CNL HOSPITALITY PROPERTIES INC - 10-Q Quarterly Report

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the three month period ended June 30, 2002
-------------
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
0-24097
-----------

CNL Hospitality Properties, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Maryland 59-3396369
---------------------------------- ----------------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

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

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

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 for 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

100,321,456 shares of common stock, $.01 par value, outstanding as of
August 6, 2002.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES

INDEX

Page

Part I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets 1

Condensed Consolidated Statements of Earnings 2

Condensed Consolidated Statements of Stockholders' Equity 3

Condensed Consolidated Statements of Cash Flows 5

Notes to Condensed Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of Financial 17
Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market 24
Risk

Part II. Other Information and Signatures 26

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

June 30, December 31,
2002 2001
---------------- ----------------
ASSETS
Land, buildings and equipment, less accumulated depreciation of
$42,073,602 and $29,182,487, respectively $ 867,204,966 $ 699,239,959
Investments in unconsolidated subsidiaries 149,918,662 135,271,048
Cash and cash equivalents 48,169,968 44,825,052
Restricted cash 11,398,229 8,493,446
Receivables 8,049,333 1,266,862
Due from related parties 3,170,701 1,410,900
Prepaid expenses and other assets 13,608,622 6,796,398
Loan costs, less accumulated amortization of $1,530,111 and
$980,303, respectively 4,341,463 4,102,822
---------------- ----------------

$ 1,105,861,944 $ 901,406,487
================ ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable and accrued interest $ 167,880,192 $ 168,883,882
Other notes payable 73,563,066 57,571,680
Line of credit 64,373,368 7,500,000
Other liabilities 6,328,934 --
Accounts payable and accrued expenses 9,947,784 8,357,481
Due to related parties 1,526,443 1,026,225
Security deposits 11,382,576 17,808,576
Rents paid in advance 1,469,395 2,381,959
---------------- ----------------
Total liabilities 336,471,758 263,529,803
---------------- ----------------

Commitments and contingencies -- --

Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share.
Authorized and unissued 63,000,000 shares -- --
Common stock, $.01 par value per share. Authorized 150,000,000
shares; issued 95,580,152 and 77,891,066 shares, respectively;
outstanding 94,884,721 and 77,357,532 shares, respectively 948,847 773,575
Capital in excess of par value 837,855,323 681,152,253
Accumulated distributions in excess of net earnings (64,040,953) (39,959,120)
Accumulated other comprehensive loss (2,398,699) (1,189,396)
Minority interest distributions in excess of contributions and
accumulated earnings (2,974,332) (2,900,628)
---------------- ----------------

Total stockholders' equity 769,390,186 637,876,684
---------------- ----------------

$ 1,105,861,944 $ 901,406,487
================ ================

See accompanying notes to condensed consolidated
financial statements.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Revenues:
Hotel revenue $ 17,865,704 $ -- $ 32,527,117 $ --
Rental income from
operating leases 11,146,060 15,509,464 22,039,653 30,123,681
FF&E reserve income 1,235,237 1,631,261 2,376,588 2,855,850
Interest and other income 2,059,027 1,061,639 2,509,241 1,936,032
--------------- --------------- --------------- ---------------
32,306,028 18,202,364 59,452,599 34,915,563
--------------- --------------- --------------- ---------------

Expenses:
Hotel expense 11,075,561 -- 19,799,954 --
Interest and loan cost
amortization 4,883,946 3,470,675 9,158,757 7,070,327
General operating and
administrative 960,938 996,863 2,784,982 2,461,448
Asset management fees to
related parties 1,693,690 874,062 3,075,029 1,614,985
Depreciation and amortization 6,838,932 5,021,851 12,891,115 9,942,689
--------------- --------------- --------------- ---------------
25,453,067 10,363,451 47,709,837 21,089,449
--------------- --------------- --------------- ---------------

Earnings Before Equity in
Loss of Unconsolidated
Subsidiaries and Minority
Interests 6,852,961 7,838,913 11,742,762 13,826,114

Equity in Loss of
Unconsolidated
Subsidiaries (2,032,316) (245,609) (3,202,216) (192,671)

Minority Interests (63,604) (535,082) (132,835) (1,045,999)
--------------- --------------- --------------- ---------------

Net Earnings $ 4,757,041 $ 7,058,222 $ 8,407,711 $ 12,587,444
=============== =============== =============== ===============
Earnings Per Share of Common
Stock:
Basic $ 0.05 $ 0.12 $ 0.10 $ 0.22
=============== =============== =============== ===============
Diluted $ 0.05 $ 0.12 $ 0.10 $ 0.22
=============== =============== =============== ===============

Weighted Average Number of
Shares of Common Stock
Outstanding:
Basic 89,490,267 60,734,945 85,233,690 56,694,339
=============== =============== =============== ===============
Diluted 89,490,267 60,734,945 85,233,690 56,694,339
=============== =============== =============== ===============

See accompanying notes to condensed consolidated
financial statements.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY Six Months Ended June 30, 2002 and Year Ended
December 31, 2001
(UNAUDITED)

Minority
interest
Common Stock Accumulated Accumulated distributions
----------------------------- Capital in distribtuions other in excess
Number of Par excess of in excess of comprehensive and accum. Comprehensive
shares value par value net earnings loss earnings Total income
-------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Balance at
December 31,
2000 49,002,042 $ 490,020 $432,403,246 $(10,877,836) $ -- $ (2,726,432) $419,288,998 $ --

Subscriptions
received for
common stock
through
public offer-
ings and
distribution
reinvestment
plan 28,606,863 286,069 285,782,557 -- -- -- 286,068,626 --

Retirement of
common stock (251,373) (2,514) (2,310,120) -- -- -- (2,312,634) --

Stock issuance
costs -- -- (34,723,430) -- -- -- (34,723,430) --

Net earnings -- -- 19,328,376 -- -- 19,328,376 19,328,376

Minority
interest
distributions
in excess of
contribu-
tions and
accumulated
earnings -- -- -- -- -- (174,196) (174,196) --

Current period
adjustments
to recognize
value of cash
flow hedges
of equity
investees -- -- -- -- (1,189,396) -- (1,189,396) (1,189,396)
-------------

Total compre-
hensive
income -- -- -- -- -- -- -- $ 18,138,980
=============

Distributions
declared and
paid ($.77
per share) -- -- -- (48,409,660) -- -- (48,409,660)
-------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
December 31,
2001 77,357,532 $ 773,575 $681,152,253 $(39,959,120) $ (1,189,396) $ (2,900,628) $637,876,684
============== ============= ============= ============= ============= ============= =============

See accompanying notes to condensed consolidated
financial statements.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Six Months Ended June 30, 2002 and Year
Ended December 31, 2001
(UNAUDITED)

Minority
interest
Common Stock Accumulated Accumulated distributions
---------------------------- Capital in distribtuions other in excess
Number of Par excess of in excess of comprehensive and accum. Comprehensive
shares value par value net earnings loss earnings Total income
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
December 31,
2001 77,357,532 $ 773,575 $681,152,253 $(39,959,120) $ (1,189,396) $ (2,900,628) $637,876,684 $ --

Subscriptions
received for
common stock
through
public offer-
ings and
distribution
reinvestment
plan 17,689,086 176,891 176,713,965 -- -- -- 176,890,856 --

Retirement of
common stock (161,897) (1,619) (1,487,833) -- -- -- (1,489,452) --

Stock issuance
costs -- -- (18,523,062) -- -- -- (18,523,062) --

Net earnings -- -- -- 8,407,711 -- -- 8,407,711 8,407,711

Minority
interest
distributions
in excess of
contribu-
tions and
accumulated
earnings -- -- -- -- -- (73,704) (73,704) --

Current period
adjustments
to recognize
changes in
value of cash
flow hedges
of equity
investees -- -- -- (1,209,303) -- (1,209,303) (1,209,303)
-------------
Total compre-
hensive income -- -- -- -- -- -- -- $ 7,198,408
=============

Distributions
declared and
paid ($.38
per share) -- -- -- (32,489,544) -- -- (32,489,544)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
June 30,
2002 94,884,721 $ 948,847 $837,855,323 $(64,040,953) $ (2,398,699) $ (2,974,332) $769,390,186
============= ============= ============= ============= ============= ============= =============

See accompanying notes to condensed consolidated
financial statements.

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

(UNAUDITED)

Six Months Ended June 30,
2002 2001
----------------- -----------------

Net cash provided by operating activities $ 28,582,691 $ 30,111,830
----------------- -----------------

Cash flows from investing activities:
Additions to land, buildings and
equipment on operating leases (175,762,128) (67,909,910)
Investment in unconsolidated subsidiaries (25,255,893) (620,895)
Acquisition of remaining interest in CNL
Hotel Investors, Inc. -- (32,884,119)
Increase in restricted cash (2,904,783) (2,611,906)
Increase in other assets (16,678,253) (4,302,072)
----------------- -----------------

Net cash used in investing activities (220,601,057) (108,328,902)
----------------- -----------------

Cash flows from financing activities:
Principal payments on mortgage loans (1,003,690) (463,625)
Proceeds from mortgage loans and other
notes payable 15,991,386 10,652,478
Draw on line of credit 56,873,368 --
Subscriptions received from
stockholders 176,890,856 155,991,634
Distributions to stockholders (32,489,544) (21,029,719)
Distributions to minority interest (98,131) (2,544,366)
Retirement of common stock (1,489,452) (1,117,299)
Payment of stock issuance costs (18,523,062) (18,869,181)
Payment of loan costs (788,449) --
Other -- (77,834)
----------------- -----------------
Net cash provided by financing activities 195,363,282 122,542,088
----------------- -----------------

Net increase in cash and cash
Equivalents 3,344,916 44,325,016

Cash and cash equivalents at beginning of
Period 44,825,052 50,197,854
----------------- -----------------

Cash and cash equivalents at end of period $ 48,169,968 $ 94,522,870
================= =================

See accompanying notes to condensed consolidated
financial statements.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)

Six Months Ended June 30,
2002 2001
----------------- -----------------

Supplemental schedule of non-cash financing
activities:

Distributions declared but not paid to
minority interest $ 98,131 $ 82,211

================= =================

Reduction in tax incremental financing
note through tax payments by tenant $ 73,704 $ --

================= =================

Assumption of loan with Crestline
lease assumption $ 3,576,133 $ --
================= =================

Supplemental schedule of non-cash investing
activities:

Amounts incurred but not paid for
construction in progress $ 2,981,783 $ 2,870,144
================= =================

See accompanying notes to condensed consolidated financial statements.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

1. Organization:
------------

CNL Hospitality Properties, Inc. was organized on June 12, 1996, pursuant
to the laws of the State of Maryland, to primarily acquire interests in
hotel properties ("Properties"). The term "Company" includes, unless the
context otherwise requires, CNL Hospitality Properties, Inc., CNL
Philadelphia Annex, LLC, CNL LLB SHS Management, LP, CNL LLB F-Inn
Management, LP, CNL LLB C-Hotel Management, LP and its other subsidiaries.
As of June 30, 2002, the Company owned interests in 49 Properties. The
Company has retained CNL Hospitality Corp. (the "Advisor") as its advisor
to provide management, acquisition, advisory and administrative services
and operates for federal income tax purposes as a real estate investment
trust (a "REIT").

The Company's operations have changed from those that were previously
reported in prior years as permitted by the REIT Modernization Act of 1999,
which became effective beginning 2001. This is the result of a shift in the
Company's business from the leasing of owned Properties to third-party
tenants in exchange for rental revenue to an emphasis on leasing Properties
to taxable REIT subsidiaries ("TRS") and engaging third-party managers to
conduct day-to-day operations. Under this new structure, when possible, the
Company negotiates various types of credit enhancements on a case-by-case
basis for its TRS Properties (see Note 6, "Indebtedness" for additional
information on credit enhancements). This transition has resulted in the
replacement of rental income from operating leases with hotel operating
revenues and related hotel operating expenses. This is also reflected as a
reduction in rental income from operating leases and an increase in hotel
operating revenues as a percentage of total revenues. This trend is
expected to continue throughout the remainder of 2002 and into the future.

During the quarter and six months ended June 30, 2002, the Company,
consistent with its strategy to lease hotel Properties to TRS entities and
engage third party managers to conduct day-to-day operations, took
assignment of several leases which had been previously leased to third
parties. See Note 3, "Assignment of Third Party Leases" for specific
information pertaining to these three individual transactions.

2. Summary of Significant Accounting Policies:
------------------------------------------

Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the instructions
to Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. The condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring adjustments, which are, in the opinion of management,
necessary for the fair presentation of the results for the interim periods
presented. Operating results for the quarter and six months ended June 30,
2002, may not be indicative of the results that may be expected for the
year ending December 31, 2002. Amounts as of December 31, 2001, included in
the condensed consolidated financial statements have been derived from
audited consolidated financial statements as of that date.

These unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 2001.

Principles of Consolidation - The accompanying condensed consolidated
financial statements include the accounts of CNL Hospitality Properties,
Inc. and each of its wholly owned and majority controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Interests of unaffiliated third parties are reflected as
minority interest for less than 100 percent owned and majority controlled
entities.

Reclassification - Certain items in the prior year's consolidated financial
statements have been reclassified to conform with the 2002 presentation.
These reclassifications had no effect on stockholders' equity or net
earnings.

Income Taxes - Under the provisions of the Internal Revenue Code and
applicable state laws, the Company is only subject to income taxes on the
profits and losses from its TRS operations and is not subject to income
taxes on its other operations, as consistent with its REIT status. During
the quarter and six months ended June 30, 2002, the Company estimates that
its TRS entities had no taxable income, and accordingly made no provision
for federal income taxes.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

2. Summary of Significant Accounting Policies - Continued:
------------------------------------------------------

Segment Information - The Company derives all significant revenues from a
single line of business, hotel real estate ownership.

Recent Accounting Pronouncements - In April 2002, the FASB issued FAS
Statement No. 145, "Recussion of FASB Statements NO. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." This
statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt." and an amendment of that Statement, FASB Statement
No. 64, "Estinguishments of Debt Made to Satisfy SInking-Fund
Requirements." This statement also rescinds FASB Statement No.44,
"Accounting for Intangible Assets of Motor Carriers." This statement amends
FASB Statement No. 13. "Accounting for Leases, " to eliminate an
inconsistency between the required accounting for sale-leaseback tranaction
and the required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. This
statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this statement
related to the rescission of Statement 4 are applicable in fiscal years
beginning after May 15, 2002. The provisions of this statement related to
Statement 13 are effective for transactions occuring after May 15, 2002.
All other provisions of this statment are effective for financial
statements issued on or after May 15, 2002. The provisions of this
statement, excluding those related to the rescission of Statement 4, did
not have a significant impact on the financial position or results of
operations of the Company. The provisions of this statement related to the
rescission of Statement 4 are not expected to have a significant impact on
the financial position or results of operations of the Company.

In July 2002, the FASB issued FAS Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The statement requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. Examples of costs covered by the statement include lease
termination costs and certain employee severence costs that are associated
with restructuring, discontinued operation, plant closing, or other exit or
disposal activity. The statement is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of this
statement is not expected to have a significant impact on the financial
position or results of operations of the Company.

3. Assignment of Third Party Leases:
--------------------------------

Western International Leases
Effective January 1, 2002, the Company took assignment of its leases with
WI Hotel Leasing, LLC for seven hotel Properties. These Properties are
being leased by a TRS of the Company and are managed by affiliates of
Marriott International, Inc. ("Marriott"). The operations of these
Properties have been reflected in the results of the operations for the
Company for the quarter and six months ended June 30, 2002. The Company
paid approximately $69,000 for this assignment.

Crestline MI-3 Leases
Effective June 28, 2002, the Company took assignment of its leases from
CCCL Leasing, LLC, an affiliate of Crestline Capital Corporation, for nine
hotel Properties. These Properties are being leased by a TRS of the Company
and are managed by an affiliate of Marriott. The operations of these
Properties are reflected in the consolidated results of operations for the
Company effective June 28, 2002. In connection with this transaction, CCCL
Leasing, LLC agreed to give up its claim to security deposits totaling
approximately $4.0 million. Additionally, the Company assumed a liquidity
facility loan of approximately $3.6 million and paid approximately $25,000
in legal fees and other expenses. These transactions resulted in net other
income of approximately $0.4 million being recognized by the Company during
the quarter and six months ended June 30, 2002. See Note 6, "Indebtedness",
for a summary of the terms of the loan that was assumed by the Company.

Crestline Atlanta Leases
Effective June 30, 2002, the Company took assignment of its leases from CC
GB Leasing, LLC, an affiliate of Crestline Capital Corporation, for two
hotel Properties. These Properties are being leased by a TRS of the Company
and are managed by an affiliate of Interstate Hotels and Resorts under the
Residence Inn by Marriott brand. The operations of the Properties are
reflected in the consolidated results of operations for the Company
effective June 30, 2002. In connection with this transaction, CC GB
Leasing, LLC forfeited its claim to security deposits totaling $1.4 million
and the Company assumed net assets of approximately $59,000, resulting in
other income of approximately $1.5 million being recognized by the Company
during the quarter and six months ended June 30, 2002.

4. Investments in Unconsolidated Subsidiaries:
------------------------------------------

Mobile Travel
Guide In January 2002, the Company acquired a 25 percent interest in a
joint venture with Publications International, Ltd. ("PIL"), Hilton Hotels
Corporation, and Marriott that owns a 77.5 percent interest in a joint
venture with Exxon Mobil Corporation and PIL ("EMTG"). EMTG owns the
licensing rights to the Mobil Travel Guide. The licensing rights entitle
EMTG to assemble, edit, publish and sell the Mobil Travel Guide and use
such rights to generate additional products using the Mobil Travel Guide
brand. The Company's required total capital contribution was approximately
$3.6 million, the remainder of which was funded in June 2002. EMTG has
engaged Dustin/Massagli LLC, a company of which one of the Company's
directors, is president, a director and principal stockholder, to manage
its business.

San Francisco Joint Venture
In June 2002, the Company acquired a 50 percent interest in CY-SF Hotel
Parent, LP (the "San Francisco Joint Venture"), a joint venture with an
affiliate of Marriott. The San Francisco Joint Venture purchased a
Courtyard by Marriott in downtown San Francisco (the "San Francisco
Downtown Property") for approximately $82 million. The purchase was
financed with equity investments of $13 million each from the Company and
Marriott as well as $56 million in borrowings consisting of two loans from
a third-party lender. One of the loans is in the amount of $41 million and
requires interest payments equal to the greater of one-month LIBOR plus
3.25 percent, or 6.25%. The other loan is in the amount of $15 million and
interest payments are equal to a base rate plus 7 percent. The base rate
equals the greater of (a) the lesser of (i) one-month LIBOR or (ii) 9
percent, or (b) 3 percent. Both loans mature in August 2007 and require
monthly payments of interest only through July 1, 2004, at which time
monthly payments of principal and interest are due with the remaining
principal balances and any unpaid interest due at maturity. The lessee of
the San Francisco Downtown Property is a wholly owned subsidiary of the San
Francisco Joint Venture and the Property is managed by a subsidiary of
Marriott.

Office Building

In May 2002, the Company acquired a 10 percent interest in CNL Plaza, Ltd.,
a limited partnership that owns an office building located in Orlando,
Florida, in which the Advisor and its affiliates lease office space for
$300,000. The remaining interest in the limited partnership is owned by
several affiliates of the Advisor. In connection with this acquisition, the
Company has severally guaranteed 16.67 percent, or approximately $2.6
million, of a $15.5 million unsecured promissory note of the limited
partnership.

INTENTIONALLY LEFT BLANK

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

4. Investments in Unconsolidated Subsidiaries - Continued:
------------------------------------------------------

The Company also holds investments in several other joint ventures and
partnerships with third parties who share the decision-making control for
these entities. The borrowers on the loans for the joint ventures below are
legally separate entities, having separate assets and liabilities, from the
Company and, therefore, the assets and credit of the respective joint
ventures are not available to satisfy the debts and other obligations of
the Company. Likewise, the assets and credits of the Company are not
available to satisfy the debts and other obligations of the borrowers on
the loans of the joint ventures. The following presents unaudited condensed
financial information for these joint ventures and partnerships as of and
for the six months ended June 30, 2002:

Desert Ridge
Resort WB Resort CNL IHC CY-SF CTM
Partners, Partners, CNL HHC Partners, Hotel Partners, CNL Plaza,
LLC LP Partners, LP LP* Parent, LP LLC Ltd. Total
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Land, buildings,
and equipment,
net $198,054,512 $198,033,897 $209,801,330 $20,778,780 $ 82,200,000 $ 148,259 $ 54,899,322 $763,916,100
Other assets 10,515,498 11,507,229 14,331,326 1,146,147 -- 15,436,641 10,977,994 63,914,835
Mortgages and other
notes payable 183,614,394 147,179,155 100,413,333 6,680,267 56,000,000 2,313,582 63,925,586 560,126,317
Other liabilities 19,671,293 14,636,921 9,755,126 290,646 200,000 2,484,092 823,858 47,861,936
Partners' capital 5,284,323 47,725,050 113,964,197 14,954,014 26,000,000 10,787,226 1,127,872 219,842,682
Revenues 2,508,145 22,108,287 32,335,940 2,748,557 -- 799,684 897,255 61,397,868
Cost of sales 1,481,682 9,562,306 13,053,945 760,005 -- 1,687,225 269,177 26,814,340
Expenses 3,262,053 19,006,459 17,744,875 1,604,615 -- 837,733 650,438 43,106,173
Net income (loss) (2,235,590) (6,460,478) 1,537,120 383,937 -- (1,725,274) (22,360) (8,522,645)
Income (loss)
allocable to the
Company (946,325) (3,165,634) 1,075,984 264,638 -- (431,319) 440 (3,202,216)
Other comprehensive
(loss)
allocable to the
Company (794,405) -- (414,898) -- -- -- -- (1,209,303)
Difference between
carrying amount of
investment and
Company's share of
partners' capital 3,462,487 3,563,661 7,387,447 838,326 3,118,255 -- -- 18,370,176
Company's ownership
interest at end of 42.33% 49.00% 70.00% 85.00% 50.00% 25.00% 10.00% --
period

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

4. Investments in Unconsolidated Subsidiaries - Continued:
------------------------------------------------------

The following presents unaudited condensed financial information for these
joint ventures and partnerships as of and for the year ended December 31,
2001:

Desert Ridge
Resort WB Resort CNL IHC CY-SF CTM
Partners, Partners, CNL HHC Partners, Hotel Partners, CNL Plaza,
LLC LP Partners, LP LP* Parent, LP** LLC** Ltd.** Total
------------- ------------- ------------- ------------ ------------ ------------ ------------ -------------

Land, buildings,
and equipment,
net $ 133,500,314 $186,884,885 $213,278,530 $21,049,569 $ -- $ -- $ -- $554,713,298
Other assets 82,644,318 9,069,876 10,573,028 571,152 -- -- -- 102,858,374
Mortgages and other
notes payable 181,884,596 137,749,752 100,000,000 6,723,384 -- -- -- 426,357,732
Other liabilities 26,969,771 18,196,841 4,940,228 249,912 -- -- -- 50,356,752
Partners' capital 7,290,265 40,008,168 118,911,330 14,647,425 -- -- -- 180,857,188
Revenues 8,153,952 10,166,841 17,564,259 510,505 -- -- -- 36,395,557
Cost of sales 2,235,307 5,508,417 7,094,949 174,607 -- -- -- 15,013,280
Expenses 13,830,223 13,988,956 9,219,402 408,496 -- -- -- 37,447,077
Net income (loss) (7,911,578) (9,330,532) 1,249,908 (72,598) -- -- -- (16,064,800)
Income (loss)
allocable to
the Company (3,395,649) (4,571,961) 874,936 -- -- -- -- (7,092,674)
Other comprehensive
income (loss)
allocable (1,369,679) -- 180,283 -- -- -- -- (1,189,396)
to the Company
Difference between
carrying amount
of investment and
Company's share
of partners'
capital 3,196,751 3,622,986 7,650,572 870,072 -- -- -- 15,340,381
Company's ownership
interest at end
of period 42.33% 49.00% 70.00% 85.00% -- -- -- --

* A portion of the net income for the six months ended June 30, 2002 was
allocated to the other partner to restore the deficit created by losses
during the year ended December 31, 2001 in accordance with the partnership
agreement.
** These entities were not formed until 2002 and therefore are not presented
for the year ended December 31, 2001.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

4. Investment in Unconsolidated Subsidiaries - Continued:
-----------------------------------------------------

The difference between the carrying amount of the investments in the above
joint ventures and partnerships and the Company's share of partners'
capital results from various acquisition costs and fees which were not
assumed by the joint ventures and partnerships upon formation. These
amounts are amortized over 36 years.

The Company had distributions receivable from its joint ventures and
partnerships of $3,170,701 and $1,410,900 as of June 30, 2002 and December
31, 2001, respectively, which are included in due from related parties in
the accompanying consolidated balance sheets.

5. Property Acquisitions:
---------------------

During the six months ended June 30, 2002, the Company acquired a
SpringHill Suites(TM) by Marriott(R) and a TownePlace Suites(TM) by
Marriott(R), both located in Manhattan Beach, California, a SpringHill
Suites(TM) by Marriott(R) located in Plymouth Meeting, Pennsylvania, a
Courtyard(R) by Marriott(R) located in Somerset County, New Jersey and a
Marriott Hotel located in Bridgewater, New Jersey for approximately $162
million. These Properties are leased by TRS entities and are being managed
by affiliates of Marriott. The operations of these Properties have been
included in the results of operations of the Company for the quarter and
six months ended June 30, 2002.

6. Indebtedness:
------------

Indebtedness consisted of the following at:
June 30, 2002 December 31, 2001
----------------- -----------------

Mortgages payable and accrued interest $ 167,880,192 $ 168,883,882
Construction loan facilities 63,952,163 47,887,071
Tax incremental financing note 9,610,903 9,684,609
Line of credit 64,373,368 7,500,000
----------------- -----------------
$ 305,816,626 $ 233,955,562
================= =================

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

7. Distributions:
-------------

For the six months ended June 30, 2002 and 2001, approximately 62 percent
and 48 percent, respectively, of the distributions paid to stockholders
were considered ordinary income and approximately 38 percent and 52
percent, respectively, were considered a return of capital to stockholders
for federal income tax purposes. No amounts distributed to the stockholders
for the six months ended June 30, 2002 are required to be or have been
treated by the Company as a return of capital for purposes of calculating
the stockholders' return on their invested capital. The characterization
for tax purposes of distributions declared for the six months ended June
30, 2002 may not be indicative of the results that may be expected for the
year ended December 31, 2002.

8. Related Party Transactions:
--------------------------

Certain directors and officers of the Company hold similar positions with
the Advisor and its affiliates, including the managing dealer, CNL
Securities Corp. These affiliates are by contract entitled to receive fees
and compensation for services provided in connection with common stock
offerings, and the acquisition, development, management and sale of the
Company's assets.

Amounts incurred relating to these transactions with affiliates were as
follows for the six months ended June 30:

2002 2001
----------------- -----------------

CNL Securities Corp.:
Selling commissions (the majority of which was
reallowed to unaffiliated broker-dealer
firms) $ 13,284,947 $ 11,956,553
Marketing and due diligence expense 884,581 700,593
----------------- -----------------
14,169,528 12,657,146
----------------- -----------------

Advisor and its affiliates:
Acquisition fees 10,290,560 8,395,329
Development fees 1,003,940 814,487
Asset management fees 3,075,029 1,614,456
----------------- -----------------
14,369,529 10,824,272
----------------- -----------------
$ 28,539,057 $ 23,481,418
================= =================

Of these amounts, $1,526,443 and $1,026,225 is included in due to related
parties in the accompanying condensed consolidated balance sheets as of
June 30, 2002 and December 31, 2001, respectively.

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), on a day-to-day
basis. The expenses incurred for these services were classified as follows
for the six months ended June 30:

2002 2001
-------------- --------------

Stock issuance costs $ 1,844,170 $ 2,658,239
General operating and administrative expenses 602,687 529,377
Land, buildings and equipment and other assets -- 11,889
-------------- --------------
$ 2,446,857 $ 3,199,505
============== ==============

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

8. Related Party Transactions - Continued:
--------------------------------------

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 is a stockholder. The amount deposited with this affiliate was
$4,980,516 and $6,928,363 at June 30, 2002 and December 31, 2001,
respectively.

In May 2002, the Company acquired a 10 percent interest in CNL Plaza, Ltd.,
a limited partnership that owns an office building located in Orlando,
Florida, in which the Advisor and its affiliates lease office space for
$300,000. The remaining interest in the limited partnership is owned by
several affiliates of the Advisor. In connection with this acquisition, the
Company has severally guaranteed 16.67 percent, or approximately $2.6
million, of a $15.5 million unsecured promissory note of the limited
partnership.

9. Concentration of Credit Risk:
----------------------------

One of the Company's tenants contributed approximately 16 percent and 13
percent of total revenues for the quarter and six months ended June 30,
2002. In addition, a significant portion of the Company's rental income was
earned from properties operating as various Marriott(R) brands for the
quarter and six months ended June 30, 2002.

Although the Company intends to acquire properties in various states and
regions, has become the tenant of many of its Properties while engaging
third parties to manage operations, carefully screens its tenants and has
obtained interests in other non-Marriott(R) branded Properties, failure of
these lessees, the Company's hotels or the Marriott(R) brands could
significantly impact the results of operations. Management believes that
the risk of such a default will be reduced through future acquisition and
diversification and due to the initial and continuing due diligence
procedures performed by the Company.

10. Earnings Per Share:
------------------

Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if other contracts to issue common
stock were exercised and shared in the earnings of the Company. For the
quarters and six months ended June 30, 2001 approximately 3.6 million
shares and approximately 3.7 million shares, respectively, related to the
conversion of CNL Hotel Investors, Inc. Preferred Stock to the Company's
common stock, however, were anti-dilutive after the application of the "if
converted method" and were, therefore, excluded from the EPS calculation.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001

10. Earnings Per Share - Continued:
------------------------------

The following represents the calculation of earnings per share for the
quarters and six months ended June 30:

Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
----------------- ----------------- ----------------- -----------------
Basic and Diluted Earnings
Per Share:
Net earnings $ 4,757,041 $ 7,058,222 $ 8,407,711 $ 12,587,444
================= ================= ================= =================

Weighted average number of
shares outstanding 89,490,267 60,734,945 85,233,690 56,694,339
================= ================= ================= =================

Basic and Diluted
earnings per share $ 0.05 $ 0.12 $ 0.10 $ 0.22
================= ================= ================= =================

11. Commitments and Contingencies:
-----------------------------

From time to time the Company may be exposed to litigation arising from the
operation of its business. Management does not believe that resolution of
these matters will have a material adverse effect on the Company's
financial condition or results of operations.

The Company has commitments to (i) acquire three hotel Properties for an
anticipated aggregate purchase price of approximately $142 million, (ii)
construct or complete construction on three properties with an estimated
value of approximately $82 million and (iii) fund the remaining total of
approximately $23 million in two existing partnerships. The Company also
has committed to fund its pro rata share of working capital shortfalls and
construction commitments for its partnerships, if such shortfalls arise,
and has guaranteed the debt service for several of its subsidiaries and
partnerships. The acquisition of additional Properties and the investment
in the partnerships described above is subject to the fulfillment of
certain conditions. There can be no assurance that any or all of the
conditions will be satisfied or, if satisfied, that these transactions will
be entered into by the Company. In order to enter into these and other
transactions, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or advances on its revolving line of
credit and permanent financing.

The Company has entered into an agreement whereby if certain conditions are
met, nine leases currently to third party tenants on a triple-net basis
must be assumed by the Company on or before March 31, 2004. In order for
this to occur the Properties must have operating results above a certain
minimum threshold. If these conditions are met and the assumption of these
leases does not occur by the stated deadline, the Company has agreed to
return security deposits it holds on three of the Properties which total
approximately $3.2 million. Both parties have agreed that should the
conversion occur, the Company would not be obligated to pay any additional
consideration for the leasehold position and that Marriott would
participate, through incentive fees, in any additional earnings above what
was otherwise the minimum rent.

The Company has received various credit enhancement guarantees from third
party managers who have guaranteed a certain level of performance for
Properties they manage which are leased to TRS entities. When provided,
these guarantees are typically in effect during the stabilization period
for the hotel Property or Properties being guaranteed. These guarantees
normally expire when (i) a predefined operating performance threshold is
achieved for twelve consecutive months, (ii) the guarantee term expires
(typically three to five years) or (iii) maximum allowable funding under
that guarantee has been received, whichever occurs first. Operating results
of several Properties may be "pooled" in order to measure operating
performance for purposes of determining guarantee funding. Additionally,
all or a portion of the amounts funded under these guarantees may be earned
back by the guarantor, with a specified return, as an incentive fee under
the management contract. Such incentive fee amounts will be paid only to
the extent Property operating profits exceed a predetermined operating
threshold. In situations where the guarantor has the opportunity to earn
back funding from these guarantees, the funds received under the guarantees
are recorded as other liabilities in the accompanying consolidated balance
sheets. As of June 30, 2002 and December 31, 2001, these other liabilities
were approximately $2,753,000 and $0, respectively, representing guarantee
funding which potentially could be earned back in the future. Additionally,
as of June 30, 2002 and December 31, 2001, the Company had approximately
$49,925,000 and $50,000,000, respectively, which remained available for
funding under these types of guarantees, should such funding be necessary.

In connection with the lease assumptions for nine Properties discussed in
Note 3, "Assignment of Third Party Leases", the Company assumed a liquidity
facility loan in the amount of approximately $3.6 million. The facility was
provided by the manager of the Properties to fund Property operating
shortfalls for the aggregate rent due on a pooled basis for the nine
portfolio Properties. The facility is available until the earlier of (i)
expiration of the agreement on December 31, 2004, (ii) the minimum rent
coverage of the pooled Properties equals or exceeds a predefined threshold
for 13 consecutive accounting periods or (iii) total liquidity facility
funding equals or exceeds 10 percent of the total purchase price for all
nine Properties at the any of any fiscal year.

12. Subsequent Events:
-----------------

During the period July 1, 2002 through August 6, 2002, the Company received
subscription proceeds of $53,837,165 for an additional 5,383,716 shares of
common stock.

On July 3, 2002, the Company acquired land on which a hotel Property will
be developed for approximately $3.3 million.

On July 1, 2002 and August 1, 2002, the Company declared distributions to
stockholders of record on July 1, 2002 and August 1, 2002, totaling
$6,146,220 and $6,438,865, respectively, or $0.06458 per share, payable in
September 2002.

The Company currently is seeking additional Properties or other real estate
related investment opportunities.

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

The following information contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These statements generally are
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 and security
agreement, continued availability of proceeds from the Company's offering,
the ability of the Company to obtain additional permanent financing on
satisfactory terms, the ability of the Company to continue to identify
suitable investments, the ability of the Company to continue to locate
suitable managers and tenants for its properties and borrowers for its
mortgage loans, and the ability of such tenants and borrowers to make
payments under their respective leases or mortgage loans. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements.

Introduction
------------

CNL Hospitality Properties, Inc. was organized on June 12, 1996,
pursuant to the laws of the State of Maryland, to invest in hotel
properties ("Properties"). The term "Company" includes, unless the context
otherwise requires, CNL Hospitality Properties, Inc., CNL Philadelphia
Annex, LLC, CNL LLB SHS Management, LP, CNL LLB F-Inn Management, LP, CNL
LLB C-Hotel Management, LP and its other subsidiaries. As of June 30, 2002,
the Company owned interests in 49 Properties. The Company has retained CNL
Hospitality Corp. (the "Advisor") as its advisor to provide management,
acquisition, advisory and administrative services and operates for federal
income tax purposes as a real estate investment trust (a "REIT"). The
Company may also provide mortgage financing to operators of hotel chains
and may enter into other permitted investments.

The Company's operations have changed from those that were previously
reported in prior years as permitted by the REIT Modernization Act of 1999,
which became effective beginning 2001. This is the result of a shift in the
Company's business from the leasing of owned Properties to third-party
tenants in exchange for rental revenue to an emphasis on leasing Properties
to taxable REIT subsidiaries ("TRS") and engaging third-party managers to
conduct day-to-day operations. Under this new structure, when possible, the
Company negotiates various types of credit enhancements on a case-by-case
basis for its TRS Properties (see Note 6, "Indebtedness" for additional
information on credit enhancements). This transition has resulted in the
replacement of rental income from operating leases with hotel operating
revenues and related hotel operating expenses. This is also reflected as a
reduction in rental income from operating leases and an increase in hotel
operating revenues as a percentage of total revenues. This trend is
expected to continue throughout the remainder of 2002 and into the future.

During the quarter and six months ended June 30, 2002, the Company,
consistent with its strategy to lease hotel Properties to TRS entities and
engage third party managers to conduct day-to-day operations, took
assignment of several leases which had been previously leased to third
parties. See Note 3, "Assignment of Third Party Leases" for specific
information pertaining to these three individual transactions.

Results of Operations
---------------------

Comparison of quarter and six months ended June 30, 2002 to quarter and six
months ended June 30, 2001

Owned Properties

As of June 30, 2002, the Company owned interests in 49 Properties (40
directly owned and nine held indirectly through joint ventures), consisting
of land, buildings and equipment, including one parcel of land on which a
hotel Property is being constructed, and interests in three partnerships
where hotels or resorts are being constructed or renovated. Of these
Properties 36 are leased to TRS entities and operated by third-party
managers, resulting in hotel revenues and expenses being reported in the
consolidated statements of operations for the Company. The remaining other
Properties are leased on a "triple-net" basis to third-party operators
resulting in rental income from operating leases being reported in the
consolidated statement of operations for the Company.

Revenues

During the six months ended June 30, 2002 and 2001, the Company earned
rental income from operating leases and FF&E reserve income of $24,416,241
and $32,979,531, respectively ($12,381,297 and $17,140,725 of which was
earned during the quarters ended June 30, 2002 and 2001, respectively).
Although the number of Properties owned by the Company increased, the
decrease in rental income and FF&E reserve income was due to the Company
taking assignment of leases on seven existing Properties and engaging third
party managers to operate these Properties as of January 1, 2002.
Additionally, two Properties that were acquired at the end of 2001 are also
operated using third party managers. This resulted in rental income from
operating leases and FF&E reserve income for these Properties being
replaced by hotel operating revenues and expenses during the first half of
2002. As noted above, additional Property leases were assigned to the
Company at the end of June 2002 and it is expected that other existing
third party leases may be assigned to the Company in the future. Consistent
with the Company's strategy, these Properties, and additional Properties
acquired in the future, will likely be leased to taxable REIT subsidiaries
and operated using third party managers. As a result, the amount of rental
income from operating leases is expected to continue to decline as a
percentage of total revenues while hotel operating revenue is expected to
increase. Hotel operating revenue during the six months ended June 30, 2002
was $32,527,117 ($17,865,704 of which was earned during the quarter ended
June 30, 2002).

Interest and Other Income

During the six months ended June 30, 2002 and 2001, the Company earned
$611,424 and $1,936,032, respectively ($161,210 and $1,061,639 of which was
earned during the quarters ended June 30, 2002 and 2001, respectively), in
interest income from investments in money market accounts and other
short-term, highly liquid investments. The decrease in interest income was
primarily attributable to a decrease in the average dollar amount invested
in short-term, liquid investments and the period of time the funds were
invested in such accounts as compared to 2001. As net offering proceeds are
invested in interests in Properties, used to make mortgage loans and enter
into other permitted investments, the percentage of the Company's total
revenues from interest income from investments in money market accounts or
other short term, highly liquid investments is expected to remain constant
or decrease depending on the amount of future offering proceeds and the
timing of investments.

In June 2002, the Company recognized other income of $1,897,817 which
represents the net of the release of the Company's obligation to repay
approximately $5.5 million in security deposits resulting from the
assumption of leases on eleven of its existing Properties offset by the
assumption of a liquidity facility loan of approximately $3.6 million. See
Item 3. "Qualitative and Quantitative Disclosures About Market Risk" for
additional information related to the liquidity facility loan.

Operating Expenses

Operating expenses, including depreciation and amortization and
interest expenses, were $47,709,837 and $21,089,449 for the six months
ended June 30, 2002 and 2001, respectively ($25,453,067 and $10,363,451 of
which was incurred during the quarters ended June 30, 2002 and 2001,
respectively). The increase in operating expenses during the period, as
compared to 2001, was the result of the Company owning interests in 49
Properties during 2002 compared to 33 Properties in 2001. During the six
months ended June 30, 2002, the Company incurred hotel expenses of
$19,799,954 ($11,075,561 of which was incurred during the quarter ended
June 30, 2002), due to the Company's leasing of a portion of its Properties
which are operated by third party managers. No such expense was incurred
during the six months ended June 30, 2001. Additionally, interest expense
increased from $7,070,327 for the six months ended June 30, 2001 to
$9,158,757 for the six months ended June 30, 2002 (which includes an
increase from $3,470,675 to $4,883,946 for the quarters ended June 30, 2001
and 2002, respectively), primarily due to increased borrowing on the
revolving line of credit. Operating expenses are expected to increase as
the Company acquires interests in additional Properties and invests in
mortgage loans or other permitted investments. However, general operating
and administrative expenses, exclusive of interest expense, as a percentage
of total revenues is expected to decrease as the Company acquires interests
in additional Properties and invests in mortgage loans or other permitted
investments.

Losses From Unconsolidated Subsidiaries

Equity in losses of unconsolidated subsidiaries of $3,202,216 for the
six months ended June 30, 2002 ($2,032,316 for the quarter ended June 30,
2002) was primarily due to pre-opening and marketing expenses incurred
during the construction of a resort owned through a joint venture and
losses at a resort which was open but undergoing significant renovations.
Losses are expected to continue through the remainder of 2002 as
construction and renovation activities are completed and the resorts become
fully operational.

Concentration of Credit Risk

One of the Company's tenants contributed approximately 16 percent and
13 percent of total revenues for the quarter and six months ended June 30,
2002. In addition, a significant portion of the Company's rental income was
earned from properties operating as various Marriott(R) brands for the
quarter and six months ended June 30, 2002.

Although the Company intends to acquire properties in various states
and regions, has become the tenant of many of its Properties while engaging
third parties to manage operations, carefully screens its tenants and has
obtained interests in other non-Marriott(R) branded Properties, failure of
these lessees, the Company's hotels or the Marriott(R) brands could
significantly impact the results of operations. Management believes that
the risk of such a default will be reduced through future acquisition and
diversification and due to the initial and continuing due diligence
procedures performed by the Company.

Current Economic Conditions

The attacks on the World Trade Center and the Pentagon on September
11, 2001, adversely impacted economic activity during the months following
the attacks, particularly affecting the travel and lodging industries.
These declines are in addition to more modest declines which began to
affect the hotel industry earlier in 2001 as a result of the general
slowdown in business activity within the U.S. economy. As a result of these
conditions, most of our hotel operators and managers have reported declines
in the operating performance of our hotels. Many of our leases and
operating agreements contain features such as guarantees which are intended
to require payment of minimum returns to us despite operating declines at
our hotels. However, there is no assurance that the existence of credit
enhancements will provide the Company with uninterrupted cash flows to the
extent that the recovery is prolonged. Additionally, if our tenants, hotel
managers or guarantors default in their obligations to us, the Company's
revenues and cash flows may still decline or remain at reduced levels for
extended periods.

An uninsured loss or a loss in excess of insured limits could have a
material adverse impact on the operating results of the Company. Management
feels that the Company has obtained reasonably adequate insurance coverage
on its Properties. However, certain types of losses, such as from terrorist
attacks may be either uninsurable, too difficult to obtain or too expensive
to justify insuring against. Furthermore, an insurance provider could elect
to deny coverage under a claim.

Management of the Company currently knows of no other trends that will
have a material adverse effect on liquidity, capital resources or results
of operations.

Hotel Operating Statistics

Management regularly reviews operating statistics such as revenue per
available room ("REVPAR"), average daily rate ("ADR") and occupancy for the
Company's Properties in order to gauge how well the Company's Properties
are performing as compared with the industry and past results. Out of the
49 total Properties, the Company has year-to-year comparative data on 26.
The following table summarizes REVPAR, ADR and occupancy for these
Properties for the quarter and six months ended June 30, 2002.

Six Months Ended Quarter Ended
June 30, June 30, Variance
-------------------- -------------------- --------------------
Six
Months Quarter
2002 2001 2002 2001 Ended Ended
---- ---- ---- ---- ----- -----
North America (26 hotels)
REVPAR $ 65.60 $ 71.56 $ 65.90 $ 70.92 $ (5.96) $(5.02)
ADR $ 94.26 $105.37 $ 92.79 $102.77 $(11.11) $(9.98)
Occupancy 69.6% 67.9% 71.0% 69.0% 1.7% 2.0%

Note that the Company did not operate or have interests in all of the 26
Properties used in the table above during the quarter and six months ended
June 30, 2001, however, the operating results for these Properties are
still used for comparative purposes and analysis of performance.

Funds from Operations Management considers funds from operations
("FFO"), as defined by the National Association of Real Estate Investment
Trusts, to be an indicative measure of operating performance due to the
significant effect of depreciation on real estate assets on net earnings.
The following information is presented to help stockholders better
understand the Company's financial performance and to compare the Company
to other REITs. However, FFO as presented may not be comparable to amounts
calculated by other companies. This information should not be considered an
alternative to net earnings, cash flow generated from operations, or any
other operating or liquidity performance measure prescribed by accounting
principles generally accepted in the United States of America.

The following is a reconciliation of net earnings to FFO:

Quarter Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
---------------- --------------- -------------- ---------------

Net earnings $ 4,757,041 $ 7,058,222 $ 8,407,711 $ 12,587,444
Adjustments:
Effect of unconsolidated subsidiaries 2,707,879 11,450 5,479,246 22,900
Effect of minority interest (58,515) (396,851) (118,400) (822,225)
Amortization of real estate assets 272,619 64,060 542,649 128,119
Depreciation of real estate assets 6,566,313 4,957,791 12,348,466 9,814,570
Effect of assumption of liabilities 3,576,133 -- 3,576,133 --
---------------- --------------- -------------- ---------------

Funds From Operations $ 17,821,470 $ 11,694,672 $ 30,235,805 $ 21,730,808
================ =============== ============== ===============

Weighted average shares:
Basic 89,490,267 60,734,945 85,233,690 56,694,339
================ =============== ============== ===============

Diluted 89,490,267 60,734,945 85,233,690 56,694,339
================ =============== ============== ===============

Liquidity and Capital Resources
-------------------------------

Common Stock Offerings

On September 14, 2000, the Company commenced its third offering of up
to 45,000,000 shares of common stock ($450,000,000) (the "2000 Offering").
Of the 45,000,000 shares of common stock offered, up to 5,000,000 were
available to stockholders purchasing shares through the reinvestment plan.
On August 9, 2001, the Company filed a registration statement on Form S-11
with the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to an additional 45,000,000 shares of common
stock ($450,000,000) (the "2002 Offering") in an offering which commenced
immediately following the completion of the 2000 Offering on April 22,
2002. Of the 45,000,000 shares of common stock being offered, up to
5,000,000 will be available to stockholders purchasing shares through the
reinvestment plan. The price per share and the other terms of the 2002
Offering, 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 as those for the 2000 Offering. Since its formation through June
30, 2002, the Company has received an initial $200,000 contribution from
its Advisor and subscription proceeds of $955,601,512 (95,560,151 shares),
including $5,205,562 (520,556 shares) issued pursuant to the Company's
reinvestment plan. CNL Securities Corp., an affiliate of the Advisor, is
the managing dealer for the Company's equity offerings. The Company has
received $80,529,887 (8,052,989 shares) from the inception of the 2002
Offering through June 30, 2002.

As of June 30, 2002, net proceeds to the Company from its stock
offerings, loan proceeds and capital contributions from the Advisor, after
deduction of selling commissions, marketing support and due diligence
expense reimbursement fees and organizational and offering expenses,
totaled approximately $1,227,747,000. The Company used approximately
$629,270,000 of net offering proceeds and $237,177,000 of loan proceeds to
invest in 40 hotel Properties, including a parcel of land on which a hotel
Property is being constructed, approximately $145,445,000 to invest in six
partnerships, including two on which Properties are being constructed or
renovated, approximately $6,457,000 to redeem 692,849 shares of common
stock, approximately $79,000,000 to pay down the revolving line of credit
and approximately $69,301,000 to pay acquisition fees and expenses, leaving
approximately $61,097,000 available for investment in Properties and
mortgage loans.

During the period July 1, 2002 through August 6, 2002, the Company
received additional net offering proceeds of approximately $53,837,165,
paid down the revolving line of credit by $24,000,000 and had approximately
$83,149,000 available for investment in Properties and mortgage loans or
other permitted investments. The Company expects to use the uninvested net
proceeds from the 2000 Offering, plus any additional net proceeds from the
sale of shares from the 2002 Offering, primarily to purchase interests in
additional Properties and, to a lesser extent, invest in mortgage loans or
other permitted investments. In addition, the Company intends to borrow
money to acquire interests in additional Properties, to invest in mortgage
loans, and to pay certain related fees. The Company intends to encumber
assets in connection with such borrowings.

Redemptions

In October 1998, the Board of Directors elected to implement the
Company's redemption plan. Under the redemption plan, the Company may
elect, at its discretion, to redeem shares, subject to certain conditions
and limitations. During the six months ended June 30, 2002 and 2001,
161,897 shares and 121,446 shares, respectively, were redeemed for
$1,489,452 and $1,117,299, respectively, and retired from shares
outstanding of common stock. Shares were redeemed for $9.20 per share.

Commitments and Contingencies

From time to time the Company may be exposed to litigation arising
from the operation of its business. Management does not believe that
resolution of these matters will have a material adverse effect on the
Company's financial condition or results of operations.

The Company has commitments to (i) acquire three hotel Properties for
an anticipated aggregate purchase price of approximately $142 million, (ii)
construct two properties with an estimated value of approximately $82
million and (iii) fund the remaining total of approximately $23 million in
two existing partnerships. The Company also has committed to fund its pro
rata share of working capital shortfalls and construction commitments for
its partnerships, if such shortfalls arise, and has guaranteed the debt
service for several of its subsidiaries and partnerships. The acquisition
of additional Properties and the investment in the partnerships described
above is subject to the fulfillment of certain conditions. There can be no
assurance that any or all of the conditions will be satisfied or, if
satisfied, that these transactions will be entered into by the Company. In
order to enter into these and other transactions, the Company must obtain
additional funds through the receipt of additional offering proceeds and/or
advances on its revolving line of credit and permanent financing.

The Company has entered into an agreement whereby if certain
conditions are met, nine leases currently to third party tenants on a
triple-net basis must be assumed by the Company on or before March 31,
2004. In order for this to occur the Properties must have operating results
above a certain minimum threshold. If these conditions are met and the
assumption of these leases does not occur by the stated deadline, the
Company has agreed to return security deposits it holds on three of the
Properties which total approximately $3.2 million. Both parties have agreed
that should the conversion occur, the Company would not be obligated to pay
any additional consideration for the leasehold position and that any
additional earnings by the Company under this structure would be allocated
between the Company and Marriott, the manager of the Properties.

Cash and Cash Equivalents / Cash Flows

Until Properties are acquired, or mortgage loans 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, such as
demand deposit accounts at commercial banks, certificates of deposit and
money market accounts. This investment strategy provides high liquidity in
order to facilitate the Company's use of these funds to acquire Properties.
At June 30, 2002, the Company had $48,169,968 invested in short-term
investments as compared to $44,825,052 at December 31, 2001. The increase
in the amount invested in short-term investments was primarily attributable
to the timing of Property acquisitions during the first half of 2002 and
additional investments in joint ventures to fund renovation costs, offset
by proceeds received from the sale of common stock. These funds will be
used to purchase interests in additional Properties, to make mortgage loans
or invest in other permitted investments, to pay offering expenses and
acquisition fees and expenses, to pay distributions to stockholders and
other Company expenses and, at management's discretion, to create cash
reserves.

During the six months ended June 30, 2002 and 2001, the Company
generated cash from operating activities of $28,582,691 and $30,111,830,
respectively, and cash used in investing activities was $220,601,057 and
$108,328,902 for the six months ended June 30, 2002 and 2001, respectively.
Cash used in investing activities for the six months ended June 30, 2002
and 2001, consist primarily of additions to land, buildings and equipment
of $175,762,128 and $67,909,910, respectively, and investments of
$25,255,893 and $620,895, respectively, into various joint ventures.
Additionally, during the six months ended June 30, 2001, the Company
acquired the remaining interest of CNL Hotel Investors, Inc. for
$32,884,119 results in 100 percent ownership by the Company. During the six
months ended June 30, 2002, the Company made the following Property
acquisitions:

Brand Affiliation Property Location Purchase Date Purchase Price
----------------------------------- ------------------------ ------------------------ ---------------------

SpringHill Suites(TM)by Marriott(R) Manhattan Beach, CA January 18, 2002 $20,000,000
TownePlace Suites(TM)by Marriott(R) Manhattan Beach, CA January 18, 2002 $15,000,000
SpringHill Suite(TM)by Marriott(R) Plymouth Meeting, PA January 18, 2002 $27,000,000
Courtyard(R)by Marriott(R) Somerset County, NJ March 1, 2002 $37,750,000
Marriott Hotel Bridgewater, NJ June 14, 2002 $61,500,000

These Properties are being operated using third party managers.

In June 2002, the Company acquired a 50 percent interest in CY-SF
Hotel Parent, LP (the "San Francisco Joint Venture"), a joint venture with
an affiliate of Marriott. The San Francisco Joint Venture purchased a
Courtyard by Marriott in downtown San Francisco (the "San Francisco
Downtown Property") for approximately $82 million. The purchase was
financed with equity investments of $13 million each from the Company and
Marriott as well as $56 million in borrowings consisting of two loans from
a third-party lender. One of the loans is in the amount of $41 million and
requires interest payments equal to the greater of one-month LIBOR plus
3.25 percent, or 6.25%. The other loan is in the amount of $15 million and
interest payments are equal to a base rate plus 7 percent. The base rate
equals the greater of (a) the lesser of (i) one-month LIBOR or (ii) 9
percent, or (b) 3 percent. Both loans mature in August 2007 and require
monthly payments of interest only through July 1, 2004, at which time
monthly payments of principal and interest are due with the remaining
principal balances and any unpaid interest due at maturity. The lessee of
the San Francisco Downtown Property is a wholly owned subsidiary of the San
Francisco Joint Venture and the Property is managed by a subsidiary of
Marriott.

Cash provided by financing activities was $195,363,282 and
$122,542,088 for the six months ended June 30, 2002, and 2001,
respectively. Cash provided by financing activities for the six months
ended June 30, 2002 and 2001, includes the receipt of $176,890,856 and
$155,991,634, respectively, in subscriptions from stockholders. In
addition, distributions to stockholders for the six months ended June 30,
2002 and 2001, were $32,489,544 and $21,029,719, respectively (or $0.38 per
share, respectively).

Liquidity Requirements

The Company expects to meet its short-term liquidity requirements,
including payment of offering expenses, Property acquisitions and
development and investment in Mortgage Loans, with cash flows from
operations, advances under its revolving line of credit and proceeds from
its offerings. The Company expects to meet its long-term liquidity
requirements through short- or long-term, unsecured or secured debt
financing or equity financing.

Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability and
property insurance coverage for the Company. This insurance policy is
intended to reduce the Company's exposure in the unlikely event a tenant or
manager's insurance policy lapses or is insufficient to cover a claim
relating to a Property and covers the Company's interest in all Properties
except for the Waikiki Beach Marriott of which the Company has a 49 percent
interest.

Related Party Transactions

During the six months ended June 30, 2002 and 2001, affiliates
incurred on behalf of the Company $2,684,736 and $2,094,568, respectively
($1,400,809 and $807,059 of which was incurred during the quarters ended
June 30, 2002 and 2001, respectively), for certain offering expenses.
Affiliates also incurred certain acquisition and operating expenses on
behalf of the Company. As of June 30, 2002 and December 31, 2001, the
Company owed the Advisor and other related parties $1,526,443 and
$1,026,225, respectively, for expenditures incurred on behalf of the
Company and for acquisition fees.

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 is a stockholder. The amount deposited with this
bank was $4,980,516 and $6,928,363 at June 30, 2002 and December 31, 2001,
respectively.

In May 2002, the Company acquired a 10 percent interest in CNL Plaza,
Ltd., a limited partnership that owns an office building located in
Orlando, Florida, in which the Advisor and its affiliates lease office
space for $300,000. The remaining interest in the limited partnership is
owned by several affiliates of the Advisor. In connection with this
acquisition, the Company has severally guaranteed 16.67 percent, or
approximately $2.6 million, of a $15.5 million unsecured promissory note of
the limited partnership.

Other

In accordance with Staff Accounting Bulletin No. 101, the Company has
recorded FF&E reserve income for cash transferred by third party tenants
into restricted FF&E accounts during the six months ended June 30, 2002 and
2001. The funds in the FF&E Accounts are maintained in a restricted cash
account that the tenant is expected to use for purposes specified in the
lease. Cash is restricted because the funds may only be expended with
regard to the specific property to which the funds related during the
period of the lease. The cash in the FF&E reserve bank accounts, any
interest earned thereon, and any property purchases therewith remain,
during and after the term of the lease, the property of the Company. To the
extent that funds in the FF&E Accounts are insufficient to maintain the
Properties in good working conditions and repair, the Company may make
expenditures, in which case annual minimum rent is increased. FF&E reserve
income is not generated from hotels leased by TRS entities and operated by
third party managers, however, cash is restricted by the Company for the
purposes stated above. As the Company's business shifts from leasing
Properties to acting as tenant for these Properties and engaging third
parties to manage operations, the amount of FF&E reserve income is expected
to decline. For the six months ended June 30, 2002 and 2001, FF&E reserve
income totaled $2,376,588 and $2,855,850, respectively ($1,235,237 and
$1,631,261 of which was earned during the quarters ended June 30, 2002 and
2001, respectively). FF&E reserve funds of $11,398,229 and $8,493,446 were
classified as restricted cash as of June 30, 2002 and December 31, 2001,
respectively.

The Company declared and paid distributions to its stockholders of
$32,489,544 and $21,029,719 during the six months ended June 30, 2002 and
2001, respectively. In addition, on July 1, 2002 and August 1, 2002, the
Company declared distributions to stockholders of record on July 1, 2002
and August 1, 2002, totaling $6,146,220 and $6,438,865, respectively, or
$0.06458 per share of common stock, payable in September 2002.

For the six months ended June 30, 2002 and 2001, approximately 62
percent and 48 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and approximately 38
percent and 52 percent, respectively, were considered a return of capital
for federal income tax purposes. No amounts distributed to the stockholders
for the six months ended June 30, 2002 and 2001, 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.

In connection with the assumption of certain third party leases, the
company has incurred certain costs. These costs have been expensed as lease
termination payments.

Recent Accounting Pronouncements - In April 2002, the FASB issued FAS
Statement No. 145, "Rescission of FASB Statements NO. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." This
statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishments of Debt." and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This statement also rescinds FASB Statement No.44,
"Accounting for Intangible Assets of Motor Carriers." This statement amends
FASB Statement No. 13. "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback
transaction and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
This statement also amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this statement
related to the rescission of Statement 4 are applicable in fiscal years
beginning after May 15, 2002. The provisions of this statement related to
Statement 13 are effective for transactions occurring after May 15, 2002.
All other provisions of this statement are effective for financial
statements issued on or after May 15, 2002. The provisions of this
statement, excluding those related to the rescission of Statement 4, did
not have a significant impact on the financial position or results of
operations of the Company. The provisions of this statement related to the
rescission of Statement 4 are not expected to have a significant impact on
the financial position or results of operations of the Company.

In July 2002, the FASB issued FAS Statement No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." The statement requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. Examples of costs covered by the statement include lease
termination costs and certain employee severance costs that are associated
with restructuring, discontinued operation, plant closing, or other exit or
disposal activity. The statement is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of this
statement is not expected to have a significant impact on the financial
position or results of the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of June 30, 2002, the Company's fixed and variable rate debt
instruments, excluding debt of unconsolidated joint ventures, were as
follows:

Principal and Accrued Fixed Rate Interest
Interest Balance Maturity Per Year Variable Rate Payments Due
----------------------- ------------------- --------------- ---------------------- -------------
$50,000,000 December 2007 8.335% -- Monthly
85,411,049 July 2009 7.67%* -- Monthly
32,469,143 December 2007 8.29% -- Monthly
9,610,903 September 2017 12.85%** -- Monthly
52,017,052 November 2003 -- LIBOR + 275 bps Monthly
11,935,111 September 2003 -- LIBOR + 300 bps Monthly
64,373,368 September 2006 -- LIBOR + 225 bps Monthly

*Average interest rate as the loans bear interest ranging from 7.50
percent to 7.75 percent.
**Implicit interest on the TIF Note is 12.85
percent.

The Company's objectives and strategies with respect to long-term debt
are to (i) minimize the amount of interest incurred on permanent financing
while limiting the risk related to interest rate fluctuations through
hedging activities and (ii) maintain the ability to refinance existing
debt. Because some of the Company's mortgage notes bear interest at fixed
rates, changes in market interest rates during the term of such debt will
not affect the Company's operating results. The majority of the Company's
fixed rate debt arrangements allow for repayments earlier than the stated
maturity date. These prepayment rights may afford the Company the
opportunity to mitigate the risk of refinancing at maturity at higher rates
by refinancing prior to maturity. The weighted average effective interest
rate on mortgages and other notes payable was approximately seven percent
as of June 30, 2002.

The Company's construction loan facility, expiring in November 2003,
bears interest at a floating rate. Approximately $52,017,000 was
outstanding and approximately $2,983,000 was available under the
construction loan facility as of June 30, 2002. The construction loan
facility was used to finance the construction of two hotel Properties which
have been completed and have begun operations.

The Company's construction loan, expiring in September 2003, bears
interest at a floating rate. Approximately $11,935,000 was outstanding and
approximately $5,065,000 was available under the construction loan as of
June 30, 2002. Currently, the construction loan is being used to finance
the construction of one hotel Property. The estimated remaining cost to
complete this Property was $3,111,000 as of June 30, 2002.

The Company may be subject to interest rate risk through outstanding
balances on its variable rate debt. The Company may mitigate this risk by
paying down any outstanding balances on its revolving line of credit from
offering proceeds, refinancing with fixed rate permanent debt or obtaining
cash flow hedges should interest rates rise substantially. At June 30,
2002, approximately $128,326,000 in variable rate debt was outstanding.

The Company believes that the estimated fair value of the amounts
outstanding on its fixed rate mortgages and notes payable under permanent
financing arrangements as of June 30, 2002, approximated the outstanding
principal amount.

The Company plans to use net proceeds it receives from the 2002
Offering to purchase additional Properties and, to a lesser extent, to
invest in mortgage loans and other permitted investments. In addition, the
Company intends to borrow under its revolving line of credit and obtain
permanent financing in order to acquire interests in additional Properties,
to invest in mortgage loans or other permitted investments and to pay
certain related fees. The Company intends to encumber assets in connection
with such borrowing. The line of credit may be repaid with offering
proceeds, proceeds from the sale of assets, working capital or permanent
financing. The maximum amount the Company may borrow, unless approved by a
majority of the independent directors, is 300 percent of the Company's net
assets.

The Company has received various credit enhancement guarantees from
third party managers who will guarantee a certain level of performance for
many of the Company's Properties leased to its subsidiaries. When provided,
these guarantees are typically in effect during the stabilization period
for the hotel Property or Properties being guaranteed. These guarantees
normally expire when (i) a predefined operating performance threshold is
achieved for twelve consecutive months, (ii) the guarantee term expires
(typically three to five years) or (iii) maximum allowable funding under
that guarantee has been received, whichever occurs first. Operating results
of several Properties may be "pooled" in order to measure operating
performance for purposes of determining guarantee funding. Additionally,
all or a portion of the amounts funded under these guarantees may be earned
back by the guarantor, with a specified return, as an incentive fee under
the management contract. Such incentive fee amounts will be paid only to
the extent Property operating profits exceed a predetermined operating
threshold. In situations where the guarantor has the opportunity to earn
back funding from these guarantees, the funds received under the guarantees
are recorded as liabilities. As of June 30, 2002 and December 31, 2001,
these liabilities were $2,753,000 and $0, respectively, representing
guarantee funding which potentially could be earned back in the future.
Additionally, as of June 30, 2002 and December 31, 2001, the Company had
approximately $49,925,000 and $50,000,000, respectively, which remained
available for funding under these types of guarantees, should such funding
be necessary.

In connection with the lease assumptions on nine Properties the
Company assumed a liquidity facility loan in the amount of approximately
$3.6 million. The facility was provided by the manager of the Properties of
fund Property operating shortfalls for the aggregate rent due on a pooled
basis for the nine portfolio Properties. The facility is available until
the earlier of (i) expiration of the agreement on December 31, 2004, (ii)
the minimum rent coverage of the pooled Properties equals or exceeds a
predefined threshold for 13 consecutive accounting periods or (iii) total
liquidity facility funding equals or exceeds 10 percent of the total
purchase price for all nine Properties at the any of any fiscal year.

The following is a schedule of the Company's fixed and variable rate
debt maturities, for the remainder of 2002, each of the next four years,
and thereafter:

Fixed Rate
Mortgages Payable Variable Rate Total Mortgages
and Accrued Other Notes and Other Notes
Interest Payable Payable
----------------- ---------------- ----------------

2002 $ 2,260,849 $ -- $ 2,260,849
2003 2,393,876 63,952,163 66,346,039
2004 2,561,298 -- 2,561,298
2005 2,742,225 -- 2,742,225
2006 2,879,930 64,373,368 67,253,298
Thereafter 164,652,917 -- 164,652,917

----------------- ---------------- ----------------
$ 177,491,095 $ 128,325,531 $ 305,816,626
================= ================ ================

PART II

Item 1. Legal Proceedings. Inapplicable.
-----------------

Item 2. Changes in Securities and Use of Proceeds. Inapplicable.
-----------------------------------------

Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------

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

(a) The regular annual meeting of stockholders of the Company
was held in Orlando, Florida on June 14, 2002 for
the purpose of electing the board of directors.

(b) Proxies for the annual meeting were solicited and
there was no solicitation in opposition to
management's solicitation.

(c) One proposal was submitted to a vote of stockholders as
follows:

1. The stockholders approved the election of the
following persons as directors of the Company:

Name For Withheld
---------------------- ---------------------- -------------------
James M. Seneff, Jr. 44,891,868 436,452
Robert A. Bourne 44,894,961 433,359
Charles E. Adams 44,884,583 443,737
Matthew W. Kaplan 44,910,281 418,039
Craig M. McAllaster 44,904,691 423,629
Lawrence A. Dustin 44,895,881 432,439
John A. Griswold 44,901,491 426,829

Item 5. Other Information. Inapplicable.
-----------------

Item 6. Exhibits and Reports on Form 8-K.
--------------------------------

The following documents are filed as part of this report.

(a) Exhibits

3.1 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-11 (Registration No. 333-9943) (the
"1996 Form S-11") and incorporated herein by reference.)

3.2 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit 3.3
to the 1996 Form S-11 and incorporated herein by reference.)

3.3 CNL American Realty Fund, Inc. Articles of Amendment to the Amended
and Restated Articles of Incorporation dated June 3, 1998 (Previously
filed as Exhibit 3.4 to the 1996 Form S-11 and incorporated herein by
reference.)

3.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-67787) (the 1998 Form
S-11") and incorporated herein by reference.)

3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the Registrant's Registration
Statement on Form S-11 (File No. 333-89691) (the "1999 Form S-11") and
incorporated by reference).

3.6 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)

3.7 Amendment No. 2 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.8 to the 1999 Form S-11 and
incorporated herein by reference.)

3.8 Amendment No. 3 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.9 to the 2002 Form S-11 and
incorporated herein by reference.)

4.1 Reinvestment Plan (Previously filed as Exhibit 4.4 to the 1996 Form
S-11 and incorporated herein by reference.)

4.2 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the 1996 Form S-11
and incorporated herein by reference.)

4.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit 3.3
to the 1996 Form S-11 and incorporated herein by reference.)

4.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL American Realty Fund, Inc. dated June 3, 1998
(Previously filed as Exhibit 3.4 to the 1996 Form S-11 and
incorporated herein by reference.)

4.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the 1998 Form S-11 and
incorporated herein by reference.)

4.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the 1999 Form S-11 and
incorporated herein by reference.)

4.7 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)

4.8 Amendment No. 2 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.8 to the 1999 Form S-11 and
incorporated herein by reference.)

4.9 Amendment No. 3 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.9 to the 2002 Form S-11 and
incorporated herein by reference.)

10.1 Advisory Agreement dated as of June 17, 2001, between CNL Hospitality
Properties, Inc. and CNL Hospitality Corp. (Previously filed as
Exhibit 10.2 to the 1999 Form S-11 Registration No. 333-89691) (the
"1999 Form S-11") and incorporated herein by reference.)

10.2 Indemnification Agreement between CNL Hospitality Properties, Inc. and
Lawrence A. Dustin dated February 24, 1999. Each of the following
directors and/or officers has signed a substantially similar agreement
as follows: James M. Seneff, Jr., Robert A. Bourne, G. Richard
Hostetter, J. Joseph Kruse, Richard C. Huseman, Charles A. Muller,
Jeanne A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian
Strickland dated October 31, 1998; John A. Griswold, dated January 7,
1999; Charles E. Adams and Craig M. McAllaster, dated February 10,
1999; Matthew W. Kaplan dated February 24, 1999; and Thomas J.
Hutchison III dated May 16, 2000 (Previously filed as Exhibit 10.2 to
the Form 10-Q filed on May 17, 1999 and incorporated herein by
reference.)

10.3 Agreement of Limited Partnership of CNL Hospitality Partners, LP
(Previously filed as Exhibit 10.10 to the 1996 Form S-11 and
incorporated herein by reference.)

10.4 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Gwinnett Residence Associates, LLC, relating to the Residence
Inn - Gwinnett Place (Previously filed as Exhibit 10.11 to the 1996
Form S-11 and incorporated herein by reference.)

10.5 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn -
Gwinnett Place (Previously filed as Exhibit 10.12 to the 1996 Form
S-11 and incorporated herein by reference.)

10.6 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Buckhead Residence Associates, LLC, relating to the Residence
Inn - Buckhead (Lenox Park) (Previously filed as Exhibit 10.13 to the
1996 Form S-11 and incorporated herein by reference.)

10.7 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn -
Buckhead (Lenox Park) (Previously filed as Exhibit 10.14 to the 1996
Form S-11 and incorporated herein by reference.)

10.8 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn -
Gwinnett Place (Previously filed as Exhibit 10.15 to the 1996 Form
S-11 and incorporated herein by reference.)

10.9 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn -
Buckhead (Lenox Park) (Previously filed as Exhibit 10.16 to the 1996
Form S-11 and incorporated herein by reference.)

10.10 Master Revolving Line of Credit Loan Agreement with CNL Hospitality
Properties, Inc., CNL Hospitality Partners, LP and Colonial Bank,
dated July 31, 1998 (Previously filed as Exhibit 10.17 to the 1996
Form S-11 and incorporated herein by reference.)

10.11 Master Loan Agreement by and between CNL Hotel Investors, Inc. and
Jefferson-Pilot Life Insurance Company, dated February 24, 1999
(Previously filed as Exhibit 10.18 to the 1996 Form S-11 and
incorporated herein by reference.)

10.12 Securities Purchase Agreement between CNL Hospitality Properties,
Inc. and Five Arrows Realty Securities II L.L.C., dated February 24,
1999 (Previously filed as Exhibit 10.19 to the 1996 Form S-11 and
incorporated herein by reference.)

10.13 Subscription and Stockholders' Agreement among CNL Hotel Investors,
Inc., Five Arrows Realty Securities II L.L.C., CNL Hospitality
Partners, LP and CNL Hospitality Properties, Inc., dated February 24,
1999 (Previously filed as Exhibit 10.20 to the 1996 Form S-11 and
incorporated herein by reference.)

10.14 Registration Rights Agreement by and between CNL Hospitality
Properties, Inc. and Five Arrows Realty Securities II L.L.C., dated
February 24, 1999 (Previously filed as Exhibit 10.21 to the 1996 Form
S-11 and incorporated herein by reference.)

10.15 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Gwinnett Place, (amends Exhibit 10.8 above) and
the First Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.8 above)
(Previously filed as Exhibit 10.8 to the Form 10-Q filed on November
10, 1999 and incorporated herein by reference.)

10.16 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Buckhead (Lenox Park) (amends Exhibit 10.9 above)
and the First Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.9 above)
(Previously filed as Exhibit 10.9 to the Form 10-Q filed on November
10, 1999 and incorporated herein by reference.)

10.17 Lease Agreement between Courtyard Annex, L.L.C. and City Center Annex
Tenant Corporation, dated November 15, 1999, relating to the Courtyard
- Philadelphia (Previously filed as Exhibit 10.22 to the 1998 Form
S-11 and incorporated herein by reference.)

10.18 First Amended and Restated Limited Liability Company Agreement of
Courtyard Annex, L.L.C., relating to the Courtyard - Philadelphia
(Previously filed as Exhibit 10.23 to the 1998 Form S-11 and
incorporated herein by reference.)

10.19 Purchase and Sale Agreement between Marriott International, Inc., CBM
Annex, Inc., Courtyard Annex, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, dated November 15, 1999, relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.24 to the
1998 Form S-11 and incorporated herein by reference.)

10.20 Lease Agreement between CNL Hospitality Partners, LP, and RST4 Tenant
LLC, dated December 10, 1999, relating to the Residence Inn - Mira
Mesa (Previously filed as Exhibit 10.25 to the 1998 Form S-11 and
incorporated herein by reference.)

10.21 Purchase and Sale Agreement between Marriott International, Inc.,
TownePlace Management Corporation and Residence Inn by Marriott, Inc.,
as Sellers, and CNL Hospitality Partners, LP, as Purchaser, dated
November 24, 1999, relating to the Residence Inn - Mira Mesa and the
TownePlace Suites - Newark (Previously filed as Exhibit 10.26 to the
1998 Form S-11 and incorporated herein by reference.)

10.22 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Denver Tech
Center (Previously filed as Exhibit 10.29 to the 1998 Form S-11 and
incorporated herein by reference.)

10.23 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Billerica
(Previously filed as Exhibit 10.30 to the 1998 Form S-11 and
incorporated herein by reference.)

10.24 Purchase and Sale Agreement between CNL Hospitality Corp., as Buyer,
and WII Denver Tech, LLC and PAH Billerica Realty Company, LLC, as
Sellers, and Wyndham International, Inc., relating to the Wyndham
Denver Tech Center and the Wyndham Billerica (Previously filed as
Exhibit 10.31 to the 1998 Form S-11 and incorporated herein by
reference.)

10.25 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated June 17, 2000, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.32 to
the 1999 Form S-11 and incorporated by reference).

10.26 Purchase and Sale Agreement between PDH Associates LLC, as Seller,
and CNL Hospitality Corp., as Buyer, dated January 19, 2000, relating
to the Courtyard - Palm Desert and the Residence Inn - Palm Desert
(Previously filed as Exhibit 10.33 to the 1999 Form S-11 and
incorporated by reference).

10.27 Amendment to Purchase and Sale Agreement between PDH Associates LLC
and CNL Hospitality Corp., dated January 19, 2000, relating to
Courtyard - Palm Desert and the Residence Inn - Palm Desert (amends
Exhibit 10.26 above) (Previously filed as Exhibit 10.34 to the 1999
Form S-11 and incorporated by reference).

10.28 Assignment Agreement between CNL Hospitality Corp. and CNL
Hospitality Partners, LP, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.35 to
the 1999 Form S-11 and incorporated by reference).

10.29 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the SpringHill Suites -
Gaithersburg (Previously filed as Exhibit 10.36 to the 1999 Form S-11
and incorporated by reference).

10.30 Purchase and Sale Agreement between SpringHill SMC Corporation, as
Seller, and CNL Hospitality Partners, LP, as Purchaser, and joined in
by Marriott International, Inc., dated June 30, 2000, relating to the
SpringHill Suites - Gaithersburg (Previously filed as Exhibit 10.37 to
the 1999 Form S-11 and incorporated by reference).

10.31 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the Residence Inn - Merrifield
(Previously filed as Exhibit 10.38 to the 1999 Form S-11 and
incorporated by reference).

10.32 Purchase and Sale Agreement between TownePlace Management Corporation
and Residence Inn by Marriott, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, and joined in by Marriott International,
Inc., dated November 24, 1999, relating to the Residence Inn -
Merrifield (Previously filed as Exhibit 10.39 to the 1999 Form S-11
and incorporated by reference).

10.33 First Amendment to Purchase and Sale Agreement between TownePlace
Management Corporation and Residence Inn by Marriott, as Sellers, and
CNL Hospitality Partners, LP, as Purchaser, and joined in by Marriott
International, Inc., dated November 24, 1999, relating to the
Residence Inn - Mira Mesa, SpringHill Suites - Gaithersburg, Residence
Inn - Merrifield, and TownePlace Suites - Newark (amends Exhibits
10.21, 10.30, and 10.32 above) (Previously filed as Exhibit 10.40 to
the 1999 Form S-11 and incorporated by reference).

10.34 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Courtyard - Alpharetta
(Previously filed as Exhibit 10.41 to the 1999 Form S-11 and
incorporated by reference).

10.35 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Residence Inn - Cottonwood
(Previously filed as Exhibit 10.42 to the 1999 Form S-11 and
incorporated by reference).

10.36 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites - Mt.
Laurel (Previously filed as Exhibit 10.43 to the 1999 Form S-11 and
incorporated by reference).

10.37 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Scarborough (Previously filed as Exhibit 10.44 to the 1999 Form S-11
and incorporated by reference).

10.38 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Tewksbury (Previously filed as Exhibit 10.45 to the 1999 Form S-11 and
incorporated by reference).

10.39 Purchase and Sale Agreement between Residence Inn by Marriott, Inc.,
Courtyard Management Corporation, SpringHill SMC Corporation and
TownePlace Management Corporation, as Sellers, CNL Hospitality
Partners, LP, as Purchaser, CCCL Leasing LLC, as Tenant, Crestline
Capital Corporation, Marriott International, Inc., and joined in by
CNL Hospitality Properties, Inc., dated August 18, 2000, relating to
the Residence Inn - Cottonwood, Courtyard - Alpharetta and Overland
Park SpringHill Suites - Raleigh, and TownePlace Suites - Mt. Laurel,
Scarborough and Tewksbury (Previously filed as Exhibit 10.46 to the
1999 Form S-11 and incorporated by reference).

10.40 First Amendment to Purchase and Sale Agreement between Residence Inn
by Marriott, Inc., Courtyard Management Corporation, SpringHill SMC
Corporation and TownePlace Management Corporation, as Sellers, CNL
Hospitality Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
Crestline Capital Corporation, and Marriott International, Inc., dated
August 18, 2000, relating to the Residence Inn - Cottonwood, Courtyard
- Alpharetta, and Overland Park SpringHill Suites - Raleigh and
TownePlace Suites - Mt. Laurel, Scarborough and Tewksbury (Previously
filed as Exhibit 10.47 to the 1999 Form S-11 and incorporated by
reference).

10.41 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated November 4, 2000, relating to the TownePlace Suites -
Newark (Previously filed as Exhibit 10.48 to the 1999 Form S-11 and
incorporated herein by reference.)

10.42 Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
Corporation, dated October 12, 2000, relating to the Courtyard -
Little Lake Bryan (Previously filed as Exhibit 10.49 to the 1999 Form
S-11 and incorporated herein by reference.)

10.43 Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant Corporation,
dated October 12, 2000, relating to the Fairfield Inn - Little Lake
Bryan (Previously filed as Exhibit 10.50 to the 1999 Form S-11 and
incorporated herein by reference.)

10.44 First Amendment to Lease Agreement between LLB C-Hotel, L.L.C. and
LLB Tenant Corporation, dated November 17, 2000, relating to the
Courtyard - Little Lake Bryan (amends Exhibit 10.42 above) (Previously
filed as Exhibit 10.51 to the 1999 Form S-11 and incorporated herein
by reference.)

10.45 First Amendment to Lease Agreement between LLB F-Inn, L.L.C. and LLB
Tenant Corporation, dated November 17, 2000, relating to the Fairfield
Inn - Little Lake Bryan (amends Exhibit 10.43 above) (Previously filed
as Exhibit 10.52 to the 1999 Form S-11 and incorporated herein by
reference.)

10.46 Purchase and Sale Agreement between Marriott International, Inc., as
Seller, and CNL Hospitality Partners, LP, as Purchaser, dated
September 17, 1998, relating to the Courtyard - Little Lake Bryan, the
Fairfield Inn - Little Lake Bryan and the SpringHill Suites - Little
Lake Bryan (Previously filed as Exhibit 10.53 to the 1999 Form S-11
and incorporated herein by reference.)

10.47 Second Amendment to Lease Agreement between CNL LLB C-Hotel
Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
Corporation, dated December 15, 2000, relating to the Courtyard -
Little Lake Bryan (amends Exhibits 10.42 and 10.44 above) (Previously
filed as Exhibit 10.54 to the 1999 Form S-11 and incorporated herein
by reference.)

10.48 Second Amendment to Lease Agreement between CNL LLB F-Inn Management,
LP (formerly LLB F-Inn L.L.C.) and LLB Tenant Corporation, dated
December 15, 2000, relating to the Fairfield Inn - Little Lake Bryan
(amends Exhibits 10.43 and 10.45 above) (Previously filed as Exhibit
10.55 to the 1999 Form S-11 and incorporated herein by reference.)

10.49 Indenture Agreement among Desert Ridge Resort, LLC, as Issuer; Bank
One, National Association, as Trustee; and Financial Structures
Limited, as Insurer, dated December 15, 2000, relating to the Desert
Ridge Property (Previously filed as Exhibit 10.56 to the 1999 Form
S-11 and incorporated herein by reference.)

10.50 Form of Lease Agreement (Previously filed as Exhibit 10.57 to the
Registrant's Registration Statement on Form S-11 - Registration No.
333-67124, the "2001 Form S-11", and incorporated herein by
reference.)

(b) The Company filed a Current Report on Form 8-K on June 19, 2002 to report
the acquisition of one hotel Property and a Current Report on Form 8-K on
June 27, 2002 to report the acquisition of one hotel Property and the
formation of the San Francisco Joint Venture.

SIGNATURES

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

DATED this 14th day of August, 2002.

CNL HOSPITALITY PROPERTIES, INC.

By: /s/ James M. Seneff, Jr.
------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)

By: /s/ C. Brian Strickland
------------------------
C. BRIAN STRICKLAND
Executive Vice President
(Principal Financial and Accounting Officer)