CNL Lifestyle Properties, Inc. Risk Factors

An investment in CNL Lifestyle Properties, Inc. is subject to significant risks. We summarize some of the more important risks below. A more detailed description of the risks associated with this offering is found in the section of the prospectus entitled “Risk Factors.” Investors should read and understand all of the risk factors before making a decision to invest in shares of our common stock.

Please read the risk factors below and then click “OK” to proceed to the CNL Lifestyle Properties Web site.

• The price of shares is subjective and may not bear any relationship to what stockholders could receive if their shares were resold.
• We may delay investing the proceeds from this offering due to our inability to find suitable investments and/or tenants for those investments. Therefore, we might experience a delay in the receipt of returns from such investments.
• Our common stock should be considered a long-term investment. Currently, there is no market for our shares and stockholders are limited in their ability to sell their shares through our share redemption program.
• We may have difficulty funding distributions solely from cash flow from operations, which could reduce the funds we have available for investments and the overall return to our stockholders.
• We can make no assurances that we will continue to pay distributions at an increasing rate or that we will not reduce the amount of or cease paying distributions in the future.
• We may be unable to invest the proceeds we receive from our common stock offering in a timely manner which could reduce the rate at which we pay distributions to our stockholders.
• The timing of sales and acquisitions may favor our advisor and not us, and our advisor may immediately realize substantial commissions, fees and other compensation as a result of any investment in or sale of an asset by us.
• The current economic slowdown has affected certain of the lifestyle properties in which we invest, and a prolonged or expanded period of economic difficulty could adversely affect other of our lifestyle properties. Reductions in consumer spending due to weakness in the economy and uncertainties regarding future economic prospects have adversely affected some of our tenants’ abilities to pay rent to us, resulting in a renegotiation of certain of their leases with us or in the termination of those leases, and we believe that additional tenants could experience similar difficulties in the event of a continued downturn in the economy. The continuation or expansion of such events could have a negative impact on our results of operations and our ability to pay distributions to our stockholders. In addition, negative events impacting the capital markets may reduce the amount of working capital available to our tenants which may affect their ability to pay rent.
• We do not have control over market and business conditions that may affect our success. External factors beyond our control may reduce the value of properties that we acquire, the ability of tenants to pay rent on a timely basis or at all, the amount of the rent to be paid and the ability of borrowers to make loan payments on time or at all. If tenants are unable to make lease payments or borrowers are unable to make loan payments as a result of any of these factors, cash available for distributions to our stockholders may be reduced.
• Our exposure to typical real estate investment risks could reduce our income. Such risks include the possibility that our properties will generate rent and capital appreciation, if any, at rates lower than we anticipated or will yield returns lower than those available through other investments.
• If one or more of our tenants file for bankruptcy protection, we may be precluded from collecting all sums due. If a lease is rejected by a tenant in bankruptcy, we would only have a general unsecured claim against the tenant, and we may not be entitled to any further payments under the lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distribution to our stockholders may be adversely affected.
• Multiple property leases or loans with individual tenants or borrowers increase our risks in the event that such tenants or borrowers become financially impaired. As a result, a default by, or the financial failure of, a tenant or borrower could cause more than one property to become vacant or be in default or more than one lease or loan to become non-performing. Defaults or vacancies can reduce our cash receipts and funds available for distribution and could decrease the resale value of affected properties until they can be re-leased.
• When we make loans, we are at risk of default on those loans caused by many conditions beyond our control, including local and other economic conditions affecting real estate values and interest rate levels. If the values of the underlying properties drop or in some instances fail to rise, our risk will increase and the value of our interests may decrease.
• When we acquire property by foreclosure following defaults under our mortgage, bridge or mezzanine loans, we have the economic and liability risks as the owner of such property. This additional liability could adversely impact our returns on mortgage investments.
• There is no guarantee that borrowing arrangements or other arrangements for obtaining leverage will continue to be available, or if available, will be available on terms and conditions acceptable to us.
• In the event we are unable to maintain or extend existing and/or secure new lines of credit or collateralized financing on favorable terms, our ability to make investments and our ability to make distributions may be significantly impacted.
• We have borrowed and will likely continue to borrow money to acquire assets to preserve our status as a REIT or for other corporate purposes. If we mortgage assets or pledge equity as collateral and we cannot meet our debt obligations, then the lender could take the collateral, and we would lose the asset or equity and the income we were deriving from the asset.
• Because our revenues are highly dependent on lease payments from our properties and interest payments from loans that we make, defaults by our tenants or borrowers would reduce our cash available for the repayment of our outstanding debt and for distributions.
• If any of our properties are foreclosed upon due to a default, our financial condition, results of operations and ability to pay distributions to stockholders will be adversely affected.
• We believe that we have been organized and have operated, and intend to continue to be organized and to operate, in a manner that will enable us to meet the requirements for qualification and taxation as a REIT for federal income tax purposes, commencing with our taxable year ended December 31, 2004. No assurance can be given that we qualify or will continue to qualify as a REIT.
• If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Unless we are entitled to relief under specific statutory provisions, we also could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified. Therefore, if we fail to qualify as a REIT, the funds available for distribution to stockholders would be reduced substantially for each of the years involved.
• You should be aware that the conclusions stated in the opinion of our tax counsel are conditioned on, and our continued qualification as a REIT will depend on, our company meeting various requirements and are not binding on the IRS or any court.
• We believe that our assets will not be deemed to be “plan assets” for purposes of ERISA and/or the Code, but we have not requested an opinion of counsel to that effect, and no assurances can be given that our assets will never constitute “plan assets.” If our assets were deemed to be "plan assets", the amount of funds available for us to make distributions to stockholders would be reduced.

Investing in real estate or REITs may not be suitable for all investors. They are subject to special risks of the program’s underlying investments and potential illiquidity of the shares. There is no assurance that the stated investment objectives will be met and redemption may be more or less than the original amount invested. For this reason, investors should carefully consider their personal investment time horizon and investment objectives before making an investment decision.

The shares will be offered to the public through CNL Securities Corp., which will act as the managing dealer, and through other members of the Financial Industry Regulatory Authority or with the assistance of registered investment advisors. Securities are not FDIC-insured, nor bank guaranteed, and may lose value.

This material must be read in conjunction with the prospectus in order to understand fully the implications and risks of the offering of securities to which it relates and must not be relied upon to make an investment.

Notice to New York Investors: This is not an offering. No offering is made except by a prospectus filed with the Department of Law of the State of New York. The Attorney General of the State of New York has not passed on or endorsed the merits of this offering.

Please see the prospectus for a complete list of defined terms and discussion of the risks associated with the offering.