CNL and Hilton Form Partnership

CNL Hospitality Properties, Inc. (“CNL”) and Hilton Hotels Corporation
today announced the formation of a partnership which acquired two hotel
properties—the 544-room Capital Hilton in Washington, D.C. and the
394-room Hilton La Jolla Torrey Pines outside of San Diego, California.
The total investment made by the partnership is $212 million. The
transaction is being funded in part by a $127 million, 5-year first
mortgage loan at a fixed rate of 5.5%. CNL will own a majority interest in
the partnership and Hilton will retain a minority interest in the
partnership and will operate both properties under long-term management
agreements. This transaction represents the third joint venture between
CNL and Hilton.
Separately, CNL and Hilton have also signed a non-binding term sheet for
the partnership to acquire the 1,200-room Hilton San Diego Convention
Center Hotel once construction is completed in 2006.

Hilton contributed both the Capital Hilton and Hilton La Jolla Torrey
Pines to the partnership. Hilton will recognize a book gain on the
transaction of approximately $61 million, which will be deferred and
recognized over the life of the long-term management contracts retained on
the properties. Hilton will generate approximately $189 million in cash
proceeds from this transaction, which will be used to pay down debt. In
addition, Hilton will be able to utilize a portion of its available tax
loss carryforwards to offset a majority of the tax gain on the transaction.

“We are delighted to continue our relationship with CNL,” said Matthew J.
Hart, executive vice president and chief financial officer of Hilton
Hotels Corporation. “This transaction allows us to continue to reduce the
amount of long-term debt of the company and secure long-term management
contracts on two solid hotels while still retaining an ownership interest.
We are particularly excited to partner with CNL on the potential
development of the Hilton San Diego Convention Center Hotel on a fantastic
site in one of the nation`s best convention center destinations.”

“CNL`s partnership with Hilton on these two exceptional hotel acquisitions
and the anticipated investment in the future Hilton San Diego Convention
Center Hotel is another confirmation of our strategy to create long-term
value,” said Thomas J. Hutchison III, CEO of CNL Hospitality Properties,
Inc. “In particular, we continue to build a significant presence of
CNL-owned properties in the Southern California area, which we believe is
an important market with meaningful upside potential over the next several
The Capital Hilton is located two blocks from the White House in the heart
of Washington, D.C. and features two restaurants, a newly renovated 11,000
square foot health club and spa and more than 33,000 square feet of
meeting space. The four diamond Hilton Torrey Pines overlooks the Southern
Californian coastline and the legendary Torrey Pines Golf Course, which is
scheduled to host the 2008 U.S. Open. Amenities include three tennis
courts, fitness center, whirlpool and putting green.

The 30-floor Hilton San Diego Convention Center Hotel will be situated on
San Diego Bay, adjacent to the recently expanded San Diego Convention
Center and across from the new San Diego Padres ballpark. Once completed,
the property will feature 106,500 square feet of meeting space, spa,
parking garage, three restaurants, retail space, waterfront park and water
taxi dock. Construction on the hotel is expected to begin in late 2004.


John A. Griswold, President of CNL Hospitality Properties, Inc. added, “We
are extremely pleased to strengthen our relationship with Hilton Hotels,
one of the world`s leading hotel owners and operators, and remain
committed to executing our investment and asset management strategies to
build a world- class portfolio of hotels and resorts.”

CNL Hospitality Properties, Inc. is an affiliate of CNL Financial Group,
Inc., and specializes in the investment of quality hotels and resorts. CNL
Hospitality Properties, Inc. owns interests in a portfolio of 129 hotels
with more than 28,000 rooms featuring 19 nationally recognized hotel
brands in 37 states and Canada. Headquartered in Orlando, Florida, CNL
Financial Group, Inc. is one of the nation`s largest, privately held real
estate investment and finance companies. CNL Financial Group, Inc. and the
entities it has formed or acquired have more than $9 billion in assets,
representing more than 3,000 properties in 49 states and Canada. For
additional information, please visit

Hilton Hotels Corporation is recognized internationally as a preeminent
hospitality company. The company develops, owns, manages or franchises
more than 2,000 hotels, resorts and vacation ownership properties. Its
portfolio includes many of the world`s best-known and most highly regarded
hotel brands, including Hilton(R), Conrad(R), Doubletree(R), Embassy
Suites Hotels(R), Hampton Inn(R), Hampton Inn & Suites(R), Hilton Garden
Inn(R), Hilton Grand Vacations Company(R) and Homewood Suites(R) by Hilton.

There can be no assurance that the partnership will enter into a
definitive agreement or acquire the Hilton San Diego Convention Center