424B3 1 d424b3.htm FINAL PROSPECTUS Final Prospectus
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-146457

Prospectus

CNL LIFESTYLE PROPERTIES, INC.

Maximum Offering—200,000,000 Shares of Common Stock—Minimum Purchase—500 Shares

We are a Maryland corporation sponsored by CNL Financial Group, Inc. (our “Sponsor”). We were formed primarily to acquire lifestyle properties and have elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. This is a best efforts offering, which means that CNL Securities Corp. (our “Managing Dealer”) will use its best efforts but is not required to sell any specific amount of shares. We are offering 200,000,000 common shares, 170,000,000 of which will be offered at a price of $10.00 per share and 30,000,000 of which will be offered to stockholders at a price of $9.50 per share pursuant to our reinvestment plan. The offering prices were subjectively determined by our board of directors. This is a continuous offering that will terminate on or before April 9, 2011, unless we extend the offering for an additional six months subject to meeting certain criteria. An individual must initially invest at least $5,000. Plans (as defined below) must initially invest at least $4,000. Following an initial investment of the required minimum amount in this offering or our prior offerings, an investor may purchase additional shares in $10.00 increments. As of March 15, 2010, we have issued and outstanding a total of approximately 252.2 million shares of our common stock.

All capitalized terms used herein but not defined shall have the meanings ascribed to them in the “Definitions” section of this prospectus.

This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 8. Significant risks relating to your investment in shares of our common stock include:

 

   

Our investment policies and strategies are very broad and permit us to invest in many types of real estate and to make loans and other investments.

 

   

We rely on CNL Lifestyle Company, LLC, which is our advisor (our “Advisor”), to make our investment decisions subject to approval by our board of directors.

 

   

The agreement with our Advisor (the “Advisory Agreement”) was not negotiated at arm’s length and we will pay our Advisor and its affiliates substantial fees.

 

   

Certain officers and directors of our Advisor also serve as our officers and directors, resulting in conflicts of interest. Those persons could take actions that are more favorable to other entities than to us.

 

   

To the extent consistent with our investment objectives and limitations, our investment policies and strategies may be altered by a majority of our directors, including a majority of our independent directors (our “Independent Directors”), without stockholder consent.

 

   

There is no market for our shares and we do not expect to list our shares in the near future. If you are able to sell your shares prior to listing, you would likely have to sell them at a substantial discount.

 

   

Redemption of our shares shall be at our sole option.

 

   

We may borrow up to 300% of the value of our Net Assets, which may reduce the cash available for distributions to stockholders.

 

   

Our articles of incorporation prohibit individual stockholders from owning more than 9.8% of our common stock.

 

   

If we do not qualify or remain qualified as a REIT, we will be subject to taxation on our income at regular corporate rates.

 

     Price
to  Public(1)
   Commissions(1)(2)    Proceeds
to us,  before Expenses(1)

Primary Offering Per Share

   $ 10.00    $ 1.00    $ 9.00

Total Primary Offering Amount

   $ 1,700,000,000    $ 170,000,000    $ 1,530,000,000

Reinvestment Plan Offering Per Share

   $ 9.50    $ —      $ 9.50

Total Reinvestment Plan Offering Amount

   $ 285,000,000    $ —      $ 285,000,000

Total Offering Amount

   $ 1,985,000,000    $ 170,000,000    $ 1,815,000,000

 

(1) Assumes we sell 170,000,000 shares in the primary offering and 30,000,000 shares pursuant to our reinvestment plan.
(2) Includes up to a 7.0% selling commission and a 3.0% marketing support fee, neither of which will be paid for shares issued pursuant to our reinvestment plan.

Neither the Securities and Exchange Commission (the “Commission”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. In addition, the Attorney General of the State of New York has not passed on or endorsed the merits of this offering. Any representation to the contrary is a criminal offense.

No one is authorized to make any statements about the offering that differ from those that appear in this prospectus. You should also be aware that the description of our company contained in this prospectus was accurate on March 31, 2010, but may no longer be accurate. We will amend or supplement this prospectus, however, if there is a material change in the affairs of our company.

The use of forecasts in connection with this offering is prohibited. Any representations to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in our shares is not permitted.

April 19, 2010


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SUITABILITY STANDARDS

We have established financial suitability standards for investors interested in purchasing shares of our common stock. In determining your net worth, do not include the value of your home, home furnishings or personal automobiles.

You must have:

 

   

a net worth of at least $250,000, or

 

   

a gross annual income of at least $70,000 and a net worth of at least $70,000.

Our suitability standards also require that you:

 

   

can reasonably benefit from an investment in our common stock based on your overall investment objectives and portfolio structure;

 

   

are able to bear the economic risk of the investment based on your overall financial situation; and

 

   

have an apparent understanding of:

 

   

the fundamental risks of your investment,

 

   

the risk that you may lose your entire investment,

 

   

the lack of liquidity of your shares,

 

   

the restrictions on transferability of your shares,

 

   

the background and qualifications of our Advisor, and

 

   

the tax consequences of your investment.

Several states have established suitability standards that are more stringent than the standards that we have established and outlined above. Shares of our common stock will be sold only to investors in these states if investors represent that they meet the special suitability standards set forth below. In each case, these special suitability standards exclude from the calculation of net worth the value of the investor’s home, home furnishings and personal automobiles.

Alabama, Kentucky, Michigan, Missouri, Ohio and Pennsylvania—In addition to our suitability requirements, you may invest no more than 10% of your net worth (not including home, furnishings and personal automobiles) in our shares.

The following states have established recommendations for investors in their states. Shares will be sold to investors in these states only if the investors represent that they meet the special recommendations set forth below.

Kansas and Massachusetts—In addition to our suitability requirements, the offices of the Kansas Securities Commissioner and the Massachusetts Securities Division recommend that an investor’s aggregate investment in our shares and similar direct participation investments should not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is that portion of net worth that consists of cash, cash equivalents and readily marketable securities.

The foregoing suitability standards must be met by each investor who purchases shares. If the investment is being made for a fiduciary account (such as a Plan, as defined below), the beneficiary, the fiduciary account, or any donor or grantor that is the fiduciary of the account who directly or indirectly supplies the investment funds must meet such suitability standards.

Before authorizing an investment in shares, fiduciaries of pension or profit sharing plans, other employee benefit plans, individual retirement accounts and other plans, whether or not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or the Internal Revenue Code of 1986, as amended (the “Code”) (all such plans and accounts, and entities deemed to hold assets of such plans and accounts, are herein referred to as “Plans”) should consider, among other matters, (a) fiduciary standards imposed by the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or governing state or other law, if applicable; (b) whether the purchase of shares satisfies the prudence and diversification requirements of ERISA and governing state or other law, if applicable, taking into account any applicable Plan’s investment policy and the composition of the Plan’s portfolio, and the limitations on the marketability of shares; (c) whether such fiduciaries have authority to hold shares under the applicable Plan investment policies and governing instruments; (d) rules relating to the periodic valuation of Plan assets and the delegation of control over responsibility for “plan assets” under ERISA or governing state or other law, if applicable, and (e) prohibitions under ERISA, the Code and/or governing state or other law relating to Plans engaging in certain transactions involving “plan assets” with Persons who are “disqualified persons” under the Code or “parties in interest” under ERISA or governing state or other law, if applicable. See “The Offering—Certain Benefit Plan Considerations.”

 

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HOW TO SUBSCRIBE

Investors who meet the suitability standards described herein may purchase shares of our common stock as follows:

 

   

Review the entire prospectus and any appendices and supplement(s) accompanying the prospectus.

 

   

Complete the execution copy of the subscription agreement. A specimen copy of the subscription agreement is included in this prospectus as “Appendix B.”

 

   

Deliver a check for the full purchase price of our shares of our common stock being subscribed for along with a completed subscription agreement to your participating broker dealer. Make your check payable to “CNL Lifestyle Properties, Inc.”

By executing the subscription agreement and paying the total purchase price for the shares of our common stock subscribed for, each investor attests that he or she meets the suitability standards as stated in the subscription agreement and agrees to be bound by all of its terms. Subscriptions will be effective upon our acceptance, and we reserve the right to reject any subscription in whole or in part.

ADDITIONAL INFORMATION

A registration statement has been filed with the Commission with respect to the securities offered hereby. This prospectus does not contain all information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements contained in this prospectus as to the contents of any document are necessarily summaries of such documents, and in each instance reference is made to the copy of such documents filed with the Commission, each such statement being qualified in all respects by such reference. For further information regarding us and our shares, reference is hereby made to the registration statement and to the exhibits and schedules filed or incorporated as a part thereof which may be obtained from the principal office of the Commission in Washington, D.C., upon payment of the fee prescribed by the Commission, or examined at the principal office of the Commission without charge. In addition, we are required to file periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and have filed registration statements relating to previous offerings, all of which may be obtained from the Commission. The Commission maintains a web site located at http://www.sec.gov that contains information regarding registrants that file electronically with the Commission.

 

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TABLE OF CONTENTS

 

     Page

SUITABILITY STANDARDS

   i

HOW TO SUBSCRIBE

   ii

ADDITIONAL INFORMATION

   ii

PROSPECTUS SUMMARY

   1

Our Business

   1

Our Investment Objectives

   3

Our Duration and Listing

   4

Our REIT Status

   4

Our Management

   4

Compensation of Our Advisor and Affiliates

   5

Our Conflicts of Interest

   5

Our Common Stock Offerings

   5

RISK FACTORS

   8

Offering Related Risks

   8

Company Related Risks

   9

Conflicts of Interest and Related Risks

   11

Real Estate and Other Investment Risks

   11

Lending Related Risks

   23

Financing Related Risks

   24

Tax Related Risks

   26

Miscellaneous Risks

   29

FORWARD-LOOKING STATEMENTS

   31

ESTIMATED USE OF PROCEEDS

   32

MANAGEMENT COMPENSATION

   34

CONFLICTS OF INTEREST

   39

General

   39

Prior and Future Programs

   40

Competition to Acquire Properties and Invest in Loans and Other Permitted Investments

   40

Sales of Properties, Loans or Other Permitted Investments

   40

Certain Relationships with Affiliates

   41

Possible Listing of Shares

   41

Competition for Management Time

   41

Compensation of our Advisor

   41

Relationship with Managing Dealer

   42

Legal Representation

   42

Certain Conflict Resolution Procedures

   42

INVESTMENT OBJECTIVES AND POLICIES

   44

Investment Objectives

   44

Investment Policies

   44

Certain Limitations

   45

BUSINESS

   48

General

   48

Investment Focus

   49

 

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     Page

Future Acquisitions

   49

Selection of Properties

   50

Selection of Tenants and Operator

   51

Recent Demographic Trends

   51

Asset Class and Industry Trends

   54

Competition and Seasonality

   57

Real Estate Investment Portfolio

   58

Property Lease Terms

   70

Managed Properties

   73

Property Held for Development

   73

Joint Venture Arrangements

   73

Equity Investments

   76

Sale of Properties and Loans

   76

Mortgage Loans and Other Loans

   77

Financings and Borrowings

   79

MANAGEMENT

   83

Directors and Executive Officers

   83

Independent Directors

   86

Committees of the Board of Directors

   86

Compensation of Independent Directors

   87

Management Compensation

   87

SECURITY OWNERSHIP

   88

THE ADVISOR AND THE ADVISORY AGREEMENT

   89

Our Advisor

   89

The Advisory Agreement

   89

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   94

SUMMARY OF REINVESTMENT PLAN

   96

SUMMARY OF REDEMPTION PLAN

   99

DISTRIBUTION POLICY

   102

SUMMARY OF THE ARTICLES OF INCORPORATION AND BYLAWS

   104

General

   104

Description of Capital Stock

   104

Board of Directors

   105

Stockholder Meetings

   105

Advance Notice for Stockholder Nominations for Directors and Proposals of New Business

   106

Amendments to the Articles of Incorporation

   106

Board of Directors’ Agreement

   106

Mergers, Combinations and Sale of Assets

   106

Control Share Acquisitions

   107

Termination and REIT Status

   107

Restriction of Ownership

   108

Responsibility of Directors

   109

Limitation of Liability and Indemnification

   109

Removal of Directors

   111

Inspection of Books and Records

   111

Restrictions on “Roll-Up” Transactions

   112

 

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     Page

FEDERAL INCOME TAX CONSIDERATIONS

   113

Taxation of CNL Lifestyle Properties

   113

Taxation of Stockholders

   122

Characterization of Property Leases

   126

Investment in Joint Ventures

   127

REPORTS TO STOCKHOLDERS

   128

PLAN OF DISTRIBUTION

   130

The Offering

   130

Procedure Upon Liquidation

   131

Liquidity of Prior Programs

   131

Indemnification of Managing Dealer

   131

Compensation Paid for Sales of Shares

   131

Other Compensation

   132

Purchases Net of Selling Commissions and Marketing Support Fee

   133

Volume Discount

   134

Discount Procedures

   134

Sales Incentives

   135

Subscription Procedures

   135

Investments through IRA Accounts

   136

Suitability Standards

   136

Appropriateness of Investment

   137

Certain Benefit Plan Considerations

   137

Determination of Offering Price

   139

SUPPLEMENTAL SALES MATERIAL

   140

LEGAL OPINIONS

   140

EXPERTS

   141

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

   141

WHERE YOU CAN FIND MORE INFORMATION

   142

DEFINITIONS

   143

Amended and Restated Reinvestment Plan

   Appendix A

Subscription Agreement

   Appendix B

 

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PROSPECTUS SUMMARY

This summary highlights the material information contained elsewhere in this prospectus. Because this is a summary, it does not contain all information that may be important to you. You should read this entire prospectus and its appendices carefully before you decide to invest in shares of our common stock.

Our Business

CNL Lifestyle Properties, Inc. We are a Maryland corporation organized on August 11, 2003 that operates as a real estate investment trust, or REIT. In general, a REIT is a company that combines the capital of many investors to acquire or provide financing for real estate. Typically REITs will not be subject to federal income tax at the corporate level to the extent they distribute annually at least 90% of their income to stockholders and meet other compliance requirements and offer the benefit of a real estate portfolio under professional management.

In the course of our business, various wholly owned subsidiaries, unconsolidated and consolidated entities have been and/or will be formed in the future for the purpose of acquiring interests in properties, loans and other Permitted Investments. The terms “us,” “we,” “our,” “our company” and “CNL Lifestyle Properties” means CNL Lifestyle Properties, Inc. and our subsidiaries. We have retained CNL Lifestyle Company, LLC (the “Advisor”) as our Advisor to provide management, acquisition, disposition, advisory and administrative services. Our offices are located at, 450 South Orange Avenue within the CNL Center at City Commons in Orlando, Florida 32801, and our telephone number is (407) 650-1000 or toll free (866) 650-0650.

Our principal investment objectives include investing in a diversified portfolio of real estate with a goal to preserve, protect and enhance the long-term value of those assets. We primarily invest in lifestyle properties in the United States that we believe have the potential for long-term growth and income generation. We define lifestyle properties as those properties that reflect or are impacted by the social, consumption and entertainment values and choices of our society. Our investment thesis is supported by demographic trends which we believe affect consumer demand for the various lifestyle asset classes that are the focus of our investment strategy. We generally lease our properties on a long-term, triple-net or gross basis (generally five to 20 years, plus multiple renewal options) to tenants or operators whom we consider to be significant industry leaders. To a lesser extent, we also make and acquire loans (including mortgage, mezzanine and other loans) and enter into joint ventures related to interests in real estate.

Following our investment policies of acquiring carefully selected and well-located lifestyle or other income producing properties, we believe we have built a unique portfolio of diversified assets with established long-term operating histories that have survived many economic cycles. We will continue to focus on the careful selection and acquisition of income producing properties that we believe will provide long-term value to our stockholders, while also concentrating on the management and oversight of our existing assets.

We acquire assets directly by purchasing a fee, leasehold interest or similar interest. We may acquire the stock or other interests in REITs or other real estate operating companies that own these assets as well. In the alternative, if we seek to own a partial interest, we may acquire property through a joint venture where our partners may subordinate their returns to our minimum return. This joint venture structure provides us with some protection against the risk of downturns in performance but may allow our partners to obtain a higher rate of return on their investment than we receive if the underlying performance of the properties exceeds certain thresholds.

Our asset classes and portfolio diversification. We have invested primarily in ski and mountain lifestyle, golf, attractions and marinas. However, we have also invested or may invest in additional lifestyle properties including, but not limited to, hotels, multi-family residential housing, merchandise marts, medical facilities or any type of property that we believe has the potential to generate long-term revenue.

 

 

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As of March 31, 2010, we had a portfolio of 119 lifestyle properties which when aggregated by initial purchase price was diversified as follows: approximately 28.0% in ski and mountain lifestyle, 24.6% in golf facilities, 17.5% in attractions, 7.5% in marinas and 22.4% in additional lifestyle properties. These assets consist of 22 ski and mountain lifestyle properties, 53 golf facilities, 21 attractions, 15 marinas and eight additional lifestyle properties. Eight of these 119 properties are owned through unconsolidated ventures. Many of our properties feature characteristics that are common to more than one asset class, such as a ski resort with a golf facility. Our asset classifications are based on the primary property usage.

Our real estate investment portfolio is geographically diversified with properties in 32 states and two Canadian provinces. We own ski and mountain lifestyle properties in eight states and Canada with a majority of those properties located in the northeast, California and Canada. Our golf properties are located in 15 states with a majority of those facilities located in “Sun Belt” states. Our attractions properties are located in 13 states with a majority located in the Southern and Western United States. Our marinas properties are located in eight states with a majority located in California and the Southeast, Mid Atlantic, and Great Lakes regions.

Our leases and ventures. As part of our net lease investment strategy, we either acquire properties directly or purchase interests in entities that own the properties we seek to acquire. Once we acquire the properties, we either lease them back to the original seller or to a third-party operator. These leases are usually structured as triple-net leases which means our tenants are generally responsible for repairs, maintenance, property taxes, ground lease or permit expenses (where applicable), utilities and insurance for the properties that they lease. Our leases are generally long-term in nature (generally five to 20 years with multiple renewal options).

We typically structure our leases to provide for the payment of a minimum annual base rent with periodic increases in base rent over the lease term. In addition, our leases provide for the payment of percentage rent normally based on a percentage of gross revenues generated at the property over certain thresholds. Within the provisions of our leases, we also generally require the payment of capital improvement reserve rent. Capital improvement reserves are paid by the tenant and generally based on a percentage of gross revenue of the property and are set aside by us for capital improvements, replacements and other capital expenditures at the property. These amounts are and will remain our property during and after the term of the lease and help maintain the integrity of our assets. Our lease structures generally require security deposits and include cross-default provisions when multiple properties are leased to a single tenant.

To a lesser extent, when beneficial to our investment structure, certain properties may be leased to wholly-owned tenants that are taxable REIT subsidiaries or that are owned through taxable REIT subsidiaries (referred to as “TRS” entities). Under this structure, we engage third-party managers to conduct day-to-day operations. Under the TRS leasing structure, our results of operations will include the operating results of the underlying properties as opposed to rental income from operating leases that is recorded for properties leased to third-party tenants.

We have entered into joint ventures in which our partners may subordinate their returns to our minimum return. This structure provides us with some protection against the risk of downturns in performance but may allow our partners to obtain a higher rate of return on their investment than we receive if the underlying performance of the properties exceeds certain thresholds. Our joint ventures will lease properties either to our venture partner or to third-party operators, generally on a triple-net basis.

Our tenants and operators. We generally attempt to lease our properties to tenants and operators that we consider to be significant industry leaders. We consider a tenant or an operator to be a “significant industry leader” if it has one or more of the following traits:

 

   

many years of experience operating in a particular industry as compared with other operators in that industry, as a company or through the experience of its senior management;

 

   

many assets managed in a particular industry as compared with other operators in that industry; and/or

 

 

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is deemed by us to be a dominant operator in a particular industry for reasons other than those listed above.

Although we attempt to lease our properties to tenants that we consider to be significant industry leaders, we do not believe the success of our properties is based solely on the performance or abilities of our tenant operators. In some cases, the assets we have acquired are considered unique, iconic or nonreplicable assets which by their very nature have intrinsic value. In addition, unlike our competitors in many other commercial real estate sectors, in the event a tenant is in default and vacates a property, we are able to engage a third-party manager to operate the property on our behalf for a period of time until we re-lease it to a new tenant. During this period, the property remains open and we receive any net earnings from the property’s operations, although these amounts may be less than the rents that were contractually due under the prior leases. Any taxable income from these properties will be subject to income tax until we re-lease these properties to new tenants.

Our loans. As part of our overall investment and lending strategy, we have made and may continue to make or to acquire loans (including mortgage, mezzanine or other loans) with respect to any of the asset classes in which we are permitted to invest. We generally make loans to the owners of properties to enable them to acquire land, buildings, or both, or to develop property or as part of a larger acquisition. In exchange, the owner generally grants us a first lien or collateralized interest in a participating mortgage collateralized by the property or by interests in the entity that owns the property. Our loans generally require fixed interest payments. We expect that the interest rate and terms for long-term mortgage loans (generally, 10 to 20 years) will be similar to the rate of return on our long-term net leases. Mezzanine loans and other financings for which we have a secondary-lien or collateralized interest will generally have shorter terms (one to two years) and higher interest rates than our net leases and long-term mortgage loans. With respect to the loans that we make, we generally seek loans with collateral values resulting in a loan-to-value ratio of not more than 85%.

Our borrowings. We have borrowed and intend to continue to borrow money to make acquisitions, loans and other Permitted Investments and to pay certain related fees. In general, we pledge our assets in connection with such borrowings. We have also borrowed, and may continue to borrow, money to pay distributions to stockholders in order to avoid distribution volatility.

Lines of credit. We plan to obtain one or more lines of credit and anticipate that the aggregate amount of any lines of credit we carry will be up to $500 million; however, our board of directors is permitted to increase the amount we may borrow under lines of credit. We may repay lines of credit we obtain with offering proceeds, proceeds from the sale of assets, working capital or Permanent Financing (generally, long-term debt financing collateralized by mortgages on our properties). We currently have an $85 million syndicated collateralized revolving line of credit, but there is no assurance that we will obtain additional lines of credit on satisfactory terms.

Permanent financing. In addition to lines of credit, we anticipate obtaining Permanent Financing. The aggregate amount of our Permanent Financing is not expected to exceed 50% of our total assets on an annual basis. Our articles of incorporation limit the maximum amount of our borrowings in relation to our Net Assets to an amount equal to 300% of our Net Assets, in the absence of a satisfactory showing that a higher level of borrowing is appropriate. For us to borrow an amount in excess of 300% of our Net Assets, a majority of our Independent Directors must approve the borrowing, and the borrowing must be disclosed and explained to our stockholders in our first quarterly report after such approval occurs. At December 31, 2009, our Permanent Financing totaled 23.9% of our total assets and 35.12% of our Net Assets.

Our Investment Objectives

Our primary investment objectives are to preserve, protect and enhance our assets, while:

 

   

paying distributions at an increasing rate;

 

 

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obtaining fixed income primarily through the receipt of base rent and providing protection against inflation primarily through periodic increases in rent and the payment of percentage rent;

 

   

owning a diversified portfolio primarily of triple-net leased real estate that will increase in value;

 

   

qualifying and remaining qualified as a REIT for federal income tax purposes; and

 

   

providing you with liquidity for your investment on or before December 31, 2015.

Our Duration and Listing

Under our articles of incorporation, we will automatically terminate and dissolve on December 31, 2015, unless our common stock is listed on a national securities exchange or quoted on the National Market System of the NASDAQ Stock Market. If our shares are listed or quoted by that time, we will automatically become a company with no fixed termination date. In conjunction with, or prior to, listing, we anticipate merging with our Advisor and becoming self-advised.

If our shares are not listed or quoted by December 31, 2015, we will sell our assets and distribute the Net Sales Proceeds to our stockholders or will merge with another entity in a transaction which provides our stockholders with cash or the securities of a publicly traded company, unless stockholders owning a majority of our shares elect to extend the duration of CNL Lifestyle Properties by amending our articles of incorporation.

Notwithstanding the above, our board of directors has determined that on or prior to December 31, 2011, it will consider an evaluation of our strategic options, which may include, but are not limited to, listing on a national securities exchange, merging with another public company or selling the company or our assets. In making a determination of whether listing or quotation is in the best interest of our stockholders, our board of directors may consider a variety of criteria, including, but not limited to market capitalization, the number of properties owned, portfolio diversification, portfolio performance, our financial condition, potential access to capital as a listed company and the potential for stockholder liquidity.

Our REIT Status

We currently operate and have elected to be taxed as a REIT for federal income tax purposes beginning with the taxable year ended December 31, 2004. As a REIT, we generally will not be subject to federal income tax at the corporate level to the extent we distribute annually at least 90% of our taxable income to our stockholders and meet other compliance requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and may 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. To maintain REIT status, we must meet a number of highly technical and complex organizational and operational requirements. No assurance can be provided that we qualify or will continue to qualify as a REIT. A more complete discussion of our tax status is provided under the heading “Federal Income Tax Considerations.”

Our Management

The members of our board of directors oversee our business. A majority of our directors are independent of our Advisor and have responsibility for reviewing our Advisor’s performance. Our directors are elected annually by our stockholders. Although we have executive officers, all of our executive officers are also executive officers of, and employed by, our Advisor. Our executive officers have extensive previous experience investing in real estate on a triple-net lease basis. Our Chairman of the Board and Vice Chairman of the Board have over 37 and 32 years of experience, respectively, with our Sponsor and its affiliates. We have retained our Advisor to provide us with management, acquisition, advisory and administrative services. Our Advisor has responsibility for:

 

   

selecting the investments that we will make, formulating and evaluating the terms of each proposed acquisition, and arranging for the acquisition of properties;

 

 

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identifying potential tenants and/or operators for our properties and potential borrowers for our loans, and formulating, evaluating and negotiating the terms of each of our lease, loan and operating agreements; and

 

   

negotiating the terms of our borrowings, including lines of credit and any long-term, Permanent Financing.

Compensation of Our Advisor and Affiliates

We pay our Advisor and other affiliates of our Advisor compensation for services they perform on our behalf, and also reimburse them for expenses they pay on our behalf. See “Management Compensation” for more information on compensation and reimbursement payable to our Advisor and its affiliates.

Our Conflicts of Interest

Conflicts of interest may exist between us and some of our affiliates. Some of our officers and directors, who are also officers or directors of our Advisor, may experience conflicts of interest in their management of us. These conflicts arise principally from their involvement in other activities that may conflict with our business and interests. Some of the conflicts that may exist between us and some of our affiliates include:

 

   

competition for properties and other investments with existing affiliates, including CNL Real Estate Group, Inc., or future affiliates sponsored or controlled by our Chairman of the Board, James M. Seneff, Jr.;

 

   

competition for the time and services of James M. Seneff Jr. and Robert A. Bourne, our Chairman and Vice Chairman of the board respectively, which may limit the amount of time they spend on our business matters;

 

   

substantial compensation, including fees in connection with the acquisition, management and sale of our properties and fees based on Permanent Financing that we obtain, will be paid to our Advisor and its affiliates, including the Managing Dealer;

 

   

the fee payable to our Advisor upon the incurrence of Permanent Financing by us may create an incentive for our Advisor to recommend that we obtain more debt despite the risk that increased debt may decrease distributions to our stockholders;

 

   

the Asset Management Fee payable to our Advisor may encourage the purchase and discourage the sale of investments, some of which may be speculative;

 

   

the deferred, subordinated disposition fee that may be payable to our Advisor may encourage the premature sale of properties, loans and other Permitted Investments;

 

   

agreements with affiliates will not be negotiated at “arms length” and, accordingly, may be less advantageous to us than if similar agreements were negotiated with non-affiliated third parties; and

 

   

our corporate, securities and tax counsel also may serve as corporate, securities and tax counsel for some of our affiliates, including our Managing Dealer and our Sponsor, and we will not have separate counsel.

Our Common Stock Offerings

We have extended our current common stock offering for a period of one year through April 9, 2011 and may have the ability to extend for another six months beyond that date upon meeting certain criteria. We have and will continue to use the net proceeds from our public offerings of common stock to acquire properties and make loans and other Permitted Investments. As of December 31, 2009, we had cumulatively raised approximately $2.6 billion (260.1 million shares) in subscription proceeds, including approximately $197.0 million (20.7 million shares) received through our dividend reinvestment plan.

 

 

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Our first offering commenced on April 16, 2004 and terminated on March 31, 2006, and we raised $520.7 million. Our second offering commenced on April 4, 2006 and terminated on April 4, 2008, and we raised $1.5 billion. The current offering, which is our third, commenced on April 9, 2008 and as of February 28, 2010, we have raised $583.0 million in the current offering and $2.6 billion cumulatively. There are 152.7 million shares remaining to be sold in this offering. As of March 15, 2010 we had approximately 80,083 common stockholders of record.

We have used the proceeds from our offerings primarily in our investing activities, including acquiring properties, making loans, investing in unconsolidated entities and making other capital expenditures. In addition, we used these offering proceeds to reimburse and compensate our Advisor and its affiliates for acquisition fees and costs incurred on our behalf, to pay offering costs, selling commissions and marketing support fees to our Managing Dealer and to make redemptions in connection with our redemption plan.

Distribution policy. We intend to pay distributions to our stockholders on a quarterly basis. The amount of distributions declared to our stockholders will be determined by our board of directors and is dependent upon a number of factors, including:

 

   

Sources of cash available for distribution such as current year and inception to date cumulative cash flows, funds from operations (“FFO”) and modified funds from operations (“MFFO”), as well as, expected future long-term stabilized cash flows, FFO and MFFO;

 

   

The proportion of distributions paid in cash compared to that which is being reinvested through our reinvestment program; 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.

We may use borrowings to fund a portion of our distributions in order to avoid distribution volatility.

Taxation of distributions. Generally, distributions that you receive will be considered ordinary income to the extent they are from current and accumulated earnings and profits. In addition, because depreciation expense reduces taxable income but does not reduce cash available for distribution, we expect that a considerable portion of your distributions will be considered a return of capital for tax purposes. This return of capital will not be subject to taxation immediately and will instead reduce the tax basis of your investment. This result in effect defers a portion of your tax until your investment is sold or until we liquidate or merge with another company (if such merger is treated as a taxable merger), at which time the gain will, generally, be taxable as a capital gain. As each investor’s tax implications are different, we suggest you consult with your tax advisor before investing in our common stock. Form 1099-DIV tax information will be mailed to investors by January 31 of each year or such other deadline prescribed by the Internal Revenue Service (“IRS”). Stockholders subject to federal taxation who elect to participate in the reinvestment plan may incur a tax liability for distributions allocated to them even though they have elected not to receive their distributions in cash but rather to have their distributions held pursuant to the reinvestment plan. Specifically, stockholders will be treated as if they have received the distribution from us and then applied such distributions to purchase shares in the reinvestment plan. Participants in the reinvestment plan will also be treated for tax purposes as having received an additional distribution to the extent that they purchase shares through our reinvestment plan at a discount to fair market value.

Estimated use of proceeds. Approximately 86.60% (the maximum offering) of the proceeds, or, assuming 100 million shares are sold as described in the “Estimated Use of Proceeds” section of this prospectus, 87.44 % of the proceeds, are expected to be used to acquire properties, make loans and other Permitted Investments. The balance of 13.4% or 12.56% will be used to pay fees and expenses in connection with the offering, some of which are payable to our affiliates, the Managing Dealer and/or participating brokers.

Reinvestment Plan. We have adopted a reinvestment plan that will allow our stockholders to have the full amount of their distributions reinvested in additional shares that may be available. We designated 30 million shares of our common stock for this purpose.

 

 

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Redemption Plan. We have adopted a discretionary redemption plan that allows our stockholders who hold shares for at least one year to request that we redeem between 25% and 100% of their shares. If we have sufficient funds available to do so and if we choose, in our sole discretion, to redeem shares, the number of shares redeemed in any calendar year and the price at which they are redeemed are subject to conditions and limitations, including:

 

   

no more than 5% of the weighted average number of shares of our common stock outstanding at the beginning of any 12-month period may be redeemed during such 12-month period; and

 

   

redemption pricing ranging from 92.5% of the purchase price per share for stockholders who have owned their shares for at least one year to 100% of the purchase price per share for stockholders who have owned their shares for at least four years.

Our board of directors has the ability, in its sole discretion, to amend or suspend the plan or to waive any specific condition if it is deemed to be in our best interest.

Who can help answer your questions? If you have more questions about our offering or if you would like additional copies of this prospectus, you should contact your participating broker or CNL Client Services, Post Office Box 4920, Orlando, Florida 32802-4920; phone (866) 650-0650 or (407) 650-1000.

 

 

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RISK FACTORS

An investment in our shares involves significant risks and is suitable only for those Persons who understand the following material risks and who are able to bear the risk of losing their entire investment. You should consider the following material risks in addition to other information set forth elsewhere in this prospectus before making your investment decision.

Offering Related Risks

The price of our shares is subjective and may not bear any relationship to what a stockholder could receive if their shares were resold.

We determined the offering price of our shares in our sole discretion based on:

 

   

the price that we believed investors would pay for our shares;

 

   

estimated fees to be paid to third parties and to our Advisor and its affiliates; and

 

   

the expenses of this offering and funds we believed should be available for us to invest in properties, loans and other Permitted Investments.

There is no public market for our shares on which to base market value and there can be no assurance that one will develop. However, eighteen months following the completion of our last offering, we will be required to provide an estimated value of our shares to our stockholders.

There may be a delay in investing the proceeds from this offering due to the inability of our Advisor to find suitable properties, loans or other Permitted Investments and/or tenants and operators for those investments. Therefore, we might experience a delay in the receipt of returns from such investments.

We may delay investing the proceeds of this offering for up to the later of two years from the commencement of this offering or one year following the termination of the offering. Until we invest in properties, make loans or other Permitted Investments, our investment returns on offering proceeds will be limited to the rates of return available on short-term, highly liquid investments that provide appropriate safety of principal. We expect the rates of return on our investments, which rates affect the amount of cash available to make distributions to stockholders, to be lower than we would receive for investments in properties, loans or other Permitted Investments. These delays may be due to the inability of our Advisor to find suitable properties, loans or other Permitted Investments. Delays may also be caused by our Advisor’s or its affiliates’ employees who may be simultaneously trying to find suitable investments both for us and for other entities. We may be unable to find suitable tenants or operators in certain sectors, which could further delay our investment of proceeds. If we have not invested or committed for investment the Net Offering Proceeds or reserved those funds for company purposes within the later of two years from the initial date of this prospectus, or one year after the termination of this offering, then we will distribute the remaining funds, including accrued interest which has not been previously distributed, pro-rata to such Persons who are our stockholders at that time.

Selling your shares will be difficult, because there is no market for our common stock.

Currently, there is no market for our shares, so stockholders may not be able to promptly sell their shares at a desired price. You should only consider purchasing our shares as a long-term investment. Although we anticipate applying for listing or quotation or pursuing an alternate exit strategy on or before December 31, 2015, we do not know if we will ever apply to list our shares on a national securities exchange or be included for quotation on the National Market System of the NASDAQ Stock Market or, if we do apply for listing or quotation, when such application would be made or whether it would be accepted. If our shares are listed, we still cannot assure you that a public trading market will develop. We cannot assure you that the price you would receive in a sale on a national securities exchange or on the National Market System of the NASDAQ Stock

 

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Market would be representative of the value of the assets we own or that the price would equal or exceed the amount you paid for our shares. In addition, although we have adopted a redemption plan, we have discretion to not redeem your shares, to suspend the plan and to cease redemptions. The redemption plan has many limitations and you should not rely upon it as a method of selling shares promptly and at a desired price.

You are limited in your ability to sell your shares pursuant to our share redemption program.

Our share redemption program provides you with the opportunity, on a quarterly basis, to request that we redeem all or a portion of your shares after you have held them for one year, subject to certain restrictions and limitations. In the event that an eligible stockholder presents fewer than all of his or her shares to us for redemption, such stockholder must present at least 25% of his or her shares to us for redemption and must retain at least $5,000 of common shares if any shares are held after such redemption. Shares will be redeemed at the discretion of our board of directors subject to the provisions of our redemption plan and only to the extent of cash available after the payment of dividends necessary to maintain our qualification as a REIT and to avoid the payment of any U.S. federal income tax or excise tax on our net taxable income. This may significantly limit our ability to redeem your shares. To the extent our available cash flow is insufficient to fund all redemption requests, each stockholder’s request will be reduced on a pro rata basis, unless you withdraw your request for redemption or ask that we carry over your request to the next quarterly period, if any, when sufficient funds become available. Our board of directors reserves the right to amend or terminate the share redemption program at any time. Therefore, in making a decision to purchase shares, you should not assume that you will be able to sell any of your shares back to us pursuant to our share redemption program.

You cannot evaluate the types of properties or the specific properties that we will acquire or the loans or other Permitted Investments that we may make in the future.

Because we have not identified all of the specific assets that we will acquire in the future, we cannot provide you with all of the information that you may want to evaluate before deciding to invest in our shares. Our board has absolute discretion in implementing the investment policies set forth in our articles of incorporation. See “Business—Investment Focus” for a discussion of our investment policies and strategies. While we have targeted certain types of properties in the past and will continue to do so in the future, our investment policies and strategies are very broad and permit us to invest in many types of real estate, including developed and undeveloped properties, regardless of geographic location or property type.

We cannot assure you that we will obtain suitable investments and meet our investment objectives.

We cannot be certain that we will be successful in obtaining suitable investments on financially attractive terms or that, if we make investments, our objectives will be achieved. If we are unable to find suitable investments, then our financial condition and ability to pay distributions and/or increase the distribution rate could be adversely affected.

Company Related Risks

We may have difficulty funding distributions solely from cash flow from operations, which could reduce the funds we have available for investments and your overall return.

There are many factors that can affect the availability and timing of distributions to stockholders. We expect to fund distributions principally from cash flows from operations; however, if our properties are not generating sufficient cash flow or our other operating expenses require it, we may fund our distributions from borrowings. If we fund distributions from borrowings, then we will have fewer funds available for the acquisition of properties and your overall return may be reduced. Further, to the extent distributions exceed earnings and profits calculation on a tax basis, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize a capital gain in the future.

 

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Yields on and safety of deposits may be lower due to the extensive decline in the financial markets.

Until we invest the proceeds of the offering in properties, we generally hold those funds in permitted investments that are consistent with preservation of liquidity and safety. The investments include money market funds, bank money market accounts and CDs or other accounts at third-party depository institutions. While we strive to hold these funds in high quality investments with quality institutions, there can be no assurance that continued or unusual declines in the financial markets will not result in a loss of some or all of these funds or reductions in cash flows from these investments.

We may not be able to pay distributions at the current or at an increasing rate.

In the future, our ability to declare and pay distributions at our current or an increasing rate will be subject to evaluation by our board of directors of our current and expected future operating results, capital levels, financial condition, future growth plans, general business and economic conditions and other relevant considerations, and we cannot assure you that we will continue to pay distributions on any schedule or that we will not reduce the amount of or cease paying distributions in the future.

We may be unable to invest the proceeds we receive from our common stock offerings in a timely manner.

We have and expect to continue to raise capital through our current and future common stock offerings. If we experience delays in using this capital to acquire properties or make loans, it may reduce the rate at which we pay distributions to our stockholders as a result of the dilution that occurs from uninvested offering proceeds. Additionally, if we are unable to locate suitable third-party tenants for our properties, it may further delay our ability to acquire properties.

Our loss of key personnel could delay or hinder implementation of certain investment strategies, which could limit our ability to make distributions and decrease the value of an investment in our stock.

Our success depends to a significant degree upon the contributions of James M. Seneff, Jr., our Chairman, Robert A. Bourne, our Vice Chairman, R. Byron Carlock, Jr., our Chief Executive Officer, Charles A. Muller, our Chief Operations Officer and Tammie A. Quinlan, our Chief Financial Officer, each of whom would be difficult to replace. If any of these key personnel were to cease their affiliation with us or our affiliates, we may be unable to find suitable replacement personnel, and our operating results could suffer as a result. We do not maintain key person life insurance on any of our officers. We believe that our future success depends, in large part, upon our Advisor’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and our Advisor may be unsuccessful in attracting and retaining such skilled personnel.

Our stockholders may experience dilution.

Our stockholders have no preemptive rights. If we commence a subsequent public offering of shares or securities convertible into shares, or otherwise issue additional shares, then investors purchasing shares in this offering who do not participate in future stock issuances will experience dilution in the percentage of their equity investment. Stockholders will not be entitled to vote on whether or not we engage in additional offerings. In addition, depending on the terms and pricing of an additional offering of our shares and the value of our properties, our stockholders may experience dilution in both the book value and fair value of their shares. Our board of directors has not yet determined whether it will engage in future offerings or other issuances of shares; however, it may do so if our board determines that it is in our best interests. Other public REITs sponsored by CNL Financial Group, Inc. have engaged in multiple offerings.

The liquidation of our assets may be delayed.

If our shares are not listed on a national securities exchange or quoted on the National Market System of the NASDAQ Stock Market on or before December 31, 2015, we are obligated under our articles of incorporation to

 

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sell our assets and distribute the Net Sales Proceeds to our stockholders or merge with another entity in a transaction that provides our stockholders with cash or securities of a publicly traded company. In such instances, we will engage only in activities related to our orderly liquidation or merger unless stockholders owning a majority of our shares of common stock elect to extend our duration by amendment of our articles of incorporation. Neither our Advisor nor our board of directors may be able to control the timing of the sale of our assets or completion of a merger, and we cannot assure you that we will be able to sell our assets or merge with another company so as to return our stockholders’ aggregate Invested Capital, generate a profit for the stockholders or fully satisfy our debt obligations. Because we will use a portion of the offering proceeds to pay expenses and fees and the full offering price is not invested in properties, loans or other Permitted Investments, we will only return all of our stockholders’ Invested Capital if we sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets. If we take a purchase money obligation in partial payment of the sales price of a property, we may realize the proceeds of the sale over a period of years.

Conflicts of Interest and Related Risks

The timing of sales and acquisitions may favor our Advisor and not us.

Our Advisor may immediately realize substantial commissions, fees and other compensation as stock is sold in our public offering. Our board of directors approves each investment and sale, as well as our Advisor’s fees, but our Advisor may be influenced by the impact of a transaction upon its compensation in recommending such transactions.

There will be competing demands on our officers and directors.

James M. Seneff, Jr. and Robert A. Bourne are also officers and directors of our Advisor and other affiliated entities and may experience conflicts of interest in managing us because they also have management responsibilities for other companies including companies that may invest in some of the same types of assets in which we may invest. In addition, substantially all of the other companies that these officers and directors work for are affiliates of us and/or our Advisor. For these reasons, these officers and directors will share their management time and services among those companies and us, and do not devote all of their attention to us and could take actions that are more favorable to the other companies than to us. For an explanation of the conflicts of interest between us, our Advisor and its affiliates, and our policies to reduce or eliminate certain potential conflicts, see “Conflicts of Interest.”

Our Advisor’s fee structure may encourage it to recommend speculative investments and a high amount of leverage.

Because our Advisor will receive fees based on the amount of Permanent Financing we obtain, our Advisor may have an incentive to recommend a high amount of leverage. Similarly, because our Advisor may receive fees upon the sale of properties, loans and other Permitted Investments, our Advisor may have an incentive to recommend the early sale of these assets. However, our Independent Directors must approve the Advisory Agreement each year and are required to review the fees and activities of our Advisor on our behalf.

Real Estate and Other Investment Risks

The current economic slowdown has affected certain of the lifestyle properties in which we invest, and the financial difficulties of our tenants and operators could adversely affect us.

The current economic slowdown has affected certain of the lifestyle properties in which we invest, and a prolonged or expanded period of economic difficulty could adversely affect other of our lifestyle properties. Although a general downturn in the real estate industry would be expected to adversely affect the value of our properties, a downturn in the ski, golf, attractions, marinas and additional lifestyle industries in which we invest could compound the adverse affect. Economic weakness combined with higher costs, especially for energy, food

 

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and commodities, has put considerable pressure on consumer spending, which, along with the lack of available debt, has resulted in certain of our tenants experiencing a decline in financial and operating performance over the past twelve months than in prior periods. Reductions in consumer spending due to weakness in the economy and uncertainties regarding future economic prospects have adversely affected some of our tenants’ abilities to pay rent to us, resulting in the restructuring of many of their leases with us or in the termination of certain leases. The continuation or expansion of such events could have a negative impact on our results of operations and our ability to pay distributions to our stockholders. In addition, negative events impacting the capital markets may reduce the amount of working capital available to our tenants which may affect their ability to pay rent.

The current economic environment has affected certain of our tenants’ ability to make rental payments to us in accordance with their lease agreement and could reduce our cash flows from operating activities.

Many of our tenants have experienced difficulties or have been unable to obtain working capital lines of credit or renew their existing lines of credit due to current state of economy and the capital markets which impacted their ability to pay the full amount of rent due under their leases. As a result, we restructured the leases for certain tenants such that the rents are paid on a seasonal schedule with most, if not all, of the rent being paid during the tenants’ seasonally busy period. In other cases, we restructured the lease terms to allow for rent deferrals or reductions for a period of time to provide temporary relief that then become payable in later periods of the lease term. In addition, we have refunded security deposits which must be replaced up to specified amounts and have provided lease allowances. The rent deferrals granted, the security deposits refunded and lease allowances paid in 2009 directly reduced our cash flows from operating activities. Other restructures, such as the reductions in lease rates and the future amortization of lease allowances against rental income, have reduced and will reduce our net operating results in current and future periods.

Because our revenues are highly dependent on lease payments from our properties and interest payments from loans that we make, defaults by our tenants or borrowers would reduce our cash available for the repayment of our outstanding debt and for distributions.

Our ability to repay any outstanding debt and make distributions to stockholders will depend upon the ability of our tenants and borrowers to make payments to us, and their ability to make these payments will depend primarily on their ability to generate sufficient revenues in excess of operating expenses from businesses conducted on our properties. For example, the ability of our tenants to make their scheduled payments to us will depend upon their ability to generate sufficient operating income at the property or properties they operate. A tenant’s failure or delay in making scheduled rent payments to us or a borrower’s failure to make debt service payments to us may result from the tenant or borrower realizing reduced revenues at the properties it operates.

We do not have control over market and business conditions that may affect our success.

The following external factors, as well as other factors beyond our control, may reduce the value of properties that we acquire, the ability of tenants to pay rent on a timely basis, or at all, the amount of the rent to be paid and the ability of borrowers to make loan payments on time, or at all:

 

   

changes in general or local economic or market conditions;

 

   

the pricing and availability of debt or working capital;

 

   

increased costs of energy, insurance or products;

 

   

increased costs and shortages of labor;

 

   

increased competition;

 

   

quality of management;

 

   

failure by a tenant to meet its obligations under a lease;

 

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bankruptcy of a tenant or borrower;

 

   

the ability of an operator to fulfill its obligations;

 

   

limited alternative uses for properties;

 

   

changing consumer habits;

 

   

condemnation or uninsured losses;

 

   

changing demographics; and

 

   

changing government regulations.

Further, the results of operations for a property in any one period may not be indicative of results in future periods, and the long-term performance of such property generally may not be comparable to, and cash flows may not be as predictable as, other properties owned by third parties in the same or similar industry. If tenants are unable to make lease payments or borrowers are unable to make loan payments as a result of any of these factors, cash available for distributions to our stockholders may be reduced.

Our exposure to typical real estate investment risks could reduce our income.

Our properties, loans and other Permitted Investments will be subject to the risks typically associated with investments in real estate. Such risks include the possibility that our properties will generate rent and capital appreciation, if any, at rates lower than we anticipated or will yield returns lower than those available through other investments. Further, there are other risks by virtue of the fact that our ability to vary our portfolio in response to changes in economic and other conditions will be limited because of the general illiquidity of real estate investments. Income from our properties may be adversely affected by many factors including, but not limited to, an increase in the local supply of properties similar to our properties, a decrease in the number of people interested in participating in activities related to the businesses conducted on the properties that we acquire, adverse weather conditions, changes in government regulation, international, national or local economic deterioration, increases in energy costs and other expenses affecting travel, factors which may affect travel patterns and reduce the number of travelers and tourists, increases in operating costs due to inflation and other factors that may not be offset by increased room rates, and changes in consumer tastes.

If one or more of our tenants file for bankruptcy protection, we may be precluded from collecting all sums due.

If one or more of our tenants, or the guarantor of a tenant’s lease, commences, or has commenced against it, any proceeding under any provision of the U.S. federal bankruptcy code, as amended, or any other legal or equitable proceeding under any bankruptcy, insolvency, rehabilitation, receivership or debtor’s relief statute or law (“Bankruptcy Proceeding”), we may be unable to collect sums due under our lease(s) with that tenant. Any or all of the tenants, or a guarantor of a tenant’s lease obligations, could be subject to a Bankruptcy Proceeding. A Bankruptcy Proceeding may bar our efforts to collect pre-bankruptcy debts from those entities or their properties unless we are able to obtain an enabling order from the bankruptcy court. If a lease is rejected by a tenant in bankruptcy, we would only have a general unsecured claim against the tenant, and may not be entitled to any further payments under the lease. We believe that our security deposits in the form of letters of credit would be protected from bankruptcy in most jurisdictions. However, a tenant’s or lease guarantor’s Bankruptcy Proceeding could hinder or delay efforts to collect past due balances under relevant leases or guarantees and could ultimately preclude collection of these sums. Such an event could cause a decrease or cessation of rental payments which would reduce our cash flow and the amount available for distribution to our stockholders. In the event of a Bankruptcy Proceeding, we cannot assure you that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distribution to our stockholders may be adversely affected.

 

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Multiple property leases or loans with individual tenants or borrowers increase our risks in the event that such tenants or borrowers become financially impaired.

The value of our properties will depend principally upon the value of the leases entered into for properties that we acquire. Defaults by a tenant or borrower may continue for some time before we determine that it is in our best interest to evict the tenant or foreclose on the property of the borrower. Tenants may lease more than one property, and borrowers may enter into more than one loan. As a result, a default by, or the financial failure of, a tenant or borrower could cause more than one property to become vacant or be in default or more than one lease or loan to become non-performing. Defaults or vacancies can reduce and have reduced our cash receipts and funds available for distribution and could decrease the resale value of affected properties until they can be re-leased.

We may rely on various cash flow or income security provisions in our leases for minimum rent payments.

Our leases may, but are not required to, have security provisions such as deposits, stock pledges and guarantees or shortfall reserves provided by a third-party tenant or operator. These security provisions may terminate at either a specific time during the lease term or once net operating income of the property exceeds a specified amount. Certain security provisions may also have limits on the overall amount of the security under the lease. During 2009, we released certain portions of our security deposits to certain of our tenants in connection with certain lease restructures and modified those tenants’ obligations to replenish their security deposits in the future. After the termination of a security feature, or in the event that the maximum limit of a security provision is reached, we may only look to the tenant to make lease payments. In the event that a security provision has expired or the maximum limit has been reached, or a provider of a security provision is unable to meet its obligations, our results of operations and ability to pay distributions to our stockholders could be adversely affected if our tenants are unable to generate sufficient funds from operations to meet minimum rent payments and the tenants do not otherwise have the resources to make rent payments.

It may be difficult for us to exit a joint venture after an impasse.

In our joint ventures, there will be a potential risk of impasse in some business decisions because our approval and the approval of each co-venturer may be required for some decisions. In any joint venture, we may have the right to buy the other co-venturer’s interest or to sell our own interest on specified terms and conditions in the event of an impasse regarding a sale. In the event of an impasse, it is possible that neither party will have the funds necessary to complete a buy-out. In addition, we may experience difficulty in locating a third-party purchaser for our joint venture interest and in obtaining a favorable sale price for the interest. As a result, it is possible that we may not be able to exit the relationship if an impasse develops.

Discretionary consumer spending may affect the profitability of certain properties we acquire.

The financial performance of certain properties in which we have invested and may invest in the future depends in part on a number of factors relating to or affecting discretionary consumer spending for the types of services provided by businesses operated on these properties. Unfavorable local, regional, or national economic developments or uncertainties regarding future economic prospects have reduced consumer spending in the markets where we own properties and, when combined with the lack of available debt, have adversely affected certain of our tenants’ businesses. As a result, certain of our tenants have experienced declines in operating results, and a number of our tenants have sought to modify certain of their leases. Any continuation of such events that leads to lower spending on lifestyle activities could impact our tenants’ ability to pay rent and thereby have a negative impact on our results of operations.

 

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Seasonal revenue variations in certain asset classes will require the operators of those asset classes to manage cash flow properly over time so as to meet their non-seasonal scheduled rent payments to us.

Certain of the properties in which we invest are generally seasonal in nature due to geographic location, climate and weather patterns. For example, revenue and profits at ski resorts and their related properties are substantially lower and historically result in losses during the summer months due to the closure of ski operations, while many attractions properties are closed during the winter months and produce the majority of their revenues and profits during summer months. As a result of the seasonal nature of certain business operations that may be conducted on properties we acquire, these businesses will experience seasonal variations in revenues that may require our operators to supplement revenue at their properties in order to be able to make scheduled rent payments to us or require us to, in certain cases we have or may, adjust their lease payments so that we collect proportionately more rent during their tenants’ seasonally busy operating period.

Our real estate assets may be subject to impairment charges.

We periodically evaluate the recoverability of the carrying value of our real estate assets for impairment indicators. Factors considered in evaluating impairment of our existing real estate assets held for investment include significant declines in property operating profits, recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Generally, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of the asset over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. Investments in unconsolidated entities are not considered impaired if the estimated fair value of the investment exceeds the carrying value of the investment. Management makes assumptions and estimates when considering impairments and actual results could vary materially from these assumptions and estimates.

The real estate industry is capital intensive and we are subject to risks associated with ongoing needs for renovation and capital improvements to our properties as well as financing for such expenditures.

In order for us to remain competitive, our properties will have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. These capital improvements may give rise to the following risks:

 

   

construction cost overruns and delays;

 

   

a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on satisfactory terms; and

 

   

disruptions in the operation of the properties while capital improvements are underway.

Increased competition for customers may reduce the ability of certain of our operators to make scheduled rent payments to us.

The types of properties in which we invest are expected to face competition for customers from other similar properties, both locally and nationally. For example, competing golf courses may be located near the golf courses we own or acquire. Similarly, marinas we acquire will compete in each market with other marinas, some of which may have greater resources than our marinas, for a limited number of boaters seeking boat rental slips. Any decrease in revenues due to such competition at any of our properties may adversely affect our operators’ ability to make scheduled rent payments to us.

We will have no economic interest in the land beneath ground lease properties we have and will acquire in the future.

A significant number of the properties that we have acquired are on land owned by a governmental entity or other third party, while we own a leasehold, permit, or similar interest. This means that while we have a right to

 

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use the property, we do not retain fee ownership in the underlying land. Accordingly, with respect to such properties, we will have no economic interest in the land or buildings at the expiration of the ground lease or permit. As a result, although we will share in the income stream derived from the lease or permit, we will not share in any increase in value of the land associated with the underlying property. Further, because we do not completely control the underlying land, the governmental or other third party owners that lease this land to us could take certain actions to disrupt our rights in the properties or our tenants’ operation of the properties or take the properties in an eminent domain proceeding. While we do not think such interruption is likely, such events are beyond our control. If the entity owning the land under one of our properties chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our results of operations and ability to pay distributions to our stockholders could be adversely affected.

Marinas, ski resorts, golf courses and other types of properties in which we may invest may not be readily adaptable to other uses.

Ski resorts and related properties, marinas, golf courses and other types of properties in which we may invest are specific-use properties that have limited alternative uses. Therefore, if the operations of any of our properties in these sectors, such as our ski properties, become unprofitable for our tenant or operator due to industry competition, a general deterioration of the applicable industry or otherwise, such that the tenant becomes unable to meet its obligations under its lease, then we may have great difficulty re-leasing the property and the liquidation value of the property may be substantially less than would be the case if the property were readily adaptable to other uses. Should any of these events occur, our income and cash available for distribution and the value of our property portfolio could be reduced.

Our investments in common equity securities will be subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities.

We may invest in real estate common equity securities of both publicly traded and private real estate companies. Investments in real estate common equity securities involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate common equity securities generally invest in real estate or real estate related assets and are subject to the inherent risks associated with real estate related investments discussed in this prospectus, including risks relating to rising interest rates.

Real estate common equity securities are generally unsecured and may also be subordinated to other obligations of the issuer. As a result, investments in real estate common equity securities are subject to risks of (i) limited liquidity in the secondary trading market; (ii) substantial market price volatility resulting from changes in prevailing interest rates; (iii) subordination to the prior claims of banks and other senior lenders to the issuer; (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets; (v) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations; and (vi) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding real estate common equity securities and the ability of the issuers thereof to repay principal and interest or make distribution payments.

Investments in preferred equity securities involve a greater risk of loss than traditional debt financing.

We may invest in real estate preferred equity securities, which involve a higher degree of risk than traditional debt financing due to a variety of factors, including the risk that such investments are subordinate to traditional loans and are not collateralized by property underlying the investment. Furthermore, should the issuer default on our investment, we would only be able to proceed against the entity in which we have an interest, and not the property owned by such entity and underlying our investment. As a result, we may not recover some or all of our investment.

 

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A portion of our real estate securities investments may be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

Certain of the real estate securities that we may purchase in connection with privately negotiated transactions will not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

We compete with other companies for investments.

We anticipate that we will continue to compete with other companies and investors, including other REITs, real estate partnerships, mutual funds, institutional investors, specialty finance companies, opportunity funds, banks and insurance companies, for the acquisition of properties, loans and other Permitted Investments that we seek to acquire or make. Some of the other entities that we may compete with for acquisition opportunities will have substantially greater experience acquiring and owning the types of properties, loans or other Permitted Investments in which we seek to acquire or make, as well as greater financial resources and a broader geographic knowledge base than we have. As a result, competition may reduce the number of suitable acquisition opportunities available to us.

Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act of 1940; maintenance of our Investment Company Act exemption imposes limits on our operations.

We currently are not registered as an investment company under the Investment Company Act of 1940 based on exemptions we believe are available to us. We have conducted our operations, and intend to continue to conduct our operations, so as not to become regulated as an investment company under the Investment Company Act.

If we fail to maintain an exemption or other exclusion from registration as an investment company, we could, among other things, be required to either (i) substantially change the manner in which we conduct our operations to avoid registering as an investment company, or (ii) register as an investment company. If we were registered as an investment company, we would have to comply with a variety of substantive requirements that would have the following effect:

 

   

place limits on our capital structure;

 

   

impose restrictions on specified investments;

 

   

prohibit transactions with affiliates;

 

   

require us to change the composition of our board of directors; and

 

   

require us to comply with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts might be unenforceable unless a court was to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business. Also, because affiliate transactions are prohibited under the Investment Company Act, failure to maintain our exemption would force us to terminate the Advisory Agreement and all other agreements with our affiliates. Any such result would be likely to have a material adverse effect on our business, our financial results and our ability to make distributions to stockholders.

 

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Your investment may be subject to additional risks if we make international investments.

We have purchased properties in Canada and we may purchase properties located in Mexico, the Caribbean Europe, and other foreign venues. Such investments could be affected by factors particular to the laws and business practices of those countries. These laws or business practices may expose us to risks that are different from, and in addition to, those commonly found in the United States including, but not limited to foreign currency fluctuations and additional tax burdens that may impact our results of operations, cash flows and cash available for distribution to stockholders. Specifically, foreign investments could be subject to the following risks:

 

   

the imposition of unique tax structures and differences in taxation policies and rates and other operating expenses in particular countries;

 

   

non-recognition of particular structures intended to limit certain tax and legal liabilities;

 

   

changing governmental rules and policies, including changes in land use and zoning laws;

 

   

enactment of laws relating to the foreign ownership of real property or mortgages and laws restricting the ability of foreign persons or companies to remove profits earned from activities within the country to the person’s or company’s county of origin;

 

   

our limited experience and expertise in foreign countries relative to our experience and expertise in the United States;

 

   

variations in currency exchange rates;

 

   

adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions;

 

   

the willingness of domestic or foreign lenders to make mortgage loans in certain countries and changes in the availability, cost and terms of mortgage funds resulting from varying national economic policies;

 

   

general political and economic instability; and

 

   

more stringent environmental laws or changes in such laws.

We will not control the management of our properties.

In order to maintain our status as a REIT for federal income tax purposes, we may not operate certain types of properties we acquire or participate in the decisions affecting their daily operations. Our success, therefore, will depend on our ability to select qualified and creditworthy tenants who can effectively manage and operate the properties. Our tenants will be responsible for maintenance and other day-to-day management of the properties or will enter into agreements with third-party operators directly or by entering into operating agreements with third-party operators. Because our revenues will largely be derived from rents, our financial condition will be dependent on the ability of third-party tenants and/or operators to operate the properties successfully. We will attempt to enter into leasing agreements with tenants having substantial prior experience in the operation of the type of property being rented; however, there can be no assurance that we will be able to make such arrangements. Additionally, if we elect to treat property we acquire as a result of a borrower’s default on a loan or a tenant’s default on a lease as “foreclosure property” for federal income tax purposes, we will be required to operate that property through an independent contractor over whom we will not have control. If our tenants or third-party operators are unable to operate the properties successfully or if we select unqualified operators, then such tenants and operators might not have sufficient revenue to be able to pay our rent, which could adversely affect our financial condition.

We may not control our joint ventures.

Our Independent Directors must approve all joint venture or general partnership arrangements. Subject to that approval, we may enter into a joint venture with an unaffiliated party to purchase a property or to make loans

 

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or other Permitted Investments, and the joint venture or general partnership agreement relating to that joint venture or partnership may provide that we will share with the unaffiliated party management control of the joint venture. For instance, with respect to the Intrawest Resort Village Properties and the Dallas Market Center, our venture partners share approval rights on many major decisions. Those venture partners may have differing interests from ours and the power to direct the joint venture or partnership on certain matters in a manner with which we do not agree. In the event the joint venture or general partnership agreement provides that we will have sole management control of the joint venture, the agreement may be ineffective as to a third party who has no notice of the agreement, and we may therefore be unable to control fully the activities of the joint venture. Should we enter into a joint venture with another program sponsored by an affiliate, we do not anticipate that we will have sole management control of the joint venture. In addition, when we invest in properties, loans or other Permitted Investments indirectly through the acquisition of interests in entities that own such properties, loans or other Permitted Investments, we may not be able to control the management of such assets.

Joint venture partners may have different interests than we have, which may negatively impact our control over our ventures.

Investments in joint ventures involve the risk that our co-venturer may have economic or business interests or goals which, at a particular time, are inconsistent with our interests or goals, that the co-venturer may be in a position to take action contrary to our instructions, requests, policies or objectives, or that the co-venturer may experience financial difficulties. Among other things, actions by a co-venturer might subject assets owned by the joint venture to liabilities in excess of those contemplated by the terms of the joint venture agreement or to other adverse consequences. This risk is also present when we make investments in securities of other entities. If we do not have full control over a joint venture, the value of our investment will be affected to some extent by a third party that may have different goals and capabilities than ours. As a result, joint ownership of investments and investments in other entities may adversely affect our returns on investments and, therefore, cash available for distributions to our stockholders may be reduced.

Compliance with the Americans with Disabilities Act may reduce our expected distributions.

Under the Americans with Disabilities Act of 1992, or the ADA, all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons, and complying with the ADA could require us to remove access barriers. Failure to comply with the ADA could result in the imposition of fines by the federal government or an award of damages to private litigants. Although we intend to acquire properties that substantially comply with these requirements, we may incur additional costs to comply with the ADA. In addition, a number of federal, state, and local laws may require us to modify any properties we purchase, or may restrict further renovations thereof with respect to access by disabled persons. Additional legislation could impose financial obligations or restrictions with respect to access by disabled persons. Although we believe that these costs will not have a material adverse effect on us, if required changes involve a greater amount of expenditures than we currently anticipate, our ability to make expected distributions could be adversely affected.

Our properties may be subject to environmental liabilities that could significantly impact our return from the properties and the success of our ventures.

Operations at certain of the properties we have acquired or may acquire in the future, or which are used to collateralize loans we have made or may make, may involve the use, handling, storage, and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as herbicides, pesticides, fertilizers, motor oil, waste motor oil and filters, transmission fluid, antifreeze, Freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels, and sewage. Accordingly, the operations of certain properties we acquire will be subject to regulation by federal, state, and local authorities establishing health and environmental quality standards. In addition, certain of our properties may maintain and operate underground storage tanks (“USTs”) for the storage of various

 

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petroleum products. USTs are generally subject to federal, state, and local laws and regulations that require testing and upgrading of USTs and the remediation of contaminated soils and groundwater resulting from leaking USTs.

As an owner of real estate, various federal and state environmental laws and regulations may require us to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum products located on, in or emanating from our properties. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the release of hazardous substances. We may also be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by those parties in connection with the contamination. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Other environmental laws impose liability on a previous owner of property to the extent hazardous or toxic substances were present during the prior ownership period. A transfer of the property may not relieve an owner of such liability; therefore, we may have liability with respect to properties that we or our predecessors sold in the past.

The presence of contamination or the failure to remediate contamination at any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral. While our leases are expected to provide that the tenant is solely responsible for any environmental hazards created during the term of the lease, we or an operator of a site may be liable to third parties for damages and injuries resulting from environmental contamination coming from the site.

All of our properties have been or will be acquired subject to satisfactory Phase I environmental assessments, which assessments generally involve the inspection of site conditions without invasive testing such as sampling or analysis of soil, groundwater or other conditions, or satisfactory Phase II environmental assessments, which generally involve the testing of soil, groundwater or other conditions. Our board of directors and our Advisor may determine that we will acquire a property in which a Phase I or Phase II environmental assessment indicates that a problem exists and has not been resolved at the time the property is acquired, provided, however, that if it is a material problem: (i) the seller has (a) agreed in writing to indemnify us and/or (b) established an escrow fund with cash equal to a predetermined amount greater than the estimated costs to remediate the problem; or (ii) we have negotiated other comparable arrangements, including, but not limited to, a reduction in the purchase price. We cannot be sure, however, that any seller will be able to pay under an indemnity we obtain or that the amount in escrow will be sufficient to pay all remediation costs. Further, we cannot be sure that all environmental liabilities associated with the properties that we may acquire from time to time will have been identified or that no prior owner, operator or current occupant will have created an environmental condition not known to us. Moreover, we cannot be sure that: (i) future laws, ordinances or regulations will not impose any material environmental liability on us; or (ii) the environmental condition of the properties that we may acquire from time to time will not be affected by tenants and occupants of the properties, by the condition of land or operations in the vicinity of the properties (such as the presence of USTs), or by third parties unrelated to us. Environmental liabilities that we may incur could have an adverse effect on our financial condition, results of operations or ability to pay distributions to our stockholders.

In addition to the risks associated with potential environmental liabilities discussed above, compliance with environmental laws and regulations that govern our properties may require expenditures and modifications of development plans and operations that could have a detrimental effect on the operations of the properties and our financial condition, results of operations and ability to pay distributions to our stockholders. There can be no assurance that the application of environmental laws, regulations or policies, or changes in such laws, regulations and policies, will not occur in a manner that could have a detrimental effect on any property we may acquire.

 

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Legislation and government regulation may adversely affect the development and operations of properties we may acquire.

In addition to being subject to environmental laws and regulations, certain of the development plans and operations conducted or to be conducted on properties we have acquired and may acquire in the future require permits, licenses and approvals from certain federal, state and local authorities. For example, ski resort operations often require federal, permits from the U.S. Forest Service to use forests as ski slopes. Material permits, licenses or approvals may be terminated, not renewed or renewed on terms or interpreted in ways that are materially less favorable to the properties we purchase. Furthermore, laws and regulations that we or our operators are subject to may change in ways that are difficult to predict. There can be no assurance that the application of laws, regulations or policies, or changes in such laws, regulations and policies, will not occur in a manner that could have a detrimental effect on any property we may acquire, the operations of such property and the amount of rent we receive from the tenant of such property.

Governmental regulation with respect to water use by ski resorts and golf courses could negatively impact ski resorts and golf courses we acquire.

The rights of ski resorts, golf courses and related properties that we have acquired or may acquire in the future to use various water sources on or about their properties may also be subject to significant restrictions or the rights of other riparian users and the public generally. Certain ski resorts, golf courses and related properties we have acquired or may acquire in the future and the municipalities in which they are located may be dependent upon a single source of water, which sources could be historically low or inconsistent. Such a problem with water may lead to disputes and litigation over, and restrictions placed on, water use. Disputes and litigation over water use could damage the reputation of ski resorts, golf courses and related properties we have acquired or may acquire in the future and could be expensive to defend, and together with restrictions placed on water use, could have a material adverse effect on the business and operating results of our ski resorts, golf courses and related properties.

Governmental regulation of marinas with respect to dredging or damming could negatively impact marinas we acquire.

Marinas that we have acquired or may acquire in the future must be dredged from time to time to remove the silt and mud that collect in harbor areas as a result of, among other factors, heavy boat traffic, tidal flow, water flow and storm runoff. Dredging and disposing of the dredged material can be very costly and may require permits from various governmental authorities. In addition, the Army Corps of Engineers often has the authority to dam rivers and lakes, which can negatively affect our marinas. If we or our marina tenants or operators engaged by our marina tenants cannot timely obtain the permits necessary to dredge marinas or dispose of the dredged material, if dredging is not practical or is exceedingly expensive, or damming drops water levels, the operations of the marina could be materially and adversely affected, which could have a negative impact on our financial condition.

Uninsured losses or losses in excess of insured limits could result in the loss or substantial impairment of one or more of our investments.

The nature of the activities at certain of our properties will expose us and our operators to potential liability for personal injuries and, with respect to certain types of properties such as marinas, property damage claims. For instance, marina business activities are customarily subject to various hazards, including gasoline or other fuel spills, fires, drownings and other water-related accidents, boat storage rack collapses and other dangers relatively common in the marina industry. We will maintain, and require our tenants and operators as well as mortgagors to whom we have loaned money to maintain, insurance with respect to each of our properties that tenants lease or operate and each property securing a mortgage that we hold, including comprehensive liability, fire, flood and extended coverage insurance. There are, however, certain types of losses (such as from hurricanes, floods,

 

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earthquakes or terrorist attacks) that may be either uninsurable or not economically feasible to insure. Furthermore, an insurance provider could elect to deny or limit coverage under a claim. Should an uninsured loss or loss in excess of insured limits occur, we could lose all or a portion of our anticipated revenue stream from the affected property, as well as all or a portion of our invested capital. Accordingly, if we, as landlord, incur any liability which is not fully covered by insurance, we would be liable for the uninsured amounts, cash available for distributions to stockholders may be reduced and the value of our assets may decrease significantly. In the case of an insurance loss, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

Portfolio acquisitions are more difficult to complete than single asset acquisitions.

Sellers may require that a group of assets be purchased as a package, even though one or more of the assets in the portfolio does not meet our investment criteria. In such cases, we may attempt to make a joint bid with another buyer, or we may purchase the portfolio of assets with the intent to subsequently dispose of those assets which do not meet our investment criteria. In the case of joint bids, however, it is possible that the other buyer may default in its obligations, which increases the risk that the acquisition will not close, with the adverse consequences described above. In cases where we intend to dispose of assets that we do not wish to own, we cannot assure you that we will be able to sell or exchange such asset or assets in a timely manner or on terms beneficial or satisfactory to us.

Adverse weather conditions may damage certain properties we acquire and/or reduce our operators’ ability to make scheduled rent payments to us.

Weather conditions may influence revenues at certain types of properties we acquire. These adverse weather conditions include heavy snowfall (or lack thereof), hurricanes, tropical storms, high winds, heat waves, frosts, drought (or reduced rainfall levels), excessive rain, avalanches, mudslides and floods. Adverse weather could reduce the number of people participating in activities at properties we acquire and have acquired. Certain properties may be susceptible to damage from weather conditions such as hurricanes, which may cause damage (including, but not limited to property damage and loss of revenue) that is not generally insurable at commercially reasonable rates. Further, the physical condition of properties we acquire must be satisfactory to attract visitation. In addition to severe or generally inclement weather, other factors, including, but not limited to plant disease and insect infestation, as well as the quality and quantity of water, could adversely affect the conditions at properties we own and acquire or develop. Most properties have some insurance coverage that will offset such losses and fund needed repairs.

Our operating results may be negatively affected by potential development and construction delays and resultant increased costs and risks.

We may invest in properties upon which we will develop and construct improvements. We will be subject to risks relating to uncertainties associated with re-zoning for development and environmental concerns of governmental entities and/or community groups, and our ability to control construction costs or to build in conformity with plans, specifications and timetables. Our performance also may be affected or delayed by conditions beyond our control. Moreover, delays in completion of construction also could give tenants the right to terminate preconstruction leases for space at a newly developed project. Furthermore, we must rely upon projections of rental income, expenses and estimates of the fair market value of property upon completion of construction before agreeing to a property’s purchase price. If our projections are inaccurate, we may pay too much for a property and our return on our investment could suffer.

If we set aside insufficient reserves for capital expenditures, we may be required to defer necessary property improvements.

If we do not have enough reserves for capital expenditures to supply needed funds for capital improvements throughout the life of the investment in a property, and there is insufficient cash available from our operations,

 

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we may be required to defer necessary improvements to the property that may cause the property to suffer from a greater risk of obsolescence, a decline in value and/or a greater risk of decreased cash flow as a result of attracting fewer potential tenants to the property and adversely affecting our tenants’ businesses. If we lack sufficient capital to make necessary capital improvements, then we may not be able to maintain projected rental rates for certain properties, and our results of operations and ability to pay distributions to our stockholders may be negatively impacted.

Lending Related Risks

Our loans may be affected by unfavorable real estate market conditions.

When we make loans, we are at risk of default on those loans caused by many conditions beyond our control, including local and other economic conditions affecting real estate values and interest rate levels. We do not know whether the values of the properties collateralizing mortgage loans will remain at the levels existing on the dates of origination of the loans. If the values of the underlying properties drop or in some instances fail to rise, our risk will increase and the value of our interests may decrease.

Foreclosures create additional ownership risks that could adversely impact our returns on mortgage investments.

When we acquire property by foreclosure following defaults under our mortgage, bridge or mezzanine loans, we have the economic and liability risks as the owner of such property. This additional liability could adversely impact our returns on mortgage investments.

Our loans will be subject to interest rate fluctuations.

If we invest in fixed-rate, long-term loans and interest rates rise, the loans will yield a return lower than then-current market rates. If interest rates decrease, we will be adversely affected to the extent that loans are prepaid, because we will not be able to make new loans at the previously higher interest rate.

Lack of principal amortization of loans increases the risk of borrower default at maturity and delays in liquidating defaulted loans could reduce our investment returns and our cash available for distributions.

Certain of the loans that we have made do not require the amortization of principal during their term. As a result, a substantial amount of, or the entire principal balance of such loans, will be due in one balloon payment at their maturity. Failure to amortize the principal balance of loans may increase the risk of a default during the term, and at maturity of loans. In addition, certain of our loans have or may have a portion of the interest accrued and payable upon maturity. We may not receive any of that accrued interest if our borrower defaults. A default under loans could have a material adverse effect on our ability to pay distributions to stockholders. Further, if there are defaults under our loans, we may not be able to repossess and sell the underlying properties or other security quickly. The resulting time delay could reduce the value of our investment in the defaulted loans. An action to foreclose on a mortgaged property securing a loan is regulated by state statutes and rules and is subject to many of the delays and expenses of other lawsuits if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due on our loan. Any failure or delay by a borrower in making scheduled payments to us may adversely affect our ability to make distributions to stockholders.

We may make loans on a subordinated and unsecured basis and may not be able to collect outstanding principal and interest.

Although our loans to third parties are usually collateralized by properties pledged by such borrowers, we have made loans that are unsecured and/or subordinated in right of payment to such third parties’ existing and

 

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future indebtedness. In the event of a foreclosure, bankruptcy, liquidation, winding up, reorganization or other similar proceeding relating to such third party, and in certain other events, such third party’s assets may only be available to pay obligations on our unsecured loans after the third party’s other indebtedness has been paid. As a result, there may not be sufficient assets remaining to pay the principal or interest on the unsecured loans we may make.

Financing Related Risks

Continued uncertainty and volatility in the credit markets could affect our ability to obtain debt financing on reasonable terms, which could reduce the number of properties we may be able to acquire.

The global and U.S. economy continued to struggle during 2009 and there continues to be uncertainty regarding the duration of the economic downturn as well as the full impact of these events on the global and U.S. economy, including our properties. If mortgage debt is unavailable on attractive terms as a result of increased interest rates, increased credit spreads, decreased liquidity or other factors, our ability to acquire properties may be limited and we risk being unable to refinance our existing debt upon maturity.

There is no guarantee that borrowing arrangements or other arrangements for obtaining leverage will be available, or if available, will be available on terms and conditions acceptable to us.

Unfavorable economic conditions have increased financing costs and limited access to the capital markets. In addition, a decline in market value of our assets may have adverse consequences in instances where we borrow money based on the fair value of those assets. A decrease in market value of those assets may result in the lender requiring us to post additional collateral.

Currently, the market for credit facilities is very challenging and many lenders are actively seeking to reduce their balances outstanding by lowering advance rates on financed assets and increasing borrowing costs, to the extent such facilities continue to be available.

In the event we are unable to maintain or extend existing and/or secure new lines of credit or collateralized financing on favorable terms, our ability to make investments and our ability to make distributions may be significantly impacted.

Anticipated borrowing creates risks.

We have borrowed and will likely continue to borrow money to acquire assets, to preserve our status as a REIT or for other corporate purposes. We generally mortgage or put a lien on one or more of our assets in connection with any borrowing. We intend to maintain one or more revolving lines of credit of up to $150 million to provide financing for the acquisition of assets, although our board of directors could determine to borrow a greater amount. We may repay the line of credit using equity offering proceeds, including proceeds from our stock offering, proceeds from the sale of assets, working capital or long-term Permanent Financing. We also have and intend to continue to obtain long-term financing. We may not borrow more than 300% of the value of our Net Assets without the approval of a majority of our Independent Directors and the borrowing must be disclosed and explained to our stockholders in our first quarterly report after such approval. Borrowing may be risky if the cash flow from our properties and other Permitted Investments is insufficient to meet our debt obligations. In addition, our lenders may seek to impose restrictions on future borrowings, distributions and operating policies, including with respect to capital expenditures and asset dispositions. If we mortgage assets or pledge equity as collateral and we cannot meet our debt obligations, then the lender could take the collateral, and we would lose the asset or equity and the income we were deriving from the asset.

 

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Because our revenues are highly dependent on lease payments from our properties and interest payments from loans that we make, defaults by our tenants or borrowers would reduce our cash available for the repayment of our outstanding debt and for distributions.

Our ability to repay any outstanding debt and make distributions to stockholders depends upon the ability of our tenants and borrowers to make payments to us, and their ability to make these payments will depend primarily on their ability to generate sufficient revenues in excess of operating expenses from businesses conducted on our properties. For example, the ability of our golf tenants to make their scheduled rent payments to us will be dependent upon their ability to generate sufficient operating income at the golf courses they operate. A tenant’s failure or delay in making scheduled rent payments to us or a borrower’s failure to make debt service payments to us may result from the tenant or borrower realizing reduced revenues at the properties it operates.

Defaults on our borrowings may adversely affect our financial condition and results of operations.

Defaults on loans collateralized by a property we own may result in foreclosure actions and our loss of the property or properties securing the loan that is in default. Such legal actions are expensive. For tax purposes, a foreclosure would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt collateralized by the property. If the outstanding balance of the debt exceeds our tax basis in the property, we would recognize taxable income on the foreclosure, all or a portion of such taxable income may be subject to tax, and/or required to be distributed to our stockholders in order for us to qualify as a REIT. In such case, we would not receive any cash proceeds to enable us to pay such tax or make such distributions. If any mortgages contain cross collateralization or cross default provisions, more than one property may be affected by a default. If any of our properties are foreclosed upon due to a default, our financial condition, results of operations and ability to pay distributions to stockholders will be adversely affected.

Financing arrangements involving balloon payment obligations may adversely affect our ability to make distributions.

Some of our fixed-term financing arrangements may require us to make “balloon” payments at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or sell a particular property. At the time the balloon payment is due, we may not be able to raise equity or refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. These refinancing or property sales could negatively impact the rate of return to stockholders and the timing of disposition of our assets. In addition, payments of principal and interest may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.

We may borrow money that bears interest at a variable rate and, from time to time, we may pay mortgage loans or refinance our properties in a rising interest rate environment. Accordingly, increases in interest rates could increase our interest costs, which could have a material adverse effect on our operating cash flow and our ability to make distributions to our stockholders.

We may borrow money to make distributions, and distributions may not come from cash flows or funds from operations.

In the past, we have borrowed from affiliates and other Persons to make distributions and in the future we may continue to borrow money as we consider necessary or advisable to meet our distribution requirements. Our distributions have exceeded our funds from operations in the past and may do so in the future. In the event that we make distributions in excess of our earnings and profits, such distributions could constitute a return of capital for federal income tax and accounting purposes. Furthermore, in the event that we are unable to fund future

 

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distributions from our funds from operations, the value of your shares upon the possible listing of our stock, the sale of our assets or any other liquidity event may be negatively affected. See additional information about distributions and sources of distributions under “Distribution Policy.”

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our distributions, operating policies and ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage a property or affect other operational policies. Such limitations hamper our flexibility and may impair our ability to achieve our operating plans.

We may acquire various financial instruments for purposes of “hedging” or reducing our risks which may be costly and/or ineffective and will reduce our cash available for distribution to our stockholders.

Use of derivative instruments for hedging purposes may present significant risks, including the risk of loss of the amounts invested. Defaults by the other party to a hedging transaction can result in the hedging transaction becoming worthless or a speculative hedge. Hedging activities also involve the risk of an imperfect correlation between the hedging instrument and the asset being hedged, which could result in losses both on the hedging transaction and on the asset being hedged. Use of hedging activities generally may not prevent significant losses and could increase our losses. Further, hedging transactions may reduce cash available for distribution to our stockholders.

Tax Related Risks

We will be subject to increased taxation if we fail to qualify as a REIT for federal income tax purposes.

We believe that we have been organized and have operated, and intend to continue to be organized and to operate, in a manner that will enable us to meet the requirements for qualification and taxation as a REIT for federal income tax purposes, commencing with our taxable year ended December 31, 2004. A REIT is generally not subject to federal tax at the corporate level to the extent that it distributes annually at least 90% of its taxable income to its stockholders and meets other compliance requirements. We have not requested, and do not plan to request, a ruling from the IRS that we qualify as a REIT. Based upon representations made by our officers with respect to certain factual matters, and upon counsel’s assumption that we have operated and will continue to operate in the manner described in the representations and in this prospectus, our tax counsel, Arnold & Porter LLP, has rendered an opinion that we were organized and have operated in conformity with the requirements for qualification as a REIT and that our proposed method of operation will enable us to continue to meet the requirements for qualification as a REIT. Our continued qualification as a REIT will depend on our continuing ability to meet highly technical and complex requirements concerning, among other things, the ownership of our outstanding shares of common stock, the nature of our assets, the sources of our income, the amount of our distributions to our stockholders and the filing of TRS elections. No assurance can be given that we qualify or will continue to qualify as a REIT or that new legislation, Treasury Regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to our qualification as a REIT.

You should be aware that opinions of counsel are not binding on the IRS or on any court.

The conclusions stated in the opinion of our tax counsel are conditioned on, and our continued qualification as a REIT will depend on, our company meeting various requirements, which are discussed in more detail under the heading “Federal Income Tax Considerations—Taxation of CNL Lifestyle Properties—Qualification as a REIT” and are not binding on the IRS or any court.

 

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If we fail to qualify as a REIT, we would be subject to additional federal income tax at regular corporate rates.

If we fail to qualify as a REIT, we may be subject to additional federal income and alternative minimum taxes. Unless we are entitled to relief under specific statutory provisions, we also could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified. Therefore, if we fail to qualify as a REIT, the funds available for distribution to stockholders would be reduced substantially for each of the years involved. For additional discussion regarding REIT qualification and the consequences if we fail to qualify as a REIT, see “Federal Income Tax Considerations.”

Our leases may be recharacterized as financings which would eliminate depreciation deductions on our properties.

We believe that we would be treated as the owner of properties where we would own the underlying land, except with respect to leases structured as “financing leases,” which would constitute financings for federal income tax purposes. If the lease of a property does not constitute a lease for federal income tax purposes and is recharacterized as a secured financing by the IRS, then we believe the lease should be treated as a financing arrangement and the income derived from such a financing arrangement should satisfy the 75% and the 95% gross income tests for REIT qualification as it would be considered to be interest on a loan collateralized by real property. Nevertheless, the recharacterization of a lease in this fashion may have adverse tax consequences for us. In particular, we would not be entitled to claim depreciation deductions with respect to the property (although we should be entitled to treat part of the payments we would receive under the arrangement as the repayment of principal). In such event, in some taxable years our taxable income, and the corresponding obligation to distribute 90% of such income, would be increased. With respect to leases structured as “financing leases,” we will report income received as interest income and will not take depreciation deductions related to the real property. Any increase in our distribution requirements may limit our ability to invest in additional properties and to make additional mortgage loans. No assurance can be provided that the IRS would recharacterize such transactions as financings that would qualify under the 95% and 75% gross income tests. See “Federal Income Tax Considerations—Characterization of Property Leases.”

Excessive non-real estate asset values may jeopardize our REIT status.

In order to qualify as a REIT, among other requirements, at least 75% of the value of our assets must consist of investments in real estate, investments in other REITs, cash and cash equivalents and government securities. Accordingly, the value of any other property that is not considered a real estate asset for federal income tax purposes must represent in the aggregate not more than 25% of our total assets. In addition, under federal income tax law, we may not own securities in, or make loans to, any one company (other than a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary) which represent in excess of 10% of the voting securities or 10% of the value of all securities of that company (other than certain securities described in “Federal Income Tax Considerations—Taxation of CNL Lifestyle Properties—Asset Tests”), or which have, in the aggregate, a value in excess of 5% of our total assets, and we may not own securities of one or more taxable REIT subsidiaries which have, in the aggregate, a value in excess of 25% of our total assets.

The 25%, 25%, 10% and 5% REIT qualification tests are determined at the end of each calendar quarter. If we fail to meet any such test at the end of any calendar quarter, and such failure is not remedied within 30 days after the close of such quarter, we will cease to qualify as a REIT, unless certain requirements are satisfied, as described more fully in “Federal Income Tax Considerations—Taxation of the CNL Lifestyle Properties—Asset Tests.”

We may have to borrow funds or sell assets to meet our distribution requirements.

Subject to some adjustments that are unique to REITs, a REIT generally must distribute 90% of its taxable income to its stockholders. For the purpose of determining taxable income, we may be required to accrue interest,

 

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rent and other items treated as earned for tax purposes, but that we have not yet received. In addition, we may be required not to accrue as expenses for tax purposes some items which actually have been paid, or some of our deductions might be disallowed by the IRS. As a result, we could have taxable income in excess of cash available for distribution. If this occurs, we may have to borrow funds or liquidate some of our assets in order to meet the distribution requirements applicable to a REIT.

Ownership limits may discourage a change in control which could limit your future returns.

For the purpose of protecting our REIT status, our articles of incorporation generally limit the direct or indirect ownership by any single stockholder (applying certain attribution rules) of any class of our capital stock, including common stock, to 9.8% of the outstanding shares of that class. Our articles expressly prohibit anyone from buying shares if the purchase would result in our losing our REIT status. For example, we would lose our REIT status if we had fewer than 100 different stockholders or if five or fewer stockholders, applying certain broad attribution rules of the Code, owned 50% or more of our common stock during the last half of any taxable year other than our first taxable year as a REIT. These restrictions may discourage a change in control, deter any attractive tender offers for our common stock or limit the opportunity for you or other stockholders to receive a premium for your common stock in the event a stockholder is purchasing shares of common stock in order to acquire a block of shares.

Despite our REIT status, we remain subject to various taxes which would reduce operating cash flow if and to the extent certain liabilities are incurred.

Even if we qualify as a REIT, we are subject to some federal, state and local taxes on our income and property that could reduce operating cash flow, including but not limited to: (i) tax on any undistributed real estate investment trust taxable income; (ii) “alternative minimum tax” on our items of tax preference; (iii) certain state income taxes (because not all states treat REITs the same as they are treated for federal income tax purposes); (iv) a tax equal to 100% of net gain from “prohibited transactions;” (v) tax on gains from the sale of certain “foreclosure property;” (vi) tax on gains of sale of certain “built-in gain” properties; and (vii) certain taxes and penalties if we fail to comply with one or more REIT qualification requirements, but nevertheless qualify to maintain our status as a REIT. Foreclosure property includes property with respect to which we acquire ownership by reason of a borrower’s default on a loan or possession by reason of a tenant’s default on a lease. We may elect to treat certain qualifying property as “foreclosure property,” in which case, the income from such property will be treated as qualifying income under the 75% and 95% gross income tests for three years following such acquisition. To qualify for such treatment, we must satisfy additional requirements, including that we operate the property through an independent contractor after a short grace period. We will be subject to tax on our net income from foreclosure property. Such net income generally means the excess of any gain from the sale or other disposition of foreclosure property and income derived from foreclosure property that otherwise does not qualify for the 75% gross income test, over the allowable deductions that relate to the production of such income. Any such tax incurred will reduce the amount of cash available for distribution. See “Federal Income Tax Considerations—Taxation of CNL Lifestyle Properties.”

We may be required to pay a penalty tax upon the sale of a property.

The federal income tax provisions applicable to REITs provide that any gain realized by a REIT on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business is treated as income from a “prohibited transaction” that is subject to a 100% penalty tax. Under current law, unless a sale of real property qualifies for a safe harbor, the question of whether the sale of a property constitutes the sale of property held primarily for sale to customers is generally a question of the facts and circumstances regarding a particular transaction. The 2008 Housing and Economic Recovery Act changed the safe harbor rules such that a REIT, among other things, is required to hold the property for only two years rather than four years. We intend that we and our subsidiaries will hold the interests in our properties for investment with a view to long-term appreciation, to engage in the business of acquiring and owning properties, and to make

 

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occasional sales as are consistent with our investment objectives. We do not intend to engage in prohibited transactions. We cannot assure you, however, that we will only make sales that satisfy the requirements of the safe harbors or that the IRS will not successfully assert that one or more of such sales are prohibited transactions.

You may have current tax liability on distributions you elect to reinvest in our common stock.

If you participate in the reinvestment plan, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, you will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the shares of common stock received.

Miscellaneous Risks

Possible effect of ERISA.

We believe that our assets will not be deemed to be “plan assets” for purposes of ERISA and/or the Code, but we have not requested an opinion of counsel to that effect, and no assurances can be given that our assets will never constitute “plan assets.” If our assets were deemed to be “plan assets” for purposes of ERISA and/or the Code, among other things, (i) certain of our transactions could constitute “prohibited transactions” under ERISA and the Code; and (ii) ERISA’s prudence and other fiduciary standards would apply to our investments (and might not be met). Among other things, ERISA makes plan fiduciaries personally responsible for any losses resulting to the plan from any breach of fiduciary duty, and the Code imposes nondeductible excise taxes on prohibited transactions. If such excise taxes were imposed on us, the amount of funds available for us to make distributions to stockholders would be reduced. For more information, see “Plan of Distribution—Certain Benefit Plan Considerations.”

Our governing documents may discourage takeovers.

Certain provisions of our articles of incorporation, including the ownership limitations, transfer restrictions and ability to issue preferential preferred stock, may have the effect of preventing, delaying or discouraging takeovers of CNL Lifestyle Properties by third parties that a stockholder may consider favorable. For more information about ownership limitations and transfer restrictions and the effect of business combinations and acquisitions of large amounts of our stock on our REIT status, see “Summary of the Articles of Incorporation and Bylaws—General,” “Summary of the Articles of Incorporation and Bylaws—Mergers, Combinations and Sale of Assets,” “Summary of the Articles of Incorporation and Bylaws—Control Share Acquisitions” and “Summary of the Articles of Incorporation and Bylaws—Restriction of Ownership.”

Certain provisions of our articles of incorporation may encourage a hostile takeover of CNL Lifestyle Properties.

Certain provisions of our articles of incorporation exempt us from the application of Maryland’s Business Combinations Statute and Control Share Acquisition Act. Our exemption from the application of these statutes may have the effect of facilitating: (i) business combinations between us and beneficial owners of 10% or more of the voting power of our outstanding voting stock, and (ii) the acquisition by any Person of shares entitled to exercise or direct the exercise of 10% or more of our total voting power. Because we will not be subject to the provisions of the Business Combinations Statute and the Control Share Acquisition Act, it may be more difficult for our stockholders to prevent or delay business combinations with large stockholders or acquisitions of substantial blocks of voting power by such stockholders or other Persons, should the ownership restrictions contained in our articles of incorporation be waived, modified or completely removed. Such business combinations or acquisitions of voting power could cause us to fail to qualify as a REIT. For more information about ownership limitations and transfer restrictions and the effect of business combinations and acquisitions of

 

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large amounts of our stock on our REIT status, see “Summary of the Articles of Incorporation and Bylaws —Mergers, Combinations and Sale of Assets,” “Summary of the Articles of Incorporation and Bylaws—Control Share Acquisitions” and “Summary of the Articles of Incorporation and Bylaws—Restriction of Ownership.”

Our board of directors can take many actions without stockholder approval.

Our board of directors has overall authority to conduct our operations. This authority includes significant flexibility. For example, our board of directors can: (i) list our stock on a national securities exchange or include our stock for quotation on the National Market System of the NASDAQ Stock Market without obtaining stockholder approval; (ii) prevent the ownership, transfer and/or accumulation of shares in order to protect our status as a REIT or for any other reason deemed to be in the best interests of the stockholders; (iii) authorize and issue additional shares of any class or series of stock without obtaining stockholder approval, which could dilute your ownership; (iv) change our Advisor’s compensation, and employ and compensate affiliates; (v) direct our investments toward investments that will not appreciate over time, such as loans and building-only properties, with the land owned by a third party; and (vi) establish and change minimum creditworthiness standards with respect to tenants. Any of these actions could reduce the value of our assets without giving you, as a stockholder, the right to vote.

Maryland law and our organizational documents limit your right to bring claims against our officers and directors.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. Our articles of incorporation and bylaws provide that an officer or director’s liability for monetary damages to us, our stockholders or third parties may be limited. Generally, we are obligated under our articles of incorporation and the bylaws to indemnify our officers and directors against certain liabilities incurred in connection with their services. We have executed indemnification agreements with each officer and director and agreed to indemnify them for any such liabilities that they incur. In addition, we have obtained directors and officers insurance in order to cover the expense of certain actions against our officers and directors. The indemnification agreements and insurance coverage could limit our ability and the ability of our stockholders to effectively take action against our officers and directors arising from their service to us without significant expense. We believe that the indemnification and limitation of liability arrangements described above are consistent with the Statement of Policy Regarding Real Estate Investment Trusts adopted by certain states. See “Summary of the Articles of Incorporation and Bylaws—Limitation of Liability and Indemnification” for more information about the indemnification of our officers and directors.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that can be identified by the use of such words as “may,” “plan,” “expect,” “anticipate,” “intend,” “estimate,” “continue,” “believe,” predict,” “potential,” “would,” “should,” “could,” “seeks,” “approximately,” “projects” or the negative of such words. You can also identify forward-looking statements by discussions of strategy, objectives, plans or intentions of management for future operations or economic performance and related assumptions and forecasts.

We caution you that forward-looking statements are not guarantees. We believe that our expectations reflected in the forward-looking statements are based on our reasonable beliefs, assumptions and expectations of our future performance, and have taken into account all information currently available to us. Such beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

Important factors that could cause our actual results of operations and execution of our business strategy to differ materially from the expectations reflected in our forward-looking statements include, but are not limited to:

 

   

general economic, business and market conditions, and the real estate financing and securities markets in particular;

 

   

changes in federal, state and local laws and regulations;

 

   

increased competitive pressures;

 

   

our ability to invest the proceeds from this offering in a timely manner;

 

   

interest rates;

 

   

the ability of our operators to operate our properties successfully and to fulfill their obligations; and

 

   

changing consumer habits and demographics.

We can give no assurance that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. In evaluating our forward-looking statements, you should specifically consider the risks and uncertainties discussed in the “Risk Factors” section of this prospectus. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this prospectus or the date of the documents incorporated by reference in this prospectus that include forward-looking statements.

 

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ESTIMATED USE OF PROCEEDS

The table below summarizes certain information relating to our anticipated use of offering proceeds which assumes that we will sell no fewer than 100 million and no more than 200 million shares. The table further provides our actual expenses in those categories as of December 31, 2009. Shares will be offered to the public on a best efforts basis at $10.00 per share. The table below assumes that 30 million shares will be issued through the reinvestment plan. All shares issued through the reinvestment plan for this offering will be at a purchase price of $9.50 per share. We estimate that the remaining 170 million shares (approximately 85.0% of our shares) will be sold at the full $10.00 per share offering price.

These estimates and the figures set forth below represent our best estimate of our intended sales results. Further, there is no limit to the number of shares that may be sold through these distribution channels; accordingly, these estimates may not reflect the actual number of shares that may be sold at the various purchase prices described. Depending primarily on the number of shares sold in this offering, we estimate that 87.44% to 86.60% of the offering proceeds, or between $8.74 and $8.66 per share, will be used to purchase properties and make or acquire loans and other Permitted Investments. The remainder of the offering proceeds will be used to pay offering expenses including selling commissions and the marketing support fee, and to pay our Advisor a fee for its services in connection with the selection, acquisition, development and construction of our investments. The payment of these fees will not reduce your Invested Capital, as you receive $10.00 worth of shares, and discounts only impact our Managing Dealer, participating brokers and our Advisor. Your initial Invested Capital amount will be $10.00 per share for shares purchased in this offering and $9.50 per share for shares purchased pursuant to our reinvestment plan.

Any reduction in selling commissions, the marketing support fee, and/or Acquisition Fees will reduce the effective purchase price per share for shares purchased pursuant to this offering, but will not alter the cash available to us resulting from such sale with which we may acquire properties, make loans or invest in other Permitted Investments.

While we believe the estimated use of proceeds set forth in the table below is reasonable, you should view this table only as an estimate of the use of proceeds that may be achieved.

 

    Assuming Sale of
100,000,000 Shares
    Assuming Sale of
Maximum Offering
200,000,000 Shares
    Actual Sales as of
December 31, 2009
 
    Amount   Percent     Amount   Percent     Amount     Percent  

OFFERING PROCEEDS TO CNL LIFESTYLE PROPERTIES(1)

  $ 985,000,000   100.0   $ 1,985,000,000   100.0   $ 548,341,000      100

Less:

           

Selling Commissions to CNL Securities Corp.(1)

    49,000,000   4.98     119,000,000   6.00     30,613,000      5.58

Marketing Support Fee to CNL Securities Corp.(1)

    21,000,000   2.13     51,000,000   2.57     13,144,000      2.40

Due Diligence Reimbursement to CNL Securities Corp.(1)

    1,000,000   0.10     2,000,000   0.10     Note (7)   

Other Offering Expenses(2)

    10,875,000   1.10     14,500,000   0.73     9,668,000      1.76
                                     

NET PROCEEDS TO CNL LIFESTYLE PROPERTIES

    903,125,000   91.69     1,798,500,000   90.60     494,916,000      90.26

Less:

           

Acquisition Fees to the Advisor(3)

    29,550,000   3.00     59,550,000   3.00     16,450,000      3.00

Acquisition Expenses(4)

    12,313,000   1.25     19,850,000   1.00     7,592,000      1.38

Initial Working Capital Reserve(5)

    —     —          —     —          —        —     
                                     

CASH AVAILABLE FOR PURCHASE OF PROPERTIES AND THE MAKING OR ACQUIRING OF LOANS AND OTHER PERMITTED INVESTMENTS BY CNL LIFESTYLE PROPERTIES(6)

  $ 861,262,000   87.44   $ 1,719,100,000   86.60   $ 470,874,000      85.87
                                     

 

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FOOTNOTES:

 

(1) See “Plan of Distribution” for a description of the circumstances under which selling commissions, the marketing support fee and due diligence reimbursements may be reduced or paid in connection with certain purchases including, but not limited to, purchases by registered representatives or principals of our Managing Dealer or participating brokers, our Advisor or our Advisor and its affiliates, directors, officers and employees and those Persons’ affiliates via registered investment advisers. A portion of the selling commissions will be reduced in connection with volume purchases, and will be reflected by a corresponding reduction in the per share purchase price. Selling commissions, the marketing support fee and due diligence reimbursements will not be paid in connection with the purchase of shares pursuant to the reinvestment plan.

 

(2) Other Offering Expenses include, without limitation, legal, accounting, printing, escrow, filing, registration, qualification, and other expenses of this offering, including marketing and sales costs, but exclude selling commissions, the marketing support fee and due diligence expense reimbursements. Pursuant to state securities laws, the Other Offering Expenses paid by us together with the 7.0% selling commission, the 3.0% marketing support fee and due diligence expense reimbursements paid by us may not exceed 15% of the proceeds raised in connection with this offering. Notwithstanding the additional expenses we could incur by virtue of this cap, we estimate that in general, assuming that the maximum number of shares is sold, selling commissions will not exceed 7.0%, the marketing support fee will not exceed 3.0%, due diligence expense reimbursements will not exceed 0.10% and Other Offering Expenses is not expected to exceed 0.73%. The difference between the “15% limitation” and these estimates represents additional costs that we may incur under state securities laws but do not anticipate incurring. In accordance with our articles of incorporation, the total amount of selling commissions, marketing support fees, due diligence expense reimbursements, and Organizational and Offering Expenses to be paid may not exceed 13% of the aggregate offering proceeds. Therefore, the calculation of the Organizational and Offering Expenses for the minimum offering assumes the maximum amount that could be paid within the 13% limitation.

 

(3) Acquisition Fees include all fees and commissions paid by us to any Person in connection with the selection or acquisition of any property or company or the making or acquisition of any loan or other Permitted Investment, including to affiliates or non-affiliates. We will pay our Advisor the Acquisition Fee upon receipt of offering proceeds rather than at the time a property is acquired. Estimated Acquisition Fees do not include Acquisition Expenses or Acquisition Fees for debt. In connection with making investments, if we assume or make an investment subject to existing debt, we will not be able to pay Acquisition Fees with respect to such debt out of debt proceeds and may need to use Net Offering Proceeds (defined in Note 5 below) to pay such Acquisition Fees. In that event, the cash available to make investments will decrease. For example, assuming we raise the maximum offering amount of $1,985,000,000, use all of the $1,719,100,000 available to make investments, and such investments are subject to 25% assumed debt, then the estimated Acquisition Fees payable from offering proceeds will increase by approximately $12,893,250, or 0.65%. Assuming we raise the midpoint offering amount of $985,000,000, use all of the $861,262,000 available to make investments, and such investments are subject to 25% assumed debt, then the estimated Acquisition Fees payable from offering proceeds will increase by approximately $6,459,465 or 0.66%. See “Plan of Distribution” for a description of the circumstances under which Acquisition Fees will be reduced and an applicable discount will be available to purchasers.

 

(4) Acquisition Expenses include any and all expenses incurred by us, our Advisor, or any affiliate of either of us in connection with the selection or acquisition of any property or the making or acquisition of any loan or other Permitted Investment, whether or not acquired or made, including, without limitation, legal fees and expenses, travel and communication expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, taxes, and title insurance, but excluding Acquisition Fees. Pursuant to state securities laws, the total of all Acquisition Fees and any Acquisition Expenses shall be reasonable and shall not exceed an amount equal to 6.0% of the Real Estate Asset Value of a property, or in the case of a loan, 6.0% of the funds advanced, unless a majority of our board of directors, including a majority of our Independent Directors, approves fees in excess of this limit subject to a determination that the transaction is commercially competitive, fair and reasonable to us.

 

(5) Because leases generally will be on a triple-net lease basis, we do not anticipate that a permanent reserve for maintenance and repairs will be established. However, to the extent that we have insufficient funds for such purposes, our Advisor may, but is not required to, allocate to us an aggregate amount of up to 1.0% of the Net Offering Proceeds available to us (the “Net Offering Proceeds”) for maintenance and repairs. As used herein, “Net Offering Proceeds” means Gross Proceeds less (i) selling commissions; (ii) Organizational and Offering Expenses; (iii) the marketing support fee; and (iv) due diligence expense reimbursements. Our Advisor also may, but is not required to, establish reserves from offering proceeds, operating funds, and the available proceeds of any sales of our assets.

 

(6) Offering proceeds designated for investment in properties or for the making or acquisition of loans or other Permitted Investments may also be used to repay debt borrowed in connection with such acquisitions. Offering proceeds designated for investment in properties or for the making or acquisition of loans or other Permitted Investments temporarily may be invested in short-term, highly liquid investments with appropriate safety of principal. We may, at our discretion and subject to certain limitations, use offering proceeds for redemptions of shares. See “Summary of Redemption Plan.”

 

(7) Actual amounts for due diligence reimbursements to CNL Securities Corp. are included with actual Marketing Support Fees to CNL Securities Corp.

 

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MANAGEMENT COMPENSATION

This section presents the types, recipients, methods of computation, and estimated amounts of all compensation, fees, reimbursements and distributions to be paid directly or indirectly by us to our Advisor and its affiliates, exclusive of any distributions to which our Advisor or its affiliates may be entitled by reason of their purchase and ownership of shares in connection with this offering. The table includes estimated amounts of compensation relating to the 30 million shares that we have estimated will be sold under our reinvestment plan assuming 200 million shares are sold. For additional information concerning compensation and fees paid to our Advisor and its affiliates, see “Certain Relationships and Related Transactions.” For information concerning compensation to our directors, see “Management.”

A maximum of 200 million shares may be sold, including an estimated 30 million shares that may be sold to stockholders who receive a copy of this prospectus and who purchase shares through our reinvestment plan. Prior to the conclusion of this offering, if any of the 30 million shares remain after meeting anticipated obligations under the reinvestment plan, we may decide to sell a portion of these shares in this offering.

The following arrangements for compensation and fees to our Advisor and its affiliates were not determined by arm’s-length negotiations. See “Conflicts of Interest.” There is no item of compensation and no fee that can be paid to our Advisor or its affiliates under more than one category. For purposes of calculating estimates of the maximum fees payable, we have made assumptions as to the number of shares and the corresponding price per share (as described under “Estimated Use of Proceeds”) that would be sold net of selling commissions, the marketing support fee and reduced Acquisition Fees. Because these figures cannot be precisely calculated at this time, the actual fees payable may exceed these estimates.

 

Type of
Compensation
and Recipient

  

Method of Computation

  

Estimated
Maximum Amount

   FEES PAID IN CONNECTION WITH OUR OFFERING   
Selling commissions to our Managing Dealer and participating brokers    Selling commissions of up to 7.0% per share on all shares sold, subject to reduction in connection with purchases by: registered representatives or principals of our Managing Dealer or participating brokers; our directors, officers and employees and our affiliates and those Persons’ affiliates; and through registered investment advisers. A portion of these commissions will be reduced with respect to volume purchases, which will be reflected by a corresponding reduction in the per share purchase price. No selling commissions will be paid in connection with shares purchased pursuant to our reinvestment plan. See “Plan of Distribution.” All or any portion of the 7.0% selling commission may be reallowed to participating brokers with respect to shares they sell, although it is anticipated that 6.5% will be reallowed to participating brokers.    Estimated to be up to $119.0 million if 200 million shares are sold.
Marketing support fee to our Managing Dealer and participating brokers    Marketing support fee of 3.0% of Gross Proceeds payable to our Managing Dealer, all or a portion of which up to 2.5% may be reallowed to participating brokers or their affiliated broker dealers who agree to assume the participating brokers’ obligation set forth in the participating broker agreement. The 3.0% marketing support fee is subject to reduction in connection with purchases by: registered representatives or principals of our Managing Dealer or participating brokers; directors, officers and employees of our company and of our    Estimated to be $51.0 million if 200 million shares are sold.

 

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Type of
Compensation
and Recipient

  

Method of Computation

  

Estimated
Maximum Amount

   affiliates and those Persons’ affiliates; and through registered investment advisers. The marketing support fee will not be paid in connection with shares purchased pursuant to our reinvestment plan. See “Plan of Distribution.” Our Managing Dealer may reallow a portion of this fee to certain participating brokers who initial the participating broker agreement with our Managing Dealer relating to this fee or their affiliated broker dealers who agree in writing to assume the participating brokers’ obligations set forth in the participating broker agreement.   
Other offering expenses to our Advisor    Actual expenses incurred in connection with this offering such as filing fees, printing, legal, mailing and advertising expenses.    Estimated to be $14.5 million if 200 million shares are sold.
Due diligence expense reimbursements to participating broker-dealers    Actual expenses incurred in connection with due diligence on CNL Lifestyle Properties, Inc. and this offering.    Estimated to be $2.0 million if 200 million shares are sold.
  

FEES PAID IN CONNECTION WITH ACQUISITIONS,

INVESTMENTS OR LOANS

  
Acquisition Fee to our Advisor on offering proceeds and advisory fee payable to our Advisor or its affiliates    3.0% of Gross Proceeds, for services in the selection, purchase, development or construction of real property or equity investments, subject to reduction under certain circumstances described below. Acquisition Fees payable from Gross Proceeds will be paid to our Advisor as we receive offering proceeds from the sale of shares.    Estimated to be $59.6 million if 200 million shares are sold.
Acquisition Fee to our Advisor on loan proceeds    3.0% of loan proceeds for services in connection with the incurrence of debt from lines of credit and Permanent Financing that are used to acquire properties or equity or used to make or acquire loans and other Permitted Investments payable to our Advisor as Acquisition Fees. As used herein, “Permanent Financing” means financing to: (i) acquire properties and to make loans or other Permitted Investments; (ii) pay any Acquisition Fees arising from any Permanent Financing; and (iii) refinance outstanding amounts on a line of credit. Permanent Financing may be in addition to any borrowing under a line of credit. Acquisition Fees payable from loan proceeds from Permanent Financing will be paid to our Advisor as we acquire such Permanent Financing. In the event that we acquire a property or company with existing debt and refinance that debt after closing, our Advisor will be entitled to an Acquisition Fee only upon any incremental amount above the existing debt. However, no Acquisition Fees will be paid on loan proceeds from any line of credit until such time as we have invested all Net Offering Proceeds. If, after we have invested all of our Net Offering Proceeds, we acquire a    Estimated to be $51.9 million if Permanent Financing equals $1.729 billion.

 

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Type of
Compensation
and Recipient

  

Method of Computation

  

Estimated
Maximum Amount

   property using our line of credit and then later refinance that property with Permanent Financing, then an Acquisition Fee will be paid, but only on the incremental amount of funds above the original debt from the line of credit used to purchase such property.   
Other Acquisition Fees to affiliates of our Advisor    Any fees paid to affiliates of our Advisor in connection with the financing, development, construction or renovation of a property. Such fees are in addition to the Acquisition Fees (described above), and payment of such fees will be subject to approval by our board of directors, including a majority of our Independent Directors.    Amount is not determinable at this time.
Reimbursement of Acquisition Expenses to our Advisor and its affiliates    Reimbursement to our Advisor and its affiliates for expenses actually incurred. Acquisition Expenses may include, without limitation, legal fees and expenses, travel and communication expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, taxes, and title insurance.    Acquisition Expenses, which are based on a number of factors, including the purchase price of the properties, loans and other Permitted Investments, are not determinable at this time.
   Pursuant to state securities laws, the total of all Acquisition Fees and any Acquisition Expenses shall be reasonable and shall not exceed an amount equal to 6% of the Real Estate Asset Value of a property, or in the case of a loan, 6% of the funds advanced, unless a majority of the board of directors, including a majority of our Independent Directors not otherwise interested in the transaction, approves fees in excess of this limit subject to a determination that the transaction is commercially competitive, fair and reasonable to us. Acquisition Fees shall be reduced to the extent that, and if necessary to limit, the total compensation paid to all Persons involved in the acquisition of any property or the making or acquisition of any loan or other Permitted Investment to the amount customarily charged in arm’s-length transactions by other Persons or entities rendering similar services as an ongoing public activity in the same geographical location and for comparable types of assets, and to the extent that other Acquisition Fees, finder’s fees, real estate commissions, or other similar fees or commissions are paid by any Person in connection with the transaction.   
   FEES PAID IN CONNECTION WITH ASSET MANAGEMENT   
Asset Management Fee to our Advisor    A monthly Asset Management Fee in an amount equal to 0.08334% of our Real Estate Asset Value, the outstanding principal amount of any loans and the amount invested in other Permitted Investments, as of the end of the preceding month. For this purpose, Real Estate Asset Value equals the amount    Amount is not determinable at this time. The amount of the Asset Management Fee

 

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Type of
Compensation
and Recipient

  

Method of Computation

  

Estimated
Maximum Amount

   invested in wholly-owned properties, determined on the basis of cost, plus, in the case of properties owned by any joint venture or partnership in which we are a co-venturer or partner, the portion of the cost of such properties paid by us, exclusive of Acquisition Fees and Acquisition Expenses. The Asset Management Fee, which will not exceed fees which are competitive for similar services in the same geographic area, may or may not be taken, in whole or in part as to any year, in the sole discretion of our Advisor. All or any portion of the Asset Management Fee not taken as to any fiscal year shall be deferred without interest and may be taken in such other fiscal year as our Advisor shall determine.    will depend upon, among other things, the cost of the properties and the amount invested in loans and other Permitted Investments.
Reimbursement to our Advisor and its affiliates for Operating Expenses    Operating Expenses (which, in general, are those expenses relating to our administration on an ongoing basis) will be reimbursed by us. To the extent that Operating Expenses payable or reimbursable by us, in any four consecutive fiscal quarters (the “Expense Year”), exceed the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”), our Advisor shall reimburse us within 60 days after the end of the Expense Year the amount by which the total Operating Expenses paid or incurred by us exceed the 2%/25% Guidelines.    Amount is not determinable at this time.
  

FEES PAID IN CONNECTION WITH PROPERTY SALES,

LIQUIDATION OR OTHER SIGNIFICANT EVENTS

  
Deferred, subordinated disposition fee payable to our Advisor from the sale of properties, loans or other Permitted Investments in liquidation of CNL Lifestyle Properties, Inc. or otherwise    A deferred, subordinated disposition fee, payable upon the sale of one or more properties, loans or other Permitted Investments in an amount equal to the lesser of (i) one-half of a Competitive Real Estate Commission on such property or properties (generally, a fee which is reasonable, customary and competitive in light of the size, type and location of the property, as determined by our board of directors), or (ii) 3% of the sales price of such property or properties (or comparable competitive fee in the case of a loan or other Permitted Investment). Payment of such fee shall be made only if our Advisor provides a substantial amount of services in connection with the sale of a property, loan or other Permitted Investment and shall be subordinated to receipt by the stockholders of distributions equal to or greater than the sum of (i) their aggregate Stockholders’ 8% Return, and (ii) 100% of their Invested Capital. If, at the time of a sale, payment of the disposition fee is deferred because the subordination conditions have not been satisfied, then the disposition fee shall be paid at such later time as the subordination conditions are satisfied. Upon listing, if our Advisor has accrued but not been paid such disposition fee, then for purposes of determining whether the subordination conditions have been satisfied, stockholders will be deemed to have received a distribution in the amount equal to the product of the total    Amount is not determinable at this time. The amount of this fee, if it becomes payable, will depend upon the price at which properties, loans or other Permitted Investment are sold.

 

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Type of
Compensation
and Recipient

  

Method of Computation

  

Estimated
Maximum Amount

   number of shares of common stock outstanding and the average closing price of our shares over a period, beginning 180 days after listing, of 30 days during which our shares are traded. Disposition fees paid on loans and other Permitted Investments (other than real property) may be deemed to be incentive fees (rather than real estate commissions) for purposes of the Statement of Policy Regarding Real Estate Investment Trusts adopted by certain states.   
Deferred, subordinated share of Net Sales Proceeds from sales of properties, loans or other Permitted Investments payable to our Advisor in liquidation of CNL Lifestyle Properties, Inc. or otherwise    A deferred, subordinated share equal to 10% of Net Sales Proceeds from the sale of one or more of our properties, loans or other Permitted Investments payable after receipt by the stockholders of distributions equal to or greater than the sum of (i) the Stockholders’ 8% Return, and (ii) 100% of Invested Capital. Following listing, no such share of Net Sales Proceeds will be paid to our Advisor.    Amount is not determinable at this time.
Subordinated Incentive Fee payable to our Advisor at such time, if any, as listing occurs    At such time, if any, as listing occurs, our Advisor shall be paid the subordinated incentive fee (“Subordinated Incentive Fee”) in an amount equal to 10% of the amount by which (i) our market value (as defined below) plus the total distributions made to our stockholders since inception until the date of listing exceeds, (ii) the sum of (a) their Invested Capital, and (b) the total distributions required to be made to the stockholders in order to pay the Stockholders’ 8% Return from inception through the date the market value is determined. For purposes of calculating the Subordinated Incentive Fee, our market value shall be the average closing price or average of bid and asked price, as the case may be, over a period of 30 days during which our shares are traded with such period beginning 180 days after listing. The Subordinated Incentive Fee will be reduced by the amount of any prior payment to our Advisor of a deferred, subordinated share of Net Sales Proceeds from sales of our assets.    Amount is not determinable at this time.

Performance Fee

payable to our Advisor

   Upon termination of the Advisory Agreement, if listing has not occurred and our Advisor has met applicable performance standards, our Advisor shall be paid a fee for performance, (the “Performance Fee”) in an amount equal to 10% of the amount by which (i) the appraised value of our assets on the date of termination of the Advisory Agreement, less any indebtedness collateralized by such assets, plus total distributions paid to stockholders from our inception through the termination date, exceeds, (ii) the sum of 100% of Invested Capital plus an amount equal to the Stockholders’ 8% Return from inception through the termination date. The Performance Fee, to the extent payable at the time of listing, will not be payable in the event the Subordinated Incentive Fee is paid.    Amount is not determinable at this time.

 

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CONFLICTS OF INTEREST

General

We are subject to various conflicts of interest arising out of our relationship with our Advisor and its affiliates, as described below. The following chart indicates the relationship between our Advisor, our Sponsor and certain other affiliates that will provide services to us.

LOGO

 

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James M. Seneff, Jr. is our Chairman of the Board. He wholly owns CNL Holdings, LLC.

 

   

James M. Seneff, Jr. and Robert A. Bourne serve as directors and/or executive officers of CNL Lifestyle Properties, Inc. In addition, they serve as directors and/or officers of various CNL entities affiliated with CNL Financial Group, Inc., including the managing member of our Advisor and our Managing Dealer.

 

   

CNL Real Estate Group, Inc. is the parent company of various entities that provide advisory services to us and other investment programs sponsored by CNL Financial Group, Inc.

Prior and Future Programs

In the past, affiliates of our Advisor have organized over 100 real estate investments for entities other than CNL Lifestyle Properties, Inc. In addition, these affiliates currently have other real estate holdings and in the future expect to form, offer interests in, and manage other real estate programs in addition to those for CNL Lifestyle Properties, Inc., and to make additional real estate investments. Future real estate programs may involve affiliates of our Advisor in the ownership, financing, operation, leasing, and management of properties that may be suitable for us.

Certain of these affiliated public or private real estate programs may invest in properties which may be suitable for us, may purchase properties concurrently with us and may lease properties to tenants who also lease or operate certain of our properties. These properties, if located in the vicinity of, or adjacent to, properties that we acquire, may affect our properties’ gross revenues. Additionally, such other programs may make or acquire loans or other Permitted Investments in the same or similar entities as those that we target, thereby affecting our loan and other investment activities. Such conflicts between us and affiliated programs may affect the value of our investments as well as our Net Income. Our Advisor has established guidelines to minimize such conflicts. See “Conflicts of Interest—Certain Conflict Resolution Procedures” below.

Competition to Acquire Properties and Invest in Loans and Other Permitted Investments

Affiliates of our Advisor and other entities sponsored or sold by CNL Financial Group, Inc. or its affiliates may compete with us to acquire properties or to make or acquire loans or other Permitted Investments of a type suitable for acquisition or investment by us and may be better positioned to make such acquisitions or investments as a result of relationships that may develop with various operators of the types of properties in which we might invest or relationships with tenants or operators of the same such properties. A purchaser who wishes to acquire one or more of these properties or make or acquire one or more loans or other Permitted Investments may have to do so within a relatively short period of time, occasionally at a time when we may be unable (due to insufficient funds, for example) to make the acquisition or investment.

Our Advisor or its affiliates also may be subject to potential conflicts of interest at such time as we wish to acquire a property or make or acquire a loan or other Permitted Investment that also would be a suitable investment for another affiliate of CNL Financial Group, Inc. Affiliates of our Advisor serve as our directors and, in this capacity, have a fiduciary obligation to act in the best interest of our stockholders. Further, as general partners or directors of affiliates of CNL Financial Group, Inc., they have a fiduciary obligation to act in the best interests of the investors in other programs with investments that may be similar to ours. Such persons will use their best efforts to assure that we will be treated as favorably as any such other program. We have also developed procedures to resolve potential conflicts of interest in the allocation of properties, loans and other Permitted Investments between us and certain of our affiliates. See “—Certain Conflict Resolution Procedures” below.

Sales of Properties, Loans or Other Permitted Investments

A conflict also could arise in connection with our Advisor’s determination as to whether or not to sell a property, loan or other Permitted Investment because the interests of our Advisor may differ from our interests as

 

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a result of different financial and tax positions and the compensation to which our Advisor or its affiliates may be entitled upon the sale of a property. See “—Compensation of our Advisor” for a description of these compensation arrangements. In order to resolve this potential conflict, the board of directors will be required to approve each sale of a property, loan or other Permitted Investment.

Certain Relationships with Affiliates

Subject to the limitations set forth in our articles of incorporation, we may engage in transactions with affiliates and pay compensation in connection therewith. As described elsewhere in this prospectus, we will pay the Managing Dealer selling commissions and a marketing support fee. We will pay to our Advisor an Acquisition Fee for identifying properties and structuring the terms of acquisitions, leases, mortgages and loans; and a monthly Asset Management Fee for managing our properties and other investments. In addition, we will reimburse our Advisor and certain of its affiliates for Organizational and Offering Expenses, Acquisition Expenses and Operating Expenses that they incur on our behalf. For additional information concerning these relationships, see “Management Compensation” and “Certain Relationships and Related Transactions.”

Possible Listing of Shares

The board of directors must approve listing our shares on a national securities exchange. A conflict could arise in connection with the determination of whether or not to list our shares on a national securities exchange because our Advisor and other affiliates may receive compensation if our shares are listed, and such compensation could be paid earlier if listing occurs.

Competition for Management Time

Messrs. Seneff and Bourne, who are directors and officers of CNL Lifestyle Properties and the managing member of our Advisor, engage in the management of other business entities and properties and in other business activities, including those activities associated with affiliates. They will devote only as much of their time to our business as they, in their judgment, determine is reasonably required, which will be substantially less than their full time. Messrs. Seneff and Bourne may experience conflicts of interest in allocating management time, services, and functions among us and the various entities, investor programs (public or private), and any other business ventures in which any of them are or may become involved. Our Independent Directors may serve as directors of three REITs advised by our Advisor; however, we do not anticipate that we will share Independent Directors with other REITs advised by our Advisor.

Compensation of our Advisor

Our Advisor has been engaged to perform various services for us and will receive fees and compensation for such services. None of the agreements for such services were the result of arm’s-length negotiations. All such agreements, including the Advisory Agreement, require approval by a majority of our board of directors, including a majority of our Independent Directors not otherwise interested in such transactions, that such agreements are fair and reasonable to us and on terms and conditions no less favorable than those which could be obtained from unaffiliated entities. The timing and nature of fees and compensation to our Advisor could create a conflict between the interests of our Advisor and those of our stockholders. A transaction involving the purchase, lease, or sale of any property, loan or other Permitted Investment by us may result in the immediate realization by our Advisor and its affiliates of substantial commissions, fees, compensation, and other income. Although the Advisory Agreement authorizes our Advisor to take primary responsibility for all decisions relating to any such transaction, the board of directors must approve all of our acquisitions and sales of properties and the entering into and sale of loans or other Permitted Investments. Potential conflicts may arise in connection with the determination by our Advisor of whether to hold or sell a property, loan or other Permitted Investment as such determination could impact the timing and amount of fees payable to our Advisor. See “The Advisor and the Advisory Agreement.”

 

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Relationship with Managing Dealer

Our Managing Dealer is CNL Securities Corp., an affiliate of our Advisor. Certain of our officers and directors are also officers, directors, and registered principals of our Managing Dealer. This relationship may create conflicts in connection with the fulfillment by the Managing Dealer of its due diligence obligations under the federal securities laws. Accordingly, investors will not have the benefit of such independent review. Certain of the participating brokers have made, or are expected to make, their own independent due diligence investigations. The Managing Dealer is not prohibited from acting in any capacity in connection with the offer and sale of securities offered by entities that may have some or all of the investment objectives similar to ours and is expected to participate in other offerings sponsored by one or more of our officers or directors.

Legal Representation

Arnold & Porter LLP, which serves as our securities and tax counsel in this offering, also serves as securities and tax counsel for certain of our affiliates, including our Managing Dealer and Sponsor and other real estate programs in connection with other matters. Members of the firm of Arnold & Porter LLP may invest in CNL Lifestyle Properties, Inc. In the event any controversy arises following the termination of this offering in which our interests appear to be in conflict with those of our Advisor or its affiliates, other counsel may be retained for one or both parties.

Certain Conflict Resolution Procedures

In order to reduce or eliminate certain potential conflicts of interest, our articles of incorporation contain, and/or our board of directors has adopted, a number of restrictions relating to (i) transactions between us and our Advisor or its affiliates; (ii) certain future offerings; and (iii) allocation of properties and loans among certain affiliated entities. These restrictions include the following:

 

  (1) No goods or services will be provided by our Advisor or its affiliates to us except for transactions in which our Advisor or its affiliates provide goods or services to us in accordance with the articles of incorporation, or, if a majority of the directors (including a majority of the Independent Directors not otherwise interested in such transactions) approve such transactions as fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

 

  (2) We will not purchase or lease properties in which our Advisor or its affiliates have an interest without the determination, by a majority of the directors (including a majority of the Independent Directors not otherwise interested in such transaction), that such transaction is fair, competitive and commercially reasonable to us and at a price to us no greater than the cost of the asset to our Advisor or its affiliates unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be reasonable. In no event shall we acquire any such asset at an amount in excess of its appraised value. We will not sell or lease properties to our Advisor or its affiliates unless a majority of the directors, including a majority of the Independent Directors not otherwise interested in such transaction, determine the transaction is fair and reasonable to us.

 

  (3) We will not make loans to our Sponsor, Advisor, directors or any affiliates thereof, except (i) loans subject to the restrictions governing loans in the articles of incorporation, or (ii) to our subsidiaries or to ventures or partnerships in which we hold an interest. Any loans to us by our Advisor or its affiliates must be approved by a majority of the directors (including a majority of the Independent Directors not otherwise interested in such transaction) as fair, competitive, and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties. It is anticipated that our Advisor or its affiliates shall be entitled to reimbursement, at cost, for actual expenses incurred by our Advisor or its affiliates on our behalf or on behalf of a joint venture in which we are a co-venturer, subject to the 2%/25% Guidelines (2% of Average Invested Assets or 25% of Net Income) described under “The Advisor and the Advisory Agreement—The Advisory Agreement.”

 

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  (4) Until completion of this offering, our Advisor and its affiliates will not offer or sell interests in any subsequently formed public program that has investment objectives and structure similar to ours and that intends to (i) invest in a diversified portfolio of different property types in the United States to be leased primarily on a long-term, triple-net lease basis to tenants or operators who are significant industry leaders, and (ii) offer loans or other financings with respect to such properties. An operator will be considered a “significant industry leader” if it has one or more of the following traits: many or more years of experience operating in a particular industry as compared with other operators in that industry as a company or through the experience of its senior management; many or more assets managed in a particular industry as compared with other operators in that industry; and/or is deemed by us to be a dominant operator in a particular industry for reasons other than those listed above. Our Advisor and its affiliates also will not purchase a property or offer or invest in a loan or other financing for any such subsequently formed public program that has investment objectives and structure similar to ours and that intends to invest primarily in a diversified portfolio of different property types in the United States to be leased primarily on a long-term, triple-net lease basis to tenants or operators who are significant industry leaders until substantially all (generally, 80%) of the Net Offering Proceeds available for our investment have been invested or committed to investment. (For purposes of the preceding sentence only, funds are deemed to have been committed to investment to the extent written agreements in principle or letters of understanding are executed and in effect at any time, whether or not any such investment is consummated, and also to the extent any funds have been reserved to make contingent payments in connection with any property, loan or other Permitted Investment whether or not any such payments are made.) Our Advisor or its affiliates currently and in the future may offer interests in one or more public or private programs that are permitted to purchase properties of the type to be acquired by us and/or to make or acquire loans or other Permitted Investments.

 

  (5) The board of directors and our Advisor have agreed that, in the event an investment opportunity becomes available which is suitable for both us and a public or private entity with which our Advisor or its affiliates are affiliated, for which both entities have sufficient uninvested funds, then the entity which has had the longest period of time elapse since it was offered an investment opportunity will first be offered the investment opportunity. (The board of directors and our Advisor have agreed that for purposes of this conflict resolution procedure, an investment opportunity will be considered “offered” to us when an opportunity is presented to the board of directors for its consideration.) An investment opportunity will not be considered suitable for a program if the requirements of Item 4 above, with respect to having substantially all of the Net Offering Proceeds invested, have not been satisfied. In determining whether or not an investment opportunity is suitable for more than one program, our Advisor and its affiliates will examine such factors, among others, as the cash requirements of each program, the effect of the acquisition both on diversification of each program’s investments by types of properties and geographic area, and on diversification of the tenants of our properties (which also may affect the need for one of the programs to prepare or produce audited financial statements for a property or a tenant), the anticipated cash flow of each program, the size of the investment, the amount of funds available to each program, and the length of time such funds have been available for investment. If a subsequent development, such as a delay in the closing of a property or a delay in the construction of a property, causes any such investment, in the opinion of our Advisor and its affiliates, to be more appropriate for an entity other than the entity which committed to make the investment, however, our Advisor has the right to agree that the other entity affiliated with our Advisor or its affiliates may make the investment.

 

  (6) With respect to shares owned by our Advisor, our directors, or any affiliate, none of our Advisor, our directors, or any of their affiliates may vote or consent on matters submitted to our stockholders regarding the removal of our Advisor, directors, or any affiliate or any transaction between us and any of them. In determining the requisite percentage in interest of shares necessary to approve a matter on which our Advisor, directors, and any affiliate may not vote or consent, any shares owned by any of them shall not be included.

 

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INVESTMENT OBJECTIVES AND POLICIES

Investment Objectives

Our primary investment objectives are to preserve, protect, and enhance our assets while:

 

   

paying distributions to our stockholders at an increasing rate;

 

   

obtaining fixed income primarily through the receipt of minimum annual base rent or the receipt of payments on loans, and increasing our income (and distributions) and providing protection against inflation primarily through periodic increases in rent over the lease term or increases in rent based on increases in consumer price indices and the payment of percentage rent generally based on a percentage of gross revenues at the properties over certain thresholds;

 

   

owning a diversified portfolio of primarily triple-net leased real estate that will increase in value;

 

   

qualifying and remaining qualified as a REIT for federal income tax purposes; and

 

   

providing our stockholders with liquidity of their investment, either in whole or in part, on or before December 31, 2015, through:

 

   

listing on a national securities exchange, or

 

   

if listing does not occur by December 31, 2015, the commencement of an orderly sale of our assets, outside the ordinary course of business and consistent with our objective of qualifying as a REIT, and the distribution of the proceeds thereof, or our merger with another entity in a transaction which provides our investors with cash or securities of a publicly traded company, unless stockholders owning a majority of our shares elect to extend the duration of CNL Lifestyle Properties by amending our articles of incorporation.

Notwithstanding the above, our board of directors has determined that on or prior to December 31, 2011, it will consider an evaluation of our strategic options, which may include, but are not limited to, listing on a national securities exchange, merging with another public company or selling the company or our assets. In making a determination of whether listing is in the best interest of our stockholders, our board of directors may consider a variety of criteria, including, but not limited to, market capitalization, the number of properties owned, portfolio diversification, portfolio performance, our financial condition, potential access to capital as a listed company, and the potential for stockholder liquidity.

We are not attempting to shelter any of our income from other sources from taxes. If we are successful in achieving our investment and operating objectives, our stockholders (other than tax-exempt entities) are likely to recognize taxable income in each year. While there is no order of priority intended in the listing of our objectives, stockholders should realize that our ability to meet these objectives may be severely handicapped by any lack of diversification of our investments and the terms of our leases.

Investment Policies

We intend to meet our objectives through our investment policies of purchasing carefully selected, well-located lifestyle or other income producing properties primarily in the United States. We do not intend to focus on any specific location. In addition, we will seek to acquire properties that we believe are important to the continuing operations of our tenants or operators.

As properties are acquired either directly or indirectly we will lease them primarily on a long-term triple-net basis to tenants or operators we consider to be significant industry leaders. A triple-net lease generally requires the tenant to be responsible for repairs, maintenance, property taxes, utilities and insurance. Our leases will generally require the tenant to pay minimum annual base rent with periodic increases in rent over the lease term or increases in rent based on increases in consumer price indices, and require the payment of percentage rent generally based on a percentage of gross revenues at the properties over certain thresholds.

 

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In accordance with our investment policies, we intend to invest in properties whose tenants are also operators, or whose tenants have contracted or will contract with third-party operators approved and recommended to us by our Advisor. Although there is no limit to the number of properties of a particular tenant or operator which we may acquire, our board of directors, including a majority of our Independent Directors, will review our properties and potential investments in terms of geographic, property sector and operator diversification. In addition we may offer loans and other financing opportunities to tenants, operators and others which we believe will be accretive to our portfolio or will benefit us with a new relationship. Potential borrowers will similarly be operators selected or approved by us, following our Advisor’s recommendations. We intend to invest in different property sectors and geographic locations in an attempt to achieve diversification thereby minimizing the effect of changes in local economic conditions and certain other risks. The extent of such diversification, however, depends in part upon the amount raised in the offering and the purchase price of each property. See “Estimated Use of Proceeds.” For a more complete description of the manner in which the structure of our business, including our investment policies, will facilitate our ability to meet our investment objectives, see the “Business” section of this prospectus.

With the approval of a majority of our board of directors (including a majority of our Independent Directors) and subject to our articles of incorporation and bylaws, we also may seek to purchase lifestyle or income producing assets by acquiring publicly traded or privately owned entities. These entities may include REITs and other “real estate operating companies,” such as real estate management companies and real estate development companies. We do not have, and do not expect to adopt any policies limiting our acquisitions of REITs or other real estate operating companies to those conducting a certain type of real estate business or owning a specific property type or real estate asset. In most cases, we will evaluate the feasibility of acquiring these entities using the same criteria we will use in evaluating a particular property. Each acquired entity would be operated as either a wholly owned or controlled subsidiary or joint venture. We may acquire these entities in negotiated transactions or through tender offers. Any acquisition must, however, be consistent with maintaining our qualification to be taxed as a REIT.

In some instances, we borrow money to acquire real estate assets either at closing or sometime thereafter. These borrowings may take the form of interim or Permanent Financing primarily from banks or other lenders. These borrowings generally are collateralized solely by a mortgage on one or more of our properties but also may require us to be directly or indirectly (through a guarantee) liable for the borrowings. We may borrow at either fixed or variable interest rates and on terms that require us to repay the principal on a typical, level schedule or at one-time in “balloon” payments. We have also established a revolving line of credit for short-term cash management and bridge financing purposes.

Our articles limit the amount we may borrow, in the aggregate, to 300% of our Net Assets, which are defined as total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less total liabilities, calculated at least quarterly on a basis consistently applied. At December 31, 2009, our outstanding indebtedness totaled 35.12% of our Net Assets. Any borrowings over this limit must be approved by a majority of our Independent Directors and disclosed to our stockholders in our next quarterly report along with the reason for exceeding the limit. See “Risk Factors – Financing Risks” for additional discussion regarding our borrowings.

Certain Limitations

In addition to other investment restrictions imposed by our board of directors from time to time, consistent with our objective of qualifying as a REIT, our articles of incorporation or our bylaws provide for the following limitations on our investments:

 

   

We shall not invest more than 10 percent of our total assets in Unimproved Real Property or mortgage loans on Unimproved Real Property. For purposes of this paragraph, “Unimproved Real Property” does not include any property under construction, under contract for development or planned for development within one year.

 

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We shall not invest in commodities or commodity future contracts. This limitation is not intended to apply to interest rate futures, when used solely for hedging purposes.

 

   

We shall not make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property. Mortgage indebtedness on any property shall not exceed such property’s appraised value. In cases in which a majority of Independent Directors so determine, and in all cases in which the mortgage loan involves our Advisor, directors, or affiliates, such appraisal must be obtained from an independent expert concerning the underlying property. Such appraisal shall be maintained in our records for at least five years, and shall be available for inspection and duplication by any stockholder. In addition to the appraisal, a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or condition of the title must be obtained.

 

   

We shall not make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our other loans, would exceed an amount equal to 85 percent of the appraised value of the property as determined by appraisal, unless substantial justification exists because of the presence of other underwriting criteria. For purposes of this subsection, the “aggregate amount of all mortgage loans outstanding on the property, including our other loans” shall include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5 percent per annum of the principal balance of the loan.

 

   

We shall not invest in indebtedness (“Junior Debt”) collateralized by a mortgage on real property that is subordinate to a lien or other indebtedness (“Senior Debt”), except where the amount of such Junior Debt, plus the outstanding amount of the Senior Debt, does not exceed 90 percent of the appraised value of such property, if after giving effect thereto, the value of all such investments (as shown on our books in accordance with generally accepted accounting principles after all reasonable reserves but before provision for depreciation) would not then exceed 25 percent of our tangible assets. The value of all our investments in Junior Debt that does not meet the aforementioned requirements is limited to 10 percent of our tangible assets (which is included within the 25 percent limitation).

 

   

We may not engage in any short sale, or borrow, on an unsecured basis, if such borrowing will result in “asset coverage” of less than 300 percent, except that such borrowing limitation shall not apply to a first mortgage trust. For the purpose of this section, “asset coverage” means the ratio that the value of the total assets of an issuer, less all liabilities and indebtedness except indebtedness for unsecured borrowings, bears to the aggregate amount of all unsecured borrowings of such issuer.

 

   

The maximum amount of our borrowings in relation to our Net Assets may not exceed an amount equal to 300 percent of our Net Assets, in the absence of a satisfactory showing that a higher level of borrowing is appropriate. In order to borrow an amount in excess of 300 percent of our Net Assets, a majority of our Independent Directors must approve the borrowing, and the borrowing must be disclosed to stockholders in our first quarterly report after such approval occurs.

 

   

We may not make or invest in any mortgage loans that are subordinate to any mortgage, other indebtedness or equity interest of our Advisor, directors or affiliates.

 

   

We will not invest in equity securities unless a majority of our directors (including a majority of our Independent Directors) not otherwise interested in such transaction approves the transaction as being fair, competitive, and commercially reasonable and determines that the transaction will not jeopardize our ability to qualify and remain qualified as a REIT. In addition, we shall not invest in any security of any entity holding investments or engaging in activities prohibited by our articles of incorporation.

 

   

We will not issue (i) equity securities redeemable solely at the option of the holder (except that stockholders may offer their shares to us as described under “Summary of Redemption Plan”); (ii) debt securities, unless the historical debt service coverage (in the most recently completed fiscal year), as adjusted for known charges, is sufficient to service that higher level of debt properly; (iii) shares on a

 

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deferred payment basis or under similar arrangements; (iv) non-voting or assessable securities; or (v) options, warrants, or similar evidences of a right to buy our securities (collectively, “Options”); provided, however, that Options may be issued (1) to all of our stockholders ratably, (2) as part of a financing arrangement, or (3) as part of a stock option plan available to our directors, executive officers, or employees or our Advisor or its affiliates. Options issuable to our Advisor, directors or any affiliate thereof shall not exceed 10 percent of the outstanding shares on the date of grant. Options may not be issued at exercise prices less than the fair market value of the underlying securities on the date of grant and unless a majority of our Independent Directors approves such issuance as being in our best interests, and not for consideration (which may include services) that has a market value less than the value of such Option on the date of grant.

 

   

A majority of our directors shall authorize the consideration to be paid for each property, based on the fair market value of the property. If a majority of our Independent Directors determines, or if the property is acquired from our Advisor, a director or an affiliate thereof, then such fair market value shall be determined by an independent expert selected by our Independent Directors.

 

   

We will not engage in underwriting or the agency distribution of securities issued by others or in trading, as compared to investment activities.

 

   

We will not invest in real estate contracts of sale unless such contracts of sale are in recordable form and appropriately recorded in the chain of title.

 

   

We will not invest in any foreign currency or bullion or engage in short sales.

 

   

We will not make loans to our Sponsor, Advisor, directors or any affiliates thereof, except (A) loans subject to the restrictions governing loans in our articles of incorporation or (B) to our subsidiaries or to ventures or partnerships in which we hold an interest.

 

   

We will not operate so as to be classified as an “investment company” under the Investment Company Act of 1940, as amended.

 

   

We will not make any investment that we believe will be inconsistent with our objective of qualifying as a REIT.

We cannot assure you that we will attain our investment objectives. Our governing documents place numerous limitations on us, some of which are set forth above. Our investment objectives may not be changed without the approval of stockholders owning a majority of the shares of our outstanding common stock. Our bylaws require that our Independent Directors review our investment policies at least annually to determine that the policies are in the best interests of our stockholders. This determination shall be set forth in the minutes of the board of directors along with the basis for such determination. Our directors (including a majority of our Independent Directors) have the right, without a stockholder vote, to alter our investment policies but only to the extent consistent with our investment objectives and investment limitations.

 

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BUSINESS

General

CNL Lifestyle Properties, Inc. is a Maryland corporation organized on August 11, 2003 that operates as a real estate investment trust, or REIT. Two of our wholly owned subsidiaries, CNL Income GP Corp. and CNL Income LP Corp., are the general and limited partners, respectively, of CNL Income Partners, LP (“Income Partners”), our operating partnership. We acquire and own interests in our properties, loans and Permitted Investments through Income Partners or its subsidiaries. We have formed and/or will form other wholly owned or controlled subsidiaries, consolidated and unconsolidated entities in the future for the purpose of acquiring interests in properties, loans and other Permitted Investments. The terms “us,” “we,” “our,” “our company,” and “CNL Lifestyle Properties” include CNL Lifestyle Properties, Inc. and its subsidiaries.

We were formed to acquire a diversified real estate portfolio with a goal to preserve, protect and enhance the long-term value of those assets. We primarily invest in lifestyle properties in the United States that we believe have the potential for long-term growth and income generation. We define lifestyle properties as those properties that reflect or are affected by the social, consumption and entertainment values and choices of our society. Our investment thesis is supported by demographic trends which we believe affect consumer demand for the various lifestyle asset classes that are the focus of our investment strategy.

We generally seek to acquire fee simple ownership of our properties, but have and will continue to acquire leasehold or other similar interests, such as a right under a concession agreement. An interest owned under a concession agreement is similar to a leasehold interest where we hold a right to use the land, except that concession agreements are land rights granted by a government entity. In addition, we may acquire targeted properties indirectly through joint ventures, real estate operating companies, or other equity structures.

Generally, our properties are or will be leased on a long-term basis to either tenants or operators that we consider to be significant industry leaders. We generally consider a “significant industry leader” to have attributes such as substantial experience operating in a particular industry as compared with other operators in the same industry, either as a company or through the experience of its senior management, or substantial assets under management in a particular industry as compared with other operators in the same industry. Operators in certain industries might be deemed significant industry leaders for other reasons.

We enter into net leases with our tenants. Under a net lease, the tenant is generally responsible for repairs, maintenance, property taxes, utilities and insurance in addition to the payment of rent. The terms of our net leases generally are between five and 20 years, with multiple renewal options. The properties generally are leased pursuant to leases designed to provide us with minimum annual base rents with periodic increases in rent over the lease term or increases in rent based on increases in consumer price indices. In addition, our leases typically provide for the payment of percentage rent generally based on a percentage of gross revenues at the properties over certain thresholds. Our tenants’ abilities to satisfy their lease obligations depend primarily on the operating results of our properties. With respect to certain properties, we attempt to obtain various forms of security, such as corporate guarantees, limited rent guarantees, letters of credit or security deposits to secure the tenants’ obligations. If multiple properties are leased by the same tenant, we generally cross default the leases on those properties.

Subject to applicable REIT rules, we also may make or acquire mortgage, mezzanine or other loans with respect to the types of properties in which we are permitted to invest and other Permitted Investments. We may make mortgage loans pursuant to which we would provide financing to the owner of a property or our affiliates to enable them to acquire and/or develop land, buildings or both or as part of a larger acquisition. In exchange, the owner gives us a first-lien or secured interest in a participating mortgage on the property. Such mortgage loans generally require interest payments of fixed base interest and may provide for variable participating interest based on the amount of revenue generated at the encumbered property. Interest rate and terms for long-term mortgage loans (generally, between 10 and 20 years) are similar to those of our net leases. Our short-term or mezzanine loans generally have a higher rate of return with terms of less than five years.

 

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In addition, we, through our subsidiaries, may invest up to a maximum of 10 percent of our total assets in businesses that provide services to, or are otherwise ancillary to, the types of properties in which we are permitted to invest.

The economic recession and tightened credit markets created challenges for us and our tenants in 2008 and 2009. We cannot predict the extent to which these negative trends will continue, worsen or improve or the timing and nature of any changes to the macroeconomic environment, including the impact it may have on our future results of operations and cash flows. In response to the economic and market pressures, we have focused on liquidity, maintained a strong balance sheet with significant cash balances and low leverage, proactively monitored tenant performance, restructured tenant leases when necessary and strengthened relationships with key constituents including tenants and lenders. With this disciplined management approach, we believe we are well positioned to take advantage of future buying opportunities. We continue to believe that our properties have long-term value, and we will continue to manage our portfolio through these temporary and cyclical market conditions with a long-term view.

Investment Focus

We have and will continue to focus our investment activities on, and use the proceeds of this offering primarily for, the acquisition, development, ownership and financing of properties that we believe have the potential for long-term revenue generation based upon certain demographic and other underwriting criteria and models that we have developed. The asset classes in which we have invested and are most likely to continue to invest are Ski and Mountain Lifestyle, Golf, Attractions and Marinas. Although these are the asset classes in which we have invested and are most likely to invest in the future, we may acquire or invest in any type of property, including asset classes in which we have not invested historically. Further, we have not specified any percentage of Net Offering Proceeds to be invested in any particular type of property. We expect that certain of our acquisitions will feature characteristics that are common to more than one of the target asset classes that we have identified. For example, real estate in and around ski resorts may also feature golf courses. In addition to acquiring properties and companies that own lifestyle assets, we may obtain debt financing or sell additional shares of our stock to finance acquisitions.

Future Acquisitions

We have undertaken to supplement this prospectus during the offering period to disclose when there is a reasonable probability that we will acquire a material property. Based upon the experience and acquisition methods of our Advisor and prior real estate partnerships of affiliates of CNL Financial Group, Inc., this normally will occur as of the date in the acquisition process on which all of the following conditions have been met:

 

   

a commitment letter is executed by a proposed lessee;

 

   

an underwriting for the proposed lease structure and projected property performance;

 

   

a satisfactory site inspection has been conducted and due diligence has been substantially completed;

 

   

the terms of the acquisition have been approved by the board of directors;

 

   

a purchase contract is executed and delivered by the seller; and

 

   

a nonrefundable deposit has been paid on the property.

The initial disclosure of any proposed acquisition cannot be relied upon as an assurance that we ultimately will consummate such proposed acquisition or that the information provided concerning the proposed acquisition will not change between the date of such prospectus supplement and the actual purchase. The terms of any material borrowing by us will also be disclosed in any prospectus supplement filed following our receipt of an acceptable commitment letter from a potential lender.

 

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Selection of Properties

We generally seek to acquire a portfolio of carefully selected and well-located lifestyle or other income producing properties that we believe will provide long-term value to our stockholders. Each proposed property acquisition, lease or loan is submitted to our board of directors for its approval. In considering whether to approve a proposed property acquisition, lease or loan, our board of directors will rely principally on an examination and evaluation conducted by our Advisor of some or all of the following factors:

 

   

the property’s condition and potential value;

 

   

whether the property is strategically located;

 

   

the current property’s potential use and the potential revenues expected to be generated by the business to be conducted on the property;

 

   

an independent underwriting analysis performed by our Advisor of the potential profitability of a property, using historical information provided by the tenant or operator and other data developed by us;

 

   

the proposed purchase price and lease terms in the case of an acquisition and the loan terms in the case of a financing and whether such terms are structured to achieve our distribution objectives;

 

   

the nature, quality and value of any asset or assets pledged in a financing as collateral for the loan;

 

   

the availability of qualified operators who possess experience specific to the type of business to be conducted on the property;

 

   

our ability to negotiate a joint venture or leasing structure appropriate for that investment with a tenant or qualified operator;

 

   

whether the property acquisition will allow us to maintain a real estate investment portfolio which is diversified on a geographic, operator and property-type basis; and

 

   

whether we believe that a property is strategically important to the continued operations of our tenants or operators.

The consideration paid for each property will be based on its fair market value. A majority of the Independent Directors may choose in certain circumstances to retain an independent expert to determine such fair market value. An independent expert means a person with no material current or prior business or personal relationship with our Advisor or the directors who is engaged to a substantial extent in the business of rendering opinions regarding the value of the type of assets we hold. In connection with the acquisition of a property that has recently been or is to be constructed or renovated, any appraised value of such property ordinarily will be based on the “stabilized value” of such property. The stabilized value is the value at the point at which the property has reached the level of competitiveness at which it is expected to operate over the long-term. It should be noted that appraisals are estimates of value and should not be relied upon as measures of true worth or realizable value.

The board of directors will exercise its own judgment as to, and will be solely responsible for, the ultimate selection of properties, tenants and operators. In doing so, the board of directors will consider the results of examinations and evaluations conducted by, and the recommendations of, our Advisor with respect to proposed tenants, operators and properties. Since the board of directors’ evaluation might differ from that of our Advisor, which relies entirely on its own independent analysis, we may not purchase or engage some of the properties, tenants and operators proposed and approved by our Advisor.

Title to our properties will be insured by appropriate title insurance policies and/or abstract opinions consistent with normal practices in the jurisdictions in which the properties are located.

 

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Selection of Tenants and Operator

We expect to lease the properties we acquire to qualified tenants or operators we consider to be significant industry leaders and who will operate the properties. We consider a tenant or an operator to be a significant industry leader if it has one or more of the following traits:

 

   

many years of experience operating in a particular industry as compared with other operators in that industry, as a company or through the experience of its senior management;

 

   

many assets managed in a particular industry as compared with other operators in that industry; and/or

 

   

is deemed by us to be a dominant operator in a particular industry for reasons other than those listed above.

Although we attempt to lease our properties to tenants that we consider to be significant industry leaders, we do not believe the success of the properties we have acquired or acquire is based solely on the performance or abilities of the tenant operators. In the event a tenant is in default or vacates a property, we are able to engage a third-party manager to operate the property on our behalf for a period of time until we re-lease it to a new tenant. During this period, the property would remain open and we would receive any net earnings from the property’s operations, although these amounts may be less than the rents that were contractually due under the leases. Any taxable income from these properties will be subject to income tax until we re-lease these properties to new tenants.

Tenants and operators will generally be selected by our Advisor and will be subject to the approval of the board of directors. We do not anticipate selecting tenants and operators that are affiliated with us, our Advisor or our affiliates. In evaluating proposed tenants and operators, our Advisor will consider a number of factors, including the following:

 

   

the operations of facilities;

 

   

the number of facilities operated;

 

   

the relative financial experience of the tenant and operator in the geographic area in which the property is located;

 

   

the financial condition and business history of the proposed tenant and operator; and

 

   

the management capabilities of the operators.

References to an operator throughout this prospectus may be to a tenant that is also the operator or to a third-party operator with whom the tenant has contracted. None of our operators or any of their subsidiaries or affiliates, was related to us, affiliated with us or a partner in our business prior to entering into leases with us.

Recent Demographic Trends

We evaluate certain demographic trends which we believe affect consumer demand for the various asset classes and lifestyle related properties that are the focus of our investment strategy. We believe that the demand for these properties and the activities they support will be driven by the behavioral and spending patterns of the “Baby Boomer” generation, as well as their children and grandchildren, often known as “Generation X” and the “Millenials” or “Echo Boomers”.

 

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Baby Boomers, born between 1946 and 1964, are currently the largest and most dominant demographic influence in the United States. According to population projections released by the U.S. Census Bureau in August 2008, Baby Boomers are expected to account for approximately 90.0 million or 26.1 percent of the total estimated U.S. population in 2010. A 2008 publication by the McKinsey Global Institute, “Talkin’ ‘Bout My Generation: The Economic Impact of Aging US Baby Boomers,” indicates that Baby Boomers as a group have earned record levels of income, generated great wealth and spurred economic growth. During the 1990s, the Baby Boomers accounted for approximately half of all consumer spending in the United States and by 2015, it is anticipated that they will generate 53 percent of all disposable income, account for 54 percent of consumer spending and hold 83 percent of the net worth.

As Baby Boomers’ earning power and income has grown, average household income and spending has risen. As a class, Baby Boomers tend to be healthier, wealthier, better educated and longer living than previous generations. More than sixty percent of Boomer couples are dual income earners, according to the Sixth Edition of “American Generations—Who They Are and How They Live” published in 2008. As Boomers enter retirement, real average household income is estimated to reach $94,400 in 2015. We believe that as their wealth has continued to grow, so too has their desire to spend more time on leisure-related activities and retail spending for themselves, their children and grandchildren.

According to the Sixth Edition of “American Generations—Who They Are and How They Live” published in 2008, Echo Boomers (also called Gen Yers or millennials), born between 1977 and 1994, account for 25 percent of the U.S. population or approximately 76 million individuals. The Echo Boomers get their name because they “Echo” their parents spending habits. The August 2007 business wire Visa Generational Spending Study reveals that Echo Boomers are currently spending $400 billion per year and are anticipated to increase their spending to $2.4 trillion by 2015.

The graph below depicts the distribution of U.S. citizens comprising the aforementioned demographic segments and indicates the projected growth in retirees, based upon data compiled by the U.S. Census Bureau.

LOGO

SOURCE: U.S. Census Bureau, 2009 data extrapolated from 2008 Census.

 

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The following graph shows different demographic groups as a percentage of the United States’ population, based upon data compiled by the U.S. Census Bureau.

LOGO

SOURCE: U.S. Census Bureau, 2009 data extrapolated from 2008 Census.

Additionally, we are of the view that there are important psychographic and economic changes that have taken place that could translate into a continued leisure-orientation for Generation Xers, Echo Boomers and successive generations. For example, Americans, regardless of age, have enjoyed an increasing number of leisure hours, up 13 percent over the past 40 years, according to the Bureau of Labor Statistics, and recreation expenditures have grown 8.3 percent annually since 1985, according to the Bureau of Economic Analysis. Lastly, since 1980, the number of affluent households has grown by an average of 5.6 percent annually, according to data from the U.S. Census Bureau, and disposable income is projected to grow at a rate of 5.3 percent through 2012, according to the Bureau of Labor Statistics.

As the number of aging Baby Boomers entering retirement increase, so will the amount of time they have to devote to leisure activities. According to the U.S. Department of Labor, Bureau of Labor Statistics “American Time Use Survey” published in June 2009, on an average day, adults age 75 and over spent 7.6 hours engaged in leisure activities—more than any other age group. Employed adults living in households with no children under 18 engaged in leisure activities for 4.5 hours per day.

Baby Boomers, in our opinion, will continue to spend their time and money over the long term on leisure pursuits such as golf, skiing, and boating. For example, according to the IBIS World Industry Report “Ski & Snowboard Resorts in the U.S.” released in January 2010, the second largest group of industry participants, accounting for an estimated 19 percent of total industry participants, are between the ages of 45 and 54. This market segment has grown significantly over the past decade, as lifestyles have changed and their available time for leisure activities and snow sports has increased. A survey undertaken by the National Ski Access Association in 2008 noted a strong trend towards a growing population of aging visitors. As older skiers continue to visit ski resorts, the report also noted a ”three generation phenomenon” with grandparents, parents and children all visiting ski resorts together. In addition, according to the IBIS World Industry Report “Marinas in the U.S.” released in August 2009, boat owners between the age of 45 and 54 account for the largest proportion of industry revenue, at around 28 percent. The second largest market segment is boat owners aged 55 to 64 years old, and boat owners over the age of 65 account for an estimated 16 percent of industry revenue.

Our own research also indicates that even in a depressed economic market, spending on leisure pursuits continues. While certain consumers are forced to reduce their spending, they will continue to seek leisure and

 

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recreational outlets to create memories with family and friends. In our experience, lifestyle pursuits are emotionally important experiences to Baby Boomers and, accordingly, are not viewed as completely discretionary. Despite the economic climate, we believe that Baby Boomers, Generation Xers and Echo Boomers will pursue these experiences even if economic conditions cause them to do so closer to home. For example, there has been a rising trend in “staycations”, which is generally defined as a period of time in which an individual or family engages in nearby leisure activities or takes regional day trips from their home to area attractions as opposed to taking destination or fly-to vacations. The geographic diversity of our properties, the majority of which are within driving distance of metropolitan areas with populations of one million or more, are well-suited for day trips and short-term vacations.

Asset Class and Industry Trends

Although we generally lease our properties to tenant operators that bear the primary variability in property performance and net operating results, certain economic and industry trends can ultimately impact our operating performance. For example, growth in visitation and per capita spending may result in our receipt of additional contingent rent, while declines may impact our tenants’ ability to pay rent to us. The following is a discussion of the characteristics and trends of the asset classes and related industries in which we have or may invest.

Ski and mountain lifestyle. The ski industry is highly competitive and has undergone aggressive consolidation over the last twenty-five years, decreasing from 735 ski areas in 1983 to 473 ski areas in 2009. The competitive position of our Ski and Mountain Lifestyle Properties is dependent upon many variables, including location and accessibility, pricing, extent and quality of resort facilities, quality of snow conditions and terrain, quality of ski facilities, service and reputation.

Depending on the location and type of ski property, our properties face different types of competition. Our day ski areas tend to compete with other day ski areas within a general radius of 20-35 miles. Our regional ski properties compete with resorts in a broader locale, such as the northeastern section of the country as they are within a reasonable weekend travel distance. Finally, our destination resorts compete against other resorts nationally and worldwide, such as resorts in Colorado, California or Switzerland, as those resorts offer more than just skiing to families who want to make their visit an extended vacation. Such regional, national and worldwide competitors may be better positioned to withstand bad weather or economic conditions and may also have greater financial resources than we do to operate their resorts.

Despite the economic recession, the U.S. ski industry displayed signs of resilience with 57.4 million visits during the 2008 to 2009 season, the fourth highest on record according to the Kottke End of Season Survey 2008/09, Final Report, July 2009 (the “Kottke Survey”). This figure was down 5.2 percent from the record 2007 to 2008 season. The economic downturn favored the more convenient and lower-cost day ski areas located near major metropolitan markets, as many participants chose to stay closer to home in lieu of destination trips to other regional resorts or western destination resorts according to the Kottke Survey. This was shown by an increase in day visitation with a proportionate drop in overnight visits. International visitation also returned to more normal levels after a weak dollar in 2007/08 caused a substantial increase in this demographic.

The trend experienced in the 2008/2009 ski season that saw regional destination and day ski resorts prosper to a greater extent than fly-to destination resorts, continues to affect the U.S. ski industry in general, as well as our ski portfolio. Our portfolio is primarily composed of regional and day ski resorts located near large drive-to markets.

Golf. Golf courses are generally divided into daily fee, private and semi-private courses. Daily fee courses allow the general public to play upon payment of a fee and do not require a membership. Private courses only admit members or invited guests. Semi-private courses have characteristics of both, allowing daily fee play, while at the same time selling memberships that typically involve annual payments that give frequent players lower average costs and sometimes have privileges such as preferred access to tee times. All courses derive some revenues from food and beverage sales and sales of merchandise like golf balls and apparel. The main source of

 

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revenue at daily fee courses is the green and cart fees paid per round, while at private clubs the primary source of revenue is membership dues and fees. Semi-private courses can derive significant revenue from both dues and daily playing fees.

Our golf courses face a variety of different competitors depending on the course locations and quality. Our private courses compete with other private courses or high-end public courses within a nearby 50 mile radius, and generally compete on the basis of management expertise, reputation, featured facilities, quality of services and price. Public courses compete with other public courses in their local metropolitan area as well as private courses, depending on the quality of the public course. The majority of our facilities are daily fee facilities.

According to a 2010 State-of-the-Industry Presentation by the National Golf Foundation (“NGF”), the leading golf participation indicators have remained generally flat over the past five years. The number of rounds played in the United States has been relatively stable, averaging just under 500 million rounds annually, and the number of golfers has remained steady over the past seven years, totaling approximately 28.6 million in 2009. NGF and Golf Datatech reported that the total rounds played in the United States for the twelve month period ended December 31, 2009 was down only 0.6% from the same period in 2008. Additionally, the net supply of facilities (openings less closures) has declined in each of the last four years, and going forward, the NGF expects that the trend will continue until supply and demand reach equilibrium. The most financially impacted facilities have been the private clubs with large initiation or dues structures, resort facilities, and facilities with a large group outing and event business.

Attractions. Our assets in this category include theme and amusement parks, waterparks and family entertainment centers. We believe that trends in the attraction properties industry will enable us to continue to identify and acquire additional properties in this asset class consistent with our acquisition and investment return policies. The broad distinctions between the types of attractions we buy are as follows: theme parks are generally amusement parks that are designed to carry out a theme in one or more areas of the park; waterparks involve either outdoor or indoor waterparks depending on the location; and family entertainment center(s) (“FECs”) are community-based attractions often located in residential areas that offer multiple anchor attractions as opposed to single attractions like bowling or skating centers.

Our waterparks and theme parks tend to compete with other theme parks and attractions within a 150 to 300 mile radius, depending on the types, sizes and locations of the parks. Destination theme parks compete with other similar theme parks, while theme parks that do not offer lodging and restaurants compete with other similarly situated theme parks. Indoor waterparks likewise compete with other indoor waterparks, and may even be categorized as destination waterparks, thereby competing with destination theme parks. Our FECs tend to compete with other FECs within a 25 mile radius.

Our properties include regional gated amusement parks and waterparks that generally draw most of their visitation from local markets. Regional and local attractions have historically been somewhat resistant to recession, with inclement weather being a more significant factor impacting attendance. Our portfolio on average experienced a modest decline in attendance and per capita spending primarily as a result of unusually rainy weather and the recessionary conditions. Our largest attractions operator, PARC Management, reported an average decline in attendance of 3.2% in 2009 as compared to 2008 across our seven largest gated amusement parks. According to the most recent IBIS World Industry Report for “Amusement & Themeparks in the US” released on December 1, 2009, revenues at domestic parks are expected to grow by an average annual rate of 2.1% over the next five years. Although the economic recession may have impacted the rate of expected industry growth, we continue to believe based on these trends and industry research that the attraction properties in our portfolio have the potential for long term growth and revenue generation.

FECs are included in the regional park segment of the amusement park industry. Typically, FECs draw their core audience from within a 25-mile radius of their location. The FEC industry has continued to demonstrate growth over the years in its demographic reach, average spending per-capita and visiting patterns, all of which have contributed to the health of the industry.

 

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Marinas. The marinas sector is highly fragmented with over 70% of marinas being privately owned and the remainder largely held by municipalities. Common industry drivers are boat ownerships, slip rental, and occupancy. Marina operators are affected by government regulations, rising fuel prices, and general economic conditions. During 2009, our properties included 11 marinas primarily in the Southeast, Mid Atlantic and Great Lakes regions. According to the IBIS World Industry Report on “Marinas in the US”, the industry is relatively mature and revenue is forecasted to grow by approximately 1.0% per annum over the next five years. The report also indicates that the economic recession has had a relatively limited impact on the industry, as revenues fell approximately 1.7% in 2008 as compared to 2007, and were anticipated to decrease approximately 5.7% in 2009 across the country. High barriers to entry limit the supply of competing properties and demand is projected to remain steady with a gradual rise over the next five years.

Other operating trends. We believe we have built a unique portfolio of diversified assets, with established long-term operating histories that have survived many economic cycles. The following information shows the average operating history of each of our operating asset classes based on the date the properties in our portfolio were first opened. Further, it demonstrates the longevity of these assets through a number of economic down-cycles during their operating history.

LOGO

Source: Economic Cycles as defined by the National Bureau of Economic Research. Average years of operation by property and asset class compiled from Schedule III as provided in our 2009 annual report on Form 10-K, which is incorporated by reference herein.

 

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Competition and Seasonality

Competition. As a REIT, we have historically experienced competition from other REITs (both traded and non-traded), real estate partnerships, mutual funds, institutional investors, specialty finance companies, opportunity funds and other investors, including, but not limited to, banks and insurance companies, many of which generally have had greater financial resources than we do for the purposes of leasing and financing properties within our targeted asset classes. These competitors often also have a lower cost of capital and are subject to less regulation. However, due to the current economic conditions in the U.S. financial markets, the capital resources available to these competitor sources have declined. When capital markets begin to normalize, our competition for investments will likely increase or resume to historical levels. The level of competition impacts both our ability to raise capital, find real estate investments and locate suitable tenants. We may also face competition from other funds in which affiliates of our Advisor participate or advise.

In general, we perceive there to be a lower level of competition for the types of assets that we have acquired and intend to acquire in comparison to assets in core real estate sectors based on the sheer supply of assets in those sectors, the number of willing buyers and the volume of transactions in their respective markets. Accordingly, we believe that being focused in specialty or lifestyle asset classes allows us to take advantage of unique opportunities. Some of our key competitive advantages are as follows:

 

   

We acquire assets in niche sectors which historically trade at higher capitalization rates than other core commercial real estate sectors such as Apartment, Industrial, Office and Retail. According to data compiled by Real Capital Analytics, the aggregate average cap rate for commercial real estate since 2004 has been approximately 7.0%. Our portfolio of properties was acquired between 2004 and 2009 with an average cap rate of approximately 11.2%. We also evaluate our acquisitions on an unlevered basis, which avoids artificial justification of inflated purchase prices through low cost debt. During 2007, which is generally considered the peak buying period for commercial real estate, we acquired properties at an 11.2% cap rate which is consistent with our six year average.

 

   

Some of our targeted assets classes, such as golf, have experienced a net reduction in new supply to normalize with demand. According to the National Golf Foundation 2010 State-of-the-Industry Presentation, the net growth in supply (openings less closings) of golf facilities has declined in each of the last four years as residential developers have scaled back development of new golf communities and weaker facilities have closed.

 

   

Our asset classes have inherently high barriers to entry. For example, the process of obtaining permits to create a new ski resort or marina is highly regulated and significantly more difficult than obtaining permits for the construction of new office or retail space. Additionally, general geographic constraints, such as the availability of suitable waterfront property or mountain terrain, are an inherent barrier to entry in several of our asset classes. There are also high costs associated with building a new ski resort or regional gated attraction that is prohibitive to potential market participants.

 

   

Our leasing arrangements generally require the payment of capital improvement reserve rent which is paid by our tenants and set aside by us to be reinvested into the properties. This arrangement allows us to maintain the integrity of our properties and mitigates deferred maintenance issues.

 

   

Unlike our competitors in many other commercial real estate sectors that generally receive no income in the event a tenant defaults or vacates a property, applicable tax laws allow us to engage a third-party manager to operate a property on our behalf for a period of time until we can re-lease it to a new tenant. During that period, we receive any net earnings from the underlying business operations, which may be less than rents collected under the previous leasing arrangement. However, our ability to continue to operate the property under such an arrangement helps to off-set taxes, insurance and other operating costs that would otherwise have to be absorbed by a landlord and allows the property some time to stabilize, if necessary, before entering into a new lease.

 

   

Our access to capital through our public offerings allows us unique opportunities to invest in and strengthen our existing portfolio as compared to other owners or operators. Owners and operators in

 

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those industry segments often have pressure to grow visitation and revenue through the addition of new amenities. When careful analysis justifies an additional investment in one of our existing properties, such as new feature rides at an amusement park or new high-speed lifts or terrain at a ski resort, our investments are added to the tenant’s lease basis, upon which we earn future additional rent. We believe these investments increase visitation to our properties and enhance the overall competitiveness and value of the portfolio.

Seasonality. Many of the asset classes in which we invest are seasonal in nature and experience seasonal fluctuations in their business due to geographic location, climate and weather patterns. As a result, the 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. In many situations, 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 diversification strategy, we have considered the varying and complimentary seasonality of our asset classes and portfolio mix. For example, the peak operating season of our ski and mountain lifestyle assets are staggered against the peak seasons in our attractions and golf portfolios to balance and mitigate the risks associated with seasonality.

Real Estate Investment Portfolio

Asset classes and portfolio diversification. We have invested primarily in ski and mountain lifestyle, golf, attractions and marinas. However, we have also invested or may invest in additional lifestyle properties including, but not limited to, hotels, multi-family residential housing, merchandise marts, medical facilities or any type of property that we believe has the potential to generate long-term revenue.

As of March 31, 2010, we had a portfolio of 119 lifestyle properties which when aggregated by initial purchase price was diversified as follows: approximately 28.0% in ski and mountain lifestyle, 24.6% in golf facilities, 17.5% in attractions, 7.5% in marinas and 22.4% in additional lifestyle properties. These assets consist of 22 ski and mountain lifestyle properties, 53 golf facilities, 21 attractions, 15 marinas and eight additional lifestyle properties. Eight of these 119 properties are owned through unconsolidated ventures. Many of our properties feature characteristics that are common to more than one asset class, such as a ski resort with a golf facility. Our asset classifications are based on the primary property usage.

 

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Our real estate investment portfolio is geographically diversified with properties in 32 states and two Canadian provinces. The map below shows our current property allocations across geographic regions as of March 31, 2010.

LOGO

 

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Properties. The following tables set forth details about our property holdings by asset class beginning with wholly-owned properties followed by properties owned through joint venture arrangements (in thousands). These properties are owned in fee simple interest and operated subject to long-term triple-net leases unless otherwise noted.

 

Name and Location

 

Description

 

Operator

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances (1)   Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Ski and Mountain Lifestyle

           

Brighton Ski Resort—

  1,050 skiable acres, seven chairlifts;   Boyne   1/8/07   $ 35,000   $ 15,834   $ 34,144

Brighton, Utah

  permit and fee interests          

Crested Butte Mountain Resort—

  1,167 skiable acres, 16 chairlifts;   Triple Peaks   12/5/08   $ 41,000   $ 13,109   $ 42,860

Mt. Crested Butte, Colorado

  permit and leasehold interest          

Cypress Mountain—

  358 skiable acres, five chairlifts;   Boyne   5/30/06   $ 27,500   $ 19,064   $ 29,445

Vancouver, BC, Canada

  permit and fee interests          

Gatlinburg Sky Lift—

  Scenic chairlift;   Boyne   12/22/05   $ 19,940   $ —     $ 20,970

Gatlinburg, Tennessee

  leasehold interest          

Jiminy Peak Mountain Resort—

  800 skiable acres, eight chairlifts;   FO Ski Resorts, LLC   1/27/09   $ 27,000   $ 9,957   $ 25,913

Hancock, Massachusetts

  fee interest          

Loon Mountain Resort—

  275 skiable acres, ten chairlifts;   Boyne   1/19/07   $ 15,539   $ 12,963   $ 14,587

Lincoln, New Hampshire

  leasehold, permit and fee interests          

Mount Sunapee Mountain Resort—

  230 skiable acres, ten chairlifts;   Triple Peaks   12/5/08   $ 19,000   $ 6,075   $ 19,904

Newbury, New Hampshire

  leasehold interest          

Mountain High Resort—

  290 skiable acres, 59 trails,   Mountain High Resorts   6/29/07   $ 45,000   $ —     $ 45,986

Wrightwood, California

  16 chairlifts; permit interest   Associates, LLC        

Northstar-at-Tahoe Resort—

  2,480 skiable acres, 16 chairlifts;   Booth   1/19/07   $ 80,097   $ 42,131   $ 54,933

Lake Tahoe, California

  permit and fee interests          

Okemo Mountain Resort—

  624 skiable acres, 19 chairlifts;   Triple Peaks   12/5/08   $ 72,000   $ 32,816   $ 66,354

Ludlow, Vermont

  leasehold interest          

Sierra-at-Tahoe Resort—

  1,680 skiable acres, 12 chairlifts;   Booth   1/19/07   $ 39,898   $ 19,353   $ 40,333

South Lake Tahoe, California

  permit and fee interests          

Sugarloaf Mountain Resort—

  525 skiable acres, 15 chairlifts;   Boyne   8/7/07   $ 26,000   $ —     $ 19,934

Carrabassett Valley, Maine

  fee and leasehold interests          

Summit-at-Snoqualmie Resort—

  1,697 skiable acres, 26 chairlifts;   Boyne   1/19/07   $ 34,466   $ 12,963   $ 31,863

Snoqualmie Pass, Washington

  permit and fee interests          

Sunday River Resort—

  668 skiable acres, 18 chairlifts;   Boyne   8/7/07   $ 50,500   $ —     $ 36,021

Newry, Maine

  leasehold, permit and fee interests          

The Village at Northstar—

  79,898 leasable square feet   Booth   11/15/07   $ 36,100   $ —     $ 36,326

Lake Tahoe, California

           
                       
 

Total

    $ 569,040   $ 184,265   $ 519,573
                     

 

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Name and Location

 

Description

 

Operator

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances (1)   Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Golf

           

Ancala Country Club—

  18-hole private course   EAGLE   11/30/07   $ 14,107   $ 7,349   $ 12,078

Scottsdale, Arizona

           

Arrowhead Country Club—

  18-hole private course   EAGLE   11/30/07   $ 17,357   $ 9,089   $ 15,051

Glendale, Arizona

           

Arrowhead Golf Club—

  18-hole public course   EAGLE   11/30/07   $ 15,783   $ 10,056   $ 10,013

Littleton, Colorado

           

Bear Creek Golf Club—

  36-hole public course;   Billy Casper   9/8/06   $ 11,100   $ 5,481   $ 11,553

Dallas, Texas

  leasehold interest          

Canyon Springs Golf Club—

  18-hole public course   EAGLE   11/16/06   $ 13,010   $ 7,554   $ 4,631

San Antonio, Texas

           

Clear Creek Golf Club—

  18-hole public course;   EAGLE   1/11/07   $ 1,888   $ —     $ 1,949

Houston, Texas

  concession-hold interest          

Continental Golf Course—

  18-hole public course   EAGLE   11/30/07   $ 6,419   $ 3,868   $ 2,805

Scottsdale, Arizona

           

Cowboys Golf Club—

  18-hole public course;   EAGLE   12/26/06   $ 25,000   $ 12,033   $ 26,043

Grapevine, Texas

  leasehold interest          

David L. Baker Golf Course—

  18-hole public course;   EAGLE   4/17/08   $ 9,492   $ —     $ 9,492

Fountain Valley, California

  concession interest          

Deer Creek Golf Club—

  18-hole public course   EAGLE   11/30/07   $ 8,934   $ 4,738   $ 7,884

Overland Park, Kansas

           

Desert Lakes Golf Club—

  18-hole public course   EAGLE   11/30/07   $ 2,637   $ 1,257   $ 2,149

Bullhead City, Arizona

           

Eagle Brook Country Club—

  18-hole private course   EAGLE   11/30/07   $ 16,253   $ 8,896   $ 12,600

Geneva, Illinois

           

Foothills Golf Club—

  18-hole public course   EAGLE   11/30/07   $ 9,881   $ 5,512   $ 7,740

Phoenix, Arizona

           

Forest Park Golf Course—

  27-hole public course;   EAGLE   12/19/07   $ 13,372   $ —     $ 14,216

St. Louis, Missouri

  leasehold interest          

Fox Meadow Country Club—

  18-hole private course   EAGLE   12/22/06   $ 9,400   $ 4,517   $ 8,617

Medina, Ohio

           

Golf Club at Fossil Creek—

  18-hole public course   EAGLE   11/16/06   $ 7,686   $ 4,508   $ 5,271

Fort Worth, Texas

           

Hunt Valley Golf Club—

  27-hole public course   EAGLE   11/30/07   $ 23,430   $ 13,538   $ 14,101

Phoenix, Maryland

           

Kokopelli Golf Club—

  18-hole public course   EAGLE   11/30/07   $ 9,416   $ 5,608   $ 5,867

Phoenix, Arizona

           

 

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Name and Location

 

Description

 

Operator

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances (1)   Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Lake Park Golf Club—

  27-hole public course;   EAGLE   11/16/06   $ 5,632   $ —     $ 5,803

Dallas-Fort Worth, Texas

  concession-hold interest          

Lakeridge Country Club—

  18-hole private course   EAGLE   12/22/06   $ 7,900   $ 3,804   $ 5,344

Lubbock, Texas

           

Las Vegas Golf Club—

  18-hole public course   EAGLE   4/17/08   $ 10,951   $ —     $ 10,951

Las Vegas, Nevada

           

Legend at Arrowhead Golf Resort—

  18-hole public course   EAGLE   11/30/07   $ 10,438   $ 6,092   $ 6,224

Glendale, Arizona

           

London Bridge Golf Club—

  36-hole public course   EAGLE   11/30/07   $ 11,805   $ 6,769   $ 8,939

Lake Havasu, Arizona

           

Majestic Oaks Golf Club—

  45-hole public course   EAGLE   11/30/07   $ 13,217   $ 6,962   $ 9,500

Ham Lake, Minnesota

           

Mansfield National Golf Club—

  18-hole public course;   EAGLE   11/16/06   $ 7,147   $ 4,173   $ 7,362

Dallas-Fort Worth, Texas

  leasehold interest          

Meadowbrook Golf & Country Club—

  18-hole private course   EAGLE   11/30/07   $ 11,530   $ 6,575   $ 7,594

Tulsa, Oklahoma

           

Meadowlark Golf Course—

  18-hole public course;   EAGLE   4/17/08   $ 16,945   $ —     $ 16,945

Huntington Beach, California

  leasehold interest          

Mesa del Sol Golf Club—

  18-hole public course   EAGLE   12/22/06   $ 6,850   $ 3,290   $ 6,429

Yuma, Arizona

           

Micke Grove Golf Course—

  18-hole public course;   EAGLE   12/19/07   $ 6,550   $ —     $ 7,212

Lodi, California

  leasehold interest          

Mission Hills Country Club—

  18-hole private course   EAGLE   11/30/07   $ 4,779   $ 1,741   $ 3,715

Northbrook, Illinios

           

Montgomery Country Club—

  18-hole private course   Traditional Golf   9/11/08   $ 6,300   $ —     $ 5,140

Laytonsville, Maryland

           

Painted Desert Golf Club—

  18-hole public course   EAGLE   11/30/07   $ 9,468   $ 5,222   $ 7,560

Las Vegas, Nevada

           

Painted Hills Golf Club—

Kansas City, Kansas

  18-hole public course   EAGLE   12/22/06   $ 3,850   $ 1,854   $ 3,268

Palmetto Hall Plantation Club—

Hilton Head, South Carolina

  36-hole public course   Heritage Golf   4/27/06   $ 7,600   $ 3,743   $ 6,869

Plantation Golf Club—

Dallas-Fort Worth, Texas

  18-hole public course   EAGLE   11/16/06   $ 4,424   $ 2,622   $ 524

Raven Golf Club at South Mountain—

Phoenix, Arizona

  18-hole public course   I.R.I. Golf   6/9/06   $ 12,750   $ 6,278   $ 10,403

 

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Table of Contents

Name and Location

 

Description

 

Operator

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances (1)   Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Royal Meadows Golf Course—

Kansas City, Missouri

  18-hole public course   EAGLE   12/22/06   $ 2,400   $ 1,165   $ 1,729

Ruffled Feathers Golf Club—

Lemont, Illinois

  18-hole public course   EAGLE   11/30/07   $ 13,883   $ 8,026   $ 10,449

Shandin Hills Golf Club—

San Bernardino, California

 

18-hole public course;

leasehold interest

  EAGLE   3/7/08   $ 5,249   $ —     $ 5,374

Signature Golf Course—

Solon, Ohio

  18-hole private course   EAGLE   12/22/06   $ 17,100   $ 8,201   $ 15,002

Stonecreek Golf Club—

Phoenix, Arizona

  18-hole public course   EAGLE   11/30/07   $ 14,095   $ 8,509   $ 7,922

Superstition Springs Golf Club—

Mesa, Arizona

  18-hole public course   EAGLE   11/30/07   $ 11,042   $ 6,189   $ 6,640

Tallgrass Country Club—

Witchita, Kansas

  18-hole private course   EAGLE   11/30/07   $ 5,405   $ 2,708   $ 3,972

Tamarack Golf Club—

Naperville, Illinois

  18-hole public course   EAGLE   11/30/07   $ 7,747   $ 4,351   $ 5,688

Tatum Ranch Golf Club—

  18-hole private course   EAGLE   11/30/07   $ 6,379   $ 2,321   $ 5,376

Cave Creek, Arizona

           

The Golf Club at Cinco Ranch—

  18-hole public course   EAGLE   11/16/06   $ 7,337   $ 4,419   $ 1,705

Houston, Texas

           

The Links at Challedon Golf Club—

  18-hole public course   Traditional Golf   9/11/08   $ 3,650   $ —     $ 3,223

Mount Airy, Maryland

           

The Tradition Golf Club at Broad Bay—

  18-hole private course   Traditional Golf   3/26/08   $ 9,229   $ 5,770   $ 7,551

Virginia Beach, Virginia

           

The Tradition Golf Club at Kiskiack—

  18-hole public course   Traditional Golf   3/26/08   $ 6,987   $ —     $ 5,412

Williamsburg, Virginia

           

The Tradition Golf Club at The Crossings—

  18-hole public course   Traditional Golf   3/26/08   $ 10,084   $ —     $ 7,157

Glen Allen, Virginia

           

Valencia Country Club—

  18-hole private course   Kemper Sports   10/16/06   $ 39,533   $ 18,621   $ 25,921

Santa Clarita, California

           

Weston Hills Country Club—

  36-hole private course   Century Golf   10/16/06   $ 35,000   $ 16,651   $ 29,763

Weston, Florida

           

Weymouth Country Club—

  18-hole private course   EAGLE   12/22/06   $ 10,500   $ 5,040   $ 9,588

Medina, Ohio

           
                       
 

Total

    $ 578,921   $ 255,100   $ 454,314
                       

 

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Table of Contents

Name and Location

 

Description

 

Operator (1)

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances   Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Attractions

           

Camelot Park—

  Miniature golf course, go-karts,   PARC   10/6/06   $ 948   $ —     $ 1,002

Bakersfield, California

  batting cages and arcade;          
  fee and leasehold interest          

Darien Lake—

  978-acre theme park   PARC   4/6/07   $ 109,000   $ 5,854   $ 105,154

Buffalo, New York

  and waterpark          

Elitch Gardens—

  62-acre theme park and waterpark   PARC   4/6/07   $ 109,000   $ 7,788   $ 34,364

Denver, Colorado

           

Fiddlesticks Fun Center—

  Miniature golf course, bumper   PARC   10/6/06   $ 5,016   $ —     $ 919

Tempe, Arizona

  boats, batting cages and go-karts          

Frontier City—

  113-acre theme park   PARC   4/6/07   $ 17,750   $ 1,011   $ 16,754

Oklahoma City, Oklahoma

           

Funtasticks Fun Center—

  Miniature golf course, go-karts,   PARC   10/6/06   $ 6,424   $ —     $ 3,400

Tucson, Arizona

  batting cages, bumper boats          
  and kiddie land with rides          

Grand Prix Tampa—

  Miniature golf course, go-kart and   PARC   10/6/06   $ 3,254   $ —     $ 850

Tampa, Florida

  batting cages          

Hawaiian Falls-Garland—

  11-acre waterpark;   HFE Horizon   4/21/06   $ 6,318   $ —     $ 6,725

Garland, Texas

  leasehold interest          

Hawaiian Falls-The Colony—

  12-acre waterpark;   HFE Horizon   4/21/06   $ 5,807   $ —     $ 6,181

The Colony, Texas

  leasehold interest          

Magic Springs and Crystal Falls—

  70-acre theme park   PARC   4/16/07   $ 20,000   $ —     $ 16,505

Hot Springs, Arkansas

  and waterpark          

Mountasia Family Fun Center—

  Two miniature golf courses, go-karts,   PARC   10/6/06   $ 1,776   $ —     $ 1,022

North Richland Hills, Texas

  bumper boats, batting cages, paintball          
  fields and arcade          

Myrtle Waves Water Park—

  20-acre waterpark;   PARC   7/11/08   $ 9,100   $ —     $ 9,100

Myrtle Beach, South Carolina

  leasehold interest          

Splashtown—

  53-acre waterpark   PARC   4/6/07   $ 13,700   $ 828   $ 5,637

Houston, Texas

           

Waterworld—

  23-acre waterpark; leasehold interest   PARC   4/6/07   $ 10,800   $ 637   $ 11,950

Concord, California

           

Wet’nWild Hawaii—

  29-acre waterpark;   Village   5/6/09   $ 25,800   $ —     $ 16,500

Honolulu, Hawaii

  leasehold interest   Roadshow        

White Water Bay—

  21-acre waterpark   PARC   4/6/07   $ 20,000   $ 1,123   $ 15,315

Oklahoma City, Oklahoma

           

 

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Table of Contents

Name and Location

 

Description

 

Operator

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances (1)     Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Wild Waves —

  67-acre theme park and waterpark;   PARC   4/6/07   $ 31,750   $ 1,359      $ 33,757

Seattle, Washington

  leasehold interest          

Zuma Fun Center—

  Miniature golf course, batting cages,   PARC   10/6/06   $ 7,378   $ —        $ 2,933

Charlotte, North Carolina

  bumper boats and go-karts          

Zuma Fun Center—

  Miniature golf course, batting cages,   PARC   10/6/06   $ 2,037   $ —        $ 1,212

Knoxville, Tennessee

  bumper boats, rock climbing and go-karts          

Zuma Fun Center—

  Miniature golf course, batting cages,   PARC   10/6/06   $ 916   $ —        $ 231

North Houston, Texas

  bumper boats and go-karts          

Zuma Fun Center—

  Miniature golf course, batting cages,   PARC   10/6/06   $ 4,883   $ —        $ 1,569

South Houston, Texas

  bumper boats and go-karts          
                         
 

Total

    $ 411,657   $ 18,600      $ 291,080
                         

Marinas

           

Beaver Creek Marina—

  275 wet slips; leasehold interest   Marinas   12/22/06   $ 10,525   $ —        $ 10,907

Monticello, Kentucky

    International        

Brady Mountain Resort & Marina—

  585 wet slips, 55 dry storage   Marinas   4/10/08   $ 14,140   $ —        $ 14,140

Royal (Hot Springs), Arkansas

  units; leasehold interest   International        

Ancapa Isle Marina—

  438 wet slips; leasehold interest   Almar Management,   3/12/10   $ 9,829   $ 2,841 (2)    $ 9,829

Oxnard, California

    Inc.        

Ballena Isle Marina—

  504 wet slips; leasehold interest   Almar Management,   3/12/10   $ 8,179   $ —        $ 8,179

Alameda, California

    Inc.        

Burnside Marina—

  400 wet slips; leasehold interest   Marinas   12/22/06   $ 7,130   $ —        $ 7,410

Somerset, Kentucky

    International        

Cabrillo Isle Marina—

  463 slips; leasehold interest   Almar Management,   3/12/10   $ 20,576   $ 6,820 (2)    $ 20,576

San Diego, California

    Inc.        

Crystal Point Marina—

  200 wet slips;   Marinas   6/8/07   $ 5,600   $ —        $ 4,179

Point Pleasant, New Jersey

    International        

Eagle Cove Marina—

  106 wet slips; leasehold and fee   Marinas   8/1/07   $ 5,300   $ —        $ 4,664

Byrdstown, Tennessee

  interests   International        

Great Lakes Marina—

  350 wet slips, 150 dry storage   Marinas   8/20/07   $ 10,088   $ —        $ 7,257

Muskegon, Michigan

  units   International        

Holly Creek Marina—

  250 wet slips; leasehold and   Marinas   8/1/07   $ 6,790   $ —        $ 6,680

Celina, Tennessee

  fee interests   International        

Lakefront Marina—

  470 wet slips; leasehold and fee   Marinas   12/22/06   $ 5,600   $ —        $ 3,214

Port Clinton, Ohio

  interests   International        

Manasquan River Club—

  199 wet slips   Marinas   6/8/07   $ 8,900   $ —        $ 3,751

Brick Township, New Jersey

    International        

 

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Name and Location

 

Description

 

Operator

  Date
Acquired
  Initial
Purchase
Price
  Encumbrances (1)     Approximate
Federal
Income Tax
Basis of
Depreciable
Portion of
Property

Pier 121 Marina and Easthill Park—

  1,007 wet slips, 250 dry storage   Marinas   12/22/06   $ 37,190   $ —        $ 38,471

Lewisville, Texas

  units; leasehold interest   International        

Sandusky Harbor Marina—

  660 wet slips; leasehold and fee   Marinas   12/22/06   $ 8,953   $ —        $ 6,703

Sandusky, Ohio

  interests   International        

Ventura Isle Marina—

  579 slips; leasehold interest   Almar Management,   3/12/10   $ 16,418   $ 4,321 (2)    $ 16,418

Ventura, California

    Inc.        
                         
 

Total

    $ 175,218   $ 13,982      $ 162,378
                         

Additional Lifestyle Properties

           

Dealership

           

Route 66 Harley-Davidson—

  46,000 square-foot retail and   Route 66 Harley   4/27/06   $ 6,500   $ —        $ 5,850

Tulsa, Oklahoma

  service facility with restaurant   Davidson, Inc        
                         
 

Total

    $ 6,500   $ —        $ 5,850
                         

Multi-family Residential

           

Mizner Court at Broken Sound—

  450-unit apartment complex   GREP   12/31/07   $ 104,413   $ 85,413      $ 79,421

Boca Raton, Florida

           
                         
 

Total

    $ 104,413   $ 85,413      $ 79,421
                         

Hotels

           

Coco Key Water Resort Hotel—

  399-room waterpark hotel   N/A   5/28/08   $ 18,527   $ 6,427      $ 8,697

Orlando, Florida

  (closed during renovation)          

Great Wolf Lodge—Sandusky—

  271-room waterpark resort   Great Wolf   8/6/09   $ 43,400   $ 31,862      $ 57,900

Sandusky, Ohio

    Resorts        

Great Wolf Lodge—Wisconsin Dells—

  309-room waterpark resort   Great Wolf   8/6/09   $ 46,900   $ 26,321      $ 65,100

Wisconsin Dells, Wisconsin

    Resorts        

The Omni Mount Washington Resort

  284-room hotel, 434 skiable   Omni Hotels   6/23/06   $ 45,000   $ 31,500      $ 42,288

and Bretton Woods Ski Area—

  acres and nine chairlifts   Management        

Bretton Woods, New Hampshire

    Corporation        
                         
 

Total

    $ 153,827   $ 96,110      $ 173,985
                         

Other

           

Granby Development Lands

  1,553 acres with infrastructure   N/A   10/29/09   $ 51,255   $ —        $ —  

Granby, Colorado

  and improvements such as roads,          
  water, sewer, golf course in          
  various stages of completion          
                         
 

Total

    $ 51,255   $ —        $ —  
                         
 

Total Properties

    $ 2,050,831   $ 653,470      $ 1,686,601
                         

 

FOOTNOTES:

(1) Amounts represent the outstanding balances of mortgages and other notes payable collateralized by the properties as of December 31, 2009, except as noted below.

 

(2) These amounts are the outstanding loan balances as of the acquisition date.

 

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As of March 31, 2010, we own interests in two joint ventures that are in the business of owning and leasing real estate. We own an 80% interest in the Intrawest Retail Village Properties and 81.9% interest in the Dallas Market Center. The following table sets forth details about the properties owned through our joint venture arrangements (in thousands):

 

Name and Location

  

Description

   Initial
Purchase
Price
   Date
Acquired

Destination Retail—Intrawest Venture

        

Village of Baytowne Wharf—

   56,104 leasable square feet    $ 17,100    12/16/04

Destin, Florida

        

Village at Blue Mountain—

   39,723 leasable square feet    $ 10,781    12/3/04

Collingwood, ON, Canada

        

Village at Copper Mountain—

   97,928 leasable square feet    $ 23,300    12/16/04

Copper Mountain, Colorado

        

Village at Mammoth Mountain—

   57,924 leasable square feet    $ 22,300    12/16/04

Mammoth Lakes, California

        

Village of Snowshoe Mountain—

   39,846 leasable square feet    $ 8,400    12/16/04

Snowshoe, West Virginia

        

Village at Stratton—

   47,837 leasable square feet    $ 9,500    12/16/04

Stratton, Vermont

        

Whistler Creekside—

   70,802 leasable square feet    $ 19,500    12/3/04

Vancouver, BC, Canada

        
            

Total

      $ 110,881   
            

Merchandise Marts—DMC Venture

        

Dallas Market Center—

        

International Floral and Gift Center—

   4.8 million leasable square feet;    $ 260,659    2/14/05

Dallas, Texas

   leasehold and fee interests      
            

Total

      $ 260,659   
            

Total Properties

      $ 371,540   
            

The aggregate principal debt of our joint ventures was approximately $211.4 million and $212.4 million as of December 31, 2009 and 2008, respectively. In connection with the loans encumbering properties owned by our joint ventures, if we engage in certain prohibited activities, we could become liable for the obligations of the joint ventures which own the properties for certain enumerated recourse liabilities related to those entities and their properties. In the case of the borrowing for the resort village properties located in Canada, our obligations are such that we could become liable for the entire loan if we triggered a default due to bankruptcy or other similar events.

 

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Our leases and tenants. The majority of the properties in our portfolio are single occupancy investment properties subject to long-term (generally five to 20 years with multiple renewal options) leases. Approximately 87.0% of our properties were subject to long term leases as of March 31, 2010. These leases are usually structured as triple-net leases, which means that our tenants are generally responsible for repairs, maintenance, property taxes, ground lease or permit expenses (where applicable), utilities and insurance for the properties that they lease. The weighted-average lease rate of our portfolio as of December 31, 2009 was approximately 8.9% and the average lease term (initial lease expiration) of our portfolio of properties subject to long term leases is 18 years excluding available renewal options. The following presents the future lease expirations of our portfolio:

LOGO

We typically structure our leases to provide for the payment of a minimum annual base rent with periodic increases in base rent over the lease term. In addition, our leases provide for the payment of percentage rent normally based on a percentage of gross revenues generated at the property over certain thresholds. Within the provisions of our leases, we also generally require the payment of capital improvement reserve rent. Capital improvement reserves are paid by the tenant and generally based on a percentage of gross revenue of the property and are set aside by us for capital improvements, replacements and other capital expenditures at the property. These amounts are and will remain our property during and after the term of the lease and help maintain the integrity of our assets.

To a lesser extent, when beneficial to our investment structure, certain properties may be leased to wholly-owned tenants that are taxable REIT subsidiaries or that are owned through taxable REIT subsidiaries (referred to as “TRS” entities). Under this structure, we engage third-party managers to conduct day-to-day operations. Under the TRS leasing structure, our results of operations will include the operating results of the underlying properties as opposed to rental income from operating leases that is recorded for properties leased to third-party tenants.

 

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The following table summarizes information about our tenants and leases as of February 28, 2010, excluding our equity investments in assets owned through joint ventures and other managed properties which are not subject to long-term leases:

 

Tenant

   Number of
Properties
Operated
   Aggregate
Annual  Base
Rents

(in thousands)(1)
   Percent of
Annualized
Base Rent
   Lease Term
            Initial
(Years)
   Renewal
Options

Ski & Mountain Lifestyle

              

Booth Creek Resort Properties

   3    $ 14,481    9.9    20    3 10-year

Mountain High Associates

   1      4,618    3.2    20    2 10-year

Boyne USA

   7      27,059    18.6    19-20    Various

Triple Peaks

   3      12,647    8.7    20    4 5-year

FO Ski Resorts

   1      2,633    1.8    40    2 10-year
                      
   15    $ 61,438    42.2      

Golf

              

Billy Casper Golf

   1    $ 1,072    0.7    22    4 5-year

EAGLE Golf

   43      23,591    16.2    20    4 5-year

Heritage Golf Group

   1      703    0.5    20    4 5-year

I.R.I. Golf Group

   1      809    0.5    20    4 5-year

Traditional Golf

   5      3,461    2.4    20    6 5-year
                      
   51    $ 29,636    20.3      

Attractions

              

HFE Horizon

   2      1,342    0.9    27    —  

PARC Management

   18      35,352    24.3    20-22    Various

Village Roadshow

   1      2,386    1.6    20    6 5-year
                      
   21    $ 39,080    26.8      

Marinas

              

Marinas International

   11      11,141    7.6    15-21    Various

Almar Marinas

   4      3,870    2.7    20    2 10-Year
                      
   15      15,011    10.3      

Additional Lifestyle Properties

              

Route 66 Real Estate

   1      559    0.4    20    4 5-year
                      
   1    $ 559    0.4      
                      

Total

   103    $ 145,724    100.0      
                      

 

(1) Amounts based on contractual lease rates for the year ending December 31, 2010.

 

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Significant tenants. As of December 31, 2009 and 2008 and for the years ended through December 31, 2009, we had the following tenants that individually accounted for 10% or more of our aggregate total revenues or assets.

 

Tenant

   Number & Type of
Leased Properties
   Percentage of
Total
Revenues
    Percentage of
Total
Assets
 
          2009     2008     2007     2009     2008  

PARC Management, LLC (“PARC”)

   18 Attractions    18.3   21.0   23.0   14.3   15.9

Boyne USA, Inc. (“Boyne”)

   7 Ski & Mountain    15.3   19.4   19.0   9.2   9.9
   Lifestyle Properties           

Evergreen Alliance Golf Limited, L.P.
(“EAGLE Golf”)

   43 Golf Facilities    14.3   20.6   9.0   15.4   17.1

Booth Creek Ski Holding, Inc. (“Booth”)

   3 Ski & Mountain
Lifestyle Properties
   8.3   12.2   13.2   6.3   6.7
                                 
      56.2   73.2   64.2   45.2   49.6
                                 

The significance of any given tenant or operator, and the related concentration of risk generally decrease as additional properties and operators are added to the portfolio. As shown above, there were only three tenants that individually accounted for 10% or more of our total revenues or assets as of December 31, 2009. The following is a description of our significant tenants:

PARC. PARC Management, LLC is a theme park management company formed in 2002 that is headquartered in Jacksonville, Florida. PARC operates 18 of our theme parks, waterparks and FECs as well as several other entertainment facilities in North America that they own and operate on their own behalf. PARC’s management has decades of industry experience developing and operating these types of properties.

Boyne. Boyne USA, Inc is primarily in the business of operating four-season destination resorts and day-ski venues located near major metropolitan areas. Boyne is run by family members with nearly 60 years of resort experience, and it is the largest family owned four-season resort company in North America and the owner/operator of more ski resorts than any other company in the United States. In addition to operating seven properties pursuant to leases with us, Boyne owns and operates Big Sky Resort in Montana, Crystal Mountain in Washington and Boyne Mountain, Boyne Highlands and The Inn at Bay Harbor, all in Michigan.

EAGLE Golf. Evergreen Alliance Golf Limited, L.P. is a nationwide owner and operator of golf courses, which began operations in 1984. EAGLE Golf currently operates 70 golf course properties in the United States, including the 43 it operates for us. President and CEO, Joe Munsch, has more than 30 years of industry experience with public golf and private club development and operations.

Booth Creek. Booth Creek Resort Properties, LLC and/or its affiliates, currently operate three of our ski and mountain lifestyle properties. Booth Creek was formed by certain former principals of Booth Creek Sun Holdings, Inc. The principals have a combined 40 years of ski resort operations experience, and for the last eight years have been with Booth Creek Sun Holdings, Inc., one of the largest ski resort owners in North America during such period. Before joining Booth Creek Resort, several of the principals were with Vail Associates, Inc. and related companies.

Property Lease Terms

General. The terms and conditions of any lease we enter into with regard to a property may vary from those described below. Our Advisor in all cases will use its best efforts to obtain terms at least as favorable as those described below. If our board of directors determines, based on the recommendation of our Advisor, that the terms of an acquisition and lease of a property, taken as a whole, are favorable to us, then our board of directors

 

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may, in its sole discretion, cause us to enter into leases with terms which are substantially different than the terms described below, provided the terms are consistent with our objective of qualifying as a REIT. In making such determination, our Advisor will consider such factors as the type and location of the property, the prior performance of the property, the purchase price of the property, the prior performance of the tenant, and the creditworthiness of the tenant.

Triple-net and gross leases. We lease properties that we acquire to tenants primarily under long-term, triple-net leases to tenants or operators who are significant industry leaders. Under the triple-net leases, our tenants generally are responsible for repairs, maintenance, ground lease payments, property taxes, utilities and insurance for the properties they lease. The tenants are also required to pay for special assessments, sales and use taxes, and the cost of any renovations permitted under the leases. In addition, we have leased, and may continue to lease, certain properties to qualified tenants or operators who are significant industry leaders under long-term, gross leases. Under a gross lease, the tenant generally pays its proportionate share of Operating Expenses above a contractual base amount. We will be the lessor under each lease except in certain circumstances in which we may be a party to a joint venture which will own the property. In those cases, the joint venture, and not us, will be the lessor, and all references in this section to us as lessor therefore should be read accordingly.

Leases with subsidiaries. We may invest in interests in properties to be leased to subsidiaries, pursuant to leases which generally have a lease term of five to 20 years, plus multiple renewal options. Properties leased to subsidiaries will be managed by third-party operators. For properties subject to this arrangement, our consolidated financial statements will report the properties’ operating revenues and expenses rather than the rent contractually due under the leases with our subsidiaries. This structure has been implemented as permitted by the REIT Modernization Act of 1999 and is available for lodging assets. Under this law, which became effective on January 1, 2001, we are permitted to lease a property to a subsidiary provided that the subsidiary lessee engages a third party management company to operate the property and it makes a joint election with us to be treated as a taxable REIT subsidiary. If this election is made, rents received from the subsidiary will not be disqualified from being “rents from real property” under the Code. See “Federal Income Tax Considerations Taxation of CNL Lifestyle Properties.”

Term of leases. We anticipate that properties generally will be leased for an initial term of five to 20 years with multiple renewal options. The minimum rental payment under the renewal option is expected to be greater than that due for the final year of the initial term of the lease. Upon termination of the lease, the tenant will surrender possession of the property to us, together with any improvements made to the property during the term of the lease. In cases where we own only the building and not the underlying land, the owner of the land may assume ownership of the building upon termination of the lease.

Lease payments and security. We typically structure our leases to provide for the payment of a minimum annual base rent generally equal to a specified percentage of our cost of purchasing the property, with periodic increases in base rent over the lease term. In addition, our leases provide for the payment of percentage rent normally based on a percentage of gross revenues generated at the property over certain thresholds. Within the provisions of our leases, we also generally require the payment of capital improvement reserve rent. Capital improvement reserves are paid by the tenant and generally based on a percentage of gross revenue of the property and are set aside by us for capital improvements, replacements and other capital expenditures at the property.

As security for our leases, we generally require the tenant to provide at least one of the following: (1) a security deposit, (2) a parent company guarantee of the tenant’s lease obligations, and/or (3) demonstration of a certain net worth. In addition, where a tenant leases more than one property from us, we may require the leases, and pooling agreements, where applicable, to be cross-defaulted.

Assignment and sublease. In general, we expect that no lease may be assigned or subleased without our prior written consent (which may not be unreasonably withheld). A tenant may, however, generally assign or sublease a lease to its corporate affiliate, subsidiary or successor by merger or acquisition, if such assignee or

 

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subtenant agrees to operate the same type of facility on the premises, but only to the extent consistent with our objective of qualifying and maintaining our status as a REIT. Such leases will set forth certain factors (such as the financial condition of the proposed tenant or subtenant) that are deemed to be a reasonable basis for our refusal to consent to an assignment or sublease. In addition, we may refuse to permit any assignment or sublease that would jeopardize our continued qualification as a REIT. The original tenant generally will remain fully liable, however, for the performance of all tenant obligations under the lease following any such assignment or sublease unless we agree in writing to release the original tenant from its lease obligations.

Alterations to premises. A tenant will generally have the right to make certain improvements, alterations or modifications to the property without our prior written consent and at the tenant’s own expense. Under certain leases, the tenant, at its own expense, may make certain immaterial structural improvements without our prior consent. Certain leases may require the tenant to post a payment and performance bond for any structural alterations that exceed certain specified amounts.

Insurance, taxes, maintenance and repairs. Tenants of properties will be required, under the terms of our leases, to maintain, for our benefit and the tenant’s benefit, insurance that is commercially reasonable given the size, location and nature of the property. All tenants, other than those tenants with a substantial net worth, will generally also be required to obtain “rental value” or “business interruption” insurance to cover losses due to the occurrence of an insured event for a specified period, generally six to 12 months. Additionally, all tenants will be required to maintain liability coverage, including, where applicable, professional liability insurance. In general, no lease will be entered into unless, in the opinion of our Advisor, as approved by the board of directors, the insurance required to be obtained and maintained by the tenant pursuant to the lease adequately insures the property.

Our leases are expected to require that the tenant pay all taxes and assessments, maintenance, repair, utility, and insurance costs applicable to the real estate and permanent improvements. Tenants will be required to maintain such properties in good order and repair. In the event that we provide funding for certain capital expenditures, such funding is generally added to the tenant’s lease basis and results in an increase in the rents due under the lease.

A tenant generally will be required to repair the property as long as the property is still suitable for its intended use in the event that less than a material portion of the property is taken for public or quasi-public use. Our leases will generally provide that, in the event of any condemnation of the property that does not give rise to an option to terminate the lease or in the event of any condemnation which does give rise to an option to terminate the lease and the tenant elects not to terminate, we will remit to the tenant the award from such condemnation and the tenant will be required to repair and restore the property. To the extent that the award exceeds the estimated costs of restoring or repairing the property, the tenant is required to disburse such excess amount to us upon completion of the restoration. The tenant’s rent will generally not be abated.

Events of default. The leases generally are expected to provide that the following events, among others, will constitute a default under the lease: (i) the insolvency or bankruptcy of the tenant, provided that the tenant may have the right, under certain circumstances, to cure such default; (ii) the failure of the tenant to make timely payment of rent or other charges due and payable under the lease, if such failure continues for a specified period of time (generally, five to 30 days); (iii) the failure of the tenant to comply with any of its other obligations under the lease (for example, the discontinuance of operations of the leased property) if such failure continues for a specified period of time (generally, 10 to 45 days) after notice from us of such failure; (iv) in cases where we enter into a development agreement relating to the construction or renovation of a building, a default under the development agreement or the indemnity agreement or the failure to establish the minimum annual rent at the end of the development period; (v) in cases where we have entered into other leases with the same tenant, a default under any such lease or pooling agreement, if any; and (vi) loss of licensure.

Upon default by the tenant, we generally will have the right under the lease and under most state laws to evict the tenant, re-lease the property to others, and hold the tenant responsible for any deficiency in the

 

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minimum annual base rent payments. Similarly, if we determine not to re-lease the property, we could sell the property. In the event that a lease requires the tenant to make a security deposit, we will have the right under the lease to apply the security deposit, upon default by the tenant, towards any payments due from the defaulting tenant. In general, the tenant will remain liable for all amounts due under the lease to the extent not paid from a security deposit or by a new tenant.

Managed Properties

In addition to the properties operated by tenants under long-term triple-net leases described above, certain of the properties in our portfolio are currently managed by third-party operators under management contracts. To a lesser extent, when beneficial to our investment structure, certain properties may be leased to wholly-owned tenants that are taxable REIT subsidiaries or that are owned through taxable REIT subsidiaries (referred to as “TRS” entities). Under these structures, we engage third-party managers to conduct day-to-day operations. Our results of operations will include the operating results of the underlying properties as opposed to rental income from operating leases that is recorded for properties leased to third-party tenants.

The following table summarized the properties operated by third-party managers and the related contract terms:

 

Operator(1)

   Number of
Properties
   Management Contract
Term

Kemper Sports Management, Inc.

   1    3 years

Century Golf Partners

   1    3 years

Omni Hotels Management Corporation

   1    5 years

Great Wolf Resorts, Inc.:

   2   

Wolf Dells Property

      10 years

Wolf Sandusky Property

      1 year (month to month)

GREP Southeast, LLC Management

   1    1 year (month to month)

 

FOOTNOTE:

 

(1) For further detail on the properties operated by these management companies, see “Business—Real Estate Portfolio - Properties.”

Property Held for Development

We own a 399-room waterpark hotel located in Orlando, Florida, on International Drive, within eight miles of Walt Disney World. The property is in its final stages of redevelopment and is scheduled to reopen in the second quarter of 2010. In 2009, we also received a deed in lieu of foreclosure on development land in Granby, Colorado.

Joint Venture Arrangements

We have entered and may continue to enter into joint ventures to purchase and hold properties with various unaffiliated Persons or entities for investment. We have structured each of our joint ventures such that our partners subordinate their returns to our minimum return. This structure may provide us with some protection against the risk of downturns in performance. We anticipate using this structure in some form in the future.

We may also enter into a joint venture with another program formed by our Advisor or its affiliates if a majority of our directors, including a majority of the Independent Directors, not otherwise interested in the transaction determine that the investment in such joint venture is fair and reasonable to us and on substantially the same terms and conditions as those to be received by the co-venturer or co-venturers. We may take more or less than a 50 percent interest in any joint venture, subject to obtaining the requisite approval of the directors. See

 

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“Risk Factors—Real Estate and Other Investment Risks—We may not control our joint ventures” and “Risk Factors—Real Estate and Other Investment Risks—It may also be difficult for us to exit a joint venture after an impasse.”

Under the terms of each joint venture agreement, it is anticipated that each joint venture partner will be jointly and severally liable with us for all debts, obligations, and other liabilities of the joint venture, and we will have the power to bind each other with any actions we take within the scope of the joint venture’s business. In addition, it is expected that our Advisor or its affiliates will be entitled to reimbursement, at cost, for actual expenses incurred by our Advisor or its affiliates on behalf of the joint venture. The joint venture agreement typically will restrict each venturer’s ability to sell, transfer, or assign its joint venture interest without first offering it for sale to its co-venturer, and will provide a customary buy/sell provision that could be triggered by either party typically after a period of time has passed since the inception of the venture. In addition, in any joint venture with another program sponsored by our Advisor or its affiliates, where such arrangements are entered into for the purpose of purchasing and holding properties for investment, in the event that one party desires to sell the property and the other party does not desire to sell, either party will have the right to trigger dissolution of the joint venture by sending notice to the other party. Such notice will establish the price and terms for the sale or purchase of the other party’s interest in the joint venture to the other party. The joint venture agreement will grant the receiving party the right to elect either to purchase the other party’s interest on the terms set forth in the notice or to sell its own interest on such terms.

Under the terms of each joint venture agreement, operating profits and losses generally will be allocated on a pro-rata basis to each co-venturer. Profits from the sale or other disposition of joint venture property generally will be allocated first to any co-venturers with negative capital account balances in proportion to such balances until such capital accounts equal zero, and thereafter on a pro rata basis in proportion to the ownership of each co-venturer. Similarly, losses from the sale or other disposition of joint venture property generally will be allocated first to joint venture partners with positive capital account balances in proportion to such balances until such capital accounts equal zero, and thereafter on a pro rata basis to each co-venturer. Notwithstanding any other provisions in the joint venture agreement, income, gain, loss, and deductions with respect to any contributed property will be shared in a manner which takes into account the variation between the basis of such property and its fair market value at the time of contribution in accordance with Section 704(c) of the Code.

Net cash flow from operations of the joint venture generally will be distributed on a pro-rata basis to each joint venture partner. Any liquidation proceeds, after paying joint venture debts and liabilities and funding reserves for contingent liabilities, generally will be distributed first to the joint venture partners with positive capital account balances in proportion to such balances until such balances equal zero, and thereafter on a pro-rata basis to each joint venture partner. Nevertheless, there may be some transactions in which we get a preferred return so that we receive distributions before the co-venturer receives its distributions; and in some of these situations, the co-venturer might get a larger share of the remaining proceeds. Conversely, there may be some transactions in which the co-venturer gets a preferred return so that it receives distributions before we receive ours; and in some of these situations, we might get a larger share of the remaining proceeds. With respect to our joint venture with Intrawest, Intrawest may receive a greater return than us if the Resort Village Properties perform at certain levels. Our joint venture with DMC also has a similar feature.

For the allocations of joint venture income, gain, loss, and deduction provided in joint venture agreements to be respected for federal income tax purposes, it is expected that any joint venture agreement either (i) (a) will contain a “qualified income offset” provision, (b) will prohibit allocations of loss or deductions to the extent such allocation would cause or increase an “Adjusted Capital Account Deficit,” and (c) will require (1) that capital accounts be maintained for each joint venture partner in a manner which complies with Treasury Regulation Section 1.704-1(b)(2)(iv) and (2) that distributions of proceeds from the liquidation of a partner’s interest in the joint venture (whether or not in connection with the liquidation of the joint venture) be made in accordance with the partner’s positive capital account balance; and/or (ii) otherwise will provide for allocations of income, gain, deduction and loss which are deemed to have economic effect under the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(i). See “Federal Income Tax Considerations—Investment in Joint Ventures.”

 

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Prior to entering into any joint venture arrangement with any unaffiliated co-venturer (or the principals of any unaffiliated co-venturer), we will confirm that such person or entity has met certain requisite financial qualifications.

We may acquire properties from time to time by issuing limited partnership units in an operating partnership to sellers of such properties pursuant to which the seller, as owner, would receive partnership interests convertible at a later date into our common stock. This structure enables a property owner to transfer property without incurring immediate tax liability, and therefore may allow us to acquire properties on more favorable terms than we would otherwise receive.

Intrawest Joint Venture. In December 2004, we acquired an 80.0 percent interest, through unconsolidated entities (the “Intrawest Partnership”), in retail and commercial properties at seven resort villages in the United States and Canada (the “Resort Village Properties”), six of which are located near ski resorts and one of which is located near a golf resort. The Intrawest Partnership paid approximately $111.9 million in initial purchase price for the Resort Village Properties, which were and are encumbered with mortgage loans. As of December 31, 2009, the outstanding principal balance on these loans totaled approximately $77.2 million. Intrawest Corporation (new Intrawest ULC Corporation) and its affiliates collectively (“Intrawest”) owned and operated these properties prior to the transaction. Intrawest continues to hold a 20.0 percent interest and operate the properties under long-term management agreements. The Resort Village Properties consist of approximately 408,000 square feet of leasable retail and commercial space at the following locations with initial estimated federal income tax bases as noted:

 

   

the Village at Blue Mountain, Ontario ($12.1 million);

 

   

Whistler Creekside, British Columbia ($21.0 million);

 

   

the Village at Copper Mountain, Colorado ($18.8 million);

 

   

the Village at Mammoth Mountain, California ($18.6 million);

 

   

the Village of Baytowne Wharf (Sandestin), Florida; ($14.5 million)

 

   

the Village at Snowshoe Mountain, West Virginia ($7.2 million); and

 

   

the Village at Stratton, Vermont ($7.8 million).

Under the terms of our partnership agreement with Intrawest, we receive a preferred return up to a certain threshold with that preference alternating between the partners at various thresholds thereafter. Although we own an 80.0 percent interest in the property and receive a certain return prior to any payments to Intrawest, Intrawest has equal voting rights on the management board of the property and shares control over certain key decisions with us.

At the closing of the acquisition of the Resort Village Properties, Intrawest entered into new leases for certain commercial space in the Resort Village Properties that is occupied by Intrawest or its affiliates. The new leases are gross leases that have terms of 15 or 20 years, with four five-year renewal options and annual base rents approximating market rates. Additionally, Intrawest provided a full recourse indemnity guaranteeing the payment of contractual rents for all existing leases made to Intrawest or any of its affiliates for the term of each of those leases.

Additionally, the U.S. and Canadian Resort Village Properties are managed by affiliates of Intrawest pursuant to management agreements that provide for an initial operating term expiring on December 31, 2024, with four five-year renewal options, subject to certain termination rights. The managers are paid a fee based upon a percentage of revenues of the respective U.S. and Canadian Resort Village Properties.

Dallas Market Center Venture. Pursuant to a series of three investments between February and May 2005, we contributed approximately $73.7 million in equity to a partnership with the Dallas Market Center providing

 

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us with an 80 percent interest (the “DMC Partnership”). The agreed upon value of the properties owned by the DMC Partnership was $250.7 million and the partnership assumed loans with remaining principal balances totaling $158.6 million. The DMC Partnership owns four buildings at the Dallas Market Center (“DMC”), which consists of the World Trade Center, the Dallas Trade Mart, the International Floral and Gift Center (the “IFGC”), Market Hall and surface and garage parking areas (collectively the “DMC Property”). The World Trade Center consists of 15 floors encompassing the Fashion Center Dallas, showrooms and retailers offering gifts and home textiles and 4.8 million leaseable square feet. The Dallas Trade Mart has five floors encompassing gifts, house wares and lighting. Market Hall is a consumer and tradeshow exhibition hall. The IFGC houses permanent showrooms for floral products, holiday decorative products and related accessories. The DMC Partnership entered into a memorandum of understanding and a development agreement to develop an approximate 500,000 square foot expansion, which included a 160,000 square foot lighting center expansion and additional parking at the Trade Mart (the “Trade Mart Expansion”). The Trade Mart Expansion was completed in October 2006. We funded approximately $17.0 million for our share of the project. On August 3, 2009, we contributed cash to the DMC Partnership to exercise our option to purchase the land under the DMC Property, which increased our ownership in the partnership to 81.9%.

The DMC Partnership leases the DMC Property to Dallas Market Center Operating, L.P. and IFDC Operating L.P., both subsidiaries of the existing management company, Market Center Management Company, Ltd. (“MCMC”). Both leases are five-year triple-net leases with five five-year renewals. The leases require the payment of the greater of minimum annual rent of approximately $27.5 million or percentage rent. MCMC, an affiliate of Crow Holdings, operates the Dallas Market Center.

Under the terms of our partnership agreement with DMC, we receive a preferred return up to a certain threshold with that preference alternating between the partners at various thresholds thereafter. Although we own an 80 percent interest in the DMC Property and receive a certain return prior to any payments to DMC, DMC has equal voting rights on the management board of the DMC Property and shares control over certain key decisions with us.

Equity Investments

While we may acquire assets directly by purchasing a fee, leasehold interest or similar interest, this section discusses equity that we have invested or may invest in and the possibility that we may acquire the stock of or other interests in REITs, other real estate operating companies or joint ventures.

REITs or Real Estate Operating Companies. With the approval of a majority of our board of directors (including a majority of our Independent Directors) and subject to our articles of incorporation and bylaws, we may seek to acquire, or seek partnerships or joint ventures with, publicly traded or privately owned entities that own lifestyle properties. These entities may include REITs and other “real estate operating companies,” such as real estate management companies and real estate development companies. We have not yet made any investments in REITs or other real estate operating companies as of the date of this prospectus.

In most cases, we evaluate the feasibility of acquiring these entities using the same criteria we will use in evaluating a particular property. Any entity we acquire would generally be operated as either a wholly owned or controlled subsidiary. The criteria we consider when acquiring a property or an entity can be found in “Selection of Properties.” We may acquire these entities in negotiated transactions or through tender offers. Any acquisition must, however, be consistent with maintaining our qualification to be taxed as a REIT.

Sale of Properties and Loans

During the period of time prior to December 31, 2015, we intend, to the extent consistent with our objective of qualifying and maintaining our status as a REIT, to reinvest any proceeds of the sale of assets that are not required to be distributed to stockholders in order to preserve our REIT status for federal income tax purposes in

 

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additional properties, loans or other Permitted Investments. At or prior to December 31, 2015, we intend to provide our stockholders with liquidity of their investment, either in whole or in part, through listing on a national securities exchange (although liquidity cannot be assured thereby), by commencing the orderly sale of our assets, or by merging with another entity in a transaction which provides our stockholders with cash or securities of a publicly traded company, unless our stockholders owning a majority of our shares elect to extend the duration of CNL Lifestyle Properties by amendment of our articles of incorporation. If listing occurs, we intend to use any Net Sales Proceeds not required to be distributed to stockholders in order to preserve our status as a REIT to reinvest in additional properties, loan or other Permitted Investments or to repay outstanding indebtedness.

In deciding the precise timing and terms of sales of assets or a merger, our Advisor will consider factors such as national and local market conditions, potential capital appreciation, cash flows, and federal income tax considerations. The terms of certain leases, however, may require us to sell a property at an earlier time if the tenant exercises its option to purchase a property after a specified portion of the lease term has elapsed. We will have no obligation to sell all or any portion of a property at any particular time, except as may be required under property or joint venture purchase options granted to certain tenants, partners or operators. In connection with seeking to provide stockholders with liquidity, we will only engage in a merger that results in the distribution to our stockholders of cash or securities of a publicly traded company. In connection with our sales of assets, we may take purchase money obligations as partial payment of the sales price, and the terms of payment will be affected by custom in the area in which the property is located and by prevailing economic conditions. When a purchase money obligation is accepted in lieu of cash upon the sale of a property, we may continue to have a mortgage on the property and the proceeds of the sale may be realized over a period of years rather than at closing of the sale.

We do not anticipate selling any loans prior to the expiration of the loan term, except in the event that: (i) we own the property (land only) underlying the building improvements which secure a mortgage loan and the sale of the property occurs; (ii) we undertake an orderly sale of our assets; or (iii) we determine that it is in the best interest of our stockholders under certain circumstances We will not sell any assets if such sale would not be consistent with our objective of maintaining our status as a REIT.

Mortgage Loans and Other Loans

Detailed information on our mortgage and other loans is provided in our 2009 annual report on Form 10-K, which is incorporated by reference herein. We have used and may continue to use cash raised through our public offerings to make or acquire real estate related loans. We may provide mortgage loans to operators to enable them to acquire or develop the land or buildings or as part of a larger acquisition or both. The mortgage loans will be collateralized by such property.

Generally, we believe that the terms of these transactions will be substantially the same as those of our property leases. We expect that any mortgage loans would provide for interest payments of fixed base interest. Certain mortgage loans may also provide for accrued interest based on our return expectations at the property. Management expects that the base interest rate charged under the terms of the mortgage loan will generally be comparable to, or slightly lower than, lease rates charged to tenants for properties. The borrower will be responsible for all of the expenses of owning the property, as with our triple-net leases, including expenses for insurance, repairs and maintenance. Management expects the mortgage loans to be amortized over a period of 10 to 20 years (generally, the same term as the initial term of the property leases), with payments of principal and interest due monthly.

We may provide short-term or mezzanine financing to businesses within our targeted asset classes that are experiencing growth opportunities which require additional investment capital. In order to remain competitive, many businesses will seek to expand their capacity and/or engage in development which provides them with the potential to grow their earnings and market share. This type of financing is similar to debt capital that gives the

 

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lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. This debt is generally subordinated to debt acquired from senior lenders such as banks and venture capital companies. In the case of short-term or mezzanine loans, we will generally charge a higher rate of interest and try to obtain a mortgage collateralized by real estate. Our mortgage may not have first priority in the event of default. As a mezzanine or short-term lender, we expect that we will generally receive a portion of our return during the duration of the loan, with the balance payable upon maturity. The terms of these short-term or mezzanine loans will usually be less than five years.

We may combine leasing and financing in connection with our involvement with a particular property. For example, we may make a mortgage loan with respect to the building and acquire and lease the underlying land to the borrower. Management believes that the combined leasing and financing structure provides the benefit of allowing us to receive interest on our initial investment in each financed building. At the same time, we retain ownership of the underlying land, which may appreciate in value, thus providing an opportunity for a capital gain on the sale of the land. In such cases in which the borrower is also the tenant under a property lease for the underlying land, if the borrower does not elect to exercise its purchase option to acquire the property under the terms of the lease, then the building and improvements on the property will revert to us at the end of the term of the lease, including any renewal periods. If the borrower does elect to exercise its purchase option as the tenant of the underlying land, then we will generally have the option of selling the property at the greater of fair market value or cost plus a specified percentage.

We will not make or invest in mortgage loans unless an appraisal is obtained concerning the property that secures the mortgage loan. In cases in which the majority of the Independent Directors so determine, and in all cases in which the mortgage loan involves our Advisor, directors, or affiliates, such appraisal must be obtained from an independent expert concerning the underlying property. Such appraisal shall be maintained in our records for at least five years and shall be available for inspection and duplication by any stockholder. In addition to the appraisal, we must obtain a mortgagee’s or owner’s title insurance policy or commitment regarding the priority of the mortgage and condition of the title.

We may also provide other loans to entities in which we own an interest. Such other loans may be collateralized by, among other things, the interests in the entity held by co-venturers.

We believe that the criteria for investing in mortgage loans are substantially the same as those involved in our investments in properties; therefore, we will use the same underwriting criteria as described above in “Selection of Properties” In addition, we will not make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our other loans, would exceed an amount equal to 85 percent of the appraised value of the property unless substantial justification exists because of the presence of other underwriting criteria and the loan is approved by our Independent Directors. In no event shall mortgage indebtedness on any property exceed such property’s appraised value. For purposes of this limitation, the aggregate amount of all mortgage loans outstanding on the property, including our other loans, shall include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property) and the current payment, which payment may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5 percent per annum of the principal balance of the loan.

We will not make or invest in any mortgage loans or other loans that are subordinate to any mortgage, other indebtedness or equity interest of our Advisor, the directors, or our affiliates. We anticipate that we will continue to compete with other REITs, real estate partnerships, mutual funds, institutional investors, specialty finance companies, opportunity funds and other investors, including, but not limited to, banks and insurance companies, many of which have greater financial resources than we do for the purposes of leasing and financing of properties within our targeted asset classes and making loans and Permitted Investments. These competitors often also have a lower cost of capital and are subject to less regulation. This competition impacts our ability to both find real estate investments and tenants. We may also face competition from other funds in which affiliates of our Advisor participate.

 

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Our loan program may be subject to regulation by federal, state and local regulations, laws, and administrative decisions that impose various requirements and restrictions, including among other things, regulating credit granting activities, establishing maximum interest rates and finance charges, requiring disclosures to customers, governing secured transactions, and setting collection, repossession and claims handling procedures and other trade practices. In addition, certain states have enacted legislation requiring the licensing of mortgage bankers or other lenders and these requirements may affect our ability to effectuate our loan program. Commencement of operations in these or other jurisdictions may be dependent upon a finding of our financial responsibility, character and fitness. We may determine not to make loans in any jurisdiction in which we believe we have not complied in all material respects with applicable requirements.

Financings and Borrowings

General. Detailed information on our financings and borrowings is provided in our 2009 annual report on Form 10-K, which is incorporated by reference herein. We have borrowed and intend to continue borrowing funds to acquire properties, make loans and other Permitted Investments and to pay certain related fees. We have borrowed and may continue to borrow money to pay distributions to stockholders, for working capital and for other corporate purposes. We also intend to encumber assets in connection with such borrowings. The aggregate amount of long-term financing is not expected to exceed 50% of our total assets on an annual basis. As of December 31, 2009, we had outstanding debt of $739.0 million, which was 27.7 percent of our total assets.

We have no significant near term debt maturities. We have obtained a revolving line of credit and may obtain additional lines of credit aggregating up to $500 million, which may be increased at the discretion of our board of directors. We may repay the line of credit with offering proceeds, proceeds from the sale of assets, working capital or Permanent Financing. We cannot assure you that additional lines of credit will be obtained. We have obtained Permanent Financing and may obtain additional Permanent Financing in the future.

We believe that borrowings funds in connection with the acquisition of properties benefits us by allowing us to take advantage of favorable interest rates and cost of capital. Specifically, we intend to structure the terms of any financing so that the lease rates for properties acquired and the interest rates for loans made with the loan proceeds will exceed the interest rate payable on the financing. In addition, the use of financing will increase the diversification of our portfolio by allowing us to acquire more assets than would be possible using only the Gross Proceeds from the offering. For information about mortgage loans and other encumbrances on our properties, see “—Real Estate Investment Portfolio, Properties” table above.

We may borrow funds for the purpose of preserving our status as a REIT or for any other authorized corporate purpose. For example, we may borrow to the extent necessary to permit us to make distributions required in order to enable us to continue to qualify as a REIT for federal income tax purposes; however, we will not borrow for the purpose of returning Invested Capital to our stockholders unless necessary to eliminate corporate level tax to us. Our aggregate borrowing, secured and unsecured, will be reasonable in relation to our Net Assets and will be reviewed by the board of directors at least quarterly. In addition, the aggregate amount of Permanent Financing is not expected to exceed 50 percent of our total assets on an annual basis. In accordance with our articles of incorporation, the maximum amount we may borrow is 300 percent of our Net Assets, in the absence of a satisfactory showing that a higher level of borrowing is appropriate. In order to borrow an amount in excess of 300 percent of our Net Assets, a majority of our Independent Directors must approve the borrowing, and the borrowing must be disclosed and explained to our stockholders in our first quarterly report after such approval occurs. Under our articles of incorporation, we may borrow funds from our Advisor or its affiliates.

 

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SELECTED FINANCIAL DATA

The following selected financial data for CNL Lifestyle Properties, Inc. (in thousands except per share data) should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as reported in our 2009 annual report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 25, 2010 and incorporated by reference herein:

 

    Year Ended December 31,  
    2009     2008   2007   2006   2005  

Operating Data:

         

Revenues

  $ 253,271      $ 210,415   $ 139,422   $ 21,887   $ 227   

Operating income (loss)

    13,012        57,578     34,661     1,295     (4,984

Income (loss) from continuing operations(1)

    (19,320     34,240     35,356     19,250     6,583   

Discontinued operations(2)

    —          2,396     169     135     —     

Net income (loss)(1)

    (19,320     36,636     35,525     19,385     6,583   

Net income (loss) per share (basic and diluted):

         

From continuing operations

    (0.08     0.16     0.22     0.31     0.33   

From discontinued operations

    —          0.01     —       —       —     

Weighted average number of shares outstanding (basic and diluted)

    235,873        210,192     159,807     62,461     19,796   

Distributions declared(3)

    154,453        128,358     94,067     33,726     10,096   

Distributions declared per share

    0.66        0.62     0.60     0.56     0.54   

Cash provided by operating activities

    62,400        118,782     117,212     45,293     4,616   

Cash used in investing activities

    141,884        369,193     1,221,387     562,480     199,063   

Cash provided by financing activities

    53,459        424,641     842,894     721,293     251,542   
    Year Ended December 31,  
    2009     2008   2007   2006   2005  

Balance Sheet Data:

         

Real estate investment properties, net

  $ 2,021,188      $ 1,862,502   $ 1,603,061   $ 464,892   $ 20,953   

Investments in unconsolidated entities

    142,487        158,946     169,350     178,672     212,025   

Mortgages and other notes receivable, net

    145,640        182,073     116,086     106,356     3,171   

Cash

    183,575        209,501     35,078     296,163     93,804   

Total assets

    2,672,128        2,529,735     2,042,210     1,103,699     336,795   

Long-term debt obligations

    639,488        539,187     355,620     69,996     —     

Line of credit

    99,483        100,000     —       3,000     4,504   

Total liabilities

    822,912        707,363     424,896     104,505     12,163   

Rescindable common stock

    —          —       —       21,688     —     

Stockholders’ equity

    1,849,216        1,822,372     1,617,314     977,506     324,632   

Other Data:

         

Funds from operations (“FFO”)(1)(4)

    120,576        148,853     118,378     40,037     14,170   

FFO per share

    0.51        0.71     0.74     0.64     0.72   

Modified funds from operations (“MFFO”)(4)

    141,422        148,853     118,378     40,037     14,170   

MFFO per share

    0.60        0.71     0.74     0.64     0.72   

Properties owned directly at the end of period

    107        104     90     42     1   

Properties owned through unconsolidated entities at end of the period

    8        10     10     10     10   

Investments in mortgages and other notes receivable at the end of period

    10        11     9     7     1   

 

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FOOTNOTES:

 

(1) For the year ended December 31, 2009, acquisition fees and miscellaneous acquisition costs of approximately $14.6 million, which were historically capitalized, were expensed as a result of new accounting standards effective January 1, 2009 which has significantly impacted our net income (loss).

 

(2) On December 12, 2008, we sold our Talega Golf Course property. In accordance with GAAP, we have reclassified and included the results from the property sold in 2008 as discontinued operations in the consolidated statements of operations for all periods presented.

 

(3) Cash distributions are declared by the board of directors and generally are based on various factors, including expected and actual net cash from operations and our general financial condition, among others. Approximately 4.4%, 41.0%, 58.0%, 71.9% and 51.9%, of the distributions received by stockholders were considered to be taxable income and approximately 95.6%, 59.0%, 42.0%, 28.1%, and 48.1% were considered a return of capital for federal income tax purposes for the years ended December 31, 2009, 2008, 2007, 2006, and 2005, respectively. We have not treated such amounts as a return of capital for purposes of calculating the stockholders’ return on their invested capital, as described in our advisory agreement.

 

(4) FFO is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We use FFO, which is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures, as one measure to evaluate our operating performance. In addition to FFO, we use MFFO, which excludes acquisition-related costs and non-recurring charges such as the write-off of in-place lease intangibles, other similar costs associated with lease terminations and fair value adjustments of contingent purchase price obligations in order to further evaluate our ongoing operating performance.

FFO was developed by NAREIT as a relative measure of performance of an equity REIT in order to recognize that income-producing real estate has historically not depreciated on the basis determined under GAAP. We believe that FFO is helpful to investors and our management as a measure of operating performance, because it excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which is not immediately apparent from net income (loss) alone.

We believe MFFO is helpful to our investors and our management as a measure of operating performance because it excludes costs that management considers more reflective of investing activities, such as the payment of acquisition expenses that are directly associated with property acquisition, and other non-operating items historically included in the computation of FFO such as non-recurring charges associated with lease terminations and the write-off of in-place lease intangibles and other deferred charges. Acquisition expenses are paid for with proceeds from our common stock offerings or debt proceeds rather than paid for with cash generated from operations. Costs incurred in connection with acquiring a property are generally added to the contractual lease basis of the property thereby generating future incremental revenue rather than creating a current periodic operating expense and are funded through offering proceeds rather than operations. Similarly, new accounting standards require us to estimate any future contingent purchase consideration at the time of acquisition and subsequently record changes to those estimates or eventual payments in the statement of operations even though the payment is funded by offering proceeds. Previously under GAAP, these amounts would be capitalized, which is consistent with how these incremental payments are added to the contractual lease basis used to calculate rent for the related property and generate future rental income. Therefore, we exclude these amounts in the computation of MFFO. By providing MFFO, we present information that is more consistent with management’s long term view of our core operating activities and is more reflective of a stabilized asset base.

 

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Accordingly, we believe that in order to facilitate a clear understanding of our operating performance between periods and as compared to other equity REITs, FFO and MFFO should be considered in conjunction with our net income (loss) and cash flows as reported in the accompanying consolidated financial statements and notes thereto. Because acquisition fees and costs and adjustments to contingent purchase price obligations were not required to be expensed under GAAP prior to January 1, 2009, MFFO for the prior periods is the same as FFO. FFO and MFFO (i) do not represent cash generated from operating activities determined in accordance with GAAP (which, unlike FFO or MFFO, generally reflects all cash effects of transactions and other events that enter into the determination of net income (loss)), (ii) are not necessarily indicative of cash flow available to fund cash needs and (iii) should not be considered as alternatives to net income (loss) determined in accordance with GAAP as an indication of our operating performance, or to cash flow from operating activities determined in accordance with GAAP as a measure of either liquidity or our ability to make distributions. FFO or MFFO as presented may not be comparable to amounts calculated by other companies.

The following table presents a reconciliation of net income (loss) to FFO and MFFO for the years ended December 31, 2009, 2008, 2007, 2006 and 2005 (in thousands except per share data):

 

     Year Ended December 31,
     2009     2008     2007    2006    2005

Net income (loss)

   $ (19,320   $ 36,636      $ 35,525    $ 19,385    $ 6,583

Adjustments:

            

Depreciation and amortization

     124,040        98,901        64,883      8,489      17

Gain on sale of real estate investment properties

     —          (4,470     —        —        —  

Net effect of FFO adjustment from unconsolidated entities(a)

     15,856        17,786        17,970      12,163      7,570
                                    

Total funds from operations

   $ 120,576      $ 148,853      $ 118,378    $ 40,037    $ 14,170
                                    

Acquisition fees and costs(b)

     14,616        —          —        —        —  

Contingent purchase price consideration(c)

     3,472        —          —        —        —  

Write-off of non-cash deferred charges(d)

     2,758        —          —        —        —  
                                    

Modified funds from operations

   $ 141,422      $ 148,853      $ 118,378    $ 40,037    $ 14,170
                                    

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

     235,873        210,192        159,807      62,461      19,796
                                    

FFO per share (basic and diluted)

   $ 0.51      $ 0.71      $ 0.74    $ 0.64    $ 0.72
                                    

Modified FFO per share (basic and diluted)

   $ 0.60      $ 0.71      $ 0.74    $ 0.64    $ 0.72
                                    

 

FOOTNOTES:

 

(a) This amount represents our share of the FFO adjustments allowable under the NAREIT definition (primarily depreciation) multiplied by the percentage of income or loss recognized under the hypothetical liquidation at book value (“HLBV”) method.

 

(b) Acquisition fees and costs that were directly identifiable with properties acquired were not required to be expensed under GAAP prior to January 1, 2009. Accordingly, no adjustments to funds from operations are necessary for periods prior to 2009.

 

(c) In connection with the acquisition of Wet’n’Wild Hawaii, we recorded the fair value of the additional incremental contingent purchase price consideration as a result of the property exceeding certain performance thresholds which entitled the seller to additional contingent purchase consideration above what we initially estimated at the acquisition date. In accordance with GAAP, this amount is required to be expensed even though it is funded by offering proceeds and added to the contractual lease basis used to calculate rent.

 

(d) This amount includes non-recurring charges associated with lease terminations such as the write-off of in-place lease intangibles and other deferred charges. Prior to January 1, 2009, there were no lease terminations.

 

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Table of Contents

MANAGEMENT

Directors and Executive Officers

Our directors and executive officers are listed below:

 

Name

   Age   

Position

James M. Seneff, Jr.  

   63    Director and Chairman of the Board

Robert A. Bourne

   63    Director, Vice Chairman of the Board and Treasurer

Bruce Douglas

   77    Independent Director

Dennis N. Folken

   75    Independent Director

Robert J. Woody

   66    Independent Director

R. Byron Carlock, Jr.  

   47    President and Chief Executive Officer