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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2014

OR

 

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

For the transition period from                      to                     

Commission file number: 000-51288

 

 

CNL Lifestyle Properties, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   20-0183627

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

450 South Orange Avenue

Orlando, Florida

  32801
(Address of principal executive offices)   (Zip Code)

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

 

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

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of common stock outstanding as of August 8, 2014 was 325,711,683.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

 

Condensed Consolidated Financial Information (unaudited):

  
 

Condensed Consolidated Balance Sheets

     1   
 

Condensed Consolidated Statements of Operations

     2   
 

Condensed Consolidated Statements of Comprehensive Losses

     3   
 

Condensed Consolidated Statements of Stockholders’ Equity

     4   
 

Condensed Consolidated Statements of Cash Flows

     5   
 

Notes to Condensed Consolidated Financial Statements

     6   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     29   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     48   

Item 4.

 

Controls and Procedures

     49   

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     50   

Item 1A.

 

Risk Factors

     50   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     50   

Item 3.

 

Defaults Upon Senior Securities

     50   

Item 4.

 

Mine Safety Disclosures

     50   

Item 5.

 

Other Information

     50   

Item 6.

 

Exhibits

     51   

Signatures

       52   

Exhibits

       53   


Table of Contents
PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands except per share data)

 

     June 30,     December 31,  
     2014     2013  
ASSETS     

Real estate investment properties, net (including $180,196 and $184,306 related to consolidated variable interest entities, respectively)

   $ 1,804,898      $ 2,068,973   

Assets held for sale, net

     328,277        90,794   

Investments in unconsolidated entities

     130,099        132,324   

Cash

     121,301        71,574   

Mortgages and other notes receivable, net

     104,572        117,963   

Deferred rent and lease incentives

     60,715        57,378   

Restricted cash

     55,740        51,335   

Other assets

     52,976        52,310   

Intangibles, net

     25,937        36,922   

Accounts and other receivables, net

     25,054        21,080   
  

 

 

   

 

 

 

Total Assets

   $ 2,709,569      $ 2,700,653   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Mortgages and other notes payable (including $68,369 and $87,095 related to non-recourse debt of consolidated variable interest entities, respectively)

   $ 708,029      $ 760,192   

Senior notes, net of discount

     394,587        394,419   

Line of credit

     152,500        50,000   

Other liabilities

     94,359        76,816   

Accounts payable and accrued expenses

     63,390        49,823   

Due to affiliates

     567        1,025   
  

 

 

   

 

 

 

Total Liabilities

     1,413,432        1,332,275   
  

 

 

   

 

 

 

Commitments and contingencies (Note 14)

    

Stockholders’ equity:

    

Preferred stock, $.01 par value per share 200 million shares authorized and unissued

     —          —     

Excess shares, $.01 par value per share 120 million shares authorized and unissued

     —          —     

Common stock, $.01 par value per share

    

One billion shares authorized; 349,084 and 345,114 shares issued and 325,713 and 322,627 shares outstanding as of June 30, 2014 and December 31, 2013, respectively

     3,257        3,226   

Capital in excess of par value

     2,867,433        2,846,265   

Accumulated deficit

     (430,843     (401,985

Accumulated distributions

     (1,142,142     (1,073,422

Accumulated other comprehensive loss

     (1,568     (5,706
  

 

 

   

 

 

 

Total Stockholders’ Equity

     1,296,137        1,368,378   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,709,569      $ 2,700,653   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

1


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands except per share data)

 

     Quarter Ended     Six Months Ended  
     June 30,     June 30,  
     2014     2013     2014     2013  

Revenues:

        

Rental income from operating leases

   $ 34,524      $ 30,223      $ 77,378      $ 69,693   

Property operating revenues

     87,308        79,791        138,976        126,594   

Interest income on mortgages and other notes receivable

     2,946        3,363        6,079        6,782   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     124,778        113,377        222,433        203,069   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Property operating expenses

     70,096        66,134        121,100        113,386   

Asset management fees to advisor

     7,507        9,212        16,078        18,425   

General and administrative

     5,121        4,962        9,117        8,955   

Ground lease and permit fees

     2,980        2,468        6,623        6,470   

Acquisition fees and costs

     1,279        546        2,003        913   

Other operating expenses

     1,028        1,258        1,791        1,936   

Bad debt expense (recovery)

     (9     4,033        997        4,059   

Recovery on lease terminations

     (741     —          (741     —     

Loan loss provision

     2,520        —          2,520        —     

Impairment provision

     —          42,451        —          42,451   

Depreciation and amortization

     31,098        28,837        63,032        57,595   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     120,879        159,901        222,520        254,190   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (loss)

     3,899        (46,524     (87     (51,121
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest and other income

     89        71        91        397   

Interest expense and loan cost amortization (includes $404 loss on termination of cash flow hedge for both the quarter and six months ended June 30, 2014)

     (19,707     (16,397     (38,767     (32,661

Loss on extinguishment of debt

     (196     —          (196     —     

Equity in earnings (loss) of unconsolidated entities

     (526     6,159        3,773        5,036   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (20,340     (10,167     (35,099     (27,228
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (16,441     (56,691     (35,186     (78,349

Income (loss) from discontinued operations (includes $2,613 and $3,027 amortization of loss and loss on termination of cash flow hedges for the quarter and six months ended June 30, 2014, respectively, and $413 and $827 amortization of loss on termination of cash flow hedges for the quarter and six months ended June 30, 2013, respectively)

     7,936        1,486        6,328        (155
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (8,505   $ (55,205   $ (28,858   $ (78,504
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) per share of common stock (basic and diluted)

        

Continuing operations

   $ (0.05   $ (0.18   $ (0.11   $ (0.25

Discontinued operations

     0.02        0.01        0.02        (0.00
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share

   $ (0.03   $ (0.17   $ (0.09   $ (0.25
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares of common stock outstanding (basic and diluted)

     324,197        317,959        323,424        317,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES

(UNAUDITED)

(in thousands)

 

     Quarter Ended     Six Months Ended  
     June 30,     June 30,  
     2014     2013     2014     2013  

Net loss

   $ (8,505   $ (55,205   $ (28,858   $ (78,504

Other comprehensive income (loss):

        

Foreign currency translation adjustments

     784        (754     95        (1,214

Changes in fair value of cash flow hedges:

        

Amortization of loss and loss on termination of cash flow hedges

     3,017        413        3,431        827   

Unrealized gain arising during the period

     290        1,020        612        1,399   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     4,091        679        4,138        1,012   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (4,414   $ (54,526   $ (24,720   $ (77,492
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2014 and the Year Ended December 31, 2013

(UNAUDITED)

(in thousands except per share data)

 

    

 

Common Stock

    Capital in
Excess of
Par Value
                Accumulated
Other
Comprehensive
Loss
    Total
Stockholders’
Equity
 
     Number
of Shares
    Par
Value
      Accumulated
Deficit
    Accumulated
Distributions
     
                

Balance at December 31, 2012

     316,371      $ 3,164      $ 2,803,346      $ (149,446   $ (937,972   $ (7,661   $ 1,711,431   

Subscriptions received for common stock through distribution reinvestment plan

     7,901        79        54,857        —          —          —          54,936   

Redemption of common stock

     (1,645     (17     (11,938     —          —          —          (11,955

Net loss

     —          —          —          (252,539     —          —          (252,539

Distributions, declared and paid ($0.4252 per share)

     —          —          —          —          (135,450     —          (135,450

Foreign currency translation adjustment

     —          —          —          —          —          (1,563     (1,563

Amortization of loss on termination of cash flow hedges

     —          —          —          —          —          1,655        1,655   

Current period adjustment to recognize changes in fair value of cash flow hedges, net of reclassifications (Note 9)

     —          —          —          —          —          1,863        1,863   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     322,627      $ 3,226      $ 2,846,265      $ (401,985   $ (1,073,422   $ (5,706   $ 1,368,378   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subscriptions received for common stock through distribution reinvestment plan

     3,970        40        27,136        —          —          —          27,176   

Redemption of common stock

     (884     (9     (5,968     —          —          —          (5,977

Net loss

     —          —          —          (28,858     —          —          (28,858

Distributions, declared and paid ($0.2126 per share)

     —          —          —          —          (68,720     —          (68,720

Foreign currency translation adjustment

     —          —          —          —          —          95        95   

Amortization of loss and loss on termination of cash flow hedges

     —          —          —          —          —          3,431        3,431   

Current period adjustment to recognize changes in fair value of cash flow hedges, net of reclassifications (Note 9)

     —          —          —          —          —          612        612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

     325,713      $ 3,257      $ 2,867,433      $ (430,843   $ (1,142,142   $ (1,568   $ 1,296,137   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Six Months Ended
June 30,
 
     2014     2013  

Operating activities:

    

Net cash provided by operating activities

   $ 76,757      $ 82,165   
  

 

 

   

 

 

 

Investing activities:

    

Acquistion of properties

     (53,050     (22,000

Capital expenditures

     (44,065     (38,764

Proceeds from sale of properties

     73,453        11,275   

Proceeds from release of collateral on loan payable

     —          11,167   

Principal payments received on mortgage loans receivable

     2,374        4,208   

Changes in restricted cash

     (4,434     (11,527

Other

     (450     (1,065
  

 

 

   

 

 

 

Net cash used in investing activities

     (26,172     (46,706
  

 

 

   

 

 

 

Financing activities:

    

Redemptions of common stock

     (5,977     (5,995

Distributions to stockholders, net of distribution reinvestments

     (41,544     (39,982

Proceeds under line of credit

     102,500        50,000   

Proceeds from mortgage loans and other notes payable

     50,702        30,000   

Principal payments on line of credit

     —          (40,000

Principal payments on mortgage loans and senior notes

     (100,145     (10,260

Principal payments on capital leases

     (2,342     (1,052

Payments of entrance fee refunds

     (1,257     —     

Payment of loan costs

     (2,884     (749
  

 

 

   

 

 

 

Net cash used in financing activities

     (947     (18,038
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash

     89        (73
  

 

 

   

 

 

 

Net increase in cash

     49,727        17,348   

Cash at beginning of period

     71,574        73,224   
  

 

 

   

 

 

 

Cash at end of period

   $ 121,301      $ 90,572   
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing activities:

    

Assumption of entrance fee liabilities

   $ —        $ 13,800   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

1. Organization and Nature of Business:

CNL Lifestyle Properties, Inc. (the “Company”), was organized in Maryland on August 11, 2003. The Company operates and has elected to be taxed as a real estate investment trust (a “REIT”) for federal income tax. Various wholly-owned subsidiaries have been and will be formed by the Company for the purpose of acquiring and owning direct or indirect interests in real estate. The Company generally invests in lifestyle properties in the United States that are primarily leased on a long-term (generally five to 20-years, plus multiple renewal options), triple-net or gross basis to tenants or operators that the Company considers to be industry leading. The Company also leases properties to taxable REIT subsidiary (“TRS”) tenants and engages independent third-party managers to operate those properties. In the event of certain tenant defaults, the Company has also engaged third-party managers to operate properties on its behalf until they are re-leased.

As of June 30, 2014, the Company owned 148 lifestyle properties directly and indirectly within the following asset classes: ski and mountain lifestyle, golf facilities, senior housing, attractions, marinas and additional lifestyle properties. Eight of these 148 properties are owned through unconsolidated joint ventures and three are located in Canada. The Company raises capital through its distribution reinvestment plan (“DRP”) and uses such proceeds to make investments and for other corporate purposes. The Company may make selected asset dispositions and may use such proceeds to retire indebtedness or to invest in other income producing investment opportunities or other permitted investments.

In March 2014, the Company engaged Jefferies LLC, a leading global investment banking and advisory firm, to assist the Company’s management and its Board of Directors in actively evaluating various strategic alternatives to provide liquidity to the Company’s shareholders.

 

2. Significant Accounting Policies:

Principles of Consolidation and Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States (“GAAP”). The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management are necessary for the fair statement of the Company’s results for the interim period presented. Operating results for the quarter and six months ended June 30, 2014 may not be indicative of the results that may be expected for the year ending December 31, 2014. Amounts as of December 31, 2013 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date but do not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying unaudited condensed consolidated financial statements include the Company’s accounts, the accounts of wholly owned subsidiaries or subsidiaries for which the Company has a controlling interest, the accounts of variable interest entities (“VIEs”) in which the Company is the primary beneficiary, and the accounts of other subsidiaries over which the Company has a controlling financial interest. All material intercompany accounts and transactions have been eliminated in consolidation.

In accordance with the guidance for the consolidation of VIEs, the Company analyzes its variable interests, including loans, leases, guarantees, and equity investments, to determine if the entity in which it has a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity and its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and financial agreements. The Company also uses its quantitative and qualitative analyses to determine if it is the primary beneficiary of the VIE, and if such determination is made, it includes the accounts of the VIE in its consolidated financial statements.

 

6


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

2. Significant Accounting Policies (Continued):

 

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the disclosure of contingent liabilities. For example, significant estimates and assumptions are made in connection with the allocation of purchase price and the analysis of real estate, equity method investments and impairments. Actual results could differ from those estimates.

Reclassifications — Certain prior period amounts in the unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation with no effect on previously reported total assets and total liabilities, net loss or stockholders’ equity. The results of operations of the real estate properties that are classified as held for sale, along with properties sold during the period, are reflected in discontinued operations for all periods presented.

Adopted Accounting Pronouncements In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a similar Tax Loss, or a Tax Credit Carryforward Exists.” This update clarified the guidance in subtopic 740 and requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward to the extent one is available. Effective January 1, 2014, the Company adopted this ASU. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows.

Recent Accounting Pronouncements In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This update changes the criteria for reporting discontinued operations where only disposals representing a strategic shift that have a major effect on the organization’s operations and financial results in operations should be presented as discontinued operations. If the disposal qualifies as a discontinued operation under ASU 2014-08, the entity will be required to provide expanded disclosures. The guidance will be applied prospectively to new disposals and new classifications of disposal groups held for sale after the effective date. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014 with early adoption permitted but only for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. The Company elected not to early adopt ASU 2014-08 and is currently evaluating the amendments of ASU 2014-08. These amendments are expected to impact the Company’s determinations of which future property disposals, if any, qualify as discontinued operations, as well as require additional disclosures about discontinued operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” as a new Accounting Standards Codification (“ASC”) topic (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard further provides guidance for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, lease contracts). This ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption not permitted. ASU 2014-09 can be adopted using one of two retrospective application methods: 1) retrospectively to each prior reporting period presented or 2) as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the amendments of ASU 2014-09; however, these amendments could potentially have a significant impact on its consolidated financial position, results of operations or cash flows.

 

3. Acquisitions:

During the six months ended June 30, 2014, the Company acquired four senior housing properties for an aggregate purchase price of approximately $53.1 million. These properties are subject to long-term triple net leases with an initial term of 10 years with renewal options. During the six months ended June 30, 2013, the Company acquired one senior housing property for a purchase price of $22.0 million, net of the present value of entrance fees liabilities assumed of approximately $13.8 million. The property is subject to a long-term triple-net lease with an initial term of 20 years with renewal options. The acquisitions during the six months ended June 30, 2014 and 2013 were not considered material to the Company.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

4. Real Estate Investment Properties, net:

As of June 30, 2014 and December 31, 2013, real estate investment properties consisted of the following (in thousands):

 

     June 30,
2014
    December 31,
2013
 

Land and land improvements

   $ 641,749      $ 904,409   

Leasehold interests and improvements

     274,145        311,560   

Buildings

     873,395        926,098   

Equipment

     657,793        692,854   

Less: accumulated depreciation and amortization

     (642,184     (765,948
  

 

 

   

 

 

 
   $ 1,804,898      $ 2,068,973   
  

 

 

   

 

 

 

For the six months ended June 30, 2014 and 2013, the Company had depreciation and amortization expenses of approximately $59.6 million and $54.0 million, respectively, excluding properties that the Company classified as assets held for sale.

 

5. Assets Held for Sale, net and Discontinued Operations:

Assets Held for Sale, net — As of December 31, 2013, the Company classified five properties as assets held for sale. In March 2014, the Company approved a plan to sell its golf portfolio, consisting of 48 properties, and one family entertainment center and classified those properties as assets held for sale. In June 2014, the Company signed a purchase and sale agreement to sell its golf portfolio to a third-party buyer and expects to complete the sale by the end of 2014. Also in June 2014, the Company sold its multi-family residential property, which was one of the five properties classified as assets held for sale as of December 31, 2013, and received net sales proceeds of approximately $73.5 million. In connection with the transaction, the Company recorded a loss of approximately $0.1 million. In addition, during the six months ended June 30, 2014, the Company decided to discontinue marketing the sale of its unimproved land and reclassified the unimproved land as held and used. As of June 30, 2014, the Company classified 52 properties as assets held for sale. The following table presents the net carrying value of the properties classified as assets held for sale (in thousands):

 

     June 30,
2014
     December 31,
2013
 

Real estate investment properties, net

     

Land and land improvements

   $ 196,780       $ 40,097   

Building and building improvements

     104,240         47,989   

Equipment

     15,848         2,708   
  

 

 

    

 

 

 
     316,868         90,794   

Intangibles, net

     8,501         —     

Accounts and other receivables, net

     2,908         —     
  

 

 

    

 

 

 

Total

   $ 328,277       $ 90,794   
  

 

 

    

 

 

 

Discontinued Operations — The Company classified the revenues and expenses related to all real estate properties sold and all real estate properties considered as assets held for sale, which were not accounted for under the equity method of accounting, as of June 30, 2014, as discontinued operations in the accompanying unaudited condensed consolidated statements of operations.

 

8


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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

5. Assets Held for Sale, net and Discontinued Operations (Continued):

 

The following table is a summary of income (loss) from discontinued operations for the quarter and six months ended June 30, 2014 and 2013 (in thousands):

 

     Quarter Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Revenues

   $ 21,696      $ 20,720      $ 39,454      $ 38,149   

Expenses

     (10,940     (11,494     (20,236     (21,188

Impairment provision

     (1,150     —          (4,464     —     

Depreciation and amortization

     —          (7,796     (4,925     (15,221
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     9,606        1,430        9,829        1,740   

Gain (loss) from sale of properties

     (73     2,080        (70     2,083   

Gain on extinguishment of debt (1)

     2,603        —          2,603        —     

Other expense (2)

     (4,200     (2,024     (6,034     (3,978
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

   $ 7,936      $ 1,486      $ 6,328      $ (155
  

 

 

   

 

 

   

 

 

   

 

 

 

 

FOOTNOTES:

 

(1) In June 2014, the Company completed the sale of its multi-family residential property and used the net sales proceeds to retire the corresponding loan which resulted in a gain on extinguishment of debt.
(2) Amounts include amortization of loss and loss on termination of cash flow hedge of approximately $2.6 million and $3.0 million for the quarter and six months ended June 30, 2014, respectively. In addition, amounts include amortization of loss on termination of cash flow hedge of approximately $0.4 million and $0.8 million for the quarter and six months ended June 30, 2013, respectively. See Note 9. “Derivative Instruments and Hedging Activities” for additional information.

 

6. Variable Interest and Unconsolidated Entities:

Consolidated VIEs — The Company has four wholly-owned subsidiaries, designed as single property entities to own and lease their respective properties to single tenant operators, which are VIEs due to potential future buy-out options held by the respective tenants. Three tenants’ buy-out options are currently exercisable but the tenants have not elected to do so. The fourth tenant’s buy-out option will be exercisable in July 2018. The four buy-out options expire between July 2020 through March 2030. In addition, two other entities that hold the properties in which service providers have a significant variable interest were also determined to be VIEs. The Company determined it is the primary beneficiary and holds a controlling financial interest in each of these entities due to the Company’s power to direct the activities that most significantly impact the economic performance of the entities, as well as its obligation to absorb the losses and its right to receive benefits from these entities that could potentially be significant to these entities. As such, the transactions and accounts of these VIEs are included in the accompanying unaudited condensed consolidated financial statements.

The aggregate carrying amount and major classifications of the consolidated assets that can be used to settle obligations of the VIEs and liabilities of the consolidated VIEs that are non-recourse to the Company are as follows (in thousands):

 

     June 30,
2014
     December 31,
2013
 

Assets

     

Real estate investment properties, net

   $ 180,196       $ 184,306   

Other assets

   $ 27,740       $ 29,075   

Liabilities

     

Mortgages and other notes payable

   $ 68,369       $ 87,095   

Other liabilities

   $ 15,043       $ 13,214   

 

9


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

6. Variable Interest and Unconsolidated Entities (Continued):

 

The Company’s maximum exposure to loss as a result of its involvement with these VIEs is limited to its net investment in these entities, which totaled approximately $124.5 million and $113.1 million as of June 30, 2014 and December 31, 2013, respectively. The Company’s exposure is limited because of the non-recourse nature of the borrowings of the VIEs.

Unconsolidated Entities As of June 30, 2014, the Company holds ownership in two ventures, the DMC Partnership and the Intrawest Venture. Of these, the Intrawest Venture was deemed a VIE in which the Company is not the primary beneficiary. While several significant decisions are shared between the Company and its joint venture partner in the Intrawest Joint Venture, the Company does not direct the activities that most significantly impact the venture’s performance and has not consolidated the activities of the venture. The Company’s maximum exposure to loss as a result of its interest in the Intrawest Venture is limited to the carrying amount of its investment in the venture, which totaled approximately $22.9 million and $25.2 million as of June 30, 2014 and December 31, 2013, respectively.

The Intrawest Venture is working with the Canada Revenue Authority to resolve matters related to one of its entities. The Intrawest Venture’s maximum exposure relating to these matters is approximately $14.6 million. However, the Intrawest Venture believes the more likely than not resolution will be approximately $1.4 million. As such, an accrual of $1.4 million has been reflected in the financial information of the Intrawest Venture.

In June 2014, the Intrawest Venture decided to discontinue marketing for sale six of its seven village retail properties. As a result, the properties no longer met the asset held for sale criteria and were reclassified as held and used at the lower of adjusted carrying value (carrying value of the properties prior to being classified as held for sale adjusted for any depreciation and/or amortization expense that would have been recognized had the properties been continuously classified as held and used) or its fair value at the date of the subsequent decision not to sell. As of June 30, 2014, the adjusted carrying value was determined to be the lower, as such, the Intrawest Venture recorded an adjustment representing the catch up in depreciation and amortization expenses that would have been recognized had the properties been continuously classified as held and used. The seventh village retail property continues to be marketed for sale and the Intrawest Venture expects to complete the sale by the end of 2014.

The following tables present financial information for the Company’s unconsolidated entities for the quarter and six months ended June 30, 2014 and 2013 (in thousands):

Summarized operating data:

 

     Quarter Ended June 30, 2014  
     DMC
Partnership
    Intrawest
Venture
    Total  

Revenues

   $ 6,869      $ 4,152      $ 11,021   

Property operating expenses

     (93     (2,489     (2,582

Depreciation and amortization

     (2,250     (4,337     (6,587

Interest expense

     (1,918     (1,296     (3,214
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     2,608        (3,970     (1,362

Discontinued operations (3)

     —          375        375   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 2,608      $ (3,595   $ (987
  

 

 

   

 

 

   

 

 

 

Loss allocable to other venture partners (1)

   $ (220   $ (402 ) (2)    $ (622
  

 

 

   

 

 

   

 

 

 

Income (loss) allocable to the Company (1)

   $ 2,828      $ (3,193   $ (365

Amortization of capitalized costs

     (108     (53     (161
  

 

 

   

 

 

   

 

 

 

Equity in earnings (loss) of unconsolidated entities

   $ 2,720      $ (3,246   $ (526
  

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 2,829      $ 492      $ 3,321   
  

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 2,797      $ 658      $ 3,455   
  

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

6. Variable Interest and Unconsolidated Entities (Continued):

 

     Quarter Ended June 30, 2013  
     DMC
Partnership
    Intrawest
Venture
    CNLSun I
Venture (4)
    CNLSun II
Venture (4)
    CNLSun III
Venture (4)
    Total  

Revenues

   $ 6,870      $ 4,465      $ 36,114      $ 10,021      $ 10,714      $ 68,184   

Property operating expenses

     (84     (2,378     (23,080     (6,550     (7,251     (39,343

Depreciation and amortization

     (2,251     —          (5,407     (1,136     (1,426     (10,220

Interest expense

     (1,979     (1,178     (8,117     (902     (1,464     (13,640

Interest and other income (expense)

     1        (227     8        —          —          (218
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     2,557        682        (482     1,433        573        4,763   

Discontinued operations (3)

     —          454        —          —          —          454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 2,557      $ 1,136      $ (482   $ 1,433      $ 573      $ 5,217   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) allocable to other venture partners (1)

   $ (271   $ (403 ) (2)    $ (1,761   $ 455      $ (84   $ (2,064
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) allocable to the Company (1)

   $ 2,828      $ 1,539      $ 1,279      $ 978      $ 657      $ 7,281   

Amortization of capitalized costs

     (109     (59     (652     (216     (86     (1,122
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings of unconsolidated entities

   $ 2,719      $ 1,480      $ 627      $ 762      $ 571      $ 6,159   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 2,829      $ 749      $ 3,920      $ 522      $ 835      $ 8,855   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 2,797      $ 770      $ 3,878      $ 517      $ 825      $ 8,787   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30, 2014  
     DMC
Partnership
    Intrawest
Venture
    Total  

Revenues

   $ 14,779      $ 8,601      $ 23,380   

Property operating expenses

     (264     (4,730     (4,994

Depreciation and amortization

     (4,452     (4,337     (8,789

Interest expense

     (3,834     (2,409     (6,243
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     6,229        (2,875     3,354   

Discontinued operations (3)

     —          546        546   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 6,229      $ (2,329   $ 3,900   
  

 

 

   

 

 

   

 

 

 

Income (loss) allocable to other venture partners (1)

   $ 604      $ (799 ) (2)    $ (195
  

 

 

   

 

 

   

 

 

 

Income (loss) allocable to the Company (1)

   $ 5,625      $ (1,530   $ 4,095   

Amortization of capitalized costs

     (216     (106     (322
  

 

 

   

 

 

   

 

 

 

Equity in earnings (loss) of unconsolidated entities

   $ 5,409      $ (1,636   $ 3,773   
  

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 5,626      $ 1,150      $ 6,776   
  

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 5,656      $ 919      $ 6,575   
  

 

 

   

 

 

   

 

 

 

 

11


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

6. Variable Interest and Unconsolidated Entities (Continued):

 

     Six Months Ended June 30, 2013  
     DMC
Partnership
    Intrawest
Venture
    CNLSun I
Venture (4)
    CNLSun II
Venture (4)
    CNLSun III
Venture (4)
    Total  

Revenues

   $ 14,322      $ 8,925      $ 71,287      $ 19,654      $ 21,549      $ 135,737   

Property operating expenses

     (244     (4,712     (45,999     (15,439     (14,609     (81,003

Depreciation and amortization

     (4,549     —          (10,994     (2,244     (2,874     (20,661

Interest expense

     (3,950     (2,357     (16,154     (2,057     (2,928     (27,446

Interest and other income (expense)

     3        (395     20        —          —          (372
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     5,582        1,461        (1,840     (86     1,138        6,255   

Discontinued operations (3)

     —          619        —          —          —          619   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 5,582      $ 2,080      $ (1,840   $ (86   $ 1,138      $ 6,874   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) allocable to other venture partners (1)

   $ (44   $ (799 ) (2)    $ (1,341   $ (8   $ 1,788      $ (404
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) allocable to the Company (1)

   $ 5,626      $ 2,879      $ (499   $ (78   $ (650   $ 7,278   

Amortization of capitalized costs

     (217     (117     (1,305     (431     (172     (2,242
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings (loss) of unconsolidated entities

   $ 5,409      $ 2,762      $ (1,804   $ (509   $ (822   $ 5,036   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 5,626      $ 1,118      $ 7,797      $ 1,039      $ 1,660      $ 17,240   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 5,649      $ 1,459      $ 7,830      $ 1,045      $ 4,130      $ 20,113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FOOTNOTES:

 

(1)  Income (loss) is allocated between the Company and its partnership using the hypothetical liquidation book value (“HLBV”) method of accounting.
(2)  This amount includes the venture partner’s portion of interest expense on a loan which the partners made to the venture. These amounts are treated as distributions for the purposes of the HLBV calculation.
(3)  This amount represents the one village retail property that remains classified as an asset held for sale.
(4)  In July 2013, the Company completed the sale of its interest in 42 senior housing properties held through the CNLSun I, CNLSun II and CNLSun III ventures.

As of June 30, 2014 and December 31, 2013, the Company’s share of partners’ capital determined under HLBV was approximately $122.3 million and $124.9 million, respectively, and the total difference between the carrying amount of the investment and the Company’s share of partners’ capital determined under HLBV was approximately $7.8 million and $7.4 million, respectively.

 

7. Mortgages and Other Notes Receivable, net:

In April 2014, the Company foreclosed on an attractions property that served as collateral on one of its mortgage notes receivable. The net carrying value of the collateral was $7.9 million, which approximated the carrying value of the loan.

In December 2013, the Company recorded a loan loss provision in anticipation of restructuring one of its notes receivable, which was collateralized by a ski property, as a result of the borrower having financial difficulties. In April 2014, the Company completed the restructure which reduced the fixed interest rates with a cap of 11% to a fixed interest rate of 6.5% through end of 2014 and 7% from January 2015 through December 2018. In addition, the maturity date was accelerated from September 2022 to a new maturity date of December 2018. The loan requires interest only payments with principal payment at maturity. The modification is effective as of September 1, 2013.

 

12


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

7. Mortgages and Other Notes Receivable, net (continued):

 

In June 2014, the Company recorded a loan loss provision of approximately $2.5 million on one of its mortgage and other notes receivable as a result of uncertainty related to the collectability of the note receivable.

The estimated fair market value of the Company’s mortgages and other notes receivable was approximately $100.2 million and $112.2 million as of June 30, 2014 and December 31, 2013, respectively, based on discounted cash flows for each individual instrument based on market interest rates as of June 30, 2014 and December 31, 2013, respectively. Because this methodology includes inputs that are not observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to the Company’s mortgage and other notes receivable is categorized as Level 3 on the three-level

valuation hierarchy. The estimated fair value of accounts and other receivables approximates the carrying value as of June 30, 2014 and December 31, 2013 because of the relatively short maturities of the obligations.

 

8. Indebtedness:

In February 2014, the Company obtained a $40.0 million loan with an existing third-party lender. The loan bears interest at 30-day LIBOR plus 3.50% with a 1.50% LIBOR floor and matures in April 2017. This is a supplement to one of the Company’s existing loans which is collateralized by six ski and mountain lifestyle properties of which one of the properties is a VIE due to a potential future buy-out option. See Footnote 6. “Variable Interest and Unconsolidated Entities” above for additional information. The other terms of the existing loan remain the same.

In June 2014, the Company repaid two of its loans with an aggregate outstanding principal balance of $84.7 million with the net sales proceeds received from selling its multi-family residential property and proceeds from its revolving line of credit. Also, in June 2014, the Company funded the acquisition of three senior housing properties through its revolving line of credit. As of June 30, 2014, the Company’s revolving line of credit had an outstanding principal balance of $152.5 million.

In June 2014, the Company extended the maturity date of its collateralized bridge loan from June 30, 2014 to December 20, 2014 and paid an extension fee of 0.25%. Simultaneously with exercising its extension option, the Company repaid $7.0 million of the principal balance. As of June 30, 2014, the total outstanding principal balance was approximately $105.0 million.

Certain of the Company’s loans require the Company to meet certain customary financial covenants and ratios including fixed charge coverage ratio, leverage ratio, interest coverage ratio, debt to total assets ratio and limitations on distributions except as required to maintain the Company’s REIT status. In addition, under the terms of the indenture governing our senior notes which place certain limitations on the Company and certain of its subsidiaries, cash distributions may not exceed 95% of the adjusted funds from operations as defined. The Company was in compliance with all applicable provisions as of June 30, 2014.

The estimated fair values of mortgages and other notes payable and the line of credit were approximately $860.3 million and $803.7 million as of June 30, 2014 and December 31, 2013, respectively, based on rates and spreads the Company would expect to obtain for similar borrowings with similar loan terms. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to the Company’s mortgage notes payable is categorized as Level 3 on the three-level valuation hierarchy. The estimated fair values of the senior notes was approximately $417.4 million and $410.4 million as of June 30, 2014 and December 31, 2013, respectively, based on prices traded for similar or identical instruments in active or inactive markets and is categorized as level 2 on the three-level valuation hierarchy. The estimated fair value of accounts payable and accrued expenses approximates the carrying value as of June 30, 2014 and December 31, 2013 because of the relatively short maturities of the obligations.

 

9. Derivative Instruments and Hedging Activities:

The Company utilizes derivative instruments to offset partially the effect of fluctuating interest rates on the cash flows associated with its variable-rate debt. The Company follows established risk management policies and procedures in its use of derivatives and does not enter into or hold derivatives for trading or speculative purposes. The Company records all derivative instruments on its balance sheet at fair value. On the date the Company enters into a derivative contract, the derivative is designated as a hedge of the exposure to variable cash flows of a forecasted transaction. The effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently recognized in the statements of operations in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. Any ineffective portion of the gain or loss is reflected in interest expense in the statements of operations.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

9. Derivative Instruments and Hedging Activities (Continued):

 

As of December 31, 2013, the Company had five interest rate swaps that were designed as cash flow hedges of interest payments from their inception. During the six months ended June 30, 2014, two of the loans were paid in full and the corresponding interest rate swaps with an aggregate notional amount of approximately $84.7 million were terminated. As a result, the ineffective portion of the change in fair value resulting from the termination of hedges included in other comprehensive loss in the accompanying condensed consolidated balance sheets was reclassified to interest expense and loan cost amortization in the accompanying condensed consolidated statements of operations in both income (loss) from continuing and discontinued operations for the six months ended June 30, 2014. As of June 30, 2014, the Company had three interest rate swaps. The fair value of the Company’s derivative financial instruments is included in other liabilities in the accompanying condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013.

The following table summarizes the gross and net amounts of the Company’s derivative financial instruments (in thousands):

 

      As of June 30, 2014     Gross Amounts Not Offset in
the Balance Sheets
       
Notional
Amount of
Cash Flow
Hedges
    Gross
Amounts of
Recognized
Liabilities
    Gross Amounts
Offset in the
Balance

Sheets
    Net Amounts of
Liabilities
Presented in the
Balance Sheets
    Financial
Instruments
    Cash
Collateral
    Net Amount  
$ 8,577      $ (776   $ —        $ (776   $ (776   $ —        $ (776
$ 16,352  (1)    $ (109   $ —        $ (109   $ (109   $ —        $ (109
$ 15,000      $ (419   $ —        $ (419   $ (419   $ —        $ (419

 

      As of December 31, 2013     Gross Amounts Not Offset in
the Balance Sheets
       
Notional
Amount of
Cash Flow
Hedges
    Gross
Amounts of
Recognized
Liabilities
    Gross Amounts
Offset in the
Balance

Sheets
    Net Amounts of
Liabilities
Presented in the
Balance Sheets
    Financial
Instruments
    Cash
Collateral
    Net Amount  
$ 61,042      $ (1,748   $ —        $ (1,748   $ (1,748   $ —        $ (1,748
$ 8,746      $ (743   $ —        $ (743   $ (743   $ —        $ (743
$ 16,603  (1)    $ (233   $ —        $ (233   $ (233   $ —        $ (233
$ 15,450      $ (524   $ —        $ (524   $ (524   $ —        $ (524
$ 24,811      $ (446   $ —        $ (446   $ (446   $ —        $ (446

 

FOOTNOTE:

 

(1)  The Company swapped the interest rate on its $20.0 million loan denominated in Canadian dollars to a fixed interest rate of 6.4%. The notional amount has been converted from Canadian dollars to U.S. dollars at an exchange rate of 0.94 Canadian dollars for $1.00 U.S. dollar on June 30, 2014 and December 31, 2013.

As of June 30, 2014, the Company’s remaining three hedges qualified as highly effective and, accordingly, all of the change in value is reflected in other comprehensive income (loss). Determining fair value and testing effectiveness of these financial instruments requires management to make certain estimates and judgments. Changes in assumptions could have a positive or negative impact on the estimated fair values and measured effectiveness of such instruments could, in turn, impact the Company’s results of operations.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

10. Fair Value Measurements:

The Company had 52 investment properties that were classified as assets held for sale and carried at fair value less estimated costs to sell as of June 30, 2014. In addition, the Company had 48 investment properties carried at fair value less estimated costs to sell as of December 31, 2013. The level 3 unobservable inputs used in determining the fair value of the real estate properties include comparable sales transactions, information from potential buyers and management’s estimated cash flows over various holding periods, discounted using a range of estimated capitalization rates. The fair value of 52 properties, which approximates 100% of the assets held for sale as of June 30, 2014, was derived based upon information received from potential buyers.

The Company’s derivative instruments are valued primarily based on inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, volatilities, and credit risks) and are classified as Level 2 in the fair value hierarchy. The valuation of derivative instruments also includes a credit value adjustment which is a Level 3 input. However, the impact of the assumption is not significant to its overall valuation calculation, and therefore the Company considers its derivative instruments to be classified as Level 2. The fair value of such instruments is included in other liabilities in the accompanying unaudited condensed consolidated balance sheets.

The following tables show the fair value of the Company’s financial assets and liabilities carried at fair value as of June 30, 2014 and December 31, 2013, as follows (in thousands):

 

     Fair Value
Measurement
as of

June 30,
2014
     Level 1      Level 2      Level 3  

Assets:

           

Assets held for sale carried at fair value

   $ 328,277       $ —         $ —         $ 328,277   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative instruments

   $ 1,304       $ —         $ 1,304       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value
Measurement
as of
December 31,
2013
     Level 1      Level 2      Level 3  

Assets:

           

Assets held for sale carried at fair value

   $ 90,794       $ —         $ —         $ 90,794   
  

 

 

    

 

 

    

 

 

    

 

 

 

Real estate investment properties, net carried at fair value

   $ 304,703       $ —         $ —         $ 304,703   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative instruments

   $ 3,694       $ —         $ 3,694       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11. Related Party Arrangements:

In March 2014, the Company’s Advisor amended its advisory agreement, effective April 1, 2014, to eliminate all acquisition fees on equity, performance fees, debt acquisition fees and disposition fees, and to reduce asset management fees to 0.075% monthly (or 0.90% annually) of invested assets. The Company’s Advisor will consider further reductions in the asset management fees if the Company has not materially begun to execute an exit event or events before April 1, 2015.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

11. Related Party Arrangements (Continued):

 

For the quarters and six months ended June 30, 2014 and 2013, respectively, the Advisor collectively earned fees and incurred reimbursable expenses as follows (in thousands):

 

     Quarter Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013  

Acquisition fees:

           

Acquisition fees from distribution reinvestment plan (1)

   $ —         $ 319       $ 319       $ 641   

Acquisition fees from debt proceeds (2)

     —           —           1,521         234   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           319         1,840         875   
  

 

 

    

 

 

    

 

 

    

 

 

 

Asset management fees (3)

     7,507         9,212         16,078         18,425   
  

 

 

    

 

 

    

 

 

    

 

 

 

Reimbursable expenses: (4)

           

Acquisition costs

     61         76         138         143   

Operating expenses

     1,791         1,994         3,503         3,680   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,852         2,070         3,641         3,823   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fees earned and reimbursable expenses

   $ 9,359       $ 11,601       $ 21,559       $ 23,123   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

FOOTNOTES:

 

(1)  Amounts are recorded as acquisition fees and costs in the accompanying unaudited condensed consolidated statements of operations. Effective April 1, 2014, the Advisor eliminated this fee going forward.
(2)  Amounts are recorded as loan costs and are included as part of other assets in the accompanying unaudited condensed consolidated balance sheets. Effective April 1, 2014, the Advisor eliminated this fee going forward.
(3)  Amounts are recorded as asset management fees to Advisor in the accompanying unaudited condensed consolidated statements of operations.
(4)  Amounts representing acquisition costs are recorded as part of acquisition fees and costs in the accompanying condensed consolidated statements of operations. Amounts representing operating expenses are recorded as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

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

 

     June 30,
2014
     December 31,
2013
 

Due to the Advisor and its affiliates:

     

Operating expenses

   $ 558       $ 671   

Acquisition fees and expenses

     9         354   
  

 

 

    

 

 

 

Total

   $ 567       $ 1,025   
  

 

 

    

 

 

 

The Company also maintains accounts at a bank in which the Company’s chairman serves as a director. The Company had deposits at that bank of approximately $13.8 million and $8.6 million as of June 30, 2014 and December 31, 2013, respectively.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

12. Stockholders’ Equity:

Distribution Reinvestment Plan — For the six months ended June 30, 2014, the Company received aggregate proceeds of approximately $27.2 million (representing 4.0 million shares) through its DRP.

Distributions — For the six months ended June 30, 2014, the Company declared and paid distributions of approximately $68.7 million ($0.2126 per share).

Redemption of Shares — The aggregate amount of funds under the redemption plan will be determined on a quarterly basis in the sole discretion of the Company’s board of directors, and may be less than but is not expected to exceed the aggregate proceeds from the Company’s DRP (subject to a $3.0 million quarterly cap which has been established by the Company’s board of directors).

In March 2014, the Company’s Board approved a revised estimated net asset value (“NAV”) of $6.85 per share as of December 31, 2013 and redemptions were processed at that price effective March 2014. Prior to March 2014, the Company’s redemption plan provided for redemptions of its common stock at prices ranging between 92.5% and 100.0% of its current estimated NAV per share, depending on the length of time that the shares were owned. In March 2014, the Company’s Board approved the Fourth Amended and Restated Redemption Plan which discontinued the tiered redemption price structure and permitted shares that have been held for at least one year to be submitted for redemption at an amount equal to the Company’s NAV per share as of the redemption date. The following details the Company’s redemptions for the six months ended June 30, 2014 (in thousands, except per share data):

 

2014 Quarters    First     Second     Year-To-Date  

Requests in queue

     10,547        10,798        10,547   

Redemptions requested

     778        864        1,642   

Shares redeemed:

      

Prior period requests

     (135     (80     (215

Current period requests

     (300     (369     (669

Adjustments (1)

     (92     (404     (496
  

 

 

   

 

 

   

 

 

 

Pending redemption requests (2)

     10,798        10,809        10,809   
  

 

 

   

 

 

   

 

 

 

Average price paid per share

   $ 6.85      $ 6.85      $ 6.85   
  

 

 

   

 

 

   

 

 

 

 

FOOTNOTES:

 

(1)  This amount represents redemption request cancellations and other adjustments.
(2)  Requests that are not fulfilled in whole during a particular quarter will be redeemed on a pro rata basis to the extent funds are made available pursuant to the redemption plan.

 

13. Supplemental Condensed Consolidating Financial Statements:

The Company had issued senior obligations which are guaranteed by certain of the Company’s consolidated subsidiaries (the “Guarantor Subsidiaries”). The guarantees are joint and several, full and unconditional.

 

17


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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

The following summarizes the Company’s unaudited condensed consolidating balance sheets as of June 30, 2014 and December 31, 2013, statement of operations, statement of comprehensive income (loss) and statement of cash flows for the six months ended June 30, 2014 and 2013 (in thousands):

Condensed Consolidating Balance Sheet:

 

     As of June 30, 2014  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  
ASSETS           

Real estate investment properties, net

   $ —        $ 536,361      $ 1,268,537      $ —        $ 1,804,898   

Assets held for sale, net

     —          322,346        5,931          328,277   

Investments in unconsolidated entities

     —          130,099        —          —          130,099   

Investments in subsidiaries

     1,629,289        1,310,315        1,885,233        (4,824,837     —     

Cash

     60,725        32,188        28,388        —          121,301   

Mortgages and other notes receivable, net

     —          49,130        101,135        (45,693     104,572   

Deferred rent and lease incentives

     —          29,669        31,046        —          60,715   

Restricted cash

     68        26,668        29,004        —          55,740   

Other assets

     12,007        21,560        19,409        —          52,976   

Intangibles, net

     —          9,358        16,579        —          25,937   

Accounts and other receivables, net

     —          8,987        16,067        —          25,054   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,702,089      $ 2,476,681      $ 3,401,329      $ (4,870,530   $ 2,709,569   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY           

Mortgages and other notes payable

   $ —        $ 280,012      $ 472,640      $ (44,623   $ 708,029   

Senior notes, net of discount

     394,587        —          —          —          394,587   

Line of credit

     —          152,500        —          —          152,500   

Other liabilities

     —          42,925        51,434        —          94,359   

Accounts payable and accrued expenses

     10,844        25,197        28,419        (1,070     63,390   

Due to affiliates

     521        23        23        —          567   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     405,952        500,657        552,516        (45,693     1,413,432   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

          

Stockholders’ equity:

          

Preferred stock, $.01 par value per share

       —          —          —          —     

Excess shares, $.01 par value per share

     —          —          —          —          —     

Common stock, $.01 par value per share

     3,257        —          —          —          3,257   

Capital in excess of par value

     2,867,433        6,361,641        8,951,600        (15,313,241     2,867,433   

Accumulated earnings (deficit)

     (430,843     85,373        37,656        (123,029     (430,843

Accumulated distributions

     (1,142,142     (4,470,990     (6,138,875     10,609,865        (1,142,142

Accumulated other comprehensive loss

     (1,568     —          (1,568     1,568        (1,568
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,296,137        1,976,024        2,848,813        (4,824,837     1,296,137   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,702,089      $ 2,476,681      $ 3,401,329      $ (4,870,530   $ 2,709,569   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Balance Sheet:

 

     As of December 31, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  
ASSETS           

Real estate investment properties, net

   $ —        $ 846,914      $ 1,222,059      $ —        $ 2,068,973   

Assets held for sale, net

     —          6,106        84,688        —          90,794   

Investments in unconsolidated entities

     —          132,324        —          —          132,324   

Investments in subsidiaries

     1,726,328        1,150,443        1,865,714        (4,742,485     —     

Cash

     37,668        15,671        18,235        —          71,574   

Mortgages and other notes receivable, net

     —          45,947        114,469        (42,453     117,963   

Deferred rent and lease incentives

     —          29,839        27,539        —          57,378   

Restricted cash

     33        26,595        24,707        —          51,335   

Other assets

     11,355        15,829        25,126        —          52,310   

Intangibles, net

     —          18,094        18,828        —          36,922   

Accounts and other receivables, net

     —          12,241        8,839        —          21,080   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,775,384      $ 2,300,003      $ 3,410,204      $ (4,784,938   $ 2,700,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY           

Mortgages and other notes payable

   $ —        $ 246,295      $ 555,433      $ (41,536   $ 760,192   

Senior notes, net of discount

     394,419        —          —          —          394,419   

Line of credit

     —          50,000        —          —          50,000   

Other liabilities

     —          33,447        43,369        —          76,816   

Accounts payable and accrued expenses

     11,584        13,526        25,630        (917     49,823   

Due to affiliates

     1,003        8        14        —          1,025   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     407,006        343,276        624,446        (42,453     1,332,275   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

          

Stockholders’ equity:

          

Preferred stock, $.01 par value per share

     —          —          —          —          —     

Excess shares, $.01 par value per share

     —          —          —          —          —     

Common stock, $.01 par value per share

     3,226        —          —          —          3,226   

Capital in excess of par value

     2,846,265        6,027,607        8,700,131        (14,727,738     2,846,265   

Accumulated earnings (deficit)

     (401,985     58,777        9,853        (68,630     (401,985

Accumulated distributions

     (1,073,422     (4,129,657     (5,918,520     10,048,177        (1,073,422

Accumulated other comprehensive loss

     (5,706     —          (5,706     5,706        (5,706
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,368,378        1,956,727        2,785,758        (4,742,485     1,368,378   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,775,384      $ 2,300,003      $ 3,410,204      $ (4,784,938   $ 2,700,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

     For the Quarter Ended June 30, 2014  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenues:

          

Rental income from operating leases

   $ —        $ 12,776      $ 21,748      $ —        $ 34,524   

Property operating revenues

     —          27,119        60,189        —          87,308   

Interest income on mortgages and other notes receivable

     —          1,200        2,873        (1,127     2,946   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          41,095        84,810        (1,127     124,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          20,385        49,711        —          70,096   

Asset management fees to advisor

     7,507        —          —          —          7,507   

General and administrative

     3,896        139        1,086        —          5,121   

Ground lease and permit fees

     —          1,858        1,122        —          2,980   

Acquisition fees and costs

     1,279        —          —          —          1,279   

Other operating expenses

     411        318        299        —          1,028   

Bad debt expense (recovery)

     —          2        (11     —          (9

Loss (recovery) on lease terminations

     —          (1,037     296        —          (741

Loan loss provision

     —          —          2,520        —          2,520   

Depreciation and amortization

     —          9,275        21,823        —          31,098   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     13,093        30,940        76,846        —          120,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (13,093     10,155        7,964        (1,127     3,899   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income

     4        71        14        —          89   

Interest expense and loan cost amortization (includes $404 loss on termination of cash flow hedge)

     (7,895     (4,679     (8,260     1,127        (19,707

Loss on extinguishment of debt

     —          —          (196     —          (196

Equity in loss of unconsolidated entities

     —          (526     —          —          (526

Equity in earnings (loss), intercompany

     12,479        14,176        29,941        (56,596     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     4,588        9,042        21,499        (55,469     (20,340
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (8,505     19,197        29,463        (56,596     (16,441

Income from discontinued operations (includes ($2,613 amortization of loss and loss on termination of cash flow hedges)

     —          7,222        714        —          7,936   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (8,505   $ 26,419      $ 30,177      $ (56,596   $ (8,505
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

     For the Quarter Ended June 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenues:

          

Rental income from operating leases

   $ —        $ 14,882      $ 15,341      $ —        $ 30,223   

Property operating revenues

     —          20,938        58,853        —          79,791   

Interest income on mortgages and other notes receivable

     —          1,140        3,285        (1,062     3,363   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          36,960        77,479        (1,062     113,377   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          16,686        49,448        —          66,134   

Asset management fees to advisor

     9,212        —          —          —          9,212   

General and administrative

     4,432        287        243        —          4,962   

Ground lease and permit fees

     —          1,463        1,005        —          2,468   

Acquisition fees and costs

     546        —          —          —          546   

Other operating expenses

     318        106        834        —          1,258   

Bad debt expense

     —          2,207        1,826        —          4,033   

Impairment provision

     —          42,451        —          —          42,451   

Depreciation and amortization

     —          9,539        19,298        —          28,837   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     14,508        72,739        72,654        —          159,901   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (14,508     (35,779     4,825        (1,062     (46,524
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income (expense)

     110        31        (70     —          71   

Interest expense and loan cost amortization

     (7,847     (3,809     (5,803     1,062        (16,397

Equity in earnings of unconsolidated entities

     —          6,159          —          6,159   

Equity in earnings (loss), intercompany

     (32,960     5,699        (25,119     52,380        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (40,697     8,080        (30,992     53,442        (10,167
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (55,205     (27,699     (26,167     52,380        (56,691

Income (loss) from discontinued operations (includes $413 amortization of loss on termination of cash flow hedges)

     —          2,161        (675     —          1,486   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (55,205   $ (25,538   $ (26,842   $ 52,380      $ (55,205
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

     For the Six Months Ended June 30, 2014  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenues:

          

Rental income from operating leases

   $ —        $ 28,944      $ 48,434      $ —        $ 77,378   

Property operating revenues

     —          30,310        108,666        —          138,976   

Interest income on mortgages and other notes receivable

     —          2,385        5,933        (2,239     6,079   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          61,639        163,033        (2,239     222,433   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          28,779        92,321        —          121,100   

Asset management fees to advisor

     16,078        —          —          —          16,078   

General and administrative

     7,274        364        1,479        —          9,117   

Ground lease and permit fees

     —          3,756        2,867        —          6,623   

Acquisition fees and costs

     2,003        —          —          —          2,003   

Other operating expenses

     422        526        843        —          1,791   

Bad debt expense

     —          2        995        —          997   

Loss on lease terminations

     —          (1,037     296        —          (741

Loan loss provision

     —          —          2,520        —          2,520   

Depreciation and amortization

     —          19,117        43,915        —          63,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     25,777        51,507        145,236        —          222,520   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (25,777     10,132        17,797        (2,239     (87
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income (expense)

     11        153        (73     —          91   

Interest expense and loan cost amortization (includes $404 loss on termination of cash flow hedge)

     (15,798     (8,401     (16,807     2,239        (38,767

Loss on extinguishment of debt

     —          —          (196     —          (196

Equity in earnings of unconsolidated entities

     —          3,773        —          —          3,773   

Equity in earnings (loss), intercompany

     12,706        16,008        25,685        (54,399     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (3,081     11,533        8,609        (52,160     (35,099
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (28,858     21,665        26,406        (54,399     (35,186

Income from discontinued operations (includes ($3,027 amortization of loss and loss on termination of cash flow hedges)

     —          4,931        1,397        —          6,328   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (28,858   $ 26,596      $ 27,803      $ (54,399   $ (28,858
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

     For the Six Months Ended June 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenues:

          

Rental income from operating leases

   $ —        $ 33,541      $ 36,152      $ —        $ 69,693   

Property operating revenues

     —          21,410        105,184        —          126,594   

Interest income on mortgages and other notes receivable

     —          2,181        6,630        (2,029     6,782   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          57,132        147,966        (2,029     203,069   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          23,262        90,124        —          113,386   

Asset management fees to advisor

     18,425        —          —          —          18,425   

General and administrative

     7,931        379        645        —          8,955   

Ground lease and permit fees

     —          3,575        2,895        —          6,470   

Acquisition fees and costs

     913        —          —          —          913   

Other operating expenses

     491        —          1,445        —          1,936   

Bad debt expense

     —          2,214        1,845        —          4,059   

Impairment provision

     —          42,451        —          —          42,451   

Depreciation and amortization

     —          19,189        38,406        —          57,595   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     27,760        91,070        135,360        —          254,190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (27,760     (33,938     12,606        (2,029     (51,121
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income (expense)

     115        384        (102     —          397   

Interest expense and loan cost amortization

     (15,704     (7,812     (11,174     2,029        (32,661

Equity in earnings of unconsolidated entities

     —          5,036          —          5,036   

Equity in earnings (loss), intercompany

     (35,155     8,337        (27,751     54,569        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (50,744     5,945        (39,027     56,598        (27,228
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (78,504     (27,993     (26,421     54,569        (78,349

Income (loss) from discontinued operations (includes $827 amortization of loss on termination of cash flow hedges)

     —          1,128        (1,283     —          (155
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (78,504   $ (26,865   $ (27,704   $ 54,569      $ (78,504
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Other Comprehensive Income (Loss):

 

     For the Quarter Ended June 30, 2014  
     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (8,505   $ 26,419       $ 30,177       $ (56,596   $ (8,505
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss):

            

Foreign currency translation adjustments

     784        —           784         (784     784   

Changes in fair value of cash flow hedges:

            

Amortization of loss and loss on termination of cash flow hedges

     3,017        —           3,017         (3,017     3,017   

Unrealized gain (loss) arising during the period

     290        —           290         (290     290   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total other comprehensive income (loss)

     4,091        —           4,091         (4,091     4,091   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

   $    (4,414   $   26,419       $   34,268       $ (60,687   $ (4,414
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     For the Quarter Ended June 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (55,205   $ (25,538   $ (26,842   $ 52,380      $ (55,205
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

          

Foreign currency translation adjustments

     (754     —          (754     754        (754

Changes in fair value of cash flow hedges:

          

Amortization of loss on termination of cash flow hedges

     413        —          413        (413     413   

Unrealized gain (loss) arising during the period

     1,020        —          1,020        (1,020     1,020   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     679        —          679        (679     679   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (54,526   $ (25,538   $ (26,163   $ 51,701      $ (54,526
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Other Comprehensive Income (Loss):

 

     For the Six Months Ended June 30, 2014  
     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (28,858   $ 26,596       $ 27,803       $ (54,399   $ (28,858
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss):

            

Foreign currency translation adjustments

     95        —           95         (95     95   

Changes in fair value of cash flow hedges:

            

Amortization of loss and loss on termination of cash flow hedges

     3,431        —           3,431         (3,431     3,431   

Unrealized gain (loss) arising during the period

     612        —           612         (612     612   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total other comprehensive income (loss)

     4,138        —           4,138         (4,138     4,138   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

   $ (24,720   $ 26,596       $ 31,941       $ (58,537   $ (24,720
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     For the Six Months Ended June 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (78,504   $ (26,865   $ (27,704   $ 54,569      $ (78,504
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

          

Foreign currency translation adjustments

     (1,214     —          (1,214     1,214        (1,214

Changes in fair value of cash flow hedges:

          

Amortization of loss on termination of cash flow hedges

     827        —          827        (827     827   

Unrealized gain (loss) arising during the period

     1,399        —          1,399        (1,399     1,399   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     1,012        —          1,012        (1,012     1,012   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (77,492   $ (26,865   $ (26,692   $ 53,557      $ (77,492
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Cash Flows:

 

     For the Six Months Ended June 30, 2014  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Operating activities:

          

Net cash provided by (used in) operating activities

   $ (42,915   $ 58,571      $ 61,101      $ —        $ 76,757   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Acquisition of property

     —          —          (53,050     —          (53,050

Capital expenditures

     —          (19,768     (24,297     —          (44,065

Proceeds from sale of properties

     —          —          73,453        —          73,453   

Principal payments received on mortgage loans receivable

     —          29        2,345        —          2,374   

Changes in restricted cash

     (35     (73     (4,326     —          (4,434

Other

     (494     7        37        —          (450

Intercompany investing

     114,022        —          —          (114,022     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     113,493        (19,805     (5,838     (114,022     (26,172
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Redemptions of common stock

     (5,977     —          —          —          (5,977

Distributions to stockholders, net of reinvestments

     (41,544     —          —          —          (41,544

Proceeds under line of credit

     —          102,500        —          —          102,500   

Proceeds from mortgage loans and other notes payable

     —          40,000        10,702        —          50,702   

Principal payments on mortgage loans and senior notes

     —          (2,775     (97,370     —          (100,145

Principal payments on capital leases

     —          (1,722     (620     —          (2,342

Payment of entrance fee refunds

     —          —          (1,257     —          (1,257

Payment of loan costs

     —          (2,348     (536     —          (2,884

Intercompany financing

     —          (157,904     43,882        114,022        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (47,521     (22,249     (45,199     114,022        (947
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuation on cash

     —          —          89        —          89   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash

     23,057        16,517        10,153        —          49,727   

Cash at beginning of period

     37,668        15,671        18,235        —          71,574   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at end of period

   $ 60,725      $ 32,188      $ 28,388      $ —        $ 121,301   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

13. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Cash Flows:

 

     For the Six Months Ended June 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Operating activities:

          

Net cash provided by (used in) operating activities

   $ (41,714   $ 66,180      $ 57,699      $ —        $ 82,165   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Acquisition and deposits on real estate investments

     —          —          (22,000     —          (22,000

Capital expenditures

     —          (16,359     (22,405     —          (38,764

Proceeds from sale of properties

     —          11,600        (325     —          11,275   

Proceeds from release of collateral on loan payable

     —          —          11,167        —          11,167   

Principal payments received on mortgage loans receivable

     —          23        4,185        —          4,208   

Changes in restricted cash

     36        (6,271     (5,292     —          (11,527

Other

     (750     —          (315     —          (1,065

Intercompany investing

     84,738        —          —          (84,738     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     84,024        (11,007     (34,985     (84,738     (46,706
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Redemptions of common stock

     (5,995     —          —          —          (5,995

Distributions to stockholders, net of reinvestments

     (39,982     —          —          —          (39,982

Proceeds under line of credit

     —          50,000        —          —          50,000   

Proceeds from mortgage loans and other notes payable

     —          —          30,000        —          30,000   

Principal payments on line of credit

     —          (40,000     —          —          (40,000

Principal payments on mortgage loans and senior notes

     —          (5,930     (4,330     —          (10,260

Principal payments on capital leases

     —          (264     (788     —          (1,052

Payment of loan costs

     —          —          (749     —          (749

Intercompany financing

     —          (48,763     (35,975     84,738        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (45,977     (44,957     (11,842     84,738        (18,038
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuation on cash

     —          —          (73     —          (73
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (3,667     10,216        10,799        —          17,348   

Cash at beginning of period

     39,219        14,125        19,880        —          73,224   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at end of period

   $ 35,552      $ 24,341      $ 30,679      $ —        $ 90,572   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

 

14. Commitments and Contingencies:

From time to time the Company may be exposed to litigation arising from operations of its business in the ordinary course of business. Management is not aware of any litigation that it believes will have a material adverse impact on the Company’s financial condition or results of operations.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion is based on our unaudited condensed consolidated financial statements as of June 30, 2014 and December 31, 2013 and for the six months ended June 30, 2014 and 2013 of CNL Lifestyle Properties, Inc. and its subsidiaries (hereinafter referred to as the “Company,” “we,” “us,” or “our”). Amounts as of December 31, 2013 included in the unaudited condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as the audited consolidated financial statements, notes and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2013. Capitalized terms used in this Item 2 have the same meaning as in the accompanying condensed financial statements.

Cautionary Note Regarding Forward-Looking Statements

Statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q that are not statements of historical or current fact may constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that do not relate strictly to historical or current facts, but reflect management’s current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company’s business and its performance, the economy, and other future conditions and forecasts of future events, and circumstances. Forward-looking statements are typically identified by words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “continues,” “pro forma,” “may,” “will,” “seeks,” “should” and “could,” and words and terms of similar substance in connection with discussions of future operating or financial performance, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimated per share net asset value of the Company’s common stock, and/or other matters. The Company’s forward-looking statements are not guarantees of future performance. While the Company’s management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. The Company’s forward-looking statements are based on management’s current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company’s ability to control or accurately predict. 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 due to a variety of risks, uncertainties and other factors. Given these uncertainties, the Company cautions you not to place undue reliance on such statements.

Important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements include, but are not limited to, government regulation, economic, strategic, political and social conditions, and the following: risks associated with the Company’s investment strategy; a worsening economic environment in the U.S. or globally, including financial market fluctuations; risks associated with real estate markets, including declining real estate values; risks of doing business internationally, including currency risks; the Company’s failure to obtain, renew or extend necessary financing or to access the debt or equity markets; the use of debt to finance the Company’s business activities, including refinancing and interest rate risk and the Company’s failure to comply with debt covenants; failure to successfully manage growth or integrate acquired properties and operations; the Company’s inability to make necessary improvements to properties on a timely or cost-efficient basis; risks related to property expansions and renovations; competition for properties and/or tenants; defaults on or non-renewal of leases by tenants; failure to lease properties on favorable terms or at all; the impact of current and future environmental, zoning and other governmental regulations affecting the Company’s properties; the impact of changes in accounting rules; the impact of regulations requiring periodic valuation of the Company on a per share basis; inaccuracies of the Company’s accounting estimates; unknown liabilities of acquired properties or liabilities caused by property managers or operators; material adverse actions or omissions by any joint venture partners; increases in operating costs and other expenses; uninsured losses or losses in excess of the Company’s insurance coverage; the impact of outstanding and/or potential litigation; risks associated with the Company’s tax structuring; failure to maintain the Company’s REIT qualification; and the Company’s inability to protect its intellectual property and the value of its brand. Given these uncertainties, the Company cautions you not to place undue reliance on such statements.

For further information regarding risks and uncertainties associated with the Company’s business, and important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the Company’s documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, the Company’s quarterly reports on Form 10-Q, and the Company’s annual report on Form 10-K, copies of which may be obtained from the Company’s website at www.cnllifestylereit.com.

 

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All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.

GENERAL

CNL Lifestyle Properties, Inc. is a Maryland corporation incorporated on August 11, 2003. We were formed primarily to acquire lifestyle properties in the United States that we generally lease on a long-term, triple-net basis (generally five to 20 years, plus multiple renewal options) to tenants or operators that we consider to be industry leading. We also engage third-party managers to operate certain properties on our behalf as permitted under applicable tax regulations. We define lifestyle properties as those properties that reflect or are impacted by the social, consumption and entertainment values and choices of our society. When beneficial to our investment structure and as a result of tenant defaults, we engage third-party managers to operate certain properties on our behalf as permitted under applicable tax regulations. We have also made loans (including mortgage, mezzanine and other loans) generally collateralized by interests in real estate. We have engaged CNL Lifestyle Advisor Corporation (the “Advisor”) as our Advisor to provide management, acquisition, disposition, advisory and administrative services.

Our principal business objectives include investing in and owning a diversified portfolio of real estate with a goal to preserve, protect and enhance the long-term value of those assets. We have built a portfolio of properties that we consider to be well-diversified by region, asset type and operator. As of August 8, 2014, we had 151 lifestyle properties of which 53 properties (52 consolidated properties and one unconsolidated property held through one joint venture) are classified as held for sale. When aggregated by initial purchase price, the portfolio is diversified as follows: approximately 25% in ski and mountain lifestyle, 19% in golf, 19% in senior housing, 22% in attractions, 6% in marinas and 9% in additional lifestyle properties.

As a mature real estate investment trust (“REIT”), a significant focus is to actively manage our assets and reinvest in our existing properties in order to maximize growth in rental income and property operating incomeWe are evaluating each of our properties on a rigorous and ongoing basis and in an effort to optimize and enhance the value of our assets, and we may consider selling certain properties in preparation for an exit strategy on or before December 31, 2015. In March 2014, we engaged Jefferies LLC, a leading global investment banking and advisory firm, to assist management and our board of directors in actively evaluating various strategic opportunities including the sale of either us or our assets, potential merger opportunities, or the listing of our common stock. To the extent we determine to sell certain assets, we will evaluate these assets for impairment in accordance with our accounting policy. We anticipate that proceeds from any future sales will be used to retire indebtedness, invest in new assets or to enhance existing assets. We have and may continue to reposition certain assets by making strategic tenant or operator changes for properties that we believe will benefit from a new operator based on specific expertise or geographic concentrations that a particular operator possesses. In June 2014, we signed a purchase and sale agreement to sell our golf portfolio, consisting of 48 properties, to a third-party buyer. We expect to complete the sale by end of 2014.

We currently operate and have elected to be taxed as a REIT for federal income tax purposes. As a REIT, we generally will not be subject to federal income tax at the corporate level to the extent that we distribute at least 100% of our REIT taxable income and capital gains to our stockholders and meet other compliance requirements. We are subject to income taxes on taxable income from certain properties operated by third-party managers. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on all of our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially and adversely affect our operating results and cash flows. However, we believe that we are organized and have operated in a manner to qualify for treatment as a REIT beginning with the year ended December 31, 2004. In addition, we intend to continue to be organized and to operate so as to remain qualified as a REIT for federal income tax purposes.

Portfolio Trends

A large number of the properties in our real estate portfolio are operated by third-party tenant operators under long-term triple-net leases for which we report rental income and are not directly exposed to the variability of property-level operating revenues and expenses. We also engage third-party managers to operate certain properties on our behalf for which we record the property-level operating revenues and expenses and are directly exposed to the variability of the property’s operations which impacts our results of operations. We believe that the financial and operational performance of our tenants and managers, and the general conditions of the industries within which they operate, provide indicators about our tenants’ health and their ability to pay contractually obligated rent. For example, positive growth in visitation and per capita spending may result in our receipt of additional percentage rent and, conversely, declines may impact our tenants’ ability to pay rent to us.

The following table illustrates property level revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) reported to us by our tenants and managers for the asset types below and includes both our leased and managed properties. We have only included property-level operating performance for consolidated properties in the table below. Property-level operating

 

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performance from our unconsolidated properties has been excluded because we do not believe it is as relevant and meaningful particularly since we are entitled to cash distribution preferences where we receive a stated return on our investment each year ahead of our partners. Our tenants and managers are contractually required to provide this information to us in accordance with their respective lease and management agreements. While this information has not been audited, it has been reviewed by management to determine whether the information is reasonable and accurate in all material respects. In connection with this review, management reviews monthly property level operating performance versus budgeted expectations, conducts periodic operational review calls with operators and conducts periodic property inspections. We monitor the credit of our tenants by reviewing their rental payment history, timeliness of rent collections, their operational performance on our properties and by monitoring news and industry reports regarding our tenants and their underlying businesses. We have aggregated this performance data on a “same-store” basis only for comparable properties that we have owned during the entirety of all periods presented and have included information for both leased and managed properties. We have not included performance data on acquisitions made after January 1, 2013 because we did not own those properties during the entirety of all periods presented below. For these reasons, we consider the property level data to be performance information that gives us information on trends which does not directly represent our results of operations. We do not consider this information to be a non-GAAP measure which can be reconciled to our GAAP financial statements because it includes performance of properties leased to third-party tenants and excludes performance of any property acquired during the current period presented. However, we believe this information is useful to help readers of our financial statements understand and evaluate trends, events and uncertainties in our business as it relates to our prior periods and to broader industry performance (in thousands):

 

     Number
of
Properties
     Quarter Ended June 30,              
        2014     2013     Increase/(Decrease)  
        Revenue (1)      EBITDA (1)     Revenue (1)      EBITDA (1)     Revenue     EBITDA  

Ski and mountain lifestyle

     17       $ 39,340       $ (13,485   $ 34,913       $ (17,412     12.7     22.6

Golf

     48         46,031         13,151        46,383         13,025        –0.8     1.0

Attractions

     21         80,502         19,466        74,236         16,047        8.4     21.3

Senior housing

     20         17,690         5,480        17,124         5,675        3.3     –3.4

Marinas

     17         9,212         3,162        9,429         3,187        –2.3     –0.8
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     123       $ 192,775       $ 27,774      $ 182,085       $ 20,522        5.9     35.3
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

     
     Number
of
Properties
     Six Months Ended June 30,              
        2014     2013     Increase/(Decrease)  
        Revenue (1)      EBITDA (1)     Revenue (1)      EBITDA (1)     Revenue     EBITDA  

Ski and mountain lifestyle

     17       $ 280,919       $ 96,810      $ 291,159       $ 102,481        –3.5     –5.5

Golf

     48         80,039         22,156        80,723         22,063        –0.8     0.4

Attractions

     21         103,230         10,872        95,347         6,292        8.3     72.8

Senior housing

     20         34,952         10,698        33,799         11,150        3.4     –4.1

Marinas

     17         14,501         4,426        15,475         5,326        –6.3     –16.9
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     123       $ 513,641       $ 144,962      $ 516,503       $ 147,312        –0.6     –1.6
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

     

 

FOOTNOTE:

 

(1)  Property operating results for tenants under leased arrangements are not included in the company’s operating results. Property-level EBITDA above is disclosed before rent and capital reserve payments to us, as applicable.

Overall, for the quarter ended June 30, 2014, our tenants and managers reported to us an increase in property-level revenue and EBITDA of 5.9% and 35.3%, respectively, as compared to the same period in 2013. The increase in property-level revenue was primarily attributable to ski and mountain lifestyle properties, attractions and senior housing properties. Our ski and mountain lifestyle properties experienced an increase due to favorable late-season conditions, including both snowfall and temperature, which allowed several of our ski and lifestyle properties to remain in operation through April. Additionally, some of our ski and lifestyle properties began summer operations, which includes mountain biking, zip-lines and scenic lift rides, in mid-June due to favorable weather conditions. Our attractions properties experienced an increase in revenues due to early season efforts to drive visitation which resulted in an increase in season pass sales as compared to the prior year. In addition, favorable dry weather at certain of our attractions properties located in the West contributed to an increase in attendance. Our senior housing properties experienced an increase due to higher average rate paid by our residents but EBITDA decreased due to higher weather related repairs and maintenance expenses.

 

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Overall, for the six months ended June 30, 2014, our tenants and managers reported to us a decrease in property-level revenue and EBITDA of 0.6% and 1.6%, respectively, as compared to the same period in 2013. The decrease was primarily attributable to our ski and mountain lifestyle properties and our marinas properties. Our ski and mountain lifestyle properties in the Pacific West (specifically California) experienced snow levels that were significantly below historical norms during much of the 2013/2014 ski season as a result of warm temperatures and drought conditions, which caused these properties to experience poor operating results as compared to the 2012/2013 ski season. Our marinas properties experienced a decrease due to record-breaking cold where temperatures fell to unprecedented levels causing temporary closure for certain of our marinas, particularly our marina located in Dallas, Texas, which was temporarily not operational due to significant damage to the docks and other floating structures as a result of an ice storm in Northern Texas. Additionally, our marinas were impacted by the transition of these properties to new managers which we believe will result in future performance growth. The decreases were partially offset by our attractions and senior housing properties. Our attractions properties exhibited an increase primarily due to favorable dry weather at certain of our attractions properties as mentioned above increasing attendance. Our senior housing properties experienced an increase in revenue due to higher average rate paid by our residents. Although revenues were up on our senior housing properties, EBITDA decreased due to the impact of winter storms in several locations where staff were required to stay in buildings overnight, resulting in certain of our properties incurring overtime costs, as well as higher than normal repairs and maintenance and snow removal costs.

When evaluating our senior housing properties’ performance, management reviews operating statistics of the underlying properties, including RevPOU and occupancy levels. RevPOU, which is defined as total revenue divided by number of occupied units, is a widely used performance metric within the healthcare sector. This metric assists us to determine the ability of our operators to achieve market rental rates and to obtain revenues from providing healthcare related services. As of June 30, 2014, the managers for our 20 comparable properties reported to us a decrease in occupancy of 0.5% as compared to the same period in 2013. Our managers reported and an increase in RevPOU of 3.5% and 2.6% for the quarter and six months ended June 30, 2014, respectively, as compared to the same periods in 2013. The increase in RevPOU is primarily attributable to an increase in average rate paid by our residents.

The following table presents same store unaudited property-level information for our senior housing properties as of and for the quarter and six months ended June 30, 2014 and 2013 (in thousands):

 

     Number
of
Properties
     Occupancy        
        As of June 30,     Increase/  
        2014     2013     (Decrease)  

Senior housing

     20         95.6     96.1     –0.5

 

            RevPOU  
     Number
of
Properties
     Quarter Ended            Six Months Ended         
        June 30,      Increase/     June 30,      Increase/  
        2014      2013      (Decrease)     2014      2013      (Decrease)  

Senior housing

     20       $ 3,910       $ 3,777         3.5   $ 3,859       $ 3,761         2.6

Seasonality

Many of the asset classes in which we invest experience seasonal fluctuations due to the nature of their business, geographic location, climate and weather patterns. As a result, these businesses experience seasonal variations in revenues that may require our operators to supplement operating cash from their properties in order to be able to make scheduled rent payments to us. We have structured the leases for certain tenants such that rents are paid on a seasonal schedule with most, if not all, of the rent being paid during the tenant’s seasonally busy operating period.

As part of our portfolio diversification strategy, we have specifically considered the varying and complimentary seasonality of our asset classes and portfolio mix. For example, the peak operating season for our ski and mountain lifestyle assets is highly complimentary to the peak seasons for our attractions and marinas to balance and mitigate the risks associated with seasonality. Generally, seasonality does not significantly affect our recognition of rental income from operating leases due to straight-line revenue recognition in accordance with generally accepted accounting principles (“GAAP”). However, seasonality may impact the timing of when base rent payments are made by our tenants, which impacts our operating cash flows. Additionally, seasonality affects the amount of rental revenue we recognize in connection with capital improvement reserve revenue and percentage rents paid by our tenants, which is recognized in the period in which it is earned and is generally based on a percentage of tenant revenues.

Seasonality also directly impacts certain of our properties where we engage independent third-party operators to manage on our behalf and where we record property operating revenues and expenses rather than straight-line rents from operating leases. These properties will likely generate net operating losses during their non-peak months while generating most, if not all, of their operating income

 

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during their peak operating months. As of August 8, 2014, we had a total of 67 wholly-owned managed properties consisting of one ski and mountain lifestyle property, 13 golf, 20 senior housing properties, 16 attractions properties, and 17 marinas. Our consolidated operating results and cash flows during the first, second and fourth quarters will be lower than the third quarter primarily due to the non-peak operating months of our larger attractions properties.

Operator Transitions, Loan Foreclosure and Provisions

Operator Transitions. In April 2014, we completed the transition of four leased marinas properties to a third-party manager. In connection with the transition, we recorded a loss on lease terminations of approximately $0.3 million. Also in April 2014, we recorded a recovery on lease terminations of approximately $1.0 million due to a change in an estimate for two marinas properties that were transitioned in the fourth quarter of 2013. We anticipate the performance of these properties to improve over time with their new operators.

Loan Foreclosure and Provisions. In April 2014, we foreclosed on an attractions property that served as collateral on one of our mortgage notes receivable. The net carrying value of the collateral was approximately $7.9 million, which approximated the carrying value of the loan.

In June 2014, we recorded a loan loss provision of approximately $2.5 million on one of our mortgage and other notes receivable as a result of uncertainty related to the collectability of the note receivable.

In December 2013, we recorded a loan loss provision in anticipation of restructuring one of our notes receivable, which was collateralized by a ski property, as a result of the borrower having financial difficulties. In April 2014, we completed the restructure which reduced the fixed interest rates with a cap of 11% to a fixed interest rate of 6.5% through end of 2014 and 7% from January 2015 through December 2018. In addition, the maturity date was accelerated from September 2022 to a new maturity date of December 2018. The loan requires interest only payments with principal payment at maturity. The modification is effective as of September 1, 2013.

LIQUIDITY AND CAPITAL RESOURCES

General

Our principal demand for funds will be for operating expenses, debt service and cash distributions to stockholders. Generally, our cash needs will be covered by cash generated from our investments including rental income, property operating income from managed properties, interest payments on the loans we make and distributions from our unconsolidated entities. To the extent we have dispositions, we will use the net sales proceeds to retire indebtedness, invest into new assets or to enhance existing assets. To the extent we have acquisitions, our primary source of funds will be from property dispositions, borrowings and proceeds from our DRP.

We believe that our current liquidity needs for operating expenses, debt service and cash distributions to stockholders will be adequately covered by cash generated from our investments and other sources of available cash. Additionally, as previously discussed, many of our asset classes experience seasonal fluctuations where they make rental payments to us during their peak operating months. As a result, our operating cash flows will fluctuate due to the seasonality of those properties. We believe that we will be able to refinance or repay our debt as it comes due in the ordinary course of business. From time to time, we will consider open market purchases of our senior notes or other indebtedness when considered advantageous.

 

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Sources and Uses of Liquidity and Capital Resources

Cash Flows. Our primary sources of cash include rental income from operating leases, property operating revenues, collection of principal and interest on loans we make, distributions from our unconsolidated entities, proceeds from investment dispositions, borrowings under our revolving line of credit and subscriptions received for common stock through our DRP, offset by payments made for operating expenses, including property operating expenses, asset management fees to our Advisor, debt service payments (principal and interest), and real estate investments (including acquisitions and capital expenditures). The following is a summary of our cash flows (in thousands):

 

     Six Months Ended  
     June 30,  
     2014     2013  

Cash at beginning of period

   $ 71,574      $ 73,224   

Cash provided from (used in):

    

Operating activities

     76,757        82,165   

Investing activities

     (26,172     (46,706

Financing activities

     (947     (18,038

Effect of foreign currency translation on cash

     89        (73
  

 

 

   

 

 

 

Cash at the end of period

   $ 121,301      $ 90,572   
  

 

 

   

 

 

 

Operating Activities. Net cash provided from operating activities decreased $5.4 million or 6.6% for the six months ended June 30, 2014 as compared to the same period in 2013. The decrease is primarily attributable to (i) a reduction in distributions we received from our unconsolidated joint ventures of approximately $13.5 million as a result of the sale of our interest in three unconsolidated senior housing joint ventures in July 2013, (ii) an increase in interest expense on our indebtedness due to additional borrowings, net of prepayments, subsequent to June 30, 2013 and (iii) swap termination fees paid in connection with the termination of two of our cash flows hedges. The decrease is partially offset by an increase in rental revenue from properties acquired subsequent to June 30, 2013 as well as increases in “same-store” rental revenue from leased properties and net operating income on managed properties.

Investing Activities. The change in investing activities for the six months ended June 30, 2014 as compared to the same period in 2013 is primarily attributable to the acquisition of four senior housing properties of approximately $53.1 million during the six months ended June 30, 2014 as compared to one property acquired of approximately $22.0 million during the same period in 2013 and an increase in capital expenditures on our existing properties of approximately $5.3 million. Also, during the six months ended June 30, 2014, we received net sales proceeds of approximately $73.5 million from the sale of our multi-family residential property as compared to net sales proceeds of approximately $11.3 million received from the sale of three properties during the same period in 2013. Lastly, during the six months ended June 30, 2013, one of our lenders returned approximately $11.2 million that was held in an escrow as collateral on an existing loan as compared to zero amount returned during the same period in 2014.

Financing Activities. The change in financing activities for the six months ended June 30, 2014 as compared to the same period in 2013 is primarily attributable to the proceeds received from indebtedness of approximately $153.2 million during the six months ended June 30, 2014 as compared to $80.0 million during the same period in 2013. Debt proceeds have been or will be used to finance the acquisition of several new senior housing communities. This increase was primarily offset by the repayments (early and scheduled principal repayments, as described below) made on our indebtedness, payment of loan costs and principal payments made on our capital leases of approximately $105.4 million during the six months ended June 30, 2014 as compared to approximately $52.1 million for the same period in 2013.

Indebtedness. We have borrowed and may continue to borrow money to acquire properties, fund ongoing enhancements to our portfolio, and pay certain related fees and to cover periodic shortfalls between distributions paid and cash flows from operating activities. See “Distributions” below for additional information. In many cases, we have pledged our assets in connection with such borrowings. The aggregate amount of long-term financing is not expected to exceed 50% of our total assets. As of June 30, 2014, our leverage ratio, calculated as total indebtedness over total assets, was 46.3% (49.4% including our share of unconsolidated assets and debts).

In June 2014, we repaid two of our loans with an aggregate outstanding principal balance of $84.7 million with the net sales proceeds received from selling our multi-family residential property and proceeds from our revolving line of credit in order to take advantage of lower interest rates. Also, in June 2014, we funded the acquisition of three senior housing properties through our revolving line of credit. As of June 30, 2014, our revolving line of credit had an outstanding principal balance of $152.5 million. Furthermore, we made payments of approximately $2.3 million under our capital lease obligations. In the second half of 2014, we expect to use the net sale proceeds from our golf portfolio to repay our revolving line of credit and other existing indebtedness.

 

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In June 2014, we extended the maturity date of our collateralized bridge loan from June 30, 2014 to December 20, 2014 for an extension fee of 0.25%. Simultaneously with the extension, we repaid $7.0 million of the principal balance. As of June 30, 2014, the total outstanding principal balance was approximately $105.0 million.

Certain of our loans require us to meet certain customary financial covenants and ratios including fixed charge coverage ratio, leverage ratio, interest coverage ratio, debt to total assets ratio and limitations on distributions except to maintain our REIT status. In addition, under the terms of the indenture governing our senior notes which place certain limitations on us and certain of our subsidiaries, cash distributions may not exceed 95% of the adjusted funds from operations as defined. We were in compliance with all applicable provisions as of June 30, 2014.

Distributions from Unconsolidated Entities. We are entitled to receive quarterly cash distributions from our unconsolidated entities to the extent there is cash available to distribute. As of June 30, 2014, we had investments in eight properties through two unconsolidated joint ventures, of which one property is classified as held for sale. For the six months ended June 30, 2014, we received distributions of approximately $6.6 million as compared to approximately $20.1 million for the same period in 2013. The decrease is due to the sale of the 42 senior housing properties held through three unconsolidated senior housing joint ventures in July 2013.

The Intrawest Venture is working with the Canada Revenue Authority to resolve matters related to one of its entities. The Intrawest Venture’s maximum exposure relating to these matters is approximately $14.6 million. However, the Intrawest Venture believes the more likely than not resolution will be approximately $1.4 million. As such, an accrual of $1.4 million has been reflected in the financial information of the Intrawest Venture.

Distribution Reinvestment Plan. There is currently no public trading market for our shares. Stockholders are able to purchase shares from us under our DRP. Shares sold under the DRP are offered at our estimated net asset value (“NAV”) which was $6.85 per share as of December 31, 2013. We anticipate we will continue to raise capital through our DRP and will use such proceeds for acquisitions and enhancements, distributions shortfalls and other corporate purposes. For the six months ended June 30, 2014, we received approximately $27.2 million (4.0 million shares) through our DRP.

Mortgages and other Notes Receivable. During the six months ended June 30, 2014 and 2013, we collected principal payments of approximately $2.4 million and $4.2 million, respectively. During the third quarter of 2014, we anticipate the repayment of two outstanding notes receivable with an outstanding principal balance of approximately $79.8 million as of June 30, 2014. We expect to use the funds to further retire our existing indebtedness and make investments in our existing properties.

On May 2, 2014, we filed a registration statement on Form S-3 with the SEC for the purpose of registering an additional 20 million shares of our common stock to be offered for sale pursuant to the DRP. We will offer shares pursuant to the DRP until the earlier of May 2, 2017 or the date that we sell all of the shares registered, unless the offering is extended or terminated by our board of directors.

Acquisitions and Capital Expenditures. During the six months ended June 30, 2014, we acquired four senior housing properties for an aggregate purchase price of approximately $53.1 million. During the six months ended June 30, 2013, we acquired one senior housing property for $22.0 million.

During the six months ended June 30, 2014 and 2013, we funded approximately $44.1 million and $38.8 million, respectively, in capital improvements at our properties.

Related Party Arrangements. Certain affiliates are entitled to receive fees and compensation in connection with the issuance of shares through our DRP, acquisition and operating activities. Amounts incurred relating to these transactions were approximately $17.9 million and $19.3 million for the six months ended June 30, 2014 and 2013, respectively. Of these amounts, approximately $0.6 million and $1.0 million are included in due to affiliates in the unaudited condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, respectively. In addition, these affiliates are entitled to reimbursement of certain expenses and amounts incurred on our behalf in connection with our DRP, acquisitions and operating activities. Reimbursable expenses for the six months ended June 30, 2014 and 2013 were approximately $3.6 million and $3.8 million, respectively.

In March 2014, our Advisor amended the advisory agreement, effective April 1, 2014, to eliminate acquisition fees on equity, performance fees, debt acquisition fees and disposition fees, and to reduce asset management fees to 0.075% monthly (or 0.90% annually) of average invested assets. Our Advisor will consider further reductions in the asset management fees if we have not materially begun to execute an exit event or events before April 1, 2015.

Pursuant to the advisory agreement, we will not reimburse our Advisor for any amount by which total operating expenses paid or incurred by us exceed the greater of 2% of average invested assets or 25% of net income (the “Expense Cap”) in any expense year. For the expense years ended June 30, 2014 and 2013, operating expenses did not exceed the Expense Cap.

 

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Common Stock Redemptions. We redeem shares pursuant to our redemption plan, which is designed to provide eligible stockholders with limited interim liquidity by enabling them to sell shares back to us prior to any listing of our shares. The aggregate amount of funds under the redemption plan will be determined on a quarterly basis in the sole discretion of the board of directors, and may be less than but is not expected to exceed the aggregate proceeds from our DRP (subject to a $3.0 million quarterly cap which has been established by our board). There is currently a sizeable backlog and a waiting list for redemption requests and stockholders will likely wait a long period of time to have their shares redeemed, if ever.

In March 2014, our Board of Directors approved a revised estimated NAV of $6.85 per share as of December 31, 2013 and redemptions were processed at that price effective March 2014. Prior to March 2014, our redemption plan provided for redemptions of our common stock at prices ranging between 92.5% and 100.0% of our current estimated NAV per share, depending on the length of time that the shares were owned. In March 2014, our Board of Directors approved the Fourth Amended and Restated Redemption Plan which discontinued the tiered redemption price structure and permitted shares that have been held for at least one year to be submitted for redemption at an amount equal to our NAV per share as of the redemption date.

In the event there are insufficient funds to redeem all of the shares for which redemption requests have been submitted, redemptions will occur on a pro rata basis at the end of each quarter, with the actual redemption occurring at the beginning of the next quarter at the then current price. Stockholders whose shares are not redeemed due to insufficient funds in that quarter will have their requests carried forward and be honored at such time as sufficient funds exist. In such case, the redemption request will be retained and such shares will be redeemed before any subsequently received redemption requests are honored, subject to certain priority groups for hardship cases. Redeemed shares are considered retired and will not be reissued.

During the six months ended June 30, 2014, we redeemed approximately $6.0 million (0.9 million shares). The following table presents information about our redemptions for the quarter and six months ended June 30, 2014 (in thousands, except per share data):

 

2014 Quarters    First     Second     Year-To-Date  

Requests in queue

     10,547        10,798        10,547   

Redemptions requested

     778        864        1,642   

Shares redeemed:

      

Prior period requests

     (135     (80     (215

Current period requests

     (300     (369     (669

Adjustments (1)

     (92     (404     (496
  

 

 

   

 

 

   

 

 

 

Pending redemption requests (2)

     10,798        10,809        10,809   
  

 

 

   

 

 

   

 

 

 

Average price paid per share

   $ 6.85      $ 6.85      $ 6.85   
  

 

 

   

 

 

   

 

 

 

 

FOOTNOTES:

 

(1)  This amount represents redemption request cancellations and other adjustments.
(2)  Requests that are not fulfilled in whole during a particular quarter will be redeemed on a pro rata basis to the extent funds are made available pursuant to the redemption plan.

Distributions. We declare and pay distributions on a quarterly basis. The amount of distributions declared to our stockholders is determined by our Board of Directors and is dependent upon a number of factors, including:

 

    Sources of cash available for distribution such as expected cash flows from operating activities, funds from operations (“FFO”), modified funds from operations (“MFFO”) and Adjusted EBITDA on a rolling 12 months basis;

 

    Limitations and restrictions contained in the terms of our current and future indebtedness concerning the payment of distributions; and

 

    Other factors such as the avoidance of distribution volatility, our objective of continuing to qualify as a REIT, capital requirements, the general economic environment and other factors.

 

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The following table presents total distributions declared including cash distributions, distributions reinvested and distributions per share for the six months ended June 30, 2014 and 2013 (in thousands, except per share data):

 

                                 Sources of
Distributions
Paid in Cash
 

2014 Quarter

   Distributions
per share
     Total
Distributions
Declared
     Distributions
Reinvested
     Net Cash
Distributions
     Cash flows from
Operating
Activities (1) (2)
 

First

   $ 0.1063       $ 34,278       $ 13,627       $ 20,651       $ 37,560   

Second

     0.1063         34,442         13,549         20,893         39,197   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 0.2126       $ 68,720       $ 27,176       $ 41,544       $ 76,757   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                 Sources of
Distributions
Paid in Cash
 

2013 Quarter

   Distributions
per share
     Total
Distributions
Declared
     Distributions
Reinvested
     Net Cash
Distributions
     Cash flows from
Operating
Activities (1)(2)
 

First

   $ 0.1063       $ 33,611       $ 13,714       $ 19,897       $ 48,644   

Second

     0.1063         33,782         13,697         20,085         33,521   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 0.2126       $ 67,393       $ 27,411       $ 39,982       $ 82,165   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

FOOTNOTES:

 

(1) Cash flows from operating activities calculated in accordance with GAAP are not necessarily indicative of the amount of cash available to pay distributions. For example, GAAP requires that the payment of acquisition fees and costs be classified as a use of cash in operating activities in the statement of cash flows, which directly reduces the measure of cash flows from operations. However, acquisition fees and costs are paid for with debt financings as opposed to operating cash flows. The Board of Directors also uses other measures such as FFO and MFFO in order to evaluate the level of distributions.
(2) The shortfall in cash flows from operating activities versus distributions paid for the quarter ended June 2013 was less than 1% and was funded with borrowings. Distributions for the first quarter of 2013 and for the quarter and six months ended June 30, 2014 were funded with cash flows from operating activities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See our annual report on Form 10-K for the year ended December 31, 2013 for a summary of our Significant Accounting Policies.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Item 1. “Financial Statements” for a summary of the impact of recent accounting pronouncements.

 

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RESULTS OF OPERATIONS

As of June 30, 2014 and 2013, we had invested in 148 and 177 properties, respectively, through the following investment structures:

 

     June 30,  
     2014      2013  

Wholly-owned:

     

Leased properties (4)

     72         72   

Managed properties (1) (2) (4)

     67         54   

Unimproved land

     1         1   

Unconsolidated joint ventures: (3)

     

Leased properties (4)

     8         14   

Managed properties

     —           36   
  

 

 

    

 

 

 
     148         177   
  

 

 

    

 

 

 

 

FOOTNOTES:

 

(1)  As of June 30, 2014 and 2013, wholly-owned managed properties are as follows:

 

     June 30,  
     2014      2013  

Ski & Mountain lifestyle

     1         1   

Golf

     13         13   

Attractions

     16         17   

Senior housing

     20         20   

Marinas

     17         2   

Additional lifestyle

     —           1   
  

 

 

    

 

 

 
     67         54   
  

 

 

    

 

 

 

 

(2)  Under applicable tax regulations, certain properties are permitted to be temporarily managed and certain properties are permitted to be indefinitely managed. As of June 30, 2014 and 2013, 43 and 29 properties, respectively, were temporarily managed and 24 and 25 properties were indefinitely managed under management agreements, respectively.
(3)  In July 2013, we completed the sale of 42 senior housing properties held through three unconsolidated senior housing joint ventures.
(4)  As of June 30, 2014, 52 consolidated properties (35 leased and 17 managed) and one unconsolidated ski and mountain lifestyle property held through one unconsolidated joint venture are classified as held for sale and all are expected to be sold in 2014.

Rental income from operating leases. Rental income for the quarter and six months ended June 30, 2014 increased by approximately $4.3 million and $7.7 million, respectively as compared to the same periods in 2013 primarily attributable to properties acquired subsequent to June 30, 2013 which consisted of two attractions and 12 senior housing properties. The increase was partially offset by the transition of 15 marinas properties from leased to managed structures w