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 September 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.

116,936,825 shares of common stock, $.01 par value, outstanding as of November
4, 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 18
Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market 26
Risk

Item 4. Controls and Procedures 28

Part II. Other Information and Signatures 29

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

September 30, December 31,
2002 2001
---------------- ----------------

ASSETS
Land, buildings and equipment, less accumulated depreciation of
$49,010,344 and $29,182,487, respectively $ 865,149,133 $ 699,239,959
Investments in unconsolidated subsidiaries 157,136,029 135,271,048
Cash and cash equivalents 63,673,557 44,825,052
Restricted cash 14,047,273 8,493,446
Receivables 5,550,097 1,266,862
Due from related parties 4,757,828 1,410,900
Prepaid expenses and other assets 27,977,162 6,796,398
Loan costs, less accumulated amortization of $1,795,792 and
$980,303, respectively 4,091,794 4,102,822
---------------- ----------------

$1,142,382,873 $ 901,406,487
================ ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable and accrued interest $ 167,791,136 $ 168,883,882
Other notes payable 25,979,184 57,571,680
Line of credit 24,152,343 7,500,000
Other liabilities 10,431,931 --
Accounts payable and accrued expenses 15,135,216 8,357,481
Due to related parties 1,321,497 1,026,225
Security deposits 11,382,576 17,808,576
Rents paid in advance 845,876 2,381,959
---------------- ----------------
Total liabilities 257,039,759 263,529,803
---------------- ----------------

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 110,623,921 and 77,891,066 shares, respectively;
outstanding 109,830,484 and 77,357,532 shares, respectively 1,098,305 773,575
Capital in excess of par value 972,473,429 681,152,253
Accumulated distributions in excess of net earnings (81,020,223) (39,959,120)
Accumulated other comprehensive loss (4,275,810) (1,189,396)
Minority interest distributions in excess of contributions and
accumulated earnings (2,932,587) (2,900,628)
---------------- ----------------
Total stockholders' equity 885,343,114 637,876,684
---------------- ----------------
$1,142,382,873 $ 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 Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------

Revenues:
Hotel revenue $ 37,648,057 $ 1,150,876 $ 70,175,174 $ 1,150,876
Rental income from
operating leases 7,249,677 15,464,448 29,289,330 45,588,129
FF&E reserve income 1,063,480 1,446,933 3,440,068 4,302,783
Interest and other income 315,098 966,986 2,824,339 2,903,018
--------------- --------------- --------------- ---------------
46,276,312 19,029,243 105,728,911 53,944,806
--------------- --------------- --------------- ---------------

Expenses:
Hotel expense 25,782,205 1,515,808 45,582,159 1,515,808
Interest and loan cost
amortization 4,771,181 3,343,187 13,827,651 10,413,514
General operating and
administrative 1,333,182 775,104 4,118,164 3,236,552
Asset management fees to
related parties 1,743,860 809,967 4,818,889 2,424,952
Depreciation and
amortization 7,313,308 5,084,485 20,306,710 15,027,174
--------------- --------------- --------------- ---------------
40,943,736 11,528,551 88,653,573 32,618,000
--------------- --------------- --------------- ---------------

Earnings Before Equity in
Loss of Unconsolidated
Subsidiaries and Minority
Interests 5,332,576 7,500,692 17,075,338 21,326,806

Equity in Loss of
Unconsolidated
Subsidiaries (2,926,619) (3,557,914) (6,128,835) (3,750,585)

Minority Interests (62,850) (52,353) (195,685) (1,098,352)
--------------- --------------- --------------- ---------------

Net Earnings $ 2,343,107 $ 3,890,425 $ 10,750,818 $ 16,477,869
=============== =============== =============== ===============

Earnings Per Share of Common
Stock:
Basic $ 0.02 $ 0.06 $ 0.12 $ 0.27
=============== =============== =============== ===============
Diluted $ 0.02 $ 0.06 $ 0.12 $ 0.27
=============== =============== =============== ===============

Weighted Average Number of
Shares of Common Stock
Outstanding:
Basic 100,749,086 68,897,098 90,622,101 60,806,624
=============== =============== =============== ===============
Diluted 100,749,086 68,897,098 90,622,101 63,217,472
=============== =============== =============== ===============

See accompanying notes to condensed consolidated financial statements.

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

Minority
interest
distributions
Common Stock Accumulated Accumulated in excess
--------------------------- Capital in distribution other of contr.
Number of Par Excess of 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
offerings and
distribution
reinvestment
plan 28,606,863 286,069 285,782,557 -- -- -- 286,068,626 --

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

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
contributions and
accumulated
earnings -- -- -- -- -- (174,196) (174,196) --

Current period
adjustments to
recognize changes
in value of --
cash flow hedges
of equity
investees -- -- -- -- (1,189,396) -- (1,189,396) (1,189,396)
--------------
Total comprehensive
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
Nine Months Ended September 30, 2002 and Year Ended December 31, 2001
(UNAUDITED)

Minority
interest
distributions
Common Stock Accumulated Accumulated in excess
--------------------------- Capital in distribution other of contr.
Number of Par Excess of 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
offerings and
distribution
reinvestment
plan 32,735,697 327,357 327,029,613 -- -- -- 327,356,970 --

Retirement of common (262,745) (2,627) (2,414,630) -- -- -- (2,417,257) --
stock

Stock issuance costs -- -- (33,293,807) -- -- -- (33,293,807) --

Net earnings -- -- -- 10,750,818 -- -- 10,750,818 10,750,818

Minority interest
distributions in
excess of
contributions and
accumulated
earnings -- -- -- -- -- (31,959) (31,959) --

Current period
adjustments to
recognize changes
in value of --
cash flow hedges
of equity
investees -- -- -- -- (3,086,414) -- (3,086,414) (3,086,414)
-------------
Total comprehensive
income -- -- -- -- -- -- -- $ 7,664,404
==============
Distributions
declared and paid
($.58 per share) -- -- -- (51,811,921) -- -- (51,811,921)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
September 30, 2002 109,830,484 $ 1,098,305 $972,473,429 $(81,020,223) $ (4,275,810) $ (2,932,587) $885,343,114
============= ============= ============= ============= ============= ============= =============

See accompanying notes to condensed consolidated financial statements.

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

Nine Months Ended September 30,
2002 2001
---------------- ----------------

Net cash provided by operating activities $ 50,647,771 $ 40,393,338
---------------- ----------------

Cash flows from investing activities:
Additions to land, buildings and
equipment on operating leases (181,241,594) (75,525,562)
Investment in unconsolidated subsidiaries (42,006,993) (162,490,900)
Acquisition of remaining interest in CNL
Hotel Investors, Inc. -- (32,884,119)
Deposit on real estate assets (8,104,000) --
Increase in restricted cash (5,553,827) (4,020,382)
Increase in other assets (17,654,699) (129,530)
---------------- ----------------
Net cash used in investing activities (254,561,113) (275,050,493)
---------------- ----------------
Cash flows from financing activities:
Principal payments on mortgage loans (1,092,746) (817,766)
Net reduction of mortgage loans and other
notes payable (31,518,792) 24,090,705
Draw on line of credit 16,652,343 36,000,000
Subscriptions received from stockholders 327,356,970 233,927,453
Distributions to stockholders (51,811,921) (34,066,688)
Distributions to minority interest (308,482) (2,626,577)
Retirement of common stock (2,417,257) (1,671,342)
Payment of stock issuance costs (33,293,807) (28,368,056)
Payment of loan costs (804,461) (2,071,853)
---------------- ----------------
Net cash provided by financing activities 222,761,847 224,395,876
---------------- ----------------
Net increase (decrease) in cash and cash
equivalents 18,848,505 (10,261,279)

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

Cash and cash equivalents at end of period $ 63,673,557 $ 39,936,575
================ ================

See accompanying notes to condensed consolidated financial statements.

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

Nine Months Ended September 30,
2002 2001
---------------- ----------------

Supplemental schedule of non-cash investing activities:

Amounts incurred but not paid for
construction in progress $ 886,386 $ 5,526,764
================ ================

Supplemental schedule of non-cash financing activities:

Distributions declared but not paid to
minority interest $ 94,819 $ 94,352
================ ================

Reduction in tax incremental financing $ 73,704 $ 315,391
note through tax payments by tenant ================ ================

Loan costs capitalized to construction $ 60,732 $ 162,624
in progress ================ ================

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

See accompanying notes to condensed consolidated financial statements.

CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 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 September 30, 2002, the Company owned interests in 51 Properties,
including two parcels of land on which hotels are being constructed. 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 in 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. When possible, the Company negotiates
various types of credit enhancements on a case-by-case basis for its TRS
Properties (see Note 12, "Commitments and Contingencies" 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. All of the Properties
acquired in 2002 are leased to TRS entities of the Company and are operated
by third-party managers. This trend is expected to continue throughout the
remainder of 2002 and into the future.

Additionally, during the nine months ended September 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 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 nine months ended
September 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 interests 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.

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

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

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

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 Financial Accounting
Standards Board ("FASB") issued FASB 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 Extinguishment 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 transactions 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 FASB 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 a restructuring, discontinued operations, 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 operations for the Company
for the quarter and nine months ended September 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 nine months ended September 30, 2002. See Note 12,
"Commitments and Contingencies," for a summary of the terms of the loan
that was assumed by the Company.

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

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

Crestline Atlanta Leases Effective June 30, 2002, the Company took
assignment of its leases from CCGB 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, CCGB 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 nine months ended
September 30, 2002.

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

Mobil 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. EMTG has engaged Dustin/Massagli LLC, a company in which one
of the Company's directors is president, a director and principal
stockholder, to manage its business. In September 2002, the Company
approved a plan to contribute an additional $893,750 to the joint venture
that owns EMTG. This contribution will only be made by the Company if PIL
elects not to contribute this amount. The election will be made by PIL on
or before November 22, 2002. This contribution, if made by the Company,
will occur on or shortly after November 22, 2002, and will increase the
Company's ownership in the joint venture from 25 percent to 31.25 percent.

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 its 16.67 percent share, or approximately
$2.6 million, of a $15.5 million unsecured promissory note of the limited
partnership.

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 percent. The other loan is in the amount of $15
million and requires interest payments 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.

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

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

Interstate Joint Venture
In September 2002, the Company acquired an 85 percent interest in a Hampton
Inn Property located in Houston, Texas (the "Hampton Inn Property") for
$4,889,989. The Hampton Inn Property was acquired through an existing
partnership with Interstate Hotels and Resorts that was originally formed
in November 2001 (the "Interstate Joint Venture"). The total purchase price
of the Hampton Inn Property was $14,300,000. All characteristics of the
Interstate Joint Venture other than the acquisition of the Hampton Inn
Property remain unchanged. In connection with this purchase, the Interstate
Joint Venture assumed a loan of approximately $9.3 million which is secured
by the Property. The loan bears interest at a rate of 7.78 percent per
annum. Monthly payments of principal and interest of $75,730 are due on the
first day of each month through December 1, 2007, at which time the entire
remaining principal balance is due.

INTENTIONALLY LEFT BLANK

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

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

The Company has investments in several other joint ventures and
partnerships with third parties who share the decision-making and control
for these entities. The borrowers on the loans 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 credit 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 investments as of and for the nine months ended September 30,
2002:

Desert Ridge CY-SF
Resort WB Resort CNL HHC CNL IHC Hotel Parent, CTM Partners, CNL Plaza,
Partners, LLC Partners, LP Partners, LP Partners, LP* LP LLC Ltd. Total
------------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Land, buildings, and
equipment, net $234,965,497 $199,943,348 $212,381,420 $ 35,324,086 $ 81,177,406 $ 407,452 $ 54,930,253 $819,129,462
Other assets 9,607,502 22,982,265 12,357,653 3,030,507 2,292,537 13,773,951 10,954,404 74,998,819
Mortgages and other
notes payable 204,145,170 152,439,214 100,413,333 15,972,030 56,541,667 2,358,528 64,326,187 596,196,129
Other liabilities 32,007,057 13,069,199 7,886,376 1,181,567 2,170,029 1,850,207 1,150,947 59,315,382
Partners' capital 8,420,772 57,417,200 116,439,364 21,200,996 24,758,247 9,972,668 407,523 238,616,770
Revenues 3,324,405 34,523,180 47,706,747 4,640,073 5,221,415 1,410,284 3,591,038 100,417,142
Cost of sales 2,609,951 14,856,258 19,381,320 1,234,820 1,636,841 2,693,007 2,551,617 44,963,814
Expenses 5,073,047 30,204,867 26,858,512 2,638,191 4,049,889 1,993,628 982,131 71,800,265
Minority interest -- -- -- -- -- 736,519 -- 736,519
Net income (loss) (4,358,593) (10,537,945) 1,466,915 767,062 (465,315) (2,539,832) 57,290 (15,610,418)
Income (loss)
allocable to
the Company (1,720,490) (5,163,593) 1,026,841 590,294 (232,658) (634,958) 5,729 (6,128,835)
Other comprehensive
(loss) allocable
to the Company (2,553,019) -- (533,395) -- -- -- -- (3,086,414)
Difference between
carrying amount of
investment and
Company's share of
Partners' capital 3,712,474 3,530,325 7,354,614 1,560,003 1,834,649 -- -- 17,992,065
Company's ownership
interest at end of 39.48% 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 Nine Months Ended September 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 CY-SF CTM
Resort WB Resort CNL HHC CNL IHC Hotel Parent, Partners, CNL Plaza,
Partners, LLC Partners, LP Partners, LP Partners, LP* 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 42.33% 49.00% 70.00% 85.00% -- -- -- --
period

* A portion of the net income for the nine months ended September 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 Nine Months Ended September 30, 2002 and 2001

4. Investments 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 are not
shared by the co-venturers. These amounts are amortized over 36 years.

The Company had distributions receivable from its joint ventures and
partnerships of $4,274,807 and $1,410,900 as of September 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 nine months ended September 30, 2002, the Company acquired a
SpringHill Suites(TM) by Marriott(R) and a TownePlace Suites(R) 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, a
Marriott Hotel located in Bridgewater, New Jersey and land on which a hotel
will be constructed in California, for an aggregate amount of approximately
$166 million. These hotel Properties are newly constructed, are leased by
TRS entities and are being managed by affiliates of Marriott. The
operations of these Properties have been included in the Company's results
of operations since acquisition.

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

Indebtedness consisted of the following at:

September 30, 2002 December 31, 2001
------------------ ------------------

Mortgages payable and accrued interest $ 167,791,136 $ 168,883,882
Construction loan facilities 16,368,281 47,887,071
Tax incremental financing note 9,610,903 9,684,609
Line of credit 24,152,343 7,500,000
------------------ ------------------
$ 217,922,663 $ 233,955,562
================== ==================

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

For the nine months ended September 30, 2002 and 2001, approximately 60
percent and 59 percent, respectively, of the distributions paid to
stockholders were considered ordinary income and approximately 40 percent
and 41 percent, respectively, were considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to the
stockholders for the nine months ended September 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 nine
months ended September 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.

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

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

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

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

CNL Securities Corp.:
Selling commissions (the majority of which was reallowed
to unaffiliated broker-dealer firms) $ 24,636,556 $ 17,544,559
Marketing support fee and due diligence expense
reimbursements 1,639,380 1,090,270
---------------- ----------------
26,275,936 18,634,829
---------------- ----------------

Advisor and its affiliates:
Acquisition fees 17,728,123 15,317,292
Development fees 3,393,674 1,828,882
Asset management fees 4,818,889 2,424,952
---------------- ----------------
25,940,686 19,571,126
---------------- ----------------
$ 52,216,622 $ 38,205,955
================ ================

Of these amounts, $1,321,497 and $1,026,225 is included in due to related
parties in the accompanying condensed consolidated balance sheets as of
September 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 nine months ended September 30:

2002 2001
---------------- ----------------
Stock issuance costs $ 2,246,057 $ 3,726,885
General operating and administrative expenses 952,790 729,623
---------------- ----------------
$ 3,198,847 $ 4,456,508
================ ================

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 amounts deposited with this affiliate
were $7,979,136 and $6,928,363 at September 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 its 16.67 percent share, or approximately
$2.6 million, of a $15.5 million unsecured promissory note of the limited
partnership.

EMTG has engaged Dustin/Massagli LLC, a company in which one of the
Company's directors is president, a director and principal stockholder, to
manage its business. See Note 4, "Investments in Unconsolidated
Subsidiaries," for additional information.

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

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

One of the Company's tenants contributed approximately 12 percent of total
revenues for the quarter and nine months ended September 30, 2002. In
addition, a majority of the Company's rental income and hotel revenues were
earned from Properties operating as various Marriott(R) brands for the
quarter and nine months ended September 30, 2002.

Although the Company intends to acquire Properties in various states and
regions, has TRS entities which have become the tenants 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 this lessee, the Company's hotels or the
Marriott(R) brands could significantly impact the results of operations of
the Company. Management believes that the risk of such a default will be
reduced through future acquisition and diversification and through 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
quarter and nine months ended September 30, 2001, 2.4 million shares,
(which related to the conversion of CNL Hotel Investors, Inc. Preferred
Stock to the Company's Common Stock), were excluded from the EPS
calculation because the issuance was anti-dilutive after the application of
the "if converted method." There were no potentially dilutive items in
2002.

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

Quarter Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
---------------- -------------- ---------------- ----------------
Basic and Diluted Earnings Per Share:
Net earnings $ 2,343,107 $ 3,890,425 $ 10,750,818 $ 16,477,869
================ ============== ================ ================
Weighted average number of shares
outstanding 100,749,086 68,897,098 90,622,101 60,806,624
================ ================ ================ ================
Basic and diluted earnings per share $ 0.02 $ 0.06 $ 0.12 0.27
================ ================ ================ ================

11. Stockholders' Equity:
--------------------

On August 13, 2002, 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 175,000,000 shares of common
stock ($1,750,000,000) (the "2003 Offering") in an offering expected to
commence immediately following the completion of the Company's current
offering. Of the 175,000,000 shares of common stock expected to be offered,
up to 25,000,000 are expected to be available to stockholders purchasing
shares through the reinvestment plan. The price per share and the other
terms of the 2003 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 expected to be substantially the same as those for the 2002 Offering.

12. 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.

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

12. Commitments and Contingencies - Continued:
-----------------------------------------

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 $81 million and (iii) fund the remaining total of
approximately $22 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 additional
investment in the partnerships described above are 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 Properties currently leased 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 the
manager 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. There is no
guarantee that the Company will continue to be able to obtain credit
enhancements in the future. 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 September 30, 2002 and December 31, 2001, these other
liabilities were $6,761,534 and $0, respectively, representing guarantee
funding which potentially could be earned back in the future. Additionally,
as of September 30, 2002 and December 31, 2001, the Company had
approximately $41,350,000 and $50,000,000, respectively, which remained
available for funding under these types of guarantees, should such funding
be necessary. Additional amounts of available funding under these types of
credit enhancements are available separately for several of the joint
ventures that the Company has entered into. There is no assurance that
market conditions will allow the Company to obtain credit enhancements in
the future.

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. A total of
approximately $10.2 million is available for funding under the facility.
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 end of any fiscal year. As of September 30, 2002,
$3,670,397 was outstanding under the liquidity facility loan.

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

12. Commitments and Contingencies - Continued:
-----------------------------------------

The Company executed a commitment for a loan in the amount of $36 million
collateralized by one of its hotel Properties. The loan has a term of five
years. Interest is charged at 5.84 percent per annum. Payments of interest
only are due monthly for the first two years of the loan, and monthly
payments of principal and interest are due thereafter, calculated on a
25-year amortization schedule through maturity. This loan is expected to
close no later than January 1, 2003.

13. Subsequent Events:
-----------------

During the period October 1, 2002 through November 4, 2002, the Company
received subscription proceeds of $63,300,622 for an additional 6,330,062
shares of common stock.

On October 2, 2002, the Company funded the remaining $16.3 of its total
$25.1 million committed investment in a partnership that owns land on which
a resort is being constructed.

On October 25, 2002, the Company acquired a Courtyard(R) by Marriott(R)
located in Newark, CA for approximately $25.5 million. This Property will
be leased to a TRS of the Company and managed by an affiliate of Marriott.

On October 1, 2002 and November 1, 2002, the Company declared distributions
to stockholders of record on October 1, 2002 and November 1, 2002, totaling
$7,114,778 and $7,537,727 respectively, or $0.06458 per share, payable in
December 2002.

On November 1, 2002, a majority of the common stockholders approved an
amendment to the Company's Amended and Restated Articles of Incorporation
to increase the number of authorized equity shares from 216,000,000 shares
(consisting of 150,000,000 common shares, 3,000,000 preferred shares and
63,000,000 excess shares) to 516,000,000 shares (consisting of 450,000,000
common shares, 3,000,000 preferred shares and 63,000,000 excess shares).

On November 5, 2002, the Company opened a Courtyard(R) by Marriott(R)
located in Edison, NJ. This Property was constructed by the Company and is
being managed by an affiliate of Interstate Hotels and Resorts.

On October 31, 2002, the Company obtained a loan in the amount of $90.7
million which will be collateralized by eight of its hotel Properties
(seven currently owned and one which is expected to be purchased in late
2002). The loan has a term of five years. Interest is charged at 6.53
percent per annum. Payments of interest only are due monthly for the first
two years of the loan, and monthly payments of principal and interest are
due thereafter, calculated on a 20-year amortization schedule through
maturity. The Company borrowed approximately $9.1 million at closing with
the remainder to be funded no later than January 1, 2003.

The Company currently is seeking additional Properties or other permitted
real estate related investment opportunities such as investments into other
real estate companies or joint ventures.

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, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. 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 offerings, 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 September 30, 2002, the Company owned
interests in 51 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 in 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 of the hotels. When possible, the Company negotiates
various types of credit enhancements on a case-by-case basis for its TRS
Properties (see Note 12, "Commitments and Contingencies" 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 has also resulted in a reduction in
rental income from operating leases and an increase in hotel operating revenues
as a percentage of total revenues. All of the Properties acquired in 2002 are
leased to TRS entities of the Company and are operated by third-party managers.
This trend is expected to continue throughout the remainder of 2002 and into the
future.

Additionally, during the nine months ended September 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 of the hotels, took
assignment of several leases which had been previously leased to third parties.
See Note 3, "Assignment of Third-Party Leases," to condensed consolidated
financial statements, for specific information pertaining to these transactions.

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

Comparison of quarter and nine months ended September 30, 2002 to quarter
and nine months ended September 30, 2001

Properties
As of September 30, 2002, the Company owned interests in 51 Properties (40
wholly-owned and 11 held indirectly through joint ventures), consisting of land,
buildings and equipment, including two parcels of land on which hotel Properties
are being constructed, and interests in three partnerships where hotels or
resorts are being constructed or renovated. One of the hotels under construction
as of September 30, 2002 opened on November 5, 2002. Of these Properties, 37 are
leased to TRS entities and operated by third-party managers, resulting in hotel
revenues and expenses being reported in the condensed consolidated statements of
earnings 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 condensed consolidated statements of
earnings for the Company.

Revenues

Hotel operating revenues during the nine months ended September 30, 2002
and 2001 were $70,175,174 and $1,150,876, respectively ($37,648,057 and
$1,150,876 of which was earned during the quarters ended September 30, 2002 and
2001, respectively). For the nine months ended September 30, 2002 and 2001, the
Company earned rental income from operating leases and FF&E reserve income of
$32,729,398 and $49,890,912, respectively ($8,313,157 and $16,911,381 of which
was earned during the quarters ended September 30, 2002 and 2001, respectively).
The increase in hotel revenues and the decrease in rental income and FF&E
reserve income was due to the Company taking assignment of leases on 18 existing
Properties and engaging third-party managers to operate these Properties during
the nine months ended September 30, 2002. Additionally, two Properties that were
acquired at the end of 2001 and all of the new Properties acquired in 2002 are
leased to TRS entities of the Company and are 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 2002. Other existing third-party leases may be assigned to the
Company in the future, and Properties acquired in the future will likely be
leased to TRS entities 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 revenues are expected to
increase.

Interest and Other Income

During the nine months ended September 30, 2002 and 2001, the Company
earned $926,522 and $2,903,018, respectively ($315,098 and $966,986 of which was
earned during the quarters ended September 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, a decrease in the average interest rate earned and the
period of time the funds were invested in such accounts as compared to 2001. As
net offering proceeds are invested in Properties, used to make mortgage loans
and enter into other permitted investments, the percentage of the Company's
total revenues from interest income will vary depending on the amount of future
offering proceeds, the timing of investments and interest rates in effect.

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 11 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 $88,653,573 and $32,618,000 for the nine months ended September
30, 2002 and 2001, respectively ($40,943,736 and $11,528,551 of which was
incurred during the quarters ended September 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 51 Properties during 2002 compared
to 39 Properties in 2001. Additionally, during the nine months ended September
30, 2002 and 2001, the Company incurred hotel expenses of $45,582,159 and
$1,515,808, respectively ($25,782,205 and $1,515,808 of which were incurred
during the quarters ended September 30, 2002 and 2001, respectively), due to
consolidated subsidiaries of the Company leasing a portion of its Properties and
employing third-party managers to operate the hotels. Additionally, interest
expense increased from $10,413,514 for the nine months ended September 30, 2001
to $13,827,651 for the nine months ended September 30, 2002 (which includes an
increase from $3,343,187 to $4,771,181 for the quarters ended September 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 $6,128,835 and
$3,750,585 for the nine months ended September 30, 2002 and 2001, respectively
($2,926,619 and $3,557,914 for the quarters ended September 30, 2002 and 2001,
respectively) were 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.

Net Earnings

The decrease in earnings from prior periods is due to the effect of the
current economic downturn on the U.S. economy, particularly the travel and
lodging industry, and the events of September 11, 2001, however, the Company has
continued to receive cash returns from its Properties due to credit enhancements
that have been obtained from its hotel operators. See "Item 3. Qualitative and
Quantitative Disclosures About Market Risk" for additional information on the
Company's credit enhancements.

Concentration of Credit Risk

One of the Company's tenants contributed approximately 12 percent of total
revenues for the quarter and nine months ended September 30, 2002. In addition,
a majority of the Company's rental income and hotel revenues were earned from
properties operating as various Marriott(R) brands for the quarter and nine
months ended September 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 this lessee,
the Company's hotels or the Marriott(R) brands could significantly impact the
results of operations of the Company. Management believes that the risk of such
a default will be reduced through future acquisition and diversification and
through 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, airline and lodging industries.
These declines were 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. Any U.S. participation in a war
with Iraq or other significant military activity could have additional adverse
effects on the economy including travel and lodging industry.

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 at the
Company's Properties in order to gauge how well they are performing as compared
with the industry and past results. Out of the 51 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 nine months ended
September 30, 2002.

Nine Months Ended Quarter Ended
September 30, September 30, Variance
------------------------- --------------------- ---------------------
Nine
Months Quarter
2002 2001 2002 2001 Ended Ended
---- ---- ---- ---- ----- -----
North America (26 hotels)
REVPAR $ 62.45 $ 66.30 $ 57.41 $ 58.34 (5.8%) (1.6%)
ADR $ 90.64 $ 100.61 $ 84.68 $ 92.61 (9.9%) (8.6%)
Occupancy 68.9% 65.9% 67.8% 63.0% 4.6% 7.6%

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 nine months ended
September 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 Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net earnings $ 2,343,107 $ 3,890,425 $ 10,750,818 $ 16,477,869
Adjustments:
Effect of unconsolidated subsidiaries 3,220,970 492,306 8,700,216 515,206
Effect of minority interest (59,400) (59,303) (177,800) (881,528)
Amortization of real estate assets 311,488 64,058 854,137 192,179
Depreciation of real estate assets 7,104,107 5,020,427 19,452,573 14,834,995
Effect of assumption of liabilities -- -- 3,576,133 --
--------------- --------------- --------------- ---------------
Funds From Operations $ 12,920,272 $ 9,407,913 $ 43,156,077 $ 31,138,721
=============== ============== =============== ===============
Weighted average shares:
Basic 100,749,086 68,897,098 90,622,101 60,806,624
=============== =============== =============== ===============
Diluted 100,749,086 68,897,098 90,622,101 63,217,472
=============== =============== =============== ===============

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

Common Stock Offerings

On April 22, 2002, the Company completed its offering of up to 45,000,000
shares of common stock ($450,000,000) (the "2000 Offering"), which included up
to 5,000,000 shares ($50,000,000) available to stockholders who elected to
participate in the Company's reinvestment plan. In connection with the 2000
Offering, the Company received subscription proceeds of $450,000,000 (45,000,000
shares), including $3,375,474 (337,547 shares) through the reinvestment plan.
Immediately following the completion of the 2000 Offering, the Company commenced
its fourth offering of up to 45,000,000 shares of common stock ($450,000,000)
(the "2002 Offering"). Of the 45,000,000 shares of common stock offered, up to
5,000,000 are available to stockholders purchasing shares through the
reinvestment plan. Since its formation through September 30, 2002, the Company
has received an initial $200,000 contribution from its Advisor and subscription
proceeds of $1,106,067,627 (110,606,763 shares), including $6,246,007 (624,601
shares) received 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 $230,996,002 (23,099,600 shares) in
gross offering proceeds from the 2002 Offering from its inception through
September 30, 2002.

On August 13, 2002, 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 175,000,000 shares of common stock
($1,750,000,000) (the "2003 Offering") in an offering expected to commence
immediately following the completion of the 2002 Offering. Of the 175,000,000
shares of common stock expected to be offered, up to 25,000,000 are expected to
be available to stockholders purchasing shares through the reinvestment plan.
The price per share and the other terms of the 2003 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 expected to be substantially the same as those for the
2002 Offering.

As of September 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 fees, due diligence expense
reimbursements, fees and organizational and offering expenses, totaled
approximately $1,350,487,000. The Company used approximately $652,579,000 of net
offering proceeds and $236,774,000 of loan proceeds to invest in 41 hotel
Properties, including two parcels of land on which hotel Properties are being
constructed (one of which was completed in November 2002), approximately
$163,461,000 to invest in six partnerships, including two which own Properties
that are being constructed or renovated, approximately $7,327,000 to redeem
789,979 shares of common stock, approximately $160,407,000 to pay down the
revolving line of credit and two construction lines of credit and approximately
$73,964,000 to pay acquisition fees and expenses, leaving approximately
$55,975,000 available for investment in Properties and mortgage loans.

During the period October 1, 2002 through November 4, 2002, the Company
received additional net offering proceeds of approximately $63,301,000, used
approximately $26,887,000 to purchase one Property, invested $16,340,000 into an
existing joint venture on which a resort is being constructed and had
approximately $82,434,000 available for investment in Properties and mortgage
loans or other permitted investments. The Company expects to use the uninvested
net proceeds plus any additional net proceeds from the sale of additional shares
from the 2002 Offering and the proposed 2003 Offering primarily to purchase
interests in additional Properties and, to a lesser extent, invest in mortgage
loans or other permitted investments such as investments in other real estate
companies and joint ventures. 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 nine months ended September 30, 2002 and 2001, 262,745 shares and
181,668 shares, respectively, were redeemed for $2,417,257 and $1,671,342,
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 or complete construction on three properties with an estimated value
of approximately $81 million and (iii) fund the remaining total of approximately
$22 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 are
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 with 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 the manager would participate, through incentive fees, in any
additional earnings above what was otherwise minimum rent.

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 interests in Properties. At September
30, 2002, the Company had $63,673,557 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 proceeds
received from the sale of common stock offset by Property acquisitions during
the first half of 2002 and additional investments in joint ventures to fund
renovation costs. 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, in management's discretion, to
create cash reserves.

During the nine months ended September 30, 2002 and 2001, the Company
generated cash from operating activities of $50,647,771 and $40,393,338,
respectively, and cash used in investing activities was $254,561,113 and
$275,050,493 for the nine months ended September 30, 2002 and 2001,
respectively. Cash used in investing activities for the nine months ended
September 30, 2002 and 2001, consists primarily of additions to land, buildings
and equipment of $181,241,594 and $75,525,562, respectively, and investments of
$42,006,993 and $162,490,900, respectively, in various joint ventures.
Additionally, during the nine months ended September 30, 2001, the Company
acquired the remaining interest of CNL Hotel Investors, Inc. for $32,884,119
resulting in 100 percent ownership by the Company. During the nine months ended
September 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(R) 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
The Company also purchased land on which a hotel will be constructed. These
Properties are being, or will be, 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(R)
by Marriott(R) 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 percent. 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.

In September 2002, the Company acquired an 85 percent interest in a Hampton
Inn Property located in Houston, Texas (the "Hampton Inn Property") for
$4,889,989. The Hampton Inn Property was acquired through an existing
partnership with Interstate Hotels and Resorts that was originally formed in
November 2001 (the "Interstate Joint Venture"). All characteristics of the
Interstate Joint Venture other than the acquisition of the Hampton Inn Property
remain unchanged. The total purchase price of the Hampton Inn Property was
$14,300,000. In connection with this purchase, the Interstate Joint Venture
assumed a loan of approximately $9.3 million which is secured by the Property.
The loan bears interest at a rate of 7.78 percent per annum. Monthly payments of
principal and interest of $75,730 are due on the first day of each month through
December 1, 2007, at which time the remaining principal balance is due.

Cash provided by financing activities was $222,761,847 and $224,395,876 for
the nine months ended September 30, 2002, and 2001, respectively. Cash provided
by financing activities for the nine months ended September 30, 2002 and 2001,
includes the receipt of $327,356,970 and $233,927,453, respectively, in
subscriptions from stockholders. In addition, distributions to stockholders for
the nine months ended September 30, 2002 and 2001, were $51,811,921 and
$34,066,688, respectively (or $0.58 per share for both periods).

Liquidity Requirements

The Company expects to meet its 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, proceeds from its offerings and debt financing.

Management believes that the Company has obtained reasonably adequate
insurance coverage. 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

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.

During the nine months ended September 30, 2002 and 2001, affiliates
incurred on behalf of the Company $5,021,199 and $3,857,919, respectively
($2,336,463 and $1,763,351 of which was incurred during the quarters ended
September 30, 2002 and 2001, respectively), for certain offering expenses.
Affiliates also incurred certain acquisition and operating expenses on behalf of
the Company. As of September 30, 2002 and December 31, 2001, the Company owed
the Advisor and other related parties $1,321,497 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 amounts deposited with this bank was $7,979,136
and $6,928,363 at September 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 approximately
$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 its 16.67 percent share, or approximately $2.6 million, of
a $15.5 million unsecured promissory note of the limited partnership.

See Note 8 to condensed consolidated financial statements, "Related Party
Transactions" for additional related party information.

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 nine months ended September 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
nine months ended September 30, 2002 and 2001, FF&E reserve income totaled
$3,440,068 and $4,302,783, respectively ($1,063,480 and $1,446,933 of which was
earned during the quarters ended September 30, 2002 and 2001, respectively).
FF&E reserve funds of $14,047,273 and $8,493,446 are classified as restricted
cash as of September 30, 2002 and December 31, 2001, respectively.

The Company declared and paid distributions to its stockholders of
$51,811,921 and $34,066,688 during the nine months ended September 30, 2002 and
2001, respectively. In addition, on October 1, 2002 and November 1, 2002, the
Company declared distributions to stockholders of record on October 1, 2002 and
November 1, 2002, totaling $7,114,778 and $7,537,727, respectively, or $0.06458
per share of common stock, payable in December 2002.

For the nine months ended September 30, 2002 and 2001, approximately 60
percent and 59 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and approximately 40 percent
and 41 percent, respectively, were considered a return of capital for federal
income tax purposes. No amounts distributed to the stockholders for the nine
months ended September 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.

In April 2002, the Financial Accounting Standards Board ("FASB") issued
FASB 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 Extinguishment
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 transactions 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 FASB 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 a 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of September 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
-------------------------- ---------------------- ----------------- ----------------------- ----------------
$50,347,692 December 2007 8.335% -- Monthly
85,026,918 July 2009 7.67%* -- Monthly
32,416,526 December 2007 8.29% -- Monthly
9,610,903 September 2017 12.85% -- Monthly
16,368,281 November 2003 -- LIBOR + 275 bps Monthly
24,152,343 September 2006 -- LIBOR + 225 bps Monthly

*Average interest rate as the loans bear interest ranging from 7.50 percent
to 7.75 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 8 percent as of September 30, 2002.

In September 2002, the Company paid down approximately $50,292,000 on its
construction loan facilities. The Company's construction loan facility, expiring
in November 2003, bears interest at a floating rate. Approximately $16,400,000
was outstanding and approximately $600,000 was available under the construction
loan facility as of September 30, 2002. This construction loan facility was used
to finance the construction of two hotel Properties that have been completed and
began operating in February 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 additional outstanding balances on its variable rate loans from offering
proceeds, refinancing with fixed rate permanent debt or obtaining cash flow
hedges should interest rates rise substantially. At September 30, 2002,
approximately $40,521,000 in variable rate debt was outstanding.

On October 31, 2002, the Company obtained a loan in the amount of
$90,700,000 collateralized by eight of its hotel Properties (seven currently
owned and one which is expected to be purchased in late 2002). The loan has a
term of five years. Interest is charged at 6.53 percent per annum. Payments of
interest only are due monthly for the first two years of the loan, and monthly
payments of principal and interest are due thereafter, calculated on a 20-year
amortization schedule through maturity. The Company borrowed approximately
$9,070,000 at closing with the remainder to be funded no later than January 1,
2003.

The Company executed a commitment for a loan in the amount of $36,000,000
collateralized by one of its hotel Properties. The loan has a term of five
years. Interest is charged at 5.84 percent per annum. Payments of interest only
are due monthly for the first two years of the loan, and monthly payments of
principal and interest are due thereafter, calculated on a 25-year amortization
schedule through maturity. This loan is expected to close no later than January
1, 2003.

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 September 30, 2002, approximated the outstanding
principal amount.

The Company plans to use net proceeds it receives from the 2002 Offering
and proposed 2003 Offering to acquire interests in 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 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 September 30, 2002 and December 31, 2001,
these other liabilities were $6,761,534 and $0, respectively, representing
guarantee funding which potentially could be earned back in the future.
Additionally, as of September 30, 2002 and December 31, 2001, the Company had
approximately $41,350,000 and $50,000,000, respectively, which remained
available for funding under these types of guarantees, should such funding be
necessary. Additional amounts of available funding under these types of credit
enhancements are available separately for several of the joint ventures that the
Company has entered into. There is no assurance that market conditions will
allow the Company to obtain credit enhancements in the future.

In connection with the lease assumptions on nine Properties, the Company
assumed a liquidity facility loan in the amount of approximately $3.6 million. A
total of approximately $10.2 million is available under the facility. 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
end of any fiscal year. As of September 30, 2002, $3,670,397 was outstanding
under the liquidity facility loan.

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 $ 2,324,136 $ -- $ 2,324,136
2003 2,393,876 16,368,281 18,762,157
2004 2,561,298 -- 2,561,298
2005 2,742,225 -- 2,742,225
2006 2,879,930 24,000,000 26,879,930
Thereafter 164,652,917 -- 164,652,917
------------------- ------------------- -------------------
$ 177,554,382 $ 40,368,281 $ 217,922,663
=================== =================== ===================

Item 4. Controls and Procedures

As required by Rule 13a-15 promulgated under the Exchange Act, as amended,
within the 90 days prior to the filing date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. This evaluation was carried out
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer, principal financial officer and
certain other executives and financial officers. Based upon that evaluation, the
Company's executives and financial officers concluded that the Company's
disclosure controls and procedures are effective. There have been no significant
changes in the Company's internal controls or in other factors, which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.

Disclosure controls and procedures are designed to ensure that information
required to be disclosed in Company reports filed or submitted under the
Exchange Act, as amended, is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in Company reports filed under the Exchange Act, as amended, is
accumulated and communicated to management, including the Company's Chief
Executive Officer, principal financial officer and certain other executives and
financial officers, as appropriate, to allow timely decisions regarding required
disclosure.

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.
---------------------------------------------------

On November 1, 2002, a majority of the common stockholders approved an
amendment to the Company's Amended and Restated Articles of
Incorporation to increase the number of authorized equity shares from
216,000,000 shares (consisting of 150,000,000 common shares, 3,000,000
preferred shares and 63,000,000 excess shares) to 516,000,000 shares
(consisting of 450,000,000 common shares, 3,000,000 preferred shares
and 63,000,000 excess shares).

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.)

99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350

99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350

(b) No filings on Form 8-K occurred during the quarter ended September 30,
2002.

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 8th day of November, 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)

CNL Hospitality Properties, Inc.

CERTIFICATIONS
--------------

I, James M Seneff, Jr, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CNL Hospitality
Properties, Inc. (the "Registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and

6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: November 8, 2002

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

I, C. Brian Strickland, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CNL Hospitality
Properties, Inc. (the "Registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and

6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: November 8, 2002

/s/ C. Brian Strickland
C. Brian Strickland
Executive Vice President (Principal Financial and Accounting Officer)

EXHIBIT 99.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, the undersigned certifies that (1) this
Quarterly Report of CNL Hospitality Properties, Inc. (the "Company") on Form
10-Q for the period ended September 30, 2002, as filed with the Securities and
Exchange Commission on the date hereof (this "Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, and (2) the information contained in this Report fairly presents, in
all material respects, the financial condition of the Company as of September
30, 2002 and December 31, 2001 and its results of operations for the three-month
and nine-month periods ended September 30, 2002.

/s/ James M. Seneff, Jr.
---------------------------------------------
Date: November 8, 2002 Name: James M. Seneff, Jr.
Title: Chief Executive Officer
(Principal Executive Officer)

EXHIBIT 99.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, the undersigned certifies that (1) this
Quarterly Report of CNL Hospitality Properties, Inc. (the "Company") on Form
10-Q for the period ended September 30, 2002, as filed with the Securities and
Exchange Commission on the date hereof (this "Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, and (2) the information contained in this Report fairly presents, in
all material respects, the financial condition of the Company as of September
30, 2002 and December 31, 2001 and its results of operations for the three-month
and nine-month periods ended September 30, 2002.

/s/ C. Brian Strickland
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Date: November 8, 2002 Name: C. Brian Strickland
Title: Executive Vice President (Principal
Financial and Accounting Officer)