UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                   FORM 10-K/A
                                 Amendment No. 1


(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, 2001
                                             -----------------

                                       OR

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

                 For the transition period from to ____________


                         Commission file number 0-24097

                        CNL Hospitality Properties, Inc.
             (Exact name of registrant as specified in its charter)

             Maryland                                59-3396369
 (State or other jurisdiction of       (I.R.S. Employer Identification No.)
  incorporation or organization)

                             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:

         Title of each class:       Name of exchange on which registered:
                 None                          Not Applicable

           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. [ X ]

     Aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares")  on Form S-11 under the  Securities  Act of 1933,  as  amended.  As of
February 22, 2002,  81,382,909 shares were beneficially owned by non-affiliates.
Since no established market for such Shares exists, there is no market value for
such Shares. Each Share was originally sold at $10 per Share.

     The number of Shares of common stock  outstanding  as of February 22, 2002,
was 81,402,909.


<PAGE>

     The Form 10-K of CNL Hospitality  Properties,  Inc. (the "Company") for the
year ended  December 31, 2001 is being  amended to restate the diluted  weighted
average number of shares outstanding from 66,282,330 to 64,457,643,  in Items 6,
7 and 8; to  restate  the  number of  authorized  shares of  common  stock  from
60,000,000 to 150,000,000 as of December 31, 2000 in Item 8; and to include,  in
Item 14(d),  summarized financial  information of Marriott  International,  Inc.
("Marriott").  Marriott  is a  guarantor  of lease  payments  for several of the
Company's  tenants which lease hotel  Properties with aggregate  carrying values
that represent  more than 20 percent of the Company's  total assets for the year
ended December 31, 2001.  This  summarized  information was not available to the
Company at the time the Company filed its Form 10-K for the year ended  December
31,  2001.  The changes  herein have no effect on the  operating  results of the
Company for any of the years presented.

                                     PART II

Item 6.  Selected Financial Data

<TABLE>
<S><C>
                                             2001          2000          1999          1998       1997 (1)(3)
                                         ------------  ------------  ------------  ------------  ------------

Year Ended December 31:
 Revenues                                $ 71,462,544  $ 36,099,219  $ 10,677,505  $  1,955,461  $     46,071
 Net earnings                              19,328,376    20,670,462     7,515,988       958,939        22,852
 Cash flows from operating activities      52,937,964    43,650,561    12,890,161     2,776,965        22,469
 Cash flows used in investing activities (295,990,882) (334,236,686) (130,231,475)  (34,510,982)     (463,470)
 Cash flows from financing activities     237,680,116   238,811,538   206,084,832    36,093,102     9,308,755
 Cash distributions declared               48,409,660    28,082,275    10,765,881     1,168,145        29,776
 Funds from operations (2)                 40,838,412    30,053,368    10,478,103     1,343,105        22,852
 Earnings per share:
     Basic                                       0.30          0.53          0.47          0.40          0.03
     Diluted                                     0.30          0.53          0.45          0.40          0.03
 Cash distributions declared per share           0.77          0.74          0.72          0.47          0.05
 Weighted average number of shares
   outstanding:
     Basic                                 64,457,643    38,698,066    15,890,212     2,402,344       686,063
     Diluted                               64,457,643    45,885,742    21,437,859     2,402,344       686,063


At December 31:

 Total assets                            $901,406,487  $653,962,058  $266,968,274  $ 48,856,690  $  9,443,476
 Mortgages payable                        168,883,882   170,055,326            --            --            --
 Other notes payable and line of credit    65,071,680    19,581,950            --            --            --
 Total stockholders' equity               637,876,684   419,288,998   253,054,839    37,116,491     9,233,917

</TABLE>

(1)  No  operations  commenced  until  the  Company  received  minimum  offering
     proceeds and funds were released from escrow on October 15, 1997.


<PAGE>



(2)  Funds from operations  ("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 sales of property, plus
     depreciation and  amortization of real estate assets and after  adjustments
     for   unconsolidated   partnerships  and  joint  ventures.   (Net  earnings
     determined  in  accordance   with  GAAP  includes  the  noncash  effect  of
     straight-lining   rent   increases   throughout   the  lease  terms.   This
     straight-lining  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, 2001, 2000, 1999, and 1998
     net   earnings   included   $118,038,   $117,282,   $35,238  and   $44,160,
     respectively,  of these amounts.  No such amounts were earned during 1997.)
     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 the  Company's  operating  performance,  or to cash flow from
     operating  activities  determined in  accordance  with GAAP as a measure of
     either liquidity or the Company's  ability to make  distributions.  FFO, as
     presented,  may not be comparable to similarly titled measures  reported by
     other  companies.  Accordingly,  the  Company  believes  that in  order  to
     facilitate a clear understanding of the consolidated  historical  operating
     results of the Company,  FFO should be considered in  conjunction  with the
     Company's  net  earnings  and cash flows as  reported  in the  accompanying
     consolidated financial statements and notes thereto.

(3)  The weighted average number of shares  outstanding is based upon the period
     the Company was operational.


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     The  following   information   that  are  not  historical   facts,  may  be
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933 and  Section  21E of the  Securities  Exchange  Act of  1934.  These
statements  generally are  characterized  by the use of terms such as "believe,"
"expect"  and  "may."  Although  the  Company  believes  that  the  expectations
reflected  in  such   forward-looking   statements  are  based  upon  reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference  include  the  following:  changes  in general  economic  conditions,
changes in local and national real estate  conditions,  availability  of capital
from  borrowings  under the  Company's  line of credit and  security  agreement,
continued  availability of proceeds from the Company's offering,  the ability of
the Company to obtain permanent  financing on satisfactory terms, the ability of
the Company to continue to  identify  suitable  investments,  the ability of the
Company to continue to locate suitable  tenants for its properties and borrowers
for its Mortgage  Loans and Secured  Equipment  Leases,  and the ability of such
tenants and borrowers to make payments under their respective  leases,  Mortgage
Loans and  Secured  Equipment  Leases.  Given these  uncertainties,  readers are
cautioned not to place undue reliance on such statements.


                                  Introduction

The Company

     CNL Hospitality Properties,  Inc. was organized pursuant to the laws of the
State of Maryland on June 12, 1996. CNL Hospitality GP Corp. and CNL Hospitality
LP Corp. are wholly owned subsidiaries of CNL Hospitality Properties, Inc., each
of which was organized in Delaware in June 1998. CNL Hospitality Partners, LP is
a Delaware limited partnership ("Hospitality Partners") formed in June 1998. CNL
Hospitality  GP Corp.  and CNL  Hospitality LP Corp. are the general and limited
partner,  respectively, of CNL Hospitality Partners, LP. Properties acquired are
generally  expected to be held by  Hospitality  Partners  and, as a result,  are
owned by CNL Hospitality Properties,  Inc. through Hospitality Partners. Various
other  wholly owned  subsidiaries  have been formed for purposes of acquiring or
developing hotel  properties.  The terms "Company"  include,  unless the context
otherwise requires, CNL Hospitality Properties, Inc., CNL Hospitality Partners,

<PAGE>

LP,  CNL  Hospitality  GP  Corp.,  CNL  Hospitality  LP Corp.  and each of their
subsidiaries.  The Company  operates  for federal  income tax purposes as a real
estate  investment  trust (a "REIT").  The Company has retained CNL  Hospitality
Corp.  (the  "Advisor")  as its  advisor  to  provide  management,  acquisition,
advisory and administrative services.

     The Company was formed primarily to acquire  properties (the  "Properties")
located across the United States to be leased for  generally,  five to 20 years,
plus  renewal  options  generally  for  up  to  an  additional  20  years,  on a
"triple-net"  basis,  which means that the tenants generally are responsible for
repairs,  maintenance,  property  taxes,  utilities and  insurance.  Third party
tenants are  operators  of  selected  national  and  regional  limited  service,
extended stay and full service hotel chains (the "Hotel  Chains").  In 2001, the
Company began operating other Properties using independent third party managers,
as  permitted by the REIT  Modernization  Act of 1999.  It is expected  that the
Company  will move from  triple-net  lease  activities  to owning and  operating
Properties using third parties to manage the Properties' day to day operations.

     The Company may also  provide  mortgage  financing  ("Mortgage  Loans") and
furniture,  fixture and  equipment  financing  ("Secured  Equipment  Leases") to
operators  of Hotel  Chains.  Secured  Equipment  Leases will be funded from the
proceeds of financing to be obtained by the Company.  The aggregate  outstanding
principal amount of Secured Equipment Leases will not exceed 10 percent of gross
proceeds from the Company's offerings of shares of common stock. The Company has
not provided any Mortgage  Loans or Secured  Equipment  Financing as of December
31, 2001.

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

Common Stock Offerings

     On September 14, 2000,  the Company  commenced its third  offering of up to
45,000,000 shares of common stock  ($450,000,000) (the "2000 Offering").  Of the
45,000,000  shares of common stock  offered,  up to 5,000,000  are  available to
stockholders  purchasing  shares  through the  reinvestment  plan. As of July 1,
2001, the percentage of gross  proceeds  payable to the managing  dealer and its
affiliates as expenses in connection with the offering increased and is expected
to remain at the higher level for the remainder of the 2000 Offering.  Since its
formation,  the Company has received an initial $200,000  contribution  from its
Advisor and subscription proceeds of $778,710,657 (77,871,066 shares), including
$3,755,508 (375,552 shares) issued pursuant to Company's reinvestment plan.

     On August 9, 2001, the Company filed a registration  statement on Form S-11
with the Securities and Exchange Commission in connection with the proposed sale
by  the  Company  of up to an  additional  45,000,000  shares  of  common  stock
($450,000,000)  (the  "2002  Offering")  in an  offering  expected  to  commence
immediately  following the  completion of the 2000  Offering.  Of the 45,000,000
shares of common  stock to be offered,  up to  5,000,000  will be  available  to
stockholders  purchasing  shares  through the  reinvestment  plan. The price per
share and the other terms of the 2002  Offering,  including  the  percentage  of
gross proceeds  payable (i) to the managing  dealer for selling  commissions and
expenses in connection with the offering and (ii) to the Advisor for acquisition
fees, are  substantially the same as those for the 2000 Offering for shares sold
subsequent to July 1, 2001. CNL Securities  Corp.,  an affiliate of the Advisor,
is the managing dealer for the Company's equity offerings.

     As of  December  31,  2001,  net  proceeds  to the  Company  from its stock
offerings,  loan  proceeds and capital  contributions  from the  Advisor,  after
deduction of selling  commissions,  marketing  support and due diligence expense
reimbursement   fees  and   organizational   and  offering   expenses,   totaled
approximately  $909,276,000.  The Company has used approximately $385,598,000 of
net offering  proceeds and  $223,766,000  of loan proceeds to invest in 35 hotel
Properties,  including  three on which hotel  Properties are being  constructed,
approximately  $40,694,000 to invest in two joint  ventures on which  Properties
are being  constructed  or renovated,  approximately  $88,089,000 to invest in a
joint  venture with Hilton  Hotels  Corporation,  approximately  $13,763,000  to
invest in a joint venture with Interstate  Property  Corporation,  approximately
$60,183,000  to acquire an additional 51 percent  ownership in Hotel  Investors,
approximately   $4,944,000  to  redeem   533,534  shares  of  common  stock  and
approximately  $57,983,000  to  pay  acquisition  fees  and  expenses,   leaving
approximately  $34,256,000  available for  investment in Properties and mortgage
loans.

<PAGE>

     During the period  January 1, 2002 through  February 22, 2002,  the Company
received  additional net offering proceeds of approximately  $40,654,000 and had
approximately  $11,100,000  available for  investment in Properties and Mortgage
Loans.  The  Company  expects  to use the  uninvested  net  proceeds,  plus  any
additional  net proceeds  from the sale of shares from the 2000 Offering and the
2002 Offering to purchase additional  Properties and, to a lesser extent, invest
in Mortgage Loans.  In addition,  the Company intends to borrow money to acquire
additional Properties,  to invest in Mortgage Loans and Secured Equipment Leases
and to pay  certain  related  fees.  The Company  intends to encumber  assets in
connection with such borrowings. The Company currently has a $96,725,000 line of
credit available, as described below (See "Borrowings").  Borrowings on the line
of credit may be repaid with  offering  proceeds,  working  capital or permanent
financing.  The maximum  amount the Company  may borrow,  absent a  satisfactory
showing  that a higher  level of  borrowing  is  appropriate  as  approved  by a
majority  of the  independent  directors,  is 300 percent of the  Company's  net
assets.  The  Company  believes  that the net  proceeds  received  from the 2000
Offering and the 2002  Offering  will enable the Company to continue to grow and
take  advantage of acquisition  opportunities  until such time, if any, that the
Company lists it shares on a national  securities  exchange or  over-the-counter
market,  although  there is no assurance  that such a listing  ("Listing")  will
occur. If Listing does not occur by December 31, 2007, the Company will commence
the orderly sale of its assets and the  distribution  of the  proceeds.  Listing
does not assure liquidity.

Redemptions

     In October 1998, the Board of Directors  elected to implement the Company's
redemption  plan.  Under the  redemption  plan,  the Company  may elect,  at its
discretion,  to redeem shares,  subject to certain  conditions and  limitations.
During the years ended  December 30, 2001 and 2000,  251,373  shares and 269,276
shares, respectively, were redeemed at $2,312,634 and $2,503,484,  respectively,
and retired from shares  outstanding  of common stock.  Shares were redeemed for
$9.20 per share.

Borrowings

     On September 14, 2001, the Company obtained a revolving line of credit (the
"Revolving   LOC")  to  fund  acquisition  and  development  of  Properties  and
investments in Mortgage Loans and Secured Equipment Leases.  The Company is able
to receive cash  advances of up to  approximately  $96.7 million for a period of
five years.  Interest payments are due monthly with principal payments of $1,000
due at the end of each loan year. Advances under the Revolving LOC bear interest
at an annual rate of 225 basis points  above  30-day  LIBOR (4.10  percent as of
December 31, 2001) and are collateralized by certain hotel Properties.

     As of  December  31,  2001,  the  Company's  fixed and  variable  rate debt
instruments, excluding debt of unconsolidated joint ventures, were as follows:

<TABLE>
<S><C>

       Principal and Accrued                              Fixed Rate                                Interest
         Interest Balance             Maturity             Per Year          Variable Rate        Payments Due
     -------------------------- ---------------------- ----------------- ----------------------- ----------------
           $ 50,000,000             December 2007           8.335%                --                 Monthly
             86,151,860               July 2009             7.67%*                --                 Monthly
             32,732,022             December 2007           8.29%                 --                 Monthly
              9,684,609            September 2017          12.85%**               --                 Monthly
             42,118,898             November 2003            --             LIBOR + 275 bps          Monthly
              5,768,173            September 2003            --             LIBOR + 300 bps          Monthly
              7,500,000            September 2006            --             LIBOR + 225 bps          Monthly

         *Average interest rate as the loans bear interest ranging from 7.50 percent to 7.75 percent.
        **Implicit interest on the TIF Note is 12.85 percent.

</TABLE>

     The Company's  objectives and strategies with respect to long-term debt are
to  minimize  the amount of  interest  incurred  on  permanent  financing  while
limiting  the  risk  related  to  interest  rate  fluctuations  through  hedging
activities  and the ability to  refinance  existing  debt.  Because  some of the
Company's  mortgage  notes  bear  interest  at fixed  rates,  changes  in market
interest  rates  during  the term of such debt  will not  affect  the  Company's
operating  results.  The majority of the Company's fixed rate debt  arrangements
allow  for  repayments  earlier than the stated maturity date. These prepayment

<PAGE>

rights  may  afford  the  Company  the  opportunity  to  mitigate  the  risk  of
refinancing  at maturity at higher rates by refinancing  prior to maturity.  The
weighted average  effective  interest rates on mortgages and other notes payable
was approximately 6.69 percent as of December 31, 2001.

     The Company's construction loan facility,  expiring in November 2003, bears
interest at a floating  rate.  Approximately  $42,119,000  was  outstanding  and
approximately  $12,881,000 was available under the construction loan facility as
of December 31, 2001. Currently, the construction loan facility is being used to
finance the construction of two hotel Properties.  The estimated  remaining cost
to complete these Properties was $8,036,000 as of December 31, 2001.

     The Company's construction loan, expiring in September 2003, bears interest
at a floating rate.  Approximately  $5,768,000 was outstanding and approximately
$11,232,000 was available under the  construction  loan as of December 31, 2001.
Currently,  the  construction  loan is being used to finance the construction of
one hotel Property.  The estimated  remaining cost to complete this Property was
$9,975,000 as of December 31, 2001.

     The Company  plans to use net proceeds it receives  from the 2000  Offering
and the 2002 Offering to purchase additional Properties and, to a lesser extent,
to invest in Mortgage  Loans.  In addition,  the Company intends to borrow under
the Revolving LOC and obtain permanent  financing in order to acquire additional
Properties, to invest in Mortgage Loans and Secured Equipment Leases, and to pay
certain  related fees. The Company intends to encumber assets in connection with
such borrowing. The Revolving LOC may be repaid with offering proceeds, proceeds
from the sale of assets,  working  capital or permanent  financing.  The maximum
amount the Company may borrow, absent a satisfactory showing that a higher level
of  borrowing  is  appropriate  as  approved  by a majority  of the  independent
directors, is 300 percent of the Company's net assets.

Market Risk

     The Company may be subject to interest  rate risk  through any  outstanding
balances on its variable rate debt. The Company may mitigate this risk by paying
down any  outstanding  balances on the  Revolving  LOC from  offering  proceeds,
refinancing  with fixed rate permanent debt or obtaining cash flow hedges should
interest rates rise  substantially,  as discussed  above.  At December 31, 2001,
there was approximately $55,387,000 in variable rate debt was outstanding.

     In addition,  the Company has issued fixed interest rate mortgages  payable
and notes payable to lenders under permanent financing arrangements. The Company
believes that the estimated  fair value of the amounts  outstanding on its fixed
rate mortgages payable and notes payable under permanent financing  arrangements
at December  31,  2001,  approximated  the  outstanding  principal  amount.  The
following  table  presents the expected cash  payments of principal  relating to
fixed rate mortgages and notes payable:

                                          Notes Payable
                                       ------------------
                 2002                        $ 3,136,602
                 2003                          2,393,876
                 2004                          2,561,298
                 2005                          2,742,225
                 2006                          2,869,490
                 Thereafter                  164,865,000
                                       ------------------
                                           $ 178,568,491
                                       ==================


Property Acquisitions and Investments

     Hotel Investors.  In 1999, the Company and Five Arrows Realty Securities II
LLC ("Five  Arrows")  invested  a total of  approximately  $86  million in Hotel
Investors,  resulting in the Company owning  approximately 49 percent.  In 2000,
the Company  acquired a 22 percent  interest in Hotel Investors from Five Arrows
for approximately $26.3 million,  resulting in the Company owning  approximately
71  percent  of Hotel  Investors.  The  results  of Hotel  Investors  have  been
consolidated with those of the Company since  October 1, 2000. In June 2001, the

<PAGE>

Company  acquired the remaining 29 percent of Hotel Investors for  approximately
$32.9 million. Hotel Investors owns seven hotel Properties. This transaction was
accounted  for under the  purchase  method of  accounting.  The  purchase  price
approximated the fair value of the net assets acquired.

     Desert Ridge Joint Venture.  In December  2000,  the Company  acquired a 44
percent interest in Desert Ridge Resort  Partners,  LLC (the "Desert Ridge Joint
Venture"), a joint venture with an affiliate of Marriott International, Inc. and
a partnership in which an affiliate of the Advisor is the general  partner.  The
Desert  Ridge  Joint  Venture  owns the Desert  Ridge  Marriott  Resort & Spa in
Phoenix,  Arizona  (the  "Desert  Ridge  Property"),  which is  currently  under
construction.  As of December 31, 2001, the Company had made an initial  capital
contribution  of  approximately  $8.8  million of its  anticipated  $25  million
investment in the Desert Ridge Joint Venture. The total cost of the Desert Ridge
Property is estimated to be $298 million.  The Desert Ridge  Property is secured
by a mortgage of $179 million (the "Desert Ridge Mortgage"),  which is scheduled
to mature on December 15, 2007. Although this resort property is currently under
construction,  limited  operations for the year ended December 31, 2001 resulted
from a golf course located on the premises.  Development of a second golf course
was completed and the course began operations in January 2002.

     A portion of the Desert Ridge  Mortgage bears interest at an annual rate of
185 basis points above three-month  London Interbank Offered Rate (the "LIBOR").
The Desert Ridge Joint Venture has entered into an interest rate swap  agreement
(the "DRR  Swap") to  effectively  convert  the  variable  rate  portion of this
mortgage  to a fixed  rate of 6.025  percent  per  annum.  The DRR Swap is being
accounted  for as a cash flow hedge.  All terms of the DRR Swap are identical to
the terms of the underlying mortgage. The blended interest rate on the aggregate
principal  amount of the $179 million mortgage notes,  including  interest rate,
swap costs,  premiums for a debt service insurance  policy,  and amortization of
loan costs is approximately 10.13 percent per annum.

     Waikiki  Partnership.  In July  2001,  the  Company  acquired  a 49 percent
interest  in WB Resort  Partners,  L.P.  (the  "Waikiki  Partnership"),  a joint
venture with an affiliate of Marriott  International,  Inc. and a partnership in
which  an  affiliate  of  the  Advisor  is  the  general  partner.  The  Waikiki
Partnership  owns the Waikiki Beach  Marriott in Honolulu,  Hawaii (the "Waikiki
Property"),  which  is  currently  undergoing  significant  renovations.  As  of
December  31,  2001,  the  Company  had  made  total  capital  contributions  of
approximately  $27.7 million of its  anticipated  $42 million  investment in the
Waikiki  Partnership.  The total cost of the Waikiki Property is estimated to be
$215  million.  The  Waikiki  Property is secured by a mortgage in the amount of
$130,000,000,  which  matures on August 15, 2006 and bears annual  interest at a
rate of 8.53  percent.  Although  this resort  property is currently  undergoing
significant renovations, it has remained partially open. Operations for the year
ended  December 31, 2001 resulted from the operations of the open portion of the
resort.

     Hilton  Partnership.  The Company and Hilton Hotels Corporation  ("Hilton")
formed a partnership  (the "Hilton  Partnership") of which the Company owns a 70
percent interest and Hilton owns a 30 percent interest.  The Hilton  Partnership
owns four Properties in Miami,  Florida and Costa Mesa,  California,  which were
contributed  by the Company,  and Auburn Hills,  Michigan and Portland,  Oregon,
which  were  contributed  by  Hilton.  The  total  value of the four  Properties
contributed was valued at  approximately  $215,929,000.  The Hilton  Partnership
intends to spend approximately $21,000,000 for renovations to the Miami, Florida
and Costa Mesa, California Properties.

     The  Hilton  Partnership's  Properties  are  encumbered  by a  $100,000,000
mortgage, which has a term of five years and bears annual interest at a variable
rate equal to 230 basis points above 30-day LIBOR subject to a three-year cap of
8.30  percent and a floor of 4.96  percent.  The Company  intends to purchase an
additional interest rate cap for the last two years of the Hilton Mortgage term,
prior to the  maturity  of the Hilton  Cap.  The average  annual  interest  rate
incurred during the year ended December 31, 2001 was 4.96 percent.

     Interstate Partnership.  On November 19, 2001, the Company and a subsidiary
of Interstate  Property  Corporation  ("Interstate")  formed a partnership  (the
"Interstate  Partnership")  of which the Company owns an 85 percent interest and
Interstate  owns a 15 percent  interest.  The  Interstate  Partnership  owns two
Properties  in  Manchester,  Connecticut.  The  total  value  of the  Properties
obtained was  approximately  $20,372,000.  One of the Properties is secured by a
mortgage  of  approximately  $6,736,000,  which was  assumed  by the  Interstate
Partnership.  The mortgage  matures on January 1, 2011 and bears annual interest
of 8.32 percent.

<PAGE>

     Property  Acquisitions.   During  2001,  the  Company  made  the  following
additional acquisitions:

<TABLE>
<S><C>

                Brand Affiliation                Property Location         Purchase Date
     ----------------------------------------- ----------------------- ----------------------
         SpringHill Suites(TM)by Marriott(R)         Raleigh, NC          February 2, 2001
             Courtyard(R)by Marriott(R)           Overland Park, KS       February 2, 2001
         SpringHill Suites(TM)by Marriott(R)        Charlotte, NC          March 23, 2001
         SpringHill Suites(TM)by Marriott(R)       Centreville, VA         March 23, 2001
             Courtyard(R)by Marriott(R)               Edison, NJ           April 6, 2001*
             Courtyard(R)by Marriott(R)              Oakland, CA          December 28, 2001
         SpringHill Suites (TM) by Marriott(R)       Richmond, VA         December 28, 2001

    *Land purchased for development on which a hotel Property is being built.

</TABLE>

     The Company is operating the Oakland,  CA and the  Richmond,  VA Properties
using  independent third party managers and is leasing the other five Properties
on a triple-net basis to third party tenants.


Commitments

     The Company has  commitments  (i) to acquire three hotel  Properties for an
anticipated  aggregate  purchase  price of  approximately  $90 million,  (ii) to
invest  approximately  $15 million in two new joint ventures,  (iii) to fund the
remaining total of $31 million in the Desert Ridge Joint Venture and the Waikiki
Partnership, (iv) to acquire a 10 percent interest in a limited partnership that
owns an office building located in Orlando, Florida, for approximately $300,000,
in which the Advisor and its affiliates  lease office space, and (v) to fund the
development of a new hotel Property for approximately  $88 million.  The Company
also has committed to fund its prorata share of working capital shortfalls, debt
service and construction  commitments for the Hilton  Partnership and Interstate
Partnership if shortfalls  arise.  The  acquisition of each of these  additional
Properties  is subject to the  fulfillment  of certain  conditions.  In order to
acquire these  Properties,  the Company must obtain additional funds through the
receipt of additional  offering  proceeds  and/or advances on the Revolving LOC.
There can be no assurance  that any or all of the  conditions  will be satisfied
or, if satisfied,  that one or more of these  Properties will be acquired by the
Company. The Company currently is seeking additional Properties.

Subsequent Events

     During the period  January 1, 2002 through  February 22, 2002,  the Company
received  subscription proceeds for an additional 4,065,377 shares ($40,653,770)
of common stock.

     On January  18,  2002,  the Company  acquired a  SpringHill  Suites(TM)  by
Marriott(R)  and  a  TownePlace  Suites(TM)  by  Marriott(R),  both  located  in
Manhattan Beach,  California and a SpringHill  Suites(TM) by Marriott(R) located
in Plymouth Meeting,  Pennsylvania for  approximately  $62 million.  The Company
plans to operate these Properties  using affiliates of Marriott,  an independent
third party manager.

     On January 18, 2002,  the Company  acquired an interest in a joint  venture
with Publications International,  Ltd. ("PIL"), Hilton, and Marriott that owns a
77.5 percent  interest in a joint venture with Exxon Mobil  Corporation  and PIL
("EMTG").  EMTG owns the licensing  rights to the Mobil Travel Guide.  The joint
venture  has  licensed  its  rights to a wholly  owned  subsidiary,  which  will
assemble,  edit,  publish and sell the Mobil Travel Guide.  The Company's  total
capital  contribution  will be $3.4  million,  with  $1,787,500  being funded on
January 18, 2002 and the remainder to be contributed by June 30, 2002.

     On February  22,  2002,  the  Company  took  assignment  of its leases with
Western  International,  Inc. for seven Hotel Investors'  Properties.  Effective
January  1,  2002,  these  Properties  will be  operated  by the  Company  using
affiliates of Marriott as an independent  third party manager and the operations
of these Properties will be reflected in the results of the Company. The Company
paid consideration of approximately $54,000 for this assignment.

<PAGE>


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.
This  investment  strategy  provides high  liquidity in order to facilitate  the
Company's  use of these funds to acquire  Properties  at such time as Properties
suitable for  acquisition are located or to fund Mortgage Loans. At December 31,
2001, the Company had  $44,825,052  invested in such  short-term  investments as
compared  to  $50,197,854  at  December  31,  2000.  The  decrease in the amount
invested in short-term investments was primarily attributable to the acquisition
of  Properties  during 2001 offset by proceeds  received from the sale of common
stock of the 2000  Offering.  These  funds will be used to  purchase  additional
Properties, to make Mortgage Loans, to pay offering and acquisition expenses, to
pay   distributions   to  stockholders   and  other  Company  expenses  and,  at
management's discretion, to create cash reserves.

Liquidity Requirements

     The Company expects to meet its short-term  liquidity  requirements,  other
than for offering  expenses,  for the  acquisition and development of Properties
and investment in Mortgage Loans and Secured Equipment Leases, through cash flow
provided by operating  activities.  The Company believes that cash flow provided
by operating  activities will be sufficient to fund normal  recurring  operating
expenses,  regular debt service  requirements and distributions to stockholders.
To the extent that the Company's  cash flow provided by operating  activities is
not sufficient to meet such short-term  liquidity  requirements as a result, for
example,  of unforeseen  expenses due to tenants  defaulting  under the terms of
their lease agreements, the Company will use borrowings under its Revolving LOC.

     The Company expects to meet its other  short-term  liquidity  requirements,
including payment of offering  expenses,  Property  acquisitions and development
and investment in Mortgage Loans and Secured Equipment  Leases,  with additional
advances  under its Revolving LOC and proceeds from its  offerings.  The Company
expects to meet its long-term liquidity requirements through short or long-term,
unsecured or secured debt financing or equity financing.

     Management   believes  that  the  Properties  are  adequately   covered  by
insurance.  In  addition,  the Advisor has  obtained  contingent  liability  and
property  coverage for the Company.  This insurance policy is intended to reduce
the Company's  exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to a Property.

Distributions

     During the years  ended  December  31,  2001,  2000 and 1999,  the  Company
generated cash from operations of  $52,937,964,  $43,650,561,  and  $12,890,161,
respectively. The Company declared and paid distributions to its stockholders of
$48,409,660,  $28,082,275,  and $10,765,881  during the years ended December 31,
2001, 2000 and 1999, respectively.  In addition, on January 1, 2002 and February
1, 2002, the Company declared distributions to stockholders of record on January
1, 2002 and February 1, 2002, totaling $4,998,298 and $5,133,486,  respectively,
or $0.064583 per share, payable in March 2002.

     For the years ended  December 31,  2001,  2000 and 1999,  approximately  52
percent, 63 percent and 75 percent,  respectively, of the distributions received
by  stockholders  were  considered to be ordinary  income and  approximately  48
percent,  37 percent and 25 percent,  respectively,  were considered a return of
capital  for  federal  income  tax  purposes.  No  amounts  distributed  to  the
stockholders  for the years ended December 31, 2001, 2000 and 1999 were required
to be or have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital.

Related Party Transactions

     During the years ended December 31, 2001, 2000 and 1999,  affiliates of the
Company  incurred  on  behalf  of  the  Company  $4,988,427,   $4,363,326,   and
$3,257,822, respectively, for certain offering expenses, $261,373, $717,273, and
$653,231,   respectively,   for  certain  acquisition  expenses,  and  $742,876,
$605,517,  and $325,622,  respectively,  for certain operating  expenses.  As of
December  31,  2001 and 2000,  the Company  owed the  Advisor and other  related
parties $1,026,225 and $1,359,417,  respectively,  for expenditures  incurred on
behalf of the Company and for acquisition fees.

     The Company maintains bank accounts in a bank in which certain officers and
directors of the Company  serve as  directors,  and in which an affiliate of the
Advisor is a stockholder. The amount deposited with this bank was $6,928,363 and
$17,568,909 at December 31, 2001 and 2000, respectively.

     The Board of Directors of the Company has  authorized the Company to pursue
the opportunity to acquire a 10 percent  interest in a limited  partnership that
owns a building in which the Advisor leases office space.  If  consummated,  the
Company's  investment  in  the  partnership  is  expected  to  be  approximately
$300,000.  The remaining  interest in the limited  partnership is expected to be
owned by several affiliates of the Advisor.

<PAGE>
     See  "Item  13.  Certain   Relationships  and  Related   Transactions"  for
information  regarding  other  related  party  transactions  of a  non-operating
nature.

Other

     As of December 31, 2001,  2000 and 1999, the tenants of the Properties have
established  reserve funds which will be used for the replacement and renewal of
furniture,  fixtures and equipment  relating to the hotel  Properties ("the FF&E
Reserve").  Funds in the FF&E Reserve from  unrelated  third party  tenants have
been paid, granted and assigned to the Company. For the years ended December 31,
2001, 2000 and 1999, revenues from unrelated third party lessees relating to the
FF&E  Reserve  of the  Properties  owned  by  the  Company  totaled  $5,786,879,
$2,508,949, and $320,356, respectively.

     Management  does not  believe  that  other  working  capital  reserves  are
necessary  at this  time.  Management  has the  right to cause  the  Company  to
maintain  additional  reserves  if, in their  discretion,  they  determine  such
reserves are required to meet the Company's working capital needs.

Critical Accounting Policies

     The Company's leases are accounted for under the provisions of Statement of
Accounting  Standard No. 13,  "Accounting  for Leases" ("FAS 13"), and have been
accounted for as operating  leases.  FAS 13 requires  management to estimate the
economic life of the leased property,  the residual value of the leased property
and the present value of minimum lease  payments to be received from the tenant.
In  addition,  management  assumes  that all  payments to be received  under its
leases  are  collectible.   Changes  in  management's  estimates  or  assumption
regarding  collectibility  of  lease  payments  could  result  in  a  change  in
accounting for the lease at the inception of the lease.

     Acquisition  fees and  miscellaneous  acquisition  costs that are  directly
identifiable with Properties that are probable of being acquired are capitalized
and included in other assets. Upon purchase of a Property or the entrance into a
joint  venture,  the fees and costs  that are  directly  identifiable  with that
Property or  investment  are  reclassified  to land,  building and  equipment or
allocated to the Company's investment in the joint venture, respectively. In the
event a Property is not acquired or is no longer probable of being acquired, any
costs  directly  related to the  Property  or joint  venture  will be charged to
expense.

     The Company accounts for its unconsolidated joint ventures using the equity
method of accounting. Under generally accepted accounting principles, the equity
method of accounting is appropriate for  subsidiaries  that that partially owned
by the Company,  but for which  operations of the investee are controlled by, or
shared with, an unrelated third party. Currently, the Hilton Partnership and the
Interstate Partnership are more than 50 percent owned by the Company but are not
consolidated because control is shared with Hilton and Interstate, respectively.
Changes in  accounting  regulations,  if such changes  occur,  could require the
consolidated of these joint ventures. If consolidation was required, the amounts
reported for net income and total stockholder's equity would be the same as what
would be reported under the equity method of accounting.

<PAGE>

     In accordance with Staff Accounting  Bulletin No. 101, the Company recorded
FF&E reserve revenue for cash transferred by third party tenants into restricted
FF&E Accounts during the years ended December 31, 2001, 2000 and 1999. The funds
in the FF&E Accounts are maintained in a restricted cash account that the tenant
is expected  to use for  purposes  specified  in the lease.  Cash is  restricted
because the funds may only be expended  with regard to the specific  property to
which the funds  related  during the  period of the lease.  The cash in the FF&E
Accounts,  any interest earned  thereon,  and any property  purchases  therewith
remain,  during and after the term of the lease, the property of the Company. To
the extent that funds in the FF&E  Accounts  are  insufficient  to maintain  the
Properties  in  good  working  conditions  and  repair,  the  Company  may  make
expenditures,  in which case annual  minimum  rent is  increased.  FF&E  reserve
revenue is not generated from hotels  operated by the Company using  independent
third  party  managers,  however,  cash is  restricted  by the  Company  for the
purposes stated above. As the Company's  business shifts from leasing Properties
to  third  parties  to  operating  Properties,  using  independent  third  party
managers, the amount of FF&E reserve revenue is expected to decline.

     Management   reviews  its  Properties  and  investments  in  unconsolidated
subsidiaries  periodically (no less than once per year) for impairment  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.  If an  impairment  is  indicated,  the assets are
adjusted to their fair value.


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

Comparison of year ended December 31, 2001 to year ended December 31, 2000

     As of December 31, 2001,  the Company  owned  interests 43  Properties  (35
directly owned and eight held indirectly through joint ventures),  consisting of
land,  buildings  and  equipment,  including  three  Properties  on which  hotel
Properties are being constructed, an interest the Desert Ridge Joint Venture, an
interest in the Waikiki Partnership, an interest in the Hilton Partnership,  and
an interest in the  Interstate  Partnership,  and had entered into  "triple-net"
lease  agreements or operates these  Properties  using  independent  third party
managers.

     During the years  ended  December  31, 2001 and 2000,  the  Company  earned
rental income from operating  leases,  contingent rental income and FF&E reserve
revenue of $66,817,430  and  $26,681,838,  respectively.  The increase in rental
income,  contingent  rental income and FF&E reserve income is due to the Company
directly  owning 35  Properties  during the year ended  December  31,  2001,  as
compared to 29 Properties  during the year ended December 31, 2000. In addition,
several of the  Properties,  which  were owned for only a portion of 2000,  were
owned for a full year in 2001.  Because  additional  Property  acquisitions  are
expected to occur, revenues for the year ended December 31, 2001, represent only
a portion of revenues  which the Company is expected to earn in future  periods.
However,  due to the fact that  management  expects  that a majority  of the new
acquisitions  will be  operated  by the Company  using  independent  third party
managers and the Company  plans to take  assignment of certain  existing  leases
from unrelated tenants,  rental income from operating leases,  contingent rental
income,  and FF&E  reserve  revenues are not expected to continue to increase at
the same rate in the  future,  but instead  will be replaced by hotel  operating
revenues.

     During the years  ended  December  31, 2001 and 2000,  the  Company  earned
$3,494,238 and $6,637,318,  respectively, in interest income from investments in
money market accounts and other short-term  highly liquid  investments and other
income. The decrease in interest income was primarily attributable to a decrease
in the average dollar amount invested in short-term,  liquid  investments during
the year 2001 as compared with 2000. As net offering proceeds from the Company's
offering  are  invested  in  Properties  and used to make  Mortgage  Loans,  the
percentage of the Company's total revenues from interest income from investments
in money market  accounts or other short term,  highly  liquid,  investments  is
expected to remain constant or decrease.

     Four of the Company's tenants  contributed  approximately 70 percent and 75
percent of total rental  income for the years ended  December 31, 2001 and 2000,
respectively.  In addition, a significant portion of the Company's rental income
was earned from properties  operating as Marriott(R)  brand chains for the years
ended December 31, 2001 and 2000.  Although the Company  acquires  Properties in
various  states and  regions,  carefully  screens its tenants in order to reduce
risks of default  and has  acquired  four Hilton  Properties  through the Hilton
Partnership,  failure of these  lessees or the  Marriott(R)  brand  chains could
significantly  impact  the  results  of  operations  of  the  Company.  However,
management  believes  that  the risk of such a  default  is  reduced  due to the
initial and continuing due diligence  procedures performed by the Company. It is
expected that the percentage of total rental income contributed by these lessees
will  decrease as  additional  Properties  are acquired and 2002 and  subsequent
years.

<PAGE>

     Operating  expenses,   including  interest  expense  and  depreciation  and
amortization  expense,  were  $43,892,956  and  $13,525,893  for the years ended
December  31,  2001 and  2000,  respectively  (61.4  percent  and 37.5  percent,
respectively,  of total revenues). The increase in operating expenses during the
year ended  December  31,  2001,  as  compared  to 2000,  was as a result of the
Company  directly owning 29 Properties  during 2000 compared to 35 Properties in
2001.  Additionally,  interest  expense  increased from  $2,383,449 for the year
ended December 31, 2000 to $14,653,011  for the year ended December 31, 2001, as
a result of the Company securing additional permanent financing and draws on the
Revolving LOC in 2001.

     Equity in loss of  unconsolidated  subsidiaries was $7,092,674 and $386,627
for the years ended  December 31, 2001 and 2000,  respectively.  The increase in
the loss from  unconsolidated  subsidiaries  during the year ended  December 31,
2001 was due primarily to  pre-opening  and marketing  expenses  incurred by the
Desert Ridge Joint Venture during the year ended December 31, 2001 and operating
losses at the  Waikiki  Property  which  occurred  as a result of a  significant
portion  of the  Waikiki  Property  being  closed  for  renovations.  Additional
pre-opening  and marketing  expenses are expected to be incurred  during 2002 by
the Desert Ridge Joint Venture in  preparation  for the expected  opening of the
Desert Ridge Property in January 2003.  Operating losses at the Waikiki Property
will likely continue until expected  renovations are completed and international
tourism rebounds from the events of September 11, 2001.

     Pursuant to the  Advisory  Agreement,  the Advisor is required to reimburse
the Company the amount by which the total operating expenses paid or incurred by
the Company exceed in any four consecutive  fiscal quarters,  the greater of two
percent of average  invested  assets or 25 percent of net income  (the  "Expense
Cap").  For the years ended December 31, 2001 and 2000, the Company's  operating
expenses did not exceed the Expense Cap.

     The dollar  amount of  operating  expenses  is  expected to increase as the
Company acquires additional  Properties and invests in Mortgage Loans.  However,
general operating and administrative  expenses as a percentage of total revenues
is  expected  to decrease as the  Company  acquires  additional  Properties  and
invests in Mortgage Loans.

Comparison of year ended December 31, 2000 to year ended December 31, 1999

     As of  December  31,  2000,  the  Company  directly  owned  29  Properties,
consisting of land,  buildings and equipment,  including two Properties on which
hotel Properties are being constructed,  and had entered into "triple-net" lease
agreements relating to these Properties.

     During the years  ended  December  31, 2000 and 1999,  the  Company  earned
rental income from operating  leases,  contingent rental income and FF&E Reserve
revenue of  $26,681,838  and  $4,230,995,  respectively.  The increase in rental
income,  contingent rental income and FF&E Reserve income was due to the Company
owning 29 Properties  during the year ended December 31, 2000, as compared to 11
Properties during the year ended December 31, 1999. In addition,  several of the
Properties,  which were owned for only a portion of 1999,  were owned for a full
year in 2000.

     In  October  2000,  the  Company  acquired  a  majority  interest  in Hotel
Investors,  as described above in "Property  Acquisitions  and  Investments." In
connection with its investment,  the Company  recognized  $2,780,063 in dividend
income  and  $386,627  in equity in loss  after  deduction  of  preferred  stock
dividends,  resulting in net earnings of $2,393,436 prior to consolidating Hotel
Investors,  for the year ended December 31, 2000. During the year ended December
31, 1999, the Company  recognized  $2,753,506 in dividend income and $778,466 in
equity in loss after  deduction of preferred stock  dividends,  resulting in net
earnings attributable to this investment of $1,975,040.

<PAGE>

     During the years  ended  December  31, 2000 and 1999,  the  Company  earned
$6,637,318 and $3,693,004,  respectively, in interest income from investments in
money market accounts and other short-term,  highly liquid investments and other
income.  The  increase  in  interest  income was  primarily  attributable  to an
increase in the dollar amount invested in short-term liquid  investments and the
period of time the funds were invested as compared to 1999.

     Operating  expenses,   including  interest  expense  and  depreciation  and
amortization  expense,  were  $13,525,893  and  $2,318,717  for the years  ended
December  31,  2000 and  1999,  respectively  (37.5  percent  and 21.7  percent,
respectively,  of total revenues). The increase in operating expenses during the
year ended  December  31,  2000,  as  compared  to 1999,  was as a result of the
Company  owning 29  Properties  during 2000  compared to 11  Properties in 1999.
Additionally,  interest  expense  increased  from  $248,094  for the year  ended
December 31, 1999 to  $2,383,449  for the year ended  December  31,  2000,  as a
result of the Company securing permanent financing in 2000.

     For the years ended  December 31, 2000 and 1999,  the  Company's  operating
expenses did not exceed the Expense Cap.

Other

     Management  considers  funds from  operations  ("FFO") to be an  indicative
measure of operating  performance due to the significant  effect of depreciation
on real estate assets on net earnings. The following information is presented to
help stockholders better understand the Company's  financial  performance and to
compare  the  Company  to other  REITs.  However,  FFO as  presented  may not be
comparable  to  similarly  titled  measures  reported by other  companies.  This
information  should not be considered an alternative to net earnings,  cash flow
generated  from  operations,  or any other  operating or  liquidity  performance
measure  prescribed by accounting  principles  generally  accepted in the United
States.

<PAGE>

     The  following  is a  reconciliation  of net  earnings to FFO for the years
ended December 31, 2001 and 2000:

<TABLE>
<S><C>
                                                                           Year Ended
                                                                          December 31,
                                                                    2001                2000
                                                             -----------------    ---------------

               Net earnings                                       $19,328,376        $20,670,462
                  Adjustments:
                     Effect of unconsolidated subsidiaries          2,701,993          1,824,124
                     Effect of minority interest                     (940,654)          (271,674)
                     Amortization of real estate assets               534,851            131,490
                     Depreciation of real estate assets            19,213,846          7,698,966
                                                             -----------------    ---------------

               FFO                                                $40,838,412        $30,053,368
                                                             =================    ===============

               Weighted average shares:

                     Basic                                         64,457,643         38,698,066
                                                             =================    ===============
                     Diluted                                       64,457,643         45,885,742
                                                             =================    ===============
</TABLE>

     The Company  has made an  election  under  Section  856(c) of the  Internal
Revenue Code of 1986, as amended (the  "Code"),  to be taxed as a REIT under the
Code  beginning  with its taxable year ended  December 31, 1997. As a REIT,  for
federal  income  tax  purposes,  the  Company  generally  will not be subject to
federal income tax on income that it distributes to its  stockholders,  with the
exception of TRS entities  which are subject to federal and state income  taxes.
As of the year ended December 31, 2001, no significant  income had been realized
by the Company's TRS  entities.  Accordingly,  no provision for federal or state
income  taxes  has  been  made  in  the  accompanying   consolidated   financial
statements.  Notwithstanding the Company's qualification for taxation as a REIT,
the Company is subject to certain state taxes on its income and  Properties.  If
the Company  fails to qualify as a REIT in any taxable  year, it will be subject
to federal  income tax on all of its taxable income at regular  corporate  rates
and will not be permitted to qualify for treatment as a REIT for federal  income
tax purposes for four years  following  the year during which  qualification  is
lost. Such an event could materially affect the Company's net earnings. However,
the Company  believes  that it is organized  and operates in such a manner as to
qualify for treatment as a REIT for the years ended December 31, 2001,  2000 and
1999. In addition,  the Company intends to continue to operate the Company so as
to remain qualified as a REIT for federal income tax purposes.

     The attacks on the World Trade  Center and the  Pentagon on  September  11,
2001  adversely  impacted  economic  activity  during  the weeks  following  the
attacks,  particularly affecting the travel and lodging industries.  Although it
appears that a recovery is occurring in the business and leisure  travel sector,
the  business of the  Company's  tenants and  managers may still be affected and
hotel occupancy and revenues and, as a result,  the Company's revenues may still
remain at reduced levels to the extent that rents and other revenues received by
the  Company  are  calculated  as  a  percentage  of  hotel  revenues.  Further,
Properties that the Company operates using independent third party managers, may
continue to be impacted by a reduction in hotel operating revenues. In addition,
if the reduction in travel is protracted,  the ability of the Company's  tenants
to make rental payments may be affected.

     From time to time the Company may be exposed to litigation arising from the
operation of its business. Management does not believe that resolutions of these
matters will have a material adverse effect on the Company's financial condition
or results of operations.

     Management  of the  Company  currently  knows of no trends that will have a
material  adverse  effect  on  liquidity,   capital   resources  or  results  of
operations.

<PAGE>

Item 8.   Financial Statements and Supplementary Data

     The following table presents selected  unaudited  quarterly  financial data
for each full quarter during the years ended December 31, 2001 and 2000:

<TABLE>
<S><C>

2001 Quarter                    First           Second           Third            Fourth            Year
---------------------      --------------   --------------   --------------   --------------   --------------

Revenue                    $  16,713,199    $  18,202,364    $  19,029,243    $  17,517,738    $  71,462,544
Net income                     5,529,222        7,058,222        3,890,425        2,850,507       19,328,376
Earning per share:
  Basic                             0.11             0.12             0.06             0.01             0.30
  Diluted                           0.11             0.12             0.06             0.01             0.30

2000 Quarter                   First            Second           Third            Fourth            Year
----------------------     --------------   --------------   --------------   --------------   --------------

Revenue                    $   5,581,157    $   6,690,682    $   8,540,296      $15,287,084    $  36,099,219
Net income                     3,945,084        4,642,940        5,251,624        6,830,814       20,670,462
Earning per share:
  Basic                             0.13             0.13             0.13             0.14             0.53
  Diluted                           0.12             0.13             0.13             0.15             0.53

</TABLE>
<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES


                                    CONTENTS



                                                                    Page


Report of Independent Certified Public Accountants                   23

Financial Statements:

  Consolidated Balance Sheets                                        24

  Consolidated Statements of Earnings                                25

  Consolidated Statements of Stockholders' Equity                    26

  Consolidated Statements of Cash Flows                              29

  Notes to Consolidated Financial Statements                         32





<PAGE>




               Report of Independent Certified Public Accountants
               --------------------------------------------------


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



In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under  Item  14(a)(1)  on page 47  present  fairly,  in all  material
respects, the financial position of CNL Hospitality Properties, Inc. (a Maryland
corporation) and its subsidiaries at December 31, 2001 and 2000, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the  financial  statement  schedule  listed in the index  appearing  under  Item
14(a)(2) on page 48 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
schedule are the responsibility of the Company's management;  our responsibility
is to  express  an  opinion  on these  financial  statements  and the  financial
statement  schedule  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 1 to the consolidated  financial statements,  on January 1,
2001,  the Company  changed its method of accounting  for  derivative  financial
instruments.



/s/ PRICEWATERHOUSECOOPERS  LLP

Orlando, Florida
January 25, 2002, except as to Note 13 for which the date is February 22, 2002


<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

 <TABLE>
<S><C>
                                                                                        December 31,
                                                                                 2001                2000
                                                                            ---------------     --------------
                                 ASSETS
    Land, buildings and equipment, less accumulated depreciation of
       $29,182,487 and $9,433,790, respectively                             $  699,239,959      $ 581,528,928
    Investment in unconsolidated subsidiaries                                  135,271,048         10,174,209
    Cash and cash equivalents                                                   44,825,052         50,197,854
    Restricted cash                                                              8,493,446          3,263,712
    Receivables                                                                  1,266,862          1,009,421
    Due from related parties                                                     1,410,900                 --
    Prepaid expenses and other assets                                            6,796,398          5,811,304
    Loan costs, less accumulated amortization of $980,303 and
       $152,621, respectively                                                    4,102,822          1,976,630
                                                                            ---------------     --------------
                                                                            $  901,406,487      $ 653,962,058
                                                                            ===============     ==============

                       LIABILITIES AND STOCKHOLDERS' EQUITY
    Mortgages payable and accrued interest                                  $  168,883,882      $ 170,055,326
    Other notes payable                                                         57,571,680         19,581,950
    Line of credit                                                               7,500,000                 --
    Accounts payable and accrued expenses                                        8,269,796          2,126,365
    Distributions payable                                                           87,685          1,089,394
    Due to related parties                                                       1,026,225          1,359,417
    Security deposits                                                           19,454,611         15,418,626
    Rents paid in advance                                                          735,924          2,271,836
                                                                            ---------------     --------------
           Total liabilities                                                   263,529,803        211,902,914
                                                                            ---------------     --------------

    Commitments and contingencies

    Minority interest                                                                   --         22,770,146
                                                                            ---------------     --------------
    Stockholders' equity:
        Preferred stock, without par value.
           Authorized and unissued 3,000,000 shares                                     --                 --
        Excess shares, $.01 par value per share.
           Authorized and unissued 63,000,000 shares                                    --                 --
        Common stock, $.01 par value per share. Authorized
           150,000,000 shares, issued 77,891,066 and
           49,284,203 shares, respectively; outstanding 77,357,532
           and 49,002,042 shares, respectively                                     773,575            490,020
        Capital in excess of par value                                         681,152,253        432,403,246
        Accumulated distributions in excess of net earnings                    (39,959,120)       (10,877,836)
        Accumulated other comprehensive loss                                    (1,189,396)                --
        Minority  interest  distributions  in excess of contributions
           and accumulated earnings                                             (2,900,628)        (2,726,432)
                                                                            ---------------     --------------
           Total stockholders' equity                                          637,876,684        419,288,998
                                                                            ---------------     --------------
                                                                            $  901,406,487    $   653,962,058
                                                                            ===============     ==============
</TABLE>
                 See accompanying notes to consolidated financial statements.


<PAGE>


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


<TABLE>
<S><C>


                                                                   Year Ended December 31,
                                                        2001                2000              1999
                                                   --------------     --------------     --------------
      Revenues:
          Rental income from
           operating leases                        $  61,030,551      $  24,172,889      $   3,910,639
          FF&E reserve income                          5,786,879          2,508,949            320,356
          Dividend income                                     --          2,780,063          2,753,506
          Hotel revenue                                1,150,876                 --                 --
          Interest and other income                    3,494,238          6,637,318          3,693,004
                                                   --------------     --------------     --------------
                                                      71,462,544         36,099,219         10,677,505
                                                   --------------     --------------     --------------
      Expenses:
          Interest and loan cost amortization         14,653,011          2,383,449            248,094
          General operating and administrative         3,465,568          1,565,664            569,583
          Asset management fees to
             related parties                           3,326,688          1,335,488            106,788
          Hotel expense                                1,515,808                 --                 --
          Taxes                                        1,183,184            410,836            126,384
          Depreciation and amortization               19,748,697          7,830,456          1,267,868
                                                   --------------     --------------     --------------
                                                      43,892,956         13,525,893          2,318,717
                                                   --------------     --------------     --------------
      Earnings Before Equity in Loss of
          Unconsolidated Subsidiaries and
          Minority Interest                           27,569,588         22,573,326          8,358,788

      Equity in Loss of Unconsolidated
          Subsidiaries                                (7,092,674)          (386,627)          (778,466)

      Minority Interest                               (1,148,538)        (1,516,237)           (64,334)
                                                   --------------     --------------     --------------

      Net Earnings                                 $  19,328,376      $  20,670,462      $   7,515,988
                                                   ==============     ==============     ==============

      Earnings Per Share of Common Stock:
          Basic                                    $        0.30      $        0.53      $        0.47
                                                   ==============     ==============     ==============
          Diluted                                  $        0.30      $        0.53      $        0.45
                                                   ==============     ==============     ==============
      Weighted Average Number of Shares of
          Common Stock Outstanding:
          Basic                                       64,457,643         38,698,066         15,890,212
                                                   ==============     ==============     ==============
          Diluted                                     64,457,643         45,885,742         21,437,859
                                                   ==============     ==============     ==============

</TABLE>


                    See accompanying notes to consolidated financial statements.

<PAGE>






                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 2001, 2000 and 1999



<TABLE>
<S><C>

                                                                                                 Minority
                                                                                                 interest
                                       Common Stock                            Accumulated    distributions
                              ------------------------------    Capital in     distributions    in excess of
                                Number of          Par          excess of     in excess of      contr. and
                                  shares          value         par value     net earnings    accum.earnings      Total
                              --------------  --------------  --------------  --------------  --------------  --------------

Balance at December 31, 1998      4,321,908   $      43,219   $  37,289,402   $    (216,130)  $          --   $  37,116,491

Subscriptions received for
  common stock through
  public offerings and
  distribution reinvestment
  plan                           24,593,891         245,939     245,692,968              --              --     245,938,907

Retirement of common stock          (12,885)           (129)       (118,413)             --              --        (118,542)

Stock issuance costs                     --              --     (26,632,124)             --              --     (26,632,124)

Net earnings                             --              --              --       7,515,988              --       7,515,988

Distributions declared and
  paid ($.72 per share)                  --              --              --     (10,765,881)             --     (10,765,881)
                              --------------  --------------  --------------  ------------------------------  --------------

Balance at December 31, 1999     28,902,914   $     289,029   $ 256,231,833   $  (3,466,023)  $          --   $ 253,054,839
                              ==============  ==============  ==============  ============== ===============  ==============

</TABLE>
                  See accompanying notes to consolidated financial statements.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999


<TABLE>
<S><C>

                                                                                                 Minority
                                                                                                 interest
                                       Common Stock                            Accumulated    distributions
                              ------------------------------    Capital in     distributions    in excess of
                                Number of          Par          excess of     in excess of      contr. and
                                  shares          value         par value     net earnings    accum.earnings      Total
                              --------------  --------------  --------------  --------------  --------------  --------------

Balance at December 31, 1999     28,902,914   $     289,029   $ 256,231,833   $  (3,466,023)  $          --   $ 253,054,839


Subscriptions received for
  common stock through
  public offering and
  distribution reinvestment
  plan                           20,368,404         203,684     203,480,360              --              --     203,684,044


Retirement of common stock         (269,276)         (2,693)     (2,500,791)             --              --      (2,503,484)

Stock issuance costs                     --              --     (24,808,156)             --              --     (24,808,156)

Net earnings                             --              --              --      20,670,462              --      20,670,462

Minority interest distribu-
  tions in excess of
  contributions and
  accumulated earnings                   --              --              --              --      (2,726,432)     (2,726,432)

Distributions declared and
  paid ($.74 per share)                   --              --             --     (28,082,275)             --     (28,082,275)
                              --------------  --------------  ------------------------------  --------------  --------------
Balance at December 31, 2000     49,002,042   $     490,020   $ 432,403,246   $ (10,877,836)  $  (2,726,432)  $ 419,288,998
                              ==============  ============== ===============  ==============  ============== ===============


</TABLE>


          See accompanying notes to consolidated financial statements.



<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999



<TABLE>
<S><C>

                                                                                          Minority
                                                                                          interest
                        Common Stock                       Accumulated    Accumulated   distributions
              ----------------------------    Capital in   distributions      other      in excess of
                 Number of        Par         excess of    in excess of  comprehensive   contr. and                   Comprehensive
                  shares         value        par value    net earnings       loss      accum.earnings     Total          income
              -------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------

 Balance at
 December 31,
 2000            49,002,042  $    490,020  $ 432,403,246  $ (10,877,836) $          --  $   2,726,432  $ 419,288,998  $          --

 Subscrip-
 tions
 received for
 common stock
 through
 public
 offerings
 and
 distribution
 reinvestment
 plan            28,606,863       286,069     285,782,557             --             --             --    286,068,626             --

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

 Stock
 issuance
 costs                   --            --    (34,723,430)            --             --             --    (34,723,430)            --

 Net earnings            --            --             --     19,328,376             --             --     19,328,376     19,328,376

 Minority
 interest
 distribu-
 tions in
 excess of
 contribu-
 tions and
 accumulated
 earnings                --            --             --             --             --       (174,196)      (174,196)            --

 Current
 period
 adjustments
 to recognize
 value of
 cash flow
 hedges of
 equity
 investees               --            --             --             --     (1,189,396)            --     (1,189,396)    (1,189,396)
                                                                                                                      --------------
 Total
 comrehen-
 sive income             --            --             --             --             --             --             --  $  18,138,980
                                                                                                                      ==============
 Distribu-
 tions
 declared
 and paid
 ($.77 per
 share)                  --            --             --    (48,409,660)            --             --    (48,409,660)
              -------------- ------------- -------------- -------------- -------------- -------------- --------------
 Balance at
 December 31,
 2001            77,357,532  $    773,575  $ 681,152,253  $ (39,959,120) $  (1,189,396) $  (2,900,628) $ 637,876,684
              ============== ============= ============== ============== ============== ============== ==============

 </TABLE>

     See accompanying notes to consolidated financial statements.

<PAGE>



                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<S><C>
                                                                      Years Ended December 31,
                                                              2001             2000              1999
                                                          -------------    -------------     ------------

Cash flows from operating activities:
   Net earnings                                          $  19,328,376    $  20,670,462     $  7,515,988
      to net cash provided by operating
      activities:
        Depreciation                                        19,748,697        7,830,456        1,230,499
        Amortization                                         1,181,580           65,994          130,769
        Distribution from investment in
          unconsolidated subsidiaries net of
          equity in earnings/losses                          9,277,923        1,123,687        1,478,111
        Minority interest                                    1,148,538        1,516,237           64,334
        Changes in operating assets and
          liabilities:
            Dividends receivable                                    --        1,215,993       (1,215,993)
            Receivables                                       (257,441)        (812,688)         (67,352)
            Interest payable                                        --               --          (66,547)
            Prepaid expenses                                   (23,521)          19,975          (31,774)
            Accrued rental income                               (7,803)        (124,329)         (35,239)
            Accounts payable and accrued
              expenses                                         374,734          860,676           (2,191)
            Due to related parties -
              operating expenses                              (333,192)         360,696           12,923
            Security deposits                                4,035,985       10,376,573        3,624,554
            Rents paid in advance                           (1,535,912)         546,829          252,079
                                                          -------------    -------------     ------------

              Net cash provided by
                 operating  activities                      52,937,964       43,650,561       12,890,161
                                                          -------------    -------------     ------------

Cash flows from investing activities:
    Additions to land, buildings and
        equipment on operating leases                     (117,233,515)    (310,711,912)     (85,089,887)
    Investment in unconsolidated
        subsidiaries                                      (129,032,824)     (10,174,209)     (39,879,638)
    Acquisition of additional interest in
        Hotel Investors, net of Hotel
        Investors' cash                                    (32,884,119)     (17,872,573)              --
    Increase (decrease) in certificate of
        deposit                                                     --        5,000,000               --
    Increase in restricted cash                             (5,229,734)      (2,988,082)        (193,223)
    Increase (decrease) in other assets                    (11,610,690)       2,510,090       (5,068,727)
                                                          -------------    -------------     ------------
              Net cash used in investing
                 activities                               (295,990,882)    (334,236,686)    (130,231,475)
                                                          -------------    -------------     ------------
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED


<TABLE>
<S><C>
                                                                      Years Ended December 31,
                                                              2001              2000             1999
                                                          -------------    -------------    -------------

Cash flows from financing activities:
    Proceeds from borrowings on line of
     credit                                                  7,500,000               --               --
    Repayment of borrowings on line of
     credit                                                         --               --       (9,600,000)
    Payment of loan costs                                   (2,953,874)      (1,342,713)         (47,334)
    Proceeds from mortgage loans and
     other notes payable                                    37,989,731      102,081,950               --
    Principal payments on mortgage loans                    (1,171,444)              --               --
    Contributions from minority interest
     of consolidated subsidiaries                                   --               --        7,150,000
    Subscriptions received from
     stockholders                                          286,068,626      203,684,044      245,938,907
    Distributions to stockholders                          (48,409,660)     (28,082,275)     (10,765,881)
    Due from related parties - offering
     expenses                                               (1,410,900)              --               --
    Distributions to minority interest                      (2,896,299)     (10,217,828)              --
    Retirement of common stock                              (2,312,634)      (2,503,484)        (118,542)
    Payment of stock issuance costs                        (34,723,430)     (24,808,156)     (26,472,318)
                                                          -------------    -------------     ------------

     Net cash provided by financing
        activities                                         237,680,116      238,811,538      206,084,832
                                                          -------------    -------------     ------------

Net increase (decrease) in cash and cash
   equivalents                                              (5,372,802)     (51,774,587)      88,743,518

Cash and cash equivalents at beginning of
   year                                                     50,197,854      101,972,441       13,228,923
                                                          -------------    -------------     ------------

Cash and cash equivalents at end of year                 $  44,825,052    $  50,197,854     $101,972,441
                                                          =============    =============     ============

</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<S><C>

                                                                      Years Ended December 31,
                                                             2001               2000             1999
                                                          -------------    -------------     ------------

Supplemental disclosures of cash flow information:

     Cash paid during the year for interest              $  15,248,479    $   1,802,451     $    240,994
                                                          =============    =============     ============
Supplemental schedule of non-cash investing activities:

    Amounts incurred but not paid for
        construction in progress                         $   6,601,248    $     832,551     $         --
                                                          =============    =============     ============
    Allocation of acquisition fees included
        in other assets to investment
        in unconsolidated subsidiaries and
        land, building, and equipment on
        operating leases                                 $  10,656,920    $  16,182,043     $  4,470,836
                                                          =============    =============     ============

Supplemental schedule of non-cash financing activities:

     Non-cash reduction in TIF Note                      $          --    $     315,391     $         --

                                                          =============    =============     ============

     Distributions declared not paid to
        minority interest at year end                    $      87,685     $  1,089,394     $         --
                                                          =============    =============     ============

</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2001, 2000 and 1999


1.   Significant Accounting Policies:
     -------------------------------

     Organization and Nature of Business - CNL Hospitality Properties,  Inc. was
     wasorganized  pursuant  to the laws of the  State of  Maryland  on June 12,
     1996.  CNL  Hospitality  GP Corp.  and CNL  Hospitality LP Corp. are wholly
     owned subsidiaries of CNL Hospitality  Properties,  Inc., each of which was
     organized  in  Delaware in June 1998.  CNL  Hospitality  Partners,  LP is a
     Delaware limited partnership  ("Hospitality Partners") formed in June 1998.
     CNL  Hospitality GP Corp. and CNL  Hospitality LP Corp. are the general and
     limited partner,  respectively, of CNL Hospitality Partners, LP. Properties
     acquired are generally expected to be held by Hospitality  Partners and, as
     a result, are owned by CNL Hospitality Properties, Inc. through Hospitality
     Partners.  Various  other  wholly owned  subsidiaries  have been formed for
     purposes of acquiring or developing hotel  properties.  The terms "Company"
     include, unless the context otherwise requires, CNL Hospitality Properties,
     Inc.,  CNL  Hospitality  Partners,   LP,  CNL  Hospitality  GP  Corp.,  CNL
     Hospitality LP Corp. and each of their  subsidiaries.  The Company operates
     for  federal  income tax  purposes  as a real  estate  investment  trust (a
     "REIT").

     The Company was formed primarily to acquire  properties (the  "Properties")
     located across the United States to be leased generally,  five to 20 years,
     plus  renewal  options  generally  for up to an  additional  20  years on a
     "triple-net"  basis, which means that the tenants generally are responsible
     for repairs,  maintenance,  property taxes, utilities and insurance.  Third
     party  tenants are  operators of selected  national  and  regional  limited
     service,  extended stay and full service hotel chains (the "Hotel Chains").
     In 2001, the Company began operating  other  Properties  using  independent
     third party managers,  as permitted by the REIT  Modernization  Act of 1999
     ("RMA").  In November 1999, Congress passed RMA, which allows a REIT to own
     up to 100 percent of the stock of a Taxable REIT Subsidiary  ("TRS"). A TRS
     can provide services to REIT tenants and others without  disqualifying  the
     rents that a REIT  receives  from its tenants  from being  "rents from real
     property"  under  federal  income tax law. A TRS may not  operate or manage
     lodging facilities, but it may lease lodging facilities from its affiliated
     REIT, at market rates,  as long as an independent  contractor  operates and
     manages the lodging  facilities.  The  provisions of the RMA were effective
     January 1, 2001. The Company,  consistent with the requirements of the RMA,
     formed  nine   subsidiaries  (one  consolidated  and  eight  owned  through
     unconsolidated  joint  ventures),  which made  elections to be treated as a
     TRS.

     The Company has retained  CNL  Hospitality  Corp.  (the  "Advisor")  as its
     advisor to provide  management,  acquisition,  advisory and  administrative
     services.

     Principles  of  Consolidation  - The  accompanying  consolidated  financial
     statements  include the accounts of CNL Hospitality  Properties,  Inc., and
     its wholly  owned and majority  controlled  subsidiaries.  All  significant
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation.  Interests of  unaffiliated  third  parties are reflected as
     minority  interest for less than 100 percent owned and majority  controlled
     entities.

     Lease Accounting - Land, buildings and equipment for certain Properties are
     leased to unrelated  third  parties on a  "triple-net"  basis,  whereby the
     tenant is generally  responsible for all operating expenses relating to the
     Property, including property taxes, insurance, maintenance and repairs.

     The Property leases are accounted for using the operating method. Under the
     operating  method,  revenue is recognized as rental  payments are due. When
     scheduled  rentals 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  commencing  on the date the  Property  is placed  in  service.
     Accrued rental income,  included in other assets,  represents the aggregate
     amount of income recognized on a straight-line basis in excess of scheduled
     rental payments to date.

     The  Company's  leases also  require  the  establishment  of separate  bank
     accounts for the  replacement  of  furniture,  fixtures,  and equipment and
     routine  capital items ("FF&E  Accounts").  Deposits into the FF&E Accounts
     established  for the Properties  leased to third party tenants are owned by
     the  Company  and have been  reported as  additional  rent  ("FF&E  Reserve
     Revenue")  for the years ended  December 31, 2001,  2000 and 1999.
<PAGE>



                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2001, 2000 and 1999

1.   Significant Accounting Policies - Continued:
     -------------------------------------------

     For the years ended  December 31, 2001,  2000 and 1999,  revenues  from the
     FF&E  Reserve  Revenue  totaled  $5,786,879,   $2,508,949,   and  $320,356,
     respectively.  For these  Properties,  the funds in the FF&E  Accounts  are
     maintained  in a restricted  cash account,  funded by the tenant,  that the
     tenant is  expected to use for  purposes  specified  in the lease.  Cash is
     restricted  because  the  funds  may only be  expended  with  regard to the
     specific  property  to which the funds  related  during  the  period of the
     lease. The cash in the FF&E Accounts , any interest earned thereon, and any
     property  purchases  therewith  remain,  during  and  after the term of the
     lease,  the property of the  Company.  To the extent that funds in the FF&E
     Accounts  are  insufficient  to maintain  the  Properties  in good  working
     conditions  and repair,  the Company may make  expenditures,  in which case
     annual minimum rent is increased.

     Land, Buildings and Equipment - Land,  building,  and equipment is recorded
     at  historical  cost.  The Company's  policy is to  capitalize  the cost of
     improvements   and  betterments  and  any  interest   incurred  during  the
     construction or renovation periods for hotel construction  projects.  Costs
     of repairs and maintenance are expensed as incurred. During the years ended
     December 31, 2001 and 2000,  $1,552,422 and $52,780 of interest expense was
     capitalized, respectively.

     Buildings and equipment are  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,  plus any accrued  rental  income,  will be removed  from the
     accounts and any gain or loss from sale will be reflected as income.

     Impairment of Long-Lived  Assets - Management  reviews its  Properties  and
     investments in unconsolidated  subsidiaries periodically (no less than once
     per year)  for  impairment  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. If an impairment is indicated, the assets are adjusted
     to their fair value.

     Investment in  Unconsolidated  Subsidiaries - Investments in unconsolidated
     subsidiaries  are accounted for under the equity method of accounting since
     the decision  making  authority and control is shared.  All major decisions
     are  subject to  approval  of both  parties  concerning  all aspects of the
     entities'  operations.  In the event of a  disagreement  among the parties,
     binding arbitration is used to settle  disagreements.  At December 31, 2001
     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 was $15,340,381 due to acquisition fees and expenses which
     have been  allocated to the Company's  investment.  These amounts are being
     amortized  over  the  estimated   lives  of  the  buildings  and  equipment
     commencing when the hotel 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  (some of which  are  backed by
     government  securities).  Cash  equivalents are stated at cost plus accrued
     interest,  which  approximates  market value.  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  hotel
     Properties.  These  amounts have been  separately  classified as restricted
     cash in the accompanying consolidated balance sheets.

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


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2001, 2000 and 1999

1.   Significant Accounting Policies - Continued:
     -------------------------------------------

     Income  Taxes - The  Company  has  made an  election  to be taxed as a real
     estate  investment  trust  (REIT)  under  Sections  856  through 860 of the
     Internal  Revenue Code of 1986, as amended,  and related  regulations.  The
     Company  generally will not be subject to corporate income taxes on amounts
     distributed to  stockholders,  providing it distributes at least 90 percent
     of its REIT  taxable  income  and  meets  certain  other  requirements  for
     qualifying as a REIT,  with the exception of TRS entities which are subject
     to federal and state income taxes.  As of the year ended December 31, 2001,
     no significant  income had been realized by the Company's  wholly owned TRS
     entities.  Accordingly,  no provision for federal or state income taxes has
     been  made  in  the   accompanying   consolidated   financial   statements.
     Notwithstanding  the Company's  qualification  for taxation as a REIT,  the
     Company is subject to certain state taxes on its income and Properties.

     Earnings Per Share - Basic  earnings per share ("EPS") 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 2001  presentation.
     These  reclassifications  had no  effect  on  stockholders'  equity  or net
     earnings.

     Recent Accounting  Pronouncements - In July 2001, the Financial  Accounting
     Standards Board ("FASB") issued Statement of Financial Accounting Standards
     No. 141. FAS 141 requires  business  combinations  initiated after June 30,
     2001 to be  accounted  for using the  purchase  method  of  accounting  and
     broadens  the  criteria  for  recording  intangible  assets  separate  from
     goodwill.   In  October  2001,  the  FASB  issued  Statement  of  Financial
     Accounting  Standards  144,  "Accounting  for the Impairment or Disposal of
     Long Lived  Assets" ("FAS 144"),  which  requires  long-lived  assets to be
     disposed of to be valued at the lower of the carrying  amount or fair value
     less the cost to sell the asset. The Company adopted FAS 141 beginning June
     30, 2001 and will adopt FAS 144 beginning  January 1, 2002.  Implementation
     of FAS 141 did not have a  material  impact  on the  Company's  results  of
     operations.  Implementation  of FAS 144 is not  expected to have a material
     impact on the Company's results of operations.

     Use of Estimates - Management of the Company 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 and accounts  payable and accrued  expenses  approximates
     carrying  value because of short  maturities.  The estimated  fair value of
     long-term borrowings  approximates  carrying value as interest rates on the
     borrowings approximate current market rates.

     Implementation  of Statement of Financial  Accounting  Standards  133 ("FAS
     133") Effective  January 1, 2001, the Company  adopted FAS 133,  Accounting
     for Derivative  Instruments  and Hedging  Activities,  as amended.  FAS 133
     establishes  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 balance sheet.  Gains or losses  resulting
     from changes in the fair value of derivatives are recognized in earnings or
     recorded in other comprehensive  income, and recognized in the statement of
     earnings when the hedged item affects earnings, depending on the purpose of
     the derivatives and whether they quality for hedging accounting  treatment.
     The  Company  does  not  enter  into or hold  derivatives  for  trading  or
     speculative purposes. The Company invests in two joint ventures,  accounted
     for under the equity method, that have entered into interest rate hedges on
     variable rate debt. The Company's  joint ventures have treated these hedges
     as cash flow  hedges in  accordance  with FAS 133.  Upon  adoption  of this
     standard on January 1, 2001, the fair value of the interest rate hedges was
     zero.  Subsequent to the adoption of FAS 133, the Company's  portion of the
     increased  obligation under cash flow hedges reduced the carrying amount of
     the Company's  investment in unconsolidated  subsidiaries by $1,189,396 and
     has been reflected in accumulated other comprehensive loss.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

2.   Five Arrows Acquisition:
     -----------------------

     In 1999,  the  Company  and Five  Arrows  Realty  Securities  II LLC ("Five
     Arrows")  invested a total of approximately $86 million in Hotel Investors,
     resulting in the Company  owning  approximately  49 percent.  In 2000,  the
     Company  acquired a 22 percent interest in Hotel Investors from Five Arrows
     for   approximately   $26.3  million,   resulting  in  the  Company  owning
     approximately  71  percent  of  Hotel  Investors.   The  results  of  Hotel
     Investors,  which owns seven hotel Properties,  have been consolidated with
     those of the  Company  since  October  1,  2000.  The net  assets  of Hotel
     Investors at September 30, 2000 were as follows:


           Cash                                 $   8,445,237
           Other assets                           162,787,701
           Liabilities                            (91,079,932)
                                                --------------
           Net assets                           $  80,153,006
                                                ==============

     In June  2001,  the  Company  acquired  the  remaining  29 percent of Hotel
     Investors for approximately  $32.9 million.  This transaction was accounted
     for  under  the  purchase   method  of   accounting.   The  purchase  price
     approximated the fair value of the net assets acquired.

     The following  presents  unaudited pro forma  information on the results of
     operations  for the years ended  December 31, 2001 and 2000 for the Company
     as if the acquisition had taken place on January 1, 1999:



                                       2001                 2000
                                  --------------   -----------------

           Revenues                    $71,462,544         $47,676,054
           Expenses                     43,892,956          22,945,999
           Net earnings                 20,334,804          21,767,326
           Basic EPS                          0.32                0.56
           Diluted EPS                        0.32                0.56


3.   Investment in Unconsolidated Subsidiaries:
     -----------------------------------------

     Desert Ridge Joint Venture.  In December  2000,  the Company  acquired a 44
     percent  interest in Desert Ridge Resort  Partners,  LLC (the "Desert Ridge
     Joint   Venture"),   a  joint   venture   with  an  affiliate  of  Marriott
     International,  Inc. and a partnership in which an affiliate of the Advisor
     is the general  partner.  The Desert  Ridge Joint  Venture  owns the Desert
     Ridge  Marriott  Resort  & Spa  in  Phoenix,  Arizona  (the  "Desert  Ridge
     Property"), which is currently under construction. As of December 31, 2001,
     the Company had made an initial capital  contribution of approximately $8.8
     million of its anticipated $25 million investment in the Desert Ridge Joint
     Venture.  The total cost of the Desert  Ridge  Property is  estimated to be
     $298  million.  The Desert Ridge  Property is secured by a mortgage of $179
     million  (the  "Desert  Ridge  Mortgage"),  which is scheduled to mature on
     December  15,  2007.  Although  this  resort  property is  currently  under
     construction,  limited  operations  for the year ended  December  31,  2001
     resulted  from a golf  course  located on the  premises.  Development  of a
     second golf course was completed and the course began operations in January
     2002.

     A portion of the Desert Ridge  Mortgage bears interest at an annual rate of
     185 basis  points  above  three-month  London  Interbank  Offered Rate (the
     "LIBOR").  The Desert Ridge Joint Venture has entered into an interest rate
     swap agreement  (the "DRR Swap") to  effectively  convert the variable rate
     portion of this  mortgage to a fixed rate of 6.025  percent per annum.  The
     DRR Swap is being accounted for as a cash flow hedge.  All terms of the DRR
     Swap are  identical to the terms of the  underlying  mortgage.  The blended
     interest  rate  on the  aggregate  principal  amount  of the  $179  million
     mortgage notes,  including  interest rate, swap costs,  premiums for a debt
     service insurance  policy,  and amortization of loan costs is approximately
     10.13 percent per annum.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

3.   Investment in Unconsolidated Subsidiaries - Continued:
     -----------------------------------------------------

     The following presents unaudited  condensed  financial  information for the
     Desert Ridge Joint Venture as of December 31:

                                                       2001            2000
                                                  -------------   -------------
           Land, buildings and equipment, net     $133,500,314    $ 43,803,084
           Other assets                             82,644,318     160,908,771
           Mortgage and other notes payable        181,884,596     179,000,000
           Other liabilities                        26,969,771       9,800,036
           Members' equity                           7,290,265      15,911,819
           Revenues                                  8,153,952              --
           Cost of sales                             2,235,307              --
           Operating expenses                       13,830,223              --
           Net loss                                 (7,911,578)             --
           Comprehensive loss                      (11,102,816)             --


     Waikiki  Partnership.  In July  2001,  the  Company  acquired  a 49 percent
     interest in WB Resort Partners, L.P. (the "Waikiki  Partnership"),  a joint
     venture with an affiliate of Marriott International, Inc. and a partnership
     in which an  affiliate of the Advisor is the general  partner.  The Waikiki
     Partnership  owns the  Waikiki  Beach  Marriott  in  Honolulu,  Hawaii (the
     "Waikiki Property"), which is currently undergoing significant renovations.
     As of December 31, 2001,  the Company had made total capital  contributions
     of approximately $27.7 million of its anticipated $42 million investment in
     the  Waikiki  Partnership.  The  total  cost  of the  Waikiki  Property  is
     estimated to be $215 million. The Waikiki Property is secured by a mortgage
     in the amount of  $130,000,000,  which matures on August 15, 2006 and bears
     annual interest at a rate of 8.53 percent. Although this resort property is
     currently  undergoing  significant  renovations,  it has remained partially
     open.  Operations  for the year ended  December 31, 2001  resulted from the
     operations of the open portion of the resort.

     The following presents unaudited  condensed  financial  information for the
     Waikiki Partnership as of December 31, 2001:


           Land, buildings and equipment, net                $ 186,884,885
           Other assets                                          9,069,876
           Mortgage payable other notes payable                137,749,752
           Other liabilities                                    18,196,841
           Partners' equity                                     40,008,168
           Revenues                                             10,166,841
           Cost of sales                                         5,508,417
           Operating expenses                                   13,988,956
           Net loss                                             (9,330,532)

     Hilton  Partnership.  The Company and Hilton Hotels Corporation  ("Hilton")
     formed a partnership (the "Hilton Partnership") of which the Company owns a
     70 percent  interest  and Hilton  owns a 30  percent  interest.  The Hilton
     Partnership owns four Properties: the Miami, Florida Property and the Costa
     Mesa,  California Property,  which were contributed by the Company, and the
     Auburn Hills,  Michigan Property and the Portland,  Oregon Property,  which
     were  contributed  by  Hilton.  The  total  value  of the  four  Properties
     contributed   was  valued  at   approximately   $215,929,000.   The  Hilton
     Partnership intends to spend  approximately  $21,000,000 for renovations to
     the Miami, Florida and Costa Mesa, California Properties.


<PAGE>



                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

3.   Investment in Unconsolidated Subsidiaries - Continued:
     -----------------------------------------------------

     The  Hilton  Partnership's  Properties  are  encumbered  by a  $100,000,000
     mortgage,  which has a term of five years and bears  annual  interest  at a
     variable  rate equal to 230 basis points  above  30-day LIBOR  subject to a
     three-year  cap of 8.30  percent and a floor of 4.96  percent.  The Company
     intends to purchase an additional  interest rate cap for the last two years
     of the Hilton  Mortgage term,  prior to the maturity of the Hilton Cap. The
     average  annual  interest rate incurred  during the year ended December 31,
     2001 was 4.96 percent.

     The following presents unaudited  condensed  financial  information for the
     Hilton Partnership as of December 31, 2001:

           Land, buildings and equipment, net                 $213,278,530
           Other assets                                         10,573,028
           Mortgages payable                                   100,000,000
           Other liabilities                                     4,940,228
           Partners' equity                                    118,911,330
           Revenues                                             17,042,928
           Cost of sales                                         7,094,949
           Operating expenses                                    9,219,402
           Net income                                              728,577
           Comprehensive income                                    986,123

     Interstate Partnership.  On November 19, 2001, the Company and a subsidiary
     of Interstate Property Corporation ("Interstate") formed a partnership (the
     "Interstate  Partnership") of which the Company owns an 85 percent interest
     and Interstate owns a 15 percent interest.  The Interstate Partnership owns
     two  Properties  in  Manchester,   Connecticut.  The  total  value  of  the
     Properties obtained was approximately $20,372,000. One of the Properties is
     secured by a mortgage of approximately $6,736,000, which was assumed by the
     Interstate  Partnership.  The mortgage matures on January 1, 2011 and bears
     annual interest of 8.32 percent.

     The following presents unaudited  condensed  financial  information for the
     Interstate Partnership as of December 31, 2001:

           Land, buildings and equipment, net                 $ 21,049,569
           Other assets                                            571,152
           Mortgage payable                                      6,723,384
           Other liabilities                                       249,912
           Partners' equity                                     14,647,425
           Revenues                                                510,505
           Cost of sales                                           174,607
           Operating expenses                                      408,496
           Net loss                                                (72,598)



<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

4.   Land, Buildings and Equipment:
     -----------------------------

     During the year  ended  December  31,  2001,  the  Company  acquired  seven
     Properties  throughout the United  States,  including one Property which is
     under  construction,  resulting  in a total of 43  Properties  directly  or
     indirectly   owned  (35  directly  and  eight  through   joint   ventures).
     Substantially  all of the  Properties  directly  owned by the  Company  are
     pledged as collateral to secure mortgage or other long-term financing.

     Land, buildings and equipment consist of the following at December 31:

                                                 2001             2000
                                            --------------  --------------
           Land                             $ 106,173,723   $  93,758,025
           Buildings                          521,230,538     446,132,337
           Equipment                           59,937,057      46,050,378
                                            --------------  --------------
                                              687,341,318     585,940,740
           Less accumulated depreciation      (29,182,487)     (9,433,790)
           Construction in progress            41,081,128       5,021,978
                                            --------------  --------------

                                            $ 699,239,959   $ 581,528,928
                                            ==============  ==============

     At December 31, 2001,  the Company  leased  substantially  all of its land,
     building and equipment to third parties lessees.  The lease terms generally
     range from five to 20 years and  generally  provide for minimum base annual
     rental payments ranging from  approximately  $716,000 to $6,500,000.  Lease
     options  allow the  tenants  to renew  each of the  leases  for two to five
     successive  five-year  to  ten-year  periods  subject to the same terms and
     conditions of the initial leases. In addition, the tenant pays all property
     taxes and assessments and carries insurance  coverage for public liability,
     property  damage,  fire and extended  coverage.  Certain of the leases also
     provide for increases in annual base rent. In addition to annual base rent,
     the tenant may pay contingent  rent computed as a percentage of gross sales
     of the Property. No such contingent rent has been earned as of December 31,
     2001, 2000 or 1999.

     The following is a schedule of future minimum lease payments to be received
     on the noncancellable operating leases at December 31, 2001:


                2002                             $ 74,985,725
                2003                               76,162,610
                2004                               76,162,610
                2005                               76,162,610
                2006                               76,162,610
                Thereafter                        611,638,925
                                                 -------------
                                                 $991,275,090
                                                 =============

5.   Prepaid Expenses and Other Assets:
     ---------------------------------

     Other  assets  as of  December  31,  2001 and  2000  were $  6,796,398  and
     $5,811,304,  respectively,  and consist  primarily of acquisition  fees and
     expenses relating to Properties the Company intends to acquire.





<PAGE>



                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

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

     On September 14, 2001, the Company obtained a revolving line of credit (the
     "Revolving  LOC") to fund  acquisition  and  development  of Properties and
     investments in Mortgage Loans and Secured Equipment Leases. Under the terms
     of the  Revolving  LOC, the Company is entitled to receive cash advances of
     up to approximately $96.7 million for a five-year period. Interest payments
     are due monthly  with  principal  payments of $1,000 due at the end of each
     loan year. Advances under the Revolving LOC bear interest at an annual rate
     of 225 basis points  above  30-day  LIBOR (4.10  percent as of December 31,
     2001) and are  collateralized by certain hotel Properties.  At December 31,
     2001, $7,500,000 was outstanding under the Revolving LOC.

     At December 31, 2001 and 2000,  indebtedness  collateralized by Properties,
     consisted of:
<TABLE>
<S><C>
                                                                 December 31, 2001    December 31, 2000
                                                                 -----------------    -----------------

     Mortgages payable, bearing interest rates ranging
     from 7.50 percent to 7.75 percent, with total
     monthly principal and interest payments of $665,619,
     maturing July 31, 2009                                      $      86,151,860    $      87,555,326

     Mortgages payable, bearing interest of 8.335 percent,
     with monthly interest only payments of approximately
     $347,000, maturing December 1, 2007                                50,000,000           50,000,000

     Mortgage  payable,  bearing  interest  of 8.29  percent,
     with  monthly   principal   and  interest   payments  of
     $257,116, maturing December 1, 2007                                32,732,022           32,500,000

     Construction loan facility for up to $55 million in
     borrowings, bearing interest of London Interbank Offered
     Rate ("LIBOR") plus 275 basis points,with monthly
     payments of interest only, maturing
     November 15, 2003                                                  42,118,898            9,897,341

     Construction loan for up to $17 million in borrowings,
     bearing interest of LIBOR plus 300 basis points, with
     monthly payments of interest only, maturing
     September 15, 2003                                                  5,768,173                   --

     Tax Increment Financing Note, bearing interest of
     12.85 percent, with principal and interest payments made
     by incremental property tax payments paid by tenant,
     maturing December 1, 2017                                           9,684,609            9,684,609
                                                                 -----------------    -----------------
                                                                 $     226,455,562    $     189,637,276
                                                                 =================    =================
</TABLE>

     The  majority  of the  Company's  debt  arrangements  allow for  repayments
     earlier  than the stated  maturity  date.  The weighted  average  effective
     interest rates on mortgages and other notes payable was approximately  6.69
     percent as of December 31, 2001.


<PAGE>



                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

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

     The following is a schedule of maturities  for all long-term  borrowings at
     December 31, 2001:

<TABLE>
<S><C>
                2002                                             $       3,136,602
                2003                                                    50,280,947
                2004                                                     2,561,298
                2005                                                     2,742,225
                2006                                                     2,869,490
                Thereafter                                             164,865,000
                                                                 -----------------
                  Total                                          $     226,455,562
                                                                  ================
</TABLE>

7.   Stockholders' Equity:
     --------------------

     On September 14, 2000,  the Company  commenced its third  offering of up to
     45,000,000 shares of common stock ($450,000,000) (the "2000 Offering").  Of
     the  45,000,000  shares  of  common  stock  offered,  up to  5,000,000  are
     available to stockholders  purchasing shares through the reinvestment plan.
     As of July 1,  2001,  the  percentage  of  gross  proceeds  payable  to the
     managing  dealer and its  affiliates  as  expenses in  connection  with the
     offering  increased  and is expected to remain at the higher  level for the
     remainder  of the 2000  Offering.  Since its  formation,  the  Company  has
     received an initial $200,000 contribution from its Advisor and subscription
     proceeds of $778,710,657 (77,871,066 shares), including $3,755,508 (375,552
     shares) issued pursuant to Company's reinvestment plan.

     On August 9, 2001, the Company filed a registration  statement on Form S-11
     with the Securities and Exchange Commission in connection with the proposed
     sale by the  Company  of up to an  additional  45,000,000  shares of common
     stock  ($450,000,000)  (the "2002  Offering")  in an  offering  expected to
     commence immediately  following the completion of the 2000 Offering. Of the
     45,000,000  shares of common stock to be offered,  up to 5,000,000  will be
     available to stockholders  purchasing shares through the reinvestment plan.
     The price per share and the other terms of the 2002 Offering, including the
     percentage of gross proceeds payable (i) to the managing dealer for selling
     commissions  and expenses in  connection  with the offering and (ii) to the
     Advisor for acquisition  fees, are  substantially the same as those for the
     2000 Offering for shares sold  subsequent to July 1, 2001.  CNL  Securities
     Corp.,  an  affiliate  of the  Advisor,  is the  managing  dealer  for  the
     Company's equity offerings.

     During the years  ended  December  31,  2001,  2000 and 1999,  the  Company
     incurred  $34,723,430,   $24,808,156  and  $26,632,124,   respectively,  in
     offering  costs,  including   $23,154,655,   $16,113,399  and  $18,475,145,
     respectively,  in  commissions  and  marketing  support  and due  diligence
     expense  reimbursement fees (see Note 8). Stock issuance costs are recorded
     as a reduction in stockholders' equity.

     The Company has a redemption  plan such that prior to listing on a national
     securities exchange or over-the-counter market, any stockholder (other than
     the Advisor) may present all or any portion equal to at least 25 percent of
     their shares for redemption,  in accordance with the procedures outlined in
     the Company's  prospectus.  The Company may, at its sole option, redeem the
     shares to the extent it has  sufficient  available  cash.  During the years
     ended December 31, 2001, 2000 and 1999, 251,373, 269,276 and 12,885 shares,
     respectively,  were  redeemed  for  $2,321,634,  $2,503,484  and  $118,542,
     respectively,  and retired from shares outstanding of common stock.  Shares
     were redeemed for $9.20 per share.

     For the years ended  December 31,  2001,  2000 and 1999,  approximately  52
     percent,  63 percent and 75  percent,  respectively,  of the  distributions
     received  by  stockholders  were  considered  to  be  ordinary  income  and
     approximately  48 percent,  37 percent and 25 percent,  respectively,  were
     considered a return of capital for federal income tax purposes.  No amounts
     distributed to the stockholders for the years ended December 31, 2001, 2000
     and 1999 were  required  to be or have been  treated  by the  Company  as a
     return of capital for purposes of calculating the  stockholders'  return on
     their invested capital.

<PAGE>

                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

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

     Certain  directors and officers of the Company hold similar  positions with
     the Advisor and the managing dealer,  CNL Securities Corp. These affiliates
     are  entitled  to receive  fees and  compensation  in  connection  with the
     offerings,  and the  acquisition,  management and sale of the assets of the
     Company.

     During the years  ended  December  31,  2001,  2000 and 1999,  the  Company
     incurred $21,803,780,  $15,116,931 and $17,320,448 respectively, in selling
     commissions due to CNL Securities Corp. for services in connection with its
     offerings. A substantial portion of these amounts ($20,452,957, $14,557,335
     and $16,164,488, respectively) were or will be paid by CNL Securities Corp.
     as commissions to other broker-dealers.

     In  addition,  CNL  Securities  Corp.  is  entitled  to receive a marketing
     support and due diligence expense reimbursement fee equal to 0.5 percent of
     the total amount raised from the sale of shares,  all or a portion of which
     may be reallowed to other  broker-dealers.  During the years ended December
     31, 2001, 2000 and 1999, the Company  incurred  $1,350,875,  $1,016,468 and
     $1,154,697,  respectively,  of  such  fees,  the  majority  of  which  were
     reallowed  to  other  broker-dealers  and  from  which  all  bona  fide due
     diligence expenses were paid.

     CNL Securities Corp. also receives a soliciting  dealer servicing fee based
     upon the amount of 0.20  percent of  "invested  capital," as defined by the
     Company's prospectus,  from its first offering and the 2000 Offering. As of
     December 31, 2001 and 2000,  $293,002 and $300,145,  respectively,  of such
     fees were incurred and payable at December 31, 2001 and 2000, respectively.
     No fees were incurred in 1999.

     The  Advisor  is  entitled  to receive  acquisition  fees for  services  in
     identifying   Properties  and  structuring  the  terms  of  leases  of  the
     Properties and Mortgage Loans equal to 4.5 percent of the gross proceeds of
     the  offerings,  loan  proceeds  from  permanent  financing and the line of
     credit.  During the years  ended  December  31,  2001,  2000 and 1999,  the
     Company incurred $21,056,878, $17,056,532 and $10,956,455, respectively, of
     these fees based on offering proceeds, including $8,686,554, $8,002,944 and
     $0, respectively, of debt acquisition fees.

     The Advisor is entitled to receive fees in connection with the development,
     construction,  or renovation of a Property, generally equal to 4 percent of
     project  costs.  During the years ended  December  31,  2001 and 2000,  the
     Company incurred $2,107,404 and $2,125,857, respectively, of these fees. No
     such fees were incurred during 1999.

     The Company incurs operating expenses which, in general, are those expenses
     relating to its  administrations.  Pursuant to the advisory agreement,  the
     Advisor is  required  to  reimburse  the  Company the amount by which total
     operating  expenses exceed in any four  consecutive  fiscal  quarters,  the
     greater  of two  percent of  average  invested  assets or 25 percent of net
     income.  For the years ended  December 31, 2001,  2000 and 1999, no amounts
     were due from the Advisor.

     The  Company  and the  Advisor  have  entered  into an  advisory  agreement
     pursuant to which the Advisor  receives a monthly asset  management  fee of
     one-twelfth  of 0.60 percent of the  Company's  real estate asset value and
     the  outstanding  principal  balance of any Mortgage Loans as of the end of
     the  preceding  month.  The  management  fee is  limited  to fees  that are
     competitive  for similar  services by third parties in the same  geographic
     area.  During the years ended December 31, 2001, 2000 and 1999, the Company
     incurred $3,326,688, $1,335,488 and $106,788, respectively, of these fees.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

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

     The Advisor and its affiliates provide various  administrative  services to
     the Company,  including services related to accounting;  financial, tax and
     regulatory compliance reporting;  stockholder  distributions and reporting;
     due   diligence   and   marketing;   and  investor   relations   (including
     administrative services in connection with the offerings),  on a day-to-day
     basis. The expenses incurred for these services were classified as follows:

<TABLE>
<S><C>
                                                             Years Ended December 31,
                                                     2001              2000             1999
                                                -------------     -------------     -------------

           Stock issuance costs                 $   4,705,448     $   3,851,925     $   3,854,739
           General operating and
             administrative expenses                1,092,071           542,870           351,846
           Land, buildings and equipment
             on operating leases and
             other assets                                  --                --               124
                                                -------------     -------------     -------------
                                                $   5,797,519     $   4,394,795     $   4,206,709
                                                =============     =============     =============

     The amounts due to related  parties  consisted of the following at December 31:

                                                                       2001               2000
                                                                  -------------     -------------
           Due to the Advisor:
             Expenditures incurred on behalf
               of the Company for accounting
               and administrative services                        $     120,315     $     531,220
             Acquisition fees                                           202,178           209,254
                                                                  -------------     -------------
                                                                        322,493           740,474
                                                                  -------------     -------------
           Due to CNL Securities Corp.:
             Commissions                                                678,061           598,899
             Marketing support and due diligence
               expense reimbursement fee                                 25,671            20,044
                                                                   -------------     ------------
                                                                        703,732           618,943
                                                                   -------------     ------------
                                                                  $   1,026,225     $   1,359,417
                                                                  =============     =============
</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
     the  Advisor  is a  stockholder.  The amount  deposited  with this bank was
     $6,928,363 and $17,568,909 at December 31, 2001 and 2000, respectively.

     Due from related parties at December 31, 2001 consists of $1,301,632, which
     is due  from  an  affiliate  of  the  Advisor  and  $109,268  in  operating
     receivables, which are due from various affiliates.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

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

     Four of the Company's tenants  contributed  approximately 70 percent and 75
     percent of total  rental  income for the years ended  December 31, 2001 and
     2000,  respectively.  In addition,  a significant  portion of the Company's
     rental income was earned from  properties  operating as  Marriott(R)  brand
     chains for the years ended December 31, 2001 and 2000. Although the Company
     acquires  Properties in various states and regions,  carefully  screens its
     tenants in order to reduce  risks of default and has  acquired  four Hilton
     Properties through the Hilton Partnership,  failure of these lessees or the
     Marriott(R) brand chains could significantly impact the Company. Management
     believes that the risk of a default is reduced by the Company's initial and
     continuing due diligence procedures.  It is expected that the percentage of
     total  rental  income  contribution  by  these  lessees  will  decrease  as
     additional Properties are acquired during 2002 and subsequent years.

     In  addition,  the  hotel  industry  is  generally  characterized  as being
     intensely competitive.  The Company's Properties do, and are expected to in
     the future,  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.
     Additionally,  any general downturn in the domestic hotel market could have
     a negative impact on the Company's operations.

10.  Earnings Per Share:
     ------------------

     Basic EPS is computed by dividing income  available to common  stockholders
     by the weighted average number of common shares outstanding for the period.
     Diluted  EPS  reflects  the  potential  dilution  that could occur if other
     contracts to issue common stock were  exercised  and shared in the earnings
     of  the  Company.   For  the  years  ended  December  31,  2000  and  1999,
     approximately  7.2  million  and 5.5  million  shares,  respectively,  were
     considered  dilutive after the application of the "if converted method" and
     were included in the  denominator of the diluted EPS  calculation.  For the
     year ended December 31, 2001,  approximately 1.8 million shares relating to
     potentially  dilutive  securities were anti-dilutive and were excluded from
     the calculation.


<PAGE>


                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

10.  Earnings Per Share - Continued:
     ------------------------------

     The  following  represents  the  calculation  of earnings per share and the
     weighted average number of shares of potentially  dilutive common stock for
     the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<S><C>
                                                          2001              2000             1999
                                                     -------------     -------------     -------------
     Basic Earnings Per Share:
     Net earnings                                    $  19,328,376     $  20,670,462     $   7,515,988
                                                     =============     =============     =============

     Weighted average number of shares outstanding      64,457,643        38,698,066        15,890,212
                                                     =============     =============     =============

     Basic earnings per share                        $        0.30     $        0.53     $        0.47
                                                     =============     =============     =============
     Diluted Earnings Per Share:
      Net earnings                                   $  19,328,376     $  20,670,462     $   7,515,988

     Additional income attributable to investment in
      unconsolidated subsidiary assuming all
      Preferred Shares were converted                           --         3,563,543         2,129,899
                                                     -------------     -------------     -------------

        Adjusted net earnings assuming dilution      $  19,328,376     $  24,234,005     $   9,645,887
                                                     =============     =============     =============

     Weighted average number of shares outstanding      64,457,643        38,698,066        15,890,212

     Assumed conversion of Preferred Stock                      --         7,187,676         5,547,647
                                                     -------------     -------------     -------------
        Adjusted weighted average number of
        shares outstanding                              64,457,643        45,885,742        21,437,859
                                                     =============     =============     =============

     Diluted earnings per share                      $        0.30     $        0.53     $        0.45
                                                     =============     =============     =============

</TABLE>

11.  Commitments and Contingencies:
     -----------------------------

     In connection  with the  acquisition  of an 89 percent  interest in the CNL
     Philadelphia  Annex, LLC, the Company and the minority interest holder each
     have the right to obligate the other to sell or buy,  respectively,  the 11
     percent interest in CNL Philadelphia Annex, LLC. These rights are effective
     five years after the hotel's opening, which is planned for November 2004.

     In connection with the purchase of two Properties in June 2000, the Company
     may be required to make an additional payment (the "Earnout Provision") not
     to exceed $2,471,500 if certain earnout  provisions are achieved by June 1,
     2003.  As of December  31, 2001,  no such  amounts were payable  under this
     agreement.

     From time to time the Company may be exposed to litigation arising from the
     operation of its business.  Management does not believe that resolutions of
     these  matters  will  have a  material  adverse  effect  on  the  Company's
     financial condition or results of operations.


<PAGE>



                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

11.  Commitments and Contingencies - Continued:
     -----------------------------------------

     The Company has  commitments  to (i) acquire three hotel  Properties for an
     anticipated  aggregate purchase price of approximately $90 million, (ii) to
     invest  approximately $15 million in two new joint ventures,  (iii) to fund
     the  remaining  total of $31 million in the Desert Ridge Joint  Venture and
     the  Waikiki  Partnership,  and (iv) to acquire a 10 percent  interest in a
     limited  partnership  that  owns an office  building  located  in  Orlando,
     Florida,  in which the Advisor and its  affiliates  lease  office space for
     approximately  $300,000,  and (v) to fund the  development  of a new  hotel
     Property for approximately  $88 million.  The Company also has committed to
     fund its  prorata  share of working  capital  shortfalls  and  construction
     commitments  for the  Hilton  Partnership  and  Interstate  Partnership  if
     shortfalls  arise,  and has  guaranteed the debt service for several of its
     subsidiaries and partnerships.  The acquisition of each of these additional
     Properties is subject to the fulfillment of certain conditions. In order to
     acquire these Properties,  the Company must obtain additional funds through
     the  receipt  of  additional  offering  proceeds  and/or  advances  on  the
     Revolving  LOC. There can be no assurance that any or all of the conditions
     will be satisfied  or, if satisfied,  that one or more of these  Properties
     will be acquired by the Company.

12.  Selected Quarterly Financial Data:
     ---------------------------------

     The following table presents selected  unaudited  quarterly  financial data
     for each full quarter during the years ended December 31, 2001 and 2000:
<TABLE>
<S><C>

     2001 Quarter                  First            Second           Third           Fourth            Year
     ------------             -------------    -------------    --------------    -------------    -------------

     Revenue                  $  16,713,199    $  18,202,364    $   19,029,243    $   7,517,738    $  71,462,544
     Net income                   5,529,222        7,058,222         3,890,425        2,850,507       19,328,376
     Earnings per share:
       Basic                           0.11             0.12              0.06             0.01             0.30
       Diluted                         0.11             0.12              0.06             0.01             0.30

     2000 Quarter                  First            Second           Third           Fourth            Year
     ------------             -------------    -------------    --------------    -------------    -------------

     Revenue                  $   5,581,157    $   6,690,682    $    8,540,296    $  15,287,084    $  36,099,219
     Net income                   3,945,084        4,642,940         5,251,624        6,830,814       20,670,462
     Earnings per share:
       Basic                           0.13             0.13              0.13             0.14             0.53
       Diluted                         0.12             0.13              0.13             0.15             0.53

</TABLE>

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

     During the period  January 1, 2002 through  January 25,  2002,  the Company
     received   subscription   proceeds  for  an  additional   1,589,242  shares
     ($15,892,422) of common stock.

     On January 1, 2002, the Company declared distributions totaling $4,998,298,
     or  $0.064583  per  share,  of common  stock,  payable  in March  2002,  to
     stockholders of record on January 1, 2002.

     On January  18,  2002,  the Company  acquired a  SpringHill  Suites(TM)  by
     Marriott(R)  and a Townplace  Suites(TM)  by  Marriott(R),  both located in
     Manhattan  Beach,  California  and a SpringHill  Suites(TM) by  Marriott(R)
     located in Plymouth  Meeting,  Pennsylvania for  approximately $62 million.
     The  Company  plans  to  operate  these  Properties   using  Marriott,   an
     independent third party manager.


<PAGE>





                        CNL HOSPITALITY PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2001, 2000 and 1999

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

     On January 18, 2002, the Company  acquired a 25 percent interest in a joint
     venture with Publications International, Ltd. ("PIL"), Hilton, and Marriott
     that owns a 77.5  percent  interest  in a joint  venture  with Exxon  Mobil
     Corporation and PIL ("EMTG").  EMTG owns the licensing  rights to the Mobil
     Travel Guide. The licensing rights entitle EMTG to assemble,  edit, publish
     and sell the Mobil Travel Guide and use such rights to generate  additional
     products  using the Mobil Travel Guide brand.  The Company's  total capital
     contribution  will be $3.4  million,  of which  $1,787,500  was  funded  on
     January 18, 2002 with the remainder to be funded by June 30, 2002.

     On February  22,  2002,  the  Company  took  assignment  of its leases with
     Western   International,   Inc.  for  seven  Hotel  Investors'  Properties.
     Effective January 1, 2002, these Properties will be operated by the Company
     using affiliates of Marriott as an independent  third party manager and the
     operations  of these  Properties  will be  reflected  in the results of the
     Company.  The Company paid consideration of approximately  $54,000 for this
     assignment.

     The Company currently is seeking additional Properties.


<PAGE>



                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(d)  Other Financial Information.

     The following  summarized  financial  information  is filed as part of this
     report as a result of  Marriott  guaranteeing  lease  payments  for several
     tenants  relating to leased  Properties  whose  aggregate  carrying  values
     represented more than 20 percent of the Company's total assets for the year
     ended December 31, 2001. The summarized financial information presented for
     Marriott as of December 31, 2001 and 2000,  and for each of the years ended
     December 31, 2001,  2000 and 1999, was obtained from the Form 10-K filed by
     Marriott with the  Securities  and Exchange  Commission  for the year ended
     December 31, 2001.



                  Marriott International, Inc. and Subsidiaries
                             Selected Financial Data
                      (in Millions, except per share data)


     Consolidated Balance Sheets Data:
     --------------------------------
                                          December 28,       December 29,
                                             2001                2000
                                        ---------------     --------------


     Current Assets                           $ 2,130            $ 1,645
     Noncurrent Assets                          6,977              6,592
     Current Liabilities                        1,802              1,917
     Noncurrent Liabilities                     3,827              3,053
     Stockholders' Equity                       3,478              3,267


     Consolidated Statements of Income Data:
     --------------------------------------
<TABLE>
<S><C>
                                                             Fiscal Year       Fiscal Year      Fiscal Year
                                                                Ended,            Ended,           Ended,
                                                             December 28,      December 29,     December 31,
                                                                 2001             2000             1999
                                                            --------------    -------------    -------------
     Gross revenues                                         $       10,198    $      10,135    $       8,771

     Costs and expenses (including income tax expense)               9,962            9,656            8,371
                                                            --------------    -------------    -------------
     Net income                                             $          236    $         479    $         400
                                                            ==============    =============    =============
     Basic earnings per share                               $         0.97    $        1.99    $        1.62
                                                            ==============    =============    =============
     Diluted earnings per share                             $         0.92    $        1.89    $        1.51
                                                            ==============    =============    =============

</TABLE>

<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
     19th day of April 2002.

                                             CNL HOSPITALITY PROPERTIES, INC.

                                             By:      ROBERT A. BOURNE
                                                      President

                                                      /s/ Robert A. Bourne
                                                      ------------------------
                                                      ROBERT A. BOURNE