BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

instruments are being amortized to interest expense over the life of the underlying hedged debt payments. In the future, if the underlying hedged debt is extinguished or refinanced, the remaining unamortized gain or loss in accumulated other comprehensive income will be recognized in net income. Although hedge accounting was discontinued on October 1, 2006, the swap instruments remain outstanding and are carried at fair value in the consolidated balance sheet and the change in fair value beginning October 1, 2006 has been included in the statements of operations.

8.    Legal Proceedings

In connection with the sale of certain facilities to Ventas Realty Limited Partnership (‘‘Ventas’’) in 2004, two legal actions have been filed. The first action was filed on September 15, 2005, by current and former limited partners in 36 investing partnerships in the United States District Court for the Eastern District of New York captioned David T. Atkins et al. v. Apollo Real Estate Advisors, L.P., et al. (the ‘‘Action’’). On March 17, 2006, a third amended complaint was filed in the Action. The third amended complaint is brought on behalf of current and former limited partners in 14 investing partnerships. It names as defendants, among others, the Company, Brookdale Living Communities, Inc. (‘‘BLC’’), a subsidiary of the Company, GFB-AS Investors, LLC (‘‘GFB-AS’’), a subsidiary of BLC, the general partners of the 14 investing partnerships, which are alleged to be subsidiaries of GFB-AS, Fortress Investment Group (‘‘Fortress’’), an affiliate of our largest stockholder, and R. Stanley Young, our former Chief Financial Officer. The nine count third amended complaint alleges, among other things, (i) that the defendants converted for their own use the property of the limited partners of 11 partnerships, including through the failure to obtain consents the plaintiffs contend were required for the sale of facilities indirectly owned by those partnerships to Ventas; (ii) that the defendants fraudulently persuaded the limited partners of three partnerships to give up a valuable property right based upon incomplete, false and misleading statements in connection with certain consent solicitations; (iii) that certain defendants, including GFB-AS, the general partners, and our former Chief Financial Officer, but not including the Company, BLC, or Fortress, committed mail fraud in connection with the sale of facilities indirectly owned by the 14 partnerships at issue in the Action to Ventas; (iv) that certain defendants, including GFB-AS and our former Chief Financial Officer, but not including the Company, BLC, the general partners, or Fortress, committed wire fraud in connection with certain communications with plaintiffs in the Action and another investor in a limited partnership; (v) that the defendants, with the exception of the Company, committed substantive violations of the Racketeer Influenced and Corrupt Organizations Act (‘‘RICO’’); (vi) that the defendants conspired to violate RICO; (vii) that GFB-AS and the general partners violated the partnership agreements of the 14 investing partnerships; (viii) that GFB-AS, the general partners, and our former Chief Financial Officer breached fiduciary duties to the plaintiffs; and (ix) that the defendants were unjustly enriched. The plaintiffs have asked for damages in excess of $100.0 million on each of the counts described above, including treble damages for the RICO claims. On April 18, 2006, we filed a motion to dismiss the claims with prejudice, which remains pending before the court, and plan to continue to vigorously defend this Action. A putative class action lawsuit was also filed on March 22, 2006, by certain limited partners in four of the same partnerships involved in the Action in the Court of Chancery for the State of Delaware captioned Edith Zimmerman et al. v. GFB-AS Investors, LLC and Brookdale Living Communities, Inc. (the ‘‘Second Action’’). On November 21, 2006, an amended complaint was filed in the Second Action. The putative class in the Second Action consists only of those limited partners in the four investing partnerships who are not plaintiffs in the Action. The Second Action names as defendants BLC and GFB-AS. The complaint alleges a claim for breach of fiduciary duty arising out of the sale of facilities indirectly owned by the investing partnerships to Ventas and the subsequent lease of those facilities by Ventas to subsidiaries of BLC. The plaintiffs seek, among other relief, an accounting, damages in an unspecified amount, and disgorgement of unspecified amounts by which the defendants were allegedly unjustly enriched. On December 12, 2006, we filed an answer denying the claim asserted in the amended complaint and

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BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

providing affirmative defenses. On December 27, 2006, the plaintiffs moved to certify the Action as a class action. Both the plaintiffs and defendants have served document production requests and the Action is currently in the beginning stages of document discovery. We also intend to vigorously defend this Second Action. Because these actions are in an early stage we cannot estimate the possible range of loss, if any.

In addition, we have been involved in other litigation and claims incidental to the conduct of our business which are comparable to other companies in the senior living industry. Certain claims and lawsuits allege large damage amounts and may require significant legal costs to defend and resolve. Similarly, our industry is continuously subject to scrutiny by governmental regulators, which could result in litigation related to regulatory compliance matters. As a result, we maintain insurance policies in amounts and with coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

9.    Supplemental Disclosure of Cash Flow Information ($ in 000’s):

			Three Months Ended March 31,
			2007						2006
Supplemental Disclosure of Cash Flow Information:
Interest paid				$	32,595					$	13,358
Income taxes paid				$	491					$	298
Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
Consolidation of limited partnerships pursuant to EITF 04-5 on January 1, 2006:
Property, plant, equipment and leasehold intangibles, net				$	—					$	31,645
Accounts receivable and other					—						1,410
Cash and investments-restricted					—						1,204
Accrued expenses and other					—						(2,245	)
Tenant refundable fees and security deposits					—						(177	)
Debt					—						(19,723	)
Minority interest					—						(12,114	)
Net				$	—					$	—
De-consolidation of leased development property:
Property, plant, equipment and leasehold intangibles, net				$	(2,978	)				$	—
Debt					2,978						—
Net				$	—					$	—
Acquisitions:
Cash and investments-restricted				$	247					$	185
Accounts receivable					40						—
Property, plant, equipment and leasehold intangibles, net					35,749						196,411
Investment in unconsolidated ventures					(1,342	)					—
Goodwill					3,101						—
Other intangible assets, net					(667	)					—
Other assets, net					—						2,757
Trade accounts payable, accrued expenses and other					(407	)					(1,490	)
Debt obligations					(11,883	)					—
Other					(1,971	)					—
Net cash paid				$	22,867					$	197,863

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BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10.    Facility Leases

A summary of facility lease expense and the impact of straight-line adjustment and amortization of deferred gains are as follows ($ in 000’s):

			Three Months Ended March 31,
			2007						2006
Cash basis payment				$	63,230					$	41,562
Straight-line expense					6,336						5,259
Amortization of deferred gain					(1,085	)					(1,087	)
Facility lease expense				$	68,481					$	45,734

11.    Other Comprehensive Loss, Net

The following table presents the after-tax components of the Company’s other comprehensive loss for the periods presented ($ in 000’s):

			Three Months Ended March 31,
			2007						2006
Net loss				$	(35,140	)				$	(19,326	)
Unrealized gain on derivatives					—						7,912
Reclassification of net gains on derivatives into earnings					(393	)					—
Amortization of payments from settlement of forward interest swaps					94						94
Other					116						—
Total comprehensive loss				$	(35,323	)				$	(11,320	)

12.    Income Taxes

The Company’s effective tax rate for the periods ending March 31, 2007 and 2006 are 37% and 2%, respectively. The difference between the periods is primarily due to the ability to tax benefit book losses in the first quarter of 2007 compared to the same period in 2006. The Company recorded deferred tax liabilities as part of purchase accounting in connection with the acquisitions of American Retirement Corporation (‘‘ARC’’) and Southern Assisted Living, Inc, and as a result has determined that it is more likely than not that the majority of deferred tax assets, including net operating loss carryforwards, will be utilized.

The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 resulted in a transition adjustment to goodwill of $1.6 million, comprised of $1.4 million in taxes and $0.2 million in interest and penalties. The adoption impacted goodwill versus retained earnings as the original benefit recorded on these positions was recorded to goodwill in previous purchase accounting transactions. Interest and penalties related to these tax positions are classified as tax expense in the Company’s financial statements. Tax returns for all wholly owned subsidiaries for years 2002 through 2006 are subject to future examination by tax authorities. In addition, for one wholly owned subsidiary, Alterra Healthcare Corporation, tax returns are open from 1999 through 2001 to the extent of the net operating losses generated during those periods.

13.    Segment Results

Under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company determined that it has four reportable segments based on the way that our chief operating decision makers organize the Company’s business activities for making operating decisions and

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BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

assessing performance. The four segments are independent living; assisted living; retirement centers/CCRCs; and management services.

	•	Independent Living.    Our independent living facilities are primarily designed for middle to upper income senior citizens age 70 and older who desire an upscale residential environment providing the highest quality of service. The majority of our independent living facilities consist of both independent living and assisted living units in a single facility, which allows residents to ‘‘age-in-place’’ by providing them with a continuum of senior independent and assisted living services.

	•	Assisted Living.    Our assisted living facilities offer housing and 24-hour assistance with activities of daily life to mid-acuity frail and elderly residents. Our assisted living facilities include both freestanding, multi-story facilities and freestanding single story facilities. We also operate memory care facilities, which are freestanding assisted living facilities specially designed for residents with Alzheimer’s disease and other dementias.

	•	Retirement Centers/CCRCs.    Our retirement centers/CCRCs are large communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health. Most of our retirement centers/CCRCs have independent living, assisted living and skilled nursing available on one campus, and some also include memory care and Alzheimer’s units.

	•	Management Services.    Our management services segment includes facilities owned by others and operated by us pursuant to management agreements. Under our management agreements for these facilities, we receive management fees as well as reimbursed expenses, which represent the reimbursement of certain expenses we incur on behalf of the owners.

In connection with the integration of ARC’s operations into our business in 2006, the Company reorganized its operating divisions into the Chicago Operating Group, the Milwaukee Operating Group and the Nashville Operating Group. The Chicago Operating Group is now primarily responsible for the operation of our independent living facilities, the Milwaukee Operating Group is now primarily responsible for the operation of our freestanding assisted living facilities (including memory care facilities) and the Nashville Operating Group is now primarily responsible for the operation of our retirement centers/CCRC facilities.

In light of these organizational changes, we determined that it was necessary to revise our reportable segments to correspond to the new Operating Group Structure. The management services segment was retained, as the organizational changes detailed above did not impact that segment. The management services segment includes the results of facilities that the Company operates on behalf of third parties and affiliates pursuant to management agreements.

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BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table sets forth certain segment financial and operating data ($ in 000’s)

			As of and for the Three Months Ended March 31,
			2007						2006
Revenue(1):
Independent Living				$	107,110					$	90,707
Assisted Living					193,467						111,863
Retirement Centers/CCRCs					144,761						18,466
Management Services					1,496						1,147
				$	446,834					$	222,183
Segment Operating Income(2):
Independent Living					46,782						39,781
Assisted Living					71,854						40,266
Retirement Centers/CCRCs					45,893						4,044
Management Services					1,047						803
				$	165,576					$	84,894
General and administrative (including non-cash stock-based compensation expense)(3)					40,204						20,741
Facility lease expense					68,481						45,734
Depreciation and amortization					72,984						22,299
Operating loss				$	(16,093	)				$	(3,880	)
Total Assets:
Independent Living				$	1,104,790					$	981,925
Assisted Living					1,307,481						519,464
Retirement Centers/CCRCs					2,013,397						274,205
Corporate and Management Services					316,387						149,477
				$	4,742,055					$	1,925,071

(1)	All revenue is earned from external third parties in the United States.

(2)	Segment operating income is defined as segment revenues less segment operating expenses (excluding depreciation and amortization).

(3)	Net of general and administrative costs allocated to management services reporting segment.

14.    Subsequent Events

On April 4, 2007, we purchased the real property underlying an entrance fee continuing care retirement community located in Tampa, Florida for an aggregate purchase price of approximately $51.1 million. The community consists of independent living retirement apartments, a skilled nursing facility and an assisted living facility. We previously managed this community pursuant to a cash-flow management agreement.

On April 23, 2007, we acquired two senior living facilities for approximately $101.0 million. The two facilities were previously leased and operated by us and owned by private investors. The facilities are located in Ohio and North Carolina.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements in this Quarterly Report on Form 10-Q and other information we provide from time to time may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements relating to our ability to deploy capital, close accretive transactions, anticipate, manage and address industry trends and their effect on our business, grow dividends, generate growth organically or through acquisitions, achieve operating efficiencies and cost savings, expand our offering of ancillary services (therapy and home health) to additional facilities, expand existing facilities, develop new facilities, secure financing and increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income (as such terms are defined herein) and add residents and statements relating to our expectations for the performance of our entrance fee communities and our expected levels of expenditures. Words such as ‘‘anticipate(s)’’, ‘‘expect(s)’’, ‘‘intend(s)’’, ‘‘plan(s)’’, ‘‘target(s)’’, ‘‘project(s)’’, ‘‘believe(s)’’, ‘‘will’’, ‘‘would’’, ‘‘seek(s)’’, ‘‘estimate(s)’’ and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors that could cause actual results to differ materially from our expectations include, but are not limited to, our ability to integrate the facilities of American Retirement Corporation (‘‘ARC’’) or other acquisitions into our operations; our continued ability to acquire facilities at attractive prices which will generate returns consistent with expectations; the possibility that the facilities that we have recently acquired and will acquire may not generate sufficient additional income to justify their acquisition; possibilities that conditions to closing of certain transactions will not be satisfied; the possibilities that changes in the capital markets, including changes in interest rates and/or credit spreads, or other factors could make financing more expensive or unavailable to us; a decrease in the overall demand for senior housing; general economic conditions and economic conditions in the markets in which we operate; downturns in the real estate markets in the regions where our facilities are located; competitive pressures within the industry and/or markets in which we operate; the creditworthiness of our residents; interest rate fluctuations; licensing risks; our failure to comply with federal, state and local laws and regulations; our failure to comply with environmental laws; the effect of future legislation or regulatory changes on our operations; and other risks detailed from time to time in our filings with the Securities and Exchange Commission, press releases and other communications, including those set forth under ‘‘Risk Factors’’ included in our Annual Report on Form 10-K for the year ended December 31, 2006. Such forward-looking statements speak only as of the date of this Quarterly Report. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Executive Overview

During the first quarter of 2007, consistent with our growth strategy, we continued to focus on growing our business through a combination of: (i) organic growth in our existing portfolio; (ii) selected acquisitions of additional operating companies and facilities; (iii) expansion of our ancillary service programs (including therapy and home health services); and (iv) expansion of our existing facilities. During the quarter, overall operating results were favorably impacted by strong same store operations and higher revenue per unit, with occupancy rates remaining relatively constant.

During the quarter, we acquired two assisted living facilities totaling 208 units, an 84 unit skilled nursing facility (which is located on a campus in which we own the independent living and assisted

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living facility), and a home health agency. We continued to focus on growth through selective acquisition of new properties as well as previously leased or managed properties. We also continued to invest in our facility expansion program during the quarter. Additionally, we made progress in expanding our ancillary services programs to additional facilities. 

Operationally, we continued our efforts to integrate our business units under our new operating group structure adopted in late 2006. The internal reorganization focused on improving the way our business units work together, share knowledge and leverage resources. In addition, we have migrated certain back-office functions to our shared-service support groups. See note 13 to the consolidated financial statements for additional information on segments and our operating group structure. 

Although our business segments generally performed in accordance with our expectations during the quarter, the entrance fee portion of our business fell short of our expectations. The timing of entrance fee sales is subject to a number of different factors and is also inherently subject to variability (positively or negatively) when measured over the short-term. We believe that our entrance fee sales during the quarter were negatively impacted by softness in the housing markets in certain of the markets in which we operate (primarily certain areas of Florida and Arizona). In response, we have increased our sales and marketing efforts in those markets and expect entrance fee sales to normalize over the longer term.

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Consolidated Results of Operations

Comparison of Three Months Ended March 31, 2007 to Three Months Ended March 31, 2006

The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of increase or decrease of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included herein. Our results reflect the inclusion of acquisitions that occurred during the respective reporting periods including: two facilities in Orlando, Florida (effective February 2006); the Liberty Owned Portfolio (effective March 2006); the Wellington Portfolio (effective March 2006); the SALI Portfolio (effective April 2006); the AEW Portfolio and AEW-New Jersey Portfolio (April/June 2006); the Southland Portfolio (effective May 2006); ARC (effective July 2006); the Liberty II Portfolio (effective July 2006); the NHP Portfolio (effective November 2006); the facility in Tampa, Florida (effective November 2006); the Flint Facility (effective January 2007); the Atrium SNF (effective February 2007); the Home Health Acquisition (effective February 2007); and the Richmond Heights Facility (effective February 2007). Refer to our most recent Annual Report on Form 10-K, filed March 16, 2007. ($ in 000’s):

			For the Three Months Ended     March 31,												Increase (Decrease)						% Increase (Decrease)
			2007						2006
Statement of Operations Data:
Revenue
Resident fees
Independent Living				$	107,110					$	90,707					$	16,403						18.1	%
Assisted Living					193,467						111,863						81,604						72.9	%
Retirement Centers/CCRCs					144,761						18,466						126,295						683.9	%
Total resident fees					445,338						221,036						224,302						101.5	%
Management fees					1,496						1,147						349						30.4	%
Total revenue					446,834						222,183						224,651						101.1	%
Expense
Facility operating expense
Independent Living					60,328						50,926						9,402						18.5	%
Assisted Living					121,613						71,597						50,016						69.9	%
Retirement Centers/CCRCs					98,868						14,422						84,446						585.5	%
Total facility operating expense					280,809						136,945						143,864						105.1	%
General and administrative expense					40,653						21,085						19,568						92.8	%
Facility lease expense					68,481						45,734						22,747						49.7	%
Depreciation and amortization					72,984						22,299						50,685						227.3	%
Total operating expense					462,927						226,063						236,864						104.8	%
Loss from operations					(16,093	)					(3,880	)					(12,213	)					(314.8	%)
Interest income					1,820						1,052						768						73.0	%
Interest expense
Debt					(33,452	)					(13,690	)					(19,762	)					(144.4	%)
Amortization of deferred financing costs					(1,618	)					(703	)					(915	)					(130.2	%)
Change in fair value of derivatives and amortization					(4,781	)					(101	)					(4,680	)					(4,633.7	%)
Loss on extinguishment of debt					—						(1,334	)					1,334						100.0	%
Equity in loss of unconsolidated ventures					(1,453	)					(168	)					(1,285	)					(764.9	%)
Loss before income taxes					(55,577	)					(18,824	)					(36,753	)					(195.2	%)

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			For the Three Months Ended     March 31,												Increase (Decrease)						% Increase (Decrease)
			2007						2006
Benefit (provision) for income taxes					20,568						(386	)					20,954						5,428.5	%
Loss before minority interest					(35,009	)					(19,210	)					(15,799	)					(82.2	%)
Minority interest					(131	)					(116	)					(15	)					(12.9	%)
Net loss				$	(35,140	)				$	(19,326	)				$	(15,814	)					(81.8	%)
Selected Operating and Other Data:
Total number of facilities (at end of period)					546						403						143						35.5	%
Total units/beds operated(1)					51,421						30,770						20,651						67.1	%
Owned/leased facilities units/beds					46,982						28,806						18,176						63.1	%
Owned/leased facilities occupancy rate:
Period end					91.0	%					89.7	%					1.3	%					1.4	%
Weighted average					90.8	%					89.5	%					1.3	%					1.5	%
Average monthly revenue per unit/bed(2)				$	3,498					$	3,116					$	382						12.3	%
Selected Segment Operating and Other Data
Independent Living
Number of Facilities (period end)					66						58						8						13.8	%
Total Units/beds(1)					11,986						10,738						1,248						11.6	%
Occupancy Rate
Period end					92.1	%					92.9	%					(0.8	)%					(0.9	)%
Weighted average					92.3	%					92.9	%					(0.6	)%					(0.6	)%
Average monthly rate per unit/bed(2)				$	3,177					$	2,931					$	246						8.4	%
Assisted Living
Number of Facilities (period end)					409						324						85						26.2	%
Total Units/beds(1)					21,086						14,343						6,743						47.0	%
Occupancy Rate:
Period end					89.9	%					88.8	%					1.1	%					1.2	%
Weighted average					89.5	%					88.5	%					1.0	%					1.1	%
Average monthly rate per unit/bed(2)				$	3,416					$	3,192					$	224						7.0	%
Retirement Centers/CCRCs
Number of Facilities (period end)					48						11						37						336.4	%
Total Units/beds(1)					13,910						3,725						10,185						273.4	%
Occupancy Rate:
Period end					92.3	%					82.1	%					10.2	%					12.4	%
Weighted average					91.6	%					79.3	%					12.3	%					15.5	%
Average monthly rate per unit/bed(2)				$	3,927					$	3,697					$	230						6.2	%
Management Services
Number of Facilities (period end)					23						10						13						130.0	%
Total Units/beds(1)					4,439						1,964						2,475						126.0	%
Occupancy Rate
Period end					91.7	%					92.7	%					(1.0	)%					(1.1	)%
Weighted average					90.6	%					92.0	%					(1.4	)%					(1.5	)%

(1)	Total units/beds operated represent the total units/beds operated as of the end of the period. Occupancy rate is calculated by dividing total occupied units/beds by total units/beds operated as of the end of the period.

(2)	Average monthly rate per unit/bed represents the average of the total monthly revenues, excluding amortization of entrance fees, divided by occupied units/beds at the end of the period averaged over the respective period presented.

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Resident Fees

Resident fees increased by approximately $19.3 million, or 8.9%, at the 367 facilities we operated during both periods. The remaining increase in resident fee revenue was primarily due to a full quarter of operations for the 2006 acquisitions.

Independent living revenue increased $16.4 million, or 18.1%, primarily due to the 2006 acquisitions and additional acquisitions during 2007. In addition, increases in average rate occurred for the facilities operated in the same period in the prior year.

Assisted living revenue increased $81.6 million, or 72.9%, primarily due to the 2006 acquisitions and additional acquisitions during 2007, a 1.1% increase in average occupancy and a 7.0% increase in average monthly rent per unit/bed.

Retirement centers/CCRCs revenue increased $126.3 million, or 683.9%, primarily due to the 2006 acquisitions and additional acquisitions in 2007.

Management Fees

Management fee revenue increased $0.3 million, or 30.4%, over this period primarily due to the 2006 ARC acquisition, partially offset by the termination of ten management agreements during 2006.

Facility Operating Expense

Approximately $7.9 million of the facility operating expense increase was primarily due to salaries, wages and benefits attributable to the 367 facilities we operated during both periods, partially offset by cost savings from new and renegotiated vendor supply contracts. The remaining increase was primarily due to the inclusion of the operations of 2006 acquisitions and additional 2007 acquisitions.

Independent living operating expenses increased $9.4 million, or 18.5%, primarily due to the 2006 acquisitions and additional 2007 acquisitions. The remainder of the increase was primarily due to increases in salaries, wages and benefits.

Assisted living operating expenses increased $50.0 million, or 69.9%, primarily due to increased salaries, wages and benefits primarily as a result of the 2006 acquisitions and additional 2007 acquisitions.

Retirement centers/CCRC operating expenses increased $84.4 million, or 585.5%, primarily due to the 2006 acquisition of ARC.

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General and Administrative Expense

General and administrative expenses increased $19.6 million, or 92.8%, primarily as a result of a $7.8 million increase of non-cash compensation expense in connection with restricted stock grants (including $4.1 million of expense related to the accelerated vesting of restricted stock grants held by two former officers), an increase in salaries, wages and benefits, and an increase in the number of employees in connection with the 2006 acquisition of ARC. General and administrative expense as a percentage of total revenue, including revenue generated by the facilities we manage, was 5.5% and 6.4% for the three months ended March 31, 2007 and 2006, respectively, calculated as follows ($ in 000’s):

			Three Months Ended March 31,
			2007						2006
Resident fee revenues				$	445,338					$	221,036
Resident fee revenues under management					37,601						12,909
Total				$	482,939					$	233,945
General and administrative expenses (excluding merger and integration expenses and non-cash stock compensation expense totaling $13.9 and $6.0 million in 2007 and 2006, respectively)				$	26,708					$	15,060
General and administrative expenses as a % of total revenues					5.5	%					6.4	%

Facility Lease Expense

Lease expense increased by $22.7 million, or 49.7%, primarily due to the 2006 acquisitions, partially offset by acquisitions we made in 2006 of facilities that were previously leased by us. Lease expense includes straight-line rent expense of $6.3 million and $5.3 million for the three months ended March 31, 2007 and 2006, respectively, and is partially offset by $1.1 million of additional deferred gain amortization for the same respective time periods.

Depreciation and Amortization

Total depreciation and amortization expense increased by $50.7 million, or 227.3%, primarily due to the 2006 acquisitions.

Interest Income

Interest income increased $0.8 million, or 73.0%, primarily due to the 2006 acquisition of ARC.

Interest Expense

Interest expense increased $25.4 million, or 174.9%, primarily due to additional debt in connection with our acquisitions and the change in fair value of our interest rate swaps from the three months ended March 31, 2007. The effective portion of the change in fair value of derivatives was excluded from interest expense and was included in other comprehensive loss for the three months ended March 31, 2006. On October 1, 2006, we discontinued hedge accounting prospectively. Changes in fair value of derivatives are now included in interest expense.

Income Taxes

The Company’s effective tax rate for the periods ending March 31, 2007 and 2006 are 37% and 2%, respectively. The difference between the periods is primarily due to the ability to tax benefit book losses in the first quarter of 2007 compared to the same period in 2006. The Company recorded deferred tax liabilities as part of purchase accounting in connection with the acquisitions of ARC and Southern Assisted Living, Inc, and as a result has determined that it is more likely than not that the majority of deferred tax assets, including net operating loss carryforwards, will be utilized.

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Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Liquidity and Capital Resources

To date, we have financed our operations primarily with cash generated from operations and both short- and long-term borrowings. We financed our acquisitions with long-term borrowings, draws on our credit facility, equity contributed by Fortress, and proceeds from our public equity offerings. The following is a summary of cash flow information for the three months ended March 31, 2007 and 2006 ($ in 000’s):

			Three Months Ended March 31,
			2007						2006
Cash provided by operating activities				$	28,828					$	12,119
Cash used in investing activities					(75,551	)					(185,983	)
Cash provided by financing activities					34,610						190,278
Net (decrease) increase in cash and cash equivalents					(12,113	)					16,414
Cash and cash equivalents at beginning of period					68,034						77,682
Cash and cash equivalents at end of period				$	55,921					$	94,096

We had $55.9 million of cash and cash equivalents at March 31, 2007, excluding cash and investments-restricted and lease security deposits of $111.9 million. Additionally, we had $122.0 million available under our credit facility and $50.9 million of unused letter of credit capacity under our credit facility.

The increase in cash provided by operating activities was primarily due to the ARC merger and other 2006 acquisitions.

The decrease in cash used in investing activities was primarily due to acquisitions that were funded in the three months ended March 31, 2006 offset by additions to property, plant, equipment and leasehold interests at our existing facilities and those under development.

The decrease in cash provided by financing activities was primarily due to repayments under the Company’s line of credit partially offset by increased borrowings and an increase in the payment of dividends.

We believe that cash on hand, together with funds from operations, other current assets, and existing credit facilities will satisfy our expected working capital, contractual obligations, capital expenditures, and investment requirements for at least the next 12 months and the foreseeable future.

At March 31, 2007, we had $1,843.8 million of debt outstanding, including capital lease obligations, excluding our line of credit, at a weighted-average interest rate of 6.98%, of which $19.4 million was due in the next 12 months.

At March 31, 2007, we had $227.5 million of negative working capital, which includes the classification of $195.4 million of refundable entrance fees and $24.2 million in tenant deposits as current liabilities as required by applicable accounting pronouncements. Based upon our historical operating experience, we anticipate that only approximately 9% to 12% of those entrance fee liabilities will actually come due, and be required to be settled in cash, during the next twelve months. We expect that any entrance fee liabilities due within the next twelve months will be fully offset by the proceeds generated by subsequent entrance fee sales. Entrance fee sales, net of refunds paid, provided $1.9 million of cash for the three months ended March 31, 2007.

Our liquidity requirements have historically arisen from, and we expect they will continue to arise from, working capital, general and administrative costs, debt service and lease payments, acquisition costs, employee compensation and related benefits, capital improvements and dividend payments. In the past, we have met our cash requirements for operations using cash flows from operating revenues,

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the receipt of resident fees and the receipt of management fees from third-party-managed facilities. In addition to using cash flows from operating revenues, we use available funds from our indebtedness and long-term leasing of our facilities to meet our cash obligations. The primary use of our cash is for operating costs, which includes debt service and lease payments and capital expenditures. We currently estimate that our existing cash flows from operations, together with existing working capital and the proceeds of our credit facility, will be sufficient to fund our short-term liquidity needs. For the year ending December 31, 2007, in addition to normal recurring capital expenditures and expenditures in connection with our expansion and development program, we expect to spend approximately $75.0 million for major capital projects and renovations at our existing and recently acquired facilities (including projects related to the implementation of our ancillary services program). We presently estimate that we will also spend approximately $25.0 million during the year ending December 31, 2007 for corporate branding, integration of corporate functions and enhancement of our infrastructure operations. The source of these funds is expected to be cash on hand and cash generated from operations and financings. We anticipate funding our expansion and development program through debt and lease financing. There can be no assurance that financing or refinancing will be available to us or available on acceptable terms.

We expect to continue to fund the growth of our business through cash flows from operations and cash flows from financing activities, such as equity offerings, and through the incurrence of additional indebtedness or leasing arrangements. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, or if we enter into an acquisition or strategic arrangement with another company, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the interests of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our business development activities, which could harm the growth of our business. We may incur additional indebtedness or lease financing to fund such acquisitions. In addition, we may also incur additional indebtedness or lease financing to fund future dividends.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our ability to acquire new facilities, general economic conditions and the cost of capital.

Contractual Commitments

Significant ongoing commitments consist primarily of leases, debt, purchase commitments and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the ‘‘Contractual Obligations’’ section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Material changes in these commitments resulting from debt incurred during the three months ended March 31, 2007 are as follows ($ in 000’s):

			Total						2007						2008						2009						2010						2011						Thereafter
Long-term debt obligations				$	171,674					$	8,191					$	8,214					$	8,191					$	8,191					$	8,191					$	130,696

There have been no other material changes in our contractual commitments during the three months ended March 31, 2007.

Off-Balance Sheet Arrangements

The equity method of accounting has been applied in the accompanying financial statements with respect to our investment in unconsolidated ventures that are not considered VIEs as we do not possess a controlling financial interest. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future effect on our financial condition, changes in

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financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Non-GAAP Financial Measures

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. In this report, we define and use the non-GAAP financial measures Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income, as set forth below.

Adjusted EBITDA

Definition of Adjusted EBITDA

We define Adjusted EBITDA as follows:

Net income before:

	•	provision (benefit) for income taxes;

	•	non-operating (income) loss items;

	•	depreciation and amortization;

	•	straight-line rent expense (income);

	•	amortization of deferred entrance fees; and

	•	non-cash compensation expense;

and including:

	•	entrance fee receipts and refunds.

Management’s Use of Adjusted EBITDA

We use Adjusted EBITDA to assess our overall financial and operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

Adjusted EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term, such as depreciation and amortization, straight-line rent expense (income), taxation and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a monthly basis. Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in our industry.

Limitations of Adjusted EBITDA

Adjusted EBITDA has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

	•	the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of facilities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

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	•	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our facilities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

Adjusted EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on Adjusted EBITDA as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of Adjusted EBITDA to GAAP net income (loss), along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Adjusted EBITDA measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

The table below shows the reconciliation of our net loss to Adjusted EBITDA for the three months ended March 31, 2007 and 2006 ($ in 000’s):

			Three Months Ended March 31,
			2007(1)						2006(1)
Net loss				$	(35,140	)				$	(19,326	)
Minority interest					131						116
(Benefit) provision for income taxes					(20,568	)					386
Equity in loss of unconsolidated ventures					1,453						168
Loss on extinguishment of debt					—						1,334
Interest expense:
Debt					25,239						11,530
Capitalized lease obligation					8,213						2,160
Amortization of deferred financing costs					1,618						703
Change in fair value of derivatives					4,781						101
Interest income					(1,820	)					(1,052	)
Loss from operations					(16,093	)					(3,880	)
Depreciation and amortization					72,984						22,299
Straight-line lease expense					6,336						5,259
Amortization of deferred gain					(1,085	)					(1,087	)
Amortization of entrance fees					(4,259	)					(83	)
Non-cash compensation expense					10,820						3,018
Entrance fee receipts(2)					8,174						2,069
Entrance fee disbursements					(6,315	)					(703	)
Adjusted EBITDA				$	70,562					$	26,892

(1)	The calculation of Adjusted EBITDA includes merger, integration, and certain other non-recurring expenses, as well as acquisition transition costs, totaling $3.1 million and $3.0 million for the three months ended March 31, 2007 and 2006, respectively.

(2)	Includes the receipt of refundable and nonrefundable entrance fees.

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Cash From Facility Operations

Definition of Cash From Facility Operations

We define Cash From Facility Operations as follows:

Net cash provided by (used in) operating activities adjusted for:

	•	changes in operating assets and liabilities;

	•	deferred interest and fees added to principal;

	•	refundable entrance fees received;

	•	entrance fee refunds disbursed;

	•	other; and

	•	recurring capital expenditures.

Recurring capital expenditures include expenditures capitalized in accordance with GAAP that are funded from Cash From Facility Operations. Amounts excluded from recurring capital expenditures consist primarily of unusual or non-recurring capital items and facility purchases and/or major renovations that are funded using financing proceeds and/or proceeds from the sale of facilities that are held for sale.

Management’s Use of Cash From Facility Operations

We use Cash From Facility Operations to assess our overall liquidity. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial and liquidity goals as well as to achieve optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

This metric measures our liquidity based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Cash From Facility Operations is one of the metrics used by our senior management and board of directors (i) to review our ability to service our outstanding indebtedness (including our credit facilities and long-term leases), (ii) our ability to pay dividends to stockholders, (iii) our ability to make regular recurring capital expenditures to maintain and improve our facilities on a period-to-period basis, (iv) for planning purposes, including preparation of our annual budget and (v) in setting various covenants in our credit agreements. These agreements generally require us to escrow or spend a minimum of between $250 and $450 per unit/bed per year. Historically, we have spent in excess of these per unit/bed amounts; however, there is no assurance that we will have funds available to escrow or spend these per unit/bed amounts in the future. If we do not escrow or spend the required minimum annual amounts, we would be in default of the applicable debt or lease agreement which could trigger cross default provisions in our outstanding indebtedness and lease arrangements.

Limitations of Cash From Facility Operations

Cash From Facility Operations has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of cash flow from operations. Cash From Facility Operations does not represent cash available for dividends or discretionary expenditures, since we may have mandatory debt service requirements or other non-discretionary expenditures not reflected in the measure. Material limitations in making the adjustment to our cash flow from operations to calculate Cash From Facility Operations, and using this non-GAAP financial measure as compared to GAAP operating cash flows, include:

	•	the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of facilities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

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	•	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our facilities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

We believe Cash From Facility Operations is useful to investors because it assists their ability to meaningfully evaluate (1) our ability to service our outstanding indebtedness, including our credit facilities and capital and financing leases, (2) our ability to pay dividends to stockholders and (3) our ability to make regular recurring capital expenditures to maintain and improve our facilities.

Cash From Facility Operations is not an alternative to cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on Cash From Facility Operations as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of Cash From Facility Operations to GAAP net cash provided by (used in) operating activities, along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Cash From Facility Operations is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Cash From Facility Operations measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

The table below shows the reconciliation of net cash provided by operating activities to Cash From Facility Operations for the three months ended March 31, 2007 and 2006 ($ in 000’s):

			Three Months Ended March 31,
			2007(1)						2006(1)
Net cash provided by operating activities				$	28,828					$	12,119
Changes in operating assets and liabilities					12,139						831
Refundable entrance fees received(2)					4,258						1,621
Entrance fee refunds disbursed					(6,315	)					(703	)
Recurring capital expenditures, net					(6,225	)					(2,061	)
Reimbursement of operating expenses and other					1,130						1,500
Cash From Facility Operations				$	33,815					$	13,307

(1)	The calculation of Cash From Facility Operations includes merger, integration and certain other non-recurring expenses, as well as acquisition transition costs, totaling $3.1 million and $3.0 million for the three months ended March 31, 2007 and 2006, respectively.

(2)	Total entrance fee receipts for the quarters ended March 31, 2007 and 2006 were $8,174 and $2,069, respectively, including $3,916 and $448, respectively, of nonrefundable entrance fee receipts included in net cash provided by operating activities.

Facility Operating Income

Definition of Facility Operating Income

We define Facility Operating Income as follows:

Net income before:

	•	provision (benefit) for income taxes;

	•	non-operating (income) loss items;

	•	depreciation and amortization;

	•	facility lease expense;

	•	general and administrative expense;

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	•	compensation expense;

	•	amortization of deferred entrance fee revenue; and

	•	management fees.

Management’s Use of Facility Operating Income

We use Facility Operating Income to assess our facility operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day facility performance because the items excluded have little or no significance on our day-to-day facility operations. This measure provides an assessment of revenue generation and expense management and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as to achieve optimal facility financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

Facility Operating Income provides us with a measure of facility financial performance, independent of items that are beyond the control of management in the short-term, such as depreciation and amortization, lease expense, taxation and interest expense associated with our capital structure. This metric measures our facility financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Facility Operating Income is one of the metrics used by our senior management and board of directors to review the financial performance of the business on a monthly basis. Facility Operating Income is also used by research analysts and investors to evaluate the performance of and value companies in our industry by investors, lenders and lessors. In addition, Facility Operating Income is a common measure used in the industry to value the acquisition or sales price of facilities and is used as a measure of the returns expected to be generated by a facility.

A number of our debt and lease agreements contain covenants measuring Facility Operating Income to gauge debt or lease coverages. The debt or lease coverage covenants are generally calculated as facility net operating income (defined as total operating revenue less operating expenses, all as determined on an accrual basis in accordance with GAAP). For purposes of the coverage calculation, the lender or lessor will further require a pro forma adjustment to facility operating income to include a management fee (generally 4%-5% of operating revenue) and an annual capital reserve (generally $250-$450 per unit/bed). As of March 31, 2007, we are in compliance with the financial covenants of all of our debt and lease agreements. An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position, particularly on a facility-by-facility basis.

Limitations of Facility Operating Income

Facility Operating Income has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate Facility Operating Income, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

	•	interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of facilities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

	•	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our facilities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position on a facility-by-facility basis. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. Facility Operating Income is not an alternative to net

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income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on Facility Operating Income as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of Facility Operating Income to GAAP net income (loss), along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Facility Operating Income is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Facility Operating Income measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

The table below shows the reconciliation of net loss to Facility Operating Income for the three months ended March 31, 2007 and 2006 ($ in 000’s):

			Three Months Ended March 31,
			2007						2006
Net loss				$	(35,140	)				$	(19,326	)
(Benefit) provision for income taxes					(20,568	)					386
Minority interest					131						116
Equity in loss of unconsolidated ventures					1,453						168
Loss on extinguishment of debt					—						1,334
Interest expense:
Debt					25,239						11,530
Capitalized lease obligation					8,213						2,160
Amortization of deferred financing costs					1,618						703
Change in fair value of derivatives					4,781						101
Interest income					(1,820	)					(1,052	)
Loss from operations					(16,093	)					(3,880	)
Depreciation and amortization					72,984						22,299
Facility lease expense					68,481						45,734
General and administrative (including non-cash stock compensation expense)					40,653						21,085
Amortization of entrance fees					(4,259	)					(83	)
Management fees					(1,496	)					(1,147	)
Facility Operating Income				$	160,270					$	84,008

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks from changes in interest rates charged on our credit facilities used to finance acquisitions on an interim basis, floating-rate indebtedness and lease payments subject to floating rates. The impact on earnings and the value of our long-term debt and lease payments are subject to change as a result of movements in market rates and prices. As of March 31, 2007, we had approximately $310.2 million of long-term fixed-rate debt, $1,165.7 million of long-term variable-rate debt, and $367.9 million of capital lease obligations. As of March 31, 2007, our total fixed-rate debt and variable-rate debt outstanding had weighted-average interest rates of 6.98%.

We do not expect changes in interest rates to have a material effect on earnings or cash flows since approximately 96% of our debt, excluding credit facilities, and lease payments either have fixed rates or variable rates that are subject to swap or interest rate cap agreements with major financial institutions to manage our risk. As of March 31, 2007, a 100 basis point change in short-term interest rates would affect our operating cash flow no more than $1.8 million per annum.

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Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Co-Chief Executive Officers and Chief Financial Officer each concluded that, as of March 31, 2007, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

The information contained in Note 8 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Form 10-Q is incorporated herein by this reference.

Item 1A.    Risk Factors

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information regarding purchases of our common stock made during the quarter ended March 31, 2007 by or on behalf of the Company or any ‘‘affiliated purchaser,’’ as defined by Rule 10b-18(a)(3) of the Exchange Act:

Period			Total Number of Shares Purchased(1)						Average Price Paid per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
01/01/07 – 01/31/07					2,563					$	48.00						—						—
02/01/07 – 02/28/07					—						—						—						—
03/01/07 – 03/31/07					1,177					$	45.16						—						—
Total					3,740					$	47.11						—						—

(1)	Consists entirely of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock.

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Item 5.    Other Information

The following table provides certain information as of March 31, 2007 with respect to our equity compensation plans:

Equity Compensation Plan Information

Plan category			Number of securities to be issued upon exercise of outstanding options, warrants and rights(a)(1)						Weighted-average exercise price of outstanding options, warrants and rights(b)						Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(c)
Equity compensation plans approved by security holders(2)					—						—						2,538,146
Equity compensation plans not approved by security holders					—						—						—
Total					—						—						2,538,146

(1)

In addition to options, warrants, and rights, our Omnibus Stock Incentive Plan allows awards to be made in the form of restricted shares or other forms of equity-based compensation. As of March 31, 2007, 1,868,535 shares of unvested restricted stock issued under our Omnibus Stock Incentive Plan were outstanding. In addition, as of such date, 1,159,697 shares of unvested restricted stock issued under the plans of our predecessor entities were outstanding. Such shares are not reflected in the table above.

(2)

Under the terms of our Omnibus Stock Incentive Plan, the number of shares reserved and available for issuance will increase annually each January 1 by an amount equal to the lesser of (1) 400,000 shares or (2) 2% of the number of outstanding shares of our common stock on the last day of the immediately preceding fiscal year.

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ITEM 6.    EXHIBITS

Exhibit No.						Description
	3	.1				Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2006).
	3	.2				Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (Amendment No. 2) (No. 333-127372) filed on October 11, 2005).
	4	.1				Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-127372) filed on November 7, 2005).
	4	.2				Stockholders Agreement, dated as of November 28, 2005, by and among Brookdale Senior Living Inc., FIT-ALT Investor LLC, Fortress Brookdale Acquisition LLC, Fortress Investment Trust II and Health Partners (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed on March 31, 2006).
	4	.3				Amendment No. 1 to Stockholders Agreement, dated as of July 26, 2006, by and among Brookdale Senior Living Inc., FIT-ALT Investor LLC, Fortress Registered Investment Trust, Fortress Brookdale Investment Fund LLC, FRIT Holdings LLC, and FIT Holdings LLC (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2006).
	31	.1				Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2				Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.3				Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32					Certification of Chief Executive Officers and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

BROOKDALE SENIOR LIVING INC. (Registrant)

By:			/s/ Mark W. Ohlendorf
Name:			Mark W. Ohlendorf
Title:			Duly authorized officer and Chief Financial Officer
Date:			May 8, 2007

By:			/s/ Bryan D. Richardson
Name:			Bryan D. Richardson
Title:			Duly authorized officer and Chief Accounting Officer
Date:			May 8, 2007

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