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EX-10.3 - EXHIBIT 10.3 - CNL LIFESTYLE PROPERTIES INCexhibit103-clp.htm
EX-32.1 - EXHIBIT 32.1 - CNL LIFESTYLE PROPERTIES INCexhibit321-clp.htm
EX-31.2 - EXHIBIT 31.2 - CNL LIFESTYLE PROPERTIES INCexhibit312-clp.htm
EX-31.1 - EXHIBIT 31.1 - CNL LIFESTYLE PROPERTIES INCexhibit311-clp.htm
EX-10.6 - EXHIBIT 10.6 - CNL LIFESTYLE PROPERTIES INCexhibit106-clp.htm
EX-10.5 - EXHIBIT 10.5 - CNL LIFESTYLE PROPERTIES INCexhibit105-clp.htm
EX-10.4 - EXHIBIT 10.4 - CNL LIFESTYLE PROPERTIES INCexhibit104-clp.htm
EX-10.2 - EXHIBIT 10.2 - CNL LIFESTYLE PROPERTIES INCexhibit102-clp.htm
EX-10.1 - EXHIBIT 10.1 - CNL LIFESTYLE PROPERTIES INCexhibit101-clp.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________ 
FORM 10-Q
___________________________________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
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  ý    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  ý    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  ý
The number of shares of common stock outstanding as of August 5, 2016 was 325,182,969.
 
 
 
 
 

1


 
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 

2


 PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except per share data)
 
 
June 30,
2016
 
December 31,
2015
ASSETS
 
 
 
 
Real estate investment properties, net (including $58,746 and $58,832 related to consolidated variable interest entities, respectively)
 
$
690,106

 
$
711,857

Assets held for sale, net
 
106,886

 
43,451

Investment in unconsolidated entity
 

 
73,434

Cash
 
132,839

 
83,544

Deferred rent and lease incentives
 
44,393

 
43,992

Restricted cash
 
29,240

 
28,025

Other assets
 
20,736

 
16,778

Intangibles, net
 
16,201

 
16,487

Accounts and other receivables, net
 
11,913

 
11,893

Total Assets
 
$
1,052,314

 
$
1,029,461

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Mortgages and other notes payable (including $19,178 and $19,677 related to consolidated variable interest entities, respectively)
 
$
167,494

 
$
184,341

Liabilities related to assets held for sale
 
7,420

 

Other liabilities
 
42,675

 
27,160

Accounts payable and accrued expenses
 
14,934

 
11,361

Due to affiliates
 
587

 
420

Total Liabilities
 
233,110

 
223,282

Commitments and contingencies (Note 11)
 

 

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 shares issued and 325,183 shares outstanding as of June 30, 2016 and December 31, 2015, respectively
 
3,252

 
3,252

Capital in excess of par value
 
2,863,833

 
2,863,833

Accumulated deficit
 
(309,257
)
 
(352,974
)
Accumulated distributions
 
(1,731,595
)
 
(1,699,076
)
Accumulated other comprehensive loss
 
(7,029
)
 
(8,856
)
Total Stockholders’ Equity
 
819,204

 
806,179

Total Liabilities and Stockholders’ Equity
 
$
1,052,314

 
$
1,029,461

See accompanying notes to condensed consolidated financial statements.


1


CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except per share data)
 
 
Quarter Ended
June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Rental income from operating leases
 
$
32,576

 
$
27,044

 
$
71,976

 
$
63,051

Property operating revenues
 
30,980

 
58,162

 
33,361

 
93,244

Interest income on mortgages and other notes receivable
 

 
453

 

 
1,356

Total revenues
 
63,556

 
85,659

 
105,337

 
157,651

Expenses:
 
 
 
 
 
 
 
 
Property operating expenses
 
28,727

 
52,021

 
38,643

 
89,059

Asset management fees to advisor
 
3,035

 
4,094

 
6,066

 
8,528

General and administrative
 
4,422

 
4,501

 
7,881

 
8,483

Ground lease and permit fees
 
2,574

 
1,959

 
6,353

 
5,393

Other operating expenses
 
3,696

 
2,525

 
6,004

 
3,144

Bad debt expense
 
144

 
2,296

 
209

 
4,836

Loan loss provision
 

 
5,408

 

 
9,348

Depreciation and amortization
 
16,635

 
20,544

 
33,457

 
43,656

Total expenses
 
59,233

 
93,348

 
98,613

 
172,447

Operating income (loss)
 
4,323

 
(7,689
)
 
6,724

 
(14,796
)
Other income (expense):
 
 
 
 
 
 
 
 
Interest and other income
 
617

 
64

 
1,061

 
1,012

Interest expense and loan cost amortization
 
(2,777
)
 
(8,735
)
 
(5,735
)
 
(20,744
)
Loss on extinguishment of debt
 

 
(21,065
)
 

 
(21,065
)
Equity in earnings (loss) of unconsolidated entities
 

 
(783
)
 
1,290

 
2,778

Gain on purchase of controlling interest of investment in unconsolidated entity
 
30,025

 

 
30,025

 

Total other expense
 
27,865

 
(30,519
)
 
26,641

 
(38,019
)
Income (loss) from continuing operations
 
32,188

 
(38,208
)
 
33,365

 
(52,815
)
Income from discontinued operations
 
9,964

 
199,720

 
9,441

 
206,772

Net income before gain on sale of real estate and unconsolidated entity
 
42,152

 
161,512

 
42,806

 
153,957

Gain on sale of real estate
 
911

 
27,337

 
911

 
27,337

Gain from sale of unconsolidated entity
 

 
39,252

 

 
39,252

Net income
 
$
43,063

 
$
228,101

 
$
43,717

 
$
220,546

Net income per share of common stock (basic and diluted)
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.10

 
$
0.09

 
$
0.10

 
$
0.04

Discontinued operations
 
0.03

 
0.61

 
0.03

 
0.64

Net income per share
 
$
0.13

 
$
0.70

 
$
0.13

 
$
0.68

Weighted average number of shares of common stock outstanding (basic and diluted)
 
325,183

 
325,183

 
325,183

 
325,183

See accompanying notes to condensed consolidated financial statements.


2


CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
 
 
Quarter Ended
June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
43,063

 
$
228,101

 
$
43,717

 
$
220,546

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
65

 
642

 
1,855

 
(1,830
)
Changes in fair value of cash flow hedges:
 
 
 
 
 
 
 
 
Amortization of loss and loss on termination of cash flow hedges
 

 
180

 

 
180

Unrealized gain (loss) arising during the period
 
9

 
128

 
(28
)
 
152

Total other comprehensive income (loss)
 
74

 
950

 
1,827

 
(1,498
)
Net comprehensive income
 
$
43,137

 
$
229,051

 
$
45,544

 
$
219,048

See accompanying notes to condensed consolidated financial statements.


3


CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2016 and the Year Ended December 31, 2015
(UNAUDITED)
(in thousands except per share data)
 
 
Common Stock
 
Capital in
Excess of
Par Value
 
Accumulated
Deficit
 
Accumulated
Distributions
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance at December 31, 2014
 
325,184

 
$
3,252

 
$
2,863,839

 
$
(494,129
)
 
$
(1,211,302
)
 
$
(4,270
)
 
$
1,157,390

Net income
 

 

 

 
141,155

 

 

 
141,155

Redemption of common stock
 
(1
)
 

 
(6
)
 

 

 

 
(6
)
Distributions, declared and paid ($1.5000 per share)
 

 

 

 

 
(487,774
)
 

 
(487,774
)
Foreign currency translation adjustment
 

 

 

 

 

 
(4,970
)
 
(4,970
)
Amortization of loss on termination of cash flow hedges
 

 

 

 

 

 
180

 
180

Current period adjustment to recognize changes in fair value of cash flow hedges (Note 8)
 

 

 

 

 

 
204

 
204

Balance at December 31, 2015
 
325,183

 
3,252

 
2,863,833

 
(352,974
)
 
(1,699,076
)
 
(8,856
)
 
806,179

Net income
 

 

 

 
43,717

 

 

 
43,717

Distributions, declared and paid ($0.1000 per share)
 

 

 

 

 
(32,519
)
 

 
(32,519
)
Foreign currency translation adjustment
 

 

 

 

 

 
1,855

 
1,855

Current period adjustment to recognize changes in fair value of cash flow hedges (Note 8)
 

 

 

 

 

 
(28
)
 
(28
)
Balance at June 30, 2016
 
325,183

 
$
3,252

 
$
2,863,833

 
$
(309,257
)
 
$
(1,731,595
)
 
$
(7,029
)
 
$
819,204

See accompanying notes to condensed consolidated financial statements.


4


CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
 
Six Months Ended June 30,
 
 
2016
 
2015
Operating activities:
 
 
 
 
Net cash provided by operating activities
 
$
50,289

 
$
42,149

Investing activities:
 
 
 
 
Capital expenditures
 
(9,241
)
 
(27,894
)
Proceeds from sale of real estate
 
50,416

 
743,110

Proceeds from sale of unconsolidated entity
 

 
139,501

Contribution to unconsolidated entity
 
(5,839
)
 
(54,572
)
Cash assumed through purchase of controlling interest of investment in unconsolidated entity
 
11,861

 

Proceeds from insurance
 
1,480

 
1,710

Principal payments received on mortgage loans receivable
 

 
28

Changes in restricted cash
 
1,901

 
10,641

Net cash provided by investing activities
 
50,578

 
812,524

Financing activities:
 
 
 
 
Redemption of common stock
 

 
(6
)
Distributions to stockholders
 
(32,519
)
 
(32,518
)
Principal payments on line of credit
 

 
(152,500
)
Principal payments on mortgage loans and senior notes
 
(17,482
)
 
(526,032
)
Principal payments on capital leases
 
(1,680
)
 
(2,303
)
Payments of entrance fee refunds
 

 

Net cash used in financing activities
 
(51,681
)
 
(713,359
)
Effect of exchange rate fluctuations on cash
 
109

 
4

Net increase in cash
 
49,295

 
141,318

Cash at beginning of period
 
83,544

 
136,985

Cash at end of period
 
$
132,839

 
$
278,303

 
 
 
 
 
Supplemental disclosure of non-cash investing activities:
 
 
 
 
Net increase in real estate and other working capital due to consolidation of unconsolidated entity
 
$
18,164

 
$

Supplemental disclosure of non-cash financing activities:
 
 
 
 
Assumption of mortgage loans by third party
 
$

 
$
139,181

See accompanying notes to condensed consolidated financial statements.

5

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(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. 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. In the event of certain tenant defaults, the Company has engaged third-party managers to operate properties on its behalf until they are re-leased. The Company has engaged CNL Lifestyle Advisor Corporation (the “Advisor”) as its advisor to provide management, acquisition, disposition, advisory and administrative services.
As of June 30, 2016, the Company owned 43 lifestyle properties directly within the following asset classes: ski and mountain lifestyle and attractions. Eight of these properties were held for sale and three are located in Canada.
In March 2014, the Company engaged Jefferies LLC (“Jefferies”), 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. In connection with this process, during 2014 and 2015, the Company sold 104 properties and an interest in one unconsolidated joint venture, which included its entire golf portfolio (consisting of 48 properties), its multi-family development property, its 81.98% interest in the DMC Partnership to its co-venture partner, its senior housing portfolio (consisting of 38 properties), 12 of its 17 marinas properties, four attractions properties and one ski and mountain lifestyle property. The Company used the net sales proceeds from the sale of these properties to repay indebtedness during 2014 and 2015 and also provided stockholders with partial liquidity when it made a special distribution to stockholders during December 2015. Additionally, during the first six months of 2016, the Company (i) sold its remaining five marina properties and its unimproved land for aggregate net sales proceeds of approximately $50.4 million, (ii) acquired the remaining 20% interest in the Intrawest Venture from its co-venture partner, and (iii) as of June 30, 2016 had contracts in place to sell one attraction property and seven ski and mountain lifestyle properties.

2.
Significant Accounting Policies:
Principles of Consolidation and Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States (“GAAP”). The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management are necessary for the fair statement of the Company’s results for the interim period presented. Operating results for the quarter and six months ended June 30, 2016 may not be indicative of the results that may be expected for the year ending December 31, 2016. Amounts as of December 31, 2015 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, 2015.
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.


6

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


2.
Significant Accounting Policies (Continued):

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the disclosure of contingent liabilities. For example, significant estimates and assumptions are made in connection with the allocation of purchase price and the analysis of real estate, equity method investments and impairments. Actual results could differ from those estimates.
Reclassifications — Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to current year presentation with no effect on previously reported net loss or equity. See "Adopted Accounting Pronouncements" below and Note 4. “Assets Held for Sale, net and Discontinued Operations” for additional information.
Adopted Accounting Pronouncements In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which requires amendments to both the VIE and voting models. The amendments (i) modify the identification of variable interests (fees paid to a decision maker or service provider), the VIE characteristics for a limited partnership or similar entity and primary beneficiary determination under the VIE model, and (ii) eliminate the presumption within the current voting model that a general partner controls a limited partnership or similar entity. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The amendments may be applied using either a modified retrospective or full retrospective approach. The Company adopted this ASU effective January 1, 2016. The adoption of this ASU did not result in any changes to conclusions about whether the Company’s three wholly-owned entities with purchase options were VIEs or whether the Company was the primary beneficiary of these entities. Additionally, it did not result in any changes to conclusions in relation to its investment in the Intrawest Venture, its unconsolidated joint venture. In April 2016, the Company acquired the remaining 20% interest in the Intrawest Venture from its co-venture partner. The Company's acquisition of the 20% interest was deemed a reconsideration event and the Company determined that this now wholly-owned entity was no longer a VIE. Refer to Note 6, "Unconsolidated Entities" for additional information.
During 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” and also issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” The Company adopted ASU 2015-03 and ASU 2015-15 on January 1, 2016, which impacted the Company’s presentation of loan costs related to its borrowings and line of credit arrangement on its consolidated financial position but did not have a material impact on the Company’s consolidated results of operations or cash flows. As permitted by ASU 2015-03, the Company has retrospectively adjusted the presentation of loan costs related to its mortgage and notes payables and presented these loan costs as a direct deduction from the carrying amount of the debt payable for all periods presented. As permitted by ASU 2015-15, the Company did not change the presentation of loan costs related to its line of credit arrangement and continued to present these loan costs as Other Assets on the statement of financial position.
The following table provides additional details by financial statement line item of the adjusted presentation in the Company’s condensed consolidated balance sheet as of December 31, 2015 (in thousands):
 
 
As Filed December 31, 2015
 
Adjustments
 
Adjusted December 31, 2015
Other assets
 
$
18,176

 
$
(1,398
)
 
$
16,778

Mortgages and other notes payable
 
$
185,739

 
$
(1,398
)
 
$
184,341

Recent Accounting Pronouncements — In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” as a new 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). In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of Effective Date” which defers the original effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, with earlier adoption permitted only as of annual


7

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


2.
Significant Accounting Policies (Continued):
reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. 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 has determined that it will not early adopt ASU 2014-09 and is still evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Accounting for Leases,” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The ASU requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The ASU further modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases. The ASU will also require qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted. The ASU is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of this ASU. However its adoption is expected to have a significant effect on the Company’s consolidated financial position, results of operations and cash flows.

3.
Real Estate Investment Properties, net:
As of June 30, 2016 and December 31, 2015, real estate investment properties consisted of the following (in thousands):
 
 
June 30,
2016
 
December 31,
2015
Land and land improvements
 
$
369,473

 
$
368,941

Leasehold interests and improvements
 
171,550

 
170,970

Buildings
 
248,269

 
244,968

Equipment
 
514,075

 
506,935

Less: accumulated depreciation and amortization
 
(613,261
)
 
(579,957
)
 
 
$
690,106

 
$
711,857

For the quarter and six months ended June 30, 2016, the Company had depreciation and amortization expenses of approximately $16.4 million and $33.2 million, respectively, as compared to approximately $20.3 million and $43.4 million, respectively, for the quarter and six months ended June 30, 2015.

4.
Assets Held for Sale, net and Discontinued Operations:
Assets Held for Sale, net — The Company had classified eight and seven properties as assets held for sale as of June 30, 2016 and December 31, 2015, respectively. The following table presents the net carrying value of the properties classified as held for sale (in thousands):
 
 
June 30,
2016
 
December 31,
2015
Land and land improvements, net
 
$
14,805

 
$
6,248

Leasehold interests and improvements, net
 

 
27,184

Building and building improvements, net
 
74,476

 
6,509

Equipment, net
 

 
1,378

Intangibles, net
 
16,875

 
25

Restricted cash
 

 
1,408

Accounts and other receivables, net
 
730

 
699

Total
 
$
106,886

 
$
43,451


8

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


4.
Assets Held for Sale, net and Discontinued Operations (Continued):
Associated Liabilities Held for Sale — As of June 30, 2016, the Company had below market lease intangibles of approximately $7.4 million associated with the assets of its seven ski and mountain lifestyle properties held for sale. There were no associated liabilities held for sale as of December 31, 2015.
As of December 31, 2015, the Company had seven properties classified as held for sale. During the six months ended June 30, 2016, the Company sold its remaining five marina properties and its unimproved land. The Company received aggregate sales proceeds net of closing costs for the sale of these properties of approximately $50.4 million, which resulted in aggregate gains of approximately $10.6 million for financial reporting purposes, of which approximately $0.9 million and $9.7 million was recorded in continuing operations and discontinued operations, respectively. No disposition fee was payable to the Advisor on the sale of the five marina properties or the unimproved land.
On April 1, 2016, as described in Note 6, "Unconsolidated Entities," the Company acquired the remaining 20% interest in the Intrawest Venture, from its co-venture partner and held a combined 100% controlling interest in the Intrawest Venture entities that owned seven ski and mountain lifestyle properties. In addition, upon acquisition the Company agreed to sell these seven properties and as of June 30, 2016, had eight properties classified as held for sale.
The Company accounted for the revenues and expenses related to seven ski and mountain lifestyle properties (effective April 2016, when they became wholly-owned) and one attractions property which were held for sale as of June 30, 2016, and one undeveloped land sold during 2016, and the four attractions properties and one ski and mountain lifestyle property sold in 2015 as income from continuing operations because the sale of these properties did not cause a strategic shift in the Company nor are the sales considered to have a major impact on the Company’s business. Accordingly, they do not qualify as discontinued operations under ASU 2014-08, which became effective on January 1, 2015.

Discontinued Operations — The Company classified the revenues and expenses related to the 38 senior housing and 17 marina properties, originally identified as held for sale in 2014, as discontinued operations in the accompanying unaudited condensed consolidated statements of operations for all periods presented.
The following table is a summary of income from discontinued operations for the quarter and six months ended June 30, 2016 and 2015 (in thousands):
 
 
Quarter ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
$
838

 
$
17,733

 
$
3,838

 
$
48,014

Expenses
 
(780
)
 
(13,667
)
 
(3,189
)
 
(33,488
)
Impairment provision
 

 
(7,749
)
 

 
(7,749
)
Operating income (loss)
 
58

 
(3,683
)
 
649

 
6,777

Gain on sale of real estate
 
9,687

 
206,625

 
9,687

 
206,625

Loss on extinguishment of debt
 
(308
)
 
(2,528
)
 
(308
)
 
(2,528
)
Loss (gain) on retirement
 

 
329

 
(1,000
)
 
468

Other income (expense)
 
527

 
(1,023
)
 
413

 
(4,570
)
Income from discontinued operations
 
$
9,964

 
$
199,720

 
$
9,441

 
$
206,772



9

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


5.
Intangibles, net:
The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities as of June 30, 2016 and December 31, 2015 are as follows (in thousands):
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
June 30, 2016 Net Book Value
In place leases
 
$
11,250

 
$
(5,346
)
 
$
5,904

Trade name (infinite-lived)
 
10,297

 

 
10,297

Total
 
$
21,547

 
$
(5,346
)
 
$
16,201

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
December 31, 2015 Net Book Value
In place leases
 
$
11,203

 
$
(5,013
)
 
$
6,190

Trade name (infinite-lived)
 
10,297

 

 
10,297

Total
 
$
21,500

 
$
(5,013
)
 
$
16,487

For each of the quarter and six months ended June 30, 2016 and 2015, the Company had amortization expense of approximately $0.2 million and $0.3 million, respectively, excluding properties that the Company classified as discontinued operations.

6.
Unconsolidated Entities:
As of December 31, 2015, the Company held an 80% ownership interest in the Intrawest Venture of approximately $73.4 million. The Company had classified its investment in the Intrawest Venture, an unconsolidated entity, as a VIE and concluded it was not the primary beneficiary. As part of the Company's evaluation of strategic alternatives to provide stockholders with liquidity of their investment, as described further in Note 1, "Organization and Nature of Business," the Company initiated the buy-sell process permitted under the partnership agreement of the Intrawest Venture. In July 2015, the co-venture partner of the Intrawest Venture accepted the Company’s offer to acquire the co-venture partner’s 20% non-controlling interest in the Intrawest Venture in accordance with the buy-sell provisions of the Intrawest Venture partnership agreement, subject to satisfaction of certain terms and conditions. Effective April 1, 2016, the Company satisfied the terms and conditions under the buy-sell provisions of the partnership agreement and acquired its co-venture partner's 20% interest in the Intrawest Venture for a nominal amount. In conjunction with the acquisition of the remaining 20% interest, in April 2016, the Company contributed $5.8 million to the Intrawest Venture and the Intrawest Venture used the proceeds and repaid a mezzanine loan from its joint venture partner and related accrued interest of 5.8 million.
The acquisition of the co-venture partner’s 20% non-controlling interest, which resulted in the Company owning a combined 100% controlling interest in the Intrawest Venture, was deemed a VIE reconsideration event and the Company determined that the Intrawest Venture was no longer a VIE. As a result of the Company’s 100% controlling interest in the Intrawest Venture, which owned seven ski and mountain lifestyle properties, the Company began consolidating all of the assets, liabilities and results of operations in the Company's consolidated financial statements effective April 1, 2016. In addition, as part of the Company's evaluation of strategic alternatives, upon acquiring the 20% interest, the Company agreed to sell the seven ski and mountain lifestyle properties, classified them as held for sale and the entities that owned these properties ceased recording depreciation on these seven properties. In May and June 2016, the Company entered into purchase and sale agreements for the sale of the seven ski and mountain lifestyle properties owned by the Intrawest Venture. The expected sales proceeds, net of expected closing costs, approximated the carrying value of the properties.
On April 1, 2016, the nominal consideration paid to acquire the remaining 20% interest, along with the approximate $79.5 million carrying value of the Company’s investment in the unconsolidated entity, was less than the fair value of the net assets acquired, which resulted in a gain of approximately $30.0 million in connection with this transaction. The Company determined the fair values of the real estate based on anticipated sales proceeds from the anticipated sale of the seven ski and mountain lifestyle properties, less costs to sell. The Company determined that the fair value of cash, trade receivables and trade payable (“Working Capital, net”) approximated their carrying values.

10

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


6.
Unconsolidated Entities (Continued):
The following summarizes the allocation of the estimated fair values of the assets acquired and liabilities assumed as of April 1, 2016 (in thousands):
Land and land improvements
 
$
14,208

Buildings and building improvements
 
74,253

Intangibles (1)
 
9,449

Cash assumed
 
11,861

Working capital, net
 
(267
)
     Net assets upon acquisitions of 20% non-controlling interest and consolidation
 
$
109,504

 
FOOTNOTES:
(1)
Intangibles were comprised of approximately $13.7 million, $3.1 million and $(7.4) million of in-place lease, above-market lease and below-market lease intangible assets (liabilities), respectively.
The following summarizes the gain that resulted from the change of control in the unconsolidated equity method investment for the quarter and six months ended June 30, 2016 (in thousands):
Fair value of new assets upon acquisition of 20% non-controlling interest and consolidation
 
$
109,504

Less: Investment in unconsolidated entity
 
(79,479
)
     Gain on purchase of controlling interest of investment in unconsolidated entity
 
$
30,025

The revenues and net income attributable to the Company's acquisition of the Intrawest Venture were approximately $3.9 million and $2.5 million, respectively, for each of the quarter and six months ended June 30, 2016. There were no acquisitions in 2015.
The following table presents the unaudited pro forma results of operations for the Company as if the April 1, 2016 acquisition of the remaining 20% interest in the Intrawest Venture was acquired as of January 1, 2015 (in thousands except per share data):
 
(Unaudited)
 
(Unaudited)
 
Quarter Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
63,556

 
$
90,123

 
$
110,080

 
$
166,957

Net income
$
43,063

 
$
230,366

 
$
44,996

 
$
224,131

Income per share of common stock (basic and diluted)
$
0.13

 
$
0.71

 
$
0.14

 
$
0.69

Weighted average number of shares of common stock outstanding (basic and diluted)
325,183

 
325,183

 
325,183

 
325,183



11

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


6.
Unconsolidated Entities (Continued):
The following tables present financial information for the Company’s investment in the Intrawest Venture, its unconsolidated entity, for the six months ended June 30, 2016 (which effective April 1, 2016, the Intrawest Venture became wholly-owned by the Company) and for the Company's investments in the Intrawest Venture and DMC Partnership for the quarter ended and six months ended June 30, 2015 (in thousands):
 
 
Six Months Ended June 30, 2016
 
 
 
 
Intrawest
Venture
(1)
 
 
Revenues
 
$
4,743

 
  
Property operating expenses
 
(2,683
)
 
 
Depreciation and amortization
 
(784
)
 
 
Interest expense and other income (expense)
 
(379
)
 
 
Net income
 
$
897

 
 
Loss allocable to other venture partners (2)
 
$
(410
)
 
(3)  
Income allocable to the Company (2)
 
$
1,307

 
 
Amortization of capitalized costs
 
(17
)
 
 
Equity in earnings of unconsolidated entities
 
$
1,290

 
 
Distribution declared to the Company
 
$
1,423

 
 
Distributions received by the Company
 
$
1,074

 
 
 
 
Quarter Ended June 30, 2015
 
 
DMC
Partnership
(4)
 
Intrawest
Venture
 
 
 
Total
Revenues
 
$
2,290

 
$
4,464

 
 
 
$
6,754

Property operating expenses
 
(18
)
 
(2,713
)
 
 
 
(2,731
)
Depreciation and amortization
 
(754
)
 
(1,879
)
 
 
 
(2,633
)
Interest expense and other income (expense)
 
(227
)
 
(733
)
 
 
 
(960
)
Net income (loss)
 
$
1,291

 
$
(861
)
 
 
 
$
430

Income (loss) allocable to other venture partners (2)
 
$
1,576

 
$
(399
)
 
(3)  
 
$
1,177

Income allocable to the Company (2)
 
$
(285
)
 
$
(462
)
 
 
 
$
(747
)
Amortization of capitalized costs
 
(7
)
 
(29
)
 
 
 
(36
)
Equity in loss of unconsolidated entities
 
$
(292
)
 
$
(491
)
 
 
 
$
(783
)
Distribution declared to the Company
 
$
901

 
$
1,072

 
 
 
$
1,973

Distributions received by the Company
 
$
3,698

 
$
1,466

 
 
 
$
5,164



12

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


6.
Unconsolidated Entities (Continued):
 
 
Six Months Ended June 30, 2015
 
 
DMC
Partnership(4)
 
Intrawest
Venture
 
 
 
Total
Revenues
 
$
10,743

 
$
9,306

 
 
 
$
20,049

Property operating expenses
 
(173
)
 
(5,339
)
 
 
 
(5,512
)
Depreciation and amortization
 
(3,038
)
 
(2,568
)
 
 
 
(5,606
)
Interest expense and other income (expense)
 
(1,555
)
 
(1,818
)
 
 
 
(3,373
)
Net income
 
$
5,977

 
$
(419
)



$
5,558

Income (loss) allocable to other venture partners (2)
 
$
3,477

 
$
(796
)
 
(3)  
 
$
2,681

Income allocable to the Company (2)
 
$
2,500

 
$
377

 
 
 
$
2,877

Amortization of capitalized costs
 
(25
)
 
(74
)
 
 
 
(99
)
Equity in earnings of unconsolidated entities
 
$
2,475

 
$
303




$
2,778

Distribution declared to the Company
 
$
3,698

 
$
4,551

 
 
 
$
8,249

Distributions received by the Company
 
$
6,558

 
$
4,176

 
 
 
$
10,734

 
FOOTNOTES:
(1)
In April 2016, the Company acquired its co-venture partner's 20% interest in the Intrawest Venture.
(2)
Income (loss) is allocated between the Company and its venture partner using the hypothetical liquidation book value (“HLBV”) method of accounting.
(3)
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.
(4)
The Company sold its 81.98% interest in the DMC Partnership in April 2015.

7.
Indebtedness:
Line of Credit As of June 30, 2016, the Company’s revolving line of credit, which had available capacity of $100 million, did not have an outstanding principal balance and was collateralized by certain of the Company’s properties. In August 2016, the Company terminated its revolving line of credit.
Mortgages and Other Notes Payable During the six months ended June 30, 2016, the Company sold its remaining five marinas properties and used a portion of the net sales proceeds to repay approximately $10.5 million of outstanding indebtedness collateralized by three of the marina properties. In addition, the Company paid $7.0 million in scheduled principal payments under its mortgage loans.
The estimated fair market value and carrying value of the Company’s mortgages and other notes payable were approximately $168.5 million and $168.3 million, respectively, as of June 30, 2016. The estimated fair market value of the Company’s debt was determined 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 value of accounts payable and accrued expenses approximates the carrying value as of June 30, 2016 because of the relatively short maturities of the obligations.

8.
Fair Value Measurements:
As of June 30, 2016 and December 31, 2015, the Company’s one hedge 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.



13

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


8.
Fair Value Measurements (Continued):
The Company’s derivative instrument is 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 is classified as Level 2 in the fair value hierarchy. The valuation of the derivative instrument 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 instrument to be classified as Level 2. The fair value of the derivative instrument is included in other liabilities in the accompanying unaudited condensed consolidated balance sheets.
The Company had eight properties classified as assets held for sale as of June 30, 2016, of which seven were carried at fair value based on estimated sales price less costs to sell. The Company had 13 real estate investment properties and one property that was classified as held for sale that were carried at fair value as of December 31, 2015, as a result of writing down the book values of these properties to their estimated fair values based on estimated discounted cash flows and residual values during 2015. The Company had six additional properties that were classified as assets held for sale that were carried at fair value at December 31, 2015, based on estimated sales price less costs to sell. The Level 3 unobservable inputs used in determining the fair value of the real estate properties include, but are not limited to, appraisal information from an independent appraisal firm affiliated with the independent investment banking firm engaged as our valuation advisor, comparable sales transactions and other information from brokers and potential buyers, as applicable.
The following tables show the fair value of the Company’s financial assets and liabilities carried at fair value as of June 30, 2016 and December 31, 2015, as follows (in thousands):
 
 
Fair Value Measurement as of June 30, 2016
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Assets held for sale
 
$
105,411

 
$

 
$

 
$
105,411

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Liabilities related to assets held for sale
 
$
7,420

 
$

 
$

 
$
7,420

Derivative instrument
 
646

 

 
646

 

 
 
$
8,066

 
$

 
$
646

 
$
7,420

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurement as of December 31, 2015
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Real estate investment properties, net
 
$
183,329

 
$

 
$

 
$
183,329

Assets held for sale, net
 
41,320

 

 

 
41,320

 
 
$
224,649

 


 


 
$
224,649

Liabilities:
 
 
 
 
 
 
 
 
Derivative instrument
 
$
618

 
$

 
$
618

 
$



14

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)


9.
Related Party Arrangements:
For the quarter and six months ended June 30, 2016 and 2015, the Advisor earned fees and incurred reimbursable expenses as follows (in thousands):
 
 
Quarter ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Asset management fees (1)
 
$
3,099

 
$
5,909

 
$
6,289

 
$
12,151

Reimbursable expenses: (2)
 
 
 
 
 
 
 
 
Operating expenses
 
1,489

 
1,723

 
2,846

 
3,129

Total fees earned and reimbursable expenses
 
$
4,588

 
$
7,632

 
$
9,135

 
$
15,280

 
FOOTNOTES:
(1)
Amounts recorded as asset management fees to Advisor include 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.
(2)
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 operating expenses described above were approximately $0.6 million and $0.4 million as of June 30, 2016 and December 31, 2015, respectively.

10.
Stockholders’ Equity:
For each of the six months ended June 30, 2016 and 2015, the Company declared and paid distributions of approximately $32.5 million ($0.10 per share).

11.
Commitments and Contingencies:
From time to time, the Company may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, its business, including proceedings to enforce its contractual or statutory rights. While the Company cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, the Company does not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on its results of operations or financial condition.

12.
Subsequent Events:
In August 2016, the Company terminated its revolving line of credit.


15



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

INTRODUCTION
The following discussion is based on our unaudited condensed consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the quarter and six months ended June 30, 2016 and 2015 of CNL Lifestyle Properties, Inc. and its subsidiaries (hereinafter referred to as the “Company,” “we,” “us,” or “our”). Amounts as of December 31, 2015 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, 2015. 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 contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q for the for the quarter and six months ended June 30, 2016 (this “Quarterly Report”) 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 (the “Exchange Act”). 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,” “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, estimates of 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 inability to identify a liquidity event or events, or other strategic alternatives or, even if identified, the Company’s inability to complete any such transaction or transactions on favorable terms or at all, and liquidation at less than the subscription price of the stock; 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; 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; the Company’s inability to make necessary improvements to properties on a timely or cost-efficient basis; 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; 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 other 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

16


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 other quarterly reports on Form 10-Q and the Company’s annual report on Form 10-K, copies of which may be obtained from the Company’s website at www.cnllifestylereit.com.
All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.

GENERAL
CNL Lifestyle Properties, Inc. is a Maryland corporation incorporated on August 11, 2003. We were formed primarily to acquire lifestyle properties in the United States that we generally lease on a long-term, triple-net basis (generally five to 20 years, plus multiple renewal options) to tenants or operators that we consider to be industry leading. We 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 engaged CNL Lifestyle Advisor Corporation (the “Advisor”) as our Advisor to provide management, acquisition, disposition, advisory and administrative services.
Our principal business objectives included 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 built a portfolio of properties that we considered to be well-diversified by region, asset type and operator. In March 2014, we engaged Jefferies LLC (“Jefferies”), a leading global investment banking and advisory firm, to assist management and the 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. See “Our Exit Strategy” below for additional information.
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.
Our Exit Strategy
We began a process of evaluating strategic alternatives in an effort to provide stockholders with liquidity of their investment, either in whole or in part, including, without limitation, through (i) the commencement of an orderly sale of our assets, outside of the ordinary course of business and consistent with our objectives of qualifying as a REIT, and the distribution of the net sales proceeds thereof to the stockholders, (ii) our merger with or into another entity in a transaction which provides the stockholders with cash or securities of a publicly traded company or (iii) a listing of our shares on a national stock exchange (“Listing”). As part of this process, we will seek to maximize the total value of our portfolio in connection with our evaluation of various strategic opportunities in preparation for an exit strategy.
In connection with these objectives, in March 2014, we engaged Jefferies and formed a special committee comprised solely of our independent directors to assist management and the 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. In connection with this process, between 2014 and 2015, we sold 104 properties, which consisted of our entire golf portfolio (consisting of 48 properties), our multi-family development property, our entire senior housing portfolio (consisting of 38 properties), 12 marina properties, four attractions properties and one ski and mountain lifestyle property, for aggregate net sales proceeds of approximately $1.377 billion. During 2015 we also sold our 81.98% interest in the DMC Partnership, an unconsolidated joint venture that owned and operated the Dallas Market Center (the “DMC Partnership”), for net sales proceeds of approximately $139.5 million to our co-venture partner. We used the net sales proceeds from the sale of these properties to repay indebtedness during 2014 and 2015. In accordance with our undertaking to provide stockholders with partial liquidity, we also used a portion of net sales proceeds received from the sale of properties during the year ended December 31, 2015 to make a special distribution to stockholders of approximately $422.7 million during December 2015.

17


During 2016 and through August 5, 2016, we had completed the sale of our remaining five marina properties and our unimproved land for more than their carrying value, and acquired our co-venture partner’s 20% interest in the Intrawest Venture. Additionally, we have entered into purchase and sale agreements for the sale of one attractions property and seven ski and mountain lifestyle properties, the seven of which were owned through the Intrawest Venture prior to April 1, 2016.
As of August 5, 2016, we had a portfolio of 43 lifestyle properties, of which eight properties had been classified as held for sale. When aggregated by initial purchase price, the portfolio was diversified as follows: approximately 61% in ski and mountain lifestyle and 39% in attractions properties.

Portfolio Trends
A majority of the properties in our real estate portfolio are operated by third-party tenant operators under long-term triple-net leases for which we report rental income and are not directly exposed to the variability of property-level operating revenues and expenses. We also engage third-party managers to operate certain properties on our behalf for which we record the property-level operating revenues and expenses and are directly exposed to the variability of the property’s operations which impacts our results of operations. We believe that the financial and operational performance of our tenants and managers, and the general conditions of the industries within which they operate, provide indicators about our tenants’ health and their ability to pay contractually obligated rent. For example, positive growth in visitation and per capita spending may result in our receipt of additional percentage rent and, conversely, declines may impact our tenants’ ability to pay rent to us.
The following table illustrates property level revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) reported to us by our tenants and managers for the asset types below and includes both our leased and managed properties. We have only included property-level operating performance for consolidated properties (for all periods presented) in the table below. Property-level operating performance from our unconsolidated properties has been excluded because we do not believe it is as relevant and meaningful particularly since we are entitled to receive 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. We have not included performance data on acquisitions or dispositions made from January 1, 2015 through June 30, 2016 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 the performance of properties that are leased to third-party tenants. However, we believe this information is useful to help readers of our financial statements understand and evaluate trends, events and uncertainties in our business as it relates to our prior periods and to broader industry performance (in thousands):
 
 
Number of
Properties
 
Quarter ended June 30,
 
 
 
 
 
 
2016
 
2015
 
Increase (Decrease)
 
 
Revenue (1)
 
EBITDA (1)
 
Revenue (1)
 
EBITDA (1)
 
Revenue
 
EBITDA
Ski and mountain lifestyle
 
16

 
$
30,703

 
$
(15,051
)
 
$
31,362

 
$
(10,810
)
 
(2.10
)%
 
(39.23
)%
Attractions
 
20

 
68,136

 
17,138

 
69,085

 
19,770

 
(1.37
)%
 
(13.31
)%
 
 
36

 
$
98,839

 
$
2,087

 
$
100,447

 
$
8,960

 
(1.60
)%
 
(76.71
)%

 
 
Number of
Properties
 
Six Months Ended June 30,
 
 
 
 
 
 
2016
 
2015
 
Increase (Decrease)
 
 
Revenue (1)
 
EBITDA (1)
 
Revenue (1)
 
EBITDA (1)
 
Revenue
 
EBITDA
Ski and mountain lifestyle
 
16

 
$
277,205

 
$
106,171

 
$
230,631

 
$
76,580

 
20.19
%
 
38.64
 %
Attractions
 
20

 
83,010

 
7,965

 
82,271

 
11,357

 
0.90
%
 
(29.87
)%
 
 
36

 
$
360,215

 
$
114,136

 
$
312,902

 
$
87,937

 
15.12
%
 
29.79
 %


18


 
FOOTNOTE:
(1)
Property operating results for tenants under leased arrangements are not included in the company’s operating results. Property-level EBITDA above is disclosed before rent and capital reserve payments to us, as applicable.
Overall, for the quarter ended June 30, 2016 our tenants and managers reported to us a decrease in property-level revenue and EBITDA of 1.60% and 76.71%, respectively, as compared to the same period in the prior year. The decrease in property-level EBITDA was primarily attributable to an increase in labor expenses resulting from increases in minimum wage and an increase in repairs and maintenance expenses.
Overall, for the six months ended June 30, 2016, our tenants and managers reported to us an increase in property-level revenue and EBITDA of 15.12% and 29.79%, respectively, as compared to the same period in the prior year. The increase in property-level revenue was primarily attributable to our ski and mountain lifestyle properties. Results of the 2015/16 winter season through June 30, 2016 reflects varying performance between our Western and Northeastern ski resorts, with further distinction between northern and southern resorts within those larger geographic areas. In the West, our resorts in Northern California, the Pacific Northwest, and British Columbia performed exceptionally well due to a generally strong start to the season, coupled with numerous well-timed snowstorms throughout the winter, bringing ample snowfall to ski areas in those regions. In the Pacific Northwest, one of our resorts set an all-time skier visit record, while another one of our resorts set an all-time revenue mark. At the opposite end in Southern California, one of our properties did not see the above-average snowfall typical of the El Niño weather pattern forecasted for this year, and was forced to close in late February despite having an improved season-to-date compared to the prior two winters. Resorts in the Tahoe region of Northern California once again saw a more normalized snowfall pattern and performed well throughout the season. Our resorts in the Rocky Mountain region had robust performance from start to finish, with one of our resorts benefiting from additional visitation by destination guests to Utah’s Wasatch Mountains. In the Northeast, warmer temperatures, considerable rain and significantly less snowfall than average, constrained skier visits throughout New England, but particularly those resorts in southern Vermont, southern New Hampshire, and Massachusetts. The remaining three resorts located in northern New Hampshire and Maine fared better once colder temperatures arrived in January and snowmaking efforts commenced in earnest, drawing skier visits from other resorts in the more southerly parts of New England which were not able to provide a consistent on-snow experience. This aggregate performance for our ski resorts in the Northeast, with many not being open more than a few days into April if at all for the month, caused the EBITDA shortfall for the quarter ended June 30, 2016 when compared to the same period of the prior year. Overall, season-end performance during 2015/16 across the geographically diversified ski portfolio improved upon the results of 2014/15.
As for our attractions properties, most of our attractions were closed for part of the six months ended June 30, 2016, as they are generally seasonal operations that peak over the summer months. Six small amusement parks and one waterpark operate year round, and several waterparks operate during spring break in March. First half of 2016 performance at these parks has met expectations and exceeded prior year revenues by approximately 1%. Revenue increases were driven by improved marketing penetration and season pass upgrades. Season pass revenues are recognized throughout the season. The decrease in property-level EBITDA was primarily attributable to an increase in labor expenses resulting from increases in minimum wage and increases in repairs and maintenance expenses.
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 complementary to the peak seasons for our attractions assets 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 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

19


properties will likely generate net operating losses during their non-peak months while generating most, if not all, of their operating income during their peak operating months. 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.
Tenant Workouts, Bad Debt Expense and Loan Provisions
During 2015, we restructured the leases with one tenant relating to three attractions properties and reduced 2016 rents due, including percentage rent, by approximately $1.0 million.
During 2015, one of our ski tenants with two leases on properties in the Pacific-Northwest continued to experience financial difficulties, and was unable to pay rent due to lower operating results from the continued low levels of snow accompanied by unusually warm weather. As a result, during the quarter and six months ended June 30, 2015, we reserved their outstanding rent related receivables and recorded bad debt expense of approximately $2.3 million and $4.8 million, respectively, due to uncertainty of collectability. Snowfall levels improved in the fourth quarter of 2015, and this tenant has paid rental amounts related to the current ski season that started in the fall of 2015.
During the six months ended June 30, 2015, the borrower relating to one mortgage receivable continued to experience financial difficulties. Additionally, in July 2015, we entered into an agreement to receive an early repayment of one of our other mortgage receivables. We recorded the mortgage receivables at their net realizable values at June 30, 2015 and in conjunction therewith, recorded loan loss provisions of $5.4 million and $9.3 million, respectively, during the quarter and six months ended June 30, 2015. Subsequently in 2015, we received early repayment for both of our mortgage receivables at their discounted amounts.

LIQUIDITY AND CAPITAL RESOURCES
General
Our principal demand for funds are 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 and property operating income from managed properties. To the extent we dispose of assets, we plan to use the net sales proceeds to retire indebtedness, make special distributions to our stockholders, enhance existing assets or for other corporate purposes.
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 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.
Cash Flows. Our primary sources of cash include rental income from operating leases, property operating revenues, proceeds from sales of properties, and through April 2016, distributions from our unconsolidated entities, offset by payments made for operating expenses, including property operating expenses, asset management fees to our Advisor, debt service payments (principal and interest), and capital expenditures related to our real estate investments. The following is a summary of our cash flows (in thousands):
 
 
Six Months Ended June 30,
 
 
2016
 
2015
Cash at beginning of period
 
$
83,544

 
$
136,985

Cash provided from (used in):
 
 
 
 
Operating activities
 
$
50,289

 
$
42,149

Investing activities
 
50,578

 
812,524

Financing activities
 
(51,681
)
 
(713,359
)
Effect of foreign currency translation on cash
 
109

 
4

Cash at end of period
 
$
132,839


$
278,303


Sources of Liquidity and Capital Resources
Operating Activities. Net cash provided from operating activities increased approximately $8.1 million or 19.3% for the six months ended June 30, 2016 as compared to the same period in 2015. The improvement in cash from operating activities for the six months ended June 30, 2016 as compared to same period in 2015 is primarily attributable to a reduction in interest expense due to repayments

20


of debt and a decrease in asset management fees, partially offset by a reduction in operating income due to the sale of 61 properties between January 1, 2015 and June 30, 2016. 
Proceeds from Sales of Real Estate and an Unconsolidated Entity. As described above in “Our Exit Strategy”, we engaged Jefferies to assist management and our board of directors in actively evaluating various strategic opportunities including the sale of our assets. During the six months ended June 30, 2016, we received aggregate net sales proceeds of approximately $50.4 million from the sale of the remaining five marina properties and our unimproved land. During the six months ended June 30, 2015, we received aggregate net sales proceeds of approximately $743.1 million from the sale of 37 senior housing properties and one attractions property. We also received net sales proceeds of approximately $139.5 million from the sale of our 81.98% interest in the DMC Partnership, an unconsolidated entity. We used the net sales proceeds from these sales to pay down indebtedness, as further described below under “Uses of Liquidity and Capital Resources - Indebtedness.”
Distributions from Unconsolidated Entities. We were entitled to receive quarterly cash distributions from our unconsolidated entities to the extent there was cash available to distribute. In April 2015, we sold our 81.98% interest in the DMC Partnership to our co-venture partner and received net sales proceeds of approximately $139.5 million. On April 1, 2016, we acquired the remaining 20% non-controlling interest from our co-venture partner of the Intrawest Venture, in accordance with the buy-sell provisions of the Intrawest Venture partnership agreement. As a result of owning a combined 100% controlling interest in the Intrawest Venture, we began consolidating all of the assets, liabilities and results of operations of the Intrawest Venture. During the six months ended June 30, 2016, we received distributions of approximately $1.1 million from the Intrawest Venture, as compared to approximately $10.7 million from the Intrawest and DMC Partnership (of which $6.6 million related to the DMC Partnership) for the same period of 2015. We did not own any investments in unconsolidated entities effective April 2016 and will no longer receive distributions from unconsolidated entities in the future.
Cash Assumed through Purchase of Controlling Interest of Investment in Unconsolidated Entity. As described above in "General - Our Exit Strategy," in April 2016 we purchased our co-venture partner’s 20% interest in the Intrawest Venture for a nominal amount. As part of the acquisition, we assumed approximately $11.9 million in cash and cash equivalents.
Uses of Liquidity and Capital Resources
Indebtedness. Subject to our goal of providing liquidity to our shareholders, we may borrow money to fund ongoing enhancements to our portfolio, pay certain related fees and to cover periodic shortfalls between distributions paid and cash flows from operating activities to avoid distribution volatility. See “Distributions” below for additional information. In many cases, we have pledged our assets in connection with such borrowings. As of June 30, 2016, our leverage ratio, calculated as total indebtedness over total assets, was approximately 16%.
During the six months ended June 30, 2016, we repaid $10.5 million relating to the outstanding indebtedness collateralized by three of the marina properties that were sold and $7.0 million in scheduled principal payments under our mortgage loans. During the six months ended June 30, 2015, we paid $8.9 million in scheduled principal payments under our mortgage loans. We also used net sales proceeds from the sales of real estate and our interest in an unconsolidated entity and repaid $135.0 million of outstanding indebtedness collateralized by the senior housing properties sold, repaid $63.8 million of outstanding indebtedness collateralized by two attractions properties and one ski and mountain lifestyle property, repaid all of our senior unsecured notes with an outstanding principal amount of $318.3 million at a premium of 103.625%, and repaid $152.5 million of our revolving line of credit. As of June 30, 2016, our revolving line of credit, which had an available capacity of $100 million, did not have an outstanding principal balance. In August 2016, we terminated our revolving line of credit which was scheduled to mature in August 2016.
Capital Expenditures. During the six months ended June 30, 2016 and 2015, we funded approximately $9.2 million and $27.9 million respectively, in capital improvements at our properties. The decrease in amounts funded for capital improvements is primarily attributable to the sale of 61 properties between January 1, 2015 and June 30, 2016.
Investments in Unconsolidated Entities. As described above in "General - Our Exit Strategy," on April 1, 2016, as part of acquiring the remaining 20% interest from our co-venture partner during the six months ended June 30, 2016, we contributed approximately $5.8 million to the Intrawest Venture and the Intrawest Venture used the proceeds and repaid a mezzanine loan from its joint venture partner and related accrued interest of $5.8 million. During the six months ended June 30, 2015, we contributed approximately $54.6 million to the Intrawest Venture and the Intrawest Venture repaid two mortgage loans of approximately $54.6 million, which matured in January 2015 and June 2015. Upon acquiring, for a nominal amount, the remaining interest in the Intrawest Venture, which owned seven ski and mountain lifestyle properties, we began consolidating all of the assets, liabilities and results of operations in our consolidated financial statements effective April 1, 2016. Effective April 2016, we did not own any investments in unconsolidated joint ventures.

21


Related Party Arrangements. Our Advisor receives asset management fees of 0.075% monthly of average invested assets. Amounts incurred relating to these transactions were approximately $6.3 million and $12.2 million, including amounts recorded in discontinued operations in the accompanying condensed consolidated financial statements, for the six months ended June 30, 2016 and 2015, respectively. Our Advisor and its affiliates were also entitled to reimbursement of certain expenses and amounts incurred on our behalf in connection with our operating activities. Reimbursable expenses for each of the six months ended June 30, 2016 and 2015 were approximately $2.8 million and $3.1 million, respectively. Of these amounts, approximately $0.6 million and $0.4 million are included in due to affiliates in the unaudited condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.
Pursuant to the advisory agreement, we will not reimburse our Advisor for any amount by which total operating expenses paid or incurred by us exceed the greater of 2% of average invested assets or 25% of net income (the “Expense Cap”) in any expense year. For the expense years ended June 30, 2016 and 2015, operating expenses did not exceed the Expense Cap.
Distributions. We declare and pay distributions on a quarterly basis. The amount of distributions declared to our stockholders is determined by our board of directors and is dependent upon a number of factors, including:
 
Sources of cash available for distribution such as expected cash flows from operating activities, Funds from Operations (“FFO”) and Modified Funds from Operations (“MFFO”);
Limitations and restrictions contained in the terms of our current and future indebtedness concerning the payment of distributions; and
Other factors such as the avoidance of distribution volatility, our objective of continuing to qualify as a REIT, capital requirements, the general economic environment and other factors.
During each of the six months ended June 30, 2016 and 2015, we paid $32.5 million in distributions. Our cash flows from operating activities covered 100% of distributions paid for each of the six months ended June 30, 2016 and 2015.
The following table presents total distributions declared including cash distributions and distributions per share for the quarter and six months ended June 30, 2016 and 2015 (in thousands, except per share data):
 
 
 
 
 
 
 
Sources of
Distributions
Paid in Cash
 
 
Distributions
Per Share
 
Total
Distributions
Declared
 
Cash Flow
From
Operating
Activities
 (1)
2016 Quarter
 
 
 
 
 
 
First
 
$
0.0500

 
$
16,259

 
$
31,215

Second
 
0.0500

 
16,260

 
19,074

Total
 
$
0.1000

 
$
32,519

 
$
50,289

 
 
 
 
 
 
 
2015 Quarter
 
 
 
 
 
 
First
 
$
0.0500

 
$
16,259

 
$
36,075

Second
 
0.0500

 
16,259

 
6,074

Total
 
$
0.1000

 
$
32,518

 
$
42,149

 
FOOTNOTES:
(1)
Cash flows from operating activities calculated in accordance with GAAP are not necessarily indicative of the amount of cash available to pay distributions. The Board also uses other measures such as FFO and MFFO in order to evaluate the level of distributions.

Our cash flows from operating activities will fluctuate due to the seasonality of certain properties. As such, we anticipate cash flows from operating activities to increase during the third quarter to reflect the peak seasonal period of our attractions properties.

RESULTS OF OPERATIONS
As of June 30, 2016 and 2015, we had invested in 43 and 66 properties, respectively, through the following investment structures:

22


 
 
June 30,
 
 
2016
 
2015
Wholly-owned:
 
 
 
 
Leased properties(1)
 
31

 
25

Managed properties (2)(3)
 
12

 
33

Unimproved land (4)
 

 
1

Unconsolidated joint ventures (1)
 
 
 
 
Leased properties
 

 
7

 
 
43


66

 
FOOTNOTES:
(1)
Upon acquisition of our co-venture partner's 20% interest in April 2016, we owned a 100% controlling interest in the entities that own seven properties and presented these seven properties under wholly-owned leased properties.
(2)
As of June 30, 2016 and 2015, wholly-owned managed properties are as follows:
 
 
June 30,
 
 
2016
 
2015
Ski & mountain lifestyle
 

 
1

Attractions
 
12

 
15

Marinas
 

 
17

 
 
12


33

 
(3)
Under applicable tax regulations, certain properties are permitted to be temporarily managed and certain properties are permitted to be indefinitely managed. As of June 30, 2016, all of our managed properties were temporarily managed. As of June 30, 2015, 29 properties were temporarily managed and four properties were indefinitely managed under management agreements.
(4)
In June 2016, we sold our unimproved land.

The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto.
Rental income from operating leases. Rental income for the quarter and six months ended June 30, 2016 increased by approximately $5.5 million and $8.9 million, as compared to the same period in 2015. Additional billings permitted under our leases calculated as a percentage of ski property level operating revenues generated by our tenants increased by approximately $2.4 million and $6.1 million during the quarterly and six months ended June 30, 2016, respectively, as compared to the same period of the prior year, primarily as a result of favorable weather conditions. Our ski properties in the Pacific Northwest had all-time record low snow conditions for the 2014/2015 ski season, but saw increased revenues for the start of the 2015/2016 ski season due to snowfall returning to more normalized levels in the Pacific Northwest due to a pronounced El Nino effect. However, the same weather phenomenon caused a snow drought and record warm temperatures on the East Coast negatively impacting the start to our 2015/2016 ski season for our properties located in the East. Additionally, rental income for the quarter and six months ended June 30, 2016 from our ski and mountain lifestyle properties increased approximately $3.9 million related to seven properties we now wholly own after we completed the acquisition of our co-venture partner's 20% interest in the Intrawest Venture in April 2016. Rental income from our attractions properties declined by approximately $0.7 million and $0.9 million for the quarter and six months ended June 30, 2016, respectively, as compared to the same period of 2015, primarily due to amending certain leases, which resulted in lower rents due under the leases, as described further above in “General — Tenant Workouts, Bad Debt Expense and Loan Provisions.” The following information summarizes trends in rental income from operating leases and base rents for certain of our properties excluding properties that have been classified as discontinued operations (in thousands):
 
 
Quarter Ended June 30,
 
$ Change
 
% Change
Properties Subject to Operating Leases
 
2016
 
2015
 
Ski and mountain lifestyle
 
$
25,498

 
$
19,298

 
$
6,200

 
32.13
 %
Attractions
 
7,078

 
7,746

 
(668
)
 
(8.62
)%
Total
 
$
32,576

 
$
27,044

 
$
5,532

 
20.46
 %


23


 
 
Six Months Ended June 30,
 
$ Change
 
% Change
Properties Subject to Operating Leases
 
2016
 
2015
 
Ski and mountain lifestyle
 
$
58,444

 
$
48,620

 
$
9,824

 
20.21
 %
Attractions
 
13,532

 
14,431

 
(899
)
 
(6.23
)%
Total
 
$
71,976

 
$
63,051

 
$
8,925

 
14.16
 %

As of June 30, 2016 and 2015, the weighted-average lease rate for our portfolio of wholly-owned leased properties (excluding assets held for sale) was 10.0% and 10.2%, respectively. These rates are based on annualized straight-line base rent due under our leases and the weighted-average contractual lease basis of our real estate investment properties subject to operating leases. The weighted-average lease rate of our portfolio may fluctuate based on our asset mix, timing of property acquisitions, lease terminations and reductions in rent granted to tenants.
Property operating revenues. Property operating revenues from managed properties, which are not subject to leasing arrangements, are derived from room rentals, food and beverage sales, ski and spa operations, ticket sales, concessions, waterpark and theme park operations, and other service revenues. The following information summarizes the revenues of our properties that are operated by third-party managers (in thousands):
 
 
Quarter Ended June 30,
 
$ Change
 
% Change
Properties Operated by Third-Party Managers
 
2016
 
2015
 
Ski and mountain lifestyle
 
$

 
$
8,351

 
$
(8,351
)
 
(100.00
)%
Attractions
 
30,980

 
49,811

 
(18,831
)
 
(37.80
)%
Total
 
$
30,980

 
$
58,162

 
$
(27,182
)
 
(46.73
)%
 
 
Six Months Ended June 30,
 
$ Change
 
% Change
Properties Operated by Third-Party Managers
 
2016
 
2015
 
Ski and mountain lifestyle
 
$

 
$
27,977

 
$
(27,977
)
 
(100.00
)%
Attractions
 
33,361

 
65,267

 
(31,906
)
 
(48.89
)%
Total
 
$
33,361

 
$
93,244

 
$
(59,883
)
 
(64.22
)%
As of June 30, 2016 and 2015, we had a total of 12 and 16 managed properties (excluding properties that we classified as discontinued operations), respectively, of which certain properties are operated seasonally due to geographic location, climate and weather patterns. The decrease in property operating revenues is primarily due to the sale of four attraction properties and the Omni Mt. Washington Resort, our one managed ski and mountain lifestyle property, in 2015.
Interest income on mortgages and other notes receivable. For the quarter and six months ended June 30, 2015, we earned interest income of approximately $0.5 million and $1.4 million, respectively. There was no interest income on mortgages and other notes receivable during the quarter and six months ended June 30, 2016, as all of our notes receivables were collected during 2015.
Property operating expenses. Property operating expenses decreased primarily due to the sale of four attraction properties and the Omni Mt. Washington Resort, our one managed ski and mountain lifestyle property, in 2015. The following information summarizes the expenses of our properties that are operated by third-party managers (in thousands):
 
 
Quarter Ended June 30,
 
$ Change
 
% Change
Properties Operated by Third-Party Managers
 
2016
 
2015
 
Ski and mountain lifestyle
 
$

 
$
9,192

 
$
(9,192
)
 
(100.00
)%
Attractions
 
28,727

 
42,829

 
(14,102
)
 
(32.93
)%
Total
 
$
28,727

 
$
52,021

 
$
(23,294
)
 
(44.78
)%
 
 
Six Months Ended June 30,
 
$ Change
 
% Change
Properties Operated by Third-Party Managers
 
2016
 
2015
 
Ski and mountain lifestyle
 
$

 
$
22,373

 
$
(22,373
)
 
(100.00
)%
Attractions
 
38,643

 
66,686