Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2014

OR

 

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

For the transition period from                      to                     

Commission file number: 000-51288

 

 

CNL Lifestyle Properties, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland		20-0183627
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
450 South Orange Avenue Orlando, Florida		32801
(Address of principal executive offices)		(Zip Code)

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

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

 

 

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

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

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

 

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

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

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

 

 

 

---

Table of Contents

TABLE OF CONTENTS

 

				Page
PART I. FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Information (unaudited):
		Condensed Consolidated Balance Sheets			1
		Condensed Consolidated Statements of Operations			2
		Condensed Consolidated Statements of Comprehensive Losses			3
		Condensed Consolidated Statements of Stockholders’ Equity			4
		Condensed Consolidated Statements of Cash Flows			5
		Notes to Condensed Consolidated Financial Statements			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			52
Item 4.		Controls and Procedures			53
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			53
Item 1A.		Risk Factors			53
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 3.		Defaults Upon Senior Securities			54
Item 4.		Mine Safety Disclosures			54
Item 5.		Other Information			54
Item 6.		Exhibits			54
Signatures					55
Exhibits					56

---

Table of Contents

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands except per share data)

 

		September 30, 2014				December 31, 2013
ASSETS
Real estate investment properties, net (including $176,249 and $184,306 related to consolidated variable interest entities, respectively)		$	1,890,582			$	2,068,973
Cash			277,122				71,574
Investments in unconsolidated entities			129,990				132,324
Deferred rent and lease incentives			53,374				57,378
Restricted cash			52,721				51,335
Other assets			45,017				52,310
Intangibles, net			30,046				36,922
Accounts and other receivables, net			22,202				21,080
Mortgages and other notes receivable, net			20,551				117,963
Assets held for sale, net			13,261				90,794
Total Assets		$	2,534,866			$	2,700,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgages and other notes payable (including $51,420 and $87,095 related to non-recourse debt of consolidated variable interest entities, respectively)		$	634,512			$	760,192
Senior notes, net of discount			370,321				394,419
Line of credit			122,500				50,000
Other liabilities			61,388				76,816
Accounts payable and accrued expenses			58,049				49,823
Due to affiliates			564				1,025
Total Liabilities			1,247,334				1,332,275
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $.01 par value per share 200 million shares authorized and unissued			—				—
Excess shares, $.01 par value per share 120 million shares authorized and unissued			—				—
Common stock, $.01 par value per share
One billion shares authorized; 349,084 and 345,114 shares issued and 325,214 and 322,627 shares outstanding as of September 30, 2014 and December 31, 2013, respectively			3,252				3,226
Capital in excess of par value			2,864,036				2,846,265
Accumulated deficit			(400,220	)			(401,985	)
Accumulated distributions			(1,176,750	)			(1,073,422	)
Accumulated other comprehensive loss			(2,786	)			(5,706	)
Total Stockholders’ Equity			1,287,532				1,368,378
Total Liabilities and Stockholders’ Equity		$	2,534,866			$	2,700,653

See accompanying notes to condensed consolidated financial statements.

 

1

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands except per share data)

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Revenues:
Rental income from operating leases		$	37,631			$	31,466			$	115,009			$	101,159
Property operating revenues			140,683				126,707				283,064				256,622
Interest income on mortgages and other notes receivable			1,965				3,253				8,044				10,035
Total revenues			180,279				161,426				406,117				367,816
Expenses:
Property operating expenses			81,726				73,273				205,255				189,179
Asset management fees to advisor			6,053				6,498				18,999				21,445
General and administrative			4,307				3,882				13,452				12,858
Ground lease and permit fees			2,849				3,132				9,688				9,602
Acquisition fees and costs			509				1,009				2,513				1,922
Other operating expenses			2,170				2,338				4,028				4,307
Bad debt expense			65				1,823				1,062				5,882
Recovery on lease terminations			—				—				(741	)			—
Loan loss provision			750				—				3,270				—
Impairment provision			—				2,740				—				45,191
Depreciation and amortization			33,622				30,731				96,691				88,587
Total expenses			132,051				125,426				354,217				378,973
Operating income (loss)			48,228				36,000				51,900				(11,157	)
Other income (expense):
Interest and other income (expense)			775				(13	)			866				504
Bargain purchase gain			—				2,653				—				2,653
Interest expense and loan cost amortization (includes $57 and $460 loss on termination of cash flow hedges for the quarter and nine months ended September 30, 2014, respectively)			(18,556	)			(15,852	)			(57,322	)			(48,513	)
Loss on extinguishment of debt			(1,620	)			—				(1,816	)			—
Gain from sale of unconsolidated entities			—				55,394				—				55,394
Equity in earnings of unconsolidated entities			3,176				4,147				6,949				9,183
Total other income (expense)			(16,225	)			46,329				(51,323	)			19,221
Income from continuing operations			32,003				82,329				577				8,064
Income (loss) from discontinued operations (includes $3,027 amortization of loss and loss on termination of cash flow hedges for the nine months ended September 30, 2014 and $414 and $1,241 amortization of loss on termination of cash flow hedges for the quarter and nine months ended September 30, 2013, respectively.)			(1,380	)			(4,036	)			1,188				(8,275	)
Net income (loss)		$	30,623			$	78,293			$	1,765			$	(211	)
Net income (loss) per share of common stock (basic and diluted)
Continuing operations		$	0.10			$	0.26			$	0.00			$	0.03
Discontinued operations			(0.01	)			(0.01	)			0.01				(0.03	)
Income per share		$	0.09			$	0.25			$	0.01			$	0.00
Weighted average number of shares of common stock outstanding (basic and diluted)			325,707				319,507				324,194				317,960

See accompanying notes to condensed consolidated financial statements.

 

2

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES

(UNAUDITED)

(in thousands)

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Net income (loss)		$	30,623			$	78,293			$	1,765			$	(211	)
Other comprehensive income (loss):
Foreign currency translation adjustments			(1,478	)			410				(1,383	)			(804	)
Changes in fair value of cash flow hedges:
Amortization of loss and loss on termination of cash flow hedges			56				414				3,487				1,241
Unrealized gain arising during the period			204				60				816				1,459
Total other comprehensive income (loss)			(1,218	)			884				2,920				1,896
Total comprehensive income		$	29,405			$	79,177			$	4,685			$	1,685

See accompanying notes to condensed consolidated financial statements.

 

3

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(UNAUDITED)

(in thousands except per share data)

 

		Common Stock								Capital in												Accumulated Other				Total
		Number of Shares				Par Value				Excess of Par Value				Accumulated Deficit				Accumulated Distributions				Comprehensive Loss				Stockholders’ Equity
Balance at December 31, 2012			316,371			$	3,164			$	2,803,346			$	(149,446	)		$	(937,972	)		$	(7,661	)		$	1,711,431
Subscriptions received for common stock through distribution reinvestment plan			7,901				79				54,857				—				—				—				54,936
Redemption of common stock			(1,645	)			(17	)			(11,938	)			—				—				—				(11,955	)
Net loss			—				—				—				(252,539	)			—				—				(252,539	)
Distributions, declared and paid ($0.4252 per share)			—				—				—				—				(135,450	)			—				(135,450	)
Foreign currency translation adjustment			—				—				—				—				—				(1,563	)			(1,563	)
Amortization of loss on termination of cash flow hedges			—				—				—				—				—				1,655				1,655
Current period adjustment to recognize changes in fair value of cash flow hedges, net of reclassifications (Note 9)			—				—				—				—				—				1,863				1,863
Balance at December 31, 2013			322,627			$	3,226			$	2,846,265			$	(401,985	)		$	(1,073,422	)		$	(5,706	)		$	1,368,378
Subscriptions received for common stock through distribution reinvestment plan			3,970				40				27,169				—				—				—				27,209
Redemption of common stock			(1,383	)			(14	)			(9,398	)			—				—				—				(9,412	)
Net income			—				—				—				1,765				—				—				1,765
Distributions, declared and paid ($0.3189 per share)			—				—				—				—				(103,328	)			—				(103,328	)
Foreign currency translation adjustment			—				—				—				—				—				(1,383	)			(1,383	)
Amortization of loss and loss on termination of cash flow hedges			—				—				—				—				—				3,487				3,487
Current period adjustment to recognize changes in fair value of cash flow hedges, net of reclassifications (Note 11)			—				—				—				—				—				816				816
Balance at September 30, 2014			325,214			$	3,252			$	2,864,036			$	(400,220	)		$	(1,176,750	)		$	(2,786	)		$	1,287,532

See accompanying notes to condensed consolidated financial statements.

 

4

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

		Nine Months Ended September 30,
		2014				2013
Operating activities:
Net cash provided by operating activities		$	132,818			$	133,035
Investing activities:
Acquistion of properties			(128,390	)			(83,451	)
Capital expenditures			(55,888	)			(52,722	)
Proceeds from sale of properties			370,774				11,000
Proceeds from sale of unconsolidated entities			—				195,446
Proceeds from release of collateral on loan payable			—				11,167
Collection of mortgage loans receivable			83,459				4,220
Changes in restricted cash			(1,876	)			(12,377	)
Other			823				(524	)
Net cash provided by investing activities			268,902				72,759
Financing activities:
Redemptions of common stock			(9,412	)			(8,954	)
Distributions to stockholders, net of distribution reinvestments			(76,119	)			(60,180	)
Proceeds under line of credit			102,500				50,000
Proceeds from mortgage loans and other notes payable			57,790				30,000
Principal payments on line of credit			(30,000	)			(145,000	)
Principal payments on mortgage loans and senior notes			(231,846	)			(12,318	)
Principal payments on capital leases			(4,545	)			(3,313	)
Payments of entrance fee refunds			(1,257	)			—
Payment of loan costs			(3,204	)			(751	)
Net cash used in financing activities			(196,093	)			(150,516	)
Effect of exchange rate fluctuations on cash			(79	)			(6	)
Net increase in cash			205,548				55,272
Cash at beginning of period			71,574				73,224
Cash at end of period		$	277,122			$	128,496
Supplemental disclosure of non-cash investing activities:
Assumption of entrance fee liabilities		$	—			$	13,810
Supplemental disclosure of non-cash financing activities:
Assumption of debt		$	25,510			$	—

See accompanying notes to condensed consolidated financial statements.

 

5

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

1.	Organization and Nature of Business:

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

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

In March 2014, the Company engaged Jefferies LLC, a leading global investment banking and advisory firm, to assist the Company’s management and its Board of Directors in actively evaluating various strategic alternatives to provide liquidity to the Company’s shareholders. On September 30, 2014, in connection with this process, the Company sold 46 of its 48 total golf properties as further described in Note 5. “Assets Held for Sale, net and Discontinued Operations”.

 

2.	Significant Accounting Policies:

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

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

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

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

 

6

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

2.	Significant Accounting Policies (Continued):

 

Assets Reclassified from Held for Sale to Held and Used — Upon management’s determination to discontinue marketing properties for sale, the properties will no longer meet the held for sale criteria and are required to be reclassified as held and used at the lower of adjusted carrying value (carrying value of the properties prior to being classified as held for sale adjusted for any depreciation and/or amortization expense that would have been recognized had the properties been continuously classified as held and used) or its fair value at the date of the subsequent decision not to sell. If adjusted carrying value is determined to be lower, a catch up adjustment will be recorded. The depreciation and/or amortization expenses that would have been recognized had the properties been continuously classified as held and used and will be included as a component of depreciation and amortization expense in the accompanying unaudited condensed consolidated statements of operations. If fair value is determined to be lower, the Company will record a gain or loss included in income or loss from continuing operations in the accompanying unaudited condensed consolidated statements of operations.

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

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

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

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

 

7

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

3.	Acquisitions:

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

 

				Date of				Purchase
Product/Description		Location		Acquisition (2)				Price
Pacifica Senior Living Victoria Court—One senior housing property		Rhode Island			1/15/2014			$	15,250
Pacifica Senior Living Northridge—One senior housing property		California			6/6/2014				25,250
La Conner Retirement Inn—One senior housing property		Washington			6/2/2014				8,250
South Pointe Assisted Living—One senior housing property		Washington			6/2/2014				4,300
Pacifica Senior Living Modesto—One senior housing property		California			7/24/2014				16,250	(1)
Pacifica Senior Living Bakersfield—One senior housing property		California			7/25/2014				28,750	(1)
Pacifica Senior Living Wilmington—One senior housing property		North Carolina			7/25/2014				22,250	(1)
The Oaks at Braselton—One senior housing property		Georgia			9/22/2014				15,000
The Oaks at Post Road—One senior housing property		Georgia			9/22/2014				18,600
								$	153,900

 

FOOTNOTES:

 

(1)	In connection with acquiring these properties the Company assumed the fair value of loans with an aggregate principal outstanding balance of approximately $25.5 million. See Note 10. “Indebtedness” for additional information.

(2)	These properties are subject to long-term triple-net leases with an initial term of 10 years with renewal options.

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

 

4.	Real Estate Investment Properties, net:

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

 

		September 30,				December 31,
		2014				2013
Land and land improvements		$	670,066			$	904,409
Leasehold interests and improvements			273,899				311,560
Buildings			955,034				926,098
Equipment			668,221				692,854
Less: accumulated depreciation and amortization			(676,638	)			(765,948	)
		$	1,890,582			$	2,068,973

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

 

8

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

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

Assets Held for Sale, net — As of December 31, 2013, the Company classified five properties as assets held for sale. During the nine months ended September 30, 2014, the following transactions occurred:

 

•

The Company approved a plan to sell its golf portfolio (consisting of 48 properties) and one family entertainment center and classified those properties as assets held for sale.

 

•

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

 

•

The Company decided to discontinue marketing the sale of five properties, four of which were previously classified as assets held for sale as of December 31, 2013. The five properties were reclassified as held and used. In September 2014, the Company recorded an adjustment representing the catch up in depreciation and amortization expenses that would have been recognized had the properties been continuously classified as held and used.

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

 

		September 30,				December 31,
		2014				2013
Real estate investment properties, net
Land and land improvements		$	10,854			$	40,097
Building and building improvements			2,142				47,989
Equipment			265				2,708
Total		$	13,261			$	90,794

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

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

 

		Quarter Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Revenues		$	15,891			$	17,245			$	51,940			$	52,073
Expenses			(11,600	)			(11,860	)			(32,226	)			(33,952	)
Impairment provision			—				—				(4,464	)			—
Depreciation and amortization			—				(7,618	)			(4,891	)			(22,577	)
Operating income (loss)			4,291				(2,233	)			10,359				(4,456	)
Gain from sale of properties			3,953				2				3,883				2,085
Loss on extinguishment of debt (1)			(8,293	)			—				(5,690	)			—
Other expense (2)			(1,331	)			(1,805	)			(7,364	)			(5,904	)
Income (loss) from discontinued operations		$	(1,380	)		$	(4,036	)		$	1,188			$	(8,275	)

 

9

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

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

 

 

FOOTNOTES:

 

(1)

During the quarter and nine months ended September 30, 2014, the Company recorded loss on extinguishment of debt from the sale of its 46 golf properties. In addition, during the nine months ended September 30, 2014, the Company recorded gain on extinguishment of debt from the sale of its multi-family residential property.

(2)

Amounts include amortization of loss and loss on termination of cash flow hedge of approximately $3.0 million for the nine months ended September 30, 2014. In addition, amounts include amortization of loss on termination of cash flow hedge of approximately $0.4 million and $1.2 million for the quarter and nine months ended September 30, 2013, respectively. See Note 11. “Derivative Instruments and Hedging Activities” for additional information.

 

6.	Intangibles, net:

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

 

		Gross												September 30, 2014
		Carrying				Accumulated								Net Book
Intangible Assets		Amount				Amortization				Disposal (2)				Value
In place leases		$	34,858			$	(20,317	)		$	(1,282	)		$	13,259
Trade name (finite-lived)			9,060				(1,852	)			(7,208	)			—
Trade name (infinite-lived)			12,322				—				—				12,322
Above-market leases (1)			4,566				(101	)			—				4,465
Total		$	60,806			$	(22,270	)		$	(8,490	)		$	30,046

 

		Gross								December 31, 2013
		Carrying				Accumulated				Net Book
Intangible Assets		Amount				Amortization				Value
In place leases		$	34,745			$	(17,513	)		$	17,232
Trade name (finite-lived)			9,060				(1,789	)			7,271
Trade name (infinite-lived)			12,419				—				12,419
Total		$	56,224			$	(19,302	)		$	36,922

 

FOOTNOTES:

 

(1)	The Company recorded above-market lease intangible in connection with the acquisition of two senior housing properties.

(2)	In connection with the sale of the 46 golf properties, the Company disposed of the above intangible assets.

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

 

		In-place Lease				Above-market Lease				Total Intangible Assets
2014		$	994			$	121			$	1,115
2015			2,718				485				3,203
2016			1,189				485				1,674
2017			1,056				485				1,541
2018			886				485				1,371
Thereafter			6,416				2,404				8,820
Total		$	13,259			$	4,465			$	17,724

 

10

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

7.	Operating Leases:

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

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

 

2014		$	27,268
2015			120,233
2016			122,226
2017			124,274
2018			125,884
Thereafter			1,157,479
Total		$	1,677,364

 

8.	Variable Interest and Unconsolidated Entities:

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

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

 

		September 30,				December 31,
		2014				2013
Assets
Real estate investment properties, net		$	176,249			$	184,306
Other assets		$	25,012			$	29,075
Liabilities
Mortgages and other notes payable		$	51,420			$	87,095
Other liabilities		$	11,819			$	13,214

The Company’s maximum exposure to loss as a result of its involvement with these VIEs is limited to its net investment in these entities, which totaled approximately $138.0 million and $113.1 million as of September 30, 2014 and December 31, 2013, respectively. The Company’s exposure is limited because of the non-recourse nature of the borrowings of the VIEs.

 

11

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

8.	Variable Interest and Unconsolidated Entities (Continued):

 

Unconsolidated Entities —As of September 30, 2014, the Company holds ownership in two ventures, the DMC Partnership and the Intrawest Venture. Of these, the Intrawest Venture was deemed a VIE in which the Company is not the primary beneficiary. While several significant decisions are shared between the Company and its joint venture partner in the Intrawest Joint Venture, the Company does not direct the activities that most significantly impact the venture’s performance and has not consolidated the activities of the venture. The Company’s maximum exposure to loss as a result of its interest in the Intrawest Venture is limited to the carrying amount of its investment in the venture, which totaled approximately $22.8 million and $25.2 million as of September 30, 2014 and December 31, 2013, respectively.

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

In June 2014, the Intrawest Venture decided to discontinue marketing for sale six of its seven village retail properties. As a result, the properties no longer met the asset held for sale criteria and the Intrawest Venture recorded an adjustment representing the catch up in depreciation and amortization expense that would have been recognized had the properties been continuously classified as held and used. The properties were reclassified as held and used at the lower of adjusted carrying value, which was lower than its fair value so no gain or loss was recorded with the reclassification. The Intrawest Venture continues to pursue the sale of the seventh village retail property and expects to complete the sale during 2015.

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

Summarized operating data:

 

		Quarter Ended September 30, 2014
		DMC				Intrawest
		Partnership				Venture				Total
Revenues		$	6,870			$	4,258			$	11,128
Property operating expenses			(305	)			(2,256	)			(2,561	)
Depreciation and amortization			(2,327	)			(1,118	)			(3,445	)
Interest expense			(1,909	)			(1,125	)			(3,034	)
Income (loss) from continuing operations			2,329				(241	)			2,088
Discontinued operations (3)			—				266				266
Net income		$	2,329			$	25			$	2,354
Loss allocable to other venture partners (1)		$	(532	)		$	(406	)(2)		$	(938	)
Income allocable to the Company (1)		$	2,861			$	431			$	3,292
Amortization of capitalized costs			(64	)			(52	)			(116	)
Equity in earnings of unconsolidated entities		$	2,797			$	379			$	3,176
Distributions declared to the Company		$	2,859			$	742			$	3,601
Distributions received by the Company		$	2,829			$	492			$	3,321

 

12

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

8.	Variable Interest and Unconsolidated Entities (Continued):

 

Summarized operating data:

 

		Quarter Ended September 30, 2013
		DMC				Intrawest				CNLSun I				CNLSun II				CNLSun III
		Partnership				Venture				Venture (4)				Venture (4)				Venture (4)				Total
Revenues		$	6,870			$	4,142			$	—			$	—			$	—			$	11,012
Property operating expenses			(205	)			(2,236	)			—				—				—				(2,441	)
Depreciation and amortization			(2,237	)			—				—				—				—				(2,237	)
Interest expense			(1,986	)			(1,131	)			—				—				—				(3,117	)
Interest and other income (expense)			1				(1	)			—				—				—				—
Income from continuing operations			2,443				774				—				—				—				3,217
Discontinued operations (3)			—				274				—				—				—				274
Net income		$	2,443			$	1,048			$	—			$	—			$	—			$	3,491
Loss allocable to other venture partners (1)		$	(416	)		$	(406	)(2)		$	—			$	—			$	—			$	(822	)
Income allocable to the Company (1)		$	2,859			$	1,454			$	—			$	—			$	—			$	4,313
Amortization of capitalized costs			(108	)			(58	)			—				—				—				(166	)
Equity in earnings of unconsolidated entities		$	2,751			$	1,396			$	—			$	—			$	—			$	4,147
Distributions declared to the Company		$	2,860			$	620			$	—			$	—			$	—			$	3,480
Distributions received by the Company		$	2,829			$	348			$	3,920			$	522			$	835			$	8,454

 

		Nine Months Ended September 30, 2014
		DMC				Intrawest
		Partnership				Venture				Total
Revenues		$	21,649			$	12,859			$	34,508
Property operating expenses			(569	)			(6,986	)			(7,555	)
Depreciation and amortization			(6,779	)			(5,455	)			(12,234	)
Interest expense			(5,743	)			(3,534	)			(9,277	)
Income (loss) from continuing operations			8,558				(3,116	)			5,442
Discontinued operations (3)			—				812				812
Net income (loss)		$	8,558			$	(2,304	)		$	6,254
Income (loss) allocable to other venture partners (1)		$	72			$	(1,205	)(2)		$	(1,133	)
Income (loss) allocable to the Company (1)		$	8,486			$	(1,099	)		$	7,387
Amortization of capitalized costs			(280	)			(158	)			(438	)
Equity in earnings (loss) of unconsolidated entities		$	8,206			$	(1,257	)		$	6,949
Distributions declared to the Company		$	8,485			$	1,892			$	10,377
Distributions received by the Company		$	8,485			$	1,411			$	9,896

 

13

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

8.	Variable Interest and Unconsolidated Entities (Continued):

 

		Nine Months Ended September 30, 2013
		DMC				Intrawest				CNLSun I				CNLSun II				CNLSun III
		Partnership				Venture				Venture (4)				Venture (4)				Venture (4)				Total
Revenues		$	21,192			$	12,724			$	71,287			$	19,654			$	21,549			$	146,406
Property operating expenses			(450	)			(6,998	)			(45,999	)			(15,439	)			(14,609	)			(83,495	)
Depreciation and amortization			(6,786	)			—				(10,994	)			(2,244	)			(2,874	)			(22,898	)
Interest expense			(5,936	)			(3,489	)			(16,154	)			(2,057	)			(2,928	)			(30,564	)
Interest and other income (expense)			4				(2	)			20				—				—				22
Income (loss) from continuing operations			8,024				2,235				(1,840	)			(86	)			1,138				9,471
Discontinued operations (3)			—				893				—				—				—				893
Net income (loss)		$	8,024			$	3,128			$	(1,840	)		$	(86	)		$	1,138			$	10,364
Income (loss) allocable to other venture partners (1)		$	(461	)		$	(1,205	)(2)		$	(1,341	)		$	(8	)		$	1,788			$	(1,227	)
Income (loss) allocable to the Company (1)		$	8,485			$	4,333			$	(499	)		$	(78	)		$	(650	)		$	11,591
Amortization of capitalized costs			(325	)			(175	)			(1,305	)			(431	)			(172	)			(2,408	)
Equity in earnings (loss) of unconsolidated entities		$	8,160			$	4,158			$	(1,804	)		$	(509	)		$	(822	)		$	9,183
Distributions declared to the Company		$	8,486			$	1,737			$	7,797			$	1,039			$	1,660			$	20,719
Distributions received by the Company		$	8,478			$	1,807			$	11,750			$	1,567			$	4,965			$	28,567

 

FOOTNOTES:

 

(1)	Income (loss) is allocated between the Company and its venture partner using the hypothetical liquidation book value (“HLBV”) method of accounting.

(2)	This amount includes the venture partner’s portion of interest expense on a loan which the partners made to the venture. These amounts are treated as distributions for the purposes of the HLBV calculation.

(3)	This amount represents the one village retail property that remains classified as an asset held for sale.

(4)	In July 2013, the Company completed the sale of its interest in 42 senior housing properties held through the CNLSun I, CNLSun II and CNLSun III ventures. As such, summarized operating data for these ventures is reported through June 30, 2013.

As of September 30, 2014 and December 31, 2013, the Company’s share of partners’ capital determined under HLBV was approximately $121.9 million and $124.9 million, respectively, and the total difference between the carrying amount of the investment and the Company’s share of partners’ capital determined under HLBV was approximately $8.1 million and $7.4 million, respectively.

 

9.	Mortgages and Other Notes Receivable, net:

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

 

14

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

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

 

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

The estimated fair market value of the Company’s mortgages and other notes receivable was approximately $19.9 million and $112.2 million as of September 30, 2014 and December 31, 2013, respectively, based on discounted cash flows for each individual instrument based on market interest rates as of September 30, 2014 and December 31, 2013, respectively. Because this methodology includes inputs that are not observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to the Company’s mortgage and other notes receivable is categorized as Level 3 on the three-level valuation hierarchy. The estimated fair value of accounts and other receivables approximates the carrying value as of September 30, 2014 and December 31, 2013 because of the relatively short maturities of the receivables.

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

 

2014		$	18
2015			57
2016			3,329
2017			1,500
2018			—
Thereafter			16,620
Total		$	21,524

 

10.	Indebtedness:

Mortgages and Other Notes Payable — In February 2014, the Company obtained a $40.0 million loan with an existing third-party lender. The loan bears interest at 30-day LIBOR plus 3.50% with a 1.50% LIBOR floor and matures in April 2017. This is a supplement to one of the Company’s existing loans which is collateralized by six ski and mountain lifestyle properties of which one of the properties is a VIE due to a potential future buy-out option. See Note 8. “Variable Interest and Unconsolidated Entities” above for additional information. The other terms of the existing loan remain the same.

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

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

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

 

15

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

10.	Indebtedness (Continued):

 

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

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

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

 

2014		$	145,000
2015			175,513
2016			110,546
2017			128,109
2018			140,769
Thereafter			427,365
Total		$	1,127,302

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

The estimated fair values of mortgages and other notes payable and the line of credit were approximately $752.6 million and $803.7 million as of September 30, 2014 and December 31, 2013, respectively, based on rates and spreads the Company would expect to obtain for similar borrowings with similar loan terms. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to the Company’s mortgage notes payable is categorized as Level 3 on the three-level valuation hierarchy. The estimated fair values of the senior notes was approximately $384.1 million and $410.4 million as of September 30, 2014 and December 31, 2013, respectively, based on prices traded for similar or identical instruments in active or inactive markets and is categorized as Level 2 on the three-level valuation hierarchy. The estimated fair value of accounts payable and accrued expenses approximates the carrying value as of September 30, 2014 and December 31, 2013 because of the relatively short maturities of the obligations.

 

11.	Derivative Instruments and Hedging Activities:

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

 

16

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

11.	Derivative Instruments and Hedging Activities (Continued):

 

As of December 31, 2013, the Company had five interest rate swaps that were designed as cash flow hedges of interest payments from their inception. During the nine months ended September 30, 2014, three of the loans were paid in full and the corresponding interest rate swaps with an aggregate notional amount of approximately $97.7 million were suspended. As a result, the ineffective portion of the change in fair value resulting from the termination of hedges included in the accompanying condensed consolidated balance sheets was reclassified to interest expense and loan cost amortization in the accompanying condensed consolidated statements of operations in both income (loss) from continuing and discontinued operations for the nine months ended September 30, 2014. As of September 30, 2014, the Company had two interest rate swaps. The fair value of the Company’s derivative financial instruments is included in other liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013.

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

 

				As of September 30, 2014												Gross Amounts Not Offset in the Balance Sheets
Notional Amount of Cash Flow Hedges				Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Balance Sheets				Net Amounts of Liabilities Presented in the Balance Sheets				Financial Instruments				Cash Collateral				Net Amount
$	8,490			$	(694	)		$	—			$	(694	)		$	(694	)		$	—			$	(694	)
$	14,775			$	(345	)		$	—			$	(345	)		$	(345	)		$	—			$	(345	)

 

				As of December 31, 2013												Gross Amounts Not Offset in the Balance Sheets
Notional Amount of Cash Flow Hedges				Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Balance Sheets				Net Amounts of Liabilities Presented in the Balance Sheets				Financial Instruments				Cash Collateral				Net Amount
$	61,042	(2)		$	(1,748	)		$	—			$	(1,748	)		$	(1,748	)		$	—			$	(1,748	)
$	8,746			$	(743	)		$	—			$	(743	)		$	(743	)		$	—			$	(743	)
$	16,603	(1)(2)		$	(233	)		$	—			$	(233	)		$	(233	)		$	—			$	(233	)
$	15,450			$	(524	)		$	—			$	(524	)		$	(524	)		$	—			$	(524	)
$	24,811	(2)		$	(446	)		$	—			$	(446	)		$	(446	)		$	—			$	(446	)

 

FOOTNOTES:

 

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

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

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

 

17

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

12.	Fair Value Measurements:

The Company had two investment properties that were classified as assets held for sale and carried at fair value less estimated costs to sell as of September 30, 2014 based on information received from a potential buyer. In addition, the Company had 48 investment properties carried at fair value less estimated costs to sell as of December 31, 2013. The Level 3 unobservable inputs used in determining the fair value of the real estate properties include comparable sales transactions and information from potential buyers.

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

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

 

		Fair Value
		Measurement
		as of
		September 30,
		2014				Level 1				Level 2				Level 3
Assets:
Assets held for sale carried at fair value		$	13,261			$	—			$	—			$	13,261
Liabilities:
Derivative instruments		$	1,039			$	—			$	1,039			$	—

 

		Fair Value
		Measurement
		as of
		December 31,
		2013				Level 1				Level 2				Level 3
Assets:
Assets held for sale carried at fair value		$	90,794			$	—			$	—			$	90,794
Real estate investment properties, net carried at fair value		$	304,703			$	—			$	—			$	304,703
Liabilities:
Derivative instruments		$	3,694			$	—			$	3,694			$	—

 

18

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

13.	Related Party Arrangements:

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

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

 

		Quarter Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Acquisition fees:
Acquisition fees from distribution reinvestment plan (1)		$	—			$	322			$	319			$	963
Acquisition fees from debt proceeds (2)			—				—				1,521				234
Total			—				322				1,840				1,197
Asset management fees (3)			7,506				8,241				23,584				26,665
Reimbursable expenses: (4)
Acquisition costs			64				44				202				161
Operating expenses			1,710				1,627				5,213				5,307
Total			1,774				1,671				5,415				5,468
Total fees earned and reimbursable expenses		$	9,280			$	10,234			$	30,839			$	33,330

 

FOOTNOTES:

 

(1)	Amounts are recorded as acquisition fees and costs in the accompanying unaudited condensed consolidated statements of operations. Effective April 1, 2014, the Advisor eliminated this fee going forward.

(2)	Amounts are recorded as loan costs and are included as part of other assets in the accompanying unaudited condensed consolidated balance sheets. Effective April 1, 2014, the Advisor eliminated this fee going forward.

(3)

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

(4)

Amounts representing acquisition costs are recorded as part of acquisition fees and costs in the accompanying condensed consolidated statements of operations. Amounts representing operating expenses are recorded as part of general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

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

 

		September 30,				December 31,
		2014				2013
Due to the Advisor and its affiliates:
Operating expenses		$	543			$	671
Acquisition fees and expenses			21				354
Total		$	564			$	1,025

The Company also maintains accounts at a bank in which the Company’s chairman serves as a director. The Company had deposits at that bank of approximately $15.0 million and $8.6 million as of September 30, 2014 and December 31, 2013, respectively.

 

19

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

14.	Stockholders’ Equity:

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

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

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

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

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

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

 

2014 Quarters		First				Second				Third				Year-To-Date
Requests in queue			10,547				10,798				10,809				10,547
Redemptions requested			778				864				1,355				2,997
Shares redeemed:
Prior period requests			(135	)			(80	)			(60	)			(275	)
Current period requests			(300	)			(369	)			(439	)			(1,108	)
Adjustments (1)			(92	)			(404	)			(93	)			(589	)
Pending redemption requests (2)			10,798				10,809				11,572				11,572
Average price paid per share		$	6.85			$	6.85			$	6.81	(3)		$	6.84

 

FOOTNOTES:

 

(1)	This amount represents redemption request cancellations and other adjustments.

(2)

Requests that were not fulfilled in whole during a particular quarter were redeemed on a pro rata basis to the extent funds were made available pursuant to the redemption plan. Pending requests as of September 30, 2014 will remain in queue and will not be redeemed at this time because the redemption plan has been suspended.

(3)	Redeemed certain shares for less than the estimated NAV of $6.85 per share because they were purchased on a secondary market at a price less than $6.85 per share.

 

20

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements:

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

Condensed Consolidating Balance Sheet:

 

		As of September 30, 2014
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
ASSETS
Real estate investment properties, net		$	—			$	541,688			$	1,348,894			$	—			$	1,890,582
Cash			218,869				26,117				32,136				—				277,122
Investments in unconsolidated entities			—				129,990				—				—				129,990
Investments in subsidiaries			1,448,023				1,140,802				1,396,120				(3,984,945	)			—
Deferred rent and lease incentives			—				24,967				28,407				—				53,374
Restricted cash			12				28,731				23,978								52,721
Other assets			9,044				16,558				19,415				—				45,017
Intangibles, net			—				5,076				24,970				—				30,046
Accounts and other receivables, net			—				8,702				13,500				—				22,202
Mortgages and other notes receivable, net			—				50,050				15,612				(45,111	)			20,551
Assets held for sale, net			—				13,261				—				—				13,261
Total Assets		$	1,675,948			$	1,985,942			$	2,903,032			$	(4,030,056	)		$	2,534,866
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgages and other notes payable		$	—			$	195,610			$	482,915			$	(44,013	)		$	634,512
Senior notes, net of discount			370,321				—				—				—				370,321
Line of credit			—				122,500				—				—				122,500
Other liabilities			—				20,138				41,250				—				61,388
Accounts payable and accrued expenses			17,547				17,383				24,216				(1,097	)			58,049
Due to affiliates			548				9				7				—				564
Total Liabilities			388,416				355,640				548,388				(45,110	)			1,247,334
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value per share			—				—				—				—				—
Excess shares, $.01 par value per share			—				—				—				—				—
Common stock, $.01 par value per share			3,252				—				—				—				3,252
Capital in excess of par value			2,864,036				6,143,364				8,729,686				(14,873,050	)			2,864,036
Accumulated earnings (deficit)			(400,220	)			146,499				135,794				(282,293	)			(400,220	)
Accumulated distributions			(1,176,750	)			(4,659,561	)			(6,508,050	)			11,167,611				(1,176,750	)
Accumulated other comprehensive loss			(2,786	)			—				(2,786	)			2,786				(2,786	)
			1,287,532				1,630,302				2,354,644				(3,984,946	)			1,287,532
Total Liabilities and Stockholders’ Equity		$	1,675,948			$	1,985,942			$	2,903,032			$	(4,030,056	)		$	2,534,866

 

21

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Balance Sheet:

 

		As of December 31, 2013
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
ASSETS
Real estate investment properties, net		$	—			$	846,914			$	1,222,059			$	—			$	2,068,973
Cash			37,668				15,671				18,235				—				71,574
Investments in unconsolidated entities			—				132,324				—				—				132,324
Investments in subsidiaries			1,726,328				1,150,443				1,865,714				(4,742,485	)			—
Restricted cash			33				26,595				24,707				—				51,335
Deferred rent and lease incentives			—				29,839				27,539				—				57,378
Other assets			11,355				15,829				25,126				—				52,310
Intangibles, net			—				18,094				18,828				—				36,922
Accounts and other receivables, net			—				12,241				8,839				—				21,080
Mortgages and other notes receivable, net			—				45,947				114,469				(42,453	)			117,963
Assets held for sale, net			—				6,106				84,688				—				90,794
Total Assets		$	1,775,384			$	2,300,003			$	3,410,204			$	(4,784,938	)		$	2,700,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgages and other notes payable		$	—			$	246,295			$	555,433			$	(41,536	)		$	760,192
Senior notes, net of discount			394,419				—				—				—				394,419
Line of credit			—				50,000				—				—				50,000
Other liabilities			—				33,447				43,369				—				76,816
Accounts payable and accrued expenses			11,584				13,526				25,630				(917	)			49,823
Due to affiliates			1,003				8				14				—				1,025
Total Liabilities			407,006				343,276				624,446				(42,453	)			1,332,275
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value per share			—				—				—				—				—
Excess shares, $.01 par value per share			—				—				—				—				—
Common stock, $.01 par value per share			3,226				—				—				—				3,226
Capital in excess of par value			2,846,265				6,027,607				8,700,131				(14,727,738	)			2,846,265
Accumulated earnings (deficit)			(401,985	)			58,777				9,853				(68,630	)			(401,985	)
Accumulated distributions			(1,073,422	)			(4,129,657	)			(5,918,520	)			10,048,177				(1,073,422	)
Accumulated other comprehensive loss			(5,706	)			—				(5,706	)			5,706				(5,706	)
			1,368,378				1,956,727				2,785,758				(4,742,485	)			1,368,378
Total Liabilities and Stockholders’ Equity		$	1,775,384			$	2,300,003			$	3,410,204			$	(4,784,938	)		$	2,700,653

 

22

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

		For the Quarter Ended September 30, 2014
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Revenues:
Rental income from operating leases		$	—			$	12,226			$	25,405			$	—			$	37,631
Property operating revenues			—				48,026				92,657				—				140,683
Interest income on mortgages and other notes receivable			—				1,220				1,881				(1,136	)			1,965
Total revenues			—				61,472				119,943				(1,136	)			180,279
Expenses:
Property operating expenses			—				23,585				58,141				—				81,726
Asset management fees to advisor			6,053				—				—				—				6,053
General and administrative			3,998				177				132				—				4,307
Ground lease and permit fees			—				1,700				1,149				—				2,849
Acquisition fees and costs			509								—				—				509
Other operating expenses			452				499				1,219				—				2,170
Bad debt expense (recovery)			—				(47	)			112				—				65
Loss (recovery) on lease terminations			—				—				—				—				—
Loan loss provision			—				—				750				—				750
Depreciation and amortization			—				10,096				23,526				—				33,622
Total expenses			11,012				36,010				85,029				—				132,051
Operating income (loss)			(11,012	)			25,462				34,914				(1,136	)			48,228
Other income (expense):
Interest and other income			6				(3	)			772				—				775
Interest expense and loan cost amortization (includes $57 loss on termination of cash flow hedge)			(7,893	)			(1,935	)			(9,864	)			1,136				(18,556	)
Loss on extinguishment of debt			(1,591	)			(2,603	)			2,574				—				(1,620	)
Equity in loss of unconsolidated entities			—				3,176				—				—				3,176
Equity in earnings (loss), intercompany			51,113				41,189				70,093				(162,395	)			—
Total other income (expense)			41,635				39,824				63,575				(161,259	)			(16,225	)
Income (loss) from continuing operations			30,623				65,286				98,489				(162,395	)			32,003
Income from discontinued operations			—				(1,028	)			(352	)			—				(1,380	)
Net income (loss)		$	30,623			$	64,258			$	98,137			$	(162,395	)		$	30,623

 

23

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

		For the Quarter Ended September 30, 2013
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Revenues:
Rental income from operating leases		$	—			$	14,530			$	16,936			$	—			$	31,466
Property operating revenues			—				34,429				92,278				—				126,707
Interest income on mortgages and other notes receivable			—				1,169				3,185				(1,101	)			3,253
Total revenues			—				50,128				112,399				(1,101	)			161,426
Expenses:
Property operating expenses			—				18,419				54,854				—				73,273
Asset management fees to advisor			6,498				—				—				—				6,498
General and administrative			3,275				334				273				—				3,882
Ground lease and permit fees			—				2,041				1,091				—				3,132
Acquisition fees and costs			1,009				—				—				—				1,009
Other operating expenses			248				1,133				957				—				2,338
Bad debt expense			—				886				937				—				1,823
Impairment provision			—				2,740				—				—				2,740
Depreciation and amortization			—				9,923				20,808				—				30,731
Total expenses			11,030				35,476				78,920				—				125,426
Operating income (loss)			(11,030	)			14,652				33,479				(1,101	)			36,000
Other income (expense):
Interest and other income (expense)			59				(58	)			(14	)			—				(13	)
Bargain purchase gain			—				—				2,653				—				2,653
Interest expense and loan cost amortization			(8,107	)			(3,216	)			(5,630	)			1,101				(15,852	)
Gain from sale of unconsolidated entities			—				55,394				—				—				55,394
Equity in earnings of unconsolidated entities			—				4,147								—				4,147
Equity in earnings (loss), intercompany			97,371				106,548				123,357				(327,276	)			—
Total other income (expense)			89,323				162,815				120,366				(326,175	)			46,329
Income (loss) from continuing operations			78,293				177,467				153,845				(327,276	)			82,329
Loss from discontinued operations (includes $414 amortization of loss on termination of cash flow hedges)			—				(3,063	)			(973	)			—				(4,036	)
Net income (loss)		$	78,293			$	174,404			$	152,872			$	(327,276	)		$	78,293

 

24

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

		For the Nine Months Ended September 30, 2014
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Revenues:
Rental income from operating leases		$	—			$	41,170			$	73,839			$	—			$	115,009
Property operating revenues			—				81,741				201,323				—				283,064
Interest income on mortgages and other notes receivable			—				3,605				7,814				(3,375	)			8,044
Total revenues			—				126,516				282,976				(3,375	)			406,117
Expenses:
Property operating expenses			—				54,793				150,462				—				205,255
Asset management fees to advisor			18,999				—				—				—				18,999
General and administrative			11,272				569				1,611				—				13,452
Ground lease and permit fees			—				5,672				4,016				—				9,688
Acquisition fees and costs			2,513				—				—				—				2,513
Other operating expenses			874				1,092				2,062				—				4,028
Bad debt expense			—				(45	)			1,107				—				1,062
(Recovery) loss on lease terminations			—				(1,036	)			295				—				(741	)
Loan loss provision			—				—				3,270				—				3,270
Depreciation and amortization			—				29,250				67,441				—				96,691
Total expenses			33,658				90,295				230,264				—				354,217
Operating income (loss)			(33,658	)			36,221				52,712				(3,375	)			51,900
Other income (expense):
Interest and other income (expense)			17				150				699				—				866
Interest expense and loan cost amortization (includes $460 loss on termination of cash flow hedge)			(23,691	)			(10,335	)			(26,671	)			3,375				(57,322	)
Loss on extinguishment of debt			(1,591	)			(2,603	)			2,378				—				(1,816	)
Equity in earnings of unconsolidated entities			—				6,949				—				—				6,949
Equity in earnings (loss), intercompany			60,688				57,197				95,778				(213,663	)			—
Total other income (expense)			35,423				51,358				72,184				(210,288	)			(51,323	)
Income (loss) from continuing operations			1,765				87,579				124,896				(213,663	)			577
Income from discontinued operations (includes ($3,027 amortization of loss and loss on termination of cash flow hedges)			—				143				1,045				—				1,188
Net income (loss)		$	1,765			$	87,722			$	125,941			$	(213,663	)		$	1,765

 

25

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Operations:

 

		For the Nine Months Ended September 30, 2013
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Revenues:
Rental income from operating leases		$	—			$	48,071			$	53,088			$	—			$	101,159
Property operating revenues			—				59,160				197,462				—				256,622
Interest income on mortgages and other notes receivable			—				3,351				9,814				(3,130	)			10,035
Total revenues			—				110,582				260,364				(3,130	)			367,816
Expenses:
Property operating expenses			—				44,200				144,979				—				189,179
Asset management fees to advisor			21,445				—				—				—				21,445
General and administrative			11,206				734				918				—				12,858
Ground lease and permit fees			—				5,616				3,986				—				9,602
Acquisition fees and costs			1,922				—				—				—				1,922
Other operating expenses			739				1,121				2,447				—				4,307
Bad debt expense			—				3,100				2,782				—				5,882
Impairment provision			—				45,191				—				—				45,191
Depreciation and amortization			—				29,181				59,406				—				88,587
Total expenses			35,312				129,143				214,518				—				378,973
Operating income (loss)			(35,312	)			(18,561	)			45,846				(3,130	)			(11,157	)
Other income (expense):
Interest and other income			174				372				(42	)			—				504
Bargain purchase gain			—				—				2,653				—				2,653
Interest expense and loan cost amortization			(23,811	)			(11,225	)			(16,607	)			3,130				(48,513	)
Gain from sale of unconsolidated entities			—				55,394				—				—				55,394
Equity in earnings of unconsolidated entities			—				9,183				—				—				9,183
Equity in earnings (loss), intercompany			58,738				114,883				95,606				(269,227	)			—
Total other income (expense)			35,101				168,607				81,610				(266,097	)			19,221
Income (loss) from continuing operations			(211	)			150,046				127,456				(269,227	)			8,064
Loss from discontinued operations
Interest expense and loan cost amortization (includes $1,241 amortization of loss on termination of cash flow hedges)			—				(5,409	)			(2,866	)			—				(8,275	)
Net income (loss)		$	(211	)		$	144,637			$	124,590			$	(269,227	)		$	(211	)

 

26

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Other Comprehensive Income (Loss):

 

		For the Quarter Ended September 30, 2014
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Net income (loss)		$	30,623			$	64,258			$	98,137			$	(162,395	)		$	30,623
Other comprehensive income (loss):
Foreign currency translation adjustments			(1,478	)			—				(1,478	)			1,478				(1,478	)
Changes in fair value of cash flow hedges:
Amortization of loss and loss on termination of cash flow hedges			56				—				56				(56	)			56
Unrealized gain (loss) arising during the period			204				—				204				(204	)			204
Total other comprehensive income (loss)			(1,218	)			—				(1,218	)			1,218				(1,218	)
Comprehensive income (loss)		$	29,405			$	64,258			$	96,919			$	(161,177	)		$	29,405

 

		For the Quarter Ended September 30, 2013
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Net income (loss)		$	78,293			$	174,404			$	152,872			$	(327,276	)		$	78,293
Other comprehensive income (loss):
Foreign currency translation adjustments			410				—				410				(410	)			410
Changes in fair value of cash flow hedges:
Amortization of loss on termination of cash flow hedges			414				—				414				(414	)			414
Unrealized gain (loss) arising during the period			60				—				60				(60	)			60
Total other comprehensive income (loss)			884				—				884				(884	)			884
Comprehensive income (loss)		$	79,177			$	174,404			$	153,756			$	(328,160	)		$	79,177

 

27

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Other Comprehensive Income (Loss):

 

		For the Nine Months Ended September 30, 2014
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Net income (loss)		$	1,765			$	87,722			$	125,941			$	(213,663	)		$	1,765
Other comprehensive income (loss):
Foreign currency translation adjustments			(1,383	)			—				(1,383	)			1,383				(1,383	)
Changes in fair value of cash flow hedges:
Amortization of loss and loss on termination of cash flow hedges			3,487				—				3,487				(3,487	)			3,487
Unrealized gain (loss) arising during the period			816				—				816				(816	)			816
Total other comprehensive income (loss)			2,920				—				2,920				(2,920	)			2,920
Comprehensive income (loss)		$	4,685			$	87,722			$	128,861			$	(216,583	)		$	4,685

 

		For the Nine Months Ended September 30, 2013
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Net income (loss)		$	(211	)		$	144,637			$	124,590			$	(269,227	)		$	(211	)
Other comprehensive income (loss):
Foreign currency translation adjustments			(804	)			—				(804	)			804				(804	)
Changes in fair value of cash flow hedges:
Amortization of loss on termination of cash flow hedges			1,241				—				1,241				(1,241	)			1,241
Unrealized gain arising during the period			1,459				—				1,459				(1,459	)			1,459
Total other comprehensive income			1,896				—				1,896				(1,896	)			1,896
Comprehensive income (loss)		$	1,685			$	144,637			$	126,486			$	(271,123	)		$	1,685

 

28

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Cash Flows:

 

		For the Nine Months Ended September 30, 2014
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Operating activities:
Net cash provided by (used in) operating activities		$	(51,615	)		$	76,708			$	107,725			$	—			$	132,818
Investing activities:
Acquistion of property			—				—				(128,390	)			—				(128,390	)
Capital expenditures			—				(24,306	)			(31,582	)			—				(55,888	)
Proceeds from sale of properties			—				291,620				79,154				—				370,774
Collection of mortgage loans receivable			—				—				83,459				—				83,459
Changes in restricted cash			21				(2,606	)			709				—				(1,876	)
Other			614				148				61				—				823
Intercompany investing			342,212				—				—				(342,212	)			—
Net cash provided by (used in) investing activities			342,847				264,856				3,411				(342,212	)			268,902
Financing activities:
Redemptions of common stock			(9,412	)			—				—				—				(9,412	)
Distributions to stockholders, net of reinvestments			(76,119	)			—				—				—				(76,119	)
Proceeds under line of credit			—				102,500				—				—				102,500
Proceeds from mortgage loans and other notes payable			—				—				57,790				—				57,790
Principal payments on line of credit			—				(30,000	)			—				—				(30,000	)
Principal payments on mortgage loans and senior notes			(24,500	)			(90,480	)			(116,866	)			—				(231,846	)
Principal payments on capital leases			—				(2,642	)			(1,903	)			—				(4,545	)
Payment of entrance fee refunds			—				—				(1,257	)			—				(1,257	)
Payment of loan costs			—				(544	)			(2,660	)			—				(3,204	)
Intercompany financing			—				(309,952	)			(32,260	)			342,212				—
Net cash provided by (used in) financing activities			(110,031	)			(331,118	)			(97,156	)			342,212				(196,093	)
Effect of exchange rate fluctuation on cash			—				—				(79	)			—				(79	)
Net increase in cash			181,201				10,446				13,901				—				205,548
Cash at beginning of period			37,668				15,671				18,235				—				71,574
Cash at end of period		$	218,869			$	26,117			$	32,136			$	—			$	277,122

 

29

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

15.	Supplemental Condensed Consolidating Financial Statements (Continued):

 

Condensed Consolidating Statement of Cash Flows:

 

		For the Nine Months Ended September 30, 2013
		Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Operating activities:
Net cash provided by (used in) operating activities		$	(55,324	)		$	95,174			$	93,185			$	—			$	133,035
Investing activities:
Acquistion and deposits on real estate investments			—				—				(83,451	)			—				(83,451	)
Capital expenditures			—				(21,715	)			(31,007	)			—				(52,722	)
Proceeds from sale of properties			—				11,000				—				—				11,000
Proceeds from sale of unconsolidated entities			—				195,446				—				—				195,446
Proceeds from release of collateral on loan payable			—				—				11,167				—				11,167
Collection of mortgage loans receivable			—				35				4,185				—				4,220
Changes in restricted cash			1				(5,765	)			(6,613	)			—				(12,377	)
Other			(250	)			57				(331	)			—				(524	)
Intercompany investing			164,660				—				—				(164,660	)			—
Net cash provided by (used in) investing activities			164,411				179,058				(106,050	)			(164,660	)			72,759
Financing activities:
Redemptions of common stock			(8,954	)			—				—				—				(8,954	)
Distributions to stockholders, net of reinvestments			(60,180	)			—				—				—				(60,180	)
Proceeds under line of credit			—				50,000				—				—				50,000
Proceeds from mortgage loans and other notes payable			—				—				30,000				—				30,000
Principal payments on line of credit			—				(145,000	)			—				—				(145,000	)
Principal payments on mortgage loans and senior notes			—				(7,431	)			(4,887	)			—				(12,318	)
Principal payments on capital leases			—				(2,007	)			(1,306	)			—				(3,313	)
Payment of loan costs			—				—				(751	)			—				(751	)
Intercompany financing			—				(163,873	)			(787	)			164,660				—
Net cash provided by (used in) financing activities			(69,134	)			(268,311	)			22,269				164,660				(150,516	)
Effect of exchange rate fluctuation on cash			—				—				(6	)			—				(6	)
Net increase in cash			39,953				5,921				9,398				—				55,272
Cash at beginning of period			39,219				14,125				19,880				—				73,224
Cash at end of period		$	79,172			$	20,046			$	29,278			$	—			$	128,496

 

30

---

Table of Contents

CNL LIFESTYLE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

 

16.	Commitments and Contingencies:

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

 

17.	Subsequent Events:

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

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

 

31

---

Table of Contents

Item 2.

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

INTRODUCTION

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

Cautionary Note Regarding Forward-Looking Statements

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

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

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

 

32

---

Table of Contents

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

GENERAL

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

Our principal business objectives include investing in and owning a diversified portfolio of real estate with a goal to preserve, protect and enhance the long-term value of those assets. We have built a portfolio of properties that we consider to be well-diversified by region, asset type and operator. In September 2014, we sold 46 of our 48 golf properties to a third-party buyer. As of November 7, 2014, we had 107 lifestyle properties of which 3 properties (2 consolidated properties and one unconsolidated property held through one joint venture) are classified as held for sale. When aggregated by initial purchase price, the portfolio is diversified as follows: approximately 30% in ski and mountain lifestyle, 25% in senior housing, 26% in attractions, 7% in marinas and 12% in additional lifestyle properties.

As a mature real estate investment trust (“REIT”), a significant focus is to actively manage our assets and reinvest in our existing properties in order to maximize growth in rental income and property operating income. We are evaluating each of our properties on a rigorous and ongoing basis and in an effort to optimize and enhance the value of our assets, and we have sold or may sell certain properties in preparation for an exit strategy on or before December 31, 2015. In March 2014, we engaged Jefferies LLC, a leading global investment banking and advisory firm, to assist management and our board of directors (“Board”) in actively evaluating various strategic opportunities including the sale of either us or our assets, potential merger opportunities, or the listing of our common stock. On September 30, 2014, we sold 46 of the 48 properties in our golf portfolio in connection with this analysis. To the extent we determine to sell additional assets or portfolios, we will evaluate them for impairment in accordance with our accounting policy. We anticipate that proceeds from any future sales will be used to retire indebtedness, invest in new assets or to enhance existing assets. We have and may continue to reposition certain assets by making strategic tenant or operator changes for properties that we believe will benefit from a new operator based on specific expertise or geographic concentrations that a particular operator possesses.

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

Portfolio Trends

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

The following table illustrates property level revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) reported to us by our tenants and managers for the asset types below and includes both our leased and managed properties, exclusive of the two golf properties classified as held for sale. We have only included property-level operating performance for consolidated properties in the table below. Property-level operating performance from our unconsolidated properties has been excluded because we

 

33

---

Table of Contents

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

 

		Number of Properties				Quarter Ended September 30,
						2014								2013								Increase/(Decrease)
						Revenue (1)				EBITDA (1)				Revenue (1)				EBITDA (1)				Revenue				EBITDA
Ski and mountain lifestyle			17			$	51,132			$	(6,560	)		$	48,132			$	(5,900	)			6.2	%			-11.2	%
Attractions			21				132,288				64,414				122,050				58,578				8.4	%			10.0	%
Senior housing			20				17,876				5,281				17,470				5,780				2.3	%			-8.6	%
Marinas			17				12,073				4,475				12,305				5,015				-1.9	%			-10.8	%
			75			$	213,369			$	67,610			$	199,957			$	63,473				6.7	%			6.5	%

 

		Number of Properties				Nine Months Ended September 30,
						2014								2013								Increase/(Decrease)
						Revenue (1)				EBITDA (1)				Revenue (1)				EBITDA (1)				Revenue				EBITDA
Ski and mountain lifestyle			17			$	331,994			$	90,088			$	339,291			$	96,581				-2.2	%			-6.7	%
Attractions			21				235,517				75,265				217,397				64,871				8.3	%			16.0	%
Senior housing			20				52,829				15,979				51,269				16,929				3.0	%			-5.6	%
Marinas			17				26,574				8,543				27,780				10,342				-4.3	%			-17.4	%
			75			$	646,914			$	189,875			$	635,737			$	188,723				1.8	%			0.6	%

 

FOOTNOTE:

 

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

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

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

 

34

---

Table of Contents

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

When evaluating our senior housing properties’ performance, management reviews operating statistics of the underlying properties, including RevPOU and occupancy levels. RevPOU, which is defined as total revenue divided by number of occupied units, is a widely used performance metric within the healthcare sector. This metric assists us to determine the ability of our operators to achieve market rental rates and to obtain revenues from providing healthcare related services. As of September 30, 2014, the managers for our 20 comparable properties reported to us an increase in occupancy of 0.2% as compared to the same period in 2013 and an increase in RevPOU of 3.6% and 2.9% for the quarter and nine months ended September 30, 2014, respectively, as compared to the same periods in 2013. The increase in occupancy and RevPOU were primarily attributable to strong unit demand and an increase in average rate paid by our residents.

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

 

		Number of Properties				Occupancy
						As of September 30,								Increase/ (Decrease)
						2014				2013
Senior housing			20				92.7	%			92.5	%			0.2	%

 

						RevPOU
		Number of Properties				Quarter Ended								Increase/ (Decrease)				Nine Months Ended								Increase/ (Decrease)
						September 30,												September 30,
						2014				2013								2014				2013
Senior housing			20			$	3,958			$	3,821				3.6	%		$	3,892			$	3,781				2.9	%

Seasonality

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

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

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

 

35

---

Table of Contents

during their peak operating months. As of November 7, 2014, we had a total of 55 wholly-owned managed properties consisting of one ski and mountain lifestyle property, one golf property, 20 senior housing properties, 16 attractions properties, and 17 marinas. Our consolidated operating results and cash flows during the first, second and fourth quarters will be lower than the third quarter primarily due to the non-peak operating months of our larger attractions properties.

Operator Transitions, Loan Foreclosure and Provisions

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

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

During the quarter and nine months ended September 30, 2014, we recorded a loan loss provision of approximately $0.8 million and $3.3 million, respectively, on one of our mortgage and other notes receivable as a result of uncertainty related to the collectability of the note receivable.

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

Exit Strategy Development

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

LIQUIDITY AND CAPITAL RESOURCES

General

Our principal demand for funds will be for operating expenses, debt service and cash distributions to stockholders. Generally, our cash needs will be covered by cash generated from our investments including rental income, property operating income from managed properties, interest collected on loans from our borrowers and distributions from our unconsolidated entities. To a lesser extent, through the second quarter of 2014, we also used proceeds from our dividend reinvestment plan (“DRP”) (which was suspended in September 2014) to fund a portion of our cash distributions to stockholders. To the extent we dispose of assets, we plan to use the net sales proceeds to retire indebtedness, invest into new assets or to enhance existing assets. To the extent we acquire additional assets, our primary source of funds will be from property dispositions and borrowings.

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

 

36

---

Table of Contents

Cash Flows. Our primary sources of cash include rental income from operating leases, property operating revenues, collection of principal and interest on loans we make, distributions from our unconsolidated entities, net proceeds from investment dispositions, borrowings under our revolving line of credit, and through the first half of 2014, from subscriptions received for common stock through our DRP (which was suspended in September 2014), offset by payments made for operating expenses, including property operating expenses, asset management fees to our Advisor, debt service payments (principal and interest), and real estate investments (including acquisitions and capital expenditures). The following is a summary of our cash flows (in thousands):

 

		Nine Months Ended September 30,
		2014				2013
Cash at beginning of period		$	71,574			$	73,224
Cash provided from (used in):
Operating activities			132,818				133,035
Investing activities			268,902				72,759
Financing activities			(196,093	)			(150,516	)
Effect of foreign currency translation on cash			(79	)			(6	)
Cash at the end of period		$	277,122			$	128,496

Sources of Liquidity and Capital Resources

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

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

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

Borrowings. In February 2014, we obtained a $40.0 million loan with an existing third-party lender. The loan bears interest at 30-day LIBOR plus 3.50% with a 1.50% LIBOR floor and matures in April 2017. This is a supplement to one of our existing loans which is collateralized by six ski and mountain lifestyle properties of which one of the properties is a VIE due to a potential future buy-out option. See Footnote 8. “Variable Interest and Unconsolidated Entities” above for additional information. The other terms of the existing loan remain the same.

 

37

---

Table of Contents

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

Distributions from Unconsolidated Entities. We are entitled to receive quarterly cash distributions from our unconsolidated entities to the extent there is cash available to distribute. As of September 30, 2014, we had investments in eight properties through two unconsolidated joint ventures, of which one property is classified as held for sale. For the nine months ended September 30, 2014, we received distributions of approximately $9.9 million as compared to approximately $28.6 million for the same period in 2013. The decrease was due to the sale of the 42 senior housing properties held through three unconsolidated senior housing joint ventures in July 2013.

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

Distribution Reinvestment Plan. On May 2, 2014, we filed a registration statement on Form S-3 with the SEC for the purpose of registering an additional 20 million shares of our common stock to be offered for sale pursuant to the DRP. For the nine months ended September 30, 2014 and 2013, we received aggregate proceeds of approximately $27.2 million (representing 4.0 million shares) and $41.2 million (representing 5.9 million shares), respectively, through our DRP. The decrease in proceeds received was due to the fact that in September 2014, our Board approved the suspension of our DRP, effective as of September 26, 2014. As a result of the suspension of the DRP, beginning with the September 2014 quarterly distributions, stockholders who were participants in the DRP received cash distributions instead of additional shares of our common stock.

Uses of Liquidity and Capital Resources

Indebtedness. We have borrowed and may continue to borrow money to acquire properties, fund ongoing enhancements to our portfolio, and pay certain related fees and to cover periodic shortfalls between distributions paid and cash flows from operating activities. See “Distributions” below for additional information. In many cases, we have pledged our assets in connection with such borrowings. The aggregate amount of long-term financing is not expected to exceed 50% of our total assets. As of September 30, 2014, our leverage ratio, calculated as total indebtedness over total assets, was 44.5% (47.8% including our share of unconsolidated assets and debts).

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

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

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

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

 

38

---

Table of Contents

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

During the nine months ended September 30, 2014 and 2013, we funded approximately $55.9 million and $52.7 million, respectively, in capital improvements at our properties.

Related Party Arrangements. Certain affiliates are entitled to receive fees and compensation in connection with the issuance of shares through our DRP, acquisition and operating activities. Amounts incurred relating to these transactions were approximately $25.4 million and $27.9 million for the nine months ended September 30, 2014 and 2013, respectively. Of these amounts, approximately $0.6 million and $1.0 million are included in due to affiliates in the unaudited condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013, respectively. In addition, these affiliates are entitled to reimbursement of certain expenses and amounts incurred on our behalf in connection with our acquisitions and operating activities. Reimbursable expenses for the nine months ended September 30, 2014 and 2013 were approximately $5.4 million and $5.5 million, respectively.

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

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

Common Stock Redemptions. Our redemption plan was designed to provide eligible stockholders with limited interim liquidity by enabling them to sell shares back to us prior to any listing of our shares. The aggregate amount of funds under the redemption plan was determined on a quarterly basis in the sole discretion of the Board, and was less than and did not exceed the aggregate proceeds from our DRP subject to limitations established by our Board from time to time.

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

On September 4, 2014, the Board approved the suspension of redemption plan effective as of September 26, 2014. Pursuant to the redemption plan, all redemption requests received in good order by September 26, 2014, were processed and those deemed priority requests and all approved qualified hardship requests were redeemed as of September 30, 2014, subject to the limitations of the redemption plan. Redeemed shares were considered retired and will not be reissued. All other redemption requests received by September 26, 2014, will be placed in the redemption queue. However, we will not accept or otherwise process any additional redemption requests after September 26, 2014 unless the redemption plan is reinstated by the Board, which is not expected at this time. There is no guarantee that the redemption plan will be reinstated by the Board.

During the nine months ended September 30, 2014, we redeemed approximately $9.4 million (1.4 million shares). The following table presents information about our redemptions by quarter through the nine months ended September 30, 2014 (in thousands, except per share data):

 

2014 Quarters		First				Second				Third				Year-To-Date
Requests in queue			10,547				10,798				10,809				10,547
Redemptions requested			778				864				1,355				2,997
Shares redeemed:
Prior period requests			(135	)			(80	)			(60	)			(275	)
Current period requests			(300	)			(369	)			(439	)			(1,108	)
Adjustments (1)			(92	)			(404	)			(94	)			(590	)
Pending redemption requests (2)			10,798				10,809				11,571				11,571
Average price paid per share		$	6.85			$	6.85			$	6.81	(3)		$	6.84

 

39

---

Table of Contents

 

FOOTNOTES:

 

(1)	This amount represents redemption request cancellations and other adjustments.

(2)

Requests that were not fulfilled in whole during a particular quarter were redeemed on a pro rata basis to the extent funds were made available pursuant to the redemption plan. Pending requests as of September 30, 2014 will remain in queue but will not be redeemed because the redemption plan has been suspended as described above.

(3)	Redeemed certain shares for less than the estimated NAV of $6.85 per share because they were purchased on a secondary market at a price less than the estimated NAV.

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

 

•

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

 

•

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

 

•

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

During the nine months ended September 30, 2014 and 2013, we paid $76.1 million and $60.2 million in distributions, net of proceeds received under our DRP. Even though the distribution per share did not change, we used more cash during 2014 to pay our distributions because we received less proceeds from our DRP as a result of suspending the DRP plan effective with the September 2014 distribution, as described above.

The following table presents total distributions declared including cash distributions, distributions reinvested through the first half of 2014 and distributions per share for the nine months ended September 30, 2014 and 2013 (in thousands, except per share data):

 

																		Sources of Distributions Paid in Cash
2014 Quarter		Distributions per share				Total Distributions Declared				Distributions Reinvested (2)				Net Cash Distributions				Cash flows from Operating Activities (1)
First		$	0.1063			$	34,278			$	13,627			$	20,651			$	37,560
Second			0.1063				34,442				13,582				20,860				39,197
Third			0.1063				34,608				—				34,608				56,061
		$	0.3189			$	103,328			$	27,209			$	76,119			$	132,818

 

																		Sources of Distributions Paid in Cash
2013 Quarter		Distributions per share				Total Distributions Declared				Distributions Reinvested				Net Cash Distributions				Cash flows from Operating Activities (1)(3)
First		$	0.1063			$	33,611			$	13,714			$	19,897			$	48,644
Second			0.1063				33,782				13,697				20,085				33,521
Third			0.1063				33,946				13,748				20,198				50,870
		$	0.3189			$	101,339			$	41,159			$	60,180			$	133,035

 

FOOTNOTES:

 

(1)

Cash flows from operating activities calculated in accordance with GAAP are not necessarily indicative of the amount of cash available to pay distributions. For example, GAAP requires that the payment of acquisition fees and costs be classified as a use of cash in operating activities in the statement of cash flows, which directly reduces the measure of cash flows from operations. However, acquisition fees and costs are paid for with debt financings as opposed to operating cash flows. The Board also uses other measures such as FFO and MFFO in order to evaluate the level of distributions.

 

40

---

Table of Contents

(2)	In September 2014, our Board suspended the DRP and beginning with the September 2014 quarterly distributions, stockholders who were participants in the DRP received cash distributions instead of additional shares of our common stock.

(3)	The shortfall in cash flows from operating activities versus distributions paid for the second quarter of 2013 was less than 1% and was funded with borrowings. Distributions for other above quarters were funded with cash flows from operating activities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

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

RESULTS OF OPERATIONS

As of September 30, 2014 and 2013, we had invested in 107 and 138 properties, respectively, through the following investment structures:

 

		September 30,
		2014				2013
Wholly-owned:
Leased properties (3) (4)			43				75
Managed properties (1) (2) (4)			55				54
Unimproved land			1				1
Unconsolidated joint ventures:
Leased properties (4)			8				8
			107				138

 

FOOTNOTES:

 

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

 

		September 30,
		2014				2013
Ski & Mountain lifestyle			1				1
Golf (3)			1				13
Attractions			16				17
Senior housing			20				20
Marinas			17				2
Additional lifestyle			—				1
			55				54

 

(2)

Under applicable tax regulations, certain properties are permitted to be temporarily managed and certain properties are permitted to be indefinitely managed. As of September 30, 2014 and 2013, 31 and 29 properties, respectively, were temporarily managed and 24 and 25 properties were indefinitely managed under management agreements, respectively.

(3)	In September 2014, we completed the sale of 46 out of 48 golf properties.

(4)	As of September 30, 2014, two consolidated properties ( one leased and one managed) and one unconsolidated ski and mountain lifestyle property held through one unconsolidated joint venture are classified as held for sale and all are expected to by the end of 2015.

Rental income from operating leases. Rental income for the quarter and nine months ended September 30, 2014 increased by approximately $6.2 million and $13.9 million, respectively as compared to the same periods in 2013 primarily attributable to (i) properties acquired after the third quarter of 2013 which consisted of one attractions and 15 senior housing properties, (ii) capital improvements made at our ski and mountain lifestyle properties that resulted in higher leased basis and (iii) the conversion of one attractions property from managed to leased structure during the first quarter of 2014. The increase was partially offset by the transition of 15 marinas properties from leased to managed structures which were completed during the fourth quarter of 2013 and the

 

41

---

Table of Contents

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

 

		Quarter Ended September 30,
Properties Subject to Operating Leases		2014				2013				$ Change				% Change
Ski and mountain lifestyle		$	22,876			$	20,123			$	2,753				13.7	%
Attractions			8,830				5,380				3,450				64.1	%
Senior housing			5,925				1,263				4,662				369.1	%
Marinas			—				4,700				(4,700	)			n/a
Total		$	37,631			$	31,466			$	6,165				19.6	%

 

		Nine Months Ended September 30,
Properties Subject to Operating Leases		2014				2013				$ Change				% Change
Ski and mountain lifestyle		$	75,114			$	72,063			$	3,051				4.2	%
Attractions			22,505				14,135				8,370				59.2	%
Senior housing			15,584				1,283				14,301				1114.7	%
Marinas			1,806				13,678				(11,872	)			-86.8	%
Total		$	115,009			$	101,159			$	13,850				13.7	%

As of September 30, 2014 and 2013, the weighted-average lease rate for our portfolio of wholly-owned leased properties was 9.7% and 9.8%, respectively. The decrease in the lease rate is due to the transition of our marinas properties from leased to managed structures which were completed during the fourth quarter of 2013 and the second quarter of 2014. These rates are based on annualized straight-line base rent due under our leases and the weighted-average contractual lease basis of our real estate investment properties subject to operating leases. The weighted-average lease rate of our portfolio may fluctuate based on our asset mix, timing of property acquisitions, lease terminations and reductions in rent granted to tenants.

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

 

		Quarter Ended September 30,
Properties Managed Under Third-Party Managers		2014				2013				$ Change				% Change
Ski and mountain lifestyle		$	15,495			$	14,310			$	1,185				8.3	%
Attractions			95,371				94,700				671				0.7	%
Senior housing			17,940				17,474				466				2.7	%
Marinas			11,877				223				11,654				5226.0	%
Total		$	140,683			$	126,707			$	13,976				11.0	%

 

		Nine Months Ended September 30,
Properties Managed Under Third-Party Managers		2014				2013				$ Change				% Change
Ski and mountain lifestyle		$	41,449			$	39,144			$	2,305				5.9	%
Attractions			164,458				165,768				(1,310	)			-0.8	%
Senior housing			52,901				51,280				1,621				3.2	%
Marinas			24,256				430				23,826				5540.9	%
Total		$	283,064			$	256,622			$	26,442				10.3	%

As of September 30, 2014 and 2013, we had a total of 54 and 51 managed properties (excluding properties that we classified as assets held for sale), respectively, of which certain properties are operated seasonally due to geographic location, climate and weather patterns. The increase in property operating revenues is primarily attributable to the transition of 15 marina properties from leased to managed structures which was completed during the fourth quarter of 2013 and the second quarter of 2014. Additionally, our managed attractions properties experienced a 8.4% increase in revenues for the quarter ended September 30, 2014 due to higher visitations, season pass sales and in-park spending which was offset by one attraction that transitioned back to lease at the beginning of 2014, and our Mount Washington Resort which experienced favorable weather conditions for summer operations which includes mountain biking and aerial adventures, as well as strong group and conference business as described above.

 

42

---

Table of Contents

Interest income on mortgages and other notes receivable. For the quarter and nine months ended September 30, 2014, we earned interest income of approximately $2.0 million and $8.0 million as compared to $3.3 million and $10.0 million, respectively, for the same periods in 2013. The decrease is primarily attributable to (i) the repayment of two of our loans that were maturing in September 2014, (ii) the restructure of one of our other notes reducing the interest rate which was effective as of September 1, 2013 and (iii) the foreclosure of an attractions property that served as collateral on one of our mortgage notes receivable in April 2014. See “Operator Transitions, Loan Foreclosure and Provisions” above for additional information.

Property operating expenses. Property operating expenses from managed properties increased primarily due to the transition of 15 marina properties from leased to managed structures during the fourth quarter of 2013 and the second quarter of 2014 and increases at our managed attractions properties, offset by reduction from one attraction property that converted back to a lease at the beginning of 2014. The increase was also due to higher resident care costs, repair and maintenance expenses and other operating expenses. The following information summarizes the expenses of our properties that are operated by third-party managers (in thousands):

 

		Quarter Ended September 30,
Properties Managed Under Third-Party Managers		2014				2013				$ Change				% Change
Ski and mountain lifestyle		$	11,565			$	11,238			$	327				2.9	%
Attractions			50,893				49,681				1,212				2.4	%
Senior housing			12,525				11,635				890				7.6	%
Marinas			6,743				719				6,024				837.8	%
Total		$	81,726			$	73,273			$	8,453				11.5	%

 

		Nine Months Ended September 30,
Properties Managed Under Third-Party Managers		2014				2013				$ Change				% Change
Ski and mountain lifestyle		$	34,477			$	33,446			$	1,031				3.1	%
Attractions			119,133				120,492				(1,359	)			-1.1	%
Senior housing			36,951				34,228				2,723				8.0	%
Marinas			14,694				1,013				13,681				1350.5	%
Total		$	205,255			$	189,179			$	16,076				8.5	%

Asset management fees to advisor. Monthly asset management fees equal to 0.08334% prior to April 1, 2014 and 0.075% effective April 1, 2014 of invested assets are paid to the Advisor for the management of our real estate assets, loans and other permitted investments. For the quarter and nine months ended September 30, 2014, asset management fees to our Advisor were approximately $6.0 million and $19.0 million, respectively, as compared to approximately $6.5 million and $21.4 million for the quarter and nine months ended September 30, 2013, respectively, net of amounts related to our golf properties which were included as part of income (loss) from discontinued operations. The decrease in such fees is primarily attributable to the reduction in asset fee rates described above and the sale of our interests in 42 senior housing properties held through three unconsolidated senior housing joint ventures in July 2013.

General and administrative. General and administrative expenses totaled approximately $4.3 million and $13.5 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $3.9 million and $12.9 million for the quarter and nine months ended September 30, 2013, respectively.

Ground leases and permit fees. Ground lease payments and land permit fees are generally based on a percentage of gross revenue of the underlying property over certain thresholds. For properties that are subject to leasing arrangements, ground leases and permit fees are paid by the tenants in accordance with the terms of our leases with those tenants and we record the corresponding equivalent revenues in rental income from operating leases. For the quarter and nine months ended September 30, 2014, ground lease and land permit fees were approximately $2.8 million and $9.7 million, respectively, as compared to approximately $3.1 million and $9.6 million for the quarter and nine months ended September 30, 2013, respectively.

Acquisition fees and costs. Acquisition fees were paid to our Advisor for services in connection with the selection, purchase, development or construction of real property through March 31, 2014, were generally 3% of proceeds received through our DRP. Acquisition costs are third-party due diligence fees and transaction costs incurred in connection with the acquiring properties which are deemed as business combinations under applicable GAAP. Acquisition fees and costs totaled approximately $0.5 million and $2.5 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $1.0 million and $1.9 million for the quarter and nine months ended September 30, 2013, respectively. The decrease for the quarter ended September 30,

 

43

---

Table of Contents

2014 as compared to the same period in 2013 is primarily attributable to the elimination of acquisition fees effective April 2014, offset partially by an increase in costs from the acquisition of five senior housing properties. The increase for the nine months ended September 30, 2014 as compared to the same period in 2013 is primarily attributable to an increase in costs in connection with the acquisition of nine senior housing properties as compared to three senior housing properties and one attractions property during the same period in 2013 offset by the elimination of acquisition fees as mentioned above.

Other operating expenses. Other operating expenses were approximately $2.2 million and $4.0 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $2.3 million and $4.3 million for the quarter and nine months ended September 30, 2013, respectively.

Bad debt expense. Bad debt expense totaled approximately $0.1 million and $1.1 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $1.8 million and $5.9 million for the quarter and nine months ended September 30, 2013, respectively. During the quarter and nine months ended September 30, 2013, we established reserves of uncollectible past due rents on our 15 marinas properties that were transitioning from leased to managed structures which was completed in the fourth quarter of 2013 and the second quarter of 2014. During the quarter and nine months ended September 30, 2014, we did not establish reserves of uncollectible past due rents relating to properties being transitioned from leased to managed structures.

Recovery on lease terminations. Recovery on lease terminations was approximately $0.7 million for the nine months ended September 30, 2014 in connection with the transition of certain marinas properties where there was a change in an estimate. See “Operator Transition, Loan Foreclosure and Provisions” above for additional information. There was no recovery on lease terminations during the same period in 2013.

Loan loss provision. Loan loss provision was approximately $0.8 million and $3.3 million for the quarter and nine months ended September 30, 2014 as a result of uncertainty in the collectability of one of our notes receivable. See “Operator Transition, Loan Foreclosure and Provisions” above for additional information. There was no loan loss provision for the same periods in 2013.

Impairment provision. Impairment provision was approximately $2.7 million and $45.2 million for the quarter and nine months ended September 30, 2013, respectively. During the quarter and nine months ended September 30, 2013, we recorded an impairment provision on an attractions property and unimproved land because the carrying values were unrecoverable based on comparable land sale transactions and negotiations with a potential third-party buyer. No impairments were deemed necessary on our investment properties, which were not classified as held for sale, for the quarter and nine months ended September 30, 2014.

Depreciation and amortization. Depreciation and amortization expenses were approximately $33.6 million and $96.7 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $30.7 million and $88.6 million for the quarter and nine months ended September 30, 2013, respectively. The increase is primarily due to new properties acquired subsequent to September 30, 2013.

Interest and other income (expense). Interest and other income was approximately $0.8 million and $0.9 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately ($13) thousand and $0.5 million for the quarter and nine months ended September 30, 2013, respectively. The increase is primarily attributable to an adjustment of the estimated fair value of yield guarantee payments expected to be received by us. An agreement was executed upon acquisition of these properties in 2012, requiring the seller to provide us with a guaranteed annual return (“Yield Guarantee”) for two years which expired in 2014. During the quarter and nine months ended September 30, 2014, we recorded approximately $0.7 million because the net operating income of those properties was lower than the guaranteed return.

Bargain purchase gain. Bargain purchase gain was approximately $2.7 million for the quarter and nine months ended September 30, 2013. This gain relates to an attractions property acquired in 2013 where the fair value of the net assets acquired exceeded the consideration transferred. The excess resulted from the fact that the seller did not widely market the property for sale and was motivated to sell because the property was deemed an outlier from the other investments owned by the seller. There were no bargain purchase gain for the quarter and nine months ended September 30, 2014.

Interest expense and loan cost amortization. Interest expense and loan cost amortization was approximately $18.6 million and $57.3 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $15.9 million and $48.5 million for the quarter and nine months ended September 30, 2013, respectively. The increase is primarily attributable to additional borrowings made subsequent to September 30, 2013.

Loss on extinguishment of debt. Loss on extinguishment of debt was approximately $1.6 million and $1.8 million for the quarter and nine months ended September 30, 2014, respectively, attributable to an early repayment on two of our loans and repurchasing at a premium, the face value of $24.5 million of our senior notes. See “Liquidity and Capital Resources – Indebtedness” above for additional information.

 

44

---

Table of Contents

Gain from sale of unconsolidated entities. Gain from sale of unconsolidated entities was approximately $55.4 million for the quarter and nine months ended September 30, 2013. This gain related to the sale of our interests in the 42 senior housing properties held through the CNLSun I, CNLSun II and CNLSun III Ventures in July 2013. See “Distributions from Unconsolidated Entities” above for additional information. There was no sale of unconsolidated entities during the quarter and nine months ended September 30, 2014.

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

 

		Quarter Ended September 30,
		2014				2013				$ Change				% Change
DMC Partnership		$	2,797			$	2,751			$	46				1.7	%
Intrawest Venture			379				1,396				(1,017	)			-72.9	%
Total		$	3,176			$	4,147			$	(971	)			-23.4	%

 

		Nine Months Ended September 30,
		2014				2013				$ Change				% Change
DMC Partnership		$	8,206			$	8,160			$	46				0.6	%
Intrawest Venture			(1,257	)			4,158				(5,415	)			-130.2	%
CNLSun I Venture			—				(1,804	)			1,804				-100.0	%
CNLSun II Venture			—				(509	)			509				-100.0	%
CNLSun III Venture			—				(822	)			822				-100.0	%
Total		$	6,949			$	9,183			$	(2,234	)			-24.3	%

Equity in earnings of unconsolidated entities decreased by approximately $1.0 million and $2.2 million for the quarter and nine months ended September 30, 2014 as compared to the same periods in 2013. The change was primarily due to the depreciation and amortization catch up in connection with the reclassification of the six Intrawest village retail properties from assets held for sale to held and used. See Note 8. Variable Interest and Unconsolidated Entities” for additional information. Also, in July 2013, we completed the sale of our interest in 42 senior housing properties held through the CNLSun I, CNLSun II and CNLSun III Ventures, as such, there was no equity in earnings (loss) allocated to us from the aforementioned ventures.

Discontinued operations. Income (loss) from discontinued operations was approximately ($1.4) million and $1.2 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately ($4.0) million and ($8.3) million for the quarter and nine months ended September 30, 2013, respectively. The results of operations of real estate properties that are classified as held for sale, along with properties sold during the period, are reflected in discontinued operations for all periods presented. The reduction in loss was primarily attributable to a lower depreciable basis as a result of an impairment provision recorded in December 2013, which reduced the depreciation and amortization expense on the golf portfolio and because in March 2014, we ceased the depreciation and amortization as a result of the properties being classified as held for sale. The increase is also attributable to a net gain on the sale of 46 golf properties and one multi-family residential property. The increases were partially offset by (i) the recording of the ineffective portion of the change in fair value resulting from the termination of cash flow hedge, (ii) impairment provision recorded in March 2014 relating to one golf property due to an updated estimate of fair value derived from the most recent estimate of net sales proceeds and (iii) a net loss on extinguishment of debt related to early repayment of loans that were collateralized by properties sold. There were no impairments or early repayment of loans during the quarter and nine months ended September 30, 2013. See Note 5. “Assets held for Sale, net and Discontinued Operations” for additional information.

Other

Funds from Operations and Modified Funds From Operations

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

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

 

45

---

Table of Contents

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

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

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

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

 

46

---

Table of Contents

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

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

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

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

 

47

---

Table of Contents

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

 

		Quarter Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Net income (loss)		$	30,623			$	78,293			$	1,765			$	(211	)
Adjustments:
Depreciation and amortization:
Continuing operations			33,622				30,731				96,691				88,588
Discontinued operations			—				7,618				4,891				22,577
Impairment of real estate assets:
Continuing operations			—				2,740				—				45,191
Discontinued operations			—				—				4,464				—
Gain on sale of unconsolidated entities:			—								—
Continuing operations			—				(55,394	)			—				(55,394	)
Gain on sale of real estate investment:
Discontinued operations			(3,953	)			(2	)			(3,883	)			(2,085	)
Net effect of FFO adjustment from unconsolidated entities: (1)
Continuing operations			3,819				1,484				12,208				11,820
Total funds from operations			64,111				65,470				116,136				110,486
Acquisition fees and expenses: (2)
Continuing operations			509				1,009				2,513				1,922
Straight-line adjustments for leases and notes receivable: (3)
Continuing operations			4,617				(1,633	)			(1,547	)			(2,675	)
Discontinued operations			—				(291	)			—				(827	)
Loss from extinguishment of debt: (4)
Continuing operations			1,682				—				2,282				—
Discontinued operations			8,293				—				8,028				—
Contingent purchase price consideration adjustment (6)
Continuing operations			(665	)			—				(665	)			—
Amortization of above/below market intangible assets and liabilities
Continuing operations			89				(1	)			113				(3	)
Discontinued operations			—				350				359				1,033
Loan loss provision: (5)
Continuing operations			750				—				3,270				—
Accretion of discounts/amortization of premiums:
Continuing operations			44				3				50				9
MFFO adjustments from unconsolidated entities: (1)
Straight-line adjustments for leases and notes receivable: (3)
Continuing operations			113				(29	)			175				(175	)
Amortization of above/below market intangible assets and liabilities:
Continuing operations			(41	)			47				(116	)			39
Modified funds from operations		$	79,502			$	64,925			$	130,598			$	109,809
Weighted average number of shares of common stock			325,707				319,507				324,194				317,960
outstanding (basic and diluted)
FFO per share (basic and diluted)		$	0.20			$	0.20			$	0.36			$	0.35
MFFO per share (basic and diluted)		$	0.24			$	0.20			$	0.40			$	0.35

 

FOOTNOTES:

 

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

 

48

---

Table of Contents

(2)

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

(3)

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

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

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

(6)

Management believes that the elimination of the contingent purchase price consideration adjustment, which represents the Yield Guarantee as mentioned above, included in interest and other income (expense) for GAAP purposes is appropriate because the adjustment is a non-recurring, non-cash adjustment that is not reflective of our ongoing operating performance and aligns results with management’s analysis of operating performance.

Total FFO and FFO per share was approximately $64.1 million and $116.1 million or $0.20 and $0.36 for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $65.5 million and $110.5 million or $0.20 and $0.35 for the same periods in 2013. The decrease in FFO for the quarter ended September 30, 2014 is primarily attributable to (i) a net loss on extinguishment of debt as a result of prepayment on certain of our loans (ii) a reduction in bargain purchase gain in connection with an acquisition of an attractions property in August 2013, (iii) a decrease in interest income from mortgages and other notes receivable due to the foreclosure and/or restructure on two of our notes and (iv) an increase in interest expense and loan cost amortization. The decreases were partially offset by (i) an increase in rental income from leased properties acquired after the third quarter of 2013, (ii) an increase in “same-store” net operating income from managed properties, (iii) a decrease in asset management fees due to the sale of our interest in 42 senior housing properties held in three unconsolidated joint ventures in July 2013 and the reduction in fees effective April 1, 2014 as well as reduction in bad debt expense. The increase in FFO and FFO per share for the nine months ended September 30, 2014 is primarily attributable to an increase in rental income from leased properties acquired after the third quarter of 2013 and same-store net operating income from managed properties and a reduction in asset management fee and bad debt expense as mentioned above. The increases were partially offset by a net loss in extinguishment of debt as a result of prepayment on loans, a reduction in bargain purchase gain and interest income from mortgages and other notes receivable and an increase in interest expense and loan cost amortization.

Total MFFO and MFFO per share was approximately $79.5 million and $130.6 million or $0.24 and $0.40 for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $64.9 million and $109.8 million or $0.20 and $0.35 for the same periods in 2013. The increase in MFFO and MFFO per share is primarily attributable to an increase in rental payments from leased properties (rental revenue excluding straight-line adjustments for GAAP) acquired after the third quarter of 2013 as well as in “same-store” net operating income from managed properties. In addition, the increase was also attributable to a reduction in asset management fees and bad debt expense. The increases were partially offset by an increase in interest expense and loan cost amortization and a decrease in interest income from mortgages and other notes receivable due to the repayment of two notes and the foreclosure and/or restructure on two other notes. See “Operator Transitions, Loan Foreclosure and Provision” above for additional information.

Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss), less discontinued operations and other income, plus (i) interest expense, net, and loan cost amortization and (ii) depreciation and amortization, as further adjusted for the impact of equity in earnings (loss) of our unconsolidated entities, straight-line adjustments for leased properties and mortgages and other notes receivables, cash distributions from our unconsolidated entities and certain other non-

 

49

---

Table of Contents

recurring items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

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

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) (in thousands):

 

		Quarter Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Net income (loss)		$	30,623			$	78,293			$	1,765			$	(211	)
(Income) loss from discontinued operations			1,380				4,036				(1,188	)			8,275
Interest and other (income) expense			(775	)			13				(866	)			(504	)
Bargain purchase gain on acquisition of real estate (4)			—				(2,653	)			—				(2,653	)
Interest expense and loan cost amortization			18,556				15,852				57,322				48,513
Equity in earnings of unconsolidated entities (1)			(3,176	)			(4,147	)			(6,949	)			(9,183	)
Gain on sale of unconsolidated entities (3)			—				(55,394	)			—				(55,394	)
Depreciation and amortization			33,622				30,731				96,691				88,587
Impairment provision			—				2,740				—				45,191
Loss from extinguishment of debt			1,620				—				1,816				—
Loan loss provision			750				—				3,270				—
Recovery on lease terminations			—				—				(741	)			—
Straight-line adjustments for leases and notes receivables (2)			4,617				(1,924	)			(1,547	)			(3,502	)
Cash distributions from unconsolidated entities (1)			3,321				3,177				9,896				23,290
Adjusted EBITDA		$	90,538			$	70,724			$	159,469			$	142,409

 

50

---

Table of Contents

 

FOOTNOTES:

 

(1)

Investments in our unconsolidated joint ventures are accounted for under the HLBV method of accounting. Under this method, we recognize income or loss based on the change in liquidating proceeds we would receive from a hypothetical liquidation of our investments based on depreciated book value. We adjust EBITDA for equity in earnings (loss) of our unconsolidated entities because we believe this is not reflective of the joint ventures’ operating performance or cash flows available for distributions to us. We believe cash distributions from our unconsolidated entities, exclusive of any financing transactions, are reflective of their operating performance and its impact to us and have been added back to adjusted EBITDA above. For the quarter and nine months ended September 30, 2013, cash distributions from unconsolidated entities excludes approximately $5.3 million in return of capital.

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

(3)	In July 2013, we completed the sale of our interests in 42 senior housing properties held through three unconsolidated joint ventures. See “Distributions from Unconsolidated Entities” above for additional information.

(4)	In connection with an acquisition of an attraction property, we recorded a bargain purchase gain as a result of the fair value of the net assets acquired exceeding the consideration transferred as discussed above.

Adjusted EBITDA was approximately $90.5 million and $159.5 million for the quarter and nine months ended September 30, 2014, respectively, as compared to approximately $70.7 million and $142.4 million for the same periods in 2013. The increase was primarily attributable to (i) an increase in rental payments from leased properties (rental revenue excluding straight-line adjustments for GAAP) acquired after the third quarter of 2013 as well as in “same-store” net operating income from managed properties and a reduction in asset management fees and bad debt expense. The increases were partially offset by a decrease in cash distributions from our unconsolidated entities as a result of the sale of our interest in 42 senior housing properties as mentioned above and a decrease in interest income from mortgages and other notes receivable due to the repayment of two loans and the foreclosure and/or restructure on two other notes. See “Operator Transitions, Loan Foreclosure and Provision” above for additional information.

Off-Balance Sheet and Other Arrangements

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

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

Commitments, Contingencies and Contractual Obligations

The following tables present our contractual obligations and contingent commitments and the related payments due by period as of September 30, 2014:

Contractual Obligations

 

		Payments Due by Period (in thousands)
		Less than 1												More than
		year				Years 1-3 (4)				Years 3-5				5 years				Total
Mortgages and other notes payable (principal and interest) (1)		$	184,012			$	310,534			$	203,948			$	5,882			$	704,376
Senior notes (principal and interest)			26,974				53,947				413,634				—				494,555
Line of credit (principal and interest) (1)			124,536				—				—				—				124,536
Obligations under capital leases			2,348				1,795				132				—				4,275
Obligations under operating leases (2)			12,187				24,375				24,375				172,439				233,376
Total		$	350,057			$	390,651			$	642,089			$	178,321			$	1,561,118

 

FOOTNOTES:

 

(1)	This line item includes all third-party and seller financing obtained in connection with the acquisition of properties. Future interest payments on our variable rate debt and line of credit were estimated based on a 30-day LIBOR forward rate curve.

(2)

This line item represents obligations under ground leases, concession holds and land permits of which the majority are paid by our third-party tenants on our behalf. Ground lease payments, concession holds and land permit fees are generally based on a percentage of gross revenue of the related property exceeding a certain threshold. The future obligations have been estimated based on current revenue levels projected over the term of the leases or permits.

 

51

---

Table of Contents

Contingent Commitments

 

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

 

FOOTNOTE:

 

(1)

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

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Our fixed-rate mortgage and other notes receivable totaled $20.6 million and $118.0 million at September 30, 2014 and December 31, 2013, respectively. The estimated fair value of the mortgage notes receivable was approximately $19.9 million and $112.2 million, respectively, and is subject to market risk to the extent that the stated interest rates vary from current market rates for borrowings under similar terms.

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

 

		2014				2015				2016				2017				2018				Thereafter				Total				Fair Value
Fixed-rate debt		$	39,445			$	14,637			$	80,378			$	91,079			$	140,332			$	420,282			$	786,153			$	793,991
Variable-rate debt (2)			105,839				160,876				30,168				37,030				437				6,799				341,149				342,661	(1)
		$	145,284			$	175,513			$	110,546			$	128,109			$	140,769			$	427,081			$	1,127,302			$	1,136,652
		2014				2015				2016				2017				2018				Thereafter				Total
Weighted average fixed interest rate of maturities			8.69	%			5.76	%			6.22	%			6.03	%			5.23	%			6.85	%			6.49%
Average interest rate on variable debt(3)			LIBOR + 3.27	%			LIBOR+ 3.77	%			LIBOR + 4.48	%			LIBOR + 5.23	%			LIBOR + 3.48	%			LIBOR + 3.25	%

 

FOOTNOTES:

 

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

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

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

 

52

---

Table of Contents

Management estimates that a hypothetical one-percentage point increase in LIBOR would have resulted in additional interest costs of approximately $2.1 million for the nine months ended September 30, 2014. This sensitivity analysis contains certain simplifying assumptions, and although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and our actual results will likely vary.

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

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

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls over Financial Reporting

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

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings – None

 

Item 1A.

Risk Factors

Our long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions could be lower than if we did not enter into long-term leases.

We typically enter into long-term leases with tenants of certain of our properties. Our long-term leases would likely provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels less than then-current market rental rates even after contractual rent increases. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Redemption of Shares and Issuer Purchases of Equity Securities

In September 2014, the Board approved the suspension of our redemption plan effective as of September 26, 2014. Pursuant to the redemption plan, all redemption requests received in good order by September 26, 2014, were processed and those deemed priority requests and all approved qualified hardship requests were redeemed as of September 30, 2014, subject to the limitations of the redemption plan. All other redemption requests received by September 26, 2014, will be placed in the redemption queue, however, we will not accept or otherwise process any additional redemption requests after September 26, 2014 unless the redemption plan is reinstated by the Board which is not expected at this time.

During the nine months ended September 30, 2014, approximately 0.3 million shares relating to prior period requests were redeemed and 1.1 million shares relating to current period requests were redeemed on a pro rata basis, for an average price per share of $6.84. During the quarter ended September 30, 2014, certain shares were redeemed for less than the estimated NAV of $6.85 per share because they were purchased on a secondary market at a price less than $6.85 per share.

 

53

---

Table of Contents

The following are shares redeemed during the quarter ended September 30, 2014 (in thousands except per share data):

 

Period		Total Number of Shares Purchased				Average Price Paid Per Share				Total Number of Shares Purchased in Part of Publically Announced Plan				Maximum Number of Shares That May Yet be Purchased Under the Plan
July 1, 2014 through July 31, 2014			—				—				—				—
August 1, 2014 through August 31, 2014			—				—				—				—
September 1, 2014 through September 30, 2014			499			$	6.81				499				—	(1)
Total			499			$	6.81				499

 

FOOTNOTE:

 

(1)	On September 26, 2014, the redemption plan was suspended and any subsequent redemption request will not be accepted or otherwise process at this time. See “Common Stock Redemption” above for additional information.

 

Item 3.

Defaults Upon Senior Securities – None

 

Item 4.

Mine Safety Disclosures – Not Applicable

 

Item 5.

Other Information – None

 

Item 6.

Exhibits

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

 

54

---

Table of Contents

SIGNATURES

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

 

 

55

---

Table of Contents

EXHIBIT INDEX

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer of CNL Lifestyle Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2		Certification of Chief Financial Officer of CNL Lifestyle Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1		Certification of Chief Executive Officer and Chief Financial Officer of CNL Lifestyle Properties, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101		The following materials from CNL Lifestyle Properties, Inc. Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 formatted in XBRL (Extensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Other Comprehensive Income (Losses), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

 

56