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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  FORM 10-K/A
                                AMENDMENT NO. 1

<Table>
<C>        <S>
(Mark One)
   [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                  OR


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

           FOR THE TRANSITION PERIOD FROM           TO
</Table>

                         COMMISSION FILE NUMBER 0-24097

                        CNL HOSPITALITY PROPERTIES, INC.
             (Exact name of registrant as specified in its charter)

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<S>                                              <C>
                    MARYLAND                                        59-3396369
        (State or other jurisdiction of                          (I.R.S. Employer
         incorporation or organization)                        Identification No.)
</Table>

                            450 SOUTH ORANGE AVENUE
                             ORLANDO, FLORIDA 32801
          (Address of principal executive offices, including zip code)

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (407) 650-1000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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<Caption>
              TITLE OF EACH CLASS:                    NAME OF EXCHANGE ON WHICH REGISTERED:
              --------------------                    -------------------------------------
<S>                                              <C>
                      None                                        Not Applicable
</Table>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, $0.01 PAR VALUE PER SHARE
                                (Title of class)

     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 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes [X]     No [ ]

     Aggregate market value of the voting stock held by nonaffiliates of the
registrant:  No established market exists for the Registrant's shares of common
stock, so there is no market value for such shares. Each share was originally
sold at $10 per share. Based on the $10 offering price of the shares,
$2,709,175,700 of our common stock was held by non-affiliates as of February 20,
2004.

     The number of Shares of common stock outstanding as of February 20, 2004,
was 270,937,570.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                     None.
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                                    CONTENTS

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                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................
Item 2.   Properties..................................................
Item 3.   Legal Proceedings...........................................
Item 4.   Submission of Matters to a Vote of Security Holders.........

                                  PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................
Item 6.   Selected Financial Data.....................................
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................
Item 8.   Financial Statements and Supplementary Data.................
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................
Item 9A.  Controls and Procedures.....................................

                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........
Item 11.  Executive Compensation......................................
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters..................
Item 13.  Certain Relationships and Related Transactions..............
Item 14.  Principal Accountant Fees and Services......................

                                  PART IV
Item 15.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................
Signatures............................................................
Certifications........................................................
Schedule II -- Valuation and Qualifying Accounts......................
Schedule III -- Real Estate and Accumulated Depreciation..............
Exhibits..............................................................
</Table>

                                        1
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                                EXPLANATORY NOTE

     This Amendment to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2003 includes the text of the Form 10-K in its entirety and
is being filed solely to reflect the (i) addition of information in Item 1 and
Item 8 (Note 16 to the Consolidated Financial Statements) concerning payment to
CNL Hospitality Corp. of a deferred asset management fee; (ii) clarifying
changes and corrections of typographical errors in Items 1, 5, 7, 8, (Note 22 to
the Consolidated Financial Statements), Item 9A and Item 15(d); (iii) numerical
changes in Item 6, Item 7 and Item 8 (Notes 4, 7 and 12 to the Consolidated
Financial Statements), Item 15(d) and Schedule III for the purpose of correcting
typographical errors therein; (iv) insignificant changes to the supplemental
schedule of non-cash investing activities of the consolidated statements of Cash
Flows in Item 8; (v) addition of the information required by Part III of the
report (accordingly, reference to the Registrant's definitive proxy statement on
the cover page of the report has been deleted); (vi) addition and deletion of
Exhibits in Part IV of the report; (vii) additions and modifications to our risk
factors. The changes in the Form 10-K/A have no effect on stockholders' equity
and the operating results of the Registrant for any of the years presented. This
filing amends only the items specified above and does not otherwise update the
disclosures in the Form 10-K as originally filed and does not reflect events
occurring after the original filing of the Form 10-K.

                                     PART I

ITEM 1.  BUSINESS

     CNL Hospitality Properties, Inc. is a corporation which was organized
pursuant to the laws of the State of Maryland on June 12, 1996 and operates for
federal income tax purposes as a real estate investment trust (a "REIT"). The
terms "Company" or "Registrant" include, unless the context otherwise requires,
CNL Hospitality Properties, Inc., CNL Hospitality Partners, LP, CNL Hospitality
GP Corp., CNL Hospitality LP Corp., each of their subsidiaries and several
consolidated partnerships and joint ventures (see Exhibit 21 for a listing of
our subsidiaries). Various other wholly owned subsidiaries are expected to be
formed in the future, primarily for purposes of acquiring or developing hotel
and resort properties.

     We are engaged primarily in the acquisition, development and ownership of
interests in hotel and resort properties including limited service hotels,
extended stay hotels, and full service hotels and resorts, which we refer to as
"Properties." We have retained CNL Hospitality Corp. as our advisor to provide
management, acquisition, development, advisory and certain administrative
services. As of December 31, 2003, we owned interests in 130 Properties, located
primarily across the United States with one Property, located in Montreal,
Canada. We generally lease our Properties to wholly owned taxable REIT
subsidiary entities ("TRS") and contracts with third-party managers to operate
the Properties under affiliations with national hotel and resort brands. Hotel
and resort operating revenues and expenses for these Properties are included in
our consolidated results of operations. Other Properties are leased on a
triple-net basis to unrelated third-party tenants who operate the Properties or
contract with hotel and resort managers to run their hotel and resort
operations. We include rental income from operating leases in our consolidated
results of operations for these Properties. For some Properties, we have
received various credit enhancement guarantees from third-party managers who,
subject to limitations, have guaranteed performance levels for Properties they
manage up to varying maximum amounts.

     We may also provide mortgage loans to operators of national and regional
hotel and resort brands, however, we have not done so as of December 31, 2003.
In addition, we may invest up to a maximum of 5% of total assets in equity
interests in businesses that provide services to or are otherwise ancillary to
the lodging industry. As of December 31, 2003, investments in these ancillary
businesses represented less than one percent of our total assets.

     We were formed in June 1996, at which time we received an initial capital
contribution of $0.2 million from CNL Hospitality Corp. for 20,000 shares of
common stock. Since that time, through December 31, 2003, we have sold
approximately 243.7 million shares of our common stock, raising approximately
$2.4 billion of capital through five best-efforts public stock offerings. On
July 23, 2003, we filed a registration statement on
                                        2
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Form S-11 under the Securities Act of 1933, as amended, whereby we may offer up
to an additional 400 million shares of common stock (representing $4 billion of
capital) to the public on a best-efforts basis, which we refer to as the "2004
Offering", including up to 50 million shares ($500 million) which may be
available to stockholders purchasing shares through our reinvestment plan. If
commenced, the 2004 Offering is expected to start sometime after the completion
of our current stock offering of 175 million shares representing $1.75 billion
of capital, which commenced on February 4, 2003 which we refer to as the "2003
Offering". CNL Securities Corp., an affiliate of CNL Hospitality Corp., is the
managing dealer for our equity offerings.

     Since our inception our primary investment objectives have been to
preserve, protect, and enhance our assets while (i) making quarterly
distributions; (ii) obtaining fixed income through the receipt of base rent, or
payments on mortgage loans we have provided to other hotel and resort operators,
and increasing our income (and distributions) and providing protection against
inflation through, in the case of triple-net leases, the receipt of percentage
rent and/or automatic increases in base rent; (iii) continuing to qualify as a
REIT for federal income tax purposes; and (iv) providing our stockholders with
liquidity of their investment within four years, either in whole or in part,
through (a) the listing of our shares on a national securities exchange or
over-the-counter market or (b) if we are unable to list our shares on a national
securities exchange or over-the-counter market within four years, the
commencement of orderly sales of our Properties and distribution of the proceeds
thereof (outside the ordinary course of business and consistent with our
objectives of qualifying as a REIT). As a result of the REIT Modernization Act
of 1999 (the "RMA"), we have expanded our activities to meet our objectives
whereby we seek to provide increases in income (and distributions) by taking
advantage of the TRS structure allowed by the RMA. To meet our objectives, we
seek to purchase established Properties with stabilized cash flows or to obtain
credit enhancements that supplement cash flow in advance of stabilization and
obtain priority partnership positions or operating guarantees. We may not meet
these investment objectives. During the first quarter of 2004, we began to
actively consider various alternatives including a public underwritten offering
of common stock, the possible merger of us and our advisor, CNL Hospitality
Corp., the listing of our shares on a national securities exchange or
over-the-counter market, recapitalization of our current debt structure,
possible mergers or acquisitions, and continuing to raise capital under the 2004
Offering. We expect that the 2003 Offering will be completed in March 2004.

     For the next four years or until our shares are listed on a national
securities exchange or over-the-counter market, we intend, to the extent
consistent with our objective of qualifying as a REIT, to invest in additional
Properties or entities owning Properties or provide mortgage loans to other
hotel and resort operators or make other permitted investments, using any
proceeds from the sale of a Property or mortgage loans provided to other hotel
and resort operators or from other permitted investments that are not required
to be distributed to stockholders in order to preserve our REIT status for
federal income tax purposes. We will not sell any assets if such sale would not
be consistent with our objective of qualifying as a REIT. If the listing of our
shares on a national securities exchange or over-the-counter market occurs, we
intend to use any net sales proceeds not required to be distributed to
stockholders in order to preserve our status as a REIT to invest in additional
Properties or entities owning Properties, to provide mortgage loans and other
permitted investments.

     From time to time we may sell some Properties. In deciding the precise
timing and terms of Property sales, our advisor, CNL Hospitality Corp. , will
consider factors such as national and local market conditions, potential capital
appreciation, cash flows, and federal income tax considerations. In connection
with sales of our Properties, we may take purchase money obligations as partial
payment of the sales price. The terms of payment will be affected by custom in
the area in which the Property is located and prevailing economic conditions.
When a purchase money obligation is accepted in lieu of cash upon the sale of a
Property, we will continue to have a mortgage on the Property and the proceeds
of the sale will be realized over a period of years rather than at closing of
the sale.

     On July 10, 2003, we acquired all of the outstanding stock of RFS Hotel
Investors, Inc. for approximately $383 million and assumed approximately $409
million in liabilities (including transaction and severance costs, which totaled
approximately $55 million). In connection with this transaction, we obtained 57
additional Properties.

                                        3
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     In February 2004, we entered into an agreement to acquire all of the
outstanding capital stock of KSL Recreation Corporation and their subsidiaries
("KSL") for approximately $1.4 billion plus the assumption of debt (see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pending Investments, Completed Developments and Other Events
Subsequent to December 31, 2003"). Upon consummation of this transaction, six of
the resorts currently owned by KSL will be held by our wholly owned
subsidiaries. In connection with the execution of this agreement, we have paid a
non-refundable deposit of $75 million.

     During the year ended December 31, 2003, we adopted the provisions of FIN
46R ("Consolidation of Variable Interest Entities"). As a result, we consolidate
investments in variable interest entities for which we are the primary
beneficiary. Prior to FIN 46R, a company generally consolidated another entity
in its consolidated financial statements only if it controlled the entity
through voting interests. The adoption of FIN 46R resulted in the consolidation
of several of our previously unconsolidated subsidiaries. FIN 46R does not
require but does permit restatement of previously issued financial statements.
We have restated prior years' accompanying consolidated financial statements to
reflect the consolidation of previously unconsolidated subsidiaries in order to
maintain comparability between the current and prior periods presented herein.
These restatements had no effect on stockholders' equity or net earnings.

  LEASES

     As of December 31, 2003, we owned interests in 130 Properties, including 57
Properties acquired as a result of the acquisition of RFS Hotel Investors, Inc.,
generally consisting of land, buildings and equipment, including two under
development. Of the Properties in which we own interests, we currently lease, or
will lease in the case of Properties under development, 113 Properties to TRS
entities, with management performed by third-party operators, and lease 17
Properties on a triple-net basis to third-party operators. For Properties leased
to TRS entities, the lease rental income and expenses have been eliminated in
consolidation and the hotel and resort operating revenues and expenses have been
included in our consolidated results of operations. Leases to unrelated third
parties are operating leases and resulted in rental income from operating leases
being included in our results of operations.

  CERTAIN MANAGEMENT SERVICES

     Pursuant to an Advisory Agreement, CNL Hospitality Corp. provides
management services relating to our business, the Properties and the mortgage
loans we may provide to other hotel and resort operators. Under this agreement,
CNL Hospitality Corp. is responsible for assisting us in negotiating leases,
permanent financing, mortgage loans to other hotel and resort operators and our
revolving line of credit; collecting rents and payments on any mortgage
financing we provide; inspecting the Properties and the tenants' or managers'
books and records; and responding to tenants' or managers' inquiries and
notices. In exchange for these services, CNL Hospitality Corp. is entitled to
receive fees. For its services, CNL Hospitality Corp. receives an asset
management fee, which is calculated monthly in an amount equal to one-twelfth of
0.60% of the total amount invested in the Properties, exclusive of acquisition
fees and acquisition expenses, plus one-twelfth of 0.60% of the outstanding
principal amount of any mortgage loans, as of the end of the preceding month.
For identifying the Properties, structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the mortgage loans, CNL
Hospitality Corp. receives an acquisition fee equal to 4.5% of gross proceeds
from the offerings, loan proceeds from permanent financing and a portion of our
revolving line of credit that is used to acquire Properties.

     In late 2003, CNL Hospitality Corp. allowed us to defer the payment of the
asset management fees until September 15, 2004. The reason for the deferral was
to provide us with additional liquidity as we evaluate the timing of economic
and industry recovery. We did not pay asset management fees after August 2003
and in January 2004, CNL Hospitality Corp. refunded to us all of the asset
management fees which had previously been paid during 2003. Out of the total
$11.6 million due to related parties as of December 31, 2003, $5.3 million
relates to asset management fees. These fees are due upon demand or by September
15, 2004. We will continue to accrue and will remain obligated to pay asset
management fees to CNL Hospitality Corp.

                                        4
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     The Advisory Agreement continues until March 31, 2004, and thereafter may
be extended annually upon mutual consent of CNL Hospitality Corp. and our Board
of Directors unless terminated at an earlier date upon 60 days prior written
notice by each party.

  COMPETITION

     The hotel and resort industry is generally characterized as being intensely
competitive. Our hotels and resorts compete with independently owned hotels,
hotels which are part of local or regional chains, and hotels in other
well-known national chains, including those offering different types of
accommodations. The principal competitive factors affecting our hotels and
resorts include but are not limited to brand recognition, location, range of
services and guest amenities offered, the quality of the hotel and services
provided, and price.

     We compete with other persons and entities to locate suitable Properties to
acquire interests in and to locate purchasers for our Properties. We also will
compete with other financing sources such as banks, mortgage lenders, and
sale/leaseback companies for suitable Properties, tenants and mortgage financing
borrowers.

  CONCENTRATION OF RISK

     During the year ended December 31, 2003, a significant portion of our
rental income and hotel and resort revenues was earned from 68 Properties
operating as various Marriott International, Inc. brands (including Marriott
Hotels, Resorts, and Suites, JW Marriott, Residence Inn by Marriott, TownePlace
Suites by Marriott, Courtyard by Marriott, Fairfield Inn, and Spring Hill Suites
by Marriott) and 36 Properties operating as various Hilton Hotels Corporation
brands (including Doubletree, Embassy Suites, Hilton Hotels and Suites, Homewood
Suites by Hilton, and Hampton Inn).

     Although we intend to acquire additional Properties and we carefully screen
our managers and tenants and we have obtained interests in non-Marriott and
non-Hilton branded Properties, failure of the Marriott and Hilton brands would
significantly impact our results of operations. We believe that the risk of such
a default will be reduced through future acquisitions which enhance brand
diversification.

  AVAILABLE INFORMATION

     We make available free of charge on or through our Internet website
(http://www.cnlonline.com) our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission (the "Commission").

  EMPLOYEES

     We have no employees other than our officers who are not compensated by us.
Information with respect to our officers is incorporated in Item 11, "Executive
Compensation". We have retained CNL Hospitality Corp. as our advisor to provide
management, acquisition, development, advisory and some administrative services
and have retained other affiliates to provide additional administrative
services.

  SEASONALITY

     Demand in the lodging industry is affected by recurring seasonal patterns
and some Properties in certain locations are affected more than others. Seasonal
variations in revenue at our Properties can be expected to cause quarterly
fluctuations in revenues and earnings. As a result, we may need to enter into
short-term borrowings in some periods in order to offset these fluctuations in
revenues and to make distributions to stockholders. Hotel and resort operations
also may be adversely affected by events beyond our control, such as extreme
weather conditions, poor economic factors and/or cycles, geopolitical risks and
other factors affecting business and/or pleasure travel.

                                        5
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  RISK FACTORS

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

  A SMALL NUMBER OF HOTELS AND RESORTS REPRESENT A HIGH PERCENTAGE OF OUR PRO
  FORMA ADJUSTED HOTEL AND RESORT REVENUES AND SIGNIFICANT ADVERSE CHANGES AT
  ANY ONE OF THESE HOTELS OR RESORTS MAY AFFECT OUR ABILITY TO MAKE
  DISTRIBUTIONS TO STOCKHOLDERS.

     Ten of our hotels and resorts represent a significant percentage of our
anticipated revenues. Significant adverse changes in the operations of any one
of these hotels or resorts could adversely affect our results of operations,
financial condition, ability to service debt and ability to make distributions
to stockholders.

     Borrowing to make distributions. We have and may in the future borrow money
as necessary or advisable to make distributions, including, but not limited to,
distributions for the purpose of the maintenance of our qualification as a REIT
for federal income tax purposes. During 2003, we used borrowings on our
revolving line of credit to fund distributions. We anticipate that, at least for
the near term, we will continue to borrow on our revolving line of credit to
fund a portion of our distributions. Were we to discontinue this practice at the
current time, distributions would be adversely affected.

  WE DO NOT OPERATE OUR HOTELS AND RESORTS AND, AS A RESULT, ARE DEPENDENT ON
  THIRD-PARTY MANAGEMENT COMPANIES.

     In order for us to satisfy certain REIT qualification rules, we cannot
directly operate any of our hotels and resorts or participate in the decisions
affecting their daily operations. Instead, we, through a TRS lessee, must enter
into management agreements with third-party management companies, or we must
lease our hotels and resorts to third-party tenants. We do not control these
third-party management companies and tenants who operate and are responsible for
maintenance and other day-to-day management of our hotels and resorts, including
the implementation of strategic decisions. Thus, even if we believe our hotels
and resorts are being operated inefficiently or in a manner that does not result
in satisfactory operating results, we may not be able to require the third-party
management company or tenant to change its method of operation of our hotels and
resorts. Our results of operations, financial condition, ability to service debt
and ability to make distributions to stockholders are, therefore, dependent on
the ability of these third-party management companies and tenants to operate our
hotels and resorts successfully.

     If we replace a third-party management company or tenant, we may be
required by the terms of the relevant management agreement or lease to pay
substantial termination fees, and we may experience significant disruptions at
the affected hotels and resorts. While it has been our policy to enter into
agreements only with third-party management companies and tenants with
substantial prior hotel and resort experience, we may not be able to make such
arrangements in the future.

  OUR TRS STRUCTURE SUBJECTS US TO THE RISK OF INCREASED HOTEL AND RESORT
  OPERATING EXPENSES.

     The performance of our TRS lessees is based on the operations of our hotels
and resorts. Our operating risks include not only changes in hotel and resort
revenues and changes to our TRS lessees' ability to pay the rent due under the
leases, but also increased hotel and resort operating expenses, including, but
not limited to, the following:

     - wage and benefit costs;

     - repair and maintenance expenses;

     - energy costs;

     - property taxes;

     - insurance costs; and

     - other operating expenses.

                                        6
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     Any increases in these operating expenses could have a significant adverse
impact on our earnings and cash flows.

                                       6.1
<PAGE>

  WE OPERATE MANY OF OUR HOTELS AND RESORTS THROUGH A LIMITED NUMBER OF
  THIRD-PARTY MANAGEMENT COMPANIES AND COULD BE ADVERSELY AFFECTED IF THOSE
  THIRD-PARTY MANAGEMENT COMPANIES OR THEIR BRANDS EXPERIENCE NEGATIVE PUBLICITY
  OR OTHER ADVERSE DEVELOPMENTS.

     As of December 31, 2003, Marriott and Hilton managed hotels that generated
significant portions of our revenues. Because of this concentration, adverse
publicity or other adverse developments that affect Marriott or Hilton or their
brands generally may materially decrease our results of operations, financial
condition, ability to service debt and ability to make distributions to our
stockholders. We may increase our concentration in a limited number of
third-party management companies.

  OUR INABILITY OR THAT OF THIRD-PARTY MANAGEMENT COMPANIES OR OUR THIRD-PARTY
  TENANTS TO MAINTAIN FRANCHISE LICENSES COULD DECREASE OUR REVENUES.

     Maintenance of franchise licenses for our hotels and resorts is subject to
our franchisors' operating standards and other terms and conditions. Franchisors
periodically inspect our hotels and resorts to ensure that we, our third-party
tenants and third-party management companies maintain their standards. Failure
by us or one of our third-party tenants or third-party management companies to
maintain these standards or comply with other terms and conditions could result
in a franchise license being canceled. If a franchise license terminates due to
our failure to make required improvements or to otherwise comply with its terms,
we may also be liable to the franchisor for a termination payment, which varies
by franchisor and by hotel or resort. As a condition to maintenance of a
franchise license, a franchisor could also require us to make capital
expenditures, even if we do not believe the capital improvements are necessary,
desirable, or likely to result in an acceptable return on our investment. We may
risk losing a franchise license if we do not make franchisor-required capital
expenditures.

     If a franchisor terminates the franchise license, we may try either to
obtain a suitable replacement franchise or to operate the hotel or resort
without a franchise license. The loss of a franchise license could materially
and adversely affect the operations or the underlying value of the hotel or
resort because of the loss associated with the brand recognition and/or the
marketing support and centralized reservation systems provided by the
franchisor. A loss of a franchise license for one or more hotels or resorts
could materially and adversely affect our results of operations, financial
condition, ability to service debt and ability to make distributions to our
stockholders.

  WE MAY NOT BE ABLE TO IDENTIFY OR COMPLETE SUITABLE ACQUISITIONS THAT MEET OUR
  INVESTMENT CRITERIA, WHICH MAY IMPEDE OUR GROWTH OR DIMINISH OUR
  PROFITABILITY.

     Our ability to expand through acquisitions is integral to our business
strategy and requires us to identify suitable acquisition candidates or
investment opportunities that meet our investment criteria and are compatible
with our growth strategy. We may not be successful in identifying or
consummating acquisitions or investments on satisfactory terms or at all, which
would slow our growth and, in turn, could adversely affect our value.

     Our ability to acquire properties on favorable terms may be subject to the
following significant risks:

     - we may be unable to acquire a desired property because of competition
       from other real estate investors with significant capital, including
       other affiliated and non-affiliated REITs, institutional pension funds,
       private equity investors and owner-operators of hotels and resorts;

     - even if we are able to acquire a desired property, competition from other
       potential acquirers may significantly increase the purchase price, which
       could affect our profitability;

     - we may be unable to finance an acquisition on favorable terms or at all;

     - we may spend more time and funds than the time and amounts budgeted to
       make necessary improvements or renovations to acquired properties; and

                                        7
<PAGE>

     - we may acquire properties subject to liabilities and without any
       recourse, or with only limited recourse, with respect to known or unknown
       liabilities such as liabilities for clean-up of undisclosed environmental
       contamination, claims by persons dealing with former owners of the
       properties and claims for indemnification by general partners, directors,
       officers and others indemnified by the former owners of the properties.

  RESORTS OPERATED UNDER INTERIM MANAGEMENT AGREEMENTS MAY NOT PERFORM AS WELL
  AS THEY WOULD UNDER LONG-TERM MANAGEMENT AGREEMENTS.

     On April 2, 2004, we completed the KSL acquisition, which includes six
destination resorts that represent a significant portion of our expected
revenues. In connection with this acquisition, we entered into nine month
interim management agreements with an affiliate of the former KSL parent. We may
experience disruptions in business during the interim period before we enter
into long-term management agreements for the properties. In addition, the
interim third-party management companies may decide to focus more of their
resources on other properties with respect to which they have long-term
management agreements.

  WE MAY BE UNABLE TO INTEGRATE ACQUIRED HOTELS AND RESORTS INTO OUR OPERATIONS
  OR OTHERWISE MANAGE OUR PLANNED GROWTH, WHICH MAY ADVERSELY AFFECT OUR
  OPERATING RESULTS.

     Since January 2001, we have acquired 104 hotels and resorts for over $5.5
billion. We plan to continue to acquire a substantial number of additional
hotels and resorts. We may be unable to adapt our management, administrative,
accounting and operational systems, or to hire and retain sufficient operational
staff, to integrate these investments into our portfolio and manage any future
acquisitions of additional assets without operating disruptions or unanticipated
costs. Acquisitions of hotels and resorts generate additional operating expenses
that we are required to pay. As we acquire additional hotels and resorts, we
will be subject to the operational risks associated with owning new lodging
properties. Our failure to integrate any acquisitions into our portfolio
successfully could have a material adverse effect on our results of operations,
financial condition, ability to service debt and ability to make distributions
to our stockholders.

  HOTELS AND RESORTS WITH LIMITED OPERATING HISTORY THAT WE ACQUIRE MAY NOT
  ACHIEVE DESIRED RESULTS.

     Many of our acquisitions are likely to be newly-developed hotels and
resorts. Newly-developed or newly-renovated hotels and resorts may not have
operating histories sufficient to allow us to make decisions in acquiring these
hotels and resorts based on historical performance. The purchase prices of these
hotels and resorts are typically based upon our expectations of their
anticipated operating results, subjecting us to risks that such hotels and
resorts may not achieve anticipated operating results within anticipated time
frames or may never achieve these results. Consequently, we may not be able to
generate enough cash flow from these hotels and resorts to make debt payments or
pay operating expenses. In addition, room revenues may be lower than those
required to provide us with our anticipated return on investment. Our failure to
achieve desired results could have a material adverse effect on our results of
operations, financial condition, ability to service debt and ability to make
distributions to stockholders.

  WE MAY BE UNABLE TO COMPLETE AND OPERATE DEVELOPED PROPERTIES SUCCESSFULLY.

     We intend to continue to develop and substantially renovate hotels and
resorts. Our future development and construction activities involve the
following significant risks:

     - we may be unable to obtain construction financing or, if we finance
       development projects through construction loans, permanent financing, at
       all or on favorable terms;

     - we may not complete development projects on schedule or within budgeted
       amounts;

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<PAGE>

     - we may encounter delays or refusals in obtaining all necessary zoning,
       land use, building, occupancy, and other required governmental permits
       and authorizations; and

     - occupancy rates and rents at newly developed or renovated properties may
       fluctuate depending on a number of factors, including market and economic
       conditions, and may result in our investment not being profitable.

  CHANGING BRAND AFFILIATION, CHANGING THIRD-PARTY MANAGEMENT COMPANIES AND/OR
  RENOVATING OUR HOTELS AND RESORTS MAY NOT IMPROVE THEIR FINANCIAL PERFORMANCE.

     Since January 2001, we have renovated, changed brand affiliation and/or
changed third-party management company for 36.8% of our hotels and resorts,
based on number of rooms. We undertake these actions to improve results of
operations at these properties. If these renovations, changes of brand
affiliation and/or changes of third-party management companies at our properties
do not, in fact, improve their financial performance, our results of operations,
financial condition, ability to service debt and ability to make distributions
to our stockholders, may be adversely affected.

  MANY OF OUR HOTELS AND RESORTS ARE LOCATED IN CALIFORNIA, FLORIDA, HAWAII AND
  ARIZONA, WHICH INCREASES OUR EXPOSURE TO THE RISKS OF ADVERSE LOCAL ECONOMIC
  CONDITIONS.

     Although our properties are located in 37 states, there is a concentration
of properties in California, Florida, Hawaii and Arizona. As a result, in
addition to adverse developments in the U.S. economy and in the lodging industry
generally, adverse events or conditions in those markets, such as a localized
economic recession or an increase in state or local tax rates, could have a
disproportionately adverse effect on our results of operation, financial
condition, ability to service debt and ability to make distributions to
stockholders.

  WE ARE DEPENDENT ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED.

     We rely on a small number of persons who comprise our existing senior
management, particularly Thomas J. Hutchison III, our chief executive officer,
and John A. Griswold, our president and chief operating officer, to carry out
our business and investment strategies. They may cease to provide services to us
at any time. The loss of the services of any of our key management personnel, or
our inability to recruit and retain qualified personnel in the future, could
have an adverse effect on our business and financial results. As we expand, we
will continue to need to attract and retain qualified additional senior
management, but may not be able to do so on acceptable terms.

  JOINT VENTURE INVESTMENTS COULD BE ADVERSELY AFFECTED BY OUR LACK OF SOLE
  DECISION-MAKING AUTHORITY, OUR RELIANCE ON A CO-VENTURER'S FINANCIAL CONDITION
  AND DISPUTES BETWEEN US AND OUR CO-VENTURERS.

     We are currently involved in 12 joint ventures that own a total of 24
hotels and resorts. We may continue to co-invest with third parties through
partnerships, joint ventures or other entities, acquiring non-controlling
interests in or sharing responsibility for managing the affairs of a property,
partnership, joint venture or entity. In these situations, we are not in a
position to exercise sole decision-making authority regarding the property,
partnership, joint venture or other entity. Investments in partnerships, joint
ventures, or other entities may, under certain circumstances, involve risks not
present were a third party not involved, including the possibility that partners
or co-venturers might become bankrupt or fail to fund their share of required
capital contributions. Partners or co-venturers may have economic or other
business interests or goals that are inconsistent with our business interests or
goals, and may be in a position to take actions contrary to our policies or
objectives. Such investments may also have the potential risk of impasses on
decisions, such as a sale, because neither we nor the partner or co-venturer
would have full control over the partnership or joint venture. Disputes between
us and partners or co-venturers may result in litigation or arbitration that
would increase our expenses and prevent our officers and/or directors from
focusing their time and effort on our business. Consequently, actions by or
disputes with partners or co-venturers might result in subjecting

                                        9
<PAGE>

properties owned by the partnership or joint venture to additional risk. In
addition, we may in certain circumstances be liable for the actions of our
third-party partners or co-venturers.

  WE MAY INVEST IN PROPERTIES OUTSIDE OF THE UNITED STATES, WHICH WILL SUBJECT
  US TO DIFFERENT LEGAL, MONETARY AND POLITICAL RISKS, AS WELL AS CURRENCY
  EXCHANGE RISKS, AND MAY CAUSE UNPREDICTABILITY IN A SOURCE OF OUR CASH FLOWS.

     We currently own a hotel in Montreal, Canada and may in the future invest
in other hotel and resort properties located outside the U.S. International
investments and operations generally are subject to various political and other
risks that are different from and in addition to those for U.S. investments and
operations, including:

     - enactment of laws prohibiting or restricting the foreign ownership of
       property;

     - laws restricting us from repatriating profits earned from activities
       within the foreign country, including the payment of distributions;

     - exchange rate fluctuations;

     - change in the availability, cost and terms of mortgage funds resulting
       from varying national economic policies or changes in interest rates; and

     - terrorism, war or civil unrest.

     Unfavorable legal, regulatory, economic or political changes such as those
described above could adversely affect our financial condition and results of
operations if we invest in additional properties outside the U.S. We have
limited experience owning hotels or resorts outside the U.S.

  ADVERSE TAX CONSEQUENCES MAY DETER US FROM SELLING ANY OF THE HOTELS AND
  RESORTS WE ACQUIRED AS PART OF THE KSL ACQUISITION EVEN IF WE WOULD OTHERWISE
  CHOOSE TO DO SO.

     The fair market value of the hotels and resorts we acquired as part of the
KSL acquisition exceeded the adjusted basis of the properties at the time we
acquired them, which is considered "built-in gain" for tax purposes. If we sell
any of these properties within ten years and recognize gain on the sale, the
"built-in gains" for the property will be subject to tax at the highest
corporate rate applicable. Because of these adverse tax consequences, we may
refrain from selling these properties within the ten-year period, even if we
would otherwise consider it advisable to do so.

  SOME OF OUR THIRD-PARTY TENANTS AND THIRD-PARTY MANAGEMENT COMPANIES MAY HAVE
  THE RIGHT TO PURCHASE OUR PROPERTIES.

     A third-party tenant that leases two of our properties and two third-party
management companies that, in the aggregate, manage 70 of our properties have a
right of first offer to purchase the properties leased or managed by them in the
event that we elect to sell the underlying property to an unaffiliated entity.
Pursuant to our agreement, we must notify the third-party tenant or management
company of our intention to sell a property, and it then has a period not to
exceed 30 days to negotiate the terms of purchase acceptable to us. If we cannot
reach agreement within those 30 days, we may pursue other buyers for the
property. The right of first offer held by the third-party tenant and the
third-party management companies may impact our ability to dispose of properties
in a timely manner, which could affect our results of operations and cash flows.

  DECREASING FUNDING FROM CREDIT ENHANCEMENTS MAY ADVERSELY AFFECT OUR
  DISTRIBUTIONS TO STOCKHOLDERS.

     In the past when we have leased hotels and resorts to our third-party
tenants, we have required certain of them to provide performance guarantees or
other credit enhancements in order to assure us minimum levels of revenue. Due
to industry and economic conditions during the last two years, the performance
of some of the properties for which credit enhancements were in place required
the tenants to fund a significant amount of the credit enhancement and, in turn,
we have utilized much of the funds received from credit enhancements to fund a
portion of our distributions. During 2003, we recognized $41.5 million in cash
and approximately
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<PAGE>

$24.8 million in revenue from credit enhancements. As of December 31, 2003,
funds available to us from our credit enhancements had begun to be fully
utilized or had expired. In addition, hotels and resorts leased to a TRS lessee
typically do not provide credit enhancements. As of December 31, 2003, a
significant majority of our portfolio of properties were leased to our TRS
lessees, and we intend to continue to use the TRS structure for properties
acquired in the future and potentially in the conversion of properties currently
under triple net leases. The decreased availability of credit enhancements may
adversely affect our cash flow and our distributions to stockholders.

RISKS RELATED TO THE LODGING INDUSTRY

  THE RECENT ECONOMIC SLOWDOWN, THE EVENTS OF SEPTEMBER 11, 2001, MILITARY
  ACTIVITY IN THE MIDDLE EAST AND THE OUTBREAK OF SEVERE ACUTE RESPIRATORY
  SYNDROME, OR SARS, HAVE ADVERSELY AFFECTED THE TRAVEL AND LODGING INDUSTRIES,
  AND THESE ADVERSE EFFECTS MAY CONTINUE.

     As a result of the attacks on the World Trade Center and the Pentagon on
September 11, 2001, the SARS outbreak, war in Iraq and the effects of the
economic recession, the lodging industry has experienced a significant decline
in business caused by a reduction in travel for both business and pleasure. Like
the rest of the lodging industry, our hotels and resorts have experienced
declines in occupancy and other operating statistics due to the reduction in
travel.

     We are unable to predict with certainty when or if travel and lodging
demand will be fully restored to normal levels. We cannot presently determine
the impact that the September 11, 2001 terrorist attacks, future events such as
military or police activities in the U.S. or foreign countries and future
terrorist activities or threats of such activities, or health epidemics could
have on our business. Our business and properties may continue to be affected,
including hotel and resort occupancy and revenues, and, as a result, our
revenues may remain at reduced levels or be reduced further. In addition, other
terrorist attacks, health epidemics, acts of war, prolonged U.S. involvement in
Iraq or other significant military activity could have additional adverse
effects on the economy in general, and the travel and lodging industry in
particular. These factors could have a material adverse effect on the markets on
which shares of our common stock will trade, the lodging industry at large, and
our results of operations, financial condition, ability to service debt and
ability to make distributions to our stockholders.

  WE DO NOT HAVE CONTROL OVER THE MARKET AND BUSINESS CONDITIONS THAT AFFECT THE
  VALUE OF OUR HOTELS AND RESORTS.

     Our hotels and resorts are subject to varying degrees of risk generally
common to the ownership of hotels and resorts, many of which are beyond our
control, including the following:

     - increased competition from other hotel and resort properties in our
       markets;

     - new hotel and resort supply in our markets, which adversely affects
       occupancy and revenues at our hotels and resorts;

     - dependence on business, commercial and leisure travelers and tourism;

     - dependence on group and meeting/conference business;

     - increases in energy costs, increased threat of terrorism, terrorist
       events, airline strikes or other factors that may affect travel patterns
       and reduce the number of business and commercial travelers and tourists;

     - increases in operating costs due to inflation and other factors that may
       not be offset by increased room rates;

     - changes in interest rates and in the availability, cost and terms of debt
       financing;

     - changes in, and the related costs of compliance with, governmental laws
       and regulations, fiscal policies and zoning ordinances;

                                        11
<PAGE>

     - adverse effects of international, national, regional and local economic
       and market conditions; and

     - risks generally associated with the ownership of hotel and resort
       properties and real estate, as we discuss in more detail below.

     These factors could have an adverse effect on our financial condition,
results of operations and ability to make distributions to our stockholders.

  THE LODGING INDUSTRY IS HIGHLY COMPETITIVE.

     The lodging industry is highly competitive. Our hotels and resorts compete
with other existing and new hotels and resorts in their geographic markets.
Since we do not operate our hotels and resorts, our revenues depend on the
ability of the third-party management companies and our-third party tenants to
compete successfully with other hotels and resorts in their respective markets.
Many of our competitors have substantially greater marketing and financial
resources than we do. If the third-party management companies and our
third-party tenants are unable to compete successfully or if our competitors'
marketing strategies are effective, our results of operations, financial
condition, ability to service debt and ability to make distributions to our
stockholders may be adversely affected.

  THE LODGING INDUSTRY IS SEASONAL IN NATURE.

     The seasonality of the lodging industry can be expected to cause quarterly
fluctuations in our revenues. Generally, hotel and resort revenues are greater
in the second and third quarters than in the first and fourth quarters, and our
hotels' and resorts' operations have historically reflected this trend. In
addition, our quarterly earnings may be adversely affected by factors outside
our control, such as extreme weather conditions, terrorist attacks or alerts,
outbreaks of contagious diseases, airline strikes, economic factors and other
considerations affecting travel. To the extent that cash flows from operations
are insufficient during any quarter, due to temporary or seasonal fluctuations
in revenues, we may borrow in order to make distributions to our stockholders.
Those borrowings may reduce the amounts available for other purposes, such as
acquisitions.

  OPERATING COSTS AND CAPITAL EXPENDITURES FOR HOTEL AND RESORT RENOVATION MAY
  BE GREATER THAN ANTICIPATED.

     Our hotel and resort properties, particularly older structures, have an
ongoing need for renovations and other capital improvements, including periodic
replacements. Some of these capital improvements may be mandated by health,
safety or other regulations. In addition, we may acquire hotels and resorts in
the future that require significant renovation. These capital improvements may
give rise to the following risks:

     - possible environmental problems;

     - construction cost overruns and delays;

     - a possible shortage of available cash to fund capital improvements and
       the related possibility that financing for these capital improvements may
       not be available to us on affordable terms; and

     - uncertainties as to market demand or a loss of market demand after
       capital improvements have begun.

     If these expenses exceed our estimates, the additional cost could have an
adverse effect on amounts available for distribution to stockholders.

  THE INCREASING USE OF INTERNET TRAVEL INTERMEDIARIES BY CONSUMERS MAY
  ADVERSELY AFFECT OUR PROFITABILITY.

     Some of our hotel and resort rooms are booked through Internet travel
intermediaries such as Travelocity.com, Expedia.com, Orbitz.com, Hotels.com and
Priceline.com. As Internet bookings increase, these intermediaries may be able
to obtain higher commissions, reduced room rates or other significant contract
concessions from our third-party management companies. Moreover, some of these
Internet travel intermediaries are attempting to offer hotel and resort rooms as
a commodity, by increasing the importance of price and general indicators of
quality (such as "three-star downtown hotel") at the expense of brand
identification. Consumers may eventually develop brand loyalties to their
reservations system rather than to

                                        12
<PAGE>

our hotel and resort brands, which could have an adverse effect on our business
because we rely heavily on brand identification. If the amount of sales made
through Internet intermediaries increases significantly and the third-party
management companies and our third-party tenants fail to appropriately price
room inventory in a manner that maximizes yields, room revenues may flatten or
decrease and our profitability may be adversely effected.

     RISKS RELATED TO CONFLICTS OF INTEREST.  We will be subject to conflicts of
interest arising out of our relationships with CNL Hospitality Corp., our
advisor, and with our other affiliates, including the following:

     - Some of the officers and directors of CNL Hospitality Corp. and our
       officers and directors currently are engaged, and in the future are
       expected to engage, in the management of other business entities and
       properties and in other business activities associated with our
       affiliates. Additionally, some of the officers and directors are majority
       owners of CNL Hospitality Corporation. These officers and directors may
       experience conflicts of interest in allocating management time, services,
       and functions among us and the various entities in which any of them are
       or may become involved and could take actions that are more favorable to
       the other entities than to us.

     - CNL Hospitality Corp. has been engaged to perform various services for us
       and will receive fees and compensation for these services. None of the
       agreements for these services were the result of arm's-length
       negotiations. The timing and nature of fees and compensation to CNL
       Hospitality Corp. could create a conflict between its interests and those
       of our stockholders.

     - A conflict could arise because affiliates may compete with us to acquire
       hotel properties or invest in mortgage loans of a type suitable for
       acquisition by us and may be better positioned to make such acquisitions
       or investments as a result of relationships that may develop with various
       operators of hotel and resort brands and their franchisees.

     - A conflict also could arise in connection with CNL Hospitality Corp.'s
       determination as to whether or not to purchase or sell a Property, since
       the interests of CNL Hospitality Corp. and our stockholders may differ as
       a result of their distinct financial and tax positions and the
       compensation to which CNL Hospitality Corp. or its affiliates may be
       entitled upon the purchase or sale of a Property.

     - A conflict could arise in connection with the determination of whether or
       not to list our shares of common stock on a national securities exchange
       since CNL Hospitality Corp. and other affiliates may receive different
       amounts of compensation and other benefits if our shares are listed, and
       that compensation could be paid earlier if the listing of our shares
       occurs. The Board of Directors must approve the listing of our shares on
       a national securities exchange or over-the-counter market.

     - We have in the past and may in the future invest in joint ventures with
       other programs sponsored by CNL Hospitality Corp. or its affiliates.
       Potential situations may arise in which the interests of the co-venturer
       or co-venturers may conflict with our interests.

     Risks related to borrowing.  We may borrow money to acquire assets, to
preserve our status as a REIT or for any other authorized corporate purposes. We
may mortgage or put a lien on one or more of our assets in connection with any
borrowing. We anticipate that our permanent financing generally will not exceed
50% of our total assets and we may not borrow more than 300% of our net assets,
without showing our independent directors that a higher level of borrowing is
appropriate.

     Payments of principal and interest on borrowed funds may leave us with
insufficient cash resources to invest in our properties or to pay regular
distributions or distributions necessary to maintain our REIT qualification. Our
level of debt and the limitations imposed on us by our debt agreements could
have significant adverse consequences, including the following:

     - our cash flow may be insufficient to meet our required principal and
       interest payments;

     - we may be unable to borrow additional funds as needed or on favorable
       terms;

     - we may be unable to refinance our indebtedness at maturity or the
       refinancing terms may be less favorable than the terms of our original
       indebtedness;
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<PAGE>

     - because a portion of our debt bears interest at variable rates, increases
       in interest rates could increase our interest expense;

     - we may be forced to dispose of one or more of our properties, possibly on
       disadvantageous terms;

     - we may default on our obligations and the lenders or mortgagees may
       foreclose on our properties that secure their loans and receive an
       assignment of rents and leases;

     - our debt level could place us at a competitive disadvantage compared to
       our competitors with less debt;

     - we may experience increased vulnerability to economic and industry
       downturns, reducing our ability to respond to changing business and
       economic conditions;

     - we may violate restrictive covenants in our loan documents, which would
       entitle the lenders to accelerate our debt obligations; and

     - our default under any one of our loans with cross default or cross
       collateralization provisions could result in a default under our other
       loans.

     If any of these events were to occur, our result of operations, financial
condition, ability to service debt service and ability to make distributions to
our stockholders could be adversely effected. Additionally, after servicing our
debt, we may be forced to borrow additional funds in order to make regular
distributions to you or distributions required to maintain our qualification as
a REIT. Furthermore, foreclosures could create taxable income without
accompanying cash proceeds, a circumstance which could hinder our ability to
meet the REIT distribution requirements imposed by the Code.

GENERAL RISKS RELATED TO THE REAL ESTATE INDUSTRY

  ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD SIGNIFICANTLY IMPEDE OUR ABILITY
  TO RESPOND TO ADVERSE CHANGES IN THE PERFORMANCE OF OUR PROPERTIES AND HARM
  OUR FINANCIAL CONDITION.

     Because real estate investments are relatively illiquid, our ability to
promptly sell one or more hotel or resort properties in response to changing
economic, financial and investment conditions is limited. The real estate market
is affected by many factors that are beyond our control, including general
economic conditions, availability of financing, interest rates and other
factors, such as supply and demand.

     We may decide to sell our hotels and resorts in the future, but we may be
unable to sell any hotel or resort property on favorable terms. It may take an
unexpectedly long time to find a willing purchaser and to close the sale of a
hotel or resort property. The sale of some properties, including any properties
from the acquisition, might subject us to significant adverse tax consequences.
Therefore, we may refrain from liquidating those properties, even if it would
otherwise be advisable to do so.

     We may be required to expend funds to correct defects or to make
improvements before a hotel or resort property can be sold. We may not have
funds available to correct those defects or to make those improvements. In
acquiring a hotel or resort property, we may agree to lock-out provisions that
materially restrict us from selling that property for a period of time or impose
other restrictions, such as a limitation on the amount of debt that can be
placed or repaid on that property. These factors and any others that would
impede our ability to respond to adverse changes in the performance of our
properties could have a material adverse effect on our results of operations and
financial condition, as well as our ability to pay distributions to
stockholders.

  UNINSURED AND UNDERINSURED LOSSES COULD ADVERSELY AFFECT OUR OPERATING RESULTS
  AND OUR ABILITY TO MAKE DISTRIBUTIONS TO OUR STOCKHOLDERS.

     We, the third-party tenants or the third-party management companies
maintain insurance on each of our properties, including coverage for general
liability, umbrella liability, workers' compensation and property damage
(including earthquake, flood, business income and ordinance coverage) under
policy forms we believe are customarily obtained by hotel owners. Some of our
hotels and resorts are located in areas of the country where they may experience
hurricane or high-wind activity, while others are located in areas that are
subject

                                        14
<PAGE>

to earthquake activity. Of the hotels and resorts located in areas of high
seismic risk, some were constructed under building codes that were less
stringent with regard to earthquake related requirements. An earthquake could
cause significant uninsured damage to these properties. Properties for which we,
the third-party tenants or the third-party management companies maintain
earthquake insurance are insured subject to deductibles that we believe are
customarily obtained by hotel owners.

     However, insurance for certain types of losses, generally of a catastrophic
nature, such as earthquakes, floods, hurricanes and acts of terrorism, may be or
become either unavailable, too difficult to obtain or not economically feasible.
An uninsured loss or a loss in excess of insured limits could have a material
adverse effect on our results of operations and distributions to stockholders
could be reduced. Also, we may not be able to obtain financing if a lender were
to require that we purchase this type of insurance coverage as a condition to a
financing and we were unable to obtain such coverage.

     Additionally, inflation, changes in building codes and ordinances,
environmental considerations and other facts or also might make it impractical
to use insurance proceeds to replace a particular hotel or resort after it was
damaged or destroyed. In those circumstances, the insurance proceeds received by
us might not be adequate to restore our economic position. If any of these or
similar events occur, it may reduce the return from the property and the value
of our investment.

  INCREASES IN PROPERTY TAXES COULD ADVERSELY AFFECT OUR ABILITY TO MAKE
  EXPECTED DISTRIBUTIONS.

     Each hotel and resort is subject to real and personal property taxes. The
real and personal property taxes on hotel and resort properties in which we
invest may increase as property tax rates change and as the properties are
assessed or reassessed by taxing authorities. Many state and local governments
are facing budget deficits that have led many of them, and may in the future
lead others, to increase assessments and/or taxes. If property taxes increase,
our ability to make expected distributions to our stockholders could be
adversely affected.

  ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR RESULTS.

     The costs of complying with existing environmental laws, ordinances and
regulations, and future legislation may significantly increase our operating
expenses. Under various federal and state environmental laws and regulations, as
a current or previous owner of real estate, we may be required to investigate
and clean up certain hazardous or toxic substances, asbestos-containing
materials, or petroleum product releases at our properties. We may also be held
liable to a governmental entity or to third parties for tenant property damage
and for the costs of investigation, removal or remediation of hazardous or toxic
substances on, under or in such property. Environmental laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. The cost of complying with
environmental laws could materially decrease funds available to distribute to
stockholders. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contamination at any of our properties may adversely effect our
ability to sell or lease the properties or to borrow using the properties as
collateral. We could also be liable under common law to third parties for
damages and injuries resulting from environmental contamination coming from our
properties.

     We obtain Phase I environmental studies for each property before we acquire
it. Nevertheless, it is possible that these reports, when obtained, do not
reveal all environmental liabilities or that there are material

                                        15
<PAGE>

environmental liabilities of which we are unaware. In certain situations, we may
determine to acquire a property in which an environmental assessment indicates
that a problem exists and has not been resolved at the time the property is
acquired, provided that (A) the seller has (1) agreed in writing to indemnify us
and/or (2) established in escrow cash funds equal to a predetermined amount
greater than the estimated costs to remediate the problem; or (B) we have
negotiated other satisfactory arrangements, such as a reduction in the purchase
price. We cannot be sure, however, that any seller will be able to pay under an
indemnity we obtain or that the amount in escrow will be sufficient to pay all
remediation costs. Further, we cannot be sure that all environmental liabilities
have been identified or that no prior owner, tenant, management company or
occupant has created an environmental condition not known to us. Future laws,
ordinances or regulations may impose additional material environmental
liability. The current environmental condition of our properties may be affected
by the tenants, third-party management companies and occupants of the
properties, by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by unrelated
third parties. Environmental liabilities that we may incur could have an adverse
effect on our financial condition or results of operations.

  COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT MAY
  ADVERSELY EFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     Under the Americans with Disabilities Act of 1990, or ADA, all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While we believe that our hotels and resorts
are substantially in compliance with these requirements, a determination that we
are not in compliance with the ADA could result in imposition of fines or an
award of damages to private litigants. In addition, changes in governmental
rules and regulations or enforcement policies affecting the use and operation of
the hotels and resorts may occur. If we were required to make substantial
modifications at the hotels and resorts to comply with the ADA or other changes
in governmental rules and regulations, our ability to make expected
distributions to our stockholders could be adversely affected.

  WE WILL HAVE NO ECONOMIC INTEREST IN THE LAND UNDERLYING GROUND LEASE
  PROPERTIES.

     We hold all or a material portion of five of our properties through ground
leases. For these properties, we do not own, or have a leasehold interest in,
the underlying land, unless we enter into an assignment or other agreement.
Thus, with respect to these ground lease properties, we will have no economic
interest in the land or building at the expiration of the lease on the
underlying land, although we generally will retain partial ownership of, and
will have the right to remove, any equipment that we may own in the building. As
a result, while we will share in the income stream derived from the lease, we
will not share in any increase in value of the land associated with any ground
lease property.

  WE MAY INCUR SIGNIFICANT COSTS COMPLYING WITH OTHER REGULATIONS.

     The properties in our portfolio are subject to various federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. If we fail to comply with these various requirements, we might
incur governmental fines or private damage awards. We believe that the
properties in our portfolio are currently in material compliance with all
applicable regulatory requirements. However, we do not know whether existing
requirements will change or whether future requirements will require us to make
significant unanticipated expenditures that will adversely affect our results of
operations, financial condition, ability to service debt and ability to make
distributions to our stockholders.

RISKS RELATED TO OUR TAX STATUS

  IF WE FAIL TO QUALIFY AS A REIT, OUR DIVIDENDS WILL NOT BE DEDUCTIBLE TO US,
  AND OUR INCOME WILL BE SUBJECT TO TAXATION.

     We have operated and intend to continue to operate so as to qualify as a
REIT for federal income tax purposes. Our continued qualification as a REIT will
depend on our continuing ability to meet various requirements concerning, among
other things, the ownership of our outstanding shares of beneficial interest,

                                        16
<PAGE>

the nature of our assets, the sources of our income, and the amount of our
distributions to our stockholders and the filing of TRS elections. If we were to
fail to qualify as a REIT in any taxable year, we would not be allowed a
deduction for dividends to our stockholders in computing our taxable income and
would be subject to federal income tax (including any applicable alternative
minimum tax) on our taxable income at regular corporate rates. Unless entitled
to relief under certain provisions under the Code, we also would be disqualified
from electing to be treated as a REIT for the four taxable years following the
year during which qualification was lost. As a result, amounts available for
distribution to stockholders would be reduced for each of the years involved.
Although we currently intend to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the directors, without the consent of our stockholders,
to revoke the REIT election.

  FAILURE TO MAKE REQUIRED DISTRIBUTIONS WOULD SUBJECT US TO TAX.

     In order to qualify as a REIT, each year we must distribute to our
stockholders at least 90% of our taxable income, excluding net capital gains. To
the extent that we satisfy the 90% distribution requirement, but distribute less
than 100% of our taxable income, we will be subject to federal corporate income
tax on our undistributed income. In addition, we will incur a 4% nondeductible
excise tax on the amount, if any, by which our distributions in any year are
less than the sum of:

     - 85% of our ordinary income for that year;

     - 95% of our capital gain net earnings for that year; and

     - 100% of our undistributed taxable income from prior years.

     We have paid out, and intend to continue to pay out, our income to our
stockholders in a manner intended to satisfy the distribution requirement and to
avoid corporate income tax and the 4% nondeductible excise tax. Differences in
timing between the recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us to borrow money
or sell assets to pay out enough of our taxable income to satisfy the
distribution requirement and to avoid corporate income tax and the 4%
nondeductible excise tax in a particular year. In the past we have borrowed, and
in the future we are likely to borrow, to pay distributions to our stockholders
and the limited partners of our operating partnership. Such borrowings subject
us to risks from borrowing as described herein.

  WE MAY HAVE TO BORROW FUNDS OR SELL ASSETS TO MEET OUR DISTRIBUTION
  REQUIREMENTS.

     In order to qualify as a REIT, a REIT must distribute at least 90% of its
taxable income, excluding net capital gains. For the purpose of determining
taxable income, we may be required to accrue interest, rent and other items
treated as earned for tax purposes but that we have not yet received. In
addition, we may be required not to accrue as expenses for tax purposes some
items that actually have been paid or some of our deductions might be disallowed
by the Internal Revenue Service. As a result, we could have taxable income in
excess of funds available to distribute to our stockholders. If this occurs, we
will have to borrow funds or liquidate some of our assets in order to meet the
distribution requirements applicable to REITs even if the then prevailing market
conditions are not favorable for these borrowings. These borrowing needs could
result from a difference in timing between the actual receipt of cash and
inclusion of income for U.S. federal income

                                        17
<PAGE>

tax purposes, or the effect of non-deductible capital expenditures, the creation
of reserves or required debt or amortization payments.

  UTILIZATION OF TRS LESSEES INCREASES OUR OVERALL TAX LIABILITY.

     The TRS lessees are subject to federal and state income tax on their
taxable income, which will consist of the revenues from the hotels and resorts
leased by the TRS lessees, net of the operating expenses of these hotels and
resorts and rent payments to us. Accordingly, although our ownership of the TRS
lessees will allow us to participate in the operating income from our hotels and
resorts, that operating income will be fully subject to income tax. The
after-tax net income of the TRS lessees is available for distribution to us. We
may convert some or all of the remaining triple net leases to the TRS structure.

     We are subject to a 100% excise tax on transactions with our TRS lessees
that are not conducted on an arm's-length basis. For example, to the extent that
the rent paid by one of our TRS lessees to us exceeds an arm's-length rental
amount, such amount potentially will be subject to the excise tax.

  OUR ABILITY TO FINANCE GROWTH AND ACQUISITION ACTIVITIES FROM INTERNAL SOURCES
  IS LIMITED.

     Because we must annually distribute at least 90% of our taxable income,
excluding net capital gains, to maintain our qualification as a REIT, our
ability to rely upon income or cash flow from operations to finance our growth
and acquisition activities will be limited. Accordingly, were we unable to
obtain funds from borrowings or the capital markets to finance our growth and
acquisition activities, our ability to grow could be curtailed, amounts
available for distribution to stockholders could be adversely effected, and we
could be required to reduce distributions.

  ANY PROPERTIES WE OWN OUTSIDE OF THE UNITED STATES ARE SUBJECT TO FOREIGN
  TAXES AND MAY CONTRIBUTE TO A FAILURE TO MEET THE REIT REQUIREMENTS.

     Foreign countries impose taxes on our hotels and resorts and our operations
within their jurisdictions. To the extent possible, we will structure our
acquisitions of foreign properties and activities to minimize our foreign tax
liability. However, we may be unable to eliminate our foreign tax liability or
to reduce it to a specified level. Furthermore, as a REIT, we can substantially
eliminate our U.S. federal income tax liability by distributing our REIT taxable
income to our stockholders, and thus we will not fully benefit from a foreign
tax credit against our U.S. federal income tax liability for the foreign taxes
we pay. As a result, our foreign taxes will reduce our income and available cash
flow from our foreign hotels and resorts, which, in turn, could reduce our
ability to make distributions to our stockholders.

  RECENT CHANGES IN TAXATION OF CORPORATE DIVIDENDS MAY ADVERSELY AFFECT THE
  VALUE OF OUR COMMON STOCK.

     The Jobs and Growth Tax Relief Reconciliation Act of 2003, which was
enacted into law on May 28, 2003, among other things, generally reduces to 15%
the maximum marginal rate of tax payable by domestic noncorporate taxpayers on
dividends received from a regular C corporation. This reduced tax rate, however,
will not apply to dividends paid to domestic noncorporate taxpayers by a REIT on
its stock, except for certain limited amounts. Although the earnings of a REIT
that are distributed to its stockholders still generally will be subject to less
federal income taxation than earnings of a non-REIT C corporation that are
distributed to its stockholders net of corporate-level income tax, this
legislation could cause domestic noncorporate investors to view the stock of
regular C corporations as more attractive relative to the stock of a REIT than
was the case prior to the enactment of the legislation, because the dividends
from regular C corporations will generally be taxed at a lower rate while
dividends from REITs will generally be taxed at the same rate as the
individual's other ordinary income. We cannot predict what effect, if any, the
enactment of this legislation may have on the value of the stock of REITs in
general or on our common stock in particular, either in terms of price or
relative to other investments.

                                        18
<PAGE>

  OUR LEASES MAY BE RECHARACTERIZED AS FINANCINGS, WHICH WOULD ELIMINATE
  DEPRECIATION DEDUCTIONS ON HOTEL AN RESORT PROPERTIES.

     We believe the leases of hotels and resorts where we own the underlying
land constitute leases for federal income tax purposes. However, with respect to
the hotels and resorts where we do not own the underlying land, we may not be
able to reach this conclusion. If the lease of a hotel or resort does not
constitute a lease for federal income tax purposes, it will be treated as a
financing arrangement. The income derived from such a financing arrangement
would satisfy the 75% and the 95% gross income tests for REIT qualification
because it would be considered to be interest on a loan secured by real
property. Nevertheless, the recharacterization of a lease in this fashion may
have adverse tax consequences for us, in particular that we would not be
entitled to claim depreciation deductions with respect to the hotel or resort
(although we should be entitled to treat part of the payments we would receive
under the arrangement as the repayment of principal). In such event, in certain
taxable years our taxable income, and the corresponding obligation to distribute
90% of such income, would be increased. Under certain circumstances, we may be
able to rectify an inadvertent failure to meet the distribution requirement for
a taxable year as a result of such a recharacterization by paying "deficiency
dividends" to our stockholders, and, as a result also avoid being taxed on
amounts distributed as deficiency dividends. However, we would be required to
pay interest to the IRS based upon the amount of any deduction claimed for
deficiency dividends, and we may not have sufficient funds to pay the deficiency
dividends and interest thereon and, as such, may be required to borrow funds or
sell assets at such times or under such conditions or terms, which we would not
otherwise normally do. Any increase in our distribution requirements may limit
our ability to invest in additional hotels and resorts.

  WE MAY BE REQUIRED TO PAY A PENALTY TAX UPON THE SALE OF A HOTEL OR RESORT.

     The federal income tax provisions applicable to REITs provide that any gain
realized by a REIT on the sale of property held as inventory or other property
held primarily for sale to customers in the ordinary course of business is
treated as income from a "prohibited transaction" that is subject to a 100%
penalty tax. Under current law, unless a sale of real property qualifies for a
safe harbor, the question of whether the sale of a hotel, resort or other
property constitutes the sale of property held primarily for sale to customers
is generally a question of the facts and circumstances regarding a particular
transaction. We intend that we and our subsidiaries will hold the interests in
the hotels and resorts for investment with a view to long-term appreciation, to
engage in the business of acquiring and owning hotels and resorts, and to make
occasional sales as are consistent with our investment objectives. We do not
intend to engage in prohibited transactions. We cannot assure you, however, that
we will only make sales that satisfy the requirements of the safe harbors or
that the IRS will not successfully assert that one or more of such sales are
prohibited transactions.

  WE MAY BE SUBJECT TO OTHER TAX LIABILITIES.

     Even if we qualify as a REIT, we may be subject to some federal, state and
local taxes on our income and property that could reduce operating cash flow.

  CHANGES IN TAX LAWS MAY PREVENT US FROM QUALIFYING AS A REIT.

     Our treatment as a REIT for federal income tax purposes is based on the tax
laws that are currently in effect. We are unable to predict any future changes
in the tax laws that would adversely affect our status as a REIT. If there is a
change in the tax laws that prevents us from qualifying as a REIT or that
requires REITs generally to pay corporate level income taxes, we may not be able
to make the same level of distributions to our stockholders.

ITEM 2.  PROPERTIES

     As of December 31, 2003, we had acquired interests, directly or indirectly
through our partnerships, in 130 Properties, located in 37 states, the District
of Columbia and Canada, generally consisting of land, buildings and equipment,
including 24 Properties through interests in 12 partnerships with various third
parties. As of December 31, 2003, two of our hotels were under development. Of
the Properties in which we

                                        19
<PAGE>

own interests, we currently lease 113 to TRS entities, with management performed
by third-party operators, and 17 to third-party operators on a triple-net basis.

     We are committed to fund improvements at our Properties in order to, in
part, maintain their competitiveness. Major renovations and other capital
improvements are typically funded with proceeds from our cash reserves, stock
offerings, permanent financings, or borrowings under our revolving line of
credit.

     Generally, Properties acquired consist of land, building and equipment and
in certain instances intangible assets; although in some cases, we may acquire
the land underlying the building with the building owned by the tenant or a
third party, or may acquire the building only with the land owned by a third
party. The 130 Properties we own directly or indirectly as of December 31, 2003,
generally conform to the following specifications of size, cost, and type of
land and buildings.

     Hotel and Resort Properties.  Hotel lot sizes generally range up to 10
acres depending on product, market and design considerations, and are available
at a broad range of pricing. The sites are generally in primary or secondary
urban, suburban, airport, highway or resort markets which have been evaluated
for past and future anticipated lodging demand trends. Resorts are generally
located on larger lots which allows for additional recreational amenities.

     The buildings generally are mid-rise construction. The Properties consist
of limited service hotels, extended stay hotels, and full service hotels or
resorts. Limited service hotels generally minimize non-guest room space and
offer limited food service such as complimentary continental breakfasts and do
not have restaurant or lounge facilities on-site. Extended stay hotels generally
contain guest suites with a kitchen area and living area separate from the
bedroom. Extended stay hotels vary with respect to providing on-site restaurant
facilities. Full service hotels generally have conference or meeting facilities,
and on-site food and beverage facilities. Resorts generally have expanded food
and beverage facilities and often have additional recreational amenities such as
golf courses, tennis courts and/or spa facilities. The Properties include
equipment and most conform to national hotel and resort brand approved design
concepts.

     As of December 31, 2003, 104 of the Properties directly owned, including
the two Properties being developed, were pledged as collateral under our
financing arrangements. For more detailed information relating to these
arrangements, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Debt Financing".

                                        20
<PAGE>

     The following table lists the number of Properties we own, directly or
indirectly through partnerships, as of December 31, 2003, by state, or country
including the Properties under development.

<Table>
<Caption>
STATE/ COUNTRY                                                NUMBER OF PROPERTIES
--------------                                                --------------------
<S>                                                           <C>
Alabama.....................................................            1
Arizona.....................................................            7
California*.................................................           25
Canada......................................................            1
Colorado....................................................            3
Connecticut.................................................            2
Delaware....................................................            1
District of Columbia........................................            1
Florida*....................................................           16
Georgia.....................................................            5
Hawaii......................................................            1
Illinois....................................................            3
Indiana.....................................................            1
Kansas......................................................            1
Kentucky....................................................            1
Louisiana...................................................            2
Maine.......................................................            1
Massachusetts...............................................            2
Maryland....................................................            2
Michigan....................................................            5
Minnesota...................................................            3
Missouri....................................................            2
Mississippi.................................................            1
North Carolina..............................................            3
Nebraska....................................................            2
New Jersey..................................................            4
Nevada......................................................            1
New York....................................................            3
Oklahoma....................................................            2
Oregon......................................................            1
Pennsylvania................................................            2
Rhode Island................................................            1
South Carolina..............................................            1
Tennessee...................................................            1
Texas.......................................................           12
Utah........................................................            1
Virginia....................................................            6
Washington..................................................            2
Wisconsin...................................................            1
                                                                      ---
  Total.....................................................          130
                                                                      ===
</Table>

---------------

* Includes one property under development as of December 31, 2003.

                                        11
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     On May 13, 2003, A. Bruce Chasen, as class representative, filed a putative
class action lawsuit in the Circuit Court of Shelby County, Tennessee, 30th
Judicial District against RFS, RFS's directors and us (the "Chasen Complaint").
On June 6, 2003, the Chasen Complaint was amended. The amended Chasen Complaint
alleges, among other things, that (i) the merger consideration to be received by
RFS's shareholders is significantly less than the intrinsic value of RFS, (ii)
the RFS directors breached their fiduciary duties to shareholders on a variety
of grounds including failing to ascertain the true value of RFS, failing to
determine whether there were any other bidders for RFS, and failing to avoid
certain alleged conflicts of interest shared by members of the RFS Board and its
financial advisor, (iii) we aided and abetted the RFS Board in connection with
their breach of fiduciary duties, (iv) the RFS Board violated portions of the
Tennessee Investor Protection Act, and (v) the RFS proxy statement is false and
misleading. Among other things, the amended Chasen Complaint seeks certification
of the class action, an injunction enjoining RFS and us from completing the
merger, monetary damages in an unspecified amount, the payment of attorney's
fees, and rescissory damages. On July 1, 2003, we filed an answer to the amended
Chasen Complaint setting forth an affirmative defense and general denials of the
allegations set forth therein. The plaintiff's motion for a temporary
restraining order for purposes of enjoining the transaction, was denied by the
Circuit Court of Shelby County, Tennessee, 30th Judicial District on July 8,
2003. Based upon the information currently available to us, we believe the
allegations contained in the amended Chasen Complaint are without merit and
intend to vigorously defend the action, and therefore, a liability was not
accrued. We are planning to file a motion to dismiss the allegations in the
amended Chasen Complaint. If the motion is not successful, it is expected that
the case will proceed to trial.

     On August 26, 2002, Carmel Valley, LLC filed a lawsuit against RFS and some
of its subsidiaries in the Superior Court of the State of California, for the
County of San Diego (the "Carmel Valley Complaint"). In connection with the
acquisition of RFS Hotel Investors, Inc., we have become a party to the Carmel
Valley Complaint which claims damages relating to a dispute over a parcel of
land located adjacent to one of the RFS Properties. We have unsuccessfully
attempted to mediate this case. At this time, we believe that the damages
claimed lack sufficient factual support and will continue to vigorously defend
the action, and therefore, a liability was not accrued. However, it is possible
that we could incur losses if the plaintiff ultimately prevails. The plaintiff
is seeking monetary damages of up to $0.7 million. We have recently filed
certain motions to dismiss which are being considered by the Court. If the
motions are not successful, it is expected that the case will proceed to trial.

     From time to time we may be exposed to other litigation arising from an
unrecognized preacquisition contingency or from the operations of our business.
At this time, we do not believe that resolution of these matters, included those
discussed above, will have a material adverse effect on our financial condition
or results of operations.

                                        12
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                            Intentionally Left Blank

                                        13
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     As of February 20, 2004, there were approximately 93,569 stockholders of
record of common stock. There is no public trading market for the shares, and
even though we intend to list our shares on a national securities exchange or
over-the-counter market within four years if market conditions are satisfactory,
a public market for the shares may not develop even if the shares are listed.
Prior to such time, if any, as the listing of our shares on a national
securities exchange or over-the-counter market occurs, any stockholder (other
than CNL Hospitality Corp.) may present all or any portion equal to at least 25%
of such stockholder's shares to us for redemption at any time, in accordance
with the procedures outlined in our prospectus for our 2003 Offering. At such
time, we may, at our sole option, redeem such shares presented for redemption
for cash, at a redemption price equal to the then current offering price, less a
discount of 8%. The 2003 Offering price is $10.00 per share; thereby the net
redemption price, while the 2003 Offering is ongoing, is $9.20 per share. During
periods when we are not engaged in a public offering, the redemption price will
be determined by our Board of Directors based on a variety of factors. At no
time during a 12-month period may the number of shares redeemed by us exceed 5%
of the number of shares of our outstanding common stock at the beginning of the
12-month period. The full amount of the proceeds from the sale of shares under
the reinvestment plan for the 2003 Offering attributable to any calendar quarter
will be used to redeem shares presented for redemption during such quarter. In
addition, we may, at our discretion, use up to $100,000 per calendar quarter of
the proceeds of any public offering of our common stock for redemptions. Any
amount of offering proceeds which is available for redemptions, but which is
unused, may be carried over to the next succeeding calendar quarter for use for
redemptions. There may not be sufficient funds available for redemptions and,
accordingly, a stockholder's shares may not be redeemed. Our Board of Directors,
in its discretion, may amend or suspend the redemption plan at any time they
determine that such amendment or suspension is in our best interest. For the
years ended December 31, 2003 and 2002, approximately 716,000 and 260,000
shares, respectively, were redeemed at $9.20 per share and retired from shares
outstanding of common stock. The price to be paid for any share transferred
other than pursuant to the redemption plan is subject to negotiation by the
purchaser and the selling stockholder.

     For the years ended December 31, 2003 and 2002, total shares of 901,363 and
565 were transferred between owners, respectively, other than pursuant to the
redemption plan. We are not aware of any other trades of our shares, other than
purchases made in our public offerings and redemptions of shares by us. The
following table reflects, for each calendar quarter, the high, the low and the
average sales prices for transfers of units during 2003 and 2002, net of
commissions.

<Table>
<Caption>
                                                                        2003
                                                              ------------------------
                                                               HIGH     LOW    AVERAGE
                                                              ------   -----   -------
<S>                                                           <C>      <C>     <C>
First Quarter...............................................  $ 8.64   $6.97    $7.92
Second Quarter..............................................    9.20    9.20     9.20
Third Quarter...............................................    9.00    7.01     7.68
Fourth Quarter..............................................   10.00    7.39     8.74
</Table>

<Table>
<Caption>
                                                                       2002
                                                             -------------------------
                                                              HIGH     LOW     AVERAGE
                                                             ------   ------   -------
<S>                                                          <C>      <C>      <C>
First Quarter..............................................  $ 7.05   $ 7.05   $ 7.05
Second Quarter.............................................   10.00    10.00    10.00
Third Quarter..............................................    9.20     9.00     9.10
Fourth Quarter.............................................      (1)      (1)      (1)
</Table>

---------------

(1) We are not aware of any trades during this period.

     As of December 31, 2003, the offering price per share of common stock was
$10.00. The offering price per share was determined by us, in our sole
discretion, based upon the price we believed investors would pay

                                        14
<PAGE>

for the shares and on certain other considerations. Our shares are not publicly
traded and there is no public market for the shares on which to base market
value. We did not take into account the value of the underlying assets in
determining the price per share. Investors are cautioned that common stock not
publicly traded is generally considered illiquid and the estimated value per
share may not be realized when an investor seeks to liquidate his or her common
stock.

     We expect to make distributions to the stockholders pursuant to the
provisions of the Articles of Incorporation. For the years ended December 31,
2003 and 2002, we declared cash distributions of approximately $130.0 million
and $74.2 million respectively, to the stockholders. For the years ended
December 31, 2003 and 2002, approximately 39% and 51%, respectively, of the
distributions paid to stockholders were considered ordinary income and
approximately 61% and 49%, respectively, were considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to
stockholders for the years ended December 31, 2003 and 2002, were required to be
or have been treated by us as a return of capital for purposes of calculating
the stockholders' return on their invested capital. Some future fees payable to
CNL Hospitality Corp. are subordinate to the achievement of an 8% return on
stockholders' invested capital.

     The following table presents total distributions and distributions per
share (in thousands except per share data):

<Table>
<Caption>
2003 QUARTER                           FIRST    SECOND     THIRD    FOURTH      YEAR
------------                          -------   -------   -------   -------   --------
<S>                                   <C>       <C>       <C>       <C>       <C>
Total distributions declared........  $25,396   $29,010   $34,177   $41,378   $129,961
Distributions per share.............    0.194     0.194     0.194     0.194      0.776
</Table>

<Table>
<Caption>
2002 QUARTER
------------
<S>                                   <C>       <C>       <C>       <C>       <C>
Total distributions declared........  $15,432   $17,058   $19,322   $22,405   $ 74,217
Distributions per share.............    0.194     0.194     0.194     0.194      0.776
</Table>

     On January 1, 2004 and February 1, 2004, we declared distributions totaling
approximately $15.7 million and $16.7 million, respectively, or $0.064583 per
share of common stock, payable by March 31, 2004, to stockholders of record on
January 1, 2004 and February 1, 2004, respectively.

     We intend to continue to declare distributions of cash to stockholders on a
monthly basis while we are engaged in a public offering of our common stock, and
quarterly thereafter to the extent that cash is available for distribution. We
may not continue to be able to pay distributions, except to maintain REIT status
in accordance with the Internal Revenue Code of 1986, as amended. We are
required to distribute annually at least 90% of our taxable income to maintain
our objective of qualifying as a REIT. Distributions will be made at the
discretion of the Board of Directors, depending generally on various factors
including cash flows from operations and our financial condition, subject to the
obligation of the Board of Directors to ensure we remain qualified as a REIT for
federal income tax purposes.

                            Intentionally Left Blank

                                        15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
the consolidated financial statements and related notes in Item 8 hereof (in
thousands except per share data). Data for fiscal years 2002 and earlier has
been restated to reflect the adoption of FIN 46R.

<Table>
<Caption>
                                         2003         2002         2001        2000       1999
                                      ----------   ----------   ----------   --------   --------
<S>                                   <C>          <C>          <C>          <C>        <C>
Year Ended December 31:
     Revenues.......................  $  557,140   $  225,526   $   89,017   $ 36,099   $ 10,678
     Income from continuing
       operations...................       4,771       15,810       19,328     20,670      7,516
     Income from discontinued
       operations...................       1,222           --           --         --         --
     Net earnings(1)................       5,993       15,810       19,328     20,670      7,516
  Cash flows from operating
     activities.....................     112,887       76,660       58,408     43,651     12,890
  Cash flows used in investing
     activities.....................   1,894,612      551,987      433,026    334,237    130,231
  Cash flows from financing
     activities.....................   1,876,478      479,269      373,419    238,811    206,085
  Cash distributions declared(2)....     129,961       74,217       48,409     28,082     10,766
  Funds from operations(3)..........      90,594       59,475       41,871     30,053     10,478
  Income from continued operations
     per share:
     Basic..........................        0.02         0.16         0.30       0.53       0.47
     Diluted........................        0.02         0.16         0.30       0.53       0.45
  Income from discontinued
     operations per share:
     Basic..........................        0.01           --           --         --         --
     Diluted........................        0.01           --           --         --         --
  Earnings per share:
     Basic..........................        0.03         0.16         0.30       0.53       0.47
     Diluted........................        0.03         0.16         0.30       0.53       0.45
  Cash distributions declared per
     share..........................        0.78         0.78         0.77       0.74       0.72
  Weighted average number of shares
     outstanding:
     Basic..........................     172,449       97,874       64,458     38,698     15,890
     Diluted........................     172,449       97,874       64,458     45,886     21,438
At December 31:
  Total assets......................  $3,876,978   $1,565,432   $1,147,676   $653,962   $266,968
  Mortgages payable.................   1,499,989      401,765      275,567    170,055         --
  Other notes payable and line of
     credit.........................     174,361       53,818       65,072     19,582         --
  Total stockholders' equity........   1,940,741    1,014,323      637,876    419,289    253,055
</Table>

---------------

(1) To the extent that operating expenses payable or reimbursable by us in any
    four consecutive fiscal quarters (the "Expense Year") exceed the greater of
    2% of average invested assets or 25% of net income (the "Expense Cap"), CNL
    Hospitality Corp. shall reimburse us within 60 days after the end of the
    Expense Year the amount by which the total operating expenses paid or
    incurred by us exceed the Expense Cap. During the five years ended December
    31, 2003, operating expenses did not exceed the Expense Cap.

(2) Cash distributions are declared by the Board of Directors and generally are
    based on various factors, including cash flow from operations. Approximately
    95%, 79%, 60%, 26%, and 30% of cash distributions for the years ended
    December 31, 2003, 2002, 2001, 2000, and 1999, respectively, represent a
    return of

                                        16
<PAGE>

    capital in accordance with generally accepted accounting principles
    ("GAAP"). Cash distributions treated as a return of capital on a GAAP basis
    represent the amount of cash distributions in excess of accumulated net
    earnings on a GAAP basis, including deductions for depreciation expense. We
    have not treated such amounts as a return of capital for purposes of
    calculating the stockholders' return on their invested capital as a GAAP
    basis calculation would not be appropriate for this purpose.

(3) Management considers funds from operations ("FFO") to be an indicative
    measure of operating performance due to the significant effect of
    depreciation of real estate assets on net earnings. FFO, based on the
    revised definition adopted by the Board of Governors of the National
    Association of Real Estate Investment Trusts ("NAREIT") in October 1999 and
    as used herein, means net earnings determined in accordance with generally
    accepted accounting principles ("GAAP"), excluding gains or losses from debt
    restructuring and sales of property, plus depreciation and amortization of
    real estate assets and after adjustments for unconsolidated partnerships.
    Net earnings determined in accordance with GAAP includes the noncash effect
    of scheduled rent increases throughout the lease terms. This is a GAAP
    convention requiring real estate companies to report rental revenue based on
    the average rent per year over the life of the leases). During the years
    ended December 31, 2003, 2002, 2001, 2000, and 1999, we did not have
    significant adjustments related to straight-lining of leases. Management
    believes that by excluding the effect of depreciation, amortization and
    gains or losses from sales of real estate, all of which are based on
    historical costs and which may be of limited relevance in evaluating current
    performance, FFO can facilitate comparisons of operating performance between
    periods and between other equity REITs. FFO was developed by NAREIT as a
    relative measure of performance and liquidity 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 earnings), (ii) is not
    necessarily indicative of cash flow available to fund cash needs and (iii)
    should not be considered as an alternative to net earnings 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 similarly titled measures reported by
    other companies. Accordingly, we believe that in order to facilitate a clear
    understanding of the consolidated historical operating results of the
    Company, FFO should be considered in conjunction with our net earnings and
    cash flows as reported in the accompanying consolidated financial statements
    and notes thereto.

     The following is a reconciliation of net earnings to FFO for the years
ended December 31, 2003, 2002, 2001, 2000, and 1999 (in thousands):

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                            ----------------------------------------------------
                                             2003      2002      2001      2000         1999
                                            -------   -------   -------   -------   ------------
<S>                                         <C>       <C>       <C>       <C>       <C>
Net earnings..............................  $ 5,993   $15,810   $19,328   $20,670     $ 7,516
Adjustments:
  Effect of unconsolidated subsidiaries...   14,117     6,496     1,499     1,825       1,710
  Effect of minority interest.............   (6,230)   (2,624)     (774)     (272)        (16)
  Amortization of real estate assets......    1,765     1,353       353       131          49
  Depreciation of real estate assets......   74,949    34,864    21,465     7,699       1,219
  Effect of assumption of liabilities.....       --     3,576        --        --          --
                                            -------   -------   -------   -------     -------
Funds from operations.....................  $90,594   $59,475   $41,871   $30,053     $10,478
                                            =======   =======   =======   =======     =======
Weighted average shares:
  Basic...................................  172,449    97,874    64,458    38,698      15,890
                                            =======   =======   =======   =======     =======
  Diluted.................................  172,449    97,874    64,458    45,886      21,438
                                            =======   =======   =======   =======     =======
</Table>

                                        17
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The following information contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements
generally are characterized by the use of terms such as "believe," "expect" and
"may." Although 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: changes in general economic conditions, changes in local and national
real estate conditions, terrorism, extended U.S. military combat operations,
availability of capital from borrowings under our line of credit and security
agreement, continued availability of proceeds from our offerings, our ability to
obtain additional permanent financing on satisfactory terms, our ability to
continue to identify suitable investments, our ability to continue to locate
suitable managers and tenants for our Properties and borrowers for mortgage
loans, and the ability of such tenants and borrowers to make payments under
their respective leases or mortgage loans. Given these uncertainties, we caution
you not to place undue reliance on such statements. We undertake no obligation
to publicly release the results of any revisions to these forward-looking
statements that may be made to reflect future events or circumstances or to
reflect the occurrence of unanticipated events. All prior period amounts
contained herein have been restated to reflect the impact of the adoption of FIN
46R.

OVERVIEW

     Since our first public offering of securities in 1997, we have grown into
one of the largest hospitality REITs in the United States based on total asset
value. Our primary focus during 2003 was the investment of proceeds from our
public offerings in the acquisition of Properties. During the year ended
December 31, 2003, we received net offering proceeds of approximately $1.2
billion, proceeds from the issuance of permanent financing of approximately $0.9
billion and invested approximately $1.7 billion in 73 hotel and resort
properties (including the acquisition of RFS Hotel Investors, Inc.). As of
December 31, 2003, we held interests in real estate assets with a value of
approximately $3.9 billion that consisted of 130 Properties, which includes two
Properties under development. These Properties, generally consisting of land,
buildings and equipment, are located in 37 states, the District of Columbia and
Canada. We own 24 of our hotel and resort properties through interests in 12
partnerships with various third-parties. Of the 128 Properties currently
operating, we currently lease 111 to TRS entities (including TRS entities owned
through joint ventures), with management performed by third-party operators, and
17 Properties to unaffiliated third-party operators on a triple-net basis. As of
February 20, 2004, the Company had commitments to purchase an additional six
Properties. During the first quarter of 2004, we began to actively consider
various alternatives including an underwritten public offering of common stock,
the merger of us and our Advisor, CNL Hospitality Corp., the listing of our
shares on a national securities exchange or over-the-counter market,
recapitalization of our current debt structure, possible mergers, additional
acquisitions or continuing to raise money and operate as we currently do.

     Our results of operations are highly dependent upon the operations of our
hotel and resort properties. To evaluate the financial condition and operating
performance of our Properties, management regularly reviews operating statistics
such as revenue per available room, average daily room rate and occupancy
statistics. These statistics are compared with historical and budgeted
statistics as wells as those for our industry and peer groups.

CRITICAL ACCOUNTING POLICIES

     Our consolidated financial statements include our accounts and all
consolidated subsidiaries. The discussion and analysis of the financial
condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles ("GAAP"). The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues and expenses, and
related disclosures. The estimates are based on judgment and historical
experience, and are believed to be reasonable based on current circumstances. We
evaluate these estimates and assumptions on an on-going basis.
                                        18
<PAGE>

     While we do not believe that the reported amounts would be materially
different, application of these policies involves the exercise of judgment and
the use of assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates under different assumptions or
conditions. The following represent certain critical accounting policies that
require the use of business judgment or significant estimates to be made:

     - Allocation of Purchase Prices to Properties.  We generally obtain
       third-party Property appraisals as a part of our normal pre-acquisition
       due diligence procedures. These appraisals are used by us to evaluate the
       fairness of the purchase price and to assist in the allocation of the
       purchase price between land, building, equipment, intangible assets and
       goodwill. In circumstances where a specific Property or business acquired
       is expected to have significant values assigned to intangible assets or
       goodwill, we obtain third-party purchase price allocation studies to
       assist in the allocation of purchase prices to these assets. Management
       believes that these appraisals and purchase price allocation studies are
       carried out by competent third-party experts and that they result in fair
       allocations, however, a change in the allocations could result in an
       increase or decrease in depreciation expense and amortization expense and
       could result in different balance sheet classifications between assets.

     - Determination of Fair Value of Long-lived Assets.  Management reviews our
       Properties and investments in unconsolidated subsidiaries periodically
       (no less than once per year) for impairment or whenever events or changes
       in circumstances indicate that the carrying amount of the assets may not
       be recoverable through operations. Management determines whether
       impairment in value has occurred by comparing the estimated future
       undiscounted cash flows, including the residual value of the Property,
       with the carrying cost of the individual Property. Although to date, no
       impairment has occurred, such an impairment would result in a reduction
       in the carrying value of the impaired Property and an expense to us for
       the amount of the impairment write-down.

       In estimating future undiscounted cash flows, we use historical cash
       flows, the expected growth rate of revenues and expenses, the effect of
       capital expenditures, remaining useful life of the Property, holding
       periods, and future market and economic conditions. Variability of these
       and other assumptions could result in a difference in the estimated
       undiscounted future cash flows.

     - Depreciation and Amortization Expense.  Depreciation and amortization
       expense are based on the estimated useful lives of our assets and on the
       method used to calculate depreciation. The life of the assets are based
       on a number of assumptions, including cost and timing of capital
       expenditures to maintain and refurbish the assets, and estimated holding
       periods. We believe our estimates are reasonable; however, a change in
       the estimated lives of the assets or the method of depreciation could
       affect depreciation and amortization expense and net income or the gain
       or loss on the sale of any of the assets.

     - Consolidation policy.  In accordance with FIN 46R (defined below under
       "Recent Accounting Pronouncements"), we consolidate investments in
       variable interest entities for which we are the primary beneficiary. The
       primary beneficiary of a variable interest entity is the party that
       absorbs a majority of a joint venture's expected losses, receives a
       majority of its expected residual returns, or both, as a result of
       holding variable interests, which are the ownership, contractual, or
       other pecuniary interests in an entity that change with changes in the
       fair value of the entity's net assets excluding variable interests. To
       make this determination, we must make certain estimates and assumptions
       about the variable interest entities' ("VIEs") future operating
       performance. Variability in these estimates may result in a different
       conclusion regarding whether or not to consolidate certain VIEs.

     - Valuation of deferred tax assets.  We account for federal and state
       income taxes with respect to our TRS subsidiaries using the asset and
       liability method. Deferred tax assets and liabilities are recognized for
       the future tax consequences attributable to differences between the
       consolidated financial statements carrying amounts of existing assets and
       liabilities and respective tax bases and operating losses and tax-credit
       carry forwards. Deferred tax assets and liabilities are measured using
       enacted tax rates expected to apply to taxable income in the years in
       which those temporary differences are expected to be recovered or
       settled. The effect on deferred tax assets and liabilities of a change in
       tax rates is
                                        19
<PAGE>

       recognized in income in the period that includes the enactment date. In
       the event that these assumptions change the deferred taxes may change.

       Valuation allowances are established when necessary to reduce deferred
       tax assets to the amount expected to be realized. The valuation allowance
       is based on our estimates of future taxable income and ongoing prudent
       and feasible tax planning strategies. Should we determine it would not be
       likely to realize in full the deferred tax asset in the future, we would
       record a valuation allowance to reduce the deferred tax asset to an
       amount that is more likely than not to be realized. An adjustment to the
       deferred tax asset would decrease income in the period the determination
       was made.

       In estimating future taxable income, we must estimate future income using
       historical data, the expected growth rate of revenues and expenses, the
       effect of capital expenditures, and future market and economic
       conditions. Variability of these and other assumptions could result in an
       inability to recover the carrying value of the deferred tax assets.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" ("FAS 149"). FAS 149 amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." We adopted FAS 149 in the year ended December 31, 2003, and it did
not have a material impact on our results of operations.

     In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("FAS 150"). FAS 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. FAS 150 requires issuers to classify certain financial
instruments as liabilities (or assets in some circumstances) that previously
were classified as equity. FAS 150 requires that minority interests for majority
owned finite lived entities be classified as a liability and recorded at fair
market value. Effective October 29, 2003, the FASB deferred implementation of
FAS 150, as it applies to minority interests of finite lived Partnerships. We
adopted FAS 150 in the year ended December 31, 2003, except as it applies to
minority interest, and it did not have a material impact on our results of
operations.

     In December 2003, the FASB issued FIN 46R, "Consolidation of Variable
Interest Entities". This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries.
The primary beneficiary of a variable interest entity is the party that absorbs
a majority of the entity's expected losses, receives a majority of its expected
residual returns, or both, as a result of holding variable interests, which are
the ownership, contractual, or other pecuniary interests in an entity that
change with changes in the fair value of the entity's net assets excluding
variable interests. Prior to FIN 46R, a company generally included another
entity in its consolidated financial statements only if it controlled the entity
through voting interests. Application of FIN 46R is required in financial
statements of public entities that have interests in variable interest entities
for periods ending after March 15, 2004. We have adopted FIN 46R as of December
31, 2003, which resulted in the consolidation of several of our previously
unconsolidated subsidiaries. FIN 46R does not require, but does permit
restatement of previously issued financial statements; we have restated prior
years' consolidated financial statements to maintain comparability between the
periods presented in the consolidated financial statements and the accompanying
notes. These restatements had no effect on stockholders' equity or net earnings.

                                        20
<PAGE>

RESULTS OF OPERATIONS

  HOTEL AND RESORT OPERATING STATISTICS

     The following table presents information related to our 128 operating
Properties as of December 31, 2003:

<Table>
<Caption>
                                                                HOTEL
BRAND AFFILIATION                                             PROPERTIES   ROOMS
-----------------                                             ----------   ------
<S>                                                           <C>          <C>
Full Service Hotels and Resorts:
  Doubletree................................................       2          852
  Embassy Suites............................................       4          974
  Hilton Hotels.............................................      10        3,961
  Holiday Inn...............................................       5          954
  Hyatt.....................................................       3        1,621
  Independent*..............................................       3        1,019
  Marriott..................................................       6        2,995
  JW Marriott...............................................       2        1,444
  Sheraton..................................................       3          659
  Four Points...............................................       2          412
  Wyndham...................................................       2          390
                                                                 ---       ------
                                                                  42       15,281
                                                                 ---       ------
Extended Stay Hotels:
  Homewood Suites...........................................       1           83
  Residence Inn.............................................      26        3,915
  TownePlace Suites.........................................       8          841
                                                                 ---       ------
                                                                  35        4,839
                                                                 ---       ------
Limited Service Hotels:
  Comfort Inn...............................................       1          184
  Courtyard.................................................      17        3,627
  Fairfield Inn.............................................       1          388
  Hampton Inn...............................................      19        2,431
  Holiday Inn Express.......................................       5          637
  SpringHill Suites.........................................       8        1,455
                                                                 ---       ------
                                                                  51        8,722
                                                                 ---       ------
Total.......................................................     128       28,842
                                                                 ===       ======
</Table>

---------------

* Includes the 688 room Hotel Del Coronado

     During the year ended December 31, 2003, a significant portion of our
rental income and hotel and resort revenues was earned from 68 Properties
operating as various Marriott brands (including Marriott Hotels, Resorts, and
Suites, JW Marriott, Residence Inn by Marriott, TownePlace Suites by Marriott,
Courtyard by Marriott, Fairfield Inn, and Spring Hill Suites by Marriott) and 36
Properties operating as various Hilton brands (including Doubletree, Embassy
Suites, Hilton Hotels and Suites, Homewood Suites by Hilton, and Hampton Inn).
We carefully screen our managers and tenants and we have obtained interests in
non-Marriott and non-Hilton branded Properties, however, failure of the Marriott
and Hilton brands would significantly impact our results of operations.
Management believes that the risk of such a default will be reduced through
future acquisitions and diversification.

                                        21
<PAGE>

     Management regularly reviews operating statistics such as revenue per
available room ("RevPAR"), average daily rate ("ADR") and occupancy at our
Properties in order to gauge performance as compared to the industry and past
results.

     The following tables present information related to our comparable
Properties by hotel and resort brand for the years ended December 31, 2003 and
2002. Comparable hotels are defined as Properties owned by us during the
entirety of both periods being compared. Unaudited hotel occupancy, ADR and
RevPAR are presented for hotel and resort brands for which we owned three or
more hotels within each respective brand category. The data available to make
comparisons is limited due to the amount, timing and extent of recent
acquisitions we have made.

          UNAUDITED COMPARABLE CNL HOTEL OPERATING STATISTICS BY BRAND
                    FOR THE YEAR ENDED DECEMBER 31, 2003(A)

<Table>
<Caption>
                                                           OCCUPANCY              ADR               REVPAR
                                                        ----------------   -----------------   -----------------
                                                               VARIANCE             VARIANCE            VARIANCE
                                       HOTELS   ROOMS   2003   VS. 2002     2003    VS. 2002    2003    VS. 2002
                                       ------   -----   ----   ---------   ------   --------   ------   --------
<S>                                    <C>      <C>     <C>    <C>         <C>      <C>        <C>      <C>
Full Service Hotels and Resorts:
  Hilton.............................     3     1,210   74.4%    4.4 ppt   $95.68     (4.7)%   $71.22      1.3%
Extended Stay Hotels:
  Residence Inn......................    10     1,543   74.5%  (0.7) ppt   $94.40     (0.7)%   $70.29     (1.6)%
  TownePlace Suites..................     4      412    67.5%  (9.4) ppt   $63.12      0.8%    $42.63    (11.5)%
Limited Service Hotels:
  Courtyard by Marriott..............    10     2,112   68.4%    1.4 ppt   $95.81     (3.8)%   $65.55     (1.9)%
  SpringHill Suites by Marriott......     6     1,090   66.1%    2.8 ppt   $75.38     (0.6)%   $49.81      3.7%
</Table>

---------------

(A)  Includes brands in which we owned three or more Properties during the
     entirety of both periods being presented.

      UNAUDITED COMPARABLE CNL HOTEL OPERATING STATISTICS BY PROPERTY TYPE
                      FOR THE YEAR ENDED DECEMBER 31, 2003

<Table>
<Caption>
                                                          OCCUPANCY              ADR                REVPAR
                                                       ----------------   ------------------   -----------------
                                                              VARIANCE              VARIANCE            VARIANCE
                                      HOTELS   ROOMS   2003   VS. 2002     2003     VS. 2002    2003    VS. 2002
                                      ------   -----   ----   ---------   -------   --------   ------   --------
<S>                                   <C>      <C>     <C>    <C>         <C>       <C>        <C>      <C>
Full Service Hotels and Resorts.....     8     3,452   70.5%    4.8 ppt   $108.03     (0.2)%   $76.15      7.1%
Extended Stay Hotels................    14     1,955   73.0%   (2.5)ppt   $ 88.30      0.2%    $64.46     (3.1)%
Limited Service Hotels..............    17     3,590   66.8%    1.6 ppt   $ 85.90     (3.5)%   $57.37     (1.0)%
                                        --     -----
Total Comparable Hotels.............    39     8,997   69.6%    2.0 ppt   $ 95.07     (0.9)%   $66.13      2.0%
</Table>

     For the year ended December 31, 2003, RevPAR for all comparable Properties
was $66.13, representing an increase of 2.0% compared to the same period in
2002. The RevPAR increase resulted from a 2.0 percentage point increase in
occupancy to 69.6% and an decrease of 0.9% in ADR to $95.07, as compared to the
same period in 2002.

     The majority of this growth came from the comparable Full Service Hotels
and Resorts category with a 7.1% RevPAR increase as compared to same period of
2002. This increase was primarily due to improved operating performance of the
Waikiki Beach Marriott Resort, which underwent significant renovations in 2001
and 2002, and Hilton Costa Mesa which underwent significant renovations in 2002
and 2003. RevPAR for the comparable Extended Stay Hotels and Limited Service
Hotels categories decreased by 3.1% and 1.0%, respectively, as compared to the
same period in 2002.

                                        22
<PAGE>

  COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002

<Table>
<Caption>
                                                    YEAR ENDED DECEMBER 31,
                                          --------------------------------------------
                                            2003        2002       CHANGE     % CHANGE
                                          ---------   ---------   ---------   --------
                                                     (AMOUNTS IN THOUSANDS)
<S>                                       <C>         <C>         <C>         <C>
Hotel revenues..........................  $ 490,148   $ 170,122   $ 320,026     188%
Hotel expenses..........................   (369,693)   (118,130)   (251,563)    213%
                                          ---------   ---------   ---------
  Gross margin..........................  $ 120,455   $  51,992   $  68,463     132%
                                          =========   =========   =========
  Gross margin percentage...............         25%         31%
Other Revenues
Rental income from operating leases.....  $  35,263   $  37,341   $  (2,078)     (6)%
Credit enhancement funding..............     24,763      10,279      14,484     141%
Interest and other income...............      6,966       7,784        (818)    (11)%
Other Expenses
  Interest and loan cost amortization...     61,202      24,718      36,484     148%
  General operating and
     administrative.....................     10,107       6,060       4,047      67%
  Asset mgmt. fees to related party.....     12,782       6,696       6,086      91%
  Depreciation and amortization.........     76,714      36,217      40,497     112%
</Table>

     As of December 31, 2003 and 2002, we owned interests in 128 and 55
operating hotel and resort Properties, respectively. Out of the total increase
in hotel and resort revenues during the year ended December 31, 2003, $248.2
million or 78% of the increase, resulted from the acquisition of additional
Properties during 2002 and in 2003 (including the 57 Properties acquired through
the RFS Acquisition (defined below). Hotel and resort revenues also increased as
a result of our taking assignment of leases on 11 existing Properties and
engaging third-party managers to operate these Properties. For these Properties,
rental income from operating leases that was recorded during the first half of
2002 was replaced by hotel and resort operating revenues and expenses for the
remainder of 2002 and all for of 2003. The remaining increase of $71.8 million
or 22% was due to improved year over year performance of our 27 comparable
Properties which were operated under the TRS structure for the entirety of both
periods being presented during 2002 and from the 11 Properties for which we took
assignment of the leases during 2002.

     The decrease in rental income for the year ended December 31, 2003 was due
to our taking assignment of 11 existing leases, as discussed above, partially
offset by an increase in rental income from five Properties acquired in July
2003, as a result of the RFS Acquisition which were leased to third-party
tenants.

     During the year ended December 31, 2003 and 2002, we received approximately
$24.8 million and $10.3 million revenues from credit enhancements (4.4% and 4.6%
of total revenues for the years ended December 31, 2003 and 2002, respectively).
The increase in credit enhancement revenues during the year ended December 31,
2003, as compared to the same period in 2002, was due to the increase in the
amount of credit enhancements available to and utilized by us. These guarantees
are provided to us by third-party hotel and resort managers in order to
guarantee a minimum return for some of our Properties. As a result of the
downturn in the overall economy and other factors, and the resulting adverse
effect on our operations, we have been relying on credit enhancements to
substantially enhance our net earnings and cash flows, and to partially fund
distributions. During 2003, some of our credit enhancements were fully utilized
or expired and for certain properties we obtained additional enhancements. To
the extent that current credit enhancements outstanding are fully utilized, or
expire, and we are not able to obtain additional enhancements, our results of
operations and our ability to make distributions to stockholders may be
adversely affected. As of December 31, 2003, we had $22.1 million available for
funding under our remaining credit enhancements. There is no assurance that we
will continue to be able to obtain additional credit enhancements in the future.

     Of the total increase in hotel and resort operating expenses during the
year ended December 31, 2003, as compared to the same period in 2002, $81.3
million resulted from the acquisition of additional Properties acquired during
2002 and in 2003 (including the 57 Properties acquired through the RFS
Acquisition). Hotel

                                        23
<PAGE>

and resort operating expenses also increased as a result of our taking
assignment of leases on 11 existing Properties and engaging third-party managers
to operate these Properties. The remaining increase of $170.3 million was due to
increased year over year expenses of our 27 comparable Properties which were
operated under the TRS structure for the entirety of both periods being
presented and from the 11 Properties for which we took assignment of the leases
during 2002.

     Hotel and resort operating expenses increased at a faster rate than hotel
and resort revenues resulting in decreased margins as a result of the continued
economic slowdown in the lodging industry, reduced revenues from
telecommunication services at the Properties, higher hotel and resort related
insurance premiums and increased wage pressure for employees hired by hotel and
resort managers at the Properties. In addition, the shift in our Property
portfolio toward a higher proportion of full service hotel and resort
properties, has resulted in an increase in our food and beverage revenues, which
generally have lower profit margins than other hotel departments.

     Interest expense increased due to increased borrowings under our permanent
financing arrangements which were used for the acquisition of Properties. Both,
depreciation and amortization , as well as, management fees increased as a
result of the additional Properties we acquired.

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                              -------------------------------------------
                                                         2003 % OF              2002 % OF
                                                         HOTEL AND              HOTEL AND
                                                          RESORT                 RESORT
                                                2003      REVENUE      2002      REVENUE
                                              --------   ---------   --------   ---------
                                                        (AMOUNTS IN THOUSANDS)
<S>                                           <C>        <C>         <C>        <C>
Hotel Operating Expenses:
  Room......................................  $ 87,114      18%      $ 32,574      19%
  Food and beverage.........................    75,457      15%        20,126      12%
  Other hotel operating departments.........    17,616       4%         4,431       3%
  Property operations.......................   110,857      23%        36,454      21%
  Repairs and maintenance...................    25,314       5%         6,842       4%
  Hotel management fees.....................    16,644       3%         5,898       3%
  Sales and marketing.......................    36,691       7%        11,805       7%
                                              --------      --       --------      --
     Total hotel operating expenses.........  $369,693      75%      $118,130      69%
                                              ========      ==       ========      ==
</Table>

     Total hotel and resort operating expenses increased as a percentage of
total hotel and resort revenues during the year ended December 31, 2003, as
compared to the same period in 2002. The increase is primarily due to an
increase in food and beverage expense due to an increase in the number of full
service hotels and resorts in our portfolio of Properties, as discussed above.
Property operations increased from 21% of hotel revenue in 2002 to 23% of hotel
revenue in 2003 as a result of increased property taxes and insurance during
2003. The increases were due to the significant growth in the number of
Properties we own. All other expenses incurred in 2003 remained at levels
similar to the same period in 2002, showing increases or decreases of
approximately one percent in each of the other categories.

     During the year ended December 31, 2003, general operating and
administrative expenses increased from approximately $6.1 million to
approximately $10.1 million, primarily due to an increase in state taxes of
approximately $1.8 million and an increase of administrative expenses of $2.2
million. However, general operating and administrative expenses, as a percentage
of total revenues decreased from 2.7% to 1.8% for the years ended December 31,
2002 and 2003, respectively, as a result of increases due to economies of scale
created as we acquired additional Properties in 2003.

                                        24
<PAGE>

  Losses from Unconsolidated Subsidiaries

     Losses from unconsolidated subsidiaries increased $6.7 million to
approximately $24.0 million from approximately $17.3 million for the years ended
December 31, 2003 and 2002, respectively. The following is a summary of our
equity in earnings/(losses) from unconsolidated subsidiaries (in thousands):

<Table>
<Caption>
SUBSIDIARY                                         2003       2002     (INCREASE)/DECREASE
----------                                       --------   --------   -------------------
<S>                                              <C>        <C>        <C>
Desert Ridge Resorts Partners, LLC.............  $ (9,625)  $ (6,547)        $(3,078)
WB Resort Partners, LP.........................   (10,305)    (9,006)         (1,299)
CY-SF Hotel Parent, LP.........................    (2,125)      (673)         (1,452)
CTM Partners, LLC..............................    (1,926)    (1,036)           (890)
CNL Plaza, Ltd.................................        11          6               5
                                                 --------   --------         -------
  Total........................................  $(23,970)  $(17,256)        $(6,714)
                                                 ========   ========         =======
</Table>

     Losses were primarily due to net losses incurred by Desert Ridge Resorts
Partners, LLC and CY-SF Hotel Parent, the unconsolidated subsidiaries that own
the JW Marriott Desert Ridge Resort and Spa Property and the Courtyard San
Francisco Property, respectively. The JW Marriott Desert Ridge Resort and Spa
Property opened in November 2002 and is expected to continue to generate losses
until it gains market share. The Courtyard in San Francisco Property was
acquired during the middle of 2002 and, therefore, only generated losses for a
portion of 2002 as compared with the entire year of 2003. In addition, we have
continued to incur losses at CTM Partners, LLC, which owns a majority interest
in a joint venture that owns the rights to the Mobil Travel Guide. We expect
these losses to continue until this company begins to generate sufficient
revenues to offset its initial startup costs. The Courtyard San Francisco
Property and the Waikiki Beach Marriott Resort Property (owned by WB Resort
Partners, LP) have continued to be negatively impacted by current economic
conditions and a decline in tourism from Asian markets. Losses at these three
Properties may increase if the economy and lodging industry do not recover.

  Discontinued Operations

     We account for some revenues and expenses as originating from discontinued
operations pursuant to FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FASB 144"). FASB 144 requires that sales of
real estate, or the identification of a real estate asset as held for sale, be
treated as discontinued operations. Any gain or loss from such disposition, and
any income or expenses associated with real estate assets held for sale, are
included in the consolidated statements of earnings as discontinued operations.
In connection with the RFS Acquisition, we decided to sell six non-strategic
hotel Properties from the former RFS portfolio (see Item 8. Financial Statements
and Supplementary Data -- Note 4, "RFS Acquisition" to the Consolidated
Financial Statements), and therefore, these Properties were classified as real
estate held for sale as of December 31, 2003.

     The post-merger results of operations for these hotel Properties are
reflected as discontinued operations in the accompanying consolidated statement
of operations. The operating results of discontinued operations are as follows
for the period ended December 31, 2003 (in thousands):

<Table>
<S>                                                           <C>
Hotel and resort revenues...................................  $ 5,700
Hotel and resort expenses...................................   (4,478)
                                                              -------
Income from discontinued operations.........................  $ 1,222
                                                              =======
</Table>

                                        25
<PAGE>

  COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                                     YEAR ENDED DECEMBER 31,
                                           -------------------------------------------
                                             2002        2001      CHANGE     % CHANGE
                                           ---------   --------   ---------   --------
                                                     (AMOUNTS IN THOUSANDS)
<S>                                        <C>         <C>        <C>         <C>
Revenues
Hotel revenues...........................  $ 170,122   $ 18,697   $ 151,425      810%
Hotel expenses...........................   (118,130)   (15,584)   (102,546)     658%
                                           ---------   --------   ---------
  Gross margin...........................  $  51,992   $  3,113   $  48,879     1570%
                                           =========   ========   =========
  Gross margin percentage................         31%        17%
Other Revenues
Rental income from operating leases......  $  37,341   $ 61,031   $ (23,690)     (39)%
Credit enhancement funding...............     10,279         --      10,279      n/a
Interest and other income................      7,784      9,289      (1,505)     (16)%
Other Expenses
  Interest and loan cost amortization....     24,718     16,098       8,620       54%
  General operating and administrative...      6,060      3,603       2,457       68%
  Asset mgmt. fees to related party......      6,696      3,327       3,369      101%
  Depreciation and amortization..........     36,217     21,818      14,399       66%
</Table>

     As of December 31, 2002, and 2001 we owned interests in 55 and 39
Properties, respectively. The increase in hotel and resort revenue and the
decrease in rental income was due to our investment in new Properties and
leasing to TRS entities, as well as taking assignment of leases on 18 existing
Properties and engaging third-party managers to operate these Properties during
the year ended December 31, 2002. For these Properties, rental income from
operating leases that was recorded prior to the assignment of the leases was
replaced with hotel and resort operating revenues and expenses. Two Properties
that were acquired at the end of 2001 and all of the new Properties acquired in
2002 are leased to our TRS entities or the TRS entities of our partnerships and
operated using third-party managers.

     During the years ended December 31, 2002 and 2001, we earned approximately
$10.3 million and $0 million in credit enhancement funding. The increase during
the year ended December 31, 2002, as compared to the same period in 2001, was
primarily due to Marriott's forgiveness of the amounts previously funded under
certain credit enhancements, resulting in income being recorded during the
fourth quarter of 2002. Additionally, we leased a significant number of our
Properties to third-party tenants under triple-net leasing arrangements prior to
2002, therefore, we did not have as many TRS leases with credit enhancements.
Under these triple -- net leasing arrangements, the third-party tenants were
required to pay minimum rental payments to us, which were not dependent on hotel
and resort operating performance.

     The increase in hotel and resort operating expenses during the year ended
December 31, 2002, as compared to the same period in 2001, was primarily due to
the increase in the number of Properties leased to TRS entities, as described
above. Similarly, interest expense increased due to additional proceeds from
permanent financing used for acquisitions. Depreciation and amortization
increased as a result of the

                                        26
<PAGE>

additional Properties owned by us and asset management fees increased due to
additional fees earned on the new Properties acquired and owned by us.

<Table>
<Caption>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                                  2002 % OF             2001 % OF
                                                                    HOTEL                 HOTEL
                                                         2002      REVENUE     2001      REVENUE
                                                       --------   ---------   -------   ---------
                                                                 (AMOUNTS IN THOUSANDS)
<S>                                                    <C>        <C>         <C>       <C>
Hotel Operating Expenses:
  Room...............................................  $ 32,574      19%      $ 4,357      23%
  Food and beverage..................................    20,126      12%        3,800      20%
  Other hotel operating departments..................     4,431       3%          628       3%
  Property operations................................    36,454      21%        3,799      20%
  Repairs and maintenance............................     6,842       4%          697       4%
  Hotel management fees..............................     5,898       3%          494       3%
  Sales and marketing................................    11,805       7%        1,809      10%
                                                       --------      --       -------      --
  Total hotel operating expenses.....................  $118,130      69%      $15,584      83%
                                                       ========      ==       =======      ==
</Table>

     Total hotel and resort operating expenses decreased as a percentage of
total hotel and resort revenues during the year ended December 31, 2002, as
compared to the same period in 2001. The decrease is primarily due to a decrease
in room and food and beverage expenses due to a decrease in demand as a result
of the downturn in the economy. Several expense categories remained in 2002 at
similar levels, as compared to the same period in 2001, since they had no change
as a percentage of total hotel and resort revenues.

     General operating and administrative expenses, as a percentage of total
revenues, decreased from 4.0% in 2001 to 2.7% in 2002. This decrease, as a
percentage of total revenues, was primarily due to the efficiencies of scale
created as we acquired additional Properties in 2002.

  Losses from Unconsolidated Subsidiaries

     Equity in losses from unconsolidated subsidiaries increased $9.3 million to
approximately $17.3 million from approximately $8.0 million for the years ended
December 31, 2002 and 2001, respectively. The following is a summary of our
equity in earnings/(losses) from unconsolidated subsidiaries (in thousands):

<Table>
<Caption>
                                                                                   (INCREASE)/
SUBSIDIARY                                                      2002      2001      DECREASE
----------                                                    --------   -------   -----------
<S>                                                           <C>        <C>       <C>
Desert Ridge Resorts Partners, LLC..........................  $ (6,547)  $(3,396)    $(3,151)
WB Resort Partners, LP......................................    (9,006)   (4,572)     (4,434)
CY-SF Hotel Parent, LP......................................      (673)       --        (673)
CTM Partners, LLC...........................................    (1,036)       --      (1,036)
CNL Plaza, Ltd..............................................         6        --           6
                                                              --------   -------     -------
  Total.....................................................  $(17,256)  $(7,968)    $(9,288)
                                                              ========   =======     =======
</Table>

     These losses were primarily due to pre-opening and marketing expenses
incurred during the construction of the JW Marriott Desert Ridge Resort and
losses at the Waikiki Beach Marriott which was open but undergoing significant
renovations. In 2002, we also incurred losses from the Courtyard San Francisco
Property and CTM Partners, LLC. The San Francisco market was significantly
effected by the events of September 11, 2001 and the recent economic downturn.
CTM Partners, LLC was in the initial stages of redeveloping the Mobil Travel
Guide brand and did not start to generate sufficient revenues to offset startup
expenses.

                                        27
<PAGE>

CERTAIN TRENDS WHICH MAY AFFECT RESULTS OF OPERATIONS

  LODGING INDUSTRY ENVIRONMENT

     The lodging industry's RevPAR performance improved slightly in 2003. Based
on data provided by Smith Travel Research, full-year 2003 RevPAR growth
increased by 0.3% over 2002 which was at depressed levels. For 2004, lodging
fundamentals are anticipated to improve due to low supply levels and the
anticipated recovery in demand. However, the lodging industry is susceptible to
negative deviations from forecasted results due to the unpredictable impact of
various factors, such as:

          (i) Geopolitical stability: The continued military activity in the
     Middle East, associated terrorism concerns and, consequent increase in
     domestic security alerts (such as, the frequent travel warnings issued in
     2003 by the Department of Homeland Security) have had a significant
     negative impact on lodging demand for hotel rooms.

          (ii) Economic recovery: The general slowdown of the economy and its
     effect on corporate travel demand has lessened the industry's profitability
     considerably in the last several years.

          (iii) Pricing control: The pervasiveness of the Internet and
     discount-travel sites has impacted hotel room rates. Although operators
     have begun to seek to exercise greater control over their distribution
     channels, re-establishing rate integrity is expected to be a slow process.

          (iv) Profitability contraction: Given recent cost cutting measures
     undertaken by operators to counteract decreased demand, it is anticipated
     that operators may have to hire additional staff and increase spending
     levels to meet any potential increase in demand.

     As a result of these conditions, we expect the overall lodging industry to
continue to lag behind pre-September 2001 levels, and therefore, our performance
could be adversely affected in 2004. These factors could affect us by decreasing
hotel and resort revenues and operating margins.

  CREDIT ENHANCEMENTS

     We benefit from various types of credit enhancements that have been
provided by the managers of some of our Properties. These credit enhancements
may be provided to us directly or indirectly through unconsolidated subsidiaries
and guarantee us some minimum returns on our Properties. We recognize funding
under these guarantees either as other income, as reductions in base management
fees or as liabilities, depending upon the nature of each credit enhancement
agreement and whether the funded amounts are required to be repaid by us in the
future. All of the credit enhancements are subject to expiration or "burn-off"
provisions over time or at such time that the funding limit has been reached.
There is no assurance that market conditions will allow us to continue to obtain
credit enhancements on Properties acquired in the future. As a result of the
downturn in the overall economy and the threat of terrorism and their adverse
effect on our operations, we have been relying on credit enhancements to
substantially enhance our net earnings, cash flows and our distributions. To the
extent that this trend continues and current credit enhancements are fully
utilized or expire, our results of operations and our ability to pay
Distributions to stockholders will be affected.

     For background information relating to our credit enhancements, reference
is made to Note 20, "Credit Enhancements" to the Consolidated Financial
Statements included in Item 8. "Financial Statements and Supplementary Data."

     As of December 31, 2003, we had approximately $10.5 million, in outstanding
liabilities from our credit enhancement guarantees. In addition, as of December
31, 2003, we had approximately $22.1 million which remained available for
funding under these types of guarantees. As of December 31, 2003, our
unconsolidated subsidiaries had liabilities of approximately $71.2 million
relating to the potential repayment of credit enhancements and had approximately
$34.3 million which remained available for funding.

     Liabilities from credit enhancements are required to be repaid by us, or
our unconsolidated subsidiaries, at such time that the net operating income of
Properties covered by the enhancements are in excess of

                                        28
<PAGE>

predefined minimum returns to us or our unconsolidated subsidiaries. These
repayments will limit our ability to increase future distributions to
stockholders.

LIQUIDITY AND CAPITAL RESOURCES

     We use capital primarily to acquire or develop Properties and invest in
joint ventures, which acquire and own Properties. Other smaller investments may
be made in businesses which are ancillary to the lodging industry. Less than one
percent of our total assets reflect investments in ancillary businesses as of
December 31, 2003 and 2002. We may also provide mortgage loans to operators of
hotel and resort brands, but have not done so as of December 31, 2003. We are
required to distribute at least 90% of our taxable income to stockholders. We
generally raise funds through the sales of common stock, the acquisition of
permanent financing, through our operating activities and through draws on our
revolving line of credit.

SOURCES OF LIQUIDITY AND CAPITAL RESOURCES

  EQUITY SALES

     We rely on sales of our common stock to finance a significant portion of
our Property acquisitions and other investments. During the years ended December
31, 2003, 2002 and 2001, we raised approximately $1.2 billion, $0.5 billion and
$0.3 billion (representing 117.0 million, 48.9 million and 28.6 million shares,
respectively) from our common stock offerings.

     As of December 31, 2003, net proceeds to us from our five public offerings,
loan proceeds and capital contributions from CNL Hospitality Corp. (our
"Advisor"), after deduction of selling commissions, marketing support fees, due
diligence expense reimbursements and organizational and offering expenses,
totaled approximately $2.2 billion. We have used net offering proceeds, proceeds
from permanent financing and advances from our revolving line of credit to
invest in 130 Properties located in 37 states, the District of Columbia, and
Canada and for the other uses set forth in the table below.

     The following table summarizes our proceeds, investment activity and cash
available for investment, as of December 31, 2003 (dollars in thousands):

<Table>
<S>                                                           <C>
Sources of equity and debt proceeds:
  Net proceeds from offerings...............................  $2,182,024
  Initial capital contribution from our Advisor.............         200
  Proceeds from permanent financings and advances on line of
     credit.................................................   1,842,711
                                                              ----------
                                                               4,024,935
                                                              ----------
Uses of equity and debt proceeds:
  Investment in 130 Properties (including joint ventures)
     and other ancillary investments........................   3,430,682
  Repayments on line of credit and other debt...............     466,132
  Stock redemptions (approximately 1,516 shares)............      13,954
  Distribution shortfall funded by revolving line of
     credit.................................................      17,074
                                                              ----------
                                                               3,927,842
                                                              ----------
Cash available for investment...............................  $   97,093
                                                              ==========
</Table>

     The remaining cash available for investment is less than total cash and
cash equivalents on the consolidated balance sheet as of December 31, 2003
because the total cash and cash equivalents includes operating cash. The above
table only includes cash available for investing activities.

     During the period January 1, 2004 through February 20, 2004, we received
additional net offering proceeds of approximately $270.0 million (representing
the issuance of approximately 27.0 million shares of our common stock) from the
2003 Offering, used approximately $75.0 million for a non-refundable deposit in

                                        29
<PAGE>

connection with the KSL Acquisition (see "Pending Investments, Completed
Developments and Other Events Subsequent to December 31, 2003" below for a
description of this transaction, although no assurance can be made that this
transaction will close). As of February 20, 2004, we had approximately $339.2
million available for investment in Properties, mortgage loans and other
permitted investments. We expect to use the uninvested net proceeds from the
2003 Offering plus any additional net offering proceeds from the sale of the
remaining shares in the 2003 Offering, to complete the KSL Acquisition. During
the first quarter of 2004, we began to consider various alternatives including
an underwritten public offering of common stock, the merger of the Company and
our advisor, CNL Hospitality Corp., the listing of our shares on a national
securities exchange or over-the-counter market, recapitalization of our current
debt structure, possible mergers and/or acquisitions, or commencing the 2004
Offering. We expect that the 2003 Offering will be completed in March 2004, at
which time no additional equity proceeds will be raised until these various
alternatives are evaluated or the Company commences the 2004 Offering.

  DEBT FINANCING

     As of December 31, 2003, our total consolidated debt was approximately $1.7
billion. We have approximately $18.8 million in principal amortization and debt
maturities due during 2004 and approximately $1.2 billion in principal
amortization and debt maturities due over the succeeding four years. As of
December 31, 2003, the weighted average interest rate on mortgages and other
notes payable was approximately 6.25%. Approximately, 46% of our total debt has
a variable rate of interest as of December 31, 2003.

     We intend to borrow money in connection with the KSL Acquisition and to
acquire interests in additional Properties, to invest in mortgage loans and to
pay some related fees. We intend to encumber assets in connection with such
borrowings. We currently have a revolving line of credit pursuant to which we
may receive cash advances of up to $96.7 million until September 2006. A total
of approximately $72.6 million was available under our revolving line of credit
as of December 31, 2003. The maximum amount we may borrow, absent our
demonstrating that a higher level of borrowing is appropriate as approved by a
majority of the independent directors, is 300% of our net assets.

     Our objectives and strategies with respect to long-term debt are to (i)
minimize the amount of interest incurred on permanent financing while limiting
the risk related to interest rate fluctuations through hedging activities and
(ii) maintain the ability to refinance existing debt. For our mortgage notes
that bear interest at fixed rates, changes in market interest rates during the
term of such debt will not affect our operating results. The majority of our
fixed rate debt arrangements allow for repayment earlier than the stated
maturity date. These prepayment rights may afford us the opportunity to mitigate
the risk of refinancing at maturity at higher rates by refinancing prior to
maturity.

     All of our mortgage debt is recourse solely to specific assets except for
fraud, misapplication of funds and other customary recourse provisions. Most of
our Properties serve as collateral for mortgage debt.

     As of December 31, 2003 and 2002, our fixed and variable rate debt
instruments, excluding debt of unconsolidated partnerships, were as follows (in
thousands):

<Table>
<Caption>
                                                                 2003        2002
                                                              ----------   --------
<S>                                                           <C>          <C>
Mortgages payable and accrued interest......................  $1,499,988   $401,765
Construction loan facilities................................      60,517     21,281
Tax incremental financing note..............................       8,098      8,458
Revolving line of credit....................................      24,073     24,079
                                                              ----------   --------
Indebtedness collateralized by Properties...................   1,592,676    455,583
Unsecured notes.............................................      81,674         --
                                                              ----------   --------
                                                              $1,674,350   $455,583
                                                              ==========   ========
</Table>

                                        30
<PAGE>

USES OF LIQUIDITY AND CAPITAL RESOURCES

  RFS ACQUISITION

     On July 10, 2003, we completed the acquisition of RFS Hotel Investors, Inc.
and RFS Partnership, LP (collectively, "RFS") for approximately $383 million in
cash ($12.35 per share or limited partnership unit) and the assumption of
approximately $409 million in liabilities including transaction and severance
costs, which totaled approximately $55 million (the "RFS Acquisition"). In
connection with this transaction, we obtained interests in 57 Properties.

  PROPERTY ACQUISITIONS

     In addition to the interests in the Properties acquired as a result of the
RFS Acquisition, we acquired the following Properties during the years ended
December 31, 2002 and 2003:

<Table>
<Caption>
                                                                           PURCHASE PRICE
      BRAND AFFILIATION         PROPERTY LOCATION    DATE OF ACQUISITION   (IN THOUSANDS)
-----------------------------  --------------------  -------------------   --------------
<S>                            <C>                   <C>                   <C>
SpringHill Suites by Marriott  Manhattan Beach, CA     January 18, 2002       $20,000
TownePlace Suites by Marriott  Manhattan Beach, CA     January 18, 2002        15,000
SpringHill Suites by Marriott  Plymouth Meeting, PA    January 18, 2002        27,000
Courtyard by Marriott          Basking Ridge, NJ          March 1, 2002        35,750
Marriott Hotel                 Bridgewater, NJ            June 14, 2002        61,500
Courtyard by Marriott          Newark, CA              October 25, 2002        25,500
Residence Inn by Marriott      Newark, CA             November 15, 2002        27,300
Doubletree Crystal City        Arlington, VA          December 19, 2002        71,000
Hyatt Regency                  Miami, FL              February 20, 2003        35,800
JW Marriott                    New Orleans, LA           April 21, 2003        92,500
Marriott Hotel*                Seattle, WA                 May 23, 2003        88,900
Marriott Hotel                 Plano, TX                August 15, 2003        55,550
Marriott Hotel                 Baltimore, MD            August 29, 2003        69,000
Courtyard by Marriott          Arlington, VA            August 29, 2003        35,000
Hyatt                          Montreal, Canada       December 15, 2003        51,800
</Table>

---------------

* Newly constructed

     In 2002 and 2003, we also acquired interests in the following Properties
through various joint ventures, all of which have been consolidated in the
accompanying consolidated financial statements in accordance with FIN 46R:

<Table>
<Caption>
                                                                                          PURCHASE PRICE
BRAND AFFILIATION          PROPERTY LOCATION   OWNERSHIP INTEREST   DATE OF ACQUISITION   (IN THOUSANDS)
-----------------          -----------------   ------------------   -------------------   --------------
<S>                        <C>                 <C>                  <C>                   <C>
Hampton Inn..............  Houston, TX            85.0%             September 4, 2002        $ 14,300
Hilton Hotel.............  Dallas, TX             75.0%             December 24, 2002          52,000
Hilton Hotel.............  Tucson, AZ             75.0%             December 24, 2002          69,000
Hilton Hotel.............  Rye, NY                75.0%             February 20, 2003          75,000
Embassy Suites...........  Orlando, FL            75.0%             February 20, 2003          12,500
Embassy Suites...........  Arlington, VA          75.0%             February 20, 2003          45,500
Embassy Suites...........  Santa Clara, CA        75.0%             February 20, 2003          46,500
Hyatt Regency............  Dearborn, MI           85.0%             August 28, 2003            65,000
Hampton Inn..............  Manhattan, NY          66.7%             August 29, 2003            28,000
Hilton Hotel.............  La Jolla, CA           75.0%             December 17, 2003         110,000
Hilton Hotel.............  Washington, D.C.       75.0%             December 17, 2003         102,000
Del Coronado Hotel.......  Del Coronado, CA       70.0%             December 18, 2003         406,900
</Table>

                                        31
<PAGE>

     The Company also completed construction and opened the following three
wholly owned Properties during 2002:

<Table>
<Caption>
BRAND AFFILIATION                                           PROPERTY LOCATION     OPENING DATE
-----------------                                           -----------------   -----------------
<S>                                                         <C>                 <C>
Residence Inn by Marriott.................................  Orlando, FL         February 14, 2002
Courtyard by Marriott.....................................  Weston, FL          February 14, 2002
Courtyard by Marriott.....................................  Edison, NJ          November 4, 2002
</Table>

     We are currently developing one Property in Florida, which is expected to
be completed in June 2004. We also developed and opened, on February 18, 2004, a
Courtyard by Marriott in Foothill Ranch, California. The total estimated final
cost of this Property, including land, is approximately $18.3 million. We also
currently have six Properties held for sale.

  INVESTMENTS

     On April 21, 2003 and May 21, 2003, through a wholly owned subsidiary CNL
Hospitality Partners, LP ("Hospitality Partners"), we invested $10 million and
$5 million, respectively, in convertible preferred partnership units of Hersha
Hospitality Limited Partnership ("HLP"). In addition, in connection with the
acquisition of an interest in the Hampton Inn Chelsea-Manhattan Property, on
August 29, 2003, our subsidiary invested approximately $4 million in additional
convertible preferred partnership units of HLP. The $19 million that our
subsidiary invested in HLP's Series A convertible preferred partnership units
represent 190,266 Series A preferred partnership units which are convertible at
any time for (among other securities) approximately 2,816,460 common shares of
beneficial interest of Hersha Hospitality Trust, HLP's parent entity, subject to
some adjustments. The investment in HLP is structured to provide us with a 10.5%
cumulative preferred distribution, paid quarterly, and each of the current and
any proposed investments in joint ventures with HLP is structured to provide us
with a 10.5% cumulative preferred distribution on our unreturned capital
contributions. Distributions or returns may not be paid in the future. HLP
declares dividends quarterly in arrears. During 2003, we received approximately
$1.2 million in distributions from the convertible preferred partnership units
of HLP.

     Subsequent to December 31, 2003, we exercised our registration rights under
that certain Registration Rights Agreement with HLP dated April 21, 2003
("Registration Rights Agreement"). Accordingly, on March 2, 2004, Hersha
Hospitality Trust filed a registration statement on Form S-3 with the Commission

                                        32
<PAGE>

registering the 2,816,460 common shares of beneficial interest of Hersha
Hospitality Trust underlying our 190,266 Series A preferred partnership units in
HLP. Although we invoked our registration rights under the Registration Rights
Agreement, at this time we do not know with certainty that we will exchange our
preferred partnership units into common shares of beneficial interest, or if we
do exercise our rights to convert the preferred partnership units into common
shares of beneficial interest, that we will sell the shares.

  INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

     During 2003 and 2002, we invested a total of approximately $0.7 million and
$42.7 million, respectively, in unconsolidated subsidiaries. As of December 31,
2003, we had the following investments in unconsolidated subsidiaries:

<Table>
<Caption>
                                   TOTAL AMOUNT    OWNERSHIP
NAME                                 INVESTED      INTEREST               DESCRIPTION
----                               -------------   ---------   ---------------------------------
<S>                                <C>             <C>         <C>
WB Resort Partners, L.P..........  $41.6 million    49.00%     A partnership which owns a resort
                                                               in Hawaii
Desert Ridge Resort Partners,      $25.1 million    44.00%     A joint venture which owns a
  LLC............................                              resort in Arizona
CY-SF Hotel Partnership, L.P.....  $13.0 million    48.15%     A partnership which owns one
                                                               hotel in California
CTM Partners, LLC................  $5.2 million     31.25%     A joint venture that holds a
                                                               majority interest in an LLC that
                                                               owns the licensing rights to the
                                                               Mobil Travel Guide.
CNL Plaza, Ltd...................  $0.3 million       9.9%     A partnership which owns an
                                                               office building in Florida where
                                                               CNL Hospitality Corp. leases
                                                               office space.
</Table>

     We may be required to fund our share of shortfalls for these subsidiaries
if they occur.

  DISTRIBUTIONS

     During the years ended December 31, 2003, 2002 and 2001, we generated cash
from operations of approximately $112.9 million, $76.7 million and $58.4
million, respectively. In the years ended December 31, 2003, 2002, and 2001, we
declared and paid distributions to our stockholders of approximately $130.0
million, $74.2 million and $48.4 million, respectively. In addition, on January
1, 2004 and February 1, 2004, we declared distributions to stockholders of
record on January 1, 2004 and February 1, 2004, totaling approximately $15.7
million and $16.7 million, respectively, or $0.064583 per share, payable by
March 31, 2004. The increase in distributions during the year ended December 31,
2003 was due to the increase in the average outstanding common shares during
2003 and an increase in cash flows resulting from the additional Properties
acquired during the year.

     Our distribution policy is based on a balanced analysis of both current and
long-term stabilized cash flows of our Properties and value creation, and our
objective of continuing to qualify as a REIT for federal income tax purposes.
During the year ended December 31, 2003 distributions paid to stockholders were
greater than cash flows generated from operations. This occurred predominantly
because our acquisition strategy has focused on opportunistically investing in
larger portfolios, which allows us to obtain increased efficiencies as we invest
the proceeds received from the sale of shares of common stock. As a result,
larger cash outlays are required at the time of purchase which causes equity
proceeds to accumulate for longer periods of time in cash and short-term
investments prior to making these purchases. In addition, many of the larger
Properties that we are currently operating through joint ventures are undergoing
renovations or have recently been renovated and as a result the cash
distributions that we received from these joint ventures were less than what is
ultimately expected to be received once these Properties stabilize and obtain
their projected market share. Management expects this trend to continue in 2004
as additional capital improvements are made and the renovated Properties
stabilize. In addition, the operations of our Properties have been adversely
affected by the recent

                                        33
<PAGE>

economic downturn and consequently cash distributions from joint ventures may be
delayed if economic recovery is further delayed. During the year ended December
31, 2003 $41.5 million in cash flows from operating activities was supported by
credit enhancements and we used borrowings on our revolving line of credit to
fund a portion of our distributions. Please see "Current and Future Cash Needs"
for information about the ability to maintain the current level of distributions
to stockholders.

     During the year ended December 31, 2003, we also utilized funding under our
credit enhancements to fund a portion of distributions to stockholders. Some
credit enhancements expired during the second half of 2003 and others are
expected to expire in 2004. These expirations may result in a reduction in the
amount of cash available for distribution in the future.

     For the years ended December 31, 2003, 2002 and 2001, approximately 39%,
51%, and 52%, respectively, of the distributions received by stockholders were
considered to be ordinary income and approximately 61%, 49%, and 48%,
respectively, were considered a return of capital for federal income tax
purposes. No amounts distributed to the stockholders for the years ended
December 31, 2003, 2002 and 2001 were required to be or have been treated by us
as a return of capital for purposes of calculating the stockholders' return on
their invested capital.

  REDEMPTIONS

     In October 1998, the Board of Directors elected to implement our redemption
plan (see "Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters" for additional information related to the redemption plan). During the
years ended December 31, 2003, 2002 and 2001, approximately 716,000 shares,
260,000 shares, and 251,000 shares, respectively, were redeemed at approximately
$6.6 million, $2.4 million, and $2.3 million, respectively, and retired from
shares outstanding of common stock. Shares were redeemed for $9.20 per share.

  COMMITMENTS AND CONTINGENCIES

     From time to time we may be exposed to litigation arising from an
unrecognized preacquisition contingency on and from the operation of our
business. At this time, we do not believe that resolution of these matters will
have a material adverse effect on our financial condition or results of
operations. See "Item 3. Legal Proceedings" for additional information related
to significant litigation.

     Our Properties are operated under various management agreements with third
party managers that call for base management fees, which generally range from 3%
to 5% of hotel and resort revenues and have an incentive management fee
provision related to the hotel's profitability. The management agreements
generally require us to set aside 3% to 5% of hotel and resort revenues in FF&E
Reserve accounts to be used for the replacement of furniture, fixtures and
equipment. The management agreements have terms from 10 to 20 years and
generally have renewal options.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS

     The following table represents our contractual cash obligations and the
future potential commitments, and the related payment periods and estimated
payment periods as of December 31, 2003 (in thousands):

<Table>
<Caption>
                                          LESS THAN
CONTRACTUAL CASH OBLIGATIONS               1 YEAR     2-3 YEARS   4-5 YEARS   THEREAFTER     TOTAL
----------------------------              ---------   ---------   ---------   ----------   ----------
<S>                                       <C>         <C>         <C>         <C>          <C>
Mortgages and other notes payable
  (including the revolving line of
  credit and other liabilities).........   $18,777    $653,551    $539,335     $462,687    $1,674,350
</Table>

     In addition to our commitments to lenders under our loan agreements and
obligations to fund Property acquisitions and development, we are a party to
some contracts which may result in future obligations to third parties. The
future potential commitments, contingencies, and guarantees consist of
commitments made to

                                        34
<PAGE>

third parties, and are not accrued as liabilities, but we have agreed to pay in
the event of some circumstances. We consider the likelihood of any material
payments under these commitments, contingencies, and guarantees to be remote and
not significant individually and in the aggregate they do not exceed
approximately $15 million. In addition, we do not have any significant
off-balance sheet arrangements.

  PENDING INVESTMENTS, COMPLETED DEVELOPMENTS, AND OTHER EVENTS SUBSEQUENT TO
  DECEMBER 31, 2003

     On February 12, 2004, through a wholly owned subsidiary, we entered into a
stock purchase agreement with KKR Partners II, L.P., a Delaware limited
partnership, KKR 1996 Fund, L.P., a Delaware limited partnership, Resort
Associates, L.P., a Delaware limited partnership, Golf Associates, L.P., a
Delaware limited partnership and KSL Recreation Corporation, a Delaware
corporation (collectively referred to as "KSL"), whereby we have agreed to
acquire all of the outstanding capital stock of KSL and its subsidiaries, for
approximately $1.4 billion in cash and estimated closing costs of approximately
$25 million (the "KSL Acquisition"). In connection with the KSL Acquisition, we
paid a non-refundable deposit of $75 million in February 2004. Upon consummation
of the KSL Acquisition, the six resorts currently owned by KSL will be acquired
by our wholly owned subsidiaries and we will be subject to the outstanding debt
of KSL and its subsidiaries (approximately $794 million as of February 2, 2004)
("Existing KSL Debt") and any other outstanding liabilities. The closing of the
KSL Acquisition is subject to the fulfillment of certain conditions, such as
customary approvals and other closing conditions. If the conditions are not
satisfied, the KSL Acquisition may not occur. We have received a commitment from
a lender to finance the KSL Acquisition with a short-term loan of up to $1.86
billion ("KSL Short-Term Loan"). We may use the proceeds of the KSL Short-Term
Loan to repay the Existing KSL Debt simultaneously with the consummation of the
KSL Acquisition or we may only draw approximately $1.1 billion on the KSL
Short-Term Loan and later refinance the Existing KSL Debt. We are in the process
of obtaining a commitment to refinance the Existing KSL Debt (if such debt is
not repaid simultaneously with the consummation of the KSL Acquisition) and/or a
portion of the KSL Short-Term Loan with the proceeds of permanent financing to
be obtained within nine months of consummating the KSL Acquisition. The KSL
Short-Term Loan is expected to be repaid from a combination of permanent debt,
or out of the proceeds that we may receive from the sale of our common stock
through the 2004 offering.

     In March 2004, the third-party tenants affiliated with Marriott for ten of
our Properties with combined net operating income of approximately $13.0 million
and base rental obligations of $26.7 million informed us that the annual net
operating income projected for these Properties would be insufficient to fund
the full amount of scheduled base rent for 2004 and potentially subsequent
years. As a result, we have begun discussions with those tenants on possible
alternatives that would address the current circumstances including our possible
acquisition of the leasehold interests in these Properties and the execution of
management agreements with Marriott or its affiliates to operate the Properties
under long-term contracts. Under this alternative arrangement, these Properties
would be leased to one or more of our TRS subsidiaries and managed by an
affiliate of Marriott. This possible alternative may include additional
guarantees, provided by Marriott, of minimum returns which may not provide the
same income stream as the base rents. The Properties are encumbered by debt and
consequently any alternative solution will be subject to approval by the lender
providing the related financing. As these discussions continue it is possible
that Marriott, on behalf of the tenants, will continue to pay the rent due under
the current lease structure until such time that these leases are assigned or
modified. We may be required to return the security deposits received in
connection with the current agreements. Should we take assignment of the
leasehold interests, the operations of these hotels will be included in our
consolidated statement of earnings in lieu of the rental income which is
currently being recognized. The scheduled base rent payments on these Properties
and the debt service payments on the related loans are current.

     Subsequent to December 31, 2003, we developed and completed a Courtyard by
Marriott in Foothill Ranch, California. The Property opened on February 18,
2004.

                                        35
<PAGE>

CURRENT AND FUTURE CASH NEEDS

     Historically, hotel operating revenue and rental income under operating
leases has been the principal source of funds to meet our short-term liquidity
requirements, which primarily consist of operating expenses, debt service,
stockholder distributions, property taxes, insurance and asset management fees.
During the last two years, rental income has become much less significant and we
have had to rely on credit enhancements and funding from our revolving line of
credit to fund a portion of our distributions to stockholders. Recently, credit
enhancements have begun to be fully utilized or have expired. We expect this
trend to continue into 2004 and there is no guarantee that we will be able to
obtain additional new credit enhancements. In addition, we anticipate that our
2003 Offering will be completed in March 2004. As these events occur, we will be
required to rely more heavily on hotel operating revenues and cash flows from
operations to fund our short-term liquidity requirements. This may put pressure
on our ability to maintain the current level of distributions to stockholders.
To the extent that cash flows from operations are not sufficient to fund these
expenditures, we intend to rely on credit enhancements and advances from our
revolving line of credit to fund such shortfalls (approximately $72 million
available for drawing on the revolving line of credit as of December 31, 2003).
During periods that the revolving line of credit does not have sufficient
capacity to fund such shortfalls, we may be required to reduce the amount of
distributions paid to stockholders.

     Our long-term liquidity needs generally include the funding of existing and
future development activity, selective asset acquisitions and the retirement of
mortgage debt of amounts outstanding under the revolving line of credit and of
long-term unsecured debt. We remain committed to maintaining a flexible capital
structure. Accordingly, we expect to meet our long-term liquidity needs through
a combination of (1) the issuance of additional equity securities, (2) the
selective disposition of non-core assets or other assets, which, upon sale will
generate positive returns, (3) the sale or contribution of some of our
wholly-owned Properties, development projects and development land to strategic
joint ventures to be formed with unrelated investors, which will have the net
effect of generating additional capital through such sale or contributions and
(4) the sources described above with respect to our short-term liquidity. We do
not intend to reserve funds to retire existing secured or unsecured indebtedness
upon maturity.

OTHER INFORMATION

  RELATED PARTIES

     Some of our directors and officers hold similar positions with our advisor,
CNL Hospitality Corp., and its affiliates, including the managing dealer, CNL
Securities Corp. These affiliates are by contract entitled to receive fees and
compensation for services provided in connection with common stock offerings,
and the acquisition, development, management and sale of our assets. Amounts
incurred relating to these transactions were $202.2 million and $77.5 million
for the years ended December 31, 2003 and 2002, respectively. Of these amounts,
approximately $10.1 million and $1.9 million are included in due to related
parties in the accompanying consolidated balance sheets as of December 31, 2003
and 2002, respectively.

     CNL Hospitality Corp. and its affiliates provide various administrative
services to us, including services related to accounting; financial, tax and
regulatory compliance reporting; stockholder distributions and reporting; due
diligence and marketing; and investor relations (including administrative
services in connection with the offerings), on a day-to-day basis. The expenses
incurred for these services were $6.6 million and $4.3 million for the years
ended December 31, 2003 and 2002, respectively.

     We maintain bank accounts in a bank in which some of our officers and
directors serve as directors, and in which an affiliate of our advisor, CNL
Hospitality Corp., is a stockholder. The amount deposited with this bank was
approximately $29.0 million and $14.9 million at December 31, 2003 and 2002,
respectively.

  CASH AND CASH EQUIVALENTS

     Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid investments, such as demand deposit
accounts at commercial banks, certificates of deposit and money market accounts
which

                                        36
<PAGE>

management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate our use of these funds
to acquire Properties and to fund Mortgage Loans or other permitted investments.
At December 31, 2003, the Company had approximately $147.7 million invested in
such short-term investments as compared to $52.9 million at December 31, 2002. A
portion of this represented operating cash held at the Company's hotels. The
increase in the amount invested in short-term investments was primarily
attributable to cash received from the sale of common stock offset by the
acquisition of Properties during 2003.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The following is a schedule of our fixed and variable rate debt maturities
and principal payments, including our revolving line of credit, for each of the
next five years, and thereafter (in thousands):

<Table>
<Caption>
                                               FIXED RATE
                                            MORTGAGES PAYABLE
                                               AND ACCRUED      VARIABLE RATE OTHER   TOTAL MORTGAGES AND
                                                INTEREST           NOTES PAYABLE      OTHER NOTES PAYABLE
                                            -----------------   -------------------   -------------------
<S>                                         <C>                 <C>                   <C>
  2004....................................      $ 16,432             $  2,345             $   18,777
  2005....................................         8,390               46,302                 54,692
  2006....................................         9,025              589,834                598,859
  2007....................................       274,131                   --                274,131
  2008....................................       138,004              127,200                265,204
Thereafter................................       457,185                5,502                462,687
                                                --------             --------             ----------
                                                $903,167             $771,183             $1,674,350
                                                ========             ========             ==========
</Table>

     We are subject to interest rate risk through outstanding balances on our
variable rate debt, as described in the "Borrowings" section above. We may
mitigate this risk by paying down additional outstanding balances on our
variable rate loans from offering proceeds, refinancing with fixed rate
permanent debt or obtaining cash flow hedges.

     Management estimates that a one-percentage point increase in interest rates
for the year ended December 31, 2003, would have resulted in additional interest
costs of approximately $7.7 million. This sensitivity analysis contains certain
simplifying assumptions (for example, it does not consider the impact of changes
in prepayment risk or credit spread risk). Therefore, although it gives an
indication of our exposure to interest rate change, it is not intended to
predict future results and our actual results will likely vary.

     In addition, we have issued fixed interest rate mortgages payable and notes
payable to lenders under permanent financing arrangements. We believe that the
estimated fair value of the amounts outstanding on our fixed rate mortgages
payable and notes payable under permanent financing arrangements at December 31,
2003, approximated the outstanding principal amount of $822.3 million at
December 31, 2003. Fair value was determined based on market prices as of
December 31, 2003.

                                        37
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES

                                    CONTENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Certified Public Accountants..........
Financial Statements:
  Consolidated Balance Sheets...............................
  Consolidated Statements of Earnings.......................
  Consolidated Statements of Stockholders' Equity and
     Comprehensive Income...................................
  Consolidated Statements of Cash Flows.....................
  Notes to Consolidated Financial Statements................
</Table>

                                        38
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
CNL Hospitality Properties, Inc.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of stockholders' equity and
comprehensive income and of cash flows present fairly, in all material respects,
the financial position of CNL Hospitality Properties, Inc. and its subsidiaries
at December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedules listed
in the index appearing under Item 15(a)(2) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards Interpretation No.
46R, "Consolidation of Variable Interest Entities", in 2003.

/s/ PRICEWATERHOUSECOOPERS, LLP
Orlando, Florida
March 12, 2004

                                        39
<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2003         2002
                                                              ----------   ----------
<S>                                                           <C>          <C>
                                       ASSETS
Hotel and resort properties, net............................  $3,357,376   $1,379,588
Investments in unconsolidated subsidiaries..................      30,714       59,369
Real estate held for sale...................................      29,550           --
Cash and cash equivalents...................................     147,694       52,941
Restricted cash.............................................      60,105       21,795
Receivables, net............................................      55,410       16,670
Goodwill and other intangible assets, net...................      82,997           --
Prepaid expenses and other assets...........................      68,388       28,283
Loan costs, less accumulated amortization of $5,881 and
  $2,719, respectively......................................      18,918        6,786
Deferred income taxes, less valuation allowance of $10,098
  and $4,314, respectively..................................      25,826           --
                                                              ----------   ----------
                                                              $3,876,978   $1,565,432
                                                              ==========   ==========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable and accrued interest......................  $1,499,988   $  401,765
Other notes payable.........................................     150,289       29,739
Line of credit..............................................      24,073       24,079
Accounts payable and accrued expenses.......................      68,909       24,107
Other liabilities...........................................      11,847        6,569
Due to related parties......................................      11,570        2,505
Security deposits and unearned revenues.....................      12,443       12,883
                                                              ----------   ----------
     Total liabilities......................................   1,779,119      501,647
                                                              ----------   ----------
Commitments and contingencies

Minority interests..........................................     157,118       49,462
                                                              ----------   ----------
Stockholders' equity:
  Preferred stock, without par value
     Authorized and unissued 3,000 shares...................          --           --
  Excess shares, $.01 par value per share
     Authorized and unissued 63,000 shares..................          --           --
  Common stock, $.01 par value per share
     Authorized 450,000 shares; issued 243,752 and 126,802
     shares, respectively; outstanding 242,243 and 126,009
     shares, respectively...................................       2,424        1,260
  Capital in excess of par value............................   2,164,275    1,115,745
  Accumulated distributions in excess of net earnings.......    (222,334)     (98,366)
  Accumulated other comprehensive loss......................      (3,624)      (4,316)
                                                              ----------   ----------
  Total stockholders' equity................................   1,940,741    1,014,323
                                                              ----------   ----------
                                                              $3,876,978   $1,565,432
                                                              ==========   ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                        40
<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF EARNINGS

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                                              --------------------------------------
                                                                 2003          2002          2001
                                                              -----------   -----------   ----------
                                                               (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
Revenues:
  Room......................................................   $364,181      $134,646      $11,864
  Food and beverage.........................................     98,198        26,225        5,390
  Other hotel and resort operating departments..............     27,769         9,251        1,443
  Rental income from operating leases.......................     35,263        37,341       61,031
  Credit enhancement funding................................     24,763        10,279           --
  Interest and other income.................................      6,966         7,784        9,289
                                                               --------      --------      -------
                                                                557,140       225,526       89,017
                                                               --------      --------      -------
Expenses:
  Room......................................................     87,114        32,574        4,357
  Food and beverage.........................................     75,457        20,126        3,800
  Other hotel and resort operating departments..............     17,616         4,431          628
  Property operations.......................................    110,857        36,454        3,799
  Repairs and maintenance...................................     25,314         6,842          697
  Hotel and resort management fees..........................     16,644         5,898          494
  Sales and marketing.......................................     36,691        11,805        1,809
  Interest and loan cost amortization.......................     61,202        24,718       16,098
  General operating and administrative......................     10,107         6,060        3,603
  Asset management fees to related party....................     12,782         6,696        3,327
  Depreciation and amortization.............................     76,714        36,217       21,818
                                                               --------      --------      -------
                                                                530,498       191,821       60,430
                                                               --------      --------      -------
Income from continuing operations before equity in losses of
  unconsolidated subsidiaries and minority interests'
  (income) loss.............................................     26,642        33,705       28,587
Equity in losses of unconsolidated subsidiaries.............    (23,970)      (17,256)      (7,968)
Minority interests' (income) loss...........................        778          (639)      (1,291)
                                                               --------      --------      -------
Income from continuing operations before benefit from income
  taxes.....................................................      3,450        15,810       19,328
Benefit from income taxes...................................      1,321            --           --
                                                               --------      --------      -------
Income from continuing operations...........................      4,771        15,810       19,328
Income from discontinued operations.........................      1,222            --           --
                                                               --------      --------      -------
Net earnings................................................   $  5,993      $ 15,810      $19,328
                                                               ========      ========      =======
Earnings per share of common stock (basic and diluted):
  Continuing operations.....................................   $   0.02      $   0.16      $  0.30
  Discontinued operations...................................   $   0.01      $     --      $    --
                                                               --------      --------      -------
                                                               $   0.03      $   0.16      $  0.30
                                                               ========      ========      =======
Weighted average number of shares of common stock
  outstanding:
     Basic and diluted......................................    172,449        97,874       64,458
                                                               ========      ========      =======
</Table>

          See accompanying notes to consolidated financial statements.
                                        41
<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                          COMMON STOCK                     ACCUMULATED       ACCUMULATED
                       ------------------   CAPITAL IN   DISTRIBUTIONS IN       OTHER
                       NUMBER OF    PAR     EXCESS OF     EXCESS OF NET     COMPREHENSIVE                COMPREHENSIVE
                        SHARES     VALUE    PAR VALUE        EARNINGS           LOSS          TOTAL         INCOME
                       ---------   ------   ----------   ----------------   -------------   ----------   -------------
<S>                    <C>         <C>      <C>          <C>                <C>             <C>          <C>
Balance at December
  31, 2000...........    49,002    $  490   $  432,403       $(10,878)         $    --      $  422,015
Subscriptions
  received for common
  stock through
  public offerings
  and distribution
  reinvestment
  plan...............    28,607       286      285,783             --               --         286,069      $    --
Retirement of common
  stock..............      (251)       (3)      (2,310)            --               --          (2,313)          --
Stock issuance
  costs..............        --        --      (34,724)            --               --         (34,724)          --
Net earnings.........        --        --           --         19,328               --          19,328       19,328
Current period
  adjustments to
  recognize value of
  cash flow hedges...        --        --           --             --           (1,190)         (1,190)      (1,190)
                                                                                                            -------
Total comprehensive
  income.............        --        --           --             --               --              --      $18,138
                                                                                                            =======
Distributions
  declared and paid
  ($.77 per share)...        --        --           --        (48,409)              --         (48,409)
                        -------    ------   ----------       --------          -------      ----------
Balance at December
  31, 2001...........    77,358    $  773   $  681,152       $(39,959)         $(1,190)     $  640,776
                        =======    ======   ==========       ========          =======      ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                        42
<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                          COMMON STOCK                     ACCUMULATED       ACCUMULATED
                       ------------------   CAPITAL IN   DISTRIBUTIONS IN       OTHER
                       NUMBER OF    PAR     EXCESS OF     EXCESS OF NET     COMPREHENSIVE                COMPREHENSIVE
                        SHARES     VALUE    PAR VALUE        EARNINGS           LOSS          TOTAL         INCOME
                       ---------   ------   ----------   ----------------   -------------   ----------   -------------
<S>                    <C>         <C>      <C>          <C>                <C>             <C>          <C>
Balance at December
  31, 2001...........    77,358    $  773   $  681,152      $ (39,959)         $(1,190)     $  640,776
Subscriptions
  received for common
  stock through
  public offerings
  and distribution
  reinvestment
  plan...............    48,911       489      488,622             --               --         489,111      $    --
Retirement of common
  stock..............      (260)       (2)      (2,389)            --               --          (2,391)          --
Stock issuance
  costs..............        --        --      (51,640)            --               --         (51,640)          --
Net earnings.........        --        --           --         15,810               --          15,810       15,810
Current period
  adjustments to
  recognize value of
  cash flow hedges...        --        --           --             --           (3,126)         (3,126)      (3,126)
                                                                                                            -------
Total comprehensive
  income.............        --        --           --             --               --              --      $12,684
                                                                                                            =======
Distributions
  declared and paid
  ($.78 per share)...        --        --           --        (74,217)              --         (74,217)
                        -------    ------   ----------      ---------          -------      ----------
Balance at December
  31, 2002...........   126,009    $1,260   $1,115,745      $ (98,366)         $(4,316)     $1,014,323
                        =======    ======   ==========      =========          =======      ==========
Balance at December
  31, 2002...........   126,009    $1,260   $1,115,745      $ (98,366)         $(4,316)     $1,014,323
Subscriptions
  received for common
  stock through
  public offerings
  and distribution
  reinvestment
  plan...............   116,950     1,171    1,168,325             --               --       1,169,496      $    --
Retirement of common
  stock..............      (716)       (7)      (6,584)            --               --          (6,591)          --
Stock issuance
  costs..............        --        --     (113,211)            --               --        (113,211)          --
Net earnings.........        --        --           --          5,993               --           5,993        5,993
Current period
  adjustment to
  recognize change in
  value of cash flow
  hedges.............        --        --           --             --              554             554          554
</Table>

          See accompanying notes to consolidated financial statements.
                                        43
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
          YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 -- (CONTINUED)

<Table>
<Caption>
                          COMMON STOCK                     ACCUMULATED       ACCUMULATED
                       ------------------   CAPITAL IN   DISTRIBUTIONS IN       OTHER
                       NUMBER OF    PAR     EXCESS OF     EXCESS OF NET     COMPREHENSIVE                COMPREHENSIVE
                        SHARES     VALUE    PAR VALUE        EARNINGS           LOSS          TOTAL         INCOME
                       ---------   ------   ----------   ----------------   -------------   ----------   -------------
<S>                    <C>         <C>      <C>          <C>                <C>             <C>          <C>
Current period
  adjustment to
  recognize change in
  value of foreign
  operations
  investment hedge...        --        --           --             --             (791)           (791)        (791)
Translation
  adjustment from
  foreign
  operations.........        --        --           --             --              929             929          929
                                                                                                            -------
Total comprehensive
  income.............        --        --           --             --               --              --      $ 6,685
                                                                                                            =======
Distributions
  declared and paid
  ($.78 per share)...        --        --           --       (129,961)              --        (129,961)
                        -------    ------   ----------      ---------          -------      ----------
Balance at December
  31, 2003...........   242,243    $2,424   $2,164,275      $(222,334)         $(3,624)     $1,940,021
                        =======    ======   ==========      =========          =======      ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                        44
<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31,
                                                                 2003         2002        2001
                                                              -----------   ---------   ---------
<S>                                                           <C>           <C>         <C>
Cash flows from operating activities:
Net earnings................................................  $     5,993   $  15,810   $  19,328
Adjustments to reconcile net earnings to net cash provided
  by operating activities:
Depreciation................................................       76,714      36,217      21,818
Amortization................................................        3,337       1,593       1,277
Distributions from investment in unconsolidated
  subsidiaries, net of equity in earnings/losses............       33,070      27,586       9,817
Minority interest...........................................         (778)        639       1,291
Utilization of deferred tax asset...........................       (1,321)         --          --
Changes in operating assets and liabilities, net of effects
  of business acquisitions:
  Receivables...............................................      (33,298)    (13,344)     (1,265)
  Due from related parties..................................           --      (1,158)         --
  Prepaid expenses and other assets.........................       (1,122)     (2,417)        270
  Accrued rental income.....................................         (421)        306          (8)
  Accounts payable and accrued expenses.....................       17,182      11,626       3,713
  Due to related parties....................................        9,065       1,460        (333)
  Credit enhancements.......................................        4,906       2,056          --
  Security deposits.........................................         (993)     (2,978)      4,036
  Rents paid in advance.....................................          553        (736)     (1,536)
                                                              -----------   ---------   ---------
  Net cash provided by operating activities.................      112,887      76,660      58,408
                                                              -----------   ---------   ---------
Cash flows from investing activities:
  Additions to hotel Properties.............................   (1,224,313)   (446,520)   (351,621)
  RFS Acquisition...........................................     (450,350)         --          --
  Investment in unconsolidated subsidiaries.................         (727)    (53,099)    (30,804)
  Additions to goodwill and other intangible assets.........      (83,000)         --          --
  Acquisition of additional interest in Hotel Investors, net
     of Hotel Investors' cash...............................           --          --     (32,884)
  Deposit on Property and other investments.................      (24,985)    (10,300)         --
  Increase in restricted cash...............................      (29,241)    (12,425)     (6,106)
  Increase (decrease) in other assets.......................      (81,996)    (29,643)    (11,611)
                                                              -----------   ---------   ---------
  Net cash used in investing activities.....................   (1,894,612)   (551,987)   (433,026)
                                                              -----------   ---------   ---------
Cash flows from financing activities:
  Net (repayments)/proceeds from borrowings on line of
     credit.................................................           (6)     16,579       7,500
  Payment of loan costs.....................................       (9,751)     (2,395)     (4,932)
  Proceeds from mortgage loans and other notes payable......      866,912     118,720     137,990
  Principal payments on mortgage loans......................       (4,730)     (1,931)     (1,184)
  Payments on other notes, net of borrowings................       (2,533)    (26,607)         --
  Net contributions from minority interests.................      107,233      14,570      37,729
  Subscriptions received from stockholders..................    1,169,496     489,111     286,069
  Distributions to stockholders.............................     (129,961)    (74,217)    (48,409)
  Due from related parties -- offering expenses.............           --          --      (1,411)
  Distributions to minority interest........................         (380)       (530)     (2,896)
  Retirement of common stock................................       (6,591)     (2,391)     (2,313)
  Payment of stock issuance costs...........................     (113,211)    (51,640)    (34,724)
                                                              -----------   ---------   ---------
  Net cash provided by financing activities.................    1,876,478     479,269     373,419
                                                              -----------   ---------   ---------
Net increase (decrease) in cash and cash equivalents........       94,753       3,942      (1,199)
Cash and cash equivalents at beginning of year..............       52,941      48,999      50,198
                                                              -----------   ---------   ---------
Cash and cash equivalents at end of year....................  $   147,694   $  52,941   $  48,999
                                                              ===========   =========   =========
</Table>

                                        45
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31,
                                                                 2003         2002        2001
                                                              -----------   ---------   ---------
<S>                                                           <C>           <C>         <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest......................  $    54,315   $  22,274   $  16,597
                                                              ===========   =========   =========
Supplemental schedule of non-cash investing activities:
RFS Acquisition
  Purchase accounting:
     Assets acquired:
       Cash and cash equivalents............................  $     5,612   $      --   $      --
       Restricted cash......................................        9,069          --          --
       Accounts receivable..................................        5,442          --          --
       Loan costs...........................................        5,544          --          --
       Prepaid expenses and other assets....................        8,595          --          --
       Deferred tax asset...................................       24,505          --          --
       Hotel properties.....................................      713,352          --          --
                                                              -----------   ---------   ---------
       Total................................................  $   772,119   $      --   $      --
                                                              ===========   =========   =========
     Liabilities assumed:
       Accounts payable and accrued expenses................  $    23,207   $      --   $      --
       Mortgages payable....................................      160,731          --          --
       Other notes payable..................................      124,021          --          --
                                                              -----------   ---------   ---------
       Total................................................  $   307,959   $      --   $      --
                                                              ===========   =========   =========
     Net assets acquired....................................  $   464,160   $      --   $      --
                                                              ===========   =========   =========
     Net of cash............................................  $   458,548   $      --   $      --
                                                              ===========   =========   =========
  Hotel Properties acquired as a result of the RFS
     Acquisition classified as Real Estate Held for Sale....  $    29,550   $      --   $      --
                                                              ===========   =========   =========
Amounts incurred but not paid for construction in
  progress..................................................  $     6,827   $   4,175   $   6,601
                                                              ===========   =========   =========
Allocation of acquisition fees included in other assets to
  investment in hotel Properties and unconsolidated
  subsidiaries and operating leases.........................  $    77,014   $  21,879   $  10,657
                                                              ===========   =========   =========
Supplemental schedule of non-cash financing activities:
Non-cash reduction in TIF Note..............................  $       360   $   1,227   $      --
                                                              ===========   =========   =========
Assumption of other liabilities with Crestline lease
  assumption................................................  $        --   $   3,576   $      --
                                                              ===========   =========   =========
Distributions declared not paid to minority interest at year
  end.......................................................  $        --   $     106   $      88
                                                              ===========   =========   =========
Loans assumed as a result of the acquisition of
  Properties................................................  $    75,571   $   9,327   $   6,736
                                                              ===========   =========   =========
(Decrease) increase in assets related to value of cash flow
  hedge.....................................................  $        --   $    (792)  $     258
                                                              ===========   =========   =========
Obligations under capital leases acquired during the
  period....................................................  $        --   $     115   $     125
                                                              ===========   =========   =========
</Table>

          See accompanying notes to consolidated financial statements.

                                        46
<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

1.  ORGANIZATION:

     CNL Hospitality Properties, Inc. is a corporation which was organized
pursuant to the laws of the State of Maryland on June 12, 1996 and operates for
federal income tax purposes as a real estate investment trust (a "REIT"). The
terms "Company" or "Registrant" include, unless the context otherwise requires,
CNL Hospitality Properties, Inc., CNL Hospitality Partners, LP, CNL Hospitality
GP Corp., CNL Hospitality LP Corp., each of their subsidiaries and several
consolidated partnerships and joint ventures (see Exhibit 21 for a listing of
the Company's subsidiaries). Various other wholly or majority owned subsidiaries
are expected to be formed in the future, primarily for purposes of acquiring or
developing hotel and resort properties ("Properties").

     As of December 31, 2003 the Company owned 106 Properties directly and 24
Properties through equity investment interests. The Company leases most of its
Properties to taxable REIT subsidiary ("TRS") entities and contracts with
third-party hotel and resort management companies to operate these Properties.
Hotel and resort operating revenues and expenses for these Properties are
included in the consolidated results of operations. Other Properties are leased
on a triple-net basis to unrelated third-party tenants who operate the
Properties or contract with hotel and resort managers to operate their hotel and
resort Property. Rental income from operating leases is included in the
consolidated results of operations for these Properties.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of CNL Hospitality Properties, Inc., and each of
its wholly or majority owned subsidiaries. In accordance with the provisions of
Statement of Financial Accounting Standards Interpretation No. 46 ("FIN 46R"),
"Consolidation of Variable Interest Entities", the Company also consolidates
joint ventures for which the Company is the primary beneficiary. The primary
beneficiary of a variable interest entity is the party that absorbs a majority
of the entity's expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests, which are the
ownership, contractual, or other pecuniary interests in an entity that change
with changes in the fair value of the entity's net assets excluding variable
interests. All significant intercompany balances and transactions have been
eliminated in consolidation. Interests of third parties are reflected as
minority interests for these variable interest entities. FIN 46R does not
require restatement of previously issued financial statements, however, the
Company has restated prior years' consolidated financial statements to reflect
the consolidation of previously unconsolidated subsidiaries in order to maintain
comparability between the periods presented in the consolidated financial
statements and the accompanying notes. These restatements had no effect on
stockholders' equity, net earnings or related per share amounts for all periods
presented.

     The following is a summary of this restatement of the previously filed
consolidated financials statements:

<Table>
<Caption>
FINANCIAL STATEMENTS                                       EFFECT OF FIN 46R
--------------------                                       -----------------
<S>                                         <C>
Balance Sheet                               Increase in hotel and resort Properties offset
                                            by a reduction in investments in unconsolidated
                                            subsidiaries.
Balance Sheet                               Increase in mortgages and other notes payable
                                            for loans which were previously not
                                            consolidated.
Balance Sheet                               Adjustments to hotel and resort operating assets
                                            and liabilities.
Balance Sheet                               Increase in minority interest to reflect the
                                            interests of the minority partners in the newly
                                            consolidated subsidiaries.
</Table>

                                        47
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
FINANCIAL STATEMENTS                                       EFFECT OF FIN 46R
--------------------                                       -----------------
<S>                                         <C>
Stmt. of Earnings                           Increase in hotel and resort revenues from
                                            previously unconsolidated Properties.
Stmt. of Earnings                           Increase in hotel and resort expenses from
                                            previously unconsolidated Properties.
Stmt. of Earnings                           Increase in depreciation expense from previously
                                            unconsolidated Properties.
Stmt. of Earnings                           Increase in interest expense from loans held by
                                            previously unconsolidated subsidiaries.
Stmt. of Earnings                           Increase in general and administrative and other
                                            expenses which were previously not consolidated.
Stmt. of Earnings                           Adjustment to minority interest representing the
                                            interest in income or losses that is allocated
                                            to minority partners of the newly consolidated
                                            subsidiaries.
Stmt. of Earnings                           Adjustment to equity in losses of unconsolidated
                                            subsidiaries for the removal of income of losses
                                            from subsidiaries that are now consolidated.
Stmt. of Cash Flows                         Adjustments to changes in operating assets and
                                            liabilities of the newly consolidated
                                            subsidiaries.
Stmt. of Cash Flows                         Increase in depreciation expense as a result of
                                            the newly consolidated Properties.
Stmt. of Cash Flows                         Reduction in distributions from investment in
                                            unconsolidated subsidiaries, net of equity in
                                            earnings/losses. These distributions are no
                                            longer separately reflected since their
                                            operations are consolidated in the accounts of
                                            the Company.
Stmt. of Cash Flows                         Increase in additions to hotel and resort
                                            Properties and a decrease in investments in
                                            unconsolidated subsidiaries as a result of the
                                            consolidation of these subsidiaries.
</Table>

     Revenue Recognition -- Revenues are recognized when rooms are occupied and
the services have been performed. Cash received from customers for events
occurring after the end of each respective year have been recorded as deposits
and is included in accounts payable and accrued expenses in the accompanying
consolidated financial statements.

     Lease Accounting -- Certain Properties are leased to, and operated by,
unrelated third-party tenants on a "triple-net" basis, whereby the tenant is
generally responsible for all Property operating expenses, including property
taxes, insurance, and maintenance and repairs. These third-party Property leases
are accounted for as operating leases. When minimum lease payments vary during
the lease term, income is recognized on a straight-line basis so as to produce a
constant periodic rent over the lease term. Accrued rental income, included in
other assets, represents the aggregate amount of income recognized on a
straight-line basis in excess of scheduled payments to date.

     Foreign Currency Translation -- The results of operations for foreign
locations are maintained in the local currency and translated using the average
exchange rates during the period. Assets and liabilities are translated to U.S.
dollars using the exchange rate in effect at the balance sheet date. The
resulting translation adjustments are reflected in stockholders' equity as a
cumulative foreign currency translation adjustment, a component of accumulated
other comprehensive income (loss). Gains and losses from foreign currency
transactions are included in the accompanying consolidated statement of
earnings.

                                        48
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Hotel and Resort Properties -- Hotel and resort properties are generally
comprised of land, buildings, and equipment and are recorded at historical cost.
The cost of improvements and betterments and any interest incurred during the
construction or renovation periods are capitalized. Costs of repairs and
maintenance are expensed as incurred.

     Buildings and equipment are generally depreciated on the straight-line
method over their estimated useful lives of 40 and seven years, respectively.
When the Properties or equipment are sold, the related cost and accumulated
depreciation will be removed from the accounts and any gain or loss from sale
will be reflected as income.

     Impairment of Long-Lived Assets -- Long-lived assets are tested for
recoverability at least annually or whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If impairment is
recognized, the adjusted carrying amount of a long-lived asset is its new cost
basis.

     Investment in Unconsolidated Subsidiaries -- Investments in unconsolidated
subsidiaries are accounted for under the equity method of accounting when the
Company owns a 50% interest or less in the costs and benefits of the subsidiary.
The difference between the Company's carrying amount of its investments in
unconsolidated subsidiaries and the underlying equity in the net assets of the
subsidiaries is due to acquisition fees and expenses which have been allocated
to the Company's investment. These amounts are amortized over 36 years, which is
the estimated life of the building and equipment commencing when the hotel and
resort begins operations.

     Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist of demand deposits at commercial
banks and money market funds. Cash accounts maintained on behalf of the Company
in demand deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Company has not experienced any losses in
such accounts. Management believes the Company is not exposed to any significant
credit risk on cash and cash equivalents.

     Certain amounts of cash are restricted for maintenance and replacement of
furniture, fixtures, and equipment at the Company's various Properties. Other
amounts have been set aside for capital improvements at various Properties.
These amounts have been separately classified as restricted cash in the
accompanying consolidated balance sheets.

     Credit Enhancements -- The Company benefits from various types of credit
enhancements that have been provided by the managers of many of its Properties.
All of the credit enhancements are subject to expiration, or "burn-off"
provisions over time. The following summary describes the various types of
credit enhancements that the Company benefits from:

    Limited Rent Guarantees -- Limited rent guarantees ("LRG") are provided by
    third-party hotel and resort managers to unrelated third-party tenants for
    certain Properties which the Company leases on a triple-net basis. These
    credit enhancements guarantee the full, complete and timely payment of
    rental payments to the Company relating to these Properties. The credit
    enhancement results in rental revenue being recorded by the Company which
    otherwise may not have been recorded. The Company is not obligated to repay
    amounts funded under LRG's.

    Threshold Guarantees -- Threshold guarantees ("TG") are provided by
    third-party hotel and resort managers to the Company in order to guarantee a
    certain minimum return for each of the Properties covered by the TG.
    Generally, each TG is available for a specific Property or pool of
    Properties. Funding
                                        49
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    under these guarantees is either recognized as other income, as a reduction
    in base management fees or, as liabilities by the Company, depending upon
    the nature of each agreement and whether the funded amounts are required to
    be repaid by the Company.

    Liquidity Facility Loans -- Liquidity Facility Loans ("LFL") are provided by
    third-party hotel and resort managers to the Company or its unconsolidated
    subsidiaries in order to guarantee a minimum distribution for each of the
    Properties covered by the LFL. Funding under an LFL is recognized as a
    liability when the amounts funded may be required to be repaid.

    Senior Loan Guarantees -- Senior loan guarantees ("SLG") are provided by
    third-party hotel and resort managers to the Company or its unconsolidated
    subsidiaries in order to guarantee the payment of senior debt service for
    each of the Properties covered by the SLG. Funding under SLG is recognized
    as a liability because the amounts funded may be required to be repaid in
    the future.

     Loan Costs -- Loan costs incurred in connection with securing financing
have been capitalized and are being amortized over the terms of the loans using
the straight-line method, which approximates the effective interest method.

     Earnings Per Share -- Basic earnings per share is calculated based upon the
weighted average number of shares of common stock outstanding during each year,
and diluted earnings per share is calculated based upon weighted average number
of common shares outstanding plus potentially dilutive common shares.

     Reclassification -- Certain items in the prior years' consolidated
financial statements have been reclassified to conform with the 2003
presentation. These reclassifications had no effect on stockholders' equity or
net earnings. Goodwill and Other Intangible Assets -- The Company follows
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported separate from
goodwill. SFAS 142 requires that goodwill and certain intangible assets with
indefinite lives no longer be amortized, but instead tested for impairment at
least annually.

     Income Taxes -- Under the provisions of the Internal Revenue Code and
applicable state laws, each TRS entity of the Company is subject to taxation of
income on the profits and losses from its tenant operations. The Company does
not file a consolidated return for its TRS entities.

     The Company accounts for federal and state income taxes with respect to its
TRS subsidiaries using the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the consolidated financial statements carrying amounts of
existing assets and liabilities and respective tax bases and operating losses
and tax-credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.

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

     Recent Accounting Pronouncements -- In April 2003, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("FAS 149"). FAS 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in

                                        50
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Company adopted FAS 149 in the year ended December
31, 2003, and it did not have a material impact on the Company's results of
operations.

     In May 2003, the FASB issued Statement of Financial Accounting Standards
Statement No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("FAS 150"). FAS 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. FAS 150
requires issuers to classify certain financial instruments as liabilities (or
assets in some circumstances) that previously were classified as equity. FAS 150
requires that minority interests for majority owned finite lived entities be
classified as a liability and recorded at fair market value. Effective October
29, 2003, the FASB deferred implementation of FAS 150, as it applies to minority
interests of finite lived Partnerships. The Company adopted FAS 150 in the year
ended December 31, 2003, except as it applies to minority interest, and it did
not have a material impact on the Company's results of operations.

     In December 2003, the FASB issued Statement of Financial Accounting
Standards Interpretation No. 46 (revised December 2003) ("FIN 46R"),
"Consolidation of Variable Interest Entities". This Interpretation requires
existing unconsolidated variable interest entities to be consolidated by their
primary beneficiaries. The primary beneficiary of a variable interest entity is
the party that absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or other pecuniary
interests in an entity that change with changes in the fair value of the
entity's net assets excluding variable interests. Prior to FIN 46R, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Application of FIN 46R is
required in financial statements of public entities that have interests in
variable interest entities for periods ending after March 15, 2004. The Company
has adopted FIN 46R as of December 31, 2003, which resulted in the consolidation
of several previously unconsolidated subsidiaries. FIN 46R does not require, but
does permit restatement of previously issued financial statements. The Company
has restated prior years' consolidated financial statements to maintain
comparability between the periods presented in the consolidated financial
statements and the accompanying notes. These restatements had no effect on
stockholders' equity or net earnings.

     Use of Estimates -- Company Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

     Fair Value of Financial Instruments -- The estimated fair value of cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses, and
variable rate approximates carrying value because of short maturities. The fair
value of fixed rate long-term debt is determined based on market prices.

     Derivative Instruments and Hedging Activities -- The Company utilizes
derivative instruments to partially offset the effect of fluctuating interest
rates and foreign currency exchange rates on the cash flows associated with its
variable-rate debt and its net investment in a foreign subsidiary. The Company
minimizes these risks by following established risk management policies and
procedures including the use of derivatives. The Company does not enter into or
holds derivatives for trading or speculative purposes. The Company records all
derivative instruments on the balance sheet at fair value. On the date the
Company enters into a derivative contract, the derivative is designated a hedge
of the exposure to variable cash flows of a forecasted transaction, referred to
as a cash flow hedge, when the Company hedges variability of cash flows related
to a variable-rate asset or liability or its net investment in a foreign
subsidiary. The effective portion of the derivative's gain or loss is initially
reported as a component of other comprehensive income (outside earnings)

                                        51
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and subsequently recognized in operations in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of the gain or loss is reflected in earnings.

     Advertising and Promotional Costs -- The costs of advertising, promotional
and marketing programs are charged to operations in the year incurred and are
included in hotel and resort expense in the accompanying consolidated statement
of operations. Advertising, promotional and marketing costs totaled $36.7
million, $11.8 million and $1.8 million for the years ended December 31, 2003,
2002 and 2001.

3. ASSUMPTION OF THIRD-PARTY LEASES:

  WESTERN INTERNATIONAL LEASES

     Effective January 1, 2002, the Company took assignment of its leases with
WI Hotel Leasing, LLC for seven Properties and paid approximately $0.07 million
for this assignment. These Properties are currently being leased by a TRS of the
Company and are managed by affiliates of Marriott International, Inc.
("Marriott"). The operations of these Properties have been reflected in the
Company's results of operations for the years ended December 31, 2003 and 2002.

  CRESTLINE MI-3 LEASES

     Effective June 28, 2002, the Company took assignment of its leases from
CCCL Leasing, LLC, an affiliate of Crestline Capital Corporation, for nine
Properties. These Properties are currently being leased by a TRS of the Company
and are managed by an affiliate of Marriott. The operations of these Properties
are reflected in the Company's consolidated results of operations for the
Company effective June 28, 2002. In connection with this transaction, CCCL
Leasing, LLC gave up its claim to security deposits totaling approximately $4.0
million. In addition, the Company assumed a liquidity facility loan of
approximately $3.6 million and paid approximately $0.03 million in legal fees
and other expenses. These transactions resulted in net other income of
approximately $0.4 million being recognized during the year ended December 31,
2002.

  CRESTLINE ATLANTA LEASES

     Effective June 30, 2002, the Company took assignment of its leases from CC
GB Leasing, LLC, an affiliate of Crestline Capital Corporation, for two
Properties. These Properties are currently leased by a TRS of the Company and
are managed by an affiliate of Interstate Hotels and Resorts under the Residence
Inn by Marriott brand. The operations of the Properties are reflected in the
Company's consolidated results of operations effective June 30, 2002. In
connection with this transaction, CC GB Leasing, LLC forfeited security deposits
totaling $1.4 million, and the Company assumed net assets of approximately $0.1
million, resulting in other income of approximately $1.5 million being
recognized by the Company during the year ended December 31, 2002.

4. RFS ACQUISITION:

     On July 10, 2003, the Company, through its subsidiaries, acquired RFS Hotel
Investors, Inc., a Tennessee REIT ("RFS") and RFS Partnership, L.P. ("RFS OP"),
for approximately $383 million in cash ($12.35 per share or limited partnership
unit) and the assumption of approximately $409 million in liabilities (including
transaction and severance costs, which totaled approximately $55 million). Upon
consummation of this transaction, RFS was merged with and into a subsidiary of
the Company and RFS ceased to exist as a separate corporate entity. Further,
upon consummation of this transaction, a subsidiary of the Company was merged
with and into RFS OP, and RFS OP continues to exist as a separate entity. Prior
to the closing of this transaction, RFS was publicly traded on the New York
Stock Exchange under the symbol "RFS." Previously, on May 9, 2003, in a separate
transaction, the Company purchased from RFS one million newly issued shares of
RFS's common stock at a price per share of $12.35. The former assets of RFS are
now held by subsidiaries
                                        52
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the Company. Upon closing of the transaction, in July 2003, the Company and
its subsidiaries (which now include RFS OP) became responsible for the former
debts and obligations of RFS and its subsidiaries (approximately $318 million).

     The Company initially financed this transaction by using approximately $158
million from sales of common stock in its current offering, borrowing
approximately $43 million under its line of credit (amount was subsequently
repaid in November 2003), obtaining $50 million in permanent financing related
to one of its Properties, obtaining an additional $81 million in permanent debt
funding from an existing loan and obtaining a bridge loan of $101 million (the
"RFS Bridge Loan"). On August 27, 2003, the Company borrowed temporarily an
additional $88 million on the RFS Bridge Loan, which was repaid on September 30,
2003. Of the $88 million borrowed, approximately $44 million was used to
refinance former RFS debts, and the remaining $44 million was used by the
Company to acquire additional Properties. On December 4, 2003, the Company
obtained a loan totaling $130 million of which approximately $101 million was
used to repay the RFS Bridge Loan. The Company pooled 26 Properties as
collateral for this loan. On December 24, 2003, the Company obtained an
additional loan collateralized by the same 26 Properties in the amount of $35
million. The remaining proceeds from these loans will be used to acquire
interests in additional Properties.

     The following summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition (in thousands):

<Table>
<Caption>
                                                              JULY 10, 2003
                                                              -------------
<S>                                                           <C>
                                  ASSETS
Investment in Properties....................................    $683,802
Real estate held for sale...................................      29,550
Cash and cash equivalents...................................       5,612
Restricted cash.............................................       9,069
Accounts receivable.........................................       5,442
Prepaid expenses and other assets...........................       8,595
Loan Costs..................................................       5,544
Deferred income taxes.......................................      24,505
                                                                --------
  Total assets acquired.....................................     772,119
                                                                --------
                                LIABILITIES
Mortgage notes payable......................................     160,731
Other notes payable.........................................     124,021
Accounts payable and accrued expenses.......................      23,207
                                                                --------
  Total liabilities assumed.................................     307,959
                                                                --------
  Net assets acquired.......................................    $464,160
                                                                ========
</Table>

     In connection with the RFS Acquisition, the Company acquired 57 hotels with
approximately 8,300 rooms located in 24 states. One of the Properties is owned
through a partnership in which the Company owns a 75% interest ("Wharf
Associates"). Brands under which these hotels are operated include Sheraton,
Residence Inn by Marriott, Hilton, DoubleTree, Holiday Inn, Hampton Inn, and
Homewood Suites by Hilton. This transaction has provided further brand and
geographic diversification to the Company's portfolio of hotels.

     Flagstone Hospitality Management LLC ("Flagstone") previously managed 50 of
the 57 Properties. In October 2003, the Company began terminating both existing
management license agreements with Flagstone

                                        53
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and franchise licenses for many of these Properties and entering into new
management and franchise agreements with internationally recognized hotel and
resort managers. Management contracts for all 50 Properties were completely
transitioned to new internationally recognized hotel and resort managers and
franchisors by January 31, 2004.

5. OTHER PROPERTY ACQUISITIONS:

     In addition to the interests in the Properties acquired through the RFS
Acquisition the following Properties were acquired during the years ended
December 31, 2002 and 2003:

<Table>
<Caption>
                                                                                      PURCHASE PRICE
BRAND AFFILIATION                         PROPERTY LOCATION     DATE OF ACQUISITION   (IN THOUSANDS)
-----------------                         -----------------     -------------------   --------------
<S>                                      <C>                    <C>                   <C>
SpringHill Suites by Marriott..........  Manhattan Beach, CA    January 18, 2002         $20,000
TownePlace Suites by Marriott..........  Manhattan Beach, CA    January 18, 2002          15,000
SpringHill Suites by Marriott..........  Plymouth Meeting, PA   January 18, 2002          27,000
Courtyard by Marriott..................  Basking Ridge, NJ      March 1, 2002             35,750
Marriott Hotel.........................  Bridgewater, NJ        June 14, 2002             61,500
Courtyard by Marriott..................  Newark, CA             October 25, 2002          25,500
Residence Inn by Marriott..............  Newark, CA             November 15, 2002         27,300
Doubletree Crystal City................  Arlington, VA          December 19, 2002         71,000
Hyatt Regency..........................  Miami, FL              February 20, 2003         35,800
JW Marriott............................  New Orleans, LA        April 21, 2003            92,500
Marriott Hotel*........................  Seattle, WA            May 23, 2003              88,900
Marriott Hotel.........................  Plano, TX              August 15, 2003           55,550
Marriott Hotel.........................  Baltimore, MD          August 29, 2003           69,000
Courtyard by Marriott..................  Arlington, VA          August 29, 2003           35,000
Hyatt..................................  Montreal, Canada       December 15, 2003         51,800
</Table>

---------------

* Newly constructed

     In 2002 and 2003, the Company also acquired interests in the following
Properties through various joint ventures, all of which have been consolidated
in the accompanying consolidated financial statements:

<Table>
<Caption>
                                                        OWNERSHIP                         PURCHASE PRICE
BRAND AFFILIATION                   PROPERTY LOCATION   INTEREST    DATE OF ACQUISITION   (IN THOUSANDS)
-----------------                   -----------------   ---------   -------------------   --------------
<S>                                 <C>                 <C>         <C>                   <C>
Hampton Inn.......................  Houston, TX           85.0%     September 4, 2002        $ 14,300
Hilton Hotel......................  Dallas, TX            75.0%     December 24, 2002          52,000
Hilton Hotel......................  Tucson, AZ            75.0%     December 24, 2002          69,000
Hilton Hotel......................  Rye, NY               75.0%     February 20, 2003          75,000
Embassy Suites....................  Orlando, FL           75.0%     February 20, 2003          12,500
Embassy Suites....................  Arlington, VA         75.0%     February 20, 2003          45,500
Embassy Suites....................  Santa Clara, CA       75.0%     February 20, 2003          46,500
Hyatt Regency.....................  Dearborn, MI          85.0%     August 28, 2003            65,000
Hampton Inn.......................  Manhattan, NY         66.7%     August 29, 2003            28,000
Hilton Hotel......................  La Jolla, CA          75.0%     December 17, 2003         110,000
Hilton Hotel......................  Washington, D.C.      75.0%     December 17, 2003         102,000
Del Coronado Hotel................  Del Coronado, CA      70.0%     December 18, 2003         406,900
</Table>

                                        54
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     These partnerships typically have one or more subsidiary borrowers, which
are legally separate entities, having separate assets and liabilities from the
Company and, therefore, the assets and credit of the respective entities may not
be available to satisfy the debts and other obligations of the Company.
Likewise, the assets and credit of the Company may not be available to satisfy
the debts and other obligations of the borrowers on the loans of these other
entities.

     The Company completed construction and opened the following three wholly
owned Properties during 2002:

<Table>
<Caption>
BRAND AFFILIATION                                     PROPERTY LOCATION     OPENING DATE
-----------------                                     -----------------     ------------
<S>                                                   <C>                 <C>
Residence Inn by Marriott...........................  Orlando, FL         February 14, 2002
Courtyard by Marriott...............................  Weston, FL          February 14, 2002
Courtyard by Marriott...............................  Edison, NJ          November 4, 2002
</Table>

     All of the Properties acquired or constructed in 2003 and 2002 are leased
to TRS entities of the Company and are operated by third-party managers. The
Properties were recorded at cost, which was allocated between land, building,
and equipment based on replacement cost using independent appraisal data. Hotel
and resort operating assets, liabilities, and any related intangible assets are
also recorded based on their fair values. The results of operations of the
Properties since the date of acquisition are included in the consolidated
results of operations.

     The following presents unaudited pro forma results of operations of the
Company as if the Properties were owned during the entire period for the years
ended December 31, 2003 and 2002 including the effect of the RFS Acquisition
(see Note 4) (in thousands, except share and per share data):

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Revenues....................................................  $934,394   $910,400
Net earnings................................................     9,108     12,316
Basic and diluted earnings per share........................      0.04       0.07
Weighted average number of common shares
  outstanding -- basic and diluted..........................   242,321    174,184
</Table>

6.  HOTEL AND RESORT PROPERTIES:

     As of December 31, 2003, 17 Properties with a net book value of
approximately $331.9 million are leased to third-party tenants on a triple-net
basis, whereby the tenant is generally responsible for all operating expenses
relating to the Property, including property taxes, insurance, and maintenance
and repairs. During the years ended December 31, 2003, 2002 and 2001, these
third-party tenants paid approximately $4.6 million, $4.1 million, and $7.4
million, respectively, in property taxes for Properties which the Company leases
on a

                                        55
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

triple-net basis. The Company has 104 Properties encumbered by debt. Properties
consist of the following at December 31 (in thousands):

<Table>
<Caption>
                                                                 2003         2002
                                                              ----------   ----------
<S>                                                           <C>          <C>
Land........................................................  $  465,176   $  191,515
Buildings...................................................   2,661,928    1,120,149
Equipment...................................................     337,602      121,777
                                                              ----------   ----------
                                                               3,464,706    1,433,441
Less accumulated depreciation...............................    (142,197)     (67,248)
Construction in progress....................................      34,867       13,395
                                                              ----------   ----------
                                                              $3,357,376   $1,379,588
                                                              ==========   ==========
</Table>

     The Company is currently developing one hotel Property in Florida, which is
expected to be completed in June 2004. This Property is expected to be leased to
a TRS entity of the Company and managed by a subsidiary of Marriott. The Company
also developed and opened, on February 18, 2004, a Courtyard by Marriott in
Foothill Ranch, California. The total estimated cost of this Property including
land is expected to be $18.3 million. Construction in progress of approximately
$34.9 million and $13.4 million, respectively, for these Properties is included
in hotel and resort properties in the accompanying consolidated balance sheets
as of December 31, 2003 and 2002, respectively. The Company has six Properties
held for sale with a total book value of approximately $30.0 million.

     The following is a schedule of future minimum lease payments to be received
on the noncancellable operating leases with third-parties at December 31, 2003
(in thousands):

<Table>
<S>                                                           <C>
2004........................................................  $ 33,605
2005........................................................    33,605
2006........................................................    33,605
2007........................................................    33,485
2008........................................................    32,352
2009 and thereafter.........................................   208,961
                                                              --------
                                                              $375,613
                                                              ========
</Table>

                                        56
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7.  INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

     During 2003 and 2002, the Company invested a total of approximately $0.7
million and $42.7 million, respectively, in unconsolidated subsidiaries. As of
December 31, 2003, the Company had the following investments in unconsolidated
subsidiaries:

<Table>
<Caption>
                                   TOTAL AMOUNT    OWNERSHIP
NAME                                 INVESTED      INTEREST               DESCRIPTION
----                               -------------   ---------   ---------------------------------
<S>                                <C>             <C>         <C>
WB Resort Partners, L.P..........  $41.6 million    49.00%     A partnership which owns a resort
                                                               in Hawaii
Desert Ridge Resort Partners,
  LLC............................  $25.1 million    44.00%     A joint venture which owns a
                                                               resort in Arizona
CY-SF Hotel Partnership, L.P.....  $13.0 million    48.15%     A partnership which owns one
                                                               hotel in California
CTM Partners, LLC................  $ 5.2 million    31.25%     A joint venture that holds a
                                                               majority interest in an LLC that
                                                               owns the licensing rights to the
                                                               Mobil Travel Guide.
CNL Plaza, Ltd...................  $ 0.3 million     9.90%     A partnership which owns an
                                                               office building in Florida where
                                                               the Company's advisor, CNL
                                                               Hospitality Corp. leases office
                                                               space.
</Table>

  DESERT RIDGE PARTNERSHIP

     During 2002, the Company contributed an additional $16.2 million into
Desert Ridge Resort Partners, LLC (the "Desert Ridge Partnership"). The Desert
Ridge Partnership owns a resort which was under construction in 2001 and the
majority of 2002. The resort opened for business on November 30, 2002. Limited
golf course operations were included in the consolidated results of operations
of the Company until the resort opened in late 2002. The final costs of
construction were paid in early 2003 and the total cost of the resort was
approximately $301.7 million.

  WAIKIKI PARTNERSHIP

     During 2002, the Company contributed an additional $8.7 million into WB
Resort Partners, LP (the "Waikiki Partnership"). The Waikiki Partnership owns
the Waikiki Beach Marriott in Honolulu, Hawaii, which was undergoing significant
renovations for the majority of 2002, and was substantially complete as of
December 31, 2002. The total cost of the resort including renovations was
approximately $208.2 million.

  MOBIL TRAVEL GUIDE

     In January 2002, the Company acquired a 25% interest in a partnership, CTM
Partners, LLC, with Publications International, Ltd. ("PIL"), Hilton Hotels
Corporation ("Hilton"), and Marriott that owns a 77.5% interest in a partnership
with Exxon Mobil Corporation and PIL ("EMTG"). EMTG owns the licensing rights to
the Mobil Travel Guide. The licensing rights entitle EMTG to assemble, edit,
publish and sell the Mobil Travel Guide to generate additional products using
the Mobil Travel Guide brand. The Company's capital contribution in CTM
Partners, LLC was approximately $3.6 million. EMTG has engaged Dustin/Massagli
LLC, a company in which one of the Company's directors is president, and a
director and principal stockholder, to manage its business. In December 2002,
the Company contributed an additional $894,000 to CTM Partners, LLC, thereby
increasing the Company's ownership in the partnership from 25% to 31.25%. In
2003, the Company contributed an additional $0.7 million approximately to the
partnership and the

                                        57
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other partners also made contributions in amounts that maintained the existing
ownership interests of each partner.

  OFFICE BUILDING

     In May 2002, the Company acquired a 9.9% interest in CNL Plaza, Ltd., a
limited partnership that owns an office building located in Orlando, Florida, in
which the CNL Hospitality Corp. and its affiliates lease office space, for
$300,000. The remaining interest in the limited partnership is owned by several
affiliates of the Advisor. In connection with this acquisition, the Company has
severally guaranteed a 16.67% share, or approximately $2.6 million, of a $15.5
million unsecured promissory note of the limited partnership.

  SAN FRANCISCO PARTNERSHIP

     In June 2002, the Company acquired a 50% interest in CY-SF Hotel Parent, LP
(the "San Francisco Partnership"), a partnership with an affiliate of Marriott.
The San Francisco Partnership purchased a Courtyard by Marriott in downtown San
Francisco for approximately $82.0 million (the "San Francisco Downtown
Property"). The purchase was financed with equity investments of $13.0 million
each from the Company and Marriott, as well as $56.0 million in borrowings
consisting of two loans from a third-party lender. One of the loans was in the
amount of $41.0 million and requires interest payments equal to the greater of
one-month LIBOR plus 3.25 percent, or 6.25 percent. The other loan was in the
amount of $15.0 million and requires interest payments equal to a base rate plus
7 percent. The base rate equals the greater of (a) the lesser of (i) one-month
LIBOR or (ii) 9 percent, or (b) 3 percent. Both loans mature in August 2007 and
require monthly payments of interest only through July 1, 2004, at which time
monthly payments of principal and interest are due with the remaining principal
balances and any unpaid interest due at maturity. The lessee of the San
Francisco Downtown Property is a wholly owned subsidiary of the San Francisco
Partnership and the Property is managed by a subsidiary of Marriott. In
September 2003, Marriott contributed an additional $1.0 million to the
partnership, thereby increasing its ownership in the partnership from 50 percent
to 51.9 percent.

     The following presents unaudited condensed balance sheets for these
investments as of December 31, 2003 (in thousands):

<Table>
<Caption>
                                DESERT RIDGE
                                   RESORT                       CY-SF         CTM
                                 PARTNERS,      WB RESORT       HOTEL      PARTNERS,   CNL PLAZA,
                                    LLC        PARTNERS, LP   PARENT, LP      LLC         LTD.       TOTAL
                                ------------   ------------   ----------   ---------   ----------   --------
<S>                             <C>            <C>            <C>          <C>         <C>          <C>
Hotel and resort properties...    $262,757       $190,955      $77,794      $    --     $    --     $531,506
Other assets..................      18,077         21,392        7,081       21,327      61,557      129,434
Mortgages and other notes
  payable.....................     268,730        174,080       56,350        5,797      62,978      567,935
Other liabilities.............      20,362         22,474       11,231       11,457         696       66,220
Partners' capital (deficit)...      (8,258)        15,793       17,294        4,073      (2,117)      26,785
Difference between carrying
  amount of investment and
  Company's share of partners'
  capital.....................       4,380          4,590        1,728           --          --       10,698
Company's ownership interest
  at end of period............       44.00%         49.00%       48.15%       31.25%       9.90%
</Table>

                                        58
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following presents unaudited condensed balance sheets for these
investments as of December 31, 2002 (in thousands):

<Table>
<Caption>
                                     DESERT RIDGE
                                        RESORT                       CY-SF         CTM
                                      PARTNERS,      WB RESORT       HOTEL      PARTNERS,   CNL PLAZA,
                                         LLC        PARTNERS, LP   PARENT, LP      LLC         LTD.       TOTAL
                                     ------------   ------------   ----------   ---------   ----------   --------
<S>                                  <C>            <C>            <C>          <C>         <C>          <C>
Hotel and resort properties........    $269,925       $198,140      $80,374      $    --     $    --     $548,439
Other assets.......................      21,187         22,091        3,733       12,623      63,735      123,369
Mortgages and other notes
  Payable..........................     230,176        157,798       57,160        2,247      64,061      511,442
Other liabilities..................      42,694         15,834        3,725          220         398       62,871
Partners' capital (deficit)........      18,242         46,599       23,222       10,156        (724)      97,495
Difference between carrying amount
  of investment and Company's share
  of partners' capital.............       3,642          3,503        1,831           --          --        8,976
Company's ownership interest at end
  of period........................       44.00%         49.00%       50.00%       31.25%       9.90%
</Table>

     The following presents unaudited condensed statements of operations for
these investments for the year ended December 31, 2003 (in thousands):

<Table>
<Caption>
                       DESERT RIDGE
                          RESORT        WB RESORT     CY-SF HOTEL        CTM              CNL
                       PARTNERS, LLC   PARTNERS, LP   PARENT, LP    PARTNERS, LLC     PLAZA, LTD.       TOTAL
                       -------------   ------------   -----------   -------------   ---------------   ---------
<S>                    <C>             <C>            <C>           <C>             <C>               <C>
Revenues.............    $ 90,270        $ 55,766      $ 15,542        $ 2,515          $10,445       $ 174,538
Cost of sales........     (43,471)        (22,301)       (5,512)        (7,464)          (3,325)        (82,073)
Expenses.............     (68,673)        (54,496)      (14,328)        (3,043)          (7,009)       (147,549)
Minority interest in
  loss...............          --              --            --          1,828               --           1,828
                         --------        --------      --------        -------          -------       ---------
Net income (loss)....    $(21,874)       $(21,031)     $ (4,298)       $(6,164)         $   111       $ (53,256)
                         ========        ========      ========        =======          =======       =========
Income (loss)
  allocable to the
  Company............    $ (9,625)       $(10,305)     $ (2,125)       $(1,926)         $    11       $ (23,970)
                         ========        ========      ========        =======          =======       =========
Other comprehensive
  income allocable to
  the Company........    $    856        $     --      $     --        $    --          $    --       $     856
                         ========        ========      ========        =======          =======       =========
Company's ownership
  interest at end of
  period.............       44.00%          49.00%        48.15%         31.25%            9.90%
</Table>

                                        59
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following presents unaudited condensed statements of operations for
these investments for the year ended December 31, 2002 (in thousands):

<Table>
<Caption>
                         DESERT RIDGE                                     CTM
                            RESORT        WB RESORT     CY-SF HOTEL    PARTNERS,         CNL
                         PARTNERS, LLC   PARTNERS, LP   PARENT, LP        LLC        PLAZA, LTD.    TOTAL
                         -------------   ------------   -----------   ------------   -----------   --------
<S>                      <C>             <C>            <C>           <C>            <C>           <C>
Revenues...............    $  7,344        $ 46,667       $ 8,564       $ 1,400        $6,088      $ 70,063
Cost of sales..........      (7,016)        (20,407)       (2,899)       (3,941)       (1,946)      (36,209)
Expenses...............     (15,680)        (44,657)       (7,011)       (1,604)       (4,086)      (73,038)
                           --------        --------       -------       -------        ------      --------
(Net income) loss......    $(15,352)       $(18,397)      $(1,346)      $(4,145)       $   56      $(39,184)
                           ========        ========       =======       =======        ======      ========
Income (loss) allocable
  to the Company.......    $ (6,547)       $ (9,006)      $  (673)      $(1,036)       $    6      $(17,256)
                           ========        ========       =======       =======        ======      ========
Other comprehensive
  income (loss)
  allocable to the
  Company..............    $ (2,572)       $     --       $    --       $    --        $   --      $ (2,572)
                           ========        ========       =======       =======        ======      ========
Company's ownership
  interest at end of
  period...............       44.00%          49.00%        50.00%        31.25%         9.90%
</Table>

     The following presents unaudited condensed statements of operations for
these investments for the year ended December 31, 2001(in thousands):

<Table>
<Caption>
                       DESERT RIDGE
                          RESORT
                        PARTNERS,      WB RESORT     CY-SF HOTEL   CTM PARTNERS,     CNL PLAZA,
                           LLC        PARTNERS, LP   PARENT, LP*        LLC*           LTD.*        TOTAL
                       ------------   ------------   -----------   --------------   ------------   --------
<S>                    <C>            <C>            <C>           <C>              <C>            <C>
Revenues.............    $  8,154       $ 10,167        $  --          $  --           $  --       $ 18,321
Cost of sales........      (2,235)        (5,508)          --             --              --         (7,743)
Expenses.............     (13,830)       (13,989)          --             --              --        (27,819)
                         --------       --------        -----          -----           -----       --------
Net loss.............    $ (7,911)      $ (9,330)       $  --          $  --           $  --       $(17,241)
                         ========       ========        =====          =====           =====       ========
Loss allocable to the
  Company............    $ (3,396)      $ (4,572)       $  --          $  --           $  --       $ (7,968)
                         ========       ========        =====          =====           =====       ========
Other comprehensive
  Income (loss)
  allocable to the
  Company............    $ (1,370)      $     --        $  --          $  --           $  --       $ (1,370)
                         ========       ========        =====          =====           =====       ========
Company's ownership
  interest at end of
  period.............       42.33%         49.00%          --             --              --
</Table>

---------------

* These entities were not formed until 2002, and therefore are not presented for
  the year ended December 31, 2001.

     The difference between the carrying amount of the investments in the above
entities and the Company's share of partners' capital results from various
acquisition costs and fees which are not shared by the co-venturers. These
amounts are amortized over 36 years.

                                        60
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company is generally entitled to receive cash distributions in
proportion to its ownership interest in each partnership. During the years ended
December 31, 2003 and 2002, the Company received the following distributions,
which reduce the carrying value of the investment (in thousands):

<Table>
<Caption>
                                                               DECEMBER 31,
                                                              ---------------
                                                               2003     2002
                                                              ------   ------
<S>                                                           <C>      <C>
Desert Ridge Resort Partners, LLC...........................  $2,891   $1,432
WB Resort Partners, LP......................................   4,790    4,136
CY-SF Hotel Parent, LP......................................   1,300      716
CNL Plaza, Ltd..............................................     119      164
                                                              ------   ------
                                                              $9,100   $6,448
                                                              ======   ======
</Table>

     During the second half of 2003 the Company has not received the
distributions it is entitled to from WB Resort Partners, LP due to cash
operating shortfalls of this partnership. The Company does not anticipate
receiving cash distributions from this partnership during 2004.

8.  DISCONTINUED OPERATIONS:

     The Company accounts for certain revenues and expenses as originating from
discontinued operations pursuant to FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FASB 144"). FASB 144 requires
that sales of real estate, or the identification of a real estate asset as held
for sale, be treated as discontinued operations. Any gain or loss from the
disposition, and any income or expenses associated with real estate assets held
for sale, are included in the accompanying consolidated statement of earnings as
discontinued operations. In connection with the RFS Acquisition in July 2003,
the Company decided to sell six non-strategic Properties from the former RFS
portfolio (see Note 4, "RFS Acquisition"), and therefore, these Properties were
classified as real estate held for sale as of December 31, 2003.

     The financial results for these Properties are reflected as discontinued
operations in the accompanying consolidated financial statements. The operating
results of discontinued operations were as follows for the year ended December
31 (in thousands):

<Table>
<Caption>
                                                               2003
                                                              -------
<S>                                                           <C>
Hotel revenues..............................................  $ 5,700
Hotel expenses..............................................   (4,478)
                                                              -------
Income from discontinued operations.........................  $ 1,222
                                                              =======
</Table>

     In accordance with FASB 144, the Company has ceased depreciation on these
six Properties. The forgone depreciation was approximately $0.9 million for the
year ended December 31, 2003.

9.  PREPAID EXPENSES AND OTHER ASSETS:

     Prepaid expenses and other assets as of December 31, 2003 and 2002 were
approximately $68.4 million and $28.3 million, respectively, and consist
primarily of deposits and acquisition fees and expenses relating to Properties
the Company intends to acquire, and investments the Company intends to make.

10.  INVESTMENTS:

     On April 21, 2003 and May 21, 2003, the Company, through a wholly owned
subsidiary, invested $10 million and $5 million, respectively, in convertible
preferred partnership units of Hersha Hospitality

                                        61
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Limited Partnership ("HLP"). In addition, in connection with the acquisition of
an interest in the Hampton Inn Chelsea-Manhattan Property, on August 29, 2003,
the Company's subsidiary invested approximately $4 million in additional
convertible preferred partnership units of HLP. This investment is accounted for
under the cost basis method of accounting and included in prepaid expenses and
other assets on the accompanying consolidated balance sheet. The investment in
HLP is structured to provide the Company with a 10.5% cumulative preferred
distribution, paid quarterly, and each of the current and any proposed
investments in joint ventures with HLP is structured to provide the Company with
a 10.5% cumulative preferred distribution on its unreturned capital
contributions. There is no assurance, however, that future distributions or
returns will be paid. HLP declares dividends quarterly in arrears. During 2003,
the Company recognized approximately $1.2 million in distributions from its
investment in the convertible preferred partnership units of HLP.

11.  GOODWILL AND OTHER INTANGIBLE ASSETS:

     In June 2001, the FASB issued SFAS 141 and SFAS 142. SFAS 141 requires that
all business combinations be accounting for using the purchase method and
provides new criteria for recording intangible assets separately from goodwill.
SFAS 142 addresses the financial accounting and reporting for acquired goodwill
and other intangible assets. Goodwill and other intangible assets that have
indefinite useful lives are not amortized into results of operations but,
instead, will be tested at least annually for impairment and written down when
impaired. The Company recorded goodwill of approximately $33.6 million and other
intangible assets of approximately $49.4 million in connection with the
acquisition of the Hotel del Coronado Property in December 2003. Prior to the
Hotel del Coronado purchase, the Company had not recorded any goodwill or other
intangible assets.

     The gross carrying amounts and accumulated amortization of the Company's
amortizable intangible assets are as follows as of December 31, 2003:

<Table>
<Caption>
                                                 GROSS CARRYING    ACCUMULATED     NET BOOK
INTANGIBLE ASSET (AMORTIZATION PERIOD)               AMOUNT        AMORTIZATION     VALUE
--------------------------------------           ---------------   ------------   ----------
<S>                                              <C>               <C>            <C>
Goodwill (indefinite life).....................      $33,600           N/A         $33,600
Trademark (indefinite lives)...................       49,000           N/A          49,000
Customer relationships/advanced booking(5
  years).......................................          400            (3)            397
                                                                                   -------
                                                                                   $82,997
                                                                                   =======
</Table>

     The estimated amortization expense for the Company's other intangible
assets for each of the five succeeding fiscal years is as follows:

<Table>
<S>                                                           <C>
2004........................................................  $ 80
2005........................................................    80
2006........................................................    80
2007........................................................    80
2008........................................................    77
                                                              ----
Total.......................................................  $397
                                                              ====
</Table>

12.  INCOME TAXES:

     Prior to the RFS Acquisition (see Note 4), the types of temporary
differences between the tax basis of assets and liabilities and their GAAP
financial statement reporting amounts were principally attributable to net
operating losses of the Company's TRS entities. The Company has not recorded
this future potential benefit because its TRS subsidiaries do not have
sufficient historical earnings on which to base a potential

                                        62
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

future benefit. In connection with the RFS Acquisition, the Company acquired
approximately $24.5 million, net of Section 382 limitations, of deferred tax
assets arising from, principally, amortization of certain lease termination
costs with the remainder due to net operating losses at RFS's TRS entities. The
deferred tax assets of the RFS TRS entities are not available to offset taxable
income for the Company's existing TRS subsidiaries and, likewise, the deferred
tax assets of the existing TRS entities are not available to offset taxable
income of the RFS TRS entities.

     The income tax benefit consists of the following component for each of the
years ended December 31:

<Table>
<Caption>
                                                               2003     2002    2001
                                                              -------   -----   -----
                                                                  (IN THOUSANDS)
<S>                                                           <C>       <C>     <C>
Current:
  Federal...................................................  $    --   $ --    $  --
  State.....................................................       --     --       --
                                                              -------   -----   -----
                                                                   --     --       --
                                                              -------   -----   -----
Deferred:
  Federal...................................................   (1,321)    --       --
  State.....................................................       --     --       --
                                                              -------   -----   -----
                                                               (1,321)    --       --
                                                              -------   -----   -----
Total income tax benefit....................................  $(1,321)  $ --    $  --
                                                              =======   =====   =====
</Table>

     The income tax benefit has been allocated as follows:

<Table>
<Caption>
                                                               2003     2002    2001
                                                              -------   -----   -----
                                                                  (IN THOUSANDS)
<S>                                                           <C>       <C>     <C>
Continuing operations.......................................  $(1,321)  $ --    $  --
Discontinued operations.....................................       --     --       --
                                                              -------   -----   -----
Total income tax benefit....................................  $(1,321)  $ --    $  --
                                                              =======   =====   =====
</Table>

     The components of the deferred taxes recognized in the accompanying
consolidated balance sheets at December 31 are as follows (in thousands):

<Table>
<Caption>
                                                                2003      2002
                                                              --------   -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Net operating loss........................................  $ 20,401   $ 4,314
  Lease termination.........................................    15,192        --
  Other.....................................................       331        --
Valuation allowance.........................................   (10,098)   (4,314)
                                                              --------   -------
                                                              $ 25,826   $    --
                                                              ========   =======
</Table>

                                        63
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  INDEBTEDNESS:

     Indebtedness consisted of the following at December 31 (in thousands):

<Table>
<Caption>
                                                                 2003        2002
                                                              ----------   --------
<S>                                                           <C>          <C>
Mortgages payable and accrued interest......................  $1,499,988   $401,765
Construction loan facilities................................      60,517     21,281
Tax incremental financing note..............................       8,098      8,458
Line of credit..............................................      24,073     24,079
                                                              ----------   --------
Indebtedness collateralized by Properties...................   1,592,676    455,583
Unsecured notes.............................................      81,674         --
                                                              ----------   --------
                                                              $1,674,350   $455,583
                                                              ==========   ========
</Table>

     The Company has a revolving line of credit (the "Revolving LOC") to fund
acquisition and development of Properties and investments in Mortgage Loans and
other permitted investments. Under the terms of the Revolving LOC, the Company
is entitled to receive cash advances of up to approximately $96.7 million until
September 2006. Interest payments are due monthly with principal payments of
$1,000 due at the end of each loan year. Other loan terms are listed in the
table below.

     Some debt arrangements allow for repayments earlier than the stated
maturity date. The weighted average effective interest rate on mortgages and
other notes payable was approximately 6.25% as of December 31, 2003. The fair
value of the Company's fixed rate long-term debt was $826.1 million at December
31, 2003. Fair value was determined based on market prices as of December 31,
2003.

     Certain loan agreements contain net worth or debt service coverage ratio
requirements. Violation of these covenants could potentially trigger penalties,
including cash management arrangements whereby the lenders or their designated
loan servicers capture operating cash from certain Properties and administer the
payment of property taxes, insurance, debt service and expenditures for other
obligations. Other covenants restrict the Company's ability to borrow money, pay
dividends on or repurchase capital stock, make investments and sell assets or
enter into mergers or acquisitions. The Company was in compliance with these
covenants as of December 31, 2003.

                                        64
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Indebtedness consisted of the following as of December 31 (in thousands):

<Table>
<Caption>
                                              INTEREST RATE                                 2003        2002
                                              -------------                              ----------   --------
<S>                            <C>        <C>                     <C>    <C>             <C>          <C>
Floating Rate Debt:
CMBS loan....................  26 hotels  LIBOR + 189 bps         (1)    December 2006   $  130,198   $     --
CMBS loan....................  26 hotels  LIBOR + 465 bps         (1)(2) December 2006       35,039         --
Mortgage Debt................  2 hotels   5-yr Treasury + 200     (3)    December 2008      127,200         --
                                          bps
Mortgage Debt................  4 hotels   LIBOR + 230 bps         (4)    October 2006        98,891    100,000
Mortgage Debt................  1 hotel    LIBOR + 285 bps         (5)    December 2008      290,000         --
Construction loan............  3 hotels   LIBOR + 275 bps         (6)    December 2005       44,939     21,281
Construction loan............  1 hotel    LIBOR + 350 bps                August 2006         15,578         --
Line of credit...............  15 hotels  LIBOR + 225 bps         (7)    September 2006      24,073     24,079
Line of credit...............  1 hotel    LIBOR + 575 bps         (10)   December 2006        5,502         --
                                                                                         ----------   --------
  Total floating rate debt...                                                               771,420    145,360
                                                                                         ----------   --------
Fixed Rate Debt:
Publicly-traded term notes...  n/a        9.75%                          March 2012          81,674         --
Mortgage Debt................  8 hotels   6.53%                          November 2007       91,194      9,070
Mortgage Debt................  1 hotel    8.22%                          November 2007       18,060         --
Mortgage Debt................  3 hotels   8.34%                          December 2007       50,348     50,348
Mortgage Debt................  1 hotel    8.29%                          December 2025       31,663     32,069
Mortgage Debt................  1 hotel    5.84%                          December 2007       31,151     31,082
Mortgage Debt................  1 hotel    7.78%                          January 2023         9,085      9,268
Mortgage Debt................  2 hotels   5.67%                          December 2007       79,022     78,650
Mortgage Debt................  1 hotel    4.93%                          July 2008           50,205         --
Mortgage Debt................  10 hotels  7.83%                          December 2008       91,166         --
Mortgage Debt................  7 hotels   7.67%                   (8)    July 2009           83,003     84,638
Mortgage Debt................  5 hotels   5.95%                          March 2010         145,000         --
Mortgage Debt................  8 hotels   8.00%                          August 2010         51,197         --
Mortgage Debt................  1 hotel    8.32%                          January 2011         6,549      6,640
Mortgage Debt................  1 hotel    8.11%                          February 2011       28,883         --
Mortgage Debt................  1 hotel    8.08%                          August 2010         46,632         --
Tax Incremental Financing
  Note.......................  1 hotel    12.85%                  (9)    June 2018            8,098      8,458
                                                                                         ----------   --------
  Total fixed rate debt......                                                               902,930    310,223
                                                                                         ----------   --------
  Total debt.................                                                            $1,674,350   $455,583
                                                                                         ==========   ========
</Table>

---------------

 (1) The 26 Properties were collateralized for both Commercial Mortgage Backed
     Security ("CMBS") loans listed.
 (2) CMBS loan has an interest rate floor of 6.65%.
 (3) Mortgage debt has an interest rate floor of 5.50%.
 (4) Interest rate floor of 4.96%.
 (5) Blended interest rate.
 (6) The Construction Line of Credit has an interest rate floor of 6.75 %.
 (7) Revolving Line of Credit.
 (8) Average interest rate as the loans bear interest ranging from 7.50   % to
     7.75 %.
 (9) Tax Incremental Financing which is paid down with incremental real estate
     taxes resulting in an interest rate of 12.85 %.
(10) Revolving Line of Credit for Hotel del Coronado.

                                        65
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a schedule of maturities for all long-term borrowings at
December 31, 2003 (in thousands):

<Table>
<S>                                                            <C>
2004........................................................   $   18,777
2005........................................................       54,692
2006........................................................      598,859
2007........................................................      274,131
2008........................................................      265,204
2009 and thereafter.........................................      462,687
                                                               ----------
  Total.....................................................   $1,674,350
                                                               ==========
</Table>

14. DERIVATIVE INSTRUMENTS:

     The Company has a subsidiary in Montreal, Canada. The functional currency
of this Property, which was acquired in December 2003, is Canadian dollars. In
December 2003, the Company entered into a currency forward contract to buy U.S.
dollars at a fixed price. This forward contract hedges the foreign currency
exposure of the Company's net investment in this subsidiary. During 2003, the
Company recognized a net holding loss of $0.8 million in other comprehensive
income.

     The Company also purchased interest rate caps which capped the floating
interest rates of seven loans at rates between 4.0% and 6.0% based on a total
notional amount of $555.0 million. During 2003, 2002 and 2001, the Company
recognized net holding losses of approximately $1.1 million and $0.6 million and
a gain of $0.2 million, respectively, in other comprehensive income from these
cash flow hedges.

     An unconsolidated subsidiary of the Company also holds an interest rate
swap which fixed the floating interest rate of a loan at approximately 6.0%
based on a notional amount of $70 million. During 2003, 2002 and 2001, the
Company recognized, through its equity investee, a net holding gain of $0.9
million and net holding losses of approximately $2.6 million and $1.4 million,
respectively from this cash flow hedge.

15. DISTRIBUTIONS:

     For the years ended December 31, 2003, 2002 and 2001, approximately 39%,
51%, and 52%, respectively, of the distributions paid to stockholders were
considered ordinary income and approximately 61%, 49%, and 48%, respectively,
were considered a return of capital to stockholders for federal income tax
purposes. No amounts distributed to the stockholders for the years ended
December 31, 2003, 2002 and 2001 are required to be or have been treated by the
Company as a return of capital for purposes of calculating the stockholders'
return on their invested capital.

16.  RELATED PARTY TRANSACTIONS:

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

                                        66
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Amounts incurred relating to these transactions with affiliates were as
follows for the years ended December 31 (in thousands):

<Table>
<Caption>
                                                                2003      2002
                                                              --------   -------
<S>                                                           <C>        <C>
CNL Securities Corp.:
  Selling commissions *.....................................  $ 86,460   $37,003
  Marketing support fee and due diligence expense
     reimbursements*........................................     5,848     2,448
                                                              --------   -------
                                                                92,308    39,451
                                                              --------   -------
Advisor and its affiliates:
  Acquisition fees..........................................    94,531    29,464
  Development fees..........................................     2,612     1,896
  Asset management fees.....................................    12,782     6,696
                                                              --------   -------
                                                               109,925    38,056
                                                              --------   -------
                                                              $202,233   $77,507
                                                              ========   =======
</Table>

---------------

*    The majority of these fees and reimbursements were paid to unaffiliated
     broker-dealer firms.

     Of these amounts, approximately $10.1 and $1.9 million is included in due
to related parties in the accompanying consolidated balance sheets as of
December 31, 2003 and 2002, respectively. In late 2003 the Company's Advisor
allowed the Company to defer the payment of the asset management fee until
September 15, 2004 to provide liquidity until the Company's results benefit from
an economic and industry recovery. Asset management fees were not paid by the
Company after August 2003 and in January 2004, CNL Hospitality Corp. refunded to
the Company all of the asset management fees which had previously been paid
during 2003. Out of the total amount due to CNL Hospitality Corp. as of December
31, 2003, $5.3 million relates to asset management fees. The Company will
continue to accrue and will remain obligated to pay asset management fees upon
demand by CNL Hospitality Corp. or by September 15, 2004.

     CNL Hospitality Corp. and its affiliates provide various administrative
services to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations (including
administrative services in connection with the offerings), on a day-to-day
basis.

     The expenses incurred for these services were classified as follows for the
years ended December 31(in thousands):

<Table>
<Caption>
                                                               2003     2002
                                                              ------   ------
<S>                                                           <C>      <C>
Stock issuance costs........................................  $4,292   $3,128
General operating and administrative expenses...............   2,279    1,128
                                                              ------   ------
                                                              $6,571   $4,256
                                                              ======   ======
</Table>

     The Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors, and in which an affiliate of CNL
Hospitality Corp. is a stockholder. The amount deposited with this bank was
approximately $29.0 million and $14.9 million at December 31, 2003 and 2002,
respectively.

     CTM Partners, LLC, a partnership in which the Company has a 31.25% interest
which owns EMTG, LLC, has engaged Dustin/Massagli LLC, a company in which one of
the Company's directors is president, a director and a principal stockholder, to
manage its business.

                                        67
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company owns a 9.9% interest in CNL Plaza, Ltd., a limited partnership
that owns an office building located in Orlando, Florida, in which CNL
Hospitality Corp. and its affiliates lease office space. The remaining interest
in the limited partnership is owned by several affiliates of CNL Hospitality
Corp. In connection with this acquisition, the Company has severally guaranteed
a 16.67% share, or approximately $2.6 million, of a $15.5 million unsecured
promissory note of the limited partnership.

17.  CONCENTRATION OF RISK:

     During the year ended December 31, 2003, a significant portion of the
Company's rental income and hotel and resort revenues was earned from 68
Properties operating as various Marriott brands (including Marriott Hotels,
Resorts, and Suites, JW Marriott, Residence Inn by Marriott, TownePlace Suites
by Marriott, Courtyard by Marriott, Fairfield Inn, and Spring Hill Suites by
Marriott) and 36 Properties operating as various Hilton Hotels Corporation
("Hilton") brands (including Doubletree, Embassy Suites, Hilton Hotels and
Suites, Homewood Suites by Hilton, and Hampton Inn).

     Although the Company intends to acquire additional Properties, the Company
carefully screens its managers and tenants and the Company has obtained
interests in non-Marriott and non-Hilton branded Properties, failure of the
Marriott and Hilton brands would significantly impact the results of operations
of the Company. Management believes that the risk of such a default will be
reduced through future acquisitions which enhance brand diversification.

18.  STOCKHOLDERS' EQUITY:

     On August 13, 2002, the Company filed a registration statement on Form S-11
with the Securities and Exchange Commission (the "Commission") in connection
with the proposed sale by the Company of up to 175 million shares of common
stock at $10 per share ($1.75 billion) (the "2003 Offering"). The 2003 Offering
commenced immediately following the completion of the Company's fourth public
offering on February 4, 2003. Of the 175 million shares of common stock offered
pursuant to the 2003 Offering, up to 25 million shares are available to
stockholders purchasing shares through the Company's reinvestment plan. On July
23, 2003, the Company filed a registration statement on Form S-11 with the
Commission in connection with the proposed sale of up to 400 million shares of
common stock at $10 per share ($4 billion) (the "2004 Offering"). Of the 400
million shares of common stock which may be offered, up to 50 million may be
available to stockholders purchasing shares through the reinvestment plan. The
Board of Directors expects to submit, for a vote of the stockholders at the next
annual meeting of stockholders, a proposal to increase the number of authorized
shares of common stock of the Company from 450 million to one billion. Until
such time, if any, as the stockholders approve an increase in the number of
authorized shares of common stock of the company, the 2004 Offering would be
limited to up to 142 million Shares. The 2004 Offering, if it occurs, is
expected to commence in mid-2004, sometime after the completion of the Company's
2003 Offering. CNL Securities Corp., an affiliate of CNL Hospitality Corp., is
the managing dealer for the Company's equity offerings.

     Under the redemption plan, the Company may elect, at its discretion, to
redeem shares, subject to certain conditions and limitations. During the years
ended December 31, 2003, 2002 and 2001, approximately 716,000 shares, 269,000
shares, and 251,000 shares, respectively, were redeemed at approximately $6.6
million, $2.4 million, and $2.3 million, respectively, and retired from shares
outstanding of common stock. Shares were redeemed for $9.20 per share.

19.  COMMITMENTS AND CONTINGENCIES:

     On May 13, 2003, A. Bruce Chasen, as class representative, filed a putative
class action lawsuit in the Circuit Court of Shelby County, Tennessee, 30th
Judicial District against RFS, RFS's directors and the

                                        68
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company. On June 6, 2003, the complaint was amended. The amended putative class
action complaint alleges, among other things, that (i) the merger consideration
to be received by RFS's shareholders is significantly less than the intrinsic
value of RFS, (ii) the RFS directors breached their fiduciary duties to
shareholders on a variety of grounds including failing to ascertain the true
value of RFS, failing to determine whether there were any other bidders for RFS,
and failing to avoid certain alleged conflicts of interest shared by members of
the RFS Board and its financial advisor, (iii) the Company aided and abetted the
RFS Board in connection with their breach of fiduciary duties, (iv) the RFS
Board violated portions of the Tennessee Investor Protection Act, and (v) the
RFS proxy statement is false and misleading. Among other things, the amended
complaint seeks certification of the class action, an injunction enjoining RFS
and the Company from completing the merger, monetary damages in an unspecified
amount, the payment of attorney's fees, and rescissory damages. On July 1, 2003
the Company filed an answer to the amended complaint setting forth an
affirmative defense and its general denials of the allegations set forth
therein. The plaintiff's motion for a temporary restraining order for purposes
of enjoining the transaction, was denied on July 8, 2003, by the Circuit Court
of Shelby County, Tennessee, 30th Judicial District. The Company is planning to
file a motion to dismiss the allegations in the complaint. If the motion is not
successful, it is expected that the case will proceed to trial. Based upon the
information currently available to the Company, the Company believes the
allegations contained in the amended complaint are without merit and intends to
vigorously defend the action, and therefore, a liability was not accrued.

     On August 26, 2002, Carmel Valley, LLC filed a lawsuit against RFS and
certain of its subsidiaries in the Superior Court of the State of California,
for the County of San Diego. In connection with the RFS Acquisition, the Company
has become a party to a lawsuit claiming damages relating to a dispute over a
parcel of land located adjacent to one of its Properties. The Company has
unsuccessfully attempted to mediate this case. At this time, the Company
believes that the damages claimed against the Company lack sufficient factual
support and will continue to vigorously defend the action, and therefore, a
liability was not accrued. However, it is possible that losses could be incurred
by the Company if the plaintiff ultimately prevails. The plaintiff is seeking
monetary damages of up to $0.7 million. The Company has recently filed certain
motions to dismiss which are being considered by the Court. If the motions are
not successful, it is expected that the case will proceed to trial.

     From time to time the Company may be exposed to litigation arising from an
unrecognized preacquisition contingency and from the operations of its business.
At this time, the Company does not believe that resolution of these matters will
have a material adverse effect on the Company's financial condition or results
of operations.

     As of December 31, 2003, the Company also had commitments to (i) complete
construction on two Properties, with an estimated aggregate cost of
approximately $64 million, and (ii) to fund furniture, fixture and equipment
replacements and capital improvements as needed at the Company's Properties. The
Company also has committed to fund its pro rata share of working capital
shortfalls and construction commitments for its partnerships, if shortfalls
arise, and has guaranteed the debt service for several of its subsidiaries and
partnerships. In order to enter into these and other transactions, the Company
must obtain additional funds through the receipt of additional offering proceeds
and/or advances on its Revolving LOC and permanent financing.

     Our Properties are operated under various management agreements with third
party managers that call for base management fees, which generally range from 3%
to 5% of hotel and resort revenues and have an incentive management fee
provision related to the hotel's profitability. The management agreements
generally require us to set aside generally 3% to 5% of hotel and resort
revenues in FF&E Reserve accounts to be used for the replacement of furniture,
fixtures and equipment. The management agreements have terms from 10 to 20 years
and generally have renewal options.

                                        69
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20.  CREDIT ENHANCEMENTS:

     The Company benefits from various types of credit enhancements that have
been provided by the managers of some of its Properties. These credit
enhancements may be provided to the Company directly or indirectly through
unconsolidated subsidiaries and guarantee the Company certain minimum returns on
its Properties. Funding under these guarantees is either recognized as other
income, as reductions in base management fees or as liabilities by the Company,
depending upon the nature of each credit enhancement agreement and whether the
funded amounts are required to be repaid by the Company in the future. The
repayment of these liabilities is expected to occur at such time that the net
operating income of these Properties are in excess of the minimum returns to the
Company or its unconsolidated subsidiaries. All of the credit enhancements are
subject to expiration or "burn-off" provisions over time or at such time that
the funding limit has been reached. There is no assurance that market conditions
will allow the Company to continue to obtain credit enhancements on Properties
acquired in the future. As a result of the downturn in the overall economy and
the threat of terrorism and their adverse effect on the Company's operations,
the Company has been relying on credit enhancements to substantially enhance its
net earnings and cash flows. To the extent that this trend continues and current
credit enhancements are fully utilized or expire, the Company's results of
operations and its ability to pay distributions to stockholders will be
affected.

     The following table represents the Company's amounts and utilization of
credit enhancements for the years ended December 31, 2003, and 2002:

<Table>
<Caption>
                                              LIMITED                  LIQUIDITY     SENIOR
                                                RENT      THRESHOLD    FACILITY       LOAN
                                             GUARANTEES   GUARANTEES     LOANS     GUARANTEES
                                             ----------   ----------   ---------   ----------
<S>                                          <C>          <C>          <C>         <C>
Amount available as of January 1, 2002.....   $ 5,911      $ 44,850     $ 5,150      $  --
New credit enhancements obtained...........        --         6,150       6,594         --
Utilization of credit enhancements.........    (4,584)      (18,279)     (1,727)        --
                                              -------      --------     -------      -----
Amount available as of December 31, 2002...     1,327        32,721      10,017         --
New credit enhancements obtained...........        --        24,709          --         --
Utilization of credit enhancements.........      (205)      (37,087)     (4,292)        --
Expiration of credit enhancements..........    (1,122)           --          --         --
                                              -------      --------     -------      -----
Amount available as of December 31, 2003...   $    --      $ 20,343     $ 5,725      $  --
                                              =======      ========     =======      =====
</Table>

     The following table represents the Company's unconsolidated subsidiaries
amounts and utilization of credit enhancements for the years ended December 31,
2003, and 2002:

<Table>
<Caption>
                                             LIMITED                  LIQUIDITY     SENIOR
                                               RENT      THRESHOLD    FACILITY       LOAN
                                            GUARANTEES   GUARANTEES     LOANS     GUARANTEES
                                            ----------   ----------   ---------   ----------
<S>                                         <C>          <C>          <C>         <C>
Amount available as of January 1, 2002....    $  --        $  --      $ 46,951     $30,509
New credit enhancements obtained..........       --           --        12,000          --
Utilization of credit enhancements........       --           --       (12,833)     (9,411)
                                              -----        -----      --------     -------
Amount available as of December 31,
  2002....................................       --           --        46,118      21,098
Utilization of credit enhancements........       --           --       (26,862)     (6,098)
                                              -----        -----      --------     -------
Amount available as of December 31,
  2003....................................    $  --        $  --      $ 19,256     $15,000
                                              =====        =====      ========     =======
</Table>

     During the years ended December 31, 2003 and 2002, and 2001 the Company
recognized approximately $24.8 million, $10.3 million, and $0, respectively, in
other income and approximately $2.4 million, $0, and $0 respectively, as a
reduction in base management fees as a result of credit enhancements amounts
that were

                                        70
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

utilized. Of the total remaining amounts available to the Company under the
credit enhancements, approximately $4.7 million is subject to repayment
provisions if utilized. Of the total remaining amounts available to
unconsolidated subsidiaries of the Company, approximately $33 million is subject
to repayment provisions if utilized.

     For ten of the Company's Properties leased to affiliates of Marriott, the
credit enhancements funding was sent directly to the Company's third-party
tenant lessees, which in turn allows them to make periodic rental payments to
the Company. The credit enhancement applicable to these Properties was fully
utilized and expired in the third quarter of 2003. Rent payments for these
Properties total $26.7 million for a calendar year. Out of the total amount of
rental income from operating leases earned from these Properties approximately
$7.3 million, $4.6 million, and $0 was funded from credit enhancements during
the years ended December 31, 2003, 2002, and 2001, respectively. There is no
guarantee that the Company will continue to receive scheduled rental payments
for these Properties. In November 2003, the Company entered into an agreement
whereby the credit enhancements available for three of its Properties acquired
in 2003 will be available to fund short falls in rental payments on these 10
Properties.

     In connection with the lease assumptions on nine Properties as discussed in
Note 3, "Assignment of Third-Party Leases," the Company assumed a liquidity
facility loan in the amount of approximately $3.6 million and a total of
approximately $10.2 million was available under the facility. The facility was
provided by the manager of the Properties to fund Property operating shortfalls
for the aggregate rent due on a pooled basis for the nine portfolio Properties.
The facility is available until the earlier of (i) expiration of the agreement
on December 31, 2004, (ii) the minimum rent coverage of the pooled Properties
equals or exceeds a predefined threshold for 13 consecutive accounting periods
or (iii) total liquidity facility funding equals or exceeds 10% of the total
purchase price for all nine Properties at the end of any fiscal year. As of
December 31, 2003, $1.2 million was available for future draws under the
liquidity facility loan.

     The following table represents the amounts that the Company had recorded as
other liabilities in the accompanying consolidated balance sheet as of December
31, (in thousands):

<Table>
<Caption>
                                                               2003      2002
                                                              -------   ------
<S>                                                           <C>       <C>
Limited rent guarantees.....................................  $    --   $   --
Threshold guarantees........................................      500       --
Liquidity facility loan.....................................   10,038    5,631
Senior loan guarantees......................................       --       --
                                                              -------   ------
                                                              $10,538   $5,631
                                                              =======   ======
</Table>

     The following table represents the amounts that the Company's
unconsolidated subsidiaries' had recorded as liabilities related to credit
enhancements as of December 31, (in thousands):

<Table>
<Caption>
                                                               2003      2002
                                                              -------   -------
<S>                                                           <C>       <C>
Limited rent guarantees.....................................  $    --   $    --
Threshold guarantees........................................       --        --
Liquidity facility loan.....................................   48,600    19,575
Senior loan guarantees......................................   22,574    14,829
                                                              -------   -------
                                                              $71,174   $34,404
                                                              =======   =======
</Table>

     The senior loan guarantee and liquidity facility loan for the Waikiki Beach
Marriott Property, in which the Company owns a 49% joint venture interest,
expired in the third quarter of 2003 and the first quarter of 2004,
respectively. As result, the Company and its co-venturers may no longer receive
cash distributions from

                                        71
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

this joint venture and may be required to make capital contributions to fund
hotel and resort operating shortfalls until the time that the operating
performance of this Property improves. This may reduce cash flows available for
distribution to the stockholders of the Company.

     In March 2004, the third-party tenants affiliated with Marriott for ten of
the Company's Properties with combined net operating income of approximately
$13.0 million and base rental obligations of $26.7 million informed us that the
annual net operating income projected for these Properties would be insufficient
to fund the full amount of scheduled base rent for 2004 and potentially
subsequent years. As a result, the Company has begun discussions with those
tenants on possible alternatives that would address the current circumstances
including its possible acquisition of the leasehold interests in these
Properties and the execution of management agreements with Marriott or its
affiliates to operate the Properties under long-term contracts. Under this
alternative arrangement, these Properties would be leased to one or more of the
Company's TRS subsidiaries and managed by an affiliate of Marriott. This
possible alternative may include additional guarantees, provided by Marriott, of
minimum returns which may not provide the same income stream as the base rents.
The Properties are encumbered by debt and consequently any alternative solution
will be subject to approval by the lender providing the related financing. As
these discussions continue it is possible that Marriott, on behalf of the
tenants, will continue to pay the rent due under the current lease structure
until such time that these leases are assigned or modified. The Company may be
required to return the security deposits received in connection with the current
agreements. Should the Company take assignment of the leasehold interests, the
operations of these hotels will be included in our consolidated statement of
earnings in lieu of the rental income which is currently being recognized.

     As of December 31, 2003 and 2002, the Company had approximately $26.1
million and $44.1 million, respectively, available for funding under the various
forms of credit enhancement. The Company's unconsolidated subsidiaries had
approximately $34.3 million and $67.1 million, respectively, as of December 31,
2003 and 2002, available for funding.

21.  SELECTED QUARTERLY FINANCIAL DATA:

     The following table presents selected unaudited quarterly financial data
for each full quarter during the years ended December 31, 2003 and 2002 (in
thousands, except per share data). Revenue amounts reported for 2002 and the
first three quarters of 2003 have been restated for the effects of the
implementation of FIN 46R (see Note 2 to the consolidated financial statements):

<Table>
<Caption>
2003 QUARTER                               FIRST      SECOND     THIRD      FOURTH      YEAR
------------                              --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Continuing Operations:
  Revenues..............................  $ 95,637   $107,520   $158,387   $195,596   $557,140
  Income (loss) from continuing
     operations.........................     6,437        983     (6,062)     3,413      4,771
Discontinued Operations:
  Revenues..............................        --         --      3,001      2,699      5,700
  Income from discontinued operations...        --         --        774        448      1,222
Net Earnings (Loss).....................     6,437        983     (5,288)     3,861      5,993
Earnings (Loss) per Share, basic and
  diluted:
  Continuing operations.................      0.05       0.01      (0.03)      0.02       0.02
  Discontinued operations...............        --         --         --         --       0.01
  Net earnings..........................      0.05       0.01      (0.03)      0.02       0.03
Weighted average number of shares of
  common stock outstanding basic and
  diluted...............................   133,837    153,668    181,941    220,092    172,449
</Table>

                                        72
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
2002 QUARTER                               FIRST      SECOND     THIRD      FOURTH      YEAR
------------                              --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Continuing Operations:
  Revenues..............................  $ 45,038   $ 49,499   $ 63,539   $ 67,450   $225,526
  Income from continuing operations.....     3,651      4,757      2,343      5,059     15,810
Net Earnings............................     3,651      4,757      2,343      5,059     15,810
Earnings per Share, basic and diluted:
  Continuing operations.................      0.05       0.05       0.02       0.04       0.16
  Net earnings..........................      0.05       0.05       0.02       0.04       0.16
Weighted average number of shares of
  common stock outstanding basic and
  diluted...............................    80,748     89,490    100,749    117,523     97,874
</Table>

22.  SUBSEQUENT EVENTS:

     During the period January 1, 2004 through February 20, 2004, the Company
received subscription proceeds from its 2003 Offering of approximately $270.0
million representing the issuance of approximately 27.0 million shares of common
stock.

     On January 1, 2004 and February 1, 2004, the Company declared distributions
totaling approximately $15.7 million and $16.7 million, respectively, or
$0.064583 per share of common stock, payable by March 31, 2004, to stockholders
of record on January 1, 2004 and February 1, 2004, respectively.

     On February 12, 2004, through a wholly owned subsidiary, the Company
entered into a stock purchase agreement with KKR Partners II, L.P., a Delaware
limited partnership, KKR 1996 Fund, L.P., a Delaware limited partnership, Resort
Associates, L.P., a Delaware limited partnership, Golf Associates, L.P., a
Delaware limited partnership and KSL Recreation Corporation, a Delaware
corporation (referred to as "KSL"), whereby the Company has agreed to acquire
all of the outstanding capital stock of KSL and its subsidiaries, for
approximately $1.4 billion in cash and estimated closing costs of approximately
$25 million (the "KSL Acquisition"). In connection with the KSL Acquisition, the
Company paid a non-refundable deposit of $75 million in February 2004. Upon
consummation of the transaction, the six resorts currently owned by KSL will be
acquired by the Company's wholly owned subsidiaries and it will be subject to
the outstanding debt of KSL and its subsidiaries (approximately $794 million as
of February 2, 2004) ("Existing KSL Debt") and any other outstanding
liabilities. The closing of the KSL Acquisition is subject to the fulfillment of
certain conditions, such as customary approvals and other closing conditions. If
the conditions are not satisfied, the KSL Acquisition may not occur. The Company
has received a commitment from a lender to finance the KSL Acquisition with a
short-term loan of up to $1.86 billion ("KSL Short-Term Loan"). The Company may
use the proceeds of the KSL Short-Term Loan to repay the Existing KSL Debt
simultaneously with the consummation of the KSL Acquisition or it may only draw
approximately $1.1 billion on the KSL Short-Term Loan and later refinance the
Existing KSL Debt. The Company is in the process of obtaining a commitment to
refinance the Existing KSL Debt (if such debt is not repaid simultaneously with
the consummation of the KSL Acquisition) and/or a portion of the KSL Short-Term
Loan with the proceeds of permanent financing to be obtained within nine months
of consummating the KSL Acquisition. The KSL Short-Term Loan is expected to be
repaid from a combination of permanent debt, or out of the proceeds that the
Company may receive from the sale of the Company's common stock through the 2004
Offering.

     In March 2004, the third-party tenants affiliated with Marriott for ten of
the Company's Properties with combined net operating income of approximately
$13.0 million and base rental obligations of $26.7 million informed us that the
annual net operating income projected for these Properties would be insufficient
to fund the full amount of scheduled base rent for 2004 and potentially
subsequent years. As a result, the Company has begun discussions with those
tenants on possible alternatives that would address the current circumstances

                                        73
<PAGE>
                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

including its possible acquisition of the leasehold interests in these
Properties and the execution of management agreements with Marriott or its
affiliates to operate the Properties under long-term contracts. Under this
alternative arrangement, these Properties would be leased to one or more of the
Company's TRS subsidiaries and managed by an affiliate of Marriott. This
possible alternative may include additional guarantees, provided by Marriott, of
minimum returns which may not provide the same income stream as the base rents.
The Properties are encumbered by debt and consequently any alternative solution
will be subject to approval by the lender providing the related financing. As
these discussions continue it is possible that Marriott, on behalf of the
tenants, will continue to pay the rent due under the current lease structure
until such time that these leases are assigned or modified. The Company may be
required to return the security deposits received in connection with the current
agreements. Should the Company take assignment of the leasehold interests, the
operations of these hotels will be included in our consolidated statement of
earnings in lieu of the rental income which is currently being recognized.

     The Company developed and completed a Courtyard by Marriott in Foothill
Ranch, California. The Property opened on February 18, 2004.

     As indicated under Note 10, "Investments", CNL Hospitality Partners, LP, a
wholly owned subsidiary of the Company ("Hospitality Partners"), has invested
approximately $19 million in HLP's Series A convertible preferred partnership
units (representing 190,266 Series A preferred partnership units which are
convertible at any time for (among other securities) approximately 2,816,460
common shares of beneficial interest of Hersha Hospitality Trust ("HT"), HLP's
parent entity, subject to certain adjustments). Hospitality Partners has
exercised its registration rights under that certain Registration Rights
Agreement with HLP dated April 21, 2003 (the "Registration Rights Agreement").
Accordingly, on March 2, 2004, HT filed a registration statement on Form S-3
with the Commission registering the 2,816,460 common shares of beneficial
interest of HT underlying the Company's 190,266 Series A preferred partnership
units in HLP. Although the Company invoked its registration rights under the
Registration Rights Agreement, at this time the Company does not know with
certainty that it will exchange its preferred partnership units into common
shares of beneficial interest, or if it does exercise its rights to convert the
preferred partnership units into common shares of beneficial interest, that it
will sell such shares.

     During the first quarter of 2004, the Company began to actively consider
various alternatives including Listing, recapitalization of its current debt
structure, possible mergers, additional acquisitions or continuing to raise
money and operate as it currently does.

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

                                        74
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

ITEM 9A.  CONTROLS AND PROCEDURES

     Quarterly Evaluation.  Management carried out an evaluation as of December
31, 2003 of the effectiveness of the design and operation of the Company's
"disclosure controls and procedures," which management refers to as the
Company's disclosure controls. This evaluation was done under the supervision
and with the participation of management, including the Company's Principal
Executive Officer and Principal Financial Officer. Rules adopted by the
Commission require that management present the conclusions of the Principal
Executive Officer and Principal Financial Officer about the effectiveness of the
Company's disclosure controls as of the end of the period covered by this annual
report.

     Principal Executive Officer and Principal Financial Officer
Certifications.  Included as Exhibits 31.1 and 31.2 to this Annual Report on
Form 10-K are Certifications of the Company's Principal Executive Officer and
Principal Financial Officer. The Certifications are required in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Annual Report
on Form 10-K, which you are currently reading, is the information concerning the
evaluation referred to in the Section 302 certifications. This information
should be read in conjunction with the Section 302 certifications for a more
complete understanding of the topics presented.

     Disclosure Controls and Procedures and Internal Control over Financial
Reporting.  Disclosure controls and procedures are designed with the objective
of ensuring that information required to be disclosed in the Company's reports
filed or submitted under the Exchange Act, such as this Annual Report on Form
10-K, is recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms. Disclosure controls and
procedures are also designed with the objective of ensuring that such
information is accumulated and communicated to the Company's management,
including the Company's Principal Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.

     Internal control over financial reporting is a process designed by, or
under the supervision of, the Company's Principal Executive Officer and
Principal Financial Officer, and effected by the Company's Board of Directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:

     - pertain to the maintenance of records that in reasonable detail
       accurately and fairly reflect the transactions and dispositions of our
       assets;

     - provide reasonable assurance that transactions are recorded as necessary
       to permit preparation of financial statements in accordance with
       generally accepted accounting principles, and that the Company's receipts
       and expenditures are being made only in accordance with authorizations of
       management and the Company's Board; and

     - provide reasonable assurance regarding prevention or timely detection of
       unauthorized acquisition, use or disposition of the Company's assets that
       could have a material adverse effect on the Company's financial
       statements.

     Limitations on the Effectiveness of Controls.  Management, including the
Company's Principal Executive Officer and Principal Financial Officer, do not
expect that the Company's disclosure controls and procedures or the Company's
internal control over financial reporting will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the company have been

                                        75
<PAGE>

detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management's
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

     Conclusions.  Based upon the evaluation, the Company's Principal Executive
Officer and Principal Financial Officer have concluded that, as of December 31,
2003 and subject to the limitations noted above, the Company's disclosure
controls and procedures were effective to ensure that material information
relating to the Company and the Company's consolidated subsidiaries is made
known to management, including the Company's Principal Executive Officer and
Principal Financial Officer as appropriate, to allow timely decisions regarding
the required disclosure.

     During the three months ended December 31, 2003, there were no significant
changes in the Company's internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                        76
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  DIRECTORS, NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS AND EXECUTIVE
  OFFICERS

     Our board of directors currently consists of six members, including a
majority of directors who are independent directors. Pursuant to our articles of
incorporation, each of our directors is elected by our stockholders to serve
until the next annual meeting and until their successors are duly elected and
qualified. Subject to rights pursuant to any employment agreements, our
executive officers serve at the pleasure of our board of directors. At our
annual meeting of stockholders which is expected to be held in the second
quarter of 2004, our board of directors will be increased to nine members,
including a majority of directors who are independent directors.

     The following table sets forth certain information concerning the
individuals who are our directors, nominees for director and executive officers:

<Table>
<Caption>
NAME                                        AGE                    POSITION
----                                        ---                    --------
<S>                                         <C>   <C>
James M. Seneff, Jr.......................  57    Director and Chairman of the Board
Robert A. Bourne..........................  56    Director, Vice Chairman of the Board,
                                                  Treasurer
Charles E. Adams*.........................  41    Independent Director
Lawrence A. Dustin*.......................  58    Independent Director
James Douglas Holladay....................  57    Nominee for Independent Director
Jack F. Kemp..............................  68    Nominee for Independent Director
Craig M. McAllaster.......................  52    Independent Director
Dianna Morgan.............................  52    Nominee for Independent Director
Robert E. Parsons, Jr.....................  48    Independent Director
Thomas J. Hutchison III...................  62    Chief Executive Officer and Nominee for
                                                  Director
John A. Griswold..........................  54    President, Chief Operating Officer and
                                                  Nominee for Director
Barry A. N. Bloom.........................  39    Senior Vice President of Portfolio
                                                  Management and Administration
C. Brian Strickland.......................  41    Executive Vice President (Principal
                                                  Financial Officer) and Corporate Secretary
Paul H. Williams..........................  39    Senior Vice President of Corporate Strategy
                                                  and Capital Markets
</Table>

---------------

* not standing for re-election at our annual meeting

     Mr. Seneff has served as a director since June 1996. Mr. Bourne has served
as a director since June 1996, with the exception of the period from February 7,
2003 through June 27, 2003. Messrs. Adams, Dustin, and McAllaster have served as
directors since early 1999. Mr. Parsons has served as one of our directors since
September 2003. Messrs. Adams, Dustin, McAllaster and Parsons are "independent
directors", as that term is defined in our Articles of Incorporation.

     Set forth below is a brief description of the business experience during at
least the past five years of each director, executive officer and person
nominated to become a director.

     JAMES M. SENEFF, JR. is our Director and Chairman of the Board. Mr. Seneff
served as our Chief Executive Officer since our inception through February 13,
2003 and he served as co-Chief Executive Officer from February 14, 2003 through
May 1, 2003. Mr. Seneff continues to serve as a director, Chairman of the

                                        77
<PAGE>

Board and co-Chief Executive Officer of CNL Hospitality Corp. and CNL Hotel
Investors, Inc., a real estate investment trust majority owned by us. Mr. Seneff
is a principal stockholder of CNL Holdings, Inc., the parent company of CNL
Financial Group, Inc., a diversified real estate company, and has served as a
director, Chairman of the Board and Chief Executive Officer of CNL Financial
Group, Inc. and its subsidiaries ("CNL") since CNL's formation in 1973. CNL
Financial Group, Inc. is the parent company, either directly or indirectly
through subsidiaries, of CNL Real Estate Group, Inc., CNL Hospitality Corp. ,
CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp. At
December 31, 2003, CNL Financial Group, Inc. and the entities it has established
have more than $9.5 billion in assets, representing interests in over 4,000
properties in 49 states and Canada. Mr. Seneff also serves as a director and
Chairman of the Board of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust, as well as CNL Retirement Corp., its advisor.
Since 1992, Mr. Seneff has served as a director, Chairman of the Board and Chief
Executive Officer of Commercial Net Lease Realty, Inc., a public real estate
investment trust that is listed on the New York Stock Exchange. In addition, he
has served as a director and Chairman of the Board since inception in 1994,
served as Chief Executive Officer from 1994 through August 1999 and co-Chief
Executive Officer from December 2000 through September 2003 of CNL Restaurant
Properties, Inc., a public, unlisted real estate investment trust. Mr. Seneff
has also served as a director, Chairman of the Board and Chief Executive Officer
of CNL Securities Corp. since 1979; CNL Investment Company since 1990; and CNL
Institutional Advisors, Inc., a registered investment adviser for pension plans,
since 1990. Mr. Seneff formerly served as a director of First Union National
Bank of Florida, N.A., and currently serves as the Chairman of the Board of
CNLBank. Mr. Seneff served on the Florida State Commission on Ethics and is a
former member and past chairman of the State of Florida Investment Advisory
Council, which recommends to the Florida Board of Administration investments for
various Florida employee retirement funds. The Florida Board of Administration
is Florida's principal investment advisory and money management agency and
oversees the investment of more than $60 billion of retirement funds. Mr. Seneff
received his degree in Business Administration from Florida State University in
1968.

     ROBERT A. BOURNE is our Director, Vice Chairman of the Board and Treasurer.
Mr. Bourne serves as a director, Vice Chairman of the Board and Treasurer of CNL
Hospitality Corp. , and director and Treasurer of CNL Hotel Investors, Inc., a
real estate investment trust majority owned by us. Mr. Bourne served as
President of our company and of CNL Hospitality Corp. from 1997 to June 2002,
and served as President of CNL Hotel Investors, Inc. from 1999 to July 2002. Mr.
Bourne is also the President and Treasurer of CNL Financial Group, Inc.; a
director, Vice Chairman of the Board and Treasurer of CNL Retirement Properties,
Inc., a public, unlisted real estate investment trust; as well as, a director,
Vice Chairman of the Board and Treasurer of CNL Retirement Corp., its advisor.
Mr. Bourne served as President of CNL Retirement Properties, Inc. and CNL
Retirement Corp. from 1998 and 1997, respectively, to June 2002. Mr. Bourne also
serves as a director of CNLBank. He serves as a director and Vice Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust listed on the New York Stock Exchange. Mr. Bourne has served as a director
since inception in 1994, President from 1994 through February 1999, Treasurer
from February 1999 through August 1999, and Vice Chairman of the Board since
February 1999, of CNL Restaurant Properties, Inc., a public, unlisted real
estate investment trust. Mr. Bourne also serves as a director, President and
Treasurer for various affiliates of CNL Financial Group, Inc., including CNL
Investment Company, CNL Securities Corp., and CNL Institutional Advisors, Inc.,
a registered investment advisor for pension plans. As President of CNL Financial
Group, Inc., Mr. Bourne has overseen CNL's real estate and capital markets
activities including the investment of over $3 billion in equity and the
financing, acquisition, construction and leasing of restaurants, office
buildings, apartment complexes, hotels, retirement properties and other real
estate. Mr. Bourne began his career as a certified public accountant employed by
Coopers & Lybrand, Certified Public Accountants, from 1971 through 1978, where
he attained the position of tax manager in 1975. Mr. Bourne graduated from
Florida State University in 1970 where he received a B.A. in Accounting, with
honors.

     CHARLES E. ADAMS is one of our independent directors.  Since 1997, Mr.
Adams has served as the president and a founding principal of Celebration
Associates, LLC, a real estate advisory and development firm. Celebration
Associates specializes in large-scale master-planned communities and specialty
commercial developments. Mr. Adams joined The Walt Disney Company in 1990 and
from 1996 until May 1997 served as
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vice president of community business development for The Celebration Company and
Walt Disney Imagineering. Mr. Adams participated in the planning for residential
development at EuroDisney in Paris, France. He was a founding member of the
Celebration School Board of Trustees and served as president and founding member
of the Celebration Foundation Board of Directors. Mr. Adams is a council member
on the Resort/Recreation Development Council for the Urban Land Institute.
Before joining The Walt Disney Company in 1990, Mr. Adams worked with Trammell
Crow Residential developing luxury apartment communities in the Orlando and
Jacksonville, Florida areas. Mr. Adams also currently serves on: Board of
Directors for Bath County Community Hospital; Board of Directors for Bath County
Chamber of Commerce; Board of Directors for Achievement, Inc., an education
foundation; and the President's Advisory Council for Marriage and Family
Matters, a national ministry. Mr. Adams received a B.A. from Northeast Louisiana
University in 1984 and an M.B.A. from Harvard Graduate School of Business in
1989.

     LAWRENCE A. DUSTIN is one of our independent directors. Mr. Dustin has over
30 years of experience in the hospitality industry. Since January 2002, Mr.
Dustin has served as president, a director and a principal stockholder of
Dustin/Massagli LLC, a company which manages the operations of EMTG, LLC. Mr.
Dustin also serves as a director and president of EMTG, LLC. EMTG, LLC publishes
the Mobil Travel Guide, a publication which features information about domestic
hotels, resorts, restaurants, sites and attractions. From August 1999 through
January 2002, Mr. Dustin served as president of the lodging division for Travel
Services International, Inc., a specialized distributor of leisure travel
products and services. From September 1998 to August 1999, Mr. Dustin served as
principal of BBT, an advisory company specializing in hotel operations,
marketing and development. From 1994 to September 1998, Mr. Dustin served as
senior vice president of lodging of Universal Studios, Inc., where he led
Universal's entry into the lodging business. Mr. Dustin provided strategic
direction and tactical implementation for matters related to Universal's hotel
interests in Singapore, Osaka, Los Angeles and Orlando. In Orlando, he
supervised the early-stage development of the resort's five highly themed, full
service hotels comprised of 5,000 rooms. Before joining Universal Studios in
1994, Mr. Dustin served as a principal and chief executive officer of AspenCrest
Hospitality, Inc., a professional services firm which helped independent hotel
owners enhance the asset value of their properties. From 1969 to 1989, Mr.
Dustin held various positions in the hotel industry, including 14 years in
management with Westin Hotels & Resorts. Mr. Dustin received a B.A. from
Michigan State University in 1968.

     JAMES DOUGLAS HOLLADAY is a nominee to become one of our independent
directors. Since 1998, Mr. Holladay has served as general partner of two
firms -- Thornton Group, LLC, which invests in start-up business ventures and
advises public and private companies, and Park Avenue Equity Partners, a private
equity fund that makes investments in operating companies. Prior to 1998, Mr.
Holladay was a senior officer with Goldman, Sachs & Company, an international
investment banking firm. He also previously held senior positions of
responsibility in both the White House and Department of State. Mr. Holladay
received a B.A. in 1969 from the University of North Carolina and an M.A. in
1978 from Princeton Theological and in 1981 from Oxford University.

     JACK F. KEMP is a nominee to become one of our independent directors. In
1993, Mr. Kemp co-founded Empower America, a public policy and advocacy
organization, and has since served as co-director of the organization. In August
1996, he received the Republican Party's nomination for Vice President under
presidential candidate Bob Dole. Prior to founding Empower America, Mr. Kemp
served as Secretary of Housing and Urban Development from 1990 to 1993, and as a
U.S. Representative for western New York from 1971 to 1989. Before his election
to Congress, Mr. Kemp played 13 years as a professional football quarterback and
co-founded the American Football League Players Association. He received a B.A.
in 1957 from Occidental College.

     CRAIG M. MCALLASTER is one of our independent directors. Dr. McAllaster is
dean of the Roy E. Crummer Graduate School of Business at Rollins College. He
directed the Executive MBA program from 1994 through 2000, has been on the
management faculty and served as executive director of the international
consulting practicum programs at the Crummer School. Prior to Rollins College,
Dr. McAllaster was on the faculty at the School of Industrial and Labor
Relations and the Johnson Graduate School of Management, both at Cornell
University and the University of Central Florida. Dr. McAllaster spent over ten
years in the consumer services and electronics industry in management,
organizational and executive development positions. He is a
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consultant to a variety of domestic and international companies in the areas of
strategy and leadership. Dr. McAllaster received a B.S. from the University of
Arizona in 1972, an M.S. from Alfred University in 1980 and an M.A. in 1985 and
Doctorate in 1987, both from Columbia University.

     DIANNA MORGAN is a nominee to become one of our independent directors. Ms.
Morgan had a 30-year career with Walt Disney World Company, most recently
serving as Senior Vice President of Public Affairs from 1993 to 2001, where she
was responsible for government, community and media relations, as well as the
Disney Institute. She was appointed by Governor Jeb Bush to the University of
Florida Board of Trustees and previously served as a member of the Orange County
Tourist Development Commission, the Florida Tourism Commission and Enterprise
Florida. Ms. Morgan received a B.A. in 19  from Rollins College.

     ROBERT E. PARSONS, JR. is one of our independent directors. Since September
2003, Mr. Parsons has served as President of Wasatch Investments, which provides
advisory and consulting services to the real estate and lodging industries.
Prior to Wasatch Investments, Mr. Parsons spent 22 years at Host Marriott
Corporation, a real estate investment trust which owns full service hotel
properties, where from 1995 to May 2003, he served as Executive Vice President
and Chief Financial Officer. He is a member of the Urban Land Institute and
previously served as Chairman of the Hotel Development Council. Mr. Parsons
received a B.A. in 1979 and an M.B.A. in 1981, from Brigham Young University.

     THOMAS J. HUTCHISON III is our Chief Executive Officer. Mr. Hutchison
serves as co-Chief Executive Officer and a director of CNL Hospitality Corp.,
and serves as President of CNL Hotel Investors, Inc., a real estate investment
trust majority owned by us. From February 14, 2003 to May 1, 2003, Mr. Hutchison
served as our co-Chief Executive Officer. From June 2002 through March 17, 2003,
Mr. Hutchison served as our President and President of CNL Hospitality Corp.
From 2000 to June 2002, Mr. Hutchison served as our Executive Vice President and
Executive Vice President of CNL Hospitality Corp., and from 2000 to July 2002,
he served as Executive Vice President of CNL Hotel Investors, Inc. In addition,
Mr. Hutchison serves as President and Chief Operating Officer of CNL Real Estate
Group, Inc., which is the parent company of CNL Hospitality Corp. and CNL
Retirement Corp. He also serves as the President and Chief Operating Officer of
CNL Realty & Development Corp. In addition, Mr. Hutchison serves as President
and Chief Executive Officer of CNL Retirement Properties, Inc. and as a
director, President and Chief Executive Officer of CNL Retirement Corp., its
advisor. Mr. Hutchison also serves as a director, Chairman and Chief Executive
Officer of EMTG, LLC. EMTG, LLC publishes the Mobil Travel Guide, a publication
which features information about domestic hotels, resorts, restaurants, sites
and attractions. From 2000 to June 2002, Mr. Hutchison served as Executive Vice
President of CNL Retirement Properties, Inc. and CNL Retirement Corp. Mr.
Hutchison joined CNL Financial Group, Inc. in January 2000 with more than 30
years of senior management and consulting experience in the real estate
development and services industries. He currently serves on the board of
directors of Restore Orlando, a nonprofit community volunteer organization.
Prior to joining CNL, Mr. Hutchison was president and owner of numerous real
estate services and development companies. From 1995 to 2000, he was chairman
and chief executive officer of Atlantic Realty Services, Inc. and TJH
Development Corporation. Since 1990, he has fulfilled a number of long-term
consulting assignments for large corporations, including managing a number of
large international joint ventures. From 1990 to 1991, Mr. Hutchison was the
court-appointed president and chief executive officer of General Development
Corporation, a real estate community development company, where he assumed the
day-to-day management of the $2.6 billion NYSE-listed company entering
reorganization. From 1986 to 1990, he was the chairman and chief executive
officer of a number of real estate-related companies engaged in the master
planning and land acquisition of forty residential, industrial and office
development projects. From 1978 to 1986, Mr. Hutchison was the president and
chief executive officer of Murdock Development Corporation and Murdock
Investment Corporation, as well as Murdock's nine service divisions. In this
capacity, he managed an average of $350 million of new development per year for
over nine years. Additionally, he expanded the commercial real estate activities
to a national basis, and established both a new extended care division and a
hotel division that grew to 14 properties. Mr. Hutchison was educated at Purdue
University and the University of Maryland Business School.

     JOHN A. GRISWOLD is our President and Chief Operating Officer. Mr. Griswold
has over 30 years of experience in the hospitality industry. Mr. Griswold also
serves as a director and President of CNL Hospitality
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Corp. Mr. Griswold also serves as a director and President of CNL Hospitality
Corp. From January 1999 to February 2003, Mr. Griswold served as one of our
independent directors. From 1985 to March 2003, Mr. Griswold served as president
of Tishman Hotel Corporation, an operating unit of Tishman Realty & Construction
Co., Inc., founded in 1898. Tishman Hotel Corporation is a hotel developer,
owner and operator, and has provided such services for more than 85 hotels,
totaling more than 30,000 rooms. From 1981 to 1985, Mr. Griswold served as
general manager of the Buena Vista Palace Hotel in The Walt Disney World
Village. From 1978 to 1981, he served as vice president and general manager of
the Homestead Resort, a luxury condominium resort in Glen Arbor, Michigan. In
addition, Mr. Griswold served as an operations manager for The Walt Disney
Company from 1971 to 1978. He was responsible for operational, financial and
future planning for multi-unit dining facilities in Walt Disney World Village
and Lake Buena Vista Country Club. He is a member of the board of directors of
the Florida Hotel & Lodging Association, chairman elect of Orlando/Orange County
Convention & Visitors Bureau, Inc. and chairman of the First Orlando Foundation.
Mr. Griswold received a B.S. from the School of Hotel Administration at Cornell
University in Ithaca, New York.

     C. BRIAN STRICKLAND is one of our Executive Vice Presidents and the
Corporate Secretary. Mr. Strickland currently serves as Executive Vice President
of CNL Hospitality Corp., CNL Hotel Development Company and CNL Hotel Investors,
Inc. Mr. Strickland supervises the companies' financial reporting, financial
control and accounting functions as well as forecasting, budgeting and cash
management activities. He is also responsible for regulatory compliance, equity
and debt financing activities and insurance for the companies. Mr. Strickland
joined CNL Hospitality Corp. in April 1998 with an extensive accounting
background. Prior to joining CNL, he served as vice president of taxation with
Patriot American Hospitality, Inc., where he was responsible for implementation
of tax planning strategies on corporate mergers and acquisitions and where he
performed or assisted in strategic processes in the REIT industry. From 1989 to
1997, Mr. Strickland served as a director of tax and asset management for
Wyndham Hotels & Resorts where he was integrally involved in structuring
acquisitive transactions, including the consolidation and initial public
offering of Wyndham Hotel Corporation and its subsequent merger with Patriot
American Hospitality, Inc. In his capacity as director of asset management, he
was instrumental in the development and opening of a hotel and casino in San
Juan, Puerto Rico. Prior to 1989, Mr. Strickland was senior tax accountant for
Trammell Crow Company where he provided tax consulting services to regional
developmental offices. From 1986 to 1988, Mr. Strickland was tax accountant for
Ernst & Whinney where he was a member of the real estate practice group. Mr.
Strickland is a certified public accountant and holds a bachelor's degree in
Accounting.

     BARRY A.N. BLOOM is our Senior Vice President of Portfolio Management &
Administration. Mr. Bloom currently serves as Senior Vice President of CNL
Hospitality Corp. Mr. Bloom joined CNL Hospitality Corp. in May 2003 and he is
responsible for the oversight of select hotel assets as well as directing
efforts in management and franchise agreement administration, real estate
ownership issues, hotel technology and integrating acquisitions into our
existing portfolio management systems. Immediately prior to joining CNL
Hospitality Corp., Mr. Bloom served as Vice President -- Investment Management
for Hyatt Development Corporation for three years. At Hyatt, he was responsible
for providing ownership discipline and oversight for over 50 hotels and provided
direction and decision making for capital expenditures and real estate issues.
Prior to serving as Vice President of Hyatt, Mr. Bloom was a Vice President at
Tishman Hotel Corporation where he spent over 10 years in a variety of
capacities including investment banking, asset management and property
management. Prior to joining Tishman, he worked for VMS Realty Partners and
Pannell Kerr Forster. Mr. Bloom holds an MBA from the Johnson School at Cornell
University and a bachelor's degree from the School of Hotel Administration at
Cornell University.

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     PAUL WILLIAMS is our Senior Vice President. Mr. Williams currently serves
as Senior Vice President of Corporate Strategy and Capital Markets of CNL
Hospitality Corp. Mr. Williams joined CNL Hospitality Corp. in July 2003 and is
responsible for developing corporate strategy, implementing financial plans and
executing acquisitions. Mr. Williams brings 17 years of experience in the areas
of investment banking, finance and accounting, including mergers and
acquisitions and capital markets. Prior to joining CNL Hospitality Corp., Mr.
Williams served six years as a Principal in Mergers and Acquisitions and Real
Estate Investment Banking with Banc of America Securities LLC. In doing so, he
executed a variety of corporate and asset transactions specializing in the
identification and execution of mergers, acquisitions, sales and financings for
real estate investment trusts and real estate opportunity funds. In addition,
Mr. Williams spent 10 years with public accounting firms Price Waterhouse and
Deloitte & Touche. Mr. Williams holds a bachelor's degree in accounting from the
University of Florida.

  AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

     We have a standing Audit Committee, which is comprised of Mr. McAllaster,
who chairs the Audit Committee, and Messrs. Adams and Parsons. Each of Messrs.
Adams, McAllaster, and Parsons are "independent directors," as that term is
defined in the Company's Articles of Incorporation. Although our shares are not
listed on the New York Stock Exchange ("NYSE"), we determined to apply the NYSE
standards of independence to the audit committee members and each of Messrs.
Adams, McAllaster and Parsons are "independent" under Sections 303.01(B)(2)(a)
and (3) of the NYSE listing standards. The Company's Board of Directors has
determined that Robert E. Parsons is an "audit committee financial expert" as
defined by Item 401(h) of Regulation S-K of the Exchange Act.

     The Audit Committee operates under a written charter adopted by our Board
of Directors. The Audit Committee assists our Board of Directors in fulfilling
its oversight of the quality and integrity of our financial statements and our
compliance with legal and regulatory requirements. The Audit Committee is
responsible for reviewing the performance of the independent accountants,
annually reviews the qualifications, performance and independence of the
independent accountants and the audit plan, fees and audit results, and pre-
approves audit and non-audit services to be performed by the independent
accountants and related fees. The Audit Committee met seven times during the
year ended December 31, 2003.

  SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     On February 14, 2003, an Annual Statement of Beneficial Ownership of
Securities on Form 5 was not filed by Matthew W. Kaplan (at that time one of our
directors) on behalf of an LLC (of which he has been appointed a manager) with
respect to a single transaction relating to shares as to which he disclaimed
beneficial ownership. Such Form was required to be filed by Section 16(a) of the
Exchange Act and the rules and regulations adopted thereunder, and was
subsequently filed.

     Messrs. Bloom and Williams were appointed as executive officers of the
Company on October 29, 2003. Mr. Parsons became a director of the Company on
September 26, 2003. Neither of these individuals timely filed an Initial
Statement of Beneficial Ownership of Securities on Form 3 with respect to their
new positions. Such Forms were required to be filed by Section 16(a) of the
Exchange Act and the rules and regulations adopted thereunder, and were
subsequently filed. None of these individuals own shares in the Company.

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  CODE OF ETHICS

     We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer, or persons
performing similar functions. Our code of ethics, which is entitled "Code of
Business Conduct" is available on the Internet at our website which is included
in the website of our affiliate at http://www.cnlonline.com.

ITEM 11.  EXECUTIVE COMPENSATION

  COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

     During the year ended December 31, 2003, each independent director earned
between $7,000 and $28,500 for serving on the Board. Each independent director
received $1,000 per Board meeting attended ($500 for each telephonic meeting in
which the director participated). The members of the Audit Committee were
entitled to receive $1,000 (or $1,500, in the case of the chairman of the Audit
Committee) per Audit Committee Meeting attended or telephonic Audit Committee
meeting in which the director participated. In addition to the above
compensation, the chairman of the Audit Committee was entitled to receive $1,500
per meeting attended with our independent accountants and $1,500 for each
telephonic meeting with our independent accountants in which the chairman
participated as a representative of the Audit Committee. During the year ended
December 31, 2003, Directors that were members of a special committee were
entitled to receive fees of $1,000 per day for services as representatives of
such special committees in lieu of the above compensation (to the extent that
such directors devote in excess of three hours on such day to matters relating
to such special committee). We have not paid any compensation to our officers
and directors who also serve as officers and directors of CNL Hospitality Corp.,
our advisor.

     No annual or long-term compensation was paid by us to any executive
officers for services rendered in all capacities to us during the years ended
December 31, 2003, 2002 and 2001. In addition, none of our executive officers
received an annual salary or bonus from us during the years ended December 31,
2003, 2002 and 2001. Our executive officers are also employees and executive
officers of CNL Hospitality Corp. or its affiliates and receive compensation
from CNL Financial Group, Inc. and its affiliates in part for services provided
to us. See "Item 13. Certain Relationships and Related Transactions" for a
description of the fees payable and expenses reimbursed to the CNL Hospitality
Corp. and its affiliates.

     The Board of Directors did not have a Compensation Committee prior to 2004.
We have no employees other than our officers who are not compensated by us. No
officers of the Company participated in deliberations of the Company's Board of
Directors relating to executive officer compensation.

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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     The following table sets forth, as of April 1, 2004, the number and
percentage of outstanding shares of common stock, par value $0.01 per share,
beneficially owned by each director and nominee, by each of our executive
officers, and by all executive officers and directors as a group, based upon
information furnished to us by such directors, nominees and executive officers.
We are not aware of any person or group that is the beneficial owner of more
than five percent of our outstanding common stock. Unless otherwise listed, the
address of each of the shareholders is c/o CNL Hospitality Properties, Inc., CNL
Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801.

<Table>
<Caption>
NAME AND ADDRESS                                    TOTAL NUMBER OF SHARES
OF BENEFICIAL OWNER                                   BENEFICIALLY OWNED     PERCENT OF CLASS
-------------------                                 ----------------------   ----------------
<S>                                                 <C>                      <C>
Charles E. Adams..................................               0                  --
Barry A.N. Bloom..................................               0                  --
Robert A. Bourne..................................               0                  --
Lawrence A. Dustin................................               0                  --
John A. Griswold..................................               0                  --
Thomas J. Hutchison III...........................               0                  --
Craig M. McAllaster...............................               0                  --
Robert A. Parsons, Jr. ...........................               0                  --
James M. Seneff, Jr. .............................         980,913                  (2)(1)
C. Brian Strickland...............................               0                  --
Paul H. Williams..................................               0                  --
All directors and executive officers as a group
  (11 persons)....................................         982,413                  (2)(1)
</Table>

---------------

(1) Less than one percent of the total amount of our outstanding shares of
    common stock.

(2) Represents 20,000 shares held by CNL Hospitality Corp., of which Mr. Seneff
    is a director, and 960,913 shares issuable upon exercise of warrants by CNL
    Securities Corp., and which expire in June 2004. Mr. Seneff is a director of
    CNL Securities Corp. These warrants may be reallowed to other

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    unrelated broker dealer firms in accordance with the terms of the offering
    they relate to. Mr. Seneff and his spouse share beneficial ownership of CNL
    Hospitality Corp. and CNL Securities Corp. through their ownership of CNL
    Financial Group, Inc., which they hold through ownership of its parent
    company, CNL Holdings, Inc. CNL Hospitality Corp. is a majority owned
    subsidiary of CNL Financial Group, Inc. and CNL Securities Corp. is a wholly
    owned subsidiary of CNL Financial Group, Inc.

     We have not issued any securities under equity compensation plans.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Certain of our directors and officers hold similar positions with our
advisor, CNL Hospitality Corp., and its affiliates, including CNL Securities
Corp., the managing dealer of our five prior public offerings of shares of
common stock. Messrs. Seneff and Bourne and Ms. Rose serve as officers and/or
directors of CNL Hospitality Corp., a majority owned subsidiary of CNL Financial
Group, Inc. In addition, Messrs. Seneff and Bourne and Ms. Rose are executive
officers of CNL Securities Corp., a wholly owned subsidiary of CNL Financial
Group, Inc. Mr. Hutchison, our chief executive officer, is a director and
co-Chief Executive officer of CNL Hospitality Corp. and its affiliates are by
contract entitled to receive fees and compensation for services provided in
connection with our common stock offerings, and the acquisition, development,
management and sale of our assets. Amounts incurred relating to these
transactions were $202.2 million for the year ended December 31, 2003. Of this
amount, approximately $10.1 million is included in due to related parties in our
consolidated balance sheets as of December 31, 2003 (see Consolidated Balance
Sheets in Item 8: Financial Statements and Supplementary Data).

     Administration of our day-to-day operations is provided by CNL Hospitality
Corp., pursuant to the terms of an advisory agreement. CNL Hospitality Corp.
also serves as our consultant in connection with policy decisions to be made by
our Board, conducts portfolio management services for our properties, sources
acquisitions, negotiates and closes on the Properties we acquire and renders
such other services as the Board deems appropriate. CNL Hospitality Corp. also
bears the expense of providing the executive personnel and office space to us.
CNL Hospitality Corp. is at all times subject to the supervision of the Board
and has only such functions and authority as we may delegate to it as our agent.

     For the year ended December 31, 2003, CNL Securities Corp. was entitled to
receive selling commissions amounting to 7.5 percent of the total amount raised
from the sale of shares of our common stock for services in connection with our
public offerings of shares, the majority of which may be paid as commissions to
other broker-dealers. For the year ended December 31, 2003, the Company incurred
approximately $86.5 million of such fees, the majority of which have been
reallowed by CNL Securities Corp. as commissions to unaffiliated broker-dealer
firms.

     In addition, for the year ended December 31, 2003, CNL Securities Corp. was
entitled to receive a marketing support fee equal to 0.5 percent of the total
amount raised from the sale of shares in connection with our public offerings.
For the year ended December 31, 2003, the Company incurred approximately $5.8
million of such fees, the majority of which have been reallowed to other
broker-dealers.

     CNL Securities Corp. is also entitled to receive, in connection with our
initial offering of up to 16.5 million shares of common stock, which we refer to
as the "Initial Offering", our third offering of up to 45 million shares of
common stock, which we refer to as the "2000 Offering", and our fourth offering
of up to 45 million shares of common stock, which we refer to as the "2002
Offering", a soliciting dealer servicing fee payable annually by us on December
31 of each year following the year in which the offering terminated in the
amount of 0.20% of the stockholders' invested capital from the Initial Offering,
the 2000 Offering and the 2002 Offering, respectively. CNL Securities Corp. in
turn may reallow all or a portion of such fee to soliciting dealers whose
clients hold shares on such date. For the year ended December 31, 2003,
approximately $1.2 million of such fees were incurred and payable.

     CNL Hospitality Corp. is entitled to receive acquisition fees for services
in identifying properties to acquire, structuring the terms of the acquisitions
and leases of the properties and structuring the terms of mortgage loans, if
any, equal to 4.5 percent of the total amount raised from the sale of our
shares, loan

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proceeds from permanent financing and proceeds from a line of credit used to
acquire properties. For the year ended December 31, 2003, we incurred
approximately $94.5 million of such fees.

     CNL Hotel Development Company, a subsidiary of CNL Hospitality Corp., is
entitled to receive fees in connection with the development, construction or
renovation of certain properties, generally equal to four to five percent of
anticipated project costs. During the year ended December 31, 2003, we incurred
approximately $2.6 million of such fees.

     We have entered into an advisory agreement with CNL Hospitality Corp.
pursuant to which CNL Hospitality Corp. will receive a monthly asset management
fee of one-twelfth of 0.60 percent of our real estate asset value and the
outstanding principal balance of any mortgage loans as of the end of the
preceding month. The asset management fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or may not be
taken, in whole or in part as to any year, in the sole discretion of CNL
Hospitality Corp. All or any portion of the asset management fee not taken as to
any fiscal year shall be deferred without interest and may be taken in such
other fiscal year as CNL Hospitality Corp. shall determine. During the year
ended December 31, 2003, we incurred approximately $12.8 million of such fees.
In late 2003 CNL Hospitality Corp. allowed us to defer the payment of the asset
management fee until September 15, 2004. These fees are due upon demand. Asset
management fees were not paid by us after August 2003 and in January 2004, CNL
Hospitality Corp. refunded to us all of the asset management fees which had
previously been paid during 2003.

     We incur operating expenses which, in general, are those expenses relating
to our ongoing administration. Pursuant to the advisory agreement described
above, CNL Hospitality Corp. is required to reimburse us the amount by which the
total operating expenses paid or incurred by us exceed in any four consecutive
fiscal quarters, the greater of two percent of average invested assets or 25
percent of net income, which we refer to as the "Expense Cap". For the year
ended December 31, 2003, our operating expenses did not exceed the Expense Cap.

     CNL Hospitality Corp. and its affiliates provide various administrative
services to us on a day-to-day basis, including services related to accounting;
financial, tax and regulatory compliance; stockholder distributions and
reporting; due diligence and marketing; and investor relations (including
administrative services in connection with the offering of shares). For the year
ended December 31, 2003, we incurred a total of approximately $6.6 million for
these services, approximately $4.3 million representing stock issuance costs and
approximately $2.3 million representing general operating and administrative
expenses, including costs related to preparing and distributing reports required
by the Securities and Exchange Commission.

     We maintain bank accounts in a bank in which some of our officers and
directors serve as directors, and in which an affiliate of our advisor, CNL
Hospitality Corp., is a stockholder. The amount deposited with this bank was
approximately $29.0 million at December 31, 2003.

     We own a 9.9% interest in CNL Plaza, Ltd., a limited partnership that owns
an office building located in Orlando, Florida, in which CNL Hospitality Corp.
and its affiliates lease office space. The remaining interest in the limited
partnership is owned by several affiliates of CNL Hospitality Corp. In
connection with this acquisition, we have severally guaranteed a 16.67% share,
or approximately $2.6 million, of a $15.5 million unsecured promissory note of
the limited partnership.

     As of December 31, 2003, we had invested a total of $5.2 million in CTM
Partners, LLC, a partnership in which we have a 31.25% interest and which owns
EMTG, LLC. Since 2002, a subsidiary of CTM Partners, LLC has engaged
Dustin/Massagli LLC, a company in which one of our directors is president, and a
director and principal stockholder, to manage the business. Dustin/Massagli LLC
manages the operations of EMTG, LLC. Our Chief Executive Officer also serves as
a director, Chairman and Chief Executive Officer of EMTG, LLC. In March 2004, we
contributed an additional $1.7 million to the partnership to fund operating
needs of EMTG, LLC. The other partners made additional contributions in amounts
which maintained the existing ownership interests of each partner.

     All amounts paid by us to our affiliates are believed by us to be fair and
comparable to amounts that would be paid for similar services provided by
unaffiliated third parties.
                                        86
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The following table presents fees payable to PricewaterhouseCoopers, LLP,
our independent accountants, for the fiscal years ended December 31, 2003 and
2002.

<Table>
<Caption>
                                                                  FISCAL YEAR
                                                              -------------------
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Audit Fees(a)...............................................  $508,776   $409,000
Audit-Related Fees(b).......................................   192,500     26,070
Tax Fees(c).................................................   147,189     72,723
All Other Fees(d)...........................................        --         --
                                                              --------   --------
Total.......................................................  $848,465   $507,793
                                                              ========   ========
</Table>

---------------

(a)  Audit Fees -- Consists of professional services rendered in connection with
     the annual audit of the Company's consolidated financial statements on Form
     10-K and quarterly reviews of the Company's interim financial statements on
     Form 10-Q. Audit fees also include fees for services performed by PWC that
     are closely related to the audit and in many cases could only be provided
     by the Company's independent auditors. Such services include the issuance
     of comfort letters and consents related to the Company's registration
     statements and capital raising activities, assistance with and review of
     other documents filed with the Commission and accounting advice on
     completed transactions.

(b)  Audit Related Fees -- Consists of services related to audits of properties
     acquired, due diligence services related to contemplated property
     acquisitions and accounting consultations.

(c)  Tax Fees -- Consists of services related to corporate tax compliance,
     including review of corporate tax returns, review of the tax treatments for
     certain expenses and tax due diligence relating to acquisitions.

(d)  All Other Fees -- There were no professional services rendered by PWC
     during the years ended December 31, 2003 and 2002.

  PRE-APPROVAL POLICIES AND PROCEDURES

     It is our policy and the policy our Audit Committee that audit related
services and non-audit related services, which are provided by our independent
accountants falling into the categories below, do not require advanced written
approval by our Audit Committee unless they exceed $25,000 for individual
engagements. Once individually insignificant assignments, which otherwise do not
require written approval, exceed $150,000 during any fiscal year we must obtain
prior written approval from our audit Committee for subsequent assignments. Any
services that fall outside of the categories listed below, regardless of the
cost, must be approved in writing by our Audit Committee prior to work
commencing on the engagement. Our Audit Committee, our independent accountants,
and we understand that in order to maintain our independence of
PricewaterhouseCoopers, LLP, our independent accountants, certain types of
advisory and consulting services may not be provided. We generally limit the
non-audit related services we receive from our independent accountants to the
following:

     1. Advisory services in connection with ongoing accounting and reporting
        issues including the implementation of new GAAP and SEC requirements;

     2. Advisory services regarding accounting treatment in connection with
        property acquisitions;

     3. Advisory services in connection with corporate transactions
        (investments, merger transactions, etc.) which are limited to the review
        and evaluation of accounting systems and practices of target companies;

                                        87
<PAGE>

     4. Advisory and review services in connection with the filing of the
        Company's registration statements with the SEC ("1933 Act Filings")
        including Forms S-11, amendments, pro-forma financial statements,
        consents, other agreed upon procedures, etc.;

     5. Tax return preparation services;

     6. Advisory services in connection with ongoing corporate and state income
        tax issues; and

     7. Advisory services regarding prospective tax issues in connection with
        property acquisitions and other corporate transactions.

     All audit, audit-related and tax services performed by our independent
accountants which required pre-approval, as defined in our Audit Committee's
policies and procedures, were pre-approved. Services other than audit, review,
or attest services, which did not require pre-approval pursuant to those
policies were brought to the attention of the Audit Committee and approved prior
to the completion of the audit by the Chairman of our Audit Committee in
accordance with 17 CFR section 210.2-01(3)(c)(7)(i)(C) of the SEC rules and
regulations.

                                    PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this report.

          1.  Consolidated Financial Statements

           Report of Independent Certified Public Accountants

           Consolidated Balance Sheets at December 31, 2003 and 2002

           Consolidated Statements of Earnings for the years ended December 31,
           2003, 2002 and 2001

           Consolidated Statements of Stockholders' Equity for the years ended
           December 31, 2003, 2002 and 2001

           Consolidated Statements of Cash Flows for the years ended December
           31, 2003, 2002 and 2001

           Notes to Consolidated Financial Statements

          2.  Financial Statement Schedules

               Schedule II -- Valuation and Qualifying Accounts

               Schedule III -- Real Estate and Accumulated Depreciation at
               December 31, 2003

               Notes to Schedule III -- Real Estate and Accumulated Depreciation
               at December 31, 2003

               All other Schedules are omitted as the required information is
               inapplicable or is presented in the financial statements or notes
               thereto.

     (b) The Company filed the following reports during the quarter ended
         December 31, 2003, on Form 8-K:

        On October 16, 2003, the Company filed a Current Report on Form 8-K
        under Items 5 and 7 to attach a press release, dated October 16, 2003,
        announcing the election of Robert E. Parsons, Jr. to its Board of
        Directors.

        On October 20, 2003, the Company filed a Current Report on Form 8-K
        under Items 5 and 7 to attach a press release, dated October 17, 2003,
        announcing its intention to acquire a Property.

        On December 16, 2003, the Company filed a Current Report on Form 8-K
        under Items 5 and 7 to attach a press release, dated December 15, 2003,
        announcing the acquisition of another Property.
                                        88
<PAGE>

        On December 22, 2003, the Company filed a Current Report on Form 8-K
        under Items 5 and 7 to attach two press releases. The press release
        dated December 17, 2003, announced the formation of a joint venture that
        acquired two Properties. The press release dated December 18, 2003,
        announced the acquisition of an additional Property through a separate
        joint venture.

        On December 31, 2003, the Company filed a Current Report on Form 8-K
        under Items 2 and 7 to disclose the acquisition of three additional
        Properties.

     (c) Exhibits

<Table>
<S>    <C>
 2.1   Agreement by and among CNL Hospitality Properties, Inc., CNL
       Rose Acquisition Corp., RFS Hotel Investors, Inc., CNL Rose
       Acquisition OP, LP and RFS Partnership, L.P., dated May 8,
       2003 (Previously filed as Exhibit 2.1 to the Registrant's
       Current Report on Form 8-K filed May 9, 2003 and
       incorporated herein by reference.)


 2.2   Amendment to Merger Agreement dated May 27, 2003 among the
       Company, CNL Rose Acquisition Corp., RFS Hotel Investors,
       Inc., CNL Rose Acquisition OP, LP and RFS Partnership, L.P.
       (Previously filed as Exhibit 2.2 to Post-Effective Amendment
       No. Two to the Registrant's Registration Statement on Form
       S-11 filed July 14, 2003 and incorporated herein by
       reference.)


 2.3   RFS Acquisition Agreement, dated as of July 10, 2003, by and
       among CNL Hospitality Partners, LP, CNL Hotel RI-Orlando,
       Ltd., CNL Hotel CY-Edison, LP, RFS Partnership, L.P. and CNL
       Rose Acquisition Corp. (Previously filed as Exhibit 2.1 to
       RFS Partnership, L.P.'s Current Report on Form 8-K filed
       July 25, 2003 and incorporated herein by reference).


 2.4   Stock Purchase Agreement, dated as of February 12, 2004, by
       and among KKR Partners II, L.P., KKR 1996 Fund, L.P., Resort
       Associates, L.P., Golf Associates, L.P., CNL Resort
       Acquisition Corp. and KSL Recreation Corporation (Previously
       filed as Exhibit 2.1 to the Registrant's Form 8-K filed
       February 13, 2004 and incorporated herein by reference.)


 3.1   Articles of Amendment and Restatement of CNL Hospitality
       Properties, Inc. dated July 21, 2003 (Previously filed as
       Exhibit 3.18 to the Registrant's Registration Statement on
       Form S-11 filed July 23, 2003 and incorporated herein by
       reference.)


 3.2   CNL American Realty Fund, Inc. Bylaws (Previously filed as
       Exhibit 3.3 to the Registrant's Registration Statement on
       Form S-11 filed August 12, 1996 and incorporated herein by
       reference.)


 3.3   Amendment No. 1 to the Bylaws of CNL Hospitality Properties,
       Inc. (Previously filed as Exhibit 3.7 to Post-Effective
       Amendment No. Two to the Registrant's Registration Statement
       on Form S-11 filed October 23, 2000 and incorporated herein
       by reference.)


 3.4   Amendment No. 2 to the Bylaws of CNL Hospitality Properties,
       Inc. (Previously filed as Exhibit 3.8 to Post-Effective
       Amendment No. Six to the Registrant's Registration Statement
       on Form S-11 filed June 11, 2001 and incorporated herein by
       reference.)


 3.5   Amendment No. 3 to the Bylaws of CNL Hospitality Properties,
       Inc. (Previously filed as Exhibit 3.9 to Post-Effective
       Amendment No. One to the Registrant's Registration Statement
       on Form S-11 filed June 26, 2002 and incorporated herein by
       reference.)


 3.6   Sixth Amended and Restated Agreement of Limited Partnership
       of RFS Partnership, L.P. dated July 10, 2003 (Previously
       filed as Exhibit 3.2 to RFS Partnership, L.P.'s Current
       Report on Form 8-K filed July 25, 2003 and incorporated
       herein by reference.)


 3.7   Certificate of Limited Partnership of RFS Partnership, L.P.,
       filed with the State of Tennessee on August 3, 1993
       (Previously filed as Exhibit 3.1 to RFS Partnership, L.P.'s
       Annual Report on Form 10-K filed March 30, 2004 and
       incorporated herein by reference.)


 3.8   Amendment to the Certificate of Limited Partnership of RFS
       Partnership, L.P., filed with the State of Tennessee on June
       27, 1997 (Previously filed as Exhibit 3.2 to RFS
       Partnership, L.P.'s Annual Report on Form 10-K filed March
       30, 2004 and incorporated herein by reference.)


 3.9   Amendment to the Certificate of Limited Partnership of RFS
       Partnership, L.P., dated July 10, 2003 (Previously filed as
       Exhibit 3.17 to Post-Effective Amendment No. Two to the
       Registrant's Registration Statement on Form S-11 filed July
       14, 2003 and incorporated herein by reference.)

</Table>

                                        89
<PAGE>

<Table>
<S>        <C>
 4.1       Form of Reinvestment Plan (Included as Exhibit 4.10 in Post-Effective Amendment No. Six to the
           Registrant's Registration Statement on Form S-11 filed January 26, 2004 and incorporated herein by
           reference.)

c
 4.2       Indenture dated February 26, 2002 among RFS Partnership, L.P., RFS 2002 Financing, Inc., RFS Leasing VII,
           Inc., RFS Hotel Investors, Inc. and U.S. Bank National Association (Previously filed as Exhibit 4.1 to RFS
           Hotel Investors, Inc.'s ("RFS") Form S-4 Registration Statement filed March 15, 2002 and incorporated
           herein by reference.)

 4.3       Form of Global Note evidencing the 9.75% Series B Senior Notes due 2012 of RFS Partnership, L.P. and RFS
           2002 Financing, Inc. (Previously filed as Exhibit A to Exhibit 4.1 to RFS's Form S-4 Registration
           Statement filed March 15, 2002 and incorporated herein by reference.)

 4.4       Form of Guaranty by RFS Hotel Investors, Inc. and RFS Leasing VII, Inc. (Previously filed as Exhibit A to
           Exhibit 4.1 to RFS's Form S-4 Registration Statement filed March 15, 2002 and incorporated herein by
           reference.)

 4.5       Registration Rights Agreement dated February 26, 2002 among RFS Partnership, L.P., RFS 2002 Financing,
           Inc., RFS Leasing VII, Inc., RFS Hotel Investors, Inc., Credit Suisse First Boston Corporation and Banc of
           America Securities LLC (Previously filed as Exhibit 4.4 to RFS's Form S-4 Registration Statement filed
           March 15, 2002 and incorporated herein by reference.)

 4.6       Supplemental Indenture, dated as of July 10, 2003, among CNL Rose Acquisition Corp., RFS Partnership,
           L.P., RFS 2002 Financing, Inc. and U.S. Bank National Association (Previously filed as Exhibit 4.2 to RFS
           Partnership, L.P.'s Annual Report on Form 10-K filed March 30, 2004 and incorporated herein by reference.)

10.1       Form of Escrow Agreement between CNL Hospitality Properties, Inc. and SouthTrust Bank (Previously filed as
           Exhibit 10.1 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11
           filed December 23, 2002 and incorporated herein by reference.)

10.2       Advisory Agreement dated as of April 1, 2003 between CNL Hospitality Properties, Inc. and CNL Hospitality
           Corp. (Previously filed as Exhibit 10.1 to the Registrant's Form 10-Q filed May 15, 2003 and incorporated
           herein by reference.)

10.3       Form of Joint Venture Agreement (Previously filed as Exhibit 10.3 to the Registrant's Registration
           Statement on Form S-11 filed November 23, 1998 and incorporated herein by reference.)

10.4       Form of Indemnification and Put Agreement (Previously filed as Exhibit 10.4 to the Registrant's
           Registration Statement on Form S-11 filed August 12, 1996 and incorporated herein by reference.)

10.5       Form of Unconditional Guaranty of Payment and Performance (Previously filed as Exhibit 10.5 to the
           Registrant's Registration Statement on Form S-11 filed August 12, 1996 and incorporated herein by
           reference.)

10.6       Form of Purchase Agreement (Previously filed as Exhibit 10.6 to the Registrant's Registration Statement on
           Form S-11 filed August 12, 1996 and incorporated herein by reference.)

10.7       Form of Lease Agreement (Previously filed as Exhibit 10.57 to the Registrant's Registration Statement on
           Form S-11 filed August 9, 2001 and incorporated herein by reference.)

10.8       Form of Reinvestment Plan (Included as Exhibit 4.10 to Post-Effective Amendment No. Six to the
           Registrant's Registration Statement on Form S-11 filed January 26, 2004 and incorporated herein by
           reference.)

10.9       Indemnification Agreement between CNL Hospitality Properties, Inc. and Lawrence A. Dustin dated February
           24, 1999. Each of the following directors and/or officers has signed a substantially similar agreement as
           follows: James M. Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J. Joseph Kruse, Richard C.
           Huseman, Charles A. Muller, Jeanne A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian Strickland dated
           October 31, 1998; John A. Griswold dated January 7, 1999; Charles E. Adams and Craig M. McAllaster dated
           February 10, 1999; Matthew W. Kaplan dated February 24, 1999; Thomas J. Hutchison III dated May 16, 2000;
           and Robert E. Parsons, Jr. dated November 3, 2003. (Previously filed as Exhibit 10.2 to the Registrant's
           Form 10-Q filed May 17, 1999 and incorporated herein by reference.)

</Table>

                                        90
<PAGE>
<Table>
<S>    <C>
10.10  Agreement of Limited Partnership of CNL Hospitality
       Partners, LP (Previously filed as Exhibit 10.10 to
       Post-Effective Amendment No. Five to the Registrant's
       Registration Statement on Form S-11 filed September 23, 1998
       and incorporated herein by reference.)


10.11  Hotel Purchase and Sale Contract between CNL Real Estate
       Advisors, Inc. and Gwinnett Residence Associates, LLC,
       relating to the Residence Inn -- Gwinnett Place (Previously
       filed as Exhibit 10.11 to Post-Effective Amendment No. Five
       to the Registrant's Registration Statement on Form S-11
       filed September 23, 1998 and incorporated herein by
       reference.)


10.12  Assignment and Assumption Agreement between CNL Real Estate
       Advisors, Inc. and CNL Hospitality Partners, LP, relating to
       the Residence Inn -- Gwinnett Place (Previously filed as
       Exhibit 10.12 to Post-Effective Amendment No. Five to the
       Registrant's Registration Statement on Form S-11 filed
       September 23, 1998 and incorporated herein by reference.)


10.13  Hotel Purchase and Sale Contract between CNL Real Estate
       Advisors, Inc. and Buckhead Residence Associates, LLC,
       relating to the Residence Inn -- Buckhead (Lenox Park)
       (Previously filed as Exhibit 10.13 to Post-Effective
       Amendment No. Five to the Registrant's Registration
       Statement on Form S-11 filed September 23, 1998 and
       incorporated herein by reference.)


10.14  Assignment and Assumption Agreement between CNL Real Estate
       Advisors, Inc. and CNL Hospitality Partners, LP, relating to
       the Residence Inn -- Buckhead (Lenox Park) (Previously filed
       as Exhibit 10.14 to Post-Effective Amendment No. Five to the
       Registrant's Registration Statement on Form S-11 filed
       September 23, 1998 and incorporated herein by reference.)


10.15  Lease Agreement between CNL Hospitality Partners, LP and STC
       Leasing Associates, LLC, dated August 1, 1998, relating to
       the Residence Inn -- Gwinnett Place (Previously filed as
       Exhibit 10.15 to Post-Effective Amendment No. Five to the
       Registrant's Registration Statement on Form S-11 filed
       September 23, 1998 and incorporated herein by reference.)


10.16  Lease Agreement between CNL Hospitality Partners, LP and STC
       Leasing Associates, LLC, dated August 1, 1998, relating to
       the Residence Inn -- Buckhead (Lenox Park) (Previously filed
       as Exhibit 10.16 to Post-Effective Amendment No. Five to the
       Registrant's Registration Statement on Form S-11 filed
       September 23, 1998 and incorporated herein by reference.)


10.17  Master Revolving Line of Credit Loan Agreement with CNL
       Hospitality Properties, Inc., CNL Hospitality Partners, LP
       and Colonial Bank, dated July 31, 1998 (Previously filed as
       Exhibit 10.17 to Post-Effective Amendment No. Five to the
       Registrant's Registration Statement on Form S-11 filed
       September 23, 1998 and incorporated herein by reference.)


10.18  Master Loan Agreement by and between CNL Hotel Investors,
       Inc. and Jefferson-Pilot Life Insurance Company, dated
       February 24, 1999 (Previously filed as Exhibit 10.18 to
       Post-Effective Amendment No. Seven to the Registrant's
       Registration Statement on Form S-11 filed March 16, 1999 and
       incorporated herein by reference.)


10.19  Securities Purchase Agreement between CNL Hospitality
       Properties, Inc. and Five Arrows Realty Securities II
       L.L.C., dated February 24, 1999 (Previously filed as Exhibit
       10.19 to Post-Effective Amendment No. Seven to the
       Registrant's Registration Statement on Form S-11 filed March
       16, 1999 and incorporated herein by reference.)


10.20  Subscription and Stockholders' Agreement among CNL Hotel
       Investors, Inc., Five Arrows Realty Securities II L.L.C.,
       CNL Hospitality Partners, LP and CNL Hospitality Properties,
       Inc., dated February 24, 1999 (Previously filed as Exhibit
       10.20 to Post-Effective Amendment No. Seven to the
       Registrant's Registration Statement on Form S-11 filed March
       16, 1999 and incorporated herein by reference.)


10.21  Registration Rights Agreement by and between CNL Hospitality
       Properties, Inc. and Five Arrows Realty Securities II
       L.L.C., dated February 24, 1999 (Previously filed as Exhibit
       10.21 to Post-Effective Amendment No. Seven to the
       Registrant's Registration Statement on Form S-11 filed March
       16, 1999 and incorporated herein by reference.)

</Table>

                                        91
<PAGE>
<Table>
<S>    <C>
10.22  Lease Agreement between Courtyard Annex, L.L.C. and City
       Center Annex Tenant Corporation, dated November 15, 1999,
       relating to the Courtyard -- Philadelphia (Previously filed
       as Exhibit 10.22 to Post-Effective Amendment No. Four to the
       Registrant's Registration Statement on Form S-11 filed
       February 17, 2000 and incorporated herein by reference.)


10.23  First Amended and Restated Limited Liability Company
       Agreement of Courtyard Annex, L.L.C., relating to the
       Courtyard -- Philadelphia (Previously filed as Exhibit 10.23
       to Post-Effective Amendment No. Four to the Registrant's
       Registration Statement on Form S-11 filed February 17, 2000
       and incorporated herein by reference.)


10.24  Purchase and Sale Agreement between Marriott International,
       Inc., CBM Annex, Inc., Courtyard Annex, Inc., as Sellers,
       and CNL Hospitality Partners, LP, as Purchaser, dated
       November 15, 1999, relating to the Courtyard -- Philadelphia
       (Previously filed as Exhibit 10.24 to Post-Effective
       Amendment No. Four to the Registrant's Registration
       Statement on Form S-11 filed February 17, 2000 and
       incorporated herein by reference.)


10.25  Lease Agreement between CNL Hospitality Partners, LP, and
       RST4 Tenant LLC, dated December 10, 1999, relating to the
       Residence Inn -- Mira Mesa (Previously filed as Exhibit
       10.25 to Post-Effective Amendment No. Four to the
       Registrant's Registration Statement on Form S-11 filed
       February 17, 2000 and incorporated herein by reference.)


10.26  Purchase and Sale Agreement between Marriott International,
       Inc., TownePlace Management Corporation and Residence Inn by
       Marriott, Inc., as Sellers, and CNL Hospitality Partners,
       LP, as Purchaser, dated November 24, 1999, relating to the
       Residence Inn -- Mira Mesa and the TownePlace
       Suites -- Newark (Previously filed as Exhibit 10.26 to
       Post-Effective Amendment No. Four to the Registrant's
       Registration Statement on Form S-11 filed February 17, 2000
       and incorporated herein by reference.)


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


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


10.29  Lease Agreement between CNL Hospitality Partners, LP and WYN
       Orlando Lessee, LLC, dated May 31, 2000, relating to the
       Wyndham Denver Tech Center (Previously filed as Exhibit
       10.29 to Post-Effective Amendment No. Six to the
       Registrant's Registration Statement on Form S-11 filed June
       9, 2000 and incorporated herein by reference.)


10.30  Lease Agreement between CNL Hospitality Partners, LP and WYN
       Orlando Lessee, LLC, dated May 31, 2000, relating to the
       Wyndham Billerica (Previously filed as Exhibit 10.30 to
       Post-Effective Amendment No. Six to the Registrant's
       Registration Statement on Form S-11 filed June 9, 2000 and
       incorporated herein by reference.)


10.31  Purchase and Sale Agreement between CNL Hospitality Corp. ,
       as Buyer, and WII Denver Tech, LLC and PAH Billerica Realty
       Company, LLC, as Sellers, and Wyndham International, Inc.,
       relating to the Wyndham Denver Tech Center and the Wyndham
       Billerica (Previously filed as Exhibit 10.31 to
       Post-Effective Amendment No. Six to the Registrant's
       Registration Statement on Form S-11 filed June 9, 2000 and
       incorporated herein by reference.)


10.32  Lease Agreement between CNL Hospitality Partners, LP and
       RST4 Tenant LLC, dated June 17, 2000, relating to the
       Courtyard -- Palm Desert and the Residence Inn -- Palm
       Desert (Previously filed as Exhibit 10.32 to Post-Effective
       Amendment No. One to the Registrant's Registration Statement
       on Form S-11 filed August 9, 2000 and incorporated herein by
       reference.)

</Table>

                                        92
<PAGE>
<Table>
<S>    <C>
10.33  Purchase and Sale Agreement between PDH Associates LLC, as
       Seller, and CNL Hospitality Corp. , as Buyer, dated January
       19, 2000, relating to the Courtyard -- Palm Desert and the
       Residence Inn -- Palm Desert (Previously filed as Exhibit
       10.33 to Post-Effective Amendment No. One to the
       Registrant's Registration Statement on Form S-11 filed
       August 9, 2000 and incorporated herein by reference.)


10.34  Amendment to Purchase and Sale Agreement between PDH
       Associates LLC and CNL Hospitality Corp. , dated January 19,
       2000, relating to the Courtyard -- Palm Desert and the
       Residence Inn -- Palm Desert (amends Exhibit 10.33 above)
       (Previously filed as Exhibit 10.34 to Post-Effective
       Amendment No. One to the Registrant's Registration Statement
       on Form S-11 filed August 9, 2000 and incorporated herein by
       reference.)


10.35  Assignment Agreement between CNL Hospitality Corp. and CNL
       Hospitality Partners, LP, relating to the Courtyard -Palm
       Desert and the Residence Inn -- Palm Desert (Previously
       filed as Exhibit 10.35 to Post-Effective Amendment No. One
       to the Registrant's Registration Statement on Form S-11
       filed August 9, 2000 and incorporated herein by reference.)


10.36  Lease Agreement between CNL Hospitality Partners, LP and
       RST4 Tenant LLC, dated July 28, 2000, relating to the
       SpringHill Suites -- Gaithersburg (Previously filed as
       Exhibit 10.36 to Post-Effective Amendment No. One to the
       Registrant's Registration Statement on Form S-11 filed
       August 9, 2000 and incorporated herein by reference.)


10.37  Purchase and Sale Agreement between SpringHill SMC
       Corporation, as Seller, and CNL Hospitality Partners, LP, as
       Purchaser, and joined in by Marriott International, Inc.,
       dated June 30, 2000, relating to the SpringHill
       Suites -- Gaithersburg (Previously filed as Exhibit 10.37 to
       Post-Effective Amendment No. One to the Registrant's
       Registration Statement on Form S-11 filed August 9, 2000 and
       incorporated herein by reference.)


10.38  Lease Agreement between CNL Hospitality Partners, LP and
       RST4 Tenant LLC, dated July 28, 2000, relating to the
       Residence Inn -- Merrifield (Previously filed as Exhibit
       10.38 to Post-Effective Amendment No. One to the
       Registrant's Registration Statement on Form S-11 filed
       August 9, 2000 and incorporated herein by reference.)


10.39  Purchase and Sale Agreement between TownePlace Management
       Corporation and Residence Inn by Marriott, Inc., as Sellers,
       and CNL Hospitality Partners, LP, as Purchaser, and joined
       in by Marriott International, Inc., dated November 24, 1999,
       relating to the Residence Inn -- Merrifield (Previously
       filed as Exhibit 10.39 to Post-Effective Amendment No. One
       to the Registrant's Registration Statement on Form S-11
       filed August 9, 2000 and incorporated herein by reference.)


10.40  First Amendment to Purchase and Sale Agreement between
       TownePlace Management Corporation and Residence Inn by
       Marriott, Inc., as Sellers, and CNL Hospitality Partners,
       LP, as Purchaser, and joined in by Marriott International,
       Inc., dated November 24, 1999, relating to the Residence
       Inn -- Mira Mesa, SpringHill Suites -- Gaithersburg,
       Residence Inn -- Merrifield and TownePlace Suites -- Newark
       (amends Exhibits 10.26, 10.37 and 10.39 above) (Previously
       filed as Exhibit 10.40 to Post-Effective Amendment No. One
       to the Registrant's Registration Statement on Form S-11
       filed August 9, 2000 and incorporated herein by reference.)


10.41  Lease Agreement between CNL Hospitality Partners, LP and
       CCCL Leasing LLC, dated August 18, 2000, relating to the
       Courtyard -- Alpharetta (Previously filed as Exhibit 10.41
       to Post-Effective Amendment No. Two to the Registrant's
       Registration Statement on Form S-11 filed October 23, 2000
       and incorporated herein by reference.)


10.42  Lease Agreement between CNL Hospitality Partners, LP and
       CCCL Leasing LLC, dated August 18, 2000, relating to the
       Residence Inn -- Cottonwood (Previously filed as Exhibit
       10.42 to Post-Effective Amendment No. Two to the
       Registrant's Registration Statement on Form S-11 filed
       October 23, 2000 and incorporated herein by reference.)


10.43  Lease Agreement between CNL Hospitality Partners, LP and
       CCCL Leasing LLC, dated August 18, 2000, relating to the
       TownePlace Suites -- Mt. Laurel (Previously filed as Exhibit
       10.43 to Post-Effective Amendment No. Two to the
       Registrant's Registration Statement on Form S-11 filed
       October 23, 2000 and incorporated herein by reference.)

</Table>

                                        93
<PAGE>
<Table>
<S>    <C>
10.44  Lease Agreement between CNL Hospitality Partners, LP and
       CCCL Leasing LLC, dated August 18, 2000, relating to the
       TownePlace Suites -- Scarborough (Previously filed as
       Exhibit 10.44 to Post-Effective Amendment No. Two to the
       Registrant's Registration Statement on Form S-11 filed
       October 23, 2000 and incorporated herein by reference.)


10.45  Lease Agreement between CNL Hospitality Partners, LP and
       CCCL Leasing LLC, dated August 18, 2000, relating to the
       TownePlace Suites -- Tewksbury (Previously filed as Exhibit
       10.45 to Post-Effective Amendment No. Two to the
       Registrant's Registration Statement on Form S-11 filed
       October 23, 2000 and incorporated herein by reference.)


10.46  Purchase and Sale Agreement between Residence Inn by
       Marriott, Inc., Courtyard Management Corporation, SpringHill
       SMC Corporation and TownePlace Management Corporation, as
       Sellers, CNL Hospitality Partners, LP, as Purchaser, CCCL
       Leasing LLC, as Tenant, Crestline Capital Corporation,
       Marriott International, Inc., and joined in by CNL
       Hospitality Properties, Inc., dated August 18, 2000,
       relating to the Residence Inn -- Cottonwood,
       Courtyard -- Alpharetta and Overland Park, SpringHill
       Suites -- Raleigh, and TownePlace Suites -- Mt. Laurel,
       Scarborough and Tewksbury (Previously filed as Exhibit 10.46
       to Post-Effective Amendment No. Two to the Registrant's
       Registration Statement on Form S-11 filed October 23, 2000
       and incorporated herein by reference.)


10.47  First Amendment to Purchase and Sale Agreement between
       Residence Inn by Marriott, Inc., Courtyard Management
       Corporation, SpringHill SMC Corporation and TownePlace
       Management Corporation, as Sellers, CNL Hospitality
       Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
       Crestline Capital Corporation, and Marriott International,
       Inc., dated August 18, 2000, relating to the Residence
       Inn -- Cottonwood, Courtyard -- Alpharetta and Overland
       Park, SpringHill Suites -- Raleigh, and TownePlace
       Suites -- Mt. Laurel, Scarborough and Tewksbury (Previously
       filed as Exhibit 10.47 to Post-Effective Amendment No. Two
       to the Registrant's Registration Statement on Form S-11
       filed October 23, 2000 and incorporated herein by
       reference.)


10.48  Lease Agreement between CNL Hospitality Partners, LP and
       RST4 Tenant LLC, dated November 4, 2000, relating to the
       TownePlace Suites -- Newark (Previously filed as Exhibit
       10.48 to Post-Effective Amendment No. Three to the
       Registrant's Registration Statement on Form S-11 filed
       December 12, 2000 and incorporated herein by reference.)


10.49  Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
       Corporation, dated October 12, 2000, relating to the
       Courtyard -- Little Lake Bryan (Previously filed as Exhibit
       10.49 to Post-Effective Amendment No. Three to the
       Registrant's Registration Statement on Form S-11 filed
       December 12, 2000 and incorporated herein by reference.)


10.50  Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant
       Corporation, dated October 12, 2000, relating to the
       Fairfield Inn -- Little Lake Bryan (Previously filed as
       Exhibit 10.50 to Post-Effective Amendment No. Three to the
       Registrant's Registration Statement on Form S-11 filed
       December 12, 2000 and incorporated herein by reference.)


10.51  First Amendment to Lease Agreement between LLB C-Hotel,
       L.L.C. and LLB Tenant Corporation, dated November 17, 2000,
       relating to the Courtyard -- Little Lake Bryan (amends
       Exhibit 10.49 above) (Previously filed as Exhibit 10.51 to
       Post-Effective Amendment No. Three to the Registrant's
       Registration Statement on Form S-11 filed December 12, 2000
       and incorporated herein by reference.)


10.52  First Amendment to Lease Agreement between LLB F-Inn, L.L.C.
       and LLB Tenant Corporation, dated November 17, 2000,
       relating to the Fairfield Inn -- Little Lake Bryan (amends
       Exhibit 10.50 above) (Previously filed as Exhibit 10.52 to
       Post-Effective Amendment No. Three to the Registrant's
       Registration Statement on Form S-11 filed December 12, 2000
       and incorporated herein by reference.)


10.53  Purchase and Sale Agreement between Marriott International,
       Inc., as Seller, and CNL Hospitality Partners, LP, as
       Purchaser, dated September 17, 1998, relating to the
       Courtyard -- Little Lake Bryan, the Fairfield Inn -- Little
       Lake Bryan and the SpringHill Suites -- Little Lake Bryan
       (Previously filed as Exhibit 10.53 to Post-Effective
       Amendment No. Three to the Registrant's Registration
       Statement on Form S-11 filed December 12, 2000 and
       incorporated herein by reference.)

</Table>

                                        94
<PAGE>
<Table>
<S>    <C>
10.54  Second Amendment to Lease Agreement between CNL LLB C-Hotel
       Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
       Corporation, dated December 15, 2000, relating to the
       Courtyard -- Little Lake Bryan (amends Exhibits 10.49 and
       10.51 above) (Previously filed as Exhibit 10.54 to
       Post-Effective Amendment No. Four to the Registrant's
       Registration Statement on Form S-11 filed March 12, 2001 and
       incorporated herein by reference.)


10.55  Second Amendment to Lease Agreement between CNL LLB F-Inn
       Management, LP (formerly LLB F-Inn L.L.C.) and LLB Tenant
       Corporation, dated December 15, 2000, relating to the
       Fairfield Inn -- Little Lake Bryan (amends Exhibits 10.50
       and 10.52 above) (Previously filed as Exhibit 10.55 to
       Post-Effective Amendment No. Four to the Registrant's
       Registration Statement on Form S-11 filed March 12, 2001 and
       incorporated herein by reference.)


10.56  Indenture Agreement among Desert Ridge Resort, LLC, as
       Issuer; Bank One, National Association, as Trustee; and
       Financial Structures Limited, as Insurer, dated December 15,
       2000, relating to the Desert Ridge Property (Previously
       filed as Exhibit 10.56 to Post-Effective Amendment No. Four
       to the Registrant's Registration Statement on Form S-11
       filed March 12, 2001 and incorporated herein by reference.)


10.57  $96,725,000 Promissory Note with CNL Hospitality Partners,
       LP, as Maker, and Security Life of Denver Insurance Company,
       as Payee, dated September 7, 2001 (Previously filed as
       Exhibit 10.56 to the Registrant's Form 10-Q filed May 15,
       2003 and incorporated herein by reference.)


10.58  Sixth Amended and Restated Revolving Credit Agreement dated
       October 31, 2002 (Previously filed as Exhibit 10.1 to RFS's
       Current Report on Form 8-K filed January 16, 2003 and
       incorporated herein by reference.)


10.59  Form of Percentage Lease with TRS Lessees (Previously filed
       as Exhibit 10.1 to RFS's Current Report on Form 8-K filed
       January 16, 2001 and incorporated herein by reference.)


10.60  Form of Management Agreement with Flagstone (Previously
       filed as Exhibit 10.2 to RFS's Current Report on Form 8-K
       filed January 16, 2001 and incorporated herein by
       reference.)


10.61  Loan Agreement dated August 9, 2000 by and between Bank of
       America, N.A. (as lender) and RFS SPE 2000 LLC (as
       borrower), a wholly-owned subsidiary of RFS (Previously
       filed as Exhibit 10.19 to RFS's Form 10-K filed March 15,
       2001 and incorporated herein by reference.)


10.62  Loan Agreement dated August 9, 2000 by and between Bank of
       America, N.A. (as lender) and RFS SPE 2 2000 LLC (as
       borrower), a wholly-owned subsidiary of RFS (Previously
       filed as Exhibit 10.20 to RFS's Form 10-K filed March 15,
       2001 and incorporated herein by reference.)


10.63  Credit Agreement dated as of July 10, 2003 among RFS
       Partnership, L.P. and RFS Financing Partnership, L.P. (as
       borrowers), the Registrant (as parent to the borrowers),
       Bank of America, N.A. (as Administrative Agent) and the
       lenders named therein (Previously filed as Exhibit 10.68 to
       Post-Effective Amendment No. Two to the Registrant's
       Registration Statement on Form S-11 filed July 14, 2003 and
       incorporated herein by reference.)


10.64  $320,000,000 Note between RFS Partnership, L.P. and RFS
       Financing Partnership, L.P. (as borrowers), and Banc of
       America Bridge LLC (as lender), dated as of July 10, 2003
       (Previously filed as Exhibit 10.69 to Post-Effective
       Amendment No. Two to the Registrant's Registration Statement
       on Form S-11 filed July 14, 2003 and incorporated herein by
       reference.)


10.65  Continuing Guaranty Agreement, dated as of July 10, 2003
       among CNL Hospitality Properties, Inc., CNL Rose GP Corp.,
       and CNL Rose Acquisition Corp., in favor of Bank of America,
       N.A. (Previously filed as Exhibit 10.3 to RFS Partnership,
       L.P.'s Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.66  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to common stock of RFS TRS Holdings, Inc.)
       (Previously filed as Exhibit 10.4 to RFS Partnership, L.P.'s
       Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)

</Table>

                                        95
<PAGE>
<Table>
<S>    <C>
10.67  Security and Pledge Agreement, dated as of July 10, 2003
       between CNL Rose Acquisition Corp. and Bank of America, N.A.
       (relating to limited partner interests in RFS Partnership,
       L.P.) (Previously filed as Exhibit 10.5 to RFS Partnership,
       L.P.'s Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.68  Security and Pledge Agreement, dated as of July 10, 2003
       between CNL Hospitality Properties, Inc. and Bank of
       America, N.A. (relating to common stock of CNL Rose
       Acquisition Corp.) (Previously filed as Exhibit 10.6 to RFS
       Partnership, L.P.'s Current Report on Form 8-K filed July
       25, 2003 and incorporated herein by reference.)


10.69  Security and Pledge Agreement, dated as of July 10, 2003
       between CNL Rose GP Corp. and Bank of America, N.A.
       (relating to general partner interest in RFS Partnership,
       L.P.) (Previously filed as Exhibit 10.7 to RFS Partnership,
       L.P.'s Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.70  Security and Pledge Agreement, dated as of July 10, 2003
       between CNL Hospitality Properties, Inc. and Bank of
       America, N.A. (relating to common stock of CNL Rose GP
       Corp.) (Previously filed as Exhibit 10.8 to RFS Partnership,
       L.P.'s Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.71  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to limited partner interest in Ridge Lake, L.P.)
       (Previously filed as Exhibit 10.9 to RFS Partnership, L.P.'s
       Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.72  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to common stock of RFS 2002 Financing, Inc.)
       (Previously filed as Exhibit 10.10 to RFS Partnership,
       L.P.'s Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.73  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to limited liability company interest in RFS
       Financing 2002, L.L.C.) (Previously filed as Exhibit 10.11
       to RFS Partnership, L.P.'s Current Report on Form 8-K filed
       July 25, 2003 and incorporated herein by reference.)


10.74  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to limited partner interest in RFS Financing
       Partnership, L.P.) (Previously filed as Exhibit 10.12 to RFS
       Partnership, L.P.'s Current Report on Form 8-K filed July
       25, 2003 and incorporated herein by reference.)


10.75  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to common stock of Ridge Lake General Partner,
       Inc.) (Previously filed as Exhibit 10.13 to RFS Partnership,
       L.P.'s Current Report on Form 8-K filed July 25, 2003 and
       incorporated herein by reference.)


10.76  Security and Pledge Agreement, dated as of July 10, 2003
       between RFS Partnership, L.P. and Bank of America, N.A.
       (relating to limited liability company interests in Ridge
       Lake, L.L.C.) (Previously filed as Exhibit 10.14 to RFS
       Partnership, L.P.'s Current Report on Form 8-K filed July
       25, 2003 and incorporated herein by reference.)


10.77  Agreement of Purchase and Sale of The Hotel Del Coronado and
       Joint Escrow Instructions among L-O Coronado Holding II,
       Inc., L-O Coronado Hotel, Inc. and L-O Coronado IP, Inc.
       (jointly, Seller) and CNL Hospitality Corp. (Buyer),
       effective as of September 23, 2003 (Previously filed as
       Exhibit 10.82 to Post -- Effective Amendment No. Six to the
       Registrant's Registration Statement on Form S-11 filed
       January 26, 2004 and incorporated herein by reference.)


10.78  First Amendment to Agreement for Purchase and Sale of Real
       Property and Joint Escrow Instructions by and among L-O
       Coronado Holding II, Inc., L-O Coronado Hotel, Inc. and L-O
       Coronado IP, Inc. (collectively, Seller) and CNL Hospitality
       Corp. (Buyer) dated as of October 15, 2003 (Previously filed
       as Exhibit 10.83 to Post -- Effective Amendment No. Six to
       the Registrant's Registration Statement on Form S-11 filed
       January 26, 2004 and incorporated herein by reference.)

</Table>

                                        96
<PAGE>
<Table>
<S>    <C>
10.79  Second Amendment to Agreement for Purchase and Sale of Real
       Property and Joint Escrow Instructions by and among L-O
       Coronado Holding II, Inc., L-O Coronado Hotel, Inc. and L-O
       Coronado IP, Inc. (collectively, Seller) and CNL Hospitality
       Corp. (Buyer) dated as of October 31, 2003 (Previously filed
       as Exhibit 10.84 to Post -- Effective Amendment No. Six to
       the Registrant's Registration Statement on Form S-11 filed
       January 26, 2004 and incorporated herein by reference.)


10.80  Assignment and Assumption of Agreement of Purchase and Sale
       and Joint Escrow Instructions by and between CNL Hospitality
       Corp. (Assignor) and CNL Hotel Del Partners, LP (Assignee)
       dated as of December 18, 2003 (Previously filed as Exhibit
       10.85 to Post -- Effective Amendment No. Six to the
       Registrant's Registration Statement on Form S-11 filed
       January 26, 2004 and incorporated herein by reference.)


10.81  Commercial Mortgage Backed Security Facility, dated December
       4, 2003, by and between Bank of America, N.A. (as lender)
       and Rose SPE 1, L.P. (as borrower), a wholly-owned
       subsidiary of RFS Partnership, L.P. (Previously filed as
       Exhibit 10.20 to RFS Partnership, L.P.'s Annual Report on
       Form 10-K filed March 30, 2004 and incorporated herein by
       reference.)


10.82  Mezzanine Loan Agreement, dated December 23, 2003, by and
       between Fleet National Bank (as lender) and Rose Mezzanine
       SPE, L.P. (as borrower), a wholly-owned subsidiary of RFS
       Partnership, L.P. (Previously filed as Exhibit 10.21 to RFS
       Partnership, L.P.'s Annual Report on Form 10-K filed March
       30, 2004 and incorporated herein by reference.)


21     Subsidiaries of the Registrant (Filed herewith)


31.1   Certification of Chief Executive Officer, 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 Principal Financial Officer, 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, Pursuant to 18
       U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
       the Sarbanes -- Oxley Act of 2002 (Furnished herewith.)


32.2   Certification of Principal Financial Officer, Pursuant to 18
       U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
       the Sarbanes -- Oxley Act of 2002 (Furnished herewith.)
</Table>

     (d) Other Financial Information

     The Company is required to file audited consolidated financial statements
     of Desert Ridge Resort Partners, LLC and WB Resort Partners, LP due to the
     significance of the results of operations for these unconsolidated
     subsidiaries.

                                        97
<PAGE>

     The following summarized financial information is filed as part of this
report as a result of Marriott providing credit enhancements that guarantee
minimum returns and/or guarantee lease payments for several of the Company's
tenants. The aggregate carrying value of the properties covered by these credit
enhancements and guarantees represents more than 20 percent of the Company's
total assets for the year ended December 31, 2003. The summarized financial
information presented for Marriott as of January 2, 2004 and January 3, 2003,
and for each of the years ended January 2, 2004, January 3, 2003 and December
28, 2001, was obtained from the Form 10-K filed by Marriott with the Commission
for the year ended January 2, 2004.

                 MARRIOTT INTERNATIONAL, INC. AND SUBSIDIARIES
                            SELECTED FINANCIAL DATA
                      (IN MILLIONS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                              JANUARY 2,    JANUARY 3,
CONSOLIDATED BALANCE SHEETS DATA:                                2004          2003
---------------------------------                             -----------   -----------
                                                              (IN MILLIONS, EXCEPT PER
                                                                     SHARE DATA)
<S>                                                           <C>           <C>
Current Assets..............................................    $1,235        $1,773
Noncurrent Assets...........................................     6,942         6,523
Current Liabilities.........................................     1,770         2,183
Noncurrent Liabilities......................................     2,569         2,540
Stockholders' Equity........................................     3,838         3,573
</Table>

<Table>
<Caption>
                                                     FISCAL YEAR   FISCAL YEAR   FISCAL YEAR
                                                       ENDED,        ENDED,         ENDED,
                                                     JANUARY 2,    JANUARY 3,    DECEMBER 28,
CONSOLIDATED STATEMENTS OF INCOME DATA:                 2004          2003           2001
---------------------------------------              -----------   -----------   ------------
<S>                                                  <C>           <C>           <C>
Gross revenues.....................................    $9,014        $8,415         $7,768
Costs and expenses (including income tax
  expense).........................................     8,512         8,138          7,532
                                                       ------        ------         ------
Net income.........................................    $  502        $  277         $  236
                                                       ======        ======         ======
Basic earnings per share...........................    $ 2.16        $ 1.15         $ 0.97
                                                       ======        ======         ======
Diluted earnings per share.........................    $ 2.05        $ 1.10         $ 0.92
                                                       ======        ======         ======
</Table>

                                        98
<PAGE>

DESERT RIDGE RESORT PARTNERS, LLC
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                        99
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TO THE MEMBERS OF
DESERT RIDGE RESORT PARTNERS, LLC

     In our opinion, the accompanying consolidated statements of financial
position and the related consolidated statements of operations, of changes in
members' capital (deficit) and comprehensive loss and of cash flows present
fairly, in all material respects, the financial position of Desert Ridge Resort
Partners, LLC and its subsidiaries (the "Company") at December 31, 2003 and 2002
and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


/s/ PRICEWATERHOUSECOOPERS, LLP
---------------------------------------------------------

Orlando, Florida
March 12, 2004

                                       100
<PAGE>

               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                                  2003           2002
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets
  Cash and cash equivalents.................................  $  2,191,589   $  7,564,395
  Accounts receivable, net of allowance for doubtful
     accounts of $168,642 at 2003...........................     5,384,822      2,023,040
  Due from affiliate........................................     2,183,255      3,320,900
  Prepaid expenses and other current assets.................     1,000,882        731,964
                                                              ------------   ------------
     Total current assets...................................    10,760,548     13,640,299

Restricted cash.............................................       916,220         51,397
Property and equipment, net.................................   262,757,269    269,925,397
Loan costs, net of accumulated amortization of $3,678,003
  and $2,453,184............................................     4,844,274      5,939,243
Goodwill....................................................     1,556,115      1,556,115
                                                              ------------   ------------
     Total assets...........................................  $280,834,426   $291,112,451
                                                              ============   ============

                       LIABILITIES AND MEMBERS' CAPITAL (DEFICIT)
Current liabilities
  Accounts payable and accrued expenses
  Due to affiliate..........................................  $  7,626,641   $  7,313,811
  Construction costs payable, including retainage payable of
     $7,259,224 at 2002.....................................       237,160      5,159,727
  Obligation under cash flow hedge..........................       294,614     17,172,419
  Current portion of obligations under capital leases.......     7,779,323      9,724,228
                                                                   216,613         41,188
                                                              ------------   ------------
     Total current liabilities..............................    16,154,351     39,411,373

Mortgage note payable.......................................   179,000,000    179,000,000
Other notes payable.........................................    89,730,398     51,175,811
Distributions payable.......................................     1,656,103      1,604,923
Accrued rent under operating leases.........................     1,985,478      1,547,026
Obligations under capital leases............................       565,816        131,728
                                                              ------------   ------------
     Total liabilities......................................   289,092,146    272,870,861

Commitments

Members' capital (deficit)..................................    (8,257,720)    18,241,590
                                                              ------------   ------------
     Total liabilities and members' capital (deficit).......  $280,834,426   $291,112,451
                                                              ============   ============
</Table>

          See accompanying notes to consolidated financial statements.
                                       101
<PAGE>

                DESERT RIDGE RESORT PRTNRS, LLC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                               2003           2002
                                                           ------------   ------------
<S>                                                        <C>            <C>
Revenues:
  Room...................................................  $ 41,027,026   $  1,411,216
  Food and beverage......................................    35,661,081      1,655,655
  Other operating department.............................    13,581,940      4,277,561
                                                           ------------   ------------
     Total revenue.......................................    90,270,047      7,344,432
Costs and expenses:
  Room...................................................    10,392,949        776,563
  Food and beverage......................................    23,293,158      2,227,158
  Other operating departments............................     9,785,030      4,012,032
  Interest expense and loan cost amortization............    24,583,609      3,655,114
  Pre-opening expenses...................................       663,869      6,547,778
  Depreciation...........................................    14,679,757      2,337,753
  Property operations and maintenance....................    11,225,343      1,427,877
  General and administrative.............................     8,578,467      1,055,077
  Sales and marketing....................................     6,234,005        446,670
  Management fees........................................     2,707,665        209,649
                                                           ------------   ------------
     Total costs and expenses............................   112,143,852     22,695,671
                                                           ------------   ------------
Net loss.................................................  $(21,873,805)  $(15,351,239)
                                                           ============   ============
</Table>

                                       102
<PAGE>

               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' CAPITAL (DEFICIT) AND
                               COMPREHENSIVE LOSS
                           DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                             ACCUMULATED OTHER
                                  CLASS A        CLASS B       COMPREHENSIVE                    COMPREHENSIVE
                                  MEMBERS        MEMBERS           LOSS             TOTAL           LOSS
                                ------------   -----------   -----------------   ------------   -------------
<S>                             <C>            <C>           <C>                 <C>            <C>
Balance at December 31,
  2001........................  $ 12,644,106   $(2,064,419)     $(3,191,238)     $  7,388,449
Capital contributions.........    30,642,956     5,703,991               --        36,346,947   $         --
Distributions.................    (3,441,402)     (168,175)              --        (3,609,577)            --
Net loss......................   (14,911,887)     (439,352)              --       (15,351,239)   (15,351,239)
Current period adjustment to
  recognize fair value of cash
  flow hedge..................            --            --       (6,532,990)       (6,532,990)    (6,532,990)
                                ------------   -----------      -----------      ------------   ------------
Balance at December 31,
  2002........................    24,933,773     3,032,045       (9,724,228)       18,241,590   $(21,884,229)
                                                                                                ============
Capital contributions.........            --            --               --                --
Distributions.................    (5,902,951)     (667,459)              --        (6,570,410)  $         --
Net loss......................   (19,651,427)   (2,222,378)              --       (21,873,805)   (21,873,805)
Current period adjustment to
  recognize fair value of cash
  flow hedge..................            --            --        1,944,905         1,944,905      1,944,905
                                ------------   -----------      -----------      ------------   ------------
Balance at December 31,
  2003........................  $   (620,605)  $   142,208      $(7,779,323)     $ (8,257,720)  $(19,928,900)
                                ============   ===========      ===========      ============   ============
</Table>

                                       103
<PAGE>

               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                                  2003           2002
                                                              ------------   ------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Net loss..................................................  $(21,873,805)  $(15,351,239)
  Adjustments to reconcile net loss to cash used in
     operating activities:
     Depreciation...........................................    14,679,757      2,337,753
     Amortization of loan costs.............................     1,224,819      1,198,872
     Bad debt expense.......................................       235,793            747
  Changes in operating assets and liabilities:
     Accounts receivable....................................    (3,597,575)    (1,788,211)
     Due from affiliate.....................................     1,137,645     (3,267,460)
     Prepaid expenses and other current assets..............      (268,918)      (548,002)
     Accrued rent under operating leases....................       438,452      1,465,925
     Accounts payable and accrued expenses..................       312,830      5,830,369
     Due to affiliate.......................................    (4,922,567)     4,098,793
                                                              ------------   ------------
       Net cash used in operating activities................   (12,633,569)    (6,022,453)
                                                              ------------   ------------
Cash flows from investing activities:
  Additions to property and equipment.......................   (26,266,258)  (143,026,360)
  Marriott Vacation Club payment of office build out........     2,690,000             --
  (Increase) decrease in restricted cash....................      (864,823)    69,157,535
                                                              ------------   ------------
       Net cash used in investing activities................   (24,441,081)   (73,868,825)
                                                              ------------   ------------
Cash flows from financing activities:
  Borrowings from other notes payable.......................    38,554,587     48,886,390
  Principal payments on capital lease obligations...........      (203,663)       (41,188)
  Capital contributions from members........................            --     36,346,947
  Distributions to members..................................    (6,519,230)    (2,004,654)
  Payment of loan costs.....................................      (129,850)      (110,576)
                                                              ------------   ------------
       Net cash provided by financing activities............    31,701,844     83,076,919
                                                              ------------   ------------
Net (decrease) increase in cash and cash equivalents........    (5,372,806)     3,185,641
Cash and cash equivalents, beginning of period..............     7,564,395      4,378,754
                                                              ------------   ------------
Cash and cash equivalents, end of period....................  $  2,191,589   $  7,564,395
                                                              ============   ============
Supplemental disclosure of cash flow information:
  Cash paid during the period for:
     Interest, net of $14,979,037 in capitalized interest in
       2002.................................................  $ 24,369,166   $    685,653
                                                              ============   ============
Supplemental disclosure of non-cash investing/financing
  activities
     Assets acquired through capital lease obligation.......  $    813,176   $         --
                                                              ============   ============
     Distributions declared but not paid to Partners........  $  1,656,103   $  1,604,923
                                                              ============   ============
     Construction costs payable included in construction in
       progress.............................................  $    294,614   $ 17,172,419
                                                              ============   ============
     Ground rental capitalized to construction cost.........  $         --   $    515,246
                                                              ============   ============
</Table>

                                       104
<PAGE>

               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

1.  BUSINESS

  ORGANIZATION

     Desert Ridge Resort Partners, LLC (the "LLC" or the "Company") was
organized pursuant to the laws of the State of Delaware on December 21, 2000.
Desert Ridge Resort, LLC and DRR Tenant Corporation are wholly owned
subsidiaries of the LLC. The LLC's Class A Members' are CNL DRR Investor, LP and
CNL Desert Ridge Resort, Ltd. (collectively, the "Class A Members") and Marriott
International, Inc. is the Class B Member ("Marriott"). The managing Member is
CNL DRR Investor, LP. Both classes of Members share in major decisions and there
is substantially no difference between the rights and obligations of Class A
Members and Class B Members.

     The LLC was formed to own and operate a 950-room luxury resort located in
Phoenix, Arizona (the "Property"). The Property includes two championship golf
courses, a 25,500 square foot spa and 78,000 square feet of meeting space.
Affiliates of the Members managed the construction activity under development
agreements throughout the construction period. Construction was completed on
November 30, 2002 (the "Opening Date"), at which time the Property opened to the
public. The Property's day-to-day activities are managed by an affiliate of
Marriott, however, all Members must agree on key decisions affecting the
Property.

     The structure of the LLC is designed to allow its managing Member's parent
to continue to qualify as a real estate investment trust, which is generally not
subject to federal income taxes. In keeping with this goal, the LLC operates its
Property through a taxable REIT subsidiary ("TRS"), as permitted by the REIT
Modernization Act of 1999.

     The LLC relies on capital contributions from the Class A Members and
Marriott and borrowings under loans to fund capital expenditures, operating
losses and negative cash flows. For the years ended December 31, 2003 and 2002,
the LLC incurred losses of approximately $21.9 million and $15.4 million,
respectively. As of December 31, 2003, the LLC had deficit capital of
approximately $8.3 million. In addition, the LLC had negative cash flows from
operations for the years ended December 31, 2003 and 2002 of approximately $12.6
million and $6.0 million, respectively. Losses and deficit cash flows at the
Property may continue until such time as the Property establishes market
presence and captures market share and could increase if the economy fails to
recover. The LLC has a Liquidity Facility Loan and Senior Loan Guarantee (see
Note 5) to fund operating shortfalls and deficit debt service if needed. The
Members are committed to fund such shortfalls if they arise.

     In accordance with the LLC agreement (the "Agreement"), (i) each Member's
account is credited with capital contributions, share of profits and (ii) each
Members' account is charged for amounts distributed to each Member. The Class A
Members and Class B Members own 89.8% and 10.2%, respectively, in the Company as
a result of approximately $51.3 million and $5.8 million, respectively, in
capital contributions since its formation.

  ALLOCATIONS AND DISTRIBUTIONS

     Net operating profits are allocated (i) first, to the Members' who received
allocations of losses for earlier fiscal years, pro rata, in proportion to the
cumulative amount of losses previously allocated to them, until those Members
have received cumulative allocation of profits equal to the cumulative losses;
(ii) next, to Members', pro rata, in proportion to the cumulative distributions
made to them, until those Members have received cumulative allocation of profits
equal to the cumulative amount of such distributions; and (iii) thereafter, to
the Members, pro rata, in proportion to their respective percentage interests.

     Net operating losses are allocated (i) first, to the Members who received
allocations of profits for earlier fiscal years, pro rata, in proportion to the
cumulative amount of profits previously allocated to them, until those

                                       105
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

Members have received cumulative allocation of losses equal to the cumulative
profits; (ii) next, to Members who have positive capital accounts, pro rata, in
proportion to the respective amounts of their positive capital accounts, until
the capital accounts of those Members is reduced to zero; and (iii) thereafter,
to the Members, pro rata, in proportion to their respective percentage
interests.

     In accordance with the LLC Agreement, the Company was required to pay each
Member a return, computed at the rate of 11 percent per annum on the daily
average outstanding balance of the Members' unreturned capital prior to the
Opening Date, as defined above. After the Opening Date of the Property, the per
annum distribution rate to Members increased to 11.5 percent. These cash
distributions are made based on cash available for distribution within thirty
days of the end of each calendar quarter, as defined in the Agreement. The
Company has and may in the future borrow money as necessary to make
distributions. As of December 31, 2003 and 2002, the Company had distributions
payable totaling approximately $1.7 million and $1.6 million, respectively.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of significant accounting principles and practices used in the
preparation of the consolidated financial statements follows:

  BASIS OF FINANCIAL STATEMENT PRESENTATION

     The LLC prepares its consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. These
principles require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of financial statements
and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

  PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
Desert Ridge Resort Partners, LLC and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

  CASH AND CASH EQUIVALENTS

     The LLC considers all amounts held in highly liquid instruments with
original maturities of three months or less to be cash equivalents. Cash and
cash equivalents consist primarily of demand deposit accounts. Management
believes the credit risk associated with cash and cash equivalents to be low due
to the quality of the financial institutions in which these assets are held.

     Beginning on the Opening Date, certain amounts of cash were restricted for
maintenance and replacement of furniture, fixtures, and equipment. These amounts
are calculated as a certain percentage of gross revenue in accordance with the
hotel management agreement. The accompanying consolidated statements of
financial position as of December 31, 2003 and 2002 include approximately $0.9
million and $0.1 million, respectively, which was restricted for maintenance and
replacements.

  INVENTORY

     Inventory consists primarily of food and beverage inventory, merchandise
and operating supplies and is accounted for using the first in, first out method
and is stated at the lower of cost or market. Inventory is recorded in prepaid
expenses and other current assets in the accompanying consolidated statements of
financial position.

                                       106
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

  PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost and includes building, lease and
land improvements and furniture, fixtures and equipment ("FF&E"). Land
improvements and FF&E are depreciated on the straight-line method over the
assets' estimated useful lives of 15 and 7 years, respectively. Buildings are
depreciated over 40 years.

     Major renewals and betterments are capitalized and depreciated over the
related assets' estimated useful lives. Expenditures for repairs and maintenance
are expensed when incurred. Interest and real estate taxes incurred relating to
the construction of the resort and amenities are capitalized to construction in
progress during the active construction period during 2002 prior to the Opening
Date.

  DEFERRED LOAN COSTS

     Deferred loan costs, primarily loan origination and related fees, are
capitalized and are being amortized over the term of the loan using the
straight-line method which approximates the effective interest method.

  LEASES

     The Company has entered into capital and operating leases for equipment
used at its Properties. Equipment leased under capital leases are recorded as
equipment under capital leases along with a liability for the offsetting
obligation under capital leases. Equipment under capital leases is depreciated
over the lease term and the obligation is reduced as monthly lease payments are
made. Payments under operating leases are recorded as rent expense each month as
lease payments are made.

  INCOME TAXES

     Under the provisions of the Internal Revenue Code and applicable state
laws, the LLC is only subject to taxation of income on the profits and losses
from the taxable REIT subsidiary ("TRS") tenant operations. The tax consequences
of other LLC revenues and expenses, unrelated to the operation of the Property,
will accrue to the Members. Certain of these other revenues and expenses may be
treated differently in the LLC's income tax return than in the accompanying
consolidated financial statements. Therefore, amounts reported in the
consolidated financial statements may not be the same as reported in the
Members' income tax returns.

     The LLC accounts for federal and state income taxes on its TRS tenant using
the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the consolidated financial statements carrying amounts of existing assets and
liabilities and their respective tax bases and operating losses and tax-credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be reversed or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.

  REVENUE RECOGNITION

     The Property's revenues are derived from its operations and include
revenues from the rental of rooms, food and beverage sales, golf course and spa
operations, telephone usage and other service revenue. Revenue is recognized
when rooms are occupied and services have been performed. Cash received from
customers for events occurring after the end of each respective year have been
recorded as deposits and is included in accounts payable and accrued expenses in
the accompanying consolidated statements of financial position. Advanced
deposits of approximately $1.1 million and $1.1 million are included accounts
payable and accrued

                                       107
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

expense in the accompanying consolidated statements of financial position as of
December 31, 2003 and 2002, respectively.

  ADVERTISING AND PROMOTION COSTS

     The costs of advertising, promotional and marketing programs are charged to
operations in the year incurred and are included as sales and marketing expenses
in the accompanying consolidated statement of operations. Advertising,
promotional and marketing costs totaled approximately $1.3 million and $0.1
million for the years ended December 31, 2003 and 2002, respectively. These
amounts are included in sales and marketing expenses in the accompanying
consolidated statement of operations.

  DERIVATIVE FINANCIAL INSTRUMENTS

     The LLC follows Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities" ("FASB 133"), as
amended. FASB 133 established accounting and reporting standards for derivative
instruments and for hedging activities by requiring all derivatives to be
measured at fair value and recognized in the consolidated statements of
financial position. Gains or losses resulting from changes in fair value of
derivatives are recognized in earnings or recorded in other comprehensive
income, and recognized in the consolidated statement of operations when the
hedged item affects earnings, depending on the purpose of the derivatives and
whether they qualify for hedging accounting treatment (the ineffective portion,
if any, of all hedges is recognized in current earnings).

     The LLC records the fair value of its interest rate swaps designated as a
cash flow hedge in non-current liabilities with the offset to the other
comprehensive income (loss) component of members' capital (deficit).

  IMPAIRMENT OF LONG-LIVED ASSETS

     In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company's
long-lived assets are tested for recoverability annually or whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset. The assessment is based on the carrying
amount of the asset at the date it is tested for recoverability. An impairment
loss is recognized when the carrying amount of a long-lived asset exceeds its
fair value. If impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. For the years ended December 31, 2003
and 2002, the LLC recorded no impairments.

  CONCENTRATION OF CREDIT RISK

     Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of guest and trade accounts
receivable. Concentration of credit risk with respect to guest and trade
accounts receivable is limited due to the wide variety of customers and
industries to which the Property's services are sold, as well as the dispersion
of customers across many geographic areas.

  RECLASSIFICATION

     Certain items in the prior year's consolidated financial statements have
been reclassified to conform with the 2003 presentation. These reclassifications
had no effect on members' capital (deficit) or results of operations.

                                       108
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

3.  PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at December 31, 2003 and
2002:

<Table>
<Caption>
                                                               2003           2002
                                                           ------------   ------------
<S>                                                        <C>            <C>
Land and land improvements...............................  $ 62,578,854   $ 63,466,377
Buildings................................................   167,486,390    162,147,269
Furniture, fixtures and equipment........................    49,131,422     46,884,567
Equipment under capital leases...........................     1,027,280        214,104
                                                           ------------   ------------
                                                            280,223,946    272,712,317
  Less: accumulated depreciation.........................   (17,466,677)    (2,786,920)
                                                           ------------   ------------
                                                           $262,757,269   $269,925,397
                                                           ============   ============
</Table>

     In 2003, the LLC received approximately $2.7 million from Marriott in
connection with the build-out of a Marriott Vacation Club office. This amount
has been reflected as a reduction in Property and equipment in the accompanying
consolidated balance sheet as of December 31, 2003. Accumulated depreciation for
equipment under capital leases was approximately $0.3 million and $0.1 million
for the years ended December 31, 2003 and 2002, respectively.

4.  MORTGAGE NOTE PAYABLE

     In December 2000, the LLC entered into a $179.0 million construction loan
with an institutional lender to finance construction costs. The construction
loan is collateralized by a first mortgage and lien on the Property and all
other LLC assets. The construction loan has a seven-year term and is due on
December 15, 2007. Interest only payments are due quarterly on each March 15,
July 15, September 15, and December 15 with the entire principal balance due at
maturity. The amount of debt reported in the accompanying consolidated
statements of financial position approximates the fair value of such debt as of
December 31, 2003 and 2002.

     A portion of the construction loan bears interest at an annual rate of 185
basis points above three-month London Interbank Offered Rate (the "LIBOR"). The
LLC has entered into a seven-year interest rate swap agreement (the "Swap") to
effectively convert the variable rate portion of this mortgage to a fixed
interest rate of 6.025% per annum. The LLC designates the Swap a hedge of
specific debt instruments and recognizes interest differentials as adjustments
to interest expense as the differentials occur. The counterparty to this
agreement is a major financial institution. The LLC is exposed to credit loss in
the event of non-performance by the counterparty, however, the LLC does not
anticipate non-performance by the major financial institution. For the years
ended December 31, 2003 and 2002, the LLC recorded adjustments to the fair value
of this cash flow hedge of approximately $1.9 million and a loss of
approximately $6.5 million, respectively, in other comprehensive income or loss.
The accumulated net loss for the Swap was approximately $7.8 million and $9.7
million, respectively, as of December 31, 2003 and 2002. The blended interest
rate on the aggregate principal amount of the $179.0 million mortgage notes,
including interest rate, swap costs, premiums for a debt service insurance
policy, and amortization of loan costs is approximately 10.13% per annum.

5.  OTHER NOTES PAYABLE

     The LLC and Marriott entered into a series of agreements whereby Marriott
International Capital Corporation has agreed to make four loans to the LLC:
mezzanine loan A (the "Mezzanine Loan"); mezzanine loan B (the "Liquidity
Facility Loan"); mezzanine loan C (the "Project Cost Facility Loan") and
mezzanine loan D (the "Senior Loan Guaranty Loan").

                                       109
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

     A description of each loan is as follows:

<Table>
<Caption>
     LOAN          PURPOSE OF LOAN        MAXIMUM CAPACITY     MATURITY       INTEREST RATE
     ----          ---------------      ---------------------  --------       -------------
<C>             <S>                     <C>                    <C>        <C>
Mezzanine Loan  Fund a portion of            $57,134,000       12/2007     Election of either a
                total development                                           floating rate or a
                costs                                                       fixed rate (not to
                                                                              exceed 13.5%)*
  Liquidity     Fund priority           Lesser of $32,500,000  12/2007     Election of either a
Facility Loan   shortfalls from the      and 50% of Class A                 floating rate or a
                operations of the       Members Contributions               fixed rate (not to
                Property                    or cumulative                     exceed 13.5%)*
                                         priority shortfalls
 Project Cost   Fund renovation costs        $30,000,000       12/2007         8% per annum
Facility Loan   in excess of project
                budget
 Senior Loan    Fund any deficiency in       $45,000,000       12/2007         8% per annum
Guaranty Loan   the payment of monthly
                debt service payments
                under the Mortgage
                Loan
</Table>

---------------

 * The managing member had the option to elect either the floating or fixed
   interest rate at the time of the initial advance. The floating rate is equal
   to one-month LIBOR plus 700 basis points and the fixed rate is equal to US
   Treasury Security, with maturity closest to the Mezzanine Loan and the
   Liquidity Facility Loan maturity date, plus 700 basis points. Based on this
   election, these loans bear interest at an annual rate of 8.876%.

** The Senior Loan Guaranty Loan has no limit on the amount that can be borrowed
   until such time the debt service coverage ratio achieves 1.125 percent. Once
   the debt service coverage ratio reaches 1.125 percent, future fundings under
   the Senior Loan Guaranty Loan are limited to $30 million.

     At December 31, 2003 and 2002, approximately $21.5 million and $5.4
million, respectively, were outstanding under the Liquidity Facility Loan and
approximately $57.5 million and $45.7 million, respectively, were outstanding
under the Mezzanine Loan. At December 31, 2003 and 2002, approximately $8.5
million and $0, respectively was outstanding under the Project Cost Facility
Loan. No amount was outstanding under the Senior Loan Guarantee Loan at December
31, 2003 or 2002. Collateral for these loans is restricted to assets relating to
the hotel property. Each of the loans are due in December 2007.

     Marriott International Capital Corporation has agreed to loan up to
approximately $2.3 million to the LLC for additional improvements relating to
the future occupancy of Marriott Vacation Club (see Note 7). The loan will bear
interest at 8% per annum, with the principal due on December 15, 2008. As of
December 31, 2003, the Company had borrowed approximately $2.2 million under
this facility.

6.  LEASES

     The LLC is a lessee of various types of equipment used in operating the
Property. The LLC's leases are categorized as operating or capital leases based
upon the terms in the lease agreements. The LLC also leases two parcels of land
from the State of Arizona under two separate operating lease agreements, on
which the luxury resort and the two golf courses are located. These leases are
effective until July 2092 and require escalating base rents. Rental payments are
due annually. Total rent expense under all operating leases, including the land
leases, for the years ended December 31, 2003 and 2002, were approximately $1.2
million and $0.6 million, respectively. These amounts have been included in
property operations and maintenance in

                                       110
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

the accompanying consolidated statements of operations for the years ended
December 31, 2003 and 2002. The LLC has recorded accrued rent of approximately
$2.0 million and $1.5 million as of December 31, 2003 and 2002, respectively, as
a result of straight-lining the minimum annual rental payments under the terms
of the land leases.

     Future minimum rental payments required under capital leases together with
the present value of the net minimum lease payments as of December 31, 2003:

<Table>
<S>                                                            <C>
2004........................................................   $ 254,128
2005........................................................     276,528
2006........................................................     196,528
2007........................................................     173,767
                                                               ---------
  Total future minimum lease payments.......................     900,951
  Less: interest............................................    (118,522)
                                                               ---------
  Present value of net minimum lease payments...............     782,429
  Less: current portion.....................................    (216,613)
                                                               ---------
                                                               $ 565,816
                                                               =========
</Table>

     Future minimum lease rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2003:

<Table>
<S>                                                            <C>
2004........................................................   $   694,594
2005........................................................       688,056
2006........................................................       626,921
2007........................................................       436,672
2008........................................................       486,003
Thereafter..................................................    76,839,012
                                                               -----------
  Total.....................................................   $79,771,258
                                                               ===========
</Table>

7.  TRANSACTIONS WITH RELATED PARTIES

  HOTEL MANAGEMENT AGREEMENT

     The LLC entered into an agreement with an affiliate of Marriott
International, Inc. (the "Manager") to manage the Property. Under terms of the
agreement, the Manager operates the Property in return for a fixed management
fee of 3 percent of gross revenues. The Manager also earns an incentive
management fee ranging from 20 percent to 50 percent of operating cash flow. The
LLC incurred management fees of approximately $2.7 million and $0.2 million
during the years ended December 31, 2003 and 2002, respectively.

  DEVELOPMENT AGREEMENTS

     The Company entered into agreements for $9 million with affiliates of the
managing member and Marriott to manage the construction of the Property. Under
these agreements, approximately $0.2 million and $3.0 million has been paid
during the years ended December 31, 2003 and 2002, respectively. These amounts
have been capitalized to the cost of property and equipment in the accompanying
consolidated statements of financial position.

                                       111
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

  OTHER

     In connection with the development of a Marriott Vacation Club resort (the
"MVC Resort") within close proximity to the Property, the LLC has committed to
lease office and lobby space to the MVC Resort for the purposes of the
establishment of a gallery and the promotion of Marriott Vacation Club
International. The term of the lease is eight years from the Opening Date of the
Property and will result in annual rental income of approximately $0.4 million.
During the years ended December 31, 2003 and 2002, the Company received
approximately $0.4 million and $0.03 million, respectively in income in
connection with this lease which has been included in other operating department
revenue.

     The LLC has entered into various other agreements with Marriott, or
subsidiaries thereof, to provide services such as marketing support, reservation
services, and other services customary to the operation of a national brand
hotel concept. The Company incurred approximately $5.0 million and $0.2 million,
respectively, for the years ended December 31, 2003 and 2002, which have been
included in cost of sales for rooms, food and beverage, and other operating
departments in the accompanying consolidated statements of operations. The
following table summarizes these expenses by major category:

<Table>
<Caption>
                                                                 2003        2002
                                                              ----------   --------
<S>                                                           <C>          <C>
Advertising.................................................  $1,133,045   $ 36,610
Marriott Rewards............................................     951,257     12,407
Insurance...................................................   1,006,730     20,730
Reservations................................................     430,204     83,806
Accounting Services.........................................   1,413,645     95,101
Other.......................................................      28,359         --
                                                              ----------   --------
Total.......................................................  $4,963,240   $248,654
                                                              ==========   ========
</Table>

     The LLC has bonus plans, based on profitability formulas, which provide
incentive compensation for key officers and employees. Amounts charged to
expense for bonuses to property management totaled approximately $0.9 million
and $0 for the years ended December 31, 2003 and 2002, respectively. These
amounts are allocated between various hotel cost of sales for rooms, food and
beverage, and other operating departments in the accompanying consolidated
statement of earnings.

     As of December 31, 2003 and 2002, amounts due to Marriott and affiliates
was approximately $0.2 million and $5.2 million, respectively, and is included
in due to affiliates in the accompanying consolidated statements of financial
position.

     As of December 31, 2003 and 2002, amounts due from Marriott were
approximately $2.2 million and $3.3 million, respectively, for receivables
collected by Marriott on behalf of the LLC.

                                       112
<PAGE>
               DESERT RIDGE RESORT PARTNERS, LLC AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                           DECEMBER 31, 2003 AND 2002

8.  INCOME TAXES

     The components of the deferred taxes recognized in the accompanying
consolidated statements of financial position at December 31, 2003 and 2002 are
as follows:

<Table>
<Caption>
                                                                2003          2002
                                                             -----------   -----------
<S>                                                          <C>           <C>
Deferred tax asset:
  Net operating loss.......................................  $ 9,906,000   $ 2,821,000
Deferred tax liability:
  Accelerated depreciation.................................   (4,281,000)     (514,000)
                                                             -----------   -----------
Net deferred tax asset.....................................    5,625,000     2,307,000
Valuation allowance........................................   (5,625,000)   (2,307,000)
                                                             -----------   -----------
                                                             $        --   $        --
                                                             ===========   ===========
</Table>

     The types of temporary differences between the tax bases of assets and
liabilities and their financial statement reporting amounts are attributable
principally to depreciation and net operating losses. The TRS tenant has net
operating loss carry-forwards for federal and state purposes of approximately
$25.7 million and $6.0 million as of December 31, 2003 and 2002, respectively,
which is available to offset future taxable income. The estimated net operating
loss carry-forward expiration dates are as follows:

<Table>
<S>                                                           <C>
2020........................................................  $   481,000
2021........................................................    5,491,000
2022........................................................   19,692,000
                                                              -----------
                                                              $25,664,000
                                                              ===========
</Table>

     The Company has not recorded this potential future benefit because its TRS
subsidiary does not have sufficient historical earnings on which to base a
potential future benefit.

9.  COMMITMENTS AND CONTINGENCIES

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

                                   * * * * *

                                       113
<PAGE>

WB RESORT PARTNERS, L.P.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                       114
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Partners of
WB Resort Partners, L.P.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of partners' capital and of cash
flows present fairly, in all material respects, the financial position of WB
Resort Partners, L.P. and its subsidiaries (the "Partnership") at December 31,
2003 and 2002 and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



/s/ PRICEWATERHOUSECOOPERS, LLP
---------------------------------------------------------
Orlando, Florida
March 12, 2004

                                       115
<PAGE>

                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                                  2003           2002
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets
  Cash and cash equivalents.................................  $  5,243,688   $  3,309,558
  Accounts receivable, net of allowance for doubtful
     accounts of $106,386 and $72,508.......................     5,537,842      3,986,276
  Prepaid expenses and other current assets.................     1,429,438        861,371
                                                              ------------   ------------
     Total current assets...................................    12,210,968      8,157,205

Restricted cash.............................................     7,541,324     11,662,018
Property, construction in progress and equipment, net.......   190,954,732    198,140,180
Loan costs, less accumulated amortization of $1,492,860 and
  $860,569..................................................     1,639,679      2,271,970
                                                              ------------   ------------
     Total assets...........................................  $212,346,703   $220,231,373
                                                              ============   ============

                            LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
  Accounts payable and accrued expenses.....................  $ 11,236,623   $  9,423,012
  Construction costs payable, including retainage payable
     $112,758 at 2002.......................................       636,388      1,716,283
  Distribution payable......................................     7,364,726      2,463,838
  Current portion of capital lease obligation...............       763,472      1,081,799
                                                              ------------   ------------
     Total current liabilities..............................    20,001,209     14,684,932

Mortgage note payable.......................................   130,000,000    130,000,000
Other notes payable.........................................    44,079,608     27,798,189
Capital lease obligation....................................        26,001        757,851
Accrued rent from operating leases..........................     2,447,356        391,072
                                                              ------------   ------------
     Total liabilities......................................   196,554,174    173,632,044

Commitments (Note 9)

Partners' capital...........................................    15,792,529     46,599,329
                                                              ------------   ------------
     Total liabilities and partners' capital................  $212,346,703   $220,231,373
                                                              ============   ============
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       116
<PAGE>

                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                               2003           2002
                                                           ------------   ------------
<S>                                                        <C>            <C>
Revenues:
  Rooms..................................................  $ 42,211,855   $ 35,776,082
  Food and beverage......................................     8,851,845      7,427,279
  Other operating departments............................     4,702,101      3,463,235
                                                           ------------   ------------
     Total revenue.......................................    55,765,801     46,666,596
Cost of sales and other expenses:
  Rooms..................................................    12,859,657     11,741,511
  Food and beverage......................................     8,478,072      7,665,138
  Other operating departments............................       962,904      1,000,286
  Property operations and maintenance....................    15,222,139     14,527,007
  Depreciation...........................................    11,975,475      9,340,907
  Interest and loan cost amortization....................    15,124,872     10,381,823
  General and administrative.............................     5,027,709      3,938,931
  Sales and marketing....................................     5,486,112      5,070,257
  Management fees........................................     1,660,663      1,398,192
                                                           ------------   ------------
     Total costs and expenses............................    76,797,603     65,064,052
                                                           ------------   ------------
Net loss.................................................  $(21,031,802)  $(18,397,456)
                                                           ============   ============
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                       117
<PAGE>

                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                        AS OF DECEMBER 31, 2003 AND 2002

<Table>
<S>                                                     <C>        <C>            <C>
Balance, December 31, 2001............................  $ 39,529   $ 39,488,694   $ 39,528,223
  Contributions.......................................    33,924     33,889,576     33,923,500
  Distributions.......................................    (8,455)    (8,446,483)    (8,454,938)
  Net loss............................................   (18,397)   (18,379,059)   (18,397,456)
                                                        --------   ------------   ------------
Balance, December 31, 2002............................    46,601     46,552,728     46,599,329
  Contributions.......................................        --             --             --
  Distributions.......................................    (9,775)    (9,765,223)    (9,774,998)
  Net loss............................................   (21,032)   (21,010,770)   (21,031,802)
                                                        --------   ------------   ------------
Balance, December 31, 2003............................  $ 15,794   $ 15,776,735   $ 15,792,529
                                                        ========   ============   ============
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                       118
<PAGE>

                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<Table>
<Caption>
                                                                  2003           2002
                                                              ------------   ------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Net loss..................................................  $(21,031,802)  $(18,397,456)
  Adjustments to reconcile net loss to cash used in
     operating activities:
     Depreciation...........................................    11,975,475      9,340,907
     Amortization of loan costs.............................       632,291        623,910
     Provision for bad debt expense.........................       107,386         80,802
  Changes in operating assets and liabilities:
     Accounts receivable....................................    (1,658,952)    (2,858,087)
     Prepaid expenses and other current assets..............      (568,067)       706,364
     Accrued rent from operating leases.....................     2,056,284        391,072
     Accounts payable and accrued expenses..................     1,813,611      3,994,909
                                                              ------------   ------------
       Net cash used in operating activities................    (6,673,774)    (6,117,579)
                                                              ------------   ------------
Cash flows from investing activities:
  Additions to property and equipment.......................    (5,869,922)   (27,468,646)
  Decrease (increase) in restricted cash....................     4,120,694    (11,585,008)
                                                              ------------   ------------
       Net cash used in investing activities................    (1,749,228)   (39,053,654)
                                                              ------------   ------------
Cash flows from financing activities:
  Proceeds from other notes payable.........................    16,281,419     20,048,437
  Principal payments on capital lease obligations...........    (1,050,177)    (1,046,303)
  Capital contributions from partners.......................            --     33,923,500
  Distributions to partners.................................    (4,874,110)    (7,204,518)
  Payment of loan costs.....................................            --       (106,072)
                                                              ------------   ------------
       Net cash provided by financing activities............    10,357,132     45,615,044
                                                              ------------   ------------
Net increase in cash and cash equivalents...................     1,934,130        443,811
  Cash and cash equivalents, beginning of period............     3,309,558      2,865,747
                                                              ------------   ------------
  Cash and cash equivalents, end of period..................  $  5,243,688   $  3,309,558
                                                              ============   ============
Supplementary disclosure of cash flow information:
  Cash paid during the period for:
     Interest, net of capitalized interest of $5,431,858 in
       2002.................................................  $ 14,461,778   $  8,772,225
                                                              ============   ============
Supplementary disclosure of non-cash investing and financing
  activities:
  Distributions declared but not paid to partners...........  $  7,364,726   $  2,463,838
                                                              ============   ============
  Construction costs payable included in construction in
     progress...............................................  $    636,388   $  1,716,283
                                                              ============   ============
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       119
<PAGE>

                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

1.  BUSINESS

  ORGANIZATION

     WB Resort Partners, L.P. (the "Partnership") was organized pursuant to the
laws of the State of Delaware on July 27, 2001. WBM Resort, L.P., WBR Parent,
LLC and WBR Tenant Corporation are wholly owned subsidiaries of the Partnership.
The Partnership's general partner is CNL WBR GP Corp. (the "General Partner")
and the limited partners are CNL WBR Investor, L.P., Marriott International,
Inc. ("Marriott") and Waikiki Beach Resort, Ltd. (collectively, the "Limited
Partners").

     The Partnership was formed to own and operate a resort located in Honolulu,
Hawaii (the "Property"). The Partnership negotiated a fixed fee agreement with a
contractor for $65 million to renovate the Property. As of December 31, 2003,
renovations have been completed. The Property's day-to-day activities are
managed by an affiliate of Marriott, however, all partners must agree to key
decisions affecting the Property.

     The structure of the Partnership and its subsidiaries is designed to allow
the parent of its majority owner to continue to qualify as a real estate
investment trust, which is generally not subject to federal income taxes. In
keeping with this objective, the Partnership operates its Property through a
taxable REIT subsidiary ("TRS"), as permitted by the REIT Modernization Act of
1999.

     The General Partner and Limited Partners hold a 0.1% and 99.9% interest,
respectively, as a result of capital contributions totaling approximately $0.1
million and $84.9 million in the Partnership in order to obtain the following
percentage interests:

<Table>
<Caption>
PARTNER                                                        PERCENTAGE INTEREST
-------                                                        -------------------
<S>                                                            <C>
General Partner.............................................           0.1%
CNL WBR Investor, L.P. .....................................          48.9%
Waikiki Beach Resort, Ltd. .................................          36.0%
Marriott....................................................          15.0%
</Table>

     The Partnership relies on capital contributions from the General Partner
and Limited Partners and borrowings under loans to fund capital expenditures,
operating losses and negative cash flows. Since completing significant
renovations in 2002, the Hawaiian market has continued to be significantly
impacted by reduced Asian travel since September 2001 as well as the overall
weakness in the economy. For the years ended December 31, 2003 and 2002, the
Partnership reported net losses of approximately $21.0 million and $18.4
million, respectively. In addition, the Partnership had negative cash flows from
operations for the years ended December 31, 2003 and 2002 of approximately $6.7
million and $6.1 million, respectively. Losses and deficit cash flows at the
Property may continue until economic recovery of the region occurs. Cash flow
deficits are possible in the future, which may require additional funding. The
General Partner and Limited Partners are required by the limited partnership
agreement to make their pro-rata share of capital contributions required to fund
operating shortfalls of the Partnership. If any partner fails to make such
required capital contribution, they will be in default. In accordance with the
partnership agreement, non-defaulting partners may elect to cure such default by
making the defaulting partner's capital contribution, which will be considered a
loan from the non-defaulting partner to the defaulting partner.

  ALLOCATIONS AND DISTRIBUTIONS

     Net operating profits and net operating losses are allocated to the General
and Limited Partners in accordance with their respective ownership interests.

     In addition, the General Partner and Limited Partners are entitled to a
return of 11.5% per annum (the "11.5% Preferred Return"). The cumulative 11.5%
Preferred Return is to be paid quarterly to each partner

                                       120
<PAGE>
                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based on the capital accounts of each partner during the quarter. As of December
31, 2003 and 2002, the Partnership had distributions payable totaling
approximately $7.4 million and $2.5 million, respectively. As of December 31,
2003 and during the second half of 2003, the Partnership did not generate
sufficient cash flows from operations to allow for the payment of distributions
to the General Partner of the Limited Partners. Although the 11.5% Preferred
Return will continue to accrue, there is no guarantee when the Partnership will
be able to pay these amounts.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of significant accounting principles and practices used in the
preparation of the financial statements follows:

  BASIS OF FINANCIAL STATEMENT PRESENTATION

     The Partnership prepares its financial statements in conformity with
accounting principles generally accepted in the United States of America. These
principles require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

  PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
WB Resort Partners, L.P. and its wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in consolidation.

  CASH AND CASH EQUIVALENTS

     The Partnership considers all amounts held in highly liquid instruments
with original maturities of three months or less to be cash equivalents. Cash
and cash equivalents consist primarily of demand deposit accounts. Management of
the Partnership believes the credit risk associated with cash and cash
equivalents to be low due to the quality of the financial institutions in which
these assets are held.

     Certain amounts of cash are restricted for maintenance and replacement of
furniture, fixtures, and equipment at the Partnership's Property of which
approximately $7.5 million and $11.7 million, respectively, is restricted cash
in the accompanying consolidated balance sheet as of December 31, 2003 and 2002.
These amounts are calculated as a certain percentage of sales in accordance with
the hotel management agreement (see Note 7).

  INVENTORY

     Inventory consists primarily of food and beverage inventory and operating
supplies and is accounted for using the first in, first out method and is stated
at the lower of cost or market. Inventory is recorded in prepaid expenses and
other current assets in the accompanying consolidated balance sheets.

  PROPERTY, CONSTRUCTION IN PROGRESS AND EQUIPMENT

     Property, construction in progress and equipment is stated at cost and
includes building, land improvements and furniture, fixtures and equipment.
Building, land improvements and furniture, fixtures and equipment are
depreciated on the straight-line method over the assets' estimated useful lives
of 40, 15 and 7 years, respectively.

                                       121
<PAGE>
                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Expenditures for major renewals and betterments are capitalized and
depreciated over the related assets' estimated useful lives. Expenditures for
repairs and maintenance are expensed when incurred. Interest and real estate
taxes incurred relating to renovation of the resort and amenities are
capitalized to construction in progress during the active renovation period.

  DEFERRED LOAN COSTS

     Loan costs, primarily loan origination and related fees, are capitalized
and are being amortized over the term of the loan using the straight-line method
which approximates the effective interest method.

  REVENUE RECOGNITION

     The Property's revenues are derived from its operations and include
revenues from the rental of rooms, food and beverage sales, golf course and spa
operations, telephone usage and other service revenue. Revenue is recognized
when rooms are occupied and services have been performed. Cash received from
customers for events occurring after each year end have been recorded as
deposits in the accompanying consolidated balance sheets. Advanced deposits of
approximately $0.4 million and $0.7 million are included in the accompanying
consolidated balance sheet as of December 31, 2003 and 2002, respectively.

  ADVERTISING AND PROMOTION COSTS

     The costs of advertising, promotional and marketing programs are charged to
operations in the year incurred and are included as sales and marketing expenses
in the accompanying statement of operations. Advertising, promotional and
marketing costs totaled approximately $3.4 million and $1.4 million for the
years ended December 31, 2003 and 2002, respectively.

  LEASES

     The Partnership has entered into capital and operating leases for land and
equipment used at the Property. Equipment leased under capital leases is
recorded as equipment on the accompanying consolidated balance sheet with a
liability for the corresponding obligation under the lease agreement. Equipment
under capital leases are depreciated over the useful life of the equipment and
the obligation is reduced as monthly lease payments are made. Payments under
operating leases are recorded as rent expense as lease payments are made.

  INCOME TAXES

     Under the provisions of the Internal Revenue Code and applicable state
laws, the Partnership is only subject to taxation of income on the profits and
losses from the TRS tenant operations. The tax consequences of other Partnership
revenues and expenses, unrelated to the operation of the Property, will accrue
to the partners. Certain of these other revenues and expenses may be treated
differently in the Partnership's income tax return than in the accompanying
consolidated financial statements. Therefore, amounts reported in the
consolidated financial statements may not be the same as reported in the
Partners' income tax returns.

     The Partnership accounts for federal and state income taxes on its TRS
tenant using the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the consolidated financial statements carrying amounts of existing
assets and liabilities and respective tax bases and operating losses and
tax-credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.

                                       122
<PAGE>
                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  IMPAIRMENT OF LONG-LIVED ASSETS

     In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets," the
Partnership's long-lived assets are tested for recoverability annually or
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset. The assessment is
based on the carrying amount of the asset at the date it is tested for
recoverability. An impairment loss is recognized when the carrying amount of a
long-lived asset exceeds its fair value. If impairment is recognized, the
adjusted carrying amount of a long-lived asset is its new cost basis. For the
years ended December 31, 2003 and 2002, the Partnership recorded no impairments.

  CONCENTRATION OF CREDIT RISK

     Financial instruments which potentially subject the Partnership to a
concentration of credit risk consist principally of guest and trade accounts
receivable. Concentration of credit risk with respect to guest and trade
accounts receivable is limited due to the wide variety of customers and
industries to which the Property's services are sold, as well as the dispersion
of customers across many geographic areas.

3. PROPERTY, CONSTRUCTION IN PROGRESS AND EQUIPMENT, NET

     Property, construction in progress and equipment consist of the following
at December 31, 2003 and 2002:

<Table>
<Caption>
                                                               2003           2002
                                                           ------------   ------------
<S>                                                        <C>            <C>
Building.................................................  $121,436,927   $121,329,538
Leasehold improvements...................................    36,487,296             --
Land improvements........................................     7,145,528      2,265,081
Furniture, fixtures and equipment........................    46,531,674     23,546,112
Equipment under capital leases...........................     3,234,183      3,234,183
                                                           ------------   ------------
                                                            214,835,608    150,374,914
  Less: accumulated depreciation.........................   (23,880,876)   (11,905,401)
Construction in progress.................................            --     59,670,667
                                                           ------------   ------------
                                                           $190,954,732   $198,140,180
                                                           ============   ============
</Table>

     Accumulated depreciation for equipment under capital leases was
approximately $2.5 million and $1.5 million as of December 31, 2003 and 2002,
respectively.

4. MORTGAGE NOTE PAYABLE

     In July 2001, the Partnership entered into a $130.0 million mortgage loan
with an institutional lender to finance a portion of the Property acquired and
future renovation costs. The mortgage is collateralized by a first mortgage and
lien on the building and all other assets. The loan bears interest at 8.53% per
annum and matures on August 15, 2006. Interest only payments are due monthly
through maturity. For the years ended December 31, 2003 and 2002, the
Partnership incurred approximately $11.2 million and $8.0 million, respectively
in interest expense from this loan net of amounts capitalized in 2002. The
amount of debt reported in the accompanying consolidated balance sheets
approximates the fair value of such debt as of December 31, 2003 and 2002.

                                       123
<PAGE>
                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. OTHER NOTES PAYABLE

     On July 27, 2001, the Partnership and Marriott entered into a loan
agreement whereby Marriott has agreed to provide three loans to the Partnership:
a liquidity facility loan ("Mezz Loan A"); a senior loan guaranty ("Mezz Loan
B"); and a cost overrun loan ("Mezz Loan C").

     A description of each loan is as follows:

<Table>
<Caption>
                                                   MAXIMUM
LOAN                       PURPOSE OF LOAN        CAPACITY     MATURITY     INTEREST RATE
----                    ----------------------   -----------   --------   -----------------
<S>                     <C>                      <C>           <C>        <C>
Mezz Loan A...........  Fund priority            $20,000,000   07/2006     LIBOR plus 700
                        shortfalls from the                               basis points (not
                        operations of the                                 to exceed 13.5%)
                        Property
Mezz Loan B...........  Fund any deficiency in   $20,000,000   07/2006     LIBOR plus 700
                        the payment of monthly                            basis points (not
                        debt service payments                             to exceed 13.5%)
                        under the Mortgage
                        Loan
Mezz Loan C...........  Fund renovation costs    $10,000,000   07/2006     LIBOR plus 700
                        in excess of project                              basis points (not
                        budget                                            to exceed 13.5%)
</Table>

     At December 31, 2003, approximately $21.5 million, $22.6 million and $0
were outstanding under the Mezz Loan A, Mezz Loan B and Mezz Loan C,
respectively. As of December 31, 2002, approximately $13.0 million, $14.8
million and $0 were outstanding under the Mezz Loan A, Mezz Loan B and Mezz Loan
C, respectively. The Partnership does not anticipate funding under Mezz Loan C
since renovations have been complete. The interest rate on the Mezz Loan A and
Mezz Loan B was 8.382 percent and 8.876 percent at December 31, 2003 and 2002,
respectively. The Partnership incurred interest expense of approximately $3.1
million and $1.6 million, respectively, in interest expense from these loans
during the years ended December 31, 2003 and 2002, respectively.

6.  LEASES

     The Partnership is a lessee of various types of equipment used in operating
the Property. Leases are categorized as operating or capital leases based upon
the terms in the lease agreements.

     The following is a schedule by years of future minimum rental payments
required under capital lease obligations together with the present value of the
net minimum lease payments as of December 31, 2003:

<Table>
<S>                                                           <C>
2004........................................................    792,334
2005........................................................     25,247
                                                              ---------
  Total future minimum lease payments.......................    817,581
  Less: interest............................................    (28,108)
                                                              ---------
  Present value of net minimum lease payments...............    789,473
  Less: current portion.....................................   (763,472)
                                                              ---------
                                                              $  26,001
                                                              =========
</Table>

     The Partnership leases two parcels of land under ground leases, on which
the Property is located. These operating leases are effective until 2080 and
2050, respectively. One of the land leases has escalating base rents from 2001
to 2008. The base rents from 2008 through 2080 and 2050, respectively, will
never be less than 2008

                                       124
<PAGE>
                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

base rent and will increase every five years by the consumer price index. The
minimum annual rent has been straight-lined over the life of these leases. Both
leases contain percentage rent calculations based on percentages of gross
revenues, as defined. Rent expense, including accrued rental expense and lease
taxes for the years ended December 31, 2003 and 2002, was approximately $5.1
million and $4.7 million, respectively. Percentage rent for the years ended
December 31, 2003 and 2002 was $0.2 million and $0.1 million, respectively.
These amounts have been included in property operations and maintenance in the
accompanying consolidated statements of operations for the years ended December
31, 2003 and 2002, respectively.

     Future minimum lease rental payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year as of
December 31, 2003 are as follows:

<Table>
<S>                                                           <C>
2004........................................................     4,794,000
2005........................................................     4,794,000
2006........................................................     4,794,000
2007........................................................     4,794,000
2008........................................................     4,794,000
Thereafter..................................................   337,248,000
                                                              ------------
                                                              $361,218,000
                                                              ============
</Table>

7.  TRANSACTIONS WITH RELATED PARTIES

  HOTEL MANAGEMENT AGREEMENT

     The Partnership entered into an agreement with an affiliate of Marriott
International, Inc. (the "Manager") to manage the Property. Under terms of the
agreement, the Manager operates the Property in return for a fixed management
fee of 3 percent of gross revenues. The Manager also earns an incentive
management fee equal up to 50 percent of operating profits in excess of certain
payment thresholds. The Partnership incurred fixed management fees of
approximately $1.7 million and $1.4 million during the years ended December 31,
2003 and 2002, respectively.

  OTHER

     The Partnership has entered into various other agreements with Marriott, or
subsidiaries thereof, to provide services such as marketing support, reservation
services, and other services customary to the operation of a national brand
hotel concept. The Company incurred approximately $5.7 million and $4.1 million,
respectively, for the years ended December 31, 2003 and 2002, which have been
included in cost of sales for rooms, food and beverage, and other operating
departments in the accompanying consolidated statements of operations. The
following table summarizes these expenses by major category:

<Table>
<Caption>
                                                                 2003         2002
                                                              ----------   ----------
<S>                                                           <C>          <C>
Advertising.................................................  $2,042,291   $1,695,056
Marriott Rewards............................................     608,301      438,407
Insurance...................................................     947,964      380,344
Reservations................................................   1,794,918    1,264,760
Accounting Services.........................................     210,351      235,526
Other.......................................................     117,471       88,991
                                                              ----------   ----------
Total.......................................................  $5,721,296   $4,103,084
                                                              ==========   ==========
</Table>

                                       125
<PAGE>
                   WB RESORT PARTNERS, L.P. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Partnership receives rental income under an arrangement with Marriott
Vacation Club. Revenues recognized from this arrangement in 2003 and 2002 were
approximately $0.4 million and $0.3 million, respectively. These amounts are
included in other operating departments revenue in the accompanying consolidated
statements of operations.

     As of December 31, 2003 and 2002, amounts due from Marriott and affiliates
were approximately $0.1 million and $0, respectively, for miscellaneous
receivables collected by Marriott on behalf of the Partnership.

     As of December 31, 2003 and 2002, amounts due to Marriott and affiliates
were approximately $4.9 million and $0, respectively, for payroll and other
costs paid by Marriott on behalf of the Partnership.

8.  INCOME TAXES

     The components of the deferred taxes recognized in the accompanying
consolidated balance sheet at December 31, 2003 and 2002 are as follows:

<Table>
<Caption>
                                                                2003          2002
                                                             -----------   -----------
<S>                                                          <C>           <C>
Deferred tax assets:
  Net operating loss.......................................  $ 9,768,000   $ 6,583,000
  Accrued rent.............................................      935,000       562,000
Deferred tax liabilities:
  Accelerated depreciation.................................   (3,283,000)   (1,921,000)
                                                             -----------   -----------
Net deferred tax asset.....................................    7,420,000     5,224,000
  Valuation allowance......................................   (7,420,000)   (5,224,000)
                                                             -----------   -----------
                                                             $        --   $        --
                                                             ===========   ===========
</Table>

     The types of temporary differences between the tax bases of assets and
liabilities and their financial statement reporting amounts are attributable
principally to depreciation and net operating losses. The TRS tenant has net
operating loss carry-forwards for federal and state purposes of approximately
$25.6 million and $11.2 million as of December 31, 2003 and 2002, respectively,
which is available to offset future taxable income. The estimated net operating
loss carry-forward expiration dates are as follows:

<Table>
<S>                                                           <C>
2020........................................................  $ 4,047,000
2021........................................................    7,202,000
2022........................................................   14,304,000
                                                              -----------
                                                              $25,553,000
                                                              ===========
</Table>

     The Company has not recorded this potential future benefit because its TRS
subsidiary does not have sufficient historical earnings on which to base a
potential future benefit.

9.  COMMITMENTS AND CONTINGENCIES

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

                                    * * * *

                                       126
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
April, 2004.

                                          CNL HOSPITALITY PROPERTIES, INC.

                                          By: /s/ THOMAS J. HUTCHISON, III
                                            ------------------------------------
                                                  Thomas J. Hutchison, III
                                                  Chief Executive Officer
                                               (Principal Executive Officer)

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

                                       127
<PAGE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                    SIGNATURE                                      TITLE                       DATE
                    ---------                                      -----                       ----
<S>     <C>                                          <C>                                  <C>

             /s/ JAMES M. SENEFF, JR.                      Chairman of the Board          April 29, 2004
 ------------------------------------------------
               James M. Seneff, Jr


               /s/ ROBERT A. BOURNE                    Vice Chairman of the Board and     April 29, 2004
 ------------------------------------------------                Treasurer
                 Robert A. Bourne


           /s/ THOMAS J. HUTCHISON, III                   Chief Executive Officer         April 29, 2004
 ------------------------------------------------      (Principal Executive Officer)
             Thomas J. Hutchison, III


             /s/ C. BRIAN STRICKLAND                    Executive Vice President and      April 29, 2004
 ------------------------------------------------           Corporate Secretary
               C. Brian Strickland                     (Principal Financial Officer)


               /s/ CHARLES E. ADAMS                         Independent Director          April 29, 2004
 ------------------------------------------------
                 Charles E. Adams


              /s/ LAWRENCE A. DUSTIN                        Independent Director          April 29, 2004
 ------------------------------------------------
                Lawrence A. Dustin


             /s/ CRAIG M. MCALLASTER                        Independent Director          April 29, 2004
 ------------------------------------------------
               Craig M. McAllaster


              /s/ ROBERT E. PARSONS                         Independent Director          April 29, 2004
 ------------------------------------------------
                Robert E. Parsons
</Table>

                                       128
<PAGE>

               CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<Table>
<Caption>
                                                                       ADDITIONS          DEDUCTIONS
                                                                -----------------------   ----------
                                                   BALANCE AT   CHARGED TO   CHARGED TO                BALANCE
                                                   BEGINNING    COSTS AND      OTHER                   AT END
YEAR                          DESCRIPTION           OF YEAR      EXPENSES     ACCOUNTS     UTILIZED    OF YEAR
----                   -------------------------   ----------   ----------   ----------   ----------   -------
<S>                    <C>                         <C>          <C>          <C>          <C>          <C>
2001.................  Deferred tax asset
                       valuation allowance           $   --          --           --           --      $    --
                                                     ======        ====        =====         ====      =======
2002.................  Deferred tax asset
                       valuation allowance           $   --          --        4,314           --      $ 4,314
                                                     ======        ====        =====         ====      =======
2003.................  Deferred tax asset
                       valuation allowance           $4,314          --        5,784           --      $10,098
                                                     ======        ====        =====         ====      =======
</Table>
<PAGE>

               CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
                  SCHEDULE III -- REAL ESTATE AND ACCUMULATED
                                  DEPRECIATION
                               DECEMBER 31, 2003
<Table>
<Caption>
                                                                 COSTS CAPITALIZED
                                                                    SUBSEQUENT
                                                                  TO ACQUISITION          GROSS AMOUNT AT WHICH CARRIED
                                    INITIAL COSTS             -----------------------          AT CLOSE OF PERIOD
                          ---------------------------------                  CARRYING   ---------------------------------
                            LAND     BUILDINGS    EQUIPMENT   IMPROVEMENTS    COSTS       LAND     BUILDINGS    EQUIPMENT
                          --------   ----------   ---------   ------------   --------   --------   ----------   ---------
                                                                  (IN THOUSANDS)
<S>                       <C>        <C>          <C>         <C>            <C>        <C>        <C>          <C>
Del Coronado Hotel
  Del Coronado,
    California..........  $ 68,549   $  223,824   $ 33,024      $    --       $  --     $ 68,549   $  223,824   $ 33,024
Hotel and Resort
  Properties, each less
  than 5% of total
  Various cities and
    states..............   391,991    2,438,000    279,599       29,719          --      396,627    2,438,104    304,578
                          --------   ----------   --------      -------       -----     --------   ----------   --------
                          $460,540   $2,661,824   $312,623      $29,719       $  --     $465,176   $2,661,928   $337,602
                          ========   ==========   ========      =======       =====     ========   ==========   ========

<Caption>

                                       ACCUMULATED      DATE OF        DATE
                            TOTAL      DEPRECIATION   CONSTRUCTION   ACQUIRED
                          ----------   ------------   ------------   --------
                                            (IN THOUSANDS)
<S>                       <C>          <C>            <C>            <C>
Del Coronado Hotel
  Del Coronado,
    California..........  $  325,397     $    430          1888      12/2003
Hotel and Resort
  Properties, each less
  than 5% of total
  Various cities and
    states..............   3,139,309      141,767       Various      Various
                          ----------     --------
                          $3,464,706     $142,197
                          ==========     ========
</Table>
<PAGE>

               CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

            SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 2003

     (1) Transactions in real estate and accumulated depreciation during 2003,
2002 and 2001 are summarized as follows:

<Table>
<Caption>
                                                                           ACCUMULATED
                                                              COST(2)(4)   DEPRECIATION
                                                              ----------   ------------
                                                                   (IN THOUSANDS)
<S>                                                           <C>          <C>
Hotel and Resort Properties
  Balance, December 31, 2000................................  $  590,963     $ 10,919
     Acquisitions...........................................     373,706           --
     Depreciation expense(3)................................          --       21,465
                                                              ----------     --------
  Balance, December 31, 2001................................     964,669       32,384
     Acquisitions...........................................     468,772           --
     Depreciation expense(3)................................          --       34,864
                                                              ----------     --------
  Balance, December 31, 2002................................   1,433,441       67,248
     Acquisitions...........................................   2,031,265           --
     Depreciation expense(3)................................          --       74,949
                                                              ----------     --------
  Balance, December 31, 2003................................  $3,464,706     $142,197
                                                              ==========     ========
</Table>

---------------

(2) As of December 31, 2003, 2002, and 2001, the aggregate cost of the
    Properties owned by the Company and its subsidiaries for federal income tax
    purposes was $3.5 billion, $1.4 billion, and $1.0 billion, respectively. All
    of the leases are treated as operating leases for federal income tax
    purposes.

(3) Depreciation expense is computed for buildings and equipment based upon
    estimated lives of 40 and seven years, respectively.

(4) During the years ended December 31, 2003, 2002, and 2001, the Company
    incurred acquisition fees totaling $20.3 million, $16.2 million, and $5.5
    million, respectively, paid to the Advisor. Acquisition fees are included in
    land and buildings at December 31, 2003, 2002, and 2001.
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>
    2.1        Agreement by and among CNL Hospitality Properties, Inc., CNL
               Rose Acquisition Corp., RFS Hotel Investors, Inc., CNL Rose
               Acquisition OP, LP and RFS Partnership, L.P., dated May 8,
               2003 (Previously filed as Exhibit 2.1 to the Registrant's
               Current Report on Form 8-K filed May 9, 2003 and
               incorporated herein by reference.)

    2.2        Amendment to Merger Agreement dated May 27, 2003 among the
               Company, CNL Rose Acquisition Corp., RFS Hotel Investors,
               Inc., CNL Rose Acquisition OP, LP and RFS Partnership, L.P.
               (Previously filed as Exhibit 2.2 to Post-Effective Amendment
               No. Two to the Registrant's Registration Statement on Form
               S-11 filed July 14, 2003 and incorporated herein by
               reference.)

    2.3        RFS Acquisition Agreement, dated as of July 10, 2003, by and
               among CNL Hospitality Partners, LP, CNL Hotel RI-Orlando,
               Ltd., CNL Hotel CY-Edison, LP, RFS Partnership, L.P. and CNL
               Rose Acquisition Corp. (Previously filed as Exhibit 2.1 to
               RFS Partnership, L.P.'s Current Report on Form 8-K filed
               July 25, 2003 and incorporated herein by reference).

    2.4        Stock Purchase Agreement, dated as of February 12, 2004, by
               and among KKR Partners II, L.P., KKR 1996 Fund, L.P., Resort
               Associates, L.P., Golf Associates, L.P., CNL Resort
               Acquisition Corp. and KSL Recreation Corporation (Previously
               filed as Exhibit 2.1 to the Registrant's Form 8-K filed
               February 13, 2004 and incorporated herein by reference.)

    3.1        Articles of Amendment and Restatement of CNL Hospitality
               Properties, Inc. dated July 21, 2003 (Previously filed as
               Exhibit 3.18 to the Registrant's Registration Statement on
               Form S-11 filed July 23, 2003 and incorporated herein by
               reference.)

    3.2        CNL American Realty Fund, Inc. Bylaws (Previously filed as
               Exhibit 3.3 to the Registrant's Registration Statement on
               Form S-11 filed August 12, 1996 and incorporated herein by
               reference.)

    3.3        Amendment No. 1 to the Bylaws of CNL Hospitality Properties,
               Inc. (Previously filed as Exhibit 3.7 to Post-Effective
               Amendment No. Two to the Registrant's Registration Statement
               on Form S-11 filed October 23, 2000 and incorporated herein
               by reference.)

    3.4        Amendment No. 2 to the Bylaws of CNL Hospitality Properties,
               Inc. (Previously filed as Exhibit 3.8 to Post-Effective
               Amendment No. Six to the Registrant's Registration Statement
               on Form S-11 filed June 11, 2001 and incorporated herein by
               reference.)

    3.5        Amendment No. 3 to the Bylaws of CNL Hospitality Properties,
               Inc. (Previously filed as Exhibit 3.9 to Post-Effective
               Amendment No. One to the Registrant's Registration Statement
               on Form S-11 filed June 26, 2002 and incorporated herein by
               reference.)

    3.6        Sixth Amended and Restated Agreement of Limited Partnership
               of RFS Partnership, L.P. dated July 10, 2003 (Previously
               filed as Exhibit 3.2 to RFS Partnership, L.P.'s Current
               Report on Form 8-K filed July 25, 2003 and incorporated
               herein by reference.)

    3.7        Certificate of Limited Partnership of RFS Partnership, L.P.,
               filed with the State of Tennessee on August 3, 1993
               (Previously filed as Exhibit 3.1 to RFS Partnership, L.P.'s
               Annual Report on Form 10-K filed March 30, 2004 and
               incorporated herein by reference.)

    3.8        Amendment to the Certificate of Limited Partnership of RFS
               Partnership, L.P., filed with the State of Tennessee on June
               27, 1997 (Previously filed as Exhibit 3.2 to RFS
               Partnership, L.P.'s Annual Report on Form 10-K filed March
               30, 2004 and incorporated herein by reference.)

    3.9        Amendment to the Certificate of Limited Partnership of RFS
               Partnership, L.P., dated July 10, 2003 (Previously filed as
               Exhibit 3.17 to Post-Effective Amendment No. Two to the
               Registrant's Registration Statement on Form S-11 filed July
               14, 2003 and incorporated herein by reference.)

    4.1        Form of Reinvestment Plan (Included as Exhibit 4.10 in
               Post-Effective Amendment No. Six to the Registrant's
               Registration Statement on Form S-11 filed January 26, 2004
               and incorporated herein by reference.)

    4.2        Indenture dated February 26, 2002 among RFS Partnership,
               L.P., RFS 2002 Financing, Inc., RFS Leasing VII, Inc., RFS
               Hotel Investors, Inc. and U.S. Bank National Association
               (Previously filed as Exhibit 4.1 to RFS Hotel Investors,
               Inc.'s ("RFS") Form S-4 Registration Statement filed March
               15, 2002 and incorporated herein by reference.)

    4.3        Form of Global Note evidencing the 9.75% Series B Senior
               Notes due 2012 of RFS Partnership, L.P. and RFS 2002
               Financing, Inc. (Previously filed as Exhibit A to Exhibit
               4.1 to RFS's Form S-4 Registration Statement filed March 15,
               2002 and incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>

    4.4        Form of Guaranty by RFS Hotel Investors, Inc. and RFS
               Leasing VII, Inc. (Previously filed as Exhibit A to Exhibit
               4.1 to RFS's Form S-4 Registration Statement filed March 15,
               2002 and incorporated herein by reference.)

    4.5        Registration Rights Agreement dated February 26, 2002 among
               RFS Partnership, L.P., RFS 2002 Financing, Inc., RFS Leasing
               VII, Inc., RFS Hotel Investors, Inc., Credit Suisse First
               Boston Corporation and Banc of America Securities LLC
               (Previously filed as Exhibit 4.4 to RFS's Form S-4
               Registration Statement filed March 15, 2002 and incorporated
               herein by reference.)

    4.6        Supplemental Indenture, dated as of July 10, 2003, among CNL
               Rose Acquisition Corp., RFS Partnership, L.P., RFS 2002
               Financing, Inc. and U.S. Bank National Association
               (Previously filed as Exhibit 4.2 to RFS Partnership, L.P.'s
               Annual Report on Form 10-K filed March 30, 2004 and
               incorporated herein by reference.)

   10.1        Form of Escrow Agreement between CNL Hospitality Properties,
               Inc. and SouthTrust Bank (Previously filed as Exhibit 10.1
               to Pre-Effective Amendment No. One to the Registrant's
               Registration Statement on Form S-11 filed December 23, 2002
               and incorporated herein by reference.)

   10.2        Advisory Agreement dated as of April 1, 2003 between CNL
               Hospitality Properties, Inc. and CNL Hospitality Corp.
               (Previously filed as Exhibit 10.1 to the Registrant's Form
               10-Q filed May 15, 2003 and incorporated herein by
               reference.)

   10.3        Form of Joint Venture Agreement (Previously filed as Exhibit
               10.3 to the Registrant's Registration Statement on Form S-11
               filed November 23, 1998 and incorporated herein by
               reference.)

   10.4        Form of Indemnification and Put Agreement (Previously filed
               as Exhibit 10.4 to the Registrant's Registration Statement
               on Form S-11 filed August 12, 1996 and incorporated herein
               by reference.)

   10.5        Form of Unconditional Guaranty of Payment and Performance
               (Previously filed as Exhibit 10.5 to the Registrant's
               Registration Statement on Form S-11 filed August 12, 1996
               and incorporated herein by reference.)

   10.6        Form of Purchase Agreement (Previously filed as Exhibit 10.6
               to the Registrant's Registration Statement on Form S-11
               filed August 12, 1996 and incorporated herein by reference.)

   10.7        Form of Lease Agreement (Previously filed as Exhibit 10.57
               to the Registrant's Registration Statement on Form S-11
               filed August 9, 2001 and incorporated herein by reference.)

   10.8        Form of Reinvestment Plan (Included as Exhibit 4.10 to
               Post-Effective Amendment No. Six to the Registrant's
               Registration Statement on Form S-11 filed January 26, 2004
               and incorporated herein by reference.)

   10.9        Indemnification Agreement between CNL Hospitality
               Properties, Inc. and Lawrence A. Dustin dated February 24,
               1999. Each of the following directors and/or officers has
               signed a substantially similar agreement as follows: James
               M. Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J.
               Joseph Kruse, Richard C. Huseman, Charles A. Muller, Jeanne
               A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian
               Strickland dated October 31, 1998; John A. Griswold dated
               January 7, 1999; Charles E. Adams and Craig M. McAllaster
               dated February 10, 1999; Matthew W. Kaplan dated February
               24, 1999; Thomas J. Hutchison III dated May 16, 2000; and
               Robert E. Parsons, Jr. dated November 3, 2003. (Previously
               filed as Exhibit 10.2 to the Registrant's Form 10-Q filed
               May 17, 1999 and incorporated herein by reference.)

   10.10       Agreement of Limited Partnership of CNL Hospitality
               Partners, LP (Previously filed as Exhibit 10.10 to
               Post-Effective Amendment No. Five to the Registrant's
               Registration Statement on Form S-11 filed September 23, 1998
               and incorporated herein by reference.)

   10.11       Hotel Purchase and Sale Contract between CNL Real Estate
               Advisors, Inc. and Gwinnett Residence Associates, LLC,
               relating to the Residence Inn -- Gwinnett Place (Previously
               filed as Exhibit 10.11 to Post-Effective Amendment No. Five
               to the Registrant's Registration Statement on Form S-11
               filed September 23, 1998 and incorporated herein by
               reference.)

   10.12       Assignment and Assumption Agreement between CNL Real Estate
               Advisors, Inc. and CNL Hospitality Partners, LP, relating to
               the Residence Inn -- Gwinnett Place (Previously filed as
               Exhibit 10.12 to Post-Effective Amendment No. Five to the
               Registrant's Registration Statement on Form S-11 filed
               September 23, 1998 and incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>

   10.13       Hotel Purchase and Sale Contract between CNL Real Estate
               Advisors, Inc. and Buckhead Residence Associates, LLC,
               relating to the Residence Inn -- Buckhead (Lenox Park)
               (Previously filed as Exhibit 10.13 to Post-Effective
               Amendment No. Five to the Registrant's Registration
               Statement on Form S-11 filed September 23, 1998 and
               incorporated herein by reference.)

   10.14       Assignment and Assumption Agreement between CNL Real Estate
               Advisors, Inc. and CNL Hospitality Partners, LP, relating to
               the Residence Inn -- Buckhead (Lenox Park) (Previously filed
               as Exhibit 10.14 to Post-Effective Amendment No. Five to the
               Registrant's Registration Statement on Form S-11 filed
               September 23, 1998 and incorporated herein by reference.)

   10.15       Lease Agreement between CNL Hospitality Partners, LP and STC
               Leasing Associates, LLC, dated August 1, 1998, relating to
               the Residence Inn -- Gwinnett Place (Previously filed as
               Exhibit 10.15 to Post-Effective Amendment No. Five to the
               Registrant's Registration Statement on Form S-11 filed
               September 23, 1998 and incorporated herein by reference.)

   10.16       Lease Agreement between CNL Hospitality Partners, LP and STC
               Leasing Associates, LLC, dated August 1, 1998, relating to
               the Residence Inn -- Buckhead (Lenox Park) (Previously filed
               as Exhibit 10.16 to Post-Effective Amendment No. Five to the
               Registrant's Registration Statement on Form S-11 filed
               September 23, 1998 and incorporated herein by reference.)

   10.17       Master Revolving Line of Credit Loan Agreement with CNL
               Hospitality Properties, Inc., CNL Hospitality Partners, LP
               and Colonial Bank, dated July 31, 1998 (Previously filed as
               Exhibit 10.17 to Post-Effective Amendment No. Five to the
               Registrant's Registration Statement on Form S-11 filed
               September 23, 1998 and incorporated herein by reference.)

   10.18       Master Loan Agreement by and between CNL Hotel Investors,
               Inc. and Jefferson-Pilot Life Insurance Company, dated
               February 24, 1999 (Previously filed as Exhibit 10.18 to
               Post-Effective Amendment No. Seven to the Registrant's
               Registration Statement on Form S-11 filed March 16, 1999 and
               incorporated herein by reference.)

   10.19       Securities Purchase Agreement between CNL Hospitality
               Properties, Inc. and Five Arrows Realty Securities II
               L.L.C., dated February 24, 1999 (Previously filed as Exhibit
               10.19 to Post-Effective Amendment No. Seven to the
               Registrant's Registration Statement on Form S-11 filed March
               16, 1999 and incorporated herein by reference.)

   10.20       Subscription and Stockholders' Agreement among CNL Hotel
               Investors, Inc., Five Arrows Realty Securities II L.L.C.,
               CNL Hospitality Partners, LP and CNL Hospitality Properties,
               Inc., dated February 24, 1999 (Previously filed as Exhibit
               10.20 to Post-Effective Amendment No. Seven to the
               Registrant's Registration Statement on Form S-11 filed March
               16, 1999 and incorporated herein by reference.)

   10.21       Registration Rights Agreement by and between CNL Hospitality
               Properties, Inc. and Five Arrows Realty Securities II
               L.L.C., dated February 24, 1999 (Previously filed as Exhibit
               to Post-Effective Amendment No. Seven to the Registrant's
               Registration Statement on Form S-11 filed March 16, 1999 and
               incorporated herein by reference.)

   10.22       Lease Agreement between Courtyard Annex, L.L.C. and City
               Center Annex Tenant Corporation, dated November 15, 1999,
               relating to the Courtyard -- Philadelphia (Previously filed
               as Exhibit 10.22 to Post-Effective Amendment No. Four to the
               Registrant's Registration Statement on Form S-11 filed
               February 17, 2000 and incorporated herein by reference.)

   10.23       First Amended and Restated Limited Liability Company
               Agreement of Courtyard Annex, L.L.C., relating to the
               Courtyard -- Philadelphia (Previously filed as Exhibit 10.23
               to Post-Effective Amendment No. Four to the Registrant's
               Registration Statement on Form S-11 filed February 17, 2000
               and incorporated herein by reference.)

   10.24       Purchase and Sale Agreement between Marriott International,
               Inc., CBM Annex, Inc., Courtyard Annex, Inc., as Sellers,
               and CNL Hospitality Partners, LP, as Purchaser, dated
               November 15, 1999, relating to the Courtyard -- Philadelphia
               (Previously filed as Exhibit 10.24 to Post-Effective
               Amendment No. Four to the Registrant's Registration
               Statement on Form S-11 filed February 17, 2000 and
               incorporated herein by reference.)

   10.25       Lease Agreement between CNL Hospitality Partners, LP, and
               RST4 Tenant LLC, dated December 10, 1999, relating to the
               Residence Inn -- Mira Mesa (Previously filed as Exhibit
               10.25 to Post-Effective Amendment No. Four to the
               Registrant's Registration Statement on Form S-11 filed
               February 17, 2000 and incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>

   10.26       Purchase and Sale Agreement between Marriott International,
               Inc., TownePlace Management Corporation and Residence Inn by
               Marriott, Inc., as Sellers, and CNL Hospitality Partners,
               LP, as Purchaser, dated November 24, 1999, relating to the
               Residence Inn -- Mira Mesa and the TownePlace
               Suites -- Newark (Previously filed as Exhibit 10.26 to
               Post-Effective Amendment No. Four to the Registrant's
               Registration Statement on Form S-11 filed February 17, 2000
               and incorporated herein by reference.)

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

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

   10.29       Lease Agreement between CNL Hospitality Partners, LP and WYN
               Orlando Lessee, LLC, dated May 31, 2000, relating to the
               Wyndham Denver Tech Center (Previously filed as Exhibit
               10.29 to Post-Effective Amendment No. Six to the
               Registrant's Registration Statement on Form S-11 filed June
               9, 2000 and incorporated herein by reference.)

   10.30       Lease Agreement between CNL Hospitality Partners, LP and WYN
               Orlando Lessee, LLC, dated May 31, 2000, relating to the
               Wyndham Billerica (Previously filed as Exhibit 10.30 to
               Post-Effective Amendment No. Six to the Registrant's
               Registration Statement on Form S-11 filed June 9, 2000 and
               incorporated herein by reference.)

   10.31       Purchase and Sale Agreement between CNL Hospitality Corp. ,
               as Buyer, and WII Denver Tech, LLC and PAH Billerica Realty
               Company, LLC, as Sellers, and Wyndham International, Inc.,
               relating to the Wyndham Denver Tech Center and the Wyndham
               Billerica (Previously filed as Exhibit 10.31 to
               Post-Effective Amendment No. Six to the Registrant's
               Registration Statement on Form S-11 filed June 9, 2000 and
               incorporated herein by reference.)

   10.32       Lease Agreement between CNL Hospitality Partners, LP and
               RST4 Tenant LLC, dated June 17, 2000, relating to the
               Courtyard -- Palm Desert and the Residence Inn -- Palm
               Desert (Previously filed as Exhibit 10.32 to Post-Effective
               Amendment No. One to the Registrant's Registration Statement
               on Form S-11 filed August 9, 2000 and incorporated herein by
               reference.)

   10.33       Purchase and Sale Agreement between PDH Associates LLC, as
               Seller, and CNL Hospitality Corp., as Buyer, dated January
               19, 2000, relating to the Courtyard -- Palm Desert and the
               Residence Inn -- Palm Desert (Previously filed as Exhibit
               10.33 to Post-Effective Amendment No. One to the
               Registrant's Registration Statement on Form S-11 filed
               August 9, 2000 and incorporated herein by reference.)

   10.34       Amendment to Purchase and Sale Agreement between PDH
               Associates LLC and CNL Hospitality Corp. , dated January 19,
               2000, relating to the Courtyard -- Palm Desert and the
               Residence Inn -- Palm Desert (amends Exhibit 10.33 above)
               (Previously filed as Exhibit 10.34 to Post-Effective
               Amendment No. One to the Registrant's Registration Statement
               on Form S-11 filed August 9, 2000 and incorporated herein by
               reference.)

   10.35       Assignment Agreement between CNL Hospitality Corp. and CNL
               Hospitality Partners, LP, relating to the Courtyard -- Palm
               Desert and the Residence Inn -- Palm Desert (Previously
               filed as Exhibit 10.35 to Post-Effective Amendment No. One
               to the Registrant's Registration Statement on Form S-11
               filed August 9, 2000 and incorporated herein by reference.)

   10.36       Lease Agreement between CNL Hospitality Partners, LP and
               RST4 Tenant LLC, dated July 28, 2000, relating to the
               SpringHill Suites -- Gaithersburg (Previously filed as
               Exhibit 10.36 to Post-Effective Amendment No. One to the
               Registrant's Registration Statement on Form S-11 filed
               August 9, 2000 and incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>

   10.37       Purchase and Sale Agreement between SpringHill SMC
               Corporation, as Seller, and CNL Hospitality Partners, LP, as
               Purchaser, and joined in by Marriott International, Inc.,
               dated June 30, 2000, relating to the SpringHill
               Suites -- Gaithersburg (Previously filed as Exhibit 10.37 to
               Post-Effective Amendment No. One to the Registrant's
               Registration Statement on Form S-11 filed August 9, 2000 and
               incorporated herein by reference.)

   10.38       Lease Agreement between CNL Hospitality Partners, LP and
               RST4 Tenant LLC, dated July 28, 2000, relating to the
               Residence Inn -- Merrifield (Previously filed as Exhibit
               10.38 to Post-Effective Amendment No. One to the
               Registrant's Registration Statement on Form S-11 filed
               August 9, 2000 and incorporated herein by reference.)

   10.39       Purchase and Sale Agreement between TownePlace Management
               Corporation and Residence Inn by Marriott, Inc., as Sellers,
               and CNL Hospitality Partners, LP, as Purchaser, and joined
               in by Marriott International, Inc., dated November 24, 1999,
               relating to the Residence Inn -- Merrifield (Previously
               filed as Exhibit 10.39 to Post-Effective Amendment No. One
               to the Registrant's Registration Statement on Form S-11
               filed August 9, 2000 and incorporated herein by reference.)

   10.40       First Amendment to Purchase and Sale Agreement between
               TownePlace Management Corporation and Residence Inn by
               Marriott, Inc., as Sellers, and CNL Hospitality Partners,
               LP, as Purchaser, and joined in by Marriott International,
               Inc., dated November 24, 1999, relating to the Residence
               Inn -- Mira Mesa, SpringHill Suites -- Gaithersburg,
               Residence Inn -- Merrifield and TownePlace Suites -- Newark
               (amends Exhibits 10.26, 10.37 and 10.39 above) (Previously
               filed as Exhibit 10.40 to Post-Effective Amendment No. One
               to the Registrant's Registration Statement on Form S-11
               filed August 9, 2000 and incorporated herein by reference.)

   10.41       Lease Agreement between CNL Hospitality Partners, LP and
               CCCL Leasing LLC, dated August 18, 2000, relating to the
               Courtyard -- Alpharetta (Previously filed as Exhibit 10.41
               to Post-Effective Amendment No. Two to the Registrant's
               Registration Statement on Form S-11 filed October 23, 2000
               and incorporated herein by reference.

   10.42       Lease Agreement between CNL Hospitality Partners, LP and
               CCCL Leasing LLC, dated August 18, 2000, relating to the
               Residence Inn -- Cottonwood (Previously filed as Exhibit
               10.42 to Post-Effective Amendment No. Two to the
               Registrant's Registration Statement on Form S-11 filed
               October 23, 2000 and incorporated herein by reference.)

   10.43       Lease Agreement between CNL Hospitality Partners, LP and
               CCCL Leasing LLC, dated August 18, 2000, relating to the
               TownePlace Suites -- Mt. Laurel (Previously filed as Exhibit
               10.43 to Post-Effective Amendment No. Two to the
               Registrant's Registration Statement on Form S-11 filed
               October 23, 2000 and incorporated herein by reference.)

   10.44       Lease Agreement between CNL Hospitality Partners, LP and
               CCCL Leasing LLC, dated August 18, 2000, relating to the
               TownePlace Suites -- Scarborough (Previously filed as
               Exhibit 10.44 to Post-Effective Amendment No. Two to the
               Registrant's Registration Statement on Form S-11 filed
               October 23, 2000 and incorporated herein by reference.)

   10.45       Lease Agreement between CNL Hospitality Partners, LP and
               CCCL Leasing LLC, dated August 18, 2000, relating to the
               TownePlace Suites -- Tewksbury (Previously filed as Exhibit
               10.45 to Post-Effective Amendment No. Two to the
               Registrant's Registration Statement on Form S-11 filed
               October 23, 2000 and incorporated herein by reference.)

   10.46       Purchase and Sale Agreement between Residence Inn by
               Marriott, Inc., Courtyard Management Corporation, SpringHill
               SMC Corporation and TownePlace Management Corporation, as
               Sellers, CNL Hospitality Partners, LP, as Purchaser, CCCL
               Leasing LLC, as Tenant, Crestline Capital Corporation,
               Marriott International, Inc., and joined in by CNL
               Hospitality Properties, Inc., dated August 18, 2000,
               relating to the Residence Inn -- Cottonwood,
               Courtyard -- Alpharetta and Overland Park, SpringHill
               Suites -- Raleigh, and TownePlace Suites -- Mt. Laurel,
               Scarborough and Tewksbury (Previously filed as Exhibit 10.46
               to Post-Effective Amendment No. Two to the Registrant's
               Registration Statement on Form S-11 filed October 23, 2000
               and incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>

   10.47       First Amendment to Purchase and Sale Agreement between
               Residence Inn by Marriott, Inc., Courtyard Management
               Corporation, SpringHill SMC Corporation and TownePlace
               Management Corporation, as Sellers, CNL Hospitality
               Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
               Crestline Capital Corporation, and Marriott International,
               Inc., dated August 18, 2000, relating to the Residence
               Inn -- Cottonwood, Courtyard -- Alpharetta and Overland
               Park, SpringHill Suites -- Raleigh, and TownePlace
               Suites -- Mt. Laurel, Scarborough and Tewksbury (Previously
               filed as Exhibit 10.47 to Post-Effective Amendment No. Two
               to the Registrant's Registration Statement on Form S-11
               filed October 23, 2000 and incorporated herein by
               reference.)

   10.48       Lease Agreement between CNL Hospitality Partners, LP and
               RST4 Tenant LLC, dated November 4, 2000, relating to the
               TownePlace Suites -- Newark (Previously filed as Exhibit
               10.48 to Post-Effective Amendment No. Three to the
               Registrant's Registration Statement on Form S-11 filed
               December 12, 2000 and incorporated herein by reference.)

   10.49       Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
               Corporation, dated October 12, 2000, relating to the
               Courtyard -- Little Lake Bryan (Previously filed as Exhibit
               10.49 to Post-Effective Amendment No. Three to the
               Registrant's Registration Statement on Form S-11 filed
               December 12, 2000 and incorporated herein by reference.)

   10.50       Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant
               Corporation, dated October 12, 2000, relating to the
               Fairfield Inn -- Little Lake Bryan (Previously filed as
               Exhibit 10.50 to Post-Effective Amendment No. Three to the
               Registrant's Registration Statement on Form S-11 filed
               December 12, 2000 and incorporated herein by reference.)

   10.51       First Amendment to Lease Agreement between LLB C-Hotel,
               L.L.C. and LLB Tenant Corporation, dated November 17, 2000,
               relating to the Courtyard -- Little Lake Bryan (amends
               Exhibit 10.49 above) (Previously filed as Exhibit 10.51 to
               Post-Effective Amendment No. Three to the Registrant's
               Registration Statement on Form S-11 filed December 12, 2000
               and incorporated herein by reference.)

   10.52       First Amendment to Lease Agreement between LLB F-Inn, L.L.C.
               and LLB Tenant Corporation, dated November 17, 2000,
               relating to the Fairfield Inn -- Little Lake Bryan (amends
               Exhibit 10.50 above) (Previously filed as Exhibit 10.52 to
               Post-Effective Amendment No. Three to the Registrant's
               Registration Statement on Form S-11 filed December 12, 2000
               and incorporated herein by reference.)

   10.53       Purchase and Sale Agreement between Marriott International,
               Inc., as Seller, and CNL Hospitality Partners, LP, as
               Purchaser, dated September 17, 1998, relating to the
               Courtyard -- Little Lake Bryan, the Fairfield Inn -- Little
               Lake Bryan and the SpringHill Suites -- Little Lake Bryan
               (Previously filed as Exhibit 10.53 to Post-Effective
               Amendment No. Three to the Registrant's Registration
               Statement on Form S-11 filed December 12, 2000 and
               incorporated herein by reference.)

   10.54       Second Amendment to Lease Agreement between CNL LLB C-Hotel
               Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
               Corporation, dated December 15, 2000, relating to the
               Courtyard -- Little Lake Bryan (amends Exhibits 10.49 and
               10.51 above) (Previously filed as Exhibit 10.54 to
               Post-Effective Amendment No. Four to the Registrant's
               Registration Statement on Form S-11 filed March 12, 2001 and
               incorporated herein by reference.)

   10.55       Second Amendment to Lease Agreement between CNL LLB F-Inn
               Management, LP (formerly LLB F-Inn L.L.C.) and LLB Tenant
               Corporation, dated December 15, 2000, relating to the
               Fairfield Inn -- Little Lake Bryan (amends Exhibits 10.50
               and 10.52 above) (Previously filed as Exhibit 10.55 to
               Post-Effective Amendment No. Four to the Registrant's
               Registration Statement on Form S-11 filed March 12, 2001 and
               incorporated herein by reference.)

   10.56       Indenture Agreement among Desert Ridge Resort, LLC, as
               Issuer; Bank One, National Association, as Trustee; and
               Financial Structures Limited, as Insurer, dated December 15,
               2000, relating to the Desert Ridge Property (Previously
               filed as Exhibit 10.56 to Post-Effective Amendment No. Four
               to the Registrant's Registration Statement on Form S-11
               filed March 12, 2001 and incorporated herein by reference.)

   10.57       $96,725,000 Promissory Note with CNL Hospitality Partners,
               LP, as Maker, and Security Life of Denver Insurance Company,
               as Payee, dated September 7, 2001 (Previously filed as
               Exhibit 10.56 to the Registrant's Form 10-Q filed May 15,
               2003 and incorporated herein by reference.)

   10.58       Sixth Amended and Restated Revolving Credit Agreement dated
               October 31, 2002 (Previously filed as Exhibit 10.1 to RFS's
               Current Report on Form 8-K filed January 16, 2003 and
               incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>

   10.59       Form of Percentage Lease with TRS Lessees (Previously filed
               as Exhibit 10.1 to RFS's Current Report on Form 8-K filed
               January 16, 2001 and incorporated herein by reference.)

   10.60       Form of Management Agreement with Flagstone (Previously
               filed as Exhibit 10.2 to RFS's Current Report on Form 8-K
               filed January 16, 2001 and incorporated herein by
               reference.)

   10.61       Loan Agreement dated August 9, 2000 by and between Bank of
               America, N.A. (as lender) and RFS SPE 2000 LLC (as
               borrower), a wholly-owned subsidiary of RFS (Previously
               filed as Exhibit 10.19 to RFS's Form 10-K filed March 15,
               2001 and incorporated herein by reference.)

   10.62       Loan Agreement dated August 9, 2000 by and between Bank of
               America, N.A. (as lender) and RFS SPE 2 2000 LLC (as
               borrower), a wholly-owned subsidiary of RFS (Previously
               filed as Exhibit 10.20 to RFS's Form 10-K filed March 15,
               2001 and incorporated herein by reference.)

   10.63       Credit Agreement dated as of July 10, 2003 among RFS
               Partnership, L.P. and RFS Financing Partnership, L.P. (as
               borrowers), the Registrant (as parent to the borrowers),
               Bank of America, N.A. (as Administrative Agent) and the
               lenders named therein (Previously filed as Exhibit 10.68 to
               Post-Effective Amendment No. Two to the Registrant's
               Registration Statement on Form S-11 filed July 14, 2003 and
               incorporated herein by reference.)

   10.64       $320,000,000 Note between RFS Partnership, L.P. and RFS
               Financing Partnership, L.P. (as borrowers), and Banc of
               America Bridge LLC (as lender), dated as of July 10, 2003
               (Previously filed as Exhibit 10.69 to Post-Effective
               Amendment No. Two to the Registrant's Registration Statement
               on Form S-11 filed July 14, 2003 and incorporated herein by
               reference.)

   10.65       Continuing Guaranty Agreement, dated as of July 10, 2003
               among CNL Hospitality Properties, Inc., CNL Rose GP Corp.,
               and CNL Rose Acquisition Corp., in favor of Bank of America,
               N.A. (Previously filed as Exhibit 10.3 to RFS Partnership,
               L.P.'s Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.66       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to common stock of RFS TRS Holdings, Inc.)
               (Previously filed as Exhibit 10.4 to RFS Partnership, L.P.'s
               Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.67       Security and Pledge Agreement, dated as of July 10, 2003
               between CNL Rose Acquisition Corp. and Bank of America, N.A.
               (relating to limited partner interests in RFS Partnership,
               L.P.) (Previously filed as Exhibit 10.5 to RFS Partnership,
               L.P.'s Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.68       Security and Pledge Agreement, dated as of July 10, 2003
               between CNL Hospitality Properties, Inc. and Bank of
               America, N.A. (relating to common stock of CNL Rose
               Acquisition Corp.) (Previously filed as Exhibit 10.6 to RFS
               Partnership, L.P.'s Current Report on Form 8-K filed July
               25, 2003 and incorporated herein by reference.)

   10.69       Security and Pledge Agreement, dated as of July 10, 2003
               between CNL Rose GP Corp. and Bank of America, N.A.
               (relating to general partner interest in RFS Partnership,
               L.P.) (Previously filed as Exhibit 10.7 to RFS Partnership,
               L.P.'s Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.70       Security and Pledge Agreement, dated as of July 10, 2003
               between CNL Hospitality Properties, Inc. and Bank of
               America, N.A. (relating to common stock of CNL Rose GP
               Corp.) (Previously filed as Exhibit 10.8 to RFS Partnership,
               L.P.'s Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.71       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to limited partner interest in Ridge Lake, L.P.)
               (Previously filed as Exhibit 10.9 to RFS Partnership, L.P.'s
               Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.72       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to common stock of RFS 2002 Financing, Inc.)
               (Previously filed as Exhibit 10.10 to RFS Partnership,
               L.P.'s Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)
</Table>
<PAGE>

<Table>
<Caption>
  EXHIBITS
  --------
<C>            <S>


   10.73       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to limited liability company interest in RFS
               Financing 2002, L.L.C.) (Previously filed as Exhibit 10.11
               to RFS Partnership, L.P.'s Current Report on Form 8-K filed
               July 25, 2003 and incorporated herein by reference.)

   10.74       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to limited partner interest in RFS Financing
               Partnership, L.P.) (Previously filed as Exhibit 10.12 to RFS
               Partnership, L.P.'s Current Report on Form 8-K filed July
               25, 2003 and incorporated herein by reference.)

   10.75       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to common stock of Ridge Lake General Partner,
               Inc.) (Previously filed as Exhibit 10.13 to RFS Partnership,
               L.P.'s Current Report on Form 8-K filed July 25, 2003 and
               incorporated herein by reference.)

   10.76       Security and Pledge Agreement, dated as of July 10, 2003
               between RFS Partnership, L.P. and Bank of America, N.A.
               (relating to limited liability company interests in Ridge
               Lake, L.L.C.) (Previously filed as Exhibit 10.14 to RFS
               Partnership, L.P.'s Current Report on Form 8-K filed July
               25, 2003 and incorporated herein by reference.)

   10.77       Agreement of Purchase and Sale of The Hotel Del Coronado and
               Joint Escrow Instructions among L-O Coronado Holding II,
               Inc., L-O Coronado Hotel, Inc. and L-O Coronado IP, Inc.
               (jointly, Seller) and CNL Hospitality Corp. (Buyer),
               effective as of September 23, 2003 (Previously filed as
               Exhibit 10.82 to Post -- Effective Amendment No. Six to the
               Registrant's Registration Statement on Form S-11 filed
               January 26, 2004 and incorporated herein by reference.)

   10.78       First Amendment to Agreement for Purchase and Sale of Real
               Property and Joint Escrow Instructions by and among L-O
               Coronado Holding II, Inc., L-O Coronado Hotel, Inc. and L-O
               Coronado IP, Inc. (collectively, Seller) and CNL Hospitality
               Corp. (Buyer) dated as of October 15, 2003 (Previously filed
               as Exhibit 10.83 to Post -- Effective Amendment No. Six to
               the Registrant's Registration Statement on Form S-11 filed
               January 26, 2004 and incorporated herein by reference.)

   10.79       Second Amendment to Agreement for Purchase and Sale of Real
               Property and Joint Escrow Instructions by and among L-O
               Coronado Holding II, Inc., L-O Coronado Hotel, Inc. and L-O
               Coronado IP, Inc. (collectively, Seller) and CNL Hospitality
               Corp. (Buyer) dated as of October 31, 2003 (Previously filed
               as Exhibit 10.84 to Post -- Effective Amendment No. Six to
               the Registrant's Registration Statement on Form S-11 filed
               January 26, 2004 and incorporated herein by reference.)

   10.80       Assignment and Assumption of Agreement of Purchase and Sale
               and Joint Escrow Instructions by and between CNL Hospitality
               Corp. (Assignor) and CNL Hotel Del Partners, LP (Assignee)
               dated as of December 18, 2003 (Previously filed as Exhibit
               10.85 to Post -- Effective Amendment No. Six to the
               Registrant's Registration Statement on Form S-11 filed
               January 26, 2004 and incorporated herein by reference.)

   10.81       Commercial Mortgage Backed Security Facility, dated December
               4, 2003, by and between Bank of America, N.A. (as lender)
               and Rose SPE 1, L.P. (as borrower), a wholly-owned
               subsidiary of RFS Partnership, L.P. (Previously filed as
               Exhibit 10.20 to RFS Partnership, L.P.'s Annual Report on
               Form 10-K filed March 30, 2004 and incorporated herein by
               reference.)

   10.82       Mezzanine Loan Agreement, dated December 23, 2003, by and
               between Fleet National Bank (as lender) and Rose Mezzanine
               SPE, L.P. (as borrower), a wholly-owned subsidiary of RFS
               Partnership, L.P. (Previously filed as Exhibit 10.21 to RFS
               Partnership, L.P.'s Annual Report on Form 10-K filed March
               30, 2004 and incorporated herein by reference.)

   21          Subsidiaries of the Registrant (Filed herewith.)

   31.1        Certification of Chief Executive Officer, 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 Principal Financial Officer, 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, Pursuant to 18
               U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
               the Sarbanes -- Oxley Act of 2002 (Furnished herewith.)

   32.2        Certification of Principal Financial Officer, Pursuant to 18
               U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
               the Sarbanes -- Oxley Act of 2002 (Furnished herewith.)
</Table>