(ORLANDO, Fla.) May 16, 2012 — CNL Lifestyle Properties, Inc., a real estate investment trust (the “Company”), today announced its operating results for the quarter ended March 31, 2012. As of May 16, 2012, the Company owns a portfolio of 173 lifestyle properties, 77 of which are wholly-owned and run by operators under long-term, triple-net leases with a weighted average lease rate of 8.6 percent, 46 of which are managed by independent operators, one which is held for development and 50 of which are owned through unconsolidated joint venture arrangements. Of its joint venture investments, 14 are leased and 36 are managed by independent operators. Diversification by asset class based on initial purchase price is 32.5 percent senior housing, 19.1 percent ski and mountain lifestyle, 16.0 percent golf, 12.2 percent attractions, 5.2 percent marinas and 15.0 percent in additional lifestyle properties, including lodging.
Financial Highlights
The following table presents selected comparable financial data through March 31, 2012 (in millions except ratios and per share data):
|
|
Quarter ended | |
|
|
March 31, | |
|
|
2012 | 2011 |
| Total revenues |
$ 89.9 |
$ 82.2 |
| Total expenses |
99.1 |
87.8 |
| Net loss |
(24.7) |
(20.6) |
| Net loss per share |
(0.08) |
(0.07) |
| FFO |
16.0 |
15.4 |
| FFO per share |
0.05 |
0.05 |
| MFFO |
9.9 |
22.2 |
| MFFO per share |
0.03 |
0.08 |
| Adjusted EBITDA |
24.8 |
23.8 |
| Cash flow from operating activities |
22.2 |
24.3 |
|
|
|
|
| As of March 31, 2012: |
|
|
| Total assets |
$ 2,875.8 |
|
| Total debt |
924.3 |
|
| Leverage ratio |
32.1% |
|
See detailed financial information and full reconciliation of Funds from Operations (“FFO”), Modified Funds from Operations (“MFFO”) and Adjusted EBITDA, which are non-GAAP measures, below.
Total revenues increased $7.7 million, or 9.3 percent, for the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011. Total expenses increased $11.3 million, or 12.8 percent, for the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011. Net loss per share was $(0.08) for the quarter March 31, 2011 as compared to net loss per share of $(0.07) for the comparable period in 2011. FFO and MFFO per share were $0.05 and $0.03 for the quarter ended March 31, 2012 as compared to $0.05 and $0.08, respectively, for the quarter ended March 31, 2011.
The increases in revenues and expenses for the quarter ended March 31, 2012 are primarily attributable to the proactive restructuring and transition of certain of the Company’s golf and marina properties that were converted from leased to managed properties where the Company now records property-level gross revenues and property-level operating expenses rather than rental revenue as was the case in 2011. In addition, revenues increased due to the Company’s 2011 senior housing and ski resort acquisitions. This was offset by a decrease in rental income related to one of the Company’s golf tenants as a result of a lease modification.
The increase in net loss and loss per share for the quarter ended March 31, 2012 as compared to the same period in 2011 was primarily attributable to (i) a reduction in rental income of approximately $3.4 million on 32 golf facilities as a result of the lease modification as well as lower net operating income in 2012 versus rental income in 2011 from the nine properties that were recently converted from a leased structure to a managed structure, (ii) an increase in interest expense and loan cost amortization of approximately $4.6 million primarily resulting from the issuance of the Company’s senior notes, (iii) an increase in depreciation expense of approximately $2.2 million, (iv) an increase in bad debt expense of approximately $1.9 million mostly attributable to the write-off of past due rents in connection with amending leases deemed uncollectible on one of the Company’s golf tenants and, (v) an increase in asset management, ground lease and other operating expenses, as well as, higher general and administrative expenses all totaling approximately $4.3 million due to the growth in the number of properties offset by (i) an increase in income of approximately $4.4 million related to properties acquired in 2011, (ii) an increase in equity in earnings of approximately $5.1 million related to the Company’s unconsolidated entities as a result of expensing in 2011 non-recurring significant initial transaction costs incurred upon the formation of CNLSun I Venture as well as the addition of two new Sunrise joint ventures which were acquired during 2011, and (iii) a $3.8 million reduction in acquisition costs and fees primarily as a result of the Company’s primary common stock offering ending in April 2011.
While FFO and FFO per share remained consistent, FFO and FFO per share was impacted by (i) an increase in income of $4.4 million related to properties acquired in 2011, (ii) a decrease in acquisition fees and expense of $3.8 million and (iii) an increase in FFO contribution from unconsolidated entities of approximately $7.3 million, offset by (i) a reduction in rental income of $3.4 million on the 32 golf facilities as a result of the lease modification as well as lower net operating income in 2012 versus rental income in 2011 from the nine properties that were recently converted from a leased to managed structure, (ii) an increase in interest expense and loan amortization expense of $4.6 million resulting mostly from the issuance of our senior notes in April 2011, (iii) an increase in bad debt expense of $1.9 million mostly attributable to the write-off of past due rents in connection with amending leases on one of the Company’s golf tenants, and (iv) an increase in asset management, ground lease and other operating expenses, as well as, higher general and administrative expenses all totaling approximately $4.3 million as a result of the growth in our portfolio.
The decrease in MFFO and MFFO per share for the quarter ended March 31, 2012 was principally due to (i) a reduction of cash rent received of $5.7 million attributable to the lease modification on 32 golf properties, (ii) an increase in interest and loan cost amortization and bad debt expense as described above, and (iii) an increase asset management, ground lease and other operating expenses, as well as higher general and administrative expenses all totaling approximately $4.3 million due to the growth in our portfolio, offset by an increase in net cash received on properties acquired in 2011.
The increase in Adjusted EBITDA of $1.0 million for the quarter ended March 31, 2012 was primarily attributable to (i) an increase in distributions of property net cash flows of $5.4 million primarily from the Company’s two Sunrise joint ventures which were acquired in 2011 and distributions received from the initial Sunrise joint venture, (ii) a reduction in acquisition fees and costs of $3.8 million, and (iii) an increase in net cash received of $4.3 million on properties acquired in 2011, offset by (i) a reduction in cash rent of $5.7 million related to the lease amendment discussed above, and (ii) an increase in asset management, ground lease and other operating expenses, as well as higher general and administrative expenses all totaling approximately $4.3 million due to the growth in our portfolio.
Portfolio Performance
Although property-level operating results are not necessarily indicative of our consolidated results of operations for properties where the Company has long-term leases and reports rental income and the cash flows it receives from its unconsolidated joint ventures, the Company believes that the property-level performance reported to it by its tenants and operators is useful because it is representative of the changing health of its properties and trends in its portfolio. The following table summarizes the Company’s same-store comparable property performance for the quarter ended March 31, 2012 (in millions except coverage ratio):
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|
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Quarter ended |
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March 31, |
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TTM | ||||||||
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# |
|
2012 |
|
2011 |
|
Increase/(Decrease) | Rent | |||||||||
|
|
|
Properties | Revenue | EBITDA |
|
Revenue | EBITDA |
|
Revenue | EBITDA | Coverage* | |||||||
| Ski and mountain lifestyle |
22 |
|
190.6 |
|
83.1 |
|
|
218.9 |
|
103.7 |
|
|
-12.9% |
|
-19.8% |
|
1.24 | |
| Golf |
|
51 |
|
34.4 |
|
7.9 |
|
|
32.2 |
|
5.3 |
|
|
7.0% |
|
48.0% |
|
1.22 |
| Attractions |
|
19 |
|
7.4 |
|
(11.8) |
|
|
6.3 |
|
(10.6) |
|
|
17.9% |
|
-11.1% |
|
1.44 |
| Marinas |
|
17 |
|
6.0 |
|
1.9 |
|
|
6.0 |
|
2.1 |
|
|
0.8% |
|
-8.1% |
|
0.85 |
| Additional lifestyle properties |
7 |
|
53.2 |
|
15.9 |
|
|
50.7 |
|
15.6 |
|
|
4.9% |
|
2.4% |
|
1.28 | |
| Total |
|
116 |
|
291.6 |
|
97.0 |
|
|
314.1 |
|
116.1 |
|
|
-7.1% |
|
-16.4% |
|
1.22 |
*As of March 31, 2012 on trailing 12-month (“TTM”) basis for properties subject to lease calculated as property level EBITDA before recurring capital expenditures divided by rent.
For the quarter ended March 31, 2012, the Company’s tenants and managers reported a decrease in revenue of 7.1% and a decrease in property-level EBITDA of 16.4% as compared to the same period in prior year primarily attributable to a decline in revenues and EBITDA from its ski and mountain lifestyle properties. Many of these properties have experienced unprecedented low levels of natural snowfall for the 2011/2012 ski season, however, they are expected to perform well in the future during more typical snow years. Excluding the Company’s ski and mountain lifestyle properties, its tenants and managers reported an overall increase in revenues and EBITDA of 6.2% and 12.7%, respectively. The increase in revenues is primarily attributable to its golf, attractions and additional lifestyle properties. The Company’s golf properties have begun to see an increase in total rounds played and higher rates as a result of favorable weather patterns and a general improvement in consumer confidence and spending. This has resulted in an increase in revenues and EBITDA of 7.0% and 48.0% respectively. Favorable weather has also positively impacted the Company’s attractions properties, as the Company has seen a 17.9% increase in revenues at the properties. Although the Company has seen an increase in revenues at its attractions properties, EBITDA was down 11.1% as a result of higher repairs and maintenance spending in preparation for the summer season that occurred during the quarter ended March 31, 2012 as compared to the prior year. The Company transitioned its attractions properties to new managers late in the first quarter and, as a result, much of the repairs and maintenance spending was deferred until early in the second quarter after the transition. During 2012, repairs and maintenance projects took place during the first quarter, which is typical of the normal operating cycle and consistent with budgeted expectations. The Company anticipates that as the general economic environment improves and consumer confidence grows, it will continue to see improvements in the results of its tenants and managers.
When evaluating the Company’s senior housing properties’ performance, management reviews operating statistics of the underlying properties, including monthly revenue per occupied unit (“RevPOU”) and occupancy levels. RevPOU, which the Company defines as total revenue divided by average number of occupied units during a month, is a performance metric commonly used within the healthcare sector. This metric assists the Company in determining the ability of its operators to achieve market rental rates and to obtain revenues from providing healthcare related services. For the quarter ended March 31, 2012, the managers for its 29 same-site comparable properties reported a decrease of 1.5% in occupancy and an increase of $378 in RevPOU as compared to the same period in 2011. The decrease in occupancy was due to resident deaths during the quarter ended March 31, 2012. However, in April 2012, those vacancies have been filled, resulting in a 91% occupancy level as of April 30, 2012. RevPOU and occupancy across the Company’s senior housing portfolio have been trending higher since the Company acquired these properties.
The Company has been actively monitoring the performance of its golf properties operated by the Company’s largest golf tenant which has been experiencing ongoing challenges due to the general economic environment. In late 2011, in an effort to provide relief to the tenant and diversify the Company’s tenant concentration, the Company agreed to sell five of the most challenged properties and allow the tenant to terminate the leases upon the sale of the properties. In addition, the Company began the transition of seven other underperforming properties to new third-party managers to be operated for a period of time and terminated the leases at the time of each transition. Through May 16, 2012, the Company has successfully completed the transition of the seven properties to new third-party managers, has successfully completed the sale of four of the five properties identified for sale and anticipates completing the sale of the remaining property during 2012.
In April 2012, the Company entered into an agreement to retroactively restructure the leases relating to the large golf tenant’s remaining 32 golf facilities (including the remaining property classified as held for sale) effective January 1, 2012. As part of the amendment, the Company amended the base lease rates charged to its tenant from 4.75% to 4.27% for 2012, from 5.25% to 5.70% for 2013 and from 5.75% to 5.70% for 2014. From a cash flow perspective, the amendment, as compared to the prior lease, will reduce the 2012 rental cash flows by approximately $1.7 million (from $16.9 million to $15.2 million), will increase the 2013 rental cash flows by $1.6 million (from $18.7 million to $20.3 million), and will not cause a change to the 2014 rental cash flows (will remain at approximately $20.3 million). In addition, starting in 2015, the rent acceleration calculation changed from a stated 20 basis point increase in the annual lease rate, to an increase in rent equal to the greater of (i) the product of the prior year rent times two percent or (ii) the prior year rent times the change in consumer price index per year. Due to the accounting requirement to straight-line scheduled rent increases, the change in the rent acceleration (using a floor of a two percent increase per year), will result in a reduction of average straight-lined rental revenue per year of approximately $3.4 million (a decrease in average straight-lined rental revenue from $24.4 million to $21.0 million starting in 2012). However, the amended lease increased the percentage rent provision to 10% of golf course revenues in excess of a certain threshold for 22 of the properties and 30% of golf course revenues in excess of a certain threshold for 10 of the properties, as compared to 8.25% of golf course revenues in excess of a certain threshold under the previous leases. In addition, the amended terms increased the capital expenditure reserve funding requirements to 3% of golf course revenues, as compared to 2% under the old leases. Even though the amendment reduced the base rent and the rent escalator floor, the Company anticipates recording higher percentage rent and cap ex reserve rent over time as the tenant begins to improve the revenues and the operations of the 32 golf properties.
As part of amending the lease as described above, the Company recorded bad debt expense of $2.1 million related to past due rental and interest amounts due to ceasing collection efforts on these balances. In addition, the Company allowed the tenant to engage a third party operator to manage 22 of the 32 golf properties on behalf of the tenant to allow the tenant to narrow its operating focus on the remaining ten geographically concentrated golf properties. The Company also committed to provide $9.5 million in capital improvements to make targeted enhancements on various courses and clubhouses and agreed to provide lease incentives totaling up to $23 million for working capital, inventory, property tax obligations and other purposes. In addition, the Company refinanced a $6 million outstanding working capital line of credit loan previously provided to the tenant, into a $6 million term loan with interest at LIBOR plus 4%, with no payments of principal or interest required until January 2014, at which point all accrued interest will be added to the principal of the loan, monthly interest payments will commence and annual principal payments will be due through the maturity date of December 31, 2016. During the time that any principal balance remains outstanding under this loan, any percentage rent that would be due under the leases for the 10 properties operating by the tenant will instead be paid to the Company and applied against the principal balance. The tenant will have the ability to extend the maturity date to December 31, 2021, subject to certain terms and conditions.
The Company believes the rent and other relief provided by the agreement described above, coupled with improvements in the golf sector revenues and earnings before interest, tax, depreciation, amortization and rent as a result of favorable weather patterns and general improvement in consumer confidence and spending, will enable the tenant to work through its financial difficulties and begin operating profitably by 2013.
Overall, the Company believes that the proactive restructure, the additional investments and the assistance to the tenant from an experienced third party operator on 22 of the properties, will allow the Company to capitalize on the positive momentum it is currently seeing in the golf sector.
Acquisitions
During the quarter ended March 31, 2012, the Company did not acquire any properties. Through May 16, 2012, the Company acquired four senior housing communities located in Georgia and one senior housing community located in Illinois for approximately $90.8 million.
The Company expects to acquire between $100 million and $150 million in additional real estate investments in the second and third quarters of 2012. The acquisition of additional real estate investments will be funded by the remaining cash on hand, borrowings under the Company’s corporate revolving line of credit and additional long-term project-level borrowings that are dependent on the Company’s ability to obtain additional debt financing.
Distributions
For the quarter ended March 31, 2012, CNL Lifestyle Properties declared and paid distributions of approximately $48.4 million ($0.1563 per share). In light of continuing challenges of certain properties and operators in the context of overall industry and economic conditions, specifically in the golf and marina sectors, the Company’s Board of Directors continues to review its distribution policy with the long-term goal of paying a sustainable distribution that covers the full amount distributed, inclusive of amounts paid out but reinvested through its Reinvestment Plan, and seeks to maximize long-term shareholder value and returns. This determination is based in part on (i) the acquisitions the Company is making as it invests the remaining proceeds of its senior notes, (ii) the operating results of its managed attractions, golf and marina properties during the upcoming summer season and (iii) the impact on operating performance of properties it has recently transitioned to new operators. The level of distributions that it can pay will be estimated based on sources of cash available for distributions as measured by cash flows from operating activities, FFO and MFFO, as well as, expected future long-term stabilized cash flows, FFO and MFFO. The Board of Directors will also take into consideration other factors such as limitations and restrictions contained in the terms of the Company’s current and future indebtedness concerning the payment of distributions, the avoidance of distribution volatility, its objective of continuing to qualify as a REIT, capital requirements, the general economic environment and other factors.
Valuation
In the second quarter of 2012, the Company will engage a third-party valuation consultant to assist in determining the value of its common stock on a per share basis that will be made public on or prior to October 9, 2012 to assist broker dealers in complying with the applicable rules of the Financial Industry Regulatory Authority. During the valuation process, the third-party valuation consultant will analyze the Company’s portfolio and outstanding obligations using a variety of methodologies, including a methodology expected to be endorsed by the Investment Program Association, a trade organization for the direct investment industry. The Board of Directors will be presented with the various outcomes and at its discretion will approve a valuation that it believes most accurately reflects the value of our common stock. Any valuation of the common stock that deviates from the current price of $10.00 will affect share issuances under the Company’s Reinvestment Plan, as well as its redemption plan.
CNL LIFESTYLE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)
|
|
|
March 31, | December 31, | |
|
|
|
2012 | 2011 | |
| ASSETS |
|
|
|
|
|
|
|
|
|
|
| Real estate investment properties, net |
|
$ 2,040,267 |
|
$ 2,055,678 |
| Investments in unconsolidated entities |
|
308,620 |
|
318,158 |
| Cash |
|
149,829 |
|
162,839 |
| Mortgages and other notes receivable, net |
|
124,491 |
|
124,352 |
| Deferred rent and lease incentives |
|
98,106 |
|
94,981 |
| Other assets |
|
58,633 |
|
48,728 |
| Restricted cash |
|
45,121 |
|
37,877 |
| Intangibles, net |
|
30,617 |
|
30,937 |
| Accounts and other receivables, net |
|
17,504 |
|
17,536 |
| Assets held for sale |
|
2,596 |
|
2,863 |
| Total Assets |
|
$ 2,875,784 |
|
$ 2,893,949 |
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| Mortgages and other notes payable |
|
$ 530,414 |
|
$ 518,194 |
| Senior notes, net of discount |
|
393,855 |
|
393,782 |
| Other liabilities |
|
59,170 |
|
44,835 |
| Accounts payable and accrued expenses |
|
40,607 |
|
32,158 |
| Security deposits |
|
13,277 |
|
13,880 |
| Due to affiliates |
|
1,284 |
|
1,120 |
| Total Liabilities |
|
1,038,607 |
|
1,003,969 |
|
|
|
|
|
|
| Commitments and contingencies (Note 19) |
|
|
|
|
|
|
|
|
|
|
| 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; 328,884 and 301,299 |
|
|
|
|
| shares issued and 309,215 and 284,687 shares outstanding |
|
|
||
| as of December 31, 2011 and 2010, respectively |
|
3,112 |
|
3,092 |
| Capital in excess of par value |
|
2,763,093 |
|
2,743,972 |
| Accumulated deficit |
|
(98,116) |
|
(73,373) |
| Accumulated distributions |
|
(822,612) |
|
(774,259) |
| Accumulated other comprehensive loss |
|
(8,300) |
|
(9,452) |
| Total Stockholders’ Equity |
|
1,837,177 |
|
1,889,980 |
Total Liabilities and Stockholders’ Equit