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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

(Mark One)

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

For the fiscal year ended     December 31, 2003

OR

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

For the transition period from                     to                    

Commission file number 000-32607

CNL RETIREMENT PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

450 South Orange Avenue, Orlando, Florida 32801
(Address of principal executive offices, including zip code)

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

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

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

Common Stock, $0.01 par value per share
(Title of class)

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

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

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

        Aggregate market value of the common stock held by nonaffiliates of the registrant: No established market exists for the Registrant’s shares of common stock, so there is no market value for such shares. Each share was originally sold at $10 per share. Based on the $10 offering price of the shares, $837,995,130 of our common stock was held by non-affiliates as of June 30, 2003.

        The number of shares of common stock outstanding as of February 25, 2004 was 173,338,186.

DOCUMENTS INCORPORATED BY REFERENCE

        Registrant incorporates by reference portions of the CNL Retirement Properties, Inc. Definitive Proxy Statement for the 2004 Annual Meeting of Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than April 30, 2004.

Contents

PART I

Item 1. Business

General

        CNL Retirement Properties, Inc. is a corporation which was organized pursuant to the laws of the State of Maryland on December 22, 1997. Various other wholly owned subsidiaries of CNL Retirement Properties, Inc. have been and will be formed in the future for the purpose of acquiring and owning real estate properties. The term “Company” includes CNL Retirement Properties, Inc. and its subsidiaries. The Company operates for federal income tax purposes as a real estate investment trust (a “REIT”). The Company has retained CNL Retirement Corp. (the “Advisor”) as its advisor to provide management, acquisition, advisory and administrative services.

        The Company acquires real estate properties related to seniors’ housing and health care facilities (“Properties”) primarily located across the United States. The Properties may include congregate living, assisted living and skilled nursing facilities, continuing care retirement communities, life care communities, specialty clinics, medical office buildings, walk-in clinics and similar types of health care-related facilities. The Properties are generally leased on a long-term, triple-net basis. The Company may also lease medical office space on a shorter-term, gross basis. In addition, the Company may provide mortgage financing loans (“Mortgage Loans”) and secured equipment leases (“Secured Equipment Leases”) to operators.

        Upon formation in December 1997, the Company received an initial capital contribution of $200,000 for 20,000 shares of common stock from the Advisor. On April 3, 2003, the Company completed its third public offering and immediately commenced a fourth public offering which continues as of February 25, 2004. As of December 31, 2003, the Company had received subscription proceeds of $1.5 billion (150,232,736 shares), including $11.4 million (1,141,295 shares) through its distribution reinvestment plan. The Company has used substantially all of the proceeds received from the offerings, after deduction of selling commissions and offering fees and expenses, to invest in Properties. On July 30, 2003, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission for the proposed sale of up to 400 million shares of common stock (approximately $4 billion) expected to commence in the second quarter of 2004.

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

        The Company intends to capitalize on the growing real estate needs in the seniors’ housing and health care industries by investing in additional Properties or Mortgage Loans using proceeds received from its public offerings and permanent financings. Management expects to acquire Properties with a view to diversify among facility types, tenants, operators, and in the geographic location of the Properties.

Industry

        Management believes that changes and trends in the health care industry will continue to create opportunities for growth of retirement facilities, including (i) the growth of operators serving specific health care niches, (ii) the consolidation of providers and facilities through mergers, integration of physician practices, and elimination of duplicative services, (iii) the pressures to reduce the cost of providing quality health care, (iv) more dual-income and single-parent households leaving fewer family members available for in-home care of aging parents and necessitating more senior care facilities, and (v) an anticipated increase in the number of insurance companies and health care networks offering privately funded long-term care insurance.

        The Company believes that demographic trends are significant when looking at the potential for future growth in the health care industry. For 2003, the U.S. Census Bureau projected that there would be over 35.6 million Americans over the age of 65, representing approximately 12.6% of the U.S. population or about one in eight Americans. 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 number of Americans age 65 and older will grow in number to approximately 75 million by the year 2035. More than half of these older adults, 38.6 million, will be age 75 and over. In addition, the 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.

        Management believes, based on historical costs of properties owned by publicly traded health care REITs, that only a small portion of facilities in the United States are owned by REITs. Management believes that this fact, coupled with the industry trends discussed above, provides a significant investment opportunity for the Company. Demographic trends may vary depending on the Properties and regions selected for investment. The success of the future operations of the Company’s Properties will depend largely on each tenant 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.

Investment Properties

        Portfolio of Properties. At December 31, 2003, the Company owned 119 Properties, which were managed by five operators and were located in 27 states. The following table is a summary of the types of facilities, amounts invested and number of facilities and units for the Properties owned as of December 31, 2003 (dollars in thousands):

        Property Leases. The seniors’ housing Properties are leased on a long-term, 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. In the event the Company invests in medical office buildings, it generally expects to enter into 5 to 10 year gross leases, whereby the tenants will be responsible for only a portion of property taxes, maintenance, repairs, utilities and insurance.

        The seniors’ housing leases provide for minimum annual base rent payments, payable in monthly installments. The leases provide that the minimum base rent required under the terms of the leases will increase at predetermined intervals (typically on an annual basis) during the terms of the leases. In addition to minimum annual base rent, substantially all 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 the Company’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 (“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. The Company may be responsible for capital expenditures or repairs in excess of the amounts in the reserve fund, and the tenant generally will be responsible for replenishing the reserve fund and for paying a specified return on the amount of capital expenditures or repairs paid for by the Company in excess of amounts in the reserve fund.

        At December 31, 2003, 87 of the Company’s Properties were accounted for as operating leases and generally provide for an initial term of 15 years (expiring between 2015 and 2018). Five of the Properties subject to operating leases were in various stages of development. The operating leases generally provide options that allow the tenants to renew the leases from 5 to 20 successive years subject to the same terms and conditions as the initial leases. Thirty-one of the Company’s Properties were accounted for as direct financing leases with terms that range from 10 to 35 years (expiring between 2013 and 2038). Certain 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 the Company’s initial investment amount. Certain leases also permit the Company to require the tenants to purchase the Properties at the end of the lease terms for the same amount. The remaining Property is a parcel of land currently in the construction phase of a seniors’ housing complex. Upon completion of the development, the Company expects to enter into a long-term, triple-net lease agreement with an operator of the retirement facility to operate and manage the Property.

        The lessees’ ability to satisfy the lease obligations depends primarily on the Properties’ operating results. The Company selects its 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, the Company may pursue its remedies under the lease with respect to any of the tenant’s Properties in the portfolio (“Cross-Default”). In addition, certain portfolios contain terms whereby the net operating profits of the Properties are combined for the purpose of funding rental payments due under each lease (“Pooling”). For certain Properties, the Company has also required security deposits, guarantees from the tenant’s parent company or additional types of income support. Guarantees or other forms of credit support may be necessary if a Property was recently opened and 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, the Company develops estimates of future cash flows available to the tenant to pay minimum rent based on rent rolls and an analysis of the surrounding real estate market, including demographic information and industry standards, to predict operating expenses. The Company’s estimates are based on assumptions and there can be no assurances as to what actual amounts will need to be paid under the guarantees.

        Major Tenants and Operators. As of December 31, 2003, the Company leased its Properties to 15 tenants, three of which independently contributed between 11% and 18% (an aggregate of 42%) of the Company’s total rental income from operating leases and earned income from direct financing leases for the year ended December 31, 2003.

        The Advisor’s parent company owns a 30% voting membership interest in HRA Holdings, LLC (“HRA”), which is affiliated with eight of the Company’s tenants that leased 69 of the Company’s 119 Properties as of December 31, 2003. These eight tenants, which are thinly capitalized, contributed 35% of total rental income from operating leases and earned income from direct financing leases for the year ended December 31, 2003.

        The following tables summarize information about the Company’s operator concentration as of December 31, 2003 (dollars in thousands):

        Although the Company acquires Properties located in various states and regions and screens its tenants in order to reduce risks of default, failure of these tenants, their guarantors or the Sunrise or American Retirement Corporation brands would significantly impact the Company’s results of operations. It is expected that the percentage of total rental income contributed by these tenants will decrease as additional Properties are acquired and leased to diversified tenants during subsequent periods.

Other Permitted Investments

        The Company may also provide Mortgage Loans to operators of Properties secured by real estate owned by the borrower. The Company expects that the interest rates and terms of the Mortgage Loans will be similar to those of its leases. However, because the Company prefers to focus on investing in Properties, which have the potential to appreciate, the Company currently expects to provide Mortgage Loans in the aggregate principal amount of no more than 5% to 10% of the Company’s total assets.

        To a lesser extent, the Company also may provide Secured Equipment Leases to operators, pursuant to which the Company 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 7 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 the Company’s total assets.

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

Advisory Services

        Pursuant to an advisory agreement (the “Advisory Agreement”), the Advisor provides management services relating to the Company, the Properties, the Mortgage Loans and the Secured Equipment Lease program. Under this agreement, the Advisor is responsible for assisting the Company in negotiating leases, Mortgage Loans, Secured Equipment Leases, lines of credit and permanent financing; collecting rental, Mortgage Loan and Secured Equipment Lease payments; inspecting the Properties and the tenants’ books and records; and responding to tenants’ inquiries and notices. The Advisor is also responsible for providing information to the Company about the status of the leases, Properties, Mortgage Loans, Secured Equipment Leases, any lines of credit and any permanent financing. In exchange for these services, the Advisor is entitled to receive certain fees from the Company. 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 equal to 4.5% of gross proceeds from the offerings and loan proceeds from permanent financing, excluding that portion of the permanent financing used to finance Secured Equipment Leases. In addition, if there is a Listing, the Advisor will receive an acquisition fee of 4.5% 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 the Company the amount by which the total operating expenses incurred by the Company in any four consecutive fiscal quarters (the “Expense Year”) exceed the greater of 2% of average invested assets or 25% of net income (the “Expense Cap”).

        The Advisory Agreement continues until May 14, 2004, and thereafter may be extended annually upon mutual consent of the Advisor and the Board of Directors of the Company unless terminated at an earlier date upon 60 days prior written notice by either party. The Company expects that the Board of Directors will approve to extend the Advisory Agreement an additional year upon its expiration.

Borrowings

        The Company has and will continue to borrow money to acquire Properties, make Mortgage Loans and pay certain fees and intends to encumber Properties in connection with the borrowings. The Company may also borrow to enter into Secured Equipment Leases. The Company has obtained an $85 million line of credit that may be amended to allow the line of credit to be increased by $40 million. The line of credit may be increased at the discretion of the Board of Directors and may be repaid with offering proceeds, proceeds from the sale of assets, working capital or permanent financing. The Company has also obtained permanent financing. The Board of Directors anticipates that the aggregate amount of any permanent financing will not exceed 50% of the Company’s total assets. As of December 31, 2003, permanent financing and bonds payable represented 21% of the Company’s total assets. The maximum amount the Company may borrow is 300% of the Company’s net assets. The line of credit and permanent financing are the only sources of funds for making Secured Equipment Leases.

Competition

        The Company competes with other REITs, real estate partnerships, health care providers and other investors, including, but not limited to, banks and insurance companies, many of which may have greater financial resources than the Company, in the acquisition, leasing and financing of seniors’ housing and health care-related facilities. Further, non-profit entities are particularly suited to make investments in senior care facilities because of their ability to finance acquisitions through the issuance of tax-exempt bonds, providing non-profit entities with a relatively lower cost of capital as compared to for-profit purchasers. In addition, in certain states, facilities owned by non-profit entities are exempt from taxes on real property. As profitability increases for investors in retirement or health care facilities, competition among investors likely will become increasingly intense.

Risk Factors

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

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

        At December 31, 2003, the Company had aggregate outstanding borrowings equal to approximately 30% of its net assets. Pursuant to the Company's Articles of Incorporation, the Company is entitled to borrow up to 300% of its net assets, although it does not presently expect to borrow more than 100% of its net assets. Borrowing may be risky if the cash flow from the Properties and other investments is insufficient to meet the Company's debt obligations.

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

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

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

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

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

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

Employees

        Reference is made to Item 10. Directors and Executive Officers of the Registrant for a listing of the Company’s Executive Officers. The Company has no employees. The Company has retained the Advisor to provide management, acquisition, advisory and certain administrative services and has retained certain other affiliates of the Advisor to provide additional administrative services.

Available Information

        The Company makes available free of charge on or through its Internet website (http://www.cnlonline.com) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to the Securities and Exchange Commission.

Item 2. Properties

        As of December 31, 2003, the Company had invested approximately $1.5 billion in 119 retirement Properties located in 27 states. Generally, the Company’s Properties conform to the following specifications of size and type of land and buildings:

        Congregate Living Facilities. Congregate living facilities, that are more commonly referred to as independent living facilities, are primarily apartment buildings which contain a significant amount of common area 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.

        Assisted Living Facilities. Assisted living facilities provide a special combination of housing, supportive services, personalized assistance and health care to their residents in a manner which is designed to respond to individual needs. These facilities 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 100 units, depending on such factors as market forces, site constraints and program orientation. Current economics place the size of the private living space of a unit in the range of 300 gross square feet for an efficiency unit to 750 square feet for a large one bedroom unit.

        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 also be freestanding, but are typically more institutional in nature, allowing for efficient cleaning and sterilization. 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.

        Continuing Care Retirement Communities. Congregate 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 or life care communities. The intent of continuing care retirement communities or life care communities is to provide a continuum of care to the residents. As residents age and their health care needs increase, they can receive the care they need without having to move away from the “community” which has become their home. Continuing care retirement communities typically operate on a fee-for-service basis and the units are rented on a monthly basis to residents, while life care centers generally charge an entrance fee that is partially refundable and covers the cost of all of the resident’s health care-related services, plus a monthly maintenance fee.

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

        Medical Office Buildings. Medical office buildings, including 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 and delivery of health care services. These facilities can range in size from 3,000 square feet (walk-in clinic) to up to 150,000 square feet (medical office building).

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

        The following table summarizes the facility type, location, number of units, the Company’s investment amount at December 31, 2003, and the annualized rental income and rental income for the year ended December 31, 2003 (dollars in thousands):

Item 3. Legal Proceedings

        On February 6, 2004, a complaint was filed in the Superior Court of the State of California for the County of Los Angeles by California Public Interest Research Group, Inc. and Congress of California Seniors, Inc. against 94 named defendants, including the Company, the Advisor and two operators that manage certain Properties owned by the Company. The plaintiffs seek restitution with respect to deposits and fees collected from residents by the operators of the senior living facilities that, the complaint alleges, were designated and treated as nonrefundable deposits and fees in violation of the California Civil Code. This matter is in the preliminary stages and although management is not able to predict the outcome, management has been advised by counsel that a number of valid defenses exist.

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

        None.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

        As of January 31, 2004, there were 64,176 stockholders of record of common stock. There is no public trading market for the shares of common stock, and even though the Company intends to list the shares on a national securities exchange or over-the-counter market on or before December 31, 2008, if market conditions are satisfactory, there is no assurance that a public market for the shares will develop, even if Listed. Prior to such time, if any, as Listing occurs, any stockholder (other than the Advisor) may present all or any portion equal to at least 25% of such stockholders’ shares to the Company for redemption at any time, in accordance with the procedures outlined in the Company’s prospectus. At such time, the Company may, at its sole option, redeem such shares presented for redemption for cash. The current redemption price is $9.20 per share. Redemptions are limited to the extent sufficient funds are available. The full amount of proceeds available from the Company’s distribution reinvestment plan is available for redemptions. In addition, the Company may, at its discretion, use up to $100,000 per calendar quarter of the proceeds of any public offering of its common stock for redemptions. There is no assurance that there will be sufficient funds available for redemptions and, accordingly, a stockholder’s shares may not be redeemed. No more than 5% of the Company’s outstanding stock may be redeemed during a 12-month period. Any shares acquired pursuant to a redemption will be retired and no longer available for re-issuance by the Company. The Board of Directors of the Company, in its discretion, may amend or suspend the redemption plan at any time they determine that such amendment or suspension is in the best interest of the Company. During the years ended December 31, 2003, 2002 and 2001, 131,781 shares, 37,306 shares and 3,415 shares, respectively, were redeemed at $9.20 per share (for a total of $1.2 million, $0.3 million and $31,420, respectively) and retired from shares outstanding of common stock. Although the Company is not aware of any material transfers or resale of stock in 2003, 2002 or 2001, the price to be paid for any share transferred other than pursuant to the redemption plan is subject to negotiation by the purchaser and the selling stockholder.

        As of December 31, 2003, the offering price per share of common stock was $10. The offering price per share was determined by the Company in its sole discretion based upon the price the Company believed investors would pay for the shares and on certain other considerations. The Company’s shares are not publicly traded and there is no public market for the shares on which to base market value. The Company did not take into account the value of the underlying assets in determining the price per share. Investors are cautioned that common stock not publicly traded is generally considered illiquid and the estimated value per share may not be realized when an investor seeks to liquidate his or her common stock.

        The Company expects to make distributions to the stockholders pursuant to the provisions of the Articles of Incorporation. For the years ended December 31, 2003 and 2002, the Company declared cash distributions of $59.8 million and $14.4 million, respectively, to stockholders. For the years ended December 31, 2003 and 2002, approximately 71% and 65%, respectively, of distributions paid to stockholders were considered ordinary income and approximately 29% and 35%, respectively, were considered a return of capital for federal income tax purposes. No amounts distributed to stockholders for the years ended December 31, 2003 and 2002, were required to be or have been treated by the Company as a return of capital for purposes of calculating the stockholders’ return on their invested capital. Certain fees payable to the Advisor upon Listing, orderly liquidation or other sales of Properties are subordinate to the return of 100% of the stockholders' invested capital plus the achievement of a cumulative, noncompounded annual 8% return on stockholders’ invested capital. The following table presents total distributions (in thousands) and distributions per share:

        On January 1, 2004 and February 1, 2004, the Company declared distributions to stockholders totaling $8.9 million and $9.6 million, respectively ($0.0592 per share), payable by March 31, 2004, to stockholders of record as of each respective date.

        The Company intends to continue to declare distributions of cash to stockholders on a monthly basis during the offering period, and quarterly thereafter. The Company is required to distribute annually at least 90% of its real estate investment trust taxable income to maintain its objective of qualifying as a REIT. Distributions will be made at the discretion of the Board of Directors, depending primarily on net cash from operating activities and the general financial condition of the Company, subject to the obligation of the Board of Directors to cause the Company to remain qualified as a REIT for federal income tax purposes.

Item 6. Selected Financial Data

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

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

Overview

        The Company’s primary focus during 2003 was the investment of proceeds from its public offerings in Properties. During the year ended December 31, 2003, the Company received net offering proceeds of $959.0 million and invested $1.2 billion in 82 Properties, consisting primarily of assisted living and independent living facilities. The Company also obtained or assumed $332.1 million of permanent financings, including $88.5 million in non-interest bearing bonds payable. As of December 31, 2003, the Company had real estate assets of approximately $1.5 billion that consisted of 119 Properties. In February 2004, the Company acquired an additional 19 retirement Properties for $537.3 million and in connection with the acquisition, assumed $274.6 million in permanent financing. As of February 25, 2004, the Company had commitments to purchase an additional 26 Properties, including four retirement facilities and 22 medical office buildings, for an aggregate amount of $308.3 million and had committed $123.7 million for the construction of six retirement facilities. The Company anticipates that it will receive additional offering proceeds and will assume permanent financings to fund the acquisition of these proposed Properties. The Company has obtained construction financing to fund construction costs related to the Properties under development.

Liquidity and Capital Resources

Common Stock Offerings

        Upon formation in December 1997, the Company received an initial capital contribution of $200,000 for 20,000 shares of common stock from the Advisor. Since its inception through December 31, 2003, the Company has made four public offerings and received subscriptions as follows (in thousands):

        The price per share and other terms of all the offerings, including the percentage of gross proceeds payable (i) to the managing dealer for selling commissions and expenses in connection with the offering and (ii) to the Advisor for acquisition fees, are substantially the same.

        On July 30, 2003, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission for the proposed sale by the Company of up to 400 million shares of common stock (approximately $4 billion) in an offering expected to commence immediately following the completion of the Company’s 2003 Offering. The Board of Directors has approved a resolution to amend the Articles of Incorporation to increase the number of authorized shares of common stock from 450 million to one billion. The Board of Directors expects to submit this matter to the stockholders for approval at the 2004 annual meeting. Until such time, if any, that the stockholders approve an increase in the number of authorized shares of common stock of the Company, the proposed offering will be limited to 213 million shares.

        As of December 31, 2003, net proceeds to the Company from its offerings of shares and capital contributions from the Advisor, after deduction of selling commissions, marketing support fees, due diligence expense reimbursements and organizational and offering expenses, totaled approximately $1.4 billion. The Company has used net offering proceeds, proceeds from permanent financing and advances from its revolving line of credit to invest in 119 Properties located in 27 states.

        The following table summarizes the Company’s proceeds, investment activity and cash available for investment from inception to December 31, 2003 (dollars in thousands):

        During the period January 1, 2004 through February 25, 2004, the Company received additional net offering proceeds of approximately $207.8 million and paid acquisition fees and costs of approximately $19.9 million. The Company also used $262.7 million in connection with the acquisition of 19 Properties, leaving approximately $89.7 million for investment in Properties, Mortgage Loans and other permitted investments as of February 25, 2004.

        The Company expects to use uninvested net offering proceeds, plus additional net offering proceeds from the sale of shares from the 2003 Offering and future offerings to purchase additional Properties, and to a lesser extent, to invest in Mortgage Loans and other permitted investments. The Company also intends to obtain additional borrowings to acquire assets and to pay certain related fees. The number of Properties to be acquired and Mortgage Loans and other permitted investments in which the Company may invest will depend upon the amount of net offering proceeds and loan proceeds available to the Company.

        The Company believes that the net proceeds received from the 2003 Offering and any additional offerings will enable the Company to continue to grow and take advantage of acquisition opportunities until such time, if any, that the Company’s shares are listed on a national securities exchange or over-the-counter market. Under the Company’s Articles of Incorporation, if the Company does not List by December 31, 2008, it will commence an orderly liquidation of its assets and the distribution of net proceeds to its stockholders.

Redemptions

        The Company has a redemption plan under which the Company may elect to redeem shares, subject to certain conditions and limitations. Under the redemption plan, prior to such time, if any, as listing of the Company’s common stock on a national securities exchange or over-the-counter market occurs, any stockholder who has held shares for at least one year may present all or any portion equal to at least 25% of their shares to the Company for redemption in accordance with the procedures outlined in the redemption plan. Upon presentation, the Company may, at its option, redeem the shares, subject to certain conditions and limitations. However, at no time during any 12-month period may the number of shares redeemed by the Company exceed 5% of the number of shares of the Company’s outstanding common stock at the beginning of the 12-month period. During the years ended December 31, 2003, 2002 and 2001, 131,781 shares, 37,306 shares and 3,415 shares, respectively, of common stock were redeemed at $9.20 per share and retired for $1.2 million, $0.3 million and $31,420, respectively.

Property Acquisitions

        At December 31, 2003, the Company’s investment portfolio consisted of 119 Properties located in 27 states with an aggregate investment amount of approximately $1.5 billion compared to 37 Properties located in 16 states with an aggregate investment amount of approximately $388.3 million at December 31, 2002. During the year ended December 31, 2003, the Company invested $1.2 billion in 82 Properties. The Properties acquired were primarily assisted living and independent living facilities and included five Properties in various stages of development. With the exception of one Property under development, the Company, as lessor, has entered into long-term, triple-net lease agreements relating to the Properties.

        During the year ended December 31, 2003, the Company acquired 63 Properties that are subject to operating leases for an aggregate purchase price of approximately $810.8 million plus closing costs. The operating leases provide for initial terms of 15 years with options that allow the tenants to renew the leases from 5 to 25 successive years subject to the same terms and conditions as the initial leases. The leases provide for minimum annual base rent, generally payable in monthly installments, with increases at predetermined intervals (typically on an annual basis) during the terms of the leases. In addition to minimum annual base rent, substantially all of the leases require contingent rent if operating performance or occupancy rate thresholds, as defined in the lease agreement, are achieved by the Properties. The majority of the leases also provide for the tenant to fund, in addition to its lease 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.

        In addition, during the year ended December 31, 2003, the Company acquired 19 Properties that are accounted for as direct financing leases, as described below.

        On March 31, 2003, the Company acquired two Properties for $22.6 million plus closing costs through a direct financing transaction. The Company, as lessor, has entered into a 35-year lease agreement that requires minimum annual rent, FF&E reserves and additional rent, which is based on a percentage of the tenant’s gross revenues if the Properties achieve specified occupancy rates. All property purchased with the funds from the FF&E reserve will remain the property of the tenant. The lease contains provisions that allow the tenant to purchase the Properties at the end of the lease term for the Company’s initial investment amount. The lease also permits the Company to require the tenant to purchase the Properties at the end of the lease term for the same amount.

        On August 29, 2003, the Company acquired 14 Properties for an aggregate purchase price of $184.5 million. The Company, as lessor, has entered into 21.5-year lease agreements related to the Properties. The transactions were classified as direct financing transactions due to the present value of the minimum lease payments being greater than 90 percent of the fair market value of the Properties at the lease commencement date. In addition to minimum rent, the leases provide for the tenant to fund an FF&E reserve fund. All property purchased with the funds from the FF&E reserve will be owned by the Company.

        During the year ended December 31, 2003, the Company also acquired three parcels of land for an aggregate purchase price of approximately $54.7 million. The Company, as lessor, has entered into a 10-year lease agreement relating to each Property. The transactions were classified as direct financing transactions due to the leases providing a bargain purchase option that may be exercised by the tenants at the beginning of the fifth lease year. Minimum lease payments under the lease agreements are subordinate to first mortgage construction loans entered into by the tenants to fund development costs related to the Properties.

        At December 31, 2003, 93 of the 119 Properties owned by the Company were operated and managed by Sunrise Senior Living Services, Inc. Additionally, five Properties owned by the Company at December 31, 2003, are being developed by Sunrise Development, Inc., a wholly owned subsidiary of Sunrise Senior Living, Inc. Four additional operators manage the remaining 21 Properties owned by the Company as of December 31, 2003.

        At December 31, 2003, the Company’s restricted cash balance included $9.8 million that was held in escrow to fund the acquisition of a Property pending certain regulatory approvals. The Company expects to acquire the Property in the second quarter of 2004.

Investments Subsequent to December 31, 2003 and Pending Investments

        In February 2004, the Company acquired an additional 19 Properties for $537.3 million in a sale-lease back transaction. The Properties are primarily independent living and assisted living facilities and are operated by Horizon Bay Management, L.L.C.

        As of February 25, 2004, the Company had commitments to acquire 26 additional Properties, which include four retirement facilities and 22 multi-tenant medical office buildings. The anticipated aggregate purchase price is $308.0 million, and the acquisition of each Property is subject to the fulfillment of certain conditions. The Company expects to receive additional offering proceeds and plans to assume permanent financing of approximately $89.4 million in connection with the acquisition of 16 Properties. It is expected that Horizon Bay Management, L.L.C. will operate one of the proposed retirement facilities, a subsidiary of Harbor Assisted Living, LLC will operate two of the proposed retirement facilities and Sunrise Senior Living Services, Inc. will operate the remaining proposed retirement facility. It is expected that the 22 medical office buildings will be leased, primarily on a gross basis, to various health care providers and physicians and managed by various third party property managers. There can be no assurance that these transactions will be consummated.

Borrowings

        Line of Credit. In March 2003, the Company replaced its existing $25 million line of credit with a two-year, $85 million revolving line of credit that may be amended to allow the line of credit to be increased up to $125 million. Eleven Properties with an aggregate real estate value of $118.6 million collateralize the $85 million revolving line of credit; however, the collateral provided by these 11 Properties only allows the Company to draw up to $71.4 million under the revolving line of credit. The Company will be required to pledge additional Properties as collateral to fully maximize the $85 million liquidity available under the revolving line of credit. This credit facility requires monthly payments of interest only at LIBOR plus a percentage that fluctuates until maturity, depending on the Company’s aggregate amount of debt outstanding in relation to the Company’s total assets, and has several covenants typically found in revolving loan facilities, including covenants to maintain a minimum net worth and minimum collateral value. The Company may use the revolving line of credit to fund acquisitions, pay fees, make distributions and fund working capital for general business purposes. Periodically, the Company expects to repay amounts drawn under the revolving line of credit with proceeds received from equity offerings, permanent financing, the sale of assets or working capital. In March 2003, the Company borrowed $71.4 million on the line of credit to acquire several Properties, of which $50.4 million has been repaid using proceeds received from the Company’s 2003 Offering. As of February 25, 2004, the Company had an outstanding balance of $20 million on the line of credit. In connection with the $85 million revolving line of credit, the Company incurred $1.9 million in loan fees and costs.

        On September 9, 2003, the Company entered into a six-month, $50 million credit facility agreement that has a 120-day funding option with a commercial lender. The loan may be extended for two additional three-month periods and may be used to fund the acquisition and development of Properties and investments in Mortgage Loans and other permitted investments. During the initial term, the loan bears interest at a variable rate, as selected by the Company, equal to LIBOR plus 300 basis points or the higher of (i) the bank’s prime rate plus 100 basis points or (ii) the Federal Funds rate plus 150 basis points, payable monthly, and requires monthly principal payments of $2.5 million until maturity. As of February 25, 2004, there were no amounts outstanding under this loan. In January 2004, the Company exercised its first option to extend the loan term to June 7, 2004.

        Permanent Financing. Permanent debt increased from $45.3 million at December 31, 2002, to $275.1 million at December 31, 2003, as a result of the Company acquiring 82 Properties during 2003 and either assuming existing debt on the Properties acquired or encumbering the Properties with new debt. At December 31, 2003, the Company had 31 mortgage notes payable with an aggregate outstanding balance of $275.1 million collateralized by 36 Properties with a net book value of $517.3 million. Approximately 38% of the Company’s mortgage notes payable at December 31, 2003, were subject to variable interest rates that are adjustable monthly or quarterly. Fixed interest rates range from 5.79% to 8.375%. Substantially all 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.

        The table below summarizes the Company’s permanent financing at December 31, 2003, (dollars in thousands):

        On  January 27, 2004, the Company obtained permanent financing comprised of three loans in the aggregate amount of $130 million from a commercial lender collateralized by 22 Properties owned by the Company. At loan closing, the Company drew $30 million and is required to draw an additional $30 million and $70 million within 90 days and 12 months, respectively, of the loan closing date. Upon final funding, the loans will bear interest at 5.79% per annum. The loans require interest only payments through January 2005, and principal and interest payments thereafter until maturity on January 27, 2009.

        On January 29, 2004, the Company obtained permanent financing comprised of 12 loans in the aggregate amount of $74.6 million from a commercial lender collateralized by 12 Properties owned by the Company. The loans have terms of seven years and bear interest at a rate of 5.96% per annum. The loans require monthly interest only payments for the first 24 months with monthly payments of principal and interest due thereafter until maturity.

        In February 2004, the Company assumed $274.6 million in permanent financing comprised of 16 loans in connection with the acquisition of 19 Properties. The majority of the debt, $192.7 million comprised of 11 loans, is agency debt through Fannie Mae. These loans are interest only loans that bear interest at 30-day LIBOR plus a premium of either 90 basis points or 104 basis points and mature in either November 2005 or May 2008. Three loans in an aggregate amount of $38.4 million payable to a commercial lender bear interest at 30-day LIBOR plus 370 basis points with a minimum rate of 5.95%. These loans require monthly interest only payments through July 2004 with principal and interest payments thereafter until maturity in May 2008. An additional $10.4 million, variable rate loan payable to a commercial lender bears interest at 30-day LIBOR plus 370 basis points with a minimum rate of 4.80%. The loan requires monthly interest only payments through January 2005 with principal and interest payments thereafter until maturity in May 2008. The remaining loan in the amount of $33.1 million has a fixed interest rate of 8.17% with principal and interest payable monthly until maturity in April 2008.

        Construction Financing. On October 23, 2003, the Company obtained an $8.9 million construction loan related to one of the Company’s Properties that is under construction. The loan requires interest only payments at a variable rate of LIBOR plus a premium that ranges from 225 basis points to 275 basis points based on the Property’s occupancy levels until maturity in November 2006. As of December 31, 2003, the Company had drawn $6.8 million to fund construction costs.

        On December 2, 2003, the Company obtained four construction loans in the aggregate amount of $74.2 million relating to four of the Company’s Properties that are in various stages of construction. The loans require interest only payments at a variable rate of LIBOR plus a premium that ranges from 225 basis points to 275 basis points based on the Property’s occupancy levels, until maturity on November 26, 2006, with all unpaid principal and interest due at that time. At December 31, 2003, the Company had not drawn on these construction loans.

        On December 19, 2003, the Company obtained a construction loan in the amount of $48 million relating to one of the Company’s Properties that is under construction. The loan requires interest only payments at a variable rate of the bank’s prime rate plus 2.25% with a minimum rate of 6.5% per annum. The loan matures on December 19, 2007 and all unpaid principal and interest are due at that time. The loan may be extended for two additional 12-month periods. At the time of closing, the Company drew $0.6 million to fund loan closing costs.

        Bonds Payable. In connection with the acquisition of two continuing care retirement communities (“CCRC’s”) in March 2003, the Company assumed approximately $88.5 million in non-interest bearing life care bonds payable to certain residents of the two retirement facilities. Generally, the bonds are refundable to a resident upon the resident moving out of the CCRC or to a resident’s estate upon the resident’s death. In some instances, the bonds are not refundable until the unit has been successfully remarketed to a new resident. The Company issues new bonds to new residents of these retirement facilities, and the proceeds from the new bonds are used to retire the existing bonds. As of December 31, 2003, the bonds payable had an outstanding balance of $90.1 million.

Contractual Obligations and Commitments

        The following table presents the Company’s contractual cash obligations and related payment periods as of December 31, 2003 (in thousands):

Cash and Cash Equivalents

        Until Properties are acquired or Mortgage Loans or Secured Equipment Leases are entered into, net offering proceeds are held in short-term (defined as investments with a maturity of three months or less), highly liquid investments which management believes to have appropriate safety of principal. This investment strategy provides high liquidity in order to facilitate the Company’s use of these funds to acquire Properties at such time as Properties suitable for acquisition are located or to fund Mortgage Loans or Secured Equipment Leases. At December 31, 2003, the Company had $167.1 million invested in such short-term investments as compared to $40.8 million at December 31, 2002. The increase in the amount invested in short-term investments was primarily attributable to subscription proceeds received from the sale of shares during the year ended December 31, 2003, offset by the purchase of 82 Properties. The funds remaining at December 31, 2003, along with additional funds expected to be received from the sale of shares, will be used to purchase additional Properties, to make Mortgage Loans or other permitted investments, to pay offering expenses and acquisition expenses, to pay distributions to stockholders, to meet other Company expenses and, in management’s discretion, to create cash reserves.

Accounts and Other Receivables

        The Company’s accounts and other receivables balance increased from $3.2 million at December 31, 2002 to $12.2 million as of December 31, 2003. The increase was primarily due to an increase in rental revenues receivable from $0.8 million at December 31, 2002 to $11.2 million at December 31, 2003 as a result of lease agreements relating to 43 of the Company’s 119 Properties owned as of December 31, 2003, providing for monthly rent payments earned under the lease agreements to be paid one month in arrears. The increase in rental revenues receivable was partially offset by the repayment of a $2.0 million loan the Company had made to the seller of two Properties. Prior to the Company’s purchase of the two Properties, the Company loaned the seller $2.0 million to extinguish debt at a discounted amount, making the purchase of the Properties economically viable. The Company acquired the two Properties on March 31, 2003, and the note was repaid at that time. As of February 25, 2004, management believes the receivable balance as of December 31, 2003 is fully collectible.

Loan Costs

        The Company’s net loan costs increased from $1.2 million at December 31, 2002 to $7.4 million at December 31, 2003, as a result of the Company borrowing $170.8 million in the form of 19 new mortgage loans, the assumption of 11 mortgage loans in an aggregate amount of $72.8 million and a new $85 million revolving line of credit. Loan cost amortization was $1.4 million for the year ended December 31, 2003.

Lease Intangible Costs

        In connection with the acquisition of Properties that are subject to operating leases, the Company allocates costs associated with having an in-place lease at the date of acquisition to a lease intangible asset that is amortized over the initial term of each applicable lease (generally 15 years). The Company’s net lease intangible costs increased from $8.2 million at December 31, 2002 to $30.2 million at December 31, 2003, as a result of the Company purchasing 63 Properties that are subject to operating leases during the year ended December 31, 2003. Lease intangible costs amortization was $1.2 million for the year ended December 31, 2003.

Liquidity Requirements

        During the years ended December 31, 2003, 2002 and 2001, the Company generated cash from operating activities (which includes cash received from its tenants and interest, less cash paid for operating expenses) of $60.7 million, $16.8 million and $2.2 million, respectively. For the years ended December 31, 2003, 2002 and 2001, cash from operating activities includes security deposits of $3.1 million, $3.5 million and $0.8 million, respectively, which were received from the Company’s tenants. Management expects the Company to meet its short-term liquidity requirements, other than for offering expenses, the acquisition and development of Properties, and the investment in Mortgage Loans and other permitted investments, through cash flow provided by operating activities. Management believes that cash flow provided by operating activities will be sufficient to fund normal recurring operating expenses, regular debt service requirements and distributions to stockholders. In February 2004, the Company, the Advisor and two operators that manage Properties located in California were named in a complaint with respect to certain fees and deposits collected by operators from residents of the Properties as described in Item 3. To the extent that the Company’s cash flow provided by operating activities is not sufficient to meet such short-term liquidity requirements as a result, for example, of unforeseen expenses due to the tenants defaulting under the terms of their lease agreements, the Company will use borrowings under its revolving line of credit. Management expects the Company to meet its other short-term liquidity requirements, including payment of offering expenses, the acquisition and development of Properties, and the investment in Mortgage Loans and other permitted investments, with proceeds from its offerings, advances under its revolving line of credit and permanent financing. Management expects the Company to meet its long-term liquidity requirements through short- or long-term, unsecured or secured debt financing or equity financing.

        Properties 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, the Company may make fixed asset expenditures, in which case the annual minimum rent will be increased. Management does not believe that working capital or additional FF&E reserves are necessary as of December 31, 2003.

        Management believes that its Properties are adequately covered by insurance. In addition, the Advisor has obtained contingent liability and property coverage for the Company. This insurance policy is intended to reduce the Company’s exposure in the event a tenant’s insurance policy lapses or is insufficient to cover a claim relating to the Property.

Distributions

        The Company declared and paid distributions to its stockholders totaling $59.8 million, $14.4 million and $1.5 million during the years ended December 31, 2003, 2002 and 2001, respectively. In addition, on January 1, 2004 and February 1, 2004, the Company declared distributions of $0.0592 per share of common stock to stockholders of record as of each respective date. These distributions are payable by March 31, 2004.

        For the years ended December 31, 2003, 2002 and 2001, approximately 71%, 65% and 65%, respectively, of the distributions received by stockholders were considered to be ordinary income and approximately 29%, 35% and 35%, respectively, were considered a return of capital for federal income tax purposes. No amounts distributed to stockholders for the years ended December 31, 2003, 2002 and 2001, were required to be or have been treated by the Company as return of capital for purposes of calculating the stockholders’ return on their invested capital. The Company intends to continue to make distributions of cash available for such purpose to the stockholders on a monthly basis, payable monthly or quarterly.

Results of Operations

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

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

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

        In addition to minimum annual base rent, certain leases require the payment of contingent rent if certain operating performance or occupancy rate thresholds, as defined in the lease agreements, are achieved by the Properties. During the years ended December 31, 2003 and 2002, the Company recognized $47,610 and $7,758, respectively, of contingent rent.

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

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

        The following unaudited condensed pro forma information assumes that the Properties acquired during 2003 and 2002, were owned on January 1, 2002. Additionally, it assumes that the effect of the sale of the Company’s common stock and assumption or issuance of mortgage debt had occurred on January 1, 2002 (in thousands, except per share data):

        At December 31, 2003, the Company leased its Properties to 15 tenants, three of which independently contributed between 11% and 18% (an aggregate of 42%) of the Company’s total rental income from operating leases and earned income from direct financing leases for the year ended December 31, 2003.

        The Advisor’s parent company is affiliated with eight of the Company’s tenants that leased 69 of the Company’s 119 Properties as of December 31, 2003. These eight tenants contributed 35% of total rental income from operating leases and earned income from direct financing leases for the year ended December 31, 2003. Each of the eight tenants is a thinly capitalized corporation that is affiliated with HRA. The Company’s other tenants include subsidiaries or affiliates of: American Retirement Corporation (“ARC”); Erickson Retirement Communities, LLC; Greenwalt Corporation; Prime Care Properties, LLC; Summit Companies, Incorporated; Solomon Senior Living Holdings, LLC; and Sunrise Senior Living Services, LLC (“Sunrise”).

        To mitigate credit risk, certain leases are combined into portfolios that contain Cross-Default and Pooling terms. In addition, as of December 31, 2003, the Company had $8.0 million in security deposits related to certain Properties as well as various guarantees or required cash reserves to be held by the tenant for payment of minimum rent.

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

        In connection with the purchase of five Properties that are in various stages of development and being developed by Sunrise Development, Inc., Sunrise has guaranteed the tenants’ obligations to pay minimum rent and the FF&E reserve due under the leases from the date of acquisition until the later of (i) 30 months (March 2007) or (ii) 18 months after the final development date.

        The Company had the following additional limited guarantees as of December 31, 2003 (in thousands):

        At December 31, 2003, 93 of the 119 Properties owned by the Company were operated by Sunrise, a wholly owned subsidiary of Sunrise Senior Living, Inc., formerly known as Sunrise Assisted Living, Inc. Additionally, five Properties owned by the Company as of December 31, 2003, are being developed by Sunrise Development, Inc., a wholly owned subsidiary of Sunrise Senior Living, Inc. Upon completion of each development, each Property will be operated by Sunrise. Four additional operators manage the remaining 21 Properties owned by the Company as of December 31, 2003.

        Although the Company acquires Properties located in various states and regions and screens its tenants in order to reduce risks of default, failure of these tenants, their guarantors or the Sunrise or American Retirement Corporation brands would significantly impact the results of operations of the Company. It is expected that the percentage of total rental income contributed by these tenants will decrease as additional Properties are acquired and leased to diversified tenants during subsequent periods.

Comparison of the year ended December 31, 2002 to the year ended December 31, 2001

        Net earnings for the year ended December 31, 2002 totaled $11.4 million or $0.52 per share of common stock. This compares to net earnings of $0.9 million or $0.38 per share of common stock for 2001. The increase in net earnings and net earnings per share was the result of the various factors described below.

        For the years ended December 31, 2002 and 2001, the Company earned $16.8 million and $1.7 million, respectively, in rental income from its Properties accounted for as operating leases and earned income from its Properties accounted for as direct financing leases. The Company also earned $0.2 million and $39,000 in FF&E reserve income during the years ended December 31, 2002 and 2001, respectively. The increase in rental and FF&E reserve income was due to the Company owning 36 Properties subject to lease agreements during the year ended December 31, 2002, as compared to three Properties during the year ended December 31, 2001.

        Of the 36 Properties subject to lease agreements, 35 of these Properties are leased to affiliates or wholly owned subsidiaries of ARC, HRA or Prime Care Properties, LLC and contributed 95.6% of Company’s total rental income during the year ended December 31, 2002. Six of these Properties are operated under the ARC brand and 29 Properties were operated by Marriott Senior Living Services, Inc., a subsidiary of Marriott International, Inc. To mitigate credit risk, certain leases are combined into portfolios that contain Cross-Default and Pooling terms. For certain Properties, the Company has also required security deposits, guarantees from the tenant’s parent company or additional cash reserve accounts to be held at the tenant level.

        During the years ended December 31, 2002 and 2001, the Company also earned $1.9 million and $0.1 million, respectively, in interest income from investments in money market accounts and other short-term, highly liquid investments. Interest income increased during the year ended December 31, 2002, as compared to the year ended December 31, 2001, due to the Company having a larger amount of offering proceeds temporarily invested pending the acquisition of Properties. Included in interest income for the year ended December 31, 2002 was approximately $0.2 million in interest income related to notes receivable.

        Operating expenses, including interest expense and depreciation and amortization expense, were approximately $7.1 million and $1.0 million for the years ended December 31, 2002 and 2001, respectively (37.4% and 51.8%, respectively, of total revenues). The increase in operating expenses during the year ended December 31, 2002, as compared to 2001, was the result of the Company owning and overseeing 37 Properties during 2002 compared to the three Properties in 2001. Additionally, interest expense increased from $0.1 million for the year ended December 31, 2001 to $1.5 million for the year ended December 31, 2002, as a result of the Company entering into additional borrowing in 2002.

        Pursuant to the Advisory Agreement, the Advisor is required to reimburse the Company the amount by which total operating expenses paid or incurred by the Company exceed in any four consecutive quarters the Expense Cap. During the four quarters ended June 30, 2001, the Company’s operating expenses totaled $0.4 million, exceeding the Expense Cap by $0.1 million; therefore, the Advisor reimbursed the Company such amount in accordance with the Advisory Agreement. The Company’s operating expenses did not exceed the Expense Cap for any other Expense Years during the years ended December 31, 2002 and 2001.

        In May 2002, a joint venture in which the Company owned a 76.75% equity interest, purchased five Properties. The 23.25% minority interest in this joint venture was held by Marriott Senior Living Services, Inc. until December 20, 2002, when the Company purchased the 23.25% minority interest. Prior to December 20, 2002, each joint venture partner shared in the costs and benefits of the joint venture in proportion to its percentage equity interest. The minority interest in earnings of the consolidated joint venture was $0.4 million for the year ended December 31, 2002.

Other

Inflation and Trends

        The Company’s current leases are triple-net leases and contain provisions that management believes will mitigate the effect of inflation. Such 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 sales above a specified level). It is expected that future leases will generally be triple-net leases, however, the Company expects to invest in medical office buildings, which typically are leased on a shorter-term, gross basis. The gross leases are expected to also contain provisions that mitigate the effect of inflation, such as scheduled base rent increases during the lease terms and the reimbursement of future increases in operating expenses (including real estate taxes, insurance, repairs, maintenance and utilities) over a specified base amount. Inflation and changing prices may have an adverse impact on the potential disposition of the Properties and on capital appreciation of the Properties.

        Management is not aware of any material trends, favorable or unfavorable, in either capital resources or the outlook for long-term cash generation, nor does management 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, management believes that inflation will not impact the availability of equity and debt financings. Management expects that the cash to be generated from operations will be adequate to pay operating expenses and to make distributions to stockholders.

Related Party Transactions

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

        For services in connection with the sale of the Company’s shares, CNL Securities receives fees based on the amounts raised from the Company’s offerings for: (i) commissions of 7.5%, (ii) a marketing support fee of 0.5% and (iii) beginning in December 31, 2003, an annual soliciting dealer servicing fee equal to 0.2% of the aggregate proceeds raised in the 2000 Offering. The majority of such fees were re-allowed to other broker dealers. As of December 31, 2003, 2002 and 2001, the Company incurred the following costs related to such fees (in thousands):

        The Advisor receives acquisition fees for services in identifying Properties and structuring the terms of their leases and Mortgage Loans equal to 4.5% of the gross proceeds of the offering and loan proceeds from permanent financing, excluding that portion of the permanent financing used to finance Secured Equipment Leases. In addition, if there is a Listing, the Company will receive an acquisition fee of 4.5% of amounts outstanding on a line of credit, if any, at the time of Listing the Company’s common stock on a national securities exchange or over-the-counter market. During the years ended December 31, 2003, 2002 and 2001, the Company incurred $59.0 million, $18.7 million and $2.7 million, respectively, of such fees, including $11.3 million, $2.1 million and $0, respectively, of acquisition fees on permanent financing. These fees are recorded as other assets in the Consolidated Financial Statements of the Company in Item 8 prior to being allocated to individual Properties or lease intangible costs.

        The Company and the Advisor have entered into an Advisory Agreement pursuant to which the Advisor receives a monthly asset management fee of 0.05% of the Company’s real estate asset value and the outstanding principal balance of any Mortgage Loan as of the end of the preceding month. During the years ended December 31, 2003, 2002 and 2001, the Company incurred $4.4 million, $0.8 million and $0.1 million, respectively, of such fees.

        The Advisor and its affiliates provide various administrative services to the Company, including services related to accounting; financial, tax and regulatory compliance reporting; stockholder distributions and reporting; due diligence and marketing; and investor relations (including administrative services in connection with the offerings). The expenses incurred for these services for the years ended December 31 are as follows (in thousands):

        During the years ended December 31, 2003, 2002 and 2001, affiliates of the Advisor incurred on behalf of the Company $17.2 million, $5.6 million and $1.6 million, respectively, for certain offering expenses. Offering expenses paid by the Company, together with selling commissions, the marketing support fee and due diligence expense reimbursements incurred by the Company will not exceed 13% of the proceeds raised in connection with the offerings. In addition, during the years ended December 31, 2003, 2002 and 2001 affiliates incurred on behalf of the Company $0.4 million, $0.5 million and $0.4 million, respectively, for certain acquisition expenses and $2.2 million, $0.6 million and $0.2 million, respectively, for certain operating expenses.

        Pursuant to the Advisory Agreement, the Advisor is required to reimburse the Company the amount by which the total operating expenses paid or incurred by the Company in any Expense Year exceed the Expense Cap. During the Expense Year ended June 30, 2001, operating expenses exceeded the Expense Cap by $0.1 million; therefore, the Advisor reimbursed the Company such amounts. The Company’s operating expenses did not exceed the Expense Cap in any other subsequent Expense Year.

        CNL Capital Corp., an affiliate of the Advisor, is a non-voting Class C member of Century Capital Markets, LLC (“CCM”). CCM made the arrangements for the $23.5 million loan described in Note 8 to the Notes to Consolidated Financial Statements of the Company in Item 8, for which CCM was paid a $0.5 million structuring fee in June 2002. Prior to August 18, 2003, the monthly interest payments due under the loan included a margin of 30 basis points payable to CCM for the monthly services it provided related to the administration of the loan. From its origination in June 2002, the loan was a commercial paper backed loan with an interest rate at the commercial paper rate, as determined by market demand, plus a margin of 1.86% that was inclusive of liquidity fees and administrative costs. The Company paid CCM $0.2 million for each of the two years ended December 31, 2003 and 2002, related to these services. On August 18, 2003, the loan converted from a commercial paper loan to a direct loan with a third party commercial lender.

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

        The Company maintains bank accounts in a bank in which certain officers and directors of the Company serve as directors, and in which an affiliate of the Advisor and certain executive officers of the Company are stockholders. The amounts deposited with this bank were $15.8 million and $5.7 million at December 31, 2003 and 2002, respectively.

        On May 30, 2002, the Company acquired a 10% interest in a limited partnership, CNL Plaza, Ltd., that owns an office building located in Orlando, Florida, in which the Advisor and its affiliates lease office space. The remaining interest in the limited partnership is owned by several affiliates of the Advisor. During the years ended December 31, 2003 and 2002, the Company received $0.1 million and $0.2 million, respectively, in distributions from the partnership.

        In March 2003, the Advisor’s parent company purchased a 30% voting membership interest in a limited liability company which is affiliated with eight of the Company’s tenants that leased 69 of the Company’s 119 Properties as of December 31, 2003. These eight thinly capitalized tenants contributed 35% of total rental income from operating leases and earned income from direct financing leases for the year ended December 31, 2003.

        Amounts due to related parties at December 31 are as follows (in thousands):

Critical Accounting Policies

        Allocation of Purchase Price for Acquisition of Properties. The Company allocates the purchase costs of Properties to the tangible and intangible assets acquired and the liabilities assumed as provided by Statement of Accounting Standard No. 141, “Business Combinations.” For each acquisition, the Company assesses the value of the land, building, equipment and its intangible assets, including in-place leases, the above or below market lease values and the value of tenant relationships based on their estimated fair values. The value of the buildings acquired are determined on an as-if vacant basis. The values determined are based on independent appraisals or on management’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 will be charged to expense.

    Leases. The Company’s leases are accounted for under the provisions of Statement of Accounting Standard No. 13, “Accounting for Leases,” and have been accounted for as either operating leases or direct financing leases. This statement requires management to estimate the economic life of the leased property, the residual value of the leased property and the present value of minimum lease payments to be received from the tenant. In addition, management assumes that all payments to be received under its leases are collectible. Changes in management’s estimates or assumption regarding collectibility of lease payments could result in a change in accounting for the lease at the inception of the lease.

    Impairments. The Company periodically (no less than once per year) evaluates its investments in real estate and any unconsolidated joint ventures for impairment and whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through operations. Management determines whether impairment in the value has occurred by comparing the undiscounted cash flows, including the estimated residual value of the asset with the carrying amount of the individual asset. If impairment is indicated, the asset is adjusted to its estimated fair value.

New Accounting Standards

        In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should include the assets, liabilities and activities of another entity in its financial statements. To improve financial reporting by companies involved with variable interest entities (more commonly referred to as special-purpose entities or off-balance sheet structures), FIN 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and a result of a revision to FIN 46 (“FIN46-R”), and to older entities which are non-special purpose entities in the first fiscal year or interim period ending after March 15, 2004. The consolidation of these entities, if required, is not expected to have a significant effect on the Company’s financial position results of operations.

        In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires issuers to classify certain financial instruments as liabilities (or assets in some circumstances) that previously were classified as equity. Financial instruments covered by SFAS 150 include shares that are mandatorily redeemable, and other financial instruments that contain obligations to repurchase outstanding shares or contain conditional obligations that require settlement by issuance of a variable number of that issuer’s shares. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003, except for the provisions related to the mandatorily redeemable non-controlling interests. On October 29, 2003, the FASB delayed the effective date of the implementation of the provisions that relate to the mandatorily redeemable non-controlling interests. The Company does not expect the adoption of this statement to have a significant impact on the financial position or results of operations of the Company.

REIT Qualification

        The Company has 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, the Company generally will not be subject to federal income tax on income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it 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 the Company’s net earnings. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT for the years ended December 31, 2003, 2002 and 2001. In addition, the Company intends to continue to operate the Company so as to remain qualified as a REIT for federal income tax purposes.

Statement Regarding Forward Looking Information

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

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

        Approximately 38% of the Company’s mortgage notes payable at December 31, 2003 were subject to variable interest rates. Therefore, the Company is exposed to market changes in interest rates. At December 31, 2003, a hypothetical 100 basis point increase in the US Treasury and LIBOR rates would have resulted in additional interest costs of approximately $0.9 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 the Company’s exposure to interest rate change, it is not intended to predict future results and the Company’s actual results will likely vary.

        The Company is also subject to interest rate risk through outstanding balances on its variable rate line of credit. The Company had $20 million outstanding at December 31, 2003.

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

        Following is a summary of the Company’s permanent financing obligations at December 31, 2003 (in thousands):

Item 8.     Financial Statements and Supplementary Data

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES

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