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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2014

OR

 

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

For the transition period from                      to                     

Commission file number: 000-51288

 

 

CNL Lifestyle Properties, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   20-0183627

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

450 South Orange Avenue

Orlando, Florida

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

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

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

 

 

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

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

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

 

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

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

The number of shares of common stock outstanding as of November 10, 2014 was 325,189,585.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

   Condensed Consolidated Financial Information (unaudited):   
   Condensed Consolidated Balance Sheets      1   
   Condensed Consolidated Statements of Operations      2   
   Condensed Consolidated Statements of Comprehensive Losses      3   
   Condensed Consolidated Statements of Stockholders’ Equity      4   
   Condensed Consolidated Statements of Cash Flows      5   
   Notes to Condensed Consolidated Financial Statements      6   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      32   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      52   

Item 4.

   Controls and Procedures      53   

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings      53   

Item 1A.

   Risk Factors      53   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      53   

Item 3.

   Defaults Upon Senior Securities      54   

Item 4.

   Mine Safety Disclosures      54   

Item 5.

   Other Information      54   

Item 6.

   Exhibits      54   

Signatures

     55   

Exhibits

     56   


Table of Contents
PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands except per share data)

 

     September 30,
2014
    December 31,
2013
 

ASSETS

    

Real estate investment properties, net (including $176,249 and $184,306 related to consolidated variable interest entities, respectively)

   $ 1,890,582      $ 2,068,973   

Cash

     277,122        71,574   

Investments in unconsolidated entities

     129,990        132,324   

Deferred rent and lease incentives

     53,374        57,378   

Restricted cash

     52,721        51,335   

Other assets

     45,017        52,310   

Intangibles, net

     30,046        36,922   

Accounts and other receivables, net

     22,202        21,080   

Mortgages and other notes receivable, net

     20,551        117,963   

Assets held for sale, net

     13,261        90,794   
  

 

 

   

 

 

 

Total Assets

   $ 2,534,866      $ 2,700,653   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Mortgages and other notes payable (including $51,420 and $87,095 related to non-recourse debt of consolidated variable interest entities, respectively)

   $ 634,512      $ 760,192   

Senior notes, net of discount

     370,321        394,419   

Line of credit

     122,500        50,000   

Other liabilities

     61,388        76,816   

Accounts payable and accrued expenses

     58,049        49,823   

Due to affiliates

     564        1,025   
  

 

 

   

 

 

 

Total Liabilities

     1,247,334        1,332,275   
  

 

 

   

 

 

 

Commitments and contingencies (Note 16)

    

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 325,214 and 322,627 shares outstanding as of September 30, 2014 and December 31, 2013, respectively

     3,252        3,226   

Capital in excess of par value

     2,864,036        2,846,265   

Accumulated deficit

     (400,220     (401,985

Accumulated distributions

     (1,176,750     (1,073,422

Accumulated other comprehensive loss

     (2,786     (5,706
  

 

 

   

 

 

 

Total Stockholders’ Equity

     1,287,532        1,368,378   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,534,866      $ 2,700,653   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

1


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands except per share data)

 

     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  

Revenues:

        

Rental income from operating leases

   $ 37,631      $ 31,466      $ 115,009      $ 101,159   

Property operating revenues

     140,683        126,707        283,064        256,622   

Interest income on mortgages and other notes receivable

     1,965        3,253        8,044        10,035   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     180,279        161,426        406,117        367,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Property operating expenses

     81,726        73,273        205,255        189,179   

Asset management fees to advisor

     6,053        6,498        18,999        21,445   

General and administrative

     4,307        3,882        13,452        12,858   

Ground lease and permit fees

     2,849        3,132        9,688        9,602   

Acquisition fees and costs

     509        1,009        2,513        1,922   

Other operating expenses

     2,170        2,338        4,028        4,307   

Bad debt expense

     65        1,823        1,062        5,882   

Recovery on lease terminations

     —          —          (741     —     

Loan loss provision

     750        —          3,270        —     

Impairment provision

     —          2,740        —          45,191   

Depreciation and amortization

     33,622        30,731        96,691        88,587   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     132,051        125,426        354,217        378,973   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     48,228        36,000        51,900        (11,157
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest and other income (expense)

     775        (13     866        504   

Bargain purchase gain

     —          2,653        —          2,653   

Interest expense and loan cost amortization (includes $57 and $460 loss on termination of cash flow hedges for the quarter and nine months ended September 30, 2014, respectively)

     (18,556     (15,852     (57,322     (48,513

Loss on extinguishment of debt

     (1,620     —          (1,816     —     

Gain from sale of unconsolidated entities

     —          55,394        —          55,394   

Equity in earnings of unconsolidated entities

     3,176        4,147        6,949        9,183   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (16,225     46,329        (51,323     19,221   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     32,003        82,329        577        8,064   

Income (loss) from discontinued operations (includes $3,027 amortization of loss and loss on termination of cash flow hedges for the nine months ended September 30, 2014 and $414 and $1,241 amortization of loss on termination of cash flow hedges for the quarter and nine months ended September 30, 2013, respectively.)

     (1,380     (4,036     1,188        (8,275
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 30,623      $ 78,293      $ 1,765      $ (211
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share of common stock (basic and diluted)

        

Continuing operations

   $ 0.10      $ 0.26      $ 0.00      $ 0.03   

Discontinued operations

     (0.01     (0.01     0.01        (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Income per share

   $ 0.09      $ 0.25      $ 0.01      $ 0.00   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     325,707        319,507        324,194        317,960   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES

(UNAUDITED)

(in thousands)

 

     Quarter Ended
September 30,
     Nine Months Ended
September 30,
 
     2014     2013      2014     2013  

Net income (loss)

   $ 30,623      $ 78,293       $ 1,765      $ (211

Other comprehensive income (loss):

         

Foreign currency translation adjustments

     (1,478     410         (1,383     (804

Changes in fair value of cash flow hedges:

         

Amortization of loss and loss on termination of cash flow hedges

     56        414         3,487        1,241   

Unrealized gain arising during the period

     204        60         816        1,459   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total other comprehensive income (loss)

     (1,218     884         2,920        1,896   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total comprehensive income

   $ 29,405      $ 79,177       $ 4,685      $ 1,685   
  

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2014 and the Year Ended December 31, 2013

(UNAUDITED)

(in thousands except per share data)

 

     Common Stock     Capital in                

Accumulated

Other

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

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        27,169        —          —          —          27,209   

Redemption of common stock

     (1,383     (14     (9,398     —          —          —          (9,412

Net income

     —          —          —          1,765        —          —          1,765   

Distributions, declared and paid ($0.3189 per share)

     —          —          —          —          (103,328     —          (103,328

Foreign currency translation adjustment

     —          —          —          —          —          (1,383     (1,383

Amortization of loss and loss on termination of cash flow hedges

     —          —          —          —          —          3,487        3,487   

Current period adjustment to recognize changes in fair value of cash flow hedges, net of reclassifications (Note 11)

     —          —          —          —          —          816        816   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

     325,214      $ 3,252      $ 2,864,036      $ (400,220   $ (1,176,750   $ (2,786   $ 1,287,532   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2014     2013  

Operating activities:

    

Net cash provided by operating activities

   $ 132,818      $ 133,035   
  

 

 

   

 

 

 

Investing activities:

    

Acquistion of properties

     (128,390     (83,451

Capital expenditures

     (55,888     (52,722

Proceeds from sale of properties

     370,774        11,000   

Proceeds from sale of unconsolidated entities

     —          195,446   

Proceeds from release of collateral on loan payable

     —          11,167   

Collection of mortgage loans receivable

     83,459        4,220   

Changes in restricted cash

     (1,876     (12,377

Other

     823        (524
  

 

 

   

 

 

 

Net cash provided by investing activities

     268,902        72,759   
  

 

 

   

 

 

 

Financing activities:

    

Redemptions of common stock

     (9,412     (8,954

Distributions to stockholders, net of distribution reinvestments

     (76,119     (60,180

Proceeds under line of credit

     102,500        50,000   

Proceeds from mortgage loans and other notes payable

     57,790        30,000   

Principal payments on line of credit

     (30,000     (145,000

Principal payments on mortgage loans and senior notes

     (231,846     (12,318

Principal payments on capital leases

     (4,545     (3,313

Payments of entrance fee refunds

     (1,257     —     

Payment of loan costs

     (3,204     (751
  

 

 

   

 

 

 

Net cash used in financing activities

     (196,093     (150,516
  

 

 

   

 

 

 

Effect of exchange rate fluctuations on cash

     (79     (6
  

 

 

   

 

 

 

Net increase in cash

     205,548        55,272   

Cash at beginning of period

     71,574        73,224   
  

 

 

   

 

 

 

Cash at end of period

   $ 277,122      $ 128,496   
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing activities:

    

Assumption of entrance fee liabilities

   $ —        $ 13,810   
  

 

 

   

 

 

 

Supplemental disclosure of non-cash financing activities:

    

Assumption of debt

   $ 25,510      $ —     
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 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 purposes. 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 September 30, 2014, the Company owned 107 lifestyle properties directly and indirectly within the following asset classes: ski and mountain lifestyle, senior housing, attractions, marinas and additional lifestyle properties. Eight of these 107 properties are owned through unconsolidated joint ventures and three are located in Canada. The Company made and may continue to make selected asset dispositions and used and may continue to use such proceeds to retire indebtedness, invest in other income producing investment opportunities or to enhance existing assets.

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. On September 30, 2014, in connection with this process, the Company sold 46 of its 48 total golf properties as further described in Note 5. “Assets Held for Sale, net and Discontinued Operations”.

 

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 nine months ended September 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 variable interest is 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.

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.

 

6


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

2. Significant Accounting Policies (Continued):

 

Assets Reclassified from Held for Sale to Held and Used Upon management’s determination to discontinue marketing properties for sale, the properties will no longer meet the held for sale criteria and are required to be 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. If adjusted carrying value is determined to be lower, a catch up adjustment will be recorded. The depreciation and/or amortization expenses that would have been recognized had the properties been continuously classified as held and used and will be included as a component of depreciation and amortization expense in the accompanying unaudited condensed consolidated statements of operations. If fair value is determined to be lower, the Company will record a gain or loss included in income or loss from continuing operations in the accompanying unaudited condensed consolidated statements of operations.

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.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

3. Acquisitions:

During the nine months ended September 30, 2014, the Company acquired the following properties (in thousands):

 

          Date of      Purchase  

Product/Description

   Location    Acquisition (2)      Price  

Pacifica Senior Living Victoria Court—One senior housing property

   Rhode Island      1/15/2014       $ 15,250   

Pacifica Senior Living Northridge—One senior housing property

   California      6/6/2014         25,250   

La Conner Retirement Inn—One senior housing property

   Washington      6/2/2014         8,250   

South Pointe Assisted Living—One senior housing property

   Washington      6/2/2014         4,300   

Pacifica Senior Living Modesto—One senior housing property

   California      7/24/2014         16,250 (1) 

Pacifica Senior Living Bakersfield—One senior housing property

   California      7/25/2014         28,750 (1) 

Pacifica Senior Living Wilmington—One senior housing property

   North Carolina      7/25/2014         22,250 (1) 

The Oaks at Braselton—One senior housing property

   Georgia      9/22/2014         15,000   

The Oaks at Post Road—One senior housing property

   Georgia      9/22/2014         18,600   
        

 

 

 
         $ 153,900   
        

 

 

 

 

FOOTNOTES:

 

(1)  In connection with acquiring these properties the Company assumed the fair value of loans with an aggregate principal outstanding balance of approximately $25.5 million. See Note 10. “Indebtedness” for additional information.
(2)  These properties are subject to long-term triple-net leases with an initial term of 10 years with renewal options.

During the nine months ended September 30, 2013, the Company acquired three senior housing properties and one attractions property for an aggregate purchase price of approximately $83.5 million, net of the present value of entrance fees liabilities assumed on one of the senior housing properties of approximately $13.8 million. In addition, the Company recorded approximately $2.7 million in bargain purchase gain relating to the aforementioned attractions property as a result of the fair value of the net assets acquired exceeding the consideration transferred. The excess resulted from the fact that the seller did not widely market the property for sale and was motivated to sell because the property was deemed an outlier from the other investments owned by the seller. The properties are subject to long-term triple-net leases with an initial term of ten to twenty years with renewal options. The acquisitions for the nine months ended September 30, 2014 and 2013 were not considered material to the Company as such pro forma information has not been included.

 

4. Real Estate Investment Properties, net:

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

 

     September 30,     December 31,  
     2014     2013  

Land and land improvements

   $ 670,066      $ 904,409   

Leasehold interests and improvements

     273,899        311,560   

Buildings

     955,034        926,098   

Equipment

     668,221        692,854   

Less: accumulated depreciation and amortization

     (676,638     (765,948
  

 

 

   

 

 

 
   $ 1,890,582      $ 2,068,973   
  

 

 

   

 

 

 

For the nine months ended September 30, 2014 and 2013, the Company had depreciation and amortization expenses of approximately $91.3 million and $83.0 million, respectively, excluding properties that the Company classified as assets held for sale.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

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. During the nine months ended September 30, 2014, the following transactions occurred:

 

    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.

 

    The Company sold 47 properties consisting of 46 golf properties and one multi-family residential property. In connection with these transactions, the Company received aggregate net sales proceeds of approximately $370.8 million and recorded a net gain of approximately $4.0 million. The remaining two golf properties are expected to be sold by the end of the year.

 

    The Company decided to discontinue marketing the sale of five properties, four of which were previously classified as assets held for sale as of December 31, 2013. The five properties were reclassified as held and used. In September 2014, the Company 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.

As of September 30, 2014, the Company had classified two golf properties as assets held for sale. The following table presents the net carrying value of the properties classified as held for sale (in thousands):

 

     September 30,      December 31,  
     2014      2013  

Real estate investment properties, net

     

Land and land improvements

   $ 10,854       $ 40,097   

Building and building improvements

     2,142         47,989   

Equipment

     265         2,708   
  

 

 

    

 

 

 

Total

   $ 13,261       $ 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 September 30, 2014, as discontinued operations in the accompanying unaudited condensed consolidated statements of operations.

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

 

     Quarter Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  

Revenues

   $ 15,891      $ 17,245      $ 51,940      $ 52,073   

Expenses

     (11,600     (11,860     (32,226     (33,952

Impairment provision

     —          —          (4,464     —     

Depreciation and amortization

     —          (7,618     (4,891     (22,577
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     4,291        (2,233     10,359        (4,456

Gain from sale of properties

     3,953        2        3,883        2,085   

Loss on extinguishment of debt (1)

     (8,293     —          (5,690     —     

Other expense (2)

     (1,331     (1,805     (7,364     (5,904
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

   $ (1,380   $ (4,036   $ 1,188      $ (8,275
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

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

 

 

FOOTNOTES:

 

(1)  During the quarter and nine months ended September 30, 2014, the Company recorded loss on extinguishment of debt from the sale of its 46 golf properties. In addition, during the nine months ended September 30, 2014, the Company recorded gain on extinguishment of debt from the sale of its multi-family residential property.
(2)  Amounts include amortization of loss and loss on termination of cash flow hedge of approximately $3.0 million for the nine months ended September 30, 2014. In addition, amounts include amortization of loss on termination of cash flow hedge of approximately $0.4 million and $1.2 million for the quarter and nine months ended September 30, 2013, respectively. See Note 11. “Derivative Instruments and Hedging Activities” for additional information.

 

6. Intangibles, net:

The gross carrying amount and accumulated amortization of the Company’s intangible assets as of September 30, 2014 and December 31, 2013 are as follows (in thousands):

 

     Gross                  September 30, 2014  
     Carrying      Accumulated           Net Book  

Intangible Assets

   Amount      Amortization     Disposal (2)     Value  

In place leases

   $ 34,858       $ (20,317   $ (1,282   $ 13,259   

Trade name (finite-lived)

     9,060         (1,852     (7,208     —     

Trade name (infinite-lived)

     12,322         —          —          12,322   

Above-market leases (1)

     4,566         (101     —          4,465   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 60,806       $ (22,270   $ (8,490   $ 30,046   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

     Gross            December 31, 2013  
     Carrying      Accumulated     Net Book  

Intangible Assets

   Amount      Amortization     Value  

In place leases

   $ 34,745       $ (17,513   $ 17,232   

Trade name (finite-lived)

     9,060         (1,789     7,271   

Trade name (infinite-lived)

     12,419         —          12,419   
  

 

 

    

 

 

   

 

 

 

Total

   $ 56,224       $ (19,302   $ 36,922   
  

 

 

    

 

 

   

 

 

 

 

FOOTNOTES:

 

(1)  The Company recorded above-market lease intangible in connection with the acquisition of two senior housing properties.
(2)  In connection with the sale of the 46 golf properties, the Company disposed of the above intangible assets.

The estimated future amortization expense for the Company’s finite-lived intangible assets as of September 30, 2014 is as follows (in thousands):

 

     In-place
Lease
     Above-market
Lease
     Total
Intangible
Assets
 

2014

   $ 994       $ 121       $ 1,115   

2015

     2,718         485         3,203   

2016

     1,189         485         1,674   

2017

     1,056         485         1,541   

2018

     886         485         1,371   

Thereafter

     6,416         2,404         8,820   
  

 

 

    

 

 

    

 

 

 

Total

   $ 13,259       $ 4,465       $ 17,724   
  

 

 

    

 

 

    

 

 

 

 

10


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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

7. Operating Leases:

As of December 31, 2013, the Company leased 72 properties under long-term, triple-net leases to third-parties. During the nine months ended September 30, 2014, the Company sold 47 properties, of which 34 properties were previously subject to long-term triple-net leases. During the same period, the Company also acquired nine senior housing properties and transitioned four marinas from leased to managed structures. As of September 30, 2014, the Company leased 43 properties under long-term triple-net leases to third-parties.

The following is a schedule of future minimum lease payments to be received under the non-cancellable operating leases with third-parties at September 30, 2014 (in thousands):

 

2014

   $ 27,268   

2015

     120,233   

2016

     122,226   

2017

     124,274   

2018

     125,884   

Thereafter

     1,157,479   
  

 

 

 

Total

   $ 1,677,364   
  

 

 

 

 

8. 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):

 

     September 30,      December 31,  
     2014      2013  

Assets

     

Real estate investment properties, net

   $ 176,249       $ 184,306   

Other assets

   $ 25,012       $ 29,075   

Liabilities

     

Mortgages and other notes payable

   $ 51,420       $ 87,095   

Other liabilities

   $ 11,819       $ 13,214   

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 $138.0 million and $113.1 million as of September 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.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

8. Variable Interest and Unconsolidated Entities (Continued):

 

Unconsolidated EntitiesAs of September 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 $22.8 million and $25.2 million as of September 30, 2014 and December 31, 2013, respectively.

The Intrawest Venture is working with the Canada Revenue Agency 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 the Intrawest Venture recorded an adjustment representing the catch up in depreciation and amortization expense that would have been recognized had the properties been continuously classified as held and used. The properties were reclassified as held and used at the lower of adjusted carrying value, which was lower than its fair value so no gain or loss was recorded with the reclassification. The Intrawest Venture continues to pursue the sale of the seventh village retail property and expects to complete the sale during 2015.

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

Summarized operating data:

 

     Quarter Ended September 30, 2014  
     DMC     Intrawest        
     Partnership     Venture     Total  

Revenues

   $ 6,870      $ 4,258      $ 11,128   

Property operating expenses

     (305     (2,256     (2,561

Depreciation and amortization

     (2,327     (1,118     (3,445

Interest expense

     (1,909     (1,125     (3,034
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     2,329        (241     2,088   

Discontinued operations (3)

     —          266        266   
  

 

 

   

 

 

   

 

 

 

Net income

   $ 2,329      $ 25      $ 2,354   
  

 

 

   

 

 

   

 

 

 

Loss allocable to other venture partners (1)

   $ (532   $ (406 )(2)    $ (938
  

 

 

   

 

 

   

 

 

 

Income allocable to the Company (1)

   $ 2,861      $ 431      $ 3,292   

Amortization of capitalized costs

     (64     (52     (116
  

 

 

   

 

 

   

 

 

 

Equity in earnings of unconsolidated entities

   $ 2,797      $ 379      $ 3,176   
  

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 2,859      $ 742      $ 3,601   
  

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 2,829      $ 492      $ 3,321   
  

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

8. Variable Interest and Unconsolidated Entities (Continued):

 

Summarized operating data:

 

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

Revenues

   $ 6,870      $ 4,142      $ —         $ —         $ —         $ 11,012   

Property operating expenses

     (205     (2,236     —           —           —           (2,441

Depreciation and amortization

     (2,237     —          —           —           —           (2,237

Interest expense

     (1,986     (1,131     —           —           —           (3,117

Interest and other income (expense)

     1        (1     —           —           —           —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations

     2,443        774        —           —           —           3,217   

Discontinued operations (3)

     —          274        —           —           —           274   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 2,443      $ 1,048      $ —         $ —         $ —         $ 3,491   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Loss allocable to other venture partners (1)

   $ (416   $ (406 )(2)    $ —         $ —         $ —         $ (822
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income allocable to the Company (1)

   $ 2,859      $ 1,454      $ —         $ —         $ —         $ 4,313   

Amortization of capitalized costs

     (108     (58     —           —           —           (166
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Equity in earnings of unconsolidated entities

   $ 2,751      $ 1,396      $ —         $ —         $ —         $ 4,147   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Distributions declared to the Company

   $ 2,860      $ 620      $ —         $ —         $ —         $ 3,480   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Distributions received by the Company

   $ 2,829      $ 348      $ 3,920       $ 522       $ 835       $ 8,454   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2014  
     DMC     Intrawest        
     Partnership     Venture     Total  

Revenues

   $ 21,649      $ 12,859      $ 34,508   

Property operating expenses

     (569     (6,986     (7,555

Depreciation and amortization

     (6,779     (5,455     (12,234

Interest expense

     (5,743     (3,534     (9,277
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     8,558        (3,116     5,442   

Discontinued operations (3)

     —          812        812   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 8,558      $ (2,304   $ 6,254   
  

 

 

   

 

 

   

 

 

 

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

   $ 72      $ (1,205 )(2)    $ (1,133
  

 

 

   

 

 

   

 

 

 

Income (loss) allocable to the Company (1)

   $ 8,486      $ (1,099   $ 7,387   

Amortization of capitalized costs

     (280     (158     (438
  

 

 

   

 

 

   

 

 

 

Equity in earnings (loss) of unconsolidated entities

   $ 8,206      $ (1,257   $ 6,949   
  

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 8,485      $ 1,892      $ 10,377   
  

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 8,485      $ 1,411      $ 9,896   
  

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

8. Variable Interest and Unconsolidated Entities (Continued):

 

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

Revenues

   $ 21,192      $ 12,724      $ 71,287      $ 19,654      $ 21,549      $ 146,406   

Property operating expenses

     (450     (6,998     (45,999     (15,439     (14,609     (83,495

Depreciation and amortization

     (6,786     —          (10,994     (2,244     (2,874     (22,898

Interest expense

     (5,936     (3,489     (16,154     (2,057     (2,928     (30,564

Interest and other income (expense)

     4        (2     20        —          —          22   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     8,024        2,235        (1,840     (86     1,138        9,471   

Discontinued operations (3)

     —          893        —          —          —          893   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 8,024      $ 3,128      $ (1,840   $ (86   $ 1,138      $ 10,364   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (461   $ (1,205 )(2)    $ (1,341   $ (8   $ 1,788      $ (1,227
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) allocable to the Company (1)

   $ 8,485      $ 4,333      $ (499   $ (78   $ (650   $ 11,591   

Amortization of capitalized costs

     (325     (175     (1,305     (431     (172     (2,408
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings (loss) of unconsolidated entities

   $ 8,160      $ 4,158      $ (1,804   $ (509   $ (822   $ 9,183   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared to the Company

   $ 8,486      $ 1,737      $ 7,797      $ 1,039      $ 1,660      $ 20,719   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions received by the Company

   $ 8,478      $ 1,807      $ 11,750      $ 1,567      $ 4,965      $ 28,567   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FOOTNOTES:

 

(1)  Income (loss) is allocated between the Company and its venture partner 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 such, summarized operating data for these ventures is reported through June 30, 2013.

As of September 30, 2014 and December 31, 2013, the Company’s share of partners’ capital determined under HLBV was approximately $121.9 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 $8.1 million and $7.4 million, respectively.

 

9. Mortgages and Other Notes Receivable, net:

In December 2013, the Company recorded a loan loss provision in anticipation of a troubled debt restructure on 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 troubled debt restructure which reduced the fixed interest rates with a cap of 11% to a fixed interest rate of 6.5% through the 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.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

9. Mortgages and Other Notes Receivable, net (Continued):

 

During the nine months ended September 30, 2014, the Company foreclosed on an attractions property that served as collateral on one of its mortgage notes receivable. The estimated fair value of the collateral was $7.9 million, which approximated the carrying value of the loan. In addition, the Company recorded a loan loss provision of approximately $3.3 million on one of its mortgage and other notes receivable as a result of uncertainty related to the collectability of the note receivable. Furthermore, during the same period, the Company received approximately $83.5 million in repayment of loans, mostly related to loans which matured during 2014.

The estimated fair market value of the Company’s mortgages and other notes receivable was approximately $19.9 million and $112.2 million as of September 30, 2014 and December 31, 2013, respectively, based on discounted cash flows for each individual instrument based on market interest rates as of September 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 September 30, 2014 and December 31, 2013 because of the relatively short maturities of the receivables.

The following is a schedule of future principal maturities for all mortgages and other notes receivable (in thousands):

 

2014

   $ 18   

2015

     57   

2016

     3,329   

2017

     1,500   

2018

     —     

Thereafter

     16,620   
  

 

 

 

Total

   $ 21,524   
  

 

 

 

 

10. Indebtedness:

Mortgages and Other Notes Payable — 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 Note 8. “Variable Interest and Unconsolidated Entities” above for additional information. The other terms of the existing loan remain the same.

In June 2014, the Company extended the maturity date of its $105.0 million 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.

In July 2014, the Company acquired three properties and assumed the fair value of three loans with a principal outstanding balance of approximately $25.5 million. The loans bear interest ranging from 4.7% to 6.9% and mature between October 2018 and January 2019. In addition to the three loans assumed, the Company obtained two supplemental loans with a third-party lender in an aggregate amount of approximately $7.1 million to partially fund an acquisition. The loans bear interest at an annual fixed rate of 4.82% and mature in October 2018.

During the nine months ended September 30, 2014, the Company repaid loans with an aggregate outstanding principal balance of approximately $185.4 million primarily with the net sales proceeds received from the sale of 47 properties (one multi-family residential and 46 golf properties) and proceeds from its revolving line of credit. The loans repaid were primarily collateralized by the properties sold.

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

10. Indebtedness (Continued):

 

Senior Notes, Net of Discount — During the quarter ended September 30, 2014, the Company repurchased at a premium the face value of $24.5 million of its senior notes and recorded a loss of approximately $1.6 million, including the write-off of unamortized loan costs.

Line of Credit — During the nine months ended September 30, 2014, the Company funded the acquisition of three senior housing properties of approximately $37.8 million through its revolving line of credit and repaid $30.0 million. As of September 30, 2014, Company’s revolving line of credit had an outstanding principal balance of $122.5 million.

The following is a schedule of future principal payments and maturities for all indebtedness (in thousands):

 

2014

   $ 145,000   

2015

     175,513   

2016

     110,546   

2017

     128,109   

2018

     140,769   

Thereafter

     427,365   
  

 

 

 

Total

   $ 1,127,302   
  

 

 

 

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 the 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 in the indenture. The Company was in compliance with all applicable provisions as of September 30, 2014.

The estimated fair values of mortgages and other notes payable and the line of credit were approximately $752.6 million and $803.7 million as of September 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 $384.1 million and $410.4 million as of September 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 September 30, 2014 and December 31, 2013 because of the relatively short maturities of the obligations.

 

11. Derivative Instruments and Hedging Activities:

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

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

11. 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 nine months ended September 30, 2014, three of the loans were paid in full and the corresponding interest rate swaps with an aggregate notional amount of approximately $97.7 million were suspended. As a result, the ineffective portion of the change in fair value resulting from the termination of hedges included 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 nine months ended September 30, 2014. As of September 30, 2014, the Company had two 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 September 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 September 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  
$ 8,490      $ (694   $ —        $ (694   $ (694   $ —        $ (694
$ 14,775      $ (345   $ —        $ (345   $ (345   $ —        $ (345

 

      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  (2)    $ (1,748   $ —        $ (1,748   $ (1,748   $ —        $ (1,748
$ 8,746      $ (743   $ —        $ (743   $ (743   $ —        $ (743
$ 16,603  (1)(2)    $ (233   $ —        $ (233   $ (233   $ —        $ (233
$ 15,450      $ (524   $ —        $ (524   $ (524   $ —        $ (524
$ 24,811  (2)    $ (446   $ —        $ (446   $ (446   $ —        $ (446

 

FOOTNOTES:

 

(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 had 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 December 31, 2013.
(2)  During the nine months ended September 30, 2014, the Company terminated three interest rate swaps because the corresponding loans were repaid in full.

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

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

12. Fair Value Measurements:

The Company had two investment properties that were classified as assets held for sale and carried at fair value less estimated costs to sell as of September 30, 2014 based on information received from a potential buyer. 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 and information 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 September 30, 2014 and December 31, 2013, as follows (in thousands):

 

     Fair Value                       
     Measurement                       
     as of                       
     September 30,                       
     2014      Level 1      Level 2      Level 3  

Assets:

           

Assets held for sale carried at fair value

   $ 13,261       $ —         $ —         $ 13,261   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative instruments

   $ 1,039       $ —         $ 1,039       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     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       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

13. 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.

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

 

     Quarter Ended      Nine Months Ended  
     September 30,      September 30,  
     2014      2013      2014      2013  

Acquisition fees:

           

Acquisition fees from distribution reinvestment plan (1)

   $ —         $ 322       $ 319       $ 963   

Acquisition fees from debt proceeds (2)

     —           —           1,521         234   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           322         1,840         1,197   
  

 

 

    

 

 

    

 

 

    

 

 

 

Asset management fees (3)

     7,506         8,241         23,584         26,665   
  

 

 

    

 

 

    

 

 

    

 

 

 

Reimbursable expenses: (4)

           

Acquisition costs

     64         44         202         161   

Operating expenses

     1,710         1,627         5,213         5,307   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,774         1,671         5,415         5,468   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fees earned and reimbursable expenses

   $ 9,280       $ 10,234       $ 30,839       $ 33,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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 including fees related to properties that are classified as assets held for sale that are included as discontinued operations in the accompanying unaudited condensed consolidated statements of operations. Effective April 1, 2014, the asset management fees to Advisor were reduced as described above.
(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):

 

     September 30,      December 31,  
     2014      2013  

Due to the Advisor and its affiliates:

     

Operating expenses

   $ 543       $ 671   

Acquisition fees and expenses

     21         354   
  

 

 

    

 

 

 

Total

   $ 564       $ 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 $15.0 million and $8.6 million as of September 30, 2014 and December 31, 2013, respectively.

 

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Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

14. Stockholders’ Equity:

Distribution Reinvestment Plan — On September 4, 2014, the Company’s board of directors (“Board”) approved the suspension of its distribution reinvestment plan (“DRP”), effective as of September 26, 2014. As a result of the suspension of the DRP, beginning with the September 2014 quarterly distributions, stockholders who were participants in the DRP will receive cash distributions instead of additional shares in the Company. For the nine months ended September 30, 2014, the Company received aggregate proceeds of approximately $27.2 million (representing 4.0 million shares) through its DRP.

Distributions — For the nine months ended September 30, 2014, the Company declared and paid distributions of approximately $103.3 million ($0.3189 per share).

Redemption of Shares — The aggregate amount of funds under the redemption plan was determined on a quarterly basis in the sole discretion of the Company’s Board and was less than and did not exceed the aggregate proceeds from the Company’s DRP subject to limitations established by the Company’s Board from time to time.

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. 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.

In September 2014, the Company’s Board approved the suspension of the Company’s redemption plan effective as of September 26, 2014. Pursuant to the redemption plan, all redemption requests received in good order by September 26, 2014, were processed and those deemed priority requests and all approved qualified hardship requests were redeemed as of September 30, 2014, subject to the limitations of the redemption plan. All other redemption requests received by September 26, 2014, will be placed in the redemption queue. However, the Company will not accept or otherwise process any additional redemption requests after September 26, 2014 unless the redemption plan is reinstated by the Board, which is not expected at this time. There is no guarantee that the redemption plan will be reinstated by the Board.

During the nine months ended September 30, 2014, the Company redeemed approximately $9.4 million (1.4 million shares). The following details the Company’s redemptions for the nine months ended September 30, 2014 (in thousands, except per share data):

 

2014 Quarters    First     Second     Third     Year-To-Date  

Requests in queue

     10,547        10,798        10,809        10,547   

Redemptions requested

     778        864        1,355        2,997   

Shares redeemed:

        

Prior period requests

     (135     (80     (60     (275

Current period requests

     (300     (369     (439     (1,108

Adjustments (1)

     (92     (404     (93     (589
  

 

 

   

 

 

   

 

 

   

 

 

 

Pending redemption requests (2)

     10,798        10,809        11,572        11,572   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average price paid per share

   $ 6.85      $ 6.85      $ 6.81 (3)    $ 6.84   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

FOOTNOTES:

 

(1)  This amount represents redemption request cancellations and other adjustments.
(2)  Requests that were not fulfilled in whole during a particular quarter were redeemed on a pro rata basis to the extent funds were made available pursuant to the redemption plan. Pending requests as of September 30, 2014 will remain in queue and will not be redeemed at this time because the redemption plan has been suspended.
(3)  Redeemed certain shares for less than the estimated NAV of $6.85 per share because they were purchased on a secondary market at a price less than $6.85 per share.

 

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Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements:

The Company has senior notes outstanding which are guaranteed by certain of the Company’s consolidated subsidiaries (the “Guarantor Subsidiaries”). The guarantees are joint and several, full and unconditional. The following summarizes the Company’s unaudited condensed consolidating balance sheets as of September 30, 2014 and December 31, 2013, statement of operations, statement of comprehensive income (loss) and statement of cash flows for the nine months ended September 30, 2014 and 2013 (in thousands):

Condensed Consolidating Balance Sheet:

 

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

ASSETS

          

Real estate investment properties, net

   $ —        $ 541,688      $ 1,348,894      $ —        $ 1,890,582   

Cash

     218,869        26,117        32,136        —          277,122   

Investments in unconsolidated entities

     —          129,990        —          —          129,990   

Investments in subsidiaries

     1,448,023        1,140,802        1,396,120        (3,984,945     —     

Deferred rent and lease incentives

     —          24,967        28,407        —          53,374   

Restricted cash

     12        28,731        23,978          52,721   

Other assets

     9,044        16,558        19,415        —          45,017   

Intangibles, net

     —          5,076        24,970        —          30,046   

Accounts and other receivables, net

     —          8,702        13,500        —          22,202   

Mortgages and other notes receivable, net

     —          50,050        15,612        (45,111     20,551   

Assets held for sale, net

     —          13,261        —          —          13,261   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,675,948      $ 1,985,942      $ 2,903,032      $ (4,030,056   $ 2,534,866   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Mortgages and other notes payable

   $ —        $ 195,610      $ 482,915      $ (44,013   $ 634,512   

Senior notes, net of discount

     370,321        —          —          —          370,321   

Line of credit

     —          122,500        —          —          122,500   

Other liabilities

     —          20,138        41,250        —          61,388   

Accounts payable and accrued expenses

     17,547        17,383        24,216        (1,097     58,049   

Due to affiliates

     548        9        7        —          564   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     388,416        355,640        548,388        (45,110     1,247,334   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     3,252        —          —          —          3,252   

Capital in excess of par value

     2,864,036        6,143,364        8,729,686        (14,873,050     2,864,036   

Accumulated earnings (deficit)

     (400,220     146,499        135,794        (282,293     (400,220

Accumulated distributions

     (1,176,750     (4,659,561     (6,508,050     11,167,611        (1,176,750

Accumulated other comprehensive loss

     (2,786     —          (2,786     2,786        (2,786
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,287,532        1,630,302        2,354,644        (3,984,946     1,287,532   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,675,948      $ 1,985,942      $ 2,903,032      $ (4,030,056   $ 2,534,866   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. 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   

Cash

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

Investments in unconsolidated entities

     —          132,324        —          —          132,324   

Investments in subsidiaries

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

Restricted cash

     33        26,595        24,707        —          51,335   

Deferred rent and lease incentives

     —          29,839        27,539        —          57,378   

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   

Mortgages and other notes receivable, net

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

Assets held for sale, net

     —          6,106        84,688        —          90,794   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

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

Revenues:

          

Rental income from operating leases

   $ —        $ 12,226      $ 25,405      $ —        $ 37,631   

Property operating revenues

     —          48,026        92,657        —          140,683   

Interest income on mortgages and other notes receivable

     —          1,220        1,881        (1,136     1,965   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          61,472        119,943        (1,136     180,279   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          23,585        58,141        —          81,726   

Asset management fees to advisor

     6,053        —          —          —          6,053   

General and administrative

     3,998        177        132        —          4,307   

Ground lease and permit fees

     —          1,700        1,149        —          2,849   

Acquisition fees and costs

     509          —          —          509   

Other operating expenses

     452        499        1,219        —          2,170   

Bad debt expense (recovery)

     —          (47     112        —          65   

Loss (recovery) on lease terminations

     —          —          —          —          —     

Loan loss provision

     —          —          750        —          750   

Depreciation and amortization

     —          10,096        23,526        —          33,622   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     11,012        36,010        85,029        —          132,051   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (11,012     25,462        34,914        (1,136     48,228   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income

     6        (3     772        —          775   

Interest expense and loan cost amortization (includes $57 loss on termination of cash flow hedge)

     (7,893     (1,935     (9,864     1,136        (18,556

Loss on extinguishment of debt

     (1,591     (2,603     2,574        —          (1,620

Equity in loss of unconsolidated entities

     —          3,176        —          —          3,176   

Equity in earnings (loss), intercompany

     51,113        41,189        70,093        (162,395     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     41,635        39,824        63,575        (161,259     (16,225
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     30,623        65,286        98,489        (162,395     32,003   

Income from discontinued operations

     —          (1,028     (352     —          (1,380
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 30,623      $ 64,258      $ 98,137      $ (162,395   $ 30,623   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

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

Revenues:

          

Rental income from operating leases

   $ —        $ 14,530      $ 16,936      $ —        $ 31,466   

Property operating revenues

     —          34,429        92,278        —          126,707   

Interest income on mortgages and other notes receivable

     —          1,169        3,185        (1,101     3,253   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          50,128        112,399        (1,101     161,426   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          18,419        54,854        —          73,273   

Asset management fees to advisor

     6,498        —          —          —          6,498   

General and administrative

     3,275        334        273        —          3,882   

Ground lease and permit fees

     —          2,041        1,091        —          3,132   

Acquisition fees and costs

     1,009        —          —          —          1,009   

Other operating expenses

     248        1,133        957        —          2,338   

Bad debt expense

     —          886        937        —          1,823   

Impairment provision

     —          2,740        —          —          2,740   

Depreciation and amortization

     —          9,923        20,808        —          30,731   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     11,030        35,476        78,920        —          125,426   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (11,030     14,652        33,479        (1,101     36,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income (expense)

     59        (58     (14     —          (13

Bargain purchase gain

     —          —          2,653        —          2,653   

Interest expense and loan cost amortization

     (8,107     (3,216     (5,630     1,101        (15,852

Gain from sale of unconsolidated entities

     —          55,394        —          —          55,394   

Equity in earnings of unconsolidated entities

     —          4,147          —          4,147   

Equity in earnings (loss), intercompany

     97,371        106,548        123,357        (327,276     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     89,323        162,815        120,366        (326,175     46,329   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     78,293        177,467        153,845        (327,276     82,329   

Loss from discontinued operations (includes $414 amortization of loss on termination of cash flow hedges)

     —          (3,063     (973     —          (4,036
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 78,293      $ 174,404      $ 152,872      $ (327,276   $ 78,293   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

     For the Nine Months Ended September 30, 2014  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenues:

          

Rental income from operating leases

   $ —        $ 41,170      $ 73,839      $ —        $ 115,009   

Property operating revenues

     —          81,741        201,323        —          283,064   

Interest income on mortgages and other notes receivable

     —          3,605        7,814        (3,375     8,044   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          126,516        282,976        (3,375     406,117   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          54,793        150,462        —          205,255   

Asset management fees to advisor

     18,999        —          —          —          18,999   

General and administrative

     11,272        569        1,611        —          13,452   

Ground lease and permit fees

     —          5,672        4,016        —          9,688   

Acquisition fees and costs

     2,513        —          —          —          2,513   

Other operating expenses

     874        1,092        2,062        —          4,028   

Bad debt expense

     —          (45     1,107        —          1,062   

(Recovery) loss on lease terminations

     —          (1,036     295        —          (741

Loan loss provision

     —          —          3,270        —          3,270   

Depreciation and amortization

     —          29,250        67,441        —          96,691   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     33,658        90,295        230,264        —          354,217   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (33,658     36,221        52,712        (3,375     51,900   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income (expense)

     17        150        699        —          866   

Interest expense and loan cost amortization (includes $460 loss on termination of cash flow hedge)

     (23,691     (10,335     (26,671     3,375        (57,322

Loss on extinguishment of debt

     (1,591     (2,603     2,378        —          (1,816

Equity in earnings of unconsolidated entities

     —          6,949        —          —          6,949   

Equity in earnings (loss), intercompany

     60,688        57,197        95,778        (213,663     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     35,423        51,358        72,184        (210,288     (51,323
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     1,765        87,579        124,896        (213,663     577   

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

     —          143        1,045        —          1,188   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 1,765      $ 87,722      $ 125,941      $ (213,663   $ 1,765   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

     For the Nine Months Ended September 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenues:

          

Rental income from operating leases

   $ —        $ 48,071      $ 53,088      $ —        $ 101,159   

Property operating revenues

     —          59,160        197,462        —          256,622   

Interest income on mortgages and other notes receivable

     —          3,351        9,814        (3,130     10,035   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          110,582        260,364        (3,130     367,816   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Property operating expenses

     —          44,200        144,979        —          189,179   

Asset management fees to advisor

     21,445        —          —          —          21,445   

General and administrative

     11,206        734        918        —          12,858   

Ground lease and permit fees

     —          5,616        3,986        —          9,602   

Acquisition fees and costs

     1,922        —          —          —          1,922   

Other operating expenses

     739        1,121        2,447        —          4,307   

Bad debt expense

     —          3,100        2,782        —          5,882   

Impairment provision

     —          45,191        —          —          45,191   

Depreciation and amortization

     —          29,181        59,406        —          88,587   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     35,312        129,143        214,518        —          378,973   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (35,312     (18,561     45,846        (3,130     (11,157
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest and other income

     174        372        (42     —          504   

Bargain purchase gain

     —          —          2,653        —          2,653   

Interest expense and loan cost amortization

     (23,811     (11,225     (16,607     3,130        (48,513

Gain from sale of unconsolidated entities

     —          55,394        —          —          55,394   

Equity in earnings of unconsolidated entities

     —          9,183        —          —          9,183   

Equity in earnings (loss), intercompany

     58,738        114,883        95,606        (269,227     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     35,101        168,607        81,610        (266,097     19,221   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (211     150,046        127,456        (269,227     8,064   

Loss from discontinued operations

          

Interest expense and loan cost amortization (includes $1,241 amortization of loss on termination of cash flow hedges)

     —          (5,409     (2,866     —          (8,275
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (211   $ 144,637      $ 124,590      $ (269,227   $ (211
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Other Comprehensive Income (Loss):

 

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

Net income (loss)

   $ 30,623      $ 64,258       $ 98,137      $ (162,395   $ 30,623   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

           

Foreign currency translation adjustments

     (1,478     —           (1,478     1,478        (1,478

Changes in fair value of cash flow hedges:

           

Amortization of loss and loss on termination of cash flow hedges

     56        —           56        (56     56   

Unrealized gain (loss) arising during the period

     204        —           204        (204     204   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (1,218     —           (1,218     1,218        (1,218
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 29,405      $ 64,258       $ 96,919      $ (161,177   $ 29,405   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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

Net income (loss)

   $ 78,293       $ 174,404       $ 152,872       $ (327,276   $ 78,293   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss):

             

Foreign currency translation adjustments

     410         —           410         (410     410   

Changes in fair value of cash flow hedges:

             

Amortization of loss on termination of cash flow hedges

     414         —           414         (414     414   

Unrealized gain (loss) arising during the period

     60         —           60         (60     60   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total other comprehensive income (loss)

     884         —           884         (884     884   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

   $ 79,177       $ 174,404       $ 153,756       $ (328,160   $ 79,177   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Other Comprehensive Income (Loss):

 

     For the Nine Months Ended September 30, 2014  
     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ 1,765      $ 87,722       $ 125,941      $ (213,663   $ 1,765   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

           

Foreign currency translation adjustments

     (1,383     —           (1,383     1,383        (1,383

Changes in fair value of cash flow hedges:

           

Amortization of loss and loss on termination of cash flow hedges

     3,487        —           3,487        (3,487     3,487   

Unrealized gain (loss) arising during the period

     816        —           816        (816     816   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     2,920        —           2,920        (2,920     2,920   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 4,685      $ 87,722       $ 128,861      $ (216,583   $ 4,685   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

     For the Nine Months Ended September 30, 2013  
     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (211   $ 144,637       $ 124,590      $ (269,227   $ (211
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

           

Foreign currency translation adjustments

     (804     —           (804     804        (804

Changes in fair value of cash flow hedges:

           

Amortization of loss on termination of cash flow hedges

     1,241        —           1,241        (1,241     1,241   

Unrealized gain arising during the period

     1,459        —           1,459        (1,459     1,459   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     1,896        —           1,896        (1,896     1,896   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 1,685      $ 144,637       $ 126,486      $ (271,123   $ 1,685   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Cash Flows:

 

     For the Nine Months Ended September 30, 2014  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Operating activities:

          

Net cash provided by (used in) operating activities

   $ (51,615   $ 76,708      $ 107,725      $ —        $ 132,818   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Acquistion of property

     —          —          (128,390     —          (128,390

Capital expenditures

     —          (24,306     (31,582     —          (55,888

Proceeds from sale of properties

     —          291,620        79,154        —          370,774   

Collection of mortgage loans receivable

     —          —          83,459        —          83,459   

Changes in restricted cash

     21        (2,606     709        —          (1,876

Other

     614        148        61        —          823   

Intercompany investing

     342,212        —          —          (342,212     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     342,847        264,856        3,411        (342,212     268,902   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Redemptions of common stock

     (9,412     —          —          —          (9,412

Distributions to stockholders, net of reinvestments

     (76,119     —          —          —          (76,119

Proceeds under line of credit

     —          102,500        —          —          102,500   

Proceeds from mortgage loans and other notes payable

     —          —          57,790        —          57,790   

Principal payments on line of credit

     —          (30,000     —          —          (30,000

Principal payments on mortgage loans and senior notes

     (24,500     (90,480     (116,866     —          (231,846

Principal payments on capital leases

     —          (2,642     (1,903     —          (4,545

Payment of entrance fee refunds

     —          —          (1,257     —          (1,257

Payment of loan costs

     —          (544     (2,660     —          (3,204

Intercompany financing

     —          (309,952     (32,260     342,212        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (110,031     (331,118     (97,156     342,212        (196,093
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuation on cash

     —          —          (79     —          (79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash

     181,201        10,446        13,901        —          205,548   

Cash at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at end of period

   $ 218,869      $ 26,117      $ 32,136      $ —        $ 277,122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15. Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Cash Flows:

 

     For the Nine Months Ended September 30, 2013  
     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Operating activities:

          

Net cash provided by (used in) operating activities

   $ (55,324   $ 95,174      $ 93,185      $ —        $ 133,035   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Acquistion and deposits on real estate investments

     —          —          (83,451     —          (83,451

Capital expenditures

     —          (21,715     (31,007     —          (52,722

Proceeds from sale of properties

     —          11,000        —          —          11,000   

Proceeds from sale of unconsolidated entities

     —          195,446        —          —          195,446   

Proceeds from release of collateral on loan payable

     —          —          11,167        —          11,167   

Collection of mortgage loans receivable

     —          35        4,185        —          4,220   

Changes in restricted cash

     1        (5,765     (6,613     —          (12,377

Other

     (250     57        (331     —          (524

Intercompany investing

     164,660        —          —          (164,660     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     164,411        179,058        (106,050     (164,660     72,759   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Redemptions of common stock

     (8,954     —          —          —          (8,954

Distributions to stockholders, net of reinvestments

     (60,180     —          —          —          (60,180

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

     —          (145,000     —          —          (145,000

Principal payments on mortgage loans and senior notes

     —          (7,431     (4,887     —          (12,318

Principal payments on capital leases

     —          (2,007     (1,306     —          (3,313

Payment of loan costs

     —          —          (751     —          (751

Intercompany financing

     —          (163,873     (787     164,660        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (69,134     (268,311     22,269        164,660        (150,516
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate fluctuation on cash

     —          —          (6     —          (6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash

     39,953        5,921        9,398        —          55,272   

Cash at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at end of period

   $ 79,172      $ 20,046      $ 29,278      $ —        $ 128,496   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

16. 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.

 

17. Subsequent Events:

In October 2014, the Company repaid one of its loans with a principal outstanding balance of approximately $45.9 million at September 30, 2014 with the net sales proceeds from the sale of 46 golf properties. Also in October 2014, the Company repaid $100.0 million and borrowed $30.0 million on its revolving line of credit. From October 1, 2014 through the date of this filing, the Company repurchased its senior notes with cash on hand at a premium for $53.9 million with a face value of $52.3 million.

The Company holds ownerships in two unconsolidated joint ventures, DMC Partnership and the Intrawest Venture. In October 2014, the DMC Partnership refinanced their existing loans, which had matured in September 2014, with a bridge loan from a new third-party lender for an aggregate principal amount of $131.5 million. The new loan bears interest at 30-day LIBOR plus 1.75% with a 0.25% LIBOR floor and matures in May 2015 with one six-month extension option for a fee of approximately $0.7 million.

 

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

INTRODUCTION

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

Cautionary Note Regarding Forward-Looking Statements

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

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

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

 

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

GENERAL

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

Our principal business objectives include investing in and owning a diversified portfolio of real estate with a goal to preserve, protect and enhance the long-term value of those assets. We have built a portfolio of properties that we consider to be well-diversified by region, asset type and operator. In September 2014, we sold 46 of our 48 golf properties to a third-party buyer. As of November 7, 2014, we had 107 lifestyle properties of which 3 properties (2 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 30% in ski and mountain lifestyle, 25% in senior housing, 26% in attractions, 7% in marinas and 12% in additional lifestyle properties.

As a mature real estate investment trust (“REIT”), a significant focus is to actively manage our assets and reinvest in our existing properties in order to maximize growth in rental income and property operating incomeWe are evaluating each of our properties on a rigorous and ongoing basis and in an effort to optimize and enhance the value of our assets, and we have sold or may sell 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 (“Board”) 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. On September 30, 2014, we sold 46 of the 48 properties in our golf portfolio in connection with this analysis. To the extent we determine to sell additional assets or portfolios, we will evaluate them 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.

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, exclusive of the two golf properties classified as held for sale. 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

 

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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 September 30,              
        2014     2013     Increase/(Decrease)  
        Revenue (1)      EBITDA (1)     Revenue (1)      EBITDA (1)     Revenue     EBITDA  

Ski and mountain lifestyle

     17       $ 51,132       $ (6,560   $ 48,132       $ (5,900     6.2     -11.2

Attractions

     21         132,288         64,414        122,050         58,578        8.4     10.0

Senior housing

     20         17,876         5,281        17,470         5,780        2.3     -8.6

Marinas

     17         12,073         4,475        12,305         5,015        -1.9     -10.8
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     75       $ 213,369       $ 67,610      $ 199,957       $ 63,473        6.7     6.5
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

     

 

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

Ski and mountain lifestyle

     17       $ 331,994       $ 90,088       $ 339,291       $ 96,581         -2.2     -6.7

Attractions

     21         235,517         75,265         217,397         64,871         8.3     16.0

Senior housing

     20         52,829         15,979         51,269         16,929         3.0     -5.6

Marinas

     17         26,574         8,543         27,780         10,342         -4.3     -17.4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     75       $ 646,914       $ 189,875       $ 635,737       $ 188,723         1.8     0.6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

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 September 30, 2014, our tenants and managers reported to us an increase in property-level revenue and EBITDA of 6.7% and 6.5%, respectively, as compared to the same period in the prior year. The increase in property-level revenue was attributable to our ski and mountain lifestyle properties, attractions and senior housing properties. Our ski and mountain lifestyle properties experienced an increase in revenue due to favorable weather conditions for summer operations which includes mountain biking and aerial adventures, as well as strong group and conference business at those resorts with facilities which operate during the non-winter months. However, EBITDA decreased due to higher healthcare costs and a one-time tax credit granted at one of our ski resorts in July of 2013. Our attractions properties experienced an increase due to capital improvements made and our manager’s efforts to promote and drive attendance which resulted in an increase in season pass sales, visitations and in-park spending as compared to prior year. Our senior housing properties experienced an increase in revenue due to higher average rates paid by our residents but EBITDA decreased due to higher resident care expenses, repairs and maintenance expenses, and other operating expenses. The increases were partially offset by our marinas properties. Our marinas properties transitioned from leased to managed structures during the fourth quarter of 2013 and the second quarter of 2014 resulting in the incurrence of management fees reducing the operating margin on the properties.

Overall, for the nine months ended September 30, 2014, our tenants and managers reported to us an increase in property-level revenue and EBITDA of 1.8% and 0.6%, respectively, as compared to the same period in the prior year. The increase in property-level revenue was attributable to our attractions and senior housing properties. Our attractions properties exhibited an increase due to higher season pass sales and in-park spending as mentioned above. In addition, visitation at our attractions properties increased by 10.3% year-over-

 

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year. Our senior housing properties experienced an increase in revenue due to higher average rates paid by our residents. Although revenues on our senior housing properties increased, 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. The decrease in EBITDA was also due to higher resident care expenses and other operating expenses. The increases were partially offset by our ski and mountain lifestyle properties and marinas properties. Our ski and mountain lifestyle properties experienced a decrease primarily due to properties in the Pacific West (specifically in California) where our properties were challenged with snow levels that were significantly below historic norms during much of the 2013/2014 ski season as a result of warm temperatures and drought conditions. Currently, ski season pass sales at our ski resorts are trending at or slightly ahead of pace except for resorts in the West region. However, an El Niño weather pattern is forecasted for the 2014/2015 ski season, which typically results in more favorable precipitation levels for the Pacific West region. As a result, we are optimistic those ski resorts will exhibit improvements in the upcoming 2014/2015 ski season. On November 3, 2014, due to favorable temperatures and snowmaking conditions in the Northeast region, our ski resort in Maine was the first of our ski resorts to open for the 2014/15 ski season. Our marinas properties experienced a decrease due to the incurrence of management fees on properties as a result of being transitioned from leased to managed structures. Additionally, in December 2013 record-breaking cold temperatures and ice storms at one of our largest marinas caused damage to the docks and other floating structures, which resulted in temporary partial closure of this property, reducing operating results.

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 September 30, 2014, the managers for our 20 comparable properties reported to us an increase in occupancy of 0.2% as compared to the same period in 2013 and an increase in RevPOU of 3.6% and 2.9% for the quarter and nine months ended September 30, 2014, respectively, as compared to the same periods in 2013. The increase in occupancy and RevPOU were primarily attributable to strong unit demand and 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 nine months ended September 30, 2014 and 2013 (in thousands):

 

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

Senior housing

     20         92.7     92.5     0.2

 

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

Senior housing

     20       $ 3,958       $ 3,821         3.6   $ 3,892       $ 3,781         2.9

Seasonality

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

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

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

 

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during their peak operating months. As of November 7, 2014, we had a total of 55 wholly-owned managed properties consisting of one ski and mountain lifestyle property, one golf property, 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 estimated fair value of the collateral was approximately $7.9 million, which approximated the carrying value of the loan.

During the quarter and nine months ended September 30, 2014, we recorded a loan loss provision of approximately $0.8 million and $3.3 million, respectively, 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 a troubled debt restructure on 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 troubled debt 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.

Exit Strategy Development

As part of maximizing the total value of our portfolio in connection with our evaluation of various strategic opportunities in preparation for an exit strategy on or before December 31, 2015, as previously reported, we engaged Jefferies LLC (“Jefferies”), a leading global investment banking and advisory firm, in March 2014. We engaged Jefferies 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. As described further under “Sources of Liquidity and Capital Resources”, on September 30, 2014, we completed the sale of the majority of our golf portfolio and expect to sell the remaining two properties by the end of the year. At this time, we along with our Board, continue to evaluate various strategic alternatives for providing liquidity to our shareholders, which may include but is not limited to: (i) selling additional assets or portfolios, (ii) selling the entire company, (iii) listing our shares on the New York Stock Exchange, (iv) continuing to hold some or all of our remaining assets for a period of time while we aggressively manage them in an effort to continue to grow property net operating income or (v) a combination of certain of these alternatives. While we are in the process of this analysis, our Board may elect not to provide an updated estimate of our net asset value (“NAV”) per share if it believes that doing so could be detrimental to our strategic alternatives process and therefore to our shareholders. The next regularly scheduled update of our estimated NAV per share is scheduled to be as of December 31, 2014. We will provide additional information about the strategic alternatives and our intentions with respect to updating the NAV as warranted based on the progress of our strategic alternatives process over the next few months.

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 collected on loans from our borrowers and distributions from our unconsolidated entities. To a lesser extent, through the second quarter of 2014, we also used proceeds from our dividend reinvestment plan (“DRP”) (which was suspended in September 2014) to fund a portion of our cash distributions to stockholders. To the extent we dispose of assets, we plan to use the net sales proceeds to retire indebtedness, invest into new assets or to enhance existing assets. To the extent we acquire additional assets, our primary source of funds will be from property dispositions and borrowings.

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 which may include debt proceeds or asset sales proceeds. Additionally, as previously discussed, many of our asset classes experience seasonal fluctuations where they make rental payments to us during their peak operating months. As a result, our operating cash flows will fluctuate due to the seasonality of those properties. We believe that we will be able to refinance or repay our debt as it comes due in the ordinary course of business. From time to time, we will consider open market purchases of our senior notes or other indebtedness when considered advantageous.

 

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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, net proceeds from investment dispositions, borrowings under our revolving line of credit, and through the first half of 2014, from subscriptions received for common stock through our DRP (which was suspended in September 2014), 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):

 

     Nine Months Ended
September 30,
 
     2014     2013  

Cash at beginning of period

   $ 71,574      $ 73,224   

Cash provided from (used in):

    

Operating activities

     132,818        133,035   

Investing activities

     268,902        72,759   

Financing activities

     (196,093     (150,516

Effect of foreign currency translation on cash

     (79     (6
  

 

 

   

 

 

 

Cash at the end of period

   $ 277,122      $ 128,496   
  

 

 

   

 

 

 

Sources of Liquidity and Capital Resources

Operating Activities. – Net cash provided from operating activities decreased $0.2 million or 0.2% for the nine months ended September 30, 2014 as compared to the same period in 2013. The change in operating activities for the nine months ended September 30, 2014 as compared to same period in 2013 is primarily attributable to an increase in rental revenue from properties acquired after the third quarter of 2013 as well as increases in “same-store” net operating income from managed properties. The increase was partially offset by (i) swap termination fees paid in connection with the termination of three of our cash flows hedges, (ii) an increase in interest expense on our indebtedness due to additional borrowings, (iii) prepayment penalties in connection with early retirement of certain loans and (iv) a reduction in distributions we received from our unconsolidated joint ventures as a result of the sale of our interest in three unconsolidated senior housing joint ventures.

Proceeds from Sales or Real Estate – As described above in “Exit Strategy Development”, we engaged Jefferies to assist management and our Board in actively evaluating various strategic opportunities including the sale of our assets. As part of this evaluation, in March 2014, we agreed on a plan to sell the golf portfolio consisting of 48 properties, of which 46 properties were sold in September 2014 and expect to sell the remaining two properties by the end of the year. We also sold our multi-family residential property in June 2014. During the nine months ended September 30, 2014 and 2013, we received net sales proceeds from the sale of 47 and three properties, respectively, of approximately $370.8 million and $11.0 million, respectively. We used the net sales proceeds from the sale of the 47 properties during 2014 to pay down the indebtedness associated with the properties sold and to pay down a portion of our line of credit, as further described below under “Uses of Liquidity and Capital Resources”. During the nine months ended September 30, 2013, we received approximately $195.4 million from the sale of our interests in 42 senior housing properties held in three unconsolidated joint ventures. We did not sell any interests in unconsolidated joint ventures during 2014.

Proceeds from Mortgages and other Notes Receivables. During the nine months ended September 30, 2014 and 2013, we collected scheduled principal payments of approximately $83.5 million and $4.2 million, respectively. We used the funds to pay down some of our existing indebtedness as described in “Indebtedness” below. We are not scheduled to receive significant collections of principal in the next twelve months. See “Item 1. Financial Information – Note 9. Mortgages and Other Notes Receivable, net” for a schedule of future principal collections as of September 30, 2014.

Borrowings. In February 2014, we 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 our 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 8. “Variable Interest and Unconsolidated Entities” above for additional information. The other terms of the existing loan remain the same.

 

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In July 2014, the Company acquired three properties and assumed the fair value of three loans with a principal outstanding balance of approximately $25.5 million. The loans bear interest ranging from 4.7% to 6.9% and mature between October 2018 and January 2019. In addition to the three loans assumed, we obtained two supplemental loans with a third-party lender in an aggregate amount of approximately $7.1 million to partially fund the acquisition. The supplemental loans bear interest at an annual fixed rate of 4.82% and matures in October 2018. During the nine months ended September 30, 2014, we also borrowed $37.8 million to fund the acquisition of three other properties through our revolving line of credit.

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 September 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 nine months ended September 30, 2014, we received distributions of approximately $9.9 million as compared to approximately $28.6 million for the same period in 2013. The decrease was due to the sale of the 42 senior housing properties held through three unconsolidated senior housing joint ventures in July 2013.

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

Distribution Reinvestment Plan. 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. For the nine months ended September 30, 2014 and 2013, we received aggregate proceeds of approximately $27.2 million (representing 4.0 million shares) and $41.2 million (representing 5.9 million shares), respectively, through our DRP. The decrease in proceeds received was due to the fact that in September 2014, our Board approved the suspension of our DRP, effective as of September 26, 2014. As a result of the suspension of the DRP, beginning with the September 2014 quarterly distributions, stockholders who were participants in the DRP received cash distributions instead of additional shares of our common stock.

Uses of Liquidity and Capital Resources

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 September 30, 2014, our leverage ratio, calculated as total indebtedness over total assets, was 44.5% (47.8% including our share of unconsolidated assets and debts).

During the nine months ended September 30, 2014, we repaid certain loans with an aggregate outstanding principal balance of approximately $185.4 million primarily with the net sales proceeds received from the sale of 47 properties (one multi-family residential and 46 golf properties) as described above, and proceeds from our revolving line of credit described above, in order to take advantage of a lower cost of funds under our line of credit. We also paid $14.9 million in scheduled principal payments under our mortgage loans. In June 2014, we extended the maturity date of our $105.0 million collateralized bridge loan from June 30, 2014 to December 20, 2014 and paid $0.3 million as an extension fee. Simultaneously with exercising our extension option, we repaid $7.0 million of the principal balance. We also used approximately $25.4 million in cash to repurchase at a premium the face value of $24.5 million in our senior notes and recorded a loss of approximately $1.6 million, including the write-off of unamortized loan costs. From October 1, 2014 through the date of this filing, we used cash on hand to repurchased additional senior notes, at a premium, for approximately $53.9 million with the face value of $52.3 million.

During the nine months ended September 30, 2014, we repaid $30.0 million of our revolving line of credit and as of September 30, 2014, our revolving line of credit had an outstanding principal balance of $122.5 million. In October 2014, we repaid approximately $100.0 million on our revolving line of credit with net sales proceeds received from the sale of our 46 golf properties and principal payments received from our mortgage loans receivable, as described above, and borrowed $30 million for working capital and potential additional senior note repurchases.

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 in the indenture. We were in compliance with all applicable provisions as of September 30, 2014.

See “Item 1. Financial Information – Note 10. Indebtedness” for the schedule of future principal payments and maturities for all indebtedness as of September 30, 2014.

 

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Acquisitions and Capital Expenditures. During the nine months ended September 30, 2014, we acquired nine senior housing properties for an aggregate purchase price of approximately $128.4 million, net of debt assumed. During the nine months ended September 30, 2013, we acquired three senior housing properties and one attractions property for an aggregate purchase price of approximately $83.5 million.

During the nine months ended September 30, 2014 and 2013, we