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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2008

OR



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

For the transition period
from  to

Commission file number 000-51288





CNL Lifestyle
Properties, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 20-0183627                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer 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



(Former name, former address and former fiscal year, if changed since last
report)





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 by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The number of shares of common stock outstanding as of November 10, 2008 was 223,811,035.









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TABLE OF CONTENTS



|                              |  |          |  |                                                                                          |  |        
|----------------------------- |  | -------- |  | ---------------------------------------------------------------------------------------- |  | -------
|                              |  | Page    
|PART I. FINANCIAL INFORMATION |  |         
|                              |  |          | 
|                              |  | Item 1.  |  | Financial Statements (unaudited):                                                        |  |        
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Balance Sheets                                                    |  | 1      
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Statements of Operations                                          |  | 2      
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Statements of Stockholders Equity and Other Comprehensive Income |  | 3      
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Statements of Cash Flows                                          |  | 4      
|                              |  |          | 
|                              |  |          |  | Notes to Condensed Consolidated Financial Statements                                     |  | 5 - 19 
|                              |  |          | 
|                              |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 20 - 35
|                              |  |          | 
|                              |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 36     
|                              |  |          | 
|                              |  | Item 4T. |  | Controls and Procedures                                                                  |  | 37     
|                              | 
|PART II. OTHER INFORMATION    |  |         
|                              |  |          | 
|                              |  | Item 1.  |  | Legal Proceedings                                                                        |  | 37     
|                              |  |          | 
|                              |  | Item 1A. |  | Risk Factors                                                                             |  | 37     
|                              |  |          | 
|                              |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                              |  | 38     
|                              |  |          | 
|                              |  | Item 3.  |  | Defaults Upon Senior Securities                                                          |  | 38     
|                              |  |          | 
|                              |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                      |  | 38     
|                              |  |          | 
|                              |  | Item 5.  |  | Other Information                                                                        |  | 38     
|                              |  |          | 
|                              |  | Item 6.  |  | Exhibits                                                                                 |  | 39     
|                              | 
|Signatures                    |  | 40      
|                              | 
|Exhibits                      |  | 41      



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##### Table of Contents

PART I FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands except per share data)



|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                         |  | September 30,2008 |           |   | December 31,2007 |  
|ASSETS                                                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Real estate investment properties                                                                                                                                        |  | $                 | 1,752,259 |   |                  | $ | 1,603,061 |  
|Cash                                                                                                                                                                     |  |                   | 195,923   |   |                  |   | 35,078    |  
|Mortgages and other notes receivable                                                                                                                                     |  |                   | 167,876   |   |                  |   | 116,086   |  
|Investments in unconsolidated entities                                                                                                                                   |  |                   | 161,612   |   |                  |   | 169,350   |  
|Prepaid expenses and other assets                                                                                                                                        |  |                   | 55,892    |   |                  |   | 49,690    |  
|Intangibles, net                                                                                                                                                         |  |                   | 34,962    |   |                  |   | 41,306    |  
|Accounts and other receivables                                                                                                                                           |  |                   | 12,030    |   |                  |   | 9,793     |  
|Restricted cash                                                                                                                                                          |  |                   | 10,255    |   |                  |   | 6,271     |  
|Deposits                                                                                                                                                                 |  |                   | 971       |   |                  |   | 11,575    |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|Total Assets                                                                                                                                                             |  | $                 | 2,391,780 |   |                  | $ | 2,042,210 |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                         |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                     |  |                   |           |   |                  |   |           |  
|Mortgages and other notes payable                                                                                                                                        |  | $                 | 506,236   |   |                  | $ | 355,620   |  
|Security deposits                                                                                                                                                        |  |                   | 38,950    |   |                  |   | 38,753    |  
|Accounts payable and accrued expenses                                                                                                                                    |  |                   | 10,893    |   |                  |   | 18,318    |  
|Other liabilities                                                                                                                                                        |  |                   | 9,539     |   |                  |   | 8,558     |  
|Due to affiliates                                                                                                                                                        |  |                   | 6,566     |   |                  |   | 3,647     |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|Total Liabilities                                                                                                                                                        |  |                   | 572,184   |   |                  |   | 424,896   |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|Commitments and contingencies                                                                                                                                            |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                         |  |                  
|Stockholders equity:                                                                                                                                                    |  |                   |           |   |                  |   |           |  
|Preferred stock, $.01 par value per share 200 million shares authorized and unissued                                                                                     |  |                   |          |   |                  |   |          |  
|Excess shares, $.01 par value per share 120 million shares authorized and unissued                                                                                       |  |                   |          |   |                  |   |          |  
|Common stock, $.01 par value per share                                                                                                                                   |  |                   |           |   |                  |   |           |  
|One billion shares authorized; 223,872 and 192,794 shares issued and 221,074 and 191,827 shares outstanding as of September 30, 2008 and
December 31, 2007, respectively |  |                   | 2,211     |   |                  |   | 1,918     |  
|Capital in excess of par value                                                                                                                                           |  |                   | 1,962,291 |   |                  |   | 1,690,018 |  
|Accumulated earnings                                                                                                                                                     |  |                   | 88,648    |   |                  |   | 60,810    |  
|Accumulated distributions                                                                                                                                                |  |                   | (233,105  | ) |                  |   | (139,062  | )
|Accumulated other comprehensive income (loss)                                                                                                                            |  |                   | (449      | ) |                  |   | 3,630     |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                         |  |                   | 1,819,596 |   |                  |   | 1,617,314 |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  
|Total Liabilities and Stockholders Equity                                                                                                                               |  | $                 | 2,391,780 |   |                  | $ | 2,042,210 |  
|                                                                                                                                                                         |  |                   |           |   |                  |   |           |  

See accompanying notes to condensed consolidated financial statements.



1



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CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands except per share data)



|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                  |  | Quarter EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                                  |  | 2008                       |         |   | 2007                           |   |         | 2008 |  |   | 2007    |  
|Revenues:                                                                         |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Rental income from operating leases                                               |  | $                          | 51,141  |   |                                | $ | 34,116  |      |  | $ | 150,688 |   |  | $ | 82,825  |  
|Interest income on mortgages and other notes receivable                           |  |                            | 1,524   |   |                                |   | 2,566   |      |  |   | 4,236   |   |  |   | 8,400   |  
|Other operating income                                                            |  |                            |        |   |                                |   | 1,884   |      |  |   |        |   |  |   | 5,323   |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                                                    |  |                            | 52,665  |   |                                |   | 38,566  |      |  |   | 154,924 |   |  |   | 96,548  |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Expenses:                                                                         |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Asset management fees to advisor                                                  |  |                            | 5,526   |   |                                |   | 3,980   |      |  |   | 16,161  |   |  |   | 10,277  |  
|General and administrative                                                        |  |                            | 4,014   |   |                                |   | 4,088   |      |  |   | 10,083  |   |  |   | 7,902   |  
|Ground lease and permit fees                                                      |  |                            | 2,235   |   |                                |   | 1,343   |      |  |   | 6,759   |   |  |   | 3,909   |  
|Repairs and maintenance                                                           |  |                            | 736     |   |                                |   | 1,125   |      |  |   | 1,515   |   |  |   | 1,435   |  
|Other operating expenses                                                          |  |                            | 1,073   |   |                                |   | 2,718   |      |  |   | 3,269   |   |  |   | 5,462   |  
|Depreciation and amortization                                                     |  |                            | 25,384  |   |                                |   | 20,267  |      |  |   | 73,387  |   |  |   | 44,893  |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                                                                    |  |                            | 38,968  |   |                                |   | 33,521  |      |  |   | 111,174 |   |  |   | 73,878  |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Operating income                                                                  |  |                            | 13,697  |   |                                |   | 5,045   |      |  |   | 43,750  |   |  |   | 22,670  |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Other income (expense):                                                           |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income                                                         |  |                            | 1,352   |   |                                |   | 2,945   |      |  |   | 4,496   |   |  |   | 7,748   |  
|Interest expense and loan cost amortization                                       |  |                            | (7,836  | ) |                                |   | (4,588  | )    |  |   | (23,497 | ) |  |   | (10,171 | )
|Equity in earnings of unconsolidated entities                                     |  |                            | 1,598   |   |                                |   | 2,084   |      |  |   | 3,089   |   |  |   | 4,068   |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total other income (expense)                                                      |  |                            | (4,886  | ) |                                |   | 441     |      |  |   | (15,912 | ) |  |   | 1,645   |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net income                                                                        |  | $                          | 8,811   |   |                                | $ | 5,486   |      |  | $ | 27,838  |   |  | $ | 24,315  |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Earnings per share of common stock (basic and diluted)                            |  | $                          | 0.04    |   |                                | $ | 0.03    |      |  | $ | 0.14    |   |  | $ | 0.16    |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                            | 215,101 |   |                                |   | 176,183 |      |  |   | 205,586 |   |  |   | 150,741 |  
|                                                                                  |  |                            |         |   |                                |   |         |      |  |   |         |   |  |   |         |  

See accompanying notes to condensed consolidated financial statements.



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CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2008 and Year Ended
December 31, 2007 (UNAUDITED)

(in thousands except per share data)



|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                          |   |  |                                            |        |  |                          |          |   |                     |   |        |   |  |   |           |   |  |   |        |  
|------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------------------------- | ----- | - | ------------------- | - | ------------------------ | - |  | ------------------------------------------ | ------ |  | ------------------------ | -------- | - | ------------------- | - | ------ | - |  | - | --------- | - |  | - | ------ | -
|                                                                                      |  | Common Stock    |   |  | Capital inExcess ofPar Value |       |   | AccumulatedEarnings |   | AccumulatedDistributions |   |  | AccumulatedOtherComprehensiveIncome (Loss) |        |  | TotalStockholdersEquity |          |   | ComprehensiveIncome |  
|                                                                                      |  | Numberof Shares |   |  | ParValue                     |       |   |                     |   |                          |   | 
|Balance at December 31, 2006                                                          |  | 113,731         |   |  | $                            | 1,137 |   |                     | $ | 997,826                  |   |  | $                                          | 25,285 |  | $                        | (44,995  | ) |                     | $ | (1,747 | ) |  | $ | 977,506   |   |  |   |        |  
|Subscriptions received for common stock through public offering and reinvestment plan |  | 76,590          |   |  |                              | 766   |   |                     |   | 754,473                  |   |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | 755,239   |   |  |   |        |  
|Reclassification of rescindable common stock                                          |  | 2,169           |   |  |                              | 22    |   |                     |   | 21,666                   |   |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | 21,688    |   |  |   |        |  
|Redemption of common stock                                                            |  | (663            | ) |  |                              | (7    | ) |                     |   | (6,237                   | ) |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | (6,244    | ) |  |   |        |  
|Stock issuance and offering costs                                                     |  |                |   |  |                              |      |   |                     |   | (77,710                  | ) |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | (77,710   | ) |  |   |        |  
|Net income                                                                            |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            | 35,525 |  |                          |         |   |                     |   |       |   |  |   | 35,525    |   |  |   | 35,525 |  
|Distributions, declared and paid ($0.6000 per share)                                  |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          | (94,067  | ) |                     |   |       |   |  |   | (94,067   | ) |  |   |        |  
|Foreign currency translation adjustment                                               |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          |         |   |                     |   | 5,377  |   |  |   | 5,377     |   |  |   | 5,377  |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                          |   |  |                                            |        |  |                          |          |   |                     |   |        |   |  |   |           |   |  |   |        |  
|Total comprehensive income                                                            |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   |          |   |  | $ | 40,902 |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                          |   |  |                                            |        |  |                          |          |   |                     |   |        |   |  |   |           |   |  |   |        |  
|Balance at December 31, 2007                                                          |  | 191,827         |   |  | $                            | 1,918 |   |                     | $ | 1,690,018                |   |  | $                                          | 60,810 |  | $                        | (139,062 | ) |                     | $ | 3,630  |   |  | $ | 1,617,314 |   |  |   |        |  
|Subscriptions received for common stock through public offering and reinvestment plan |  | 31,078          |   |  |                              | 311   |   |                     |   | 321,054                  |   |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | 321,365   |   |  |   |        |  
|Redemption of common stock                                                            |  | (1,831          | ) |  |                              | (18   | ) |                     |   | (17,336                  | ) |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | (17,354   | ) |  |   |        |  
|Stock issuance and offering costs                                                     |  |                |   |  |                              |      |   |                     |   | (31,445                  | ) |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   | (31,445   | ) |  |   |        |  
|Net income                                                                            |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            | 27,838 |  |                          |         |   |                     |   |       |   |  |   | 27,838    |   |  |   | 27,838 |  
|Distributions, declared and paid ($0.4613 per share)                                  |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          | (94,043  | ) |                     |   |       |   |  |   | (94,043   | ) |  |   |        |  
|Foreign currency translation adjustment                                               |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          |         |   |                     |   | (3,128 | ) |  |   | (3,128    | ) |  |   | (3,128 | )
|Current period adjustment to recognize changes in fair value of cash flow hedges      |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          |         |   |                     |   | (951   | ) |  |   | (951      | ) |  |   | (951   | )
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                          |   |  |                                            |        |  |                          |          |   |                     |   |        |   |  |   |           |   |  |   |        |  
|Total comprehensive income                                                            |  |                |   |  |                              |      |   |                     |   |                         |   |  |                                            |       |  |                          |         |   |                     |   |       |   |  |   |          |   |  | $ | 23,759 |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                          |   |  |                                            |        |  |                          |          |   |                     |   |        |   |  |   |           |   |  |   |        |  
|Balance at September 30, 2008                                                         |  | 221,074         |   |  | $                            | 2,211 |   |                     | $ | 1,962,291                |   |  | $                                          | 88,648 |  | $                        | (233,105 | ) |                     | $ | (449   | ) |  | $ | 1,819,596 |   |  |   |        |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                          |   |  |                                            |        |  |                          |          |   |                     |   |        |   |  |   |           |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.



3



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CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



|                                                                                 |  |                                 |          |   |      |   |          |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                 |  | Nine Months Ended September 30, |         
|                                                                                 |  | 2008                            |          |   | 2007 |  
|Increase (decrease) in cash:                                                     |  |                                 |          |   |      |   |          |  
|Operating activities:                                                            |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities                                        |  | $                               | 102,342  |   |      | $ | 73,088   |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Investing activities:                                                            |  |                                 |          |   |      |   |          |  
|Acquisition of properties                                                        |  |                                 | (99,261  | ) |      |   | (704,686 | )
|Capital expenditures                                                             |  |                                 | (66,723  | ) |      |   | (36,239  | )
|Investments in unconsolidated entities                                           |  |                                 |         |   |      |   | (166     | )
|Issuance of mortgage loans receivable                                            |  |                                 | (68,000  | ) |      |   | (22,000  | )
|Deposits applied toward real estate investments                                  |  |                                 |         |   |      |   | 5,150    |  
|Acquisition costs and fees paid                                                  |  |                                 | (17,319  | ) |      |   | (30,366  | )
|Proceeds from disposal of assets                                                 |  |                                 | 56       |   |      |   |         |  
|Short-term investments                                                           |  |                                 |         |   |      |   | (63      | )
|Increase in restricted cash                                                      |  |                                 | (3,984   | ) |      |   | (3,646   | )
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net cash used in investing activities                                            |  |                                 | (255,231 | ) |      |   | (792,016 | )
|                                                                                 |  |                                 |          |   |      |   |          |  
|Financing activities:                                                            |  |                                 |          |   |      |   |          |  
|Subscriptions received from stockholders                                         |  |                                 | 312,537  |   |      |   | 672,332  |  
|Redemptions of common stock                                                      |  |                                 | (17,354  | ) |      |   | (3,370   | )
|Stock issuance costs                                                             |  |                                 | (29,705  | ) |      |   | (74,797  | )
|Borrowings under line of credit, net of payments                                 |  |                                 |         |   |      |   | 16,000   |  
|Proceeds from mortgage loans and other notes payables                            |  |                                 | 151,817  |   |      |   | 202,468  |  
|Principal payments on mortgage loans                                             |  |                                 | (7,143   | ) |      |   | (2,234   | )
|Principal payments on capital leases                                             |  |                                 | (42      | ) |      |   | (915     | )
|Payment of loan costs                                                            |  |                                 | (2,382   | ) |      |   | (3,568   | )
|Distributions to stockholders                                                    |  |                                 | (94,043  | ) |      |   | (66,292  | )
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net cash provided by financing activities                                        |  |                                 | 313,685  |   |      |   | 739,624  |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Effect of exchange rate fluctuations on cash                                     |  |                                 | 49       |   |      |   | 188      |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net increase in cash                                                             |  |                                 | 160,845  |   |      |   | 20,884   |  
|Cash at beginning of period                                                      |  |                                 | 35,078   |   |      |   | 296,163  |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Cash at end of period                                                            |  | $                               | 195,923  |   |      | $ | 317,047  |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Supplemental disclosure of non-cash investing and financing activities:          |  |                                 |          |   |      |   |          |  
|Amounts incurred but not paid (included in due to affiliates):                   |  |                                 |          |   |      |   |          |  
|Acquisition fees and costs                                                       |  | $                               | 774      |   |      | $ |         |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Offering and stock issuance costs                                                |  | $                               | 1,544    |   |      | $ |         |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Allocation of acquisition fees to real estate investments                        |  | $                               | 6,799    |   |      | $ | 27,811   |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Assumption of loan in connection with property acquisition                       |  | $                               | 5,942    |   |      | $ |         |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Assumption of capital leases in connection with property acquisitions            |  | $                               | 190      |   |      | $ | 4,026    |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Mortgages and other notes payable obtained in connection with acquisition        |  | $                               |         |   |      | $ | 22,000   |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Capital projects                                                                 |  | $                               | 5,203    |   |      | $ |         |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Discharge of note receivable and accrued interest in connection with foreclosure |  | $                               | 18,526   |   |      | $ |         |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Shares accrued in connection with distribution reinvestment plan                 |  | $                               | 8,827    |   |      | $ |         |  
|                                                                                 |  |                                 |          |   |      |   |          |  

See accompanying notes to condensed consolidated financial statements.



4



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|1. | Organization and Nature of Business:
|-- | ------------------------------------

CNL Lifestyle
Properties, Inc. (the Company), formerly known as CNL Income Properties, Inc., was organized in Maryland on August 11, 2003. The Company operates and has elected to be taxed as a real estate investment trust (a REIT) for
federal income tax purposes. Various wholly owned subsidiaries have been and will be formed by the Company for the purpose of acquiring and owning direct or indirect interests in real estate. The Company generally invests in lifestyle properties in
the United States and Canada that are primarily leased on a long-term (generally five to 20 years, plus multiple renewal options), triple-net or gross basis to tenants or operators that the Company considers to be significant industry leaders. To a
lesser extent, the Company also leases properties to taxable REIT subsidiary (TRS) tenants and engages independent third-party managers to operate those properties. The Company also makes or acquires loans (mortgage, mezzanine and other
loans) and may invest up to 10% of its assets in businesses that provide services, or are otherwise ancillary, to the types of properties in which it is permitted to invest.

As of September 30, 2008, the Company owned 112 lifestyle properties, directly and indirectly, within the following asset classes: Ski and Mountain
Lifestyle, Golf, Attractions and Additional Lifestyle Properties. Ten of these 112 properties are owned through unconsolidated ventures and three are located in Canada. The Company also had nine loans outstanding as of September 30, 2008.



|2. | 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 in the United States (GAAP). The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management,
necessary for the fair statement of the Companys results for the interim period presented. Operating results for the nine months ended September 30, 2008 may not be indicative of the results that may be expected for the year ending
December 31, 2008. Amounts as of December 31, 2007 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date but do not include all disclosures
required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys annual report on Form 10-K for the
year ended December 31, 2007.

CashCash consists of demand deposits at commercial banks. The Company also
invests in money market funds during the year. As of September 30, 2008, the cash deposits exceeded federally insured amounts. However, the Company has not experienced any losses on such accounts. Management continues to monitor
third-party depository institutions that hold the Companys cash and cash equivalents, primarily with the goal of safety of principal and secondarily on maximizing yield on those funds. To that end, the Company has diversified its cash and cash
equivalents between several banking institutions in an attempt to minimize exposure to any one of these entities. Management has attempted to select institutions that it believes are strong based on an evaluation of their financial stability and
exposure to poor performing assets.

Derivative Instruments and Hedging Activities  The Company utilizes derivative instruments
to partially offset the effect of fluctuating interest rates on the cash flows associated with its variable-rate debt. The Company follows established risk management policies and procedures in its use of derivatives and does not enter into or hold
derivatives for trading or speculative purposes. The Company records all derivative instruments on the balance sheet at fair value. On the date the Company enters into a derivative contract, the derivative is designated as a hedge of the exposure to
variable cash flows of a forecasted transaction. The effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently recognized in the statement of operations in the
periods in which earnings are impacted by the variability of the cash flows of the hedged item. Any ineffective portion of the gain or loss is reflected in interest expense in the statement of operations. As of September 30, 2008, the fair
value of the hedge liabilities totaled approximately $951,000 and has been included in other liabilities in the accompanying unaudited condensed consolidated balance sheets. During the quarter and nine months ended September 30, 2008, the
Companys hedges qualified as highly effective and, accordingly, all of the change in value is reflected in other comprehensive income (loss).



5



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|2. | Significant Accounting Policies (Continued):
|-- | --------------------------------------------



Use of Estimates Management has made a number of estimates and assumptions related to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles. For example, significant estimates and assumptions are made in
connection with the allocation of purchase price and analysis of real estate and loan impairment. Actual results could differ from those estimates.

Reclassifications Certain prior period amounts in the unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements In September 2008, the Financial Accounting Standards Board (the FASB) issued FASB Staff
Position (FSP) Statement of Financial Accounting Standards No. 133-1 and FASB Interpretation No. 45-4 Disclosures about Credit Derivatives and Certain Guarantees: An Amendment to Statement of Financial Accounting Standards No. 133,
Disclosures about Derivative and Hedging Activities (FAS 133) and FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45); and Clarification of the Effective Date of Statement of Financial Accounting Standard No. 161 (FAS 161)(FSP FAS 133-1 and FIN 45-4). This FSP amends FAS 133 to require disclosures by sellers
of credit derivatives (includes credit derivatives embedded in a hybrid instrument) and also amends FIN 45 to require an additional disclosure about the current status of the payment/performance risk of guarantees. In addition, this FSP clarifies
the FASBs intent about the effective date of FAS 161. The new disclosures are effective for fiscal years and interim periods beginning after November 15, 2008. The implementation of FSP FAS 133-1 and FIN 45-4 is not expected to have a
significant impact on the Companys disclosures regarding its derivative instruments.

In April 2008, the FASB issued FSP
No. 142-3, Determining the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between
the useful life of an intangible asset and the period of expected cash flows used to measure such assets fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The implementation of FSP 142-3 is not
expected to have a significant impact on the Companys financial position or results of operations.

In March 2008, the FASB issued FAS
161 (an amendment to FAS 133). This statement calls for all entities to enhance the disclosure requirements for derivative instruments and hedging activities to include (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under FAS 133, where it requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at
fair value, and (iii) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flow. The application of this pronouncement is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company currently records its hedging instruments on its balance sheet at fair value with changes in fair value recorded in other comprehensive income (loss). As such, the adoption of FAS 161 is not
expected to have a significant impact on the Companys disclosures regarding its derivative instruments.

Effective January 1,
2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FAS 157 must maximize the use of observable inputs and
minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. In February
2008, the FASB issued Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities,
except those that are recognized or disclosed in the financial statements at fair value at least annually. Accordingly, the Company has partially adopted the provisions of FAS 157 with respect to its financial assets and liabilities only. The
implementation of FAS 157 did not result in material changes to the models or processes used to value these assets and liabilities. See Note 8, Fair Value Measurements, for additional information.



6



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|2. | Significant Accounting Policies (Continued):
|-- | --------------------------------------------



In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-Controlling Interests in Consolidated Financial
Statements (FAS 160). This statement calls for (i) all non-controlling interests to be recognized in the equity section of the consolidated balance sheets apart from the parents equity, (ii) requires the amount of
consolidated net income attributable to the parent and to the non-controlling interests to be clearly identified and presented on the face of the consolidated statement of income and (iii) requires that changes in a parents ownership
interests while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. The application of this pronouncement is effective for annual periods beginning after December 15, 2008 and is not
expected to have a significant impact on the Companys financial position or results of operations.

In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141 (revised), Business Combinations (FAS 141R). FAS 141R (i) requires the acquiring entity in a business combination to recognize assets acquired and liabilities
assumed, (ii) establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed and (iii) requires entities to disclose to investors and other users additional information they need to
evaluate and understand the nature and financial effect of the business combination. Additionally, FAS 141R requires an acquiring entity to immediately expense all acquisition costs and fees associated with an acquisition. The application of
this pronouncement is effective in fiscal years beginning on or after December 15, 2008. The adoption of FAS 141R will have a significant impact on the Companys operating results because of the highly acquisitive nature of its
business. Effective January 1, 2009, the Company will begin expensing immediately, acquisition costs and fees as they are incurred for acquisitions. Additionally, on January 1, 2009, the Company will expense all acquisition costs for
acquisitions that were being pursued in 2008 but which did not close as of December 31, 2008. Historically, acquisition costs and fees have been capitalized and allocated to the cost basis of the assets. As a result, the Company expects to have
an immediate reduction in its net income from recording higher acquisition related costs for acquired properties. Post acquisition, the Company expects there to be a subsequent positive impact on operating and net income for each property acquired
through a reduction in depreciation expense over the estimated life of the properties as a result of acquisition costs and fees no longer being capitalized and depreciated.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, Fair Value Option for Financial Assets and Financial
Liabilities (FAS 159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement expands the use of FAS 157 and is effective for fiscal years
beginning after November 15, 2007. The adoption of this pronouncement did not have a significant impact on the Companys current practice or on its financial position or results of operations.



|3. | Real Estate Investment Properties:
|-- | ----------------------------------

During the nine
months ended September 30, 2008, the Company acquired nine golf properties, one attraction and one marina for an aggregate purchase price of approximately $108.6 million including transaction costs. In addition, the Company acquired ownership
of the Orlando Grand Plaza Hotel & Suites (the Orlando Grand), through a settlement agreement, in which the Company paid $756,000 in settlement and transaction costs and released the borrower of its loan obligations of $18.5
million, including accrued interest. The property is currently closed and is in the initial stages of a significant redevelopment. See Note 6 for additional information. All consolidated properties, except for two, are leased on a long-term basis to
third-party tenants.

[Intentionally left blank]



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|3. | Real Estate Investment Properties (Continued):
|-- | ----------------------------------------------



The following summarizes the allocation of purchase price and transaction costs (including the acquisition of the Orlando Grand) for the properties
acquired during the nine months ended September 30, 2008 (in thousands):



|                                     |  |                          |        
|------------------------------------ |  | ------------------------ | -------
|                                     |  | Total PurchaseAllocation
|Land & land improvements             |  | $                        | 63,545 
|Leasehold interests and improvements |  |                          | 22,987 
|Buildings                            |  |                          | 24,622 
|Equipment                            |  |                          | 15,647 
|Intangibles                          |  |                          | 1,126  
|                                     |  |                          |        
|Total                                |  | $                        | 127,927
|                                     |  |                          |        

The purchase price allocation above is preliminary. The final allocations of purchase price may
include additional transaction costs and such other adjustments not yet determined, and are expected to be finalized by December 31, 2008.

As of September 30, 2008 and December 31, 2007, real estate investment properties consisted of the following (in thousands):



|                                     |  |                   |           |   |                  |   |           |  
|------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                     |  | September 30,2008 |           |   | December 31,2007 |  
|Land & land improvements             |  | $                 | 920,499   |   |                  | $ | 838,817   |  
|Leasehold interests and improvements |  |                   | 171,533   |   |                  |   | 133,844   |  
|Buildings                            |  |                   | 481,665   |   |                  |   | 423,735   |  
|Equipment                            |  |                   | 322,537   |   |                  |   | 278,754   |  
|Less: accumulated depreciation       |  |                   | (143,975  | ) |                  |   | (72,089   | )
|                                     |  |                   |           |   |                  |   |           |  
|                                     |  | $                 | 1,752,259 |   |                  | $ | 1,603,061 |  
|                                     |  |                   |           |   |                  |   |           |  



|4. | Intangible Assets:
|-- | ------------------

The gross carrying amount and
accumulated amortization of the Companys intangible assets as of September 30, 2008 and December 31, 2007 are as follows (in thousands):



|                  |  |                      |  |                     |        |                         |   |                                      |  |   |       
|----------------- |  | -------------------- |  | ------------------- | ------ | ----------------------- | - | ------------------------------------ |  | - | ------
|Intangible Assets |  | WeightedAverage Life |  | GrossCarryingAmount |        | AccumulatedAmortization |   | Net BookValue as ofSeptember 30,2008
|In place leases   |  | 19.2 years           |  | $                   | 25,315 |                         | $ | 2,100                                |  | $ | 23,215
|Trade name        |  | 42.5 years           |  |                     | 10,798 |                         |   | 480                                  |  |   | 10,318
|Trade name        |  | Indefinite           |  |                     | 1,429  |                         |   |                                     |  |   | 1,429 
|                  |  |                      |  |                     |        |                         |   |                                      |  |   |       
|                  |  |                      |  | $                   | 37,542 |                         | $ | 2,580                                |  | $ | 34,962
|                  |  |                      |  |                     |        |                         |   |                                      |  |   |       



8



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|4. | Intangible Assets (Continued):
|-- | ------------------------------



|                  |  |                      |  |                     |        |                         |   |                                     |  |   |       
|----------------- |  | -------------------- |  | ------------------- | ------ | ----------------------- | - | ----------------------------------- |  | - | ------
|Intangible Assets |  | WeightedAverage Life |  | GrossCarryingAmount |        | AccumulatedAmortization |   | Net BookValue as ofDecember 31,2007
|In place leases   |  | 19.2 years           |  | $                   | 30,556 |                         | $ | 1,260                               |  | $ | 29,296
|Trade name        |  | 42.5 years           |  |                     | 10,847 |                         |   | 266                                 |  |   | 10,581
|Trade name        |  | Indefinite           |  |                     | 1,429  |                         |   |                                    |  |   | 1,429 
|                  |  |                      |  |                     |        |                         |   |                                     |  |   |       
|                  |  |                      |  | $                   | 42,832 |                         | $ | 1,526                               |  | $ | 41,306
|                  |  |                      |  |                     |        |                         |   |                                     |  |   |       

Amortization expense of approximately $1.1 million and $1.0 million was recorded for the nine
months ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008, upon finalization of the purchase price allocations, certain amounts that were initially classified as in-place lease intangibles were
subsequently reclassified to real estate investment properties. The reclassification did not have a material effect on amortization and depreciation.



|5. | Investments in Unconsolidated Entities:
|-- | ---------------------------------------

The
following presents financial information for the Companys unconsolidated entities for the quarters and nine months ended September 30, 2008 and 2007 and as of September 30, 2008 and December 31, 2007 (in thousands):

Summarized Operating Data



|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|---------------------------------------------------- |  | -------------------------------- | ------ | - | -------------- | - | ------ | ---------------- |  | - | ------ | --- |  | - | ------- | -
|                                                     |  | Quarter Ended September 30, 2008 |       
|                                                     |  | WolfPartnership                  |        |   | DMCPartnership |   |        | IntrawestVenture |  |   | Total  |    
|Revenue                                              |  | $                                | 10,121 |   |                | $ | 6,641  |                  |  | $ | 3,996  |     |  | $ | 20,758  |  
|Property operating expenses                          |  |                                  | (8,002 | ) |                |   | (210   | )                |  |   | (2,033 | )   |  |   | (10,245 | )
|Depreciation & amortization expense                  |  |                                  | (1,787 | ) |                |   | (2,123 | )                |  |   | (1,168 | )   |  |   | (5,078  | )
|Interest expense                                     |  |                                  | (1,005 | ) |                |   | (2,282 | )                |  |   | (1,425 | )   |  |   | (4,712  | )
|Interest and other income (expense)                  |  |                                  |       |   |                |   | 4      |                  |  |   | 24     |     |  |   | 28      |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Net income (loss)                                    |  | $                                | (673   | ) |                | $ | 2,030  |                  |  | $ | (606   | )   |  | $ | 751     |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to other venture partners(1) |  | $                                | (205   | ) |                | $ | (477   | )                |  | $ | (405   | )   |  | $ | (1,087  | )
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to the Company(1)            |  | $                                | (468   | ) |                | $ | 2,507  |                  |  | $ | (201   | )   |  | $ | 1,838   |  
|Amortization of capitalized costs                    |  |                                  | (58    | ) |                |   | (124   | )                |  |   | (58    | )   |  |   | (240    | )
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Equity in earnings (loss) of unconsolidated entities |  | $                                | (526   | ) |                | $ | 2,383  |                  |  | $ | (259   | )   |  | $ | 1,598   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions declared to the Company                |  | $                                |       |   |                | $ | 2,834  |                  |  | $ | 628    | (2) |  | $ | 3,462   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions received by the Company                |  | $                                |       |   |                | $ | 2,043  |                  |  | $ | 429    | (2) |  | $ | 2,472   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  



9



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|5. | Investments in Unconsolidated Entities (Continued):
|-- | ---------------------------------------------------



Summarized Operating Data



|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|---------------------------------------------------- |  | -------------------------------- | ------ | - | -------------- | - | ------ | ---------------- |  | - | ------ | --- |  | - | ------- | -
|                                                     |  | Quarter Ended September 30, 2007 |       
|                                                     |  | WolfPartnership                  |        |   | DMCPartnership |   |        | IntrawestVenture |  |   | Total  |    
|Revenue                                              |  | $                                | 10,923 |   |                | $ | 6,633  |                  |  | $ | 4,055  |     |  | $ | 21,611  |  
|Property operating expenses                          |  |                                  | (8,222 | ) |                |   | (182   | )                |  |   | (2,131 | )   |  |   | (10,535 | )
|Depreciation & amortization expense                  |  |                                  | (1,788 | ) |                |   | (2,237 | )                |  |   | (1,222 | )   |  |   | (5,247  | )
|Interest expense                                     |  |                                  | (1,015 | ) |                |   | (2,325 | )                |  |   | (1,438 | )   |  |   | (4,778  | )
|Interest and other income                            |  |                                  |       |   |                |   | 4      |                  |  |   | 99     |     |  |   | 103     |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Net income (loss)                                    |  | $                                | (102   | ) |                | $ | 1,893  |                  |  | $ | (637   | )   |  | $ | 1,154   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to other venture partners(1) |  | $                                | 110    |   |                | $ | (621   | )                |  | $ | (656   | )   |  | $ | (1,167  | )
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to the Company(1)            |  | $                                | (212   | ) |                | $ | 2,514  |                  |  | $ | 19     |     |  | $ | 2,321   |  
|Amortization of capitalized costs                    |  |                                  | (55    | ) |                |   | (124   | )                |  |   | (58    | )   |  |   | (237    | )
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Equity in earnings (loss) of unconsolidated entities |  | $                                | (267   | ) |                | $ | 2,390  |                  |  | $ | (39    | )   |  | $ | 2,084   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions declared to the Company                |  | $                                |       |   |                | $ | 2,824  |                  |  | $ | 935    | (2) |  | $ | 3,759   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions received by the Company                |  | $                                |       |   |                | $ | 1,985  |                  |  | $ | 550    | (2) |  | $ | 2,535   |  
|                                                     |  |                                  |        |   |                |   |        |                  |  |   |        |     |  |   |         |  

Summarized Operating Data



|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|---------------------------------------------------- |  | ------------------------------------ | ------- | - | -------------- | - | ------ | ---------------- |  | - | ------ | --- |  | - | ------- | -
|                                                     |  | Nine Months Ended September 30, 2008 |        
|                                                     |  | WolfPartnership                      |         |   | DMCPartnership |   |        | IntrawestVenture |  |   | Total  |    
|Revenue                                              |  | $                                    | 26,488  |   |                | $ | 22,548 |                  |  | $ | 12,352 |     |  | $ | 61,388  |  
|Property operating expenses                          |  |                                      | (23,492 | ) |                |   | (624   | )                |  |   | (5,746 | )   |  |   | (29,862 | )
|Depreciation & amortization expense                  |  |                                      | (5,493  | ) |                |   | (6,403 | )                |  |   | (3,679 | )   |  |   | (15,575 | )
|Interest expense                                     |  |                                      | (2,993  | ) |                |   | (6,829 | )                |  |   | (4,297 | )   |  |   | (14,119 | )
|Interest and other income (expense)                  |  |                                      |        |   |                |   | 21     |                  |  |   | 152    |     |  |   | 173     |  
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Net income (loss)                                    |  | $                                    | (5,490  | ) |                | $ | 8,713  |                  |  | $ | (1,218 | )   |  | $ | 2,005   |  
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to other venture partners(1) |  | $                                    | (1,665  | ) |                | $ | 1,245  |                  |  | $ | (1,382 | )   |  | $ | (1,802  | )
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to the Company(1)            |  | $                                    | (3,825  | ) |                | $ | 7,468  |                  |  | $ | 164    |     |  | $ | 3,807   |  
|Amortization of capitalized costs                    |  |                                      | (171    | ) |                |   | (372   | )                |  |   | (175   | )   |  |   | (718    | )
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Equity in earnings (loss) of unconsolidated entities |  | $                                    | (3,996  | ) |                | $ | 7,096  |                  |  | $ | (11    | )   |  | $ | 3,089   |  
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions declared to the Company                |  | $                                    |        |   |                | $ | 8,006  |                  |  | $ | 2,237  | (2) |  | $ | 10,243  |  
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions received by the Company                |  | $                                    |        |   |                | $ | 7,571  |                  |  | $ | 3,322  | (2) |  | $ | 10,893  |  
|                                                     |  |                                      |         |   |                |   |        |                  |  |   |        |     |  |   |         |  



10



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|5. | Investments in Unconsolidated Entities (Continued):
|-- | ---------------------------------------------------



Summarized Operating Data



|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|---------------------------------------------------- |  | ------------------------------------ | ------- | ---- | -------------- | - | ------ | ---------------- |  | - | ------ | --- |  | - | ------- | -
|                                                     |  | Nine Months Ended September 30, 2007 |        
|                                                     |  | WolfPartnership                      |         |      | DMCPartnership |   |        | IntrawestVenture |  |   | Total  |    
|Revenue                                              |  | $                                    | 28,409  |      |                | $ | 22,884 |                  |  | $ | 12,678 |     |  | $ | 63,971  |  
|Property operating expenses                          |  |                                      | (23,819 | )    |                |   | (601   | )                |  |   | (5,968 | )   |  |   | (30,388 | )
|Depreciation & amortization expense                  |  |                                      | (5,311  | )    |                |   | (6,671 | )                |  |   | (3,908 | )   |  |   | (15,890 | )
|Interest expense                                     |  |                                      | (3,014  | )    |                |   | (6,930 | )                |  |   | (4,299 | )   |  |   | (14,243 | )
|Interest and other income                            |  |                                      | 41      |      |                |   | 13     |                  |  |   | 205    |     |  |   | 259     |  
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|Net income (loss)                                    |  | $                                    | (3,694  | )    |                | $ | 8,695  |                  |  | $ | (1,292 | )   |  | $ | 3,709   |  
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to other venture partners(1) |  | $                                    | (1,143  | )    |                | $ | 1,234  |                  |  | $ | (1,166 | )   |  | $ | (1,075  | )
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|Income (loss) allocable to the Company(1)            |  | $                                    | (2,551  | )    |                | $ | 7,461  |                  |  | $ | (126   | )   |  | $ | 4,784   |  
|Amortization of capitalized costs                    |  |                                      | (169    | )    |                |   | (372   | )                |  |   | (175   | )   |  |   | (716    | )
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|Equity in earnings (loss) of unconsolidated entities |  | $                                    | (2,720  | )    |                | $ | 7,089  |                  |  | $ | (301   | )   |  | $ | 4,068   |  
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions declared to the Company                |  | $                                    |        |      |                | $ | 7,904  |                  |  | $ | 2,589  | (2) |  | $ | 10,493  |  
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  
|Distributions received (refunded) by the Company     |  | $                                    | (1,226  | )(3) |                | $ | 7,349  |                  |  | $ | 2,417  | (2) |  | $ | 8,540   |  
|                                                     |  |                                      |         |      |                |   |        |                  |  |   |        |     |  |   |         |  



FOOTNOTES:



|(1) | Income is allocated between the Company and its partnership using the hypothetical liquidation at book value (HLBV) method of accounting.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company receives interest payments from a mezzanine loan made to certain entities within the Intrawest Venture related to two Canadian properties in the amount of $8.8 million.
The loan requires payments of interest only until its maturity in 2029. These payments are reflected as distributions from unconsolidated entities in the Companys unaudited condensed consolidated financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | During the nine months ended September 30, 2007, the Company refunded an over-distribution from the Wolf Partnership that was received in the fourth quarter of 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

[Intentionally left blank]



11



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|5. | Investments in Unconsolidated Entities (Continued):
|-- | ---------------------------------------------------



Summarized Balance Sheet Data



|                                                                                              |  |                          |         |   |                |   |         |                  |  |   |         |     |  |   |        
|--------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | -------------- | - | ------- | ---------------- |  | - | ------- | --- |  | - | -------
|                                                                                              |  | As of September 30, 2008
|                                                                                              |  | WolfPartnership          |         |   | DMCPartnership |   |         | IntrawestVenture |  |   | Total  
|Real estate assets, net                                                                       |  | $                        | 100,279 |   |                | $ | 244,301 |                  |  | $ | 101,026 |     |  | $ | 445,606
|Intangible assets, net                                                                        |  |                          | 252     |   |                |   | 10,397  |                  |  |   | 2,055   |     |  |   | 12,704 
|Other assets                                                                                  |  |                          | 5,437   |   |                |   | 6,621   |                  |  |   | 10,343  |     |  |   | 22,401 
|Mortgages and other notes payable                                                             |  |                          | 63,000  |   |                |   | 149,130 |                  |  |   | 79,171  | (1) |  |   | 291,301
|Other liabilities                                                                             |  |                          | 7,398   |   |                |   | 6,230   |                  |  |   | 10,685  |     |  |   | 24,313 
|Partners capital                                                                             |  |                          | 35,570  |   |                |   | 105,959 |                  |  |   | 23,568  |     |  |   | 165,097
|Difference between carrying amount of investment and the Companys share of partners capital |  |                          | 2,225   |   |                |   | 7,808   |                  |  |   | 3,447   |     |  |   | 13,480 
|Carrying amount of investment(1) (2)                                                          |  |                          | 27,010  |   |                |   | 96,956  |                  |  |   | 37,646  |     |  |   | 161,612
|Percentage of ownership at end of reporting period                                            |  |                          | 69.7    | % |                |   | 80.0    | %                |  |   | 80.0    | %   |  |   |        

Summarized Balance Sheet Data



|                                                                                              |  |                         |         |   |                |   |         |                  |  |   |         |     |  |   |        
|--------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | -------------- | - | ------- | ---------------- |  | - | ------- | --- |  | - | -------
|                                                                                              |  | As of December 31, 2007
|                                                                                              |  | WolfPartnership         |         |   | DMCPartnership |   |         | IntrawestVenture |  |   | Total  
|Real estate assets, net                                                                       |  | $                       | 104,921 |   |                | $ | 248,103 |                  |  | $ | 106,159 |     |  | $ | 459,183
|Intangible assets, net                                                                        |  |                         | 368     |   |                |   | 10,639  |                  |  |   | 2,517   |     |  |   | 13,524 
|Other assets                                                                                  |  |                         | 6,730   |   |                |   | 6,322   |                  |  |   | 10,502  |     |  |   | 23,554 
|Mortgages and other notes payable                                                             |  |                         | 63,000  |   |                |   | 151,263 |                  |  |   | 81,621  | (1) |  |   | 295,884
|Other liabilities                                                                             |  |                         | 7,959   |   |                |   | 6,546   |                  |  |   | 10,614  |     |  |   | 25,119 
|Partners capital                                                                             |  |                         | 41,060  |   |                |   | 107,255 |                  |  |   | 26,943  |     |  |   | 175,258
|Difference between carrying amount of investment and the Companys share of partners capital |  |                         | 2,395   |   |                |   | 7,703   |                  |  |   | 5,096   |     |  |   | 15,194 
|Carrying amount of investment(1) (2)                                                          |  |                         | 31,006  |   |                |   | 97,390  |                  |  |   | 40,954  |     |  |   | 169,350
|Percentage of ownership at end of reporting period                                            |  |                         | 69.7    | % |                |   | 80.0    | %                |  |   | 80.0    | %   |  |   |        



FOOTNOTES:



|(1) | These amounts include a mezzanine loan made to the Intrawest Venture in connection with two Canadian properties.
|--- | ----------------------------------------------------------------------------------------------------------------

|(2) | These amounts include distributions receivable of approximately $3.5 million and $3.2 million as of September 30, 2008 and December 31, 2007, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|6. | Mortgages and Other Notes Receivable:
|-- | -------------------------------------



As of September 30, 2008, the Company had the following notes outstanding (in thousands):



|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|--------------------------------------------------------------------------- |  | -------------------- |  | ------------ |  | ------------ | - |  | ------------------- | ------- | - | --------------- | - | -----
|Borrower and Description of Property                                        |  | Date ofLoanAgreement |  | MaturityDate |  | InterestRate |   |  | LoanPrincipalAmount |         |   | AccruedInterest
|Boyne USA, Inc. (one ski resort)(1)                                         |  | 9/23/2008            |  | 9/22/2010    |  | 12.00        | % |  | $                   | 68,000  |   |                 | $ |     
|Shorefox Development, LLC (lifestyle community development)(2)              |  | 3/13/2006            |  | 3/10/2009    |  | 13.50        | % |  |                     | 40,000  |   |                 |   | 2,384
|Marinas International, Inc. (four marinas)                                  |  | 12/22/2006           |  | 12/22/2021   |  | 10.25        | % |  |                     | 39,151  |   |                 |   | 1,164
|Booth Creek Resort Properties LLC (two ski properties & one parcel of land) |  | 1/18/2007            |  | 1/19/2010    |  | 15.00        | % |  |                     | 12,000  |   |                 |   | 1,316
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|Total                                                                       |  |                      |  |              |  |              |   |  |                     | 159,151 |   |                 | $ | 4,864
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|Accrued interest                                                            |  |                      |  |              |  |              |   |  |                     | 4,864   |   |                 |   |      
|Acquisition fees, net                                                       |  |                      |  |              |  |              |   |  |                     | 4,249   |   |                 |   |      
|Loan origination fees, net                                                  |  |                      |  |              |  |              |   |  |                     | (388    | ) |                 |   |      
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|Total carrying amount                                                       |  |                      |  |              |  |              |   |  | $                   | 167,876 |   |                 |   |      
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      



FOOTNOTES:



|(1) | The Company made a loan to Boyne USA, Inc. and certain of its subsidiaries (Boyne) and is collateralized by a first priority lien on certain of the real and personal
property assets related to the operation of The Big Sky Resort. The Big Sky Resort is a ski resort located in Big Sky, Montana. The loan is further collateralized by an unconditional payment and performance guaranty from Boyne. The
loan requires monthly interest payments only and may be prepaid at any time, with sufficient prior notice, and may be accelerated upon customary events of default. As a condition to the loan, Boyne agreed to make improvements to The Big Sky
Resort, including the completion of a new maintenance facility and completion of certain environmental remediation. Boyne has deposited $5.0 million in escrow as security for and for payment of Boynes obligations to complete such
improvements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Concurrently with the loan transaction, the Company entered into an asset purchase agreement with Boyne to
acquire The Big Sky Resort for a purchase price of $74.0 million. The closing of such acquisition must occur on a date which is the earlier of (i) September 17, 2010 or (ii) the date designated in a written notice from Boyne to
the Company; provided that if the loan is repaid or if the maturity date of the loan is accelerated prior to the closing of the acquisition of The Big Sky Resort, the Company has the right to accelerate the closing to the date of repayment of the
loan or to any date following the accelerated maturity date of the loan. At the closing of the purchase of The Big Sky Resort, the Company will enter into a long-term lease with Boyne to operate the property. The acquisition of the
property is subject to the completion of satisfactory due diligence and other requirements. There is no assurance that those conditions will be met or that the Company will ultimately acquire this property.



|(2) | The loan is collateralized by a first mortgage on a portion of the land underlying a to-be-built Orvis®-branded lifestyle community in Granby, Colorado. In January 2008, the borrower advised the Company that it was having financial difficulties and would no longer be able to fund debt service on
the loan. The loan was deemed impaired and the Company ceased recording interest on the loan. On April 2, 2008, the Company filed a complaint to foreclose on the collateral of the loan. The Company believes, based on market valuation studies,
that the value of the underlying collateral exceeds the balance of principal as well as accrued and deferred interest and, therefore, has not established an allowance for loan losses for this loan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)



|6. | Mortgages and Other Notes Receivable (Continued):
|-- | -------------------------------------------------



On February 28, 2006, the Company made a $16.8 million loan to Plaza Partners, LLC, which was used to purchase the Orlando Grand for conversion to a
condominium hotel. On February 28, 2007, the loan matured and the borrower was unable to repay the loan. On June 15, 2007, the Company filed a complaint to foreclose on the collateral of the loan and on May 28, 2008, the
Company settled with the borrower and took possession of the property. In connection with the settlement, the Company paid $756,000 in settlement and transaction costs and released the borrower of its obligations of $18.5 million, including accrued
interest of $1.7 million, in exchange for ownership of the property. The property is currently closed and is in the initial stages of a significant redevelopment.



|7. | Prepaid Expenses and Other Assets:
|-- | ----------------------------------

As of
September 30, 2008, prepaid expenses and other assets primarily consisted of accrued and deferred rental income under operating leases totaling approximately $28.8 million. In addition, the balance includes approximately $7.3 million in
acquisition fees and miscellaneous acquisition costs that have been incurred and capitalized and will be allocated to future property acquisitions. In the event a particular property is not acquired or no longer expected to be acquired, costs
directly related to that property are charged to expense. Beginning January 1, 2009, all such acquisition costs and fees will be expensed in accordance with FAS 141R.



|8. | Fair Value Measurements:
|-- | ------------------------

The Company has financial
instruments, including two derivative instruments in the form of interest rate swaps and one impaired loan that must be measured and disclosed under the new fair value standard FAS 157. The Company currently does not have any non-financial assets
and non-financial liabilities that are required to be measured at fair value on a recurring basis. Financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:



| |  |  | Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or
other means (market corroborated inputs).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

The Companys derivative instruments are valued based on inputs other than quoted prices that are observable for the
asset or liability (such as interest rates, volatilities, and credit risks), and are classified as Level 2 in the fair value hierarchy described above. The fair value of such instruments was approximately $951,000 at September 30, 2008 and is
included in Other liabilities in the accompanying condensed consolidated balance sheets.

Impaired loans are valued at the lower
of cost or fair value at the time the loan is identified as impaired. Fair value is measured based on the value of the collateral under these loans and is classified as Level 3 in the fair value hierarchy. Collateral is generally real estate
and/or business assets and its fair value is generally determined based on managements internal evaluations and market studies and may be discounted or adjusted based on historical knowledge, trends, or changes in market conditions from the
time of initial valuation. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. As of September 30, 2008, the Company had one outstanding note receivable that had been
deemed impaired. However, based on the value of the underlying collateral, no valuation allowance has been established. See Note 6 for additional information.



14



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

|8. | Fair Value Measurements (Continued):
|-- | ------------------------------------



In accordance with FAS 157, the following table shows the fair value of the Companys financial assets and liabilities (in thousands):



|                         |  |                                                  |        |         |  |         |   |         |  |   |       
|------------------------ |  | ------------------------------------------------ | ------ | ------- |  | ------- | - | ------- |  | - | ------
|                         |  | Fair Value Measurements as of September 30, 2008
|                         |  | Balance atSeptember 30,2008                      |        | Level 1 |  | Level 2 |   | Level 3
|Assets:                  |  |                                                  |        |         |  |         |   |         |  |   |       
|Impaired note receivable |  | $                                                | 42,384 |         |  |         |   |         |  | $ | 42,384
|Liabilities:             |  |                                                  |        |         |  |         |   |         |  |   |       
|Derivative instruments   |  | $                                                | 951    |         |  |         | $ | 951     |  |   |       

The following table summarizes the changes in fair value of the Companys Level 3 asset (in
thousands):



|                                              |  |   |       
|--------------------------------------------- |  | - | ------
|Beginning balance at December 31, 2007        |  | $ | 42,384
|Total gains (losses) - realized or unrealized |  |   |      
|                                              |  |   |       
|Ending balance at September 30, 2008          |  | $ | 42,384
|                                              |  |   |       



|9. | Public Offerings, Stockholders Equity:
|-- | ---------------------------------------

On April 4, 2006, the Company commenced its second offering for the sale of up to $2.0 billion
in common stock (200 million shares of common stock at $10.00 per share) (the 2ndOffering), pursuant to a registration statement on
Form S-11 under the Securities Act of 1933. The 2ndOffering continued until April 4, 2008 and on April 9, 2008, the Company commenced its
third common stock offering for the sale of up to $2.0 billion in common stock (200 million shares of common stock at $10.00 per share) (the 3rdOffering) including up to $47.5 million in shares of common stock (five million shares of common stock at $9.50 per share) available for sale under the terms of the Companys distribution reinvestment plan. In connection with
the 3rdOffering, CNL Securities Corp., the Managing Dealer of the Companys public offerings, will receive selling commissions of up to 7.0%
of gross offering proceeds on all shares sold, a marketing support fee of 3.0% of gross proceeds, and reimbursement of actual expenses incurred up to 0.10% of gross offering proceeds in connection with due diligence of the offerings. A substantial
portion of the selling commissions and marketing support fees are reallocated to third-party participating broker dealers. In addition, the Advisor will receive acquisition fees of 3.0% of gross offering proceeds of the offering for services in the
selection, purchase, development or construction of real property or equity investments and 3.0% of loan proceeds for services in connection with the incurrence of debt. As of September 30, 2008, the Company had cumulatively raised
approximately $2.2 billion (223.7 million shares) in subscription proceeds including approximately $110.1 million (11.6 million shares) received through the reinvestment plan and incurred stock issuance costs of approximately $240.6 million in
connection with the offerings.

Shares owned by CNL Lifestyle Company, LLC (the Advisor), formerly known as CNL Income Company,
LLC, the directors, or any of their affiliates are subject to certain voting restrictions. Neither the Advisor, nor the directors, nor any of their affiliates may vote or consent on matters submitted to the stockholders regarding the removal of the
Advisor, directors, or any of their affiliates or any transactions between the Company and any of them.



|10. | Indebtedness:
|--- | -------------

On January 25, 2008, the
Company entered into a $140.0 million loan collateralized by mortgages on 22 golf properties. The loan bears interest annually at a fixed rate of 6.09%, for a term of five years with monthly payments of principal and interest based on a 25-year
amortization period. A balloon payment for the remaining principal and interest is due upon the loans maturity at the end of five years.



15



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

|10. | Indebtedness (Continued):
|--- | -------------------------



On March 26, 2008, the Company acquired three golf properties located in Virginia. In connection with the acquisition, the Company assumed a loan
with an outstanding balance of approximately $5.9 million. The loan is collateralized by one golf property, bears interest annually at a fixed rate of 7.28% and has monthly payments of principal and interest based on a 25-year amortization period. A
balloon payment for the remaining principal and interest is due upon the loans maturity at the end of eight years.

Total indebtedness
of the Company consisted of the following (in thousands):



|                  |  |                   |         |                  |   |        
|----------------- |  | ----------------- | ------- | ---------------- | - | -------
|                  |  | September 30,2008 |         | December 31,2007
|Mortgages payable |  | $                 | 479,098 |                  | $ | 326,782
|Sellers financing |  |                   | 27,138  |                  |   | 28,838 
|                  |  |                   |         |                  |   |        
|Total             |  | $                 | 506,236 |                  | $ | 355,620
|                  |  |                   |         |                  |   |        



|11. | Related Party Arrangements:
|--- | ---------------------------

Certain directors and
officers of the Company hold similar positions with the Advisor, which is both a stockholder of the Company and its Advisor, and CNL Securities Corp. (the Managing Dealer), which is the managing dealer for the Companys public
offerings. The Companys chairman of the board indirectly owns a controlling interest in CNL Financial Group, the parent company of the Advisor. The Advisor and Managing Dealer receive fees and compensation in connection with the Companys
stock offerings and the acquisition, management and sale of the Companys assets.

For the quarter and nine months ended
September 30, 2008 and 2007, the Company incurred the following fees (in thousands):



|                                                             |  |                            |       |                                |   |        |  |      |        |  |   |       
|------------------------------------------------------------ |  | -------------------------- | ----- | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                             |  | Quarter EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                                             |  | 2008                       |       | 2007                           |   | 2008   |  | 2007
|Selling commissions                                          |  | $                          | 6,920 |                                | $ | 7,736  |  | $    | 18,458 |  | $ | 44,180
|Marketing support fee & due diligence expense reimbursements |  |                            | 2,966 |                                |   | 3,320  |  |      | 7,913  |  |   | 18,956
|                                                             |  |                            |       |                                |   |        |  |      |        |  |   |       
|Total                                                        |  | $                          | 9,886 |                                | $ | 11,056 |  | $    | 26,371 |  | $ | 63,136
|                                                             |  |                            |       |                                |   |        |  |      |        |  |   |       

The Managing Dealer is entitled to selling commissions of up to 7.0% of gross offering proceeds
and marketing support fees of 3.0% of gross offering proceeds, in connection with the Companys offerings as well as actual expenses incurred up to 0.10% of proceeds in connection with due diligence. A substantial portion of the selling
commissions and marketing support fees and all of the due diligence expenses are reallowed to third-party participating broker dealers.

[Intentionally left blank]



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

|11. | Related Party Arrangements (Continued):
|--- | ---------------------------------------



For the quarter and nine months ended September 30, 2008 and 2007, the Advisor earned fees and incurred reimbursable expenses as follows (in
thousands):



|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       
|------------------------------------------- |  | -------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                            |  | Quarter EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                            |  | 2008                       |        | 2007                           |   | 2008   |  | 2007
|Acquisition fees:(1)                        |  |                            |        |                                |   |        |  |      |        |  |   |       
|Acquisition fees from offering proceeds     |  | $                          | 3,241  |                                | $ | 3,971  |  | $    | 8,763  |  | $ | 19,870
|Acquisition fees from debt proceeds         |  |                            |       |                                |   |       |  |      | 4,378  |  |   | 6,004 
|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       
|Total                                       |  |                            | 3,241  |                                |   | 3,971  |  |      | 13,141 |  |   | 25,874
|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       
|Asset management fees:(2)                   |  |                            | 5,526  |                                |   | 3,980  |  |      | 16,161 |  |   | 10,277
|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       
|Reimbursable expenses:(3)                   |  |                            |        |                                |   |        |  |      |        |  |   |       
|Offering costs                              |  |                            | 3,997  |                                |   | 2,120  |  |      | 6,988  |  |   | 4,660 
|Acquisition costs                           |  |                            | 263    |                                |   | 241    |  |      | 741    |  |   | 1,100 
|Operating expenses                          |  |                            | 897    |                                |   | 696    |  |      | 3,140  |  |   | 1,384 
|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       
|Total                                       |  |                            | 5,157  |                                |   | 3,057  |  |      | 10,869 |  |   | 7,144 
|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       
|Total fees earned and reimbursable expenses |  | $                          | 13,924 |                                | $ | 11,008 |  | $    | 40,171 |  | $ | 43,295
|                                            |  |                            |        |                                |   |        |  |      |        |  |   |       



FOOTNOTES:



|(1) | Acquisition fees are paid for services in connection with the selection, purchase, development or construction of real property, generally equal to 3.0% of gross offering proceeds,
and 3.0% of loan proceeds for services in connection with the incurrence of debt.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Asset management fees are equal to 0.08334% per month of the Companys real estate asset value, as defined in the Companys prospectus, and the
outstanding principal amount of any mortgage loan as of the end of the preceding month.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The Advisor and its affiliates are entitled to reimbursement of certain expenses incurred on behalf of the Company in connection with the Companys organization, offering,
acquisitions, and operating activities. Pursuant to the advisory agreement, the Company will not reimburse the Advisor any amount by which total operating expenses paid or incurred by the Company exceed the greater of 2.0% of average invested assets
or 25.0% of net income (the Expense Cap) in any expense year, as defined in the advisory agreement. For the expense year ended September 30, 2008, operating expenses did not exceed the Expense Cap.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

|11. | Related Party Arrangements (Continued):
|--- | ---------------------------------------



Amounts due to affiliates for fees and expenses described above are as follows (in thousands):



|                                                                |  |                   |       |                  |   |      
|--------------------------------------------------------------- |  | ----------------- | ----- | ---------------- | - | -----
|                                                                |  | September 30,2008 |       | December 31,2007
|Due to the Advisor and its affiliates:                          |  |                   |       |                  |   |      
|Offering expenses                                               |  | $                 | 1,544 |                  | $ | 767  
|Asset management fees                                           |  |                   | 1,850 |                  |   | 1,588
|Operating expenses                                              |  |                   | 1,452 |                  |   | 352  
|Acquisition fees and expenses                                   |  |                   | 774   |                  |   | 544  
|                                                                |  |                   |       |                  |   |      
|Total                                                           |  | $                 | 5,620 |                  | $ | 3,251
|                                                                |  |                   |       |                  |   |      
|Due to Managing Dealer:                                         |  |                   |       |                  |   |      
|Selling commissions                                             |  | $                 | 662   |                  | $ | 277  
|Marketing support fees and due diligence expense reimbursements |  |                   | 284   |                  |   | 119  
|                                                                |  |                   |       |                  |   |      
|Total                                                           |  | $                 | 946   |                  | $ | 396  
|                                                                |  |                   |       |                  |   |      
|Total due to affiliates                                         |  | $                 | 6,566 |                  | $ | 3,647
|                                                                |  |                   |       |                  |   |      

The Company also maintains accounts at a bank in which the Companys chairman and
vice-chairman serve as directors. The Company had deposits of approximately $29.4 million and $1.9 million as of September 30, 2008 and December 31, 2007, respectively.



|12. | Redemption of Shares:
|--- | ---------------------

During the quarter and nine
months ended September 30, 2008, the Company redeemed approximately 718,000 and 1,831,000 shares of common stock at an average price of approximately $9.49 and $9.48 per share for a total of approximately $6.8 million and $17.4 million,
respectively. The redemption price per share is based on the amount of time that the redeeming stockholder has held the applicable shares, but in no event will the redemption price be greater than the price of shares sold to the public in any
offering. These shares are considered retired and will not be reissued.



|13. | Distributions:
|--- | --------------

In order to qualify as a REIT for
federal income tax purposes, the Company must, among other things, make distributions each taxable year equal to at least 90% of its REIT taxable income. The Company intends to make regular distributions, and the board of directors currently intends
to declare distributions on a monthly basis using the first day of the month as the record date. For the nine months ended September 30, 2008, the Company declared and paid distributions of approximately $94.0 million ($0.4613 per share).

For the nine months ended September 30, 2008 and 2007, approximately 45.24% and 68.75% of the distributions paid to the stockholders
were considered ordinary income and approximately 54.76% and 31.25% were considered a return of capital for federal income tax purposes, respectively. No amounts distributed to stockholders are required to be or have been treated as a return of
capital for purposes of calculating the stockholders return on their invested capital as described in the advisory agreement.



|14. | Commitments & Contingencies:
|--- | ----------------------------

The Company
has commitments under ground leases, concession holds and land permits. Ground lease payments, concession holds and land permit fees are generally based on a percentage of gross revenue of the underlying property over certain thresholds, and are
paid by the third-party tenants in accordance with the terms of the triple-net leases with those tenants. These fees and expenses were approximately $6.8 million and $3.9 million for the nine months ended September 30, 2008 and 2007,
respectively, and have been reflected as ground lease, concession holds and permit fees with a corresponding increase in rental income from operating leases in the accompanying unaudited condensed consolidated statements of operations.



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##### Table of Contents

CNL LIFESTYLE PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2008

(UNAUDITED)

|14. | Commitments & Contingencies (Continued):
|--- | ----------------------------------------



The Company has commitments to fund equipment replacements and other capital improvement projects for its properties. The Company expects
to make approximately $18.0 million of such capital expenditures during the remainder of the year ending December 31, 2008.

From
time to time the Company may be exposed to litigation arising in the ordinary course of business. Management is not aware of any litigation that it believes will have a material adverse impact on the Companys financial condition or results of
operations.



|15. | Subsequent Events:
|--- | ------------------

The Companys board of
directors declared distributions of $0.05125 per share to stockholders of record at the close of business on October 1, 2008 and November 1, 2008. These distributions are to be paid by December 31, 2008.

In June 2008, EAGLE Golf, one of the Companys tenants, notified the Company that it was having working capital shortages and would be unable to pay
the full amount of June 2008 rent. At that time, the Company evaluated the situation and agreed to allow this tenant to defer $2.2 million in June 2008 and in September 2008 agreed to defer additional rent payments of $1.6 million until
December 31, 2008.

On October 30, 2008, the Company entered into an Omnibus Lease Resolution Agreement (the
Agreement) with EAGLE Golf, its parent, Premier Golf Management, Inc. (PGMI) and certain other parties to resolve its issues, including the restructuring of PGMI and EAGLE Golf under existing management. Under the terms of
the Agreement, the Company deferred approximately $9.3 million (including the $2.2 million previously deferred in June and the $1.6 million previously deferred in September) of the rent owed by EAGLE Golf through December 31, 2008 in order to
provide it with working capital in the short-term. This deferral equates to less than 25 percent of the annual rent owed by this tenant. In exchange, EAGLE Golf released to the Company $11.8 million in cash security deposits held pursuant to the
Companys leases and the Company released EAGLE Golf from its obligations under the leases to provide the Company with certain letters of credit as additional security deposits. As part of the transactions subject to the Agreement, PGMI
guaranteed EAGLE Golfs lease obligations and the sole shareholder of PGMI pledged 100 percent of his stock in PGMI to the Company. The $11.8 million in cash security deposits will be used to offset the $9.3 million in deferred rent and,
accordingly, the Company anticipates recognizing the full amount of rental income from the existing leases during the remainder of 2008.

Pursuant to the Agreement, EAGLE Golf has until November 29, 2008 to procure an established golf operator or third-party investor willing to acquire, invest in or merge with, EAGLE Golf subject to negotiation with the Company regarding
an acceptable cash security deposit to be delivered in connection with the leases, the establishment by EAGLE Golf of a working capital line of credit to be available to support lease payments to the Company and other operating expenses, and $25.0
million in minimum net worth. The Company has begun discussions with potential operators in the event that EAGLE Golf is unable to procure a new investor by November 29, 2008. In the event that the Company is unable to enter into leases with
new tenants, it may choose to engage third-party golf management companies to operate the courses on its behalf until the Company comes to terms for leases with new tenants. Leases for certain other courses may be amended and remain with EAGLE Golf.

In October 2008, the Wolf Partnership, one of the Companys unconsolidated entities, made capital calls totaling $1.0 million to cover
working capital shortfalls. The Companys share of the capital calls was $697,000.

On October 15, 2007, the Company obtained a
$100.0 million syndicated revolving line of credit which replaced its $20.0 million revolving line of credit. In October 2008, the Company drew $100.0 million to ensure that it has sufficient cash available for future acquisitions and working
capital needs. As of the date of this filing, the Company had approximately $300 million in cash and cash equivalents. The line of credit bears interest at either the lower of: Prime or, 30-day, 60-day or 90-day LIBOR plus 2.0%, matures on
October 15, 2010, and is collateralized by a ski property and certain of the Companys attractions and marina properties.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

INTRODUCTION

The following discussion is based on the condensed consolidated financial
statements as of September 30, 2008 and December 31, 2007 and for the quarter and nine months ended September 30, 2008 and 2007. Amounts as of December 31, 2007 included in the unaudited condensed consolidated financial
statements have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as
well as the audited consolidated financial statements, notes and managements discussion and analysis included in our annual report on Form 10-K for the year ended December 31, 2007.

All capitalized terms used herein but not defined shall have the meanings described to them in the Definitions section of our Prospectus.

STATEMENT REGARDING FORWARD LOOKING INFORMATION

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 may, will, should, plan, anticipate, estimate, intend, predict, believe and
expect or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ
materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the current global economic downturn, conditions affecting the CNL brand name, increased direct competition,
changes in government regulations or accounting rules, changes in local and national real estate conditions, our ability to obtain additional lines of credit or permanent financing on satisfactory terms, changes in interest rates, availability of
proceeds from our offering of shares, our tenants inability to manage rising costs, our ability to identify suitable investments, our ability to close on identified investments, inaccuracies of our accounting estimates, our ability to locate
suitable tenants and operators for our properties and borrowers for our loans and the ability of such tenants and borrowers to make payments under their respective leases or loans. Given these uncertainties, we caution you not to place undue
reliance on such statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated
events.

GENERAL

CNL Lifestyle
Properties, Inc., formerly known as CNL Income Properties, Inc., was organized pursuant to the laws of the State of Maryland on August 11, 2003. We were formed primarily to acquire lifestyle properties in the United States and Canada that we
generally lease on a long-term basis (generally between five to 20 years, plus multiple renewal options) to tenants or operators that we consider to be significant industry leaders. We define lifestyle properties as those properties that reflect or
are impacted by the social, consumption and entertainment values and choices of our society. To a lesser extent, we also make and acquire loans (including mortgage, mezzanine and other loans) or other Permitted Investments related to interests in
real estate. We have retained CNL Lifestyle Company, LLC (our Advisor), formerly known as CNL Income Company, LLC, as our Advisor to provide management, acquisition, advisory and administrative services.

As of September 30, 2008, we owned 112 lifestyle properties, directly and indirectly, within the following asset classes: Ski and Mountain
Lifestyle, Golf, Attractions and Additional Lifestyle Properties. Ten of these 112 properties are owned through unconsolidated ventures and three are located in Canada. Also, as of September 30, 2008, we had nine loans outstanding.

We currently operate and have elected to be taxed as a REIT for federal income tax purposes beginning with the taxable year ended December 31,
2004. As a REIT we generally will not be subject to federal income tax at the corporate level to the extent that we distribute at least 90% of our taxable income to our stockholders and meet other compliance requirements. If we fail to qualify as a
REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in
which our qualification is lost. Such an event could materially and adversely affect our net income and cash flows. However, we believe that we are organized and have operated in a manner to qualify for treatment as a REIT and we intend to continue
to be organized and to operate so as to remain qualified as a REIT for federal income tax purposes.



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Recent Market Conditions

In recent months the global
economy has deteriorated significantly, which has negatively impacted foreign and domestic stock markets and banking systems as well as many companies across most industry segments. As of the date of this report, there is a great deal of
uncertainty regarding whether conditions will continue to worsen and what the short and long-term impact of these events will be on the global economy and individual businesses. Additionally, there is no ability to project when conditions will
begin to improve. We will continue to monitor economic events, capital markets and the financial stability of our tenants to minimize the impact on our business. While we remain cautious about the impact of these events on us, we are also
optimistic that these events may provide us with acquisition opportunities over the next year or two as property owners need to refinance or recapitalize their businesses. As of the date of this report, we have approximately $300 million in
cash and cash equivalents available to support our business and to acquire new properties. The following is a summary of how the current economic crisis has impacted us to date and how we believe it will impact us going forward with respect to
capital markets and our existing operations.

Impact on Capital Markets  To date, we have seen a significant decrease in the availability of
debt capital. When and where capital is available, we anticipate that our cost of borrowing will likely increase over historical rates. We continue to maintain a low leverage ratio with a long-term target of 50 percent debt to total
assets. We have no near-term debt maturities, with the first significant maturity occurring in the middle of 2010, however, this loan has a two-year extension available subject to approval by the syndicate of lenders. Sales of our common
stock are lower in 2008 than in 2007 because of higher than normal sales in 2007 which resulted from the recycling of capital from the sale of other unlisted REITs in early 2007, however, we have also recently experienced a decrease in the average
daily sales of our common stock as a result of the current economic environment. Reduced sales of our stock and inability to access debt markets may limit the amount of capital that we have available to take advantage of future acquisition
opportunities.

Impact on Tenants Property Operations  Although the majority of our tenants have continued to perform under their leases
with us, the economic downturn has adversely affected certain of them. Most notably, EAGLE Golf has been adversely affected, in part, by lower than expected revenues and earnings and an inability to access capital markets for working capital
needs (see Events Occurring Subsequent to September 30, 2008 for additional details regarding this tenant). If economic conditions continue to worsen or continue for an extended period of time, it could result in other tenants
having financial difficulties and put pressure on their ability to pay the full amount of rent due under their leases. We obtain security deposits from all tenants and often cross-default leases for tenants that operate multiple properties
which helps discourage them from defaulting, however, we will continue to monitor all of our tenants and work with them to minimize the effect that such conditions could have on our ability to collect rent. In the event that a tenant defaults
and vacates our property, we have the ability to engage a third-party manager to operate the property on our behalf for a period of up to three years until we can re-lease it. During this period, we would receive operating income from the property,
which may be less than the rents that were contractually due under the prior leases. As noted above, we believe we have sufficient cash on hand to offset any adverse effect on our operations that could result from a downturn in our tenants
businesses.

General

Our principal
demand for funds during the short and long-term will be for property acquisitions, loans and other Permitted Investments and for the payment of operating expenses, debt service and distributions to stockholders. Generally, our cash needs for items
other than property acquisitions and making loans will be generated from operations and our existing investments. The sources of our operating cash flows are primarily driven by the rental income and net security deposits received from leased
properties, from interest payments on the loans we make, interest earned on our cash balances and by distributions from our unconsolidated entities. A reduction in cash flows from any of these sources could significantly decrease our ability to pay
distributions to our stockholders. We have also entered into a revolving line of credit on which we have drawn $100.0 million to ensure we have sufficient cash available for future acquisitions and working capital needs.

We intend to continue to acquire properties and make loans and other Permitted Investments with proceeds from our public offerings, our working line of
credit and long-term debt financing. If sufficient capital is not raised, it would limit our ability to acquire additional properties or make loans and Permitted Investments.

We intend to continue to pay distributions to our stockholders on a quarterly basis. Operating cash flows are expected to continue to be generated from
properties, loans and other Permitted Investments to cover such distributions. In the event that our properties do not perform as expected or that we are unable to acquire properties at the pace expected, we may not be able to continue to pay
distributions to stockholders or may need to reduce the distribution rate or borrow to continue paying distributions, all of which may negatively impact a stockholders investment in the long term. Our ability to acquire properties



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##### Table of Contents

is in part dependent upon our ability to locate and contract with suitable third-party tenants. The inability to locate suitable tenants may delay our
ability to acquire certain properties. Not only are we experiencing increased competition in our targeted asset classes, we are also challenged due to the complex and expensive structures we must use to acquire properties due to the tax, accounting
and legal requirements of being a REIT. Delays in acquiring properties or making loans with the capital raised from our common stock offerings adversely affect our ability to pay distributions to our existing stockholders.

We believe that our current and anticipated capital resources, including cash on hand and the availability of funds from our line of credit and from
other potential borrowings are sufficient to meet our liquidity needs for the coming year.

Sources of Liquidity and Capital Resources

Common Stock Offering

Our main source of capital
is from our common stock offerings. As of September 30, 2008, we had received approximately $2.2 billion (223.7 million shares) in total offering proceeds. The following table summarizes our public offerings as of September 30, 2008 (in
thousands):



|                                                     |  |              |   |  |              |         |   |              |         |        |          |   |           |        |  |          |  |        |         |  |          |   |  |   |           |  
|---------------------------------------------------- |  | ------------ | - |  | ------------ | ------- | - | ------------ | ------- | ------ | -------- | - | --------- | ------ |  | -------- |  | ------ | ------- |  | -------- | - |  | - | --------- | -
|                                                     |  | 1st Offering |   |  | 2nd Offering |         |   | 3rd Offering |         | Total  |         
|                                                     |  | Shares       |   |  | Proceeds     |         |   | Shares       |         |        | Proceeds |   |           | Shares |  | Proceeds |  | Shares |         |  | Proceeds |  
|Subscriptions received                               |  | 51,247       |   |  | $            | 512,540 |   |              | 145,242 |        |          | $ | 1,448,595 |        |  | 15,656   |  | $      | 158,928 |  | 212,145  |   |  | $ | 2,120,063 |  
|Subscriptions received pursuant to reinvestment plan |  | 862          |   |  |              | 8,188   |   |              | 7,520   |        |          |   | 71,440    |        |  | 3,208    |  |        | 30,480  |  | 11,590   |   |  |   | 110,108   |  
|Redemptions                                          |  | (1,803       | ) |  |              | (17,169 | ) |              | (995    | )      |          |   | (9,317    | )      |  |         |  |        |        |  | (2,798   | ) |  |   | (26,486   | )
|                                                     |  |              |   |  |              |         |   |              |         |        |          |   |           |        |  |          |  |        |         |  |          |   |  |   |           |  
|Total                                                |  | 50,306       |   |  | $            | 503,559 |   |              | 151,767 |        |          | $ | 1,510,718 |        |  | 18,864   |  | $      | 189,408 |  | 220,937  |   |  | $ | 2,203,685 |  
|                                                     |  |              |   |  |              |         |   |              |         |        |          |   |           |        |  |          |  |        |         |  |          |   |  |   |           |  
|Number of investors                                  |  | 16,204       |   |  | 48,229       |         |   | 5,841        |         | 70,274 |         

In addition to the shares sold through our public offerings, our Advisor purchased 20,000 shares
for $200,000 preceding the commencement of our 1st Offering. In December 2004, 117,706 restricted common shares for $1.2 million were issued to CNL Financial Group, Inc., a company affiliated with our Advisor and wholly owned indirectly by our
chairman of the board and his wife.

During the period October 1, 2008 through November 10, 2008, we received additional
subscription proceeds of approximately $27.9 million (2.7 million shares).

Borrowings

We have borrowed and intend to continue to borrow money to acquire properties and to pay certain related fees. We have also borrowed, and may continue to
borrow, money to pay distributions to stockholders. In general, we pledge our assets in connection with such borrowings. As discussed above, the availability of debt capital has been significantly restricted in recent months due to the current
global economic downturn. The aggregate amount of permanent financing is not expected to exceed 50% of our total assets on an annual basis. Under our articles of incorporation, the maximum amount we may borrow is 300% of our net assets in the
absence of a satisfactory showing that a higher level of borrowing is appropriate. In order to borrow an amount in excess of 300% of our net assets, a majority of the independent members of our board of directors must approve the borrowing and the
borrowing must be disclosed and explained to stockholders in our first quarterly report after such approval occurs.

As of
September 30, 2008 our indebtedness consisted of the following (in thousands):



|                  |  |                   |         |                  |   |        
|----------------- |  | ----------------- | ------- | ---------------- | - | -------
|                  |  | September 30,2008 |         | December 31,2007
|Mortgages payable |  | $                 | 479,098 |                  | $ | 326,782
|Seller financing  |  |                   | 27,138  |                  |   | 28,838 
|                  |  |                   |         |                  |   |        
|Total             |  | $                 | 506,236 |                  | $ | 355,620
|                  |  |                   |         |                  |   |        



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Operating Cash Flows

Our net cash flow provided by operating activities was approximately $102.3 million for the nine months ended September 30, 2008 and consisted primarily of rental revenues, interest income on mortgages and other
notes receivable, distributions from our unconsolidated entities and interest earned on cash balances, offset by payments made for operating expenses (including asset management fees to our Advisor and interest expense), as compared to the net cash
flow from operating activities of approximately $73.1 million for the nine months ended September 30, 2007. The fluctuation in operating cash flow is principally due to the increase of our total assets under management and the related revenues
and cash flows generated from these investments.

Several of the asset classes in which we have invested are seasonal in nature.
Additionally, for some tenants, lower than expected revenues and unanticipated increases in costs have occurred as a result of the global economic downturn. Seasonality, as well as these current economic conditions, have affected operations of
certain tenants within certain of our asset classes especially those affected by increases in fuel, fertilizer and water costs. If economic conditions worsen or continue for a long period of time it could impact more of our tenants abilities
to pay rent and, therefore, reduce our cash flows from operations.

The following table summarizes the distributions declared to us from
our unconsolidated entities (in thousands):



|                                     |  |                     |   |                |   |                  |  |   |       |   |  |   |        |  
|------------------------------------ |  | ------------------- | - | -------------- | - | ---------------- |  | - | ----- | - |  | - | ------ | -
|Period                               |  | WolfPartnership (1) |   | DMCPartnership |   | IntrawestVenture |  |   | Total |  
|Nine months ended September 30, 2008 |  | $                   |  |                | $ | 8,006            |  | $ | 2,237 |   |  | $ | 10,243 |  
|Nine months ended September 30, 2007 |  |                     |  |                |   | 7,904            |  |   | 2,589 |   |  |   | 10,493 |  
|                                     |  |                     |   |                |   |                  |  |   |       |   |  |   |        |  
|Increase (decrease)                  |  | $                   |  |                | $ | 102              |  | $ | (352  | ) |  | $ | (250   | )
|                                     |  |                     |   |                |   |                  |  |   |       |   |  |   |        |  



FOOTNOTE:



|(1) | The Wolf Partnership has been adversely affected by a regional economic downturn and by greater than expected competitive pressures, including competitor rate cuts and expansion. We
expect that cash flows will continue to be affected by these economic and competitive pressures and do not expect to receive any distributions in the near term. We continue to work with our partner and operator to develop strategies that seek to
improve the performance of the properties and our returns over the long-term.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Uses of Liquidity and Capital Resources

Property Acquisitions

During the nine months ended
September 30, 2008, we acquired nine golf properties, one attraction and one marina for an aggregate purchase price of approximately $108.6 million including transaction costs. In addition, we paid $756,000 in settlement and transaction costs
and acquired ownership of the Orlando Grand Plaza Hotel & Suites through a settlement agreement. See Mortgages and Other Notes Receivable below for additional information regarding this settlement. The property is currently
closed and is in the initial stage of a significant redevelopment.

We have committed to fund equipment replacements and other capital
improvements for certain existing properties. We also have potential obligations to pay additional contingent purchase consideration related to some of the properties we acquired if those properties achieve certain performance thresholds. See
Commitments, Contingencies and Contractual Obligations for additional information.

[Intentionally left blank]



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Mortgages and Other Notes Receivable

As of September 30, 2008, we had the following loans outstanding (in thousands):



|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|--------------------------------------------------------------------------- |  | -------------------- |  | ------------ |  | ------------ | - |  | ------------------- | ------- | - | --------------- | - | -----
|Borrower and Description of Property                                        |  | Date ofLoanAgreement |  | MaturityDate |  | InterestRate |   |  | LoanPrincipalAmount |         |   | AccruedInterest
|Boyne USA, Inc. (one ski resort)(1)                                         |  | 9/23/2008            |  | 9/22/2010    |  | 12.00        | % |  | $                   | 68,000  |   |                 | $ |     
|Shorefox Development, LLC (lifestyle community development)(2)              |  | 3/13/2006            |  | 3/10/2009    |  | 13.50        | % |  |                     | 40,000  |   |                 |   | 2,384
|Marinas International, Inc. (four marinas)                                  |  | 12/22/2006           |  | 12/22/2021   |  | 10.25        | % |  |                     | 39,151  |   |                 |   | 1,164
|Booth Creek Resort Properties LLC (two ski properties & one parcel of land) |  | 1/18/2007            |  | 1/19/2010    |  | 15.00        | % |  |                     | 12,000  |   |                 |   | 1,316
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|Total                                                                       |  |                      |  |              |  |              |   |  |                     | 159,151 |   |                 | $ | 4,864
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|Accrued interest                                                            |  |                      |  |              |  |              |   |  |                     | 4,864   |   |                 |   |      
|Acquisition fees, net                                                       |  |                      |  |              |  |              |   |  |                     | 4,249   |   |                 |   |      
|Loan origination fees, net                                                  |  |                      |  |              |  |              |   |  |                     | (388    | ) |                 |   |      
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      
|Total carrying amount                                                       |  |                      |  |              |  |              |   |  | $                   | 167,876 |   |                 |   |      
|                                                                            |  |                      |  |              |  |              |   |  |                     |         |   |                 |   |      



FOOTNOTES:



|(1) | We made a loan to Boyne USA, Inc. and certain of its subsidiaries (Boyne) and is collateralized by a first priority lien on certain of the real and personal property
assets related to the operation of The Big Sky Resort. The Big Sky Resort is a ski resort located in Big Sky, Montana. The loan is further collateralized by an unconditional payment and performance guaranty from Boyne. The loan
requires monthly interest payments and may be prepaid at any time, with sufficient prior notice, and may be accelerated upon customary events of default. As a condition to the loan, Boyne agreed to make improvements to The Big Sky Resort,
including the completion of a new maintenance facility and completion of certain environmental remediation. Boyne has deposited $5.0 million in escrow as security for and for payment of Boynes obligations to complete such improvements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Concurrently with the loan transaction, we entered into an asset purchase agreement with Boyne to acquire The Big Sky Resort
for a purchase price of $74.0 million. The closing of such acquisition must occur on a date which is the earlier of (i) September 17, 2010 or (ii) the date designated in a written notice from Boyne to us; provided that if the
loan is repaid or if the maturity date of the loan is accelerated prior to the closing of the acquisition of The Big Sky Resort, we have the right to accelerate the closing to the date of repayment of the loan or to any date following the
accelerated maturity date of the loan. At the closing of the purchase of The Big Sky Resort, we will enter into a long-term lease with Boyne to operate the property. The acquisition of the property is subject to the completion of
satisfactory due diligence and other requirements. There is no assurance that those conditions will be met or that we will ultimately acquire this property.



|(2) | The loan is collateralized by a first mortgage on a portion of the land underlying a to-be-built Orvis®-branded lifestyle community in Granby, Colorado. In January 2008, the borrower advised us that they were having financial difficulties and would no longer be able to fund debt service on the
loan. The loan was deemed impaired and we ceased recording interest on the loan. On April 2, 2008, we filed a complaint to foreclose on the collateral of the loan. Management believes, based on market valuation studies, that the value of the
underlying collateral exceeds the balance of principal as well as accrued and deferred interest and, therefore, has not established an allowance for loan losses for this loan. We will continue to monitor the value of the collateral for the loan and
evaluate our alternatives during the remainder of 2008. In the event additional information indicates changes in the underlying value of the collateral, we may record an allowance for loan losses.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On February 28, 2006, we made a $16.8 million loan to Plaza Partners, LLC, which was used to purchase the Orlando Grand Plaza Hotel &
Suites for conversion to a condominium hotel. On February 28, 2007, the loan matured and the borrower was unable to repay the loan. On June 15, 2007, we filed a complaint to foreclose on the collateral of the loan and on
May 28, 2008, we settled with the borrower and took possession of the property. In connection with the settlement, we paid $756,000 in settlement and transaction costs and released the borrower of its obligations of $18.5 million, including
accrued interest of approximately $1.7 million, in exchange for ownership of the property. The property is currently closed and is in the initial stages of a significant redevelopment.



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Distributions

We intend to pay distributions to our stockholders on a quarterly basis. The amount of distributions declared to our stockholders will be determined by our board of directors and is dependent upon a number of factors, including expected and
actual net cash from operations for the year, our financial condition, a balanced analysis of both current and expected long-term stabilized cash flows from our properties, our objective of continuing to qualify as a REIT for federal income tax
purposes, economic conditions, other operating trends, capital requirements and avoidance of volatility of distributions. Operating cash flows are expected to be generated from properties, loans and other Permitted Investments acquired or made by
us.

We do not pay distributions from proceeds from our common stock offerings. We have historically made, and may continue to make,
advances under our revolving line of credit to temporarily fund the payment of distributions at the end of each fiscal quarter.

Distributions declared and paid during the nine months ended September 30, 2008 and 2007 were $94.0 million and $66.3 million, respectively, and exceeded net income for the nine months ended September 30, 2008 and 2007 by
approximately $66.2 million and $42.0 million, respectively. Distributions to stockholders may be considered a return of capital to the extent the amount of such distributions exceeds net income calculated in accordance with generally accepted
accounting principles (GAAP). Accordingly, for the nine months ended September 30, 2008 and 2007, approximately 70.4% and 63.3%, of the distributions represented a return of capital, if calculated using GAAP net income as the basis.
Approximately 54.8% and 31.3% of the distributions for the nine months ended September 30, 2008 and 2007, respectively, constitute a return of capital for federal income tax purposes. No amounts distributed to stockholders are required to be or
have been treated as a return of capital for purposes of calculating the stockholders return on their invested capital as described in our advisory agreement.

The following table compares cash flows provided by operations to cash distributions declared (in thousands):



|                                  |  |                                 |         |      |   |       
|--------------------------------- |  | ------------------------------- | ------- | ---- | - | ------
|                                  |  | Nine Months Ended September 30,
|                                  |  | 2008                            |         | 2007
|Cash flows provided by operations |  | $                               | 102,342 |      | $ | 73,088
|Distributions declared            |  |                                 | 94,043  |      |   | 66,292
|                                  |  |                                 |         |      |   |       
|Excess                            |  | $                               | 8,299   |      | $ | 6,796 
|                                  |  |                                 |         |      |   |       

Common Stock Redemptions

For the quarter and nine months ended September 30, 2008 approximately 718,000 and 1,831,000 shares were redeemed at an average price per share of approximately $9.49 and $9.48, respectively, for a total of $6.8
million and $17.4 million, respectively. These shares are considered retired and will not be reissued.

Stock Issuance Costs and Other Related Party
Arrangements

Certain of our directors and officers hold similar positions with CNL Lifestyle Company, LLC, which is both a stockholder
and our Advisor, and CNL Securities Corp. (our Managing Dealer) which is the managing dealer for our public offerings. Our chairman of the board indirectly owns a controlling interest in CNL Financial Group, the parent company of our
Advisor. These entities receive fees and expense reimbursements in connection with our stock offerings and the acquisition, management and sale of our assets. Amounts incurred relating to these services were approximately $66.5 million and $106.4
million, for the nine months ended September 30, 2008 and 2007, respectively. Of these amounts, approximately $6.6 million and $3.6 million are included in the due to related parties in the accompanying condensed consolidated balance sheets as
of September 30, 2008 and December 31, 2007, respectively.

Pursuant to the advisory agreement, we will not reimburse our Advisor
any amount by which total operating expenses paid or incurred by us exceed the greater of 2.0% of average invested assets or 25.0% of net income (the Expense Cap) in any expense year. For the expense year ended September 30, 2008,
operating expenses did not exceed the Expense Cap.

We maintain accounts at a bank in which our chairman and vice-chairman serve as
directors. We had deposits of approximately $29.4 million and $1.9 million as of September 30, 2008 and December 31, 2007, respectively.



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Derivative Instruments and Hedging Activities  We utilize derivative instruments to partially offset the effect of fluctuating
interest rates on the cash flows associated with our variable-rate debt. We follow established risk management policies and procedures in our use of derivatives and do not enter into or hold derivatives for trading or speculative purposes. We record
all derivative instruments on the balance sheet at fair value. On the date we enter into a derivative contract, the derivative is designated as a hedge of the exposure to variable cash flows of a forecasted transaction. The effective portion of the
derivatives gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently recognized in the statement of operations in the periods in which earnings are impacted by the variability of the cash flows of
the hedged item. Any ineffective portion of the gain or loss is reflected in interest expense in the statement of operations. As of September 30, 2008, the fair value of the hedge liabilities totaled approximately $951,000. During the nine
months ended September 30, 2008, our hedges qualified as highly effective and, accordingly, all of the change in value is reflected in other comprehensive income (loss). Determining fair value and testing effectiveness of these financial
instruments requires management to make certain estimates and judgments. Changes in assumptions could have a positive or negative impact on the estimated fair values and measured effectiveness of such instruments could in turn
impact our results of operations.

See our annual report on Form 10-K for the year ended December 31, 2007 for a summary of our other
Critical Accounting Policies and Estimates.

IMPACT OF RECENT ACCOUNTING
PRONOUNCEMENTS

In September 2008, the Financial Accounting Standards Board (the FASB) issued FASB Staff Position
(FSP) Statement of Financial Accounting Standards No. 133-1 and FASB Interpretation No. 45-4 Disclosures about Credit Derivatives and Certain Guarantees: An Amendment to Statement of Financial Accounting Standards No. 133,
Disclosures about Derivative and Hedging Activities (FAS 133) and FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45); and Clarification of the Effective Date of Statement of Financial Accounting Standard No. 161 (FAS 161)(FSP FAS 133-1 and FIN 45-4). This FSP amends FAS 133 to require disclosures by sellers
of credit derivatives (includes credit derivatives embedded in a hybrid instrument) and also amends FIN 45 to require an additional disclosure about the current status of the payment/performance risk of guarantees. In addition, this FSP clarifies
the FASBs intent about the effective date of FAS 161. The new disclosures are effective for fiscal years and interim periods beginning after November 15, 2008. The implementation of FSP FAS 133-1 and FIN 45-4 is not expected to have a
significant impact on the disclosures regarding our derivative instruments.

In April 2008, the FASB issued FSP No. 142-3,
Determining the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life
of an intangible asset and the period of expected cash flows used to measure such assets fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The implementation of FSP 142-3 is not expected to have a
significant impact on our financial position or results of operations.

In March 2008, the FASB issued FAS 161 (an amendment to
FAS 133). This statement calls for all entities to enhance the disclosure requirements for derivative instruments and hedging activities to include (i) how and why an entity uses derivative instruments, (ii) how derivative instruments
and related hedged items are accounted for under FAS 133, where it requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value, and
(iii) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flow. The application of this pronouncement is effective for fiscal years and interim periods beginning after
November 15, 2008. We currently record our hedging instruments on our balance sheet at fair value with changes in fair value recorded in other comprehensive income (loss). As such, the adoption of FAS 161 is not expected to have a significant
impact on the disclosures regarding our derivative instruments.

Effective January 1, 2008, we adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. In February 2008, the FASB issued Staff Position
No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least annually. Accordingly, we partially adopted the provisions of FAS 157 with respect to our financial assets and liabilities only. The implementation of FAS 157 did not result in
material changes to the methods or processes we use to value these assets and liabilities.



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In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Non-Controlling Interests in Consolidated Financial Statements (FAS 160). This statement calls for (i) all non-controlling interests to be recognized in the equity section of the consolidated balance sheets apart
from the parents equity, (ii) requires the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income and
(iii) requires that changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. The application of this pronouncement is effective for annual
periods beginning after December 15, 2008 and is not expected to have a significant impact on our financial position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised), Business Combinations (FAS 141R). FAS 141R (i) requires the acquiring entity in a business combination to
recognize assets acquired and liabilities assumed, (ii) establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed and (iii) requires entities to disclose to investors and other
users additional information they need to evaluate and understand the nature and financial effect of the business combination. Additionally, FAS 141R requires an acquiring entity to immediately expense all acquisition costs and fees associated
with an acquisition. The application of this pronouncement is effective in fiscal years beginning on or after December 15, 2008. The adoption of FAS 141R will have a significant impact on our operating results because of the highly
acquisitive nature of our business. Effective January 1, 2009, we will begin expensing immediately, acquisition costs and fees as they are incurred for acquisitions. Additionally, on January 1, 2009, we will expense all acquisition costs
for acquisitions that were being pursued in 2008 but which did not close as of December 31, 2008. Historically, acquisition costs and fees have been capitalized and allocated to the cost basis of the assets. As a result, we expect to have an
immediate reduction in our net income and funds from operations (FFO) from recording higher acquisition related costs for acquired properties. Post acquisition, we expect there to be a subsequent positive impact on operating and net
income for each property acquired through a reduction in depreciation expense over the estimated life of the properties as a result of acquisition costs and fees no longer being capitalized and depreciated.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, Fair Value Option for Financial Assets and Financial
Liabilities (FAS 159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement expands the use of FAS 157 and is effective for fiscal years
beginning after November 15, 2007. The adoption of this pronouncement did not have a significant impact on our current practice or on our financial position or results of operations as we did not elect the fair value measurement option.

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RESULTS OF OPERATIONS

The following is an analysis and discussion of our operations for the quarter and nine months ended September 30, 2008 as compared to
September 30, 2007 (in thousands except per share data):



|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|--------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ------- | -
|                                                                                  |  | Quarter Ended |        
|                                                                                  |  | September 30, |         |   |      |   |         |          | 
|                                                                                  |  | 2008          |         |   | 2007 |   |         | $ Change |  |   | % Change |  
|Revenues:                                                                         |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Rental income from operating leases                                               |  | $             | 51,141  |   |      | $ | 34,116  |          |  | $ | 17,025   |   |  | 49.9    | %
|Interest income on mortgages and other notes receivable                           |  |               | 1,524   |   |      |   | 2,566   |          |  |   | (1,042   | ) |  | -40.6   | %
|Other operating income                                                            |  |               |        |   |      |   | 1,884   |          |  |   | (1,884   | ) |  | -100.0  | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Total revenues                                                                    |  |               | 52,665  |   |      |   | 38,566  |          |  |   | 14,099   |   |  | 36.6    | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Expenses:                                                                         |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Asset management fees to advisor                                                  |  |               | 5,526   |   |      |   | 3,980   |          |  |   | 1,546    |   |  | 38.8    | %
|General and administrative                                                        |  |               | 4,014   |   |      |   | 4,088   |          |  |   | (74      | ) |  | -1.8    | %
|Ground lease and permit fees                                                      |  |               | 2,235   |   |      |   | 1,343   |          |  |   | 892      |   |  | 66.4    | %
|Repairs and maintenance                                                           |  |               | 736     |   |      |   | 1,125   |          |  |   | (389     | ) |  | -34.6   | %
|Other operating expenses                                                          |  |               | 1,073   |   |      |   | 2,718   |          |  |   | (1,645   | ) |  | -60.5   | %
|Depreciation and amortization                                                     |  |               | 25,384  |   |      |   | 20,267  |          |  |   | 5,117    |   |  | 25.2    | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Total expenses                                                                    |  |               | 38,968  |   |      |   | 33,521  |          |  |   | 5,447    |   |  | 16.2    | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Operating income                                                                  |  |               | 13,697  |   |      |   | 5,045   |          |  |   | 8,652    |   |  | 171.5   | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Other income (expense):                                                           |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Interest and other income                                                         |  |               | 1,352   |   |      |   | 2,945   |          |  |   | (1,593   | ) |  | -54.1   | %
|Interest expense and loan cost amortization                                       |  |               | (7,836  | ) |      |   | (4,588  | )        |  |   | (3,248   | ) |  | -70.8   | %
|Equity in earnings of unconsolidated entities                                     |  |               | 1,598   |   |      |   | 2,084   |          |  |   | (486     | ) |  | -23.3   | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Total other income (expense)                                                      |  |               | (4,886  | ) |      |   | 441     |          |  |   | (5,327   | ) |  | -1207.9 | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Net income                                                                        |  | $             | 8,811   |   |      | $ | 5,486   |          |  | $ | 3,325    |   |  | 60.6    | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Earnings per share of common stock (basic and diluted)                            |  | $             | 0.04    |   |      | $ | 0.03    |          |  | $ | 0.01     |   |  | 33.3    | %
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |               | 215,101 |   |      |   | 176,183 |          |  |   |          |   |  |         |  
|                                                                                  |  |               |         |   |      |   |         |          |  |   |          |   |  |         |  



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|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|--------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ------- | -
|                                                                                  |  | Nine Months Ended |        
|                                                                                  |  | September 30,     |         |   |      |   |         |          | 
|                                                                                  |  | 2008              |         |   | 2007 |   |         | $ Change |  |   | % Change |  
|Revenues:                                                                         |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Rental income from operating leases                                               |  | $                 | 150,688 |   |      | $ | 82,825  |          |  | $ | 67,863   |   |  | 81.9    | %
|Interest income on mortgages and other notes receivable                           |  |                   | 4,236   |   |      |   | 8,400   |          |  |   | (4,164   | ) |  | -49.6   | %
|Other operating income                                                            |  |                   |        |   |      |   | 5,323   |          |  |   | (5,323   | ) |  | -100.0  | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Total revenues                                                                    |  |                   | 154,924 |   |      |   | 96,548  |          |  |   | 58,376   |   |  | 60.5    | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Expenses:                                                                         |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Asset management fees to advisor                                                  |  |                   | 16,161  |   |      |   | 10,277  |          |  |   | 5,884    |   |  | 57.3    | %
|General and administrative                                                        |  |                   | 10,083  |   |      |   | 7,902   |          |  |   | 2,181    |   |  | 27.6    | %
|Ground lease and permit fees                                                      |  |                   | 6,759   |   |      |   | 3,909   |          |  |   | 2,850    |   |  | 72.9    | %
|Repairs and maintenance                                                           |  |                   | 1,515   |   |      |   | 1,435   |          |  |   | 80       |   |  | 5.6     | %
|Other operating expenses                                                          |  |                   | 3,269   |   |      |   | 5,462   |          |  |   | (2,193   | ) |  | -40.2   | %
|Depreciation and amortization                                                     |  |                   | 73,387  |   |      |   | 44,893  |          |  |   | 28,494   |   |  | 63.5    | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Total expenses                                                                    |  |                   | 111,174 |   |      |   | 73,878  |          |  |   | 37,296   |   |  | 50.5    | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Operating income                                                                  |  |                   | 43,750  |   |      |   | 22,670  |          |  |   | 21,080   |   |  | 93.0    | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Other income (expense):                                                           |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Interest and other income                                                         |  |                   | 4,496   |   |      |   | 7,748   |          |  |   | (3,252   | ) |  | -42.0   | %
|Interest expense and loan cost amortization                                       |  |                   | (23,497 | ) |      |   | (10,171 | )        |  |   | (13,326  | ) |  | -131.0  | %
|Equity in earnings of unconsolidated entities                                     |  |                   | 3,089   |   |      |   | 4,068   |          |  |   | (979     | ) |  | -24.1   | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Total other income (expense)                                                      |  |                   | (15,912 | ) |      |   | 1,645   |          |  |   | (17,557  | ) |  | -1067.3 | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Net income                                                                        |  | $                 | 27,838  |   |      | $ | 24,315  |          |  | $ | 3,523    |   |  | 14.5    | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Earnings per share of common stock (basic and diluted)                            |  | $                 | 0.14    |   |      | $ | 0.16    |          |  | $ | (0.02    | ) |  | -12.5   | %
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                   | 205,586 |   |      |   | 150,741 |          |  |   |          |   |  |         |  
|                                                                                  |  |                   |         |   |      |   |         |          |  |   |          |   |  |         |  



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Rental income from operating leases. The significant increase in rental income for the quarter
and nine months ended September 30, 2008 as compared to the same periods in 2007 was principally due to the acquisition of 37 properties between October 1, 2007 and September 30, 2008. As of September 30,
2008 and 2007, the weighted-average base rent rate for our portfolio of leased properties was 9.4% and 9.8%, respectively. These rates are based on annualized straight-lined base rent due under our leases and the weighted average value of our real
estate investment properties subject to operating leases. The weighted-average lease rate of our portfolio will fluctuate based on our asset mix and timing of property acquisitions. The following analysis quantifies the total rental
income generated from our properties based on the period in which the properties were acquired and leased, and the increases in rental income attributable to those properties on a comparative basis, period to period:



|                                                     |  |                     |     |      |                                                                     |        |                                     |   |        |                                     |       |   |                                           |       |   |  |       |  
|---------------------------------------------------- |  | ------------------- | --- | ---- | ------------------------------------------------------------------- | ------ | ----------------------------------- | - | ------ | ----------------------------------- | ----- | - | ----------------------------------------- | ----- | - |  | ----- | -
|Properties Subject to Operating Leases               |  | Number ofProperties |     |      | Total Rental Income (inthousands) for theQuarter EndedSeptember 30, |        | Percentageof Total2008 RentalIncome |   |        | Percentageof Total2007 RentalIncome |       |   | Percentageof TotalIncrease inRentalIncome |      
|                                                     |  |                     |     | 2008 |                                                                     | 2007   |                                     |   |        |                                     |       |   |                                           |       |  
|Acquired prior to July 1, 2007                       |  | 59                  |     |      | $                                                                   | 37,334 |                                     | $ | 32,486 |                                     | 73.0  | % |                                           | 95.2  | % |  | 28.5  | %
|Acquired between July 1, 2007 and September 30, 2007 |  | 5                   |     |      |                                                                     | 3,313  |                                     |   | 1,630  |                                     | 6.5   | % |                                           | 4.8   | % |  | 9.9   | %
|Acquired after September 30, 2007                    |  | 37                  |     |      |                                                                     | 10,494 |                                     |   |       |                                     | 20.5  | % |                                           | 0.0   | % |  | 61.6  | %
|                                                     |  |                     |     |      |                                                                     |        |                                     |   |        |                                     |       |   |                                           |       |   |  |       |  
|Total                                                |  | 101                 | (1) |      | $                                                                   | 51,141 |                                     | $ | 34,116 |                                     | 100.0 | % |                                           | 100.0 | % |  | 100.0 | %
|                                                     |  |                     |     |      |                                                                     |        |                                     |   |        |                                     |       |   |                                           |       |   |  |       |  



FOOTNOTE:



|(1) | This number does not include the Orlando Grand Plaza Hotel & Suites, which is currently closed for
redevelopment.
|--- | -----------------------------------------------------------------------------------------------------------------

Approximately 73.0% of total rental income for the quarter ended September 30, 2008, or 28.5% of the
increase in rental income was generated from properties that were acquired prior to July 1, 2007 as a result of greater contingent rent being earned and rent increases from capital expansion projects during 2008 than for the same period in
2007. We acquired five additional properties between July 1, 2007 and September 30, 2007 which generated approximately $3.3 million and $1.6 million or 6.5% and 4.8% of total rental income for the quarters ended September 30,
2008 and 2007, respectively. These five properties accounted for 9.9% of the total increase in rental income period over period. Approximately $10.5 million or 20.5% of total rental income for the quarter ended September 30, 2008 was
derived from properties that were newly acquired between October 1, 2007 and September 30, 2008. In addition, on January 1, 2008, Cowboys Golf Club, which was operated through a TRS management agreement, was terminated and
we simultaneously entered into a long-term triple-net lease agreement on the property. This accounted for approximately 61.6% of the total increase in rental income for the quarter ended September 30, 2008 as compared to the same period in
2007.



|                                                        |  |                     |     |      |                                                                         |         |                                     |   |        |                                     |       |   |                                           |       |   |  |       |  
|------------------------------------------------------- |  | ------------------- | --- | ---- | ----------------------------------------------------------------------- | ------- | ----------------------------------- | - | ------ | ----------------------------------- | ----- | - | ----------------------------------------- | ----- | - |  | ----- | -
|Properties Subject to Operating Leases                  |  | Number ofProperties |     |      | Total Rental Income (inthousands) for the NineMonths
EndedSeptember 30, |         | Percentageof Total2008 RentalIncome |   |        | Percentageof Total2007 RentalIncome |       |   | Percentageof TotalIncrease inRentalIncome |      
|                                                        |  |                     |     | 2008 |                                                                         | 2007    |                                     |   |        |                                     |       |   |                                           |       |  
|Acquired prior to January 1, 2007                       |  | 42                  |     |      | $                                                                       | 40,677  |                                     | $ | 38,559 |                                     | 27.0  | % |                                           | 46.6  | % |  | 3.1   | %
|Acquired between January 1, 2007 and September 30, 2007 |  | 22                  |     |      |                                                                         | 76,574  |                                     |   | 44,266 |                                     | 50.8  | % |                                           | 53.4  | % |  | 47.6  | %
|Acquired after September 30, 2007                       |  | 37                  |     |      |                                                                         | 33,437  |                                     |   |       |                                     | 22.2  | % |                                           | 0.0   | % |  | 49.3  | %
|                                                        |  |                     |     |      |                                                                         |         |                                     |   |        |                                     |       |   |                                           |       |   |  |       |  
|Total                                                   |  | 101                 | (1) |      | $                                                                       | 150,688 |                                     | $ | 82,825 |                                     | 100.0 | % |                                           | 100.0 | % |  | 100.0 | %
|                                                        |  |                     |     |      |                                                                         |         |                                     |   |        |                                     |       |   |                                           |       |   |  |       |  



FOOTNOTE:



|(1) | This number does not include the Orlando Grand Plaza Hotel & Suites, which is currently closed for redevelopment.
|--- | -----------------------------------------------------------------------------------------------------------------

Approximately 27.0% of total rental income for the nine months ended September 30, 2008, or 3.1% of the increase in rental income was generated
from properties that were acquired prior to January 1, 2007. We acquired 22 additional properties during the nine months ended September 30, 2007 which generated approximately $76.6 million or 50.8% of total rental income during the
nine months ended September 30, 2008, as compared to $44.3 million or 53.4% of total rental income for the same period in 2007. This represents 47.6% of the total increase in rental income. Approximately $33.4 million or 22.2% of
total rental income for the nine months ended September 30, 2008 was derived from properties that were newly acquired between October 1, 2007 and September 30, 2008. In addition, on January 1, 2008, Cowboys Golf Club,
which was operated through a TRS management agreement, was terminated and we simultaneously entered into a long-term triple-net lease agreement on the property. This accounted for approximately 49.3% of the total increase in rental income for
the nine months ended September 30, 2008 as compared to the same period in 2007.



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##### Table of Contents

Interest income on mortgages and other notes receivable.For the quarter and nine months ended
September 30, 2008, we recognized interest income totaling approximately $1.5 million and $4.2 million, respectively, on our eight performing loans with an aggregate principal balance of $119.2 million. As of September 30, 2008, we had one
non-performing loan with a principal balance of $40.0 million for which no interest income has been recognized in 2008. Comparatively, for the quarter and nine months ended September 30, 2007, we recognized interest income of $2.6 million and
$8.4 million, respectively, which included interest income of zero and $1.1 million, respectively, relating to the non-performing loans that were subsequently deemed impaired, were foreclosed, or otherwise satisfied.



|                    |  |                  |  |                            |       |        |   |       |                                |   |        |      |  |      |   |   |   |       |   |   |       |  |   |        |   |  |      |  
|------------------- |  | ---------------- |  | -------------------------- | ----- | ------ | - | ----- | ------------------------------ | - | ------ | ---- |  | ---- | - | - | - | ----- | - | - | ----- |  | - | ------ | - |  | ---- | -
|                    |  | NumberofLoans(1) |  | Quarter EndedSeptember 30, |       | Change |   |       | Nine Months EndedSeptember 30, |   | Change |     
|                    |  | 2008             |  | 2007                       |       | $      |   |       | %                              |   |        | 2008 |  | 2007 |   | $ |   |       | % |  
|Performing loans    |  | 8                |  | $                          | 1,524 |        | $ | 2,566 |                                | $ | (1,042 | )    |  | -41  | % |   | $ | 4,236 |   | $ | 7,344 |  | $ | (3,108 | ) |  | -42  | %
|Non-performing loan |  | 1                |  |                            |      |        |   |      |                                |   |       |      |  |     |   |   |   |      |   |   | 1,056 |  |   | (1,056 | ) |  | -100 | %
|                    |  |                  |  |                            |       |        |   |       |                                |   |        |      |  |      |   |   |   |       |   |   |       |  |   |        |   |  |      |  
|Total               |  | 9                |  | $                          | 1,524 |        | $ | 2,566 |                                | $ | (1,042 | )    |  | -41  | % |   | $ | 4,236 |   | $ | 8,400 |  | $ | (4,164 | ) |  | -50  | %
|                    |  |                  |  |                            |       |        |   |       |                                |   |        |      |  |      |   |   |   |       |   |   |       |  |   |        |   |  |      |  



FOOTNOTE:



|(1) | During the quarter and nine months ended September 30, 2007, we had two non-performing loans, one of which, we
foreclosed upon and took ownership of on December 31, 2007 and the other we received title to the collateral property through a settlement agreement on May 28, 2008. In January 2008, one additional borrower ceased making payments on its
$40.0 million loan obligation to us, which is classified as non-performing as of September 30, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other
operating income and expense. During the quarter and nine months ended September 30, 2008, other operating expense primarily related to the operation of our apartment complex in Boca Raton, Florida. During the same period in 2007, other
operating income and expense was principally attributable to the operations of Cowboys Golf Club which was operated through a TRS under a management agreement. On January 1, 2008, the management agreement was terminated and we simultaneously
entered into a long-term, triple-net lease agreement on the property which subsequently eliminated the Cowboys Golf Club expenses.

Asset management fees to advisor.Monthly asset management fees of 0.08334% of invested assets are paid to our Advisor for the acquisition of real estate assets and making loans. Total asset management fees were approximately $5.5
million and $16.2 million for the quarter and nine months ended September 30, 2008, as compared to $4.0 million and $10.3 million for the quarter and nine months ended September 30, 2007, respectively. The increase in such fees is due to
the acquisition of additional real estate properties we acquired and loans we made.

General and administrative.General and
administrative expenses were approximately $4.0 million and $4.1 million for the quarters ended September 30, 2008 and 2007, respectively. The decrease is primarily due to a reduction in write-offs of acquisition costs for acquisitions no
longer being pursued and bad debt expense relating to one of our loans that was subsequently foreclosed upon in the quarter ended September 30, 2007 offset by an increase in legal services during 2008. General and administrative expenses were
approximately $10.1 million and $7.9 million for the nine months ended September 30, 2008 and 2007, respectively. The increase is primarily due to the overall increase in our operating activities as a result of the properties we have
acquired.

Ground leases and permits. Ground lease payments, concession holds and land permit fees are generally based on a
percentage of gross revenue of the underlying property over certain thresholds and are paid by the tenants in accordance with the terms of our triple-net leases with those tenants. These expenses have corresponding revenues included in rental
income above. For the quarter and nine months ended September 30, 2008, ground lease, concession holds and land permit fees were approximately $2.2 million and $6.8 million, respectively, as compared to approximately $1.3 million and $3.9
million for the same periods in 2007. The increase is attributable to the growth of our property portfolio. As of September 30, 2008, we owned 102 consolidated properties of which 35 properties are subject to ground leases, concession holds or
land permit fees.

Repairs and maintenance.Repairs and maintenance expense was approximately $0.7 million and $1.1 million for
the quarters ended September 30, 2008 and 2007, respectively. The decrease is primarily due to timing difference of when the expenditure was incurred during the respective quarters. Repair and maintenance expense was
approximately $1.5 million and $1.4 million for the nine months ended September 30, 2008 and 2007, respectively. The increase is primarily due to repairs and maintenance on existing and new properties acquired. These are expenditures
from capital reserve accounts for replacements, repairs and maintenance at our properties, such as periodic repainting of buildings, which do not substantially enhance the properties or increase the estimated useful lives and therefore cannot be
capitalized.



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##### Table of Contents

Depreciation and amortization.Depreciation and amortization expenses were approximately $25.4
million and $73.4 million for the quarter and nine months ended September 30, 2008, compared to approximately $20.3 million and $44.9 million for the quarter and nine months ended September 30, 2007, respectively. The increase is primarily
due to the acquisition of additional real estate properties during 2007 and 2008.

Operating income.Operating income was
approximately $13.7 million and $43.8 million for the quarter and nine months ended September 30, 2008, compared to approximately $5.0 million and $22.7 million for the quarter and nine months ended September 30, 2007, respectively. The
increase is primarily due to additional real estate properties acquired subsequent to September 30, 2007. See rental income from operating leases above for additional information.

Interest and other income.The decrease in interest income primarily resulted from a general reduction in rates paid by depository institutions on
short-term deposits during 2008 as compared to 2007. We continue to monitor depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds. To that
end, we have diversified our cash and cash equivalents between several depository institutions in an attempt to minimize exposure to any one of these entities.

Interest expense and loan cost amortization.Interest expense for the quarter and nine months ended September 30, 2008 increased as compared to the same periods in 2007 as we obtained additional debt
financing to fund property acquisitions. As of September 30, 2008, we had loan obligations totaling $506.2 million with a weighted average fixed interest rate of 6.34%.

Equity in earnings. The following table summarizes equity in earnings (losses) from our unconsolidated entities (in thousands):



|                  |  |                                 |        |   |      |   |        |          |  |   |          |   |  |        |  
|----------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -------- |  | - | -------- | - |  | ------ | -
|                  |  | Quarter Ended September 30,     |       
|                  |  | 2008                            |        |   | 2007 |   |        | $ Change |  |   | % Change |  
|Wolf Partnership  |  | $                               | (526   | ) |      | $ | (267   | )        |  | $ | (259     | ) |  | -97.0  | %
|DMC Partnership   |  |                                 | 2,383  |   |      |   | 2,390  |          |  |   | (7       | ) |  | -0.3   | %
|Intrawest Venture |  |                                 | (259   | ) |      |   | (39    | )        |  |   | (220     | ) |  | -564.1 | %
|                  |  |                                 |        |   |      |   |        |          |  |   |          |   |  |        |  
|Total             |  | $                               | 1,598  |   |      | $ | 2,084  |          |  | $ | (486     | ) |  | -23.3  | %
|                  |  |                                 |        |   |      |   |        |          |  |   |          |   |  |        |  
|                  | 
|                  |  | Nine Months Ended September 30, |       
|                  |  | 2008                            |        |   | 2007 |   |        | $ Change |  |   | % Change |  
|Wolf Partnership  |  | $                               | (3,996 | ) |      | $ | (2,720 | )        |  | $ | (1,276   | ) |  | -46.9  | %
|DMC Partnership   |  |                                 | 7,096  |   |      |   | 7,089  |          |  |   | 7        |   |  | 0.1    | %
|Intrawest Venture |  |                                 | (11    | ) |      |   | (301   | )        |  |   | 290      |   |  | 96.3   | %
|                  |  |                                 |        |   |      |   |        |          |  |   |          |   |  |        |  
|Total             |  | $                               | 3,089  |   |      | $ | 4,068  |          |  | $ | (979     | ) |  | -24.1  | %
|                  |  |                                 |        |   |      |   |        |          |  |   |          |   |  |        |  

Equity in earnings is recognized using the hypothetical liquidation book value (HLBV)
method of accounting which means we recognize income in each period equal to the change in our share of assumed proceeds from the liquidation of the underlying unconsolidated entities at depreciated book value. Equity in earnings decreased by
approximately $486,000 and $979,000 for the quarter and nine months ended September 30, 2008 as compared to the same periods in 2007, primarily due to an increase in the loss we were allocated by the Wolf Partnership of approximately $0.3
million and $1.3 million during the quarter and nine months ended September 30, 2008. The increase in loss is related to the continued adverse performance experienced by the Wolf Partnership.

The HLBV method of recognizing earnings and losses from the unconsolidated entities is not expected to have an impact on the distributions we receive.
However, it will likely result in reductions or fluctuations in our net income, earnings per share, FFO and FFO per share. We received cash distributions from our unconsolidated entities of approximately $2.5 million and $10.9 million for the
quarter and nine months ended September 30, 2008 compared to approximately $2.5 million and $8.5 million for the quarter and nine months ended September 30, 2007, respectively.

The Wolf Partnership continues to be affected by a regional economic downturn and by greater competitive pressure, including competitor rate cuts and
expansion, at both the Wisconsin Dells and Sandusky, Ohio locations. We continue to work with our partner and operator to develop strategies that seek to improve the performance of the properties and our returns, however, the affects of the economic
downturn and competitive pressure is expected to continue to have an impact on our earnings in 2008 and 2009.



32



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##### Table of Contents

Net income and earnings per share.Our net income and earnings per share are volatile as we are
still in the early stages of operation and are experiencing significant growth. These performance measures are significantly affected by the pace at which we raise offering proceeds and the time it takes to accumulate and invest such proceeds in
real estate acquisitions and other income-producing investments. The accumulation of funds over time in order to make large individually significant acquisitions can be dilutive to the earnings per share ratio. The increase in earnings per share for
the quarter ended September 30, 2008 as compared to the same period in the prior year was primarily due to (i) an increase in total revenues as a result of new properties acquired between October 1, 2007 and September 30, 2008
and (ii) a decrease in bad debt expense relating to one of our loans that was subsequently foreclosed upon, which was recorded in the third quarter of 2007. The decrease in earnings per share for the nine months ended September 30,
2008, as compared to the same periods in the prior year was primarily due to (i) a reduction of interest income from a non-performing loan, (ii) a reduction in equity in earnings from the Wolf Partnership and (iii) a reduction in the
rates paid by depository institutions on short-term deposits.

OTHER

Funds from Operations

We consider FFO to be an indicative measure of operating performance due to
the significant effect of depreciation of real estate assets on net income. FFO, based on the revised definition adopted by the National Association of Real Estate Investment Trusts (NAREIT) and as used herein, means net income
determined in accordance with GAAP, excluding gains or losses from sales of property, plus depreciation and amortization of real estate assets and after adjustments for unconsolidated partnerships and joint ventures. We believe that by excluding the
effect of depreciation and amortization, FFO can facilitate comparisons of operating performance between periods and between other equity REITs. FFO was developed by NAREIT as a relative measure of performance of an equity REIT in order to recognize
that income-producing real estate historically has not depreciated on the basis determined under GAAP. However, FFO (i) does not represent cash generated from operating activities determined in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events that enter into the determination of net income), (ii) is not necessarily indicative of cash flow available to fund cash needs and (iii) should not be considered as an alternative
to net income determined in accordance with GAAP as an indication of our operating performance, or to cash flow from operating activities determined in accordance with GAAP as a measure of either liquidity or our ability to make distributions. FFO
as presented may not be comparable to amounts calculated by other companies.

Accordingly, we believe that in order to facilitate a clear
understanding of the consolidated historical operating results, FFO should be considered in conjunction with our net income and cash flows as reported in the accompanying condensed consolidated financial statements and notes thereto.

Reconciliation of net income to FFO for the quarter and nine months ended September 30, 2008 and 2007 (in thousands):



|                                                                                  |  |                            |         |                                |   |         |  |      |         |  |   |        
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | ------------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                                                                  |  | Quarter EndedSeptember 30, |         | Nine Months EndedSeptember 30,
|                                                                                  |  | 2008                       |         | 2007                           |   | 2008    |  | 2007
|Net income                                                                        |  | $                          | 8,811   |                                | $ | 5,486   |  | $    | 27,838  |  | $ | 24,315 
|                                                                                  |  |                            |         |                               
|Adjustments:                                                                      |  |                            |         |                                |   |         |  |      |         |  |   |        
|Depreciation and amortization                                                     |  |                            | 25,384  |                                |   | 20,267  |  |      | 73,387  |  |   | 44,893 
|Net effect of FFO adjustment from unconsolidated entities(1)                      |  |                            | 4,746   |                                |   | 5,644   |  |      | 12,882  |  |   | 14,574 
|                                                                                  |  |                            |         |                                |   |         |  |      |         |  |   |        
|Total funds from operations                                                       |  | $                          | 38,941  |                                | $ | 31,397  |  | $    | 114,107 |  | $ | 83,782 
|                                                                                  |  |                            |         |                                |   |         |  |      |         |  |   |        
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                            | 215,101 |                                |   | 176,183 |  |      | 205,586 |  |   | 150,741
|                                                                                  |  |                            |         |                                |   |         |  |      |         |  |   |        
|FFO per share (basic and diluted)                                                 |  | $                          | 0.18    |                                | $ | 0.18    |  | $    | 0.56    |  | $ | 0.56   
|                                                                                  |  |                            |         |                                |   |         |  |      |         |  |   |        



FOOTNOTE:



|(1) | This amount represents our share of the FFO adjustments allowable under the NAREIT definition (primarily depreciation) multiplied by the percentage of income or loss recognized
under the HLBV method.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33



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##### Table of Contents

Total FFO increased from approximately $31.4 million to $38.9 million and from $83.8 million to $114.1
million for the quarter and nine months ended September 30, 2008 and 2007, respectively. FFO per share remained constant at $0.18 and $0.56 per share for the quarter and nine months ended September 30, 2008 and 2007, respectively. The
increase in FFO is attributable to the acquisition of additional properties during 2007 and 2008.

OFF BALANCE
SHEET ARRANGEMENTS

See our annual report on Form 10-K for the year ended December 31, 2007 for a summary
of our Off Balance Sheet Arrangements.

EVENTS OCCURRING SUBSEQUENT TO SEPTEMBER
30, 2008

Our board of directors declared distributions of $0.05125 per share to stockholders of record at the close of business on
October 1, 2008 and November 1, 2008. These distributions are to be paid by December 31, 2008.

In June 2008, EAGLE Golf,
one of our tenants, notified us that it was having working capital shortages and would be unable to pay the full amount of June 2008 rent. At that time, we evaluated the situation and agreed to allow this tenant to defer $2.2 million in June 2008
and in September 2008 agreed to defer additional rent payments of $1.6 million until December 31, 2008.

On October 30, 2008, we
entered into an Omnibus Lease Resolution Agreement (the Agreement) with EAGLE Golf, its parent, Premier Golf Management, Inc. (PGMI) and certain other parties to resolve its issues, including the restructuring of PGMI and
EAGLE Golf under existing management. Under the terms of the Agreement, we deferred approximately $9.3 million (including the $2.2 million previously deferred in June and the $1.6 million previously deferred in September) of the rent owed by EAGLE
Golf through December 31, 2008 in order to provide it with working capital in the short-term. This deferral equates to less than 25 percent of the annual rent owed by this tenant. In exchange, EAGLE Golf released to us $11.8 million in cash
security deposits held pursuant to our leases and we released EAGLE Golf from its obligations under the leases to provide us with certain letters of credit as additional security deposits. As part of the transactions subject to the Agreement, PGMI
guaranteed EAGLE Golfs lease obligations and the sole shareholder of PGMI pledged 100 percent of his stock in PGMI to us. The $11.8 million in cash security deposits will be used to offset the $9.3 million in deferred rent and, accordingly, we
anticipate recognizing the full amount of rental income from the existing leases during the remainder of 2008.

Pursuant to the Agreement,
EAGLE Golf has until November 29, 2008 to procure an established golf operator or third-party investor willing to acquire, invest in or merge with, EAGLE Golf subject to negotiation with us regarding an acceptable cash security deposit to be
delivered in connection with the leases, the establishment by EAGLE Golf of a working capital line of credit to be available to support lease payments to us and other operating expenses, and $25.0 million in minimum net worth. We have begun
discussions with potential operators in the event that EAGLE is unable to procure a new investor by November 29, 2008. In the event that we are unable to enter into leases, with new tenants, we may choose to engage third-party golf management
companies to operate the courses on our behalf until we come to terms with new tenants. Leases for certain other courses may be amended and remain with EAGLE Golf.

In October 2008, the Wolf Partnership, one of our unconsolidated entities, made capital calls totaling $1.0 million to cover working capital shortfalls. Our share of the capital calls was $697,000.

On October 15, 2007, we obtained a $100.0 million syndicated revolving line of credit which replaced our $20.0 million revolving line of credit. In
October 2008, we drew $100.0 million to ensure that we have sufficient cash available for future acquisitions and working capital needs. As of the date of this filing, we had approximately $300 million in cash and cash equivalents. The line of
credit bears interest at either the lower of: Prime or, 30-day, 60-day or 90-day LIBOR plus 2.0%, matures on October 15, 2010, and is collateralized by a ski property and certain of our attractions and marina properties.



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##### Table of Contents

COMMITMENTS, CONTINGENCIES AND CONTRACTUAL
OBLIGATIONS

The following tables present our contractual obligations and contingent commitments and the related payment
periods as of September 30, 2008:

Contractual Obligations



|                                                              |  |                                       |        |           |   |           |  |                  |         |       |   |         |  |   |        
|------------------------------------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ---------------- | ------- | ----- | - | ------- |  | - | -------
|                                                              |  | Payments Due by Period (in thousands)
|                                                              |  | Less than 1year                       |        | Years 1-3 |   | Years 3-5 |  | More than5 years |         | Total
|Mortgages and other notes payable (principal and interest)(1) |  | $                                     | 39,530 |           | $ | 101,310   |  | $                | 197,285 |       | $ | 345,435 |  | $ | 683,560
|Obligations under capital leases                              |  |                                       | 1,590  |           |   | 1,935     |  |                  | 20      |       |   |        |  |   | 3,545  
|Obligations under operating leases(2)                         |  |                                       | 9,950  |           |   | 19,605    |  |                  | 19,562  |       |   | 175,577 |  |   | 224,694
|                                                              |  |                                       |        |           |   |           |  |                  |         |       |   |         |  |   |        
|Total                                                         |  | $                                     | 51,070 |           | $ | 122,850   |  | $                | 216,867 |       | $ | 521,012 |  | $ | 911,799
|                                                              |  |                                       |        |           |   |           |  |                  |         |       |   |         |  |   |        



FOOTNOTES:



|(1) | These amounts represent third-party or seller financing obtained in connection with the acquisition of properties.
|--- | ------------------------------------------------------------------------------------------------------------------

|(2) | These amounts represent obligations under ground leases, concession holds and land permits which are paid by our third-party tenants on our behalf. Ground lease payments, concession
holds and land permit fees are generally based on a percentage of gross revenue of the related property exceeding a certain threshold. The future obligations have been estimated based on current revenue levels projected over the term of the leases
or permits.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Contingent Commitments



|                                  |  |                                       |        |           |   |           |  |                  |       |       |   |       |  |   |       
|--------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ---------------- | ----- | ----- | - | ----- |  | - | ------
|                                  |  | Payments Due by Period (in thousands)
|                                  |  | Less than 1year                       |        | Years 1-3 |   | Years 3-5 |  | More than5 years |       | Total
|Contingent purchase consideration |  | $                                     |       |           | $ | 23,650    |  | $                |      |       | $ |      |  | $ | 23,650
|Capital improvements              |  |                                       | 32,452 |           |   | 11,363    |  |                  | 1,750 |       |   | 1,750 |  |   | 47,315
|                                  |  |                                       |        |           |   |           |  |                  |       |       |   |       |  |   |       
|Total                             |  | $                                     | 32,452 |           | $ | 35,013    |  | $                | 1,750 |       | $ | 1,750 |  | $ | 70,965
|                                  |  |                                       |        |           |   |           |  |                  |       |       |   |       |  |   |       

[Intentionally left blank]



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties, make loans and other Permitted Investments. Our interest rate risk management objectives are to limit the
impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we expect to borrow and lend primarily at fixed rates or variable rates with the lowest margins available, and in some
cases, with the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging opportunities.

The following is a schedule of our fixed and variable debt
maturities for each of the next five years, and thereafter (in thousands):



|                                              |  |                     |       |   |       |   |        |            |  |   |              |   |  |      |        |   |            |   |        |   |  |   |                      |     |  |   |         |   |  |   |         |    
|--------------------------------------------- |  | ------------------- | ----- | - | ----- | - | ------ | ---------- |  | - | ------------ | - |  | ---- | ------ | - | ---------- | - | ------ | - |  | - | -------------------- | --- |  | - | ------- | - |  | - | ------- | ---
|                                              |  | Expected Maturities |       |   | Total |   |        | Fair Value | 
|                                              |  | 2008                |       |   | 2009  |   |        | 2010       |  |   | 2011         |   |  | 2012 |        |   | Thereafter |   |        |  
|Fixed rate debt                               |  | $                   | 2,016 |   |       | $ | 10,419 |            |  | $ | 17,116       |   |  | $    | 11,184 |   |            | $ | 11,789 |   |  | $ | 352,896              |     |  | $ | 405,420 |   |  | $ | 371,677 | (1)
|Weighted average interest rates of maturities |  |                     | 6.20  | % |       |   | 6.58   | %          |  |   | 6.32         | % |  |      | 6.59   | % |            |   | 6.57   | % |  |   | 6.32                 | %   |  |   | 6.34    | % |  |   |         |    
|Variable rate debt                            |  |                     |      |   |       |   |       |            |  |   | 15,403       |   |  |      |       |   |            |   |       |   |  |   | 85,413               | (2) |  |   | 100,816 |   |  |   | 94,231  |    
|Average interest rate                         |  |                     |      |   |       |   |       |            |  |   | LIBOR +2%(3) |   |  |      |       |   |            |   |       |   |  |   | LIBOR +Spread(2) (3) |     |  |   |         |   |  |   |         |    
|                                              |  |                     |       |   |       |   |        |            |  |   |              |   |  |      |        |   |            |   |        |   |  |   |                      |     |  |   |         |   |  |   |         |    
|Total debt                                    |  | $                   | 2,016 |   |       | $ | 10,419 |            |  | $ | 32,519       |   |  | $    | 11,184 |   |            | $ | 11,789 |   |  | $ | 438,309              |     |  | $ | 506,236 |   |  | $ | 465,908 |    
|                                              |  |                     |       |   |       |   |        |            |  |   |              |   |  |      |        |   |            |   |        |   |  |   |                      |     |  |   |         |   |  |   |         |    



FOOTNOTES:



|(1) | The fair value of our fixed-rate debt was determined using discounted cash flows based on market interest rates as of September 30, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(2) | On December 31, 2007, we obtained a loan for approximately $85.4 million. The loan bears interest at 30-day LIBOR plus 1.72% on the first $57.3 million, 30-day LIBOR plus 1.5% (of
which 1.25% is deferred until maturity) on the next $16.7 million and 30-day LIBOR plus 1.5% on the remaining $11.4 million (of which approximately all is deferred until maturity). On January 2, 2008, we entered into two interest rate swaps to hedge
the variable interest rate. The instruments, which were designated as cash flow hedges of interest payments from their inception, swap the rate on the first $57.3 million of debt to a blended fixed rate of 6.0% per year and on the next $16.7 million
to a blended fixed rate of 5.8% for the term of the loan (of which 1.25% is deferred until maturity.) The fair value of these instruments has been recorded as a liability of approximately $951,000.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The 30-day LIBOR rate was approximately 3.93% at September 30, 2008.
|--- | --------------------------------------------------------------------

Subsequent to September 30, 2008, we borrowed $100.0 million from our revolving line of credit to ensure we had sufficient capital to close certain acquisitions and to provide working capital during the current
economic downturn. The line of credit matures in October 2010 and has a two-year extension subject to approval by the syndicate of lenders.

Management estimates that a hypothetical one-percentage point increase in LIBOR would have resulted in additional interest costs of approximately $88,000 for the nine months ended September 30, 2008. This sensitivity analysis
contains certain simplifying assumptions, and although it gives an indication of our exposure to changes in interest rates it is not intended to predict future results as our actual results will likely vary.

We are exposed to foreign currency exchange rate fluctuations as a result of our direct ownership of one property in Canada which is leased to a
third-party tenant. The lease payments we receive under the triple-net lease are denominated in Canadian dollars. However, management does not believe this to be a significant risk or that currency fluctuations would result in a significant impact
to our overall results of operations.

We are also indirectly exposed to foreign currency risk related to our investment in unconsolidated
Canadian entities and interest rate risk from debt at our unconsolidated entities. However, we believe our risk of foreign exchange loss and exposure to credit and interest rate risks are mitigated as a result of our right to receive a preferred
return on our investments in our unconsolidated entities. Our preferred returns as stated in the governing venture agreements are denominated in U.S. dollars.



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##### Table of Contents

|Item 4T. | Controls and Procedures
|-------- | -----------------------

Evaluation of Disclosure
Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange
Act), under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as
defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our
disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Controls over Financial
Reporting

In the most recent fiscal quarter, there was no change in our internal controls over financial reporting (as defined under
Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II OTHER INFORMATION



|Item 1. | Legal Proceedings None
|------- | -----------------------



|Item 1A. | Risk Factors
|-------- | ------------

Economic slowdowns
could disproportionately affect the lifestyle properties in which we invest, and the financial difficulties of our tenants and operators could adversely affect us.

Economic slowdowns could disproportionately affect the lifestyle properties in which we invest. Although a downturn in the real estate industry could significantly adversely affect the value of our properties, a
downturn in the ski, golf, attractions and other lifestyle industries in which we invest could compound the adverse affect. Economic weakness combined with higher costs, especially for energy, food and commodities, is putting considerable pressure
on consumer spending. Continued reductions in consumer spending due to weakness in the economy and uncertainties regarding future economic prospects could adversely affect our tenants abilities to pay rent to us and thereby have a negative
impact on our results of operations. In addition, negative events impacting the capital markets may reduce the amount of working capital available to our tenants which may affect their ability to pay rent.

Yields on and safety of deposits may be lower due to the extensive decline in the financial markets.

Until we invest the proceeds of the offering in properties, we generally hold those funds in permitted investments that are consistent with
preservation of liquidity and safety. The investments include money market funds, bank money market accounts and CDs or other accounts at third-party depository institutions. While we believe the funds are protected based on the quality of
the investments and the quality of the institutions that hold our funds, there can be no assurance that continued or unusual declines in the financial markets wont result in a loss of some or all of these funds or reductions in cash flows from
these investments.



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##### Table of Contents

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

Use of Proceeds

As of September 30,
2008, we sold approximately $2.2 billion (223.7 million shares) in connection with our offerings, including approximately $110.1 million (11.6 million shares) purchased through our reinvestment plan. The shares sold and the gross offering proceeds
received from our offerings do not include 20,000 shares purchased by our Advisor for $200,000 preceding the commencement of our 1stOffering or
117,706 restricted common shares issued for $1.2 million in December 2004 to CNL Financial Group, Inc., a parent company of our Advisor and wholly owned indirectly by our chairman of the board and his wife. As of September 30, 2008, we incurred
the following aggregate expenses in connection with the issuance of our registered securities on our offerings (in thousands):



|                                                               |  |   |        
|-------------------------------------------------------------- |  | - | -------
|Selling commissions                                            |  | $ | 144,927
|Marketing support fee and due diligence expense reimbursements |  |   | 60,711 
|Offering costs and expenses                                    |  |   | 34,922 
|                                                               |  |   |        
|Offering and stock issuance costs                              |  | $ | 240,560
|                                                               |  |   |        

Selling commissions, marketing support fee and due diligence expenses are paid to our Managing
Dealer and a substantial portion of the selling commissions, marketing support fees and all of the due diligence expenses are reallowed to third-party participating broker-dealers. Other offering costs and expenses have been incurred by, and are
payable to, an affiliate of our Advisor.

Our net offering proceeds, after deducting the total expenses described above, were approximately
$2.0 billion at September 30, 2008. As of September 30, 2008, we invested approximately $1.7 billion in properties, loans and other Permitted Investments.

Redemption of Shares and Issuer Purchases of Equity Securities

Pursuant to our share redemption
plan, any stockholder who has held shares for not less than one year may present all or any portion equal to at least 25.0% of their shares to us for redemption at prices based on the amount of time that the redeeming stockholder has held the
applicable shares, but in no event greater than the price of shares sold to the public in any offering. We may, at our discretion, redeem the shares, subject to certain conditions and limitations under the redemption plan. However, at no time during
a 12-month period may we redeem more than 5.0% of our outstanding common stock at the beginning of such 12-month period. For the quarter ended September 30, 2008, we have redeemed the following shares for approximately $6.8 million:



|                                             |  |                               |  |                            |      |                                                                  |         |                                                               |          
|-------------------------------------------- |  | ----------------------------- |  | -------------------------- | ---- | ---------------------------------------------------------------- | ------- | ------------------------------------------------------------- | ---------
|Period                                       |  | TotalNumberOf SharesPurchased |  | AveragePrice PaidPer Share |      | Total Number OfShares PurchasedAs Part Of PubliclyAnnounced Plan |         | Maximum NumberOf Shares ThatMay Yet BePurchased UnderThe Plan
|July 1, 2008 through July 31, 2008           |  | 718,000                       |  | $                          | 9.49 |                                                                  | 718,000 |                                                               | 6,333,726
|August 1, 2008 through August 31, 2008       |  |                               |  |                            |      |                                                                  |         |                                                               | 6,333,726
|September 1, 2008 through September 30, 2008 |  |                               |  |                            |      |                                                                  |         |                                                               | 6,333,726
|                                             |  |                               |  |                            |      |                                                                  |         |                                                               |          
|Total                                        |  | 718,000                       |  |                            |      |                                                                  | 718,000 |                                                               |          
|                                             |  |                               |  |                            |      |                                                                  |         |                                                               |          



|Item 3. | Defaults Upon Senior SecuritiesNone
|------- | ------------------------------------



|Item 4. | Submission of Matters to a Vote of Security Holders None
|------- | ---------------------------------------------------------



|Item 5. | Other Information None
|------- | -----------------------



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------

The following documents are
filed or incorporated as part of this report.



|     |  |                                                                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Omnibus Lease Resolution Agreement dated as of October 30, 2008 among Evergreen Alliance Golf Limited, L.P. et al. and CNL Income Partners, LP et al. (Filed
herewith).                                
|     | 
|31.1 |  | Certification of Chief Executive Officer of CNL Lifestyle Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)        
|     | 
|31.2 |  | Certification of Chief Financial Officer of CNL Lifestyle Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)        
|     | 
|32.1 |  | Certification of Chief Executive Officer of CNL Lifestyle Properties, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
|     | 
|32.2 |  | Certification of Chief Financial Officer of CNL Lifestyle Properties, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)



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##### Table of Contents

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, on the 14th day of November, 2008.



CNL LIFESTYLE PROPERTIES, INC.By:

/s/ R. Byron Carlock, Jr.R. BYRON CARLOCK, JR.President and Chief Executive Officer(Principal Executive Officer)By:

/s/ Tammie A. QuinlanTAMMIE A. QUINLANExecutive Vice President and Chief Financial Officer(Principal Financial Officer)By:

/s/ Joseph T. JohnsonJOSEPH T. JOHNSONSenior Vice President and Chief Accounting Officer(Principal Accounting Officer)




40