8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

August 4, 2006

Date of Report (Date of earliest event reported)

HEALTH CARE PROPERTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

Maryland	001-08895	33-0091377
(State of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

3760 Kilroy Airport Way

Suite 300

Long Beach, California 90806

(Address of principal executive offices)  (Zip Code)

(562) 733-5100

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01Other Events.

As previously reported on a current report on Form 8-K filed on May 2, 2006, on May 1, 2006 Health Care Property Investors, Inc. (“HCP”), CNL Retirement Properties, Inc. (“CRP”) and Ocean Acquisition 1, Inc., a wholly owned subsidiary of HCP (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which CRP will be merged with and into Merger Sub, with Merger Sub as the surviving corporation (the “Merger”). Concurrently with the Merger, CNL Retirement Corp., the external advisor to CRP (the “Advisor”), will merge with and into Ocean Acquisition 2, LLC, a wholly owned subsidiary of HCP (the “Advisor Merger”). HCP is filing this Form 8-K to provide financial and other relevant information with respect to CRP, the Advisor, the proposed Merger and the proposed Advisor Merger. Specifically, this current report on Form 8-K provides: (1) a description of CRP’s business, attached hereto as Exhibit 99.1; (2) HCP’s unaudited pro forma condensed consolidated financial statements relating to the proposed Merger and the proposed Advisor Merger, attached hereto as Exhibit 99.2; (3) CRP’s audited financial statements for the years ended December 31, 2003, 2004 and 2005 and the unaudited condensed financial statements for the three months ended March 31, 2006, attached hereto as Exhibits 99.3 and 99.4, respectively; and (4) the Advisor’s audited financial statements for the years ended December 31, 2003, 2004 and 2005 and the unaudited condensed financial statements for the three months ended March 31, 2006, attached hereto as Exhibits 99.5 and 99.6, respectively. The information in Exhibits 99.1, 99.3, 99.4, 99.5 and 99.6 were provided by CRP. The information in Exhibits 99.1, 99.2, 99.3, 99.4, 99.5 and 99.6 is incorporated herein by reference.

Item 9.01Financial Statements and Exhibits.

(d)	Exhibits.  The following exhibits are being filed herewith:
23.1	Consent of PricewaterhouseCoopers LLP (CRP)
23.2	Consent of PricewaterhouseCoopers LLP (Advisor)
99.1	Information about CRP
99.2	HCP Unaudited Pro Forma Condensed Consolidated Financial Statements as of March 31, 2006 and for the year ended December 31, 2005 and the three months ended March 31, 2006 and 2005
99.3	CRP Financial Statements as of December 31, 2005 and 2004 and for the three years in the period ended December 31, 2005
99.4	CRP Financial Statements for the three months ended March 31, 2006
99.5	Advisor Financial Statements as of December 31, 2005 and 2004 and for the three years in the period ended December 31, 2005
99.6	Advisor Financial Statements for the three months ended March 31, 2006 and 2005

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 4, 2006	By:	/s/ Edward J. Henning
		Edward J. Henning
		Senior Vice President, General Counsel and
		Corporate Secretary

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on (Form S-8 No. 333-28483, Form S-8 No. 333-90353, Form S-8 No. 333-54786, Form S-8 No. 333-54784, Form S-8 No. 333-108838, Form S-4 No. 333-135569, Form S-3 No. 333-99067, Form S-3 No. 333-99063, Form S-3 No. 333-95487, Form S-3 No. 333-111174, Form S-3 No. 333-110939, Form S-3 No. 333-86654, Form S-3 No. 333-122456, Form S-3 No. 333-119469 and Form S-3 No. 333-124922) of Health Care Property Investors, Inc. of our report dated March 24, 2006 relating to the financial statements, financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting of CNL Retirement Properties, Inc. which appears in the Current Report on Form 8-K of Health Care Property Investors, Inc. dated August 4, 2006.

/s/ PricewaterhouseCoopers LLP

Orlando, Florida

August 4, 2006

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on (Form S-8 No. 333-28483, Form S-8 No. 333-90353, Form S-8 No. 333-54786, Form S-8 No. 333-54784, Form S-8 No. 333-108838, Form S-4 No. 333-135569, Form S-3 No. 333-99067, Form S-3 No. 333-99063, Form S-3 No. 333-95487, Form S-3 No. 333-111174, Form S-3 No. 333-110939, Form S-3 No. 333-86654, Form S-3 No. 333-122456, Form S-3 No. 333-119469 and Form S-3 No. 333-124922) of Health Care Property Investors, Inc. of our report dated August 4, 2006 relating to the financial statements of CNL Retirement Corp. which appears in the Current Report on Form 8-K of Health Care Property Investors, Inc. dated August 4, 2006.

/s/ PricewaterhouseCoopers LLP

Orlando, Florida

August 4, 2006

EX-99.1

Exhibit 99.1

INFORMATION ABOUT CRP

The following information relates to CNL Retirement Properties, Inc. (“CRP”) and the proposed merger (the “Merger”) of CRP with and into Ocean Acquisition 1, Inc. (“Merger Sub”), a wholly owned subsidiary of Health Care Property Investors, Inc. (“HCP”), pursuant to an agreement and plan of merger, dated as of May 1, 2006, between HCP, CRP and Merger Sub (the “Merger Agreement”).

CRP’s Business

General

CNL Retirement Properties, Inc., or CRP, was organized on December 22, 1997 as a Maryland corporation, and elected to be taxed as a REIT commencing with its taxable year ending December 31, 1999. Through its wholly-owned subsidiaries, consolidated partnerships and joint ventures, CRP primarily acquires, develops, manages and owns real estate properties. CRP is one of the nation’s largest investors in healthcare-related real estate, investing primarily in properties related to senior housing and healthcare facilities located across the United States. The properties include independent living, assisted living and skilled nursing facilities, continuing care retirement communities and life care communities, medical office buildings, walk-in clinics, free standing ambulatory surgery centers, specialty or general hospitals and other types of healthcare-related facilities. As of March 31, 2006, CRP had invested $3.7 billion in 271 properties located in 33 states, consisting of 185 senior housing facilities and 86 medical facilities, including two specialty hospitals and two walk-in clinics. As of March 31, 2006, CRP also owned two senior housing facilities and a parcel of land that CRP held for sale. CRP leases its senior housing properties on a long-term (generally 15 years), triple-net basis and its medical facilities on either a triple-net or gross basis generally over 5 to 15 years.

CRP’s executive offices are located at the CNL Center II at City Commons, 420 South Orange Avenue, Suite 500, Orlando, Florida 32801 and its telephone number is (407) 650-1000.

CNL Retirement Corp., or the Advisor, is CRP’s advisor and provides management, acquisition, advisory and administrative services to CRP.

Since CRP’s inception it has made five best efforts public offerings of common stock and received aggregate subscriptions of $2.7 billion. CRP’s fifth public offering closed on March 26, 2006.

CRP operates in one business segment which is the ownership, development, management and leasing of healthcare-related real estate.

CRP’s Investment Objectives and Policies

CRP’s charter provides that CRP’s primary investment objectives are to preserve, protect, and enhance CRP’s assets while (i) making quarterly distributions; (ii) obtaining fixed income through the receipt of base rent, and increasing CRP’s income (and distributions) and providing protection against inflation through automatic fixed increases in base rent or increases in base rent based on increases in consumer price indices over the terms of the leases, and obtaining fixed income through the receipt of payments on mortgage loans and secured equipment leases; (iii) continuing to qualify as a REIT for federal income tax purposes; and (iv) providing stockholders of CRP with liquidity of their investment, either in whole or in part, on or before December 31, 2008, through (a) listing, or, (b) if listing does not occur by December 31, 2008, the commencement of orderly sales of CRP’s assets, outside the ordinary course of business and consistent with its objective of qualifying as a REIT, and distribution of the proceeds thereof. The sheltering from tax of income from other sources is not an objective of CRP. If CRP is successful in achieving its investment and operating objectives, the stockholders (other than tax-exempt entities) are likely to recognize taxable income in each year. While there is no order of priority intended in the listing of CRP’s objectives, stockholders should realize that the ability of CRP to meet these objectives may be severely handicapped by any lack of diversification of CRP’s investments and the terms of the leases.

In the event the merger with Health Care Properties, Inc. is not consummated, CRP intends to meet its objectives through its investment policies by purchasing interests in carefully selected, well-located properties either directly, or indirectly through the acquisition of interests in entities which own such properties or interests therein, and leasing the properties primarily on a “triple-net” basis (which means that the tenant will be responsible for paying the cost of all repairs, maintenance, property taxes, and insurance) to tenants under leases generally requiring

the tenant to pay base annual rent with automatic fixed increases in base rent or increases in base rent based on increases in consumer price indices over the term of the lease. CRP may also invest in medical office buildings and expects leases relating to medical office buildings will be on a “gross” basis. In addition, if the merger is not consummated, CRP may offer mortgage loans and secured equipment leases to operators, and CRP may also invest a small portion of its total assets in equity interests in businesses that provide services to or are otherwise ancillary to the retirement industry.

In accordance with its investment policies, CRP intends, unless the merger is consummated, to invest in properties whose tenants are operators to be selected by CRP, or whose tenants have contracted with third-party operators approved by CRP, based upon recommendations by the Advisor. With respect to investments in medical office buildings, CRP intends, unless the merger is consummated, to contract with third-party property managers. Although there is no limit on the number of properties of a particular tenant or operator which CRP may acquire, CRP’s board of directors, including a majority of the independent directors, will review CRP’s properties and potential investments in terms of geographic, facility type, tenant, operator and brand diversification. Potential mortgage loan borrowers and secured equipment lease lessees or borrowers will similarly be operators selected or approved by CRP, following the Advisor’s recommendations. CRP has undertaken, consistent with its objective of qualifying as a REIT for federal income tax purposes, to ensure that the value of all secured equipment leases, in the aggregate, will not exceed 25% of CRP’s total assets, while secured equipment leases to any single lessee or borrower, in the aggregate, will not exceed 5% of CRP’s total assets. It is intended that any future investments will be made in properties, mortgage loans, other permitted investments and secured equipment leases in various locations in an attempt to achieve diversification and thereby minimize the effect of changes in local economic conditions and certain other risks.

The investment objectives of CRP may not be changed without the approval of stockholders owning a majority of the shares of outstanding common stock. CRP’s bylaws require the independent directors to review CRP’s investment policies at least annually to determine that the policies are in the best interests of the stockholders. The determination must be set forth in the minutes of CRP’s board of directors along with the basis for such determination. CRP’s directors (including a majority of the independent directors) have the right, without a stockholder vote, to alter CRP’s investment policies but only to the extent consistent with CRP’s investment objectives and investment limitations. See “Certain Investment Limitations” below.

Certain Investment Limitations

In addition to other investment restrictions imposed by CRP’s board of directors from time to time, consistent with CRP’s objective of qualifying as a REIT, CRP’s charter or bylaws provide for the following limitations on CRP’s investments:

1.     Not more than 10% of CRP’s total assets can be invested in unimproved real property or mortgage loans on unimproved real property. For purposes of this paragraph, “unimproved real property” does not include any property under construction, under contract for development or planned for development within one year.

2.     CRP cannot invest in commodities or commodity future contracts. This limitation is not intended to apply to interest rate futures, when used solely for hedging purposes.

3.     CRP cannot invest in or make mortgage loans unless an appraisal is obtained concerning the underlying property. Mortgage indebtedness on any property cannot exceed such property’s appraised value. In cases in which a majority of the independent directors so determine, and in all cases in which the mortgage loan involves the Advisor, CRP’s directors, or CRP’s affiliates, such appraisal must be obtained from an independent expert concerning the underlying property. Such appraisal must be maintained in CRP’s records for at least five years, and must be available for inspection and duplication by any stockholder. In addition to the appraisal, a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or condition of the title must be obtained.

4.     CRP may not make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including the loans of CRP, would exceed an amount equal to 85% of the appraised value of the property as determined by appraisal unless substantial justification exists because of the presence of other underwriting criteria. For purposes of this paragraph, the “aggregate amount of all mortgage loans outstanding on the property, including the loans of CRP” includes all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5% per annum of the principal balance of the loan.

5.     CRP may not invest in indebtedness, or junior debt, secured by a mortgage on real property which is subordinate to the lien or other indebtedness, or senior debt, except where the amount of such junior debt, plus the outstanding amount of the senior debt, does not exceed 90% of the appraised value of such property, if after giving effect thereto, the value of all such investments of CRP (as shown on the books of CRP in accordance with generally accepted accounting principles after all reasonable reserves but before provision for depreciation) would not then exceed 25% of CRP’s net assets. The value of all investments in junior debt of CRP which does not meet the aforementioned requirements is limited to 10% of CRP’s tangible assets (which is included within the 25% limitation).

6.     CRP may not engage in any short sale, or borrow, on an unsecured basis, if such borrowing will result in an asset coverage of less than 300%, except that such borrowing limitation shall not apply to a first mortgage trust. “Asset coverage,” for the purpose of this paragraph, means the ratio which the value of the total assets of an issuer, less all liabilities and indebtedness except indebtedness for unsecured borrowings, bears to the aggregate amount of all unsecured borrowings of such issuer.

7.     CRP may not incur any indebtedness which would result in an aggregate amount of leverage in excess of 300% of net assets.

8.     CRP may not make or invest in any mortgage loans that are subordinate to any mortgage, other indebtedness or equity interest of the Advisor, CRP’s directors or CRP’s affiliates.

9.     CRP may not invest in equity securities unless a majority of CRP’s directors (including a majority of independent directors) not otherwise interested in such transaction approve the transaction as being fair, competitive, and commercially reasonable and determine that the transaction will not jeopardize CRP’s ability to qualify and remain qualified as a REIT. Investments in entities affiliated with the Advisor, a director of CRP, CRP, or CRP’s affiliates thereof are subject to the restrictions on joint venture investments. In addition, CRP cannot invest in any security of any entity holding investments or engaging in activities prohibited by CRP’s charter.

10.   CRP may not issue (i) equity securities redeemable solely at the option of the holder (except that stockholders may offer their shares to CRP under certain circumstances); (ii) debt securities unless the historical debt service coverage (in the most recently completed fiscal year), as adjusted for known charges, is sufficient to service that higher level of debt properly; (iii) shares on a deferred payment basis or under similar arrangements; (iv) non-voting or assessable securities; or (v) options, warrants, or similar evidences of a right to buy its securities (collectively, “options”); provided however that options may be issued (1) to all of its stockholders ratably, (2) as part of a financing arrangement, or (3) as part of a stock option plan available to CRP’s directors, officers, or employees of CRP or the Advisor. Options may not be issued to the Advisor, CRP’s directors or any affiliate of CRP thereof except on the same terms as such options are sold to the general public. Options may be issued to persons other than the Advisor, CRP’s directors or any affiliate thereof but not at exercise prices less than the fair market value of the underlying securities on the date of grant and not for consideration that, in the judgment of the independent directors, has a market value less than the value of such option on the date of grant. Options issuable to the Advisor, CRP’s directors or any affiliate thereof cannot exceed 10% of CRP’s outstanding shares on the date of grant.

11.   A majority of CRP’s directors must authorize the consideration to be paid for each property, based on the fair market value of the property. If a majority of the independent directors determine, or if the property is acquired from the Advisor, a director of CRP, or affiliates thereof, such fair market value must be determined by an independent expert selected by the independent directors.

12.   CRP does not engage in underwriting or the agency distribution of securities issued by others or in trading, as compared to investment activities.

13.   CRP does not invest in real estate contracts of sale unless such contracts of sale are in recordable form and appropriately recorded in the chain of title.

14.   CRP does not invest in any foreign currency or bullion or engage in short sales.

15.   CRP does not issue senior securities except notes to banks and other lenders and preferred shares.

16.   CRP does not make loans to the Advisor or its affiliates, except (A) mortgage loans subject to the restrictions governing mortgage loans in CRP’s charter (including the requirement to obtain an appraisal from an independent expert) or (B) to wholly owned subsidiaries of CRP.

17.   CRP does not operate so as to be classified as an “investment company” under the Investment Company Act of 1940, as amended.

18.   CRP does not make any investments that CRP believes will be inconsistent with its objective of qualifying as a REIT.

The foregoing limitations may not be modified or eliminated without the approval of a majority of the shares of CRP’s outstanding common stock.

Standards for Investment in Individual Properties

Selection of Tenants, Operators and Property Managers.    The selection of tenants, operators and property managers by the Advisor, as approved by CRP’s board of directors, will be based on a number of factors which may include: an evaluation of the operations of their properties, the number of properties operated or managed, the relationship of average revenue per available unit (or bed) to the average capital cost per unit (or bed) for each retirement facility operated, the relative competitive position among the same types of properties offering similar services, market penetration, the relative financial success of the operator in the geographic area in which the property is located, overall historical financial performance of the tenant and operator, the management capability of the operator or property manager, and the prior experience of the tenant, operator or property manager in leasing, operating and managing similar properties.

Selection of Properties.    In making investments in properties, the Advisor will consider relevant real property and financial factors, including the condition, use, and location of the property, income-producing capacity, and the prospects for long-term appreciation. The proper location, design and amenities are important to the success of a property.

In selecting specific properties, the Advisor, as approved by CRP’s board of directors, will apply the following minimum standards:

1.     Each property will be in what the Advisor believes is a prime location for that type of property.

2.     Base (or minimum) annual rent will provide a specified minimum return on CRP’s cost of purchasing, and if applicable, developing the property, and the lease also may provide for automatic fixed increases in base rent at specified times or increases in the base rent based on increases in consumer price

indices over the term of the lease. In addition, certain leases related to retirement facilities may provide for the payment of additional rent based on achieving specified operating performance thresholds.

3.     The initial lease term typically will be at least ten to 20 years, or in the case of direct financing leases, up to 35 years. With respect to medical office buildings, the initial lease term typically will be five to 15 years.

4.     In general, CRP will not acquire a property if its board of directors, including a majority of the independent directors, determines that the acquisition would adversely affect CRP in terms of geographic, property type or chain diversification.

Joint Venture Arrangements

Subject to certain restrictions contained in the merger agreement on the conduct of CRP’s business prior to the merger, CRP has and may continue to enter into joint ventures, partnerships and limited liability companies as an alternative method to investing directly in real estate. If for any reason CRP is unable to consummate the proposed merger, it may pursue one or more strategic transactions and/or continued implementation of its primary business strategy. There can be no assurance as to the completion, timing or terms of any other strategic transaction.

CRP may enter into a joint venture to purchase and hold for investment a property with various unaffiliated persons or entities or with another program formed by the principals of CRP or the Advisor or their affiliates, if a majority of CRP’s directors, including a majority of the independent directors, not otherwise interested in the transaction determine that the investment in the joint venture is fair and reasonable to CRP and on substantially the same terms and conditions as those to be received by the co-venturer or co-venturers. CRP may take more or less than a 50% interest in any joint venture, subject to obtaining the requisite approval of CRP’s directors.

Under the terms of each joint venture agreement, it is anticipated that CRP and each joint venture partner would be jointly and severally liable for all debts, obligations, and other liabilities of the joint venture, and CRP and each joint venture partner would have the power to bind each other with any actions they take within the scope of the joint venture’s business. In addition, it is expected that the Advisor or its affiliates would be entitled to reimbursement, at cost, for actual expenses incurred by the Advisor or its affiliates on behalf of the joint venture. Events of dissolution will include the bankruptcy, insolvency, or termination of any co-venturer, sale of the property owned by the joint venture, mutual agreement of CRP and its joint venture partner to dissolve the joint venture, and the expiration of the term of the joint venture. The joint venture agreement typically restricts each venturer’s ability to sell, transfer, or assign its joint venture interest without first offering it for sale to its co-venturer. In addition, in any joint venture with another program sponsored by the Advisor or its affiliates, where such arrangements are entered into for the purpose of purchasing and holding properties for investment, in the event that one party desires to sell the property and the other party does not desire to sell, either party will have the right to trigger dissolution of the joint venture by sending a notice to the other party. The notice will establish the price and terms for the sale or purchase of the other party’s interest in the joint venture to the other party. The joint venture agreement will grant the receiving party the right to elect either to purchase the other party’s interest on the terms set forth in the notice or to sell its own interest on such terms.

The following paragraphs describe the allocations and distributions under the expected terms of the joint venture agreement for any joint venture in which CRP and its co-venturer each have a 50% ownership interest. In any other case, the allocations and distributions are expected to be similar to those described below, except that allocations and distributions which are described below as being made 50% to each co-venturer will instead be made in proportion to each co-venturer’s respective ownership interest.

Under the terms of each joint venture agreement, operating profits and losses generally will be allocated 50% to each co-venturer. Profits from the sale or other disposition of joint venture property first will be allocated to any co-venturers with negative capital account balances in proportion to such balances until such capital accounts equal zero, and thereafter 50% to each co-venturer. Similarly, losses from the sale or other disposition of joint venture property first will be allocated to joint venture partners with positive capital account balances in proportion to such

balances until such capital accounts equal zero, and thereafter 50% to each co-venturer. Notwithstanding any other provisions in the joint venture agreement, income, gain, loss, and deductions with respect to any contributed property will be shared in a manner which takes into account the variation between the basis of such property and its fair market value at the time of contribution in accordance with section 704(c) of the Code.

Net cash flow from operations of the joint venture generally will be distributed 50% to each joint venture partner. Any liquidation proceeds, after paying joint venture debts and liabilities and funding reserves for contingent liabilities, generally will be distributed first to the joint venture partners with positive capital account balances in proportion to such balances until such balances equal zero, and thereafter 50% to each joint venture partner. Nevertheless, there may be some transactions in which CRP gets a preferred return so that CRP receives distributions before the co-venturer receives its distributions; and in some of these situations, the co-venturer may then get a larger share of the remaining proceeds. In addition, there may be some transactions in which the co-venturer gets a preferred return so that it receives distributions before CRP receives its distributions; and in some of these situations, CRP may then get a larger share of the remaining proceeds.

In order that the allocations of joint venture income, gain, loss, and deduction provided in joint venture agreements may be respected for federal income tax purposes, it is expected that any joint venture agreement either (i) (a) will contain a “qualified income offset” provision, (b) will prohibit allocations of loss or deductions to the extent such allocation would cause or increase an “Adjusted Capital Account Deficit,” and (c) will require (1) that capital accounts be maintained for each joint venture partner in a manner which complies with Treasury Regulation Section 1.704-1(b)(2)(iv) and (2) that distributions of proceeds from the liquidation of a partner’s interest in the joint venture (whether or not in connection with the liquidation of the joint venture) be made in accordance with the partner’s positive capital account balance, or (ii) otherwise will provide for allocations of income, gain, deduction and loss which are deemed to have economic effect under the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(i).

Prior to entering into any joint venture arrangement with any unaffiliated co-venturer (or the principals of any unaffiliated co-venturer), CRP will confirm that such person or entity has demonstrated to CRP’s satisfaction that requisite financial qualifications are met.

Strategic Alliances

The Cirrus Group, LLC.    In August 2005, CRP entered into an agreement with The Cirrus Group, LLC, or Cirrus, a development and property management company, to acquire, at CRP’s election, medical facilities, some of which have yet to be developed. The acquisitions contemplated under the Cirrus agreement are expected to occur over a five-year term, subject to certain conditions, or until $1.0 billion is invested in medical facilities, including specialty hospitals. CRP will have minority interest partners in connection with the ownership of each of these properties, including Cirrus principals, physicians and other investors associated with Cirrus principals. As of March 31, 2006, CRP had acquired a majority equity interest in two medical facilities for $52.6 million under the Cirrus agreement, for which Cirrus and its affiliates made $0.9 million in minority interest contributions.

At March 31, 2006, Cirrus managed 23 of CRP’s medical facilities, including two properties that CRP acquired from third parties.

In 2005, CRP entered into an agreement to provide a Cirrus affiliate with an interest only, five-year senior secured term loan under which up to $85.0 million (plus capitalized interest) may be borrowed to finance the acquisition, development, syndication and operation of new and existing surgical partnerships. At March 31, 2006, the balance outstanding under the senior secured term loan was $34.0 million. In connection with the senior secured term loan, CRP received stock warrants which are exercisable into a 10% to 15% ownership interest of the borrower. The stock warrants are exercisable at the earlier of an event of default or the full repayment of the senior secured term loan and expire in September 2015.

The DASCO Companies, LLC.    CRP owns a 55% controlling interest in The DASCO Companies, LLC, or DASCO, a development and property management company. CRP’s relationship with DASCO has provided and

may, in the event the merger is not consummated, continue to provide opportunities for CRP to participate in new medical facility development and acquisition opportunities as well as medical facilities management. DASCO may also provide development and property management services to third parties. At March 31, 2006, DASCO managed 54 of CRP’s medical facilities, including two walk-in clinics and was developing five of CRP’s medical facilities.

Other Permitted Investments

In the event the merger is not consummated, CRP may also provide (i) mortgage financing to operators to enable them to acquire properties that would secure the loan, (ii) furniture, fixtures and equipment financing, (iii) other loans to entities in which CRP holds an interest, and (iv) CRP may invest up to a maximum of 5% of its total assets in equity interests in businesses, including those that provide services to or are otherwise ancillary to the retirement and healthcare industries.

If CRP provides such financing, CRP expects that the interest rates and terms of the mortgage loans CRP provides will be similar to those of CRP’s leases. However, because CRP prefers to focus on investing in properties which have the potential to appreciate, CRP currently expects to provide mortgage loans in the aggregate principal amount of no more than 5% to 10% of its total assets. CRP had $4.8 million invested in mortgage loans at March 31, 2006.

To a lesser extent, CRP also may provide secured equipment leases to operators, pursuant to which CRP will finance the equipment through loans or direct financing leases. It is expected that the leases or loans will have a term of no more than seven years, will be secured by the personal property and include an option for the lessee to acquire the subject equipment at the end of the term. The aggregate outstanding principal amount of secured equipment leases is not expected to exceed 10% of CRP’s total assets. CRP had no secured equipment leases at March 31, 2006.

In the event the merger is not consummated, CRP may make other loans to operators or developers of senior housing or other healthcare-related facilities collateralized by real estate owned by the borrower.

During the three months ending March 31, 2006, CRP advanced $18.0 million under the senior secured term loan. The balance outstanding under the senior secured term loan was $34.0 million at March 31, 2006.

Advisory Services

Pursuant to an advisory agreement, the Advisor provides management services relating to CRP’s administration, the properties, the mortgage loans, the secured equipment lease program and other loans. Under this agreement, the Advisor is responsible for assisting CRP in negotiating leases, other permitted investments, lines of credit and permanent financing; collecting rental, mortgage loan, secured equipment lease and other loan payments; inspecting the properties and the tenants’ books and records; and responding to tenants’ inquiries and notices. The Advisor is also responsible for providing information to CRP about the status of the leases, properties, other permitted investments, any lines of credit and any permanent financing. In exchange for these services, the Advisor is entitled to receive certain fees from CRP. For supervision of the properties and the mortgage loans, the Advisor receives an asset management fee, which is payable monthly, in an amount equal to 0.05% of the total amount invested in the properties, exclusive of acquisition fees and acquisition expenses, plus 0.05% of the outstanding principal amount of any mortgage loans, as of the end of the preceding month. For negotiating secured equipment leases and supervising the secured equipment lease program, the Advisor will receive, upon entering into each lease, a secured equipment lease servicing fee, payable out of the proceeds of borrowings, equal to 2% of the purchase price of the equipment subject to each secured equipment lease. For identifying the properties, structuring the terms of the acquisition and leases of the properties and structuring the terms of the mortgage loans, the Advisor receives an acquisition fee on the gross proceeds from the offerings and loan proceeds from permanent financing, excluding that portion of the permanent financing used to finance secured equipment leases, equal to 3% for the period from May 3, 2005 through December 31, 2005, 4% for the period from May 14, 2004 to May 2, 2005 and 4.5% with respect to the offerings prior to the 2004 offering. In addition, if there is a listing, the Advisor will receive an acquisition fee of 3% of amounts outstanding on the line of credit, if any, at the time of listing.

In accordance with the advisory agreement, the Advisor is required to reimburse CRP the amount by which the total operating expenses incurred by CRP in any four consecutive fiscal quarters exceed the greater of 2% of average invested assets or 25% of net income.

On May 2, 2005, CRP entered into a 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 at 12:00 a.m. on May 3, 2006. On July 13, 2005, CRP and the Advisor amended the renewal agreement to reduce the percentage rate of total proceeds to be used in determining acquisition fees payable to the Advisor under the advisory agreement from 4% to 3%. This reduction is deemed to be effective as of May 3, 2005.

On May 1, 2006, CRP entered into another 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, 2006, and ending on May 3, 2007. Such renewal was approved by CRP’s board of directors (after recommendation of the independent directors) at a meeting on April 28, 2006.

Borrowings

CRP has historically and, unless the merger is consummated, may continue to borrow money to acquire properties, make mortgage loans, other loans and pay certain fees, and CRP encumbers properties in connection with these borrowings. CRP may also borrow money to enter into secured equipment leases. CRP has a $320.0 million revolving line of credit that may be amended to increase the revolving line of credit to $400.0 million. The amount available for use under the revolving line of credit is subject to certain limitations based on the pledged collateral. As of March 31, 2006, the revolving line of credit was collateralized by 36 properties with a carrying value of $389.4 million that, in the aggregate, allowed CRP to draw up to $283.0 million. Per the terms of the merger agreement, CRP is only permitted to draw up to an additional $25.0 million under the revolving line of credit without HCP’s prior written consent.

Competition

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

During 2005, CRP continued to focus its investments in the acquisition of existing senior housing and medical facilities, as well as in the development of such new properties through strategic alliances with new and existing business partners. The development of new properties allowed CRP to avoid the pricing pressures in the open market and to develop facilities that met CRP’s investment requirements. However, although successful in 2005, there can be no assurance that this investment strategy will be followed in upcoming periods or, if followed, that it will generate the same results as in 2005. Further, there can be no assurance that CRP will be able to secure business partners to develop the properties.

Employees

CRP has no employees, other than CRP’s executive officers who are not compensated by CRP. CRP has retained the Advisor to provide management, acquisition, advisory and certain administrative services and have retained certain other affiliates of the Advisor to provide additional administrative services.

CRP’s Properties

Generally, properties acquired by CRP consist of both land and building, although in some cases CRP acquires only the land underlying the building with the building owned by the tenant or a third party, and also acquires the building only with the land owned by a third party. In general, the properties will be freestanding and surrounded by paved parking areas and landscaping. Although, buildings may be suitable for conversion to various uses through modifications, some properties may not be economically convertible to other uses.

Either before or after construction or renovation, the properties acquired by CRP are one of a tenant’s approved designs. Prior to purchase of all properties, other than those purchased prior to completion of construction, CRP receives a copy of the certificate of occupancy issued by the local

building inspector or other governmental authority and all other governmental certificates or permits which permit the use of the property as a retirement facility, and shall receive a certificate from the tenant to the effect that (i) the property is operational and in compliance with all required governmental permits and certificates, and (ii) the property is in compliance with all of the tenant’s requirements, including, but not limited to, building plans and specifications approved by the tenant. CRP also receives a certificate of occupancy and all other required governmental permits or certificates for each property for which construction has not been completed at the time of purchase, prior to CRP’s payment of the final installment of the purchase price for the property.

Except in the case of gross leases related to certain medical office buildings, a tenant generally is required by the lease agreement to make such capital expenditures as may be reasonably necessary to refurbish buildings, premises, signs, and equipment and maintain the leasehold in a manner that allows operation for its intended purpose. These capital expenditures generally will be paid by the tenant during the term of the lease up to a certain capped amount and CRP will be responsible for the balance.

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

At December 31, 2005, 33 of CRP’s senior housing properties were accounted for as direct financing leases with terms that range from 10 to 35 years (expiring between 2013 and 2038). Certain of these direct financing leases contain provisions that allow the lessee to elect to purchase the property during or at the end of the lease term for CRP’s initial investment amount. Certain of the leases also permit CRP to require the tenants to purchase the properties at the end of the lease terms for CRP’s initial investment amount.

The senior housing lessees’ ability to satisfy the lease obligations depends primarily on the properties’ operating results. CRP selects properties for investment based on a credit underwriting process designed to identify those properties that management believes will be able to fund such lease obligations. To mitigate credit risk, certain leases are combined into portfolios that contain cross-default terms, meaning that if a tenant of any of the properties in a portfolio defaults on its obligations under its lease, CRP may pursue remedies under the lease with respect to any of the tenant’s properties in the portfolio. In addition, certain portfolios contain terms whereby the net operating profits of the properties are combined for the purpose of funding rental payments due under each lease. For certain properties, CRP requires security deposits, tenant or operator guarantees or additional types of income support. Guarantees or other forms of credit support may be necessary if a senior housing facility is

still in the process of achieving a stable occupancy rate, in which case the property would not be able to generate minimum rent until reaching occupancy stabilization. In order to determine the amount of the guarantee that would be needed to fund minimum rent, CRP estimates future cash flows available to the tenant to pay minimum rent based on projected occupancies and an analysis of the surrounding real estate market, including demographic information and industry standards, to predict operating expenses. CRP’s estimates are based on assumptions and there can be no assurances as to the actual amounts that will need to be paid under the guarantees.

Characteristics of CRP’s Medical Facilities Leases. CRP owns both single-tenant and multi-tenant medical office buildings, specialty hospitals and walk-in clinics that are leased on either a triple-net or gross basis, primarily to tenants in the healthcare industry. The leases have initial terms of 5 to 15 years, provide for minimum rent and are generally subject to renewal options. Substantially all leases require minimum annual rents to increase at predetermined intervals during the lease terms. Under CRP’s gross leases, tenants generally will be responsible for a certain capped amount of repairs, maintenance, property taxes, utilities and insurance and CRP will be responsible for the balance.

Major Tenants and Operators. As of December 31, 2005, CRP leased its senior housing properties to 22 tenants. Two tenants affiliated with Horizon Bay Management, LLC, or Horizon Bay, contributed 21% of CRP’s total revenues for the year ended December 31, 2005. As of December 31, 2005, 10 of CRP’s tenants, each of which is a subsidiary or affiliate of Harbor Retirement Associates, LLC, or HRA, contributed 22% of total revenues. No other senior housing tenant contributed more than 10% of total revenues. CRP’s other tenants include other affiliates of Horizon Bay and subsidiaries or affiliates of: American Retirement Corporation, or ARC; Aureus Group, LLC, or Aureus; Eby Realty Group, LLC, or Eby; Encore Senior Living, LLC, or Encore; Erickson Retirement Communities, LLC; Greenwalt Corporation, or Greenwalt; Prime Care properties, LLC; Summit Companies, Incorporated; Solomon Senior Living Holdings, LLC; and Sunrise Senior Living Services, Inc., or Sunrise. Several of CRP’s senior housing tenants, including the HRA tenants, are thinly capitalized corporations that rely on the cash flow generated from the senior housing facilities to fund rent obligations under their leases. CRP’s medical facilities are leased to more than 700 tenants. Tenancy in the medical facilities is generally a mix of physician practices and CRP also leases space to several large hospital systems and other healthcare providers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2005—Accounts and Other Receivables” below for a description of past due rent receivables and the reserve for doubtful accounts attributable to certain of CRP’s major tenants and operators.

Although CRP acquires properties located in various states and regions and screens its tenants in order to reduce risks of default, failure of Horizon Bay, the HRA tenants or CRP’s other tenants, their guarantors or the Sunrise or Horizon Bay brands would significantly impact CRP’s results of operations. It is expected that the percentage of total rental income contributed by Horizon Bay and the HRA tenants will decrease as additional properties are acquired and leased to diversified tenants.

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

The following table summarizes information about CRP’s operator and manager concentration, excluding five properties that were held for sale as of December 31, 2005 (dollars in thousands):

Operator or Manager	Number of Facilities	Total Investment		Annualized Revenue(1)		Percent of Revenue
Senior Housing:
Sunrise Senior Living Services, Inc.	107	$	1,480,990	$	152,531	42	%
Horizon Bay Management, LLC	27	768,799		82,925		22	%
Encore Senior Living, LLC	17	143,177		15,157		4	%
American Retirement Corporation	8	154,623		18,103		5	%
Harbor Assisted Living, LLC	7	65,811		6,551		2	%
Erickson Retirement Communities, LLC(2)	6	131,880		19,351		5	%
Eby Realty Group, LLC	6	33,994		4,033		1	%
CateredLife Communities, Inc.	5	32,846		4,155		1	%
Other	1	46,207		—		—	%
	184	2,858,327		302,806		82	%
Medical Facilities:
The DASCO Company	53	377,452		38,436		10	%
The Cirrus Group, LLC	10	117,488		10,504		3	%
Four third-party managers	10	149,844		17,789		5	%
	73	644,784		66,729		18	%
	257	$	3,503,111	$	369,535	100	%

(1)In 2005, CRP added properties to its investment portfolio throughout the year. In order to evaluate the ongoing effect of operator or manager concentrations CRP has calculated an annualized revenue amount based on each property’s actual rental income from operating leases or earned income from direct financing leases during the year ended December 31, 2005.

(2)Land only leases.

As of March 31, 2006, CRP had invested $3.7 billion in 274 properties located in 33 states. Generally, CRP’s properties conform to the following specifications of size and type of land and buildings:

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

Assisted Living Facilities. Assisted living facilities provide a combination of housing, supportive services, personalized assistance and healthcare to their residents in a manner which is designed to respond to individual needs. These facilities generally offer a lower-cost alternative to skilled nursing facilities for those who do not require intensive nursing care. Assisted living facilities may include units for residents with Alzheimer’s and related memory disorders. Current industry practice generally is to

build freestanding assisted living facilities with an average of between 40 and 150 units, depending on such factors as market forces, site constraints and program orientation. Current economics place the size of the private living space of a unit in the range of 300 square feet for an efficiency unit to 750 square feet for a large one bedroom unit. Units are typically private, allowing residents the same general level of control over their units as residents of a rental apartment would typically have. Common areas of the most recently developed assisted living facilities may total as much as 30% to 40% of the square footage of a facility. The cost of assisted living facilities generally ranges from $5 million to $25 million.

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

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

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

Specialty Hospitals. Specialty hospitals are facilities that provide specialized procedures, usually cardiac, orthopedic or surgical, on an inpatient or outpatient basis. Specialty hospitals are licensed as acute care hospitals, but they are typically smaller and more specialized. They usually do not have emergency rooms and can range from 20,000 to over 100,000 square feet, depending on the number of beds and operating rooms.

Generally, properties acquired consist of land, building and equipment, however, in certain cases CRP has only acquired the land underlying the building with the building owned by the tenant or a third party, and in other cases CRP has only acquired the building with the land owned by a third party. CRP owns fee title to all properties, except for properties which are owned by certain partnerships and joint ventures in which case the partnerships or joint ventures have fee title ownership and properties which are subject to ground leases. In general, the properties are freestanding and surrounded by paved parking areas and landscaping. Although buildings may be suitable for conversion to various uses through modifications, some properties may not be economically convertible to other uses.

The following table summarizes the facility type, location, number of units or square footage, CRP’s investment amount at December 31, 2005, and the annualized rental income and rental income for the year ended December 31, 2005, excluding five properties then held for sale. Senior housing facilities are apartment-like facilities and are therefore stated in units. Medical facilities are measured in square feet (dollars in thousands):

						Rental Income
Facility Type and Location	Number of Facilities	Number of Units	Square Feet	Total Investment		Annualized(1)		For Year Ended December 31, 2005
Assisted Living Facilities:
Alabama	2	198	—	$	16,529	$	1,950	$	1,950
Arizona	3	180	—	24,165		2,559		1,919
California	16	1,860	—	197,193		19,606		19,402
Colorado	4	635	—	70,639		8,409		8,409
Connecticut	2	227	—	23,019		2,693		2,693
Florida	18	1,538	—	133,352		13,954		12,795
Georgia	9	736	—	71,187		8,150		8,150
Illinois	9	666	—	87,038		10,305		10,305
Indiana	3	198	—	17,490		2,164		2,164
Iowa	2	80	—	11,742		1,402		1,402
Kansas	1	152	—	20,476		2,359		2,359
Kentucky	2	188	—	15,005		1,860		1,860
Maryland	8	776	—	116,947		13,553		13,553
Massachusetts	4	396	—	61,397		6,815		6,815
Michigan	4	330	—	44,085		5,055		5,055
Missouri	2	152	—	37,428		3,246		3,246
Nebraska	1	150	—	12,723		1,462		1,462
New Jersey	7	756	—	115,450		13,122		13,122
New York	2	202	—	49,451		5,354		5,354
North Carolina	6	584	—	50,005		5,847		5,847
Ohio	5	419	—	37,353		4,345		4,345
Oklahoma	2	212	—	8,235		999		999
Oregon	1	96	—	11,495		1,225		919
Rhode Island	1	128	—	19,202		2,105		2,105
South Carolina	5	426	—	31,863		3,911		3,911
Tennessee	2	205	—	16,054		1,999		1,999
Texas	6	486	—	64,437		8,143		8,143
Utah	1	158	—	14,633		1,929		1,929
Virginia	5	382	—	44,983		4,840		4,840
Washington	5	367	—	46,551		4,522		4,522
	138	12,883	—	$	1,470,127	$	163,883	$	161,574
Independent Living Facilities:
Alabama	2	540	—	$	82,285	$	9,295	$	9,295
Arizona	1	211	—	46,562		5,125		5,125
Arkansas	1	163	—	10,823		1,365		1,365
California	3	558	—	85,197		9,234		8,392
Florida	5	1,362	—	251,139		22,478		22,498
Illinois	5	1,016	—	177,163		19,296		18,316
Kentucky	1	120	—	10,496		1,322		1,322

Oregon	1	265	—	18,697		1,994		1,495
Rhode Island	6	725	—	104,066		11,360		11,360
Texas	9	2,635	—	190,564		20,103		20,103
Utah	1	75	—	4,969		530		397
Virginia	2	275	—	42,537		4,423		4,423
	37	7,945	—	$	1,024,498	$	106,525	$	104,091
CCRCs:
Pennsylvania	1	542	—	$	109,845	$	7,682	$	7,682
Virginia	1	487	—	84,308		5,364		5,364
	2	1,029	—	$	194,153	$	13,046	$	13,046
Land Only Leases:
Illinois	1	—	—	$	28,493	$	4,103	$	4,103
Massachusetts	2	—	—	40,266		6,007		6,007
Michigan	1	—	—	17,909		2,568		2,568
Pennsylvania	1	—	—	21,088		3,173		3,173
Texas	1	—	—	24,124		3,501		3,501
	6	—	—	$	131,880	$	19,352	$	19,352
Senior Housing Property Under Construction:
New Jersey	1	—	—	$	37,669	$	—	$	1,023
Medical Office Buildings:
Arizona	3	—	286,686	$	37,894	$	4,737	$	4,737
California	4	—	272,386	61,415		5,982		5,982
Colorado	4	—	215,644	41,800		4,709		4,709
Florida	11	—	550,357	85,016		9,808		9,808
Georgia	1	—	14,680	2,605		286		286
Illinois	6	—	274,391	47,028		5,749		5,548
Indiana	1	—	79,762	6,700		251		209
Kentucky	2	—	115,975	14,431		1,432		1,432
Maryland	2	—	78,940	14,161		1,433		1,433
Mississippi	3	—	132,204	21,484		1,621		1,621
Nebraska	1	—	97,262	11,824		481		481
North Carolina	4	—	104,889	20,692		1,531		1,531
Oklahoma	3	—	128,910	20,667		1,826		1,111
Tennessee	2	—	108,077	16,096		2,423		1,211
Texas	16	—	885,355	180,523		17,691		14,063
Virginia	2	—	147,792	34,190		3,978		3,978
	65	—	3,493,310	$	616,526	$	63,938	$	58,140
Specialty Hospital:
Texas	1	—	57,584	$	18,168	$	2,289	$	572

Walk-in Clinics:
Arkansas	2	—	42,781	$	4,479	$	502	$	251
Medical Facilities Under Construction:
Colorado	1	—	—	$	—	$	—	$	—
Maryland	1	—	—	995		—		—
Texas	2	—	—	538		—		—
Virginia	1	—	—	4,078		—		93
	5	—	—	$	5,611	$	—	$	93
	257	21,857	3,593,675	$	3,503,111	$	369,535	$	358,142

(1)In 2005, CRP added properties to its investment portfolio throughout the year. In order to evaluate the ongoing effect of operator or manager concentrations CRP has calculated an annualized revenue amount based on each property’s actual rental income from operating leases or earned income from direct financing leases during the year ended December 31, 2005.

CRP’s Legal Proceedings

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

CRP’s Management’s Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2006

Business Overview as of March 31, 2006

During the first quarter of 2006, CRP acquired 14 properties, 13 from its relationship with the Cirrus Group, LLC, or Cirrus, worked with the operators of its properties to enhance the operations of the properties, disposed of two properties that were held for sale at December 31, 2005, and explored strategic alternatives to raise capital. As of March 31, 2006, CRP had also entered into discussions with the lenders of CRP’s $320.0 million two-year senior secured revolving line of credit to increase the amount available under the facility.

As of March 31, 2006, CRP held real estate assets located in 33 states consisting of (dollars in thousands):

	Number of Properties	Investment at March 31, 2006
Senior housing facilities:
Operating	184	$	2,854,697
Under construction	1	1,045
Medical facilities:
Operating	81	826,753
Under construction	5	11,757
	271	$	3,694,252
Real estate held for sale	3	$	6,921

Liquidity and Capital Resources as of March 31, 2006

CRP has primarily invested in or developed properties and CRP also provides (i) mortgage financing to operators to enable them to acquire properties that would secure the loan, (ii) furniture, fixtures and equipment financing, (iii) other loans to entities in which CRP holds an interest, and (iv) other permitted investments. CRP believes that over the short term, which is less than 12 months, net funds from operations, borrowings under new permanent or construction financing, the placement of permanent debt to replace maturing construction loans, advances under CRP’s revolving line of credit and cash on hand at March 31, 2006, will be sufficient to meet CRP’s forecasted capital requirements for property investments, senior secured term loan funding (an agreement to provide a Cirrus affiliate with an interest-only, five-year senior secured term loan under which up to $85.0 million (plus capitalized interest) may be borrowed to finance the acquisition, development, syndication and operation of new and existing surgical partnerships), capital expenditures, the re-tenanting of CRP’s medical facilities (medical office buildings, specialty and walk-in clinics, free standing ambulatory surgery centers, specialty or general hospitals and other types of healthcare-related facilities are collectively “medical facilities”) and the scheduled maturities of permanent financings. In the event the merger is not consummated, CRP also expects to continue to be able to pay distributions at current levels, or at a minimum, to maintain CRP’s REIT qualification.

Unless the merger is consummated, over the long term, which is 12 months or more, CRP may raise capital by encumbering properties, entering into joint venture agreements with respect to CRP’s investments in new or existing properties, issuing preferred stock, selling existing properties, or CRP may stop investing in properties. CRP is subject to certain limitations on CRP’s conduct of business pursuant to the terms of CRP’s merger agreement with HCP, as described below. CRP has relied on the sale of CRP’s common stock and borrowings under permanent or construction financing to fund CRP’s property investments. CRP’s fifth public offering closed on March 26, 2006, and CRP does not presently intend to commence a new offering.

Operating cash flow for the year ended December 31, 2005, was $188.3 million and is expected to increase with a full year of operations for the 40 properties that CRP acquired during 2005, the 14 properties acquired during the three months ended March 31, 2006, and in the event the merger is not consummated, those forecasted to be acquired during the remainder of 2006. As of March 31, 2006, CRP has adequate construction funding to complete and open the properties under construction, which CRP expects will generate additional operating cash flow.

The merger agreement provides, among other things, that CRP cannot incur additional indebtedness other than an additional $25.0 million in draw downs under CRP’s revolving line of credit or issue equity or convertible securities without the prior written consent of HCP. In addition, the

merger agreement limits CRP’s ability to invest in and encumber assets, make loans and dispose of assets without the prior written consent of HCP. The restriction on CRP’s ability to utilize sources of liquidity could have a material adverse affect on CRP’s liquidity position. However, although there can be no assurances that the merger will be consummated, CRP expects to have sufficient liquidity from cash on hand, cash from operations and availability of funds from the revolving line of credit to fund all liquidity needs through the expected closing of the merger in the third quarter of 2006.

Cash from Operating Activities as of March 31, 2006

Net cash provided by operating activities was $55.5 million and $52.8 million for the three months ended March 31, 2006 and 2005, respectively. The increase was due, in part, to an increase in operating income and collection of past due accounts receivable, offset by higher interest costs due to an increase in the average amount of debt outstanding, reductions in accounts payable and inflows from security deposits from property acquisitions. Net cash from operating activities included draws on tenant and operator rent guarantees of $1.9 million and $0.8 million, respectively.

Accounts Receivable. The ability to collect rents from CRP’s tenants when contractually due is critical to CRP’s ability to meet short- and long-term cash obligations. CRP closely monitors rent collections and works closely with the tenants and operators of properties that are unable to pay full rent.

Accounts and other receivables, net decreased $3.7 million to $19.8 million at March 31, 2006, from $23.5 million at December 31, 2005, consisting of a $2.1 million decrease in accounts and other receivables and a $1.6 million increase in the reserve for doubtful accounts. The $2.1 million decrease in accounts and other receivables was due to (i) a decrease in other receivables of $1.3 million and (ii) a $1.6 million reduction due to the reclassification of rental revenues receivable from current receivables to deferred receivables, partially offset by (iii) an increase in rental revenues receivable of $0.9 million. The $1.6 million increase in the reserve for doubtful accounts included $1.2 million for a portfolio of 19 properties whose operator guarantee had expired in December 31, 2005. Past due rents receivable were $14.4 million and $14.8 million at March 31, 2006, and December 31, 2005, respectively. At March 31, 2006, $7.3 million of the $8.8 million allowance for doubtful accounts was attributable to HRA tenants (HRA tenants consist of 10 of CRP’s tenants, each of which is thinly capitalized and is a subsidiary or affiliate of Harbor Retirement Associates, LLC).

In January 2006, CRP amended and restated the leases of a 14-property direct finance lease portfolio by extending the termination date by 5 years; all other lease terms were unchanged. The effective return on the leases increased to 12.7% from 11.9%.

Based on CRP’s analysis of estimated future cash flows to be generated by certain properties for which CRP currently has reserves, CRP expects that certain delinquent amounts will be collected in 2006.

Cash from Investing Activities as of March 31, 2006

Net cash used in investing activities was $218.2 million and $201.5 million for the three months ended March 31, 2006 and 2005, respectively. The increase was due primarily to advances under the senior secured term loan offset by a reduction in the number of properties acquired and the payment of acquisition fees related to the close of CRP’s equity offering.

Property Acquisitions. In January 2006, CRP acquired majority equity interests in seven medical facilities for $84.5 million which CRP funded, in part, with proceeds from a new $56.3 million, ten-year mortgage loan.

In February 2006, CRP acquired a senior housing property (types of CRP’s properties which include independent living, assisted living and skilled nursing facilities, continuing care retirement

communities and life care communities are collectively “senior housing”) that is being developed. The project is expected to be completed in the fourth quarter of 2006 with an estimated cost of $5.7 million.

In March 2006, CRP acquired majority equity interests in five medical facilities for $72.6 million which CRP funded, in part, with proceeds from a new $47.2 million, ten-year mortgage loan.

Also in March 2006, CRP acquired a majority equity interest in another medical facility for $24.5 million, which CRP funded with cash on hand.

During the first quarter of 2006, one senior housing facility that was under development as of December 31, 2005, commenced operations.

Other Investments. During the three months ending March 31, 2006, CRP advanced $18.0 million under the senior secured term loan. The balance outstanding under the senior secured term loan was $34.0 million at March 31, 2006.

Cash from Financing Activities as of March 31, 2006

Net cash provided by financing activities was $170.0 million and $198.6 million for the three months ended March 31, 2006 and 2005, respectively. The decrease was due primarily to reduced proceeds from permanent and construction financing as a result of the reduction in the number of properties acquired during the period, the repayment of a construction facility in 2006 and increased aggregate distributions to stockholders (due to the higher number of shares outstanding), offset by increased proceeds from CRP’s revolving line of credit, net proceeds from CRP’s equity offering and minority interest contributions.

Common Stock Offerings. CRP completed the 2004 offering on March 26, 2006. During the three months ended March 31, 2006, CRP raised $103.2 million in subscription proceeds from the 2004 offering. Total subscription proceeds received from the 2004 offering and the four prior public offerings amount to $2.7 billion at March 31, 2006.

During each of the quarters ended March 31, 2006 and 2005, CRP incurred $8.2 million in offering costs, including $7.6 million and $6.5 million, respectively, in selling commissions and marketing support fees. These amounts are treated as stock issuance costs and charged to stockholders’ equity.

Redemptions. CRP has a redemption plan under which CRP may elect to redeem shares, subject to certain conditions and limitations. During the quarters ended March 31, 2006 and 2005, 1,724,246 shares and 847,143 shares, respectively, were redeemed and retired for $16.4 million and $8.0 million, respectively. CRP’s board of directors has determined that it is in the best interest of CRP to suspend CRP’s redemption plan, beginning with the second quarter of 2006. The suspension of CRP’s redemption plan is effective as of June 15, 2006, and therefore no shares of CRP’s common stock will be redeemed for the second quarter of 2006.

Distributions. CRP’s board of directors authorized distributions to CRP’s stockholders of $45.5 million and $42.6 million during the quarters ended March 31, 2006 and 2005, respectively. In addition, on April 1 and May 1, 2006, CRP’s board of directors authorized distributions to stockholders of record on those dates, totaling $31.3 million, or $0.0592 per share of common stock at each record date, payable by June 30, 2006. During 2006, CRP intends to maintain CRP’s quarterly distribution payment rate to stockholders of $0.1776 per share. During the three months ended March 31, 2006, cash flow generated from operating activities was sufficient to fund the distribution to stockholders. CRP expects that cash flow generated from operations will continue to be sufficient to fund distribution payments; however, if cash flow generated from operations is not sufficient, CRP may use borrowings

under CRP’s revolving line of credit to cover such shortage, subject to limitations imposed by the merger agreement, as described above.

Borrowings as of March 31, 2006

Revolving Line of Credit. At March 31, 2006, $105.0 million was outstanding under CRP’s $320.0 million revolving line of credit. The revolving line of credit requires interest-only payments at LIBOR plus a percentage that fluctuates depending on CRP’s aggregate amount of debt outstanding in relation to CRP’s total assets (6.52% all-in rate at March 31, 2006, which represents a pricing of LIBOR plus 170 basis points). The amount available for use under the revolving line of credit is subject to certain limitations based on the pledged collateral. As of March 31, 2006, the revolving line of credit was collateralized by 36 properties with a carrying value of $389.4 million that, in the aggregate, allowed us to draw up to $283.0 million. Per the terms of the merger agreement, CRP is only permitted to draw up to an additional $25.0 million under the revolving line of credit without HCP’s prior written consent.

Mortgages Payable. At March 31, 2006, CRP had $1.4 billion in mortgage debt secured by properties with an aggregate carrying value of $2.4 billion. Interest rates on the mortgage notes ranged from 4.85% to 8.42% with a weighted-average rate of 5.87% at March 31, 2006. In the event the merger is not consummated, CRP expects to refinance loans as they mature, or CRP may use borrowings under its revolving line of credit to pay down maturities, subject to limitations imposed by the merger agreement as described above.

In January 2006, CRP entered into a $56.3 million, ten-year mortgage loan that bears fixed-rate interest at 5.59%. Payments for the first five years are interest only, with principal payments beginning in March 2011.

In February 2006, CRP entered into a $33.0 million mortgage loan and used the proceeds and cash on hand to pre-pay a $48.0 million construction loan facility with a principal balance of $41.9 million. The new interest-only, five-year loan bears interest at a rate equal to LIBOR plus 150 basis points (6.13% all-in rate at March 31, 2006).

In March 2006, CRP entered into a $47.2 million, ten-year mortgage loan that bears fixed-rate interest at 5.81%. Payments for the first five years are interest only, with principal payments beginning in May 2011.

Approximately 29% of the aggregate of CRP’s mortgage notes payable, construction loans payable and amount outstanding under CRP’s revolving line of credit at March 31, 2006, was subject to variable interest rates; therefore, CRP is exposed to market changes in interest rates as explained in “Quantitative and Qualitative Disclosures About Market Risk.” Some of CRP’s 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 5.95%. Certain fixed-rate loans assumed by CRP contain substantial prepayment penalties and/or defeasance provisions that may make it economically unfavorable to prepay 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 first three months of 2006, CRP incurred $1.5 million in loan costs in connection with the placement and assumption of permanent financing facilities. CRP was reimbursed $2.7 million from a lender for previously paid rate locks and expense deposits.

Construction Loans Payable. Total construction loans outstanding at March 31, 2006, were $108.5 million, and total liquidity remaining under CRP’s construction loans was $33.7 million. During

the three months ended March 31, 2006, CRP prepaid a construction loan facility with a $41.9 million balance, entered into a new construction loan facility of $7.7 million and collectively drew a net of $10.1 million under all of CRP’s construction loans related to certain properties in various stages of development. The loans are variable interest rate loans and mature from November 2006 through December 2013. CRP anticipates that CRP will obtain permanent financing to pay the construction loans as they become due or CRP may use borrowings under CRP’s revolving line of credit, subject to limitations imposed by the merger agreement, as described above.

Bonds Payable. At March 31, 2006 CRP had $101.2 million of non-interest bearing life care bonds at CRP’s two CCRCs and non-interest bearing occupancy fee deposits at another of CRP’s senior housing facilities, all of which were payable to certain residents of the facilities (collectively “bonds”). During the first quarter of 2006, the tenants of the facilities issued new bonds to new residents of the facilities totaling $5.4 million and used the proceeds from the bonds issued in the current period and prior periods to retire $2.2 million of bonds on CRP’s behalf. At March 31, 2006, $66.5 million of the bonds were refundable to the residents upon the resident moving out or to a resident’s estate upon the resident’s death and $34.7 million of the bonds were refundable after the unit has been successfully remarketed to a new resident. Excess bond redemptions over bond issuance, if any, will be funded from prior net bonds issuance reserves (to the extent available) or from available operating cash flow.

Contractual Obligations as of March 31, 2006

The following table presents CRP’s contractual cash obligations and related payment periods as of March 31, 2006 (in thousands):

	Less than 1 Year		2 - 3 Years		4 - 5 Years		Thereafter		Total
Mortgages payable	$	76,517	$	227,394	$	515,537	$	533,381	$	1,352,829
Construction loans payable	80,546		—		16,109		11,817		108,472
Ground leases	761		1,722		1,731		42,746		46,960
DASCO office lease	153		418		437		245		1,253
Revolving line of credit	—		105,000		—		—		105,000
Bonds payable(1)	—		—		—		101,188		101,188
Security deposits and rent support	—		—		—		23,386		23,386
	$	157,977	$	334,534	$	533,814	$	712,763	$	1,739,088

(1)Of this amount, $66.5 million was due upon the resident moving out or the resident’s death and $34.7 million was due upon the unit being successfully remarketed to a new resident. 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.

Results of Operations as of March 31, 2006

Comparison of the three months ended March 31, 2006 to the three months ended March 31, 2005

Net income for the three months ended March 31, 2006, totaled $35.8 million or $0.14 per share of common stock ($36.2 million or $0.14 per share of common stock from continuing operations), as compared to net income of $32.6 million or $0.14 per share of common stock ($38.5 million or $0.16 per share of common stock from continuing operations) for the three months ended March 31, 2005. The 5.8% decrease in income from continuing operations was primarily due to increases in operating expenses and interest and loan cost amortization expenses which more than offset the increase in revenue. The 9.6% increase in net income in the first quarter of 2006 was primarily due to the

recognition of an impairment charge on discontinued operations in the first quarter of 2005. These changes are discussed in further detail below.

Revenues

Rental and earned income from leases. At March 31, 2006, CRP owned 274 properties, including 14 properties acquired in 2006, compared to 244 properties owned at March 31, 2005, of which 22 properties were acquired during the first quarter 2005. As a result of the increase in the number of properties, rental and earned income from leases from properties from continuing operations increased 15.8% to $97.3 million, including $11.1 million as a result of straight-lining rent escalations throughout the lease terms for the three months ended March 31, 2006, compared to $84.0 million, including $11.8 million of straight-line rent revenue, for the three months ended March 31, 2005. The $13.3 million increase in rental and earned income from leases was comprised of $10.7 million from operations of the properties that were acquired or construction properties that commenced operations during 2005 and 2006 and $2.6 million from properties owned as of January 1, 2005.

FF&E reserve income. FF&E reserve income from continuing operations increased 25.9% to $2.0 million for the three months ended March 31, 2006, from $1.6 million for the three months ended March 31, 2005. The increase of $0.4 million was primarily due to contractual increases in FF&E reserve funding from tenants.

Tenant expense reimbursement revenue. Tenant expense reimbursement revenue from continuing operations increased 69.1% to $4.6 million for the three months ended March 31, 2006, from $2.7 million for the three months ended March 31, 2005. These revenue increases in 2006 reflect an increase of $0.7 million in additional revenues from medical facilities that were owned as of January 1, 2005, $0.9 million from properties acquired during 2005 and $0.3 million from properties that were acquired or properties that commenced operations during 2006. Contractual recoveries from tenants represented 61% and 49% of CRP’s medical facilities operating expenses for the three months ended March 31, 2006 and 2005, respectively.

Property management and development fees and loan interest income. Property management and development fees from The DASCO Companies, LLC decreased revenue by $1.0 million and loan interest income from the senior secured term loan increased revenue by $0.6 million for the three months ended March 31, 2006.

Expenses

Senior housing property expenses. Senior housing property expenses from continuing operations was $0.3 million for each of the three months ended March 31, 2006 and 2005.

Medical facilities operating expenses. Medical facilities operating expenses from continuing operations increased 36.4% to $7.5 million for the three months ended March 31, 2006, from $5.5 million for the three months ended March 31, 2005. The increase was comprised of $0.2 million related to the operations of the medical facilities that were owned as of January 1, 2005, $1.3 million for properties acquired during 2005 and $0.5 million related to the operations of the medical facilities that were acquired during 2006. CRP is generally responsible for the medical facilities’ property operating expenses; however, under the terms of the leases, CRP recovers a portion of the expenses from the tenants.

General and administrative. General and administrative expenses from continuing operations increased 17.8% to $4.7 million from $4.0 million for the three months ended March 31, 2006 and 2005, respectively. The increase was due to the increased number of properties owned during 2006 and increased legal and consulting fees.

Asset management fees to related party. Asset management fees from continuing operations increased 17.9% to $5.1 million for the three months ended March 31, 2006, from $4.3 million for the three months ended March 31, 2005. The increase was primarily related to new operating properties that were acquired, or newly constructed and commenced operations during 2005 and 2006.

Provision for doubtful accounts. CRP recognized a provision for doubtful accounts from continuing operations for the three months ended March 31, 2006 and 2005, of $1.5 million and $0.8 million, respectively. The first-quarter 2006 provision was primarily related to a $1.2 million reserve on a portfolio of 19 properties for which the operator guarantee had expired on December 31, 2005. The first-quarter 2005 provision was related to three senior housing portfolios and various medical facility tenants.

Depreciation and amortization. Depreciation and amortization expense increased 18.5% to $27.0 million for the three months ended March 31, 2006, from $22.7 million for the three months ended March 31, 2005, as a result of the increase in properties subject to operating leases during 2005. The $4.3 million depreciation and amortization expense increase was comprised of $0.3 million from operations of the properties owned as of January 1, 2005, and $4.0 million from operations of the properties that were acquired or had been under construction and commenced operations during 2005 and 2006.

Interest and other income

During the three months ended March 31, 2006 and 2005, CRP earned $0.7 million and $0.6 million, respectively, in interest income primarily from investments in money market accounts and other short-term, highly liquid investments.

Interest and loan cost amortization expense

Interest and loan cost amortization expense increased 49.2% to $23.2 million for the three months ended March 31, 2006 from $15.5 million for the three months ended March 31, 2005. The increase was primarily due to an increase in the average amount of debt outstanding as CRP continues to shift its reliance away from equity-offering proceeds to fund CRP’s property acquisitions and other capital needs. The weighted-average interest rate was 6.0% for the three months ended March 31, 2006 as compared to 5.1% for the three months ended March 31, 2005.

Discontinued operations

Loss from discontinued operations for the three months ended March 31, 2006 was $0.5 million compared to $5.8 million for the three months ended March 31, 2005. The change was primarily due to an impairment charge of $6.2 million recorded in the first quarter of 2005, partially offset by a first-quarter 2006 net loss of $0.5 million on the sale of two properties and a provision for doubtful accounts of $0.1 million recorded in the first quarter of 2006.

Inflation and Trends as of March 31, 2006

CRP’s senior housing leases are triple-net leases and contain provisions that CRP believes 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). CRP has also invested in medical facilities, which include both triple-net and gross basis leases. These leases also contain provisions that mitigate the effect of inflation, such as scheduled base rent increases during the lease terms and, with respect to gross leases, the reimbursement of future increases in operating expenses (including real estate taxes, insurance, repairs, maintenance and utilities) over a specified base amount. Inflation and changing

prices may have an adverse impact on the potential disposition of the properties and on appreciation of the properties.

CRP believes that changes and trends in the healthcare industry will continue to create opportunities for growth of senior housing and other healthcare facilities, including (i) the growth of operators serving specific healthcare 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 healthcare, (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 healthcare networks offering privately funded long-term care insurance. Additionally, CRP believes that demographic trends are significant when looking at the potential for future growth in the healthcare 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.

CRP believes that during 2005, the senior 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 CRP’s 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.

CRP is not aware of any material trends, favorable or unfavorable, in either capital resources or the outlook for long-term cash generation, nor does CRP 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, CRP believes that inflation will not impact the availability of debt financings.

Funds from Operations as of March 31, 2006

CRP considers funds from operations, or 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 accounting principles generally accepted in the United States of America (“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 three months ended March 31, 2006 and 2005, net income included $11.1 million and $11.8 million, respectively, of these amounts.) CRP believes 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 CRP’s operating performance, or to cash flow from operating activities

determined in accordance with GAAP as a measure of either liquidity or CRP’s ability to make distributions. FFO as presented may not be comparable to amounts calculated by other companies. Accordingly, CRP believes that in order to facilitate a clear understanding of the consolidated historical operating results, FFO should be considered in conjunction with CRP’s net income and cash flows as reported in the accompanying consolidated financial statements and notes thereto.

The following is a reconciliation of net income to FFO (in thousands):

	Three Months Ended March 31,
	2006			2005
Net income	$	35,752		$	32,635
Adjustments:
Depreciation of real estate assets
Continuing operations	23,217			19,392
Discontinued operations	—			110
Amortization of lease intangibles
Continuing operations	3,618			3,318
Discontinued operations	—			10
Amortization of deferred leasing costs
Continuing operations	114			25
Effect of unconsolidated entity	101			61
Effect of minority interests	(194		)	(105		)
	$	62,608		$	55,446
FFO per share (basic and diluted)	$	0.24		$	0.23

Related Party Transactions as of March 31, 2006

CRP retained the Advisor as CRP’s advisor to provide management, acquisition, advisory and administrative services relating to CRP’s properties, mortgage loans, secured equipment lease program, other loans and other permitted investments pursuant to an advisory agreement dated May 14, 2004 (the “Advisory Agreement”) that was renewed pursuant to a renewal agreement effective May 3, 2005 for a one-year term (the “2005 Renewal Agreement”) and was amended by an amendment to the 2005 Renewal Agreement on July 13, 2005 (the “2005 Renewal Amendment” together with the 2005 Renewal Agreement, the “2005 Renewal Agreements”). On May 1, 2006, CRP entered into a renewal agreement (the “2006 Renewal Agreement”) with the Advisor, pursuant to which the Advisory Agreement was renewed, as amended by the 2005 Renewal Agreements, for an additional one-year term commencing on May 3, 2006 and ending on May 3, 2007. The Advisory Agreement may be terminated at an earlier date upon 60 days prior written notice by either party or by mutual consent of the parties. Certain of CRP’s directors and officers hold similar positions with the Advisor, the parent company of the Advisor and the managing dealer of CRP’s public offerings, CNL Securities Corp. CRP’s chairman of the board indirectly owns a controlling interest in the parent company of the Advisor.

Pursuant to the Advisory Agreement, as amended and renewed, the Advisor and its affiliates earn certain fees and are entitled to receive reimbursement of certain expenses. During the three months ended March 31, 2006 and 2005, CRP incurred acquisition fees of $7.3 million and $13.5 million, respectively, for, among other things, identifying properties and structuring the terms of the leases (equal to 3.0% of gross offering proceeds and loan proceeds from permanent financing from May 3,

2005 until the present and equal to 4.0% of gross offering proceeds and loan proceeds from May 14, 2004 through May 2, 2005). These fees are included in other assets in the accompanying consolidated balance sheets prior to being allocated to individual properties or intangible lease costs.

CRP incurred monthly asset management fees totaling $5.1 million and $4.5 million during the three months ended March 31, 2006 and 2005, respectively, (0.05% of CRP’s real estate asset value, as defined in the Advisory Agreement, and the outstanding principal balance of any Mortgage Loans as of the end of the preceding month).

The Advisor and its affiliates also provide various administrative services, including, but not limited to, accounting; financial, tax, insurance administration and regulatory compliance reporting; stockholder distributions and reporting; due diligence and marketing; and investor relations. During the three months ended March 31, 2006 and 2005, CRP incurred $0.6 million and $2.0 million for these services, respectively.

CNL Securities Corp. received fees based on the amounts raised from CRP’s offerings equal to: (i) selling commissions of 6.5% of gross proceeds under the 2004 offering and 7.5% under the prior offerings, (ii) a marketing support fee of 2.0% of gross proceeds under the 2004 Offering and 0.5% under the prior offerings and (iii) beginning on December 31, 2003, an annual soliciting dealer servicing fee equal to 0.2% of the aggregate proceeds raised in a prior offering. Affiliates of the Advisor are reimbursed for certain offering expenses incurred on CRP’s behalf. Offering expenses incurred by the Advisor and its affiliates on CRP’s behalf, together with selling commissions, the marketing support fee and due diligence expense reimbursements do not exceed 13% of the proceeds raised in connection with the offerings. During each of the quarters ended March 31, 2006 and 2005, CRP incurred $8.2 million for these fees and costs. These amounts are treated as stock issuance costs and charged to stockholders’ equity.

CRP owns a 9.90% interest in CNL Plaza, Ltd. (the “Owner”), a limited partnership that owns an office building located in Orlando, Florida, in which the Advisor and certain affiliates of CNL Financial Group (“CFG”) lease office space. CFG owns a controlling interest in the parent company of the Advisor and is indirectly wholly owned by James M. Seneff, Jr., CRP’s chairman of the board, and his wife. Robert A. Bourne, CRP’s vice-chairman of the board and treasurer, is an officer of CFG. The remaining interests in the Owner are held by several entities with present or former affiliations with CFG, including: CNL Plaza Venture, Ltd., which has a 1% interest as general partner of the Owner and whose general partner is indirectly wholly owned by Mr. Seneff and his wife; CNL Corporate Investors, Ltd., which is indirectly wholly owned by Messrs. Seneff and Bourne, and which has a 54.45% interest, as a limited partner, in the Owner; CNL Hotels & Resorts, Inc. which has a 9.90% interest, as a limited partner, in the Owner; and Commercial Net Lease Realty, Inc., which has a 24.75% interest, as a limited partner, in the Owner. CRP also owns a 9.90% interest in CNL Plaza Venture, Ltd. (the “Borrower”), a Florida limited partnership, which is the general partner of the Owner. The remaining interests in the Borrower are held by the same entities in the same proportion described above with respect to the Owner.

In 2004, the Owner conveyed a small portion of the premises underlying the parking structure adjacent to its office building, valued by the parties at $0.6 million, to CNL Plaza II, Ltd., a limited partnership in which Messrs. Seneff and Bourne own a 60% interest and 40% interest, respectively, as part of the development of the premises surrounding the building. The purpose of the conveyance was to adjust the percentage fee simple ownership under the parking structure so as to allow joint parking privileges for a new office building that was developed in 2005 and is owned by CNL Plaza II, Ltd. In connection with this transaction, the Owner received an ownership interest in a cross-bridge that was constructed and an anticipated benefit from a reduction in the allocation of its operating expenses for the parking structure. In addition, the Owner received additional consideration pursuant to a purchase price adjustment.

On September 30, 2005, CRP executed a pro rata, several guarantee limited to 16.67%, or $2.3 million, of a $14.0 million uncollateralized promissory note of the Borrower that matures December 31, 2010.

CRP maintains bank accounts in a bank in which certain of CRP’s officers and directors, including Messrs. Seneff and Bourne, serve as directors and are principal stockholders. The amounts deposited with this bank were $4.9 million and $3.1 million at March 31, 2006 and December 31, 2005, respectively.

CRP’s chairman of the board is a director in a hospital that leases office space in seven of the medical facilities that CRP acquired in August 2004. Additionally, one of CRP’s independent directors is a director in a health system that leases office space in one of the medical facilities that CRP acquired in April 2004. During the three months ended March 31, 2006 and 2005, these hospitals contributed less than 1% of CRP’s total revenues.

Subsequent Events

Reinvestment Plan. CRP’s board of directors has determined that it is in CRP’s best interest to terminate CRP’s distribution reinvestment plan, beginning with the second quarter of 2006. The termination of CRP’s distribution reinvestment plan is effective as of June 15, 2006, and therefore no distributions to CRP’s stockholders will be reinvested in shares of CRP’s common stock pursuant to CRP’s distribution reinvestment plan for the second quarter of 2006.

CRP’s Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2005

Business Overview as of December 31, 2005

CRP’s continuing focus during 2005 was on (i) stabilizing the operating performance of its properties, (ii) developing new relationships and strengthening existing relationships with CRP’s tenants, operators and managers (iii) strengthening existing relationships with lenders, and (iv) raising capital through CRP’s equity offering and investing the proceeds in properties and other permitted investments.

(i)CRP worked closely with CRP’s tenants and operators to identify cash flow enhancing strategies where it identified deficiencies. Where necessary, CRP restructured lease terms and made capital expenditures to upgrade the properties, on which CRP will receive a return from the tenant. CRP also determined to hold for sale and recognized impairment losses on three properties that were identified as under-performing when acquired with their respective portfolios.

(ii)CRP developed new relationships with senior housing tenants and operators. In addition, CRP entered into a new relationship with Cirrus to acquire, manage and develop new and existing medical facilities. As of March 15, 2006, CRP has acquired 14 medical facilities and two specialty hospitals through this relationship. CRP continued to foster its relationship with DASCO which, as of December 31, 2005, managed forty-eight of CRP’s medical facilities and was developing five of CRP’s medical facilities.

(iii)CRP strengthened its relationship with lenders as CRP obtained or assumed $348.6 million of permanent financing, entered into interest rate swap agreements tied to debt with an aggregate notional amount of $233.8 million that reduced CRP’s aggregate variable-interest-rate debt, drew $63.4 million under CRP’s construction loan facilities and amended CRP’s revolving line of credit to increase the borrowing capacity to $400.0 million under more favorable terms. Additionally, CRP prepaid $58.3 million of above-market variable-interest-rate mortgage debt and repaid $60.0 million under a term loan.

(iv)During the year ended December 31, 2005, CRP received gross offering proceeds net of redemptions of $178.4 million. CRP invested $435.4 million in the acquisition of 40 properties, the funding of CRP’s development projects and ongoing capital improvements of CRP’s properties. CRP also funded a $16.0 million loan advance to a Cirrus affiliate under a five-year $85.0 million, senior secured term loan to finance the acquisition, development, syndication and operation of new and existing surgical partnerships.

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

	Number of properties	Investment at December 31, 2005
Senior Housing facilities:
Operating	183	$	2,820,657
Under construction	1	37,669
Medical Facilities:
Operating	68	639,174
Under construction	5	5,611
	257	$	3,503,111
Real estate held for sale	5	$	12,692

Liquidity and Capital Resources as of December 31, 2005

CRP primarily invests in or develops properties and may invest in other permitted investments. As of March 15, 2006, CRP has relied on the sale of CRP’s common stock to fund a significant portion of CRP’s property investments. CRP also obtained funds through borrowings under permanent or construction financing, operating activities and draws on CRP’s revolving line of credit. The 2004 offering will close on or before March 26, 2006, and CRP does not presently intend to commence a new offering. Therefore, CRP will need to rely on other sources of capital or debt to fund property acquisitions and development. CRP believes that over the short term, which is less than 12 months, borrowings under permanent or construction financing, draws on CRP’s revolving line of credit and cash on hand at December 31, 2005, will be sufficient to meet CRP’s forecasted capital requirements for property investments, senior secured term loan funding, capital expenditures and the re-tenanting of CRP’s medical facilities. Over the long term, which is 12 months or more, and subject to the terms of the merger agreement, CRP may raise capital by encumbering properties, entering into joint venture agreements with respect to CRP’s investments in new or existing properties, issuing preferred stock, selling existing properties, or CRP may stop investing in properties.

Operating cash flow for the year ended December 31, 2005, was $188.3 million and is expected to increase with a full year of operations for the 40 properties that CRP acquired during 2005 and those forecasted to be acquired during 2006. As of December 31, 2005, CRP has adequate construction funding to complete and open the properties under construction which CRP expects to generate additional operating cash flow.

CRP expects to continue to be able to pay distributions to maintain its REIT status, which requires that CRP distribute at least 90% of its taxable income to stockholders. Operating cash flow is expected to provide a significant portion of CRP’s distributions, and to the extent necessary, CRP may borrow funds from its revolving line of credit to make distributions to stockholders. During 2006 until the closing of the merger, CRP intends to maintain its quarterly distribution payment rate to stockholders of $0.1776 per share. CRP expects that cash flow generated from operations will be sufficient to fund distribution payments; however, if cash flow generated from operations is not sufficient, CRP may use borrowings under its revolving line of credit to cover such shortage.

Common Stock Offerings as of December 31, 2005

Upon formation in December 1997, CRP received an initial capital contribution of $200,000 for 20,000 shares of common stock from the Advisor. From CRP’s inception through December 31, 2005, CRP has made five public offerings of CRP’s common stock and received subscriptions as follows (in thousands):

		Offering			Subscriptions
Offering	Date Completed	Shares(a)	Amount		Shares(b)	Amount
Initial Offering	September 2000	15,500	$	155,000	972	$	9,719
2000 Offering	May 2002	15,500	155,000		15,500	155,000
2002 Offering	April 2003	45,000	450,000		45,000	450,000
2003 Offering	April 2004	175,000	1,750,000		156,793	1,567,925
2004 Offering	March 26, 2006	400,000	4,000,000		41,548	415,485
		651,000	$	6,510,000	259,813	$	2,598,129

(a)Includes reinvestment plan shares of 500 in each of the initial and 2000 offerings, 5,000 in the 2002 offering, 25,000 in the 2003 offering and 15,000 in the 2004 offering.

(b)Includes reinvestment plan shares of 5 in the initial offering, 42 in the 2000 offering, 129 in the 2002 offering, 1,728 in the 2003 offering and 8,749 in the 2004 offering.

The price per share of all of the equity offerings of CRP’s common stock has been $10.00 per share with the exception of (i) shares purchased pursuant to volume or other discounts and (ii) shares purchased through CRP’s reinvestment plan which are currently priced at $9.50 per share. Selling commissions, marketing support fees, due diligence expense reimbursements and other offering expenses have not exceeded 13% of gross proceeds.

For the year ended December 31, 2005, net proceeds received from CRP’s offering of shares, after deduction of selling commissions, marketing support fees, due diligence expense reimbursements, offering expenses and redemptions, totaled approximately $160.0 million.

During the period January 1, 2006 through March 15, 2006, CRP received additional net offering proceeds of $24.6 million, proceeds from new permanent financing of $89.3 million and incurred acquisition fees and costs of $3.5 million, including $2.7 million related to acquisition fees on the new permanent financing.

If the merger is not consummated and if CRP does not list its shares by December 31, 2008, CRP will commence an orderly liquidation of its assets and the distribution of net proceeds to CRP’s stockholders. CRP continues to monitor the market to determine if or when to list or pursue other strategic alternatives.

Redemptions as of December 31, 2005

CRP has a redemption plan under which CRP may elect to redeem shares, subject to certain conditions and limitations. Under the redemption plan, prior to such time, if any, as a listing occurs, any stockholder who has held shares for at least one year may present all or any portion equal to at least 25% of their shares to CRP for redemption in accordance with the procedures outlined in the redemption plan. Upon presentation, CRP may, at its option, redeem the shares for cash, subject to certain conditions and limitations. Redemptions are limited to the extent sufficient funds are available, however, at no time during any 12-month period may the number of shares CRP redeems exceed 5% of the number of shares of CRP’s outstanding common stock at the beginning of the 12-month period. The full amount of proceeds from CRP’s distribution reinvestment plan is available for redemptions. In

addition, CRP may, at its discretion, use up to $100,000 per calendar quarter of the proceeds of any public offering of CRP’s common stock for redemptions. In the second quarter of 2004, CRP amended its redemption plan to change CRP’s redemption price from $9.20 per share to $9.50 per share. During the years ended December 31, 2005, 2004 and 2003, 3,904,039 shares, 685,396 shares and 131,781 shares, respectively, were redeemed and retired for $37.1 million, $6.5 million and $1.2 million, respectively.

Property Acquisitions as of December 31, 2005

At December 31, 2005, CRP’s investment portfolio consisted of 262 properties located in 33 states with an aggregate investment amount of approximately $3.5 billion compared to 222 properties located in 32 states with an aggregate investment amount of approximately $3.2 billion at December 31, 2004. During 2005, CRP invested $435.4 million in 40 properties, including the payout of $9.5 million in earnouts to the seller of two properties acquired in 2003. The properties acquired were (i) 18 senior housing facilities, consisting primarily of assisted living and independent living facilities, (ii) 21 medical facilities consisting of 18 medical office buildings, 5 of which were under construction, one specialty hospital and 2 walk-in clinics and (iii) a 10.4 acre parcel of land which CRP intends to sell. Two senior housing facilities and four medical facilities that were under construction at December 31, 2004 or when acquired during 2005 commenced operations during 2005. With the exception of one senior housing facility, CRP, as lessor, entered into long-term, triple-net lease agreements relating to the senior housing facilities and shorter-term, gross or triple-net lease agreements relating to the medical facilities. As of December 31, 2005, four of CRP’s senior housing facilities and a parcel of land were held for sale.

The 40 properties acquired during 2005 are subject to operating leases. Operating leases related to CRP’s senior 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, a number of the senior housing leases require contingent rent if operating performance or occupancy rate thresholds, as defined in the lease agreements, are achieved. The leases generally 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 CRP’s medical facilities include both triple-net and gross basis leases and generally have initial terms of 5 to 15 years. These leases provide for minimum rent and are generally subject to renewal options. The gross basis leases allow CRP to recover a portion of the medical facility 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 to increase at predetermined intervals (typically on an annual basis) during the terms of the leases.

In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), CRP allocates 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 2005, CRP allocated $15.7 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, $1.3 million to an intangible lease asset related to above-market lease values which are amortized to rental income from operating leases. CRP also allocated $1.9 million to an intangible lease liability acquired with each property related to below-market lease values which are accreted to rental income from operating leases over the remaining terms of the leases, including below-market lease extension, if any.

Other Investments as of December 31, 2005

In August 2005, CRP entered into an agreement to provide a Cirrus affiliate with an interest only, five-year senior secured term loan under which up to $85.0 million (plus capitalized interest) may be borrowed to finance the acquisition, development, syndication and operation of new and existing surgical partnerships. During the first 48 months of the term, interest at the rate of 14.0% will accrue, of which 9.5% will be payable monthly and the balance of 4.5% will be capitalized; thereafter, interest at the greater of 14.0% or LIBOR plus 9.0% will be payable monthly. The loan is subject to equity contribution requirements and borrower financial covenants that will dictate draw down availability, is collateralized by all of the assets of the borrower (comprised primarily of interests in partnerships operating surgical facilities in premises leased from a Cirrus affiliate) and is guaranteed up to $50.0 million through a combination of (i) a personal guarantee of up to $13.0 million by a principal of Cirrus and (ii) a guarantee of the balance by other principals of Cirrus under arrangements for recourse limited only to their interests in certain entities owning real estate. At December 31, 2005, the balance outstanding under the senior secured term loan was $16.0 million.

In connection with the senior secured term loan, CRP received stock warrants which are exercisable into a 10% to 15% ownership interest of the borrower. The stock warrants are exercisable at the earlier of an event of default or the full repayment of the senior secured term loan and expire in September 2015.

In August 2004, CRP acquired a 55% interest in DASCO for $6.0 million including closing costs. CRP 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 CRP to participate in new medical office development and acquisition opportunities, as well as enter the business of managing medical facilities. As of December 31, 2005, DASCO managed forty-eight of CRP’s medical facilities and was developing five of CRP’s medical facilities.

CRP owns a 9.90% interest in CNL Plaza, Ltd., a limited partnership that owns an office building located in Orlando, Florida, in which the Advisor and certain affiliates of the Advisor’s parent company lease office space. CRP’s initial equity investment in the partnership was $0.3 million. CRP’s share in the limited partnership’s distributions is equivalent to CRP’s equity interest in the limited partnership. The remaining interests in the limited partnership are owned by several entities with present or former affiliations with the Advisor’s parent company. On September 30, 2005, CRP severally guaranteed 16.67%, or $2.3 million, of a $14.0 million uncollateralized promissory note of the limited partnership that matures December 31, 2010. As of December 31, 2005, the uncollateralized promissory note had an outstanding balance of $13.9 million. CRP has not been required to fund any amount under this guarantee. In the event CRP is required to fund amounts under the guarantee, CRP believes that such amounts would be recoverable either from operations of the related asset or proceeds upon liquidation.

Investments Subsequent to December 31, 2005 and Pending Investments

Investments Subsequent to December 31, 2005. In January 2006, CRP acquired seven medical facilities from Cirrus for $84.5 million which CRP funded, in part, with proceeds from a new $56.3 million, ten-year mortgage loan that bears fixed-rate interest at 5.59%. Four of the acquired properties are located in Texas, two are in Arizona and one is in Missouri, and in aggregate they contain approximately 255,000 square feet. Cirrus will manage the properties.

Pending Investments. As of March 15, 2006, CRP had initial commitments to acquire from Cirrus majority equity interests in five medical facilities for an aggregate price of $72.6 million and for which CRP has posted a $4.6 million non-refundable deposit as of December 31, 2005. Four of the medical facilities are located in Texas, and one medical facility is located in Oklahoma. CRP expects that Cirrus

will manage the five medical facilities. 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 CRP.

Off-Balance Sheet Arrangements as of December 31, 2005

Interest Rate Swaps. On May 5, 2005, CRP entered into two interest rate swap agreements effective June 1, 2005, and one interest rate swap agreement effective July 1, 2005, for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in interest rates on CRP’s variable interest rate mortgage notes payable. The hedges have a 4.19% weighted-average fixed rate plus a 1.26% weighted-average spread, resulting in an all-in fixed interest rate of 5.45% until 2010.

Borrowings as of December 31, 2005

Revolving Line of Credit. On August 23, 2005, CRP amended and restated its $85.0 million credit agreement and closed on a $320.0 million amended and restated senior secured revolving line of credit, which permits CRP to expand the borrowing capacity up to $400.0 million and extended the initial maturity date to August 23, 2007. The amount available for use under the revolving line of credit is subject to certain limitations based on the pledged collateral. The revolving line of credit is collateralized by 36 properties with a carrying value of approximately $390.4 million at December 31, 2005, that in the aggregate, currently allows CRP to draw up to $283.0 million. The revolving line of credit contains two one-year extension options and may be used to fund the acquisition and development of properties, purchase other permitted investments and for general corporate purposes. At closing, pricing was reduced from LIBOR plus 300 basis points to LIBOR plus 150 basis points. The revolving line of credit requires interest only payments at LIBOR plus a percentage that fluctuates depending on CRP’s aggregate amount of debt outstanding in relation to CRP’s total assets (6.20% all-in rate at December 31, 2005, which represents a pricing of LIBOR plus 170 basis points). At December 31, 2005, $75.0 million was outstanding under the revolving line of credit.

Term Loan. In January 2005, CRP 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 2005, CRP obtained $348.6 million in permanent financing by assuming existing debt or securing new debt on various properties acquired during the period and by encumbering certain existing properties with new debt. As of December 31, 2005, CRP’s aggregate permanent financing was $1.2 billion and was collateralized by properties with an aggregate net book value of $2.2 billion.

In July 2005, CRP prepaid a $10.5 million mortgage note payable using available cash at June 30, 2005. In August 2005, CRP prepaid $47.8 million in mortgage notes payable using available cash and proceeds from CRP’s revolving line of credit.

Approximately 30% of the mortgage notes payable, construction loans payable and revolving line of credit at December 31, 2005, was subject to variable interest rates; therefore, CRP is exposed to market changes in interest rates as explained in “Quantitative and Qualitative Disclosures About Market Risk” below. Some of CRP’s variable-rate loans contain provisions that allow CRP 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 5.97%. Certain fixed-rate loans assumed by us contain substantial prepayment penalties and/or defeasance provisions that may make it economically unfavorable to prepay 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 2005, CRP incurred $11.7 million in loan costs in connection with the placement and assumption of permanent financing facilities and the amended revolving line of credit.

The table below summarizes permanent financing that CRP obtained during the year ended December 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%
June 2005	9,500		September 2012	5.67%
June 2005	1,669		May 2008	7.51%
October 2005	57,655		November 2015	5.39%
	149,241
Variable-Rate Debt:
January 2005	100,000		January 2010	LIBOR + 1.25%
March 2005	50,000		March 2010	LIBOR + 1.50%
	150,000
Other
October 2005	49,320		October 2013	(2)
	$	348,561

(1)The stated interest rate of 8.41% on this loan was greater than that available to CRP in the open capital market for comparable debt at the time of assumption. Consequently, CRP 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 2005, CRP recognized $0.1 million in debt premium amortization related to this loan that is included in interest and loan cost amortization expense in the accompanying consolidated statements of income.

(2)On October 3, 2005, CRP (i) exercised an extension option available under the $140.4 million mortgage notes that were to mature in October 2005, (ii) negotiated the inclusion of an $82.2 million variable-rate mortgage loan due to mature in April 2008 and (iii) drew an additional $19.4 million under the facility, all with a new maturity date of October 2013. The facility contains provisions that will allow CRP to draw an additional $58.0 million upon providing additional collateral. Of the new $242.0 million mortgage note payable, $121.0 million bears fixed-rate interest at 5.63% requiring principal and interest payments through maturity and $121.0 million bears variable-rate interest based on the 3 to 9 month Fannie Mae Discount MBS rate plus 0.95% (5.16% at December 31, 2005) requiring interest only payments through maturity. CRP also has the option to convert the variable-rate debt component to fixed-rate debt.

Construction Financing. During 2005, CRP entered into new construction loan facilities of $37.0 million and collectively drew a net of $62.1 million under all of our construction loans related to certain properties in various stages of development. Total construction loans outstanding at December 31, 2005, were $143.6 million, and total liquidity remaining was $38.9 million. The loans are variable interest rate loans and mature from November 2006 through December 2013. CRP anticipates that it will obtain permanent financing to pay the construction loans as they become due.

Bonds Payable. At December 31, 2005 CRP had $98.0 million of non-interest bearing life care bonds at our two CCRCs and non-interest bearing occupancy fee deposits at another of CRP’s senior

housing facilities, all of which were payable to certain residents of the facilities (collectively “bonds”). During 2005, the tenants of the facilities issued new bonds to new residents of the facilities totaling $12.6 million and used the proceeds from the bonds issued in the current period and prior periods to retire $9.1 million of bonds on CRP’s behalf. At December 31, 2005, $68.7 million of the bonds were refundable to the residents upon the resident moving out or to a resident’s estate upon the resident’s death and $29.4 million of the bonds were refundable after the unit has been successfully remarketed to a new resident. Excess bond redemptions over bond issuance, if any, will be funded from prior net bonds issuance reserves, to the extent available or from available operating cash flow.

Contractual Obligations and Commitments as of December 31, 2005

The following table presents CRP’s contractual cash obligations and related payment periods as of December 31, 2005 (in thousands):

	Less than 1 Year		2 - 3 Years		4 - 5 Years		Thereafter		Total
Mortgages payable	$	55,776	$	128,468	$	517,886	$	517,076	$	1,219,206
Construction loans payable	75,499		44,696		12,155		11,210		143,560
Ground leases	372		981		988		23,750		26,091
DASCO office lease	204		420		437		243		1,304
Revolving line of credit	—		75,000		—		—		75,000
Bonds payable(1)	—		—		—		98,016		98,016
Security deposits and rent support	—		—		—		23,954		23,954
	$	131,851	$	249,565	$	531,466	$	674,249	$	1,587,131

(1)Of this amount, $68.7 million was due upon the resident moving out or the resident’s death and $29.4 million was due upon the unit being successfully remarketed to a new resident. 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 CRP’s commitments, contingencies and guarantees, and related expiration periods as of December 31, 2005 (in thousands):

	Less than 1 Year		2 - 3 Years		4 - 5 Years		Thereafter		Total
Pending investments(1)	$	157,100	$	—	$	—	$	—	$	157,100
Unfunded senior secured term loan(2)	69,000		—		—		—		69,000
Capital improvements to properties(3)	62,620		—		—		—		62,620
Earnout provisions(4)	25,979		—		—		—		25,979
Guarantee of uncollateralized promissory note of CNL Plaza, Ltd.	—		—		2,313		—		2,313
	$	314,699	$	—	$	2,313	$	—	$	317,012

(1)As of December 31, 2005, CRP had initial commitments to acquire 12 medical facilities for which CRP had posted a non-refundable $10.6 million deposit. In January 2006, CRP completed the acquisition of seven medical facilities for $84.5 million, including the application of $6.0 million of the non-refundable deposit that CRP had posted as of December 31, 2005. The remaining properties are expected to be acquired in the first quarter of 2006. 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 CRP will acquire one or more of these investments.

(2)Represents the unfunded portion under the $85.0 million senior secured term loan.

(3)Commitments for the funding of properties under construction of $38.9 million are expected to be funded with draws from construction loan facilities and the remaining balance relates to property expansion and renovation plans which CRP expects to fund from borrowings under CRP’s revolving line of credit.

(4)In connection with the acquisition of 41 properties, CRP may be required to make additional payments to the seller if earnout provisions are achieved by the earnout date. The calculation generally considers the net operating income for the property, CRP’s initial investment and the fair value of the property at the earnout date. In the event an amount is due, the applicable lease would be amended and annual minimum rent will increase accordingly. Amounts presented represent maximum exposure to additional payments. Earnout amounts related to six additional properties are subject to future values and events which are not quantifiable at December 31, 2005, and are not included in the table above.

Market Risk

See “Quantitative and Qualitative Disclosures About Market Risk” below.

Cash and Cash Equivalents as of December 31, 2005

Until properties are acquired or other permitted investments are entered into, cash from offering proceeds or permanent financings is held in short-term (defined as investments with an original maturity of three months or less), highly liquid investments which CRP believes to have appropriate safety of principal. This investment strategy provides high liquidity in order to facilitate CRP’s use of these funds to acquire properties at such time as properties suitable for acquisition are identified or to fund other permitted investments and take advantage of favorable capital market conditions. At December 31, 2005, CRP had approximately $94.9 million invested in short-term investments as compared to $51.8 million at December 31, 2004. The increase was primarily due to the fact that proceeds received from the placement of new permanent financing and offering proceeds received from the sale of shares of common stock during the year ended December 31, 2005, more than offset cash used to invest in additional properties.

Accounts and Other Receivables as of December 31, 2005

CRP’s accounts and other receivables, net increased $3.0 million to $23.5 million at December 31, 2005, from $20.5 million at December 31, 2004, consisting of a $6.3 million increase in accounts and other receivables and a $3.3 million increase in the reserve for doubtful accounts. The $6.3 million increase in accounts and other receivables was due to (i) an increase in rental revenues receivable of $11.3 million, (ii) an increase in other receivables of $0.7 million, offset by (iii) a $5.7 million reduction due to the reclassification of rental revenues receivable from current receivables to deferred receivables, as described in “—Deferred Receivables” below. The $3.3 million increase in the reserve for doubtful accounts was due to (i) a $4.5 million increase in the reserve for balances outstanding at December 31, 2005 offset by (ii) a $1.1 million reduction in the reserve associated with the rental revenues receivable that were reclassified to long-term receivables, as described in “—Deferred Receivables” below and (iii) a $0.1 million write-off of bad debt. Past due rent receivables were $14.8 million and $10.7 million at December 31, 2005 and 2004, respectively. At December 31, 2005, $5.8 million of the $7.2 million allowance for doubtful accounts was attributable to HRA tenants.

Effective November 2005, CRP amended and restated the leases of a five-property portfolio by (i) releasing from the pooled portfolio a non-performing property that is currently held for sale and which had been reducing the other properties’ ability to pay current rent (ii) increasing the lease basis on the remaining four properties to cover the expected loss from disposing of the released property (iii) realigning the current lease rate to mirror current and forecasted portfolio operating performance

and revenue enhancements (iv) extending the lease term by six years and (v) preserving the ability to collect $3.1 million past due receivables as of November 2005, that were reclassified to other assets. Additionally, CRP funded $0.8 million of common area renovations, which CRP added to the lease basis, to enhance the properties’ appeal to residents and improve market position. During 2005 CRP recognized a $6.2 million impairment charge on the released property to reduce its carrying value to $2.0 million, which is its estimated fair value less the estimated costs to dispose.

In connection with 19 properties for which CRP billed $16.5 million in base rents for the year ended December 31, 2005, Sunrise, the operator, had guaranteed rent payments until December 31, 2005. CRP’s evaluation of these properties’ 2006 forecasted operating results revealed that it is likely that they will not be able to generate sufficient cash flow from operations to cover a portion of the 2006 contractual rental payments. This may result in CRP’s recognition of additional provisions for doubtful accounts in 2006 and may have an adverse affect on CRP’s cash available for distribution to stockholders. CRP is working with the HRA tenants (the tenant) and Sunrise to implement a plan to enhance cash flow generated from these properties. CRP is also evaluating strategic alternatives which may include lease restructure and sale of one or more of the properties.

Three additional properties had Sunrise guarantees that expired on June 30, 2005. During 2004, CRP determined to hold one of the properties for sale and recognized a $1.9 million impairment charge to reduce the property’s carrying value to $1.6 million, which is its estimated fair value less the estimated costs to dispose. In January 2006, CRP entered into an agreement to sell this property for an expected sales price of approximately $2.1 million. This transaction is subject to customary closing conditions and there can be no assurance that such conditions will be met, or if met, that the transaction will occur. During 2005, CRP determined to hold the two remaining properties for sale and recognized a $1.5 million impairment charge to reduce the properties’ aggregate carrying value to $5.8 million, which is their estimated fair value less the estimated costs to dispose. In March 2006, CRP sold these two properties to an unrelated third party for $6.0 million and CRP took back a purchase money mortgage with a three-year term secured by the properties in the amount of $4.8 million. Interest is payable annually at a rate of 6.0% and principle is due at maturity. CRP realized a net loss on the sale of the properties of $0.2 million in March 2006.

Five other senior housing facilities continued to experience cash flow shortages and were unable to pay a portion of their rent obligations during 2005. Two of these properties were not supported by tenant guarantees or security deposits. During 2005, CRP worked with the operators of the properties to put initiatives in place to enhance revenue as well as certain cost containment measures and as a result, the properties began to cover a larger portion of their rent in the latter part of 2005. This trend is expected to continue during 2006. The three other properties are pooled within their portfolio but operating deficiencies of the three properties caused rent payment shortfalls. CRP continues to work with the operators of these properties to enhance revenue and reduce expenses. CRP expects that certain measures that were initiated during 2005 will enhance cash flow of the properties during 2006. However, failure of the properties to continue to enhance their cash flow from operations will result in the non-payment of a portion of their rent, and as a result, the recognition of additional provisions for doubtful accounts in 2006 which may have an adverse affect on CRP’s cash available for distribution to stockholders.

CRP’s analysis of estimated future cash flows to be generated by certain other properties for which CRP currently has reserves reveals that certain delinquent amounts will be collected in 2006.

CRP has been and will continue to work with the tenants and the operators of the respective properties to implement plans 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, CRP is 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 CRP’s results of operations and ability to pay distributions in future periods.

Deferred Receivables as of December 31, 2005

At December 31, 2005 and 2004, deferred receivables were $6.6 million and $0.9 million, respectively. Leases relating to 13 senior housing facilities provide for the amount of rental revenues receivable outstanding as of the end of the year to no longer be considered accounts receivable, but rather to be considered as a deferred receivable. Such amounts are added to the lease basis of these facilities and CRP receives a return based on the then current lease rate of the portfolio, including annual increases. Accordingly, CRP reclassifies such amounts from accounts receivable to other assets in the accompanying consolidated balance sheets. In 2006, CRP expects to reclassify an additional $1.6 million for the outstanding rental revenues receivable at December 31, 2005, related to the 13 properties. In addition, as described under “Accounts Receivable” above, $3.1 million of rental revenues receivable related to the leases of a five-property portfolio was reclassified from accounts receivable to deferred receivables in accordance with the lease amendment and restructure. The deferred receivables are payable from the tenant’s excess cash flow after the payment of current rent and certain other fees, as permitted under the respective lease agreements. Based on CRP’s evaluation of the properties’ projected cash flows over the remaining term of the leases, CRP expects that the deferred receivables at December 31, 2005, and their respective rents will be collected and as such, CRP does not provide for a reserve for doubtful accounts.

Operator Rent Guarantees as of December 31, 2005

During the years ended December 31, 2005 and 2004, rental income included draws on operator rent guarantees of $14.9 million and $21.6 million, respectively. To mitigate credit risk, certain senior housing leases are combined into portfolios that contain cross-default and pooling terms. In addition, as of December 31, 2005, CRP held $24.0 million in security deposits and rent support related to certain properties.

CRP had the following remaining rental support and limited guarantees from certain tenants and operators at December 31, 2005 (dollars in thousands):

					Guarantee
Guarantor	Number of Properties	Maximum			Used Since Acquired		Remaining Balance
Horizon Bay	21	$	17,500		$	14,391	$	3,109
Aureus	11	10,000			2,255		7,745
ARC	8			(1)	9,416				(1)
Eby	6			(1)	329				(1)
Encore	17			(1)	791				(1)
Greenwalt	5			(1)	2,493				(1)
Sunrise	2			(1)	—				(1)
Sunrise	17			(2)	6,281				(2)
Sunrise	3			(3)	2,809				(3)

(1)           Unconditional guarantees

(2)Sunrise guaranteed the tenants’ obligations to pay minimum rent and the FF&E reserve funds under the 17 leases until the later of (i) March 2006 or (ii) 18 months after the final development date of certain properties, as defined in the lease agreement. The final development property commenced operations in January 2006; accordingly, the Sunrise guarantee will terminate in July 2007.

(3)Sunrise guaranteed the tenants’ rent obligations for these senior housing facilities that were acquired in 2004 and which commenced operations in 2004, until the later of (i) September 2006 or (ii) the properties achieving predetermined rent coverage thresholds, which are not determinable at this time.

Although CRP acquires properties located in various states and regions and screens its tenants in order to reduce risks of default, failure of Horizon Bay, the HRA tenants, or CRP’s other tenants, their guarantors, or the Sunrise or Horizon Bay brands would significantly impact the results of CRP’s operations.

Distributions as of December 31, 2005

During the years ended December 31, 2005, 2004 and 2003, CRP generated cash from operations of $188.3 million, $139.6 million and $60.8 million, respectively, which included unrestricted security deposits received from tenants of $4.1 million, $8.7 million and $3.1 million, respectively and draws on tenant and operator rent guarantees of $14.9 million, $21.6 million and $5.6 million, respectively. CRP’s board of directors declared distributions to CRP’s stockholders of $176.0 million, $147.2 million and $59.8 million during 2005, 2004 and 2003, respectively. In addition, on January 1, February 1 and March 1, 2006, CRP’s board of directors declared distributions to stockholders of record on those dates, of $0.0592 per share of common stock which are payable by March 31, 2006. Effective July 1, 2005, the board of directors amended CRP’s distribution policy to discontinue the monthly payment of stockholder distributions, such that all distributions will be paid solely on a quarterly basis and will continue to be declared monthly during the offering period and quarterly thereafter.

CRP’s distribution policy is based on a balanced analysis of value creation reflective of both current and long-term stabilized cash flows of CRP’s properties, CRP’s 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, CRP’s financial condition, loan restrictions, capital requirements and avoidance of volatility of distributions. During 2006 and prior to closing of the merger, CRP intends to maintain its quarterly distribution payment rate to stockholders of $0.1776 per share. CRP expects that cash flow generated from operations will be sufficient to fund distribution payments; however, if cash flow generated from operations is not sufficient, CRP may use borrowings under its revolving line of credit to cover such shortage.

CRP’s acquisition strategy is focused on opportunistically investing in larger portfolios, which allows CRP to obtain increased efficiencies. As a result, larger cash outlays are required at the time of purchase which may cause cash to accumulate for longer periods of time in 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. CRP expects to continue a large portfolio investment strategy during 2006, and may borrow funds from CRP’s revolving line of credit to make distributions to stockholders in future quarters. During the years ended December 31, 2005, 2004 and 2003, distributions paid to stockholders were supported by borrowing under CRP’s revolving line of credit of $0, $7.6 million and $0 million, respectively.

For the years ended December 31, 2005, 2004 and 2003, approximately 67%, 60% and 71%, respectively, of the distributions received by stockholders were considered to be ordinary income and approximately 33%, 40% and 29%, respectively, were considered a return of capital for federal income tax purposes. No amounts distributed to stockholders for the years ended December 31, 2005, 2004 and 2003, were required to be or have been treated by us as a return of capital for purposes of calculating the stockholders’ 8% return, which is equal to an 8% cumulative, non-compounded annual return on the amount calculated by multiplying the total number of shares of common stock purchased by stockholders by the issue price, without deduction for volume or other discounts, reduced by the portion of any distribution that is attributable to net sales proceeds and by any amount CRP has paid to repurchase shares under CRP’s redemption plan.

Liquidity Requirements as of December 31, 2005

CRP believes 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 CRP’s portfolio investment strategy or expenses due to the tenants defaulting under the terms of their lease agreements, CRP will use borrowings under its revolving line of credit. CRP expects to meet its other short-term liquidity requirements, including the acquisition and development of properties, the investment in other permitted investments, and the scheduled maturities of permanent financings with proceeds remaining from CRP’s offerings (to the extent available), advances under the revolving line of credit, new permanent financing and the placement of permanent debt to replace maturing construction loans. CRP expects to meet its long-term liquidity requirements through short- or long-term, collateralized and uncollateralized financing or equity financing.

Senior 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, the 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, CRP may make fixed asset expenditures, in which case the annual minimum rent will be increased. CRP believes that current tenant reserves are sufficient to meet foreseen material FF&E repairs. The medical facilities are leased on either a triple-net or gross basis. CRP is responsible to fund capital improvements to medical facilities. With respect to medical facility gross leases, CRP generally recovers 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.

Results of Operations

Comparison of the year ended December 31, 2005 to the year ended December 31, 2004

Net income for the year ended December 31, 2005, totaled $135.6 million or $0.55 per share of common stock ($142.4 million or $0.57 per share of common stock from continuing operations), as compared to net income of $117.9 million or $0.56 per share of common stock ($118.4 million or $0.56 per share of common stock from continuing operations) for the year ended December 31, 2004. The increase in net income was primarily due to the rental income from the properties that CRP acquired during 2005 and the latter part of 2004, offset by increases in operating expenses related to the acquired properties and the recognition of impairment charges on three properties in 2005 as compared to one property in 2004. These changes are discussed in further detail below.

Revenues

Rental and earned income from leases. At December 31, 2005, CRP owned 262 properties, including 40 properties acquired in 2005, compared to 222 properties owned at December 31, 2004, of which 103 properties were acquired during 2004. As a result of the increase in the number of properties, rental and earned income from leases from properties from continuing operations increased $104.8 million to $358.1 million, including $46.7 million as a result of straight-lining rent escalations throughout the lease terms, for the year ended December 31, 2005, compared to $253.3 million, including $40.4 million of straight-line rent revenue, for the year ended December 31, 2004. The $104.8 million increase in rental and earned income from leases was comprised of $79.5 million from a full year of operations of the properties acquired during 2004, $24.6 million from the new operating properties that were acquired or construction properties that commenced operations during 2005 and $0.7 million from properties owned as of January 1, 2004. (See “—Operator Rent Guarantees” above).

FF&E reserve income. FF&E reserve income from continuing operations increased $2.9 million to $7.5 million for the year ended December 31, 2005, from $4.6 million for the year ended December 31, 2004. The increase was comprised of $0.2 million additional revenues from a full year of operations of the properties acquired during 2004, $0.1 million from the new operating properties that were acquired or construction properties that commenced operations during 2005 and $2.6 million from properties owned as of January 1, 2004.

Tenant expense reimbursement revenue. Tenant expense reimbursement revenue from continuing operations increased $8.6 million to $13.3 million for the year ended December 31, 2005, from $4.7 million for the year ended December 31, 2004. These revenue increases in 2005 reflect an increase of $7.5 million in additional revenues from a full year of results from medical facilities acquisitions in the second and third quarters of 2004 and $1.1 million from properties that were acquired or construction properties that commenced operations during 2005. Contractual recoveries from tenants represented 52% and 42% of CRP’s medical facilities operating expenses for the years ended December 31, 2005 and 2004, respectively.

Property management and development fees and loan interest income. Property management and development fees from DASCO increased revenue by $0.7 million and loan interest income from the senior secured term loan increased revenue by $0.5 million for the year ended December 31, 2005.

Expenses

Senior housing property expenses. Senior housing property expenses from continuing operations decreased $0.5 million, to $1.1 million for the year ended December 31, 2005, from $1.6 million for the year ended December 31, 2004, as a result of decreased repairs resulting from increased capital spending.

Medical facilities operating expenses. Medical facilities operating expenses from continuing operations increased $14.2 million to $25.4 million for the year ended December 31, 2005, from $11.2 million for the year ended December 31, 2004. The increase was comprised of $11.9 million in additional expenses from a full year of operations of the properties acquired during 2004 and $2.3 million from the new operating properties that were acquired or that commenced operations during 2005. CRP is generally responsible for the medical facilities’ property operating expenses; however, under the terms of the leases, CRP recovers a portion of the expenses from the tenants.

General and administrative. General and administrative expenses from continuing operations increased $6.7 million to $21.4 million from $14.7 million for the years ended December 31, 2005 and 2004, respectively. The increase was due to general and administrative expenses related to a full year of DASCO operations in 2005 compared to four months of operations in 2004, the increased number of properties owned during 2005 and increased legal and consulting fees.

Asset management fees to related party. Asset management fees from continuing operations increased $6.1 million to $18.6 million for the year ended December 31, 2005, from $12.5 million for the year ended December 31, 2004. The increase in expenses was comprised of $4.9 million additional expense from a full year of operations of properties that were acquired during 2004 and $1.2 million from new operating properties acquired or construction properties that commenced operations during 2005.

Provision for doubtful accounts. CRP recognized a provision for doubtful accounts from continuing operations for the years ended December 31, 2005 and 2004, of $3.1 million and $3.9 million, respectively, as discussed in the “—Accounts and Other Receivables” section above. At December 31, 2005, $5.8 million of the $7.2 million allowance for doubtful accounts was attributable to HRA tenants.

Depreciation and amortization. Depreciation and amortization expense increased to $98.4 million for the year ended December 31, 2005, from $62.5 million for the year ended December 31, 2004, as a result of the increase in properties subject to operating leases during the year ended December 31, 2005. The $35.9 million depreciation and amortization expense increase was comprised of $26.5 million in additional expense from a full year of operations of the properties acquired during 2004, $8.9 million from the new operating properties that were acquired or construction properties that commenced operations during 2005 and $0.5 million from properties owned as of January 1, 2004.

Interest and other income

During the years ended December 31, 2005 and 2004, CRP earned $2.7 million and $3.0 million, respectively, in interest income from investments in money market accounts and other short-term, highly liquid investments. The decrease was primarily due to reduced bank interest income as a result of lower invested cash balances. Also affecting year-over-year comparisons was the 2005 reclassification to reflect certain amounts related to CRP’s medical facilities as property management and development fees revenue; for the year ended December 31, 2004, interest and other income included $1.6 million related to these development, marketing and property management fees.

Interest and loan cost amortization expense

Interest and loan cost amortization expense was $76.2 million and $42.8 million for the years ended December 31, 2005 and 2004, respectively. The increase was a result of an increase in the average amount of debt outstanding to $1.2 billion for the year ended December 31, 2005, from $722.2 million for the year ended December 31, 2004. The weighted-average interest rate was approximately 5.8% for the year ended December 31, 2005 and 5.1% for the year ended December 31, 2004.

Discontinued operations

Loss from discontinued operations of $6.8 million and $0.4 million for the years ended December 31, 2005 and 2004, respectively, for four properties that CRP determined to hold for sale included operating revenues of $1.7 million and $2.2 million for the years ended December 31, 2005 and 2004, respectively, and expenses of $0.8 million and $0.7 million for the years ended December 31, 2005 and 2004, respectively. Expenses for the years ended December 31, 2005 and 2004, included a provision for doubtful accounts of $0.3 million and $0, respectively. Loss from discontinued operations also included impairment charges of $7.7 million and $1.9 million for the years ended December 31, 2005 and 2004, respectively, related to these properties as discussed in the “ —Accounts Receivable” section above.

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

Net income for the year ended December 31, 2004 totaled $117.9 million or $0.56 per share of common stock ($118.4 million or $0.56 per share of common stock from continuing operations), as compared to net income of $58.5 million or $0.66 per share of common stock ($57.9 million or $0.65 per share of common stock from continuing operations) for 2003. The increase in net income is primarily due to an increase in rental income from the properties that CRP acquired during the latter part of 2003 and in 2004 offset by increases in interest expense and loan cost amortization as a result of an increase in CRP’s average outstanding debt, provisions for accounts receivable reserves and an impairment charge related to the proposed sale of a senior housing facility. These changes are discussed in further detail below. Although net income increased significantly for the year ended December 31, 2004, it decreased on a per share basis primarily due to the increased number of weighted-average number of common shares outstanding in 2004.

Revenues

Rental and earned income from leases. At December 31, 2004, CRP owned 218 operating properties, including 103 properties that were acquired in 2004, compared to owning 115 operating properties at December 31, 2003. As a result of the increase in the number and value of owned properties, CRP’s rental and earned income from CRP’s leases from continuing operations increased to $253.3 million, including $40.4 million as a result of straight-lining rent increases throughout the lease terms, for the year ended December 31, 2004, compared to $90.4 million, including $13.2 million of straight-line rent revenue, for the year ended December 31, 2003. The $162.9 million rental and earned income from leases increase was comprised of $71.2 million additional revenues from a full year of operations of the properties acquired or that commenced operations during 2003, $91.0 million from the new operating properties acquired during 2004 and $0.7 million from properties owned as of January 1, 2003. (See “—Operator Rent Guarantees” above).

Rental income also included draws on operator rent guarantees of $21.6 million and $5.6 million during the years ended December 31, 2004 and 2003, respectively. As of December 31, 2004, CRP held $26.3 million in security deposits and rent support related to certain properties.

FF&E reserve income. During the years ended December 31, 2004 and 2003, CRP earned $4.6 million and $2.6 million, respectively, in FF&E reserve income from properties from continuing operations during the years ended December 31, 2004 and 2003, respectively. The $2.0 million FF&E reserve income increase was comprised of $2.2 million additional revenues from a full year of operations of the properties acquired or that commenced operations during 2003 and $0.1 million from the new operating properties that were acquired during 2004 offset by a reduction of $0.3 million from properties owned as of January 1, 2003.

Tenant expense reimbursement revenue. During the year ended December 31, 2004, CRP recorded $4.7 million in tenant expense reimbursement revenue, representing contractual recoveries from tenants of 42% of CRP’s medical facilities operating expenses.

Expenses

Senior housing and medical facilities property expenses. Total property-related operating expenses for the years ended December 31, 2004 and 2003, were $12.9 million and $136,000, respectively. The increase was primarily due to $11.2 million from the acquisition of the medical facilities in the second and third quarters of 2004, where CRP is generally responsible for property operating expenses; however, under the terms of the leases, CRP recovers a portion of the expenses from the tenants. Property expenses related to senior housing facilities increased to $1.6 from $136,000 due to the increase in the number of senior housing facilities owned during the year ended December 31, 2004.

General and administrative. General and administrative expenses from continuing operations increased $9.2 million to $14.7 million from $5.5 million for the years ended December 31, 2004 and 2003, respectively. The increase in expenses was related to general and administrative expenses related to the acquisition of DASCO operations in 2004 and the increased number of properties owned during 2004.

Asset management fees to related party. Asset management fees from continuing operations increased $8.2 million to $12.5 million for the year ended December 31, 2004, from $4.3 million for the year ended December 31, 2003. The increase in expenses was comprised of $3.6 million additional expense from a full year of operations of properties acquired during 2003 and $4.6 million from new operating properties that were acquired or that commenced operations during 2004.

Provision for doubtful accounts. During the year ended December 31, 2004, CRP recognized a provision of $3.9 million related to doubtful accounts receivable balances due to delays in receiving

current rent from certain senior housing facilities that were experiencing higher than expected property operating expenses.

Depreciation and amortization. Depreciation and amortization expense increased to $62.5 million for the year ended December 31, 2004, from $17.3 million for the year ended December 31, 2003, as a result of the increase in properties subject to operating leases during the year ended December 31, 2004. The $45.2 million depreciation and amortization expense increase was comprised of $13.1 million additional expense from a full year of operations of the properties acquired during 2003 and $32.1 million from the new operating properties acquired or that commenced operations during 2004.

Interest and other income

During the years ended December 31, 2004 and 2003, CRP earned $3.0 million and $1.6 million, respectively, in interest income from investments in money market accounts and other short-term, highly liquid investments. The increase in interest income is due to an increase in the average amount invested in short-term investments during the year ended December 31, 2004, as compared to the year ended December 31, 2003. For the year ended December 31, 2004, interest and other income also included $1.6 million in development, marketing and property management fees related to CRP’s medical facilities.

Interest and loan cost amortization expense

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

Discontinued operations

For the year ended December 31, 2004, loss from discontinued operations for four properties that CRP determined to hold for sale included operating revenues of approximately $2.2 million offset by operating expenses of $0.7 million and an impairment loss of $1.9 million for the write-down of one of the properties to its estimated fair value less selling costs. For the year ended December 31, 2003, income from these properties included operating revenues of approximately $1.0 million offset by operating expenses of $0.4 million.

Other

Inflation and Trends as of December 31, 2005

CRP’s senior housing leases are triple-net leases and contain provisions that CRP believes 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). CRP has also invested in medical facilities, which include both triple-net and gross basis leases. These leases also contain provisions that mitigate the effect of inflation, such as scheduled base rent increases during the lease terms and with respect to gross leases, the reimbursement of future increases in operating expenses (including real estate taxes, insurance, repairs, maintenance and utilities) over a specified base amount. Inflation and changing

prices may have an adverse impact on the potential disposition of the properties and on appreciation of the properties.

CRP believes that changes and trends in the healthcare industry will continue to create opportunities for growth of senior housing and other healthcare facilities, including (i) the growth of operators serving specific healthcare 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 healthcare, (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 healthcare networks offering privately funded long-term care insurance. Additionally, CRP believes that demographic trends are significant when looking at the potential for future growth in the healthcare 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.

CRP believes that during 2005, the senior 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 CRP’s 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.

CRP is not aware of any material trends, favorable or unfavorable, in either capital resources or the outlook for long-term cash generation, nor does CRP 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, CRP believes that inflation will not impact the availability of equity and debt financings.

Related Party Transactions as of December 31, 2005

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

Pursuant to the advisory agreement, as amended and renewed, the Advisor and its affiliates earn certain fees and are entitled to receive reimbursement of certain expenses. During the years ended

December 31, 2005, 2004 and 2003, the Advisor and its affiliates earned fees and incurred reimbursable expenses as follows (in thousands):

	Years ended December 31,
	2005		2004		2003
Acquisition fees(1):
From offering proceeds	$	5,874	$	38,286	$	47,644
From debt proceeds	13,789		29,952		11,277
	19,663		68,238		58,921
Asset management fees(2)	19,217		13,047		4,372
Reimbursable expenses(3):
Acquisition expenses	210		331		403
General and administrative expenses	5,989		4,313		2,255
	6,199		4,644		2,658
	$	45,079	$	85,929	$	65,951

(1)For the period from May 3, 2005 through December 31, 2005, acquisition fees for, among other things, identifying properties and structuring the terms of the leases were equal to 3.0% of gross offering proceeds and loan proceeds from permanent financing under the 2004 Offering (4.0% of gross offering and loan proceeds for the period from May 14, 2004 through May 2, 2005 and 4.5% of gross offering and loan proceeds under the prior offerings). These fees are included in other assets in the accompanying consolidated balance sheets prior to being allocated to individual properties or intangible lease costs.

If CRP lists, the Advisor will receive an acquisition fee equal to 3.0% of amounts outstanding on the line of credit, if any, at the time of listing. Certain fees payable to the Advisor upon listing, the orderly liquidation or other sales of properties are subordinate to the return of 100% of the stockholders’ invested capital plus the achievement of a cumulative, noncompounded annual 8% return on stockholders’ invested capital.

(2)Monthly asset management fee of 0.05% of CRP’s real estate asset value, as defined in the advisory agreement, and the outstanding principal balance of any mortgage loans as of the end of the preceding month.

(3)Reimbursement for administrative services, including, but not limited to, accounting, financial, tax, insurance administration 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 CRP the amount by which the total operating expenses CRP pays or incurs exceeds in any four consecutive fiscal quarters (the “Expense Year”) the greater of 2% of average invested assets or 25% of net income (the “Expense Cap”). Operating expenses for the Expense Years ended December 31, 2005, 2004 and 2003, did not exceed the Expense Cap.

Of these amounts, approximately $1.1 million and $1.4 million were included in due to related parties in the accompanying consolidated balance sheets at December 31, 2005 and 2004, respectively.

CNL Securities Corp. received fees based on the amounts raised from CRP’s offerings equal to: (i) selling commissions of 6.5% of gross proceeds under the 2004 offering and 7.5% under the prior offerings, (ii) a marketing support fee of 2.0% of gross proceeds under the 2004 offering and 0.5% under the prior offerings and (iii) beginning on December 31, 2003, an annual soliciting dealer servicing fee equal to 0.2% of the aggregate proceeds raised in a prior offering. Affiliates of the

Advisor are reimbursed for certain offering expenses incurred on CRP’s behalf. Offering expenses incurred by the Advisor and its affiliates on CRP’s behalf, together with selling commissions, the marketing support fee and due diligence expense reimbursements will not exceed 13% of the proceeds raised in connection with the offerings.

During the years ended December 31, 2005 and 2004, CRP incurred the following fees and costs (in thousands):

	Years ended December 31,
	2005		2004
Selling commissions	$	10,801	$	61,830
Marketing support fee	3,313		6,648
Offering and due diligence costs	4,250		18,328
Soliciting dealer servicing fee	—		310
	$	18,364	$	87,116

Of these amounts, approximately $1.3 million and $0.2 million were included in due to related parties in the accompanying consolidated balance sheets at December 31, 2005 and 2004, respectively.

CRP owns a 9.90% interest in CNL Plaza, Ltd., or the Owner, a limited partnership that owns an office building located in Orlando, Florida, in which the Advisor and certain affiliates of CNL Financial Group, or CFG, lease office space. CFG owns a controlling interest in the parent company of the Advisor and is indirectly wholly owned by James M. Seneff, Jr., CRP’s chairman of the board, and his wife. Robert A. Bourne, CRP’s vice-chairman of the board and treasurer, is an officer of CFG. The remaining interests in the Owner are held by several entities with present or former affiliations with CFG, including: CNL Plaza Venture, Ltd., which has a 1% interest as general partner of the Owner and whose general partner is indirectly wholly owned by Mr. Seneff and his wife; CNL Corporate Investors, Ltd., which is indirectly wholly owned by Messrs. Seneff and Bourne, and which has a 49.50% interest, as a limited partner, in the Owner; CNL Hotels & Resorts, Inc. which has a 9.90% interest, as a limited partner, in the Owner; Commercial Net Lease Realty, Inc., which has a 24.75% interest, as a limited partner, in the Owner; and CNL APF Partners, LP, which has a 4.95% interest, as a limited partner, in the Owner. CRP also owns a 9.90% interest in CNL Plaza Venture, Ltd., or the Borrower, a Florida limited partnership, which is the general partner of the Owner. The remaining interests in the Borrower are held by the same entities in the same proportion described above with respect to the Owner.

In 2004, the Owner conveyed a small portion of the premises underlying the parking structure adjacent to its office building, valued by the parties at approximately $0.6 million, to CNL Plaza II, Ltd., a limited partnership in which Messrs. Seneff and Bourne own a 60% interest and 40% interest, respectively, as part of the development of the premises surrounding the building. The purpose of the conveyance was to adjust the percentage fee simple ownership under the parking structure so as to allow joint parking privileges for a new office building that was developed in 2005 and is owned by CNL Plaza II, Ltd. In connection with this transaction, the Owner received an ownership interest in a cross-bridge that was constructed and an anticipated benefit from a reduction in the allocation of its operating expenses for the parking structure. In addition, the Owner may be entitled to additional consideration pursuant to a purchase price adjustment.

On September 30, 2005, CRP executed a pro rata, several guarantee limited to 16.67%, or $2.3 million, of a $14.0 million uncollateralized promissory note of the Borrower that matures December 31, 2010. During each of the years ended December 31, 2005 and 2004, CRP received approximately $0.2 million, respectively, in distributions from the Owner.

CRP maintains bank accounts in a bank in which certain of CRP’s officers and directors serve as directors and are principal stockholders. The amounts deposited with this bank were $3.1 million and $22.9 million at December 31, 2005 and 2004, respectively.

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

Century Capital Markets, LLC or CCM, an entity in which an affiliate of the Advisor was formerly a non-voting Class C member, made the arrangements for two commercial paper loans totaling $43.9 million. The monthly interest payments due under these commercial paper loans include an annual margin of either 30 or 40 basis points, payable to CCM for the monthly services it provides related to the administration of the commercial paper loans. Effective September 30, 2005, a non-affiliated third party assumed the administration of these commercial paper loans. Therefore, CRP now pays the monthly services fee directly to the non-affiliated third party. During the years ended December 31, 2005, 2004 and 2003, $0.1 million, $0.1 million and $0.2 million, respectively, was paid to CCM related to these services. During the year ended December 31, 2003, CRP also paid CCM a $0.2 million finder’s fee related to the acquisition of two properties.

CRP’s chairman of the board is a director in a hospital that leases office space in seven of the medical facilities that CRP acquired in August 2004. Additionally, one of CRP’s independent directors is a director in a health system that leases office space in one of the medical facilities that CRP acquired in April 2004. During the years ended December 31, 2005 and 2004, these hospitals contributed less than 1% of CRP’s total revenues.

Critical Accounting Policies as of December 31, 2005

Allocation of Purchase Price for Acquisition of Properties. CRP allocates the purchase costs of properties to the tangible and intangible assets acquired and the liabilities assumed as provided by SFAS 141, “Business Combinations.” For each acquisition, CRP assesses 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 CRP’s 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. CRP’s leases are accounted for under the provisions of Statement of Accounting Standards No. 13, “Accounting for Leases,” and have been accounted for as either operating leases or direct financing leases. This statement requires CRP’s 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, CRP assumes that all payments to be received under its leases are collectible. Changes in its estimates or assumptions regarding collectibility of lease payments could result in a change in accounting for the lease.

Impairments. CRP evaluates its properties and other long-lived assets on a quarterly basis, or upon the occurrence of significant changes in operations, to assess whether any impairment indications are present that affect the recovery of the carrying amount of an individual asset 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. CRP maintains an allowance for doubtful accounts for estimated losses resulting from the inability of CRP’s tenants to make required rent payments. CRP bases its estimates on historical experience, projected cash flows generated from the tenants’ operations of the properties and various other assumptions that CRP believes to be reasonable under the circumstances of a specific property or portfolio of properties. If the financial condition of any of CRP’s tenants deteriorates, resulting in the impairment of their ability to make required rent payments, additional allowances may be required.

Goodwill. CRP allocates 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 CRP’s impairment analysis, CRP uses other valuation techniques that involve measurement based on projected net earnings of the underlying reporting unit.

Derivative Instruments. The valuation of derivatives under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted, requires CRP to make estimates and judgments that affect the fair value of those instruments. CRP uses standard market conventions to determine the fair values of derivative instruments; and techniques such as discounted cash flow analysis, option pricing models, and termination cost are used to determine fair value at each balance sheet date. All methods of assessing fair value result in a general approximation of value and such value may never actually be realized.

REIT Qualification as of December 31, 2005

CRP made an election under Internal Revenue Code Section 856(c)(1), to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations. As a REIT, for federal income tax purposes, CRP generally will not be subject to federal income tax on income that CRP distributes to its stockholders. If CRP fails to qualify as a REIT in any taxable year, CRP will be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially affect CRP’s net income. However, CRP believes that it is organized and has operated in such a manner as to qualify for treatment as a REIT since CRP’s formation in 1997 and specifically for the years ended December 31, 2005, 2004 and 2003. In addition, CRP intends to continue to operate so as to remain qualified as a REIT for federal income tax purposes.

CRP’s Quantitative and Qualitative Disclosures About Market Risk as of March 31, 2006

At March 31, 2006, 29% of CRP’s mortgages payable, construction loans payable and amount outstanding under its revolving line of credit were subject to variable interest rates; therefore, CRP is exposed to market changes in interest rates. For the three months ended March 31, 2006, a hypothetical 100 basis point increase in the LIBOR rates would have resulted in additional interest costs of $1.0 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 CRP’s exposure to interest rate change, it is not intended to predict future results and the actual results will likely vary.

To mitigate interest rate risk, CRP may pay down the mortgages or the revolving line of credit prior to their maturity dates through debt refinancing should interest rates rise substantially. In May 2005, CRP implemented a policy to further mitigate interest rate risk. CRP’s primary strategy is to protect against this risk by using derivative transactions as appropriate to minimize the effect that variable interest rate fluctuations could have on cash flow. In May 2005, CRP entered into two interest rate swap agreements effective June 1, 2005, and one interest rate swap agreement effective July 1, 2005, for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in interest rates on CRP’s variable interest rate mortgage notes payable. The hedges have a 4.19% weighted-average interest rate plus a 1.26% weighted-average spread resulting in an all-in fixed interest rate of 5.45% until 2010. At March 31, 2006, these interest rate swaps had a fair value of $7.7 million. A hypothetical 100 basis point increase or decrease in LIBOR rates would cause the fair value of these swaps to be $15.1 million or $(0.03) million, respectively.

Certain fixed-rate loans contain substantial prepayment penalties and /or defeasance provisions that may make it economically unfavorable to repay the loans prior to their maturity dates.

Following is a summary of CRP’s mortgages payable, construction loans payable and revolving line of credit obligations at March 31, 2006 (in thousands):

	Expected Maturities
	2006			2007			2008			2009			2010			Thereafter			Total			Fair Value
Debt Obligations:
Fixed-rate debt:	$	—		$	10,392		$	50,211		$	140,851		$	138,735		$	530,821		$	871,010		$	871,894
Average interest rate	—			7.42		%	6.24		%	6.02		%	6.86		%	5.72		%	6.01		%	5.95		%
Variable-rate debt:	$	124,445		$	148,920		$	—		$	15,952		$	240,157		$	165,817		$	695,291
Average interest rate	7.10		%	6.62		%	—			6.52		%	5.80		%	5.44		%	6.14		%
Interest Rate Derivatives:
Variable to fixed swaps:	$	—		$	—		$	—		$	—		$	233,750		$	—		$	233,750		$	7,711
Average pay rate	—			—			—			—			4.19		%	—			4.19		%	—
Average receive rate	—			—			—			—			4.55		%	—			4.55		%	—

CRP’s Quantitative and Qualitative Disclosures About Market Risk as of December 31, 2005

At December 31, 2005, 30% of CRP’s mortgages payable, construction loans payable and amount outstanding under its revolving line of credit were subject to variable interest rates; therefore, CRP is exposed to market changes in interest rates. For the year ended December 31, 2005, a hypothetical 100 basis point increase in the LIBOR rates would have resulted in additional interest costs of approximately $5.6 million ($0.02 per share of common stock). 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 CRP’s exposure to interest rate change, it is not intended to predict future results and the actual results will likely vary.

To mitigate interest rate risk, CRP may pay down the mortgages or the revolving line of credit prior to their maturity dates with offering proceeds (to the extent available) should interest rates rise substantially. In May 2005, CRP implemented a policy to further mitigate interest rate risk. CRP’s primary strategy is to protect against this risk by using derivative transactions as appropriate to minimize the effect that variable interest rate fluctuations could have on cash flow. In May 2005, CRP entered into two interest rate swap agreements effective June 1, 2005, and one interest rate swap agreement effective July 1, 2005, for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in interest rates on CRP’s variable interest rate mortgage notes payable. The hedges have a 4.19% weighted-average plus a 1.26% weighted-average spread resulting in an all-in fixed interest rate of 5.45% until 2010. At December 31, 2005, these interest rate swaps had a fair value of $4.8 million. A hypothetical 10% increase or decrease in LIBOR rates would cause the fair value of these swaps to be $8.7 million or $1.0 million, respectively.

Certain fixed-rate loans contain substantial prepayment penalties and/or defeasance provisions that may make it economically unfavorable to repay the loans prior to their maturity dates.

Following is a summary of our mortgages payable, construction loans payable and revolving line of credit obligations at December 31, 2005 (in thousands):

	Expected Maturities
	2006			2007			2008			2009			2010			Thereafter			Total			Fair Value
Debt Obligations:
Fixed-rate debt:	$	—		$	10,425		$	50,460		$	141,513		$	139,370		$	428,412		$	770,180		$	771,164
Average interest rate	—			7.42		%	6.24		%	6.02		%	6.74		%	5.73		%	6.03		%	5.97		%
Variable-rate debt:	$	119,604		$	163,616		$	—		$	12,155		$	240,000		$	132,211		$	667,586
Average interest rate	6.74		%	6.33		%	—			6.13		%	5.47		%	5.23		%	5.87		%
Interest Rate Derivatives:
Variable to fixed swaps:	$	—		$	—		$	—		$	—		$	233,750		$			$	233,750		$	4,839
Average pay rate	—			—			—			—			4.19		%	—			4.19		%	—
Average receive rate	—			—			—			—			4.22		%	—			4.22		%	—

EX-99.2

Exhibit 99.2

HCP UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2006 AND FOR THE YEAR ENDED DECEMBER 31, 2005 AND THE THREE MONTHS ENDED MARCH 31, 2006

	Page
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2006	3
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 2005	4
Unaudited Pro Forma Condensed Consolidated Statement of Income for the three months ended March 31, 2006	5
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements	6

1

HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements presented below have been prepared based on certain pro forma adjustments to the historical consolidated financial statements of Health Care Property Investors, Inc. (“HCP”), CNL Retirement Properties, Inc. (“CRP”) and CNL Retirement Corp., the external advisor to CRP (the “Advisor”) as of and for the three months ended March 31, 2006 and for the year ended December 31, 2005. The historical consolidated financial statements of HCP are contained in its Annual Report on Form 10-K for the year ended December 31, 2005, Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 and Current Report on Form 8-K filed June 30, 2006 on file with the SEC. The historical consolidated financial statements of CRP and the Advisor are included as Exhibits 99.3, 99.4, 99.5 and 99.6 in this Current Report on Form 8-K. The historical financial information with respect to HCP for the year ended December 31, 2005 has been restated to reflect as discontinued operations the results of operations of certain properties that were initially classified as discontinued operations during the first quarter of 2006. The unaudited pro forma condensed consolidated financial statements relate to the proposed merger of CRP with and into Ocean Aquisition 1, Inc., a wholly owned subsidiary of HCP (the “Merger”), and the proposed merger of the Advisor with and into Ocean Acquisition 2, LLC, a wholly owned subsidiary of HCP (the “Advisor Merger”). The accompanying unaudited pro forma condensed consolidated balance sheet as of March 31, 2006 has been prepared as if the Merger and the Advisor Merger and the incurrence of debt by HCP to finance the acquisitions of CRP and the Advisor had occurred as of that date.

The accompanying unaudited pro forma condensed consolidated statements of income for the three months ended March 31, 2006 and for the year ended December 31, 2005 have been prepared as if the Merger and the Advisor Merger had occurred as of January 1, 2005 and reflects the incurrence of debt by HCP in order to finance the acquisition of CRP, including the cash consideration needed for the Merger. The allocation of the purchase price of CRP and the Advisor as reflected in these unaudited pro forma condensed consolidated financial statements has, with the assistance of independent valuation specialists, been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. In the opinion of HCP's management, all significant adjustments necessary to reflect the effects of the Merger and the Advisor Merger that can be factually supported within the SEC regulations covering the preparation of pro forma financial statements have been made.

A final determination of the fair values of CRP's and the Advisor's assets and liabilities, which cannot be made prior to the completion of the transactions, will be based on the actual net tangible and intangible assets of CRP and the Advisor that exist as of the date of completion of the transactions. Consequently, amounts preliminarily allocated to goodwill and identifiable intangibles could change significantly from those used in the pro forma condensed consolidated financial statements presented below and could result in a material change in amortization of tangible and intangible assets and liabilities.

The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily and should not be assumed to be an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed consolidated balance sheet does not include restructuring charges and other related liabilities expected to result from HCP's integration of CRP and the Advisor as these are not presently estimable. In addition to the completion of the valuation, the impact of ongoing integration activities, the timing of completion of the transactions and other changes in CRP's and the Advisor's net tangible and intangible assets that occur prior to completion of the transactions could cause material differences in the information presented. Furthermore, following consummation of the transaction, HCP expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired in the transaction, which may differ from those reflected in CRP's historical financial statements and the pro forma financial statements.

The  unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP, CRP and the Advisor.

2

HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2006
(In thousands)

	HCP Historical(A)			CRP Historical			CRP Reclassifications(B)			CRP Reclassified			CRP Pro Forma Adjustments(C)			Advisor Historical		Advisor Pro Forma Adjustments(M)			CRP/Advisor Eliminations			Consolidated Pro Forma HCP
ASSETS
Real estate:
Real estate	$	4,032,556		$	3,273,386		$	—		$	3,273,386		$	1,203,008	(D)	$	—	$	—		$	—		$	8,508,950
Less accumulated depreciation and amortization	633,765			180,953			—			180,953			(180,953		)(D)	—		—			—			633,765
Net real estate	3,398,791			3,092,433			—			3,092,433			1,383,961			—		—			—			7,875,185
Direct financing leases	—			491,239						491,239			3,318		(E)	—		—			—			494,557
Loans receivable, net:
Joint venture partners and affiliates	7,006			—			34,000			34,000			—			—		—			—			41,006
Others	145,638			—			—			—			—			—		—			—			145,638
Investments in and advances to unconsolidated joint ventures	49,058			—			—			—			—			—		—			—			49,058
Accounts receivable, net of allowance	13,696			19,848			—			19,848			—			—		—			—			33,544
Cash and cash equivalents	55,957			102,204			—			102,204			—			1,427		270		(N)	—			159,858
Restricted cash	2,694			22,767			—			22,767			—			—		—			—			25,461
Intangibles, net	51,556			110,580			—			110,580			137,349		(F)	—		54,400		(O)	(54,400		)(S)	326,441
													113,336		(F)			2,900		(O)
													(110,580		)(F)			21,300		(O)
Goodwill	—			5,791			—			5,791			(5,791		)(G)	—		42,353		(P)	—			42,353
Other assets, net	64,420			204,577			(34,000		)	170,577			16,375		(H)	4,314		(200		)(N)	(259		)(S)	120,668
													(110,330		)(H)			(946		)(Q)
													(15,900		)(H)
													(7,383		)(H)
Total assets	$	3,788,816		$	4,049,439		$	—		$	4,049,439		$	1,404,355		$	5,741	$	120,077		$	(54,659	)	$	9,313,769
LIABILITIES AND STOCKHOLDERS’ EQUITY
Bank lines of credit	$	375,000		$	105,000		$	—		$	105,000		$	154,525	(I)	$	—	$	5,900	(I)	$	—		$	535,425
													(105,000		)(I)
Bridge and term financing	—			—			—			—			2,940,281		(I)	—		—			—			2,940,281
Senior unsecured notes	1,476,215			—			—			—			—			—		—			—			1,476,215
Mortgage debt	268,654			1,353,713			—			1,353,713			(21,990		)(J)	—		—			—			1,600,377
Construction loans	—			108,472			—			108,472			—					—			—			108,472
Entrance fee bonds payable	—			101,188			—			101,188			—			—		—			—			101,188
Accounts payable, other liabilities and deferred revenue	104,648			73,234			—			73,234			54,400		(K)	3,795		—			(54,400		)(S)	257,787
										—			86,779		(K)						(259		)(S)
										—			(4,744		)(K)
										—			(5,666		)(K)
Total liabilities	2,224,517			1,741,607			—			1,741,607			3,098,585			3,795		5,900			(54,659		)	7,019,745
Minority interests	156,794			8,270			—			8,270			—			—		—			—			165,064
Stockholders’ equity:
Preferred stock	285,173			—			—			—			—			—		—			—			285,173
Common stock	136,842			2,642			—			2,642			22,853		(L)	2		4,379		(R)	—			164,074
													(2,642		)(L)			(2		)(R)
Additional paid-in capital	1,457,108			2,373,850			—			2,373,850			583,429		(L)	1,944		111,794		(R)	—			2,151,331
													(950		)(L)			(50		)(R)
													(2,373,850		)(L)			(1,944		)(R)
Cumulative net income	1,579,034			—			—			—			—			—		—			—			1,579,034
Cumulative dividends	(2,052,009		)	—			—			—			—			—		—			—			(2,052,009		)
Cumulative distributions in excess of net income	—			(84,641		)	—			(84,641		)	84,641		(L)	—		—			—			—
Accumulated other comprehensive income	1,357			7,711			—			7,711			(7,711		(L)	—		—			—			1,357
Total stockholders’ equity	1,407,505			2,299,562			—			2,299,562			(1,694,230		)	1,946		114,177			—			2,128,960
Total liabilities and stockholders’ equity	$	3,788,816		$	4,049,439		$	—		$	4,049,439		$	1,404,355		$	5,741	$	120,077		$	(54,659	)	$	9,313,769

The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.

3

HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 2005
(In thousands, except per share data)

	HCP Historical(A)			CRP Historical			CRP Reclassifications(B)			CRP Reclassified			CRP Pro Forma Adjustments			Advisor Historical		Advisor Pro Forma Adjustments			CRP/Advisor Eliminations			Consolidated Pro Forma HCP
Revenues and other income:
Rental and other revenues	$	450,477		$	—		$	321,649		$	321,649		$	44,554	(T)	$	—	$	—		$	—		$	769,109
													(1,422		)(T)
													(46,672		)(T)
													523		(T)
Seniors’ housing rental income	—			237,892			(237,892		)	—			—			—		—			—			—
Earned income from direct financing leases	—			61,202			—			61,202			(138		)(U)	—		—			—			61,064
FF&E reserve income	—			7,500			(7,500		)	—			—			—		—			—			—
Contingent rent	—			3,955			(3,955		)	—			—			—		—			—			—
Medical facilities rental income and other revenues	—			72,302			(72,302		)	—			—			—		—			—			—
Equity income (loss) from unconsolidated joint ventures	(1,123		)	227			—			227			—			—		—			—			(896		)
Acquisition fees	—			—			—			—			—			6,349		—			(6,349		)(CC)	—
Debt acquisition fees	—			—			—			—			—			13,789		—			(13,789		)(CC)	—
Management fees	—			—			—			—			—			19,144		—			(19,144		)(CC)	—
Interest and other income	26,154			4,202			—			4,202			—			3,035		—			(3,035		)(CC)	30,356
	475,508			387,280			—			387,280			(3,155		)	42,317		—			(42,317		)	859,633
Costs and expenses:
Interest	107,201			76,171			—			76,171			173,477		(V)	—		—			—			$	365,358
													3,418		(V)
													10,667		(V)
													(5,576		)(V)
Depreciation and amortization	106,342			98,446			—			98,446			27,421		(W)	—		—			—			245,704
													7,445		(W)			6,050		(Y)
Operating	58,983			—			26,443			26,443			484		(X)	—		—			—			85,910
Seniors’ housing property expenses	—			1,075			(1,075		)	—			—			—		—			—			—
Medical facilities operating expenses	—			25,368			(25,368		)	—			—			—		—			—			—
General and administrative	32,767			21,376			2,706			24,082			—			22,779		—			(3,035		)(CC)	76,593
Asset management fees paid to related party	—			18,641			—			18,641			—			—		—			(18,641		)(CC)	—
Provision for doubtful accounts	—			3,082			(3,082		)	—			—
	305,293			244,159			(376		)	243,783			217,336			22,779		6,050			(21,676		)	773,565
Income before minority interests	170,215			143,121			376			143,497			(220,491		)	19,538		(6,050		)	(20,641		)	86,068
Minority interests	(12,950		)	(706		)	—			(706		)	—			—		—			—			(13,656		)
Earnings before income taxes	157,265			142,415			376			142,791			(220,491		)	19,538		(6,050		)	(20,641		)	72,412
Income tax expense (benefit)	(700		)				376			376			—			7,473		(7,473		)(Z)	—			(324		)
Income from continuing operations	157,965			142,415			—			142,415			(220,491		)	12,065		1,423			(20,641		)	72,736
Less: preferred stock dividends	(21,130		)	—			—			—			—			—		—			—			(21,130		)
Income from continuing operations applicable to common shares	$	136,835		$	142,415		$	—		$	142,415		$	(220,491	)	$	12,065	$	1,423		$	(20,641	)	$	51,606
Income from continuing operations per common share—basic(AA)	$	1.02								$	0.57													$	0.32
Income from continuing operations per common share—diluted(AA)	$	1.01								$	0.57													$	0.32
Weighted-average shares used to calculate income per common share:
Basic(AA)	134,673									248,298			22,853		(BB)			4,379		(BB)				161,905
Diluted(AA)	135,560									248,298			22,853		(BB)			4,379		(BB)				162,792

The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.

4

HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the three months ended March 31, 2006
(In thousands, except per share data)

	HCP Historical(A)			CRP Historical			CRP Reclassifications(B)			CRP Reclassified			CRP Pro Forma Adjustments			Advisor Historical		Advisor Pro Forma Adjustments			CRP/Advisor Eliminations			Consolidated Pro Forma HCP
Revenues and other income:
Rental and other revenues	$	122,126		$	—		$	87,998		$	87,998		$	9,892	(T)	$	—	$	—		$	—		$	208,676
													(356		)(T)
													(11,115		)(T)
													131		(T)
Seniors’ housing rental income	—			62,265			(62,265		)	—			—			—		—			—			—
Earned income from direct financing leases	—			15,969			—			15,969			(35		)(U)	—		—			—			15,934
FF&E reserve income	—			1,992			(1,992		)	—			—			—		—			—			—
Contingent rent	—			101			(101		)	—			—			—		—			—			—
Medical facilities rental income and other revenues	—			23,640			(23,640		)	—			—			—		—			—			—
Equity income (loss) from unconsolidated joint ventures	3,822			2			—			2			—			—		—			—			3,824
Acquisition fees	—			—			—			—			—			2,581		—			(2,581		)(CC)	—
Debt acquisition fees	—			—			—			—			—			4,328		—			(4,328		)(CC)	—
Management fees	—			—			—			—			—			5,127		—			(5,127		)(CC)	—
Interest and other income	15,747			1,609			—			1,609			—			626		—			(626		)(CC)	17,356
	141,695			105,578			—			105,578			(1,483		)	12,662		—			(12,662		)	245,790
Costs and expenses:
Interest	32,093			23,187			—			23,187			43,369		(V)	—		—			—			$	99,370
													995		(V)
													1,010		(V)
													(1,284		)(V)
Depreciation and amortization	30,679			26,952			—			26,952			6,855		(W)	—		—			—			67,860
													1,861		(W)			1,513		(Y)
Operating	17,564			—			7,767			7,767			121		(X)	—		—			—			25,452
Seniors’ housing property expenses	—			283			(283		)	—			—			—		—			—			—
Medical facilities operating expenses	—			7,484			(7,484		)	—			—			—		—			—			—
General and administrative	8,742			4,744			1,328			6,072			—			5,553		—			(626		)(CC)	19,741
Asset management fees paid to related party	—			5,098			—			5,098			—			—		—			(5,098		)(CC)	—
Provision for doubtful accounts	—			1,523			(1,523		)	—			—			—		—			—
	89,078			69,271			(195		)	69,076			52,927			5,553		1,513			(5,724		)	212,423
Income before minority interests	52,617			36,307			195			36,502			(54,410		)	7,109		(1,513		)	(6,938		)	33,367
Minority interests	(3,777		)	(86		)	—			(86		)	—					—			—			(3,863		)
Earnings before income taxes	48,840			36,221			195			36,416			(54,410		)	7,109		(1,513		)	(6,938		)	29,504
Income tax expense (benefit)	—			—			195			195			—			2,719		(2,719		)(Z)	—			195
Income from continuing operations	48,840			36,221			—			36,221			(54,410		)	4,390		1,206			(6,938		)	29,309
Less: preferred stock dividends	(5,283		)	—			—			—			—			—		—			—			(5,283		)
Income from continuing operations applicable to common shares	$	43,557		$	36,221		$	—		$	36,221		$	(54,410	)	$	4,390	$	1,206		$	(6,938	)	$	24,026
Income from continuing operations per common share—basic(AA)	$	0.32								$	0.14													$	0.15
Income from continuing operations per common share—diluted(AA)	$	0.32								$	0.14													$	0.15
Weighted-average shares used to calculate income per common share:
Basic(AA)	136,040									257,507			22,853		(BB)			4,379		(BB)				163,272
Diluted(AA)	136,856									257,507			22,853		(BB)			4,379		(BB)				164,088

The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.

5

Health Care Property Investors, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

(A)Includes reclassification of certain HCP amounts as follows:

Balance Sheet:

• Real estate assets held for sale were reclassified to “Other assets, net” from “Real estate” by HCP.

Statement of Income:

• Income taxes have been reclassified from “General and administrative” to a separate line item.

(B)Includes the following reclassifications to conform certain CRP amounts with HCP’s presentation:

Balance Sheet:

• Loans receivable by CRP have been reclassified to “Loans receivable, net—joint venture partners and affiliates” from “Other assets, net”.

Statement of Income:

• “Senior housing rental income,” “FF&E reserve income,” “Contingent rent,” and “Medical facilities rental income and other revenues” have been reclassified to “Rental and other revenues”.

• “Senior Housing property expenses” and “Medical facilities operating expenses” have been reclassified to “Operating”.

• “Provision for doubtful accounts” has been reclassified to “General and administrative”.

• Income taxes have been reclassified from “General and administrative” to a separate line item.

(C)In the Merger, each CRP stockholder will receive 0.0865 of a share of HCP common stock and $11.1293 in cash, without interest, for each share of CRP common stock that the stockholder owns immediately prior to the effective date of the merger.

For purposes of the unaudited pro forma condensed consolidated balance sheet presentation, the total purchase price is based on the number of shares of CRP common stock outstanding at March 31, 2006 and $26.53, which represents the average of closing trading prices for each of the two trading days before, the day, and the two trading days after the Merger was announced (April 29 and 30, and May 1, 2 and 3, 2006). The calculation of the Merger consideration and total purchase price follows (dollar amounts in thousands):

Calculation of CRP purchase price
Issuance of 22,852,680 shares of HCP common stock (based on a conversion ratio of 0.0865) exchanged for 264,192,829 shares of CRP common stock	$	606,282
Payment of aggregate cash consideration	2,940,281
Total Merger consideration	3,546,563
CRP secured debt and bonds outstanding at book value	1,668,373
Adjustment to record CRP secured debt and bonds at fair value under purchase accounting	(21,990		)
All other CRP liabilities at book value	73,234
Adjustment to record CRP liabilities at fair value under purchase accounting	130,769
CRP minority interest at book value	8,270
Estimated fees and other expenses related to the Merger	33,150
Total purchase price	$	5,438,369

6

The calculation of the estimated fees and other expenses related to the Merger is as follows (in thousands):

Advisory fees	$	17,850
Legal, accounting and other fees and costs	6,850
Share registration and issuance costs	950
Debt assumption fees	7,500
Total	$	33,150

(D)CRP’s real estate assets have been adjusted to their estimated fair values as of March 31, 2006 and CRP’s historical accumulated depreciation balance is eliminated when real estate assets are recorded at fair value.

(E)Adjustment reflects CRP’s existing fixed rate direct financing leases at their estimated fair value based on HCP management’s estimates of current market rates for direct financing leases. The payments on the assumed leases are estimated on average to be above market.

(F)Adjustments to CRP’s historical balance of intangible assets are as follows (in thousands):

Recognition of lease-up related in-place lease intangible assets	$	137,349
Recognition of assets associated with the acquired in-place leases that have favorable market rental rates	113,336
Elimination of intangible assets	(110,580		)
	$	140,105

(G)Adjustment reflects the elimination of CRP’s historical goodwill.

(H)Adjustments to CRP’s historical balance of other assets are as follows (in thousands):

Deferral of issuance costs associated with debt issued in the Merger	$	16,375
Elimination of historical straight-line rent balance	(110,330		)
Elimination of historical deferred debt issuance costs	(15,900		)
Elimination of historical deferred leasing costs	(7,383		)
	$	(117,238	)

(I)Borrowings under lines of credit and short-term borrowings are assumed to fund the cash consideration and other associated costs of the Merger aggregating $3.0 billion. HCP expects to: (i) borrow $160.425 million

7

on its existing lines of credit to pay the combined estimated transaction costs of the Merger and the Advisor Merger of $39.05 million, the costs associated with debt issued in the Merger of $16.375 million, and the outstanding balance of CRP’s line of credit of $105 million; and (ii) obtain a 365-day bridge loan financing of $1.3 billion and a 2-year term loan of $1.5 billion. The portion of the bridge financing is expected to be repaid after the Merger with borrowings under new credit facilities.

(J)Adjustment reflects CRP’s existing fixed rate debt at its estimated fair value based on HCP management’s estimates of the interest rates that would be available to HCP for the issuance of debt with similar terms and remaining maturities. The fixed rate debt of CRP will be assumed by HCP in the Merger. The interest rates on the assumed debt are considered to be below market.

Estimated market interest rates assumed to compute the fair value adjustments of CRP’s existing fixed rate debt ranged from 5.95% to 6.45%.

(K)Adjustments to CRP’s historical balance of other liabilities are as follows (in thousands):

Recognition of liability associated with the acquired advisory agreement between the Advisor and CRP	$	54,400
Recognition of liabilities associated with the acquired in-place leases that have below-market rental rates	86,779
Elimination of historical intangible liabilities	(4,744		)
Elimination of historical deferred revenues	(5,666		)
	$	130,769

(L)Adjustments represent the elimination of historical CRP balances and the issuance of shares of HCP common stock in the Merger. The shares of HCP common stock issued are valued as follows (dollar amounts in thousands, except per share data):

Number of shares issued	22,852,680
Assumed price of shares of HCP common stock	$	26.53
Value of shares issued	$	606,282
Less: share registration and issuance costs	(950		)
Total value of shares issued	$	605,332
The total value of the shares of HCP common stock issued is presented as follows:
Par value, $1.00 par value per share	$	22,853
Additional paid-in capital	583,429
Less: share registration and issuance costs	(950		)
	$	605,332

(M)HCP has also agreed to acquire the Advisor for 4,378,923 shares of HCP common stock. The Merger and the Advisor Merger are each conditioned upon the consummation of the other.

For purposes of the unaudited pro forma condensed consolidated balance sheet presentation, the total purchase price is based on an average trading price of HCP’s common stock of $26.53, which represents the average of the closing prices for each of the two trading days before, the day, and the two trading days after the Merger was announced (April 29, 30 and May, 1, 2 and 3, 2006).

8

The calculation of the Merger consideration and total purchase price is as follows (dollar amounts in thousands):

Calculation of Advisor purchase price
Issuance of 4,378,923 shares of HCP common stock	$	116,173
All Advisor liabilities at book value	3,795
Estimated fees and other expenses related to the Merger	5,900
Total purchase price	$	125,868

The calculation of the estimated fees and other expenses related to the Merger is as follows:

Advisory fees	$	500
Legal, accounting and other fees and costs	5,350
Share registration and issuance costs	50
Total	$	5,900

(N)Adjustment reflects the cash of $270,000 that the Advisor will receive in exchange for CRP shares owned by it, with a book value of $200,000 at March 31, 2006.

(O)Represents intangible assets associated with the advisory agreement between the Advisor and CRP of $54.4 million, employee non-compete agreements of $2.9 million, and a non-compete agreement with CNL Financial Group, CNL Real Estate Group and two other named individuals of $21.3 million.

(P)Represents the recognition of goodwill for the excess of the purchase price over the fair value of the assets acquired and liabilities assumed.

(Q)Fixed assets and other receivables have been adjusted to their estimated fair values.

(R)Adjustments reflect the elimination of historical Advisor equity balances and the issuance of shares of HCP common stock in the Merger. The shares of HCP common stock issued are valued as follows (dollars in thousands, except per share data):

Number of shares issued	4,378,923
Assumed price of shares of HCP common stock	$	26.53
Value of shares issued	$	116,173
Less: share registration and issuance costs	(50		)
Total value of shares issued	$	116,123
The total value of the shares of HCP common stock issued is reported as follows:
Par value, $1.00 par value per share	$	4,379
Additional paid-in capital	111,794
Less: share registration and issuance costs	(50		)
	$	116,123

9

(S)Represents the elimination of the intangible for advisory agreement between the Advisor and CRP of $54.4 million, which is an asset to the Advisor and an obligation to CRP (See Note K and Note O), and the elimination of management fees payable of $259,000 to the Advisor from CRP.

(T)Adjustments to rental income and other revenues are as follows (in thousands):

	Year Ended December 31, 2005			Three Months Ended March 31, 2006
Recognize the total minimum lease payments provided under the acquired leases on a straight-line basis over the remaining term from the assumed Merger date of January 1, 2005	$	44,554		$	9,892
Recognize the amortization of above- and-below market lease intangibles	(1,422		)	(356		)
Remove CRP’s historical straight-line rent adjustment	(46,672		)	(11,115		)
Eliminate CRP’s historical amortization of above- and below-market lease intangibles	523			131
	$	(3,017	)	$	(1,448	)

(U)Earned income from direct financing leases is adjusted to reflect market rates for interest rates at May 1, 2006 (the date that the Merger agreement was executed). (See Note E)

(V)Adjustments to interest expense are as follows (in thousands):

	Year Ended December 31, 2005			Three Months Ended March 31, 2006
Incremental increase in interest expense associated with new debt issued in the Merger and Advisor Merger	$	173,477		$	43,369
Increase in interest expense resulting from the amortization of the discount recognized at the Merger date to adjust the assumed CRP secured debt at fair value	3,418			995
Increase in interest expense resulting from the amortization of debt issuance costs associated with the new debt issued in the Merger and Advisor Merger	10,667			1,010
Eliminate historical debt issuance costs and loan premium amortization	(5,576		)	(1,284		)
	$	181,986		$	44,090

The pro forma increase in interest expense as a result of the assumed issuance of new debt in the Merger is calculated using market rates management believes would have been available to HCP for the lines of

10

credit and short-term borrowings assumed to have been issued as of May 1, 2006 (the date that the Merger Agreement was executed). Each (1)/8 of 1% increase in the annual interest assumed with respect to the debt will increase pro forma interest expense by $3.675 million for the year ended December 31, 2005 and $919,000 for the three months ended March 31, 2006.

(W)Adjustments to depreciation expense are as follows (in thousands):

	Year Ended December 31, 2005		Three Months Ended March 31, 2006
Represents the increase in real estate depreciation expense as a result of the recording of CRP’s real estate its estimated fair value at the assumed Merger date of January 1, 2005	$	27,421	$	6,855
Represents the incremental amortization expense related to lease-up related intangible assets associated with acquired leases	7,445		1,861
	$	34,866	$	8,716

An estimated useful life of 45 years was assumed to compute the adjustment to real estate depreciation. For assets and liabilities associated with the value of in-place leases, an average remaining lease term of 9.1 years was used to compute amortization expense.

(X)Operating expenses are adjusted to include amortization of below market-ground lease intangibles.

(Y)Depreciation and amortization is adjusted to include the amortization of non-compete contract intangibles. A 4 year period was used to compute amortization expense.

Management of HCP expects that the Merger and Advisor Merger will create operational and general and administrative cost savings, including property management costs, costs associated with corporate administrative functions and executive compensation. There can be no assurance that HCP will be successful in achieving these anticipated cost savings. No estimate of these expected future cost savings has been included in the pro forma financial statements. Such adjustments cannot be factually supported within the SEC regulations governing the preparation of pro forma financial statements until such time as the operations of the companies have been fully integrated. Additionally, no adjustment has been made for anticipated property tax increases resulting from the Merger since HCP expects that such increases will not be significant.

(Z)Income taxes of the Advisor have been eliminated as a result of the Advisor Merger, which is assumed as of January 1, 2005. As a condition to closing of the Merger with CRP, the Advisor Merger is assumed to have been consummated; at the closing of the Advisor Merger, the Advisor will be Merged into a Qualifying REIT Subsidiary “QRS”, which assuming the Merger with the Advisor was effective as of January 1, 2005, would eliminate the Advisor’s income tax obligations.

(AA)The calculations of basic and diluted earnings from continuing operations attributable to common stock per share are as follows (in thousands, except per share data):

11

	Year Ended December 31, 2005								Three Months Ended March 31, 2006
	HCP Historical			Reclassified CRP		Pro Forma HCP			HCP Historical			Reclassified CRP		Pro Forma HCP
Income from continuing operations	$	157,965		$	142,415	$	72,736		$	48,840		$	36,221	$	29,309
Less: preferred stock dividends	(21,130		)	—		(21,130		)	(5,283		)	—		(5,283		)
Earnings from continuing operations attributable to common shares	$	136,835		$	142,415	51,606			$	43,557		$	36,221	$	24,026
Weighted-average shares used to calculate earnings per common share—Basic	134,673			248,298		161,905			136,040			257,507		163,272
Incremental weighted-average effect of potentially dilutive instruments	887			—		887			816			—		816
Adjusted weighted-average shares used to calculate earnings per common share—Diluted	135,560			248,298		162,792			136,856			257,507		164,088
Earnings from continuing operations per common share—Basic	$	1.02		$	0.57	$	0.32		$	0.32		$	0.14	$	0.15
Earnings from continuing operations per common share—Diluted	$	1.01		$	0.57	$	0.32		$	0.32		$	0.14	$	0.15

(BB)The pro forma weighted-average shares outstanding are the historical weighted-average shares of HCP for the periods presented, adjusted for the assumed issuance of 27.23 million shares of HCP common stock on a weighted-average basis for the year ended December 31, 2005, and the three months ended March 31, 2006.

(CC)Represent the elimination of acquisition, debt acquisition, management and other fees earned by the Advisor from CRP. Because acquisition fees and debt acquisition fees paid by CRP to the Advisor are capitalized by CRP, only management fees and other fees are eliminated within costs and expenses.

12

EX-99.3

Exhibit 99.3

CRP FINANCIAL STATEMENTS AS OF DECEMBER 31, 2005 AND 2004 AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2005

	Page
Report of Independent Registered Certified Public Accounting Firm	2
Management’s Report on Internal Control Over Financial Reporting	4
Consolidated Balance Sheets	5
Consolidated Statements of Income	6
Consolidated Statements of Stockholders’ Equity	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Schedule II—Valuation and Qualifying Accounts	33
Schedule III—Real Estate and Accumulated Depreciation	34

1

Report of Independent Registered Certified Public Accounting Firm

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

We have completed integrated audits of CNL Retirement Properties, Inc. and its subsidiaries’ (the “Company”) December 31, 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its December 31, 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedules

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of CNL Retirement Properties, Inc. and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the acompanying Management’s Report on Internal Control Over Financial Reporting that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made

2

only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

/s/ PricewaterhouseCoopers LLP

Orlando, Florida
March 24, 2006

3

CRP’S MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

CRP’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

CRP’s management has assessed the effectiveness of CRP’s internal control over financial reporting as of December 31, 2005, using the criteria described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (or the COSO criteria). Based on its assessment, CRP’s management has concluded, as of December 31, 2005, CRP maintained effective internal control over financial reporting.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited CRP’s management’s assessment of the effectiveness of CRP’s internal control over financial reporting as of December 31, 2005, as stated in their report, which appears herein.

4

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

	December 31, 2005			December 31, 2004
Assets
Real estate investment properties:
Accounted for using the operating method, net	$	2,914,817		$	2,580,948
Accounted for using the direct financing method	488,683			480,051
Intangible lease costs, net	99,611			98,237
	3,503,111			3,159,236
Cash and cash equivalents	94,902			51,781
Restricted cash	21,920			34,430
Accounts and other receivables, net	23,486			20,545
Deferred costs, net	24,705			17,469
Accrued rental income	99,219			51,795
Other assets	52,935			11,412
Real estate held for sale	12,692			17,182
Goodwill	5,791			5,791
	$	3,838,761		$	3,369,641
Liabilities and stockholders’ equity
Liabilities:
Mortgages payable	$	1,220,190		$	937,589
Bonds payable	98,016			94,451
Construction loans payable	143,560			81,508
Line of credit	75,000			20,000
Term loan	—			60,000
Due to related parties	2,386			1,632
Accounts payable and other liabilities	31,035			33,937
Intangible lease liability, net	4,505			3,742
Deferred income	6,607			4,811
Security deposits	23,954			26,253
Total liabilities	1,605,253			1,263,923
Commitments and contingencies
Minority interests	5,701			2,361
Stockholders’ equity:
Preferred stock, without par value Authorized and unissued 3,000 shares	—			—
Excess shares, $.01 par value per share Authorized and unissued 103,000 shares	—			—
Common stock, $.01 par value per share Authorized one billion shares, issued 260,923 and 238,485 shares, respectively, outstanding 255,527 and 237,547 shares, respectively	2,555			2,376
Capital in excess of par value	2,295,307			2,135,498
Accumulated distributions in excess of net income	(74,894		)	(34,517		)
Accumulated other comprehensive income	4,839			—
Total stockholders’ equity	2,227,807			2,103,357
	$	3,838,761		$	3,369,641

See accompanying notes to consolidated financial statements.

5

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

	Years Ended December 31,
	2005			2004			2003
Revenues:
Seniors’ Housing:
Rental income from operating leases	$	237,892		$	172,245		$	59,262
Earned income from direct financing leases	61,202			54,873			31,107
FF&E reserve income	7,500			4,601			2,592
Contingent rent	3,955			90			47
Medical Facilities:
Rental income from operating leases	59,048			26,225			—
Tenant expense reimbursements	13,254			4,735			—
Property management and development fees	701			—			—
Loan interest income	531			—			—
	384,083			262,769			93,008
Expenses:
Seniors’ Housing property expenses	1,075			1,639			136
Medical Facilities operating expenses	25,368			11,234			—
General and administrative	21,376			14,740			5,462
Asset management fees to related party	18,641			12,463			4,318
Provision for doubtful accounts	3,082			3,900			—
Depreciation and amortization	98,446			62,512			17,277
	167,988			106,488			27,193
Operating income	216,095			156,281			65,815
Interest and other income	2,970			4,768			1,626
Interest and loan cost amortization expense	(76,171		)	(42,783		)	(9,588		)
Income before equity in earnings of unconsolidated entity, minority interests in income of consolidated subsidiaries and discontinued operations	142,894			118,266			57,853
Equity in earnings of unconsolidated entity	227			178			11
Minority interests in income of consolidated subsidiaries	(706		)	(93		)	—
Income from continuing operations	142,415			118,351			57,864
Income (loss) from discontinued operations	(6,834		)	(433		)	596
Net income	$	135,581		$	117,918		$	58,460
Net income (loss) per share of common stock (basic and diluted)
From continuing operations	$	0.57		$	0.56		$	0.65
From discontinued operations	(0.02		)	—			0.01
	$	0.55		$	0.56		$	0.66
Weighted-average number of shares of common stock outstanding (basic and diluted)	248,298			210,343			88,840

See accompanying notes to consolidated financial statements.

6

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2005, 2004 and 2003
(in thousands, except per share data)

									Accumulated			Accumulated
	Common stock					Capital in			distributions			other
	Number		Par			excess of			in excess of			comprehensive
	of shares		value			par value			net income			income		Total
Balance at December 31, 2002	44,211		$	442		$	393,308		$	(3,955	)	$	—	$	389,795
Net income	—		—			—			58,460			—		58,460
Subscriptions received for common stock through public offerings and reinvestment plan	105,998		1,060			1,058,921			—			—		1,059,981
Retirement of common stock	(132	)	(1		)	(1,211		)	—			—		(1,212		)
Stock issuance costs	—		—			(101,299		)	—			—		(101,299		)
Distributions declared ($0.7067 per share)	—		—			—			(59,784		)	—		(59,784		)
Balance at December 31, 2003	150,077		1,501			1,349,719			(5,279		)	—		1,345,941
Net income	—		—			—			117,918			—		117,918
Subscriptions received for common stock through public offerings and reinvestment plan	88,155		882			879,386			—			—		880,268
Retirement of common stock	(685	)	(7		)	(6,491		)	—			—		(6,498		)
Stock issuance costs	—		—			(87,116		)	—			—		(87,116		)
Distributions declared ($0.7104 per share)	—		—			—			(147,156		)	—		(147,156		)
Balance at December 31, 2004	237,547		2,376			2,135,498			(34,517		)	—		2,103,357
Net income	—		—			—			135,581			—		135,581
Change in fair value of cash flow hedges	—		—			—			—			4,839		4,839
Total comprehensive income	—		—			—			135,581			4,839		140,420
Subscriptions received for common stock through public offerings and reinvestment plan	21,884		218			215,218			—			—		215,436
Retirement of common stock	(3,904	)	(39		)	(37,045		)	—			—		(37,084		)
Stock issuance costs	—		—			(18,364		)	—			—		(18,364		)
Distributions declared ($0.7104 per share)	—		—			—			(175,958		)	—		(175,958		)
Balance at December 31, 2005	255,527		$	2,555		$	2,295,307		$	(74,894	)	$	4,839	$	2,227,807

See accompanying notes to consolidated financial statements.

7

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2005			2004			2003
Increase (decrease) in cash and cash equivalents:
Operating activities:
Net income	$	135,581		$	117,918		$	58,460
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	104,232			68,062			18,925
Minority interests in income	706			93			—
Impairment provisions	7,740			1,883			—
Net rental income from above (below) market leases	523			21			—
Lease incentive cost amortization	289			90			—
Provision for doubtful accounts	3,300			3,900			—
Equity in earnings of unconsolidated entity, net of cash distributions received	(9		)	(3		)	138
Changes in operating assets and liabilities:
Accounts and other receivables	(12,239		)	(10,171		)	(11,031		)
Accrued rental and direct financing lease income	(55,519		)	(49,520		)	(13,426		)
Deferred lease incentive costs	(893		)	(2,678		)	—
Other assets	(10,134		)	(4,528		)	(1,906		)
Accounts payable and other liabilities	10,365			5,209			6,426
Due to related parties	28			457			195
Security deposits and prepaid rents	4,339			8,840			3,026
Net cash provided by operating activities	188,309			139,573			60,807
Investing activities:
Investment in land, buildings and equipment	(371,026		)	(921,698		)	(661,946		)
Investment in direct financing leases	(278		)	(50,230		)	(263,330		)
Investment in intangible lease costs	(15,044		)	(50,064		)	(23,220		)
DASCO Acquisition	—			(204,441		)	—
Investment in note receivable	(16,000		)	—			—
Proceeds from note receivable	—			—			2,000
Payment of acquisition fees and costs	(20,575		)	(73,124		)	(53,126		)
Payment of deferred leasing costs	(1,039		)	(864		)	—
Increase in restricted cash	6,082			(9,448		)	(13,127		)
Net cash used in investing activities	(417,880		)	(1,309,869		)	(1,012,749		)
Financing activities:
Proceeds from borrowings on mortgages payable	305,485			315,045			170,800
Principal payments on mortgages payable	(66,219		)	(28,964		)	(13,832		)
Proceeds from construction loans payable	63,367			73,618			7,402
Repayments of construction loans payable	(1,315		)	—			—
Proceeds from borrowings on line of credit	115,000			—			71,370
Repayments on line of credit	(60,000		)	—			(51,370		)
Proceeds from term loan	—			60,000			—
Repayment of term loan	(60,000		)
Proceeds from issuance of bonds payable	12,622			12,063			8,203
Retirement of bonds payable	$	(9,057	)	$	(7,736	)	$	(6,589	)
Payment of loan costs	(11,707		)	(10,149		)	(7,523		)
Contributions from minority interests	3,093			997			—
Distributions to minority interest	(459		)	(45		)	—
Subscriptions received from stockholders	215,397			880,268			1,059,981
Distributions to stockholders	(175,958		)	(147,138		)	(59,784		)
Retirement of common stock	(40,303		)	(3,933		)	(1,117		)
Payment of stock issuance costs	(17,254		)	(89,039		)	(99,309		)
Net cash provided by financing activities	272,692			1,054,987			1,078,232
Net increase (decrease) in cash and cash equivalents	43,121			(115,309		)	126,290
Cash and cash equivalents at beginning of year	51,781			167,090			40,800
Cash and cash equivalents at end of year	$	94,902		$	51,781		$	167,090
Supplemental disclosure of cash flow information:
Cash paid during the year for interest, net of capitalized interest	$	75,654		$	39,028		$	7,534
Amounts incurred by us and paid by related parties on our behalf were as follows:
Acquisition costs	$	210		$	331		$	403
Stock issuance costs	4,250			18,987			17,246
	$	4,460		$	19,318		$	17,649
Supplemental schedule of non-cash investing and financing activities:
DASCO Acquisition
Purchase accounting:
Assets acquired:
Real estate properties accounted for using the operating method	$	—		$	189,111		$	—
Intangible lease costs				25,623
Cash and cash equivalents				470
Restricted cash	—			633			—
Deferred costs	—			124			—
Other assets	—			1,088			—
Goodwill	—			5,487			—
Total	$	—		$	222,536		$	—
Liabilities assumed:
Mortgages payable	$	—		$	10,562		$	—
Construction loans payable				487
Accounts payable and other liabilities	—			3,379			—
Intangible lease liability	—			2,304			—
Security deposits	—			893			—
Total	$	—		$	17,625		$	—
Net assets acquired	$	—		$	204,911		$	—
Net assets acquired, net of cash	$	—		$	204,441		$	—
Mortgage loans assumed on properties acquired	$	43,076		$	365,166		$	72,762
Bonds assumed on properties acquired	$	—		$	—		$	88,511

See accompanying notes to consolidated financial statements.

8

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2004 and 2003

1. Organizational and Basis of Presentation:

Organization—CNL Retirement Properties, Inc., a Maryland corporation, was organized in December 1997 to operate as a real estate investment trust (a “REIT”) for federal income tax purposes. Throughout this document, CNL Retirement Properties, Inc. and each of its subsidiaries and several consolidated partnerships and joint ventures are referred to as “we”, “us” and “our.” Various other wholly owned or majority owned subsidiaries are expected to be formed in the future for the purpose of acquiring or developing additional real estate properties and holding other permitted investments.

We acquire primarily real estate properties related to seniors’ housing and health care facilities (the “Properties”) located primarily across the United States. The Properties may include independent living, assisted living and skilled nursing facilities, continuing care retirement communities (“CCRC”) and life care communities (collectively “Seniors’ Housing”), medical office buildings, specialty and walk-in clinics, free standing ambulatory surgery centers, specialty or general hospitals and other types of health care-related facilities (collectively “Medical Facilities”). Seniors’ Housing facilities are generally leased on a long-term, triple-net basis and Medical Facilities are generally leased on a shorter-term, gross or triple-net basis. We may provide mortgage financing loans (“Mortgage Loans”), furniture, fixture and equipment financing (“Secured Equipment Leases”) and other loans to operators or developers of Seniors’ Housing. In addition, we may invest up to a maximum of 5% of total assets in equity interests in businesses, including those that provide services to or are otherwise ancillary to the retirement and health care industries. We operate in one business segment, which is the ownership, development, management and leasing of health care-related real estate. At December 31, 2005, we owned 184 Seniors’ Housing facilities, 73 Medical Facilities, including a specialty hospital, 2 walk-in clinics, and 4 Seniors’ Housing facilities and a parcel of land that we hold for sale.

In August 2004, we acquired a 55% controlling interest in The DASCO Companies, LLC (“DASCO”), a development and property management company that managed forty-eight of our Medical Facilities, including two of our walk-in clinics and was developing five of our Medical Facilities at December 31, 2005. DASCO also provides development and property management services to unrelated third parties.

We retained CNL Retirement Corp. (the “Advisor”) as our advisor to provide management, acquisition, advisory and administrative services relating to our Properties, Mortgage Loans, Secured Equipment Lease program, other loans and other permitted investments pursuant to an advisory agreement that was renewed pursuant to a Renewal Agreement effective May 3, 2005 for a one-year term and was amended by an amendment to the Renewal Agreement on July 13, 2005 (the “Advisory Agreement”).

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

2. Summary of Significant Accounting Policies:

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash equivalents, accounts and other receivables, and accounts payable and other liabilities are carried at amounts which approximate their fair values because of the short-term nature of these instruments.

9

Investment Properties and Lease Accounting—Seniors’ Housing Properties are leased on a long-term (generally 15 years), triple-net basis whereby the tenants are responsible for all operating expenses relating to the Property, including property taxes, maintenance, repairs, utilities and insurance, as well as capital expenditures that may be reasonably necessary to maintain the leasehold in a manner that allows operation for its intended purpose. Seniors’ Housing leases generally provide for minimum and contingent rent and contain renewal options from 5 to 20 successive years subject to the same terms and conditions as the initial term. Medical Facilities are leased on either a triple-net or gross basis, generally have initial lease terms of 5 to 15 years and are generally subject to renewal options. In addition, Medical Facilities gross leases provide for the recovery of a portion of the properties’ operating expenses from the tenants. Substantially all Seniors’ Housing and Medical Facilities leases require minimum annual rents to increase at predetermined intervals during the lease terms. For the years ended December 31, 2005, 2004 and 2003, our tenants paid $32.3 million, $21.5 million and $8.1 million, respectively, in property taxes on our behalf. The leases are accounted for using either the operating or direct financing method.

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

Direct financing method—For leases accounted for as direct financing leases, future minimum lease payments are recorded as a receivable. The difference between the rents receivable and the estimated residual values less the cost of the Properties is recorded as unearned income. Unearned income is deferred and amortized to income over the lease terms to provide a constant rate of return. Investments in direct financing leases are presented net of unamortized unearned income. Direct financing leases have initial terms that range from 10 to 35 years and provide for minimum annual rent. Certain leases contain provisions that allow the tenants to elect to purchase the Properties during or at the end of the lease terms for our aggregate initial investment amount plus adjustments, if any, as defined in the lease agreements. Certain leases also permit us to require the tenants to purchase the Properties at the end of the lease terms for the same amount.

Impairment of Long-Lived Assets—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. We compare the sum of expected undiscounted cash flows from the asset over its anticipated holding period, including the asset’s estimated residual value, to the carrying value. If impairment is indicated, a loss is provided to reduce the carrying value of the property to the lower of its cost or its estimated fair value.

Real estate held for sale—Based on the ongoing evaluation of our Properties, we have determined to hold certain Properties for sale (see Note 10). Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”) requires that long-lived assets to be disposed of be reported at the lower of their carrying amount or their fair value less costs to dispose. SFAS 144 also requires us to stop depreciating these assets at the time the assets are classified as discontinued operations. In accordance with SFAS 144 we have reclassified the assets and operating results from certain Seniors’ Housing Properties as discontinued operations, restating previously reported results to reflect the reclassification on a comparable basis. These reclassifications had no effect on reported equity or net income.

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

10

Intangible Lease Costs—In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), we allocate the purchase price of acquired Properties to tangible and identified intangible assets based on their respective fair values. The allocation to tangible assets (building and land) is based upon management’s determination of the value of the Property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. The allocation to intangible assets is based upon factors considered by management including an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price is allocated to the above- or below-market value of in-place leases and the value of customer relationships. The value allocable to the above- or below-market component of the acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above-market leases are included in intangible lease costs and are amortized to rental income over the remaining terms of the leases acquired with each Property. The amounts allocated to below-market lease values are included in an intangible lease liability and amortized to rental income over the remaining term of the associated lease, including below-market lease extension, if any.

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

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

Cash accounts maintained in demand deposits at commercial banks and money market funds may exceed federally insured levels; however, we have not experienced any losses in such accounts. We believe we are not exposed to any significant credit risk on cash and cash equivalents.

Accounts and Other Receivables—Accounts and other receivables consist primarily of lease payments contractually due from tenants. On a monthly basis, we review the contractual payments versus the actual cash received. When we identify delinquencies, an estimate is made as to the amount of provision for loss related to doubtful accounts, if any, that may be needed based on our review of Property specific circumstances, including the analysis of the Property’s operations and operating trends, current economic conditions and tenant payment history. At December 31, 2005 and 2004, we had reserves for doubtful accounts and other receivables of $7.2 million and $3.9 million, respectively. The total amount of the reserves, which represent the cumulative provisions less write-offs of uncollectible rent, if any, are recorded against accounts and other receivables in our consolidated balance sheets.

Deferred Loan Costs—Loan costs are capitalized and are amortized as interest over the terms of the respective loan agreements on a basis which approximates the effective interest method. Unamortized deferred loan costs are expensed when the associated debt is retired before maturity.

Goodwill—In connection with the acquisition of DASCO, we allocated $5.8 million to goodwill, which represented the excess of the purchase price plus closing costs paid over the fair market value of the tangible assets acquired in the business acquisition (see Note 19). In accordance with SFAS 141, and Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets,” goodwill is not amortized but is tested quarterly for impairment. If quoted market prices are not available for the impairment analysis, we use other valuation techniques that involve measurement based on projected net earnings of the underlying reporting unit.

11

Investment in Unconsolidated Entity—We own a 9.90% interest in CNL Plaza, Ltd., a limited partnership that owns an office building located in Orlando, Florida, in which the Advisor and its affiliates lease office space. Our investment in the partnership is accounted for using the equity method because we have significant influence.

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

Capitalized Interest—Interest, including loan costs for borrowings used to fund development and construction, is capitalized as construction in progress and allocated to the respective assets. For the years ended December 31, 2005 and 2004, interest of $4.8 million and $0.7 million, respectively, was capitalized to construction in progress.

Deferred Income—Rental income contractually due under leases from Properties that are under development are recorded as deferred income. Upon completion of construction, deferred income is amortized to revenue on a straight-line basis over the remaining lease term.

Bonds Payable—Our two CCRCs hold non-interest bearing life care bonds payable to certain residents of the CCRCs. Generally, the bonds are refundable to the resident or to the resident’s estate upon termination or cancellation of the CCRC agreement. One of our other Seniors’ Housing facilities requires that certain residents of the facility post non-interest bearing occupancy fee deposits that are refundable to the resident or the resident’s estate the earlier of the re-letting of the unit or after two years of vacancy. Proceeds from the issuance of new bonds are used to retire existing bonds. As the maturity of these obligations is not determinable, no interest is imputed.

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

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

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

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

Derivative Instruments and Hedging Activities—Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS 133, we record all derivatives on the balance sheet at fair value. We do not invest in derivatives for trading purposes. Our objective in using derivatives is to limit exposure to changes in interest rates on our debt obligations. To accomplish this objective, we use interest rate swaps to hedge the variable cash flows associated with existing variable-rate debt. These interest rate swaps,

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designated as cash flow hedges, involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. (See Note 12.)

Income Taxes—We are taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations. As a REIT, we generally will not be subject to federal corporate income taxes on amounts distributed to stockholders, providing we distribute at least 90% of our REIT taxable income and meet certain other requirements for qualifying as a REIT. At December 31, 2005, 2004 and 2003, we were in compliance with all REIT requirements and were not subject to federal income taxes. State and local taxing authorities apply their own rules and regulations that adjust the federal taxable income of REITs to arrive at state taxable income. For the year ended December 31, 2005, we determined that the REIT would be subject to state and local income taxes of approximately $40,000.

We hold five wholly owned taxable REIT subsidiaries which enable us to engage in non-REIT activities. Taxable REIT subsidiaries are subject to federal, state, and local income taxes. For the year ended December 31, 2005, we determined that the taxable REIT subsidiaries collectively would be subject to federal income taxes and applicable state income taxes of approximately $0.4 million. We recorded a tax provision on each of the taxable REIT subsidiaries for their respective share of the estimated federal, state, and local income taxes. This provision is included in general and administrative expenses in the accompanying consolidated statements of income.

Income Per Share—Basic income per common share is calculated based upon net income (income available to common stockholders) divided by the weighted-average number of shares of common stock outstanding during the period. As of December 31, 2005, 2004 and 2003, we did not have any potentially dilutive common shares.

Reclassifications—Certain items in the prior periods’ financial statements have been reclassified to conform to the 2005 presentation, including those related to our real estate held for sale (see Note 10). These reclassifications had no effect on reported equity or net income.

Recently Issued Accounting Pronouncements—In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and SFAS No. 3” (“SFAS 154”). SFAS 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring that a voluntary change in accounting principle be applied retrospectively with all prior periods’ financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also requires that a change in depreciation or amortization for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle and corrections of errors in previously issued financial statements should be termed a “restatement.” SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We believe that the adoption of SFAS 154 will not have a material effect on our consolidated financial statements.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” (“FIN 47”) an interpretation of Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”(“SFAS 143”). FIN 47, which is effective for fiscal years ended after December 15, 2005, clarifies that the term “conditional asset retirement obligation,” as used in SFAS 143 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires a company to recognize the liability for the fair value of the conditional asset retirement obligation if the

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fair value of the liability can be reasonably estimated. Any liability accrued is offset by an increase in the value of the asset. Adoption of FIN 47 did not have a material impact on our financial statements.

3. Public Offerings:

Upon formation in December 1997, we received an initial capital contribution of $200,000 for 20,000 shares of common stock from the Advisor. From our inception through December 31, 2005, we have made five public offerings and received subscriptions as follows (in thousands):

	Date	Offering			Subscriptions
Offering	Completed	Shares(b)	Amount		Shares(c)	Amount
Initial Offering	September 2000	15,500	$	155,000	972	$	9,719
2000 Offering	May 2002	15,500	155,000		15,500	155,000
2002 Offering	April 2003	45,000	450,000		45,000	450,000
2003 Offering	April 2004	175,000	1,750,000		156,793	1,567,925
2004 Offering	Open(a)	400,000	4,000,000		41,548	415,485
		651,000	$	6,510,000	259,813	$	2,598,129

(a)2004 Offering will close on or before March 26, 2006.

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

(c)Includes reinvestment plan shares of 5 in the Initial Offering, 42 in the 2000 Offering, 129 in the 2002 Offering, 1,728 in the 2003 Offering and 8,749 in the 2004 Offering.

The price per share of all of the equity offerings of our common stock has been $10.00 per share, with the exception of (i) shares purchased pursuant to volume or other discounts and (ii) shares purchased through our reinvestment plan, which are currently priced at $9.50 per share.

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

We incurred offering expenses, including selling commissions, marketing support fees, due diligence expense reimbursements, filing fees, legal, accounting, printing and escrow fees, which have been deducted from the gross proceeds of the offerings. Offering expenses together with selling commissions, marketing support fees and due diligence expense reimbursements will not exceed 13% of the proceeds raised in connection with our public offerings. Under our first four public offerings (“Prior Offerings”), the Advisor and its affiliates were entitled to selling commissions of 7.5%, a marketing support fee of 0.5% and an acquisition fee of 4.5% of gross offering and debt proceeds. Under the 2004 Offering, the Advisor and its affiliates are entitled to selling commissions of 6.5%, a marketing support fee of 2.0% and acquisition fees equal to 3.0% of gross offering and loan proceeds from permanent financing for the period from May 3, 2005 through December 31, 2005 (4.0% of gross proceeds and loan proceeds for the period from May 14, 2004 through May 2, 2005).

During the years ended December 31, 2005, 2004 and 2003, we incurred $18.4 million, $87.1 million and $101.3 million, respectively, in offering costs, including $14.1 million, $68.8 million and $85.1 million,

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respectively, in selling commissions and marketing support fees. These amounts are treated as stock issuance costs and charged to stockholders’ equity.

4. Investment Properties:

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

	2005			2004
Land and land improvements	$	345,936		$	311,198
Buildings and building improvements	2,523,724			2,118,086
Tenant improvements	96,084			62,641
Equipment	75,700			65,936
	3,041,444			2,557,861
Less accumulated depreciation	(157,746		)	(73,716		)
	2,883,698			2,484,145
Construction in progress	31,119			96,803
	$	2,914,817		$	2,580,948
Number of Properties(1)(2):
Seniors’ Housing:
Operating	150			130
Under construction	1			3
	151			133
Medical Facilities:
Operating	68			49
Under construction	5			3
	73			52
	224			185

(1)At December 31, 2005, excludes four Seniors’ Housing facilities and a parcel of land held for sale. At December 31, 2004, excludes four Seniors’ Housing facilities held for sale.

(2)At December 31, 2005, includes 26 Medical Facilities and one Seniors’ Housing facility subject to long-term ground lease agreements. At December 31, 2004, includes 20 Medical Facilities subject to long-term ground lease agreements.

For the years ended December 31, 2005, 2004 and 2003, we recognized $46.7 million, $40.4 million and $13.2 million, respectively, of revenue from the straight-lining of lease revenues over current contractually due amounts. These amounts are included in rental income from operating leases in the accompanying consolidated statements of income.

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Future minimum lease payments contractually due under the noncancellable operating leases at December 31, 2005, exclusive of renewal option periods and contingent rents, were as follows (in thousands):

2006	$	269,257
2007	272,121
2008	274,547
2009	275,613
2010	274,695
Thereafter	2,475,678
	$	3,841,911

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

	2005			2004
Minimum lease payments receivable	$	1,477,576		$	1,529,171
Estimated residual values	449,099			449,099
Less unearned income	(1,437,992		)	(1,498,219		)
Net investment in direct financing leases	$	488,683		$	480,051
Properties subject to direct financing leases	33			33

Lease payments due to us relating to six land-only direct financing leases with a carrying value of $131.9 million are subordinate to first mortgage construction loans with third parties entered into by the tenants to fund development costs related to the Properties.

Future minimum lease payments contractually due on direct financing leases at December 31, 2005, were as follows (in thousands):

2006	$	54,235
2007	55,224
2008	56,314
2009	58,126
2010	60,155
Thereafter	1,193,522
	$	1,477,576

5. Intangible Lease Costs:

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

	2005			2004
Intangible lease origination costs:
In-place lease costs	$	103,736		$	88,740
Customer relationship values	12,152			11,698
	115,888			100,438
Less accumulated amortization	(23,643		)	(9,934		)
	92,245			90,504
Above-market lease values	9,744			8,475
Less accumulated amortization	(2,378		)	(742		)
	7,366			7,733
	$	99,611		$	98,237

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Above-market lease values are amortized to rental income over the remaining terms of the leases acquired in connection with each applicable Property acquisition. Above-market lease amortization charged against rental income from operating leases in the accompanying consolidated statements of income was $1.7 million, $0.7 million and $0, respectively, for the years ended December 31, 2005, 2004 and 2003.

The estimated amortization expense for in-place lease costs and customer relationship values, and the estimated rental income amortization for above-market lease values at December 31, 2005, were as follows (in thousands):

	In-place lease costs		Customer relationship values		Above-market lease values
2006	$	10,712	$	1,902	$	1,523
2007	8,849		1,294		1,225
2008	7,873		1,161		1,051
2009	7,147		984		934
2010	6,389		776		655
Thereafter	42,770		2,388		1,978
	$	83,740	$	8,505	$	7,366

6. Restricted Cash:

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

	2005		2004
Transfer agent escrows	$	4,980	$	13,214
Horizon Bay tenant rent deposit	3,109		9,537
FF&E reserves	4,509		4,894
Lender escrow reserves	6,908		3,808
Property acquisition deposits	—		1,950
Other	2,414		1,027
	$	21,920	$	34,430

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7. Accounts and Other Receivables:

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

	2005			2004
Rental revenues receivable	$	27,301		$	21,790
Other receivables	3,385			2,655
	30,686			24,445
Allowance for doubtful accounts	(7,200		)	(3,900		)
	$	23,486		$	20,545

At December 31, 2005 and 2004, past due rents aggregated $14.8 million and $10.7 million, respectively. The provision for doubtful accounts for the years ended December 31, 2005, 2004 and 2003, was $3.4 million, $3.9 million and $0, respectively, which included $3.1 million, $3.9 million and $0, respectively, from continuing operations and $0.3 million, $0 and $0, respectively, from discontinued operations. Additionally, during 2005, accounts receivable of $0.1 million related to certain Medical Facilities tenants were written off.

8. Deferred Costs:

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

	2005			2004
Financing costs	$	26,679		$	17,989
Leasing commissions	989			523
Other lease costs	767			341
	28,435			18,853
Less accumulated amortization	(8,503		)	(5,408		)
	19,932			13,445
Lease incentives	5,153			4,114
Less accumulated amortization	(380		)	(90		)
	4,773			4,024
	$	24,705		$	17,469

Lease incentive costs are amortized to rental income over the terms of the leases. Lease incentive cost amortization charged against rental income was $0.3 million, $0.1 million and $0, for the years ended December 31, 2005, 2004 and 2003, respectively.

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9. Other Assets:

Other assets included the following at December 31 (in thousands):

	2005		2004
Senior Secured Term Loan(1)	$	16,000	$	—
Property acquisition deposits	10,601		—
Acquisition costs	7,633		2,972
Deferred receivables(2)	6,638		942
Prepaid expenses	4,950		6,400
Fair value of cash flow hedges	4,839		—
Other	2,274		1,098
	$	52,935	$	11,412

(1)In August 2005, we entered into an agreement to provide an affiliate of the Cirrus Group, LLC (“Cirrus”) with an interest only, five-year, senior secured term loan under which up to $85.0 million (plus capitalized interest) may be borrowed to finance the acquisition, development, syndication and operation of new and existing surgical partnerships (“Senior Secured Term Loan”). Certain of these surgical partnerships are tenants in the Medical Facilities acquired from Cirrus. During the first 48 months of the term, interest at a rate of 14.0%, will accrue, of which 9.5% will be payable monthly and the balance of 4.5% will be capitalized; thereafter, interest at the greater of 14.0% or LIBOR plus 9.0% will be payable monthly. The loan is subject to equity contribution requirements and borrower financial covenants that will dictate the draw down availability, is collateralized by all of the assets of the borrower (comprised primarily of interest in partnerships operating surgical facilities in premises leased from a Cirrus affiliate) and is guaranteed up to $50.0 million through a combination of (i) a personal guarantee of up to $13.0 million by a principal of Cirrus and (ii) a guarantee of the balance by other principals of Cirrus under arrangements for recourse limited only to their interests in certain entities owning real estate. The carrying value of the loan at December 31, 2005, approximated its fair value.

In connection with the Senior Secured Term Loan, we received stock warrants which are exercisable into a 10% to 15% ownership interest of the borrower. The stock warrants are exercisable at the earlier of an event of default or the full repayment of the Senior Secured Term Loan and expire in September 2015.

(2)Represents rental revenue receivable reclassified from accounts receivable to other assets in accordance with certain lease provisions.

10. Real Estate Held For Sale:

As of December 31, 2005, real estate held for sale included four Seniors’ Housing facilities with an aggregate net carrying value of $9.4 million and a 10.4 acre parcel of land that was acquired in 2005 for $3.2 million as part of a portfolio of Seniors’ Housing Properties. We determined to hold these Properties for sale during late 2004 and 2005 and recognized aggregate impairment charges of approximately $9.6 million to reduce the Properties’ carrying value to their estimated fair value less the estimated costs to dispose. In July 2005, we entered into an agreement with a buyer to sell two of the Properties for an expected aggregate sales price of approximately $6.0 million. In January 2006, we entered into an agreement to sell one additional Property for an expected sales price of approximately $2.1 million.

In accordance with SFAS 144, we have reclassified the assets and operating results from the Seniors’ Housing Properties as discontinued operations, restating previously reported results to reflect the reclassification on a comparable basis. These reclassifications had no effect on reported equity or net income.

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The assets of the real estate held for sale were presented separately in the accompanying consolidated balance sheets and consisted of the following at December 31 (in thousands):

	2005		2004
Real estate investment properties accounted for using the operating method, net	$	12,066	$	16,599
Accrued rental income	626		583
	$	12,692	$	17,182

The operational results associated with the Properties were presented as income (loss) from discontinued operations in the accompanying consolidated statements of income. Summarized financial information was as follows (in thousands):

	2005			2004			2003
Rental income from operating leases	$	1,716		$	2,196		$	960
Provision for doubtful accounts	(350		)	—			—
Impairment provisions	(7,740		)	(1,883		)	—
Income (loss) from discontinued operations	(6,834		)	(433		)	596

11. Indebtedness:

Mortgage Notes Payable—Mortgage notes payable and the Net Book Value (“NBV”) of the associated collateral as of December 31, 2005, consisted of the following at December 31 (in thousands):

	2005			2004		NBV
Mortgage payable with both variable-rate and fixed-rate components. Fixed rate at 5.63% and variable rate based on the 3 to 9 month Fannie Mae Discount MBS rate plus 0.95% (5.39% combined weighted-average interest rate at December 31, 2005), maturing October 2013	$	241,871	(1)	$	192,680	$	445,925
Various mortgages payable, interest only payments at variable rates ranging from LIBOR plus 1.0% to 3.0% (5.70% weighted-average interest rate at December 31, 2005), maturing from November 2006 to March 2010	284,105		(2)	193,931		497,514
Two mortgages payable, interest only payments at a 30-day commercial paper rate plus 1.82% or 2.15% (6.36% weighted-average interest rate at December 31, 2005), maturing March 2007 and May 2007	43,920			43,920		98,103
Various fixed-rate mortgages payable, interest only payments, bearing interest at rates ranging from 4.85% to 6.06%, (5.71% weighted-average interest rate at December 31, 2005), maturing September 2010 through November 2015	263,810			167,145		517,757
Various fixed-rate mortgages payable, principal and interest payments, including net premiums of $1.0 million and $0.7 million at December 31, 2005 and 2004, respectively, bearing interest at rates ranging from 4.91% to 8.42% (6.25% weighted-average interest rate at December 31, 2005), maturing July 2007 through November 2038	386,484		(3)	339,913		629,632
	$	1,220,190		$	937,589	$	2,188,931

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(1)On October 3, 2005, we (i) exercised an extension option available under the $140.4 million mortgage notes that were to mature in October 2005, (ii) negotiated the inclusion of an $82.2 million variable-rate mortgage loan due to mature in April 2008 and (iii) drew an additional $19.4 million under the facility, all with a new maturity date of October 2013. The facility contains provisions that will allow us to draw an additional $58.0 million upon providing additional collateral. Of the new $242.0 million mortgage note payable, $121.0 million bears fixed-rate interest at 5.63% requiring principal and interest payments through maturity and $121.0 million bears variable-rate interest based on the 3 to 9 month Fannie Mae Discount MBS rate plus 0.95% (5.16% at December 31, 2005) requiring interest only payments through maturity. We also have the option to convert the variable-rate debt component to fixed-rate debt.

(2)We entered into interest rate swap agreements tied to debt with an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in LIBOR rates (see Note 12).

(3)Certain fixed-rate loans contain substantial prepayment penalties and/or defeasance provisions that could preclude the repayment of the loans prior to their maturity dates.

Maturities for all mortgage notes payable, excluding loan premiums of $1.0 million, at December 31, 2005 were as follows (in thousands):

2006	$	55,776
2007	66,989
2008	61,479
2009	143,453
2010	374,433
Thereafter	517,076
	$	1,219,206

Bonds Payable—At December 31, 2005 and 2004, we had $98.0 million and $94.5 million, respectively, of non-interest bearing life care bonds at our two CCRCs and non-interest bearing occupancy fee deposits at a Seniors’ Housing facility, all of which were payable to certain residents of the facilities (collectively “Bonds Payable”). During 2005, the tenants of the facilities issued new Bonds Payable to new residents of the facilities totaling $12.6 million and used the proceeds from the Bonds issued in the current period and prior periods to retire $9.1 million of Bonds on our behalf. At December 31, 2005, $68.7 million of the Bonds were refundable to the residents upon the resident moving out or to a resident’s estate upon the resident’s death and $29.4 million of the Bonds were refundable after the unit has been successfully remarketed to a new resident.

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

	Total Facility		2005		2004
Five construction loans payable, each bearing interest at 30-day LIBOR plus 2.25% (6.62% at December 31, 2005), with monthly interest only payments, maturing November 2006	$	83,100	$	75,499	$	47,148
Construction loan payable bearing interest at the lender’s base rate, as defined, less 0.75% with a minimum rate of 6.50% (6.50% at December 31, 2005), with monthly interest only payments, maturing December 2007	48,000		44,696		32,339
Construction loan payable bearing interest at 30-day LIBOR plus 1.75% (6.12% at December 31, 2005), with monthly interest only payments, maturing July 2009	14,287		11,750		2,021
Two construction loans payable bearing interest at 30-day LIBOR plus 1.60% (6.31% at December 31, 2005), with monthly interest only payments, maturing December 2009	19,148		405		—
Construction loan payable bearing interest at 30-day LIBOR plus 1.70% (5.99% at December 31, 2005), with monthly interest only payments, maturing April 2012	11,280		6,096		—
Construction loan payable bearing interest at 30-day LIBOR plus 1.80% (6.09% at December 31, 2005), with monthly interest only payments, maturing December 2013	6,600		5,114		—
	$	182,415	$	143,560	$	81,508

Line of Credit—On August 23, 2005, we amended and restated our $85.0 million credit agreement and closed on a $320.0 million amended and restated senior secured revolving line of credit, which permits us to expand the borrowing capacity up to $400.0 million and extended the initial maturity date to August 23, 2007 (the “Revolving LOC”). The amount available for use under the Revolving LOC is subject to certain limitations based on the pledged collateral. The Revolving LOC is collateralized by 36 Properties with a carrying value of approximately $390.4 million at December 31, 2005, that in the aggregate, currently allows us to draw up to $283.0 million. The Revolving LOC contains two one-year extension options and may be used to fund the acquisition and development of Properties, purchase other permitted investments and for general corporate purposes. The Revolving LOC requires interest only payments at LIBOR plus a percentage that fluctuates depending on our aggregate amount of debt outstanding in relation to our total assets (6.20% all-in rate at December 31, 2005, which represents a pricing of LIBOR plus 170 basis points). At December 31, 2005, $75.0 million was outstanding under the Revolving LOC.

Term Loan.—On January 13, 2005, we repaid and terminated a $60.0 million 14-day term loan used for the acquisition of Properties for which permanent financing was obtained in January 2005.

Interest and loan cost amortization expense was $76.2 million, $42.8 million and $9.6 million for the years ended December 31, 2005, 2004 and 2003, respectively, including $0.4 million, $1.1 million and $0 of loan costs written off related to the early termination of debt for the years ended December 31, 2005, 2004 and 2003, respectively. For the years ended December 31, 2005, 2004 and 2003, interest of $4.8 million, $0.7 million and $0, respectively, was capitalized to construction in progress.

The fair market value of our outstanding mortgage notes and construction loans payable was $1.4 billion at December 31, 2005.

We were in compliance with all of our financial covenants as of December 31, 2005.

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12. Financial Instruments: Derivatives and Hedging:

In May 2005, we entered into two interest rate swap agreements effective June 1, 2005, and one interest rate swap agreement effective July 1, 2005, for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in interest rates on our variable interest rate mortgage notes payable. At December 31, 2005, derivatives with a fair value of $4.8 million were included in other assets in the accompanying consolidated balance sheets. The change in net unrealized gain of $4.8 million as of December 31, 2005, for derivatives designated as cash flow hedges is disclosed separately in the accompanying consolidated statements of stockholders’ equity as the change in fair value of cash flow hedges.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. The change in net unrealized income on cash flow hedges reflects a reclassification of $0.6 million of net unrealized gain from accumulated other comprehensive income to interest expense during the year ended December 31, 2005. During the next twelve months, we expect to reclassify approximately $1.2 million of the current balance held in accumulated other comprehensive income related to the interest rate swaps to earnings as a reduction of interest expense.

Cash flow hedges at December 31, 2005 consisted of the following:

Hedge Type	Notional Amount		Rate		Maturity	Fair Value
	(in thousands)					(in thousands)
Swap, Cash Flow	$	100,000	4.1840	%	January 12, 2010	$	2,062
Swap, Cash Flow	83,750		4.1764	%	January 1, 2010	1,738
Swap, Cash Flow	50,000		4.2085	%	March 31, 2010	1,039
	$	233,750				$	4,839

13. Intangible Lease Liability:

Intangible lease liability at December 31, 2005 and 2004, was $4.5 million and $3.7 million, respectively, consisting of the unamortized carrying value of below-market-rate leases associated with Properties acquired. Intangible lease liability is amortized over the remaining term of the associated lease, including below-market lease extension, if any. Intangible lease liability accreted to rental income from operating leases in the accompanying consolidated statements of income was $1.1 million, $0.7 million and $0, for the years ended December 31, 2005, 2004 and 2003, respectively.

14. Commitments and Contingencies:

Commitments—Commitments, contingencies and guarantees by expiration period as of December 31, 2005 (in thousands):

	Less than 1 Year		2 - 3 Years		4 - 5 Years		Thereafter		Total
Pending investments(1)	$	157,100	$	—	$	—	$	—	$	157,100
Unfunded Senior Secured Term Loan(2)	69,000		—		—		—		69,000
Capital improvements to Properties	62,620		—		—		—		62,620
Earnout provisions(3)	25,979		—		—		—		25,979
Guarantee of uncollateralized promissory note of CNL Plaza, Ltd.(4)	—		—		2,313		—		2,313
	$	314,699	$	—	$	2,313	$	—	$	317,012

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(1)As of December 31, 2005, we had initial commitments to acquire 12 Medical Facilities for which we had posted a non-refundable $10.6 million deposit. In January 2006, we completed the acquisition of seven Medical Facilities for $84.5 million, including the application of $6.0 million of the non-refundable deposit that we had posted as of December 31, 2005. The remaining Properties are expected to be acquired in the first quarter of 2006. The acquisition of each of these Properties 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 we will acquire one or more of these investments.

(2)Represents the unfunded portion under the $85.0 million Senior Secured Term Loan.

(3)In connection with the acquisition of 41 Properties, we may be required to make additional payments to the seller if certain earnout provisions are achieved by the earnout date for each Property. The calculation generally considers the net operating income for the Property, our initial investment in the Property and the fair value of the Property. In the event an amount is due, the applicable lease will be amended and annual minimum rent will increase accordingly. Amounts presented represent maximum exposure to additional payments. Earnout amounts related to six additional Properties are subject to future values and events which are not quantifiable at December 31, 2005, and are not included in the table above.

(4)In connection with the ownership of a 9.90% limited partnership interest in CNL Plaza, Ltd., we severally guaranteed 16.67%, or $2.3 million, of a $14.0 million uncollateralized promissory note of the general partner of the limited partnership that matures December 31, 2010. As of December 31, 2005, the uncollateralized promissory note had an outstanding balance of $13.9 million.

Ground Leases—Twenty-seven of our Properties are subject to ground leases. These ground leases have predetermined rent increases based on the CPI index or a defined percentage and termination dates ranging from 2038 to 2084. Twenty-one of the ground leases contain renewal options for terms of 30 to 50 years. During the years ended December 31, 2005, 2004 and 2003, we recognized ground lease expense of $0.5 million, $0.2 million and $0, respectively, including $0.2 million, $13,000 and $0, respectively, from the straight-lining of ground lease expense, which is included in Seniors’ Housing property expenses and Medical Facilities operating expenses in the accompanying consolidated statements of income.

Future minimum lease payments due under ground leases at December 31, 2005, exclusive of renewal option periods, were as follows (in thousands):

2006	$	372
2007	490
2008	491
2009	493
2010	495
Thereafter	23,750
	$	26,091

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Operating Leases—At December 31, 2005, future minimum lease payments due under an operating lease for DASCO’s administrative offices which terminates in 2011 were $0.2 million for each of the next six years.

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

15. Redemption of Shares:

We have a redemption plan under which we may elect to redeem shares, subject to certain conditions and limitations. Under the redemption plan, prior to such time, if any, as listing of our common stock on a national securities exchange or over-the-counter market occurs, any stockholder who has held shares for at least one year may present to us all or any portion equal to at least 25% of their shares for redemption in accordance with the procedures outlined in the redemption plan. Upon presentation, we may, at our option, redeem the shares, subject to certain conditions and limitations. However, at no time during a 12-month period may the number of shares we redeem exceed 5% of the number of shares of our outstanding common stock at the beginning of the 12-month period. During the years ended December 31, 2005, 2004 and 2003, 3,904,039 shares, 685,396 shares and 131,781 shares of common stock were redeemed and retired for $37.1 million, $6.5 million and $1.2 million, respectively. In the second quarter of 2004, we amended our redemption plan to change the redemption price from $9.20 per share to $9.50 per share.

16. Distributions:

For the years ended December 31, 2005, 2004 and 2003, approximately 67%, 60% and 71%, respectively, of the distributions paid to stockholders were considered ordinary income and approximately 33%, 40% and 29%, respectively, were considered a return of capital to stockholders for federal income tax purposes. For the years ended December 31, 2005, 2004 and 2003, no amounts distributed to the stockholders are required to be or have been treated by us as a return of capital for purposes of calculating the stockholders’ 8% return, which is equal to an 8% cumulative, non-compounded annual return on the amount calculated by multiplying the total number of shares of common stock purchased by stockholders by the issue price, without deduction for volume or other discounts, reduced by the portion of any distribution that is attributable to net sales proceeds and by any amount we have paid to repurchase shares under our redemption plan.

17. Related Party Arrangements:

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 for services provided in connection with the common stock offerings, permanent financing and the acquisition, management and sale of our assets.

Pursuant to the Advisory Agreement, as amended and renewed, the Advisor and its affiliates earn certain fees and are entitled to receive reimbursement of certain expenses. During the years ended December 31, 2005, 2004 and 2003, the Advisor and its affiliates earned fees and incurred reimbursable expenses as follows (in thousands):

	Years ended December 31,
	2005		2004		2003
Acquisition fees(1):
From offering proceeds	$	5,874	$	38,286	$	47,644
From debt proceeds	13,789		29,952		11,277
	19,663		68,238		58,921
Asset management fees(2)	19,217		13,047		4,372
Reimbursable expenses(3):
Acquisition expenses	210		331		403
General and administrative expenses	5,989		4,313		2,255
	6,199		4,644		2,658
	$	45,079	$	85,929	$	65,951

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(1)For the period from May 3, 2005 through December 31, 2005, acquisition fees for, among other things, identifying Properties and structuring the terms of the leases were equal to 3.0% of gross offering proceeds and loan proceeds from permanent financing under the 2004 Offering (4.0% of gross offering and loan proceeds for the period from May 14, 2004 through May 2, 2005 and 4.5% of gross offering and loan proceeds under the Prior Offerings). These fees are included in other assets in the accompanying consolidated balance sheets prior to being allocated to individual Properties or intangible lease costs.

If we list our common stock on a national securities exchange or over-the-counter market (“List” or “Listing”), the Advisor will receive an acquisition fee equal to 3.0% of amounts outstanding on the line of credit, if any, at the time of Listing. Certain fees payable to the Advisor upon Listing, the orderly liquidation or other sales of Properties are subordinate to the return of 100% of the stockholders’ invested capital plus the achievement of a cumulative, noncompounded annual 8% return on stockholders’ invested capital.

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

(3)Reimbursement for administrative services, including, but not limited to, accounting; financial, tax, insurance administration 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 we pay or incur exceeds in any four consecutive fiscal quarters (the “Expense Year”) the greater of 2% of average invested assets or 25% of net income (the “Expense Cap”). Operating expenses for the Expense Years ended December 31, 2005, 2004 and 2003, did not exceed the Expense Cap.

Of these amounts, approximately $1.1 million and $1.4 million were included in due to related parties in the accompanying consolidated balance sheets at December 31, 2005 and 2004, respectively.

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

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During the years ended December 31, 2005 and 2004, we incurred the following fees and costs (in thousands):

	Years ended December 31,
	2005		2004
Selling commissions	$	10,801	$	61,830
Marketing support fee	3,313		6,648
Offering and due diligence costs	4,250		18,328
Soliciting dealer servicing fee	—		310
	$	18,364	$	87,116

Of these amounts, approximately $1.3 million and $0.2 million were included in due to related parties in the accompanying consolidated balance sheets at December 31, 2005 and 2004, respectively.

We own a 9.90% interest in CNL Plaza, Ltd. (the “Owner”), a limited partnership that owns an office building located in Orlando, Florida, in which the Advisor and certain affiliates of CNL Financial Group (“CFG”) lease office space. CFG owns a controlling interest in the parent company of the Advisor and is indirectly wholly owned by James M. Seneff, Jr., our chairman of the board, and his wife. Robert A. Bourne, our vice-chairman of the board and treasurer, is an officer of CFG. The remaining interests in the Owner are held by several entities with present or former affiliations with CFG, including: CNL Plaza Venture, Ltd., which has a 1% interest as general partner of the Owner and whose general partner is indirectly wholly owned by Mr. Seneff and his wife; CNL Corporate Investors, Ltd., which is indirectly wholly owned by Messrs. Seneff and Bourne, and which has a 49.50% interest, as a limited partner, in the Owner; CNL Hotels & Resorts, Inc. which has a 9.90% interest, as a limited partner, in the Owner; Commercial Net Lease Realty, Inc., which has a 24.75% interest, as a limited partner, in the Owner; and CNL APF Partners, LP, which has a 4.95% interest, as a limited partner, in the Owner. We also own a 9.90% interest in CNL Plaza Venture, Ltd. (the “Borrower”), a Florida limited partnership, which is the general partner of the Owner. The remaining interests in the Borrower are held by the same entities in the same proportion described above with respect to the Owner.

In 2004, the Owner conveyed a small portion of the premises underlying the parking structure adjacent to its office building, valued by the parties at approximately $0.6 million, to CNL Plaza II, Ltd., a limited partnership in which Messrs. Seneff and Bourne own a 60% interest and 40% interest, respectively, as part of the development of the premises surrounding the building. The purpose of the conveyance was to adjust the percentage fee simple ownership under the parking structure so as to allow joint parking privileges for a new office building that was developed in 2005 and is owned by CNL Plaza II, Ltd. In connection with this transaction, the Owner received an ownership interest in a cross-bridge that was constructed and an anticipated benefit from a reduction in the allocation of its operating expenses for the garage. In addition, the Owner may be entitled to additional consideration pursuant to a purchase price adjustment.

On September 30, 2005, we executed a pro rata, several guarantee limited to 16.67%, or $2.3 million, of a $14.0 million uncollateralized promissory note of the Borrower that matures December 31, 2010. During each of the years ended December 31, 2005 and 2004, we received approximately $0.2 million, respectively, in distributions from the Owner.

We maintain bank accounts in a bank in which certain of our officers and directors serve as directors and are principal stockholders. The amounts deposited with this bank were $3.1 million and $22.9 million at December 31, 2005 and 2004, respectively.

On September 1, 2004, a company which is owned by our chairman of the board sold its 30% voting membership interest in a limited liability company which is affiliated with ten of our tenants (the “HRA Tenants”) to

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the remaining members of the limited liability company. The HRA Tenants contributed 30% and 35% of our total revenues for the years ended December 31, 2004 and 2003, respectively.

Century Capital Markets, LLC (“CCM”), an entity in which an affiliate of the Advisor was formerly a non-voting Class C member, made the arrangements for two commercial paper loans totaling $43.9 million. The monthly interest payments due under these commercial paper loans include an annual margin of either 30 or 40 basis points, payable to CCM for the monthly services it provides related to the administration of the commercial paper loans. Effective September 30, 2005, a non-affiliated third party assumed the administration of these commercial paper loans. Therefore, we now pay the monthly services fee directly to the non-affiliated third party. During the years ended December 31, 2005, 2004 and 2003, $0.1 million, $0.1 million and $0.2 million, respectively, was paid to CCM related to these services. During the year ended December 31, 2003, we also paid CCM a $0.2 million finder’s fee related to the acquisition of two Properties.

Our chairman of the board is a director in a hospital that leases office space in seven of the Medical Facilities that we acquired in August 2004. Additionally, one of our independent directors is a director in a health system that leases office space in one of the Medical Facilities that we acquired in April 2004. During the years ended December 31, 2005 and 2004, these hospitals contributed less than 1% of our total revenues.

18. Concentration of Credit Risk:

At December 31, 2005, we leased our Seniors’ Housing facilities to 22 tenants. Two tenants affiliated with Horizon Bay Management, LLC (“Horizon Bay”) contributed 21% of total revenues for each of the years ended December 31, 2005 and 2004. The HRA Tenants contributed 22%, 30% and 35% of total revenues for the years ended December 31, 2005, 2004 and 2003, respectively. No other Seniors’ Housing tenant contributed more than 10% of total revenues for the three years ended December 31, 2005. Several of our tenants, including the HRA Tenants, are thinly capitalized corporations that rely on the net operating income generated from the Seniors’ Housing facilities to fund rent obligations under their leases. At December 31, 2005, $5.8 million of the $7.2 million allowance for doubtful accounts pertained to HRA Tenants. At December 31, 2005, our Medical Facilities were leased to more than 700 tenants.

At December 31, 2005, 107 of the 188 Seniors’ Housing facilities were operated by Sunrise Senior Living Services, Inc. (“Sunrise”), a wholly owned subsidiary of Sunrise Senior Living, Inc. Additionally, as of December 31, 2005, a Seniors’ Housing Property was being developed by Sunrise Development, Inc., a wholly owned subsidiary of Sunrise Senior Living, Inc. Upon completion of the development, the facility will be operated by Sunrise. Horizon Bay operates 27 Seniors’ Housing facilities and six additional operators manage the remaining 53 Seniors’ Housing facilities. At December 31, 2005, DASCO managed or was developing 53 of our 73 Medical Facilities, Cirrus managed 10 of our Medical Facilities and the remaining 10 Medical Facilities were managed by four third-party property managers. Sunrise, Horizon Bay, DASCO and ARC operated Property portfolios that, for each in the aggregate as operator, contributed 10% or more of total rental and earned income from leases. Sunrise contributed 42%, 45% and 76%, for the years ended December 31, 2005, 2004 and 2003, respectively; Horizon Bay contributed 22%, 24%, for the years ended December 31, 2005 and 2004, respectively; DASCO contributed 10% for the year ended December 31, 2005 and ARC contributed 13% for the year ended December 31, 2003. No other operator contributed more than 10% of total rental and earned income from leases.

To mitigate credit risk, certain Seniors’ Housing leases are combined into portfolios that contain cross-default terms, so that if a tenant of any of the Properties in a portfolio defaults on its obligations under its lease, we may pursue remedies under the lease with respect to any of the Properties in the portfolio (“Cross-Default”). Certain portfolios also contain terms whereby the net operating profits of the Properties are combined for the purpose of funding rental payments due under each lease (“Pooling” or “Pooled”). In addition, as of December 31, 2005, we held $24.0 million in security deposits and rental support related to certain Properties.

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We had the following remaining rental support and limited guarantees from certain tenants and operators at December 31, 2005 (dollars in thousands):

					Guarantee
Guarantor	Number of Properties	Maximum			Used Since Acquired		Remaining Balance
Horizon Bay	21	$	17,500		$	14,391	$	3,109
Aureus	11	10,000			2,255		7,745
ARC	8			(1)	9,416				(1)
Eby	6			(1)	329				(1)
Encore	17			(1)	791				(1)
Greenwalt	5			(1)	2,493				(1)
Sunrise	2			(1)	—				(1)
Sunrise	17			(2)	6,281				(2)
Sunrise	3			(3)	2,809				(3)

(1)Unconditional guarantees

(2)Sunrise guaranteed the tenants’ obligations to pay minimum rent and the FF&E reserve funds under the 17 leases until the later of (i) March 2006 or (ii) 18 months after the final development date of certain Properties, as defined in the lease agreement. The final development Property commenced operations in January 2006; accordingly, the Sunrise guarantee will terminate in July 2007.

(3)Sunrise guaranteed the tenants’ rent obligations for these Seniors’ Housing facilities that were acquired in 2004 and which commenced operations in 2004, until the later of (i) September 2006 or (ii) the Properties achieving predetermined rent coverage thresholds, which are not determinable at this time.

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 our results of operations.

19. Medical Facilities Acquisitions:

In April 2004, we acquired 22 Medical Facilities for an aggregate purchase price of $272.0 million, including closing costs (the “MOP Acquisition”).

In August 2004, we acquired ownership interests in entities that own 28 Medical Facilities and a 55% interest in DASCO for $212.6 million, including closing costs. In November 2004, we acquired two additional Medical Facilities for $19.4 million, including closing costs (collectively, the “DASCO Acquisition”). Included in the DASCO Acquisition were certain limited partnerships with finite lives. Therefore, the minority interests in these partnerships meet the definition of mandatorily redeemable noncontrolling interests as specified in Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” We estimate that the settlement value of these mandatorily redeemable noncontrolling interests at December 31, 2005 was $13.7 million, based on the sale or disposition of all or substantially all of the assets of the partnerships and the repayments of outstanding liabilities as of that date.

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

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

Assets:
Real estate investment properties:
Accounted for using the operating method	$	455,194
Intangible lease costs	47,372
	502,566
Cash and cash equivalents	530
Restricted cash	2,485
Deferred costs, net	1,018
Other assets	1,698
Goodwill	5,791
Total assets acquired	514,088
Liabilities:
Mortgages payable	94,808
Construction loan payable	487
Accounts payable and other liabilities	8,117
Intangible lease liability	4,463
Security deposits	2,011
Total liabilities assumed	109,886
Minority interests	1,967
Net assets acquired	$	402,235

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

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

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

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20. Subsequent Events:

In January 2006, we acquired seven Medical Facilities from Cirrus for $84.5 million which we funded, in part, with proceeds from a new $56.3, million ten-year mortgage loan that bears fixed-rate interest at 5.59%. Four of the acquired Properties are located in Texas, two are in Arizona and one is in Missouri, and in aggregate they contain approximately 255,000 square feet. Cirrus will manage the Properties.

In February 2006, we entered into a $7.7 million construction loan for the development of a Medical Facility that we acquired in November 2005. The construction loan will mature in 2010 and bears interest at a rate of LIBOR plus 160 basis points.

In February 2006, we entered into a $33.0 million mortgage loan and used the proceeds and cash on hand to pre-pay a $48.0 million construction loan facility that had $44.7 million outstanding at December 31, 2005. The new interest only, five-year loan bears interest at a rate equal to LIBOR plus 150 basis points.

In March 2006, we sold two Properties that were held for sale at December 31, 2005. The Properties were sold to an unrelated third party for $6.0 million and we took back a purchase money mortgage with a three-year term secured by the Properties in the amount of $4.8 million. Interest is payable annually at a rate of 6.0% and principle is due at maturity. We realized a net loss on the sale of the Properties of $0.2 million in March 2006.

During the period January 1, 2006, through March 15, 2006, we received subscription proceeds for an additional 2.6 million shares ($26.1 million) of common stock.

On January 1, February 1 and March 1, 2006, our Board of Directors declared distributions to stockholders of record on those dates, totaling $45.5 million, or the aggregate of $0.1776 per share of common stock, payable by March 31, 2006.

21. Selected Quarterly Financial Data (unaudited):

        The following table presents selected unaudited quarterly financial data for each full quarter during the years ended December 31, 2005 and 2004 (in thousands, except per share amounts):

2005 Quarter	First			Second			Third			Fourth
Revenues(1)	$	91,329		$	96,584		$	97,540		$	98,630
Income from continuing operations(1)	38,461			39,130			34,074			30,750
Income (loss) from discontinued operations(1)	(5,826		)	(1,173		)	(264		)	429
Net income	32,635			37,957			33,810			31,179
Income per share, basic and diluted:
Continuing operations(1)	0.16			0.16			0.14			0.12
Discontinued operations(1)	(0.02		)	(0.01		)	—			—
Net income	0.14			0.15			0.14			0.12

(1)The revenue, income from continuing operations and income (loss) from discontinued operations data in the table above has been restated from previously reported amounts to reflect the reclassification of the operating results from our real estate held for sale to discontinued operations (see Note 10).

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2004 Quarter	First		Second		Third			Fourth
Revenues(1)	$	50,259	$	62,850	$	70,318		$	79,342
Income from continuing operations(1)	27,415		29,340		30,428			31,168
Income (loss) from discontinued operations(1)	386		351		(1,514		)	344
Net income	27,801		29,691		28,914			31,512
Income per share, basic and diluted:
Continuing operations(1)	0.16		0.14		0.14			0.13
Discontinued operations(1)	—		—		(0.01		)	—
Net income	0.16		0.14		0.13			0.13

(1)The revenue, income from continuing operations and income (loss) from discontinued operations data in the table above has been restated from previously reported amounts to reflect the reclassification of the operating results from our real estate held for sale to discontinued operations (see Note 10).

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CNL RETIRMENT PROPERTIES, INC.

Schedule II—Valuation and Qualifying Accounts

Years Ended December 31, 2005, 2004, and 2003

(dollars in thousands)

				Additions				Deductions
Year	Description	Balance at Beginning of Year		Charged to Costs and Expenses		Charged to Other Accounts		Deemed Uncollectible		Collected or Determined to be Collectible		Balance at End of Year
2003	Allowance for doubtful accounts(a)	$	—	$	—	$	—	$	—	$	—	$	—
2004	Allowance for doubtful accounts(a)	$	—	$	3,900	$	—	$	—	$	—	$	3,900
2005	Allowance for doubtful accounts(a)	$	3,900	$	4,544	$	—	$	161	$	1,083	$	7,200

(a)Deducted from receivables on the balance sheet.

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CNL Retirement Properties, Inc.
Schedule III—Real Estate and Accumulated Depreciation
December 31, 2005
(dollars in thousands)

			Initial Cost to Company(2)				Costs Capitalized Subsequent to Acquisition						Gross Amount at Which Carried at Close of Period
	Encumbrances(1)		Land		Building, Fixtures and Equipment		Land			Building, Fixtures and Equipment			Land		Building, Fixtures and Equipment		Total		Accumulated Depreciation(a)		Date Constructed	Date Acquired
Brighton Gardens of Orland Park, IL	$	—	$	2,162	$	12,577	$	—		$	73		$	2,162	$	12,650	$	14,812	$	2,505	1999	Apr-00
Broadway Plaza at Pecan Park, TX	3,600		1,344		9,425		—			—			1,344		9,425		10,769		1,266		2000	Nov-01
Homewood Residence at Boca Raton, FL	4,400		1,144		8,734		—			—			1,144		8,734		9,878		1,171		2000	Nov-01
Holley Court Terrace, IL	—		2,144		16,850		—			—			2,144		16,850		18,994		1,839		1992	Feb-02
Homewood Residence at Coconut Creek, FL	2,602		1,683		8,193		—			—			1,683		8,193		9,876		1,050		2000	Feb-02
Heritage Club at Greenwood Village, CO	—		1,965		18,025		—			180			1,965		18,205		20,170		2,128		1999	Mar-02
Mapleridge of Dartmouth, MA	4,403		920		8,799		—			68			920		8,867		9,787		896		1999	May-02
Mapleridge of Laguna Creek, CA	3,738		812		7,407		—			—			812		7,407		8,219		764		1999	May-02
Brighton Gardens of Towson, MD	6,706		990		14,109		(22		)	163			968		14,272		15,240		1,462		1999	May-02
Brighton Gardens of Camarillo, CA	8,673		2,487		16,676		(1		)	110			2,486		16,786		19,272		1,761		1999	May-02
Vero Beach, FL	46,027		1,786		44,821		—			—			1,786		44,821		46,607		400		2005	Aug-02
Homewood Residence at Brookmont Terr., TN	1,931		464		8,652		—			—			464		8,652		9,116		908		2000	Nov-02
Mapleridge of Hemet, CA	3,110		1,176		3,087		—			44			1,176		3,131		4,307		376		1998	Dec-02
Brighton Gardens of Tulsa, OK	3,544		1,538		3,310		21			77			1,559		3,387		4,946		450		1999	Dec-02
Pleasant Hills, AR	8,050		523		10,427		241			281			764		10,708		11,472		969		1984	Dec-02
Brighton Gardens of Hoffman Estates, IL	5,708		1,724		6,064		—			74			1,724		6,138		7,862		656		1999	Dec-02
Mapleridge of Willoughby, OH	3,731		1,091		4,032		84			60			1,175		4,092		5,267		447		1998	Dec-02
Mapleridge of Plymouth, MA	3,466		1,090		3,667		8			73			1,098		3,740		4,838		428		2000	Dec-02
Hearthside of Lynwood, WA	3,196		1,530		5,068		10			247			1,540		5,315		6,855		451		1989	Dec-02
Hearthside of Snohomish, WA	4,362		645		8,364		3			71			648		8,435		9,083		683		1993	Dec-02
Brighton Gardens of Vinings, GA	3,741		1,773		5,830		8			112			1,781		5,942		7,723		614		1999	Dec-02
Brighton Gardens of Oklahoma City, OK	1,850		784		3,000		10			80			794		3,080		3,874		404		1999	Dec-02
Brighton Gardens of Bellevue, WA	5,175		2,165		8,506		—			69			2,165		8,575		10,740		835		1999	Dec-02
Brighton Gardens of Santa Rosa, CA	8,496		2,161		15,044		989			(2,530		)	3,150		12,514		15,664		1,245		2000	Dec-02
Brighton Gardens of Denver, CO	10,936		1,084		17,245		—			—			1,084		17,245		18,329		1,341		1996	Mar-03

34

Brighton Gardens of Colorado Springs, CO	10,085	1,073	15,829	—		—	1,073	15,829	16,902	1,210	1999	Mar-03
Brighton Gardens of Lakewood, CO	11,512	1,073	18,221	—		—	1,073	18,221	19,294	1,385	1999	Mar-03
Brighton Gardens of Rancho Mirage, CA	7,017	1,716	12,482	5		120	1,721	12,602	14,323	1,192	2000	Mar-03
The Fairfax, VA	43,894	17,641	60,643	—		9,795	17,641	70,438	88,079	4,991	1989/2005	Mar-03
The Quadrangle, PA	52,792	23,148	90,769	(37	)	1,522	23,111	92,291	115,402	7,326	1987	Mar-03
Brighton Gardens of Yorba Linda, CA	10,203	2,397	11,410	—		86	2,397	11,496	13,893	954	2000	Mar-03
Brighton Gardens of Salt Lake City, UT	11,372	392	15,013	5		89	397	15,102	15,499	1,296	1999	Mar-03
Brighton Gardens of Northridge, CA	7,475	3,485	11,634	(1	)	70	3,484	11,704	15,188	1,147	2001	Mar-03
Mapleridge of Palm Springs, CA	1,346	884	1,873	—		48	884	1,921	2,805	252	1999	Mar-03
Brighton Gardens of Edgewood, KY	1,347	886	1,876	6		36	892	1,912	2,804	299	2000	Mar-03
Brighton Gardens of Greenville, SC	2,097	352	3,938	4		75	356	4,013	4,369	498	1998	Mar-03
Brighton Gardens of Saddle River, NJ	7,867	2,155	10,968	—		—	2,155	10,968	13,123	934	1998	Mar-03
Balmoral of Palm Harbor, FL	—	1,002	11,493	2		333	1,004	11,826	12,830	901	1996	Jul-03
Somerby at University Park, AL	37,322	2,633	49,166	—		3,603	2,633	52,769	55,402	3,489	1999	Aug-03
Somerby at Jones Farm, AL	20,361	719	23,136	—		6,136	719	29,272	29,991	1,833	1999	Nov-03
Brighton Gardens of Tampa, FL	—	1,670	—	4		117	1,674	117	1,791	12	1998	Aug-03
Greentree at Ft. Benjamin Harrison, IL	—	469	4,761	—		—	469	4,761	5,230	296	1999	Sep-03
Greentree at Mt. Vernon, IL	—	225	7,244	—		1,830	225	9,074	9,299	531	2000	Sep-03
Greentree at Post, IN	—	287	4,934	—		—	287	4,934	5,221	290	1999	Sep-03
Greentree at West Lafayette, IN	—	319	5,264	—		1,883	319	7,147	7,466	385	1999	Sep-03
Sunrise of Arlington, VA	3,543	765	6,463	19		228	784	6,691	7,475	499	1988	Sep-03
Sunrise of Bluemont Park, VA	14,021	2,359	26,196	37		307	2,396	26,503	28,899	1,824	1989	Sep-03
Sunrise of Countryside, VA	7,335	2,288	12,583	7		291	2,295	12,874	15,169	948	1945/88	Sep-03
Sunrise of Falls Church, VA	4,341	1,221	7,631	3		73	1,224	7,704	8,928	600	1993	Sep-03
Sunrise of Farmington Hills, MI	4,690	1,212	8,414	18		56	1,230	8,470	9,700	695	1999	Sep-03

35

Sunrise of Frederrick, MD	3,443	118	6,971	3	110	121	7,081	7,202	483	1991		Sep-03
Sunrise of Leesburg, VA	1,048	399	1,701	—	25	399	1,726	2,125	144	1850/1989		Sep-03
Sunrise of Mercer Island, WA	3,892	744	7,225	28	223	772	7,448	8,220	520	1990		Sep-03
Sunrise of Mills Basin, NY	12,075	2,596	22,134	25	63	2,621	22,197	24,818	1,623	2002		Sep-03
Sunrise of Poland, OH	4,291	742	8,044	21	33	763	8,077	8,840	544	1998		Sep-03
Sunrise of Raleigh, NC	3,143	457	5,935	3	109	460	6,044	6,504	503	1996		Sep-03
Sunrise of Sheepshead Bay, NY	12,823	3,856	22,395	24	24	3,880	22,419	26,299	1,512	2000		Sep-03
Sunrise of Beverly Hills, CA	19,806	3,950	24,230	—	—	3,950	24,230	28,180	156	2005		Sep-03
Sunrise of Cresskill, NJ	25,973	4,632	33,212	—	—	4,632	33,212	37,844	176		(3)	Sep-03
Sunrise of Edmonds, WA	10,072	968	12,681	—	—	968	12,681	13,649	457	2004		Sep-03
Sunrise at Five Forks, GA	8,126	997	11,161	—	132	997	11,293	12,290	683	2004		Sep-03
Sunrise of Madison, NJ	11,522	1,608	14,345	—	—	1,608	14,345	15,953	566	2004		Sep-03
Dogwood Forest of Dunwoody, GA	—	837	4,952	—	142	837	5,094	5,931	315	2000		Nov-03
EdenGardens of Gainesville, FL	—	436	7,789	—	47	436	7,836	8,272	484	2000		Nov-03
EdenBrook of Jacksonville, FL	—	1,114	6,112	14	312	1,128	6,424	7,552	490	1999		Nov-03
EdenBrook of Tallahassee, FL	—	670	11,664	—	98	670	11,762	12,432	717	1999		Nov-03
EdenGardens of Aiken, SC	4,901	369	7,139	7	113	376	7,252	7,628	461	1995		Nov-03
EdenBrook of Alpharetta, GA	4,411	718	6,330	—	30	718	6,360	7,078	406	2000		Nov-03
EdenGardens of Arlington, TX	—	350	8,538	8	4	358	8,542	8,900	506	2000		Nov-03
EdenTerrace of Arlington, TX	—	668	7,616	47	105	715	7,721	8,436	485	2000		Nov-03
EdenBrook of Buckhead, GA	4,411	782	6,971	—	11	782	6,982	7,764	467	2000		Nov-03
EdenBrook of Champions, TX	—	530	11,581	—	54	530	11,635	12,165	713	2000		Nov-03
EdenBrook of Charleston, SC	4,901	422	8,827	7	101	429	8,928	9,357	560	2000		Nov-03
EdenGardens of Columbia, SC	—	300	4,043	9	167	309	4,210	4,519	270	1996		Nov-03
EdenGardens of Concord, NC	2,419	393	3,548	—	—	393	3,548	3,941	228	1998		Nov-03

36

Edenbrook of Dunwoody, GA	4,629	368	4,559	7	208	375	4,767	5,142	357	1998	Nov-03
Edenbrook of Hunstville AL	—	605	8,900	—	86	605	8,986	9,591	579	2001	Nov-03
EdenGardens of Kingwood, TX	—	467	8,418	—	27	467	8,445	8,912	552	2001	Nov-03
EdenTerrace of Kingwood, TX	—	572	10,527	—	99	572	10,626	11,198	681	2001	Nov-03
EdenBrook of Louisville, KY	6,540	623	10,144	7	69	630	10,213	10,843	649	2001	Nov-03
EdenTerrace of Louisville, KY	7,769	886	11,897	5	15	891	11,912	12,803	746	2001	Nov-03
EdenGardens of Marietta, GA	—	571	4,397	—	49	571	4,446	5,017	287	1998	Nov-03
EdenBrook of Plano, TX	6,273	464	12,004	—	28	464	12,032	12,496	730	2000	Nov-03
EdenGardens of Rock Hill, SC	—	277	6,783	23	222	300	7,005	7,305	459	1995	Nov-03
EdenBrook of The Woodlands, TX	4,901	395	13,490	—	40	395	13,530	13,925	822	2000	Nov-03
Summit at Park Hills, OH	—	149	6,230	—	—	149	6,230	6,379	254	2001	Jun-04
Brighton Gardens of Carlsbad, CA	13,961	5,530	9,007	—	—	5,530	9,007	14,537	324	1999	Nov-04
Brighton Gardens of San Dimas, CA	12,535	3,390	19,788	—	—	3,390	19,788	23,178	632	1999	Nov-04
Brighton Gardens of Carmel Valley, CA	7,849	3,729	22,081	—	—	3,729	22,081	25,810	714	1999	Nov-04
Brighton Gardens of San Juan Capistrano, CA	4,380	3,009	5,144	—	—	3,009	5,144	8,153	234	1999	Nov-04
Brighton Gardens of Woodbridge, CT	3,777	1,624	5,457	—	—	1,624	5,457	7,081	192	1998	Nov-04
Brighton Gardens of Pikesville, MD	14,646	1,118	8,264	—	—	1,118	8,264	9,382	288	1999	Nov-04
Brighton Gardens of North Shore, MA	4,958	1,815	25,311	—	—	1,815	25,311	27,126	772	1999	Nov-04
Brighton Gardens of Dedham, MA	11,055	1,806	18,682	—	—	1,806	18,682	20,488	613	1999	Nov-04
Brighton Gardens of Paramus, NJ	12,226	2,826	20,012	—	—	2,826	20,012	22,838	653	1999	Nov-04
Brighton Gardens of Arlington, VA	10,029	4,658	13,907	—	—	4,658	13,907	18,565	458	1999	Nov-04
Brighton Gardens of Richmond, VA	4,584	905	7,604	—	—	905	7,604	8,509	266	1999	Nov-04
Bickford Cottage of Davenport, IA	3,411	213	5,639	—	—	213	5,639	5,852	211	1999	Aug-04
Bickford Cottage of Marion, IA	2,794	224	5,711	—	—	224	5,711	5,935	213	1998	Aug-04
Bickford Cottage of Champaign, IL	—	54	2,501	—	—	54	2,501	2,555	100	2003	Aug-04

37

Bickford House of Bloomington, IL	—	514	6,866	—	—	514	6,866	7,380	262	2000	Aug-04
Bickford Cottage of Macomb, IL	—	54	4,315	—	—	54	4,315	4,369	164	2003	Aug-04
Bickford Cottage of Peoria, IL	—	375	7,659	—	—	375	7,659	8,034	290	2001	Aug-04
Courtyard Manor of Auburn Hills, MI	—	1,746	7,574	—	31	1,746	7,605	9,351	367	1999	Apr-04
Courtyard Manor at Sterling Heights, MI	—	1,076	7,834	5	11	1,081	7,845	8,926	375	1989	Apr-04
The Park at Olympia Fields, IL	22,007	3,303	38,891	—	—	3,303	38,891	42,194	1,910	1999	Feb-04
East Bay Manor, RI	9,372	686	12,752	—	—	686	12,752	13,438	652	1992	Feb-04
Greenwich Bay Manor, RI	6,540	180	11,401	—	103	180	11,504	11,684	573	1980	Feb-04
West Bay Manor, RI	10,982	1,900	15,481	—	79	1,900	15,560	17,460	768	1972	Feb-04
Waterside Retirement Estates, FL	26,033	1,820	32,645	—	56	1,820	32,701	34,521	1,575	1980	Feb-04
Carrington Pointe, CA	16,718	1,636	27,753	10	—	1,646	27,753	29,399	1,323	1988	Feb-04
Cherry Hills Club, CA	9,815	1,428	23,814	—	—	1,428	23,814	25,242	1,178	1987	Feb-04
The Park at Golf Mills, IL	28,346	2,291	58,811	—	38	2,291	58,849	61,140	2,869	1989	Feb-04
The Heritage Palmeras, AZ	32,319	1,556	45,622	—	428	1,556	46,050	47,606	2,246	1996	Feb-04
The Pointe at Newport Place, FL	4,696	900	6,453	—	37	900	6,490	7,390	376	2000	Feb-04
Newport Place, FL	28,938	5,265	41,850	—	110	5,265	41,960	47,225	2,063	1993	Feb-04
Prosperity Oaks, FL	21,039	5,415	59,690	63	519	5,478	60,209	65,687	2,903	1988	Feb-04
Pinecrest Place Retirement Community, FL	31,815	893	60,674	—	149	893	60,823	61,716	2,968	1988	Feb-04
North Bay Manor, RI	—	464	19,402	—	—	464	19,402	19,866	973	1989	Feb-04
South Bay Manor, RI	—	654	16,606	—	—	654	16,606	17,260	821	1988	Feb-04
Emerald Bay Manor, RI	—	1,382	18,237	—	—	1,382	18,237	19,619	925	1999	Feb-04
Treemont Retirement Community, TX	—	3,211	17,096	—	423	3,211	17,519	20,730	887	1974	Feb-04
The Park at Riverchase, AL	—	1,159	6,246	—	—	1,159	6,246	7,405	372	1997	Feb-04
Heron’s Run, FL	—	446	1,798	—	—	446	1,798	2,244	89	1993	Feb-04
Sakonnet Bay Manor, RI	—	4,383	21,963	—	—	4,383	21,963	26,346	797	1998	Aug-04
Terrace at Memorial City, TX	19,000	4,336	33,496	15		4,351	33,482	37,833	962	1992	Dec-04

38

Spring Shadows Place, TX	6,419	2,943	6,288	—	—	2,943	6,288	9,231	186	1973	Dec-04
Terrace at West University, TX	17,281	3,650	24,976	—	—	3,650	24,976	28,626	763	1998	Dec-04
Terrace at Willowbrook, TX	17,800	2,243	23,551	—	—	2,243	23,551	25,794	685	1996	Dec-04
Terrace at Clear Lake, TX	11,750	2,068	22,769	—	—	2,068	22,769	24,837	689	2000	Dec-04
Terrace at First Colony, TX	17,750	2,160	22,871	—	—	2,160	22,871	25,031	691	2000	Dec-04
Sunrise of Des Peres, MO	—	4,129	16,284	—	—	4,129	16,284	20,413	634	2004	Mar-04
Sunrise of Clayton, MO	—	3,565	14,819	—	—	3,565	14,819	18.384	735	2004	Mar-04
Sunrise of Wilmette, IL	—	2,640	7,053	—	—	2,640	7,053	9,693	296	2004	Mar-04
Boardwalk Medical Office, TX	7,587	1,665	11,366	—	—	1,665	11,366	13,031	707	1997	Apr-04
Las Colinas Medical Plaza II, TX	6,863	1,763	8,801	—	1	1,763	8,802	10,565	665	2001	Apr-04
Independence Park-4204, NC	3,376	1,768	8,160	—	440	1,768	8,600	10,368	567	1994	Apr-04
Independence Park-4228, NC	1,070	888	2,483	—	—	888	2,483	3,371	243	1997	Apr-04
Independence Park-4233, NC	1,263	1,880	2,075	—	—	1,880	2,075	3,955	406	1996	Apr-04
Independence Park-4323, NC	1,153	694	2,647	—	—	694	2,647	3,341	195	1997	Apr-04
Tampa Medical Tower, FL	6,069	2,648	7,243	—	736	2,648	7,979	10,627	1,355	1984	Apr-04
Yorktown 50, VA	14,722	2,089	22,618	—	337	2,089	22,955	25,044	1,553	1974	Apr-04
Sherman Oaks Medical Center, CA	9,545	9,024	5,272	—	158	9,024	5,430	14,454	1,127	1953	Apr-04
Valencia Medical Center, CA	5,117	1,312	5,336	—	130	1,312	5,466	6,778	575	1983	Apr-04
Encino Medical Plaza, CA	7,429	6,904	9,253	—	246	6,904	9,499	16,403	1,108	1973	Apr-04
Rocky Mountain Cancer Center, CO	4,601	1,069	7,801	—	45	1,069	7,846	8,915	466	1993	Apr-04
Aurora Medical Center II, CO	5,209	134	9,220	—	92	134	9,312	9,446	887	1994	Apr-04
Aurora Medical Center I, CO	4,653	123	8,485	—	142	123	8,627	8,750	921	1981	Apr-04
Dorsey Hall Medical Center, MD	3,833	1,324	4,020	—	51	1,324	4,071	5,395	504	1988	Apr-04
Chesapeake Medical Center, VA	—	2,087	7,520	—	11	2,087	7,531	9,618	793	1988	Apr-04
Randolph Medical Center, MD	—	2,575	6,453	—	644	2,575	7,097	9,672	656	1975	Apr-04

39

Plano Medical Center, TX	—	2,519	12,190	—	140	2,519	12,330	14,849	1,125	1984	Apr-04
Medical Place I, TX	—	19	24,746	—	402	19	25,148	25,167	2,568	1984	Apr-04
Northwest Regional Medical Center, TX	—	599	6,646	—	14	599	6,660	7,259	474	1999	Apr-04
The Diagnostic Clinic, FL	—	2,569	26,918	—	137	2,569	27,055	29,624	1,691	1972	Apr-04
BayCare Health Headquarters, FL	—	3,019	6,713	—	—	3,019	6,713	9,732	702	1988	Apr-04
Southwest General Birth Place, TX	—	990	12,308	—	—	990	12,308	13,298	559	1994	Aug-04
Baytown Plaza I & II, TX	1,200	337	1,096	—	1	337	1,097	1,434	237	1972	Aug-04
South Seminole Medical Office Building II, FL	2,710	709	4,063	—	51	709	4,114	4,823	486	1987	Aug-04
South Seminole Medical Office Building III, FL	1,500	769	1,768	—	6	769	1,774	2,543	358	1993	Aug-04
Orlando Professional Center I, FL	800	384	788	—	29	384	817	1,201	162	1969	Aug-04
Orlando Professional Center II, FL	1,600	1,258	1,704	323	29	1,581	1,733	3,314	274	1963	Aug-04
Oviedo Medical Center, FL	4,500	1,712	6,484	—	439	1,452	6,923	8,375	1,101	1997	Aug-04
MedPlex B at Sand Lake Commons, FL	2,400	2,679	3,235	—	66	2,679	3,301	5,980	294	1988	Aug-04
Eagle Creek Medical Plaza, KY	1,900	14	3,411	—	258	14	3,669	3,683	501	1982	Aug-04
Sand Lake Physicians Office Building, FL	—	23	1,748	—	—	23	1,748	1,771	161	1985	Aug-04
North Alvernon Medical, AZ	6,250	2,969	9,197	—	86	2,969	9,283	12,252	883	1986	Aug-04
St. Joseph’s Medical Plaza, AZ	6,250	511	7,736	—	39	511	7,775	8,286	697	1985	Aug-04
Mercy Medical Office Building	1,650	—	3,049	—	11	—	3,060	3,060	315	1986	Aug-04
Elgin Medical Office Building I, IL	4,000	—	6,291	—	74	—	6,365	6,365	581	1991	Aug-04
Elgin Medical Office Building II, IL	4,250	—	6,861	—	60	—	6,921	6,921	727	2001	Aug-04
Santa Rosa Medical Office Building, GA	—	13	8,111	—	196	13	8,307	8,320	388	2003	Aug-04
Fannin Medical Office Building, GA	—	9	2,397	—	118	9	2,515	2,524	135	2002	Aug-04
Physicians East and West, TX	—	3	4,276	—	156	3	4,432	4,435	425	1991	Aug-04
Brentwood Medical Center, CA	—	10	26,331	—	—	10	26,331	26,341	453	2005	Aug-04
Heartland Regional Medical Office Building, IL	—	99	9,788	—	305	99	10,093	10,192	791	2002	Aug-04

40

Saint Joseph East Office Park, KY	—	17	9,896	—	212	17	10,108	10,125	525	2003	Aug-04
Central Mississippi Medical Center Building, MS	—	34	8,409	—	236	34	8,645	8,679	463	2002	Aug-04
River Oaks Medical Building, MS	—	19	7,127	—	456	19	7,583	7,602	404	2003	Aug-04
Parker Adventist Professional Building, CO	—	16	14,586	—	1,091	16	15,677	15,693	908	2004	Aug-04
NASA Parkway Medical Office Building, TX	—	460	7,478	—	19	460	7,497	7,957	453	2002	Aug-04
Lake Granbury Medical Plaza, TX	—	63	6,197	—	1,690	63	7,887	7,950	330	2001	Aug-04
Durant Medical Center, OK	—	1,133	7,914	—	170	1,133	8,084	9,217	467	1998	Aug-04
Jackson Central II, MS	5,114	—	4,729	—	—	—	4,729	4,729	46	2005	Aug-04
McDowell Mountain Medical Plaza, AZ	10,866	6,219	9,066	6	161	6,225	9,227	15,452	762	1999	Nov-04
Lakeside Healthpark Medical Office Building, NE	11,750	—	12,024	—	—	—	12,024	12,024	200	2005	Nov-04
Texarkana Professional Building, TX	7,585	1,061	7,620	—	—	1,061	7,620	8,681	255	1978	Jan-05
The Park at Vernon Hills, IL	25,063	3,481	47,220	—	—	3,481	47,220	50,701	1,101	2001	Feb-05
Oakbrook Terrace Medical Center I, IL	—	1,446	8,188	—	—	1,446	8,188	9,634	636	1989	Feb-05
Oakbrook Terrace Medical Center II, IL	—	1,162	8,665	—	—	1,162	8,665	9,827	455	1986	Feb-05
Deaconess-Gateway Medical Office Building, IN	6,096	—	6,739	—	—	—	6,739	6,739	40	2005	Feb-05
Canyon Hills Club, CA	14,585	2,599	28,696	—	—	2,599	28,696	31,295	533	1989	Mar-05
Woodmont Retirement Residence, FL	4,986	388	9,120	—	—	388	9,120	9,508	172	1986	Mar-05
Calaroga Terrace, OR	14,327	1,875	16,628	—	—	1,875	16,628	18,503	320	1968	Mar-05
Encore Senior Village at Naples, FL	786	1,005	1,280	—	—	1,005	1,280	2,285	31	1999	Mar-05
Encore Senior Village at Clearwater, FL	3,575	595	4,522	—	—	595	4,522	5,117	91	1999	Mar-05

41

Encore Senior Village at Fort Myers, FL	2,476	1,400	4,417	—	—	1,400	4,417	5,817	85	1998		Mar-05
Encore Senior Village at Greenacres, FL	3,534	2,191	3,260	—	—	2,191	3,260	5,451	66	1998		Mar-05
Encore Senior Village at Pensacola, FL	3,123	523	5,508	—	—	523	5,508	6,031	100	1997		Mar-05
Carpenter’s Creek-Pensacola, FL	5,579	547	8,533	—	—	547	8,533	9,080	165	1988		Mar-05
Valley Crest, CA	1,226	298	2,241	—	—	298	2,241	2,539	42	1986		Mar-05
Encore Senior Village at Riverside, CA	2,276	805	2,824	—	—	805	2,824	3,629	53	1997		Mar-05
Encore Senior Village at Peoria, AZ	7,216	1,241	8,810	—	—	1,241	8,810	10,051	158	1997		Mar-05
Encore Senior Village at Paradise Valley, AZ	3,181	1,649	3,357	—	—	1,649	3,357	5,006	61	1998		Mar-05
Encore Senior Village at Tucson, AZ	6,180	—	8,836	—	—	—	8,836	8,836	170	1999		Mar-05
Encore Senior Village at Portland, OR	7,308	889	10,491	—	—	889	10,491	11,380	203	1997		Mar-05
Millcreek Retirement Residence, UT	3,540	365	4,581	—	—	365	4,581	4,946	89	1996		Mar-05
Mary Washington Hospital, VA	—	1,403	2,675	—	—	1,403	2,675	4,078	—		(3)	Apr-05
Sierra Vista, CA	1,657	337	1,786	—	—	337	1,786	2,123	23	1990		Jun-05
Mission Surgery Center, TN	—	—	10,477	—	—	—	10,477	10,477	250	2003		Jun-05
Memorial Plaza, TN	—	—	36	—	—	—	36	36	341	1995		Jun-05
St. Vincent Clinic-South University, AR	—	653	3,008	—	—	653	3,008	3,661	45	1983		Jun-05
St. Vincent Clinic-Rodney Parham, AR	—	652	74	—	—	652	74	726	3	1972		Jun-05
St Anthony’s, CO	—	—	—	—	—	—	—	—	—		(3)	Sep-05
Park Cities Medical Plaza, TX	10,575	1,375	14,177	—	—	1,375	14,177	15,552	149	2002		Sep-05
Trophy Club Professional Office Building, TX	11,375	945	23,420	—	—	945	23,420	24,365	249	2004		Sep-05
Trophy Club Medical Center, TX	16,380	1,444	16,161	—	—	1,444	16,161	17,605	202	2004		Sep-05

42

Glen Lakes Health Plaza, TX	4,615		1,380		5,927		—		—		1,380		5,927		7,307		135		1981		Sep-05
Valley View Medical Building, TX	3,315		1,122		4,010		—		—		1,122		4,010		5,132		75		1973		Sep-05
Coppell Healthcare Center, TX	4,940		1,144		6,605		—		—		1,144		6,605		7,749		111		2004		Sep-05
Meridian Medical Tower, OK	4,290		1,316		5,271		—		—		1,316		5,271		6,587		200		1982		Sep-05
Meridian Medical Center, OK	2,165		657		3,634		—		—		657		3,634		4,291		74		1984		Sep-05
St. Joseph Medical Center, MD	216		—		992		—		—		—		996		996		—			(3)	Oct-05
Memorial Hospital Cy-Fair, TX	189		—		538		—		—		—		538		538		—			(3)	Nov-05
Memorial Hospital Pearland, TX	—		—		—		—		—		—		—		—		—			(3)	Nov-05
Other	—		—		—		82		1,921		82		1,922		2,004		231		n/a		n/a
	$	1,349,848	$	344,031	$	2,684,355	$	1,905	$	42,272	$	345,936	$	2,726,627	$	3,072,563	$	157,746

(1)Excludes encumbrances of $111.9 million that are carried on Properties accounted for using the direct financing method.

(2)Includes Properties under construction.

(3)Property was under construction at December 31, 2005.

43

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

NOTES TO SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2005

(dollars in thousands)

(a)Transactions in real estate and accumulated depreciation during 2003, 2004 and 2005 are summarized as follows:

	Cost(b)(d)			Accumulated Depreciation
Property investments under operating leases:
Balance, December 31, 2002	$	241,200		$	3,765
Acquisitions	850,430			—
Real estate held for sale	(6,602		)	(232		)
Depreciation expense(c)	—			16,345
Balance, December 31, 2003	1,085,028			19,878
Acquisitions	1,573,078			—
Impairment provisions	(1,883		)	—
Real estate held for sale	(1,559		)	(526		)
Depreciation expense(c)	—			54,364
Balance, December 31, 2004	2,654,664			73,716
Acquisitions	426,390			—
Impairment provisions	(7,740		)	—
Real estate held for sale	(186		)	(220		)
Depreciation expense(c)	—			84,250
Balance, December 31, 2005	$	3,073,128		$	157,746

(b)As of December 31, 2005, 2004, and 2003 the aggregate cost of the Properties owned by the Company for federal income tax purposes, including Properties accounted for using the operating method and those accounted for using the direct financing method, was $3.4 billion, $3.0 billion and $1.3 billion, respectively. Certain leases accounted for under the direct financing method are treated as operating leases for federal income tax purposes.

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

(d)Acquisition fees and miscellaneous closing costs of $15.5 million, $78.3 million and $60.1 million are included in land, buildings, equipment and intangible lease costs at December 31, 2005, 2004 and 2003, respectively.

44

EX-99.4

Exhibit 99.4

CRP FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

	Page
Unaudited Condensed Consolidated Balance Sheets	2
Unaudited Condensed Consolidated Statements of Income	3
Unaudited Condensed Consolidated Statements of Stockholders’ Equity	4
Unaudited Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6

1

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)
(UNAUDITED)

	March 31, 2006			December 31, 2005
Assets
Real estate investment properties:
Accounted for using the operating method—net of accumulated depreciation of $180,953 and $157,746	$	3,092,433		$	2,914,817
Accounted for using the direct financing method	491,239			488,683
Intangible lease costs—net of accumulated amortization of $29,958 and $26,021	110,580			99,611
	3,694,252			3,503,111
Cash and cash equivalents	102,204			94,902
Restricted cash	22,767			21,920
Accounts and other receivables—net of allowance for doubtful accounts of $8,800 and $7,200	19,848			23,486
Deferred costs, net	23,283			24,705
Accrued rental income	110,330			99,219
Other assets	64,043			52,935
Real estate held for sale	6,921			12,692
Goodwill	5,791			5,791
	$	4,049,439		$	3,838,761
Liabilities and stockholders’ equity
Liabilities:
Mortgages payable	$	1,353,713		$	1,220,190
Bonds payable	101,188			98,016
Construction loans payable	108,472			143,560
Line of credit	105,000			75,000
Due to related parties	831			2,386
Accounts payable and other liabilities	36,218			31,035
Intangible lease liability, net	4,744			4,505
Deferred income	8,055			6,607
Security deposits	23,386			23,954
Total liabilities	1,741,607			1,605,253
Commitments and contingencies
Minority interests	8,270			5,701
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 270,682 and 260,293 shares, respectively, outstanding 264,193 and 255,527 shares, respectively	2,642			2,555
Capital in excess of par value	2,373,850			2,295,307
Accumulated distributions in excess of net income	(84,641		)	(74,894		)
Accumulated other comprehensive income	7,711			4,839
Total stockholders’ equity	2,299,562			2,227,807
	$	4,049,439		$	3,838,761

See accompanying notes to condensed consolidated financial statements.

2

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)
(in thousands, except per share data)

	Three months ended March 31,
	2006			2005
Revenues:
Seniors’ Housing:
Rental income from operating leases	$	62,265		$	55,578
Earned income from direct financing leases	15,969			15,312
FF&E reserve income	1,992			1,582
Contingent rent	101			1,721
Medical Facilities:
Rental income from operating leases	19,057			13,136
Tenant expense reimbursements	4,583			2,710
Property management and development fees	294			1,290
Loan interest income	618			—
	104,879			91,329
Expenses:
Seniors’ Housing property expenses	283			255
Medical Facilities operating expenses	7,484			5,486
General and administrative	4,744			4,028
Asset management fees to related party	5,098			4,325
Provision for doubtful accounts	1,523			750
Depreciation and amortization	26,952			22,737
	46,084			37,581
Operating income	58,795			53,748
Interest and other income	697			631
Interest and loan cost amortization expense	(23,187		)	(15,539		)
Income before equity in earnings of unconsolidated entity, minority interests in income of consolidated subsidiaries and discontinued operations	36,305			38,840
Equity in earnings of unconsolidated entity	2			2
Minority interests in income of consolidated subsidiaries	(86		)	(381		)
Income from continuing operations	36,221			38,461
Loss from discontinued operations	(469		)	(5,826		)
Net income	$	35,752		$	32,635
Net income (loss) per share of common stock (basic and diluted)
From continuing operations	$	0.14		$	0.16
From discontinued operations	—			(0.02		)
	$	0.14		$	0.14
Weighted-average number of shares of common stock outstanding (basic and diluted)	257,507			240,699
Distributions declared per common share	$	0.1776		$	0.1776

See accompanying notes to condensed consolidated financial statements.

3

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2006
(UNAUDITED)
(in thousands, except per share data)

									Accumulated			Accumulated
	Common stock					Capital in			distributions			other
	Number		Par			excess of			in excess of			comprehensive
	of shares		value			par value			net income			income		Total
Balance at December 31, 2005	255,527		$	2,555		$	2,295,307		$	(74,894	)	$	4,839	$	2,227,807
Net income	—		—			—			35,752			—		35,752
Change in fair value of cash flow hedges	—		—			—			—			2,872		2,872
Total comprehensive income														38,624
Subscriptions received for common stock through public offerings and reinvestment plan	10,390		104			103,081			—			—		103,185
Redemption of common stock	(1,724	)	(17		)	(16,362		)	—			—		(16,379		)
Stock issuance costs	—		—			(8,176		)	—			—		(8,176		)
Distributions declared ($0.1776 per share)	—		—			—			(45,499		)	—		(45,499		)
Balance at March 31, 2006	264,193		$	2,642		$	2,373,850		$	(84,641	)	$	7,711	$	2,299,562

See accompanying notes to condensed consolidated financial statements.

4

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(in thousands)

	Three Months Ended March 31,
	2006			2005
Increase (decrease) in cash and cash equivalents:
Net cash provided by operating activities	$	55,511		$	52,814
Investing activities:
Investment in land, buildings and equipment	(177,370		)	(194,641		)
Investment in direct financing leases	(300		)	—
Investment in intangible lease costs	(14,434		)	(8,613		)
Investment in Senior Secured Term Loan	(18,000		)	—
Proceeds from sale of Properties	1,155			—
Payment of acquisition fees and costs	(7,458		)	(10,224		)
Payment of deferred leasing costs	(1,173		)	(265		)
Decrease (increase) in restricted cash	(591		)	12,251
Net cash used in investing activities	(218,171		)	(201,492		)
Financing activities:
Proceeds from borrowings on mortgages payable	136,520			219,010
Principal payments on mortgages payable	(2,896		)	(1,767		)
Proceeds from issuance of bonds payable	5,371			2,449
Retirement of bonds payable	(2,199		)	(2,481		)
Proceeds from construction loans payable	10,081			16,685
Repayments of construction loans payable	(45,170		)	—
Proceeds from line of credit	45,000			—
Repayment of line of credit	(15,000		)	—
Payment on term loan	—			(60,000		)
Refund of loan costs	2,657			—
Payment of loan costs	(1,533		)	(2,036		)
Contributions from minority interests	2,780			629
Distributions to minority interests	(296		)	(11		)
Subscriptions received from stockholders	103,185			87,533
Distributions to stockholders	(45,499		)	(42,593		)
Redemption of common stock	(13,576		)	(11,343		)
Payment of stock issuance costs	(9,463		)	(7,468		)
Net cash provided by financing activities	169,962			198,607
Net increase in cash and cash equivalents	7,302			49,929
Cash and cash equivalents at beginning of period	94,902			51,781
Cash and cash equivalents at end of period	$	102,204		$	101,710
Supplemental schedule of non-cash investing and financing activities:
Mortgage Loans issued in connection with the sale of Properties	$	4,800		$	—
Mortgages assumed on properties purchased	$	—		$	41,406

See accompanying notes to condensed consolidated financial statements.

5

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31, 2006 and 2005
(Unaudited)

1. Organizational and Basis of Presentation:

Organization—CNL Retirement Properties, Inc., a Maryland corporation, was organized in December 1997 to operate as a real estate investment trust (a “REIT”) for federal income tax purposes. Throughout this document, CNL Retirement Properties, Inc. and each of its subsidiaries and several consolidated partnerships and joint ventures are referred to as “we”, “us” and “our.” Various other wholly owned or majority owned subsidiaries are expected to be formed in the future for the purpose of acquiring or developing additional real estate properties and holding other permitted investments.

We acquire primarily real estate properties related to seniors’ housing and health care facilities (the “Properties”) located primarily across the United States. The Properties may include independent living, assisted living and skilled nursing facilities, continuing care retirement communities (“CCRC”) and life care communities (collectively “Seniors’ Housing”), medical office buildings, specialty and walk-in clinics, free standing ambulatory surgery centers, specialty or general hospitals and other types of health care-related facilities (collectively “Medical Facilities”). Seniors’ Housing facilities are generally leased on a long-term, triple-net basis and Medical Facilities are generally leased on a shorter-term, gross or triple-net basis. We may provide mortgage financing loans (“Mortgage Loans”), furniture, fixture and equipment financing (“Secured Equipment Leases”) and other loans to operators or developers of Seniors’ Housing and Medical Facilities. In addition, we may invest up to a maximum of 5% of total assets in equity interests in businesses, including those that provide services to or are otherwise ancillary to the retirement and health care industries. We operate in one business segment, which is the ownership, development, management and leasing of health care-related real estate. At March 31, 2006, we owned 185 Seniors’ Housing facilities, 86 Medical Facilities, including 2 specialty hospitals and 2 walk-in clinics, and 2 Seniors’ Housing facilities and a parcel of land that we hold for sale.

We retained CNL Retirement Corp. (the “Advisor”) as our advisor to provide management, acquisition, advisory and administrative services relating to our Properties, Mortgage Loans, Secured Equipment Lease program, other loans and other permitted investments pursuant to an advisory agreement dated May 14, 2004 (the “Advisory Agreement”) that was renewed pursuant to a renewal agreement effective May 3, 2005 for a one-year term (the “2005 Renewal Agreement”) and was amended by an amendment to the 2005 Renewal Agreement on July 13, 2005 (the “2005 Renewal Amendment” together with the 2005 Renewal Agreement, the “2005 Renewal Agreements”). On May 1, 2006, we entered into a renewal agreement (the “2006 Renewal Agreement”) with the Advisor, pursuant to which the Advisory Agreement was renewed, as amended by the 2005 Renewal Agreements, for an additional one-year term commencing on May 3, 2006 and ending on May 3, 2007. The Advisory Agreement may be terminated at an earlier date upon 60 days prior written notice by either party or by mutual consent of the parties.

Strategic Alliances—In 2005, we entered into an agreement with The Cirrus Group, LLC (“Cirrus”), a development and property management company, to acquire, at our election, Medical Facilities, some of which have yet to be developed. The acquisitions contemplated under this agreement are expected to occur over a five-year term, subject to certain conditions, or until $1.0 billion is invested in Medical Facilities, including specialty hospitals. We will have minority interest partners in connection with the ownership of each of these Properties, including Cirrus principals, physicians and other investors associated with Cirrus principals. As of March 31, 2006, we had acquired a majority equity interest in two Medical Facilities for $52.6 million under this agreement, for which Cirrus and its affiliates made $0.9 million in minority interest contributions.

6

At March 31, 2006, Cirrus managed 23 of our Medical Facilities, including two Properties that we acquired from third parties.

In 2005, we entered into an agreement to provide a Cirrus affiliate with an interest only, five-year senior secured term loan under which up to $85.0 million (plus capitalized interest) may be borrowed to finance the acquisition, development, syndication and operation of new and existing surgical partnerships (“Senior Secured Term Loan”). At March 31, 2006, the balance outstanding under the Senior Secured Term Loan was $34.0 million. In connection with the Senior Secured Term Loan, we received stock warrants which are exercisable into a 10% to 15% ownership interest of the borrower. The stock warrants are exercisable at the earlier of an event of default or the full repayment of the Senior Secured Term Loan and expire in September 2015.

We own a 55% controlling interest in The DASCO Companies, LLC (“DASCO”), a development and property management company. Our relationship with DASCO has provided and may continue to provide opportunities for us to participate in new Medical Facility development and acquisition opportunities as well as Medical Facilities management. DASCO may also provide development and property management services to third parties. At March 31, 2006, DASCO managed fifty-four of our Medical Facilities, including two walk-in clinics and was developing five of our Medical Facilities.

Basis of Presentation—The accompanying condensed consolidated financial statements (the “consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements. The accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Operating results for the three months ended March 31, 2006, may not be indicative of the results that may be expected for the year ending December 31, 2006. Amounts included in the financial statements as of December 31, 2005, have been derived from the audited financial statements.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of CNL Retirement Properties, Inc. and its subsidiaries for the year ended December 31, 2005. The accompanying consolidated financial statements include the accounts of our wholly owned subsidiaries, DASCO and other entities in which we own a majority and controlling interest. Interests of unaffiliated third parties in less than 100% owned and majority controlled entities are reflected as minority interests. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassifications—Certain items in the prior periods’ financial statements have been reclassified to conform to the 2006 presentation, including those related to our real estate held for sale (see Note 5). These reclassifications had no effect on reported equity or net income.

2. Public Offerings:

We completed our fifth public offering (the “2004 Offering”) on March 26, 2006. During the three months ended March 31, 2006, we raised $103.2 million in subscription proceeds from the 2004 Offering. Total subscription proceeds received from the 2004 Offering and the four prior public offerings amount to $2.7 billion at March 31, 2006.

7

The price per share of all of the equity offerings of our common stock was $10.00 per share, with the exception of (i) shares purchased pursuant to volume or other discounts and (ii) shares purchased through our reinvestment plan since the beginning of the 2004 Offering, which have been priced at $9.50 per share.

3. Acquisitions:

In January 2006, we acquired majority equity interests in seven Medical Facilities for $84.5 million which we funded, in part, with proceeds from a new $56.3 million, ten-year mortgage loan. Four of the acquired Properties are located in Texas, two are in Arizona and one is in Missouri, and in aggregate they contain 323,000 square feet. Cirrus will manage the Properties.

In February 2006, we acquired a Seniors’ Housing Property that is being developed. The project is expected to be completed in the fourth quarter of 2006 with an estimated cost of $5.7 million. The 46-unit assisted living facility is located in Michigan.

In March 2006, we acquired majority equity interests in five Medical Facilities for $72.6 million which we funded, in part, with proceeds from a new $47.2 million, ten-year mortgage loan. Four of the Medical Facilities are located in Texas, and one is in Oklahoma, and in aggregate they contain 268,000 square feet. Cirrus will manage the Properties.

In March 2006, we acquired a majority equity interest in a Medical Facility for $24.5 million. The Medical Facility is located in California and contains 55,000 square feet. Cirrus will manage the property.

4. Other Assets:

Other assets included the following (in thousands):

	March 31, 2006		December 31, 2005
Senior Secured Term Loan	$	34,000	$	16,000
Property acquisition deposits	—		10,601
Deferred receivables	8,223		6,638
Fair value of cash flow hedges	7,711		4,839
Mortgage Loan receivable	4,800		—
Prepaid expenses	2,999		4,950
Acquisition costs	4,055		7,633
Other	2,255		2,274
	$	64,043	$	52,935

5. Real Estate Held For Sale:

In March 2006, we sold two Properties which were classified as held for sale to an unrelated third party for $6.0 million and recorded a net loss of $0.5 million. We issued a Mortgage Loan receivable with a three-year term secured by the Properties in the amount of $4.8 million. This amount is included in other assets on our consolidated balance sheet as of March 31, 2006. Interest is payable annually at a rate of 6.0% and principal is

8

due at maturity. In January 2006, we entered into an agreement to sell one additional Property for an expected sales price of $2.1 million.

As of March 31, 2006, real estate held for sale included two Seniors’ Housing facilities and a parcel of land with an aggregate net carrying value of $6.9 million.

The operational results associated with Properties classified as held for sale were presented as loss from discontinued operations in the accompanying consolidated statements of income. Summarized financial information was as follows (in thousands):

	Three Months Ended March 31,
	2006			2005
Rental income from operating leases	$	148		$	528
Provision for doubtful accounts	(124		)	—
Impairment provisions	—			(6,197		)
Net loss on disposal of Properties	(450		)	—
Loss from discontinued operations	(469		)	(5,826		)

6. Indebtedness:

Mortgages payable—At March 31, 2006, we had $1.4 billion in mortgage debt secured by Properties with an aggregate carrying amount of $2.4 billion. Interest rates on the mortgage notes ranged from 4.85% to 8.42% with a weighted-average rate of 5.87% at March 31, 2006.

In January 2006, we entered into a $56.3 million, ten-year mortgage loan that bears fixed-rate interest at 5.59%. Payments for the first five years are interest only, with principal payments beginning in March 2011.

In February 2006, we entered into a $33.0 million mortgage loan and used the proceeds and cash on hand to pre-pay a $48.0 million construction loan facility with a principal balance of $41.9 million. The new interest-only, five-year loan bears interest at a rate equal to LIBOR plus 150 basis points (6.13% all-in rate at March 31, 2006).

In March 2006, we entered into a $47.2 million, ten-year mortgage loan that bears fixed-rate interest at 5.81%. Payments for the first five years are interest only, with principal payments beginning in May 2011.

Construction loans payable—Total construction loans outstanding at March 31, 2006, were $108.5 million, and total liquidity remaining was $33.7 million. During the three months ended March 31, 2006, we prepaid a construction loan facility with a $41.9 million balance, entered into a new construction loan facility of $7.7 million and collectively drew a net of $10.1 million under all of our construction loans related to certain Properties in various stages of development. The loans are variable interest rate loans and mature from November 2006 through December 2013. We anticipate that we will obtain permanent financing to repay the construction loans as they become due.

Line of Credit—At March 31, 2006, $105.0 million was outstanding under our $320.0 million two-year senior secured revolving line of credit (the “Revolving LOC”). The Revolving LOC requires interest-only payments at LIBOR plus a percentage that fluctuates depending on our aggregate amount of debt outstanding in relation to our total assets (6.52% all-in rate at March 31, 2006, which represents a pricing of LIBOR plus 170

9

basis points). The amount available for use under the Revolving LOC is subject to certain limitations based on the pledged collateral. As of March 31, 2006, the Revolving LOC was collateralized by 36 Properties with a carrying value of $389.4 million that, in the aggregate, allowed us to draw up to $283.0 million.

7. Financial Instruments: Derivatives and Hedging:

In May 2005, we entered into two interest rate swap agreements effective June 1, 2005, and one interest rate swap agreement effective July 1, 2005, for an aggregate notional amount of $233.8 million to hedge against unfavorable fluctuations in interest rates on our variable interest rate mortgage notes payable. At March 31, 2006, the fair value of these contracts was $7.7 million and was included in other assets in the accompanying consolidated balance sheets. The change in net unrealized gain of $2.9 million as of March 31, 2006, for derivatives designated as cash flow hedges is disclosed separately in the accompanying consolidated statements of stockholders’ equity as the change in fair value of cash flow hedges. The effective portion of gains and losses on these contracts are recognized in accumulated other comprehensive income whereas the ineffective portions are recognized in earnings. During the three months ended March 31, 2006, the ineffective portion of these hedges was not significant.

8. Related Party Transactions:

Pursuant to the Advisory Agreement, as amended and renewed, the Advisor and its affiliates earn certain fees and are entitled to receive reimbursement of certain expenses.

Acquisition fees—During the three months ended March 31, 2006 and 2005, we incurred acquisition fees of $7.3 million and $13.5 million, respectively, for, among other things, identifying Properties and structuring the terms of the leases (equal to 3.0% of gross offering proceeds and loan proceeds from permanent financing under the 2004 Offering). These fees are included in other assets in the accompanying consolidated balance sheets prior to being allocated to individual Properties or intangible lease costs.

Management fees—We incurred monthly asset management fees totaling $5.1 million and $4.5 million during the three months ended March 31, 2006 and 2005, respectively (0.05% of the amount actually paid or allocated to the purchase, development, construction or improvement of a property, exclusive of acquisition fees and acquisition expenses, and the outstanding principal balance of any Mortgage Loans as of the end of the preceding month).

Administrative services—Our Advisor and its affiliates provide various administrative services, including, but not limited to, accounting; financial, tax, insurance administration and regulatory compliance reporting; stockholder distributions and reporting; due diligence and marketing; and investor relations. During the three months ended March 31, 2006 and 2005, we incurred $0.6 million and $2.0 million for these services, respectively.

Offering expenses—Offering expenses incurred by the Advisor and its affiliates on our behalf, together with selling commissions, the marketing support fee and due diligence expense reimbursements were $8.2 million during each of the quarters ended March 31, 2006 and 2005. These amounts are treated as stock issuance costs and charged to stockholders’ equity.

9. Subsequent Events:

Distributions—On April 1 and May 1, 2006, our Board of Directors authorized distributions to stockholders of record on those dates, totaling $31.3 million, or $0.0592 per share of common stock at each record date, payable by June 30, 2006.

10

Advisory Agreement—On May 1, 2006, we entered into the 2006 Renewal Agreement with the Advisor, pursuant to which the Advisory Agreement was renewed, as amended by the 2005 Renewal Agreements, for an additional one-year term commencing on May 3, 2006 and ending on May 3, 2007.

Pending Merger—On May 1, 2006, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Health Care Property Investors, Inc., a Maryland corporation (“HCP”) and Ocean Acquisition 1, Inc., a Maryland corporation and a wholly owned subsidiary of HCP (“Merger Sub”), pursuant to which we have agreed to merge (the “Merger”) with and into Merger Sub, with Merger Sub continuing as the surviving corporation. Under the terms of the Merger Agreement, at the effective time of the Merger, each share of our common stock, par value $0.01, issued and outstanding immediately prior to the effective time of the Merger (other than shares held by HCP, Merger Sub, us or any of their or our respective wholly owned subsidiaries, and any dissenting stockholders), will be converted into the right to receive consideration equivalent in value to approximately $13.50 per share (without interest), consisting of approximately:

• $11.13 in cash (representing approximately 82% of the total consideration per share); and

• 0.0865 shares of HCP common stock, par value $1.00 per share.

As of May 1, 2006, we had approximately 264.2 million shares of common stock outstanding. HCP will also assume approximately $1.6 billion of our outstanding debt.

Simultaneously with the execution of the Merger Agreement, HCP entered into a merger agreement (the “Advisor Merger Agreement”) with the Advisor and the stockholders of the Advisor, pursuant to which HCP has agreed to acquire the Advisor for shares of HCP common stock valued at approximately $120.0 million (the “Advisor Merger”). The consummation of the Merger and the Advisor Merger are each conditioned upon the consummation of the other. There can be no assurances that the Merger and the Advisor Merger will be consummated.

Redemption Plan—Our Board of Directors has determined that it is in the best interest of our company to suspend our redemption plan, beginning with the second quarter of 2006. The suspension of our redemption plan is effective as of June 15, 2006, and therefore no shares of our common stock will be redeemed for the second quarter of 2006.

Reinvestment Plan—Our Board of Directors has also determined that it is in the best interest of our company to terminate our distribution reinvestment plan, beginning with the second quarter of 2006. The termination of our distribution reinvestment plan is effective as of June 15, 2006, and therefore no distributions to our stockholders will be reinvested in shares of our common stock pursuant to our distribution reinvestment plan for the second quarter of 2006.

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EX-99.5

Exhibit 99.5

ADVISOR FINANCIAL STATEMENTS AS OF DECEMBER 31, 2005 AND 2004 AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2005

	Page
Report of Independent Certified Public Accountants	2
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7

1

Report of Independent Certified Public Accountants

To the Board of Directors and Stockholders of
CNL Retirement Corp.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of CNL Retirement Corp. and its subsidiary (the “Company”) at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1, the Company provides management, advisory and administrative services, and assists in developing and identifying retirement and health care related properties and obtaining financing for CNL Retirement Properties, Inc. and subsidiary.

/s/ PricewaterhouseCoopers LLP

Orlando, Florida

August 4, 2006

2

CNL RETIREMENT CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 AND 2004

	2005		2004
Assets
Current assets
Cash and cash equivalents	$	1,492,063	$	5,235,669
Due from related parties	2,129,615		1,397,956
Prepaid expenses	70,057		122,780
Total current assets	3,691,735		6,756,405
Property and equipment, net	2,466,460		1,457,363
Other assets, at cost	245,137		230,799
	$	6,403,332	$	8,444,567
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses	$	3,678,057	$	2,357,176
Due to related parties	—		1,728,172
Total current liabilities	3,678,057		4,085,348
Deferred rent expense	202,133		165,279
Total liabilities and deferred expense	3,880,190		4,250,627
Commitments and contingencies
Stockholders’ equity
Class A common stock; $1 par value per share; 10,000 shares authorized; 1,000 shares issued and outstanding	1,000		1,000
Class B common stock; $1 par value per share; 5,000 shares authorized; 1,027 shares issued or outstanding	1,027		—
Additional paid-in capital	2,521,115		—
Retained earnings	—		4,192,940
Total stockholders’ equity	2,523,142		4,193,940
Total liabilities and stockholders’ equity	$	6,403,332	$	8,444,567

The accompanying notes are an integral part of these consolidated financial statements.

3

CNL RETIREMENT CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

	2005		2004		2003
Revenue
Acquisition fees	$	6,349,471	$	38,146,953	$	47,658,947
Debt acquisition fees	13,789,410		29,951,684		11,276,578
Management fees	19,143,304		13,032,700		4,425,540
Development fees	26,632		231,847		290,331
Interest and other income	3,008,244		1,860,112		1,206,615
	42,317,061		83,223,296		64,858,011
Expenses
Corporate services provided by related parties	4,106,138		23,362,267		29,296,218
Salaries and benefits	12,735,042		9,641,686		4,115,230
General and administrative	4,222,131		3,642,123		2,785,753
Rent	914,127		838,582		467,227
Depreciation	801,137		497,263		236,106
Interest	—		5,057		14,881
	22,778,575		37,986,978		36,915,415
Income before provision for income taxes	19,538,486		45,236,318		27,942,596
Provision for income taxes	7,473,471		17,049,512		10,514,799
Net income	$	12,065,015	$	28,186,806	$	17,427,797

The accompanying notes are an integral part of these consolidated financial statements.

4

CNL RETIREMENT CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEAR ENDED DECEMBER 31, 2005 AND 2004

	Class A Common Stock			Class B Common Stock			Additional			Retained
	Shares	Par		Shares	Par		Paid-In			Earnings
	Outstanding	Value		Outstanding	Value		Capital			(Deficit)			Total
Balance, December 31, 2002	1,000	$	1,000	—	$	—	$	—		$	(575,561	)	$	(574,561	)
Dividends paid	—	—		—	—		—			(16,449,933		)	(16,449,933		)
Net income	—	—		—	—		—			17,427,797			17,427,797
Balance, December 31, 2003	1,000	1,000		—	—		—			402,303			403,303
Dividends paid	—	—		—	—		—			(24,396,169		)	(24,396,169		)
Net income	—	—		—	—		—			28,186,806			28,186,806
Balance, December 31, 2004	1,000	1,000		—	—		—			4,192,940			4,193,940
Shares issued	—	—		1,027	1,027		8,626,674			—			8,627,701
Dividends paid	—	—		—	—		(6,105,559		)	(16,257,955		)	(22,363,514		)
Net income	—	—		—	—		—			12,065,015			12,065,015
Balance, December 31, 2005	1,000	$	1,000	1,027	$	1,027	$	2,521,115		$	—		$	2,523,142

The accompanying notes are an integral part of these consolidated financial statements.

5

CNL RETIREMENT CORP. AND SUBSIDIARY

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

	2005			2004			2003
Cash flows from operating activities
Net income	$	12,065,015		$	28,186,806		$	17,427,797
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	801,137			497,263			236,106
Loss on disposal of assets	4,373			—			—
Changes in operating assets and liabilities
Due from related parties	(731,659		)	(1,373,812		)	177,276
Prepaid expenses	52,723			(45,564		)	(77,216		)
Accounts payable and accrued expenses	726,239			1,441,273			395,304
Due to related parties	(1,728,172		)	1,728,172			(530,727		)
Deferred rent expense	36,854			57,345			54,202
Net cash provided by operating activities	11,226,510			30,491,483			17,682,742
Cash flows from investing activities
Purchases of property and equipment	(1,219,965		)	(704,817		)	(1,197,531		)
(Increase) decrease in other assets	(14,338		)	—			15,782
Net cash used in investing activities	(1,234,303		)	(704,817		)	(1,181,749		)
Cash flows from financing activities
Principal payments on capital lease obligations	—			(157,358		)	(50,605		)
Issuance of B shares	8,627,701			—			—
Dividends paid to stockholders	(22,363,514		)	(24,396,169		)	(16,449,933		)
Net cash used in financing activities	(13,735,813		)	(24,553,527		)	(16,500,538		)
Net (decrease) increase in cash and cash equivalents	(3,743,606		)	5,233,139			455
Cash and cash equivalents
Beginning of period	5,235,669			2,530			2,075
End of period	$	1,492,063		$	5,235,669		$	2,530
Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	—		$	5,057		$	14,881
Cash paid during the year for income taxes	7,473,471			15,321,340			11,045,526

The accompanying notes are an integral part of these consolidated financial statements.

6

1.Significant Accounting Policies

Organization and Nature of Business

CNL Retirement Corp. (the “Company”), a Florida C corporation, was organized on July 1, 1997.  The Company is owned by CNL Real Estate Group, Inc., (the “Parent”), a wholly owned subsidiary of CNL Financial Group, Inc. (“CFG”).

The Company and its wholly owned subsidiary, CNL Retirement Development Company (“CRDC”), provide management, advisory and administrative services, and assist in identifying and acquiring seniors’ housing and health care-related properties and obtaining financing for CNL Retirement Properties, Inc. and its subsidiary (“CRP”).  CRP is a Real Estate Investment Trust registered with the Securities and Exchange Commission.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and CRDC.  All significant intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.  Cash and cash equivalents consist of demand deposits at commercial banks and money market funds.  Cash equivalents are stated at cost, which approximates fair value.

Cash accounts maintained on behalf of the Company in demand deposits at commercial banks and money market funds may exceed federally insured levels; however, the Company has not experienced any losses in such accounts.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation.  For financial statement purposes, the Company changed to the straight-line method of depreciation effective January 1, 2005, for all newly acquired property and equipment.  Assets acquired before the effective date of the change continue to be depreciated principally by accelerated methods.  The estimated useful lives of the property and equipment range from 3 to 15 years.  The Company believes the new straight-line method will more accurately reflect its financial results by better matching costs of new property over the useful lives of these assets.  The effect of the change was not material to the 2005 financial results of operations.  Leasehold improvements are amortized over the life of the improvement or the term of the lease, whichever is shorter.

Revenue Recognition

The Company records revenue relating to services performed under the terms of its advisory agreement with CRP as follows:

Acquisition Fees

As offering proceeds are received by CRP and available for investment at the rate of 3.0% to 4.5% of gross offering proceeds (Note 2).

7

Debt Acquisition Fees

Upon closing of permanent financing at the rate of 3.0% to 4.5% of loan proceeds (Note 2).

Collectively, the acquisition fees on gross equity proceeds and the debt acquisition fees on loan proceeds are referred to as “Acquisition Fees”.

Development Fees

As the related services are performed in amounts equal to a negotiated percentage of anticipated project costs.

Management Fees

On a monthly basis at 1/12 of .6% of CRP’s real estate asset value as defined in the advisory agreement and the outstanding principal balance of any mortgage loans as of the end of the preceding month.

Personnel Reimbursement Charges

On a monthly basis as the related costs are incurred.

Income Taxes

The Company’s taxable income or loss is included in its Parent’s consolidated federal and state income tax returns.  The Company accounts for income taxes under a tax sharing arrangement that approximates the provision that would be recognized if it were filing tax returns on a stand-alone basis.

Use of Estimates

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

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (“FAS 154”), which replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and Statement of Financial Accounting Standards Board No. 3, Reporting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28.  FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections.  It establishes retrospective application as the required method for reporting a change in accounting principle and the reporting of a correction of an error.  FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“FAS 123R”).  FAS 123R is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.  FAS 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.  FAS 123 focuses primarily on accounting for transaction in which an entity obtains employee services in share-based payment transactions.  As the Company does not currently have share-based payment transactions, adoptions of FAS 123R is not expected to have a significant impact on the Company’s results of operations.

8

2.Related Party Transactions

One of the principal shareholders of the Parent and CFG is a stockholder, director and officer of CRP and is an officer and director of the Company.  Additionally, the President of CFG, who is an officer of the Company, is a director and officer of CRP.

The Company’s fee revenue is primarily earned for services provided to CRP.  The Company and CRP have entered into an advisory agreement pursuant to which the Company earns a monthly management fee equal to one-twelfth of 0.6 percent of CRP’s real estate asset value as defined in the advisory agreement and the outstanding principal amount of any mortgage loans as of the end of the preceding month.  Management fees earned under the advisory agreement for the years ended December 31, 2005, 2004 and 2003 were $19,143,304, $13,032,700 and $4,425,540, respectively.

The Company is also entitled to receive acquisition fees for services rendered in identifying and acquiring properties and structuring the terms of the related leases and negotiating mortgage loans equal to a percentage of gross equity proceeds from CRP stock offerings and loan proceeds from permanent financing.  This percentage equaled 4.0 percent from January 1, 2005 to May 2, 2005 and 3.0 percent from May 3, 2005 to December 31, 2005.  Total acquisition fees of $20,138,881 were earned for the year ended December 31, 2005.  This percentage equaled 4.5 percent from January 1, 2004 to May 13, 2004 and 4.0 percent from May 14, 2004 to December 31, 2004.  Total acquisition fees of $68,098,637 were earned for the year ended December 31, 2004.  This percentage equaled 4.5 percent from January 1, 2003 to December 31, 2003.  Total acquisition fees of $58,935,525 were earned for the year ended December 31, 2003.

The Company pays CFG, based on a verbal agreement, a fee equal to a percentage of gross equity proceeds from CRP stock offerings for branding, executive management and other corporate services.  This percentage equaled 2.5 percent from January 1, 2005 to May 2, 2005 and 2.0 percent from May 3, 2005 to December 31, 2005.  The Company paid $4,106,138 to CFG for these services during the year ended December 31, 2005.  This percentage equaled 2.75 percent from January 1, 2004 to May 13, 2004 and 2.5 percent from May 14, 2004 to December 31, 2004.  The Company paid $23,362,267 to CFG for these services during the year ended December 31, 2004.  This percentage equaled 2.75 percent from January 1, 2003 to December 31, 2003.  The Company paid $29,296,218 to CFG for these services during the year ended December 31, 2003.

The Company is entitled to receive fees in connection with the development, construction, and renovation of properties and earned $26,632, $231,847 and $290,331 from related entities for the years ended December 31, 2005, 2004 and 2003, respectively.

The Company is required under the terms of its advisory agreement with CRP to reimburse CRP for operating expenses if CRP’s operating expenses paid or incurred exceed, in any four consecutive fiscal quarters, the greater of 2 percent of CRP’s average invested assets or 25 percent of net income.  For the years ended December 31, 2005, 2004 and 2003, no reimbursement was required.

9

The Company provides accounting and administrative services to CRP for which it receives personnel expense reimbursements, in addition to the fees described above.  For the years ended December 31, 2005, 2004 and 2003, such reimbursements amounted to $2,935,373, $1,814,744 and $1,192,345, respectively, and are included in interest and other income in the accompanying consolidated statements of income.

CFG provides marketing, administration, technology systems, human resources, accounting, tax and compliance services to the Company.  Amounts paid to CFG for these services amounted to $2,270,610, $2,294,340 and $1,472,506 for the years ended December 31, 2005, 2004 and 2003, respectively, and are included is general and administrative expense in the accompanying consolidated statements of income.

Amounts due from related parties at December 31, 2005 and 2004 consist of the following:

	2005		2004
Acquisition fees	$	309,191	$	523,709
Other	1,820,424		874,247
	$	2,129,615	$	1,397,956

Amounts due to related parties at December 31, 2005 and 2004 consist of the following:

	2005		2004
Income taxes	$	—	$	1,728,172

The Company maintains bank accounts in a bank in which certain officers and directors of the Company serve as directors and are significant stockholders.  The amounts deposited with this bank were $1,492,063 and $5,235,069 at December 31, 2005 and 2004, respectively.

See Note 8 for Related Party Lease Obligations.

3.Property and Equipment, Net

Property and equipment consist of the following at December 31, 2005 and 2004:

	2005			2004
Furniture and fixtures	$	1,522,253		$	930,015
Computer equipment and software	1,859,959			747,637
Leasehold improvements	615,642			571,883
	3,997,854			2,249,535
Less: Accumulated depreciation	(1,531,394		)	(792,172		)
	$	2,466,460		$	1,457,363

10

4.Other Assets

Other assets consist of the following at December 31, 2005 and 2004:

	2005		2004
Common stock - CNL Retirement Properties, Inc., carried at cost which approximates fair market value (20,000 shares)	$	200,000	$	200,000
Other	45,137		30,799
	$	245,137	$	230,799

5.Income Taxes

The provision for income taxes consisted of the following for the years ended December 31, 2005, 2004 and 2003:

	2005		2004		2003
Current
Federal	$	6,496,547	$	14,557,556	$	8,977,956
State	976,924		2,491,956		1,536,843
	$	7,473,471	$	17,049,512	$	10,514,799

The Company’s effective rate of approximately 38% is not significantly different from the statutory rates applicable to its operations.

6.Profit Sharing Plan

Employees of the Company are included in the Parent’s defined contribution profit sharing plan (the “Plan”).  The Plan is designed in accordance with the applicable sections of the Internal Revenue Code, and is not subject to minimum funding requirements.  The Plan covers all eligible employees of the Company and its subsidiary upon completion of six months of service.  The employees may elect to contribute up to a maximum of 98 percent of their salary under Internal Revenue Service regulations.  The Company matches 50 percent of the first 6 percent of each employee’s contribution up to a maximum of 3 percent of their salary.  For the years ended December 31, 2005, 2004 and 2003, the Company’s contribution, including administration costs, amounted to approximately $133,000, $110,000 and $49,500, respectively, and is included in salaries and benefits in the accompanying consolidated statements of income.

11

7.Rights of Common Stockholders

In connection with the issuance of the Class B common shares, the Company obtained an estimate of value from an independent valuation firm.

Each share of Class A common stock is entitled to one vote.  The rights of the Class B common stock are as follows:

•each share of Class B common stock is equivalent to 1/100^th  of a share of Class A common stock with regard to all matters, including voting rights, participation in payment of dividends, and distribution in liquidation of the Company;  and

•if the Company is a participant in a merger or consolidation that results in the conversion, exchange or cancellation of the outstanding shares of Class A common stock or the sale or transfer of all or substantially all of the assets of the Company, then in such event each holder of the Class B common stock shall be entitled to the same consideration as the holder of an equivalent number of shares of Class A common stock.

•The Class B common shares are subject to employee stock purchase agreements that give CFG the right to purchase varying percentages of the stock at the issuance price in the event that the holders leave employment of the Company or other CFG affiliates within 48 months after issuance.  Upon change of control or merger, the repurchase option is voided.

8.Obligations Under Operating Leases

The Company was allocated a portion of lease rent obligations relating to office space leased from a related party.  The lease provides for minimum monthly rental payments through October 2014.  Deferred rent expense represents the difference between rent paid and the total cost of the lease recognized on a straight-line basis over the remaining term of the lease.  Rent expense, including amortization of deferred rent, relating to the Company’s allocated portion of the lease payments totaled $468,466, $544,067 and $452,567 for the years ended December 31, 2005, 2004 and 2003, respectively.

The Company entered into a new lease with a related party for office space in November 2005.  The lease provides for minimum monthly rent payments through November 2015 commencing March 2006.  This lease is replacing the allocation of the lease for office space noted above.  As such, the future minimum lease payments have been adjusted to reflect the replacement of that lease allocation with the new lease.

The Company has been allocated a portion of a lease rent obligation relating to other office space.  This lease provides for minimum monthly rental payments of $30,881 through March 2006.  Rent expense relating to the Company’s allocated portion of the lease payments totaled $409,712, $270,343 and $0 for the years ended December 31, 2005, 2004 and 2003, respectively.

12

The Company’s allocation of future minimum lease payments is as follows:

Years Ending
2006	$	1,070,899
2007	1,051,776
2008	1,072,650
2009	1,094,145
2010	1,116,076
Thereafter	6,129,750
	$	11,535,296

13

EX-99.6

Exhibit 99.6

ADVISOR FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

	Page
Unaudited Condensed Consolidated Balance Sheets	2
Unaudited Condensed Consolidated Statements of Earnings	3
Unaudited Condensed Consolidated Statements of Stockholders’ Equity	4
Unaudited Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6

1

CNL RETIREMENT CORP.
AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2006		December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	1,426,809	$	1,492,063
Due from related parties	477,406		2,129,615
Prepaid expenses and other assets	66,221		70,057
Total current assets	1,970,436		3,691,735
Property and equipment, net	3,525,706		2,466,460
Other assets, at cost	245,137		245,137
	$	5,741,279	$	6,403,332
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,164,527	$	3,678,057
Dividends payable	50,492		—
Due to related parties	2,579,964		—
Total current liabilities	3,794,983		3,678,057
Deferred rent expense	—		202,133
Total liabilities and deferred expense	3,794,983		3,880,190
Commitments and contingencies
Stockholders’ equity:
Class A common stock; $1 par value per share; 10,000 shares authorized; 1,000 shares issued and outstanding	1,000		1,000
Class B common stock; $1 par value per share; 5,000 shares authorized; 1,027 shares issued and outstanding	1,027		1,027
Additional paid-in capital	1,944,269		2,521,115
Retained earnings	—		—
Total stockholders’ equity	1,946,296		2,523,142
	$	5,741,279	$	6,403,332

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

CNL RETIREMENT CORP.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

	Three Months Ended March 31,
	2006			2005
Revenue:
Acquisition fees	$	2,581,268		$	3,490,727
Debt acquisition fees	4,327,935			10,450,657
Management fees leases	5,126,778			4,498,507
Development fees	3,905			—
Interest and other income	621,945			647,998
	12,661,831			19,087,889
Expenses:
Corporate services provided by related parties	860,423			2,174,642
Salaries and benefits	3,310,462			2,443,099
General and administrative	920,069			933,239
Rent	260,693			226,761
Depreciation and amortization	201,600			126,742
	5,553,247			5,904,483
Income before provision for income taxes	7,108,584			13,183,406
Provision for income taxes	(2,719,034		)	(4,960,916		)
Net income	$	4,389,550		$	8,222,490

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

CNL RETIREMENT CORP.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)
Three Months Ended March 31, 2006

	Class A Common Stock			Class B Common Stock			Additional			Retained
	Shares Outstanding	Par Value		Shares Outstanding	Par Value		Paid-In Capital			Earnings (Deficit)			Total
Balance at December 31, 2005	1,000	$	1,000	1,027	$	1,027	$	2,521,115		$	—		$	2,523,142
Dividends paid	—	—		—	—		(576,846		)	(4,389,550		)	(4,966,396		)
Net income	—	—		—	—		—			4,389,550			4,389,550
Balance at March 31, 2006	1,000	$	1,000	1,027	$	1,027	$	1,944,269		$	—		$	1,946,296

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

CNL RETIREMENT CORP.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2006			2005
Cash flows from operating activities:
Net income	$	4,389,550		$	8,222,490
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	201,600			126,742
Loss on retired assets	232,850			—
Changes in operating assets and liabilities:
Due from related parties	1,652,209			(3,609,342		)
Prepaid expenses and other assets	3,836			26,045
Accounts payable and accrued expenses	(1,918,888		)	(1,943,068		)
Dividends payable	50,492			—
Due to related parties	1,985,322			4,954,832
Deferred rent expense	(202,133		)	9,564
Net cash provided by operating activities	6,394,838			7,787,263
Cash flows from investing activities:
Purchases of property and equipment	(1,992,027		)	(39,034		)
Proceeds from sale of assets	498,331			—
Net cash used in investing activities	(1,493,696		)	(39,034		)
Cash flow from financing activities:
Dividends paid to stockholders	(4,966,396		)	(12,978,098		)
Net cash used in financing activities	(4,966,396		)	(12,978,098		)
Net increase in cash and cash equivalents	(65,254		)	(5,229,869		)
Cash and cash equivalents at beginning of period	1,492,063			5,235,669
Cash and cash equivalents at end of period	$	1,426,809		$	5,800
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	$	2,719,034		$	4,960,916

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

CNL RETIREMENT CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
Quarters Ended March 31, 2006 and 2005

1. Organization and Nature of Business

CNL Retirement Corp. (the “Company”) and its wholly owned subsidiary, CNL Retirement Development Company, provide management, advisory and administrative services and assist in identifying and acquiring seniors’ housing and health care-related properties and obtaining financing for CNL Retirement Properties, Inc. and it’s subsidiaries (“CRP”).

2. Interim Period Financial Statements

The interim statements have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company’s management believes the disclosures made are adequate to make the interim financial information presented not misleading.

In the opinion of management, the accompanying interim statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2006 and the results of operations and cash flows for the three months ended March 31, 2006 and 2005. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations.

Amounts included in the financial statements as of December 31, 2005, have been derived from the audited financial statements of the Company for the year then ended.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of CNL Retirement Corp. for the year ended December 31, 2005. The accompanying unaudited condensed consolidated financial statements include the accounts of CNL Retirement Corp. and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated.

3. Related Party Transactions

One of the principal stockholders of the Company’s parent is a stockholder, director and officer of CRP and is also an officer and director of the Company. Additionally, the President of the Company’s parent is an officer and director of the Company as well as an officer and director of CRP.

The Company’s fee revenue is primarily earned for services provided to CRP. In addition, the Company provides accounting and administrative services to CRP and other related companies for which it receives personnel reimbursements. For the three months ended March 31, 2006 and 2005 such reimbursements amounted to $612,892 and $630,359, respectively and are included in interest and other income.

Amounts due from related parties at March 31, 2006 and December 31, 2005 consist of the following:

	March 31, 2006			December 31, 2005
Acquisition fees	$	(63,473	)	$	309,191
Other	540,879			1,820,424
	$	477,406		$	2,129,615

6

Amounts due to related parties at March 31, 2006 and December 31, 2005 consist of the following:

	March 31, 2006		December 31, 2005
Amounts due for furniture deposits paid by Parent	$	2,579,964	$	—
	$	2,579,964	$	—

Amounts due are unsecured, non-interest bearing and due on demand.

The Company maintains bank accounts in a bank in which certain officers and directors serve as directors and are stockholders. The amounts deposited with this bank were $1,426,209 and $1,492,063 as of March 31, 2006 and December 31, 2005, respectively.

7