CNL LIFESTYLE PROPERTIES INC - FORM 10-Q

CNL LIFESTYLE PROPERTIES INC - FORM 10-Q - August 13, 2014

Attached files

Attached files

CNL LIFESTYLE PROPERTIES INC Reports

Also read

file	filename
EXCEL - IDEA: XBRL DOCUMENT - CNL LIFESTYLE PROPERTIES INC	Financial_Report.xls
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - CNL LIFESTYLE PROPERTIES INC	d730886dex312.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - CNL LIFESTYLE PROPERTIES INC	d730886dex321.htm
EX-10.1 - PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS - CNL LIFESTYLE PROPERTIES INC	d730886dex101.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - CNL LIFESTYLE PROPERTIES INC	d730886dex311.htm

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

¨	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.

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


		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

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.

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.

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.

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
	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.

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.

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.

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.

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.

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

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

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

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.

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.

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.

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.

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.

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.

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

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

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	)

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	)

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	)

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	)

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	)

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	)

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

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

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.

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.

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 income. We 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

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.

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

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.

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.

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.

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.

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.

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.

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 which were completed during the fourth quarter of 2013 and the second quarter of 2014. The following information summarizes trends in rental income from operating leases and base rents for certain of our properties excluding properties that have been classified as assets held for sale (in thousands):


	Quarter Ended June 30,
Properties Subject to Operating Leases	2014		2013		$ Change			% Change
Ski and mountain lifestyle	$	21,902	$	20,871	$	1,031			4.9	%
Attractions		7,480		4,729		2,751			58.2	%
Senior housing		5,142		20		5,122			25610.0	%
Marinas		—		4,603		(4,603	)		n/a


Total	$	34,524	$	30,223	$	4,301			14.2	%


	Six Months Ended June 30,
Properties Subject to Operating Leases	2014		2013		$ Change			% Change
Ski and mountain lifestyle	$	52,238	$	51,940	$	298			0.6	%
Attractions		13,676		8,755		4,921			56.2	%
Senior housing		9,658		20		9,638			48190.0	%
Marinas		1,806		8,978		(7,172	)		–79.9	%


Total	$	77,378	$	69,693	$	7,685			11.0	%

As of June 30, 2014 and 2013, the weighted-average lease rate for our portfolio of wholly-owned leased properties was 8.6%. These rates are based on annualized straight-line base rent due under our leases and the weighted-average contractual lease basis of our real estate investment properties subject to operating leases. The weighted-average lease rate of our portfolio may fluctuate based on our asset mix, timing of property acquisitions, lease terminations and reductions in rent granted to tenants.

Property operating revenues. Property operating revenues from managed properties, which are not subject to leasing arrangements, are derived from room rentals, food and beverage sales, ski and spa operations, golf operations, membership dues, ticket sales, concessions, waterpark and theme park operations, residential fees at our senior housing properties and other service revenues. The following information summarizes the revenues of our properties that are operated by third-party managers (in thousands):


	Quarter Ended June 30,
Properties Managed Under Third-Party Managers	2014		2013		$ Change			% Change
Ski and mountain lifestyle	$	7,580	$	7,242	$	338			4.7	%
Attractions		52,838		55,266		(2,428	)		–4.4	%
Senior housing		17,691		17,127		564			3.3	%
Marinas		9,199		156		9,043			5796.8	%


Total	$	87,308	$	79,791	$	7,517			9.4	%


	Six Months Ended June 30,
Properties Managed Under Third-Party Managers	2014		2013		$ Change			% Change
Ski and mountain lifestyle	$	25,954	$	24,834	$	1,120			4.5	%
Attractions		65,682		67,748		(2,066	)		–3.0	%
Senior housing		34,961		33,806		1,155			3.4	%
Marinas		12,379		206		12,173			5909.2	%

Total	$	138,976	$	126,594	$	12,382			9.8	%

As of June 30, 2014 and 2013, we had a total of 50 and 35 managed properties (excluding properties that we classified as assets held for sale), respectively, of which certain properties are operated seasonally due to geographic location, climate and weather patterns. The increase in property operating revenues is primarily attributable to the transition of 15 marina properties from leased to managed structures which was completed during the fourth quarter of 2013 and the second quarter of 2014.

Interest income on mortgages and other notes receivable. For the quarter and six months ended June 30, 2014, we earned interest income of approximately $2.9 million and $6.1 million as compared to $3.4 million and $6.8 million, respectively, for the same periods in 2013. The slight decrease is primarily attributable to the reduction in the interest rate on one of our notes as a result of a note restructure which was effective as of September 1, 2013.

Property operating expenses. Property operating expenses from managed properties increased primarily due to the transition of 15 marina properties from leased to managed structures during the fourth quarter of 2013 and the second quarter of 2014. See “Property operating revenues” above for additional information. The following information summarizes the expenses of our properties that are operated by third-party managers (in thousands):


	Quarter Ended June 30,
Properties Managed Under Third-Party Managers	2014		2013		$ Change			% Change
Ski and mountain lifestyle	$	9,010	$	8,685	$	325			3.7	%
Attractions		44,121		45,883		(1,762	)		–3.8	%
Senior housing		12,203		11,389		814			7.1	%
Marinas		4,762		177		4,585			2590.4	%


Total	$	70,096	$	66,134	$	3,962			6.0	%


	Six Months Ended June 30,
Properties Managed Under Third-Party Managers	2014		2013		$ Change			% Change
Ski and mountain lifestyle	$	22,912	$	22,208	$	704			3.2	%
Attractions		65,814		68,291		(2,477	)		–3.6	%
Senior housing		24,426		22,593		1,833			8.1	%
Marinas		7,948		294		7,654			2603.4	%


Total	$	121,100	$	113,386	$	7,714			6.8	%

Asset management fees to advisor. Monthly asset management fees equal to 0.08334% prior to April 1, 2014 and 0.075% effective April 1, 2014 of invested assets are paid to the Advisor for the management of our real estate assets, loans and other permitted investments. For the quarter and six months ended June 30, 2014, asset management fees to our Advisor were approximately $7.5 million and $16.1 million, respectively, as compared to approximately $9.2 million and $18.4 million, for the quarter and six months ended June 30, 2013, respectively. The decrease in such fees is primarily attributable to the reduction in asset fee rates described above and a sale of our interests in 42 senior housing properties held through three unconsolidated senior housing joint ventures in July 2013.

General and administrative. General and administrative expenses totaled approximately $5.1 million and $9.1 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $5.0 million and $9.0 million for the quarter and six months ended June 30, 2013, respectively.

Ground leases and permit fees. Ground lease payments and land permit fees are generally based on a percentage of gross revenue of the underlying property over certain thresholds. For properties that are subject to leasing arrangements, ground leases and permit fees are paid by the tenants in accordance with the terms of our leases with those tenants and we record the corresponding equivalent revenues in rental income from operating leases. For the quarter and six months ended June 30, 2014, ground lease and land permit fees were approximately $3.0 million and $6.6 million, respectively, as compared to approximately $2.5 million and $6.5 million for the quarter and six months ended June 30, 2013, respectively.

Acquisition fees and costs. Acquisition fees were paid to our Advisor for services in connection with the selection, purchase, development or construction of real property and through March 31, 2014, were generally 3% of proceeds received through our DRP. Acquisition fees and costs totaled approximately $1.3 million and $2.0 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $0.5 million and $0.9 million for the quarter and six months ended June 30, 2013, respectively. The increase is primarily attributable to the acquisition costs on four senior housing properties acquired during the six months ended June 30, 2014 as compared to one property acquired during the same period in 2013. Acquisition costs are third-party due diligence fees and transaction costs incurred in connection with the acquiring properties which are deemed as business combinations under applicable GAAP.

Other operating expenses. Other operating expenses were approximately $1.0 million and $1.8 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $1.3 million and $1.9 million for the quarter and six months ended June 30, 2013, respectively.

Bad debt (recovery) expense. Bad debt (recovery) expense totaled approximately ($0.01) million and $1.0 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $4.0 million and $4.1 million for the quarter and six months ended June 30, 2013, respectively. During the quarter and six months ended June 30, 2013, we established reserves of uncollectible past due rents on our 15 marinas properties that were transitioning from leased to managed structures which was completed in the fourth quarter of 2013 and the second quarter of 2014. During the same periods of 2014, we established reserves of uncollectible past due rent on the four marinas properties that were transitioned from leased to managed structures during the second quarter of 2014.

Recovery on lease terminations. Recovery on lease terminations was approximately $0.7 million for the quarter and six months ended June 30, 2014 as a result of the transition of certain marinas properties. See “Operator Transition, Loan Foreclosure and Provisions” above for additional information. There were no lease terminations during the same periods in 2013.

Loan loss provision. Loan loss provision was approximately $2.5 million for the quarter and six months ended June 30, 2014 as a result of uncertainty in the collectability of one of our notes receivable. See “Operator Transition, Loan Foreclosure and Provisions” above for additional information. There was no loan loss provision for the same periods in 2013.

Impairment provision. Impairment provision was approximately $42.5 million for the quarter and six months ended June 30, 2013. During the quarter ended June 30, 2013, due to the change in plans on our unimproved land, we evaluated the carrying value based on comparable land sale transactions and determined that the carrying value was not recoverable and an impairment provision was recorded.

Depreciation and amortization. Depreciation and amortization expenses were approximately $31.1 million and $63.0 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $28.8 million and $57.6 million for the quarter and six months ended June 30, 2013, respectively. The increase is primarily due to new properties acquired subsequent to June 30, 2013.

Interest and other income. Interest and other income was approximately $0.1 million for both the quarter and six months ended June 30, 2014 as compared to approximately $0.1 million and $0.4 million for the quarter and six months ended June 30, 2013, respectively.

Interest expense and loan cost amortization. Interest expense and loan cost amortization was approximately $19.7 million and $38.8 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $16.4 million and $32.7 million for the quarter and six months ended June 30, 2013, respectively. The increase was due to additional indebtedness obtained subsequent to June 30, 2013 and the recording of $0.4 million for the ineffective portion of the change in fair value resulting from the termination of hedge. See Note 9. “Derivative Instruments and Hedging Activities” for additional information.

Loss on extinguishment of debt. Loss on extinguishment of debt was approximately $0.2 million for the quarter and six months ended June 30, 2014 as a result of an early repayment on one of our loans with a principal outstanding balance of approximately $24.6 million as of June 30, 2014. See “Liquidity and Capital Resources – Indebtedness” above for additional information.

Equity in earnings (loss) of unconsolidated entities. The following table summarizes equity in earnings (loss) from our unconsolidated entities (in thousands):


	Quarter Ended June 30,
	2014			2013		$ Change			% Change

DMC Partnership	$	2,720		$	2,719	$	1			0.0	%
Intrawest Venture		(3,246	)		1,480		(4,726	)		–319.3	%
CNLSun I Venture		—			627		(627	)		n/a
CNLSun II Venture		—			762		(762	)		n/a
CNLSun III Venture		—			571		(571	)		n/a


Total	$	(526	)	$	6,159	$	(6,685	)		–108.5	%


	Six Months Ended June 30,
	2014			2013			$ Change			% Change

DMC Partnership	$	5,409		$	5,409		$	—			0.0	%
Intrawest Venture		(1,636	)		2,762			(4,398	)		–159.2	%
CNLSun I Venture		—			(1,804	)		1,804			n/a
CNLSun II Venture		—			(509	)		509			n/a
CNLSun III Venture		—			(822	)		822			n/a


Total	$	3,773		$	5,036		$	(1,263	)		–25.1	%

Equity in earnings (loss) of unconsolidated entities decreased by approximately $6.7 million and $1.3 million for the quarter and six months ended June 30, 2014 as compared to the same periods in 2013. The change was primarily due to the depreciation and amortization catch up in connection with the reclassification of the six Intrawest village retail properties from assets held for sale to held and used. See Note 6. Variable Interest and Unconsolidated Entities” for additional information. Also, in July 2013, we completed the sale of our interest in 42 senior housing properties held through the CNLSun I, CNLSun II and CNLSun III Ventures, as such, there was no equity in earnings (loss) allocated to us from the aforementioned ventures.

Discontinued operations. Income (loss) from discontinued operations was approximately $7.9 million and $6.3 million for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $1.5 million and ($0.2) million for the quarter and six months ended June 30, 2013, respectively. The results of operations of 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. The increase was primarily attributable to a lower depreciable basis as a result of an impairment provision recorded in December 2013, which reduced the depreciation and amortization expenses during the first quarter of 2014 on certain golf properties as well as the discontinuation of depreciation and amortization expenses on the golf portfolio as a result of the assets being classified as held for sale in March 2014. The increase was also due to a gain on extinguishment of debt related to an early repayment on one of our loans, with an outstanding principal balance of approximately $60.1 million, which was collateralized by a multi-family residential property which was sold in June 2014. The increases were partially offset by an impairment provision of approximately $3.3 million recorded on one golf property due to an updated estimate of fair value derived from the most recent estimate of net sales proceeds as a result of ongoing negotiations with a potential buyer during the six months ended June 30, 2014. There was no impairment provision recorded during the quarter and six months ended June 30, 2013. See Footnote 5. “Assets held for Sale, net and Discontinued Operations” for additional information.

Net loss and loss per share of common stock. The Company had a net loss for the quarter and six months ended June 30, 2014 of approximately $8.5 million and $28.9 million, respectively, as compared to approximately $55.2 million and $78.5 million for the same periods in 2013. The decrease in net loss is primarily attributable to (i) a reduction in impairment provision recorded on our properties, (ii) an increase in rental income from leased properties acquired after the second quarter of 2013, (iii) an increase in “same-store” net operating income from managed properties, (iv) a net gain on extinguishment of debt as a result of early repayment on two of our loans and (v) a decrease in bad debt expense and asset management fees. The increases were partially offset by an increase in interest expense and loan cost amortization, a reduction in equity in earnings as of result of the sale of our interest in 42 senior housing properties held in three unconsolidated joint ventures and the loss recorded on Intrawest Venture relating to depreciation and amortization catch up in connection with the reclassification of assets as mentioned above and a loan loss provision recorded on one of our mortgages and other notes receivable. See “Operator Transition, Loan Foreclosure and Provisions” above for additional information.

Other

Funds from Operations and Modified Funds From Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, NAREIT, promulgated a measure known as FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards approved by the Board of Governors of NAREIT. NAREIT defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, real estate impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately

maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value of the property. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income or loss. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses for business combinations from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses as items that are expensed under GAAP and accounted for as operating expenses. Our management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we acquired our properties and once our portfolio is in place. By providing MFFO, we believe it is presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income or loss: acquisition fees and expenses; amounts relating to the write-off of deferred rent receivables and other lease-related assets as well as amortization of above and below market leases and liabilities (which are adjusted in order to remove the impact of GAAP straight-line adjustments from rental revenues); accretion of discounts and amortization of premiums on debt investments, eliminations of adjustments relating to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income or loss, mark-to-market adjustments included in net income or loss; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, and unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all of our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, straight-line adjustments for leases and notes receivable, amortization of above and below market leases, impairments of lease related assets, loss from early extinguishment of debt and accretion of discounts or amortization of premiums for debt investments. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects

on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income or loss in determining cash flow from operating activities.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisitions costs are funded from our subscription proceeds and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different non-listed REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way and as such comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of its liquidity, or indicative of funds available to fund cash needs including our ability to make distributions to stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value or based on an estimated net asset value. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust its calculation and characterization of FFO or MFFO.

The following table presents a reconciliation of net loss to FFO and MFFO for the quarter and six months ended June 30, 2014 and 2013 (in thousands, except per share data):


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

Net loss	$	(8,505	)	$	(55,205	)	$	(28,858	)	$	(78,504	)
Adjustments:
Depreciation and amortization:
Continuing operations		31,098			28,837			63,032			57,595
Discontinued operations		—			7,796			4,925			15,221
Impairment of real estate assets:
Continuing operations		—			42,451			—			42,451
Discontinued operations		1,150			—			4,464			—
(Gain) loss on sale of real estate investment:
Discontinued operations		73			(2,080	)		70			(2,083	)
Net effect of FFO adjustment from unconsolidated entities: ⁽¹⁾
Continuing operations		6,658			4,293			8,389			10,337


Total funds from operations		30,474			26,092			52,022			45,017

Acquisition fees and expenses: ⁽²⁾
Continuing operations		1,279			546			2,003			913
Straight-line adjustments for leases and notes receivable: ⁽³⁾
Continuing operations		(2,737	)		(771	)		(6,164	)		(1,042	)
Discontinued operations		—			(321	)		—			(536	)
(Gain) loss from early extinguishment of debt: ⁽⁴⁾
Continuing operations		600			—			600			—
Discontinued operations		(266	)		—			(266	)		—
Amortization of above/below market intangible assets and liabilities
Continuing operations		7			(1	)		24			(2	)
Discontinued operations		—			349			359			683
Loan loss provision:⁽⁵⁾
Continuing operations		2,520			—			2,520			—
Accretion of discounts/amortization of premiums:
Continuing operations		3			3			6			6
MFFO adjustments from unconsolidated entities:⁽¹⁾
Straight-line adjustments for leases and notes receivable:⁽³⁾
Continuing operations		48			(78	)		62			(146	)
Amortization of above/below market intangible assets and liabilities:
Continuing operations		(88	)		(3	)		(76	)		(7	)

Modified funds from operations	$	31,840		$	25,816		$	51,090		$	44,886


Weighted average number of shares of common stock outstanding (basic and diluted)		324,197			317,959			323,424			317,175

FFO per share (basic and diluted)	$	0.09		$	0.08		$	0.16		$	0.14


MFFO per share (basic and diluted)	$	0.10		$	0.08		$	0.16		$	0.14

FOOTNOTES:

⁽¹⁾	This amount represents our share of the FFO or MFFO adjustments allowable under the NAREIT or IPA definitions, respectively, multiplied by the percentage of income or loss recognized under the HLBV method.

⁽²⁾

In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. By adding back acquisition fees and expense relating to business combinations, management believes MFFO provides useful supplemental information of its operating performance and will also allow comparability between real estate entities regardless of their level of acquisition activities. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses relating to business combinations under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property.

⁽³⁾

Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

⁽⁴⁾	(Gain) loss from early extinguishment of debt includes swap breakage fees, write-off of unamortized loan costs and reclassification of loss on termination of cash flow hedges from other comprehensive income (loss) into interest expense.

⁽⁵⁾	In June 2014, we recorded a loan loss provision on one of our mortgages and other notes receivable as a result of uncertainty related to the collectability of the note receivable.

Total FFO and FFO per share was approximately $30.5 million and $52.0 million or $0.09 and $0.16 for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $26.1 million and $45.0 million or $0.08 and $0.14 for the same periods in 2013. The increase in FFO and FFO per share is primarily attributable to (i) an increase in rental income from leased properties acquired after the second quarter of 2013, (ii) an increase in “same-store” net operating income from managed properties, (iii) a net gain on extinguishment of debt as a result of prepayment on two of our loans and (iv) a decrease asset management fees due to the sale of our interest in 42 senior housing properties held in three unconsolidated joint ventures in July and the reduction in fees effective April 1, 2014 as well as (v) a reduction in bad debt expense. The increases were partially offset by (i) an increase in interest expense and loan cost amortization as a result of additional borrowings subsequent to June 30, 2013, (ii) a loan loss provision recorded on one of our mortgages and other notes receivable as a result of our uncertainty in the collectability of the note receivable and (iii) a reduction in FFO contribution due to the sale of our interest in 42 senior housing properties held in three unconsolidated entities as mentioned above.

Total MFFO and MFFO per share was approximately $31.8 million and $51.1 million or $0.10 and $0.16 for the quarter and six months ended June 30, 2014, respectively, as compared to approximately $25.8 million and $44.9 million or $0.08 and $0.14 for the same periods in 2013. The increase in MFFO is primarily attributable to an increase in rental payments from leased properties (rental revenue excluding straight-line adjustments for GAAP) acquired after the second quarter of 2013 as well as in “same-store” net operating income from managed properties. In addition, the increase is also attributable to a reduction in asset management fees as mentioned above. The increases were partially offset by a reduction in MFFO contribution from unconsolidated entities due the sale of our interest in 42 senior housing properties held in three unconsolidated joint ventures as mentioned above and an increase in interest expense and loan cost amortization as a result of additional borrowings subsequent to June 30, 2013.

Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss), less discontinued operations and other income, plus (i) interest expense, net, and loan cost amortization and (ii) depreciation and amortization, as further adjusted for the impact of equity in earnings (loss) of our unconsolidated entities, straight-line adjustments for leased properties and mortgages and other notes receivables, cash distributions from our unconsolidated entities and certain other non-recurring items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

•

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•

Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

•

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements;

•

Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

•

Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.

Set forth below is a reconciliation of Adjusted EBITDA to net loss (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	)
(Income) loss from discontinued operations		(7,936	)		(1,486	)		(6,328	)		155
Interest and other income		(89	)		(71	)		(91	)		(397	)
Interest expense and loan cost amortization		19,707			16,397			38,767			32,661
Equity in (earnings) loss of unconsolidated entities ⁽¹⁾		526			(6,159	)		(3,773	)		(5,036	)
Depreciation and amortization		31,098			28,837			63,032			57,595
Impairment provision		—			42,451			—			42,451
Loss from extinguishment of debt		196			—			196			—
Loan loss provision		2,520			—			2,520			—
Recovery on lease terminations		(741	)		—			(741	)		—
Straight-line adjustments for leases and notes receivables ⁽²⁾		(2,737	)		(1,092	)		(6,164	)		(1,578	)
Cash distributions from unconsolidated entities ⁽¹⁾		3,455			8,787			6,575			20,113

Adjusted EBITDA	$	37,494		$	32,459		$	65,135		$	67,460

FOOTNOTES:

⁽¹⁾

Investments in our unconsolidated joint ventures are accounted for under the HLBV method of accounting. Under this method, we recognize income or loss based on the change in liquidating proceeds we would receive from a hypothetical liquidation of our investments based on depreciated book value. We adjust EBITDA for equity in earnings (loss) of our unconsolidated entities because we believe this is not reflective of the joint ventures’ operating performance or cash flows available for distributions to us. We believe cash distributions from our unconsolidated entities, exclusive of any financing transactions, are reflective of their operating performance and its impact to us and have been added back to adjusted EBITDA above.

⁽²⁾	We believe that adjusting for straight-line adjustments for leased properties and mortgages and other notes receivable is appropriate because they are non-cash adjustments and reflect the actual cash receipts received by us from our tenants and borrowers.

Adjusted EBITDA was approximately $37.5 million and $32.5 million for the quarter ended June 30, 2014 and 2013, respectively. The increase was primarily attributable to (i) an increase in rental payments from leased properties (rental revenue excluding straight-line adjustments for GAAP) acquired after the second quarter of 2013, (ii) an increase in “same-store” net operating income from

managed properties, (iii) a reduction in bad debt expense and (iv) a decrease in asset management fees as a result of the sale of our interest in 42 senior housing properties held through three unconsolidated joint ventures in July 2013 and the reduction in fees effective April 1, 2014. See “Related Party Arrangements” for additional information. The increases were partially offset by a reduction in cash distributions from our unconsolidated entities as a result of the sale of our interest in 42 senior housing properties as mentioned above and an increase in acquisition fees and costs as a result of acquiring three additional properties than what was acquired during the same period in 2013.

Adjusted EBITDA was approximately $65.1 million and $67.5 million for the six months ended June 30, 2014 and 2013, respectively. The decrease was primarily attributable to the reduction in cash distributions from our unconsolidated entities and an increase in acquisition fees and costs as mentioned above. The decreases were partially offset by an increase in rental payments from leased properties (rental revenue excluding straight-line adjustments for GAAP) acquired after the second quarter of 2013 as well as in “same-store” net operating income from managed properties. The decreases were also partially offset by a reduction in bad debt expense and a decrease in asset management fees as mentioned above.

Off-Balance Sheet and Other Arrangements

Our unconsolidated entity DMC Partnership has two loans maturing in September 2014 with a combined outstanding principal balance of $130.0 million as of June 30, 2014. The DMC Partnership has proposals from several banks to refinance the entire debt either on a short-term basis with a bridge loan or on a long-term basis with a CMBS loan. Given that we are in the process of exploring strategic alternatives to provide liquidity to our shareholders, we believe that it would be preferable to refinance these loans with a short term bridge loan in order to provide us with maximum flexibility as we evaluate various options. Our partner in the DMC Partnership prefers to refinance with long-term debt and, as a result, we are still in discussions with them on a refinancing strategy. If we are unable to come to an agreement in the near term, there is a reasonable chance that the DMC Partnership will not repay the loans on their maturity dates.

See our annual report on Form 10-K for the year ended December 31, 2013 for a summary of our other off-balance sheet arrangements.

Commitments, Contingencies and Contractual Obligations

Contractual Obligations

For the six months ended June 30, 2014, our contractual obligations were not materially different from the amounts reported for the year ended December 31, 2013 aside from the $53.1 million in new indebtedness obtained, net of prepayments. See “Indebtedness” above for additional information. See our annual report on Form 10-K for the year ended December 31, 2013 for a summary of our contractual obligations.

Contingent Commitments


	Payments Due by Period (in thousands)
	Less than 1						More than
	year		Years 1-3		Years 3-5		5 years		Total
Capital improvements⁽¹⁾	$	1,258	$	4,500	$	—	$	—	$	5,758

FOOTNOTE:

⁽¹⁾

We have committed to fund ongoing equipment replacements and other capital improvement projects on our existing properties through capital reserves set aside by us for this purpose and additional capital investment in the properties that will increase the lease basis and generate additional rental income.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate changes primarily as a result of long-term debt used to acquire properties, make loans and other permitted investments. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we expect to borrow and lend primarily at fixed-rates or variable-rates with the lowest margins available, and in some cases, with the ability to convert variable-rates to fixed-rates. With regard to variable-rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

Our fixed-rate mortgage and other notes receivable totaled $104.6 million and $118.0 million at June 30, 2014 and December 31, 2013, respectively. The estimated fair value of the mortgage notes receivable was approximately $100.2 million and $112.2 million, respectively, and is subject to market risk to the extent that the stated interest rates vary from current market rates for borrowings under similar terms.

The following is a schedule of our fixed and variable debt maturities for each of the next five years, and thereafter (in thousands):


	2014		2015		2016		2017		2018		Thereafter		Total		Fair Value

Fixed-rate debt	$	43,230	$	17,831	$	88,588	$	164,776	$	109,611	$	445,066	$	869,102	$	888,122
Variable-rate debt ⁽²⁾		122,810		190,876		30,169		37,030		437		6,799		388,121		389,571	⁽¹⁾


	$	166,040	$	208,707	$	118,757	$	201,806	$	110,048	$	451,865	$	1,257,223	$	1,277,693


	2014			2015			2016			2017			2018			Thereafter			Total

Weighted average fixed interest rate of maturities		8.64	%		5.84	%		6.28	%		6.06	%		5.04	%		6.87	%		6.49	%

Average interest rate on variable debt⁽³⁾		LIBOR or CDOR + 3.27	%		LIBOR+ 3.77	%		LIBOR + 4.48	%		LIBOR + 5.23	%		LIBOR + 3.48	%		LIBOR + 3.3	%

FOOTNOTES:

⁽¹⁾	The fair value of our fixed-rate debt was determined using discounted cash flows based on market interest rates as of June 30, 2014. We determined market rates through discussions with our existing lenders pricing our loans with similar terms and current rates and spreads.

⁽²⁾	As of June 30, 2014, some of our variable-rate debt in mortgages and notes payable was hedged.

⁽³⁾	The 30-day CDOR rate was approximately 1.3% at June 30, 2014. The 30-day LIBOR rate was approximately 0.15% at June 30, 2014.

Management estimates that a hypothetical one-percentage point increase in LIBOR would have resulted in additional interest costs of approximately $1.3 million for the six months ended June 30, 2014. This sensitivity analysis contains certain simplifying assumptions, and although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and our actual results will likely vary.

We are exposed to foreign currency exchange rate fluctuations as a result of our direct ownership of one property in Canada which is leased to a third-party tenant. The lease payments we receive under the triple-net lease and debt service payments are denominated in Canadian dollars. Management does not believe this to be a significant risk or that currency fluctuations would result in a significant impact to our overall results of operations.

We are also indirectly exposed to foreign currency risk related to our investment in unconsolidated Canadian entities and interest rate risk from debt at our unconsolidated entities. However, we believe our risk of foreign exchange loss and exposure to credit and interest rate risks are mitigated as a result of our right to receive a preferred return on our investments in our unconsolidated entities. Our preferred returns as stated in the governing venture agreements are denominated in U.S. dollars.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Controls over Financial Reporting

During the most recent fiscal quarter, there were no changes in our internal controls over financial reporting (as defined under Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings - None

Item 1A.

Risk Factors - None

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Redemption of Shares and Issuer Purchases of Equity Securities

For the six months ended June 30, 2014, we have outstanding redemption requests of approximately 10.8 million shares. During the six months ended June 30, 2014, approximately 0.2 million shares relating to prior period requests were redeemed and 0.7 million shares relating to current period requests were redeemed on a pro rata basis, for an average price per share of $6.85. The redemption price per share is equal to the current estimated NAV per share of $6.85. For additional information on the redemption process in the event there are insufficient funds to redeem all shares, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources and Uses of Liquidity and Capital Resources – Common Stock Redemptions.”

Pursuant to our share redemption plan, any stockholder who has held shares for not less than one year may present all or any portion equal to at least 25% of their shares to us for redemption at our estimated value per share on the date the redemption is effected. We may, at our discretion, redeem the shares, subject to certain conditions and limitations under the redemption plan. 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). However, at no time during a 12-month period may we redeem more than 5% of the weighted average number of our outstanding common stock at the beginning of such 12-month period. For the quarter ended June 30, 2014, we redeemed the following shares (in thousands except per share data):


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased in Part of Publically Announced Plan		Maximum Number of Shares That May Yet be Purchased Under the Plan

April 1, 2014 through April 30, 2014		—		—		—		—
May 1, 2014 through May 31, 2014		—		—		—		—
June 1, 2014 through June 30, 2014		449	$	6.85		449		—	⁽¹⁾


Total		449	$	6.85		449

FOOTNOTE:

⁽¹⁾	This number represents the additional number of shares which could have been redeemed under the redemption plan during the second quarter without exceeding either of the limitations described above.

Item 3.

Defaults Upon Senior Securities – None

Item 4.

Mine Safety Disclosures – Not Applicable

Item 5.

Other Information – None

Item 6.

Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto and are filed or incorporated as part of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 13th day of August, 2014.


		CNL LIFESTYLE PROPERTIES, INC.

By:		/s/ Stephen H. Mauldin
		STEPHEN H. MAULDIN
		President and Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Joseph T. Johnson
		JOSEPH T. JOHNSON
		Senior Vice President, Chief Financial Officer and Treasurer
		(Principal Financial Officer)

EXHIBIT INDEX


Exhibit No.		Description

10.1		Purchase and Sale Agreement and Joint Escrow Instructions among the Sellers (being certain subsidiaries of CNL Lifestyle Properties, Inc.) and CF Arcis X, LLC, as Buyer, dated as of June 12, 2014 subject to Confidential Treatment Request (Redacted version filed herewith.)

31.1		Certification of Chief Executive Officer of CNL Lifestyle Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

31.2		Certification of Chief Financial Officer of CNL Lifestyle Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

32.1		Certification of Chief Executive Officer and Chief Financial Officer of CNL Lifestyle Properties, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

101		The following materials from CNL Lifestyle Properties, Inc. Quarterly Report on Form 10-Q for the six months ended June 30, 2014 formatted in XBRL (Extensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Other Comprehensive Income (Losses), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company