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EX-32.1 - EXHIBIT 32.1 - CNL LIFESTYLE PROPERTIES INCexhibit321-clpq32016.htm
EX-31.2 - EXHIBIT 31.2 - CNL LIFESTYLE PROPERTIES INCexhibit312-clpq32016.htm
EX-31.1 - EXHIBIT 31.1 - CNL LIFESTYLE PROPERTIES INCexhibit311-clpq32016.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________ 
FORM 10-Q
___________________________________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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  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 18, 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)
 
 
September 30,
2016
 
December 31,
2015
ASSETS
 
 
 
 
Real estate investment properties, net (including $57,213 and $58,832 related to consolidated variable interest entities, respectively)
 
$
686,423

 
$
712,589

Assets held for sale, net
 
105,354

 
42,719

Investment in unconsolidated entity
 

 
73,434

Cash
 
132,231

 
83,544

Deferred rent and lease incentives
 
27,592

 
43,992

Restricted cash
 
25,325

 
28,025

Other assets
 
16,945

 
16,778

Intangibles, net
 
16,042

 
16,487

Accounts and other receivables, net
 
9,310

 
11,893

Total Assets
 
$
1,019,222

 
$
1,029,461

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Mortgages and other notes payable (including $18,924 and $19,677 related to consolidated variable interest entities, respectively)
 
$
147,737

 
$
184,341

Liabilities related to assets held for sale
 
7,382

 

Other liabilities
 
26,118

 
27,160

Accounts payable and accrued expenses
 
13,072

 
12,845

Income tax liabilities
 
12,849

 
9,778

Due to affiliates
 
357

 
420

Total Liabilities
 
207,515

 
234,544

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 September 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
 
(299,818
)
 
(364,236
)
Accumulated distributions
 
(1,747,854
)
 
(1,699,076
)
Accumulated other comprehensive loss
 
(7,706
)
 
(8,856
)
Total Stockholders’ Equity
 
811,707

 
794,917

Total Liabilities and Stockholders’ Equity
 
$
1,019,222

 
$
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
September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Rental income from operating leases
 
$
33,669

 
$
29,574

 
$
105,645

 
$
92,625

Property operating revenues
 
62,713

 
97,901

 
96,074

 
191,145

Interest income on mortgages and other notes receivable
 

 
125

 

 
1,481

Total revenues
 
96,382

 
127,600

 
201,719

 
285,251

Expenses:
 
 
 
 
 
 
 
 
Property operating expenses
 
33,389

 
56,531

 
72,032

 
146,525

Asset management fees to advisor
 
3,003

 
3,665

 
9,069

 
12,193

General and administrative
 
2,889

 
2,984

 
10,770

 
11,467

Ground lease and permit fees
 
2,315

 
2,426

 
8,668

 
7,819

Other operating expenses
 
4,054

 
1,731

 
10,058

 
4,875

Bad debt (recovery) expense
 
(227
)
 
3,256

 
(18
)
 
8,092

Loan loss provision
 

 
21

 

 
9,369

Impairment Provisions
 
8,142

 
1,428

 
8,142

 
1,428

Depreciation and amortization
 
16,237

 
19,807

 
49,694

 
63,463

Total expenses
 
69,802

 
91,849

 
168,415

 
265,231

Operating income
 
26,580

 
35,751

 
33,304

 
20,020

Other income (expense):
 
 
 
 
 
 
 
 
Interest and other (expense) income
 
(83
)
 
309

 
978

 
1,066

Interest expense and loan cost amortization
 
(2,701
)
 
(3,202
)
 
(8,436
)
 
(23,946
)
Loss on extinguishment of debt
 
(25
)
 

 
(25
)
 
(21,065
)
Equity in earnings (loss) of unconsolidated entities
 

 
1,162

 
1,290

 
3,940

Gain on purchase of controlling interest of investment in unconsolidated entity
 

 

 
30,025

 

Total other (expense) income
 
(2,809
)
 
(1,731
)
 
23,832

 
(40,005
)
Income tax provision
 
(3,070
)
 
(8,449
)
 
(3,070
)
 
(9,115
)
Income (loss) from continuing operations
 
20,701

 
25,571

 
54,066

 
(29,100
)
Income from discontinued operations
 

 
7,614

 
9,441

 
214,386

Net income before gain on sale of real estate and unconsolidated entity
 
20,701

 
33,185

 
63,507

 
185,286

Gain (loss) on sale of real estate
 

 
(1,064
)
 
911

 
26,528

Gain from sale of unconsolidated entity
 

 

 

 
39,252

Net income
 
$
20,701

 
$
32,121

 
$
64,418

 
$
251,066

Net income per share of common stock (basic and diluted)
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.06

 
$
0.08

 
$
0.17

 
$
0.11

Discontinued operations
 

 
0.02

 
0.03

 
0.66

Net income per share
 
$
0.06

 
$
0.10

 
$
0.20

 
$
0.77

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
September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
20,701

 
$
32,121

 
$
64,418

 
$
251,066

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(761
)
 
(2,254
)
 
1,094

 
(4,084
)
Changes in fair value of cash flow hedges:
 
 
 
 
 
 
 
 
Amortization of loss and loss on termination of cash flow hedges
 

 

 

 
180

Unrealized gain (loss) arising during the period
 
84

 
(53
)
 
56

 
99

Total other comprehensive income (loss)
 
(677
)
 
(2,307
)
 
1,150

 
(3,805
)
Net comprehensive income
 
$
20,024

 
$
29,814

 
$
65,568

 
$
247,261

See accompanying notes to condensed consolidated financial statements.


3


CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 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
 

 

 

 
129,893

 

 

 
129,893

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

 
(364,236
)
 
(1,699,076
)
 
(8,856
)
 
794,917

Net income
 

 

 

 
64,418

 

 

 
64,418

Distributions, declared and paid ($0.1500 per share)
 

 

 

 

 
(48,778
)
 

 
(48,778
)
Foreign currency translation adjustment
 

 

 

 

 

 
1,094

 
1,094

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

 

 

 

 

 
56

 
56

Balance at September 30, 2016
 
325,183

 
$
3,252

 
$
2,863,833

 
$
(299,818
)
 
$
(1,747,854
)
 
$
(7,706
)
 
$
811,707

See accompanying notes to condensed consolidated financial statements.


4


CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Operating activities:
 
 
 
 
Net cash provided by operating activities
 
$
95,031

 
$
80,940

Investing activities:
 
 
 
 
Capital expenditures
 
(21,802
)
 
(35,787
)
Proceeds from sale of real estate
 
50,456

 
757,944

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
 
1,700

 
3,907

Principal payments received on mortgage loans receivable
 

 
2,258

Changes in restricted cash
 
5,816

 
11,671

Net cash provided by investing activities
 
42,192

 
824,922

Financing activities:
 
 
 
 
Redemption of common stock
 

 
(6
)
Distributions to stockholders
 
(48,778
)
 
(48,777
)
Principal payments on line of credit
 

 
(152,500
)
Principal payments on mortgage loans and senior notes
 
(37,514
)
 
(527,975
)
Principal payments on capital leases
 
(2,233
)
 
(2,539
)
Payments of loan costs
 

 
(239
)
Net cash used in financing activities
 
(88,525
)
 
(732,036
)
Effect of exchange rate fluctuations on cash
 
(11
)
 
(85
)
Net increase in cash
 
48,687

 
173,741

Cash at beginning of period
 
83,544

 
136,985

Cash at end of period
 
$
132,231

 
$
310,726

 
 
 
 
 
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
 
$

 
$
151,478

See accompanying notes to condensed consolidated financial statements.

5

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 believes it has operated and has elected to be taxed as a real estate investment trust (a “REIT”) for federal income tax. In November 2016, the Company determined it needed to accrue a provision for income tax in connection with retaining its REIT status, as described further in Note 2, "Significant Accounting Policies." 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 September 30, 2016, the Company owned 43 lifestyle properties directly within the following asset classes: ski and mountain lifestyle and attractions. Seven 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 nine 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 September 30, 2016 had contracts in place to sell seven ski and mountain lifestyle properties which were classified as held for sale.

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, 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
NINE MONTHS ENDED SEPTEMBER 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.
Revision of Previously Issued Financial Statement The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended and related regulations beginning with the year ended December 31, 2004. As a REIT, the Company generally is not subject to federal corporate income taxes provided it distributes at least 100% of its REIT taxable income and capital gains and meets certain other requirements for qualifying as a REIT. Subject to compliance with applicable tax law, certain properties may be operated using an eligible third-party manager. In those cases, taxable income from those operations may be subject to federal income tax. 
During the fourth quarter of 2016, the Company determined that five tenants from whom it received leasehold income may be viewed for federal income tax purposes as the same party who also serves as an eligible third-party manager, also known as an “independent contractor” (within the meaning of section 856(d)(3) of the Code) on behalf of the Company with respect to two properties for which the Company previously made an election pursuant to applicable Treasury Regulations to treat such properties as “foreclosure property.” If, because of the relationship between the tenant entities and the independent contractor entities, the Company is viewed as deriving or receiving income from the independent contractor, it could affect the Company's compliance with the federal income tax rules applicable to REITs. The “foreclosure property” elections would have terminated and, as of the first day following such terminations, the gross income the Company derived from such properties would not be qualifying income under the gross income tests that are applicable to REITs. In order to maintain qualification as a REIT, the Company annually must satisfy certain tests regarding the source of its gross income. The applicable federal income tax rules provide a “savings clause” for REITs that fail to satisfy the REIT gross income tests if such failure is due to reasonable cause and not due to willful neglect and the REIT complies with certain disclosure and filing requirements. A REIT that qualifies for the savings clause will retain its REIT status but may be required to pay a tax under section 857(b)(5) of the Code and related interest.
As a result of not being able to satisfy the gross income test described above throughout 2015, the Company's previously issued financial statements did not appropriately reflect tax expense associated with unqualified gross income in the periods in which such income was earned. The impact of this misstatement was approximately $0.7 million for the three months ended June 30, 2015, an additional $8.4 million for the three months ended September 30, 2015, and an additional $0.7 million for the three months ended December 31, 2015. There was no impact to the three months ended March 31, 2015 related to this misstatement due to the timing of the period in which the income was earned. Additionally, the Company has self-insured retention amounts for certain properties. Accordingly, under GAAP, the Company should establish a liability for both known claims and claims that are incurred but not reported ("IBNR"). The Company determined that the methodology utilized to establish its IBNR did not appropriately consider all costs to settle its claims related to IBNR claims. The impact of this misstatement was approximately $0.7 million for the quarter ended March 31, 2015 and approximately $0.3 million for each of the quarters ended June 30, 2015, September 30, 2015 and December 31, 2015.
Management evaluated the impact of the above misstatements on all previously issued financial statements and concluded that the previously issued financial statements were not materially misstated. However, the impact of recording the misstatements in the current period would be material to the quarter ended September 30, 2016 and the estimated results for the year ended December 31, 2016. Accordingly, the Company has revised its condensed consolidated financial statements as of and for the year ended December 31, 2015, for the interim periods of 2015 for the quarter ended March 31, 2015, for the quarter and six months ended June 30, 2015, and for the quarter and nine months ended September 30, 2015 presented in this Report on Form 10-Q.
The following changes have been made to the Company's previously issued consolidated balance sheet, statements of operations and statements of comprehensive income (in thousands, except per share amounts). No changes were made to the consolidated statement of cash flows.


7

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


2.
Significant Accounting Policies (Continued):
 
December 31, 2015
 
As Reported
 
Adjustment
 
As Revised
Accounts payable and accrued expenses
$
11,361

 
$
1,484

 
$
12,845

Income tax liabilities

 
9,778

 
9,778

Total Liabilities
223,282

 
11,262

 
234,544

Accumulated deficit
(352,974
)
 
(11,262
)
 
(364,236
)
Total Stockholders’ Equity
806,179

 
(11,262
)
 
794,917

The following changes have been made to the Company's unaudited condensed consolidated statements of operations (in thousands, except per share amounts):
    
 
Quarter Ended March 31, 2015
 
As Reported
 
Adjustment
 
As Revised
Expenses
 
 
 
 
 
Property operating expenses
$
37,038

 
$
660

 
$
37,698

Income from continuing operations
(14,607
)
 
(660
)
 
(15,267
)
Net income
$
(7,555
)
 
$
(660
)
 
$
(8,215
)
Net income per share of common stock (basic and diluted):
 
 
 
 
 
Continuing operations
$
(0.04
)
 
$
(0.01
)
 
$
(0.05
)
Net income per share
$
(0.02
)
 
$
(0.01
)
 
$
(0.03
)
    
 
Quarter Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Expenses
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses
$
52,021

 
$
275

 
$
52,296

 
$
89,059

 
$
935

 
$
89,994

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
Income tax provision

 
(666
)
 
(666
)
 

 
(666
)
 
(666
)
Income from continuing operations
(38,208
)
 
(941
)
 
(39,149
)
 
(52,815
)
 
(1,601
)
 
(54,416
)
Net income before gain on sale of real estate and unconsolidated entity
161,512

 
(941
)
 
160,571

 
153,957

 
(1,601
)
 
152,356

Net income
$
228,101

 
$
(941
)
 
$
227,160

 
$
220,546

 
$
(1,601
)
 
$
218,945

Net income per share of common stock (basic and diluted):
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.09

 
$

 
$
0.09

 
$
0.04

 
$
(0.01
)
 
$
0.03

Net income per share
$
0.70

 
$

 
$
0.70

 
$
0.68

 
$
(0.01
)
 
$
0.67





8

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


2.
Significant Accounting Policies (Continued):
 
Quarter Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Expenses
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses
$
56,256

 
$
275

 
$
56,531

 
$
145,315

 
$
1,210

 
$
146,525

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
Income tax provision

 
(8,449
)
 
(8,449
)
 

 
(9,115
)
 
(9,115
)
Income from continuing operations
34,295

 
(8,724
)
 
25,571

 
(18,775
)
 
(10,325
)
 
(29,100
)
Net income before gain on sale of real estate and unconsolidated entity
41,909

 
(8,724
)
 
33,185

 
195,611

 
(10,325
)
 
185,286

Net income
$
40,845

 
$
(8,724
)
 
$
32,121

 
$
261,391

 
$
(10,325
)
 
$
251,066

Net income per share of common stock (basic and diluted):
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.11

 
$
(0.03
)
 
$
0.08

 
$
0.14

 
$
(0.03
)
 
$
0.11

Net income per share
$
0.13

 
$
(0.03
)
 
$
0.10

 
$
0.80

 
$
(0.03
)
 
$
0.77

 
Quarter Ended December 31, 2015
 
Year Ended December 31, 2015
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Expenses
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses
$
27,312

 
$
274

 
$
27,586

 
$
172,627

 
$
1,484

 
$
174,111

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
Income tax provision

 
(663
)
 
(663
)
 

 
(9,778
)
 
(9,778
)
Income from continuing operations
(130,842
)
 
(937
)
 
(131,779
)
 
(149,362
)
 
(11,262
)
 
(160,624
)
Net income before gain on sale of real estate and unconsolidated entity
(140,302
)
 
(937
)
 
(141,239
)
 
55,309

 
(11,262
)
 
44,047

Net income
$
(120,236
)
 
$
(937
)
 
$
(121,173
)
 
$
141,155

 
$
(11,262
)
 
$
129,893

Net income per share of common stock (basic and diluted):
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
(0.34
)
 
$

 
$
(0.34
)
 
$
(0.20
)
 
$
(0.03
)
 
$
(0.23
)
Net income per share
$
(0.37
)
 
$

 
$
(0.37
)
 
$
0.43

 
$
(0.03
)
 
$
0.40


The following changes have been made to the Company's unaudited condensed consolidated statements of comprehensive income (in thousands):
 
Quarter Ended March 31, 2015
 
As Reported
 
Adjustment
 
As Revised
Net loss
$
(7,555
)
 
$
(660
)
 
$
(8,215
)
Net comprehensive income
(2,448
)
 
(660
)
 
(3,108
)

9

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


2.
Significant Accounting Policies (Continued):
 
Quarter Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Net income
$
228,101

 
$
(941
)
 
$
227,160

 
$
220,546

 
$
(1,601
)
 
$
218,945

Net comprehensive income
229,051

 
(941
)
 
228,110

 
219,048

 
(1,601
)
 
217,447

 
Quarter Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Net income
$
40,845

 
$
(8,724
)
 
$
32,121

 
$
261,391

 
$
(10,325
)
 
$
251,066

Net comprehensive income
38,538

 
(8,724
)
 
29,814

 
257,586

 
(10,325
)
 
247,261

 
Year Ended December 31, 2015
 
As Reported
 
Adjustment
 
As Revised
Net income
141,155

 
(11,262
)
 
129,893

Net comprehensive income
136,569

 
(11,262
)
 
125,307


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):

10

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


2.
Significant Accounting Policies (Continued):
 
 
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 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 September 30, 2016 and December 31, 2015, real estate investment properties consisted of the following (in thousands):
 
 
September 30,
2016
 
December 31,
2015
Land and land improvements
 
$
376,944

 
$
369,902

Leasehold interests and improvements
 
171,305

 
170,970

Buildings
 
249,422

 
245,372

Equipment
 
516,287

 
506,935

Less: accumulated depreciation and amortization
 
(627,535
)
 
(580,590
)
 
 
$
686,423

 
$
712,589

For the quarter and nine months ended September 30, 2016, the Company had depreciation and amortization expense of approximately $16.0 million and $49.2 million, respectively, as compared to approximately $19.6 million and $63.0 million, respectively, for the quarter and nine months ended September 30, 2015.

11

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


3.
Real Estate Investment Properties, net (continued):
The Company evaluates its properties on an ongoing basis, including any changes to intended use of the properties, operating performance of its properties or plans to dispose of assets to determine if the carrying value is recoverable. As described above in Note 1. “Organization and Nature of Business,” management and its board of directors have been actively evaluating various strategic alternatives to provide liquidity to the Company’s stockholders.  On November 2, 2016, as further described below in Note 12. "Subsequent Events," the Company entered into a purchase and sale agreement for the sale of its remaining 36 properties. The Company determined that the book value of certain of its ski and mountain lifestyle properties exceeded the estimated sales price less estimated costs to sell and as a result recorded an impairment provision of approximately $8.1 million as of September 30, 2016.

4.
Assets Held for Sale, net and Discontinued Operations:
Assets Held for Sale, net — The Company had classified seven and six properties as assets held for sale as of September 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):
 
 
September 30,
2016
 
December 31,
2015
Land and land improvements, net
 
$
14,191

 
$
5,673

Leasehold interests and improvements, net
 

 
27,184

Building and building improvements, net
 
74,118

 
6,352

Equipment, net
 
222

 
1,378

Intangibles, net
 
16,823

 

Restricted cash
 

 
1,408

Accounts and other receivables, net
 

 
699

Other Assets
 

 
25

Total
 
$
105,354

 
$
42,719


Associated Liabilities Held for Sale — As of September 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 six properties classified as held for sale. During the nine months ended September 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 September 30, 2016, had seven properties classified as held for sale.
The Company accounted for the revenues and expenses related to seven ski and mountain lifestyle properties classified as held for sale (effective April 2016, when they became wholly-owned), and one undeveloped land sold during 2016 as income from continuing operations because the sale of these properties did not cause a strategic shift in the Company nor were the sales considered to have a major impact on the Company’s business. Accordingly, they did not qualify as discontinued operations under ASU 2014-08, which the Company adopted 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.

12

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


4.
Assets Held for Sale, net and Discontinued Operations (Continued):
The following table is a summary of income from discontinued operations for the quarter and nine months ended September 30, 2016 and 2015 (in thousands):
 
 
Quarter Ended
September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
$

 
$
12,482

 
$
3,838

 
$
60,496

Expenses
 

 
(10,286
)
 
(3,189
)
 
(43,774
)
Impairment provision
 

 

 

 
(7,749
)
Operating income
 

 
2,196

 
649

 
8,973

Gain on sale of real estate
 

 
4,266

 
9,687

 
210,891

Gain (loss) on extinguishment of debt
 

 
486

 
(308
)
 
(2,042
)
Gain (loss) on retirement of fixed assets
 

 
1,024

 
(1,000
)
 
1,492

Other income (expense)
 

 
(358
)
 
413

 
(4,928
)
Income from discontinued operations
 
$

 
$
7,614

 
$
9,441

 
$
214,386


5.
Intangibles, net:
The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities as of September 30, 2016 and December 31, 2015 are as follows (in thousands):
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
September 30, 2016 Net Book Value
In place leases
 
$
11,240

 
$
(5,495
)
 
$
5,745

Trade name (infinite-lived)
 
10,297

 

 
10,297

Total
 
$
21,537

 
$
(5,495
)
 
$
16,042

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
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 nine months ended September 30, 2016 and 2015, the Company had amortization expense of approximately $0.2 million and $0.5 million, respectively, excluding properties that the Company classified as discontinued operations.


13

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


6.
Unconsolidated Entities:
As of December 31, 2015, the Company held an 80% ownership interest in the Intrawest Venture with a carrying value 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. See Note 12, "Subsequent Events" for additional information.
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.
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 nine months ended September 30, 2016 (in thousands):

14

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


6.
Unconsolidated Entities (Continued):
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 $4.0 million and $1.4 million, respectively, for the quarter ended September 30, 2016 and approximately $7.9 million and $3.9 million, respectively, for the nine months ended September 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
September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
96,382

 
$
132,103

 
$
206,462

 
$
299,060

Net income
$
20,701

 
$
32,990

 
$
65,697

 
$
255,520

Income per share of common stock (basic and diluted)
$
0.06

 
$
0.10

 
$
0.20

 
$
0.79

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

 
325,183

 
325,183

 
325,183

The following tables present financial information for the Company’s investment in the Intrawest Venture, its unconsolidated entity, for the nine months ended September 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 and nine months ended September 30, 2015 (in thousands):
 
 
Nine Months Ended September 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

 
 


15

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


6.
Unconsolidated Entities (Continued):
 
 
Quarter Ended September 30, 2015
 
 
Intrawest
Venture
 
 
Revenues
 
$
4,503

 
 
Property operating expenses
 
(2,449
)
 
 
Depreciation and amortization
 
(807
)
 
 
Interest expense and other income (expense)
 
(476
)
 
 
Net income (loss)
 
$
771

 
 
Income (loss) allocable to other venture partners (2)
 
$
(408
)
 
(3)  
Income allocable to the Company (2)
 
$
1,179

 
 
Amortization of capitalized costs
 
(17
)
 
 
Equity in earnings of unconsolidated entities
 
$
1,162

 
 
Distribution declared to the Company
 
$
1,592

 
 
Distributions received by the Company
 
$
918

 
 

 
 
Nine Months Ended September 30, 2015
 
 
DMC
Partnership(4)
 
Intrawest
Venture
 
 
 
Total
Revenues
 
$
10,743

 
$
13,809

 
 
 
$
24,552

Property operating expenses
 
(173
)
 
(7,788
)
 
 
 
(7,961
)
Depreciation and amortization
 
(3,038
)
 
(3,375
)
 
 
 
(6,413
)
Interest expense and other income (expense)
 
(1,555
)
 
(2,294
)
 
 
 
(3,849
)
Net income
 
$
5,977

 
$
352




$
6,329

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

 
$
(1,204
)
 
(3)  
 
$
2,273

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

 
$
1,556

 
 
 
$
4,056

Amortization of capitalized costs
 
(25
)
 
(91
)
 
 
 
(116
)
Equity in earnings of unconsolidated entities
 
$
2,475

 
$
1,465




$
3,940

Distribution declared to the Company
 
$
3,698

 
$
6,142

 
 
 
$
9,840

Distributions received by the Company
 
$
6,558

 
$
5,093

 
 
 
$
11,651

 
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.


16

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


7.
Indebtedness:
Line of Credit In August 2016, the Company terminated its $100.0 million revolving line of credit.
Mortgages and Other Notes Payable During the nine months ended September 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 repaid outstanding indebtedness of approximately $18.2 million collaterialized by one attractions property which was scheduled to mature in September 2016 and $8.8 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 $148.3 million and $148.3 million, respectively, as of September 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 September 30, 2016 because of the relatively short maturities of the obligations.

8.
Fair Value Measurements:
As of September 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.

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 seven properties classified as assets held for sale as of September 30, 2016, which were carried at fair value, based on estimated sales price, less costs to sell. The Company had 14 real estate investment properties 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 September 30, 2016 and December 31, 2015, as follows (in thousands):


17

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


8.
Fair Value Measurements (Continued):
 
 
Fair Value Measurement as of September 30, 2016
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Assets held for sale
 
$
105,354

 
$

 
$

 
$
105,354

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Liabilities related to assets held for sale
 
$
7,382

 
$

 
$

 
$
7,382

Derivative instrument
 
562

 

 
562

 

 
 
$
7,944

 
$

 
$
562

 
$
7,382

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurement as of December 31, 2015
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Real estate investment properties, net
 
$
184,061

 
$

 
$

 
$
184,061

Assets held for sale, net
 
40,588

 

 

 
40,588

 
 
$
224,649

 


 


 
$
224,649

Liabilities:
 
 
 
 
 
 
 
 
Derivative instrument
 
$
618

 
$

 
$
618

 
$


9.
Related Party Arrangements:
For the quarter and nine months ended September 30, 2016 and 2015, the Advisor earned fees and incurred reimbursable expenses as follows (in thousands):
 
 
Quarter Ended
September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Asset management fees (1)
 
$
3,003

 
$
3,702

 
$
9,292

 
$
15,853

Reimbursable expenses: (2)
 
 
 
 
 
 
 
 
Operating expenses
 
1,111

 
1,157

 
3,957

 
4,286

Total fees earned and reimbursable expenses
 
$
4,114

 
$
4,859

 
$
13,249

 
$
20,139

 
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 $0.4 million as of September 30, 2016 and December 31, 2015.

10.
Stockholders’ Equity:
For each of the nine months ended September 30, 2016 and 2015, the Company declared and paid distributions of approximately $48.8 million ($0.15 per share).


18

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


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 October 2016, the Company sold the seven ski and mountain lifestyle properties that were classified as held for sale as of September 30, 2016. The net sales proceeds, after the payment of closing costs, for these properties was approximately $98.0 million, which approximated the net carrying value of the properties. No disposition fee was payable to the Advisor on the sale of these seven properties.
On November 2, 2016, the Company entered into a purchase and sale agreement for the sale of its remaining 36 properties (the "Sale Agreement") for approximately $830.0 million, as previously disclosed on Form 8-K filed on November 2, 2016. In connection with the transaction contemplated by the Sale Agreement, on November 1, 2016, the Company's board approved a plan of liquidation and dissolution (the "Plan of Dissolution"). The Sale Agreement and the Plan of Dissolution will be subject to approval by the Company's stockholders to be held in accordance with the Company's bylaws upon approval by the U.S. Securities and Exchange Commission of a joint prospectus proxy statement relating thereto. The board also declared a special cash distribution of $162.6 million, or $0.50 per share. In addition, in light of the Plan of Dissolution, the Board also approved the suspension of the Company's quarterly cash distribution on its common stock effective as of the fourth quarter distribution.


19



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, 2016 and December 31, 2015 and for the quarter and nine months ended September 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 nine months ended September 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

20


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 defined 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 engaged 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. We are organized and believed we had operated in a manner to qualify for treatment as a REIT beginning with the year ended December 31, 2004. In November 2016, we determined that we needed to accrue a provision for income tax in connection with retaining our REIT status, as described further below in "Liquidity and Capital Resources – Uses of Liquidity and Capital Resources." 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.

21


During 2016 and through November 18, 2016, we had completed the sale of our remaining five marina properties and our unimproved land for more than their carrying value. Additionally, in April 2016 we acquired our co-venture partner’s 20% interest in the Intrawest Venture and subsequently in October 2016, we sold the seven ski and mountain lifestyle properties, which were owned through the Intrawest Venture, at their net carrying value.
As of November 18, 2016, we had a portfolio of 36 lifestyle properties. When aggregated by initial purchase price, the portfolio was diversified as follows: approximately 58% in ski and mountain lifestyle and 42% in attractions properties.
On November 2, 2016, we entered into a purchase and sale agreement for the sale of our remaining 36 properties (the "Sale Agreement") for approximately $830.0 million, as previously disclosed on Form 8-K filed on November 2, 2016. In connection with the transaction contemplated by the Sale Agreement, on November 1, 2016 our board approved a plan of liquidation and dissolution (the "Plan of Dissolution"). The Sale Agreement and the Plan of Dissolution will be subject to the approval by our stockholders to be held in accordance with our bylaws upon approval by the U.S. Securities and Exchange Commission of a joint prospectus proxy statement relating thereto. The board also declared a special cash distribution of $162.6 million, or $0.50 per share. In addition, in light of the Plan of Dissolution, our Board also approved the suspension of our quarterly cash distribution on our common stock effective as of the fourth quarter distribution.

Portfolio Trends
The 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 September 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 September 30,
 
 
 
 
 
 
2016
 
2015
 
Increase (Decrease)
 
 
Revenue (1)
 
EBITDA (1)
 
Revenue (1)
 
EBITDA (1)
 
Revenue
 
EBITDA
Ski and mountain lifestyle
 
16

 
$
38,986

 
$
(10,250
)
 
$
36,450

 
$
(9,369
)
 
6.96
 %
 
(9.40
)%
Attractions
 
20

 
106,941

 
49,420

 
117,686

 
59,535

 
(9.13
)%
 
(16.99
)%
 
 
36

 
$
145,927

 
$
39,170

 
$
154,136

 
$
50,166

 
(5.33
)%
 
(21.92
)%


22


 
 
Number of
Properties