##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended September 30, 2005



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



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CNL Income Properties, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



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 4, 2005 was 29,165,360.



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##### Table of Contents

TABLE OF CONTENTS



|                              |  |         |  |                                                                                       |  |        
|----------------------------- |  | ------- |  | ------------------------------------------------------------------------------------- |  | -------
|                              |  |         |  |                                                                                       |  | Page   
|PART I. FINANCIAL INFORMATION |  |        
|                              |  |         | 
|                              |  | Item 1. |  | Financial Statements:                                                                 |  |        
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Balance Sheets                                                 |  | 1      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Statements of Operations                                       |  | 2      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Statements of Stockholders Equity                             |  | 3      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Statements of Cash Flows                                       |  | 4      
|                              |  |         | 
|                              |  |         |  | Notes to Condensed Consolidated Financial Statements                                  |  | 5  12 
|                              |  |         | 
|                              |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13  21
|                              |  |         | 
|                              |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22     
|                              |  |         | 
|                              |  | Item 4. |  | Controls and Procedures                                                               |  | 22     
|                              | 
|PART II. OTHER INFORMATION    |  |        
|                              |  |         | 
|                              |  | Item 1. |  | Legal Proceedings                                                                     |  | 22     
|                              |  |         | 
|                              |  | Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 23     
|                              |  |         | 
|                              |  | Item 3. |  | Defaults Upon Senior Securities                                                       |  | 23     
|                              |  |         | 
|                              |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                   |  | 23     
|                              |  |         | 
|                              |  | Item 5. |  | Other Information                                                                     |  | 23     
|                              |  |         | 
|                              |  | Item 6. |  | Exhibits                                                                              |  | 24  27
|                              | 
|Signatures                    |  | 28     
|                              | 
|Exhibits                      |  |        



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##### Table of Contents

PART I FINANCIAL INFORMATION



Item 1. Financial Statements



CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                   |  | September 30,2005 |             |   | December 31,2004 |  
|ASSETS                                                                                                                                             |  |                   |             |   |                  |   |            |  
|Investment in unconsolidated entities                                                                                                              |  | $                 | 123,519,064 |   |                  | $ | 41,913,212 |  
|Cash                                                                                                                                               |  |                   | 85,501,095  |   |                  |   | 36,710,117 |  
|Distributions receivable from unconsolidated entities                                                                                              |  |                   | 3,693,484   |   |                  |   | 225,555    |  
|Due from unconsolidated entities                                                                                                                   |  |                   | 606,617     |   |                  |   |           |  
|Note receivable                                                                                                                                    |  |                   | 3,000,000   |   |                  |   |           |  
|Deferred offering costs                                                                                                                            |  |                   | 6,669,802   |   |                  |   | 5,381,749  |  
|Prepaid expenses and other assets                                                                                                                  |  |                   | 3,745,796   |   |                  |   | 1,725,794  |  
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|Total Assets                                                                                                                                       |  | $                 | 226,735,858 |   |                  | $ | 85,956,427 |  
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                               |  |                   |             |   |                  |   |            |  
|Line of credit                                                                                                                                     |  | $                 | 2,784,299   |   |                  | $ |           |  
|Accounts payable and accrued expenses                                                                                                              |  |                   | 1,312,561   |   |                  |   | 589,215    |  
|Due to affiliates                                                                                                                                  |  |                   | 10,312,742  |   |                  |   | 10,414,834 |  
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|Total Liabilities                                                                                                                                  |  |                   | 14,409,602  |   |                  |   | 11,004,049 |  
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|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; 24,884,414 and 8,838,978 shares issued and outstanding as of September 30, 2005 and December 31,
2004, respectively |  |                   | 248,844     |   |                  |   | 88,390     |  
|Capital in excess of par value                                                                                                                     |  |                   | 215,365,296 |   |                  |   | 76,719,939 |  
|Accumulated distributions in excess of net income                                                                                                  |  |                   | (3,287,884  | ) |                  |   | (1,855,951 | )
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|                                                                                                                                                   |  |                   | 212,326,256 |   |                  |   | 74,952,378 |  
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  
|Total Liabilities and Stockholders Equity                                                                                                         |  | $                 | 226,735,858 |   |                  | $ | 85,956,427 |  
|                                                                                                                                                   |  |                   |             |   |                  |   |            |  



See accompanying notes
to condensed consolidated financial statements.



1



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------------ | - | --------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                                  |  | Quarter Ended September 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                                  |  | 2005                        |            |   | 2004                           |   |           | 2005 |  |   | 2004       |  
|Revenue                                                                           |  | $                           |           |   |                                | $ |          |      |  | $ |           |   |  | $ |          |  
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Expenses:                                                                         |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Asset management fees to advisor                                                  |  |                             | 811,193    |   |                                |   |          |      |  |   | 1,802,145  |   |  |   |          |  
|General and administrative                                                        |  |                             | 800,284    |   |                                |   | 709,608   |      |  |   | 1,755,042  |   |  |   | 904,115   |  
|Organization costs (recoveries)                                                   |  |                             |           |   |                                |   | (1,006    | )    |  |   |           |   |  |   | 21,351    |  
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total expenses                                                                    |  |                             | 1,611,477  |   |                                |   | 708,602   |      |  |   | 3,557,187  |   |  |   | 925,466   |  
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Operating loss                                                                    |  |                             | (1,611,477 | ) |                                |   | (708,602  | )    |  |   | (3,557,187 | ) |  |   | (925,466  | )
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Other income (expense):                                                           |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Interest and other income                                                         |  |                             | 443,543    |   |                                |   | 88,951    |      |  |   | 800,612    |   |  |   | 90,344    |  
|Interest expense and loan cost amortization                                       |  |                             | (19,647    | ) |                                |   |          |      |  |   | (44,163    | ) |  |   |          |  
|Equity in earnings of unconsolidated entities                                     |  |                             | 2,979,572  |   |                                |   |          |      |  |   | 7,461,670  |   |  |   |          |  
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Total other income                                                                |  |                             | 3,403,468  |   |                                |   | 88,951    |      |  |   | 8,218,119  |   |  |   | 90,344    |  
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Net income (loss)                                                                 |  | $                           | 1,791,991  |   |                                | $ | (619,651  | )    |  | $ | 4,660,932  |   |  | $ | (835,122  | )
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Earnings (loss) per share of common stock (basic and diluted)                     |  | $                           | 0.09       |   |                                | $ | (0.29     | )    |  | $ | 0.29       |   |  | $ | (0.41     | )
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                             | 21,031,765 |   |                                |   | 2,134,059 |      |  |   | 15,944,406 |   |  |   | 2,017,035 |  
|                                                                                  |  |                             |            |   |                                |   |           |      |  |   |            |   |  |   |           |  



See accompanying notes
to condensed consolidated financial statements.



2



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Nine Months Ended
September 30, 2005 and Year Ended December 31, 2004

(UNAUDITED)



|                                                                                      |  |                 |   |  |                               |         |   |                                                |   |             |                          |  |   |            |   |  |   |             |  
|------------------------------------------------------------------------------------- |  | --------------- | - |  | ----------------------------- | ------- | - | ---------------------------------------------- | - | ----------- | ------------------------ |  | - | ---------- | - |  | - | ----------- | -
|                                                                                      |  | Common Stock    |   |  | Capital inExcess of Par Value |         |   | AccumulatedDistributionsin Excess ofNet Income |   |             | TotalStockholdersEquity | 
|                                                                                      |  | Number ofShares |   |  | Par Value                     |         |   |                                                |  
|Balance at December 31, 2003                                                          |  | 20,000          |   |  | $                             | 200     |   |                                                | $ | 199,800     |                          |  | $ |           |   |  | $ | 200,000     |  
|Subscriptions received for common stock through public offering and reinvestment plan |  | 8,701,270       |   |  |                               | 87,013  |   |                                                |   | 86,591,031  |                          |  |   |           |   |  |   | 86,678,044  |  
|Issuance of restricted common stock                                                   |  | 117,708         |   |  |                               | 1,177   |   |                                                |   | 1,175,903   |                          |  |   |           |   |  |   | 1,177,080   |  
|Stock issuance and offering costs                                                     |  |                |   |  |                               |        |   |                                                |   | (11,246,795 | )                        |  |   |           |   |  |   | (11,246,795 | )
|Net loss                                                                              |  |                |   |  |                               |        |   |                                                |   |            |                          |  |   | (683,263   | ) |  |   | (683,263    | )
|Distributions, declared and paid ($0.2593 per share)                                  |  |                |   |  |                               |        |   |                                                |   |            |                          |  |   | (1,172,688 | ) |  |   | (1,172,688  | )
|                                                                                      |  |                 |   |  |                               |         |   |                                                |   |             |                          |  |   |            |   |  |   |             |  
|Balance at December 31, 2004                                                          |  | 8,838,978       |   |  |                               | 88,390  |   |                                                |   | 76,719,939  |                          |  |   | (1,855,951 | ) |  |   | 74,952,378  |  
|Subscriptions received for common stock through public offering and reinvestment plan |  | 16,069,629      |   |  |                               | 160,696 |   |                                                |   | 160,226,879 |                          |  |   |           |   |  |   | 160,387,575 |  
|Redemption of common stock                                                            |  | (24,193         | ) |  |                               | (242    | ) |                                                |   | (229,592    | )                        |  |   |           |   |  |   | (229,834    | )
|Stock issuance and offering costs                                                     |  |                |   |  |                               |        |   |                                                |   | (21,351,930 | )                        |  |   |           |   |  |   | (21,351,930 | )
|Net income                                                                            |  |                |   |  |                               |        |   |                                                |   |            |                          |  |   | 4,660,932  |   |  |   | 4,660,932   |  
|Distributions, declared and paid ($0.398 per share)                                   |  |                |   |  |                               |        |   |                                                |   |            |                          |  |   | (6,092,865 | ) |  |   | (6,092,865  | )
|                                                                                      |  |                 |   |  |                               |         |   |                                                |   |             |                          |  |   |            |   |  |   |             |  
|Balance at September 30, 2005                                                         |  | 24,884,414      |   |  | $                             | 248,844 |   |                                                | $ | 215,365,296 |                          |  | $ | (3,287,884 | ) |  | $ | 212,326,256 |  
|                                                                                      |  |                 |   |  |                               |         |   |                                                |   |             |                          |  |   |            |   |  |   |             |  



See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                         |  |                                |             |   |      |   |            |  
|------------------------------------------------------------------------ |  | ------------------------------ | ----------- | - | ---- | - | ---------- | -
|                                                                         |  | Nine Months EndedSeptember 30, |            
|                                                                         |  | 2005                           |             |   | 2004 |  
|Increase (decrease) in cash:                                             |  |                                |             |   |      |   |            |  
|Operating activities:                                                    |  |                                |             |   |      |   |            |  
|Net cash provided by operating activities                                |  | $                              | 1,136,796   |   |      | $ | 90,344     |  
|                                                                         |  |                                |             |   |      |   |            |  
|Investing activities:                                                    |  |                                |             |   |      |   |            |  
|Investments in unconsolidated entities                                   |  |                                | (73,503,837 | ) |      |   |           |  
|Investments in mortgage loans                                            |  |                                | (3,000,000  | ) |      |   |           |  
|Deposits                                                                 |  |                                |            |   |      |   | (6,590,000 | )
|Acquisition fees and costs                                               |  |                                | (13,111,916 | ) |      |   |            |  
|                                                                         |  |                                |             |   |      |   |            |  
|Net cash used in investing activities                                    |  |                                | (89,615,753 | ) |      |   | (6,590,000 | )
|                                                                         |  |                                |             |   |      |   |            |  
|Financing activities:                                                    |  |                                |             |   |      |   |            |  
|Subscriptions received from stockholders                                 |  |                                | 160,387,575 |   |      |   | 40,972,159 |  
|Stock issuance costs                                                     |  |                                | (19,771,024 | ) |      |   | (3,152,841 | )
|Loan origination fees                                                    |  |                                |            |   |      |   | (45,000    | )
|Proceeds from borrowings from affiliate                                  |  |                                |            |   |      |   | 470,512    |  
|Increase in amounts due to affiliates                                    |  |                                |            |   |      |   | 19,002     |  
|Borrowings under line of credit, net of payments                         |  |                                | 2,784,299   |   |      |   |           |  
|Payment of loan costs                                                    |  |                                | (38,050     | ) |      |   |           |  
|Distributions to stockholders                                            |  |                                | (6,092,865  | ) |      |   | (470,512   | )
|                                                                         |  |                                |             |   |      |   |            |  
|Net cash provided by financing activities                                |  |                                | 137,269,935 |   |      |   | 37,793,320 |  
|                                                                         |  |                                |             |   |      |   |            |  
|Net increase (decrease) in cash                                          |  |                                | 48,790,978  |   |      |   | 31,293,664 |  
|Cash at beginning of period                                              |  |                                | 36,710,117  |   |      |   | 1,000      |  
|                                                                         |  |                                |             |   |      |   |            |  
|Cash at end of period                                                    |  | $                              | 85,501,095  |   |      | $ | 31,294,664 |  
|                                                                         |  |                                |             |   |      |   |            |  
|Supplemental disclosure of non-cash investing activities:                |  |                                |             |   |      |   |            |  
|Amounts incurred but not paid (included in due to affiliates):           |  |                                |             |   |      |   |            |  
|Acquisition fees and costs                                               |  | $                              |            |   |      | $ | 2,479,003  |  
|                                                                         |  |                                |             |   |      |   |            |  
|Allocation of acquisition fees to investments in unconsolidated entities |  | $                              | 3,583,567   |   |      | $ |           |  
|                                                                         |  |                                |             |   |      |   |            |  
|Supplemental disclosure of non-cash financing activities:                |  |                                |             |   |      |   |            |  
|Amounts incurred but not paid (included in due to affiliates):           |  |                                |             |   |      |   |            |  
|Offering and stock issuance costs                                        |  | $                              | 1,640,481   |   |      | $ | 7,469,085  |  
|                                                                         |  |                                |             |   |      |   |            |  
|Distributions declared but not paid                                      |  | $                              |            |   |      | $ | 176,261    |  
|                                                                         |  |                                |             |   |      |   |            |  
|Redemption of stock received but not paid                                |  | $                              | 229,834     |   |      | $ |           |  
|                                                                         |  |                                |             |   |      |   |            |  



See accompanying notes
to condensed consolidated financial statements.



4



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



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



CNL Income Properties, Inc. (the Company) 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 beginning with its taxable year ended December 31, 2004. 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 was formed primarily to acquire directly and indirectly properties in the United States that will be leased on a long-term (generally five to 20-years, plus multiple
renewal options), triple-net or gross basis to tenants or operators who are significant industry leaders. The Company may also lease properties to taxable REIT subsidiary (TRS) tenants and engage independent third-party managers to operate those
properties. The asset classes in which the Company initially is most likely to invest or has invested include the following:



| |  |  | Property leased to dealerships
| | - |  | ------------------------------



| |  |  | Campgrounds or recreational vehicle (RV) parks
| | - |  | ------------------------------------------------



| |  |  | Health clubs
| | - |  | ------------



| |  |  | Parking lots
| | - |  | ------------



| |  |  | Merchandise marts
| | - |  | -----------------



| |  |  | Destination retail and entertainment centers
| | - |  | --------------------------------------------



| |  |  | Marinas
| | - |  | -------



| |  |  | Ski resorts, including real estate in and around ski resorts such as ski-in/ski-out alpine villages, lodging and other related properties
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Golf courses and golf resorts, including real estate in and around golf courses
| | - |  | -------------------------------------------------------------------------------



| |  |  | Amusement parks, waterparks and family entertainment centers, which may include lodging facilities
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Real estate in and around lifestyle communities
| | - |  | -----------------------------------------------



| |  |  | Vacation ownership interests
| | - |  | ----------------------------



| |  |  | Other attractions, such sports-related venues, and cultural facilities such as visual and performing arts centers, zoological parks or aquariums.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



The Company may also make or acquire loans or other permitted investments
related to interests in real estate and may purchase equity and other interests in financings. In addition, the Company may invest up to 10% of its assets in businesses that provide services to, or are otherwise ancillary to, the types of properties
in which it is permitted to invest. As of September 30, 2005, and December 31, 2004, the Company indirectly owned interests in properties at eight and seven locations, respectively, through its investments in unconsolidated entities.



|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. 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 presentation of the Companys results for the interim period presented. Operating results for the quarter and nine months ended September 30,
2005 may not be indicative of the results that may be expected for the year ending December 31, 2005. Amounts as of December 31, 2004 included in the condensed consolidated financial statements have been derived from audited consolidated
financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Form 10-K for the year
ended December 31, 2004.



The Company commenced active
operations on June 23, 2004, when the minimum required offering proceeds were received and funds were released from escrow. Since operations had not begun, activities during the period August 11, 2003 (date of inception) through
June 23, 2004 were devoted to the organization of the Company.



5



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



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



Principles of ConsolidationThe accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries and entities in which the Company has a controlling interest in accordance with the provisions of Statement of Position 78-9 Accounting for Investments in Real Estate Ventures (SOP 78-9), or is the
primary beneficiary as defined in FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46).



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



Investment in Unconsolidated EntitiesThe equity method of accounting is applied with respect to investments in entities in which the Company has determined that consolidation is not appropriate under FIN 46 or SOP 78-9. The
difference between the Companys carrying amount of its investments in unconsolidated entities and the underlying equity in the net assets of the entities is due to acquisition fees and expenses which have been allocated to the Companys
investment. These amounts are amortized over the estimated useful life of the underlying real estate tangible assets when the properties were acquired. The Company records its equity in earnings of the entities under the hypothetical
liquidation at book value method of accounting. Under this method, the Company recognizes income in each period equal to the change in its share of assumed proceeds from the liquidation of the underlying unconsolidated entities at book value.



Distributions ReceivableIn accordance with the
partnership agreements governing the unconsolidated entities in which the Company has invested, at the end of each quarter the partner distributions are calculated for the period and the partnership is obligated to make those distributions generally
within 45 days after the quarter end. As such, the Company has recorded its share of the distribution receivable from its unconsolidated entities.



|3. | Investment in Unconsolidated Entities:
|-- | --------------------------------------



As of September 30, 2005, the Company owned investments in unconsolidated entities accounted for under the equity method of accounting with carrying
values totaling approximately $123.5 million.



In December
2004, the Company invested approximately $41.8 million in a partnership and a trust that acquired a portfolio of commercial real estate properties located in and around various ski and golf resort villages in the United States and Canada (the
Resort Village Properties). Intrawest Corporation and its affiliates owned and operated these properties prior to the transaction and continue to own a 20% interest in, and operate, the properties under long-term management agreements.
The Resort Village Properties consist of approximately 408,000 square feet of leasable retail and commercial space.



On February 14, 2005, the Company formed a partnership (the DMC Partnership) with Dallas Market Center Company, Ltd. (DMC)
that acquired the Trade Mart, the World Trade Center, Market Hall and surface and garage parking areas at the Dallas Market Center (the DMC Property) located in Dallas, Texas for approximately $218.0 million, including the assumption of
existing mortgage loans totaling approximately $143.0 million. The Company invested approximately $60.0 million in the DMC Partnership, representing an 80% equity interest, in connection with the acquisition of the DMC Property. The DMC Property
consists of approximately 4.3 million leasable square feet of showroom and exhibition space.



6



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



|3. | Investment in Unconsolidated Entities (Continued):
|-- | --------------------------------------------------



On May 25, 2005, the DMC Partnership acquired the International Floral and Gift Center (the IFGC) located at the Dallas Market Center for
approximately $31.0 million, including the assumption of a $17.0 million existing mortgage loan. The Company contributed $11.2 million, excluding transaction costs, to the DMC Partnership in connection with the IFGC acquisition. The IFGC consists of
approximately 440,000 square feet and houses permanent showrooms for floral products, holiday decorative products and related accessories. The Company has invested approximately $71.2 million, excluding transaction costs, in the DMC Partnership for
an 80% equity interest.



The Company evaluated all of the
variable interest entities that were formed in connection with the above transactions in accordance with FIN 46 and determined that the Company is not the primary beneficiary due to the significant rights and obligations retained by other venture
partners and the disproportionate economic interests of the venture partners as compared to their respective ownership and voting percentages. Accordingly, the Company accounts for these investments under the equity method of accounting and records
its share of equity in earnings from the entities using the hypothetical liquidation at book value method. Under this method, the Companys share of the economic results of the unconsolidated entities is subject to change over time based on
performance of those entities.



Under the hypothetical
liquidation at book value method of accounting, the Company recognizes income in each period equal to the change in its share of assumed proceeds from the liquidation of the underlying unconsolidated entities at depreciated book value. For the
quarter and nine months ended September 30, 2005, the Company recognized equity in earnings from the entities of approximately $3.0 million and $7.5 million, respectively. As of September 30, 2005 and December 31, 2004, the Company
had distributions receivable of approximately $3.7 million and $225,555 from its unconsolidated entities, respectively.



In connection with the investments, the Company incurred certain acquisition and advisory fees which are paid to an affiliate. These fees are
capitalized as part of the basis in the investments. Any excess carrying value of the investments over the book value of the underlying equity is amortized over the estimated useful lives of the underlying real estate tangible assets,
which represent the assets to which the excess is most clearly related.



The following presents unaudited condensed financial information for the unconsolidated entities as of and for the quarter and nine months ended September 30, 2005:



|                                              |  |                                  |            |   |                                     |   |            |                  |  |   |                |   |  |   |            |  
|--------------------------------------------- |  | -------------------------------- | ---------- | - | ----------------------------------- | - | ---------- | ---------------- |  | - | -------------- | - |  | - | ---------- | -
|                                              |  | Quarter Ended September 30, 2005 |            |   | Nine Months EndedSeptember 30, 2005 |  
|                                              |  | IntrawestVenture                 |            |   | DMCPartnership                      |   |            | IntrawestVenture |  |   | DMCPartnership |  
|Revenue                                       |  | $                                | 4,204,542  |   |                                     | $ | 6,155,331  |                  |  | $ | 12,113,630     |   |  | $ | 14,554,967 |  
|Property operating expenses                   |  |                                  | (1,651,258 | ) |                                     |   | (139,461   | )                |  |   | (4,810,741     | ) |  |   | (320,517   | )
|Depreciation & amortization expenses          |  |                                  | (1,503,096 | ) |                                     |   | (1,938,634 | )                |  |   | (4,395,657     | ) |  |   | (4,613,994 | )
|Interest expense                              |  |                                  | (1,023,533 | ) |                                     |   | (2,409,882 | )                |  |   | (2,992,944     | ) |  |   | (5,726,873 | )
|                                              |  |                                  |            |   |                                     |   |            |                  |  |   |                |   |  |   |            |  
|Net income (loss)                             |  | $                                | 26,655     |   |                                     | $ | 1,667,354  |                  |  | $ | (85,712        | ) |  | $ | 3,893,583  |  
|                                              |  |                                  |            |   |                                     |   |            |                  |  |   |                |   |  |   |            |  
|Loss allocable to other venture partners      |  | $                                | (1,112,646 | ) |                                     | $ | (347,559   | )                |  | $ | (3,466,463     | ) |  | $ | (614,308   | )
|                                              |  |                                  |            |   |                                     |   |            |                  |  |   |                |   |  |   |            |  
|Income allocable to the Company(1)            |  | $                                | 1,139,301  |   |                                     | $ | 2,014,913  |                  |  | $ | 3,380,751      |   |  | $ | 4,507,891  |  
|Amortization of capitalized costs             |  |                                  | (61,806    | ) |                                     |   | (112,836   | )                |  |   | (136,084       | ) |  |   | (290,888   | )
|                                              |  |                                  |            |   |                                     |   |            |                  |  |   |                |   |  |   |            |  
|Equity in earnings of unconsolidated entities |  | $                                | 1,077,495  |   |                                     | $ | 1,902,077  |                  |  | $ | 3,244,667      |   |  | $ | 4,217,003  |  
|                                              |  |                                  |            |   |                                     |   |            |                  |  |   |                |   |  |   |            |  

---

FOOTNOTES:



|(1) | Income is allocated to the Company on the hypothetical liquidation at book value method of accounting (see Note 2).
|--- | -------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



|3. | Investment in Unconsolidated Entities (Continued):
|-- | --------------------------------------------------



|                                 |  |                          |             |                         |   |                  |  |                |             |  |   |  
|-------------------------------- |  | ------------------------ | ----------- | ----------------------- | - | ---------------- |  | -------------- | ----------- |  | - | -
|                                 |  | As of September 30, 2005 |             | As of December 31, 2004
|                                 |  | IntrawestVenture         |             | DMCPartnership          |   | IntrawestVenture |  | DMCPartnership
|Total assets                     |  | $                        | 123,224,960 |                         | $ | 251,632,868      |  | $              | 121,051,018 |  | $ | 
|                                 |  |                          |             |                         |   |                  |  |                |             |  |   |  
|Total long-term debt obligations |  | $                        | 68,805,815  |                         | $ | 157,173,146      |  | $              | 67,085,980  |  | $ | 
|                                 |  |                          |             |                         |   |                  |  |                |             |  |   |  



|4. | Deferred Offering and Stock Issuance Costs:
|-- | -------------------------------------------



Beginning on April 16, 2004, the Company offered for sale up to $2 billion in shares of common stock (200 million shares of common stock at $10 per
share) (the Offering), pursuant to a registration statement on Form S-11 under the Securities Act of 1933. The Company has and will continue to incur costs in connection with the Offering and issuance of shares, including filing fees,
legal, accounting, printing, selling commissions, marketing support fees, due diligence expense reimbursements and escrow fees, which are deducted from the gross proceeds of the Offering. As of September 30, 2005, the total Offering and stock
issuance costs incurred to date were approximately $39.3 million.



Under the terms of the Offering, certain affiliates are entitled to receive selling commissions of up to 6.5% of gross offering proceeds on all shares sold, a marketing support fee of up to 2.5% of gross offering proceeds, and reimbursement
of actual expenses incurred in connection with due diligence of the Offering (see Note 7). In accordance with the Companys amended and restated articles of incorporation, the total amount of selling commissions, marketing support fees, due
diligence expense reimbursements, and organizational and offering expenses to be paid by the Company may not exceed 13% of the aggregate offering proceeds. Therefore, offering costs of approximately $6.7 million, representing the portion of those
costs exceeding 13% of the offering proceeds, have been deferred as of September 30, 2005. Deferred offering costs as of December 31, 2004 totaled approximately $5.4 million. The deferred offering costs will be deducted from future
offering proceeds and reimbursed to affiliates to the extent the costs are within the 13% limitation. The Company is not obligated to pay the Advisor or certain of its affiliates costs that exceed the 13% limitation as of the end of the Offering.
The remaining $32.6 million was deducted from the offering proceeds and charged to capital in excess of par value.



|5. | Note Receivable:
|-- | ----------------



On September 29, 2005, the Company made a $3.0 million loan to a subsidiary of Consolidated Conversions, LLC, which was used toward the purchase of
the 295-room Holiday Inn Main Gate West for conversion to a condominium hotel. The property is located in Kissimmee, Florida, which is west of Walt Disney World. The loan earns interest at a rate of 15% per year and requires monthly interest
payments based on an annual percentage rate of 8.5% with the remaining 6.5% becoming due and payable upon the loans maturity or earlier upon the sale of the condominium hotel units. The term of the loan is 18 months and may be extended by the
borrower for up to three additional six-month periods. The loan is collateralized by a first mortgage on ten vacant acres of land adjacent to the hotel and a second priority mortgage on the remainder of the property which includes the hotel.
Completion of the condominium conversion and related improvements is guaranteed by the principals of Consolidated Conversions, LLC. The loan may be prepaid at anytime, but in no event will the Company receive less than a 15% return for at least one
year.



8



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



|6. | Line of Credit:
|-- | ---------------



On May 20, 2005 the Company closed on a $5.0 million revolving line of credit with Branch Banking and Trust. The line is used
primarily for working capital needs, distributions to stockholders and bridge financing on real estate investments. The line of credit is unsecured, bears interest at the 30-day LIBOR plus 2.25% (which was approximately
5.73% for the quarter ended September 30, 2005) and has a term of two years. As of September 30, 2005, borrowings outstanding under the line of credit were approximately $2.8 million. The loan agreement contains certain
affirmative, negative and financial covenants including quarterly and annual financial reporting requirements, minimum net worth, and limitations on the incurrence of additional debt. The Company was in compliance with these covenants at
September 30, 2005.



|7. | Related Party Arrangements:
|-- | ---------------------------



Certain directors and officers of the Company hold similar positions with CNL Income Corp., a stockholder and the advisor (the Advisor) of the
Company, and with the managing dealer of the Companys public offering, CNL Securities Corp. The Companys chairman of the board indirectly owns a controlling interest in the parent company of the Advisor. These affiliates receive fees and
compensation in connection with the Offering and the acquisition, management and sale of the Companys assets. CNL Securities Corp., the managing dealer of the Companys public offering, receives selling commissions of up to 6.5% of gross
offering proceeds on all shares sold, a marketing support fee of up to 2.5% of gross offering proceeds, and reimbursement of actual expenses incurred up to 0.01% of proceeds in connection with due diligence of the Offering. A substantial portion of
the selling commissions and marketing support fees are reallowed to third party participating broker dealers. During the quarter and nine months ended September 30, 2005 and 2004, the Company incurred the following fees:



|                                                             |  |                             |           |                                |   |           |  |      |            |  |   |          
|------------------------------------------------------------ |  | --------------------------- | --------- | ------------------------------ | - | --------- |  | ---- | ---------- |  | - | ---------
|                                                             |  | Quarter Ended September 30, |           | Nine Months EndedSeptember 30,
|                                                             |  | 2005                        |           | 2004                           |   | 2005      |  | 2004
|Selling commissions                                          |  | $                           | 3,928,204 |                                | $ | 2,288,840 |  | $    | 10,129,456 |  | $ | 2,500,367
|Marketing support fee & due diligence expense reimbursements |  |                             | 1,511,829 |                                |   | 880,712   |  |      | 3,907,693  |  |   | 962,069  
|                                                             |  |                             |           |                                |   |           |  |      |            |  |   |          
|Total                                                        |  | $                           | 5,440,033 |                                | $ | 3,169,552 |  | $    | 14,037,149 |  | $ | 3,462,436
|                                                             |  |                             |           |                                |   |           |  |      |            |  |   |          



9



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



|7. | Related Party Arrangements (Continued):
|-- | ---------------------------------------



During the quarters and nine months ended September 30, 2005 and 2004, the Advisor earned fees and incurred reimbursable expenses as follows:



|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|------------------------------------------- |  | --------------------------- | --------- | ---- | ------------------------------ | --------- | ---- |  | ---- | ---------- |  | - | ---------
|                                            |  | Quarter Ended September 30, |           |      | Nine Months EndedSeptember 30,
|                                            |  | 2005                        |           | 2004 |                                |           | 2005 |  | 2004
|Acquisition fees(1):                        |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Acquisition fees from offering proceeds     |  | $                           | 1,857,935 |      | $                              | 1,087,929 |      |  | $    | 4,814,081  |  | $ | 1,235,865
|Acquisition fees from debt proceeds         |  |                             | 38,049    |      |                                |          |      |  |      | 4,946,948  |  |   |         
|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Total                                       |  |                             | 1,895,984 |      |                                | 1,087,929 |      |  |      | 9,761,029  |  |   | 1,235,865
|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Asset management fees(2):                   |  |                             | 811,193   |      |                                |          |      |  |      | 1,802,145  |  |   |         
|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Reimbursable expenses(3):                   |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Offering costs                              |  |                             | 4,628,079 |      |                                | 4,593,821 |      |  |      | 8,602,835  |  |   | 6,684,119
|Organizational costs (recoveries)           |  |                             |          |      |                                | (1,006    | )    |  |      |           |  |   | 21,351   
|Acquisition costs                           |  |                             | 498,579   |      |                                | 512,366   |      |  |      | 1,077,662  |  |   | 582,668  
|Operating expenses                          |  |                             | 303,945   |      |                                | 158,655   |      |  |      | 784,536    |  |   | 584,517  
|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Total                                       |  |                             | 5,430,603 |      |                                | 5,263,836 |      |  |      | 10,465,033 |  |   | 7,872,655
|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          
|Total fees earned and reimbursable expenses |  | $                           | 8,137,780 |      | $                              | 6,351,765 |      |  | $    | 22,028,207 |  | $ | 9,108,520
|                                            |  |                             |           |      |                                |           |      |  |      |            |  |   |          

---

FOOTNOTES:



|(1) | Acquisition fees for services in 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. The debt acquisition fees for the quarter and nine months ended September 30, 2005 were incurred in connection with the Companys investment in the DMC Partnership with DMC and the
partnerships assumption of mortgage loans upon acquisition of the DMC Property and IFGC.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Asset management fees of 0.08334% per month of the Companys real estate asset value, as defined in the Companys prospectus dated April 18, 2005,
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% of average invested assets
or 25% of net income (the Expense Cap) in any expense year, as defined in the advisory agreement. The first applicable expense year and measurement period was the twelve months ended June 30, 2005, for which the Companys
operating expenses exceeded the Expense Cap by $398,071. In accordance with the advisory agreement, such amount was not reimbursed to the Advisor and was recorded as a reduction in general and administrative expenses and the amounts due to
affiliates. For the Expense Year ended September 30, 2005, operating expenses did not exceed the Expense Cap.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



|7. | Related Party Arrangements (Continued):
|-- | ---------------------------------------



Amounts due to affiliates for fees and expenses described above are as follows:



|                                                                |  |                   |            |                  |   |            |  
|--------------------------------------------------------------- |  | ----------------- | ---------- | ---------------- | - | ---------- | -
|                                                                |  | September 30,2005 |            | December 31,2004 |  
|Due to the Advisor and its affiliates:                          |  |                   |            |                  |   |            |  
|Offering expenses                                               |  | $                 | 8,334,483  |                  | $ | 6,960,292  |  
|Asset management fees                                           |  |                   | 239,712    |                  |   |           |  
|Operating expenses (reimbursements)                             |  |                   | 622,140    |                  |   | 1,207,252  |  
|Acquisition fees and expenses                                   |  |                   | 435,900    |                  |   | 1,893,200  |  
|                                                                |  |                   |            |                  |   |            |  
|Total                                                           |  | $                 | 9,632,235  |                  | $ | 10,060,744 |  
|                                                                |  |                   |            |                  |   |            |  
|Due to CNL Securities Corp:                                     |  |                   |            |                  |   |            |  
|Selling commissions                                             |  | $                 | 491,477    |                  | $ | 320,767    |  
|Marketing support fees and due diligence expense reimbursements |  |                   | 189,030    |                  |   | 123,373    |  
|Offering costs                                                  |  |                   |           |                  |   | (90,050    | )
|                                                                |  |                   |            |                  |   |            |  
|Total                                                           |  | $                 | 680,507    |                  | $ | 354,090    |  
|                                                                |  |                   |            |                  |   |            |  
|Total due to affiliates                                         |  | $                 | 10,312,742 |                  | $ | 10,414,834 |  
|                                                                |  |                   |            |                  |   |            |  



|8. | Redemption of Shares:
|-- | ---------------------



During the quarter and year ended September 30, 2005, the Company redeemed 24,193 shares of common stock at $9.50 per share for a total of $229,834.
The redemption price per share is the lesser of the price at which the shares were initially sold by the Company or a fixed redemption price of $9.50 per share.



|9. | Distributions:
|-- | --------------



The Company declared and paid distributions of approximately $2.8 million ($0.137 per share) and $6.1 million ($0.398 per share) for the quarter and nine
months ended September 30, 2005, respectively.



For the
nine months ended September 30, 2005, approximately 54% of the distributions paid to the stockholders were considered ordinary income and approximately 46% were considered 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. The characterization of distributions declared for the quarter and nine
months ended September 30, 2005 may not be indicative of the characterization of distributions that may be expected for the year ending December 31, 2005.



11



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##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

QUARTER ENDED SEPTEMBER 30, 2005

(UNAUDITED)



|10. | Commitments & Contingencies:
|--- | ----------------------------



In connection with the purchase of the resort village property located at Copper Mountain, Colorado, the Intrawest Partnership agreed to pay additional
future purchase consideration contingent upon the Copper Mountain property achieving certain levels of financial performance, as specified in the purchase and sale agreement. The amount of the contingent purchase price will be
determined as of December 31, 2008, and in no event, will the amount exceed $3.75 million. The Company has guaranteed the payment of the contingent purchase price to Intrawest on behalf of the Intrawest Partnership.



|11. | Subsequent Events:
|--- | ------------------



The Companys board of directors declared distributions of $0.0458 per share to stockholders of record at the close of business on October 1,
2005 and November 1, 2005 to be paid by December 31, 2005.



On October 3, 2005, the Company entered into a venture formation and contribution agreement (the VFA Agreement) with Great Wolf Resorts, Inc. and affiliates (Great Wolf). Pursuant to the VFA Agreement, the
parties agreed to form a partnership (the Partnership) to own two waterpark resorts: the 309-suite Great Wolf Lodge in Wisconsin Dells, Wisconsin and the 271-suite Great Wolf Lodge in Sandusky, Ohio (the Properties). On
October 7, 2005, pursuant to the terms of the Wolf VFA Agreement, Great Wolf formed a partnership to serve as the joint venture partnership (the Wolf Partnership) and contributed the Properties, valued at approximately $114.5
million, to the Wolf Partnership in exchange for partnership interests.



On October 11, 2005, the Company entered into an amended and restated limited partnership agreement (the Wolf Partnership Agreement) governing the Wolf Partnership and contributed approximately $69.9
million to the venture, representing a 61.1% ownership interest. On November 3, 2005 the Company contributed an additional $10.1 million to the Wolf Partnership resulting in a 70.0% ownership interest. The Company receives preferred returns on
its invested capital up to a certain threshold, after which Great Wolf receives a preferred return on its invested capital up to a certain threshold and residual returns are split pro rata. Capital proceeds upon liquidation of the venture are split
pro rata between the partners. Although the Company owns a majority interest in the venture, the Company shares voting rights and decision making with its partner and will apply the equity method of accounting for this investment.



On October 12, 2005, the Company, through the DMC Partnership with DMC
entered into a memorandum of understanding and a development agreement to develop an approximately 500,000 square foot lighting center expansion (160,000 leasable square feet) at the Trade Mart (the Trade Mart Expansion) at the DMC
Property. The total estimated construction costs are expected to be approximately $21.3 million. The Companys total contribution to the DMC Partnership for the Trade Mart Expansion is estimated to be approximately $17.0 million and will be
made in accordance with the current partnership structure. On October 14, 2005, the Company contributed $3.5 million and DMC contributed $0.9 million to fund the initial costs of the Trade Mart Expansion. The remaining costs will be funded over
the remainder of the development period. The Trade Mart Expansion is expected to be completed at the end of 2006 and will be leased to an affiliate of DMC.



12



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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, 2005 and December 31, 2004 and for the
quarter and nine months ended September 30, 2005. Amounts as of December 31, 2004 included in the unaudited condensed consolidated financial statements have been derived from 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 consolidated financial statements and notes thereto included in our annual report on Form
10-K for the year ended December 31, 2004.



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: conditions affecting the CNL brand name, increased direct competition, changes in general economic conditions, changes in government
regulations, changes in local and national real estate conditions, terrorism, extended U.S. military combat operations, our ability to obtain additional lines of credit or permanent financing on satisfactory terms, availability of proceeds from our
offering of shares, 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
mortgage loans, and the ability of such tenants and borrowers to make payments under their respective leases or mortgage 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 Income Properties, Inc. was organized pursuant to the laws of the State
of Maryland on August 11, 2003. We were formed primarily to acquire properties in the United States that will be leased on a long-term (generally five to 20 years, plus multiple renewal options), triple-net or gross basis to tenants or
operators who are significant industry leaders. We currently operate and have elected to be taxed as a real estate investment trust (a REIT) for federal income tax purposes beginning with the taxable year ended December 31, 2004. We
have retained CNL Income Corp. (the Advisor) as our advisor to provide management, acquisition, advisory and administrative services.



Beginning on April 16, 2004, we offered for sale up to $2 billion in shares of common stock (200 million shares of common stock at $10 per share)
pursuant to a registration statement on Form S-11 under the Securities Act of 1933, as amended (the Offering). We commenced active operations on June 23, 2004, when the minimum required offering proceeds were received and funds were
released to us from escrow. The activities from August 11, 2003 (our inception) through June 23, 2004 were devoted to the organization of the company. As of September 30, 2005 we had received aggregate offering proceeds totaling
$247.1 million (24,770,899 shares) from 8,275 investors in connection with this Offering, including $3.6 million (375,225 shares) purchased through our distribution reinvestment plan. The shares sold and the gross offering proceeds received from
such sales do not include the 20,000 shares purchased by the Advisor for $200,000 preceding the commencement of the initial offering or the $1.2 million (117,708 restricted common shares) issued in December 2004 to CNL Financial Group, Inc., a
company affiliated with our Advisor and wholly owned indirectly by our chairman of the board and his wife. As of September 30, 2005, we had also redeemed 24,193 shares at $9.50 per share for a total of $229,834. We have and will continue to use
proceeds from the Offering to invest in properties and other permitted investments.



We have and will continue to focus our investment activities on and use the proceeds of our Offering primarily for the acquisition, development and ownership of lifestyle properties that we believe:



| |  |  | Are part of an asset class wherein the supply of developed, specific-use real estate is greater than the demand for the intended use of such real estate;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Where a change in operational control is anticipated to improve value;
| | - |  | ----------------------------------------------------------------------



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| |  |  | Are part of an industry that is experiencing constraints on the availability of new capital, which we believe typically has the effect of lowering the purchase price of such
properties from that which would typically be available; and/or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Have the potential for long-term revenue generation based upon certain demographic data including an aging baby boomer population and associated concentrations of wealth.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have invested in, and will most likely
continue to invest in, properties in the following asset classes (in no order of priority):



| |  |  | Property leased to dealerships including, for example, automobile, motorcycle, recreational vehicle and boat dealerships;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Campgrounds, recreational vehicle (RV) parks, whose operators rent lots and offer other services;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Health clubs, athletic training facilities, wellness centers and spa facilities;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Parking lots, whose operators offer monthly and daily parking space rentals in urban areas;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Merchandise marts, whose operators lease showrooms and host tradeshows for merchandise manufacturers and wholesalers in major metropolitan areas;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Destination retail and entertainment centers, whose operators develop and lease properties featuring entertainment-oriented stores, restaurants and/or attractions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Marinas, whose operators offer recreational boat slip rentals and other services;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Ski resorts, including real estate in and around ski resorts such as ski-in/ski-out alpine villages, townhouses, lodging and other related properties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Golf courses and golf resorts, including real estate in and around golf courses and golf resorts, such as retail villages, townhouses, lodges and other related properties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amusement parks, waterparks and family entertainment centers, which may include lodging facilities;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Real estate in and around lifestyle communities;
| | - |  | ------------------------------------------------



| |  |  | Vacation ownership interests, which entitle a purchaser of the interests to exclusive use of resort accommodations at a resort property or properties for a particular period of time
each year; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other attractions, such as sports-related venues and cultural facilities such as visual and performing arts centers or zoological parks or aquariums.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



Although these are the asset classes in which we have invested and will most
likely continue to invest, we may acquire or invest in other types of properties which are not listed above that we believe have the potential for long-term revenue generation based upon underwriting criteria and models that we have developed and/or
certain demographic criteria as described above.



We have
elected to be taxed as a REIT for federal income tax purposes. As a REIT we generally will not be subject to federal income tax on income that we distribute annually to our stockholders. If we fail to quality 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 beginning with the year ended December 31, 2004. In
addition, 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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CRITICAL ACCOUNTING POLICIES



Consolidation. The consolidated financial statements include our
accounts and the accounts of our wholly owned subsidiaries and entities in which we have a controlling interest in accordance with the provisions of Statement of Position 78-9 Accounting for Investments in Real Estate Ventures (SOP
78-9) or are the primary beneficiary as defined in FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, (FIN 46). The application of FIN 46 and SOP 78-9 requires management to
make significant estimates and judgments about our, and our venture partners, rights, obligations and economic interests in the related venture entities. The equity method of accounting is applied in the consolidated financial statements with
respect to those investments in entities in which we are not the primary beneficiary under FIN 46 or have less than a controlling interest due to the significance of rights and obligations held by other parties under SOP 78-9.



Investments in Unconsolidated Entities. The equity method of
accounting is applied with respect to investments in entities for which we have determined that consolidation is not appropriate under FIN 46 or SOP 78-9. We recognize equity in earnings from our unconsolidated entities under the hypothetical
liquidation at book value (HLBV) method of accounting due to the capital structure of those entities and the rights and priorities of the partners. The HLBV method differs from other generally accepted accounting
methods in which an investing partner recognizes the percentage of a ventures net income or loss based upon the partners percentage of ownership. Under the HLBV method, we must estimate at the balance sheet
date what we would receive or be obligated to pay in accordance with the governing agreements if our unconsolidated entities were to liquidate all of their assets, pay their debts and distribute the remaining equity. As a
result, we recognize income (equity in earnings) in each reporting period equal to the change in our share of assumed proceeds from the liquidation of the underlying unconsolidated entities at book value. Under this
method, in any given period we could be recording more or less income than actual cash distributions received and more or less than we may receive in the event of an actual liquidation.



Impairments. For real estate owned by us and accounted for under the
equity method, we compare the estimated fair value of our investment to the carrying value at each reporting date. To the extent the fair value of the investment is less than the carrying amount, and the decline in value is determined to be other
than a temporary decline, an impairment charge will be recorded.



For real estate to be directly owned by us, we will monitor events and changes in circumstance that may indicate that the carrying amounts of the real estate assets may not be recoverable. When such events or changes in circumstances are
present, we will assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition, to the carrying amount of the asset. In the event
that the carrying amount exceeds the estimated future undiscounted operating cash flows, we would recognize an impairment loss to adjust the carrying amount of the asset to the estimated fair value.



The determination of both the estimated fair value of our investment and the
estimation of future cash flows to be generated over the life of the assets requires management to make significant estimates and judgments.



LIQUIDITY AND CAPITAL RESOURCES



General



Our principal demand for funds will be for property acquisitions, loans and other permitted investments and the payment of
operating expenses and distributions to stockholders. Generally, our cash needs for items other than property acquisitions will be generated from operations, our investments or advances from affiliates, although our affiliates are not obligated to
advance such funds. We have also entered into a revolving line of credit with a capacity of $5.0 million, which we use to bridge short term liquidity needs that arise due to timing of cash receipts and payments.



We intend to continue to acquire properties and consider making loans and
other permitted investments with proceeds from our public offering and permanent debt financing to be obtained. If sufficient capital is not raised, it would limit our ability to acquire additional properties, make loans or permitted investments.
This could impact our ability to pay distributions or raise the distribution rate due to our limited income from operations, unless we choose to borrow to do so.



We intend to continue to pay distributions to our stockholders on a quarterly basis. Operating cash flows are expected to be
generated from properties, loans and other permitted investments to cover such distributions. In the event 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.



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



Common Stock Offering



As of September 30, 2005, we had received subscription proceeds in connection with the Offering of $247.1 million (24,770,899 shares) from 8,275 investors in connection with this Offering, excluding the 20,000 shares purchased by the
Advisor for $200,000 preceding the commencement of the initial offering, the $1.2 million (117,708 restricted common shares) issued in December 2004 to CNL Financial Group, Inc., a company affiliated with our Advisor and wholly owned indirectly by
our chairman of the board and his wife. As of September 30, 2005, we had also redeemed 24,193 shares at $9.50 per share for a total of $229,834. We primarily use the capital we raise to acquire properties and make other permitted investments
and to pay fees and expenses in connection with the Offering and acquisition. We raised on average approximately $20.6 million per month during the third quarter of 2005. During the period October 1, 2005 through November 4, 2005, we
received additional subscription proceeds of approximately $43.4 million (4,435,270 shares). We primarily use the capital we raise to acquire properties and make other permitted investments and to pay fees and expenses in connection with the
Offering and acquisitions.



Investments in and Earnings from Unconsolidated
Entities



As of September 30, 2005, we had invested
in properties at eight locations through our unconsolidated entities. We are entitled to receive quarterly cash distributions from the unconsolidated entities. Distributions receivable from our unconsolidated entities as of September 30, 2005
and December 31, 2004 were approximately $3.7 million and $225,555, respectively. These distributions are generally received within 45 days after quarter end and, when received, are expected to contribute to our cash from operating activities.



Investments



Various wholly-owned subsidiaries and unconsolidated entities have been and
will be formed in the future by us for the purpose of acquiring and owning real estate properties. As of September 30, 2005, we have invested in retail and commercial properties at seven resort villages and one merchandise mart property.
Management expects to continue to acquire properties with a view to diversify among the types of tenants, operators and the geographic location of the properties. The following is a summary of our investments as of September 30, 2005:



In December 2004 we invested in a partnership that acquired
retail and commercial properties at seven resort villages in the U.S. and Canada (the Resort Village Properties). All of the Resort Village Properties were acquired from Intrawest Corporation (Intrawest). Due to certain
legal, tax and lender requirements, the Canadian Resort Village Properties were acquired by us through a trust. Intrawest retained a 20% ownership interest in the partnership which owns the U.S. Resort Village Properties (the Intrawest
Partnership). Intrawest continues to operate the Resort Village Properties pursuant to management agreements. Although we own an 80% interest in the Intrawest Partnership, our ownership percentage exceeds our economic interest and our voting
rights, and Intrawest may receive a greater return than us when the Resort Village Properties perform at certain levels. The Resort Village Properties consist of approximately 408,000 square feet of leasable space that was 100% economically leased
and 96% physically leased as of September 30, 2005.



On
February 14, 2005, we formed a partnership (the DMC Partnership) to acquire the Dallas Market Center (the DMC Property) located in Dallas, Texas. The acquisition of the first tranche was completed on February 14,
2005 and included the World Trade Center, Dallas Trade Mart and Market Hall buildings as well as leases for the underlying land; limited use rights to the Apparel Mart (which is located on the Dallas Market Center campus); and related parking
facilities on the property. Additional funding for the first tranche occurred on March 11, 2005. The DMC Partnership acquired the DMC Property for $218.0 million, including the assumption of existing mortgage loans totaling approximately $143.0
million.



We invested approximately $60.0 million in the DMC
Partnership, representing an 80% equity interest, in connection with the acquisition of the DMC Property. The DMC Property consists of approximately 4.3 million leasable square feet of showroom and exhibition space. The DMC Property is leased
to Dallas Market Center Operating, L.P., a subsidiary of the existing management company, Market Center Management Company, Ltd. (MCMC), which continues to manage the DMC Property. MCMC or related predecessor entities have managed the
DMC Property since its inception.



On May 25, 2005, the
DMC Partnership acquired the International Floral and Gift Center (the IFGC) located at the DMC Property for approximately $31.0 million, including the assumption of a $17.0 million existing mortgage loan. We contributed $11.2 million,
excluding transaction costs, to the DMC Partnership in connection with the IFGC acquisition. The IFGC consists of approximately 440,000 square feet and houses permanent showrooms for floral products, holiday decorative products and related
accessories. The IFGC is leased to IFDC Operating, L.P., a wholly-owned subsidiary of the existing management company, MCMC, under a long-term master lease agreement. MCMC or related predecessor entities have managed the IFGC since its inception.



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In total we have invested approximately $71.2 million, excluding transaction costs and held an 80%
interest in the DMC Partnership. Although we own an 80% interest in the DMC Property and IFGC and receive a certain return prior to any payments to DMC, DMC has equal voting rights on the management board of the DMC Property and shares control over
certain key decisions with us.



Subsequent to
September 30, 2005, the Company made the following investments:



On October 3, 2005, we entered into the Wolf VFA Agreement with Wolf Dells, Wolf Sandusky and Great Wolf Resorts, Inc., the parent company of Wolf Dells and Wolf Sandusky, (collectively, Great Wolf). Pursuant to the Wolf
VFA Agreement, we agreed to enter into a joint venture with Great Wolf for the purposes of jointly owning, operating, marketing and leasing the waterpark resort and hotel properties known as the Wolf Dells Property and the Wolf Sandusky Property.
Pursuant to the Wolf VFA Agreement, on October 7, 2005, Wolf Dells and Wolf Sandusky formed the Wolf Partnership and contributed the Wolf Dells Property and the Wolf Sandusky Property, valued at an approximate $114.5 million in the aggregate,
to the Wolf Partnership in exchange for partnership interests.



On October 11, 2005, also pursuant to the Wolf VFA Agreement, we acquired approximately 61.1% of the partnership interests in the Wolf Partnership in exchange for a contribution of approximately $69.9 million in cash. On
November 3, 2005, we contributed an additional $10.1 million to the Wolf Partnership resulting in a 70.0% ownership interest. The Company receives a preferred return on its invested capital up to a certain threshold, after which Great Wolf
receives a preferred return on its invested capital up to a certain threshold and residual returns are split pro rata. Capital proceeds upon liquidation of the venture are split pro rata between the partners. Great Wolf may receive additional funds
up to $3.0 million per waterpark resort if those properties achieve certain financial performance goals during 2007 and 2008. The Wolf Partnership expects to obtain mortgage financing on the two waterpark resorts by the end of the first quarter of
2006. The financing is not expected to exceed 55% of the combined loan to cost ratio for the two properties.



The Wolf Dells Property is a full-service family resort destination that features 309 guest suites, 77 condominium units with 128 rooms, a 64,000 square
foot indoor entertainment area with one of the nations largest indoor waterparks, an additional 35,000 square foot indoor waterpark expansion currently under development, five restaurants, 5,400 square feet of meeting space, an Aveda concept
spa and salon, an arcade and a gift shop. The Wolf Dells Property is located one hour from Madison, Wisconsin and two hours from Milwaukee, Wisconsin. The Wolf Sandusky Property features 271 guest suites, a 42,000 square foot indoor entertainment
area with a grand-scale waterpark, two 150-seat restaurants, 6,000 square feet of meeting space, a fitness center, an arcade and a gift shop. It is located on Lake Erie, one hour from Cleveland, Ohio and two hours from Detroit, Michigan.



On October 12, 2005, the DMC Partnership entered into a memorandum of
understanding and a development agreement to develop an approximately 500,000 square foot lighting center expansion (160,000 leasable square feet) at the Trade Mart (the Trade Mart Expansion) at the DMC Property. On October 14,
2005, we contributed approximately $3.5 million and DMC contributed approximately $0.9 million to fund the initial costs of the Trade Mart Expansion. The total estimated construction costs are expected to be approximately $21.3 million. Our share of
the total contribution to the DMC Partnership for the Trade Mart Expansion is estimated to be approximately $17 million of the total and will be made in accordance with the current partnership structure. The remaining costs will be funded over the
remainder of the development period. The Trade Mart Expansion is expected to be completed at the end of 2006 and will be leased to an affiliate of DMC.



Borrowings



We intend to borrow money to acquire assets and to pay certain related fees. We have, and may continue to borrow money to pay distributions to
stockholders. We also intend to encumber assets in connection with such borrowings. In general, the aggregate amount of permanent financing is not expected to exceed 50% of our total assets on an annual basis, however, it may likely exceed 50% for a
limited period in our early acquisition stage. 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.



We plan to obtain lines of credit, in an amount up to $100 million. The lines
of credit may be increased at the discretion of our board of directors and may be repaid with offering proceeds, proceeds from the sale of assets, working capital or permanent financing. On May 20, 2005, we closed on a $5.0 million
revolving line of credit with Branch Banking and Trust.



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The line is used primarily for working capital needs, distributions to stockholders and bridge
financing on real estate investments. The line of credit is unsecured, bears interest at the 30-day LIBOR plus 2.25% (approximately 5.73% for the quarter ended September 30, 2005) and has a term of two years. As of
September 30, 2005, we had outstanding borrowings under the line of credit of approximately $2.8 million. The loan agreement contains certain affirmative, negative and financial covenants including quarterly and annual financial reporting
requirements, minimum net worth, and limitations on the incurrence of additional debt. We were in compliance with these covenants at September 30, 2005.



See the section below titled Off Balance Sheet and Other Arrangements  Borrowings of our Unconsolidated
Entities for a description of the borrowings of our unconsolidated entities.



Mortgage Loans and Other Loans



On
September 29, 2005, we made a $3.0 million loan to a subsidiary of Consolidated Conversions, LLC, which was used toward the purchase of the 295-room Holiday Inn Main Gate West for conversion to a condominium hotel. The property is located in
Kissimmee, Florida, which is west of Walt Disney World. Our loan earns interest at a rate of 15% per year and requires monthly interest payments based on an annual percentage rate of 8.5% with the remaining 6.5% becoming due and payable upon
the loans maturity or earlier upon the sale of the condominium hotel units. The term of the loan is 18 months and may be extended by the borrower for up to three additional six-month periods. The loan is collateralized by a first mortgage on
ten vacant acres of land adjacent to the hotel and a second priority mortgage on the remainder of the property which includes the hotel. Completion of the condominium conversion and related improvements is guaranteed by the principals of
Consolidated Conversions, LLC. The loan may be prepaid at anytime, but in no event will we receive less than our 15% return for at least one year.



Related Party Arrangements



As of September 30, 2005, we owed our Advisor and certain of its affiliates approximately $10.3 million for certain organizational and offering
expenses, acquisition fees, asset management fees, selling commissions, marketing support fees, due diligence expense reimbursements and operating expenses incurred on our behalf. In accordance with our amended and restated articles of
incorporation, the total amount of certain offering, organization and stock issuance costs we pay may not exceed 13% of the aggregate offering proceeds. Accordingly, approximately $6.7 million of these costs have been capitalized and deferred as of
September 30, 2005, with a corresponding amount due to our Advisor and certain of its affiliates. The deferred offering costs will be deducted from future offering proceeds and reimbursed to affiliates to the extent the costs are within the 13%
limitation. We are not obligated to pay our Advisor or certain of its affiliates costs that exceed the 13% limitation as of the end of the Offering.



In addition, to the extent that operating expenses, in any four consecutive fiscal quarters (the Expense Year), exceed the greater of 2% of
average invested assets or 25% of net income, the Advisor shall reimburse us the amount by which the total operating expenses paid or incurred exceed the greater of the 2% or 25% threshold (the Expense Cap). The first Expense Year was
the twelve months ended June 30, 2005, for which our operating expenses exceeded the Expense Cap by $398,071. Therefore, such amount was recorded as a reduction in operating expenses and amounts due to affiliates. For the Expense Year ended
September 30, 2005, operating expenses did not exceed the Expense Cap.



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 value creation reflective of both current and long-term stabilized cash flows from our properties, our objective of continuing to qualify as a REIT for federal income tax purposes, the actual
operating results of each quarter, 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 declared and paid distributions of approximately $2.8 million ($0.137 per share) and $6.1 million ($0.398 per share) for the quarter and nine months ended September 30, 2005, respectively.



Distributions paid in the first quarter of 2005 were primarily funded with a
temporary advance of approximately $1.3 million from an affiliate of the Advisor. The advance was repaid in the second quarter of 2005 upon receipt of our first quarter earnings from its unconsolidated entities. Distributions paid in the second and
third quarters of 2005 were temporarily funded, in part, by borrowings under our line of credit due to the timing differences between our payment of distributions to the stockholders and receipt of the distributions from our unconsolidated entities.



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The distributions declared and paid during the nine months ended September 30, 2005 were $6.1
million and exceeded net income for the nine months ended September 30, 2005 by approximately $1.4 million. 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, 2005, approximately 24% of the distributions represented a return of capital, if calculated using
GAAP net income as the basis. Approximately 46% of the distributions for the nine months ended September 30, 2005 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. The characterization of distributions declared for the quarter and nine months ended September 30, 2005 may not be
indicative of the characterization of distributions that may be expected for the year ending December 31, 2005.



Cash Flow Analysis



Our net cash flows provided by operating activities were approximately $1.1 million for the nine months ended September 30, 2005 and were comprised
of interest earned on invested cash, the receipt of distributions from our unconsolidated entities and payments made for operating expenses, as compared to the net cash flow from operating activities of $90,344 for the nine months ended
September 30, 2004, which consisted solely of interest income earned and received during the period in which we were operational.



Cash flows used in investing activities were approximately $89.6 million for the nine months ended September 30, 2005 and consisted primarily of
contributions made to acquire our interests in the DMC Partnership, our investment in a mortgage loan and the payment of acquisition fees and costs. We had no investing activities during the nine months ended September 30, 2004 other than a
deposit on a pending acquisition which was completed in the fourth quarter of 2004.



For the nine months ended September 30, 2005, the net cash flows provided by financing activities were approximately $137.3 million and were primarily attributable to: the receipt of approximately $160.4 million
of subscription proceeds, the payment of approximately $19.8 million in stock issuance costs in connection with the offering, distributions paid to stockholders of approximately $6.1 million, and net borrowings under our line of credit of
approximately $2.8 million. The net cash flows provided by financing activities for the nine months ended September 30, 2004 were approximately $37.8 million and consisted primarily of subscriptions proceeds received of approximately $41.0
million, the payment of approximately $3.2 million in stock issuance costs and distributions paid to stockholders of approximately $0.5 million.



RESULTS OF OPERATIONS



From the time of our formation on August 11, 2003 through June 23, 2004, we had not commenced active operations
because we were in our organizational stage and had not received the minimum required offering amount of $2.5 million (250,000 shares). Operations commenced on June 23, 2004 when we received aggregate subscription proceeds in excess of the
minimum offering amount. We had not made any property acquisitions or other permitted investments as of September 30, 2004. Accordingly, our net loss for the quarter and nine months ended September 30, 2004 consisted solely of general
operating and administrative expenses, interest income and organization costs.



For the quarter and nine months ended September 30, 2005, our net income was approximately $1.8 million and $4.7 million, respectively and net operating expenses were approximately $1.6 million and $3.6 million,
respectively. The overall increase in our operating expenses is directly related to the overall increase in our operating activities and the addition of assets under management as compared to the same period of the prior year when we were in
our organizational stage. Currently, our primary source of income is the equity in earnings generated from our investments in unconsolidated entities. The structure and agreements governing those entities provides us a stated return on our
investment in priority to any returns to our partners. We recognized equity in earnings of approximately $3.0 million and $7.5 million generated from our investments in unconsolidated entities for the quarter and nine months ended September 30,
2005, respectively. See also the description of income recognition for our investments in unconsolidated entities in the section titled Critical Accounting Policies above.



Our results of operations for the quarter and nine months ended September 30, 2005 are not necessarily indicative of
what the results of operations will be for the year ending December 31, 2005.



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OTHER



Funds from Operations



We consider funds from operations (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 Board of Governors of 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
consolidated financial statements and notes thereto.



Reconciliation of net income to FFO for the quarter and nine months ended September 30, 2005 and 2004:



|                                                                                  |  |                             |            |   |                                 |   |           |      |  |   |            |   |  |   |           |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                                  |  | Quarter Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                                                                  |  | 2005                        |            |   | 2004                            |   |           | 2005 |  |   | 2004       |  
|Net income (loss)                                                                 |  | $                           | 1,791,991  |   |                                 | $ | (619,651  | )    |  | $ | 4,660,932  |   |  | $ | (835,122  | )
|                                                                                  |  |                             |            |  
|Adjustments:                                                                      |  |                             |            |   |                                 |   |           |      |  |   |            |   |  |   |           |  
|Equity in earnings of unconsolidated entities                                     |  |                             | (2,979,572 | ) |                                 |   |          |      |  |   | (7,461,670 | ) |  |   |          |  
|Pro-rata share of FFO from unconsolidated entities                                |  |                             | 5,132,901  |   |                                 |   |          |      |  |   | 12,138,324 |   |  |   |          |  
|                                                                                  |  |                             |            |   |                                 |   |           |      |  |   |            |   |  |   |           |  
|Total funds from operations                                                       |  | $                           | 3,945,320  |   |                                 | $ | (619,651  | )    |  | $ | 9,337,586  |   |  | $ | (835,122  | )
|                                                                                  |  |                             |            |   |                                 |   |           |      |  |   |            |   |  |   |           |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                             | 21,031,765 |   |                                 |   | 2,134,059 |      |  |   | 15,944,406 |   |  |   | 2,017,035 |  
|                                                                                  |  |                             |            |   |                                 |   |           |      |  |   |            |   |  |   |           |  
|FFO per share (basic and diluted)                                                 |  | $                           | 0.19       |   |                                 | $ | (0.29     | )    |  | $ | 0.59       |   |  | $ | (0.41     | )
|                                                                                  |  |                             |            |   |                                 |   |           |      |  |   |            |   |  |   |           |  



OFF BALANCE SHEET AND OTHER ARRANGEMENTS



We hold interests in unconsolidated entities that may affect our results of operations, financial liquidity, and capital expenditures. Our equity in
earnings from unconsolidated entities for the quarter and nine months ended September 30, 2005 contributed approximately $3.0 million and $7.5 million, respectively, to our results of operations. The partnership agreements governing the
allocation of cash flows from the entities provide for the payment of a preferred return on our invested capital and thereafter in accordance with specified residual sharing percentages. With respect to our investment in the Intrawest Partnership,
Intrawest may receive a greater return than us when the Resort Village Properties perform at certain levels.



Intrawest executed leases as a tenant for all unleased space at the time that we acquired the Resort Village Properties and guaranteed the leases for all
space then leased to Intrawest or its affiliates. The failure of Intrawest to meet this commitment would put us at risk in the event of a default or vacancy, thereby potentially reducing our expected return.



In connection with the two loans encumbering the Resort Village Properties
(described below), if we engage in certain prohibited activities, we could become liable for the obligations of the unconsolidated entities which own the Resort Village Properties for certain enumerated recourse liabilities related to those entities
and the Resort Village Properties. In the case of the borrowing for the Resort Village Properties located in Canada, our obligations are such that we could become liable for the entire loan if we triggered a default due to bankruptcy or other
similar events.



20



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##### Table of Contents

We may also be responsible for a portion of capital expenditures for the Resort Village Properties. We do
not expect to make any significant capital expenditures or contributions for these properties in the near term.



Borrowings of Our Unconsolidated Entities



Upon closing the first tranche of the acquisition of the Dallas Market Center on February 14, 2005, the DMC Partnership became obligated for
approximately $143 million in existing debt on the DMC Property. The securitized loan bears interest at a blended rate of 6.04% and requires aggregate monthly principal and interest payments of $889,145. The loan matures in September 2014 and allows
prepayment after October 2006 under certain terms and conditions.



On May 25, 2005, upon closing of the second tranche of the acquisition of IFGC, the DMC Partnership became obligated for approximately $17.0 million in existing debt. The IFGC loan bears interest at a fixed rate of 5.45% and requires
aggregate monthly principal and interest payments of $110,663. The loan is amortized over 22-years, matures in September 2012 and allows prepayment after August 2006 under certain terms and conditions.



On December 16, 2004, we completed our acquisition of a portfolio of
resort village properties through our unconsolidated partnership with Intrawest Corporation. In connection with that acquisition, Intrawest Resort Finance, Inc. provided bridge financing in the principal amount of $45.0 million. On May 20,
2005, the $45.0 million bridge loan was refinanced with loans from Sun Life Assurance Company of Canada made to the subsidiary owners of the partnership in the aggregate principal amount of $46.0 million. The loans bear interest at a fixed rate
of 5.75%, require the subsidiary owners of our unconsolidated partnership with Intrawest Corporation to make monthly principal and interest payments in the aggregate amount of $289,389 (based on a 25-year amortization), mature on May 20,
2015, and may not be prepaid except with payment of a premium.



The acquisition of the Canadian Resort Village Properties on December 3, 2004 was funded, in part, with approximately $22.3 million ($26.6 million Canadian dollars) of permanent debt financing secured by a mortgage on the Canadian
Resort Village Properties, which was obtained on December 3, 2004. The loan matures in 2014, bears interest at a fixed rate of 5.83%, requires payments of interest-only for the first two years and thereafter requires monthly payments of
principal and interest based upon a 30-year amortization period.



COMMITMENTS, CONTINGENCIES AND CONTRACTUAL OBLIGATIONS



The following table presents our contingent commitments and contractual obligations and the related payment periods as of
September 30, 2005:



|                                     |  |                 |   |           |   |           |  |                  |           |       |   |   |  |   |          
|------------------------------------ |  | --------------- | - | --------- | - | --------- |  | ---------------- | --------- | ----- | - | - |  | - | ---------
|                                     |  | Payments due in
|                                     |  | Less than1 year |   | Years 1-3 |   | Years 3-5 |  | More than5 years |           | Total
|Line of credit                       |  | $               |  |           | $ | 2,784,299 |  | $                |          |       | $ |  |  | $ | 2,784,299
|Contingent purchase consideration(1) |  |                 |  |           |   |          |  |                  | 3,750,000 |       |   |  |  |   | 3,750,000
|                                     |  |                 |   |           |   |           |  |                  |           |       |   |   |  |   |          
|Total contractual obligations        |  | $               |  |           | $ | 2,784,299 |  | $                | 3,750,000 |       | $ |  |  | $ | 6,534,299
|                                     |  |                 |   |           |   |           |  |                  |           |       |   |   |  |   |          

---

FOOTNOTES:



|(1) | In connection with the purchase of the resort village property located at Copper Mountain, Colorado, the Intrawest Partnership agreed to pay additional future purchase
consideration contingent upon the Copper Mountain property achieving certain levels of financial performance, as specified in the purchase and sale agreement. The amount of the contingent purchase price will be determined as
of December 31, 2008, and in no event, will the amount exceed $3.75 million. We have guaranteed the payment of the contingent purchase price to Intrawest on behalf of the Intrawest Partnership.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subsequent to September 30, 2005, we entered into the Wolf Partnership.
In connection with our investment in the Wolf Partnership, Great Wolf may receive additional funds up to $3.0 million per waterpark resort if those properties achieve certain financial performance goals during 2007 and 2008.



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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 and to make loans and other permitted
investments. Our interest rate risk management objectives will be 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 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.



As of September 30, 2005, we did not have any direct borrowings under long-term debt. However, on May 25, 2005 we closed on a $5.0 million
revolving line of credit, on which we had drawn approximately $2.8 million as of September 30, 2005. The line is used primarily for working capital needs, distributions to stockholders and bridge financing on real estate investments. The line
of credit is unsecured, bears interest at the 30-day LIBOR plus 2.25% (5.73% for the quarter ended September 30, 2005) and has a term of two years.



On September 29, 2005, we made a $3.0 million loan to a subsidiary of Consolidated Conversions, LLC, which was used toward the purchase of the
295-room Holiday Inn Main Gate West for conversion to a condominium hotel. The property is located in Kissimmee, Florida, which is west of Walt Disney World. Our loan earns interest at a rate of 15% per year and requires monthly interest
payments based on an annual percentage rate of 8.5% with the remaining 6.5% becoming due and payable upon the loans maturity or earlier upon the sale of the condominium hotel units. The term of the loan is 18 months and may be extended by the
borrower for up to three additional six-month periods. The loan may be prepaid at anytime, but in no event will we receive less than our 15% return for at least one year.



We are indirectly exposed to foreign currency risk related to our investment in unconsolidated Canadian entities. We are
also indirectly exposed to credit risk and interest rate risk due to the properties, mortgages and leasing activities in our unconsolidated entities. However, we believe our risk of foreign exchange loss and exposure to credit and interest rate
risks are adequately mitigated as a result of our right to receive a preferred return on our investment from our investments in unconsolidated entities.



Item 4. Controls and Procedures



Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has carried out 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 quarterly report. Based upon that evaluation, our management, including
our Chief Executive Officer and Chief Financial Officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective, in alerting our management in a timely manner to information
required to be disclosed in our periodic SEC filings.



Included
as Exhibits 31.1 and 31.2 to this quarterly report on Form 10-Q are Certifications of the Companys Chief Executive Officer and Chief Financial Officer. The certifications are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002. This section of the quarterly report on Form 10-Q contains the information concerning the evaluation referred to in the Section 302 certifications. This information should be read in conjunction with the
Section 302 certifications for a more complete understanding of the topics presented.



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



PART II OTHER INFORMATION



Item 1. Legal Proceedings None



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##### Table of Contents

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



Use of Proceeds from Registered Securities



As of September 30, 2005, we sold $247.1 million (24,770,899 shares), in connection with the Offering. The shares sold and the gross offering proceeds received from such sales do not include the 20,000 shares
purchased by the Advisor for $200,000 preceding the commencement of the initial offering or the $1.2 million (117,708 restricted common shares) issued in December 2004 to CNL Financial Group, Inc., a company affiliated with our Advisor and wholly
owned indirectly by our chairman of the board and his wife. As of September 30, 2005, we had also redeemed 24,193 shares at $9.50 per share for a total of $229,834, sold $3.6 million (375,225 shares) in connection with our distribution
reinvestment plan and incurred the following expenses in connection with the issuance of our registered securities:



|                                                 |  |   |           
|------------------------------------------------ |  | - | ----------
|Selling commissions                              |  | $ | 15,525,972
|Marketing support fee and due diligence expenses |  |   | 5,983,665 
|Offering costs and expenses                      |  |   | 11,089,088
|                                                 |  |   |           
|Offering and stock issuance costs(1)             |  | $ | 32,598,725
|                                                 |  |   |           

---

FOOTNOTES:



|(1) | The total amount of selling commissions, marketing support fees, due diligence expense reimbursements and other organizational and offering expenses are subject to an expense cap
and may not exceed 13% of the gross offering proceeds. An additional $6.7 million of costs incurred in connection with the Offering (exceeding the 13% expense cap) have been deferred as of September 30, 2005. The deferred offering costs will be
deducted from future offering proceeds and reimbursed to affiliates to the extent that the costs are within the 13% limitation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Selling commissions, marketing support fee and due diligence expenses are paid to CNL Securities Corp., an affiliate of our Advisor which acts as our
managing dealer, and a substantial portion of the selling commissions, marketing support fee and 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 $214.5 million at September 30, 2005. As of September 30, 2005, we invested approximately $122.8 million in properties and other permitted investments.



Redemption of Shares



Pursuant to the redemption of shares provisions of our prospectus dated
April, 18, 2005, any stockholder who has held shares for not less than one year may present all or any portion equal to at least 25% of their shares to us for redemption. 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% of our outstanding common stock at the beginning of such 12-month period. For the quarter and nine months ended September 30,
2005, we have redeemed the following shares:



|                           |  |                                |  |                |      |        |   |        
|-------------------------- |  | ------------------------------ |  | -------------- | ---- | ------ | - | -------
|Period                     |  | Total Number ofShares Redeemed |  | Price PerShare |      | Amount
|July 1 September 30, 2005 |  | 24,193                         |  | $              | 9.50 |        | $ | 229,834



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 as part of this report.



|     |  |                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Purchase and Sale Agreement between Whistler Mountain Resort Limited Partnership and Intrawest Corporation as Sellers and US Canadian Trust Alpha as Purchaser dated as of December 3,
2004 (Previously filed as Exhibit 2.1 to the Report on Form 8-K filed December 9, 2004, and incorporated herein by reference.)                                                  
|     | 
|2.2  |  | Purchase and Sale Agreement (Copper Mountain Commercial Properties) between the Sellers and CNL Village Retail Partnership, LP as Purchaser dated as of December 3, 2004 (Previously filed
as Exhibit 2.2 to the Report on Form 8-K filed December 9, 2004, and incorporated herein by reference.)                                                                     
|     | 
|2.3  |  | Schedule of Omitted Purchase and Sale Agreements (Previously filed as Exhibit 2.3 to the Report on Form 8-K filed December 17, 2004, and incorporated herein by
reference.)                                                                                                                                                                                            
|     | 
|2.4  |  | Amended and Restated Partnership Interest Purchase Agreement by and between CNL Income Properties, Inc. and Dallas Market Center Company, Ltd. as of January 14, 2005 (Previously filed as
Exhibit 2.4 to Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)
|     | 
|3.1  |  | CNL Income Properties, Inc. Amended and Restated Articles of Incorporation (Previously filed as Exhibit 3.3 to the Registration Statement on Form S-11 (File No. 333-108355) filed March 16,
2004, and incorporated herein by reference.)                                                                                                                              
|     | 
|3.2  |  | CNL Income Properties, Inc. Bylaws (Previously filed as Exhibit 3.4 to the Registration Statement on Form S-11 (File No. 333-108355) filed March 16, 2004, and incorporated herein by
reference.)                                                                                                                                                                      
|     | 
|3.3  |  | Articles of Amendment to the Amended and Restated Articles of Incorporation of CNL Income Properties, Inc. (Previously filed as Exhibit 3.5 to the Registration Statement on Form S-11 (File
No. 333-108355) filed April 9, 2004, and incorporated herein by reference.)                                                                                               
|     | 
|3.4  |  | Amendment No. One to the Bylaws of CNL Income Properties, Inc. (Previously filed as Exhibit 3.1 to the Report on Form 8-K filed on May 9, 2005 (File No. 000-51288) and incorporated herein
by reference.)                                                                                                                                                             
|     | 
|3.5  |  | Amendment No. Two to the Bylaws of CNL Income Properties, Inc. (Previously filed as Exhibit 3.1 to the Report on Form 8-K filed on September 23, 2005 (File No. 000-51288) and incorporated
herein by reference.)                                                                                                                                                      
|     | 
|4.1  |  | CNL Income Properties, Inc. Amended and Restated Articles of Incorporation (Previously filed as Exhibit 3.3 to the Registration Statement on Form S-11 (File No. 333-108355) filed March 16,
2004, and incorporated herein by reference.)                                                                                                                              
|     | 
|4.2  |  | CNL Income Properties, Inc. Bylaws (Previously filed as Exhibit 3.4 to the Registration Statement on Form S-11 (File No. 333-108355) filed March 16, 2004, and incorporated herein by
reference.)                                                                                                                                                                      
|     | 
|4.3  |  | Articles of Amendment to the Amended and Restated Articles of Incorporation of CNL Income Properties, Inc. (Previously filed as Exhibit 3.5 to the Registration Statement on Form S-11 (File
No. 333-108355) filed April 9, 2004, and incorporated herein by reference.)                                                                                               
|     | 
|4.4  |  | Amendment No. One to the Bylaws of CNL Income Properties, Inc. (Previously filed as Exhibit 3.1 to the Report on Form 8-K filed on May 9, 2005 (File No. 000-51288) and incorporated herein
by reference.)                                                                                                                                                             
|     | 
|4.5  |  | Form of Reinvestment Plan (Included in the Prospectus as Appendix A and incorporated herein by reference.)                                                                                                                                                                                                                                                             
|     | 
|4.6  |  | Amendment No. Two to the Bylaws of CNL Income Properties, Inc. (Previously filed as Exhibit 3.1 to the Report on Form 8-K filed on September 23, 2005 (File No. 000-51288) and incorporated
herein by reference.)                                                                                                                                                      
|     | 
|10.1 |  | Form of Escrow Agreement between CNL Income Properties and SouthTrust Bank (Previously filed as Exhibit 10.1 to the Registration Statement on Form S-11 (File No. 333-108355) filed March
16, 2004, and incorporated herein by reference.)                                                                                                                             



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2  |  | Advisory Agreement dated April 20, 2005 (Previously filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the period ended March 31, 2005, filed May 11, 2005 and
incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                                                            
|      | 
|10.3  |  | Form of Reinvestment Plan (Included in the Prospectus as Appendix A and incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      | 
|10.4  |  | Indemnification Agreement between CNL Income Properties, Inc. and James M. Seneff, Jr. dated March 2, 2004. Each of the following directors and/or officers has signed a substantially similar
agreement: Robert A. Bourne, Bruce Douglas, Dennis N. Folken, Robert J. Woody dated March 2, 2004 and Thomas J. Hutchison III, R. Byron Carlock, Jr., Tammie A. Quinlan and Charles A. Muller dated April 19, 2004. (Previously filed as Exhibit 10.4
to the Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed August 4, 2004 and incorporated herein by reference.)
|      | 
|10.5  |  | Credit Agreement dated December 3, 2004 between R&H US Canadian Property Limited, Borrower and CNL Income Partners, LP, Lender (Previously filed as Exhibit 10.5 to Post-Effective
Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                                                        
|      | 
|10.6  |  | Credit Agreement dated December 3, 2004 between R&H US Canadian Property Limited, Borrower and Intrawest Resorts, Inc., Lender (Previously filed as Exhibit 10.6 to Post-Effective
Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                                                        
|      | 
|10.7  |  | Master Lease Agreement dated December 3, 2004 by and between Whistler Mountain Resort Limited Partnership, as Landlord and CNL Income Canada Lessee Corp., as Tenant (Previously filed as
Exhibit 10.7 to Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                  
|      | 
|10.8  |  | Schedule of Omitted Lease Agreements (Previously filed as Exhibit 10.8 to Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3,
2005, and incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                                  
|      | 
|10.9  |  | Property Management Agreement dated December 3, 2004 between Playground Real Estate Ltd. (Manager) and CNL Income Canada Lessee Corp. (Head Lessee) (Previously filed as Exhibit 10.9 to
Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                                   
|      | 
|10.10 |  | Property Management Agreement dated as of December 3, 2004 between Intrawest U.S. Commercial Property Management, Inc. (Manager) and CNL Income Mammoth, LP (Owner) (Previously filed as
Exhibit 10.10 to Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                  
|      | 
|10.11 |  | Schedule of Omitted Management Agreements (Previously filed as Exhibit 10.11 to Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed
March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                            
|      | 
|10.12 |  | Loan Agreement dated December 16, 2004 between CNL Village Retail Partnership, LP, Borrower and Intrawest Resort Finance, Inc., Lender (Previously filed as Exhibit 10.12 to Post-Effective
Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                                                                                                                                                               
|      | 
|10.13 |  | R&H US Canadian Property Limited, US Canadian Property Alpha Blue Mountain Nominee Corp., and US Canadian Property Alpha Whistler Nominee Corp, Borrowers and Congress Financial
Corporation (Canada), Lender, Loan Agreement (Previously filed as Exhibit 10.13 to Post-Effective Amendment No. One to the Registration Statement on Form S-11 (File No. 333-108355) filed March 3, 2005, and incorporated herein by
reference.)                                                                                                                                                        
|      | 
|10.14 |  | Amended and Restated Limited Partnership Agreement of CNL Village Retail Partnership, LP dated December 3, 2004 (Previously filed as Exhibit 10.5 to the Report on Form 8-K filed December
9, 2004, and incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                               



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Master Lease dated as of February 14, 2005 by and between WTC-Trade Mart, L.P., Landlord and Dallas Market Center Operating, L.P., Tenant (Previously filed as Exhibit 10.15 to
Post-Effective Amendment No. One to the Registration Statement on Form S-11(File No. 333-108355) filed March 3, 2005, and incorporated herein by reference.)                                                                                                           
|      | 
|10.16 |  | Loan Agreement dated as of August 2, 2004 between WTC-Trade Mart, L.P., as Borrower and Bank of America, N.A., as Lender (Previously filed as Exhibit 10.16 to Post-Effective Amendment No.
Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by reference.)                                                                                                                        
|      | 
|10.17 |  | Contribution of Partnership Interests and Membership Interests Agreement dated as of February 14, 2005 by and between Dallas Market Center Company, Ltd. and CNL Dallas Market Center, L.P.
(Previously filed as Exhibit 10.17 to Post-Effective Amendment No. Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by reference.)                                                     
|      | 
|10.18 |  | Master Lease dated as of May 20, 2005 by and between IFDC Property Company, Ltd., Landlord and IFDC Operating, L.P., Tenant (Previously filed as Exhibit 10.18 to Post-Effective Amendment
No. Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by reference.)                                                                                                                     
|      | 
|10.19 |  | Loan Agreement dated as of August 8, 2003 by and between IFDC Property Company, Ltd., as Borrower and Bank of America, N.A., as Lender (Previously filed as Exhibit 10.19 to Post-Effective
Amendment No. Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by reference.)                                                                                                          
|      | 
|10.20 |  | Contribution of Partnership Interests and Membership Interests Agreement dated as of May 20, 2005 by and between Dallas Market Center Company, Ltd. and CNL Dallas Market Center, L.P.
(Previously filed as Exhibit 10.20 to Post-Effective Amendment No. Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by reference.)                                                          
|      | 
|10.21 |  | Loan Agreement dated as of May 20, 2005 by and between Branch Banking and Trust Company, Lender and CNL Income Properties, Inc., Borrower (Previously filed as Exhibit 10.21 to
Post-Effective Amendment No. Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by reference.)                                                                                                       
|      | 
|10.22 |  | Loan Agreement dated as of May 20, 2005, by and between CNL Income Copper, LP, CNL Income Sandestin, LP, CNL Income Mammoth, LP, CNL Income Snowshoe, LP, and CNL Income Stratton, LP,
Borrowers and Sunlife Assurance Company of Canada, Lender (Previously filed as Exhibit 10.22 to Post-Effective Amendment No. Three to the Registration Statement on Form S-11(File No. 333-108355) filed on June 15, 2005 and incorporated herein by
reference.)
|      | 
|10.23 |  | Venture Formation and Contribution Agreement by and between CNL Income Partners, LP, Great Bear Lodge of Wisconsin Dells, LLC, Great Bear Lodge of Sandusky, LLC and Great Wolf Resorts, Inc.
(Previously filed as Exhibit 10.1 to the Report on Form 8-K filed October 4, 2005 and incorporated herein by reference.)                                                                                                                                 
|      | 
|10.24 |  | Amended and Restated Limited Partnership Agreement of CNL Income GW Partnership, LLLP dated as of October 11, 2005 (Previously filed as Exhibit 10.1 to the Report on Form 8-K filed October
14, 2005 and incorporated herein by reference.)                                                                                                                                                                                                           
|      | 
|10.25 |  | Development Agreement for Wisconsin Dells Addition (Previously filed as Exhibit 10.2 to the Report on Form 8-K filed October 14, 2005 and incorporated herein by
reference.)                                                                                                                                                                                                                                                                           
|      | 
|10.26 |  | Development Agreement by and between WTC  Trade Mart L.P. and Dallas Market Center Operating, L.P. (Previously filed as Exhibit 10.3 to the Report on Form 8-K filed October 14, 2005
and incorporated herein by reference.)                                                                                                                                                                                                                          
|      | 
|31.1  |  | Certification of Chief Executive Officer of CNL Income Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)                                                                                                                                                                                                                                                           



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|     |  |                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of Chief Financial Officer of CNL Income 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 the Chief Executive Officer of CNL Income 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 the Chief Financial Officer of CNL Income 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 8th day of November, 2005.



CNL INCOME PROPERTIES, INC.By:

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

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




28