##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---



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

For the quarterly period ended June 30, 2007

OR



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

For the transition period from  to

Commission file number

000-51288



---

CNL Income Properties, Inc.

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 20-0183627                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)



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

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



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



---

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  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 August 7, 2007 was 175,524,643.



---



---

##### Table of Contents

TABLE OF CONTENTS



|                              |  |                                                                                                 |  |        
|----------------------------- |  | ----------------------------------------------------------------------------------------------- |  | -------
|                              |  |                                                                                                 |  | Page   
|PART I. FINANCIAL INFORMATION |  |                                                                                                
|                              |  |                                                                                                
|Item 1.                       |  | Financial Statements (unaudited):                                                               |  |        
|                              |  |                                                                                                
|                              |  | Condensed Consolidated Balance Sheets                                                           |  | 1      
|                              |  |                                                                                                
|                              |  | Condensed Consolidated Statements of Operations                                                 |  | 2      
|                              |  |                                                                                                
|                              |  | Condensed Consolidated Statements of Stockholders Equity and Other Comprehensive Income (Loss) |  | 3      
|                              |  |                                                                                                
|                              |  | Condensed Consolidated Statements of Cash Flows                                                 |  | 4      
|                              |  |                                                                                                
|                              |  | Notes to Condensed Consolidated Financial Statements                                            |  | 5  16 
|                              |  |                                                                                                
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 17  28
|                              |  |                                                                                                
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                      |  | 28  29
|                              |  |                                                                                                
|Item 4T.                      |  | Controls and Procedures                                                                         |  | 29     
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                
|                              |  |                                                                                                
|Item 1.                       |  | Legal Proceedings                                                                               |  | 29     
|                              |  |                                                                                                
|Item 1A.                      |  | Risk Factors                                                                                    |  | 29     
|                              |  |                                                                                                
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                     |  | 30  31
|                              |  |                                                                                                
|Item 3.                       |  | Defaults Upon Senior Securities                                                                 |  | 31     
|                              |  |                                                                                                
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                             |  | 31  32
|                              |  |                                                                                                
|Item 5.                       |  | Other Information                                                                               |  | 32     
|                              |  |                                                                                                
|Item 6.                       |  | Exhibits                                                                                        |  | 32     
|                              | 
|Signatures                    |  | 33                                                                                             
|                              | 
|Exhibits                      |  |                                                                                                



---

##### Table of Contents

PART I FINANCIAL INFORMATION



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

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands except per share data)



|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                           |  | June 30,2007 |           |   | December 31,2006 |  
|ASSETS                                                                                                                                                                                                     |  |              |           |   |                  |   |           |  
|Real estate investment properties under operating leases, net                                                                                                                                              |  | $            | 1,095,372 |   |                  | $ | 464,892   |  
|Cash                                                                                                                                                                                                       |  |              | 310,720   |   |                  |   | 296,163   |  
|Investments in unconsolidated entities                                                                                                                                                                     |  |              | 174,479   |   |                  |   | 178,672   |  
|Mortgages and other notes receivable                                                                                                                                                                       |  |              | 124,839   |   |                  |   | 106,356   |  
|Intangibles, net                                                                                                                                                                                           |  |              | 33,244    |   |                  |   | 21,034    |  
|Prepaid expenses and other assets                                                                                                                                                                          |  |              | 29,596    |   |                  |   | 25,928    |  
|Accounts and other receivables                                                                                                                                                                             |  |              | 13,373    |   |                  |   | 3,269     |  
|Restricted cash                                                                                                                                                                                            |  |              | 5,064     |   |                  |   | 1,235     |  
|Deposits on pending real estate investments                                                                                                                                                                |  |              | 1,000     |   |                  |   | 6,150     |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|Total Assets                                                                                                                                                                                               |  | $            | 1,787,687 |   |                  | $ | 1,103,699 |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                           |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                       |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                           |  |             
|Mortgages and other notes payable                                                                                                                                                                          |  | $            | 268,797   |   |                  | $ | 69,996    |  
|Security deposits                                                                                                                                                                                          |  |              | 31,820    |   |                  |   | 14,720    |  
|Other liabilities                                                                                                                                                                                          |  |              | 9,601     |   |                  |   | 3,634     |  
|Line of credit                                                                                                                                                                                             |  |              | 6,000     |   |                  |   | 3,000     |  
|Due to affiliates                                                                                                                                                                                          |  |              | 5,245     |   |                  |   | 11,084    |  
|Accounts payable and accrued expenses                                                                                                                                                                      |  |              | 3,929     |   |                  |   | 2,071     |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|Total Liabilities                                                                                                                                                                                          |  |              | 325,392   |   |                  |   | 104,505   |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|Commitments and contingencies                                                                                                                                                                              |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                           |  |             
|Rescindable common stock (4,485 and 2,169 shares issued and outstanding, respectively)                                                                                                                     |  |              | 44,848    |   |                  |   | 21,688    |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                           |  |             
|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; 166,160 and 114,035 shares issued and 165,659 and 113,731 shares
outstanding as of June 30, 2007 and December 31, 2006, respectively |  |              | 1,656     |   |                  |   | 1,137     |  
|Capital in excess of par value                                                                                                                                                                             |  |              | 1,455,627 |   |                  |   | 997,826   |  
|Accumulated earnings                                                                                                                                                                                       |  |              | 44,114    |   |                  |   | 25,285    |  
|Accumulated distributions                                                                                                                                                                                  |  |              | (85,143   | ) |                  |   | (44,995   | )
|Accumulated other comprehensive loss                                                                                                                                                                       |  |              | 1,193     |   |                  |   | (1,747    | )
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|                                                                                                                                                                                                           |  |              | 1,417,447 |   |                  |   | 977,506   |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  
|Total Liabilities and Stockholders Equity                                                                                                                                                                 |  | $            | 1,787,687 |   |                  | $ | 1,103,699 |  
|                                                                                                                                                                                                           |  |              |           |   |                  |   |           |  

See accompanying notes to condensed consolidated financial statements.



1



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands except per
share data)



|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | --------------------- | ------- | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                                  |  | Quarter EndedJune 30, |         |   | Six Months EndedJune 30, |  
|                                                                                  |  | 2007                  |         |   | 2006                     |   |        | 2007 |  |   | 2006    |  
|Revenues:                                                                         |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Rental income from operating leases                                               |  | $                     | 28,780  |   |                          | $ | 2,060  |      |  | $ | 48,709  |   |  | $ | 2,824  |  
|Interest income on mortgages and other notes receivable                           |  |                       | 2,755   |   |                          |   | 1,579  |      |  |   | 5,834   |   |  |   | 2,081  |  
|Other operating income                                                            |  |                       | 2,420   |   |                          |   |       |      |  |   | 3,439   |   |  |   |       |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Total revenue                                                                     |  |                       | 33,955  |   |                          |   | 3,639  |      |  |   | 57,982  |   |  |   | 4,905  |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Expenses:                                                                         |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Asset management fees to advisor                                                  |  |                       | 3,511   |   |                          |   | 1,214  |      |  |   | 6,297   |   |  |   | 2,219  |  
|General and administrative                                                        |  |                       | 2,418   |   |                          |   | 1,172  |      |  |   | 4,355   |   |  |   | 2,175  |  
|Ground lease and permit fees                                                      |  |                       | 1,367   |   |                          |   | 191    |      |  |   | 2,566   |   |  |   | 287    |  
|Depreciation and amortization                                                     |  |                       | 14,481  |   |                          |   | 1,007  |      |  |   | 24,626  |   |  |   | 1,177  |  
|Other operating expenses                                                          |  |                       | 1,538   |   |                          |   |       |      |  |   | 2,513   |   |  |   |       |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Total expenses                                                                    |  |                       | 23,315  |   |                          |   | 3,584  |      |  |   | 40,357  |   |  |   | 5,858  |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Operating income (loss)                                                           |  |                       | 10,640  |   |                          |   | 55     |      |  |   | 17,625  |   |  |   | (953   | )
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|                                                                                  |  |                       |         |  
|Other income (expense):                                                           |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Interest and other income                                                         |  |                       | 2,689   |   |                          |   | 1,756  |      |  |   | 4,803   |   |  |   | 3,158  |  
|Interest expense and loan cost amortization                                       |  |                       | (4,142  | ) |                          |   | (91    | )    |  |   | (5,583  | ) |  |   | (171   | )
|Equity in earnings of unconsolidated entities                                     |  |                       | 1,080   |   |                          |   | 2,857  |      |  |   | 1,984   |   |  |   | 6,821  |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Total other income (expense)                                                      |  |                       | (373    | ) |                          |   | 4,522  |      |  |   | 1,204   |   |  |   | 9,808  |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Net income                                                                        |  | $                     | 10,267  |   |                          | $ | 4,577  |      |  | $ | 18,829  |   |  | $ | 8,855  |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Earnings per share of common stock (basic and diluted)                            |  | $                     | 0.07    |   |                          | $ | 0.09   |      |  | $ | 0.14    |   |  | $ | 0.18   |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                       | 151,232 |   |                          |   | 53,658 |      |  |   | 137,809 |   |  |   | 49,014 |  
|                                                                                  |  |                       |         |   |                          |   |        |      |  |   |         |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.



2



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2007 and Year Ended December 31, 2006 (UNAUDITED)

(in thousands except per share data)



|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                         |   |  |                               |        |  |                          |         |   |                            |   |        |   |  |   |           |   |  |   |        |  
|------------------------------------------------------------------------------------- |  | --------------- | - |  | ---------------------------- | ----- | - | ------------------- | - | ----------------------- | - |  | ----------------------------- | ------ |  | ------------------------ | ------- | - | -------------------------- | - | ------ | - |  | - | --------- | - |  | - | ------ | -
|                                                                                      |  | Common
Stock    |   |  | Capital inExcess ofPar Value |       |   | AccumulatedEarnings |   | AccumulatedDistribution |   |  | Accumulated ComprehensiveLoss |        |  | TotalStockholdersEquity |         |   | ComprehensiveIncome (Loss) |  
|                                                                                      |  | Numberof Shares |   |  | ParValue                     |       |   |                     |   |                         |   | 
|Balance at December 31, 2005                                                          |  | 37,978          |   |  | $                            | 380   |   |                     | $ | 329,621                 |   |  | $                             | 5,900  |  | $                        | (11,269 | ) |                            | $ |       |   |  | $ | 324,632   |   |  |   |        |  
|Subscriptions received for common stock through public offering and reinvestment plan |  | 76,033          |   |  |                              | 760   |   |                     |   | 753,269                 |   |  |                               |       |  |                          |        |   |                            |   |       |   |  |   | 754,029   |   |  |   |        |  
|Redemption of common stock                                                            |  | (280            | ) |  |                              | (3    | ) |                     |   | (2,655                  | ) |  |                               |       |  |                          |        |   |                            |   |       |   |  |   | (2,658    | ) |  |   |        |  
|Stock issuance and offering costs                                                     |  |                |   |  |                              |      |   |                     |   | (82,409                 | ) |  |                               |       |  |                          |        |   |                            |   |       |   |  |   | (82,409   | ) |  |   |        |  
|Net income                                                                            |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               | 19,385 |  |                          |        |   |                            |   |       |   |  |   | 19,385    |   |  |   | 19,385 |  
|Distributions, declared and paid ($0.5622 per share)                                  |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               |       |  |                          | (33,726 | ) |                            |   |       |   |  |   | (33,726   | ) |  |   |        |  
|Foreign currency translation adjustment                                               |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               |       |  |                          |        |   |                            |   | (1,747 | ) |  |   | (1,747    | ) |  |   | (1,747 | )
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                         |   |  |                               |        |  |                          |         |   |                            |   |        |   |  |   |           |   |  |   |        |  
|Total comprehensive income                                                            |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               |       |  |                          |        |   |                            |   |       |   |  |   |          |   |  | $ | 17,638 |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                         |   |  |                               |        |  |                          |         |   |                            |   |        |   |  |   |           |   |  |   |        |  
|Balance at December 31, 2006                                                          |  | 113,731         |   |  | $                            | 1,137 |   |                     | $ | 997,826                 |   |  | $                             | 25,285 |  | $                        | (44,995 | ) |                            | $ | (1,747 | ) |  | $ | 977,506   |   |  |   |        |  
|Subscriptions received for common stock through public offering and reinvestment plan |  | 52,226          |   |  |                              | 521   |   |                     |   | 514,292                 |   |  |                               |       |  |                          |        |   |                            |   |       |   |  |   | 514,813   |   |  |   |        |  
|Redemption of common stock                                                            |  | (197            | ) |  |                              | (2    | ) |                     |   | (1,870                  | ) |  |                               |       |  |                          |        |   |                            |   |       |   |  |   | (1,872    | ) |  |   |        |  
|Stock issuance and offering costs                                                     |  |                |   |  |                              |      |   |                     |   | (54,621                 | ) |  |                               |       |  |                          |        |   |                            |   |       |   |  |   | (54,621   | ) |  |   |        |  
|Net income                                                                            |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               | 18,829 |  |                          |        |   |                            |   |       |   |  |   | 18,829    |   |  |   | 18,829 |  
|Distributions, declared and paid ($0.30 per share)                                    |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               |       |  |                          | (40,148 | ) |                            |   |       |   |  |   | (40,148   | ) |  |   |        |  
|Foreign currency translation adjustment                                               |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               |       |  |                          |        |   |                            |   | 2,940  |   |  |   | 2,940     |   |  |   | 2,940  |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                         |   |  |                               |        |  |                          |         |   |                            |   |        |   |  |   |           |   |  |   |        |  
|Total comprehensive income                                                            |  |                |   |  |                              |      |   |                     |   |                        |   |  |                               |       |  |                          |        |   |                            |   |       |   |  |   |          |   |  | $ | 21,769 |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                         |   |  |                               |        |  |                          |         |   |                            |   |        |   |  |   |           |   |  |   |        |  
|Balance at June 30, 2007                                                              |  | 165,760         |   |  | $                            | 1,656 |   |                     | $ | 1,455,627               |   |  | $                             | 44,114 |  | $                        | (85,143 | ) |                            | $ | 1,193  |   |  | $ | 1,417,447 |   |  |   |        |  
|                                                                                      |  |                 |   |  |                              |       |   |                     |   |                         |   |  |                               |        |  |                          |         |   |                            |   |        |   |  |   |           |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.



3



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



|                                                                        |  |                          |          |   |      |   |          |  
|----------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                        |  | Six Months EndedJune 30, |         
|                                                                        |  | 2007                     |          |   | 2006 |  
|Increase (decrease) in cash:                                            |  |                          |          |   |      |   |          |  
|Operating activities:                                                   |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                               |  | $                        | 51,955   |   |      | $ | 14,473   |  
|                                                                        |  |                          |          |   |      |   |          |  
|                                                                        |  |                         
|Investing activities:                                                   |  |                          |          |   |      |   |          |  
|Acquisition of properties                                               |  |                          | (612,799 | ) |      |   | (106,224 | )
|Investments in unconsolidated entities                                  |  |                          | (216     | ) |      |   | (13,276  | )
|Distribution of loan proceeds from unconsolidated entity                |  |                          |         |   |      |   | 43,515   |  
|Issuance of mortgage loans receivable                                   |  |                          | (17,000  | ) |      |   | (51,800  | )
|Deposits applied toward real estate investments                         |  |                          | 5,150    |   |      |   | 1,000    |  
|Acquisition costs and fees paid                                         |  |                          | (22,941  | ) |      |   | (8,728   | )
|Short-term investments                                                  |  |                          | (35      | ) |      |   | (8,000   | )
|Increase in restricted cash                                             |  |                          | (3,829   | ) |      |   | (1,047   | )
|                                                                        |  |                          |          |   |      |   |          |  
|Net cash used in investing activities                                   |  |                          | (651,670 | ) |      |   | (144,560 | )
|                                                                        |  |                          |          |   |      |   |          |  
|                                                                        |  |                         
|Financing activities:                                                   |  |                          |          |   |      |   |          |  
|Subscriptions received from stockholders (including rescindable shares) |  |                          | 537,974  |   |      |   | 197,060  |  
|Redemptions of common stock                                             |  |                          | (1,872   | ) |      |   | (577     | )
|Stock issuance costs                                                    |  |                          | (61,222  | ) |      |   | (17,834  | )
|Borrowings under line of credit, net of payments                        |  |                          | 3,000    |   |      |   | 2,777    |  
|Proceeds from mortgage loans and other notes payables                   |  |                          | 178,179  |   |      |   |         |  
|Principal payments on mortgage loans                                    |  |                          | (1,378   | ) |      |   |         |  
|Payment of loan costs                                                   |  |                          | (3,201   | ) |      |   | (138     | )
|Distributions to stockholders                                           |  |                          | (40,148  | ) |      |   | (13,094  | )
|                                                                        |  |                          |          |   |      |   |          |  
|Net cash provided by financing activities                               |  |                          | 611,332  |   |      |   | 168,194  |  
|                                                                        |  |                          |          |   |      |   |          |  
|Effect of exchange rate fluctuations on cash                            |  |                          | 2,940    |   |      |   | (472     | )
|                                                                        |  |                          |          |   |      |   |          |  
|Net increase in cash                                                    |  |                          | 14,557   |   |      |   | 37,635   |  
|Cash at beginning of period                                             |  |                          | 296,163  |   |      |   | 93,805   |  
|                                                                        |  |                          |          |   |      |   |          |  
|Cash at end of period                                                   |  | $                        | 310,720  |   |      | $ | 131,440  |  
|                                                                        |  |                          |          |   |      |   |          |  
|                                                                        |  |                         
|Supplemental disclosure of non-cash investing activities:               |  |                          |          |   |      |   |          |  
|Amounts incurred but not paid (included in due to affiliates):          |  |                          |          |   |      |   |          |  
|Acquisition fees and costs                                              |  | $                        | 1,981    |   |      | $ | 1,141    |  
|                                                                        |  |                          |          |   |      |   |          |  
|Allocation of acquisition fees to real estate investments               |  | $                        | 23,862   |   |      | $ | 4,506    |  
|                                                                        |  |                          |          |   |      |   |          |  
|Allocation of acquisition fees to mortgages and other notes payable     |  | $                        | 480      |   |      | $ | 2,072    |  
|                                                                        |  |                          |          |   |      |   |          |  
|Assumption of capital leases in connection with acquisition             |  | $                        | 3,069    |   |      | $ |         |  
|                                                                        |  |                          |          |   |      |   |          |  
|Note payable obtained in connection with acquisition                    |  | $                        | 22,000   |   |      | $ |         |  
|                                                                        |  |                          |          |   |      |   |          |  
|                                                                        |  |                         
|Supplemental disclosure of non-cash financing activities:               |  |                          |          |   |      |   |          |  
|Amounts incurred but not paid (included in due to affiliates):          |  |                          |          |   |      |   |          |  
|Offering and stock issuance costs                                       |  | $                        | 1,685    |   |      | $ | 7,739    |  
|                                                                        |  |                          |          |   |      |   |          |  

See accompanying notes to condensed consolidated financial statements.



4



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2007

(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. 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 invests in lifestyle properties in the United States and Canada that are 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. To a lesser extent, the Company also leases properties to taxable REIT subsidiary
(TRS) tenants and engages independent third-party managers to operate those properties. In addition, the Company offers mortgage, mezzanine and other loans related to interests in lifestyle real estate. As of June 30, 2007, the
Company had invested in seven destination retail properties, one merchandise mart, 21 golf courses, one dealership, eight ski and mountain lifestyle properties, seven marinas and 24 attractions. The Company has also made 11 loans, ten of which are
outstanding.



|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 six months ended June 30, 2007 may not be indicative of the results that may be expected for the year ending December 31, 2007. Amounts as of
December 31, 2006 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date, but do not include all disclosures required by accounting principles
generally accepted in the United States of America. 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, 2006.

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

Use of Estimates  The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements  In February 2007, the Financial Accounting Standard Board (the FASB) issued Statement of Financial Accounting Standard No. 159, Fair Value Option
for Financial Assets and Financial Liabilities (FAS 159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of FAS 157
Fair Value Measurement discussed below. The application of this pronouncement is effective in fiscal periods beginning after November 15, 2007 and is not expected to have a significant impact on the Companys current practice
nor on its financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 157, Fair Value Measurement (FAS 157). FAS 157 creates consistency in valuing all assets and liabilities. Fair value is defined as what would be received to sell an asset or paid to transfer a liability in a transaction between
market participants at the measurement date. FAS 157 requires certain methods to be used to measure fair value and expands disclosures about fair value measurements. The application of this pronouncement is effective in fiscal periods beginning
after November 15, 2007 and is not expected to have a significant impact on the Companys current practice nor on its financial position or results of operations.



5



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

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



In July 2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is
more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If the Company determines that a position
meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement
No. 109, Accounting for Income Taxes. The interpretation clearly excludes income tax positions related to FASB Statement No. 5, Accounting for Contingencies. The Company adopted the provisions of this statement in
the first quarter of 2007 and there was no effect on the Companys financial position or results of operations.



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

During the six
months ended June 30, 2007, the Company acquired the following real estate investment properties and portfolios and entered into long-term triple-net leases with third-party tenants (in thousands):



|                                    |  |            |  |                    |  |               |         |                  |   |        |  |   |        
|----------------------------------- |  | ---------- |  | ------------------ |  | ------------- | ------- | ---------------- | - | ------ |  | - | -------
|Property                            |  | Location   |  | Date ofAcquisition |  | PurchasePrice |         | TransactionCosts |   | Total 
|Brighton Ski Resort                 |  | Utah       |  | 1/08/07            |  | $             | 35,000  |                  | $ | 1,589  |  | $ | 36,589 
|Clear Creek Golf Club               |  | Texas      |  | 1/11/07            |  |               | 1,888   |                  |   | 100    |  |   | 1,988  
|Booth Creek Ski Portfolio           |  | 4 Various  |  | 1/19/07            |  |               | 172,081 |                  |   | 9,548  |  |   | 181,629
|The PARC Portfolio                  |  | 7 Various  |  | 4/6/07             |  |               | 312,000 |                  |   | 20,629 |  |   | 332,629
|Magic Springs Theme Parks           |  | Arkansas   |  | 4/16/07            |  |               | 20,000  |                  |   | 1,109  |  |   | 21,109 
|Manasquan and Crystal Point Marinas |  | New Jersey |  | 6/8/07             |  |               | 14,553  |                  |   | 960    |  |   | 15,513 
|Mountain High Ski Resort            |  | California |  | 6/29/07            |  |               | 45,000  |                  |   | 2,034  |  |   | 47,034 
|                                    |  |            |  |                    |  |               |         |                  |   |        |  |   |        
|Total                               |  |            |  |                    |  | $             | 600,522 |                  | $ | 35,969 |  | $ | 636,491
|                                    |  |            |  |                    |  |               |         |                  |   |        |  |   |        

The following summarizes the allocation of purchase price and transaction costs for the properties
acquired during the six months ended June 30, 2007 (in thousands):



|                             |  |                                |        
|---------------------------- |  | ------------------------------ | -------
|                             |  | Total Purchase PriceAllocation
|Land                         |  | $                              | 170,868
|Land improvements            |  |                                | 195,220
|Leasehold interests          |  |                                | 28,643 
|Buildings                    |  |                                | 103,822
|Ski lifts                    |  |                                | 4,821  
|Equipment                    |  |                                | 120,436
|Intangible  trade name      |  |                                | 223    
|Intangible  in place leases |  |                                | 12,458 
|                             |  |                                |        
|Total                        |  | $                              | 636,491
|                             |  |                                |        

The above purchase price allocation is preliminary. The final allocations of purchase price may
include additional transaction costs and such other adjustments as not yet determined, and are expected to be finalized by December 31, 2007.



6



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

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



As of June 30, 2007 and December 31, 2006, real estate investment properties under operating leases consisted of the following (in thousands):



|                               |  |              |           |   |                  |   |         |  
|------------------------------ |  | ------------ | --------- | - | ---------------- | - | ------- | -
|                               |  | June 30,2007 |           |   | December 31,2006 |  
|Land & land improvements       |  | $            | 579,563   |   |                  | $ | 218,958 |  
|Leasehold interest             |  |              | 108,986   |   |                  |   | 80,958  |  
|Buildings                      |  |              | 220,952   |   |                  |   | 112,221 |  
|Equipment                      |  |              | 218,438   |   |                  |   | 61,094  |  
|Less: accumulated depreciation |  |              | (32,567   | ) |                  |   | (8,339  | )
|                               |  |              |           |   |                  |   |         |  
|                               |  | $            | 1,095,372 |   |                  | $ | 464,892 |  
|                               |  |              |           |   |                  |   |         |  



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

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



|                  |  |                      |  |                     |        |                         |   |               |  |   |       
|----------------- |  | -------------------- |  | ------------------- | ------ | ----------------------- | - | ------------- |  | - | ------
|Intangible Assets |  | WeightedAverage Life |  | GrossCarryingAmount |        | AccumulatedDepreciation |   | Net BookValue
|In place leases   |  | 19.2 years           |  | $                   | 22,056 |                         | $ | 608           |  | $ | 21,448
|Trade name        |  | 42.5 years           |  |                     | 10,868 |                         |   | 140           |  |   | 10,728
|Trade name        |  | Indefinite           |  |                     | 1,068  |                         |   |              |  |   | 1,068 
|                  |  |                      |  |                     |        |                         |   |               |  |   |       
|                  |  |                      |  | $                   | 33,992 |                         | $ | 748           |  | $ | 33,244
|                  |  |                      |  |                     |        |                         |   |               |  |   |       

Amortization expense of approximately $311,000 and $591,000 were recorded for the quarter and six
months ended June 30, 2007, respectively.

[Intentionally left blank]



7



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)



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

The
following presents financial information for the unconsolidated entities for the quarters and six month periods ended June 30, 2007 and 2006 and as of June 30, 2007 and December 31, 2006 (in thousands):

Summarized Operating Data



|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|---------------------------------------------------- |  | --------------------------- | ------ | - | -------------- | - | ------ | ------------------ |  | - | ---------------------- | - |  | ----- | ----- | --- |  | - | ------ | -
|                                                     |  | Quarter Ended June 30, 2007 |       
|                                                     |  | WolfPartnership             |        |   | DMCPartnership |   |        | IntrawestVentureUS |  |   | IntrawestVentureCanada |   |  | Total |      
|Revenue                                              |  | $                           | 8,223  |   |                | $ | 6,633  |                    |  | $ | 2,959                  |   |  | $     | 1,713 |     |  | $ | 19,528 |  
|Property operating expenses                          |  |                             | (7,366 | ) |                |   | (233   | )                  |  |   | (1,314                 | ) |  |       | (690  | )   |  |   | (9,603 | )
|Depreciation & amortization expense                  |  |                             | (1,781 | ) |                |   | (2,225 | )                  |  |   | (934                   | ) |  |       | (436  | )   |  |   | (5,376 | )
|Interest expense                                     |  |                             | (1,005 | ) |                |   | (2,310 | )                  |  |   | (652                   | ) |  |       | (813  | )   |  |   | (4,780 | )
|Interest and other income                            |  |                             | 1      |   |                |   | 4      |                    |  |   | 29                     |   |  |       | 32    |     |  |   | 66     |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Net income (loss)                                    |  | $                           | (1,928 | ) |                | $ | 1,869  |                    |  | $ | 88                     |   |  | $     | (194  | )   |  |   | (165   | )
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Income (loss) allocable to other venture partners    |  | $                           | (753   | ) |                | $ | (618   | )                  |  | $ | 82                     |   |  | $     | (196  | )   |  | $ | (1,485 | )
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|                                                     |  |                             |        |   |               
|Income (loss) allocable to the Company (1)           |  | $                           | (1,175 | ) |                | $ | 2,487  |                    |  | $ | 6                      |   |  | $     | 2     |     |  | $ | 1,320  |  
|Amortization of capitalized costs                    |  |                             | (57    | ) |                |   | (124   | )                  |  |   | (45                    | ) |  |       | (14   | )   |  |   | (240   | )
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Equity in earnings (loss) of unconsolidated entities |  | $                           | (1,232 | ) |                | $ | 2,363  |                    |  | $ | (39                    | ) |  | $     | (12   | )   |  | $ | 1,080  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Distributions declared to the Company                |  | $                           |       |   |                | $ | 1,985  |                    |  | $ | 580                    |   |  | $     | 341   | (2) |  | $ | 2,906  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Distributions received by the Company                |  | $                           |       |   |                | $ | 3,095  |                    |  | $ | 682                    |   |  | $     |      | (2) |  | $ | 3,777  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  

Summarized Operating Data



|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|---------------------------------------------------- |  | --------------------------- | ------ | - | -------------- | - | ------ | ------------------ |  | - | ---------------------- | - |  | ----- | ----- | --- |  | - | ------ | -
|                                                     |  | Quarter Ended June 30, 2006 |       
|                                                     |  | WolfPartnership             |        |   | DMCPartnership |   |        | IntrawestVentureUS |  |   | IntrawestVentureCanada |   |  | Total |      
|Revenue                                              |  | $                           | 9,186  |   |                | $ | 6,500  |                    |  | $ | 3,027                  |   |  | $     | 1,297 |     |  | $ | 20,010 |  
|Property operating expenses                          |  |                             | (7,745 | ) |                |   | (176   | )                  |  |   | (1,508                 | ) |  |       | (519  | )   |  |   | (9,948 | )
|Depreciation & amortization expense                  |  |                             | (1,573 | ) |                |   | (1,975 | )                  |  |   | (1,017                 | ) |  |       | (429  | )   |  |   | (4,994 | )
|Interest expense                                     |  |                             | (710   | ) |                |   | (2,149 | )                  |  |   | (650                   | ) |  |       | (777  | )   |  |   | (4,286 | )
|Interest and other income                            |  |                             | 22     |   |                |   | 2      |                    |  |   | 378                    |   |  |       | 39    |     |  |   | 441    |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Net income (loss)                                    |  | $                           | (820   | ) |                | $ | 2,202  |                    |  | $ | 230                    |   |  | $     | (389  | )   |  | $ | 1,223  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Loss allocable to other venture partners             |  | $                           | (246   | ) |                | $ | (143   | )                  |  | $ | (778                   | ) |  | $     | (703  | )   |  | $ | (1,870 | )
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Income (loss) allocable to the Company (1)           |  | $                           | (574   | ) |                | $ | 2,345  |                    |  | $ | 1,008                  |   |  | $     | 314   |     |  | $ | 3,093  |  
|Amortization of capitalized costs                    |  |                             | (18    | ) |                |   | (126   | )                  |  |   | (67                    | ) |  |       | (25   | )   |  |   | (236   | )
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Equity in earnings (loss) of unconsolidated entities |  | $                           | (592   | ) |                | $ | 2,219  |                    |  | $ | 941                    |   |  | $     | 289   |     |  | $ | 2,857  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Distributions declared to the Company                |  | $                           |       |   |                | $ | 2,109  |                    |  | $ | 783                    |   |  | $     | 449   | (2) |  | $ | 3,341  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  
|Distributions received by the Company                |  | $                           | 1,513  |   |                | $ | 3,039  |                    |  | $ | 758                    |   |  | $     |      | (2) |  | $ | 5,310  |  
|                                                     |  |                             |        |   |                |   |        |                    |  |   |                        |   |  |       |       |     |  |   |        |  



8



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)



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

Summarized Operating Data



|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|---------------------------------------------------- |  | ------------------------------ | ------- | ---- | -------------- | - | ------ | ------------------ |  | - | ---------------------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                                     |  | Six Months Ended June 30, 2007 |        
|                                                     |  | WolfPartnership                |         |      | DMCPartnership |   |        | IntrawestVentureUS |  |   | IntrawestVentureCanada |   |  | Total |       
|Revenue                                              |  | $                              | 17,486  |      |                | $ | 16,251 |                    |  | $ | 5,723                  |   |  | $     | 2,900  |   |  | $ | 42,360  |  
|Property operating expenses                          |  |                                | (15,597 | )    |                |   | (419   | )                  |  |   | (2,611                 | ) |  |       | (1,225 | ) |  |   | (19,852 | )
|Depreciation & amortization expense                  |  |                                | (3,523  | )    |                |   | (4,434 | )                  |  |   | (1,879                 | ) |  |       | (807   | ) |  |   | (10,643 | )
|Interest expense                                     |  |                                | (1,999  | )    |                |   | (4,605 | )                  |  |   | (1,308                 | ) |  |       | (1,553 | ) |  |   | (9,465  | )
|Interest and other income                            |  |                                | 41      |      |                |   | 9      |                    |  |   | 37                     |   |  |       | 69     |   |  |   | 156     |  
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|Net income (loss)                                    |  | $                              | (3,592  | )    |                | $ | 6,802  |                    |  | $ | (38                    | ) |  | $     | (616   | ) |  |   | 2,556   |  
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|Income (loss) allocable to other venture partners    |  | $                              | (1,253  | )    |                | $ | 1,855  |                    |  | $ | 73                     |   |  | $     | (582   | ) |  | $ | 93      |  
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|                                                     |  |                                |         |      |               
|Income (loss) allocable to the Company (1)           |  | $                              | (2,339  | )    |                | $ | 4,947  |                    |  | $ | (111                   | ) |  | $     | (34    | ) |  | $ | 2,463   |  
|Amortization of capitalized costs                    |  |                                | (114    | )    |                |   | (248   | )                  |  |   | (90                    | ) |  |       | (27    | ) |  |   | (479    | )
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|Equity in earnings (loss) of unconsolidated entities |  | $                              | (2,453  | )    |                | $ | 4,699  |                    |  | $ | (201                   | ) |  | $     | (61    | ) |  | $ | 1,984   |  
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|Distributions declared to the Company(2)             |  | $                              |        |      |                | $ | 5,080  |                    |  | $ | 1,232                  |   |  | $     | 422    |   |  | $ | 6,734   |  
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  
|Distributions received (refunded) by the Company (2) |  | $                              | (1,226  | )(3) |                | $ | 5,364  |                    |  | $ | 1,867                  |   |  | $     |       |   |  | $ | 6,005   |  
|                                                     |  |                                |         |      |                |   |        |                    |  |   |                        |   |  |       |        |   |  |   |         |  

Summarized Operating Data



|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|---------------------------------------------------- |  | ------------------------------ | ------- | - | -------------- | - | ------ | ------------------ |  | - | ---------------------- | - |  | ----- | ------ | --- |  | - | ------- | -
|                                                     |  | Six Months Ended June 30, 2006 |        
|                                                     |  | WolfPartnership                |         |   | DMCPartnership |   |        | IntrawestVentureUS |  |   | IntrawestVentureCanada |   |  | Total |       
|Revenue                                              |  | $                              | 19,211  |   |                | $ | 15,658 |                    |  | $ | 5,837                  |   |  | $     | 2,469  |     |  | $ | 43,175  |  
|Property operating expenses                          |  |                                | (15,591 | ) |                |   | (431   | )                  |  |   | (2,680                 | ) |  |       | (1,066 | )   |  |   | (19,768 | )
|Depreciation & amortization expense                  |  |                                | (3,028  | ) |                |   | (3,945 | )                  |  |   | (2,046                 | ) |  |       | (842   | )   |  |   | (9,861  | )
|Interest expense                                     |  |                                | (1,040  | ) |                |   | (4,367 | )                  |  |   | (1,303                 | ) |  |       | (1,498 | )   |  |   | (8,208  | )
|Interest and other income                            |  |                                | 57      |   |                |   | 4      |                    |  |   | 382                    |   |  |       | 59     |     |  |   | 502     |  
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|Net income (loss)                                    |  | $                              | (391    | ) |                | $ | 6,919  |                    |  | $ | 190                    |   |  | $     | (878   | )   |  | $ | 5,840   |  
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|Income (loss) allocable to other venture partners    |  | $                              | (578    | ) |                | $ | 2,341  |                    |  | $ | (1,691                 | ) |  | $     | (1,453 | )   |  | $ | (1,381  | )
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|                                                     |  |                                |         |   |               
|Income (loss) allocable to the Company (1)           |  | $                              | 187     |   |                | $ | 4,578  |                    |  | $ | 1,881                  |   |  | $     | 575    |     |  |   | 7,221   |  
|Amortization of capitalized costs                    |  |                                | (29     | ) |                |   | (253   | )                  |  |   | (86                    | ) |  |       | (32    | )   |  |   | (400    | )
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|Equity in earnings (loss) of unconsolidated entities |  | $                              | 158     |   |                | $ | 4,325  |                    |  | $ | 1,795                  |   |  | $     | 543    |     |  | $ | 6,821   |  
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|Distributions declared to the Company                |  | $                              | 1,535   |   |                | $ | 5,148  |                    |  | $ | 1,083                  |   |  | $     | 502    | (2) |  | $ | 8,268   |  
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  
|Distributions received by the Company                |  | $                              | 3,494   |   |                | $ | 5,242  |                    |  | $ | 923                    |   |  | $     |       | (2) |  | $ | 9,659   |  
|                                                     |  |                                |         |   |                |   |        |                    |  |   |                        |   |  |       |        |     |  |   |         |  

---

FOOTNOTES:



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

|(2) | The Company receives interest payments from a mezzanine loan made to the Intrawest Canada Venture in the amount of $8.8 million. The loan requires payments of interest only until
its maturity in 2029. These payments are reflected as distributions from unconsolidated entities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



9



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

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



Summarized Balance Sheet Data



|                                                                                              |  |                     |         |   |                |   |         |                    |  |   |                        |   |  |       |        |     |  |   |         |    
|--------------------------------------------------------------------------------------------- |  | ------------------- | ------- | - | -------------- | - | ------- | ------------------ |  | - | ---------------------- | - |  | ----- | ------ | --- |  | - | ------- | ---
|                                                                                              |  | As of June 30, 2007 |        
|                                                                                              |  | WolfPartnership     |         |   | DMCPartnership |   |         | IntrawestVentureUS |  |   | IntrawestVentureCanada |   |  | Total |       
|Real estate assets, net                                                                       |  | $                   | 107,612 |   |                | $ | 251,370 |                    |  | $ | 73,450                 |   |  | $     | 32,362 |     |  | $ | 464,794 |    
|Intangible assets, net                                                                        |  |                     | 446     |   |                |   | 10,801  |                    |  |   | 1,867                  |   |  |       | 970    |     |  |   | 14,084  |    
|Other assets                                                                                  |  |                     | 6,946   |   |                |   | 6,577   |                    |  |   | 4,690                  |   |  |       | 5,610  |     |  |   | 23,823  |    
|Mortgages and other notes payable                                                             |  |                     | 63,000  |   |                |   | 152,600 |                    |  |   | 44,250                 |   |  |       | 36,031 |     |  |   | 295,881 |    
|Other liabilities                                                                             |  |                     | 7,969   |   |                |   | 6,264   |                    |  |   | 4,332                  |   |  |       | 5,732  |     |  |   | 24,297  |    
|Partners capital (deficit)                                                                   |  |                     | 44,035  |   |                |   | 109,884 |                    |  |   | 31,425                 |   |  |       | (2,821 | )   |  |   | 182,523 |    
|                                                                                              |  |                     |         |   |               
|Difference between carrying amount of investment and the Companys share of partners capital |  |                     | 2,507   |   |                |   | 7,541   |                    |  |   | 4,619                  |   |  |       | 1,245  |     |  |   | 15,912  |    
|                                                                                              |  |                     |         |   |               
|Carrying amount of investment                                                                 |  |                     | 33,331  |   |                |   | 97,421  |                    |  |   | 33,622                 |   |  |       | 10,105 | (1) |  |   | 174,479 | (2)
|                                                                                              |  |                     |         |   |               
|Percentage of ownership at end of reporting period                                            |  |                     | 70.0    | % |                |   | 80.0    | %                  |  |   | 80.0                   | % |  |       | 80.0   | %   |  |   |         |    

Summarized Balance Sheet Data



|                                                                                              |  |                         |         |   |                |   |         |                    |  |   |                        |   |  |       |        |     |  |   |         |    
|--------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | -------------- | - | ------- | ------------------ |  | - | ---------------------- | - |  | ----- | ------ | --- |  | - | ------- | ---
|                                                                                              |  | As of December 31, 2006 |        
|                                                                                              |  | WolfPartnership         |         |   | DMCPartnership |   |         | IntrawestVentureUS |  |   | IntrawestVentureCanada |   |  | Total |       
|Real estate assets, net                                                                       |  | $                       | 110,317 |   |                | $ | 252,714 |                    |  | $ | 74,990                 |   |  | $     | 30,061 |     |  | $ | 468,082 |    
|Intangible assets, net                                                                        |  |                         | 523     |   |                |   | 10,963  |                    |  |   | 2,131                  |   |  |       | 1,050  |     |  |   | 14,667  |    
|Other assets                                                                                  |  |                         | 7,340   |   |                |   | 6,308   |                    |  |   | 5,307                  |   |  |       | 2,392  |     |  |   | 21,347  |    
|Mortgages and other notes payable                                                             |  |                         | 63,000  |   |                |   | 153,965 |                    |  |   | 44,707                 |   |  |       | 33,900 | (1) |  |   | 295,572 |    
|Other liabilities                                                                             |  |                         | 7,803   |   |                |   | 6,588   |                    |  |   | 5,171                  |   |  |       | 2,727  |     |  |   | 22,289  |    
|Partners capital (deficit)                                                                   |  |                         | 47,377  |   |                |   | 109,432 |                    |  |   | 32,550                 |   |  |       | (3,124 | )   |  |   | 186,235 |    
|                                                                                              |  |                         |         |   |               
|Difference between carrying amount of investment and the Companys share of partners capital |  |                         | 1,764   |   |                |   | 8,099   |                    |  |   | 3,548                  |   |  |       | 863    |     |  |   | 14,274  |    
|                                                                                              |  |                         |         |   |               
|Carrying amount of investment                                                                 |  |                         | 34,928  |   |                |   | 98,112  |                    |  |   | 36,774                 |   |  |       | 8,858  | (1) |  |   | 178,672 | (2)
|                                                                                              |  |                         |         |   |               
|Percentage of ownership at end of reporting period                                            |  |                         | 70.0    | % |                |   | 80.0    | %                  |  |   | 80.0                   | % |  |       | 80.0   | %   |  |   |         |    

---

FOOTNOTES:



|(1) | This amount includes a mezzanine loan made to the Intrawest Venture in connection with two Canadian properties.
|--- | ---------------------------------------------------------------------------------------------------------------

|(2) | This amount includes distributions receivable of approximately $2.5 million and $2.2 million as of June 30, 2007 and December 31, 2006, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



10



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)



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

As of
June 30, 2007, the Company had the following loans outstanding (in thousands):



|                                          |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|----------------------------------------- |  | --------------------- |  | ---------- | --- |  | ------------ | ---- |  | ------------------- | ------- | - | --------------- | - | -----
|Borrower and Description of Property      |  | Date of LoanAgreement |  | Maturity   |     |  | InterestRate |      |  | LoanPrincipalAmount |         |   | AccruedInterest
|Plaza Partners, LLC                       |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|(condominium conversion)                  |  | 2/28/2006             |  | 2/28/2007  | (1) |  | 19.0         | %    |  | $                   | 16,800  |   |                 | $ | 1,727
|                                          |  |                       |  |            |    
|Mizner Court Holdings, LP (2)             |  |                       |  |            |     |  | LIBOR        | +    |  |                     |         |   |                 |   |      
|(condominium conversion)                  |  | 3/10/2006             |  | 11/9/2007  |     |  | 7.0          | %    |  |                     | 15,000  |   |                 |   |     
|                                          |  |                       |  |            |    
|Shorefox Development, LLC                 |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|(lifestyle community development)         |  | 3/13/2006             |  | 3/10/2009  |     |  | 13.50        | %    |  |                     | 35,000  |   |                 |   | 1,648
|                                          |  |                       |  |            |    
|Marinas International, Inc.               |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|(four marinas)                            |  | 12/22/2006            |  | 12/22/2021 |     |  | 10.25        | %    |  |                     | 39,151  |   |                 |   | 551  
|                                          |  |                       |  |            |    
|Booth Creek Resort Properties LLC         |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|(two ski properties & one parcel of land) |  | 1/18/2007             |  | 1/19/2010  |     |  | 15.0         | %(3) |  |                     | 12,000  |   |                 |   | 416  
|                                          |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|Total                                     |  |                       |  |            |     |  |              |      |  |                     | 117,951 |   |                 | $ | 4,342
|                                          |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|Accrued interest                          |  |                       |  |            |     |  |              |      |  |                     | 4,342   |   |                 |   |      
|Acquisition fees, net                     |  |                       |  |            |     |  |              |      |  |                     | 2,873   |   |                 |   |      
|Loan origination fees, net                |  |                       |  |            |     |  |              |      |  |                     | (327    | ) |                 |   |      
|                                          |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      
|Total carrying amount                     |  |                       |  |            |     |  |              |      |  | $                   | 124,839 |   |                 |   |      
|                                          |  |                       |  |            |     |  |              |      |  |                     |         |   |                 |   |      

---

FOOTNOTES:



|(1) | On February 28, 2007, the loan matured, however, the borrower did not repay the loan due to its inability to convert and sell condominiums as a result of poor economic
conditions and a weakness in the Florida condominium market. The Company deemed the loan impaired and ceased its recording of interest upon the loans maturity. On June 15, 2007, the Company filed a complaint in the Ninth Judicial Circuit
Court for Orange County, Florida to foreclose on the collateral of the loan. The Company believes, based on a recently obtained appraisal and current market conditions, that the underlying collateral exceeds the full principal amount of the loan and
all accrued interest. As a result, a valuation allowance has not been established for this loan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 13 Subsequent Events for further information on the Mizner Court Holdings, LP loan. In July, 2007 the borrower defaulted on its payment of principal and
interest under the loan. The loan was deemed impaired and accordingly, the Company reversed its accrual of approximately $113,000 in interest income relating to the June interest which was payable in July.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Pursuant to the three loan agreements with an aggregate principal of $12.0 million, the loans require monthly interest-only payments for the first three years based on an annual
percentage rate of 9.0%. The loans are cross-collateralized by two ski properties and one parcel of land and may be prepaid anytime after 60 days written notice from the borrower. At maturity, in addition to the entire unpaid principal balance,
accrued and unpaid interest, and any other sums due thereunder, the borrower agreed to pay an exit fee equal to the aggregate of monthly interest payments that would have been payable if the interest rate had been 15.0% rather than 9.0%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company records acquisition fees incurred in connection with making the loans as part of the mortgages and other notes receivable
balance and amortizes the amounts as a reduction of interest income over the term of the notes. Origination fees received from the borrower in connection with making the loans are deferred and accreted into income over the term of the associated
notes.



11



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)



|7. | Public Offerings, Stockholders Equity and Rescindable Common Stock:
|-- | --------------------------------------------------------------------

On April 4, 2006, the Company commenced its second offering of up to $2.0 billion in common
stock (200 million shares of common stock at $10.00 per share) (the 2ndOffering) pursuant to a registration statement filed with the United
States Securities Exchange and Commission on Form S-11 under the Securities Act of 1933. The Company incurs costs in connection with its offerings 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 its offerings. As of June 30, 2007, the Company has raised approximately $1.7 billion in proceeds and incurred stock
issuance costs of approximately $186.0 million in connection with its offerings.

As of June 30, 2007, the Company had received subscriptions of approximately $44.8 million (4,484,819 shares) from investors in the Commonwealth of Pennsylvania under the 2ndOffering. The Company has agreed to extend a written offer of rescission to those investors to redeem the shares at the price at which the shares were originally sold if certain proposed amendments to the
Companys articles of incorporation, as requested by the Pennsylvania Securities Commission, are not approved by its stockholders. These shares are presented as rescindable common stock outside of stockholders equity in the accompanying
balance sheets. On June 20, 2007, the Company adjourned its annual stockholders meeting with respect to these amendments to solicit additional votes, as sufficient votes to approve the amendments had not been received. See Note 13
Subsequent Events for further information.

Shares owned by the advisor, the directors, or any of their affiliates are
subject to certain voting restrictions. Neither the advisor, nor the directors, nor any of their affiliates may vote or consent on matters submitted to the stockholders regarding the removal of the advisor, directors, or any of their affiliates or
any transactions between the Company and any of them.



|8. | Indebtedness:
|-- | -------------

On February 9, 2007, the
Company received a $24.7 million loan from Sun Life Assurance Company of Canada (Sun Life). The loan is collateralized by mortgages on five golf properties. The loan bears interest annually at a fixed rate of 6.35% for a term of ten
years, with monthly payments of principal and interest based on a 25-year amortization period and a final payment of the remaining principal amount upon maturity. Prepayment for the loan is prohibited for the first two years after which early
repayment is subject to a prepayment fee. The loan is cross-defaulted with the Companys other golf financings obtained from Sun Life.

On February 13, 2007, the Company entered into a $20.0 million revolving line of credit agreement with Colonial Bank, N.A. On April 23, 2007, Colonial Bank, N.A. extended the maturity of the Companys $20.0 million revolving
line of credit dated February 13, 2007, from May 1, 2007 through July 31, 2007. As discussed in Note 13 Subsequent Events, on July 13, 2007 this line was converted to a construction loan.

On March 23, 2007, the Company obtained a loan for $111.5 million with The Prudential Insurance Company of America. This loan is collateralized by
mortgages on five ski properties. The loan bears interest annually at a fixed rate of 6.11%, for a term of seven years, with monthly payments of principal and interest based on a 20-year amortization period. A balloon payment for the remaining
principal and interest is due upon the loans maturity at the end of seven years. Prepayment is permitted upon payment of a fee.

On
April 6, 2007, the Company acquired a portfolio of three waterparks and four theme parks for an aggregate purchase price of $312.0 million, consisting of $290.0 million in cash and an unsecured subordinated promissory note in the original
principal sum of $22.0 million. The note has a term of 10 years, requires annual principal payments of $1.7 million, bears interest annually at a fixed rate of 8.75% and has a balloon payment for the then remaining principal and interest due at the
end of ten years.

On June 8, 2007, the Company borrowed approximately $42.0 million in a series of golf course property financings
with Sun Life and certain of its affiliates. The borrowing is comprised of eight separate loans, each of which is collateralized by a mortgage or deed of trust on one golf course property. Each loan bears interest annually as a fixed rate of 6.58%
for a term of ten years, with monthly payments of principal and interest based on a 25-year amortization period. At the end of ten years, there is a balloon payment for the remaining principle and interest due on the loan. Prepayment on the loan is
prohibited for the first two years, after which early prepayment is allowed but is subject to a prepayment fee. The loan is cross-defaulted with the Companys other golf financings obtained from Sun Life.



12



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

|8. | Indebtedness (continued):
|-- | -------------------------



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



|                         |  |              |         |                  |   |       
|------------------------ |  | ------------ | ------- | ---------------- | - | ------
|                         |  | June 30,2007 |         | December 31,2006
|Mortgages payable        |  | $            | 239,959 |                  | $ | 63,158
|Seller financing         |  |              | 28,838  |                  |   | 6,838 
|                         |  |              |         |                  |   |       
|                         |  |              | 268,797 |                  |   | 69,996
|Revolving line of credit |  |              | 6,000   |                  |   | 3,000 
|                         |  |              |         |                  |   |       
|Total                    |  | $            | 274,797 |                  | $ | 72,996
|                         |  |              |         |                  |   |       



|9. | Related Party Arrangements:
|-- | ---------------------------

On June 1, 2007,
the Companys advisor filed a certificate of conversion with the State of Florida to change its name and form of entity from CNL Income Corp. to CNL Income Company, LLC. The certificate of conversion will have no effect on the advisory
agreement and related agreements except to change the name from CNL Income Corp. to CNL Income Company, LLC.

Certain directors and officers
of the Company hold similar positions with CNL Income Company, LLC which is both a stockholder of the Company and its advisor, and CNL Securities Corp., which is the managing dealer for the Companys public offering. The Companys chairman
of the board indirectly owns a controlling interest in the parent company of the advisor. The advisor and managing dealer receive fees and compensation in connection with the Companys stock offerings and the acquisition, management, financing
and sale of the Companys assets.

During the quarter and six months ended June 30, 2007 and 2006, the Company incurred the
following fees (in thousands):



|                                                             |  |                        |        |                           |   |       |  |      |        |  |   |       
|------------------------------------------------------------ |  | ---------------------- | ------ | ------------------------- | - | ----- |  | ---- | ------ |  | - | ------
|                                                             |  | Quarter Ended June 30, |        | Six Months Ended June 30,
|                                                             |  | 2007                   |        | 2006                      |   | 2007  |  | 2006
|Selling commissions                                          |  | $                      | 25,475 |                           | $ | 3,527 |  | $    | 36,444 |  | $ | 12,591
|Marketing support fee & due diligence expense reimbursements |  |                        | 10,918 |                           |   | 1,514 |  |      | 15,637 |  |   | 5,001 
|                                                             |  |                        |        |                           |   |       |  |      |        |  |   |       
|Total                                                        |  | $                      | 36,393 |                           | $ | 5,041 |  | $    | 52,081 |  | $ | 17,592
|                                                             |  |                        |        |                           |   |       |  |      |        |  |   |       

The managing dealer is entitled to selling
commissions of up to 7.0% of gross offering proceeds and marketing support fees equal to 3.0% of gross offering proceeds in connection with the 2ndOffering as well as reimbursement of actual expenses of up to 0.10% incurred in connection with due diligence. A substantial portion of the selling commissions and marketing support fees and all of the due diligence expenses are reallowed to
third-party participating broker dealers.



13



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

|9. | Related Party Arrangements (continued):
|-- | ---------------------------------------



During the quarter and six months ended June 30, 2007 and 2006, the advisor earned fees and incurred reimbursable expenses as follows (in thousands):



|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------- |  | ---------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                            |  | Quarter Ended June 30, |        | Six Months Ended June 30,
|                                            |  | 2007                   |        | 2006                      |   | 2007   |  | 2006
|Acquisition fees: (1)                       |  |                        |        |                           |   |        |  |      |        |  |   |       
|Acquisition fees from offering proceeds     |  | $                      | 10,935 |                           | $ | 1,625  |  | $    | 15,899 |  | $ | 5,880 
|Acquisition fees from debt proceeds         |  |                        | 1,919  |                           |   |       |  |      | 6,004  |  |   | 1,323 
|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       
|Total                                       |  |                        | 12,854 |                           |   | 1,625  |  |      | 21,903 |  |   | 7,203 
|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       
|Asset management fees: (2)                  |  |                        | 3,511  |                           |   | 1,214  |  |      | 6,297  |  |   | 2,219 
|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       
|                                            |  |                        |        |                          
|Reimbursable expenses:                      |  |                        |        |                           |   |        |  |      |        |  |   |       
|Offering costs                              |  |                        | 1,537  |                           |   | 6,386  |  |      | 2,540  |  |   | 7,981 
|Acquisition costs                           |  |                        | 167    |                           |   | 1,268  |  |      | 859    |  |   | 1,353 
|Operating expenses (3)                      |  |                        | 310    |                           |   | 56     |  |      | 688    |  |   | 371   
|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       
|Total                                       |  |                        | 2,014  |                           |   | 7,710  |  |      | 4,087  |  |   | 9,705 
|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       
|Total fees earned and reimbursable expenses |  | $                      | 18,379 |                           | $ | 10,549 |  | $    | 32,287 |  | $ | 19,127
|                                            |  |                        |        |                           |   |        |  |      |        |  |   |       

---

FOOTNOTES:



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

|(2) | This amount represents asset management fees of 0.08334% per month of the Companys real estate asset value 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. Operating expenses did not exceed the Expense Cap for the expense years ended June 30, 2007 and 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[Intentionally left blank]



14



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

|9. | Related Party Arrangements (continued):
|-- | ---------------------------------------



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



|                                                                |  |              |       |                   |   |       
|--------------------------------------------------------------- |  | ------------ | ----- | ----------------- | - | ------
|                                                                |  | June 30,2007 |       | December 31, 2006
|Due to the advisor and its affiliates:                          |  |              |       |                   |   |       
|Offering expenses                                               |  | $            | 426   |                   | $ | 4,374 
|Asset management fees                                           |  |              | 1,269 |                   |   | 646   
|Operating expenses                                              |  |              | 310   |                   |   | 323   
|Acquisition fees and expenses                                   |  |              | 1,981 |                   |   | 1,829 
|                                                                |  |              |       |                   |   |       
|Total                                                           |  | $            | 3,986 |                   | $ | 7,172 
|                                                                |  |              |       |                   |   |       
|                                                                |  |             
|Due to CNL Securities Corp:                                     |  |              |       |                   |   |       
|Selling commissions                                             |  | $            | 882   |                   | $ | 2,738 
|Marketing support fees and due diligence expense reimbursements |  |              | 377   |                   |   | 1,174 
|                                                                |  |              |       |                   |   |       
|Total                                                           |  | $            | 1,259 |                   | $ | 3,912 
|                                                                |  |              |       |                   |   |       
|Total due to affiliates                                         |  | $            | 5,245 |                   | $ | 11,084
|                                                                |  |              |       |                   |   |       

The Company also maintains accounts at a bank in which the Companys chairman and
vice-chairman serve as directors. The Company had deposits of approximately $3.0 million and $3.5 million in that bank at June 30, 2007 and December 31, 2006, respectively.



|10. | Redemption of Shares:
|--- | ---------------------

During the quarter and six
months ended June 30, 2007 the Company redeemed approximately 99,000 and 197,000 shares of common stock at an average price of approximately $9.50 per share for a total of approximately $0.9 million and $1.9 million, respectively. 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. These shares are considered retired and will not be reissued.



|11. | Distributions:
|--- | --------------

In order to qualify as a REIT for
federal income tax purposes, the Company must, among other things, make distributions each taxable year equal to at least 90% of its real estate investment trust taxable income. The Company intends to make, and the board of directors currently
intends to declare, regular distributions on a monthly basis using the first day of the month as the record date. For the six months ended June 30, 2007, the Company declared and paid distributions of approximately $40.1 million ($0.30 per
share).

For the six months periods ended June 30, 2007, approximately 71.56% of the distributions were considered ordinary income and
approximately 28.44% 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.



|12. | Commitments & Contingencies:
|--- | ----------------------------

On
December 22, 2006, the Company acquired five marina properties from subsidiaries of Marinas International and made loans which are collateralized by four additional marina properties. At the same time, the Company extended the time of closing
on additional marina properties of which two are still pending with an aggregate purchase price of approximately $22.5 million and a $0.8 million loan which is expected to be collateralized by an additional marina property. The Company is still in
negotiations with Marinas International and certain governmental authorities for permit and ground lease assignments, extensions and consents. There can be no assurance that these negotiations will be successful or that the additional property will
ultimately be acquired or that the loan will be made.



15



---

##### Table of Contents

CNL INCOME PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

SIX MONTHS ENDED JUNE 30, 2007

(UNAUDITED)

|12. | Commitments & Contingencies (continued):
|--- | ----------------------------------------



The Company has committed to acquire 46 condominiumized retail and commercial spaces at the Northstar Commercial Village in Lake Tahoe, California for
$22.0 million. This transaction is expected to be completed during 2007. The transaction is subject to the fulfillment of certain conditions and there can be no assurance that any or all of these conditions will be satisfied or that the transaction
will ultimately be completed.

The Company has commitments under ground leases, park use permits and land permits. Ground lease payments,
park use and land permit fees are generally based on a percentage of gross revenue of the underlying property over certain thresholds, and are paid by the Companys third-party tenants in accordance with the terms of the triple-net leases with
those tenants. These fees and expenses were approximately $2.6 million and $0.3 million for the six months ended June 30, 2007 and 2006, respectively.

The Company has commitments to fund equipment replacements and other capital improvement projects for its properties. The Company expects to make approximately $38.0 million of such capital expenditures
during the last six months of the year ending December 31, 2007.



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

The Companys board of
directors declared distributions of $0.05 per share to stockholders of record at the close of business on July 1, 2007 and August 1, 2007. These distributions are to be paid by September 30, 2007.

On July 9, 2007, Mizner Court Holdings, LP (Mizner) defaulted on its loan payment to the Company, at which point the Company ceased
recording interest income and deemed the loan impaired. On July 27, 2007, the Company paid approximately $241,000 due under the borrowers first mortgage on behalf of Mizner in order to protect the Companys investment position. The
Company believes based on internal estimates and market analysis that the underlying value of the collateral is sufficient to cover the full principal amount of all loans and accordingly has not established a valuation allowance for this loan. The
borrower is currently exploring its options to refinance the property. The Company is also considering its options for resolution including foreclosure.

On July 13, 2007, the Company entered into an amended and restated loan agreement with Colonial Bank, N.A. converting the $20.0 million revolving line of credit agreement dated February 13, 2007 to a $25.0
million three year, non-revolving construction loan with substantially similar terms as the original line of credit. The construction loan will be used to finance improvements at the Bretton Woods Resort.

On July 18, 2007 the Company approved a capital expansion project for $12.1 million at Cypress Mountain to build a 50,000 sq. ft. base lodge in
preparation for hosting the 2010 Winter Olympic freestyle skiing and snowboarding events. The majority of the funding for this project will come from a construction loan obtained by the tenant of this property. The Company has agreed to make
scheduled annual contributions to ultimately purchase the improvements. As contributions are made, the tenant will pay additional base rent under the terms of the lease.

On July 24, 2007, the Pennsylvania Securities Commission granted the Company an extension through July 31, 2008 to obtain stockholder approval of the amendments referred to in Note 7 above that have been
required by the Pennsylvania Securities Commission in order for the Company to continue to sell its shares of common stock to residents of that state. As of July 27, 2007, although the Company had received proxies from 61.6 % of the
stockholders in favor of the amendments (and only 5.6 % opposed to the amendments), the amendments have not received the required two-thirds vote of the stockholders necessary for adoption.

On August 1, 2007, the Company acquired two additional marina properties for an aggregate purchase price of $12.1 million. The properties are being
leased to Marinas International under long-term triple net leases for a term of 20 years and four five-year renewal options.

On
August 7, 2007, the Company acquired two ski resort properties in Maine for an aggregate purchase price of $76.5 million from American Ski Corporation. The properties are being leased to affiliates of Boyne USA under long-term triple net leases
which are coterminous with the Companys other leases to Boyne. In connection with the transaction, the Company agreed to sell a portion of the developable land to Boyne for approximately $13.3 million. The sale of the developable land is
subject to certain events such as subdivision of parcels, and is expected to be completed within one year.



16



---

##### 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 June 30, 2007 and December 31, 2006 and for the six months ended June 30, 2007 and 2006. Amounts as of
December 31, 2006 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, notes and Managements Discussion and Analysis thereto included in our annual report on Form 10-K for the year ended
December 31, 2006.

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, changes in interest rates, 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 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
lifestyle properties in the United States and Canada that we lease on a long-term basis (generally between five to 20 years, plus multiple renewal options) to tenants or operators who are significant industry leaders. We define lifestyle properties
as those properties that reflect or are impacted by the social, consumption and entertainment values and choices of our society. We also make and acquire loans (including mortgage, mezzanine and other loans) generally secured by interests in real
estate. We currently operate and have elected to be taxed as a REIT for federal income tax purposes beginning with the taxable year ended December 31, 2004.

As of June 30, 2007, we had invested through consolidated entities in 21 golf courses, 24 attractions, eight ski and mountain lifestyle properties, seven marinas and one dealership and had made 11 loans, ten of
which are outstanding. We had also invested through unconsolidated entities in seven destination retail properties (two of which are located in Canada), one merchandise mart property and two waterpark resorts. Subsequent to June 30, 2007, we
acquired four additional properties.

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 qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will
not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially and adversely affect our net income and cash flows. However, we
believe that we are organized and have operated in a manner to qualify for treatment as a REIT 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.

LIQUIDITY AND CAPITAL RESOURCES

General

Our principal demand for funds during the
short and long-term will be for property acquisitions, loans and other permitted investments, and for the payment of operating expenses and distributions to stockholders. Generally, our cash needs for items other than property acquisitions and
making loans will be generated from operations and our investments. The sources of our operating cash flows are primarily driven by the rental income and net security deposits received from leased properties, from interest payments on the loans we
make and by distributions from our unconsolidated entities. A reduction in cash flows from any of these sources could significantly decrease our ability to pay distributions to our stockholders. We have also entered into a revolving line of credit
with a capacity of $20.0 million, which will be used to bridge short-term liquidity needs that arise due to timing of cash receipts and payments.



17



---

##### Table of Contents

We intend to continue to acquire properties and make loans and other permitted investments with proceeds
from our public offering and long term debt financing. If sufficient capital is not raised, it would limit our ability to acquire additional properties, make loans or permitted investments. A failure to raise necessary capital could impact our
ability to pay distributions 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. Our ability to acquire
properties is in part dependent upon our ability to locate and contract with suitable third-party tenants. The inability to locate suitable tenants may delay our ability to acquire certain properties. Not only are we experiencing increased
competition in our targeted asset classes, we are also challenged due to the complex and expensive structures we must use to acquire properties due to the tax and legal requirements of being a REIT. Delays in acquiring properties or making loans
with the capital raised from our common stock offerings adversely affect our ability to pay distributions to our existing stockholders.

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

Sources of Liquidity and Capital Resources

Common
Stock Offering

Our main source of capital is from our common stock offerings. As of June 30, 2007 we had received approximately
$1.7 billion (170.5 million shares) in total offering proceeds. The following table summarizes our public offerings as of June 30, 2007:



|                                                     |  |              |   |  |                       |       |   |        |             |   |                       |   |          |        |  |             |                        |  |   |         |  
|---------------------------------------------------- |  | ------------ | - |  | --------------------- | ----- | - | ------ | ----------- | - | --------------------- | - | -------- | ------ |  | ----------- | ---------------------- |  | - | ------- | -
|                                                     |  | 1st Offering |   |  | 2nd Offering          |       |   | Total  |            
|                                                     |  | Shares       |   |  | Proceeds(in millions) |       |   | Shares |             |   | Proceeds(in millions) |   |          | Shares |  |             | Proceeds (in millions) | 
|Subscriptions received                               |  | 51,246,465   |   |  | $                     | 513.0 |   |        | 115,005,063 |   |                       | $ | 1,138.1  |        |  | 166,251,528 |                        |  | $ | 1,651.1 |  
|Subscriptions received pursuant to reinvestment plan |  | 861,879      |   |  |                       | 8.2   |   |        | 3,394,216   |   |                       |   | 32.2     |        |  | 4,256,095   |                        |  |   | 40.4    |  
|Redemptions                                          |  | (402,358     | ) |  |                       | (3.8  | ) |        | (98,768     | ) |                       |   | (1.0     | )      |  | (501,126    | )                      |  |   | (4.8    | )
|                                                     |  |              |   |  |                       |       |   |        |             |   |                       |   |          |        |  |             |                        |  |   |         |  
|Total                                                |  | 51,705,986   |   |  | $                     | 517.4 |   |        | 118,300,511 |   |                       | $ | 1,169.40 |        |  | 170,006,497 |                        |  | $ | 1,686.8 |  
|                                                     |  |              |   |  |                       |       |   |        |             |   |                       |   |          |        |  |             |                        |  |   |         |  
|                                                     |  |              |  
|Number of investors                                  |  | 17,505       |   |  | 37,731                |       |   | 55,236 |            

These proceeds include subscriptions of
approximately $44.8 million (4,484,819 shares) received from Pennsylvania investors in connection with our 2ndOffering. If certain proposed amendments to
our articles of incorporation are not approved by our stockholders, we have agreed to extend a written offer of rescission to those Pennsylvania investors. Additionally, we will no longer be able to offer our shares for sale to residents of
Pennsylvania if such approval is not obtained. However, on July 24, 2007, the Pennsylvania Securities Commission granted us an extention through July 31, 2008 to obtain stockholder approval of the amendments.

In addition to the shares sold through our public offerings, our advisor purchased 20,000 shares
for $200,000 preceding the commencement of our 1stOffering. In December 2004, 117,708 restricted common shares were issued to CNL Financial Group, Inc., a
company affiliated with our advisor and wholly-owned indirectly by our chairman of the board and his wife, for approximately $1.2 million.

During the period July 1, 2007 through August 7, 2007, we received additional subscription proceeds of approximately $53.8 million (5.4 million shares).

Borrowings

We have borrowed and intend to continue to borrow money to acquire assets and to pay
certain related fees. We have also borrowed, and may continue to borrow, money to pay distributions to stockholders. In general, we pledge our assets in connection with such borrowings. The aggregate amount of permanent financing is not expected to
exceed 50% of our total assets on an annual basis. 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.



18



---

##### Table of Contents

As of June 30, 2007 our indebtedness consisted of the following (in thousands):



|                         |  |              |         |                  |   |       
|------------------------ |  | ------------ | ------- | ---------------- | - | ------
|                         |  | June 30,2007 |         | December 31,2006
|Mortgages payable        |  | $            | 239,959 |                  | $ | 63,158
|Seller financing         |  |              | 28,838  |                  |   | 6,838 
|                         |  |              |         |                  |   |       
|                         |  |              | 268,797 |                  |   | 69,996
|Revolving line of credit |  |              | 6,000   |                  |   | 3,000 
|                         |  |              |         |                  |   |       
|Total                    |  | $            | 274,797 |                  | $ | 72,996
|                         |  |              |         |                  |   |       

Operating Cash Flows

Our net cash flow provided by operating activities was approximately $52.0 million for the six months ended June 30, 2007 and consisted primarily of interest earned on uninvested offering proceeds, rental
revenues, interest income on mortgages and other notes receivable, the receipt of distributions from our unconsolidated entities and $12.1 million in security deposits from our third-party tenants, offset by payments made for operating expenses
(including asset management fees to our advisor), as compared to the net cash flow from operating activities of approximately $14.5 million for the six months ended June 30, 2006. The fluctuation in operating cash flow is principally due to the
increase of our total assets under management and the related revenues and cash flows generated from these investments.

Distributions from
Unconsolidated Entities

As of June 30, 2007, we had investments in ten properties through unconsolidated entities. We are entitled
to receive quarterly cash distributions from our unconsolidated entities. For the six months ended June 30, 2007 and 2006, we received operating distributions of approximately $6.7 million and $8.3 million, respectively, from the operation of
these entities. These distributions are generally received within 45 days after each quarter end. Distributions receivable from our unconsolidated entities as of June 30, 2007 and December 31, 2006 were approximately $2.5 million and $2.2
million, respectively.

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



|                               |  |                    |        |   |                    |   |       |                     |  |       |       |  |   |        |  
|------------------------------ |  | ------------------ | ------ | - | ------------------ | - | ----- | ------------------- |  | ----- | ----- |  | - | ------ | -
|Period                         |  | WolfPartnership(1) |        |   | DMCPartnership (2) |   |       | IntrawestVenture(3) |  | Total |      
|Six months ended June 30, 2007 |  | $                  |       |   |                    | $ | 5,080 |                     |  | $     | 1,654 |  | $ | 6,734  |  
|Six months ended June 30, 2006 |  |                    | 1,535  |   |                    |   | 5,148 |                     |  |       | 1,585 |  |   | 8,268  |  
|                               |  |                    |        |   |                    |   |       |                     |  |       |       |  |   |        |  
|Increase (decrease)            |  | $                  | (1,535 | ) |                    | $ | (68   | )                   |  | $     | 69    |  | $ | (1,534 | )
|                               |  |                    |        |   |                    |   |       |                     |  |       |       |  |   |        |  

---

FOOTNOTES:



|(1) | The Wolf Partnership has been adversely affected by a regional economic downturn impacting the Sandusky, Ohio property and by greater than expected competitive pressures, including
competitor rate cuts and expansion, at both the Wisconsin Dells and Sandusky, Ohio locations. We expect that cash flows will continue to be affected by these economic and competitive pressures and do not expect to receive any distributions in the
near term. We are working with our partner and operator to develop strategies that seek to improve the performance of the properties and our returns over the long-term at both of these locations. In addition, On March 1, 2006, the Wolf
Partnership obtained a $63.0 million loan encumbering its two waterpark resort properties. The decrease in the distribution declared was partially due to a decrease in cash available for distribution as a result of debt service payments being
required for the entire six months of 2007 as compared to the partial six months period in 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The distribution for the six months ended June 30, 2006 was greater than expected due to a distribution of a one-time payment the partnership received in connection with
foregoing certain parking rights, which did not impact the operations of the property. In 2007, the recurring operating cash distributions increased over the same period in 2006 due to an increased lease basis from the lighting expansion at the
Trade Mart and an increase in percentage rent.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Although distributions increased year over year, the operating cash flows at the Intrawest Venture were not sufficient to provide us with our preferred return for the six months
ended June 30, 2007 due to seasonality and working capital needs during the resorts busy season. However, for the year ending December 31, 2007 we expect the total distributions to us will approximate our annual preferred return.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19



---

##### Table of Contents

Uses of Liquidity and Capital Resources

Property Acquisitions and Investments in Unconsolidated Entities

During the six months ended
June 30, 2007, we acquired the following properties and portfolios, all of which have been leased under a long-term, triple-net basis to either an affiliate or third-party tenants and managed by third-party operators that we consider
significant industry leaders.



|                                    |  |               |  |                    |  |                              |        
|----------------------------------- |  | ------------- |  | ------------------ |  | ---------------------------- | -------
|Property                            |  | Location      |  | Date ofAcquisition |  | PurchasePrice (in thousands)
|Brighton Ski Resort                 |  | Utah          |  | 1/08/07            |  | $                            | 35,000 
|Clear Creek Golf Club               |  | Texas         |  | 1/11/07            |  |                              | 1,888  
|Booth Creek Ski Portfolio           |  | Four Various  |  | 1/19/07            |  |                              | 172,081
|The PARC Portfolio                  |  | Seven Various |  | 4/6/07             |  |                              | 312,000
|Magic Springs Theme Parks           |  | Arkansas      |  | 4/16/07            |  |                              | 20,000 
|Manasquan and Crystal Point Marinas |  | New Jersey    |  | 6/8/07             |  |                              | 14,553 
|Mountain High Ski Resort            |  | California    |  | 6/29/07            |  |                              | 45,000 
|                                    |  |               |  |                    |  |                              |        
|Total                               |  |               |  |                    |  | $                            | 600,522
|                                    |  |               |  |                    |  |                              |        

We have acquired additional properties subsequent to June 30, 2007 and have committed to
acquire additional properties and to fund development costs for a significant addition to one of our existing properties. See Events Occurring Subsequent to June 30, 2007 and Commitments, Contingencies and Contractual
Obligations for additional information.

Mortgages and Other Notes Receivable

As of June 30, 2007, we have the following loans outstanding (in thousands):



|                                                                            |  |                       |  |            |     |  |              |       |  |                      |         |   |                 |   |      
|--------------------------------------------------------------------------- |  | --------------------- |  | ---------- | --- |  | ------------ | ----- |  | -------------------- | ------- | - | --------------- | - | -----
|Borrower and Description of Property                                        |  | Date of LoanAgreement |  | Maturity   |     |  | InterestRate |       |  | Loan PrincipalAmount |         |   | AccruedInterest
|Plaza Partners, LLC (condominium conversion)                                |  | 2/28/2006             |  | 2/28/2007  | (1) |  | 19.0         | %     |  | $                    | 16,800  |   |                 | $ | 1,727
|                                                                            |  |                       |  |            |    
|Mizner Court Holdings, LP (2) (condominium conversion)                      |  | 3/10/2006             |  | 11/9/2007  |     |  | LIBOR +7.0   | %     |  |                      | 15,000  |   |                 |   |     
|                                                                            |  |                       |  |            |    
|Shorefox Development, LLC (lifestyle community development)                 |  | 3/13/2006             |  | 3/10/2009  |     |  | 13.50        | %     |  |                      | 35,000  |   |                 |   | 1,648
|                                                                            |  |                       |  |            |    
|Marinas International, Inc. (four marinas)                                  |  | 12/22/2006            |  | 12/22/2021 |     |  | 10.25        | %     |  |                      | 39,151  |   |                 |   | 551  
|                                                                            |  |                       |  |            |    
|Booth Creek Resort Properties LLC (two ski properties & one parcel of land) |  | 1/18/2007             |  | 1/19/2010  |     |  | 15.0         | % (3) |  |                      | 12,000  |   |                 |   | 416  
|                                                                            |  |                       |  |            |     |  |              |       |  |                      |         |   |                 |   |      
|Total                                                                       |  |                       |  |            |     |  |              |       |  |                      | 117,951 |   |                 | $ | 4,342
|                                                                            |  |                       |  |            |     |  |              |       |  |                      |         |   |                 |   |      
|Accrued interest                                                            |  |                       |  |            |     |  |              |       |  |                      | 4,342   |   |                 |   |      
|Acquisition fees, net                                                       |  |                       |  |            |     |  |              |       |  |                      | 2,873   |   |                 |   |      
|Loan origination fees, net                                                  |  |                       |  |            |     |  |              |       |  |                      | (327    | ) |                 |   |      
|                                                                            |  |                       |  |            |     |  |              |       |  |                      |         |   |                 |   |      
|Total carrying amount                                                       |  |                       |  |            |     |  |              |       |  | $                    | 124,839 |   |                 |   |      
|                                                                            |  |                       |  |            |     |  |              |       |  |                      |         |   |                 |   |      

---

FOOTNOTES:



|(1) | On February 28, 2007, the loan matured, however, the borrower was unable to repay the loan due to its inability to convert and sell condominiums as a result of poor economic
conditions in the Florida condominium market. As a result, we deemed the loan to be impaired. We deemed the loan impaired and ceased the recording of interest upon the loans maturity. On June 15, 2007, we filed a complaint in the Ninth
Judicial Circuit Court for Orange County, Florida to foreclose on the collateral for our $16.8 million loan to Plaza Partners, LLC. We believe, based on a recently obtained appraisal, that the underlying collateral exceeds the full principal amount
of the loan and all accrued interest. As a result, a valuation allowance has not been established for this loan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



---

##### Table of Contents

|(2) | On July 9, 2007, Mizner Court Holdings, LP (Mizner) defaulted on its loan payment to us, at which point we deemed the loan to be impaired and ceased recording
interest income. On July 27, 2007, we paid approximately $241,000 due under the borrowers first mortgage on behalf of Mizner in order to protect our investment position. We believe that over the long term, based on internal
estimates and market analysis, that the underlying value of the collateral will be sufficient to cover the full principal amount of all loans, and accordingly have not established a valuation allowance for this loan. The borrower is currently
exploring its options to refinance the property. We are also considering our options for resolution including foreclosure.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Pursuant to the three loan agreements with an aggregate principal of $12.0 million, the loans require monthly interest-only payments for the first three years based on an annual
percentage rate of 9.0%. The loans are cross-collateralized by two ski properties and one parcel of land and may be prepaid anytime after 60 days written notice from the borrower. At maturity, in addition to the entire unpaid principal balance,
accrued and unpaid interest, and any other sums due thereunder, the borrower agreed to pay an exit fee equal to the aggregate of monthly interest payments that would have been payable if the interest rate had been 15.0% rather than 9.0%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We will continue to monitor the value of the collateral for these loans and evaluate our alternatives during the remainder
of 2007. In the event additional market information indicates that the value of the collateral is not sufficient, we may be required to writedown the carrying value of our notes receivable.

Distributions

We intend to pay distributions to our
stockholders on a quarterly basis. The amount of distributions declared to our stockholders will be determined by our board of directors and is dependent upon a number of factors, including expected and actual net cash from operations for the year,
our financial condition, a balanced analysis of both current and expected long-term stabilized cash flows from our properties, our objective of continuing to qualify as a REIT for federal income tax purposes, 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.
Distributions declared and paid were covered by cash flows from operating activities during the quarter and six months ended June 30, 2007. We expect cash flows from operating activities to exceed distributions for the year ended
December 31, 2007.

We do not pay distributions from proceeds from our common stock offerings, therefore, we have historically made,
and may continue to make if operating cash flows are not sufficient to cover distributions, advances under our revolving line of credit to temporarily fund the payment of distributions at the end of each fiscal quarter. We also may fund
distributions from loan proceeds received by us or through our joint venture arrangements. We currently have up to $20.0 million liquidity under our line of credit. In the event that we need to borrow to temporarily fund the payment of distributions
and are unable to do so, then we may have to reduce our distributions to stockholders.

Distributions declared and paid during the six
months ended June 30, 2007 and 2006 were $40.1 million and $13.1 million, respectively, and exceeded net income for the six months ended June 30, 2007 and 2006 by approximately $21.2 million and $4.2 million, respectively. Distributions to
stockholders may be considered a return of capital to the extent the amount of such distributions exceeds net income calculated in accordance with generally accepted accounting principles (GAAP). Accordingly, for the six months ended
June 30, 2007, approximately 46.9% of the distributions represented a return of capital, if calculated using GAAP net income as the basis. Approximately 28.44% of the distributions for the six months ended June 30, 2007 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.

Common Stock Redemptions

For the quarter and six
months ended June 30, 2007 approximately 99,000 and 197,000 shares, respectively, were redeemed at approximately $0.9 million and $1.9 million, respectively, for an average price per share of $9.50. These shares are considered retired and will
not be reissued.

Related Party Arrangements

On June 1, 2007, our Advisor filed a certificate of conversion with the State of Florida to change its name and form of entity from CNL Income Corp. to CNL Income Company, LLC. The certificate of conversion will have no effect on the
Advisory Agreement and related agreements except to change the name from CNL Income Corp. to CNL Income Company, LLC.

Certain of our
directors and officers hold similar positions with CNL Income Company, LLC which is both a stockholder and our advisor, and CNL Securities Corp., which is the managing dealer for our public offerings. Our chairman of the board indirectly owns a
controlling interest in CNL Financial Group, the parent company of our advisor. These entities receive fees and compensation in connection with our stock offerings and the acquisition, management and sale of our assets. Amounts incurred relating to
these



21



---

##### Table of Contents

transactions were approximately $80.3 million and $27.0 million for the six months ended June 30, 2007 and 2006, respectively. Of these amounts,
approximately $5.2 million and $11.1 million are included in the amounts due to affiliates in the accompanying consolidated balance sheets as of June 30, 2007 and December 31, 2006, respectively. CNL Income Company, LLC and its affiliates
are entitled to reimbursement of certain expenses and amounts incurred on our behalf in connection with our organization, offering, acquisitions, and operating activities. Reimbursable expenses for the six months ended June 30, 2007 and 2006
were approximately $4.1 million and $9.7 million, respectively. 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 is required to 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). For the Expense Year ended June 30, 2007,
operating expenses did not exceed the Expense Cap.

We maintain accounts at a bank for which our chairman and vice chairman serve as
directors. We had deposits of approximately $3.0 million and $3.5 million in those accounts as of June 30, 2007 and December 31, 2006, respectively.

CRITICAL ACCOUNTING POLICIES

There have been no changes to our Critical Accounting
Policies since the filing of our annual report on Form 10-K for the year ended December 31, 2006.

IMPACT OF
RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standard Board
(the FASB) issued Statement of Financial Accounting Standard No. 159, Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This Statement is expected to expand the use of FAS 157 Fair Value Measurement discussed below. The application of this pronouncement is effective in fiscal periods beginning after
November 15, 2007 and is not expected to have a significant impact to our current practice nor on our financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurement (FAS 157). FAS 157 creates consistency in valuing all assets and liabilities. Fair value
is defined as what would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date. FAS 157 requires certain methods to be used to measure fair value and expands disclosures
about fair value measurements. The application of this pronouncement is effective in fiscal periods beginning after November 15, 2007 and is not expected to have any significant impact to our current practice nor on our financial position or
results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return.
We must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is
determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes
subject to FASB Statement No. 109, Accounting for Income Taxes. The interpretation clearly excludes income tax positions related to FASB Statement No. 5, Accounting for Contingencies. We adopted the provisions of
this statement in the first quarter of 2007 and there was no effect on our financial position or results of operations.

[Intentionally left
blank]



22



---

##### Table of Contents

RESULTS OF OPERATIONS

The following tables summarize our operations for the quarter and six months ended June 30, 2007 as compared to June 30, 2006 (in thousands
except per share data):



|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------ | -------- |  | - | -------- | - |  | ------- | -
|                                                        |  | Quarters Ended |        
|                                                        |  | June 30,       |         |   |      |   |        |          | 
|                                                        |  | 2007           |         |   | 2006 |   |        | $ Change |  |   | % Change |  
|Revenues:                                               |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Rental income from operating leases                     |  | $              | 28,780  |   |      | $ | 2,060  |          |  | $ | 26,720   |   |  | 1297.1  | %
|Interest income on mortgages and other notes receivable |  |                | 2,755   |   |      |   | 1,579  |          |  |   | 1,176    |   |  | 74.5    | %
|Other operating income                                  |  |                | 2,420   |   |      |   |       |          |  |   | 2,420    |   |  | n/a     |  
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Total revenue                                           |  |                | 33,955  |   |      |   | 3,639  |          |  |   | 30,316   |   |  | 833.1   | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                        |  |                |         |  
|Expenses:                                               |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Asset management fees to advisor                        |  |                | 3,511   |   |      |   | 1,214  |          |  |   | 2,297    |   |  | 189.2   | %
|General and administrative                              |  |                | 2,418   |   |      |   | 1,172  |          |  |   | 1,246    |   |  | 106.3   | %
|Ground lease and permit fees                            |  |                | 1,367   |   |      |   | 191    |          |  |   | 1,176    |   |  | 615.7   | %
|Depreciation and amortization                           |  |                | 14,481  |   |      |   | 1,007  |          |  |   | 13,474   |   |  | 1338.0  | %
|Other operating expenses                                |  |                | 1,538   |   |      |   |       |          |  |   | 1,538    |   |  | n/a     |  
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Total expenses                                          |  |                | 23,315  |   |      |   | 3,584  |          |  |   | 19,731   |   |  | 550.5   | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Operating income                                        |  |                | 10,640  |   |      |   | 55     |          |  |   | 10,585   |   |  | 19245.5 | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                        |  |                |         |  
|Other income (expense):                                 |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Interest and other income                               |  |                | 2,689   |   |      |   | 1,756  |          |  |   | 933      |   |  | 53.1    | %
|Interest expense and loan cost amortization             |  |                | (4,142  | ) |      |   | (91    | )        |  |   | (4,051   | ) |  | 4451.6  | %
|Equity in earnings of unconsolidated entities           |  |                | 1,080   |   |      |   | 2,857  |          |  |   | (1,777   | ) |  | -62.2   | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Total other income (expense)                            |  |                | (373    | ) |      |   | 4,522  |          |  |   | (4,895   | ) |  | -108.2  | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|Net income                                              |  | $              | 10,267  |   |      | $ | 4,577  |          |  | $ | 5,690    |   |  | 124.3   | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                        |  |                |         |  
|Earnings per share of common stock (basic and diluted)  |  | $              | 0.07    |   |      | $ | 0.09   |          |  | $ | (0.02    | ) |  | -22.2   | %
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                        |  |                |         |  
|Weighted average number of shares of common             |  |                | 151,232 |   |      |   | 53,658 |          |  |   |          |   |  |         |  
|                                                        |  |                |         |   |      |   |        |          |  |   |          |   |  |         |  

[Intentionally left blank]



23



---

##### Table of Contents

|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|--------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---- | - | ------ | -------- |  | - | -------- | - |  | ------- | -
|                                                                                  |  | Six Months Ended |        
|                                                                                  |  | June 30,         |         |   |      |   |        |          | 
|                                                                                  |  | 2007             |         |   | 2006 |   |        | $ Change |  |   | % Change |  
|Revenues:                                                                         |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Rental income from operating leases                                               |  | $                | 48,709  |   |      | $ | 2,824  |          |  | $ | 45,885   |   |  | 1624.9  | %
|Interest income on mortgages and other notes receivable                           |  |                  | 5,834   |   |      |   | 2,081  |          |  |   | 3,753    |   |  | 180.3   | %
|Other operating income                                                            |  |                  | 3,439   |   |      |   |       |          |  |   | 3,439    |   |  | n/a     |  
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Total revenue                                                                     |  |                  | 57,982  |   |      |   | 4,905  |          |  |   | 53,077   |   |  | 1082.0  | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                                                  |  |                  |         |  
|Expenses:                                                                         |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Asset management fees to advisor                                                  |  |                  | 6,297   |   |      |   | 2,219  |          |  |   | 4,078    |   |  | 183.7   | %
|General and administrative                                                        |  |                  | 4,355   |   |      |   | 2,175  |          |  |   | 2,180    |   |  | 100.2   | %
|Ground leases and permits                                                         |  |                  | 2,566   |   |      |   | 287    |          |  |   | 2,279    |   |  | 794.1   | %
|Depreciation and amortization                                                     |  |                  | 24,626  |   |      |   | 1,177  |          |  |   | 23,449   |   |  | 1992.3  | %
|Other operating expenses                                                          |  |                  | 2,513   |   |      |   |       |          |  |   | 2,513    |   |  | n/a     |  
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Total expenses                                                                    |  |                  | 40,357  |   |      |   | 5,858  |          |  |   | 34,499   |   |  | 588.9   | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Operating income (loss)                                                           |  |                  | 17,625  |   |      |   | (953   | )        |  |   | 18,578   |   |  | 1949.42 | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                                                  |  |                  |         |  
|Other income (expense):                                                           |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Interest and other income                                                         |  |                  | 4,803   |   |      |   | 3,158  |          |  |   | 1,645    |   |  | 52.1    | %
|Interest expense and loan cost amortization                                       |  |                  | (5,583  | ) |      |   | (171   | )        |  |   | (5,412   | ) |  | 3158.9  | %
|Equity in earnings of unconsolidated entities                                     |  |                  | 1,984   |   |      |   | 6,821  |          |  |   | (4,837   | ) |  | -70.9   | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Total other income                                                                |  |                  | 1,204   |   |      |   | 9,808  |          |  |   | (8,604   | ) |  | -87.7   | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|Net income                                                                        |  | $                | 18,829  |   |      | $ | 8,855  |          |  | $ | 9,974    |   |  | 112.6   | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                                                  |  |                  |         |  
|Earnings per share of common stock (basic and diluted)                            |  | $                | 0.14    |   |      | $ | 0.18   |          |  | $ | (0.04    | ) |  | -22.2   | %
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  
|                                                                                  |  |                  |         |  
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                  | 137,809 |   |      |   | 49,014 |          |  |   |          |   |  |         |  
|                                                                                  |  |                  |         |   |      |   |        |          |  |   |          |   |  |         |  

Rental income from operating leases. The significant increase in rental income for
the quarter and six months ended June 30, 2007 as compared to June 30, 2006 is solely attributable to our acquisition of additional real estate properties. Approximately 11.0% of the total revenue growth was
related to six properties that were acquired during the six months ended June 30, 2006 for which we recognized only a partial period of revenue in 2006 as compared to the full six months ended June 30, 2007. The remaining 89.0%
increase in rental revenue is attributable to the 52 properties that we acquired between June 30, 2006 and June 30, 2007. Only one property was owned and leased for both the entire six month periods ended
June 30, 2007 and 2006, which contributed approximately $1.7 million, or 3.5% and 60.2%, respectively, of total rental income in each of the six month periods ended June 30, 2007 and 2006.

Interest income on mortgages and other notes receivable.Between September 2005 and March 2007, we made eleven loans to third-party borrowers,
which resulted in interest income of approximately $5.8 million and $2.1 for the six months ended June 30, 2007 and 2006, respectively and approximately $2.8 million and $1.6 million for the quarters ended June 30, 2007 and 2006,
respectively. On August 14, 2006, one of the loans was repaid in full.

Other operating income and expense.The other operating
income and expenses for the quarter and six months ended June 30, 2007 as compared to zero for the quarter and six months ended June 30, 2006 is attributable to the acquisition of Cowboys Golf Club in December 2006, which is operated
through a taxable REIT subsidiary. We expect to enter into a long-term lease agreement for the Cowboys Golf Club with a subsidiary of EAGL Golf during the second half of 2007. From the point at which we enter into the long-term lease, golf operating
revenues and expenses will be replaced with rental income from the tenant.

Asset management fees to advisor.Asset management fees
of 0.08334% per month of invested assets are paid to the advisor for the acquisition of real estate assets and making loans. Total asset management fees were approximately $3.5 million and $1.2 million for the quarter ended June 30, 2007
and 2006, respectively, and $6.3 million and $2.2 million, respectively for the six months ended June 30, 2007 and 2006. The increase in such fees is proportional to the acquisition of additional real estate properties and loans made during the
periods.



24



---

##### Table of Contents

General and administrative.The increase in our general and administrative expenses is principally
due to our growth and the overall increase in our operating activities as a result of the properties we have acquired.

Ground leases
and permits. Ground lease payments, park use and land permit fees are generally based on a percentage of gross revenue of the underlying property over certain thresholds, and are paid by the tenants in accordance with the terms of the
triple-net leases with those tenants. These expenses have corresponding revenues included in rental income above. The following are the properties subject to such leases or permits:



|                                |  |               |  |                                                                                              
|------------------------------- |  | ------------- |  | ---------------------------------------------------------------------------------------------
|Properties                      |  | Date Acquired |  | Description                                                                                  
|Mountain High Ski Resort        |  | 6/29/07       |  | U.S. Forest Service ski area permit                                                          
|                                |  |              
|The PARC Portfolio              |  | 4/06/07       |  | Two long-term ground leases                                                                  
|                                |  |              
|Booth Creek Ski Portfolio       |  | 1/19/07       |  | Three U.S. Forest Service ski area permits                                                   
|                                |  |              
|Brighton Ski Resort             |  | 1/08/07       |  | Ski area permit with U.S. Forest Service and one ground lease                                
|                                |  |              
|Marinas International Portfolio |  | 12/22/06      |  | Four long-term ground leases                                                                 
|                                |  |              
|EAGL Golf Portfolio             |  | 11/16/06      |  | Three long-term ground leases                                                                
|                                |  |              
|Family Entertainment Centers    |  | 10/06/06      |  | Three long-term ground leases                                                                
|                                |  |              
|Bear Creek Golf Course          |  | 9/08/06       |  | Special facilities ground leases agreement with Dallas/Fort Worth International Airport Board
|                                |  |              
|Cypress Mountain Ski Area       |  | 5/30/06       |  | Special park use permit from Canadian Provincial Authority                                   

Depreciation and amortization.The increase in depreciation and amortization expense for
the quarter and six months ended June 30, 2007 as compared to 2006 is a direct result of the acquisition of additional real estate as discussed above.

Interest and other income.The increase in interest income is a result of greater average cash on hand from uninvested offering proceeds during the quarter and six months ended June 30, 2007 as compared to
June 30, 2006.

Interest expense and loan cost amortization.The increase in interest expense for the quarter and six months
ended June 30, 2007 as compared to June 30, 2006 is attributable to the increase in notes and mortgages payable. For the six months ended June 30, 2006, all interest expense related to our revolving line of credit. Subsequent to
June 30, 2006 we entered into additional loan obligations of approximately $268.8 million with a weighted average interest rate of 6.44%.

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



|                  |  |                           |        |   |      |   |       |          |  |   |          |   |  |          |   
|----------------- |  | ------------------------- | ------ | - | ---- | - | ----- | -------- |  | - | -------- | - |  | -------- | --
|                  |  | Quarter Ended June 30,    |       
|                  |  | 2007                      |        |   | 2006 |   |       | $ Change |  |   | % Change |  
|Wolf Partnership  |  | $                         | (1,232 | ) |      | $ | (592  | )        |  | $ | (640     | ) |  | (108.1   | )%
|DMC Partnership   |  |                           | 2,363  |   |      |   | 2,219 |          |  |   | 144      |   |  | 6.5      | % 
|Intrawest Venture |  |                           | (51    | ) |      |   | 1,230 |          |  |   | (1,281   | ) |  | (104.2   | )%
|                  |  |                           |        |   |      |   |       |          |  |   |          |   |  |          |   
|Total             |  | $                         | 1,080  |   |      | $ | 2,857 |          |  | $ | (1,777   | ) |  | (62.2    | )%
|                  |  |                           |        |   |      |   |       |          |  |   |          |   |  |          |   
|                  | 
|                  |  | Six Months Ended June 30, |       
|                  |  | 2007                      |        |   | 2006 |   |       | $ Change |  |   | % Change |  
|Wolf Partnership  |  | $                         | (2,453 | ) |      | $ | 158   |          |  | $ | (2,611   | ) |  | (1,652.5 | )%
|DMC Partnership   |  |                           | 4,699  |   |      |   | 4,325 |          |  |   | 374      |   |  | 8.6      | % 
|Intrawest Venture |  |                           | (262   | ) |      |   | 2,338 |          |  |   | (2,600   | ) |  | (111.2   | )%
|                  |  |                           |        |   |      |   |       |          |  |   |          |   |  |          |   
|Total             |  | $                         | 1,984  |   |      | $ | 6,821 |          |  | $ | (4,837   | ) |  | (70.9    | )%
|                  |  |                           |        |   |      |   |       |          |  |   |          |   |  |          |   



25



---

##### Table of Contents

Equity in earnings decreased by approximately $1.8 million and $4.8 million for the quarter and six
months ended June 30, 2007, respectively, as compared to the same periods in 2006 due to a decrease in income from the Wolf Partnership and the Intrawest Venture offset by a slight increase in income from the DMC Partnership. The Wolf
Partnership was adversely affected by a regional economic downturn impacting the Sandusky, Ohio property and by greater competitive pressure, including competitor rate cuts and expansion, at both the Wisconsin Dells and Sandusky, Ohio locations. We
are working with our partner and operator to develop strategies that seek to improve the performance of the properties and our returns over the long-term at both of these locations; however, the affects of the economic downturn and competitive
pressure are expected to continue to have an impact on our earnings for the foreseeable future. In addition, on March 1, 2006, the Wolf Partnership obtained a $63.0 million loan encumbering two waterpark resort properties. This resulted in
increased interest expense for the six months ended June 30, 2007 as compared to the partial period in which the loan was outstanding in 2006.

Equity in earnings is recognized using the hypothetical liquidation at book value method (HLBV) of accounting which means we recognize income in each period equal to the change in our share of assumed proceeds from the
liquidation of the underlying unconsolidated entities at depreciated book value. Because our equity in earnings is calculated in this manner due to the preference we receive upon liquidation, we have historically recognized more income than the
underlying unconsolidated entities have generated and our partners have historically been allocated significant losses which offset the earnings that we have recorded for these entities. During 2006, our partners unreturned capital in the
Intrawest Venture was reduced to zero as a result of the losses they have recognized and the distributions that they have received from this venture. Since the date that this occurred we no longer recognize significant amounts of income from this
venture and in the future may recognize losses that this entity incurs (on a GAAP basis) which is the primary reason for the reduction in equity in earnings from the Intrawest Venture during 2007 as compared to 2006. While this method of recognizing
earnings and losses from the unconsolidated entity is not expected to have an impact on the distributions we receive, it will likely result in reductions or fluctuations in our net income, earnings per share, funds from operations (as defined below)
and FFO per share.

Net income and earnings per share.Our net income and earnings per share are volatile as we are still in the
early stages of operation. These performance measures are significantly affected by the pace at which we raise offering proceeds and the time it takes to accumulate and invest such proceeds in real estate acquisitions and other income-producing
investments that produce income for us. The accumulation of funds over time in order to make large individually significant acquisitions can be dilutive to the earnings per share ratio. Additionally, the amount of equity in earnings we recognized
under the HLBV method of accounting in 2007 versus 2006 had a significant negative impact on our income and earnings per share.

OTHER

Funds from Operations.We consider FFO to be an indicative measure of operating performance due to the significant effect of depreciation of real
estate assets on net income. FFO, based on the revised definition adopted by the 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 the 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 unaudited condensed consolidated financial statements and notes thereto.

[Intentionally left blank]



26



---

##### Table of Contents

Reconciliation of net income to FFO for the quarter and six months ended June 30, 2007 and 2006 (in
thousands):



|                                                                                  |  |                        |         |                           |   |        |  |      |         |  |   |       
|--------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------------------------- | - | ------ |  | ---- | ------- |  | - | ------
|                                                                                  |  | Quarter Ended June 30, |         | Six months ended June 30,
|                                                                                  |  | 2007                   |         | 2006                      |   | 2007   |  | 2006
|Net income                                                                        |  | $                      | 10,267  |                           | $ | 4,577  |  | $    | 18,829  |  | $ | 8,855 
|                                                                                  |  |                        |         |                          
|Adjustments:                                                                      |  |                        |         |                           |   |        |  |      |         |  |   |       
|Depreciation and amortization                                                     |  |                        | 14,481  |                           |   | 1,000  |  |      | 24,626  |  |   | 1,170 
|Net effect of FFO adjustment from unconsolidated entities (1)                     |  |                        | 4,933   |                           |   | 3,220  |  |      | 8,930   |  |   | 5,543 
|                                                                                  |  |                        |         |                           |   |        |  |      |         |  |   |       
|Total funds from operations                                                       |  | $                      | 29,681  |                           | $ | 8,797  |  | $    | 52,385  |  | $ | 15,568
|                                                                                  |  |                        |         |                           |   |        |  |      |         |  |   |       
|                                                                                  |  |                        |         |                          
|Weighted average number of shares of common stock outstanding (basic and diluted) |  |                        | 151,232 |                           |   | 53,658 |  |      | 137,809 |  |   | 49,014
|                                                                                  |  |                        |         |                           |   |        |  |      |         |  |   |       
|                                                                                  |  |                        |         |                          
|FFO per share (basic and diluted)                                                 |  | $                      | 0.20    |                           | $ | 0.16   |  | $    | 0.38    |  | $ | 0.32  
|                                                                                  |  |                        |         |                           |   |        |  |      |         |  |   |       

---

FOOTNOTES:



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

OFF BALANCE SHEET ARRANGEMENTS

There have been no material changes in our off balance sheet arrangements since the filing of our annual report on Form 10-K for the year ended
December 31, 2006.

COMMITMENTS, CONTINGENCIES AND CONTRACTUAL OBLIGATIONS

The following tables present our contractual obligations and contingent commitments and the related payment periods as of June 30,
2007:

Contractual Obligations



|                                                           |  |                                       |        |           |   |           |  |                   |        |       |   |         |  |   |        
|---------------------------------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ----------------- | ------ | ----- | - | ------- |  | - | -------
|                                                           |  | Payments Due by Period (in thousands)
|                                                           |  | Less than1 year                       |        | Years 1-3 |   | Years 3-5 |  | More than 5 years |        | Total
|Line of credit                                             |  | $                                     | 6,000  |           | $ |          |  | $                 |       |       | $ |        |  | $ | 6,000  
|Mortgages and other notes payable (principal and interest) |  |                                       | 12,098 |           |   | 24,423    |  |                   | 31,435 |       |   | 250,180 |  |   | 318,136
|Obligations under capital leases                           |  |                                       | 1,456  |           |   | 1,898     |  |                   | 41     |       |   |        |  |   | 3,395  
|Obligations under operating leases/permits (1)             |  |                                       | 7,805  |           |   | 23,315    |  |                   | 23,117 |       |   | 185,178 |  |   | 239,415
|                                                           |  |                                       |        |           |   |           |  |                   |        |       |   |         |  |   |        
|Total                                                      |  | $                                     | 27,359 |           | $ | 49,636    |  | $                 | 54,593 |       | $ | 435,358 |  | $ | 566,946
|                                                           |  |                                       |        |           |   |           |  |                   |        |       |   |         |  |   |        

---

FOOTNOTES:



|(1) | Represents obligations under ground leases, park use permits and land permits which are paid by our third-party tenants on our behalf. Ground lease payments, park use and land
permit fees are generally based on a percentage of gross revenue of the related property exceeding a certain threshold. For percentage based lease and permit obligations, the future obligations have been estimated based on current revenue levels
projected over the term of the leases or permits.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27



---

##### Table of Contents

Contingent Commitments



|                                  |  |                                       |        |           |   |           |  |                   |       |       |   |       |  |   |        
|--------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ----------------- | ----- | ----- | - | ----- |  | - | -------
|                                  |  | Payments Due by Period (in thousands)
|                                  |  | Less than 1year                       |        | Years 1-3 |   | Years 3-5 |  | More than 5 years |       | Total
|Contingent purchase consideration |  | $                                     |       |           | $ | 23,650    |  | $                 |      |       | $ |      |  | $ | 23,650 
|Loan funding commitments          |  |                                       | 765    |           |   | 5,000     |  |                   |      |       |   |      |  |   | 5,765  
|Capital improvements              |  |                                       | 32,981 |           |   | 41,892    |  |                   | 2,500 |       |   | 1,748 |  |   | 79,121 
|Pending investments(1)            |  |                                       | 44,500 |           |   |          |  |                   |      |       |   |      |  |   | 44,500 
|                                  |  |                                       |        |           |   |           |  |                   |       |       |   |       |  |   |        
|Total                             |  | $                                     | 78,246 |           | $ | 70,542    |  | $                 | 2,500 |       | $ | 1,748 |  | $ | 153,036
|                                  |  |                                       |        |           |   |           |  |                   |       |       |   |       |  |   |        

---

FOOTNOTES:



|(1) | We have committed to acquire two marina properties with an aggregate purchase price of approximately $22.5 million, and 46 condominiumized retail and commercial spaces at the
Northstar Commercial Village in Lake Tahoe, California for $22.0 million. These transactions are subject to the fulfillment of certain conditions. There can be no assurance that any or all of these conditions will be satisfied or that the
transactions will ultimately be completed.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUBSEQUENT EVENTS

On July 13, 2007, we entered into an amended and restated loan agreement with Colonial Bank, N.A. converting the $20.0 million revolving line of
credit agreement dated February 13, 2007 to a $25.0 million three year, non-revolving construction loan with substantially similar terms as the original line of credit. The construction loan will be used to finance improvements at the Bretton
Woods Resort.

On July 18, 2007 we approved a capital expansion project for $12.1 million at Cypress Mountain to build a 50,000 square
foot base lodge in preparation for hosting the 2010 Winter Olympic freestyle skiing and snowboarding events. The majority of the funding for this project will come from a construction loan obtained by the tenant of this property. We have agreed to
make scheduled annual contributions to ultimately purchase the improvements. As contributions are made, the tenant will pay additional base rent under the terms of the lease.

On August 1, 2007, we acquired two additional marina properties for an aggregate purchase price of $12.1 million. The properties are being leased to
Marinas International under long-term triple net leases for a term of 20 years and four five-year renewal options.

On August 7, 2007,
we acquired two ski resort properties in Maine for an aggregate purchase price of $76.5 million from American Ski Corporation. The properties are being leased to affiliates of Boyne USA under long-term triple net leases which are coterminous with
our other leases to Boyne. In connection with the transaction, we agreed to sell a portion of the developable land to Boyne for approximately $13.3 million. The sale of the developable land is subject to certain events such as subdivision of
parcels, and is expected to be completed within one year.



|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 and lend primarily at fixed rates or variable rates with the lowest margins available, and
in some cases, with the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may
adversely impact expected future cash flows and by evaluating hedging opportunities.



28



---

##### Table of Contents

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



|                                             |  |                     |       |   |      |   |              |      |  |   |       |   |  |      |        |   |            |   |       |       |  |   |            |   |  |   |         |   |  |   |        
|-------------------------------------------- |  | ------------------- | ----- | - | ---- | - | ------------ | ---- |  | - | ----- | - |  | ---- | ------ | - | ---------- | - | ----- | ----- |  | - | ---------- | - |  | - | ------- | - |  | - | -------
|                                             |  | Expected Maturities |       |   |      |   |              |     
|                                             |  | 2007                |       |   | 2008 |   |              | 2009 |  |   | 2010  |   |  | 2011 |        |   | Thereafter |   |       | Total |  |   | Fair Value
|Fixed rate debt                              |  | $                   | 2,515 |   |      | $ | 7,050        |      |  | $ | 7,392 |   |  | $    | 14,258 |   |            | $ | 8,146 |       |  | $ | 229,436    |   |  | $ | 268,797 |   |  | $ | 268,797
|                                             |  |                     |       |   |      |   |              |     
|Weighted average interest rate of maturities |  |                     | 6.22  | % |      |   | 6.84         | %    |  |   | 6.81  | % |  |      | 6.36   | % |            |   | 6.76  | %     |  |   | 6.43       | % |  |   | 6.44    | % |  |   |       
|                                             |  |                     |       |   |      |   |              |     
|Variable rate debt                           |  |                     |      |   |      |   | 6,000        |      |  |   |      |   |  |      |       |   |            |   |      |       |  |   |           |   |  |   | 6,000   |   |  |   | 6,000  
|                                             |  |                     |       |   |      |   |              |     
|Weighted average interest rate               |  |                     |      |   |      |   | Libor + 2.25 | %    |  |   |      |   |  |      |       |   |            |   |      |       |  |   |           |   |  |   |        |   |  |   |       
|                                             |  |                     |       |   |      |   |              |      |  |   |       |   |  |      |        |   |            |   |       |       |  |   |            |   |  |   |         |   |  |   |        
|Total debt                                   |  | $                   | 2,515 |   |      | $ | 13,050       |      |  | $ | 7,392 |   |  | $    | 14,258 |   |            | $ | 8,146 |       |  | $ | 229,436    |   |  | $ | 274,797 |   |  | $ | 274,797
|                                             |  |                     |       |   |      |   |              |      |  |   |       |   |  |      |        |   |            |   |       |       |  |   |            |   |  |   |         |   |  |   |        

We believe the total carrying value of our long-term debt approximates the fair value based on
current rates we could obtain for similar borrowings.

As of June 30, 2007, we had ten loans receivable in the aggregate amount of
approximately $118.0 million. See description above under Mortgages and Other Notes Receivablein Item 2, Managements Discussion and Analysis.On one such loan we are entitled to receive interest based on the
one-month LIBOR rate plus 7.0%. LIBOR on June 29, 2007 was approximately 5.32% in comparison to 4.74% on March 10, 2006, the date we acquired the loan. We estimate that a decrease in LIBOR of one percent would have resulted in a decrease
in interest income of $71,000 for the six months ended June 30, 2007. This information is provided to indicate our exposure to interest rate change and it is not intended to predict future results. Our actual results will likely vary. The other
nine loans entitle us to receive interest at fixed rates.

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

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



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

Evaluation of Disclosure
Controls and Procedures

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

Changes in Internal Control over Financial
Reporting

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

PART II OTHER INFORMATION



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



|Item 1A. | Risk Factors No material changes.
|-------- | ----------------------------------



29



---

##### Table of Contents

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

Use of Proceeds

As of June 30, 2007, we
sold approximately $1.7 billion (166.3 million shares) in connection with our offerings, including approximately $40.4 million (4.3 million shares) purchased through our reinvestment plan. The shares sold and the gross offering proceeds received
from our offerings do not include 20,000 shares purchased by the advisor for $200,000 preceding the commencement of our 1stOffering or 117,708 restricted
common shares issued for $1.2 million 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 June 30, 2007, we incurred the following
aggregate expenses in connection with the issuance of our registered securities on both of our offerings (in thousands):



|                                                               |  |   |        
|-------------------------------------------------------------- |  | - | -------
|Selling commissions                                            |  | $ | 112,992
|Marketing support fee and due diligence expense reimbursements |  |   | 47,016 
|Offering costs and expenses                                    |  |   | 26,019 
|                                                               |  |   |        
|Offering and stock issuance costs (1)                          |  | $ | 186,027
|                                                               |  |   |        

---

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. We are not obligated to pay our advisor or certain of its affiliates costs that exceed the 13% limitation. As of June 30, 2007, there were no offering costs in excess of the 13% limitation
that had been billed to us.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 all of the due diligence expenses are reallowed to third-party participating broker-dealers. Other
offering costs and expenses have been incurred by, and are payable to, an affiliate of our advisor.

Our net offering proceeds, after
deducting the total expenses described above, were approximately $1.5 billion at June 30, 2007. As of June 30, 2007, we invested approximately $1.4 billion in properties, loans and other permitted investments.

Our 1stOffering was terminated on March 31, 2006, and on April 4, 2006, our 2ndOffering became effective pursuant to a registration statement
filed with the United States Securities Exchange and Commission on Form S-11 under the Securities Act of 1933 (Commission File No. 333-128662). The net offering proceeds raised pursuant to our 2ndOffering will be used for general corporate purposes, including, but not limited to, the acquisition of interests in additional properties or real estate investments, repayment of
debt, funding of redemptions under our share redemption program and other fees and expenses.

Redemption of Shares

Pursuant to our share redemption plan, any stockholder who has held shares for not less than one year may present all or any portion equal to at least
25% of their shares to us for redemption at prices based on the amount of time that the redeeming stockholder has held the applicable shares, but in no event greater than the price of shares sold to the public in any offering. We may, at our
discretion, redeem the shares, subject to certain conditions and limitations under the redemption plan. However, at no time during a 12-month period may we redeem more than 5% of our outstanding common stock at the beginning of such 12-month period.
For the six months ended June 30, 2007, we have redeemed the following shares:



|                        |  |                                |  |                         |      |        |   |          
|----------------------- |  | ------------------------------ |  | ----------------------- | ---- | ------ | - | ---------
|Period                  |  | Total Number OfShares Redeemed |  | Average Price Per Share |      | Amount
|April 1  June 30, 2007 |  | 197,020                        |  | $                       | 9.50 |        | $ | 1,871,686



30



---

##### Table of Contents

Issuer Purchases of Equity Securities



|                                     |  |                               |  |                            |      |                                                                  |         |                                                               |          
|------------------------------------ |  | ----------------------------- |  | -------------------------- | ---- | ---------------------------------------------------------------- | ------- | ------------------------------------------------------------- | ---------
|Period                               |  | TotalNumber OfSharesPurchased |  | AveragePrice PaidPer Share |      | Total Number OfShares PurchasedAs Part Of PubliclyAnnounced Plan |         | Maximum NumberOf Shares ThatMay Yet BePurchased UnderThe Plan
|April 1, 2007 through April 30, 2007 |  | 197,020                       |  | $                          | 9.50 |                                                                  | 197,020 |                                                               | 2,377,169
|May 1, 2007 through May 31, 2007     |  |                               |  |                            |     |                                                                  |         |                                                               | 2,377,169
|June 1, 2007 through June 30, 2007   |  |                               |  |                            |     |                                                                  |         |                                                               | 2,377,169
|                                     |  |                               |  |                            |      |                                                                  |         |                                                               |          
|Total                                |  | 197,020                       |  |                            |      |                                                                  | 197,020 |                                                               |          
|                                     |  |                               |  |                            |      |                                                                  |         |                                                               |          



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



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



| | (a) | Our annual meeting of stockholders was held in Orlando, Florida on June 20, 2007.
| | --- | ---------------------------------------------------------------------------------



| | (b) | Each of our five directors was re-elected. Those directors are: Bruce Douglas, Dennis N. Folken, Robert J. Woody, Robert A. Bourne and James M. Seneff, Jr.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The meeting was held for the purpose of (i) electing the board of directors, (ii) voting on certain amendments to our articles of incorporation and (iii) transacting
such other business as may properly have come before the meeting or any adjournment or postponement thereof.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The three
proposals were submitted to a vote of stockholders and received votes as follows:



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



|                     |  |            |  |         
|-------------------- |  | ---------- |  | --------
|Name                 |  | For        |  | Withheld
|Bruce Douglas        |  | 70,853,863 |  | 718,071 
|Dennis N. Folken     |  | 70,864,450 |  | 707,484 
|Robert J. Woody      |  | 70,859,945 |  | 711,989 
|Robert A. Bourne     |  | 70,859,604 |  | 712,330 
|James M. Seneff, Jr. |  | 70,861,448 |  | 710,486 



| | 2. | To amend certain provisions of the Articles of Incorporation:
| | -- | -------------------------------------------------------------

At the annual meeting of stockholders, stockholders were asked to vote on certain amendments to sections 10.1, 10.2, 10.3 and 12.1 of our articles of incorporation, which amendments were sought by the Pennsylvania
Securities Commission as a condition to our authorization to sell shares of our common stock under our current offering to persons in Pennsylvania. The proposed amendments were as follows:

The amendment to section 10.1 of the articles would reduce the requisite vote needed to amend the Articles from two-thirds to a majority
of our outstanding shares of common stock.

The amendments to sections 10.2 and 10.3 of the Articles would add a requirement
that the Company obtain the approval of its stockholders in connection with certain mergers, reorganizations or sales of material portions of our assets, except in very limited circumstances that would not require a stockholder vote, that would not
otherwise have been required to be approved by the Companys stockholders in accordance with Maryland law, the jurisdiction under which the Company is organized.



31



---

##### Table of Contents

The amendment to section 12.1 of the Articles would remove a reference to Maryland law in
order to avoid any implication that the Company may rely upon the broad scope of Maryland law in order to override certain governance guidelines with which the Company, and all other unlisted REITs, already comply.

Proposal two was adjourned and reconvened twice to enable us to seek sufficient votes to adopt the proposal, with the final vote taking
place on July 27, 2007. Proposal two, which required the affirmative vote of two-thirds of the shares of the Companys common stock, failed to receive the requisite vote. The final vote is as follows:



|           |  |           |  |            
|---------- |  | --------- |  | -----------
|For        |  | Against   |  | Abstentions
|81,718,422 |  | 1,982,783 |  | 5,386,173  

However, we obtained an
extension from the Pennsylvania Securities Commission until July 31, 2008 to obtain approval of the amendments, the failure of which will require us to cease the sale of its common stock to residents of Pennsylvania and to cause us to offer
rights of rescission to any Pennsylvania residents who purchased our common stock in the 2ndOffering.



| | 3. | To transact such other business as may properly have come before the meeting or any adjournment or postponement thereof:
| | -- | ------------------------------------------------------------------------------------------------------------------------



|           |  |           |  |            
|---------- |  | --------- |  | -----------
|For        |  | Against   |  | Abstentions
|66,827,677 |  | 1,128,820 |  | 3,615,437  



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



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

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



|     |  |                                                                                                                                                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Schedule of Omitted Documents (Previously filed as Exhibit 10.62 to Post Effective Amendment No. Seven to the Registration Statement on Form S-11 (File No. 333-128662) filed July 16,
2007 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.)                                      
|     | 
|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 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 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.)                              



32



---

##### 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 10th day of August, 2007.



CNL INCOME PROPERTIES, INC.By:

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

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

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




33