SEC Info - CNL Retirement Properties Inc - 424B3

CNL RETIREMENT PROPERTIES, INC.

Supplement No. One, dated June 14, 2005

to Prospectus, dated March 21, 2005

This Supplement is part of, and should be read in conjunction with, the Prospectus dated March 21, 2005. Capitalized terms used in this Supplement have the same meaning as in the Prospectus unless otherwise stated herein.

Information as to proposed Properties for which the Company has entered into initial commitments to acquire and the number and types of Properties acquired by the Company are presented as of May 25, 2005, and all references to commitments and Property acquisitions should be read in that context. Proposed Properties for which the Company enters into initial commitments to acquire, as well as Property acquisitions that occur after May 25, 2005, will be reported in a subsequent Supplement.

RECENT DEVELOPMENTS

The following table sets forth the type, location and acquisition date for each of the Properties acquired by the Company between March 1, 2005 and May 25, 2005.

Type and Location		Date Acquired

Retirement Communities
Encore Senior Living
Anaheim Hills, CA		3/31/05
Apple Valley, CA		3/31/05
Clearwater, FL		3/31/05
Fort Myers, FL		3/31/05
Greenacres, FL		3/31/05
Naples, FL		3/31/05
Pensacola, FL (Carpenter's Creek)		3/31/05
Pensacola, FL (Encore Senior Village-Pensacola)		3/31/05
Peoria, AZ		3/31/05
Phoenix, AZ		3/31/05
Portland, OR (Calaroga Terrace)		3/31/05
Portland, OR (Encore Senior Village at Portland)		3/31/05
Riverside, CA		3/31/05
Salt Lake City, UT		3/31/05
Tallahassee, FL		3/31/05
Tucson, AZ		3/31/05

Medical Office Building
Petersburg, VA (1)		4/28/05

(1)	This Property is being developed.

The Encore Properties are independent living/assisted living Properties, which opened between 1968 and 1999. The 16 Properties include 417 independent living units, 340 assisted living units and 638 units for residents with Alzheimer's and related memory disorders.

The medical office building represents approximately 39,000 square feet.

As of May 25, 2005, we owned interests in 245 Properties consisting of 187 seniors' housing Properties, 57 medical office buildings and one undeveloped tract of land, and a 55% ownership interest in a development and property management company that either manages or is developing 35 of our medical office buildings. In addition, we have commitments to acquire one seniors' housing Property, four medical office buildings and ownership interests in entities that own two additional medical office buildings. The seniors' housing Properties are or are expected to be leased on a long-term, triple-net basis and are managed by Operators of seniors' housing facilities. The medical office buildings are or are expected to be leased on either a gross basis or a triple-net basis for a period of five to 20 years.

As of May 25, 2005, 108 of our 187 seniors' housing Properties are operated by Sunrise Senior Living Services, Inc. Additionally, two of the Properties we owned as of May 25, 2005 are being developed by Sunrise Development, Inc., a wholly owned subsidiary of Sunrise Senior Living Services, Inc. Upon completion of each development, the Property will be operated by Sunrise Senior Living Services, Inc. Seven additional Operators manage our remaining 77 seniors' housing Properties as of May 25, 2005.

The Board of Directors declared Distributions of $0.0592 to stockholders of record on April 1, May 1 and June 1, 2005, payable by June 30, 2005.

THE OFFERINGS

GENERAL

As of May 25, 2005, the Company had received subscriptions from this offering for 32.2 million Shares totaling $322.3 million in Gross Proceeds. As of May 25, 2005, the Company had received aggregate subscriptions for 251 million Shares totaling $2.51 billion in gross proceeds, including 7.0 million Shares ($70.4 million) issued pursuant to the Reinvestment Plan from its Prior Offerings and this offering. As of May 25, 2005, net proceeds to the Company from its offerings of Shares and capital contributions from the Advisor, after deduction of selling commissions, the marketing support fee, due diligence expense reimbursements and offering expenses, totaled $2.3 billion. As of May 25, 2005, the Company has used $1.9 billion of net offering proceeds, $71.4 million in advances relating to its line of credit and $1.2 billion in Permanent Financing, as well as the assumption of $88.5 million in bonds payable, to invest $3.2 billion in 245 Properties. As of May 25, 2005, the Company had repaid $51.4 million in advances relating to its line of credit, had paid $160.7 million in Acquisition Fees and Acquisition Expenses, including Acquisition Fees on Permanent Financing, and had used $16.2 million to redeem 1.7 million Shares of Common Stock, leaving $141.2 million available to invest in Properties, Mortgage Loans and other Permitted Investments. For a discussion regarding our management strategy with respect to this offering for the remainder of 2005, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources."

ESTIMATED USE OF PROCEEDS

FOOTNOTES:

The following footnote paragraph updates and replaces footnote paragraph (3) on page 30 of the Prospectus.

(3)

Acquisition Fees include all fees and commissions paid by us to any person or entity in connection with the selection or acquisition of any Property or other Permitted Investments or the making of any Mortgage Loan, including to Affiliates or non-Affiliates. Acquisition Fees do not include Acquisition Expenses. See "The Offering - Plan of Distribution" for a description of the circumstances under which Acquisition Fees will be reduced and an applicable discount will be available to purchasers. In connection with making investments, if we make an investment subject to existing debt, we will not be able to pay Acquisition Fees with respect to such debt out of debt proceeds and may need to use Net Offering Proceeds (defined in footnote paragraph (5) on page 31 of the Prospectus) to pay such Acquisition Fees. In that event, the cash available to make investments will decrease. For example, assuming we raise the maximum offering amount of $3,954,000,000, use all of the $3,469,713,750 available to make investments, and such investments are subject to 25% assumed debt, then the estimated Acquisition Fees payable from offering proceeds will increase by approximately $34,697,000, or 0.88%. Assuming we sell 100,000,000 Shares and therefore raise $984,000,000, use all of the $861,690,750 available to make investments, and such investments are subject to 25% assumed debt, then the estimated Acquisition Fees payable from offering proceeds will increase by approximately $8,617,000, or 0.88%.

MANAGEMENT COMPENSATION

For information concerning compensation paid to the Advisor and Affiliates, see "Certain Relationships and Related Transactions."

BUSINESS

INDUSTRY PERFORMANCE

The following paragraph updates and replaces the fourth full paragraph on page 49 of the Prospectus and the two tables below are inserted following such paragraph.

According to Health, United States, 2003, the health care industry represented over $1.4 trillion in annual expenditures in the United States in 2001. This number is expected to reach $3.1 trillion in 2012, growing at an average annual rate of 7.3% during the forecast period of 2002 through 2012. According to the Centers for Medicare & Medicaid Services, in 2003, national health care expenditures represented approximately 15% of GDP, as compared to 8.8% in 1980, as illustrated below.

National Health Expenditures

as a Percentage of GDP

1980 — 2003

Year	Percentage of GDP
1980	8.8%
1981	9.1%
1982	9.9%
1983	10.0%
1984	9.9%
1985	10.1%
1986	10.2%
1987	10.5%
1988	10.9%
1989	11.4%
1990	12.0%
1991	12.7%
1992	13.0%
1993	13.3%
1994	13.3%
1995	13.4%
1996	13.3%
1997	13.2%
1998	13.2%
1999	13.2%
2000	13.3%
2001	14.1%
2002	14.9%
2003	15.3%

Source: Centers for Medicare & Medicaid, 2003 data

As reported by the American Hospital Association, the demand for quality outpatient care is increasing. As illustrated below, total hospital outpatient visits increased 64% from 1980 to 2003.

Total Hospital Outpatient Visits

in Community Hospitals

1980 — 2003

Year	Hospital Outpatient Visits
1980	202
1981	203
1982	206
1983	210
1984	212
1985	219
1986	232
1987	244
1988	268
1989	285
1990	301
1991	321
1992	348
1993	367
1994	383
1995	414
1996	440
1997	450
1998	474
1999	495
2000	521
2001	538
2002	556
2003	563

Source: American Hospital Association, 2003 data

PROPERTY ACQUISITIONS

The following information should be read in conjunction with the "Business — Property Acquisitions" section beginning on page 53 of the Prospectus.

Between March 1, 2005 and May 25, 2005, we acquired interests in 16 seniors' housing Properties. The seniors' housing Properties are leased on a long-term, triple-net basis and are managed by Encore. In addition, we acquired one medical office building that is being developed and is expected to be leased on a triple-net basis for a period of 15 years. The general terms of the lease agreements are described in the section of the Prospectus entitled "Business — Description of Property Leases."

The following table sets forth the facility type, location, date acquired, capacity (stated in units or square feet), year built and our ownership percentage of each of the Properties we acquired between March 1, 2005 and May 25, 2005. Seniors' housing facilities are apartment-like facilities and are therefore stated in units. Medical office buildings are measured in square feet.

Facility and Location (1)	Date Acquired	Capacity (2)	Year Built	Percentage Owned
*Independent Living Facilities:*		(Units)
Encore Senior Living
Anaheim Hills, CA	3/31/2005	212	1989	100%
Portland, OR (Calaroga Terrace)	3/31/2005	265	1968	100%
Salt Lake City, UT	3/31/2005	75	1996	100%
*Assisted Living Facilities:*
Encore Senior Living
Apple Valley, CA	3/31/2005	12	1986	100%
Clearwater, FL	3/31/2005	60	1999	100%
Fort Myers, FL	3/31/2005	60	1998	100%
Greenacres, FL	3/31/2005	60	1998	100%
Naples, FL	3/31/2005	60	1999	100%
Pensacola, FL (Carpenter's Creek)	3/31/2005	94	1988	100%
Pensacola, FL (Encore Senior Village-Pensacola)	3/31/2005	60	1997	100%
Peoria, AZ	3/31/2005	72	1997	100%
Phoenix, AZ	3/31/2005	48	1998	100%
Portland, OR (Encore Senior Village at Portland)	3/31/2005	96	1997	100%
Riverside, CA	3/31/2005	40	1997	100%
Tallahassee, FL	3/31/2005	99	1986	100%
Tucson, AZ	3/31/2005	60	1999	100%
*Medical Office Building:*		(Square Feet)
Petersburg, VA	4/28/2005	(3)	(3)	70%

(1)	Certain seniors' housing facilities consist of both independent living units and assisted living units in which case the Property is listed under the facility type representing the majority of the units and reflects the total of all units combined.

(2)	Independent living facilities and assisted living facilities are stated in units and the medical office building is measured in square feet.

(3)	Property is under construction and is expected to be completed in April 2006. Upon completion, the Property is expected to consist of approximately 39,000 square feet.

SENIORS' HOUSING COMMUNIY BRANDS

Encore Brand. According to www.encoresl.com, Encore Senior Living ("Encore") operates 35 senior housing communities located in Arizona, California, Florida, Oklahoma, Oregon, Utah and Wisconsin. Encore offers several types of communities, including assisted living and independent living. Encore is recognized for their progressive approach to Alzheimer's care; known as the Rediscovery™ program. With Rediscovery, Encore replaces the clinical setting of a skilled nursing facility with the comforts of home, providing warmth and familiarity needed to help residents feel at ease. The specialized Rediscovery program encourages the use of residents' remaining skills, which ensures each individual is able to function as independently as possible. As of July 1, 2004, the American Seniors Housing Association ranked Encore as the nation's 45^th largest manager of seniors' housing.

PENDING INVESTMENTS

As of May 25, 2005, we had initial commitments to acquire one seniors' housing Property, four medical office buildings and ownership interests in entities which own two additional medical office buildings for an aggregate purchase price of $41.8 million. The Properties include one Encore Property (in Victorville, California) and six medical office buildings (two in each of Little Rock, Arkansas and Chattanooga, Tennessee, and one in each of Westminster, Colorado and Towson, Maryland).

The seniors' housing Property is expected to be acquired from Encore Senior Living IV, LLC. Four of the medical office buildings are expected to be acquired from Catholic Health Initiatives. One of the medical office buildings is expected to be developed on the campus of St. Joseph Medical Center in Towson, Maryland, and the remaining medical office building is expected to be developed on the campus of St. Anthony North Hospital in Westminster, Colorado. We do not expect to own the land for either of the medical office buildings to be developed; however, we expect to sign a ground lease with St. Joseph Medical Center and St. Anthony North Hospital, respectively.

The acquisition of each of these investments is subject to the fulfillment of certain conditions. There can be no assurance that any or all of the conditions will be satisfied or, if satisfied, that one or more of these investments will be acquired by us. If acquired, the lease for the seniors' housing Property is expected to be entered into on substantially the same terms described in "Business — Description of Property Leases." The medical office buildings are expected to be leased on either a triple-net or a gross basis with lease terms expected to range from five to 20 years. The medical office buildings are expected to have multiple tenants and are expected to be managed by DASCO, in which we own a 55% interest.

The following table sets forth the facility type, location, capacity (stated in units or square feet), year built and our expected ownership percentage for each of the investments.

Facility and Location	Capacity (1)	Year Built	Expected Ownership
*Assisted Living Facility:*	(Units)
Encore Senior Living
Victorville, CA	49	1988	100%
*Medical Office Buildings:*	(Square Feet)
Little Rock, AR	31,380	1985	100%
Little Rock, AR	7,280	1972	100%
Westminster, CO	(2)	(2)	70%
Towson, MD	(3)	(3)	70%
Chattanooga, TN	44,979	2003	100%
Chattanooga, TN	63,338	1995	100%

(1)	Assisted living facilities are stated in units and medical office buildings are measured in square feet.
(2)	Property is expected to begin construction in September 2005 with completion scheduled for June 2006. Upon completion, the building is expected to consist of 61,750 square feet.
(3)	Property is expected to begin construction in July 2005 with completion scheduled for June 2006. Upon completion, the building is expected to consist of 61,373 square feet.

BORROWING

The following information should be read in conjunction with the "Business — Borrowing" section beginning on page 73 of the Prospectus.

In May 2005, we entered into preliminary negotiations with the administrative agent of our existing line of credit to increase the facility to $250.0 million. We are seeking modifications of certain terms and conditions, including more favorable pricing and a two-year term with two one-year renewal options. We expect to close the new line of credit in the third quarter of 2005; however, there can be no assurance that this transaction will be consummated. In the event that the line of credit is not extended or renegotiated, we intend to repay the existing outstanding balance on the line of credit from available cash.

On May 5, 2005, we entered into two interest rate swap agreements effective June 1, 2005 with Wachovia Bank, N.A. and Bank of America, N.A., and one interest rate swap agreement effective July 1, 2005 with JPMorgan Chase Bank, N.A., for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in the LIBOR and Freddie Mac Reference Bill rates of our variable interest rate mortgage notes payable. The hedges have a 4.19% weighted average fixed rate plus a 1.20% weighted average spread resulting in an all-in fixed interest rate of 5.39% until 2010.

SELECTED FINANCIAL DATA

The following table sets forth certain financial information for the Company, and should be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Information commencing on page F-1 of this Prospectus Supplement and the Prospectus (amounts in thousands except per Share data and footnotes). This table updates and replaces the "Selected Financial Data" section beginning on page 77 of the Prospectus.

	Quarter Ended March 31,						Year Ended December 31,
	2005			2004			2004			2003			2002			2001			2000
Revenues	$	91,693		$	50,718		$	264,541		$	95,594		$	18,852		$	1,900		$	1,085
Income from continuing operations		32,556			27,723			119,506			58,435			11,372			916			225
Income (loss) from discontinued operations		79			78			(1,588	)		25			—			—			—
Net income (1)		32,635			27,801			117,918			58,460			11,372			916			225
Cash flows from operating activities		52,814			23,329			139,398			60,658			16,785			2,173			1,096
Cash flows used in investing activities		(201,492	)		(397,651	)		(1,309,694	)		(1,012,600	)		(358,090	)		(22,931	)		(14,429	)
Cash flows provided by financing activities		198,607			483,140			1,054,987			1,078,232			355,384			47,301			8,766
Cash distributions declared and paid (2)		42,593			28,841			147,156			59,784			14,379			1,507			502
Income from continuing operations per Share		0.14			0.16			0.57			0.66			0.52			0.38			0.27
Loss from discontinued operations per Share		—			—			(0.01	)		—			—			—			—
Net income per Share (Basic and Diluted)		0.14			0.16			0.56			0.66			0.52			0.38			0.27
Funds from operations (3)		55,446			37,294			181,186			76,256			14,610			1,440			528
Cash distributions declared and paid per Share		0.18			0.18			0.71			0.71			0.70			0.70			0.58
Weighted average number of Shares outstanding: (Basic and Diluted)		240,699			169,112			210,343			88,840			22,035			2,391			846

	March 31,				December 31,
	2005		2004		2004		2003		2002		2001		2000

Real estate investment properties	$	3,394,553	$	2,136,318	$	3,174,345	$	1,528,497	$	380,367	$	35,233	$	14,418
Total assets		3,649,781		2,569,164		3,369,641		1,761,899		441,765		64,447		14,689
Debt obligations		1,409,416		785,752		1,193,548		392,583		45,327		-		3,795
Total liabilities		1,481,731		821,400		1,263,923		415,958		51,970		3,537		5,485
Minority interests		3,360		—		2,361		—		—		—		—
Total stockholders' equity		2,164,690		1,747,764		2,103,357		1,345,941		389,795		60,910		9,204

Properties owned at end of period		244		141		222		119		37		3		1
Properties acquired during period		22		22		103		82		34		2		1

(1)

To the extent that Operating Expenses payable or reimbursable by us in any Expense Year exceed the 2%/25% Guidelines (the "Expense Cap"), the Advisor shall reimburse us within 60 days after the end of the Expense Year the amount by which the total Operating Expenses paid or incurred by us exceed the Expense Cap. During the Expense Year ended March 31, 2005, Operating Expenses did not exceed the Expense Cap. During the Expense Years ended June 30, 2001 and 2000, the Advisor reimbursed us $0.1 million and $0.2 million, respectively, in Operating Expenses. No such amounts were reimbursed in 2004, 2003 or 2002.

(2)

Cash distributions are declared by the Board of Directors and generally are based on various factors, including cash available from operations. For the quarters ended March 31, 2005 and 2004, and the years ended December 31, 2004, 2003, 2002, 2001 and 2000, approximately 23%, 4%, 20%, 2%, 21%, 39% and 55% of cash Distributions, respectively, represented a return of capital in accordance with GAAP. Cash Distributions treated as a return of capital on a GAAP basis represent the amount of cash distributions in excess of net earnings on a GAAP basis, including deductions for depreciation expense. We have not treated such amounts as a return of capital for purposes of calculating Invested Capital and the Stockholders' 8% Return.

(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 quarters ended March 31, 2005 and 2004, and the years ended December 31, 2004, 2003, 2002, 2001 and 2000, net income included approximately $11.9 million, $7.9 million, $40.6 million, $10.4 million, $1.2 million, $77,000 and $21,000, 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 net income and cash flows as reported in the accompanying consolidated financial statements and notes thereto. See the Financial Information commencing on page F-1 of this Prospectus Supplement and the Prospectus.

The following is a reconciliation of net income to FFO for the quarters ended March 31, 2005 and 2004, and the years ended December 31, 2004, 2003, 2002, 2001, and 2000:

	Quarter Ended March 31,					Year Ended December 31,
	2005			2004		2004			2003		2002			2001		2000
Net income	$	32,635		$	27,801	$	117,918		$	58,460	$	11,372		$	916	$	225
Adjustments:
Depreciation of real estate assets
Continuing operations		19,502			8,706		54,262			16,354		3,068			524		303
Discontinued operations		—			26		89			13		—			—		—

Amortization of lease intangibles
Continuing operations		3,328			757		8,606			1,167		254			—		—
Discontinued operations		—			2		7			1		—			—		—

Amortization of deferred leasing costs
Continuing operations		25			—		32			—		—			—		—
Discontinued operations		—			—		—			—		—			—		—

Effect of unconsolidated entity		61			2		428			261		150			—		—

Effect of minority interests		(105	)		—		(156	)		—		(234	)		—		—
	$	55,446		$	37,294	$	181,186		$	76,256	$	14,610		$	1,440	$	528

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section beginning on page 79 of the Prospectus.

OVERVIEW

Our primary focus during the first quarter of 2005 was stabilizing the operating performance of our Properties and developing and strengthening relationships with our tenants, operators, managers and lenders. In addition, we raised capital through our equity offering, placed permanent or construction financing on new or unencumbered Properties and invested these proceeds in Properties and other Permitted Investments. During the quarter ended March 31, 2005, we received gross offering proceeds of $87.5 million, obtained or assumed $260.4 million of Permanent Financing, drew $16.7 million under our construction loan facilities and repaid $60.0 million under a term loan. We also invested $231.8 million in 22 Properties, including 17 seniors' housing facilities, four medical office buildings and a parcel of land.

As of March 31, 2005, we held real estate assets located in 33 states consisting of (dollars in thousands):

	Number of Properties		Investment at March 31, 2005
Seniors’ housing facilities:
Operating		183	$	2,775,502
Under development		3		88,394
Medical office buildings:
Operating		52		497,509
Under development		4		33,148
		242	$	3,394,553

Real estate held for sale		2	$	4,820

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 March 31, 2005. We have relied 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. During the remainder of 2005, we expect to take measures to manage the amount of proceeds raised through our public offering in order to more closely align offering proceeds with our actual capital requirements. We plan to monitor and manage the amount of proceeds raised through our public offering in order to avoid amassing additional capital that greatly exceeds our capital requirements. Excess offering proceeds would need to be placed in short term accounts which would likely earn interest at lower rates than the return which would be expected if such capital had been invested in Properties or other Permitted Investments. Due to this management strategy, we do not anticipate raising significant additional proceeds through our public offering in the near term. We believe that borrowings under permanent or construction financing, operating activities, draws on our revolving line of credit and offering proceeds, to the extent available, will be sufficient to meet our capital requirements.

Common Stock Offerings

As of March 31, 2005, we have made five best efforts public offerings and received aggregate subscriptions of $2.5 billion representing 247.0 million Shares. The price per Share of all of our equity offerings has been $10 per Share with the exception of Shares purchased through our Reinvestment Plan which are currently priced at $9.50 per Share. Selling Commissions, marketing support fees, due diligence expense reimbursements and other offering expenses will not exceed 13% of gross proceeds.

During the quarter ended March 31, 2005, net proceeds received from our offering of shares, after deduction of selling commissions, marketing support fees, due diligence expense reimbursements, offering expenses and redemptions, totaled approximately $71.3 million.

During the period April 1, 2005 through May 25, 2005, we received additional net offering proceeds of $30.9 million, and incurred acquisition fees and costs of $1.3 million. We also used $1.3 million in connection with the acquisition of a 70% equity interest in an entity that owns land on which a 39,000 square foot medical office building is expected to be developed commencing in June 2005.

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 the proceeds that have already been raised from 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. During the quarter ended March 31, 2005, 847,143 Shares were redeemed and retired at $9.50 per Share for approximately $8.0 million.

Property Acquisitions

At March 31, 2005, our investment portfolio consisted of 244 Properties located in 33 states with an aggregate investment amount of approximately $3.4 billion compared to 222 Properties located in 32 states with an aggregate investment amount of approximately $3.2 billion at December 31, 2004. During the quarter ended March 31, 2005, we invested $231.8 million in 22 Properties. The Properties acquired were 17 seniors' housing facilities, consisting primarily of assisted living and independent living facilities, three medical office buildings consisting of approximately 162,000 square feet, one medical office building under construction and a 10.4 acre parcel of land which we intend to sell. We, as lessor, have entered into long-term, triple-net lease agreements relating to the seniors' housing Properties and have entered or expect to enter into shorter term, gross or triple-net lease agreements relating to the medical office buildings. As of March 31, 2005, one of our seniors' housing facilities and a parcel of land were held for sale.

Twenty Properties acquired during the quarter ended March 31, 2005, are subject to operating leases. Operating leases related to our 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 our medical office buildings 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 medical office buildings 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.

One of the medical office buildings that we acquired during the quarter ended March 31, 2005 is under construction and is subject to a ground lease that will commence upon the completion of the medical office building.

In accordance with Statement of Financial Accounting Standard No. 141, Business Combinations ("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 quarter ended March 31, 2005, we allocated $8.3 million 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, $0.7 million to an intangible lease asset related to above market lease values and $0.4 million to an intangible lease liability related to below market lease values which are amortized to rental income from operating leases over the remaining terms of the leases acquired with each Property.

At March 31, 2005, our restricted cash balance included $0.3 million being held in escrow to fund the acquisition of two Properties that we had entered into commitments to acquire.

Other Investments

We own 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 our 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 a 16.67% share of a $15.5 million unsecured promissory note of the limited partnership that matures August 28, 2005. At March 31, 2005, the note had an outstanding balance of $14.1 million. The limited partnership intends to extend the term of the note, however, there can be no assurance that this objective will be met. If the note is not extended, it is likely that we will be required to contribute $2.3 million to the limited partnership to fund our 16.67% share of the outstanding note balance at maturity.

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 building development and acquisition opportunities as well as enter the business of managing medical office buildings. DASCO operated 30 and was developing four of our medical office buildings at March 31, 2005.

Investments Subsequent to March 31, 2005 and Pending Investments

Investments Subsequent to March 31, 2005. On April 28, 2005, we acquired, for $1.3 million, a 70% equity interest in an entity that owns land located in Virginia on which a 39,000 square foot medical office building will be developed by DASCO commencing in June 2005 with an estimated completion date of April 2006. We expect to obtain $6.0 million in construction financing, and total project costs are estimated to be $9.9 million.

Pending Investments. As of May 25, 2005, we had commitments to acquire one seniors’ housing facility, four medical office buildings and ownership interests in entities that own two additional medical office buildings, both of which are expected to be developed, for an aggregate purchase price of $41.8, million, including development costs, subject to the fulfillment of certain conditions. We plan to obtain or assume financing of approximately $11.6 million in connection with the acquisition of two of these Properties. It is expected that Encore will operate the seniors' housing facility, and DASCO will manage four and develop two of the medical office buildings. There can be no assurance that these transactions will be consummated.

Borrowings

Line of Credit. We have an $85.0 million revolving line of credit that expires in September 2005. Eleven Properties with an aggregate real estate value of $122.4 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 (5.35% at March 31, 2005), depending on our aggregate amount of debt outstanding in relation to our total assets. The line has some 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, repay Permanent Financing and fund working capital for general business purposes. We have in the past and, we expect to continue to repay amounts drawn under the revolving line of credit with proceeds received from equity offerings (to the extent available), Permanent Financing, the sale of assets or working capital. As of March 31, 2005, we had an outstanding balance on our line of credit of $20.0 million.

Term Loan. On January 13, 2005, we repaid and terminated a $60.0 million, 14-day term loan used for the acquisition of certain Properties until Permanent Financing was obtained in January 2005.

Permanent Financing. During the quarter ended March 31, 2005, we obtained $260.4 million in Permanent Financing by assuming existing debt on various Properties acquired during the quarter and by encumbering certain existing Properties with new debt. As of March 31, 2005, our aggregate Permanent Financing was $1.2 billion and was collateralized by Properties with an aggregate net book value of $2.2 billion. We have approximately $146.6 million in mortgage note maturities and principal amortization due during the remainder of 2005. A $140.4 million loan that matures in October 2005, contains an extension option that we expect to exercise. We also expect to refinance certain loans and, to the extent available, use offering proceeds to repay the maturing loans.

Approximately 51% of our mortgage notes payable at March 31, 2005, were subject to variable interest rates; therefore, we are exposed to market changes in interest rates as explained in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Market Risk" below. Some of our variable rate loans contain provisions that allow us to convert the variable interest rates to fixed interest rates based on U.S. Treasury rates plus a premium at the time the conversion option is exercised. Fixed interest rates range from 4.85% to 8.42% with a weighted average rate of 6.27%. Certain fixed rate loans assumed by us 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.

During the quarter ended March 31, 2005, we incurred $2.0 million in loan costs in connection with the placement and assumption of Permanent Financing facilities.

The table below summarizes Permanent Financing that we obtained during the quarter ended March 31, 2005 (dollars in thousands):

Date Funded /Assumed	Mortgage Payable		Maturity Date		Interest Rate

Fixed Rate Debt:
January 2005	$	7,108		June 2010		8.41% (1	)
March 2005		39,010		April 2012		4.85	%
March 2005		34,299		January 2011-April 2013		5.69% - 7.15	%
		80,417
Variable Rate Debt:
January 2005		100,000		January 2010		LIBOR + 1.25	%
February 2005		30,000		October 2005		Fannie Mae Discount MBS rate plus .90	%
March 2005		50,000		March 2010		LIBOR + 1.50	%
		180,000
	$	260,417

(1)

The stated interest rate of 8.41% 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 $0.7 million in debt premium that will be amortized over the period of the loan which reduces the effective interest rate to 5.67%. During the quarter ended March 31, 2005, we recognized $31,000 in debt premium amortization that is included in interest and loan cost amortization expense in the accompanying financial statements.

Construction Financing. During the quarter ended March 31, 2005, we entered into a new $6.6 million construction facility and collectively drew $16.7 million under all of our construction loans related to certain Properties under various stages of development. Total construction loans outstanding at March 31, 2005 were $98.2 million, and total liquidity remaining was $53.8 million. The loans are variable interest rate loans and mature from November 2006 through December 2013. We anticipate that we will obtain Permanent Financing or use proceeds from our offerings (to the extent available) 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 quarter ended March 31, 2005, we issued new bonds to new residents of these retirement facilities totaling $2.4 million, and used the proceeds from the bonds issued in the current and prior periods to retire $2.5 million of the existing bonds. As of March 31, 2005, the bonds payable had an outstanding balance of $94.4 million.

Contractual Obligations and Commitments

The following table presents our contractual cash obligations and related payment periods as of March 31, 2005 (in thousands):

	Less than 1 Year		2-3 Years		4-5 Years		Thereafter		Total
Mortgages payable	$	149,222	$	131,083	$	566,749	$	348,459	$	1,195,513
Revolving line of credit		20,000		—		—		—		20,000
Bonds payable (1)		—		—		—		94,419		94,419
Construction loans payable		—		91,400		4,283		2,510		98,193
Security deposits and rent support		—		—		—		29,125		29,125
	$	169,222	$	222,483	$	571,032	$	474,513	$	1,437,250

(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 March 31, 2005 (in thousands):

	Less than 1 Year		2-3 Years		4-5 Years		Thereafter		Total
Guarantee of uncollateralized promissory note of unconsolidated entity (1)	$	2,346	$	—	$	—	$	—	$	2,346
Earnout provisions (2)		33,479		2,000		—		—		35,479
Capital improvements to investment Properties (3)		53,392		—		—		—		53,392
Ground leases		335		766		772		19,128		21,001
Pending investments (4)		28,178		—		—		—		28,178
	$	117,730	$	2,766	$	772	$	19,128	$	140,396

(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 uncollateralized promissory note of the limited partnership that matures August 28, 2005. As of March 31, 2005, the uncollateralized promissory note had an outstanding balance of $14.1 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, we believe that such amounts would be recoverable either from operations of the related asset or proceeds upon liquidation. The limited partnership intends to extend the note's maturity date, however, there can be no assurance that this objective will be met. If the note is not extended, it is likely that we will be required to contribute $2.3 million to the limited partnership to fund our 16.67% share of the outstanding note balance at maturity.

(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 March 31, 2005, 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 March 31, 2005, we had commitments to acquire four Properties, subject to the fulfillment of certain conditions.

Market Risk

Approximately 51% of our mortgage notes payable and all of our construction loans payable at March 31, 2005 were subject to variable interest rates; therefore, we are exposed to market changes in interest rates. During the quarter ended March 31, 2005, a hypothetical 100 basis point increase in the U.S. Treasury and LIBOR rates would have resulted in additional interest costs of approximately $1.5 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 March 31, 2005.

To mitigate interest rate risk, we may pay down the mortgages or the line of credit prior to their maturity dates with offering proceeds (to the extent available) should interest rates rise substantially. To further mitigate interest rate risk, in May 2005 we implemented a policy to protect against interest rate risk. Our primary strategy is to protect against this risk by using derivative transactions as appropriate to minimize the variability that variable interest rate fluctuations could have on cash flow. In May 2005, we entered into two interest rate swap agreements effective June 1, 2005 with Wachovia Bank, N.A. and Bank of America, N.A., and one interest rate swap agreement effective July 1, 2005 with JPMorgan Chase Bank, N.A., for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in the LIBOR and Freddie Mac Reference Bill rates of our variable interest rate mortgage notes payable. The hedges have a 4.19% weighted average fixed rate plus a 1.20% weighted average spread resulting in an all-in fixed interest rate of 5.39% until 2010.

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 and line of credit obligations at March 31, 2005 (in thousands):

	Permanent Financing Expected Maturities
	2005			2006			2007			2008			2009			Thereafter			Total			Fair Value
Fixed Rate Debt:	$	—		$	—		$	10,512		$	49,467		$	143,445		$	382,037		$	585,461		$	586,752
Average Interest Rate		—			—			7.42	%		6.20	%		6.02	%		5.77	%		5.90	%		6.27	%

Variable Rate Debt:	$	160,445		$	99,997		$	90,618		$	130,393		$	4,282		$	242,510		$	728,245
Average Interest Rate		3.93	%		5.20	%		6.62	%		4.78	%		4.60	%		3.96	%		4.60	%

Cash and Cash Equivalents

Until Properties are acquired or Mortgage Loans are entered into, we may accumulate significant amounts of cash from offering proceeds or Permanent Financings. 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 March 31, 2005, we had $101.7 million invested in short-term investments as compared to $51.8 million at December 31, 2004. The increase was primarily attributable to offering proceeds received from the sale of Shares of Common Stock and proceeds received from the placement of new Permanent Financing during the quarter ended March 31, 2005, offset by cash used to purchase 22 Properties.

Accounts and Other Receivables

Our accounts and other receivables balance was $20.4 million at March 31, 2005 and $20.5 million at December 31, 2004. The change was primarily due to an increase in rental revenues receivable to $23.4 million at March 31, 2005 from $21.8 million at December 31, 2004, offset by a $0.8 million increase in the reserve for doubtful accounts and a $0.9 million decrease in other receivables. Past due amounts aggregated $12.3 million and $10.7 million at March 31, 2005 and December 31, 2004, respectively. We are experiencing delays in receiving current rent amounts due on certain seniors' housing facilities as a result of adverse market or operating conditions. 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 2005. 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.

Distributions

During the quarters ended March 31, 2005 and 2004, we generated cash from operations of $52.8 million and $23.3 million, respectively, which included unrestricted security deposits received from tenants of $3.4 million for the quarter ended March 31, 2005. We declared and paid Distributions to our stockholders of $42.6 million and $28.8 million during the quarters ended March 31, 2005 and 2004, respectively. In addition, on April 1, May 1 and June 1, 2005, our Board of Directors declared distributions to stockholders of record on those dates, of $0.0592 per Share of Common Stock which are payable by June 30, 2005.

Our distribution policy is based on a balanced analysis of value creation reflective of both current and long-term stabilized cash flows of our Properties, our objective of continuing to qualify as a REIT for federal income tax purposes, the actual operating results of each quarter and anticipated operating results for the coming year, economic conditions, other operating trends, our financial condition, loan restrictions, capital requirements and avoidance of volatility of Distributions. Our acquisition strategy is 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, to the extent available, and proceeds available from the placement of Permanent Financing. As a result, larger 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 our revolving line of credit to make Distributions to stockholders in future quarters.

For the quarters ended March 31, 2005 and 2004, approximately 80% and 67%, respectively, of the Distributions received by stockholders were considered to be ordinary income and approximately 20% and 33%, respectively, were considered a return of capital for federal income tax purposes. No amounts distributed to stockholders for the quarters ended March 31, 2005 and 2004, were required to be or have been treated by us as a return of capital for purposes of calculating the Stockholders' 8% Return on Invested Capital. We intend to continue to declare Distributions of cash available for such purpose to the stockholders on a monthly basis, payable 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 (to the extent available), 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 financing or equity financing.

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 medical office buildings 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 agreement.

Advisory Services

On May 2, 2005, we entered into a renewal agreement (the "Renewal Agreement") with the Advisor with respect to the Advisory Agreement, pursuant to which the Advisory Agreement was renewed for an additional one-year term commencing on May 3, 2005, and ending on May 3, 2006. The Renewal Agreement provides that we will negotiate in good faith with the Advisor with respect to whether a reduction in the percentage rate(s) of Total Proceeds to be used in determining Acquisition Fees payable to the Advisor under the Advisory Agreement should be effected. Pursuant to the terms of the Renewal Agreement, we and the Advisor will use commercially reasonable efforts to agree on any such reduction within sixty days of the date of the Renewal Agreement. In the event that we and the Advisor agree to any such reduction, the reduction will be deemed to be effective as of May 3, 2005. Acquisition Fees will be as agreed by us and the Advisor on a case-by-case basis as contemplated by the Advisory Agreement and our Articles of Amendment and Restatement until we and the Advisor have agreed on the percentage rate(s) of Total Proceeds to be used in determining Acquisition Fees payable to the Advisor under the Advisory Agreement.

RESULTS OF OPERATIONS

Comparison of the quarter ended March 31, 2005 to the quarter ended March 31, 2004.

Net income for the quarter ended March 31, 2005 totaled $32.6 million or $0.14 per Share of Common Stock, as compared to net income of $27.8 million or $0.16 per Share of Common Stock for the quarter ended March 31, 2004. The increase in net income was primarily due to an increase in rental income from the Properties that we acquired during the latter part of 2004 and in the first quarter of 2005 offset by increases in operating expenses related to the acquired Properties, the recognition of a provision for doubtful accounts and an impairment charge. These changes are discussed in further detail below. Although net income increased significantly for the quarter ended March 31, 2005, it decreased on a per Share basis primarily due to a larger average accumulated amount of cash during 2004 and the first quarter of 2005. 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 March 31, 2005, we owned 244 Properties, including 22 Properties that were acquired in 2005, compared to 141 Properties at March 31, 2004. As a result of the increase in the number of Properties, we earned rental and earned income from our leases of $84.4 million, including $11.9 million as a result of straight-lining rent escalations throughout the lease terms, for the quarter ended March 31, 2005, compared to $49.2 million, including $7.9 million of straight-line rent revenue, for the quarter ended March 31, 2004. We also earned $1.6 million and $1.4 million in FF&E Reserve income during the quarters ended March 31, 2005 and 2004, respectively. Because 22 Properties were owned for only a portion of the first quarter of 2005 and we expect to acquire additional Properties during the remainder of 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 each of the quarters ended March 31, 2005 and 2004, rental income included draws on operator rent guarantees of $0.8 million and $2.6 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 March 31, 2005, we held $29.1 million in security deposits and rent support related to certain Properties. We also have limited guarantees from certain tenants and operators that aggregate $18.0 million as of March 31, 2005, related to 13 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 to hold for sale. 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.

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 16 Properties leased by Encore, Encore has unconditionally guaranteed all 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 2006) 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 tenants' 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 five seniors' housing Properties that are experiencing operating performance deficiencies. These Properties are included in various portfolios that contain cross-default 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. Based on our evaluation, which included the analysis of undiscounted cash flows related to these Properties, we determined impairment of one of the facilities primarily due to adverse market conditions. Accordingly, we have recognized a $6.2 million impairment charge for the quarter ended March 31, 2005, to reduce the Property's carrying value to its estimated fair value. We will continue to evaluate the operating performance of these Properties. Upon the occurrence of significant changes in their operations or if it is determined that any of these Properties should be sold, we may incur additional 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 during 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.

In addition to minimum base rent, certain leases require the payment of contingent rent if certain operating performance or occupancy rate thresholds, as defined in the lease agreements, are achieved by the Properties. During the quarters ended March 31, 2005 and 2004, we recognized $1.7 million and $49,000, respectively, of contingent rent.

During the quarter ended March 31, 2005, we recorded $2.7 million in tenant expense reimbursement revenue, representing contractual recoveries from tenants of 49% of our medical office building operating expenses.

During each of the quarters ended March 31, 2005 and 2004, we earned $0.6 million in interest income from investments in money market accounts and other short-term, highly liquid investments. During the quarter ended March 31, 2005, we also earned $0.1 million in other income.

Expenses

General and administrative expenses and Asset Management Fees were $8.4 million and $4.5 million for the quarters ended March 31, 2005 and 2004, respectively, representing 9.1% and 9.0% of revenues, respectively. The increase in expenses is directly related to the increased number 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, general and administrative expenses as a percentage of revenues are expected to decrease as we acquire additional Properties and invest in Mortgage Loans.

Total property-related operating expenses for the quarters ended March 31, 2005 and 2004, were $5.7 million and $0.3 million, respectively. The increase was primarily due to the acquisition of the medical office buildings 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 medical office buildings were $5.5 million for the quarter ended March 31, 2005.

During the quarter ended March 31, 2005, we recognized a provision for doubtful accounts of $0.8 million as discussed in the "Accounts and Other Receivables" section above.

Depreciation and amortization expense increased to $22.9 million for the quarter ended March 31, 2005, compared to $9.5 million for the quarter ended March 31, 2004, as a result of our owning 101 additional operating Properties subject to operating leases during the first quarter of 2005.

Interest and loan cost amortization expense was $15.5 million and $8.0 million for the quarters ended March 31, 2005 and 2004, respectively. The increase was a result of our increasing the average amount of debt outstanding from $636.9 million for the quarter ended March 31, 2004, to $1.1 billion for the quarter ended March 31, 2005. The weighted average interest rate was approximately 5.1% for the quarter ended March 31, 2005 and 5.2% for the quarter ended March 31, 2004.

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 medical office buildings, 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, and 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.

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.

Pursuant to the Advisory Agreement, the Advisor and its Affiliates earn certain fees and are entitled to receive reimbursement of certain expenses. During the quarters ended March 31, 2005 and 2004, the Advisor and its Affiliates earned fees and incurred reimbursable expenses as follows (in thousands):

	Quarter Ended March 31,
	2005		2004
Acquisition fees (1):
Acquisition fees from offering proceeds	$	3,067	$	21,866
Acquisition fees from debt proceeds		10,451		21,312
		13,518		43,178

Asset management fees (2)		4,499		2,264

Reimbursement of expenses (3):
Acquisition expenses		46		135
General and administrative expenses		1,994		1,060
		2,040		1,195
	$	20,057	$	46,637

(1)

Through the quarter ended March 31, 2005, 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% of gross offering proceeds and loan proceeds under the Prior Offerings), excluding that portion of the Permanent Financing used to finance Secured Equipment Leases.

If we List, 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 Stockholders' 8% Return on 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 of 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 March 31, 2005 and 2004, 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 the Company's second public offering. The majority of these fees were reallowed 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 quarters ended March 31, 2005 and 2004, we incurred the following fees and costs (in thousands):

	Quarter Ended March 31,
	2005		2004

Selling Commissions	$	5,003	$	33,396
Marketing support fee		1,529		2,226
Offering and due diligence costs		1,663		6,387
	$	8,195	$	42,009

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

	March 31,		December 31,
	2005		2004
Due to the Advisor and its Affiliates:
Expenditures incurred for offering expenses	$	97	$	21
Accounting and administrative services		715		761
Acquisition fees and expenses		3,900		656
		4,712		1,438

Due to CNL Securities Corp.:
Selling Commissions		649		149
Marketing support fees and due diligence expense reimbursements		199		45
		848		194
	$	5,560	$	1,632

CNL Capital Corp., an Affiliate of the Advisor, is a non-voting Class C member of Century Capital Markets, LLC ("CCM"). CCM made the arrangements for the two commercial paper loans totaling $43.9 million described in Note 10 to the Notes to the Unaudited Condensed Consolidated Financial Statements included in the Financial Information commencing on page F-1. The monthly interest payments due under these commercial paper loans include an annual margin of either 40 or 30 basis points, payable to CCM for the monthly services it provides related to the administration of the commercial paper loans. For the quarters ended March 31, 2005 and 2004, $38,000 and $0, respectively, was paid to CCM related to these services.

We maintain bank accounts in a bank in which certain of our officers and Directors serve as directors and are majority stockholders. The amount deposited with this bank was $8.7 million at March 31, 2005.

We own 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 remaining interest in the limited partnership is owned by several Affiliates of the Advisor. We severally guarantee 16.67%, or $2.6 million, of a $15.5 million uncollateralized promissory note of the limited partnership that matures on August 28, 2005. The limited partnership intends to extend the note; however, there can be no assurance that this objective will be met. If the note is not extended, it is likely that we will be required to contribute $2.3 million to the limited partnership to fund our 16.67% share of the outstanding note balance at maturity. We periodically receive distributions from the limited partnership, however, no distributions were received during the quarters ended March 31, 2005 and 2004.

In September 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 36% of our total revenues for the quarter ended March 31, 2004.

Our Chairman of the Board is also a director in a hospital that leases office space in seven of our medical office buildings 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 medical office buildings that was acquired in April 2004. During the quarter ended March 31, 2005, these tenants 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. 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.

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.

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 and availability of an on-going 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.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following information updates and replaces the corresponding information beginning on page 95 of the Prospectus.

Effective as of May 13, 2005, Kimberly P. Ross resigned as Secretary of the Company and effective May 13, 2005, Lynn Gutierrez was appointed Secretary of the Company.

The following biography replaces the biography of Kimberly P. Ross on page 99 of the Prospectus.

Lynn Gutierrez, age 52, serves as Secretary of the Company. In addition, Ms. Gutierrez serves as the Director of Regulatory Reporting for CNL Retirement Corp., the Advisor to the Company. Prior to joining CNL Retirement Corp., Ms. Gutierrez was the manager of SEC reporting for CNL Investment Company, where she was responsible for facilitating the preparation and filing of the Securities Act filings for CNL Retirement Properties, Inc. and other entities. Before joining CNL in November 1990, Ms. Gutierrez was a staff accountant for Coopers & Lybrand, Certified Public Accountants. Ms. Gutierrez holds a B.S. in Accounting from the University of Central Florida and is a Certified Public Accountant in the State of Florida. In addition, she is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants.

The Company has entered into indemnification agreements with Clark Hettinga and Lynn Gutierrez effective as of December 31, 2004 and May 13, 2005, respectively.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The following paragraph updates and replaces the corresponding paragraph on page 99 of the Prospectus.

Each Director is entitled to receive $35,000 annually for serving on our Board of Directors, as well as a fee of $1,500 per board meeting attended (including any telephonic meeting) of the Board of Directors, or any committee of our Board of Directors at which such Director is present or in which the Director participates by telephone. In addition, the Chairman of the Audit Committee is entitled to receive a retainer in the amount of $5,000 annually for serving as Chair, as well as a fee of $1,500 per meeting at which such Chairman is present or in which such Chairman participates by telephone with our independent accountants as a representative of the Audit Committee. Directors that are members of a committee of our Board of Directors are entitled to receive fees of $1,500 per day for service as representatives of such committee in lieu of the above per meeting compensation (to the extent that such Directors devote in excess of three hours on such day to matters relating to such committee). Our Board of Directors, from time to time, may change the compensation to be paid to Directors in connection with service on our Board of Directors and any committee of our Board of Directors. We will not pay any compensation to our officers and Directors who also serve as officers and directors of our Advisor.

THE ADVISOR AND THE ADVISORY AGREEMENT

THE ADVISORY AGREEMENT

The following paragraph is inserted following the third full paragraph on page 102 of the Prospectus.

On May 2, 2005, we entered into the Renewal Agreement with the Advisor with respect to the Advisory Agreement, pursuant to which the Advisory Agreement was renewed for an additional one-year term commencing on May 3, 2005, and ending on May 3, 2006. The Renewal Agreement provides that we will negotiate in good faith with the Advisor with respect to whether a reduction in the percentage rate(s) of Total Proceeds to be used in determining Acquisition Fees payable to the Advisor under the Advisory Agreement should be effected. Pursuant to the terms of the Renewal Agreement, we and the Advisor will use commercially reasonable efforts to agree on any such reduction within sixty days of the date of the Renewal Agreement. In the event that we and the Advisor agree to any such reduction, the reduction will be deemed to be effective as of May 3, 2005. Acquisition Fees will be as agreed by us and the Advisor on a case-by-case basis as contemplated by the Advisory Agreement and our Articles of Amendment and Restatement until we and the Advisor have agreed on the percentage rate(s) of Total Proceeds to be used in determining Acquisition Fees payable to the Advisor under the Advisory Agreement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following information should be read in conjunction with the "Certain Relationships and Related Transactions" section beginning on page 103 of the Prospectus.

The Managing Dealer is entitled to receive Selling Commissions amounting to 6.5% of the total amount raised from the sale of Shares from this offering, up to 6.0% of which may be paid as commissions to other broker-dealers. However, Soliciting Dealers that sell more than $50 million in Gross Proceeds in any fiscal year may be reallowed up to 6.2% with respect to Selling Commissions on the Shares they sell. During the period January 1, 2005 through May 25, 2005, we incurred approximately $7.1 million of such fees in connection with this offering, the majority of which has been or will be paid by CNL Securities Corp. as commissions to other broker-dealers.

The Managing Dealer is entitled to receive a marketing support fee of 2.0% of the total amount raised from the sale of Shares from this offering, all or a portion of which may be reallowed to other broker-dealers who enter into an addendum to the Participating Broker Agreement with the Managing Dealer. During the period January 1, 2005 through May 25, 2005, we incurred approximately $2.4 million of such fees in connection with this offering, the majority of which has been or will be reallowed to other broker-dealers.

Pursuant to the Advisory Agreement, the Advisor is entitled to receive Acquisition Fees for services in making or investing in Mortgage Loans, or the purchase, development, or construction of a Property or other Permitted Investment. For the period May 3, 2004 through May 3, 2005 the Advisor was entitled to 4.0% of Gross Proceeds, loan proceeds from Permanent Financing and amounts outstanding on the Line of Credit, if any, at the time of Listing, but excluding loan proceeds used to finance Secured Equipment Leases. Pursuant to the Renewal Agreement described above, we and the Advisor are currently in negotiations with respect to whether an Acquisition Fee reduction should be effected. Acquisition Fees will be as agreed by us and the Advisor on a case-by-case basis as contemplated by the Advisory Agreement and our Articles of Amendment and Restatement until we and the Advisor have agreed on the percentage rate(s) of Total Proceeds to be used in determining Acquisition Fees payable to the Advisor under the Advisory Agreement. During the period January 1, 2005 through May 25, 2005, we incurred approximately $4.8 million of such fees in connection with this offering. For the period January 1, 2005 through May 25, 2005, we incurred Acquisition Fees totaling approximately $10.8 million as a result of Permanent Financing used to acquire certain Properties.

The Company and the Advisor have entered into an Advisory Agreement pursuant to which the Advisor receives a monthly Asset Management Fee of 0.05% of the Company's Real Estate Asset Value and the outstanding principal balance of any Mortgage Loans as of the end of the preceding month. The Asset Management Fee, which will not exceed fees which are competitive for similar services in the same geographic area, may or may not be taken, in whole or in part as to any year, in the sole discretion of the Advisor. All or any portion of the Asset Management Fee not taken as to any fiscal year shall be deferred without interest and may be taken in such other fiscal year as the Advisor shall determine. For the period January 1, 2005 through April 30, 2005, we incurred approximately $6.1 million of such fees.

We incur operating expenses which, in general, are those expenses relating to administration of the Company on an ongoing basis. Pursuant to the Advisory Agreement described above, the Advisor is required to reimburse us the amount by which the total Operating Expenses paid or incurred by us exceed, in any Expense Year, the greater of 2% of Average Invested Assets or 25% of Net Income. During the Expense Year ended March 31, 2005, our Operating Expenses did not exceed the Expense Cap.

The Advisor and its Affiliates provide various administrative services to us, including services related to accounting; financial, tax and regulatory compliance reporting; stockholder distributions and reporting; due diligence and marketing; and investor relations (including administrative services in connection with the offering of Shares) on a day-to-day basis. For the quarter ended March 31, 2005, we incurred approximately $2.6 for these services, approximately $0.6 representing stock issuance costs and approximately $2.0 million in general operating and administrative expenses, including costs related to preparing and distributing reports required by the Securities and Exchange Commission.

During the quarter ended March 31, 2005, Affiliates of the Advisor incurred on our behalf $1.7 million for certain Offering Expenses.

We maintain bank accounts in a bank in which certain officers and Directors of ours serve as directors and are majority stockholders. The amount deposited with this bank at March 31, 2005 was approximately $8.7 million. The terms and conditions offered by this bank are similar and competitive with terms offered by unrelated banks.

CNL Capital Corp., an affiliate of the Advisor, is a non-voting Class C member of Century Capital Markets, LLC ("CCM"). CCM made the arrangements for the two commercial paper loans totaling $43.9 million described in Note 10 to the Notes to the Condensed Consolidated Financial Statements commencing on page F-1. The monthly interest payments due under these commercial paper loans include an annual margin of either 40 or 30 basis points, payable to CCM for the monthly services it provides related to the administration of the commercial paper loans. For the quarter ended March 31, 2005, $38,000 was paid to CCM related to these services.

We own 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 remaining interest in the limited partnership is owned by several Affiliates of the Advisor. We have severally guaranteed our 16.67% share, or $2.6 million, of a $15.5 million unsecured promissory note of the limited partnership that matures on August 28, 2005. At March 31, 2005, the note had an outstanding balance of $14.1 million. The limited partnership intends to extend the term of the note; however, there can be no assurance that this objective will be met. If the note is not extended it is likely that we will be required to contribute $2.3 million to the limited partnership to fund our 16.67% share of the outstanding note balance at maturity. We periodically receive distributions from the partnership; however, no distributions were received during the quarter ended March 31, 2005.

Our Chairman of the Board is a director in a hospital that leases office space in seven of our medical office buildings 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 medical office buildings that was acquired in April 2004. During the quarter ended March 31, 2005, these tenants contributed less than 1% of our total revenues.

DISTRIBUTION POLICY

DISTRIBUTIONS

The following information updates and replaces the table and footnotes on page 114 of the Prospectus.

The following table presents total Distributions declared (in thousands) and Distributions per Share:

	Quarter
	First		Second		Third		Fourth		Year
2005:
Total Distributions declared	$	42,593		(1)
Distributions per Share		0.1776		(1)

2004:
Total Distributions declared	$	28,841	$	37,344	$	39,755	$	41,216	$	147,156
Distributions per Share		0.1776		0.1776		0.1776		0.1776		0.7104

2003:
Total Distributions declared	$	8,689	$	12,031	$	16,591	$	22,473	$	59,784
Distributions per Share		0.1767		0.1767		0.1767		0.1770		0.7071

2002:
Total Distributions declared	$	1,552	$	2,587	$	4,097	$	6,143	$	14,379
Distributions per Share		0.1749		0.1749		0.1749		0.1755		0.7002

2001:
Total Distributions declared	$	220	$	248	$	312	$	727	$	1,507
Distributions per Share		0.1749		0.1749		0.1749		0.1749		0.6996

2000:
Total Distributions declared	$	43	$	109	$	161	$	189	$	502
Distributions per Share		0.0750		0.1537		0.1749		0.1749		0.5785

1999:
Total Distributions declared		(2)		(2)	$	16	$	34	$	50
Distributions per Share		(2)		(2)		0.0500		0.0750		0.1250

(1)	In April, May and June 2005, we declared Distributions totaling $14.5 million, $14.7 million and $14.7 million, respectively (representing $0.0592 per Share), payable by June 30, 2005.

(2)	For the period December 22, 1997 (date of inception) through July 13, 1999, we did not make any cash Distributions because operations had not commenced.

(3)

For the quarter ended March 31, 2005, the years ended December 31, 2004, 2003, 2002, 2001 and 2000, and the period July 13, 1999 (the date our operations commenced) through December 31, 1999, approximately 80%, 60%, 71%, 65%, 65%, 54% and 100%, respectively, of the Distributions declared and paid were considered to be ordinary income and approximately 20%, 40%, 29%, 35%, 35% , 46% and 0%, respectively, were considered a return of capital for federal income tax purposes. No amounts distributed to stockholders for the periods presented are required to be or have been treated by us as return of capital for purposes of calculating the Stockholders' 8% Return on Invested Capital. Due to the fact that we had not yet acquired all of our Properties and were still in the offering stage as of March 31, 2005, the characterization of Distributions for federal income tax purposes is not necessarily considered by management to be representative of the characterization of Distributions in future periods. In addition, the characterization for federal income tax purposes of Distributions declared for the quarter ended March 31, 2005, may not be indicative of the results that may be expected for the year ended December 31, 2005.

(4)

Cash distributions are declared by the Board of Directors and generally are based on various factors, including cash available from operations. For the quarter ended March 31, 2005, and the years ended December 31, 2004, 2003, 2002, 2001, 2000 and 1999, approximately 23%, 20%, 2%, 21%, 39%, 55% and 100%, respectively, of cash distributions represent a return of capital in accordance with GAAP. Cash distributions treated as a return of capital on a GAAP basis represent the amount of cash distributions in excess of net earnings on a GAAP basis. The Company has not treated such amounts as a return of capital for purposes of calculating Invested Capital and the Stockholders' 8% Return.

(5)	Distributions declared and paid for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, represent a distribution rate of 7.104%, 7.071%, 7%, 7% and 5.785%, respectively, of Invested Capital.

The following paragraph updates and replaces the paragraph following footnote paragraph (5) on page 115 of the Prospectus.

We intend to continue to make regular Distributions to stockholders. Distributions will be made to those stockholders who are stockholders as of the record date selected by our Directors. Our Board of Directors currently declares Distributions on a monthly basis using the first day of the month as the record date. In order for an investor to receive a Distribution, they must be a stockholder of record as of the record date. Therefore, newly admitted investors, or investors redeeming or transferring Shares, will not receive a Distribution for a record date that they are not considered a stockholder of record. Currently, Distributions are declared monthly and paid quarterly during the offering period. In addition, Distributions are expected to be declared monthly and paid quarterly during any subsequent offering, and declared and paid quarterly thereafter. However, in the future, our Board of Directors, in its discretion, may determine to declare Distributions on another basis. During the year ended December 31, 2004, $7.7 million of Distributions paid to stockholders was supported by borrowings on our line of credit.

The second, third and fourth paragraphs following footnote paragraph (5) on page 115 of the Prospectus are deleted in their entirety.

EXPERTS

The combined financial statements of Horizon Bay Senior Communities Twenty Communities as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 included in the Prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent registered certified public accounting firm, given on the authority of said firm as experts in auditing and accounting.

INDEX TO FINANCIAL STATEMENTS

CNL RETIREMENT PROPERTIES, INC.

	Page
Pro Forma Consolidated Financial Information (unaudited):

Pro Forma Consolidated Balance Sheet as of March 31, 2005	F-2

Pro Forma Consolidated Statement of Income for the quarter ended March 31, 2005	F-3

Pro Forma Consolidated Statement of Income for the year ended December 31, 2004	F-4

Notes to Pro Forma Consolidated Financial Statements for the quarter ended March 31, 2005 and the year ended December 31, 2004	F-5

Interim Unaudited Condensed Consolidated Financial Statements as recently filed in CNL Retirement Properties, Inc.'s March 31, 2005 Form 10-Q:

Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004	F-11

Condensed Consolidated Statements of Income for the quarters ended March 31, 2005 and 2004	F-12

Condensed Consolidated Statements of Stockholders' Equity for the quarter ended March 31, 2005 and the year ended December 31, 2004	F-13

Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 2005 and 2004	F-14

Notes to Condensed Consolidated Financial Statements for the quarters ended March 31, 2005 and 2004	F-15

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following Unaudited Pro Forma Consolidated Balance Sheet of CNL Retirement Properties, Inc. and its subsidiaries (the "Company") gives effect to (i) the receipt of $33.0 million in gross offering proceeds from the sale of 3.3 million additional shares for the period April 1, 2005 through May 25, 2005, the payment of related offering expenses, and borrowings of $11.6 million under mortgage notes payable and (ii) the application of these funds and cash on hand as of December 31, 2004, to purchase six Properties, including the payment of acquisition fees and miscellaneous acquisition expenses, all as reflected in the pro forma adjustments described in the related notes. The Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2005, has been adjusted to give effect to the transactions in (i) and (ii) above as if they had occurred on March 31, 2005.

The Unaudited Pro Forma Consolidated Statements of Income for the three months ended March 31, 2005 and the year ended December 31, 2004, include the historical operating results of the Properties described in (ii) above, as well as 244 Properties and a 55% ownership interest in a development and property management company ("DASCO") purchased by the Company prior to April 1, 2005 from the date of their acquisition (or for the pending acquisitions, from the date they became probable of being acquired) plus operating results from (A) the later of (i) the date the Properties became operational by the previous owners or (ii) January 1, 2004, to (B) the earlier of (i) the date the Properties were acquired by (or for the pending acquisitions, became probable of being acquired by) the Company or (ii) the end of the pro forma period presented (the "Pro Forma Period").

This pro forma consolidated financial information is presented for informational purposes only and does not purport to be indicative of our financial results or condition if the various events and transactions reflected herein had occurred on the dates or been in effect during the periods indicated. This pro forma consolidated financial information should not be viewed as indicative of our financial results or conditions in the future.

F-1

CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

MARCH 31, 2005

(in thousands, except per share data)

	Historical			Pro Forma Adjustments					Pro Forma
Assets
Real estate investment properties:
Accounted for using the operating method, net	$	2,808,043		$	22,907		(b	)	$	2,830,950
Accounted for using the direct financing method		482,429			—					482,429
Intangible lease costs, net		104,081			1,815		(c	)		105,896
		3,394,553			24,722					3,419,275

Cash and cash equivalents		101,710			28,831		(a	)		118,242
					(12,299	)	(b	)
Restricted cash		21,606			—					21,606
Accounts and other receivables, net		20,405			—					20,405
Deferred costs, net		18,517			175		(b	)		18,692
Accrued rental income		64,469			—					64,469
Other assets		17,910			1,318		(a	)		18,275
					466		(b	)
					(1,419	)	(b	)
Real estate held for sale		4,820			—					4,820
Goodwill		5,791			—					5,791
	$	3,649,781		$	41,794				$	3,691,575

Liabilities and stockholders’ equity
Liabilities:
Mortgages payable	$	1,196,804		$	11,645		(b	)	$	1,208,449
Bonds payable		94,419			—					94,419
Construction loans payable		98,193			—					98,193
Line of credit		20,000			—					20,000
Due to related parties		5,560			—					5,560
Accounts payable and other liabilities		28,657			—					28,657
Intangible lease liability, net		3,859			—					3,859
Deferred income		5,114			—					5,114
Security deposits		29,125			—					29,125
Total liabilities		1,481,731			11,645					1,493,376

Commitments and contingencies

Minority interests		3,360			—					3,360

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 shares, issued 247,300 and 250,595 shares, respectively, outstanding 245,589 and 248,884 shares, respectively		2,456			33		(a	)		2,489
Capital in excess of par value		2,206,709			30,116		(a	)		2,236,825
Accumulated distributions in excess of net income		(44,475	)		—					(44,475	)
Total stockholders’ equity		2,164,690			30,149					2,194,839
	$	3,649,781		$	41,794				$	3,691,575

See accompanying notes to unaudited pro forma consolidated financial statements.

F-2

CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME

QUARTER ENDED MARCH 31, 2005

(in thousands, except per share data)

	Historical			Pro Forma Adjustments					Pro Forma
Revenues:
Seniors' Housing:
Rental income from operating leases	$	56,000		$	4,655		(1	)	$	60,655
Earned income from direct financing leases		15,312			—					15,312
FF&E reserve income		1,599			—					1,599
Contingent rent		1,721			—					1,721

Medical Office Buildings:
Rental income from operating leases		13,136			906		(1	)		14,045
					3		(4	)
Tenant expense reimbursements		2,710			3		(5	)		2,713
Property management and development fees		1,215			—					1,215
		91,693			5,567					97,260

Expenses:
Seniors' Housing property expenses		259			—					259
Medical Office Buildings operating expenses		5,486			254		(6	)		5,740
General and administrative		4,029			—					4,029
Asset management fees to related party		4,347			318		(8	)		4,665
Provision for doubtful accounts		750			—					750
Impairment of long-lived assets		6,197			—					6,197
Depreciation and amortization		22,857			1,585		(9	)		24,442
		43,925			2,157					46,082

Operating income		47,768			3,410					51,178

Interest and other income		706			—					706
Interest and loan cost amortization expense		(15,539	)		(1,901	)	(12	)		(17,440	)

Income before equity in earnings of unconsolidated entity, minority interests in income of consolidated subsidiaries and discontinued operations		32,935			1,509					34,444

Equity in earnings of unconsolidated entity		2			—					2

Minority interests in income of consolidated subsidiaries		(381	)		—					(381	)

Income from continuing operations, net	$	32,556		$	1,509				$	34,065

Net income per share of common stock
(basic and diluted) from continuing operations (14)	$	0.14							$	0.14

Weighted average number of shares of common stock outstanding (basic and diluted) (14)		240,699								240,735

See accompanying notes to unaudited pro forma consolidated financial statements.

F-3

CNL RETIREMENT PROPERTIES, INC.

AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2004

(in thousands, except per share data)

	Historical			Historical Portfolio of 22 Medical Office Buildings		Pro Forma Adjustments			Pro Forma
Revenues:
Seniors’ Housing:
Rental income from operating leases	$	173,947		$	—	$	64,654	(1)	$	238,601
Earned income from direct financing leases		54,873			—		5,262	(1)		60,135
FF&E reserve income		4,671			—		20	(2)		4,691
Contingent rent		90			—		—			90
Medical Office Buildings:
Rental income from operating leases		26,225			9,107		20,025	(1)		55,344
							59	(3)
							(72	) (4)
Tenant expense reimbursements		4,735			1,617		3,603	(5)		9,955
		264,541			10,724		93,551			368,816
Expenses:
Seniors’ Housing property expenses		1,663			—		—			1,663
Medical Office Buildings operating expenses		11,234			3,421		7,551	(6)		22,206
General and administrative		14,778			—		3,290	(7)		18,068
Asset management fees to related party		12,552			—		5,785	(8)		18,337
Provision for doubtful accounts		3,900			—		—			3,900
Depreciation and amortization		62,978			—		34,077	(9)		97,055
		107,105			3,421		50,703			161,229

Operating income		157,436			7,303		42,848			207,587

Interest and other income		4,768			401		(2,590	) (10)		3,067
							488	(11)
Interest and loan cost amortization		(42,783	)		—		(20,451	) (12)		(63,234	)

Income before equity in earnings of unconsolidated entity, minority interests in (income) loss of consolidated subsidiaries and discontinued operations		119,421			7,704		20,295			147,420

CNL Retirement Properties Inc · 424B3 · On 6/14/05

Filed On 6/14/05 6:13pm ET · SEC File 333-107486 · Accession Number 1055264-5-35

Prospectus · Rule 424(b)(3)
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CNL Retirement Properties Inc · 424B3 · On 6/14/05

Filed On 6/14/05 6:13pm ET · SEC File 333-107486 · Accession Number 1055264-5-35

Prospectus · Rule 424(b)(3)Filing Table of Contents

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Prospectus · Rule 424(b)(3)
Filing Table of Contents