creek, CA
    
    
    3,796
    
    
    812
    
    
    7,407
    
    
    —
    
    
    —
    
    
    812
    
    
    7,407
    
    
    8,219
    
    
    553
    
    
    1999
    
    
    May-02Brighton
      Gardens of Towson, MD
    
    
    5,781
    
    
    990
    
    
    14,109
    
    
    (27
    )
    
    103
    
    
    963
    
    
    14,212
    
    
    15,175
    
    
    1,043
    
    
    1999
    
    
    May-02Brighton
      Gardens of Camarillo, CA
    
    
    7,477
    
    
    2,487
    
    
    16,676
    
    
    (1
    )
    
    41
    
    
    2,486
    
    
    16,717
    
    
    19,203
    
    
    1,267
    
    
    1999
    
    
    May-02Mapleridge
      of Clayton, OH
    
    
    3,222
    
    
    813
    
    
    7,483
    
    
    —
    
    
    12
    
    
    813
    
    
    7,495
    
    
    8,308
    
    
    557
    
    
    1999
    
    
    May-02Vero
      Beach, FL
    
    
    32,339
    
    
    1,839
    
    
    —
    
    
    (91
    )
    
    39,907
    
    
    1,748
    
    
    39,907
    
    
    41,655
    
    
    —
    
    
    (3
    )
    
    Aug-02Homewood
      Residence at Brookmont Terr., TN
    
    
    1,931
    
    
    464
    
    
    8,652
    
    
    —
    
    
    —
    
    
    464
    
    
    8,652
    
    
    9,116
    
    
    618
    
    
    2000
    
    
    Nov-02Mapleridge
      of Hemet, CA
    
    
    3,163
    
    
    1,176
    
    
    3,087
    
    
    —
    
    
    28
    
    
    1,176
    
    
    3,115
    
    
    4,291
    
    
    250
    
    
    1998
    
    
    Dec-02Brighton
      Gardens of Tulsa, OK
    
    
    3,605
    
    
    1,538
    
    
    3,310
    
    
    13
    
    
    46
    
    
    1,551
    
    
    3,356
    
    
    4,907
    
    
    298
    
    
    1999
    
    
    Dec-02Pleasant
      Hills, AR
    
    
    8,188
    
    
    523
    
    
    10,427
    
    
    102
    
    
    151
    
    
    625
    
    
    10,578
    
    
    11,203
    
    
    634
    
    
    1984
    
    
    Dec-02Brighton
      Gardens of Hoffman Estates, IL
    
    
    5,806
    
    
    1,724
    
    
    6,064
    
    
    —
    
    
    18
    
    
    1,724
    
    
    6,082
    
    
    7,806
    
    
    435
    
    
    1999
    
    
    Dec-02Mapleridge
      of Willoughby, OH
    
    
    3,794
    
    
    1,091
    
    
    4,032
    
    
    66
    
    
    11
    
    
    1,157
    
    
    4,043
    
    
    5,200
    
    
    294
    
    
    1998
    
    
    Dec-02Mapleridge
      of Plymouth, MA
    
    
    3,525
    
    
    1,090
    
    
    3,667
    
    
    4
    
    
    6
    
    
    1,094
    
    
    3,673
    
    
    4,767
    
    
    283
    
    
    2000
    
    
    Dec-02Hearthside
      of Lynwood, WA
    
    
    3,250
    
    
    1,530
    
    
    5,068
    
    
    10
    
    
    42
    
    
    1,540
    
    
    5,110
    
    
    6,650
    
    
    293
    
    
    1989
    
    
    Dec-02Hearthside
      of Snohomish, WA
    
    
    4,437
    
    
    645
    
    
    8,364
    
    
    —
    
    
    16
    
    
    645
    
    
    8,380
    
    
    9,025
    
    
    456
    
    
    1993
    
    
    Dec-02Brighton
      Gardens of Vinings, GA
    
    
    3,805
    
    
    1,773
    
    
    5,830
    
    
    5
    
    
    12
    
    
    1,778
    
    
    5,842
    
    
    7,620
    
    
    406
    
    
    1999
    
    
    Dec-02Brighton
      Gardens of Oklahoma City, OK
    
    
    1,881
    
    
    784
    
    
    3,000
    
    
    7
    
    
    50
    
    
    791
    
    
    3,050
    
    
    3,841
    
    
    267
    
    
    1999
    
    
    Dec-02Brighton
      Gardens of Bellevue, WA
    
    
    5,263
    
    
    2,165
    
    
    8,506
    
    
    —
    
    
    7
    
    
    2,165
    
    
    8,513
    
    
    10,678
    
    
    556
    
    
    1999
    
    
    Dec-02Brighton
      Gardens of Santa Rosa, CA
    
    
    8,641
    
    
    2,161
    
    
    15,044
    
    
    982
    
    
    (2,544
    )
    
    3,143
    
    
    12,500
    
    
    15,643
    
    
    791
    
    
    2000
    
    
    Dec-02Brighton
      Gardens of Denver, CO
    
    
    11,123
    
    
    1,084
    
    
    17,245
    
    
    —
    
    
    —
    
    
    1,084
    
    
    17,245
    
    
    18,329
    
    
    861
    
    
    1996
    
    
    Mar-03Brighton
      Gardens of Colorado Springs, CO
    
    
    10,258
    
    
    1,073
    
    
    15,829
    
    
    —
    
    
    —
    
    
    1,073
    
    
    15,829
    
    
    16,902
    
    
    777
    
    
    1999
    
    
    Mar-03Brighton
      Gardens of Lakewood, CO
    
    
    11,708
    
    
    1,073
    
    
    18,221
    
    
    —
    
    
    —
    
    
    1,073
    
    
    18,221
    
    
    19,294
    
    
    889
    
    
    1999
    
    
    Mar-03Brighton
      Gardens of Rancho Mirage, CA
    
    
    7,137
    
    
    1,716
    
    
    12,482
    
    
    5
    
    
    77
    
    
    1,721
    
    
    12,559
    
    
    14,280
    
    
    758
    
    
    2000
    
    
    Mar-03The
      Fairfax, VA
    
    
    52,332
    
    
    17,641
    
    
    60,643
    
    
    —
    
    
    2,882
    
    
    17,641
    
    
    63,525
    
    
    81,166
    
    
    3,185
    
    
    1989
    
    
    Mar-03The
      Quadrangle, PA
    
    
    42,119
    
    
    23,148
    
    
    90,769
    
    
    (37
    )
    
    676
    
    
    23,111
    
    
    91,445
    
    
    114,556
    
    
    4,698
    
    
    1987
    
    
    Mar-03Brighton
      Gardens of Yorba Linda, CA
    
    
    10,377
    
    
    2,397
    
    
    11,410
    
    
    —
    
    
    47
    
    
    2,397
    
    
    11,457
    
    
    13,854
    
    
    608
    
    
    2000
    
    
    Mar-03Brighton
      Gardens of Salt Lake City, UT
    
    
    11,566
    
    
    392
    
    
    15,013
    
    
    —
    
    
    20
    
    
    392
    
    
    15,033
    
    
    15,425
    
    
    827
    
    
    1999
    
    
    Mar-03Brighton
      Gardens of Northridge, CA
    
    
    7,603
    
    
    3,485
    
    
    11,634
    
    
    (1
    )
    
    9
    
    
    3,484
    
    
    11,643
    
    
    15,127
    
    
    732
    
    
    2001
    
    
    Mar-03Sunrise
      of Palm Springs, CA
    
    
    1,369
    
    
    884
    
    
    1,873
    
    
    —
    
    
    5
    
    
    884
    
    
    1,878
    
    
    2,762
    
    
    158
    
    
    1999
    
    
    Mar-03Brighton
      Gardens of Edgewood, KY
    
    
    1,370
    
    
    886
    
    
    1,876
    
    
    6
    
    
    14
    
    
    892
    
    
    1,890
    
    
    2,782
    
    
    190
    
    
    2000
    
    
    Mar-03Brighton
      Gardens of Greenville, SC
    
    
    2,132
    
    
    352
    
    
    3,938
    
    
    4
    
    
    31
    
    
    356
    
    
    3,969
    
    
    4,325
    
    
    315
    
    
    1998
    
    
    Mar-03Brighton
      Gardens of Saddle River, NJ
    
    
    7,867
    
    
    2,155
    
    
    10,968
    
    
    —
    
    
    —
    
    
    2,155
    
    
    10,968
    
    
    13,123
    
    
    599
    
    
    1998
    
    
    Mar-03Balmoral
      of Palm Harbor, FL
    
    
    —
    
    
    1,002
    
    
    11,493
    
    
    —
    
    
    279
    
    
    1,002
    
    
    11,772
    
    
    12,774
    
    
    522
    
    
    1996
    
    
    Jul-03





65


CNL
Retirement Properties, Inc.


Schedule
III - Real Estate and Accumulated Depreciation


December
31, 2004


(dollars
in thousands)





Initial
      Cost to Company (2)
    
    Costs
      Capitalized
      Subsequent
      to Acquisition
    
    Gross
      Amount at Which Carried at Close
      of
      PeriodEncum-
      brances
      (1)
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and Equipment
    
    Land
    
    Building,
      Fixtures
      and Equipment
    
    Total
    
    Accumulated
      Depreciation (a)
    
    Date
      Constructed
    
    Date
      AcquiredSomerby
      at University Park
    
    
    34,522
    
    
    2,633
    
    
    49,166
    
    
    —
    
    
    —
    
    
    2,633
    
    
    49,166
    
    
    51,799
    
    
    1,992
    
    
    1999
    
    
    Aug-03Somerby
      at Jones Farm
    
    
    14,698
    
    
    719
    
    
    23,136
    
    
    —
    
    
    —
    
    
    719
    
    
    23,136
    
    
    23,855
    
    
    1,013
    
    
    1999
    
    
    Nov-03Brighton
      Gardens of Tampa, FL
    
    
    —
    
    
    1,670
    
    
    —
    
    
    —
    
    
    —
    
    
    1,670
    
    
    —
    
    
    1,670
    
    
    —
    
    
    1998
    
    
    Aug-03Greentree
      at Ft. Benjamin Harrison
    
    
    —
    
    
    469
    
    
    4,761
    
    
    —
    
    
    —
    
    
    469
    
    
    4,761
    
    
    5,230
    
    
    167
    
    
    1999
    
    
    Sep-03Greentree
      at Mt. Vernon, IL
    
    
    —
    
    
    225
    
    
    7,244
    
    
    —
    
    
    1,830
    
    
    225
    
    
    9,074
    
    
    9,299
    
    
    289
    
    
    2000
    
    
    Sep-03Greentree
      at Post, IN
    
    
    —
    
    
    287
    
    
    4,934
    
    
    —
    
    
    —
    
    
    287
    
    
    4,934
    
    
    5,221
    
    
    164
    
    
    1999
    
    
    Sep-03Greentree
      at West Lafayette, IN
    
    
    —
    
    
    319
    
    
    5,264
    
    
    —
    
    
    936
    
    
    319
    
    
    6,200
    
    
    6,519
    
    
    191
    
    
    1999
    
    
    Sep-03Sunrise
      of Arlington, VA
    
    
    3,543
    
    
    765
    
    
    6,463
    
    
    —
    
    
    52
    
    
    765
    
    
    6,515
    
    
    7,280
    
    
    274
    
    
    1988
    
    
    Sep-03Sunrise
      of Bluemont Park, VA
    
    
    14,021
    
    
    2,359
    
    
    26,196
    
    
    24
    
    
    82
    
    
    2,383
    
    
    26,278
    
    
    28,661
    
    
    1,012
    
    
    1989
    
    
    Sep-03Sunrise
      of Countryside
    
    
    7,335
    
    
    2,288
    
    
    12,583
    
    
    —
    
    
    89
    
    
    2,288
    
    
    12,672
    
    
    14,960
    
    
    527
    
    
    1945/88
    
    
    Sep-03Sunrise
      of Falls Church, VA
    
    
    4,341
    
    
    1,221
    
    
    7,631
    
    
    —
    
    
    25
    
    
    1,221
    
    
    7,656
    
    
    8,877
    
    
    334
    
    
    1993
    
    
    Sep-03Sunrise
      of Farmington Hills, MI
    
    
    4,690
    
    
    1,212
    
    
    8,414
    
    
    8
    
    
    3
    
    
    1,220
    
    
    8,417
    
    
    9,637
    
    
    390
    
    
    1999
    
    
    Sep-03Sunrise
      of Frederrick, MD
    
    
    3,443
    
    
    118
    
    
    6,971
    
    
    —
    
    
    26
    
    
    118
    
    
    6,997
    
    
    7,115
    
    
    269
    
    
    1991
    
    
    Sep-03Sunrise
      of Leesburg, VA
    
    
    1,048
    
    
    399
    
    
    1,701
    
    
    —
    
    
    7
    
    
    399
    
    
    1,708
    
    
    2,107
    
    
    80
    
    
    1850/1989
    
    
    Sep-03Sunrise
      of Mercer Island, WA
    
    
    3,892
    
    
    744
    
    
    7,225
    
    
    —
    
    
    2
    
    
    744
    
    
    7,227
    
    
    7,971
    
    
    287
    
    
    1990
    
    
    Sep-03Sunrise
      of Mills Basin, NY
    
    
    12,075
    
    
    2,596
    
    
    22,134
    
    
    24
    
    
    12
    
    
    2,620
    
    
    22,146
    
    
    24,766
    
    
    912
    
    
    2002
    
    
    Sep-03Sunrise
      of Poland, OH
    
    
    4,291
    
    
    742
    
    
    8,044
    
    
    —
    
    
    —
    
    
    742
    
    
    8,044
    
    
    8,786
    
    
    304
    
    
    1998
    
    
    Sep-03Sunrise
      of Raleigh, NC
    
    
    3,143
    
    
    457
    
    
    5,935
    
    
    —
    
    
    11
    
    
    457
    
    
    5,946
    
    
    6,403
    
    
    276
    
    
    1996
    
    
    Sep-03Sunrise
      of Sheepshead Bay, NY
    
    
    12,823
    
    
    3,856
    
    
    22,395
    
    
    24
    
    
    12
    
    
    3,880
    
    
    22,407
    
    
    26,287
    
    
    851
    
    
    2000
    
    
    Sep-03Sunrise
      of Beverly Hills, CA
    
    
    10,441
    
    
    3,950
    
    
    4,165
    
    
    —
    
    
    11,567
    
    
    3,950
    
    
    15,732
    
    
    19,682
    
    
    —
    
    
    (3
    )
    
    Sep-03Sunrise
      of Cresskill, NJ
    
    
    8,748
    
    
    4,632
    
    
    5,569
    
    
    —
    
    
    8,014
    
    
    4,632
    
    
    13,583
    
    
    18,215
    
    
    —
    
    
    (3
    )
    
    Sep-03Sunrise
      of Edmonds, WA
    
    
    9,214
    
    
    968
    
    
    2,541
    
    
    —
    
    
    10,144
    
    
    968
    
    
    12,685
    
    
    13,653
    
    
    51
    
    
    2004
    
    
    Sep-03Sunrise
      at Five Forks, GA
    
    
    8,105
    
    
    1,001
    
    
    9,022
    
    
    (4
    )
    
    2,245
    
    
    997
    
    
    11,267
    
    
    12,264
    
    
    337
    
    
    2004
    
    
    Sep-03Sunrise
      of Madison
    
    
    10,639
    
    
    1,608
    
    
    2,846
    
    
    —
    
    
    12,228
    
    
    1,608
    
    
    15,074
    
    
    16,682
    
    
    100
    
    
    2004
    
    
    Sep-03Dogwood
      Forest of Dunwoody, GA
    
    
    —
    
    
    836
    
    
    4,952
    
    
    —
    
    
    135
    
    
    836
    
    
    5,087
    
    
    5,923
    
    
    163
    
    
    2000
    
    
    Nov-03EdenGardens
      of Gainesville, FL
    
    
    —
    
    
    436
    
    
    7,789
    
    
    10
    
    
    27
    
    
    446
    
    
    7,816
    
    
    8,262
    
    
    255
    
    
    2000
    
    
    Nov-03EdenBrook
      of Jacksonville, FL
    
    
    —
    
    
    1,114
    
    
    6,112
    
    
    —
    
    
    230
    
    
    1,114
    
    
    6,342
    
    
    7,456
    
    
    256
    
    
    1999
    
    
    Nov-03EdenBrook
      of Tallahassee, FL
    
    
    —
    
    
    670
    
    
    11,664
    
    
    —
    
    
    35
    
    
    670
    
    
    11,699
    
    
    12,369
    
    
    376
    
    
    1999
    
    
    Nov-03EdenGardens
      of Aiken, SC
    
    
    4,992
    
    
    369
    
    
    7,139
    
    
    —
    
    
    7
    
    
    369
    
    
    7,146
    
    
    7,515
    
    
    239
    
    
    1995
    
    
    Nov-03EdenBrook
      of Alpharetta, GA
    
    
    4,493
    
    
    718
    
    
    6,330
    
    
    —
    
    
    12
    
    
    718
    
    
    6,342
    
    
    7,060
    
    
    214
    
    
    2000
    
    
    Nov-03EdenGardens
      of Arlington, TX
    
    
    —
    
    
    350
    
    
    8,538
    
    
    —
    
    
    —
    
    
    350
    
    
    8,538
    
    
    8,888
    
    
    268
    
    
    2000
    
    
    Nov-03EdenTerrace
      of Arlington, TX
    
    
    —
    
    
    668
    
    
    7,616
    
    
    —
    
    
    11
    
    
    668
    
    
    7,627
    
    
    8,295
    
    
    250
    
    
    2000
    
    
    Nov-03EdenBrook
      of Buckhead, GA
    
    
    4,493
    
    
    782
    
    
    6,971
    
    
    —
    
    
    5
    
    
    782
    
    
    6,976
    
    
    7,758
    
    
    247
    
    
    2000
    
    
    Nov-03EdenBrook
      of Champions, TX
    
    
    —
    
    
    530
    
    
    11,581
    
    
    —
    
    
    39
    
    
    530
    
    
    11,620
    
    
    12,150
    
    
    376
    
    
    2000
    
    
    Nov-03EdenBrook
      of Charleston, SC
    
    
    4,992
    
    
    422
    
    
    8,827
    
    
    —
    
    
    7
    
    
    422
    
    
    8,834
    
    
    9,256
    
    
    294
    
    
    2000
    
    
    Nov-03EdenGardens
      of Columbia
    
    
    —
    
    
    300
    
    
    4,043
    
    
    —
    
    
    23
    
    
    300
    
    
    4,066
    
    
    4,366
    
    
    136
    
    
    1996
    
    
    Nov-03EdenGardens
      of Concord, NC
    
    
    2,432
    
    
    393
    
    
    3,548
    
    
    —
    
    
    —
    
    
    393
    
    
    3,548
    
    
    3,941
    
    
    121
    
    
    1998
    
    
    Nov-03





66


CNL
Retirement Properties, Inc.


Schedule
III - Real Estate and Accumulated Depreciation


December
31, 2004


(dollars
in thousands)





Initial
      Cost to Company(2)
    
    Costs
      Capitalized
      Subsequent
      to Acquisition
    
    Gross
      Amount at Which Carried at Close
      of
      PeriodEncum-
      brances
      (1)
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Total
    
    Accumulated
      Depreciation
      (a)
    
    Date
      Constructed
    
    Date
      AcquiredEdenbrook of
      Dunwoody, GA
    
    
    4,657
    
    
    368
    
    
    4,559
    
    
    —
    
    
    61
    
    
    368
    
    
    4,620
    
    
    4,988
    
    
    184
    
    
    1998
    
    
    Nov-03EdenGardens
      of Greenwood, SC
    
    
    —
    
    
    299
    
    
    4,239
    
    
    —
    
    
    43
    
    
    299
    
    
    4,282
    
    
    4,581
    
    
    144
    
    
    1997
    
    
    Nov-03Somerby
      at Jones Farm, AL
    
    
    —
    
    
    605
    
    
    8,900
    
    
    —
    
    
    14
    
    
    605
    
    
    8,914
    
    
    9,519
    
    
    303
    
    
    2001
    
    
    Nov-03EdenGardens
      of Kingwood, TX
    
    
    —
    
    
    467
    
    
    8,418
    
    
    —
    
    
    12
    
    
    467
    
    
    8,430
    
    
    8,897
    
    
    291
    
    
    2001
    
    
    Nov-03EdenTerrace
      of Kingwood, TX
    
    
    —
    
    
    572
    
    
    10,527
    
    
    —
    
    
    6
    
    
    572
    
    
    10,533
    
    
    11,105
    
    
    357
    
    
    2001
    
    
    Nov-03EdenBrook
      of Louisville, KY
    
    
    6,663
    
    
    623
    
    
    10,144
    
    
    —
    
    
    3
    
    
    623
    
    
    10,147
    
    
    10,770
    
    
    339
    
    
    2001
    
    
    Nov-03EdenTerrace
      of Louisville, KY
    
    
    7,915
    
    
    886
    
    
    11,897
    
    
    —
    
    
    11
    
    
    886
    
    
    11,908
    
    
    12,794
    
    
    394
    
    
    2001
    
    
    Nov-03EdenGardens
      of Marietta, GA
    
    
    —
    
    
    571
    
    
    4,397
    
    
    —
    
    
    28
    
    
    571
    
    
    4,425
    
    
    4,996
    
    
    150
    
    
    1998
    
    
    Nov-03EdenBrook
      of Plano, TX
    
    
    6,390
    
    
    464
    
    
    12,004
    
    
    —
    
    
    18
    
    
    464
    
    
    12,022
    
    
    12,486
    
    
    386
    
    
    2000
    
    
    Nov-03EdenGardens
      of Rock Hill, SC
    
    
    —
    
    
    277
    
    
    6,783
    
    
    —
    
    
    49
    
    
    277
    
    
    6,832
    
    
    7,109
    
    
    237
    
    
    1995
    
    
    Nov-03EdenGardens
      of Roswell, GA
    
    
    —
    
    
    440
    
    
    2,007
    
    
    —
    
    
    21
    
    
    440
    
    
    2,028
    
    
    2,468
    
    
    93
    
    
    1998
    
    
    Nov-03EdenBrook
      of The Woodlands, TX
    
    
    4,992
    
    
    395
    
    
    13,490
    
    
    —
    
    
    24
    
    
    395
    
    
    13,514
    
    
    13,909
    
    
    434
    
    
    2000
    
    
    Nov-03Summit
      at Park Hills, OH
    
    
    —
    
    
    149
    
    
    6,230
    
    
    —
    
    
    —
    
    
    149
    
    
    6,230
    
    
    6,379
    
    
    89
    
    
    2001
    
    
    Jun-04Brighton
      Gardens of Carlsbad, CA
    
    
    —
    
    
    5,530
    
    
    9,007
    
    
    —
    
    
    —
    
    
    5,530
    
    
    9,007
    
    
    14,537
    
    
    36
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of San Dimas, CA
    
    
    —
    
    
    3,390
    
    
    19,788
    
    
    —
    
    
    —
    
    
    3,390
    
    
    19,788
    
    
    23,178
    
    
    70
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of Carmel Valley, CA
    
    
    —
    
    
    3,729
    
    
    22,081
    
    
    —
    
    
    —
    
    
    3,729
    
    
    22,081
    
    
    25,810
    
    
    79
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of San Juan Capistrano, CA
    
    
    —
    
    
    3,009
    
    
    5,144
    
    
    —
    
    
    —
    
    
    3,009
    
    
    5,144
    
    
    8,153
    
    
    26
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of Woodbridge, CT
    
    
    —
    
    
    1,624
    
    
    5,457
    
    
    —
    
    
    —
    
    
    1,624
    
    
    5,457
    
    
    7,081
    
    
    21
    
    
    1998
    
    
    Nov-04Brighton
      Gardens of Pikesville, MD
    
    
    —
    
    
    1,118
    
    
    8,264
    
    
    —
    
    
    —
    
    
    1,118
    
    
    8,264
    
    
    9,382
    
    
    32
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of North Shore, MA
    
    
    —
    
    
    1,815
    
    
    25,311
    
    
    —
    
    
    —
    
    
    1,815
    
    
    25,311
    
    
    27,126
    
    
    86
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of Dedham, MA
    
    
    —
    
    
    1,806
    
    
    18,682
    
    
    —
    
    
    —
    
    
    1,806
    
    
    18,682
    
    
    20,488
    
    
    68
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of Paramus, NJ
    
    
    —
    
    
    2,826
    
    
    20,012
    
    
    —
    
    
    —
    
    
    2,826
    
    
    20,012
    
    
    22,838
    
    
    73
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of Arlington, VA
    
    
    —
    
    
    4,658
    
    
    13,907
    
    
    —
    
    
    —
    
    
    4,658
    
    
    13,907
    
    
    18,565
    
    
    51
    
    
    1999
    
    
    Nov-04Brighton
      Gardens of Richmond, VA
    
    
    —
    
    
    905
    
    
    7,604
    
    
    —
    
    
    —
    
    
    905
    
    
    7,604
    
    
    8,509
    
    
    30
    
    
    1999
    
    
    Nov-04Bickford
      Cottage of Davenport, IA
    
    
    3,477
    
    
    213
    
    
    5,639
    
    
    —
    
    
    —
    
    
    213
    
    
    5,639
    
    
    5,852
    
    
    58
    
    
    1999
    
    
    Aug-04Bickford
      Cottage of Marion, IA
    
    
    2,847
    
    
    224
    
    
    5,711
    
    
    —
    
    
    —
    
    
    224
    
    
    5,711
    
    
    5,935
    
    
    58
    
    
    1998
    
    
    Aug-04Bickford
      Cottage of Champaign, IL
    
    
    —
    
    
    54
    
    
    2,501
    
    
    —
    
    
    —
    
    
    54
    
    
    2,501
    
    
    2,555
    
    
    27
    
    
    2003
    
    
    Aug-04Bickford
      House of Bloomington, IL
    
    
    —
    
    
    514
    
    
    6,866
    
    
    —
    
    
    —
    
    
    514
    
    
    6,866
    
    
    7,380
    
    
    72
    
    
    2000
    
    
    Aug-04Bickford
      Cottage of Macomb, IL
    
    
    —
    
    
    54
    
    
    4,315
    
    
    —
    
    
    —
    
    
    54
    
    
    4,315
    
    
    4,369
    
    
    45
    
    
    2003
    
    
    Aug-04Bickford
      Cottage of Peoria, IL
    
    
    —
    
    
    375
    
    
    7,659
    
    
    —
    
    
    —
    
    
    375
    
    
    7,659
    
    
    8,034
    
    
    79
    
    
    2001
    
    
    Aug-04Courtyard
      Manor of Auburn Hills, MI
    
    
    —
    
    
    1,746
    
    
    7,574
    
    
    —
    
    
    7
    
    
    1,746
    
    
    7,581
    
    
    9,327
    
    
    151
    
    
    1999
    
    
    Apr-04Courtyard
      Manor at Sterling Heights, MI
    
    
    —
    
    
    1,076
    
    
    7,834
    
    
    —
    
    
    4
    
    
    1,076
    
    
    7,838
    
    
    8,914
    
    
    155
    
    
    1989
    
    
    Apr-04The
      Park at Olympia Fields, IL
    
    
    19,000
    
    
    3,303
    
    
    38,891
    
    
    —
    
    
    —
    
    
    3,303
    
    
    38,891
    
    
    42,194
    
    
    892
    
    
    1999
    
    
    Feb-04East
      Bay Manor, RI
    
    
    8,235
    
    
    686
    
    
    12,752
    
    
    —
    
    
    —
    
    
    686
    
    
    12,752
    
    
    13,438
    
    
    304
    
    
    1992
    
    
    Feb-04Greenwich
      Bay Manor, RI
    
    
    7,250
    
    
    180
    
    
    11,401
    
    
    —
    
    
    —
    
    
    180
    
    
    11,401
    
    
    11,581
    
    
    267
    
    
    1980
    
    
    Feb-04West
      Bay Manor, RI
    
    
    10,000
    
    
    1,900
    
    
    15,481
    
    
    —
    
    
    —
    
    
    1,900
    
    
    15,481
    
    
    17,381
    
    
    358
    
    
    1972
    
    
    Feb-04





67


CNL
Retirement Properties, Inc.


Schedule
III - Real Estate and Accumulated Depreciation


December
31, 2004


(dollars
in thousands)





Initial
      Cost to Company (2)
    
    Costs
      Capitalized
      Subsequent
      to Acquisition
    
    Gross
      Amount at Which Carried at Close
      of
      PeriodEncum-
      brances
      (1)
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Total
    
    Accumulated
      Depreciation
      (a)
    
    Date
      Constructed
    
    Date
      AcquiredWaterside
      Retirement Estates, FL
    
    
    19,100
    
    
    1,820
    
    
    32,645
    
    
    —
    
    
    —
    
    
    1,820
    
    
    32,645
    
    
    34,465
    
    
    735
    
    
    1980
    
    
    Feb-04Carrington
      Pointe, CA
    
    
    12,400
    
    
    1,636
    
    
    27,753
    
    
    —
    
    
    —
    
    
    1,636
    
    
    27,753
    
    
    29,389
    
    
    617
    
    
    1988
    
    
    Feb-04Cherry
      Hills Club, CA
    
    
    6,250
    
    
    1,428
    
    
    23,814
    
    
    —
    
    
    —
    
    
    1,428
    
    
    23,814
    
    
    25,242
    
    
    550
    
    
    1987
    
    
    Feb-04The
      Park at Golf Mills, IL
    
    
    28,066
    
    
    2,291
    
    
    58,811
    
    
    —
    
    
    —
    
    
    2,291
    
    
    58,811
    
    
    61,102
    
    
    1,338
    
    
    1989
    
    
    Feb-04The
      Heritage Palmeras, AZ
    
    
    27,222
    
    
    1,556
    
    
    45,622
    
    
    —
    
    
    —
    
    
    1,556
    
    
    45,622
    
    
    47,178
    
    
    1,037
    
    
    1996
    
    
    Feb-04The
      Pointe at Newport Place, FL
    
    
    3,080
    
    
    900
    
    
    6,453
    
    
    —
    
    
    —
    
    
    900
    
    
    6,453
    
    
    7,353
    
    
    175
    
    
    2000
    
    
    Feb-04Newport
      Place, FL
    
    
    18,918
    
    
    5,265
    
    
    41,850
    
    
    —
    
    
    —
    
    
    5,265
    
    
    41,850
    
    
    47,115
    
    
    961
    
    
    1993
    
    
    Feb-04Prosperity
      Oaks, FL
    
    
    33,159
    
    
    5,415
    
    
    59,690
    
    
    —
    
    
    —
    
    
    5,415
    
    
    59,690
    
    
    65,105
    
    
    1,352
    
    
    1988
    
    
    Feb-04Pinecrest
      Place Retirement Community, FL
    
    
    32,530
    
    
    893
    
    
    60,674
    
    
    —
    
    
    —
    
    
    893
    
    
    60,674
    
    
    61,567
    
    
    1,384
    
    
    1988
    
    
    Feb-04North
      Bay Manor, RI
    
    
    12,742
    
    
    464
    
    
    19,402
    
    
    —
    
    
    —
    
    
    464
    
    
    19,402
    
    
    19,866
    
    
    454
    
    
    1989
    
    
    Feb-04South
      Bay Manor, RI
    
    
    12,490
    
    
    654
    
    
    16,606
    
    
    —
    
    
    —
    
    
    654
    
    
    16,606
    
    
    17,260
    
    
    383
    
    
    1988
    
    
    Feb-04Emerald
      Bay Manor, RI
    
    
    10,400
    
    
    1,382
    
    
    18,237
    
    
    —
    
    
    —
    
    
    1,382
    
    
    18,237
    
    
    19,619
    
    
    432
    
    
    1999
    
    
    Feb-04Treemont
      Retirement Community, TX
    
    
    12,750
    
    
    3,211
    
    
    17,096
    
    
    —
    
    
    —
    
    
    3,211
    
    
    17,096
    
    
    20,307
    
    
    407
    
    
    1974
    
    
    Feb-04The
      Park at Riverchase, AL
    
    
    —
    
    
    1,159
    
    
    6,246
    
    
    —
    
    
    —
    
    
    1,159
    
    
    6,246
    
    
    7,405
    
    
    174
    
    
    1997
    
    
    Feb-04Heron's
      Run, FL
    
    
    —
    
    
    446
    
    
    1,798
    
    
    —
    
    
    —
    
    
    446
    
    
    1,798
    
    
    2,244
    
    
    42
    
    
    1993
    
    
    Feb-04Sakonnet
      Bay Manor, RI
    
    
    —
    
    
    4,383
    
    
    21,963
    
    
    —
    
    
    —
    
    
    4,383
    
    
    21,963
    
    
    26,346
    
    
    217
    
    
    1998
    
    
    Aug-04Terrace
      at Memorial City, TX
    
    
    19,000
    
    
    4,336
    
    
    33,496
    
    
    —
    
    
    —
    
    
    4,336
    
    
    33,496
    
    
    37,832
    
    
    39
    
    
    1992
    
    
    Dec-04Spring
      Shadows Place, TX
    
    
    6,419
    
    
    2,943
    
    
    6,288
    
    
    —
    
    
    —
    
    
    2,943
    
    
    6,288
    
    
    9,231
    
    
    7
    
    
    1973
    
    
    Dec-04Terrace
      at West University, TX
    
    
    17,281
    
    
    3,650
    
    
    24,976
    
    
    —
    
    
    —
    
    
    3,650
    
    
    24,976
    
    
    28,626
    
    
    31
    
    
    1998
    
    
    Dec-04Terrace
      at Willowbrook, TX
    
    
    17,800
    
    
    2,243
    
    
    23,551
    
    
    —
    
    
    —
    
    
    2,243
    
    
    23,551
    
    
    25,794
    
    
    27
    
    
    1996
    
    
    Dec-04Terrace
      at Clear Lake, TX
    
    
    11,750
    
    
    2,068
    
    
    22,769
    
    
    —
    
    
    —
    
    
    2,068
    
    
    22,769
    
    
    24,837
    
    
    28
    
    
    2000
    
    
    Dec-04Terrace
      at First Colony, TX
    
    
    17,750
    
    
    2,160
    
    
    22,871
    
    
    —
    
    
    —
    
    
    2,160
    
    
    22,871
    
    
    25,031
    
    
    28
    
    
    2000
    
    
    Dec-04Sunrise
      of Des Peres, MO
    
    
    —
    
    
    4,129
    
    
    17,773
    
    
    —
    
    
    —
    
    
    4,129
    
    
    17,773
    
    
    21,902
    
    
    161
    
    
    2004
    
    
    Mar-04Sunrise
      of Clayton, MO
    
    
    —
    
    
    3,565
    
    
    15,945
    
    
    —
    
    
    —
    
    
    3,565
    
    
    15,945
    
    
    19,510
    
    
    279
    
    
    2004
    
    
    Mar-04Sunrise
      of Wilmette, IL
    
    
    —
    
    
    2,640
    
    
    7,053
    
    
    —
    
    
    —
    
    
    2,640
    
    
    7,053
    
    
    9,693
    
    
    70
    
    
    2004
    
    
    Mar-04Boardwalk
      Medical Office, TX
    
    
    7,685
    
    
    1,665
    
    
    11,367
    
    
    —
    
    
    —
    
    
    1,665
    
    
    11,367
    
    
    13,032
    
    
    293
    
    
    1997
    
    
    Apr-04Las
      Colinas Medical Plaza II, TX
    
    
    6,953
    
    
    1,763
    
    
    8,801
    
    
    —
    
    
    —
    
    
    1,763
    
    
    8,801
    
    
    10,564
    
    
    276
    
    
    2001
    
    
    Apr-04Independence
      Park-4204, NC
    
    
    3,421
    
    
    1,768
    
    
    8,160
    
    
    —
    
    
    440
    
    
    1,768
    
    
    8,600
    
    
    10,368
    
    
    224
    
    
    1994
    
    
    Apr-04Independence
      Park-4228, NC
    
    
    1,085
    
    
    888
    
    
    2,483
    
    
    —
    
    
    —
    
    
    888
    
    
    2,483
    
    
    3,371
    
    
    101
    
    
    1997
    
    
    Apr-04Independence
      Park-4233, NC
    
    
    1,280
    
    
    1,880
    
    
    2,075
    
    
    —
    
    
    —
    
    
    1,880
    
    
    2,075
    
    
    3,955
    
    
    169
    
    
    1996
    
    
    Apr-04Independence
      Park-4323, NC
    
    
    1,168
    
    
    694
    
    
    2,647
    
    
    —
    
    
    —
    
    
    694
    
    
    2,647
    
    
    3,341
    
    
    81
    
    
    1997
    
    
    Apr-04Tampa
      Medical Tower, FL
    
    
    6,150
    
    
    2,648
    
    
    7,243
    
    
    —
    
    
    105
    
    
    2,648
    
    
    7,348
    
    
    9,996
    
    
    541
    
    
    1984
    
    
    Apr-04Yorktown
      50, VA
    
    
    14,917
    
    
    2,089
    
    
    22,618
    
    
    —
    
    
    24
    
    
    2,089
    
    
    22,642
    
    
    24,731
    
    
    642
    
    
    1974
    
    
    Apr-04Sherman
      Oaks Medical Center, CA
    
    
    9,669
    
    
    9,024
    
    
    5,272
    
    
    —
    
    
    64
    
    
    9,024
    
    
    5,336
    
    
    14,360
    
    
    465
    
    
    1953
    
    
    Apr-04Valencia
      Medical Center, CA
    
    
    5,183
    
    
    1,312
    
    
    5,336
    
    
    —
    
    
    63
    
    
    1,312
    
    
    5,399
    
    
    6,711
    
    
    234
    
    
    1983
    
    
    Apr-04Encino
      Medical Plaza, CA
    
    
    7,522
    
    
    6,904
    
    
    9,253
    
    
    —
    
    
    135
    
    
    6,904
    
    
    9,388
    
    
    16,292
    
    
    458
    
    
    1973
    
    
    Apr-04Rocky
      Mountain Cancer Center, CO
    
    
    4,680
    
    
    1,069
    
    
    7,801
    
    
    —
    
    
    —
    
    
    1,069
    
    
    7,801
    
    
    8,870
    
    
    193
    
    
    1993
    
    
    Apr-04





68


CNL
Retirement Properties, Inc.


Schedule
III - Real Estate and Accumulated Depreciation


December
31, 2004


(dollars
in thousands)





Initial
      Cost to Company (2)
    
    Costs
      Capitalized
      Subsequent
      to Acquisition
    
    Gross
      Amount at Which Carried at Close
      of
      PeriodEncum-
      brances
      (1)
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Total
    
    Accumulated
      Depreciation
      (a)
    
    Date
      Constructed
    
    Date
      AcquiredAurora
      Medical Center II, CO
    
    
    4,699
    
    
    134
    
    
    9,218
    
    
    —
    
    
    2
    
    
    134
    
    
    9,220
    
    
    9,354
    
    
    363
    
    
    1994
    
    
    Apr-04Aurora
      Medical Center I, CO
    
    
    5,264
    
    
    123
    
    
    8,485
    
    
    —
    
    
    19
    
    
    123
    
    
    8,504
    
    
    8,627
    
    
    380
    
    
    1981
    
    
    Apr-04Dorsey
      Hall Medical Center, MD
    
    
    3,913
    
    
    1,324
    
    
    4,020
    
    
    —
    
    
    9
    
    
    1,324
    
    
    4,029
    
    
    5,353
    
    
    207
    
    
    1988
    
    
    Apr-04Chesapeake
      Medical Center, VA
    
    
    —
    
    
    2,087
    
    
    7,520
    
    
    —
    
    
    —
    
    
    2,087
    
    
    7,520
    
    
    9,607
    
    
    329
    
    
    1988
    
    
    Apr-04Randolph
      Medical Center, MD
    
    
    —
    
    
    2,575
    
    
    6,453
    
    
    —
    
    
    421
    
    
    2,575
    
    
    6,874
    
    
    9,449
    
    
    261
    
    
    1975
    
    
    Apr-04Plano
      Medical Center, TX
    
    
    —
    
    
    2,519
    
    
    12,190
    
    
    —
    
    
    4
    
    
    2,519
    
    
    12,194
    
    
    14,713
    
    
    465
    
    
    1984
    
    
    Apr-04Medical
      Place I, TX
    
    
    —
    
    
    876
    
    
    23,889
    
    
    —
    
    
    116
    
    
    876
    
    
    24,005
    
    
    24,881
    
    
    1,043
    
    
    1984
    
    
    Apr-04Northwest
      Regional Medical Center, TX
    
    
    —
    
    
    599
    
    
    6,646
    
    
    —
    
    
    —
    
    
    599
    
    
    6,646
    
    
    7,245
    
    
    197
    
    
    1999
    
    
    Apr-04The
      Diagnostic Clinic, FL
    
    
    —
    
    
    2,569
    
    
    26,918
    
    
    —
    
    
    58
    
    
    2,569
    
    
    26,976
    
    
    29,545
    
    
    700
    
    
    1972
    
    
    Apr-04BayCare
      Health Headquarters, FL
    
    
    —
    
    
    3,019
    
    
    6,713
    
    
    —
    
    
    —
    
    
    3,019
    
    
    6,713
    
    
    9,732
    
    
    291
    
    
    1988
    
    
    Apr-04Southwest
      General Birth Place, TX
    
    
    —
    
    
    990
    
    
    12,308
    
    
    —
    
    
    —
    
    
    990
    
    
    12,308
    
    
    13,298
    
    
    153
    
    
    1994
    
    
    Aug-04Baytown
      Plaza I & II, TX
    
    
    —
    
    
    337
    
    
    1,096
    
    
    —
    
    
    6
    
    
    337
    
    
    1,102
    
    
    1,439
    
    
    78
    
    
    1972
    
    
    Aug-04South
      Seminole Medical Office Building II, FL
    
    
    —
    
    
    709
    
    
    4,063
    
    
    —
    
    
    4
    
    
    709
    
    
    4,067
    
    
    4,776
    
    
    157
    
    
    1987
    
    
    Aug-04South
      Seminole Medical Office Building III, FL
    
    
    —
    
    
    769
    
    
    1,768
    
    
    —
    
    
    —
    
    
    769
    
    
    1,768
    
    
    2,537
    
    
    98
    
    
    1993
    
    
    Aug-04Orlando
      Professional Center I, FL
    
    
    —
    
    
    384
    
    
    788
    
    
    —
    
    
    —
    
    
    384
    
    
    788
    
    
    1,172
    
    
    58
    
    
    1969
    
    
    Aug-04Orlando
      Professional Center II, FL
    
    
    —
    
    
    1,258
    
    
    1,704
    
    
    322
    
    
    —
    
    
    1,580
    
    
    1,704
    
    
    3,284
    
    
    81
    
    
    1963
    
    
    Aug-04Oviedo
      Medical Center, FL
    
    
    —
    
    
    1,712
    
    
    6,484
    
    
    —
    
    
    223
    
    
    1,712
    
    
    6,707
    
    
    8,419
    
    
    302
    
    
    1997
    
    
    Aug-04MedPlex
      B at Sand Lake Commons, FL
    
    
    —
    
    
    2,679
    
    
    3,235
    
    
    —
    
    
    1
    
    
    2,679
    
    
    3,236
    
    
    5,915
    
    
    89
    
    
    1988
    
    
    Aug-04Eagle
      Creek Medical Plaza, KY
    
    
    —
    
    
    14
    
    
    3,411
    
    
    —
    
    
    —
    
    
    14
    
    
    3,411
    
    
    3,425
    
    
    152
    
    
    1982
    
    
    Aug-04Sand
      Lake Physicians Office Building, FL
    
    
    —
    
    
    23
    
    
    1,748
    
    
    —
    
    
    —
    
    
    23
    
    
    1,748
    
    
    1,771
    
    
    67
    
    
    1985
    
    
    Aug-04North
      Alvernon Medical, AZ
    
    
    —
    
    
    2,969
    
    
    9,197
    
    
    —
    
    
    32
    
    
    2,969
    
    
    9,229
    
    
    12,198
    
    
    257
    
    
    1986
    
    
    Aug-04St.
      Joseph's Medical Plaza, AZ
    
    
    —
    
    
    511
    
    
    7,736
    
    
    —
    
    
    —
    
    
    511
    
    
    7,736
    
    
    8,247
    
    
    208
    
    
    1985
    
    
    Aug-04Mercy
      Medical Office Building
    
    
    —
    
    
    —
    
    
    3,049
    
    
    —
    
    
    4
    
    
    —
    
    
    3,053
    
    
    3,053
    
    
    102
    
    
    1986
    
    
    Aug-04Elgin
      Medical Office Building I, IL
    
    
    —
    
    
    —
    
    
    6,291
    
    
    —
    
    
    —
    
    
    —
    
    
    6,291
    
    
    6,291
    
    
    238
    
    
    1991
    
    
    Aug-04Elgin
      Medical Office Building II, IL
    
    
    —
    
    
    —
    
    
    6,861
    
    
    —
    
    
    1
    
    
    —
    
    
    6,862
    
    
    6,862
    
    
    241
    
    
    2001
    
    
    Aug-04Santa
      Rosa Medical Office Building, GA
    
    
    —
    
    
    13
    
    
    8,111
    
    
    —
    
    
    6
    
    
    13
    
    
    8,117
    
    
    8,130
    
    
    106
    
    
    2003
    
    
    Aug-04Fannin
      Medical Office Building, GA
    
    
    —
    
    
    9
    
    
    2,397
    
    
    —
    
    
    118
    
    
    9
    
    
    2,515
    
    
    2,524
    
    
    35
    
    
    2002
    
    
    Aug-04Physicians
      East and West, TX
    
    
    —
    
    
    3
    
    
    4,276
    
    
    —
    
    
    —
    
    
    3
    
    
    4,276
    
    
    4,279
    
    
    127
    
    
    1991
    
    
    Aug-04Brentwood
      Medical Center, CA
    
    
    —
    
    
    739
    
    
    15,501
    
    
    —
    
    
    5,421
    
    
    739
    
    
    20,922
    
    
    21,661
    
    
    —
    
    
    (3
    )
    
    Aug-04Heartland
      Regional Medical Office Building, IL
    
    
    —
    
    
    99
    
    
    9,788
    
    
    —
    
    
    301
    
    
    99
    
    
    10,089
    
    
    10,188
    
    
    216
    
    
    2002
    
    
    Aug-04Saint
      Joseph East Office Park, KY
    
    
    —
    
    
    17
    
    
    9,896
    
    
    —
    
    
    21
    
    
    17
    
    
    9,917
    
    
    9,934
    
    
    140
    
    
    2003
    
    
    Aug-04Central
      Mississippi Medical Center Building, MS
    
    
    —
    
    
    34
    
    
    8,409
    
    
    —
    
    
    154
    
    
    34
    
    
    8,563
    
    
    8,597
    
    
    118
    
    
    2002
    
    
    Aug-04River
      Oaks Medical Building, MS
    
    
    —
    
    
    19
    
    
    7,127
    
    
    —
    
    
    286
    
    
    19
    
    
    7,413
    
    
    7,432
    
    
    106
    
    
    2003
    
    
    Aug-04Parker
      Adventist Professional Building, CO
    
    
    —
    
    
    16
    
    
    14,586
    
    
    —
    
    
    588
    
    
    16
    
    
    15,174
    
    
    15,190
    
    
    230
    
    
    2004
    
    
    Aug-04NASA
      Parkway Medical Office Building, TX
    
    
    —
    
    
    460
    
    
    7,478
    
    
    —
    
    
    —
    
    
    460
    
    
    7,478
    
    
    7,938
    
    
    124
    
    
    2002
    
    
    Aug-04Lake
      Granbury Medical Plaza, TX
    
    
    —
    
    
    63
    
    
    6,197
    
    
    —
    
    
    2,272
    
    
    63
    
    
    8,469
    
    
    8,532
    
    
    90
    
    
    2001
    
    
    Aug-04Durant
      Medical Center, OK
    
    
    —
    
    
    1,133
    
    
    7,914
    
    
    —
    
    
    —
    
    
    1,133
    
    
    7,914
    
    
    9,047
    
    
    127
    
    
    1998
    
    
    Aug-04Jackson
      Central II, MS
    
    
    —
    
    
    —
    
    
    485
    
    
    —
    
    
    867
    
    
    —
    
    
    1,352
    
    
    1,352
    
    
    —
    
    
    (3
    )
    
    Aug-04





69


CNL
Retirement Properties, Inc.


Schedule
III - Real Estate and Accumulated Depreciation


December
31, 2004


(dollars
in thousands)





Initial
      Cost to Company (2)
    
    Costs
      Capitalized
      Subsequent
      to Acquisition
    
    Gross
      Amount at Which Carried at Close
      of
      PeriodEncum-
      brances
      (1)
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Land
    
    Building,
      Fixtures
      and
      Equipment
    
    Total
    
    Accumulated
      Depreciation
      (a)
    
    Date
      Constructed
    
    Date
      AcquiredMcDowell
      Mountain Medical Plaza, AZ
    
    
    11,268
    
    
    6,219
    
    
    9,066
    
    
    —
    
    
    112
    
    
    6,219
    
    
    9,178
    
    
    15,397
    
    
    89
    
    
    1999
    
    
    Nov-04Lakeside
      Healthpark Medical Office Building, NE
    
    
    2,021
    
    
    —
    
    
    1,928
    
    
    —
    
    
    1,474
    
    
    —
    
    
    3,402
    
    
    3,402
    
    
    —
    
    
    (3
    )
    
    Nov-04Other
    
    
    —
    
    
    —
    
    
    —
    
    
    19
    
    
    583
    
    
    19
    
    
    583
    
    
    602
    
    
    44
    
    
    n/a
    
    
    n/a$
    1,001,153
    
    $
    311,277
    
    $
    2,253,037
    
    $
    1,474
    
    $
    104,235
    
    $
    312,751
    
    $
    2,357,272
    
    $
    2,670,023
    
    $
    74,510


(1)
    Excludes
      encumbrances of $112.4 million that are carried on properties accounted
      for using the direct financing method.


(2)
    Includes
      Properties under construction.


(3)
    Property
      was under construction at December 31,
2004.








70


CNL
RETIREMENT PROPERTIES, INC.


AND
SUBSIDIARIES


NOTES TO
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION


December
31, 2004


(dollars
in thousands)





(a)
    Transactions
      in real estate and accumulated depreciation during 2002, 2003 and 2004 are
      summarized as follows:





Cost
      (b) (d)
    
    Accumulated
      DepreciationProperties
      the Company has invested
      in
      under operating leases:Balance,
      December 31, 2001
    
    $
    36,060
    
    $
    827Acquisitions
    
    
    213,820
    
    
    3⁄4Depreciation
      expense (c)
    
    
    3⁄4
    
    
    3,076Balance,
      December 31, 2002
    
    
    249,880
    
    
    3,903Acquisitions
    
    
    850,430
    
    
    3⁄4Depreciation
      expense (c)
    
    
    3⁄4
    
    
    16,345Balance,
      December 31, 2003
    
    
    1,100,310
    
    
    20,248Acquisitions
    
    
    1,573,078
    
    
    3⁄4Impairment
      provisions
    
    
    (1,883
    )
    
    3⁄4Real
      estate held for sale
    
    
    (1,482
    )
    
    (102
    )Depreciation
      expense (c)
    
    
    3⁄4
    
    
    54,364Balance,
      December 31, 2004
    
    $
    2,670,023
    
    $
    74,510





(b)
    As
      of December 31, 2004, 2003, and 2002, the aggregate cost of the Properties
      owned by the Company for federal income tax purposes, including Properties
      accounted for using the operating method and those accounted for using the
      direct financing method, was $3.0 billion, $1.3 billion and $258.3
      million, respectively. Certain leases accounted for under the direct
      financing method are treated as operating leases for federal income tax
      purposes.





(c)
    Depreciation
      expense is computed for buildings and equipment based upon estimated lives
      of 39-40 years, and 3 to 7 years,
respectively.





(d)
    Acquisition
      fees and miscellaneous closing costs of $78.3 million, $60.1 million and
      $13.1 million are included in land, buildings, equipment and intangible
      lease costs at December 31, 2004, 2003 and 2002, respectively.






















71












































**EXHIBITS**











**EXHIBIT INDEX**


*Exhibit
Index*





3.1
    Articles
      of Amendment and Restatement of CNL Retirement Properties, Inc. dated July
      28, 2003.*(Included
      as Exhibit 3.8 to the Registrant's Registration Statement on Form S-11
      (Registration No. 333-107486) filed on July 30, 2003, and incorporated
      herein by reference.)*




3.2
    CNL
      Health Care Properties, Inc. Bylaws. *(Included
      as Exhibit 3.2 to the Registrant's 1998 Report on Form 10-K filed on March
      5, 1999, and incorporated herein by
  reference.)*





3.3
    Amendment
      No. 1 to the Bylaws of CNL Health Care Properties, Inc.*(Included
      as Exhibit 3.6 to Pre-effective Amendment No. One to the Registrant's
      Registration Statement on Form S-11 filed March 31, 2000, and incorporated
      herein by reference.)*





3.4
    Amendment
      No. 2 to the Bylaws of CNL Retirement Properties, Inc.*(Included
      as Exhibit 3.7 to Post-effective Amendment No. One to the Registrant's
      Registration Statement on Form S-11 (Registration No. 333-100347) filed
      June 25, 2003, and incorporated herein by
  reference.)*





3.5
    Articles
      of Amendment of CNL Retirement Properties, Inc. dated July 19, 2004.*(Included
      as Exhibit 3.5 to the Registrant's September 30, 2004, Report on Form 10-Q
      filed on November 5, 2004 and incorporated herein by
      reference.)*





4.1
    Form
      of Reinvestment Plan*(Included
      as Exhibit 4.4 to Registrant's Registration Statement on Form S-11
      (Registration No. 333-37480), and incorporated herein by
      reference.)*





10.1
    Advisory
      Agreement, dated as of May 3, 2004 between CNL Retirement Properties, Inc.
      and CNL Retirement Corp.*(Included
      as Exhibit 10.2 to Post-Effective Amendment No. One to the Registrant's
      Registration Statement on Form S-11 filed June 14, 2004, and incorporated
      herein by reference.)*





10.2
    Indemnification
      Agreement between CNL Health Care Properties, Inc. and Thomas J. Hutchison
      III dated February 29, 2000. Each of the following directors and/or
      officers has signed a substantially similar agreement as follows: James M.
      Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy S. Smick, Edward
      A. Moses, Jeanne A. Wall, and Lynn E. Rose dated September 15, 1998,
      Phillip M. Anderson, Jr. dated February 19, 1999, James W. Duncan dated
      February 22, 2002, Stuart J. Beebe dated July 15, 2002 and Marcel Verbaas
      dated April 19, 2004.*(Included
      as Exhibit 10.2 to Registrant’s Form 10-Q filed on May 3, 2000, and
      incorporated herein by reference.)*





10.3
    Agreement
      of Limited Partnership of CNL Health Care Partners, LP.*(Included
      as Exhibit 10.10 to Post-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2000, and incorporated
      herein by reference.)*





10.4
    Credit
      Agreement between CNL Retirement Partners, LP as Borrower, CNL Retirement
      GP Corp., CNL Retirement LP Corp. and CNL Retirement Properties, Inc., as
      Guarantors, Bank of America, NA, as Administrative Agent and Bank of
      America Securities, LLC as Sole Lead Arranger and Book Manager dated March
      17, 2003.*(Included
      as Exhibit 10.47 to the Registrant's March 31, 2003, Report on Form 10-Q
      filed on May 15, 2003, and incorporated herein by
      reference.)*





10.5
    Purchase
      and Sale Agreement by and among Riverchase Assisted Living, Ltd., Senior
      Lifestyle Heritage, L.L.C., Integrated Management - Carrington Pointe,
      L.L.C., Integrated Living Communities of West Palm Beach, L.L.C., Senior
      Lifestyle Newport Limited Partnership, Senior Lifestyle Pinecrest Limited
      Partnership, Senior Lifestyle Prosperity Limited Partnership, Integrated
      Living Communities of Sarasota, L.L.C., Olympia Fields Senior Housing,
      L.L.C., Senior Lifestyle East Bay Limited Partnership, Senior Lifestyle
      Emerald Bay Limited Partnership, Greenwich Bay, L.L.C., Senior Lifestyle
      North Bay Limited Partnership, Senior Lifestyle Sakonnet Bay Limited
      Partnership, South Bay Manor, L.L.C., West Bay Manor, L.L.C. and
      Integrated Living Communities of Dallas, L.P., collectively, as Sellers,
      and CNL Retirement Corp., as Purchaser dated December 19, 2003.*(Included
      as Exhibit 10.62 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*








10.6
    First
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      December 30, 2003.*(Included
      as Exhibit 10.63 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.7
    Second
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      December 31, 2003.*(Included
      as Exhibit 10.64 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.8
    Third
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      January 5, 2004.*(Included
      as Exhibit 10.65 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.9
    Fourth
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      January 16, 2004.*(Included
      as Exhibit 10.66 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.10
    Fifth
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      January 20, 2004.*(Included
      as Exhibit 10.67 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*








10.11
    Sixth
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      February 2, 2004.*(Included
      as Exhibit 10.68 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.12
    Seventh
      Amendment to Purchase and Sale Agreement by and among Riverchase Assisted
      Living, Ltd., Senior Lifestyle Heritage, L.L.C., Integrated Management -
      Carrington Pointe, L.L.C., Integrated Living Communities of West Palm
      Beach, L.L.C., Senior Lifestyle Newport Limited Partnership, Senior
      Lifestyle Pinecrest Limited Partnership, Senior Lifestyle Prosperity
      Limited Partnership, Integrated Living Communities of Sarasota, L.L.C.,
      Olympia Fields Senior Housing, L.L.C., Senior Lifestyle East Bay Limited
      Partnership, Senior Lifestyle Emerald Bay Limited Partnership, Greenwich
      Bay, L.L.C., Senior Lifestyle North Bay Limited Partnership, Senior
      Lifestyle Sakonnet Bay Limited Partnership, South Bay Manor, L.L.C., West
      Bay Manor, L.L.C. and Integrated Living Communities of Dallas, L.P.,
      collectively, as Sellers, and CNL Retirement Corp., as Purchaser dated
      February 6, 2004.*(Included
      as Exhibit 10.69 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.13
    Purchase
      and Sale Agreement by and between Niles Lifestyle Limited Partnership, as
      Seller, and CNL Retirement Corp., as Purchaser dated December 19, 2003.*(Included
      as Exhibit 10.70 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*




10.14
    First
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated December 31, 2003. *(Included
      as Exhibit 10.71 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*
  10.15
    Second
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated January 5, 2004. *(Included
      as Exhibit 10.72 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*





10.16
    Third
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated January 20, 2004. *(Included
      as Exhibit 10.73 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*


10.17
    Fourth
      Amendment to Purchase and Sale Agreement by and between Niles Lifestyle
      Limited Partnership, as Seller, and CNL Retirement Corp., as Purchaser
      dated February 6, 2004. *(Included
      as Exhibit 10.74 to Pre-Effective Amendment No. Two to the Registrant's
      Registration Statement on Form S-11 filed March 23, 2004 and incorporated
      herein by reference.)*


21.
    Subsidiaries
      of the Registrant.*(Filed
      herewith.)*





31.1
    Certification
      of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*(Filed
      herewith.)*





31.2
    Certification
      of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*(Filed
      herewith.)*





32.1
    Certification
      of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*(Filed
      herewith.)*





32.2
    Certification
      of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*(Filed
      herewith.)*











**CNL
RETIREMENT PROPERTIES, INC.**


**AND
SUBSIDIARIES**





**EXHIBIT 21**





**SUBSIDIARIES
OF THE REGISTRANT**





The
following is a list of the subsidiaries of the registrant and the state of
incorporation for each:





**Name
      of Subsidiary**
    
    **State
      of Incorporation**CNL
      Retirement Properties, Inc.
    
    MarylandCNL
      Retirement Partners, LP
    
    DelawareAnnapolis
      Assisted Living, LLC
    
    MarylandAurora
      MOB Owner LLC
    
    DelawareBaytown
      MOB Partners, Ltd.
    
    FloridaBrentwood
      MOB Owners LLC
    
    DelawareCNL
      Retirement AM / Colorado LP
    
    DelawareCNL
      Retirement AM / Florida LP
    
    DelawareCNL
      Retirement AM / Illinois LP
    
    DelawareCNL
      Retirement AM / Tennessee LP
    
    DelawareCNL
      Retirement AM / Texas LP
    
    DelawareCNL
      Retirement Aur1 California A Pack GP, LLC
    
    DelawareCNL
      Retirement Aur1 California A Pack, LP
    
    DelawareCNL
      Retirement Aur1 California B Pack GP, LLC
    
    DelawareCNL
      Retirement Aur1 California B Pack, LP
    
    DelawareCNL
      Retirement Aur1 Connecticut GP, LLC
    
    DelawareCNL
      Retirement Aur1 Connecticut, LP
    
    DelawareCNL
      Retirement Aur1 GP, LLC
    
    DelawareCNL
      Retirement Aur1 Maryland GP, LLC
    
    DelawareCNL
      Retirement Aur1 Maryland, LP
    
    DelawareCNL
      Retirement Aur1 Massachusetts GP, LLC
    
    DelawareCNL
      Retirement Aur1 Massachusetts, LP
    
    DelawareCNL
      Retirement Aur1 New Jersey GP, LLC
    
    DelawareCNL
      Retirement Aur1 New Jersey, LP
    
    DelawareCNL
      Retirement Aur1 Virginia GP, LLC
    
    DelawareCNL
      Retirement Aur1 Virginia, LP
    
    DelawareCNL
      Retirement Aur1, LP
    
    DelawareCNL
      Retirement Camarillo CA, LP
    
    DelawareCNL
      Retirement CH1 Saddle River GP, LLC
    
    DelawareCNL
      Retirement CH1 Saddle River, LP
    
    DelawareCNL
      Retirement Clayton OH, LP
    
    DelawareCNL
      Retirement Dartmouth MA, LP
    
    DelawareCNL
      Retirement Development Corp.
    
    FloridaCNL
      Retirement DAS Lender GP, LLC
    
    DelawareCNL
      Retirement DAS Lender, LP
    
    DelawareCNL
      Retirement DAS GP, LLC
    
    DelawareCNL
      Retirement DAS, LP
    
    DelawareCNL
      Retirement DAS Tranche 1 GP, LLC
    
    DelawareCNL
      Retirement DAS Milton FL GP, LLC
    
    DelawareCNL
      Retirement DAS Blue Ridge GA GP, LLC
    
    DelawareCNL
      Retirement DAS Scottsdale AZ GP, LLC
    
    DelawareCNL
      Retirement DAS Lancaster TX GP, LLC
    
    DelawareCNL
      Retirement DAS Brentwood CA GP, LLC
    
    DelawareCNL
      Retirement DAS Chattanooga TN GP, LLC
    
    DelawareCNL
      Retirement DAS Marion IL GP, LLC
    
    DelawareCNL
      Retirement DAS Lexington KY GP, LLC
    
    DelawareCNL
      Retirement DAS Jackson MS GP, LLC
    
    DelawareCNL
      Retirement DAS Jackson II MS GP, LLC
    
    DelawareCNL
      Retirement DAS Parker CO GP, LLC
    
    Delaware
   
  **Name
      of Subsidiary**
    
    **State
      of Incorporation**CNL
      Retirement DAS Texarkana TX GP, LLC
    
    DelawareCNL
      Retirement DAS Nassau Bay TX GP, LLC
    
    DelawareCNL
      Retirement DAS Granbury TX GP, LLC
    
    DelawareCNL
      Retirement DAS Oakbrook IL GP, LLC
    
    DelawareCNL
      Retirement DAS Oakbrook IL, LP
    
    DelawareCNL
      Retirement DAS Pipeline 1, LLC
    
    DelawareCNL
      Retirement DSL1 GP, LLC
    
    DelawareCNL
      Retirement DSL1 Alabama, LP
    
    DelawareCNL
      Retirement Eden1 Florida GP, LLC
    
    DelawareCNL
      Retirement Eden1 Gainesville FL, LLLP
    
    DelawareCNL
      Retirement Eden1 Jacksonville FL, LLLP
    
    DelawareCNL
      Retirement Eden1 Tallahassee FL, LLLP
    
    DelawareCNL
      Retirement Eden2 A Pack GP, LLC
    
    DelawareCNL
      Retirement Eden2 A Pack, LP
    
    DelawareCNL
      Retirement Eden2 B Pack GP, LLC
    
    DelawareCNL
      Retirement Eden2 B Pack, LP
    
    DelawareCNL
      Retirement Eden2 Georgia GP, LLC
    
    DelawareCNL
      Retirement Eden2 Georgia, LP
    
    DelawareCNL
      Retirement Eden2 GP, LLC
    
    DelawareCNL
      Retirement Eden2, LP
    
    DelawareCNL
      Retirement Eden2 North Carolina GP, LLC
    
    DelawareCNL
      Retirement Eden2 North Carolina, LP
    
    DelawareCNL
      Retirement ER1 GP, LLC
    
    DelawareCNL
      Retirement ER1, LP
    
    DelawareCNL
      Retirement ER2 GP, LLC
    
    DelawareCNL
      Retirement ER2, LP
    
    DelawareCNL
      Retirement ER3 GP, LLC
    
    DelawareCNL
      Retirement ER3, LP
    
    DelawareCNL
      Retirement ER4 GP, LLC
    
    DelawareCNL
      Retirement ER4, LP
    
    DelawareCNL
      Retirement ER5 GP,LLC
    
    DelawareCNL
      Retirement ER5, LP
    
    DelawareCNL
      Retirement ER6 GP, LLC
    
    DelawareCNL
      Retirement ER6, LP
    
    DelawareCNL
      Retirement Eby1 Davenport IA, LP
    
    DelawareCNL
      Retirement Eby1 GP, LLC
    
    DelawareCNL
      Retirement Eby1 Illinois GP, LLC
    
    DelawareCNL
      Retirement Eby1 Illinois, LP
    
    DelawareCNL
      Retirement Eby1 Iowa GP, LLC
    
    DelawareCNL
      Retirement Eby1 Marion IA, LP
    
    DelawareCNL
      Retirement Eby1, LP
    
    DelawareCNL
      Retirement GP / Colorado Corp.
    
    DelawareCNL
      Retirement GP Corp.
    
    DelawareCNL
      Retirement GP / Florida Corp.
    
    DelawareCNL
      Retirement GP / Holding Corp.
    
    DelawareCNL
      Retirement GP / Illinois Corp.
    
    DelawareCNL
      Retirement GP National Corp.
    
    DelawareCNL
      Retirement GP / Tennessee Corp.
    
    DelawareCNL
      Retirement GP / Texas Corp.
    
    DelawareCNL
      Retirement GT1 GP, LLC
    
    DelawareCNL
      Retirement GT1 Illinois, LP
    
    DelawareCNL
      Retirement GT1 Indiana, LP
    
    DelawareCNL
      Retirement GT1 Ohio, LP
    
    DelawareCNL
      Retirement HB2 A Pack GP, LLC
    
    Delaware

















**Name
      of Subsidiary**
    
    **State
      of Incorporation**CNL
      Retirement HB2 A Pack, LP
    
    DelawareCNL
      Retirement HB2 Boynton Beach FL GP, LLC
    
    DelawareCNL
      Retirement HB2 Boynton Beach FL, LP
    
    DelawareCNL
      Retirement HB2 California GP, LLC
    
    DelawareCNL
      Retirement HB2 California, LP
    
    DelawareCNL
      Retirement HB2 Cumberland RI GP, LLC
    
    DelawareCNL
      Retirement HB2 Cumberland RI, LP
    
    DelawareCNL
      Retirement HB2 Dallas TX GP, LLC
    
    DelawareCNL
      Retirement HB2 Dallas TX, LP
    
    DelawareCNL
      Retirement HB2 GP, LLC
    
    DelawareCNL
      Retirement HB2 Hoover AL GP, LLC
    
    DelawareCNL
      Retirement HB2 Hoover AL, LP
    
    DelawareCNL
      Retirement HB2 Largo FL GP, LLC
    
    DelawareCNL
      Retirement HB2 Largo FL, LP
    
    DelawareCNL
      Retirement HB2, LP
    
    DelawareCNL
      Retirement HB2 Niles IL GP, LLC
    
    DelawareCNL
      Retirement HB2 Niles IL, LP
    
    DelawareCNL
      Retirement HB2 Palm Beach Gardens FL GP, LLC
    
    DelawareCNL
      Retirement HB2 Palm Beach Gardens FL, LP
    
    DelawareCNL
      Retirement HB2 Sarasota FL GP, LLC
    
    DelawareCNL
      Retirement HB2 Sarasota FL, LP
    
    DelawareCNL
      Retirement HB2 Smithfield RI GP, LLC
    
    DelawareCNL
      Retirement HB2 Smithfield RI, LP
    
    DelawareCNL
      Retirement HB2 South Kingstown RI GP, LLC
    
    DelawareCNL
      Retirement HB2 South Kingstown RI, LP
    
    DelawareCNL
      Retirement HB2 Sun City AZ GP, LLC
    
    DelawareCNL
      Retirement HB2 Sun City AZ, LP
    
    DelawareCNL
      Retirement HB2 Tiverton RI GP, LLC
    
    DelawareCNL
      Retirement HB2 Tiverton RI, LP
    
    DelawareCNL
      Retirement HB2 West Palm Beach FL GP, LLC
    
    DelawareCNL
      Retirement HB2 West Palm Beach FL, LP
    
    DelawareCNL
      Retirement HB3 Clear Lake Webster TX GP, LLC
    
    DelawareCNL
      Retirement HB3 Clear Lake Webster TX, LP
    
    DelawareCNL
      Retirement HB3 First Colony Sugar Land TX GP, LLC
    
    DelawareCNL
      Retirement HB3 First Colony Sugar Land TX, LP
    
    DelawareCNL
      Retirement HB3 GP, LLC
    
    DelawareCNL
      Retirement HB3 Memorial City Houston TX GP, LLC
    
    DelawareCNL
      Retirement HB3 Memorial City Houston TX, LP
    
    DelawareCNL
      Retirement HB3 Spring Shadows Place Houston TX GP, LLC
    
    DelawareCNL
      Retirement HB3 Spring Shadows Place Houston TX, LP
    
    DelawareCNL
      Retirement HB3 West University Houston TX GP, LLC
    
    DelawareCNL
      Retirement HB3 West University Houston TX, LP
    
    DelawareCNL
      Retirement HB3 Willowbrook Houston TX GP, LLC
    
    DelawareCNL
      Retirement HB3 Willowbrook Houston TX, LP
    
    DelawareCNL
      Retirement HB3, LP
    
    DelawareCNL
      Retirement Laguna Creek CA, LP
    
    DelawareCNL
      Retirement LP Corp.
    
    DelawareCNL
      Retirement MA1 GP, LLC
    
    DelawareCNL
      Retirement MA1, LP
    
    DelawareCNL
      Retirement MA2 Arkansas, LP
    
    DelawareCNL
      Retirement MA2 California, LP
    
    DelawareCNL
      Retirement MA2 GP Holding, LLC
    
    DelawareCNL
      Retirement MA2 Illinois, LP
    
    DelawareCNL
      Retirement MA2, LP
    
    DelawareCNL
      Retirement MA2 Massachusetts, LP
    
    DelawareCNL
      Retirement MA2 Ohio, LP
    
    DelawareCNL
      Retirement MA2 Oklahoma, LP
    
    Delaware














**Name
      of Subsidiary**
    
    **State
      of Incorporation**CNL
      Retirement MA2 Utah, LP
    
    DelawareCNL
      Retirement MA3 A Pack GP, LLC
    
    DelawareCNL
      Retirement MA3 A Pack, LP
    
    DelawareCNL
      Retirement MA3 California, LP
    
    DelawareCNL
      Retirement MA3 Georgia, LP
    
    DelawareCNL
      Retirement MA3 GP Holding, LLC
    
    DelawareCNL
      Retirement MA3 Kentucky, LP
    
    DelawareCNL
      Retirement MA3, LP
    
    DelawareCNL
      Retirement MA3 Oklahoma, LP
    
    DelawareCNL
      Retirement MA3 Pennsylvania, LP
    
    DelawareCNL
      Retirement MA3 South Carolina, LP
    
    DelawareCNL
      Retirement MA3 Virginia, LP
    
    DelawareCNL
      Retirement MA3 Washington, LP
    
    DelawareCNL
      Retirement MA4 Cleveland OH, LP
    
    DelawareCNL
      Retirement MA4 Columbia MD, LP
    
    DelawareCNL
      Retirement MA4 Dayton OH, LP
    
    DelawareCNL
      Retirement MA4 Dunwoody GA, LP
    
    DelawareCNL
      Retirement MA4 Florham Park NJ, LP
    
    DelawareCNL
      Retirement MA4 GP Cleveland OH, LLC
    
    DelawareCNL
      Retirement MA4 GP Columbia MD, LLC
    
    DelawareCNL
      Retirement MA4 GP Dayton OH, LLC
    
    DelawareCNL
      Retirement MA4 GP Dunwoody GA, LLC
    
    DelawareCNL
      Retirement MA4 GP Florham Park NJ, LLC
    
    DelawareCNL
      Retirement MA4 GP Florida Holding, LLC
    
    DelawareCNL
      Retirement MA4 GP Greensboro NC, LLC
    
    DelawareCNL
      Retirement MA4 GP Kansas City KS, LLC
    
    DelawareCNL
      Retirement MA4 GP, LLC
    
    DelawareCNL
      Retirement MA4 GP Northville MI, LLC
    
    DelawareCNL
      Retirement MA4 GP Omaha NE, LLC
    
    DelawareCNL
      Retirement MA4 GP Rockville MD, LLC
    
    DelawareCNL
      Retirement MA4 GP St. Charles IL, LLC
    
    DelawareCNL
      Retirement MA4 GP West Orange NJ, LLC
    
    DelawareCNL
      Retirement MA4 GP Wheaton IL, LLC
    
    DelawareCNL
      Retirement MA4 Greensboro NC, LP
    
    DelawareCNL
      Retirement MA4 Kansas City KS, LP
    
    DelawareCNL
      Retirement MA4, LP
    
    DelawareCNL
      Retirement MA4 Northville MI, LP
    
    DelawareCNL
      Retirement MA4 Omaha NE, LP
    
    DelawareCNL
      Retirement MA4 Rockville MD, LP
    
    DelawareCNL
      Retirement MA4 St. Charles IL, LP
    
    DelawareCNL
      Retirement MA4 Tampa FL, LP
    
    DelawareCNL
      Retirement MA4 West Orange NJ, LP
    
    DelawareCNL
      Retirement MA4 Wheaton IL, LP
    
    DelawareCNL
      Retirement MC1 GP, LLC
    
    DelawareCNL
      Retirement MC1 Georgia, LP
    
    DelawareCNL
      Retirement MOP 1110 Irving TX, LP
    
    DelawareCNL
      Retirement MOP 1411 Aurora CO GP, LLC
    
    DelawareCNL
      Retirement MOP 1411 Aurora CO, LP
    
    DelawareCNL
      Retirement MOP 1421 Aurora CO GP, LLC
    
    DelawareCNL
      Retirement MOP 1421 Aurora CO, LP
    
    DelawareCNL
      Retirement MOP A Pack GP, LLC
    
    DelawareCNL
      Retirement MOP B Pack GP, LLC
    
    DelawareCNL
      Retirement MOP 4204 Durham NC, LP
    
    DelawareCNL
      Retirement MOP 4228 Durham NC, LP
    
    DelawareCNL
      Retirement MOP 4233 Durham NC, LP
    
    DelawareCNL
      Retirement MOP 4323 Durham NC, LP
    
    DelawareCNL
      Retirement MOP 7200 Irving TX, LP
    
    DelawareCNL
      Retirement MOP Chesapeake VA, LP
    
    Delaware
  
 **Name
      of Subsidiary**
    
    **State
      of Incorporation**CNL
      Retirement MOP Clearwater FL, LP
    
    DelawareCNL
      Retirement MOP Columbia MD GP, LLC
    
    DelawareCNL
      Retirement MOP Columbia MD, LP
    
    DelawareCNL
      Retirement MOP Corpus Christi TX, LP
    
    DelawareCNL
      Retirement MOP Denver CO GP, LLC
    
    DelawareCNL
      Retirement MOP Denver CO, LP
    
    DelawareCNL
      Retirement MOP Encino CA GP, LLC
    
    DelawareCNL
      Retirement MOP Encino CA, LP
    
    DelawareCNL
      Retirement MOP Fairfax VA, LP
    
    DelawareCNL
      Retirement MOP GP, LLC
    
    DelawareCNL
      Retirement MOP Houston TX, LP
    
    DelawareCNL
      Retirement MOP Largo FL, LP
    
    DelawareCNL
      Retirement MOP Plano TX, LP
    
    DelawareCNL
      Retirement MOP Rockville MD, LP
    
    DelawareCNL
      Retirement MOP Sherman Oaks CA, LP
    
    DelawareCNL
      Retirement MOP Tampa FL, LP
    
    DelawareCNL
      Retirement MOP Valencia CA, LP
    
    DelawareCNL
      Retirement MOP, LP
    
    DelawareCNL
      Retirement MOP 1411 Aurora CO GP, LLC
    
    DelawareCNL
      Retirement MOP 1411 Aurora CO, LP
    
    DelawareCNL
      Retirement MOP 1421 Aurora CO GP, LLC
    
    DelawareCNL
      Retirement MOP 1421 Aurora CO, LP
    
    DelawareCNL
      Retirement MOP A Pack GP, LLC
    
    DelawareCNL
      Retirement MOP B Pack GP, LLC
    
    DelawareCNL
      Retirement PC1 Buckhead GA, LP
    
    DelawareCNL
      Retirement PC1 Brentwood TN, LP
    
    DelawareCNL
      Retirement PC1 Friendship Heights MD, LP
    
    DelawareCNL
      Retirement PC1 GP Holding, LLC
    
    DelawareCNL
      Retirement PC1 GP, LLC
    
    DelawareCNL
      Retirement PC1 GP Naples FL, LLC
    
    DelawareCNL
      Retirement PC1 GP Venice FL, LLC
    
    DelawareCNL
      Retirement PC1, LP
    
    DelawareCNL
      Retirement PC1 Naples FL, LP
    
    DelawareCNL
      Retirement PC1 New Jersey, LP
    
    DelawareCNL
      Retirement PC1 North Carolina, LP
    
    DelawareCNL
      Retirement PC1 Stamford CT, LP
    
    DelawareCNL
      Retirement PC1 Venice FL, LP
    
    DelawareCNL
      Retirement PC2, LLC
    
    DelawareCNL
      Retirement RP1-VB, LLC
    
    DelawareCNL
      Retirement SLB Florida, LP
    
    DelawareCNL
      Retirement SLB GP, LLC
    
    DelawareCNL
      Retirement ST1 Colorado GP, LLC
    
    DelawareCNL
      Retirement ST1 Colorado, LP
    
    DelawareCNL
      Retirement SU TRS Corp.
    
    DelawareCNL
      Retirement Sun1 Beverly Hills CA GP, LLC
    
    DelawareCNL
      Retirement Sun1 Beverly Hills CA, LP
    
    DelawareCNL
      Retirement Sun1 Cresskill NJ GP, LLC
    
    DelawareCNL
      Retirement Sun1 Cresskill NJ, LP
    
    DelawareCNL
      Retirement Sun1 Edmonds WA GP, LLC
    
    DelawareCNL
      Retirement Sun1 Edmonds WA, LP
    
    DelawareCNL
      Retirement Sun1 GP, LLC
    
    DelawareCNL
      Retirement Sun1 Lilburn GA GP, LLC
    
    DelawareCNL
      Retirement Sun1 Lilburn GA, LP
    
    DelawareCNL
      Retirement Sun1, LP
    
    DelawareCNL
      Retirement Sun1 Madison NJ GP, LLC
    
    DelawareCNL
      Retirement Sun1 Madison NJ, LP
    
    DelawareCNL
      Retirement Sun1 Santa Rosa CA GP, LLC
    
    DelawareCNL
      Retirement Sun1 Santa Rosa CA, LP
    
    DelawareCNL
      Retirement Sun2 Des Peres MO, LP
    
    Delaware
  
 **Name
      of Subsidiary**
    
    **State
      of Incorporation**CNL
      Retirement Sun2 Missouri GP, LLC
    
    DelawareCNL
      Retirement Sun2 Richmond Heights MO, LP
    
    DelawareCNL
      Retirement Sun2 Wilmette IL GP, LLC
    
    DelawareCNL
      Retirement Sun2 Wilmette IL, LP
    
    DelawareCNL
      Retirement Towson MD, LP
    
    DelawareCNL
      Retirement TRS Corp.
    
    DelawareCNL
      Retirement Westgate1 Auburn Hills MI, LP
    
    DelawareCNL
      Retirement Westgate1 Michigan GP, LLC
    
    DelawareCNL
      Retirement Westgate1 Sterling Heights MI, LP
    
    DelawareChattanooga
      Plaza Owners Limited Partnership
    
    DelawareChattanooga
      Surgery Center Owners Limited Partnership
    
    DelawareThe
      DASCO Companies, LLC
    
    FloridaDSTS,
      LLC
    
    FloridaDurant
      MOB Manager, LLC
    
    DelawareDurant
      MOB Owner, LLC
    
    DelawareEast
      Texas Medical Equity Investors Limited Partnership
    
    TexasElgin
      I MOB Owner, LLC
    
    DelawareElgin
      II MOB Owner, LLC
    
    DelawareFannin
      Medical Investors, Ltd., LP
    
    GeorgiaJackson
      Central Investors Limited Partnership
    
    FloridaJackson
      II MOB Owners, LLC
    
    DelawareLake
      Granbury Investors, Ltd.
    
    TexasLancaster
      MOB East and West Partners, Ltd.
    
    TexasLancaster
      Medical Equity Investors, Ltd.
    
    TexasLexington
      Equity Investors, Ltd.
    
    FloridaLexington
      II MOB Owners LLC
    
    DelawareLexington
      MOB Partners, Ltd.
    
    FloridaMarion
      MOB Partners, LP
    
    IllinoisMarion
      Medical Equity Investors Corporation
    
    FloridaMarion
      Medical Investor, LP
    
    IllinoisMcDowell
      Mountain Medical Investor, Ltd.
    
    FloridaMilton
      Medical Equity Investors, Ltd.
    
    FloridaOmaha
      MOB Investors, LLC
    
    FloridaOmaha
      MOB Manager, LLC
    
    DelawareOmaha
      MOB Owners, LLC
    
    DelawareOrlando
      MOB Owners, LLC
    
    DelawareParker
      MOB Owners, LLC
    
    DelawarePikesville
      Assisted Living, LLC
    
    MarylandRandall
      Road MOB Owners, LLC
    
    DelawareRiver
      Oaks MOB Owners, LLC
    
    DelawareSJH
      Medical Office Partners, Ltd.
    
    TexasSJH
      Office Equity Investors, Ltd.
    
    TexasSWG
      Birthplace Investors, Ltd.
    
    TexasTexarkana
      Medical Equity Investors Corporation
    
    FloridaTexarkana
      Partners Limited
    
    TexasTucson
      MOB Partners, Ltd.
    
    FloridaTucson
      Medical Investors, Ltd.
    
    Florida