10-K 1 clp-12312016x10kxdocument.htm 10-K Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
___________________________________________________________________________

FORM 10-K 

___________________________________________________________________________
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 000-51288 
___________________________________________________________________________
CNL LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________________________________
Maryland
 
20-0183627
(State of other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
450 South Orange Avenue
Orlando, Florida
 
32801
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (407) 650-1000 
___________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of exchange on which registered
None
 
Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
(Title of class) 
___________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.05 of this Chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
There is currently no established market for the registrant’s shares of common stock. Based on the estimated net asset value per share of the registrant’s common stock of $3.05 per share at June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market of stock by non-affiliates as of 6/30/2016 was approximately $992 million.
As of March 16, 2017, there were 325,182,969 shares of the registrant’s common stock outstanding. 
___________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
[Intentionally left blank]
 
 
 
 
 



Table of Contents
 
 
 
 
 
 
Page
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
Item 15.
Item 16.
 




PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (this “Annual Report”) that are not statements of historical or current fact may constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements that do not relate strictly to historical or current facts, but reflect management’s current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company’s business and its performance, the economy, and other future conditions and forecasts of future events and circumstances. Forward-looking statements are typically identified by words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “continues,” “pro forma,” “may,” “will,” “seeks,” “should,” “could” and words and terms of similar substance in connection with discussions of future operating or financial performance, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimates of per share net asset value of the Company’s common stock, and/or other matters. The Company’s forward-looking statements are not guarantees of future performance. While the Company’s management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. The Company’s forward-looking statements are based on management’s current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company’s ability to control or accurately predict. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements due to a variety of risks, uncertainties and other factors. Given these uncertainties, the Company cautions you not to place undue reliance on such statements.
For further information regarding risks and uncertainties associated with the Company’s business, and important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the Company’s documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, this Annual Report and the Company’s quarterly reports on Form 10-Q, copies of which may be obtained from the Company’s website at http://www.cnllifestylereit.com.
All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.
Item 1.
BUSINESS
General
CNL Lifestyle Properties, Inc. is a Maryland corporation incorporated on August 11, 2003. The terms “we,” “our,” or “us,” “the Company” and “CNL Lifestyle Properties” include CNL Lifestyle Properties, Inc. and each of its subsidiaries. We operate as a real estate investment trust (“REIT”). Two of our wholly owned subsidiaries, CLP GP Corp. and CLP LP Partners Corp., are the general and limited partners, respectively, of CLP Partners, LP, which is our operating partnership and which conducts substantially all of our operations and owns substantially all of our assets. We have retained CNL Lifestyle Advisor Corporation (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.
As part of Our Exit Strategy described below, in November 2016, we entered into a purchase and sale agreement for the sale of our remaining 36 properties (the "Sale Agreement") for approximately $830.0 million, as previously disclosed on Form 8-K filed on November 2, 2016. In connection with the transaction contemplated by the Sale Agreement, in November 2016, our board of directors approved a plan of liquidation and dissolution (the "Plan of Dissolution") and also approved the suspension of our quarterly cash distribution on our common stock effective as of the fourth quarter distribution.



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At a special meeting of the stockholders held on March 24, 2017, our stockholders approved:
the sale of all of our remaining properties (the “Sale”) to EPR Properties, a Maryland real estate investment trust (“EPR”), and Ski Resort Holdings LLC, a Delaware limited liability company affiliated with Och-Ziff Real Estate(“SRH”), pursuant to the Sale Agreement and
the Plan of Dissolution, including our complete liquidation and dissolution contemplated thereby, subject to the approval of the Sale and following the closing of the Sale. 
We expect to close the Sale in the second quarter of 2017, at which time we will receive approximately $830 million, which is estimated to be paid (i) approximately $183 million in cash, subject to adjustment in accordance with the terms of the Sale Agreement and (ii) approximately $647 million of common stock, par value $0.01 per share, of beneficial interest of EPR (“EPR common shares”). The number of EPR common shares to be received by us will be determined by dividing approximately $647 million by the volume weighted average price per EPR common share on the New York Stock Exchange (the “NYSE”) for the ten business days ending on the second business day before the closing of the Sale (the “Closing VWAP”), provided that (i) if the Closing VWAP is less than $68.25, then the calculation will be made as if the Closing VWAP were $68.25 and (ii) if the Closing VWAP is greater than $82.63, then the calculation will be made as if the Closing VWAP were $82.63. We anticipate distributing to stockholders the EPR common shares (and a portion of the cash consideration after repayment of associated liabilities) within two weeks after the closing.
Upon consummation of the Sale, we will transfer all of our remaining properties to EPR and SRH, as applicable, and we will continue to exist as a separate legal entity until our subsequent liquidation and dissolution pursuant to the Plan of Dissolution.
Our Exit Strategy
We began a process of evaluating strategic alternatives in an effort to provide stockholders with liquidity of their investment. In connection with these objectives, in March 2014, we engaged Jefferies LLC ("Jefferies") and formed a special committee comprised solely of our independent directors to assist management and the board of directors in actively evaluating various strategic opportunities. In connection with this process, between 2014 and 2015, we sold 104 properties and also sold our 81.98% interest in the DMC Partnership, an unconsolidated joint venture that owned and operated the Dallas Market Center (the “DMC Partnership”), for aggregate net sales proceeds of approximately $1.516 billion. We used the net sales proceeds from the sale of these properties to repay indebtedness during 2014 and 2015. In accordance with our undertaking to provide stockholders with partial liquidity, we also used a portion of net sales proceeds received from the sale of properties during the year ended December 31, 2015 to make a special distribution to stockholders of approximately $422.7 million during December 2015.
During 2016, we completed the sale of our remaining five marina properties and our unimproved land for more than their carrying value. Additionally, in April 2016 we acquired our co-venture partner’s 20% interest in the Intrawest Venture and subsequently in October 2016, we sold the seven ski and mountain lifestyle properties, which were owned through the Intrawest Venture, for approximately their net carrying value. As of December 31, 2016, we held ownership interests in 36 properties.
As described above, in November 2016, we entered into the Sale Agreement for the Sale of our remaining 36 properties for approximately $830.0 million. In connection with the transaction contemplated by the Sale Agreement, in November 2016, our board of directors approved the Plan of Dissolution. The board of directors also declared and paid a special cash distribution of approximately $162.6 million, or $0.50 per share, during November 2016. In addition, in light of the Plan of Dissolution, our board of directors also approved the suspension of our quarterly cash distribution on our common stock effective as of the fourth quarter 2016 distribution.
As of March 16, 2017, when aggregated by initial purchase price, the portfolio of 36 properties is diversified as follows: approximately 58% in ski and mountain lifestyle and 42% in attractions. These assets consist of 16 ski and mountain lifestyle properties and 20 attractions properties with the following investment structure:
                    
Wholly-owned: (1)
 
Leased properties
24

Managed properties
12

 
36

 
FOOTNOTE:
(1)
Our real estate investment portfolio is geographically diversified with properties in 18 states and one Canadian province.
Our tenants and operators. We generally attempt to lease our properties to tenants and operators that we consider to be industry leading. However, we do not believe the success of our properties is based solely on the performance or abilities of our tenants and operators. In some cases, we consider the assets we have acquired to be unique, iconic or nonreplicable which by their nature have an intrinsic value. In addition, in the event a tenant is in default and vacates a property, under special provisions in the tax

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laws, 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. These amounts may be more or 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.
Financial information about geographic areas. We have one consolidated property, Cypress Mountain, located in British Columbia, Canada, which generated total rental income of approximately $5.9 million, $5.1 million and $6.3 million during the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2015 and through March 31, 2016, we also owned interests in two other properties located in Canada through the Intrawest joint venture that generated a combined equity in earnings (loss) of approximately $0.3 million, $0.9 million and ($0.1) million during the quarter ended March 31, 2016 and the years ended December 31, 2015 and 2014, respectively. On April 1, 2016, we acquired the remaining 20% interest in the Intrawest joint venture and upon acquisition we began consolidating the results of operations of the two properties located in Canada in our consolidated financial statements. These two properties located in Canada were subsequently sold in October 2016. During the period April 2016 through October 2016, these two properties generated total rental income of approximately $2.7 million.
The remainder of our net income was generated from properties or investments located in the United States.
Our leases and ventures. Our 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.
The weighted-average lease rate of our consolidated properties subject to long-term triple-net leases as of December 31, 2016 was approximately 10%. This rate was based on the weighted-average annualized straight-lined base rent due under our leases. 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 typically provide for the payment of percentage rent 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 reserve rents are paid by the tenant, are 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 leases are generally long-term in nature (generally five to 20 years with multiple renewal options). Some of our tenants operate more than one of our properties with the leases being cross-defaulted. As of December 31, 2016, we have 24 consolidated properties structured as triple-net leases with the average lease expiration of approximately 13 years. We have eight leases scheduled to expire in 2026. None of our other leases are scheduled to expire within the next 10 years.
Our managed properties. When beneficial to our investment structure and subject to applicable tax regulations, 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 a third-party manager to conduct day-to-day operations and 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. In addition, in the case of a tenant default and lease termination, we may engage a third-party manager to operate the property on our behalf for a period of time until we can re-lease the property. This allows us time to stabilize the property, if necessary, and enter into a new lease when market conditions are potentially more favorable. During this managed period, we recognize all the underlying property operating revenues and expenses in our consolidated financial statements and may be subject to more direct operating risk including risks associated with seasonality and are subject to federal income tax on taxable income from the operations. See “Seasonality” below for additional information.
Our joint ventures. We entered into joint ventures in which our partners subordinate their returns to our minimum return. As of December 31, 2015, we had a total of seven properties, under leased structure, owned through our 80% interest in an unconsolidated joint venture. In April 2016, the Company satisfied the terms and conditions under the buy-sell provisions of the partnership agreement and acquired its co-venture partner's 20% interest in the Intrawest Venture for a nominal amount, agreed to sell the seven leased properties and sold the seven properties in October 2016.
Seasonality. Many of the asset classes in which we have invested experience seasonal fluctuations due to the nature of their business, geographic location, climate and weather patterns. As a result, these businesses experience seasonal variations in revenues that may require our operators to supplement operating cash from their properties in order to be able to make scheduled rent payments to us. We have structured the leases for certain tenants such that rents are paid on a seasonal schedule with most, if not all, of the rent being paid during the tenant’s seasonally busy operating period.
As part of our portfolio diversification strategy, we specifically considered the varying and complimentary seasonality of our asset classes and portfolio mix. For example, the peak operating season for our ski and mountain lifestyle assets is highly complementary to the peak seasons for our attractions to balance and mitigate the risks associated with seasonality. Generally, seasonality does

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not significantly affect our recognition of rental income from operating leases due to straight-line revenue recognition in accordance with GAAP. However, seasonality may impact the timing of when base rent payments are made by our tenants, which impacts our operating cash flows. Additionally, seasonality affects the amount of rental revenue we recognize in connection with capital improvement reserve revenue and percentage rents paid by our tenants, which is recognized in the period in which it is earned and is generally based on a percentage of tenant revenues.
Seasonality also directly impacts certain of our properties where we engage independent third-party operators to manage on our behalf and where we record property operating revenues and expenses rather than straight-line rents from operating leases. These properties will likely generate net operating losses during their non-peak months while generating most, if not all, of their operating income during their peak operating months. Our consolidated operating results and cash flows during the first, second and fourth quarters will be lower than the third quarter primarily due to the non-peak operating months of our larger attractions properties. As of December 31, 2016, we had a total of 12 wholly-owned managed attractions properties.
Significant tenants. During the year ended December 31, 2016, we had one tenant who generated more than 10% of total revenues from continuing operations. This tenant operates seven of our ski and mountain lifestyle properties and represented approximately $43.1 million of our consolidated revenues from continuing operations.
Termination and REIT Status
Our articles of incorporation provide that the board of directors shall use its best efforts to take such actions as are necessary, and may take such actions as it deems desirable, to preserve the status of the Company as a REIT. However, in the event that the board of directors determines, by a vote of at least two-thirds (2/3) of the Directors, that it is no longer in the best interests of the Company to remain qualified as a REIT, the board of directors shall cause the termination of the Company’s qualification as a REIT to be submitted to a vote of the Company’s stockholders. The stockholders may terminate the Company’s status as a REIT by a vote of holders of majority of our shares of stock outstanding and entitled to vote.
Our articles of incorporation also provide for the Company’s voluntary termination and dissolution by the affirmative vote of a majority of our shares of stock outstanding and entitled to vote. Under Maryland law, the Company’s voluntary termination and dissolution must also be declared advisable by a majority of the entire board of directors. As described above, in November 2016, our board of directors approved our Plan of Dissolution and on March 24, 2017, our stockholders approved our Plan of Dissolution.
Financial Information About Industry Segments
We have determined that we operate in one business segment, real estate ownership, which consists of investing in and owning a diversified portfolio of real estate primarily within the United States. We view, manage and evaluate all of our lifestyle properties homogeneously as one collection of assets with a common goal to maximize revenues and property income regardless of the type (ski and attractions) or ownership structure (leased or managed). Our chief operating decision maker reviews all of our properties as one consolidated portfolio and does not drive resource allocation decisions based on individual property or groups of properties. Accordingly, we do not report segment information.
Advisory Services
Under the terms of the advisory agreement, our Advisor is responsible for our day-to-day operations, administers our bookkeeping and accounting functions, serves as our consultant in connection with policy decisions to be made by our board of directors, manages our properties and renders other services as the board of directors deems appropriate. In addition, the Advisor engages and contracts with certain of its affiliates to provide services and personnel to the Company. In exchange for these services, our Advisor is entitled to receive certain fees from us. For supervision and day-to-day management of our properties, our Advisor receives an asset management fee, which is payable monthly, based on the total real estate asset value of our properties as defined in the advisory agreement (exclusive of acquisition fees and acquisition expenses), and the amount invested in any other permitted investments as of the end of the preceding month.
In addition, we reimburse our Advisor for all of the costs it incurs in connection with the administrative services it provides to us. However, in accordance with the advisory agreement, our Advisor is required to reimburse us for the amount by which the total operating expenses (as described in the advisory agreement) incurred 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 “Expense Cap”). For the Expense year ended December 31, 2016, 2015 and 2014, operating expenses did not exceed the Expense Cap.
Legal and Regulatory Considerations
General. Our properties are subject to various laws, ordinances and regulations, including regulations relating to common areas. We believe that each of our properties as of December 31, 2016 had the necessary permits and approvals to operate its business.
Americans with Disabilities Act. Our U.S. properties must comply with Title III of the Americans with Disabilities Act of 1990, or the ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal

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of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We are not aware of any material noncompliance with the ADA at our properties. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect. See Item 1A. “Risk Factors – Real Estate and Other Investment Risks – Certain of our properties are subject to environmental liabilities that could significantly impact our return from the properties and the success of our ventures.”
Environmental, Health, and Safety Matters. We are subject to many federal, state, and local environmental, health, and safety laws. The applicability of specific environmental, health, and, safety laws to each of our individual properties is dependent upon a number of property-specific factors, including: the current and former uses of the property; any impacts to the property from other properties; the type and amount of any emissions or discharges from or releases at the property; the building materials used at the property, including any asbestos-containing materials; and the type and amount of any hazardous substances or wastes used, stored, or generated at the property.
Under various laws relating to protection of the environment, current and former owners and operators of real property may be liable for any contamination resulting from the presence or release of hazardous or toxic substances at the property. Current and former owners and operators may also be held liable to the government or to third parties for property damage and for investigation and remediation costs related to contamination, regardless of whether the owners and operators were responsible for or even knew of the contamination, and the liability may be joint and several. The government may be entitled to a lien on a contaminated property. Certain environmental laws, as well as the common law, may subject us to liability for damages or injuries suffered by third parties as a result of environmental contamination or releases originating at our properties, including releases of asbestos, and the liabilities associated with our properties could exceed the values of the respective properties. Some of our properties were previously used for industrial purposes, and those properties may contain some degree of contamination. Environmental impacts or contamination at our properties may prevent us from selling or leasing the properties or using them as collateral. Environmental laws may regulate the use of our properties or the types of operations which can be conducted at our properties, and these regulations may necessitate corrective or other expenditures.
Some of our properties may contain asbestos-containing building materials. Asbestos-containing building materials are subject to management and maintenance requirements under environmental laws, and owners and operators may be subject to penalty for noncompliance. Environmental laws may allow suits by third parties for recovery from owners and operators for personal injury related to exposure to asbestos-containing building materials.
Prior to the purchase of our properties, we generally engage independent environmental consultants to perform Phase I environmental assessments, which normally do not involve soil, groundwater or other invasive sampling. When Phase I environmental assessment results indicated the need to do so, we conducted Phase II assessments, which do involve invasive sampling. These assessments have not revealed any materially adverse environmental conditions which impact or have impacted our properties other than conditions which have been remediated or are currently undergoing remediation. There can be no assurance, however, that new environmental liabilities have not developed since the assessments were performed, that the assessment failed to reveal material adverse environmental conditions, liabilities, or compliance concerns, or that future developments, including changes in laws or regulations, will not impose environmental costs or liabilities upon us. If we become subject to material environmental liabilities, these liabilities could adversely affect us, our business and assets, the results of our operations, and our ability to meet our obligations. See, “Risk Factors – Real Estate and Other Investment Risks – Our properties may be subject to environmental liabilities that could significantly impact or return from the properties and the success of our ventures.”
Insurance. We maintain, or cause operators to maintain, insurance including, but not limited to, liability, fire, wind, earthquake, and business income coverage on all of our properties that are not being leased on a triple-net basis under various policies. We select policy specifications, insured limits and self-insured retention limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of our company’s management, our properties that are not being leased on a triple-net basis are currently adequately insured. We do not carry insurance for generally uninsured losses such as loss from war or nuclear reaction. Certain of our properties are located in areas known to be seismically active. See “Risk Factors—Real Estate and Other Investment Risks—Potential losses may not be covered by insurance.”
Employees
We are externally managed and as such we do not have any employees.
Available Information
CNL Financial Group, LLC (our “Sponsor” or “CNL”) maintains a web site at www.cnllifestylereit.com containing additional information about our business, and a link to the U.S. Securities and Exchange Commission ("SEC") web site (www.sec.gov). We make available free of charge on our web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities

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Exchange Act of 1934, as amended, as soon as reasonably practical after we file such material, or furnish it to, the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site (www.sec.gov) where you can search for annual, quarterly and current reports, proxy and information statements, and other information regarding us and other public companies.
The contents of our web site are not incorporated by reference in, or otherwise a part of, this report.
Item 1A.
RISK FACTORS
Risks Related to the Sale and the Plan of Dissolution
Failure to complete the Sale on a timely basis or at all may result in us discontinuing our business and operations and/or reducing the assets available for distribution to our stockholders.
On November 2, 2016, we entered into a sale agreement (the "Sale Agreement") with EPR Properties (“EPR”) and Ski Resort Holdings LLC, a company affiliated with Och-Ziff Real Estate (together with EPR, the “Purchasers”), pursuant to which we will sell all of our remaining properties for consideration consisting of cash and EPR common shares (the “Sale”). Upon the completion of the Sale, we plan to undergo a dissolution process (the “Dissolution” and, together with the Sale, the “Proposed Transactions”) conducted pursuant to a plan of liquidation and dissolution (the “Plan of Dissolution”). On March 24, 2017, our stockholders approved the Sale Agreement and the Plan of Dissolution at the special stockholders meeting. However, certain conditions precedent to the consummation of the Sale Agreement must be satisfied to complete the sale.
If the Sale is not completed on a timely basis or at all for any reason, we could be subject to a number of material risks, including that:
we may be unable to dispose of our assets for an aggregate amount equal to or exceeding our liabilities and obligations;
we may be unable to secure additional capital or enter into an alternative business combination transaction;
we may be unable to refinance our existing debt when it becomes due;
we would still be required to pay expenses incurred in connection with the Sale, including financial advisory, legal and accounting fees; and
we may be required, under certain circumstances, to pay a termination fee of $25 million, plus reimbursement of actual out of pocket expenses, up to $10 million, incurred by the Purchasers, as described in the Sale Agreement.
The occurrence of any of the above events would impair our ability to conduct our operations and business and may force us to discontinue our operations altogether. Furthermore, if the Sale is not consummated, the board of directors will have to review other alternatives to provide stockholders with liquidity, which may not occur in the near term or on terms as attractive as the terms of the Sale.
The Sale is subject to a number of conditions and the failure to satisfy any of these conditions would jeopardize our ability to complete the Sale.
The completion of the Sale is subject to numerous closing conditions, some of which are out of our control, including the following:
the approval of the NYSE listing of the EPR common shares to be issued in the Sale;
the receipt of forest service permits and ground lessor consents;
the accuracy of the representations and warranties of the parties contained in the Sale Agreement at and as of the closing of the Sale (subject to certain materiality qualifiers);
the performance in all material respects of each party’s obligations under the Sale Agreement required to be performed by it on or prior to the closing date of the Sale;
the absence of a material adverse effect on the entities and assets being acquired by the Purchasers, and the absence of a material adverse effect on either of the Purchasers; and
the receipt of certain notices and/or orders under the Investment Canada Act. 
We cannot be certain when we will be able to satisfy the other closing conditions or whether we will be able to satisfy them at all. Furthermore, we cannot be certain whether or when the Purchasers will be able to satisfy the closing conditions. If any of these conditions are not satisfied or waived prior to September 15, 2017, it is possible that the Sale Agreement may be terminated. Although we and the Purchasers have agreed in the Sale Agreement to use reasonable best efforts, subject to certain

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limitations, to complete the Sale as promptly as possible, these and other conditions to the completion of the Sale may fail to be satisfied. We cannot guarantee that the Sale will be completed. If the Sale is not completed, we may have a need for additional capital to operate our business. Without the proceeds from the Sale, we would have to significantly curtail our operations to continue to achieve our investment objectives, which measures may still not provide sufficient capital or other resources, unless we were able to obtain substantial additional financing. We believe that our ability to raise such capital through such additional financing is very limited. See “-Financing Related Risks” below.
Uncertainty regarding the Sale could adversely affect our business and operations.
Because the Sale is subject to several closing conditions (as described above), uncertainty exists regarding the completion of the Sale. This uncertainty may cause some tenants, vendors/suppliers or others to delay or defer decisions, which could negatively affect our revenues, earnings, cash flows and expenses, regardless of whether the Sale is consummated.  Similarly, the current and prospective employees of our Advisor may experience uncertainty about their future roles following the closing of the Sale which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Sale. In addition, due to operating restrictions in the Sale Agreement, we may be unable, without the other Purchasers’ consent, during the pendency of the Sale, to pursue certain strategic transactions, undertake certain capital projects, undertake certain significant financing transactions and otherwise pursue other actions that are not in the ordinary course of business, even if such actions would prove beneficial.
Pursuing the Plan of Dissolution may cause us to fail to qualify as a REIT, which would dramatically lower the amount of our liquidating distributions.
For so long as we qualify as a REIT and distribute all of our taxable income, we generally are not subject to U.S. federal income tax. Although the our board of directors does not presently intend to terminate our REIT status prior to the final distribution of our assets and our dissolution, our board of directors may take actions pursuant to the Plan of Dissolution that would result in such a loss of REIT status. Upon the final distribution of our assets and our dissolution, our existence and our REIT status will terminate. However, there is a risk that our actions in pursuit of the Plan of Dissolution may cause us to fail to meet one or more of the requirements that must be met in order to qualify as a REIT prior to completion of the Plan of Dissolution. For example, to qualify as a REIT, at least 75% of our gross income must come from real estate sources and 95% of our gross income must come from real estate sources and certain other sources that are itemized in the REIT tax laws, mainly interest and dividends. We may encounter difficulties satisfying these requirements as part of the liquidation process. In addition, in connection with that process, we may recognize ordinary income in excess of the cash received. The REIT rules require us to pay out a large portion of our ordinary income in the form of a dividend to our stockholders. However, to the extent that we recognize ordinary income without any cash available for distribution, and if we were unable to borrow to fund the required dividend or find another way to meet the REIT distribution requirements, we may cease to qualify as a REIT. While we expect to comply with the requirements necessary to qualify as a REIT in any taxable year, if we are unable to do so, we will, among other things (unless entitled to relief under certain statutory provisions):
not be allowed a deduction for dividends paid to stockholders in computing our taxable income;
be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates;
be subject to increased state and local taxes; and
be disqualified from treatment as a REIT for the taxable year in which we lose our qualification and for the four subsequent taxable years.
As a result of these consequences, our failure to qualify as a REIT could substantially reduce the funds available for distribution to our stockholders.
Our board of directors may abandon or delay implementation of the Plan of Dissolution even if it is approved by our stockholders.
Our board of directors has adopted and approved the Plan of Dissolution for the liquidation and dissolution of the Company following the closing of the Sale. Nevertheless, our board of directors may terminate the Plan of Dissolution for any reason. This power of termination may be exercised both before and after the approval of the Plan of Dissolution by our stockholders, up to the time that the articles of dissolution have been accepted for record by the State Department of Assessments and Taxation of Maryland. Notwithstanding approval of the Plan of Dissolution by our stockholders, the board of directors may modify or amend the Plan of Dissolution without further action by the our stockholders to the extent permitted under then current law. Following completion of the Sale, we will continue to exist as a public company until we are dissolved. Although our board of directors has no present intention to pursue any alternative to the Plan of Dissolution, our board of directors may conclude either that its duties under applicable law require it to pursue business opportunities that present themselves or that abandoning the Plan of Dissolution is otherwise in the best interests of the Company and our stockholders. If our board of directors elects to pursue any alternative

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to the Plan of Dissolution, our stockholders may not receive any of the consideration currently estimated to be available for distribution to them pursuant to the Sale and the Plan of Dissolution.
Real Estate and Other Investment Risks
Certain of our tenants may be unable to make rental payments to us in accordance with their lease agreement.
Some of our tenants have experienced difficulties or have been unable to obtain working capital lines of credit or renew their existing lines of credit. 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 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 continue to reduce, our net operating results and cash flows in current and future periods. Any significant reduction in our cash flow may cause us not to have sources of cash available to us in an amount sufficient to enable us to pay amounts due on our indebtedness.
Our operating results will experience seasonal fluctuations on properties in which we have engaged third-party managers to operate the properties on our behalf.
In certain circumstances, we have engaged third-party managers to operate properties on our behalf as a result of tenant defaults. In these situations, we recognize the properties’ operating revenues and expenses in our consolidated financial statements and we may be subject to more direct operating risk. In addition, certain of our managed properties are seasonal in nature due to geographic location, climate and weather patterns. These properties will likely generate net operating losses during their non-peak months while generating most, if not all, of their operating income during their peak operating season. Our consolidated operating results will fluctuate quarter to quarter depending on the number and types of properties being managed by third-party operators and the seasonal results of those properties.
We will be exposed to various operational risks, liabilities and claims with respect to the properties that we have engaged third-party managers to operate on our behalf, which may adversely affect our operating results.
With respect to the properties that are managed by third-party operators, we are exposed to various operational risks, liabilities and claims in addition to those generally applicable to ownership of real property. These risks include the operator’s inability to manage the properties and fulfill its obligations, increases in labor costs and services, cost of energy, insurance, operating supplies and litigation costs relating to accidents or injuries at the properties. Although we maintain reasonable levels of insurance, we cannot be certain the insurance will adequately cover all litigation costs relating to accidents or injuries. Any one or a combination of these factors, together with other market and conditions beyond our control, could result in operating deficiencies at our managed properties, which could have a material adverse effect on our operating results and our ability to pay amounts due on our indebtedness.
Because our revenues are highly dependent on lease payments from our properties, defaults by our tenants would reduce our cash available for the repayment of our outstanding debt.
Our ability to repay any outstanding debt will depend upon the ability of our tenants 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 they operate. A tenant’s failure or delay in making scheduled rent payments to us may result from the tenant realizing reduced revenues at the properties it operates.
Discretionary consumer spending may affect the profitability of certain of our properties.
The financial performance of certain properties in our portfolio 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 in the past and may reduce in the future consumer spending in the markets where we own properties and 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 modified the terms of certain of their leases with us. Any continuation of such events that leads to lower spending on lifestyle activities could impact our tenants’ ability to pay rent and may also adversely affect the operating results we recognize from the properties where we have engaged third party managers to operate on our behalf, thereby having a material adverse effect on our operating results and our ability to pay amounts due on our indebtedness.
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.

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Certain of the properties in which we have invested 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 our properties, these businesses 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, in certain cases, to adjust their lease payments so that we collect more rent during their seasonally busy time.
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. 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 and the proceeds from a future sale 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.
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 our properties, the ability of tenants to pay rent on a timely basis or the amount of the rent to be paid:
changes in general or local economic or market conditions;
the pricing and availability of debt, operating lines of credit 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;
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 including tax policies.
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 as a result of any of these factors, we may have insufficient cash available to pay amounts due on our indebtedness.
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 or that the value of our properties will decline. 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 our properties, 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 revenue, 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.

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If one or more of our tenants, or the guarantor of a tenant’s lease obligation, commences or is subject to an involuntary bankruptcy proceeding, any proceeding under any provision of the U.S. federal bankruptcy code, or any other legal or equitable proceeding under any bankruptcy, insolvency, rehabilitation, receivership or debtor’s relief statute or law, (such proceedings being referred to as, a “Bankruptcy Proceeding”), we may be unable to collect sums due under our lease(s) with that tenant. Any or all of our 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 to pay our indebtedness. 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 to pay amounts due on our indebtedness may be materially adversely affected.
Multiple property leases with individual tenants increase our risks in the event that such tenants become financially impaired.
The value of our properties will depend principally upon the value of the leases entered into for the properties. Defaults by a tenant may continue for some time before we determine that it is in our best interest to terminate the lease of the tenant. Tenants may lease more than one property, and as a result, a default by, or the financial failure of, a tenant could cause more than one property to become vacant or be in default or more than one lease to become non-performing. Defaults or vacancies can reduce and have reduced our cash receipts and funds available for the payment of our indebtedness, and could decrease the resale value of affected properties until they can be re-leased.
We do 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, except under certain circumstances discussed below. Our success, therefore, will depend on our ability to select qualified and creditworthy tenants and managers who can effectively manage and operate the properties. Our tenants will be responsible for maintenance and other day-to-day management of the properties and, 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 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 our third-party tenants and/or operators will operate the properties successfully. Additionally, if we elect to treat property we acquire as a result of 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 managers, then such tenants and operators might not be able to pay our rent, or generate sufficient property-level operating income for us, which could adversely affect our financial condition.
Adverse weather conditions may damage certain properties we own and/or reduce our operators’ ability to make scheduled rent payments to us.
Weather conditions may influence revenues at certain types of properties in our portfolio. 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 our properties. 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 our properties 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 materially adversely affect the conditions at our properties. Most properties have some insurance coverage that will offset such losses and fund needed repairs.
Potential losses may not be covered by insurance.
We maintain, or cause our operators to maintain, insurance including, but not limited to, liability, fire, wind, earthquake, and business income coverage on all of our properties that are not being leased on a triple-net basis under various insurance policies. We select policy specifications and insured limits which we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for generally uninsured losses such as loss from riots, terrorist threats, war or nuclear reaction. Most of our policies, like those covering losses due to floods, are insured subject to limitations involving large deductibles or co-payments and policy limits which may not be sufficient to cover losses. While we carry earthquake insurance on properties that are not being leased on a triple-net basis, the amount of our earthquake coverage may not be sufficient to fully cover losses from earthquakes. We could default under debt or other agreements if the cost and/or

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availability of certain types of insurance make it impractical or impossible to comply with covenants relating to the insurance we are required to maintain under such agreements. In such instances, we may be required to self-insure against certain losses or seek other forms of financial assurance.
We may incur significant costs complying with the Americans with Disabilities Act and similar laws.
Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. We have not conducted an audit or investigation of all of our properties to determine our compliance with the ADA. If one or more of our properties does not comply with the ADA, then we would be required to incur additional costs to bring the property into compliance. Further, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the ultimate cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA and any other similar legislation, our financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy our debt service obligations could be materially adversely affected.
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. 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, which may materially adversely affect our results of operations and our ability to pay amounts due on our indebtedness.
We have no economic interest in the land beneath ground lease properties in our portfolio.
A 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 use the property, we do not retain fee ownership in the underlying land. Accordingly, with respect to such properties, we have no economic interest in the land or buildings at the expiration of the ground lease or permit. As a result, although we 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 amounts due on our indebtedness, could be materially adversely affected.
Ski resorts and other types of properties in which we invest may not be readily adaptable to other uses.
Ski resorts and related properties and other types of properties in our portfolio 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 to pay our indebtedness, and the value of our property portfolio, could be materially reduced.
Certain of our properties are subject to environmental liabilities that could significantly impact our return from the properties and the success of our ventures.
Operations at certain of our properties 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 in our portfolio are 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, or USTs, for the storage of various 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. Asbestos-containing building materials are subject to management and maintenance requirements under environmental laws, and owners and operators may be subject to penalty for noncompliance. Environmental laws may allow suits by third parties for recovery from owners or operators for personal injury related to exposure to asbestos-containing building materials.

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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 us 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 materially adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral. Some of our tenants routinely handle hazardous substances and wastes at our properties. Environmental laws and regulations subject our tenants, and potentially us, to liability resulting from these activities or from previous activities at the properties. Environmental liabilities could also affect the ability of our tenants to meet their obligations to pay us for leasing the properties. While our leases generally 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 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. 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 materially detrimental effect on the operations of the properties and our financial condition, results of operations and ability to pay distributions to stockholders and amounts due on our indebtedness. 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 material detrimental effect on any of our properties.
Mold or other indoor air quality issues may exist or arise in the future at our properties, and they could result in our being liable for adverse health effects and remediation costs.
Excessive moisture accumulation in our buildings or on our building materials may trigger mold growth, and the problem may be exacerbated if the moisture is either undiscovered or not addressed immediately. Mold may emit airborne toxins or irritants. Inadequate ventilation, chemical contamination, and other biological contaminants (including pollen, viruses and bacteria) can also impair indoor air quality. Impaired indoor air quality may cause a variety of adverse health effects such as allergic reactions. If mold or other airborne contaminants exist or appear at our properties, we may have to undertake a costly remediation program to contain or remove the contaminants or increase indoor ventilation. If indoor air quality were impaired, we could be liable to our tenants, their employees or others for property damage or personal injury.
Legislation and government regulation may adversely affect the development and operations of our properties.
In addition to being subject to environmental laws and regulations, certain of the development plans and operations conducted or to be conducted on our properties 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 material detrimental effect on our properties, the operations of our properties and the amount of rent we receive from our tenants.
Governmental regulation with respect to water use by ski resorts could negatively impact our ski resorts.
The rights of our ski resorts and related properties 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 and related properties 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 the ski resorts and related properties 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 and related properties.
Financing Related Risks
Borrowing creates risks.
We have borrowed 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 also have obtained 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 are

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required to disclose the borrowing and to explain 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. 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.
Our debt agreements may contain restrictive covenants relating to our operations, which could limit our ability to make distributions to stockholders and from making other types of payments and investments.
Loan documents we enter into may contain covenants that limit our ability to further mortgage a property or affect other operational policies. Such limitations would hamper our flexibility and may impair our ability to achieve our operating plans.
Disruption or volatility in the credit markets could affect our ability to obtain debt financing on reasonable terms, if at all.
The global and U.S. economy have shown some signs of improvement in recent years, however, concerns continue to exist about the strength of the recovery. If mortgage debt is limited or if we are unable to obtain favorable terms as a result of increased interest rates, increased credit spreads, decreased liquidity or other factors, we risk being unable to refinance our existing debt upon maturity.
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 and 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 our ability to pay distributions to stockholders and amounts due on our indebtedness may be materially adversely affected.
Financing arrangements involving balloon payment obligations may adversely affect our ability to make distributions.
Some of our fixed-term financing arrangements 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 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.
We have borrowed money that bears interest at a variable rate; and from time to time, we may incur 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 pay amounts due on our indebtedness.
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 to pay amounts due on our indebtedness.
Our level of indebtedness could materially adversely affect our financial condition.
Our level of indebtedness could have other important consequences and significant effects on our business. For example, our level of indebtedness and the terms of our debt agreements may:
make it more difficult for us to satisfy our financial obligations under indebtedness and our contractual and commercial commitments and increase the risk that we may default on our debt obligations;
heighten our vulnerability to downturns in our business, our industry or in the general economy and restrict us from exploiting business opportunities or making acquisitions;
limit management’s discretion in operating our business;

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require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, distributions and other general corporate purposes;
place us at a competitive disadvantage compared to our competitors that have less debt;
limit our ability to borrow additional funds; and
limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general economy.
Each of these factors may have a material adverse effect on our financial condition and viability. Our ability to satisfy our debt obligations will depend on our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors affecting our Company and industry, many of which are beyond our control.
Tax Related Risks
We may be subject to the prohibited transactions tax on the sale of our properties.
So long as we continue to qualify as a REIT, any net gain from “prohibited transactions” will be subject to a 100% tax. “Prohibited transactions” are sales of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of a trade or business. The prohibited transactions tax is intended to prevent a REIT from retaining any profit from ordinary retailing activities. The Internal Revenue Code of 1986, as amended (the “Code”), provides for a “safe harbor” which, if all its conditions are met, would protect a REIT’s property sales from being considered prohibited transactions. Whether or not we obtain stockholder approval of the Plan of Dissolution, the gain we realize on the Sale may be treated as income attributable to a prohibited transaction and subject to a 100% tax. Whether property is held primarily for sale to customers in the ordinary course of a REIT’s trade or business depends on all the facts and circumstances surrounding the particular transaction. We do not believe it should be viewed as having held any of such properties as inventory or otherwise primarily for sale to customers, and as such, do not believe that the Sale should be subject to the 100% tax. However, we can give no assurances that the Internal Revenue Service (the “IRS”) will not disagree and contend that one or more of these sales is subject to the 100% tax.
Pursuing the Plan of Dissolution may cause us to be subject to U.S. federal income tax, which would reduce the amount of our liquidating distributions.
We are generally not subject to U.S. federal income tax to the extent that we distribute to our stockholders during each taxable year (or, under certain circumstances, during the subsequent taxable year) dividends equal to our taxable income for the year. However, we are subject to U.S. federal income tax to the extent that our taxable income exceeds the amount of dividends paid to our stockholders for the taxable year. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect to any calendar year are less than the sum of 85% of our ordinary income for that year, plus 95% of our capital gain net income for that year, plus 100% of our undistributed taxable income from prior years. While we intend to make distributions to our stockholders sufficient to avoid the imposition of any U.S. federal income tax on our taxable income and the imposition of the excise tax, differences in timing between the actual receipt of income and actual payment of deductible expenses, and the inclusion of such income and deduction of such expenses in arriving at our taxable income, could cause us to have to either borrow funds on a short-term basis to meet the REIT distribution requirements, find another alternative for meeting the REIT distribution requirements, or pay U.S. federal income and excise taxes. The cost of borrowing or the payment of U.S. federal income and excise taxes would reduce the funds available for distribution to our stockholders.
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. In November 2016, we determined that we needed to accrue a provision for income tax in connection with retaining our REIT status. See Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Provision for Income Taxes," for more information. A REIT generally must distribute to its stockholders at least 90% of its taxable income each year, excluding net capital gains, and meet other compliance requirements. To the extent that a REIT does not distribute all of its net capital gain or distributes at least 90%, but less than 100%, of its taxable income, it will be subject to tax on the undistributed amounts at regular corporate tax rates. We have not requested, and do not plan to request, a ruling from the IRS stating that we qualify as a REIT. Our 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 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. If we fail to qualify as a REIT, for any taxable year (i) we will be subject to federal income tax,

14


including any applicable alternative minimum tax, on our taxable income for that year at regular corporate rates, (ii) unless entitled to relief under relevant statutory provisions, we will be disqualified from treatment as a REIT for the four taxable years following the year during which we lost our REIT status, and (iii) we will not be allowed a deduction for distributions made to stockholders in computing our taxable income. Therefore, if we fail to qualify as a REIT, the funds available to pay amounts due under our indebtedness may be reduced substantially for each of the years involved.
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.
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 TRS) which represent in excess of 10% of the voting securities or 10% of the value of all securities of that company 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 TRSs which have, in the aggregate, a value in excess of 25% (20% for taxable years beginning after December 31, 2017) of our total assets. The 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.
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 and foreign taxes on our income and property that could reduce operating cash flow, including but not limited to: (i) tax on any undistributed REIT taxable income; (ii) “alternative minimum tax” on our items of tax preference; (iii) certain state income, franchise, and gross margins 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 have made an election with respect to certain qualifying property and may elect to treat certain other 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.
Our ownership of TRS is limited, and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s length terms.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the rules applicable to TRSs limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate

15


level of corporate taxation. The rules also impose a 100% excise tax on “redetermined rent” or “redetermined deductions” to the extent rent paid by a TRS exceeds an arm’s-length amount, or (for taxable years beginning after December 31, 2015) redetermined taxable REIT subsidiary service income (defined as income of a TRS that is understated as a result of services provided to us or on our behalf).
Our TRSs will pay U.S. federal, state and local income taxes on their net taxable income, and their after-tax net income will be available for distribution to us but is not required to be distributed. We anticipate that the aggregate value of the stock and securities of our TRSs will be less than 20% (for taxable years beginning after December 31, 2017) of the value of our total assets (including the stock and securities of our TRSs). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with the ownership limitations applicable to TRSs. In addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 25% limitation discussed above or to avoid application of the 100% excise tax discussed above. While we believe our leases have customary terms and reflect normal business practices and that the rents paid thereto reflect market terms, there can be no assurance that the IRS will agree.
Legislative or regulatory action could adversely affect the returns to our stockholders.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their own tax advisor with respect to the impact of recent legislation on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.
Although REITs continue to receive substantially more favorable tax treatment than entities taxed as corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for federal income tax purposes as a corporation. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
Company Related Risks
We have paid and we may continue to pay distributions from sources other than cash flow from operations or funds from operation, which may reduce the amount of capital available for operations, may have negative tax implications, and may have a negative effect on the value of your shares under certain conditions.
Our organizational documents permit us to make distributions from any source, including cash flows from operating activities, proceeds from the sale of assets, borrowings from affiliates and other persons in anticipation of future net operating cash flow, which may be unsecured or secured by our assets, and proceeds of equity offerings. For the years ended December 31, 2016 and 2015, 43% of distributions were funded from cash flows from operating activities and 57.4% were funded from proceeds from the sale of real estate properties. For the years ended December 31, 2014 and 2012, 7.9% and 46.3%, respectively, of distributions were funded from borrowings. For the year ended December 31, 2013, 100.0% of distributions were funded from cash flows from operating activities.
Our distributions have exceeded our earnings and profits in the past and will likely do so in the future. To the extent that the aggregate amount of cash distributed in any given year exceeds the amount of our current and accumulated earnings and profits for the same period, the excess amount will be deemed a return of capital for federal income tax purposes, rather than a return on capital. Furthermore, in the event that we are unable to fund future distributions from our cash flows from operating activities, the value of your shares, the sale of our assets or any other liquidity event may be materially adversely affected. 
We rely on the senior management team of our Advisor, the loss of whom could significantly harm our business.
We depend to a significant extent on the efforts and abilities of the senior management team of our Advisor. These individuals are important to our business and strategy and to the extent that any one or more of them departs and are not replaced with qualified substitutes, such persons’ departures could harm our operations and financial condition.
Because not all REITs calculate modified funds from operations the same way, our use of modified funds from operations may not provide meaningful comparisons with other REITs.
We use modified funds from operations, or MFFO, and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs, which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. However, not all REITs calculate MFFO the same way. If REITs use different methods of calculating MFFO, it may not be possible for investors to meaningfully compare the performance of certain REITs.

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Non-traded REITs have been the subject of increased scrutiny by regulators and media outlets resulting from inquiries and investigations initiated by the Financial Industry Regulatory Authority, Inc. and the Commission.
The Company’s securities, like other non-traded REITs, are sold through broker-dealers and financial advisors. Governmental and self-regulatory organizations like the Commission and self-regulatory organizations like Financial Industry Regulatory Authority, Inc. (“FINRA”) impose and enforce regulations on broker-dealers, investment advisers and similar financial services companies. In disciplinary proceedings in 2012, the Enforcement Division of FINRA required a broker-dealer to pay restitution to investors of a non-traded REIT in connection with the broker-dealer’s sale and promotion activities. FINRA has also filed complaints against a broker-dealer firm with respect to (i) its solicitation of investors to purchase shares in a non-traded REIT without conducting a reasonable inquiry of investor suitability and (ii) its provision of misleading distribution information. In March 2013, a non-traded REIT disclosed in a public filing with the Commission that it was the subject of a Commission investigation focused principally on the adequacy of certain of its disclosures and certain transactions involving affiliated non-traded REITs.
The above-referenced proceedings have resulted in increased regulatory scrutiny from the Commission regarding non-traded REITs. As a result of this increased scrutiny and accompanying negative publicity and coverage by media outlets, FINRA may impose additional restrictions on sales practices in the independent broker-dealer channel for non-traded REITs. If the Company becomes the subject of scrutiny, even if the Company has complied with all applicable laws and regulations, responding to such regulator inquiries could be expensive and distract the Company’s management.
Changes in accounting pronouncements could adversely impact our or our tenants’ reported financial performance.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board and the Commission, entities that create and interpret appropriate accounting standards, may change the financial accounting and reporting standards, or their interpretation and application of the standards that govern the preparation of our financial statements. Such changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Similarly, these changes could have a material impact on our tenants’ reported financial condition or results of operations and affect their preferences regarding leasing real estate. In such event, tenants may determine not to lease properties from us, or, if applicable, not to exercise their option to renew their leases with us. This in turn could make it more difficult for us to enter into leases on terms we find favorable and impact the distributions to stockholders.
Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. The result of these incidents could include, but are not limited to, disrupted operations, misstated financial data, liability for stolen assets or information, increased cyber security protection costs, litigation and reputational damage adversely affecting customer or investor confidence.
If our risk management systems are ineffective, we may be exposed to material unanticipated losses.
We continue to refine our risk management techniques, strategies and assessment methods. However, our risk management techniques and strategies may not fully mitigate the risk exposure of our operations in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate. Any failures in our risk management techniques and strategies to accurately quantify such risk exposure could limit our ability to manage risks in our operations or to seek adequate risk-adjusted returns.
Risks Related to Our Valuation
Valuations and appraisals of our properties and real estate-related assets are estimates of value and may not necessarily correspond to realizable value.
On December 6, 2016, we publicly announced a new estimated net asset value ("NAV") as of November 30, 2016 of $2.10 per share after taking into account the proposed Sale and the payment of the special distribution to our stockholders on or about November 14, 2016. This estimated NAV per share represents the low end of the range of the estimated distributions receivable by our stockholders pursuant to the Plan of Dissolution announced by the Company on November 2, 2016. In determining the NAV per share, the board of directors considered various analyses and information including appraisals of our real estate assets by an independent appraisal firm affiliated with the independent investment banking firm that was engaged as our valuation advisor. The valuation methodologies used by the appraisal firm to value our real estate assets involve subjective judgments regarding such factors as discounted and terminal capitalization rates applied in the appraisals, estimates of future net operating income and unlevered cash flow for the properties and estimated net proceeds from the sale of the properties used in the discounted cash flow analysis within the appraisals. In addition, the appraisals and the board of directors took into account pending purchase prices for assets currently under contract or expected to be under contract and market indications of value derived from our strategic alternatives process. The value of our debt liabilities was estimated by our advisor by discounting the required payments under

17


the Company’s debt agreements using the estimated amortized balance of the loans as of the liquidation date assumed in the valuation. The valuation analyses performed are not necessarily indicative of actual values, trading values or actual future results of the Company’s real estate assets, debt liabilities and common stock that might be achieved, all of which may be significantly more or less favorable than suggested by the valuation report. The analyses do not purport to reflect the prices at which the properties may actually be sold and such estimates are inherently subject to uncertainty. The actual value of the Company’s common stock may vary significantly depending on numerous factors that generally impact the price of securities, the financial condition of the Company and the state of the real estate industry more generally, including what a third-party would be willing to pay for the assets. There will be no retroactive adjustment in the valuation of the assets, the price of our shares of common stock or the price we paid to redeem shares of our common stock to the extent such valuations prove to not accurately reflect the true estimate of value. There will be no retroactive change to fees paid or payable to the advisor and the managing dealer. Prior to the time we began estimating our NAV per share, the price you paid for our common stock in our equity offerings was based on a number of factors, including what we believed investors would pay for our shares, estimated fees to be paid to third parties, to our Advisor and its affiliates, the expenses of our public offering and the funds we believed should be available for us to invest in properties, loans and other permitted investments. You may have paid more than realizable value for your investment.
Our estimated NAV per share is not subject to GAAP, will not be independently audited and will involve subjective judgments by parties involved in valuing our assets and liabilities.
Our methodology and our NAV per share are not subject to GAAP and will not be subject to independent audit. Our estimated NAV per share may differ from equity (net assets) reflected on our audited financial statements, even if we are required to adopt a fair value basis of accounting for GAAP financial statement purposes. Our estimated NAV per share is based, in part, on estimates of the values of our properties, consisting principally of illiquid real estate and other assets, and liabilities as of November 30, 2016. The valuation methodologies used by the independent investment banking firm retained by our board of directors to estimate the value of our properties, and the estimated NAV per shares as of November 30, 2016, involved subjective judgments, assumptions and opinions, which may or may not turn out to be correct.
The estimated NAV per share as of November 30, 2016 is not intended to be related to any analysis of individual asset values performed for financial statement purposes nor to the values at which individual assets may be carried on financial statements under GAAP. Accordingly, you will be relying entirely on our board of directors to adopt an appropriate valuation methodology and approve an appropriate estimated NAV per share, which may not correspond to realizable value upon a sale of our assets.
Our estimated NAV per share may change over time if the valuations of our properties materially change from prior valuations or the actual operating results materially differ from what we originally projected.
Subsequent estimated NAV per share may increase or decrease from the prior estimated NAV per share. Actual operating results may differ from what we originally projected, which may cause an increase or decrease in the estimated NAV per share.
Our estimated NAV per share may not be indicative of the price at which our shares would trade if they were actively traded.
Our board of directors determined our estimated NAV per share of our common stock utilizing a valuation report from an independent appraisal firm as valuation expert. Although we used guidelines recommended by the Investment Program Association for valuing issued or outstanding shares of non-traded real estate investment trusts such as us, our estimated NAV per share may not be indicative of either the price at which our shares would trade if they were listed on a national exchange or actively traded by brokers or of the proceeds that a stockholder would receive if we were liquidated or dissolved and the proceeds were distributed to our stockholders.
Risks Related to Conflicts of Interest and Our Relationships with Our Advisor and Its Affiliates
There may be conflicts of interest because of interlocking boards of directors with affiliated companies.
Thomas K. Sittema serves as our vice-chairman and as a director of our board of directors and concurrently serves as chairman and director of the boards of directors for CNL Healthcare Properties, Inc., CNL Growth Properties, Inc. and CNL Healthcare Properties II, Inc.
There will be competing demands on our officers and directors and they may not devote all of their attention to us which could have a material adverse effect on our business and financial condition.
Two of our directors, James M. Seneff, Jr. and Thomas K. Sittema are also officers and/or 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 they work for are affiliates of us and/or our advisor. For these reasons, all of these individuals will share their management time and services among those companies and us, and will not devote all of their attention to us and could take actions that are more favorable to the other companies than to us.

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In addition, Stephen H. Mauldin, our president and chief executive officer, and our other officers serve as officers of, and devote time to, CNL Healthcare Properties, Inc., a public non-traded REIT, and CNL Healthcare Properties II, Inc., a corporation that intends to operate as a REIT (“CHP II”). Mr. Mauldin also serves as president and chief executive officer, and Tammy J. Tipton, our chief financial officer and treasurer, serves as chief financial officer and treasurer, and other officers may serve as officers of, and devote time to CNL Growth Properties, Inc., a public non-traded REIT. Mr. Mauldin, Ms. Tipton and other of our executive officers serve as officers of, and devote time to, other companies which may be affiliated with us in the future. These officers may experience conflicts of interest in managing us because they also have management responsibilities for CNL Healthcare Properties, Inc., CNL Growth Properties, Inc. and CHP II. For these reasons, these officers will share their management time and services between those entities and us, and will not devote all of their attention to us and could take actions that are more favorable to those entities than to us.
Our advisor and its affiliates, including all of our executive officers and our affiliated directors, will face conflicts of interest as a result of their compensation arrangements with us, which could result in actions that are not in the best interest of our stockholders.
Although our advisory agreement was amended in March 2014 to reduce asset management fees and eliminate acquisition fees on equity, performance fees, debt acquisition fees and disposition fees, we continue to pay our advisor and its affiliates substantial fees. These fees could influence their advice to us, as well as the judgment of affiliates of our advisor performing services for us. Among other matters, these compensation arrangements could affect their judgment with respect to:
the continuation, renewal or enforcement of our agreements with our advisor and its affiliates; and
borrowings to acquire assets, which increase the asset management fees payable to our advisor.
The fees our advisor receives in connection with transactions involving the purchase and management of our assets are not necessarily based on the quality of the investment or the quality of the services rendered to us. The basis upon which fees are calculated may influence our advisor to recommend riskier transactions to us.
None of the agreements with our Advisor or any other affiliates were negotiated at arm’s length.
Agreements with our Advisor, and its affiliates may contain terms that are not in our best interest and would not otherwise apply if we entered into agreements negotiated at arm’s length with unaffiliated third parties.
We will not be in privity of contract with service providers that may be engaged by our Advisor to perform advisory services and they may be insulated from liabilities to us, and our Advisor may have minimal assets with which to remedy any liabilities to us.
Our Advisor subcontracts with affiliated and unaffiliated service providers for the performance of substantially all or a portion of its advisory services. In the event our Advisor elects to subcontract with any service provider, our Advisor will enter into an agreement with such service provider and we will not be a party to such agreement. As a result, we will not be in privity of contract with any such service provider and, therefore, such service provider will have no direct duties, obligations or liabilities to us. In addition, we will have no right to any indemnification to which our advisor may be entitled under any agreement with a service provider. The service providers our advisor may subcontract with may be insulated from liabilities to us for services they perform, but may have certain liabilities to our advisor. Our advisor may have minimal assets with which to remedy any liabilities to us resulting under the advisory agreement.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.

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Item 2.
PROPERTIES
As of December 31, 2016, through various limited partnerships and limited liability companies, we had invested in 36 real estate investment properties. As of March 16, 2017, our remaining portfolio, when aggregated by initial purchase price, was diversified as follows: approximately 58% in ski and mountain lifestyle and 42% in attractions. The following tables set forth details about our property holdings by asset class (in thousands):
Name and Location
 
Description
 
Mortgages
and Other
Notes Payable
as of
December 31, 2016
 
Initial
Purchase
Price
 
Date
Acquired
Ski and Mountain Lifestyle
 
 
 
 
 
 
 
 
Brighton Ski Resort—(1)
Brighton, Utah
 
1,050 skiable acres, seven lifts; permit and fee interests
 
$
18,667

 
$
35,000

 
1/8/2007
Crested Butte Mountain Resort—(1)
Mt. Crested Butte, Colorado
 
1,167 skiable acres, 16 chairlifts; permit and leasehold interests
 

 
41,000

 
12/5/2008
Cypress Mountain—(1)
West Vancouver, BC, Canada
 
600 skiable acres, nine lifts; permit interests
 

 
27,500

 
5/30/2006
Gatlinburg Sky Lift—(1)
Gatlinburg, Tennessee
 
Scenic chairlift; leasehold interest
 

 
19,940

 
12/22/2005
Jiminy Peak Mountain Resort—(1)
Hancock, Massachusetts
 
167 skiable acres, nine lifts; fee interest
 
7,648

 
27,000

 
1/27/2009
Loon Mountain Resort—(1)
Lincoln, New Hampshire
 
370 skiable acres, 12 lifts; leasehold, permit and fee interests
 
14,779

 
15,539

 
1/19/2007
Mount Sunapee Mountain Resort—(1)
Newbury, New Hampshire
 
233 skiable acres, 11 lifts leasehold interest
 

 
19,000

 
12/5/2008
Mountain High Resort—(1)
Wrightwood, California
 
290 skiable acres, 59 trails, 14 lifts; permit interest
 

 
45,000

 
6/29/2007
Northstar-at-Tahoe Resort—
Truckee, California
 
3,170 skiable acres, 20 lifts; permit and fee interests
 
37,505

 
80,097

 
1/19/2007
Okemo Mountain Resort—(1)
Ludlow, Vermont
 
655 skiable acres, 19 lifts; leasehold interest
 

 
72,000

 
12/5/2008
Sierra-at-Tahoe Resort—(1)
Twin Bridges, California
 
2,000 skiable acres, 14 lifts; permit and fee interest
 
13,864

 
39,898

 
1/19/2007
Sugarloaf Mountain Resort—(1)
Carrabassett Valley, Maine
 
1,230 skiable acres, 14 lifts; fee and leasehold interest
 

 
26,000

 
8/7/2007
Summit-at-Snoqualmie Resort—(1)
Snoqualmie Pass, Washington
 
1,981 skiable acres, 24 lifts; permit and fee interest
 
25,764

 
34,466

 
1/19/2007
Stevens Pass—
Skykomish, Washington
 
1,125 skiable acres, 10 chairlifts; fee interest and special use permit
 
11,407

 
20,475

 
11/17/2011
Sunday River Resort—(1)
Newry, Maine
 
820 skiable acres, 15 lifts; leasehold, permit and fee interest
 

 
50,500

 
8/7/2007
The Village at Northstar—
Lake Tahoe, California
 
79,898 leasable square feet
 

 
36,100

 
11/15/2007
 
 
 
 
$
129,634

 
$
589,515

 
 
Attractions
 
 
 
 
 
 
 
 
Adventure Landing—(1)
Pineville, North Carolina
 
Miniature golf course, batting cages, bumper boats and go-karts
 
$

 
$
7,378

 
10/6/2006
Camelot Park—(1)
Bakersfield, California
 
Miniature golf course, go-karts, batting cages and arcade; fee and leasehold interest
 

 
948

 
10/6/2006
Darien Lake—(1)
Buffalo, New York
 
978-acre theme park and waterpark
 

 
109,000

 
4/6/2007
Frontier City—(1)
Oklahoma City, Oklahoma
 
113-acre theme park
 

 
17,750

 
4/6/2007

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Name and Location
 
Description
 
Mortgages
and Other
Notes Payable
as of
December 31, 2016
 
Initial
Purchase
Price
 
Date
Acquired
Funtasticks Fun Center—(1)
Tucson, Arizona
 
Miniature golf course, go-karts, batting cages, bumper boats and kiddie land with rides
 

 
6,424

 
10/6/2006
Hawaiian Falls-Garland—
Garland, Texas
 
11-acre waterpark; leasehold interest
 

 
6,318

 
4/21/2006
Hawaiian Falls-The Colony—
The Colony, Texas
 
12-acre waterpark; leasehold interest
 

 
5,807

 
4/21/2006
Magic Springs and Crystal Falls Water and Theme Park—(1)
Hot Springs, Arkansas
 
70-acre theme park and waterpark
 
1,421

 
20,000

 
4/16/2007
Mountasia Family Fun Center—(1)
North Richland Hills, Texas
 
Two miniature golf courses, go-karts, bumper boats, batting cages, paintball fields and arcade
 

 
1,776

 
10/6/2006
Myrtle Waves Water Park—(1) (2)
Myrtle Beach, South Carolina
 
2-acre theme park; leasehold interest
 

 
7,900

 
4/25/2014
Pacific Park—
Santa Monica, California
 
2-acre theme park; leasehold interest
 

 
34,000

 
12/29/2010
Rapids Waterpark—(1)
Riviera Beach, Florida
 
30-acre waterpark
 
15,531

 
51,850

 
6/29/2012
Wet ‘n’ Wild Palm Springs—(1)
Palm Springs, California
 
21-acre waterpark
 

 
15,601

 
8/12/2013
Wet ‘n’ Wild Splashtown—
Houston, Texas
 
53-acre waterpark
 

 
13,700

 
4/6/2007
Waterworld—
Concord, California
 
23-acre waterpark; leasehold interest
 

 
10,800

 
4/6/2007
Wet ’n’ Wild Hawaii—(1)
Kapolei, Hawaii
 
29-acre waterpark; leasehold interest
 

 
25,800

 
5/6/2009
Wet’n’ Wild Phoenix—(1)
Glendale, Arizona
 
35-acre waterpark
 

 
33,000

 
11/26/2013
White Water Bay—
Oklahoma City, Oklahoma
 
21-acre waterpark
 

 
20,000

 
4/6/2007
Wild Waves Theme Park—(1)
Seattle, Washington
 
67-acre theme park and waterpark; leasehold interest
 

 
31,750

 
4/6/2007
Zuma Fun Center—(1)
Houston, Texas
 
Miniature golf course, batting cages, bumper boats and go-karts
 

 
4,883

 
10/6/2006
 
 
 
 
$
16,952

 
$
424,685

 
 
 
 
 
 
$
146,586

 
$
1,014,200

 
 
 
 
FOOTNOTES:
(1)
As of December 31, 2016, we had recorded impairment provisions related to these properties. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impairment provisions” for additional information.
(2)
In April 2014, we foreclosed on an attractions property that served as collateral on one of our mortgage notes receivable.

Item 3.
LEGAL PROCEEDINGS
From time to time, we may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including proceedings to enforce our contractual or statutory rights. While we cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, we do not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on our results of operations or financial condition.


21





Item 4.
MINE SAFETY DISCLOSURE
None.

22





PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
There is no established public trading market for our common stock, therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for the shares will develop.
On August 22, 2013, we adopted a valuation policy (the “Valuation Policy”) consistent with Investment Program Association, a trade association for non-listed direct investment vehicles (“IPA”), Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, which was issued by the IPA in April 2013 (the “IPA Guidelines”).
Background and Conclusion
To assist our board of directors and the valuation committee, which is comprised solely of the Company’s independent directors (the “Valuation Committee”), in establishing the estimated 2016 net asset value (the “2016 NAV”) per share of the Company’s common stock as of November 30, 2016 (the “Valuation Date”), the Advisor prepared an analysis (the “Valuation Analysis”) based on the gross aggregate purchase price of $830.0 million set forth in the Sale Agreement as well as cash on hand and other adjustments. The Advisor provided the Valuation Analysis to the Valuation Committee and the board of directors.
The Valuation Committee and the board of directors reviewed the Valuation Analysis and considered the material assumptions relating thereto. Upon due consideration, on December 5, 2016 the Valuation Committee recommended to the board of directors, and the board of directors subsequently approved, an estimated 2016 NAV as of November 30, 2016 of $2.10 per share. The 2016 NAV deviates from our valuation policy which requires valuation as of December 31 each year and from the recommendations and methodologies of the IPA by including estimated costs and fees to consummate the transactions under the Sale Agreement and the Plan of Dissolution. The 2016 NAV is an Advisor-led interim valuation based on the execution of the Sale Agreement and related events.
Valuation Methodologies
In preparing the Valuation Analysis, the Advisor utilized the following:
the Sale Agreement;
the Company’s balance sheet as of September 30, 2016, as adjusted for estimated contingencies, costs and operations based on an estimated closing date under the Sale Agreement of March 31, 2017 and the Plan of Dissolution by year end 2017; and
the Company’s reports filed with the SEC.
The value of the Company’s shares will fluctuate over time as a result of, among other things, developments related to individual assets and responses to the real estate and capital markets.
Recent Sales of Unregistered Securities
None.
Secondary Sales of Registered Shares between Investors
For the years ended December 31, 2016 and 2015, we are aware of transfers of 1,396,067 and 3,316,329 shares between investors, respectively. We are not aware of any other trades of our shares. The following table reflects, for each calendar quarter, the high, the low and the average sales prices for transfers of shares between investors during 2016 and 2015 of which we are aware, net of commissions:

23


    
 
 
2016
 
 
High
 
Low
 
Average
First quarter
 
$
4.10

 
$
1.59

 
$
2.80

Second quarter
 
$
4.67

 
$
1.25

 
$
2.21

Third quarter
 
$
10.00

 
$
1.10

 
$
2.14

Fourth quarter
 
$
4.86

 
$
0.70

 
$
1.72

 
 
 
 
 
 
 
 
 
2015
 
 
High
 
Low
 
Average
First quarter
 
$
6.85

 
$
4.00

 
$
4.47

Second quarter
 
$
6.85

 
$
2.50

 
$
4.02

Third quarter
 
$
4.29

 
$
2.50

 
$
2.99

Fourth quarter
 
$
6.85

 
$
2.50

 
$
3.99

Distributions
We declared and paid distributions to stockholders on a quarterly basis through November 2016. In November 2016, as part of entering into the Sale Agreement to sell our remaining 36 properties, our board of directors approved the suspension of our quarterly cash distributions on our common stock effective as of the fourth quarter of 2016. The amount of distributions declared to our stockholders through the suspension of our quarterly cash distribution was determined by our board of directors and was dependent upon a number of factors, including:
Sources of cash available for distribution such as expected cash flows from operating activities, Funds from Operations (“FFO”) and Modified Funds from Operations (“MFFO”), on a rolling 12 month basis; and
Other factors such as the reduced earnings base and cash flow from the disposition of properties as part of our Exit Strategy, our objective of continuing to qualify as a REIT, capital requirements, the general economic environment and other factors.
During 2014, our board of directors declared quarterly distributions of $0.10625 per share. In March 2015, our board of directors reduced distributions per share to $0.05 on a quarterly basis due to selling our golf portfolio and other individual assets during 2014, the repayment of two mortgage notes receivable in 2014, the expected sale of our senior housing portfolio and other assets in 2015, cash needs for routine capital expenditures and the associated impact of asset sales on our operating cash flows. The reduction was made to ensure that the level of cash distributions were consistent with our projected reduction in our remaining earnings base and cash flows. In November 2016, the board of directors suspended our quarterly cash distributions effective with the fourth quarter distribution in light of the Sale Agreement described in Item 1. "Business." In November 2016 and December 2015, the board of directors declared special distributions of $0.50 and $1.30 per share, respectively, payable to stockholders of record of the Company’s common stock as of the close of business on November 1, 2016 and December 4, 2015, respectively. The distributions were paid in cash using proceeds from the sales of real estate assets.
The tax composition of our distributions declared for year ended December 31, 2016, 2015, and 2014 were as follows:
        
 
 
December 31,
Distribution Type
 
2016
 
2015
 
2014
Taxable as ordinary income
 
1.2
%
 
28.0
%
 
%
Taxable as qualified dividends
 
0.2
%
 
%
 
%
Taxable as capital gain
 
%
 
18.3
%
 
%
Return of capital
 
98.6
%
 
53.7
%
 
100.0
%
In determining the apportionment between taxable income and a return of capital, the amounts distributed to stockholders (other than any amounts designated as capital gains dividends) in excess of current or accumulated Earnings and Profits (“E&P”) are treated as a return of capital to the stockholders. E&P is a statutory calculation, which is derived from net income and determined in accordance with the Code. It is not intended to be a measure of the REIT’s performance, nor do we consider it to be an absolute measure or indicator of our source or ability to pay distributions to stockholders. Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Distributions” for further information.
The table in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Distributions” presents total distributions declared, including cash distributions, distributions reinvested,

24


distributions per share and net cash provided by (used in) operating activities for each quarter in the years ended December 31, 2016, 2015 and 2014.
As of December 31, 2016, we had 93,810 common stockholders of record.

Securities Authorized for Issuance under Equity Compensation Plans
None.


25


Item 6.
SELECTED FINANCIAL DATA
The following selected financial data for CNL Lifestyle Properties, Inc. should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” (in thousands except per share data):
 
 
2016
 
2015
 
2014
 
2013
 
2012
Operating Data:
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
241,115

 
$
337,665

 
$
373,295

 
$
362,490

 
$
349,527

Operating income (loss)(1)
 
33,040

 
(111,175
)
 
(10,378
)
 
(25,960
)
 
11,668

Income (loss) from continuing operations(1)
 
56,112

 
(160,624
)
 
(60,438
)
 
(66,816
)
 
(37,059
)
Income (loss) from discontinued operations(2)
 
9,691

 
204,671

 
(31,706
)
 
(241,117
)
 
(39,014
)
Gain on sale of real estate
 
145

 
46,594

 

 

 

Gain from sale of unconsolidated entities
 

 
39,252

 

 
55,394

 

Net income (loss)(1)(2)
 
65,948

 
129,893

 
(92,144
)
 
(252,539
)
 
(76,073
)
Per share data (basic and diluted):
 
 
 
 
 
 
 
 
 
 
From continuing operations(1)
 
$
0.17

 
$
(0.23
)
 
$
(0.18
)
 
$
(0.03
)
 
$
(0.12
)
From discontinued operations(2)
 
0.03

 
0.63

 
(0.10
)
 
(0.76
)
 
(0.12
)
Net income (loss) per share(1)(2)
 
$
0.20

 
$
0.40

 
$
(0.28
)
 
$
(0.79
)
 
$
(0.24
)
Weighted average number of shares outstanding (basic and diluted)
 
325,183

 
325,183

 
324,451

 
318,742

 
312,309

Distributions declared(3)
 
$
211,369

 
$
487,774

 
$
137,880

 
$
135,450

 
$
163,713

Distributions declared per share
 
0.65

 
1.50

 
0.43

 
0.43

 
0.53

Cash provided by operating activities
 
90,029

 
62,643

 
126,934

 
135,480

 
87,893

Cash provided by (used in) investing activities
 
136,441

 
1,057,214

 
273,986

 
(102,930
)
 
(271,464
)
Cash (used in) provided by financing activities
 
(253,132
)
 
(1,173,246
)
 
(335,458
)
 
(34,140
)
 
93,955

Other Data:
 
 
 
 
 
 
 
 
 
 
Funds from operations(4)
 
93,918

 
56,565

 
116,465

 
67,189

 
97,738

FFO per share (basic and diluted)
 
0.29

 
0.17

 
0.36

 
0.21

 
0.31

Modified funds from operations(5)
 
103,070

 
94,324

 
134,589

 
122,911

 
114,327

MFFO per share (basic and diluted)
 
0.32

 
0.29

 
0.41

 
0.39

 
0.37

 
 
As of December 31,
 
 
2016
 
2015
 
2014
 
2013 (7)
 
2012 (7)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Total assets (6)
 
$
842,422

 
$
1,029,461

 
$
2,269,231

 
$
2,700,653

 
$
2,938,028

Mortgages and other notes payable
 
146,251

 
184,341

 
389,580

 
760,192

 
649,002

Liabilities related to assets held for sale
 

 

 
171,745

 

 

Senior notes, net of discount
 

 

 
310,134

 
394,419

 
394,100

Line of credit
 

 

 
152,500

 
50,000

 
95,000

Total liabilities
 
192,093

 
234,544

 
1,111,841

 
1,332,275

 
1,226,597

Stockholders’ equity
 
650,329

 
794,917

 
1,157,390

 
1,368,378

 
1,711,431

Number of Properties:
 
 
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
 
 
 
Leased properties
 
24

 
24

 
42

 
72

 
73

Managed properties
 
12

 
17

 
54

 
63

 
55

Unimproved land or development
 

 
1

 
1

 
1

 
1

Unconsolidated:
 
 
 
 
 
 
 
 
 
 
Leased properties
 

 
7

 
8

 
8

 
14

Managed properties
 

 

 

 

 
36


26


 
FOOTNOTES:
(1)
We evaluated the carrying value of our properties for impairment and determined that the carrying value on some of our properties were not recoverable and recorded impairment provisions of approximately $8.1 million, $124.9 million, $30.4 million, $50.0 million and $10 thousand for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Certain of our tenants have experienced financial difficulties and have defaulted on their leases. We recorded $8.9 million and $1.6 million, for the years ended December 31, 2014 and 2012, respectively, on loss on lease termination. However, we did not record any gain or loss on lease terminations for the years ended December 31, 2016 and 2015. For the year ended December 31, 2013, we recorded a net gain on lease termination of approximately $3.9 million as a result of terminating our lease related to an attractions property in Hawaii in exchange for receiving an intangible trade name. In addition, we recorded loan loss provisions of approximately $9.3 million, $3.3 million, $3.1 million and $1.7 million on mortgages and other notes receivable that were deemed uncollectible for the years ended December 31, 2015, 2014, 2013 and 2012, respectively. We did not have any loans receivable during the year ended December 31, 2016.
(2)
Included in discontinued operations for the years ended December 31, 2015, 2014, 2013 and 2012 are impairment provisions of approximately $7.7 million, $37.9 million, $219.5 million and $0.7 million, respectively, relating to certain properties where we determined the carrying value was not recoverable based on an analysis comparing estimated and current projected undiscounted cash flows, including estimated net sales proceeds, of the properties over their remaining useful lives to the net carrying values of the properties. No impairment provisions were included in discontinued operations for the year ended December 31, 2016. Additionally, included in discontinued operations for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 are gains of approximately $9.7 million, $200.2 million, $4.1 million, $2.4 million and $0.3 million, respectively, from the sale of properties that were classified as discontinued operations.
In accordance with GAAP, we have reclassified and included the results of operations from the properties classified as assets held for sale which qualified as discontinued operations in accordance with Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08 as discontinued operations in the consolidated statements of operations for all periods presented.
(3)
Prior to the fourth quarter of 2016, cash distributions were declared by the board of directors quarterly and generally were based on various factors, including actual and future expected net cash from operations, FFO and MFFO, and our general financial condition, among others. In November 2016, as part of entering into the Sale Agreement to sell our remaining 36 properties and approving our Plan of Dissolution, our board of directors suspended our quarterly cash distributions and approved a Special Distribution of $0.50 per share to stockholders. In addition to quarterly cash distributions, in 2015 the board of directors also declared a special cash distribution of $1.30 per share. For the year ended December 31, 2016, approximately 1.2% and 0.2% of the distributions paid to stockholders were considered ordinary income and qualified dividends, respectively, and approximately 98.6% were considered a return of capital to stockholders for federal income tax purposes. For the year ended December 31, 2015, approximately 28.0% and 18.3% of the distributions paid to stockholders were considered ordinary income and capital gain, respectively, as a result of the net gain on sales of our interest in one unconsolidated joint venture and 55 consolidated properties, and approximately 53.7% were considered a return of capital to stockholders for federal income tax purposes. For each of the years ended December 31, 2014 and 2012, none of the distributions paid to stockholders were considered taxable income and approximately 100.0% were considered a return of capital to stockholders for federal income tax purposes. For the year ended December 31, 2013, approximately 29.3% of the distributions paid to stockholders were considered capital gain as a result of the gain on the sale of our three unconsolidated senior housing joint ventures and approximately 70.7% were considered a return of capital to stockholders for federal income tax purposes. 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)
Due to certain unique operating characteristics of real estate companies, as discussed below, National Association Real Estate Investment Trusts “NAREIT” promulgated a measure known as FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards approved by the Board of Governors of NAREIT. NAREIT defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, real estate impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT’s policy described above.
(5)
We define MFFO, a non-GAAP measure, consistent with the IPA Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: MFFO, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income or loss: acquisition fees and expenses; amounts relating to the write-off of deferred rent receivables and other lease-related assets as well as amortization of above and below market leases and liabilities (which are adjusted in order to remove the impact of GAAP straight-line adjustments from rental revenues); accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income or loss from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, and unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as

27


well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all of our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional disclosures relating to FFO and MFFO.
(6)
The decline in Total Assets year over year is primarily due to the sale of real estate in accordance with our exit strategy. During 2013, we sold our interest in three unconsolidated senior housing joint ventures and sold four consolidated properties. During 2014, we sold our entire golf portfolio (consisting of 48 properties) and our multi-family development property. During 2015, we sold our 81.98% interest in the DMC Partnership and we sold 55 consolidated properties. During 2016, we sold our remaining five marina properties, our unimproved land and our seven ski and mountain lifestyle properties that were owned through the Intrawest Venture. See Item 7. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” for additional information.
(7)
The balance sheet data for the years ended December 31, 2013 and 2012 does not reflect the reclassification of loan costs, net, in accordance with our adoption of the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issue Costs," and ASU No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" on January 1, 2016.
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CNL Lifestyle Properties, Inc. is a Maryland corporation incorporated on August 11, 2003. We were formed primarily to acquire lifestyle properties in the United States that we generally leased on a long-term, triple-net basis (generally five to 20 years, plus multiple renewal options) to tenants or operators that we consider to be industry leading. When beneficial to our investment structure or as a result of tenant defaults, we engaged third-party managers to operate certain properties on our behalf as permitted under applicable tax regulations. We engaged CNL Lifestyle Advisor Corporation (the “Advisor”) as our Advisor to provide management, disposition, advisory and administrative services.
As part of Our Exit Strategy described below, in November 2016, we entered into a purchase and sale agreement for the sale of our remaining 36 properties (the "Sale Agreement") for approximately $830.0 million, as previously disclosed on Form 8-K filed on November 2, 2016. In connection with the transaction contemplated by the Sale Agreement, in November 2016, our board of directors approved a plan of liquidation and dissolution (the "Plan of Dissolution") and also approved the suspension of our quarterly cash distribution on our common stock effective as of the fourth quarter distribution.
At a special stockholders' meeting held on March 24, 2017, our stockholders approved:
the sale of all of our remaining properties (the “Sale”) to EPR Properties, a Maryland real estate investment trust (“EPR”), and Ski Resort Holdings LLC, a Delaware limited liability company affiliated with Och-Ziff Real Estate (“SRH”), pursuant to the Sale Agreement and
the Plan of Dissolution, including our complete liquidation and dissolution contemplated thereby, subject to the approval of the Sale and following the closing of the Sale. 
Upon consummation of the Sale, which we expect to occur in the second quarter of 2017, we will receive approximately $830 million, which is estimated to be paid (i) approximately $183 million in cash, subject to adjustment in accordance with the terms of the Sale Agreement and (ii) approximately $647 million of common stock, par value $0.01 per share, of beneficial interest of EPR (“EPR common shares”). The number of EPR common shares to be received by us will be determined by dividing approximately $647 million by the volume weighted average price per EPR common share on the New York Stock Exchange (the “NYSE”) for the ten business days ending on the second business day before the closing of the Sale (the “Closing VWAP”), provided that (i) if the Closing VWAP is less than $68.25, then the calculation will be made as if the Closing VWAP were $68.25 and (ii) if the Closing VWAP is greater than $82.63, then the calculation will be made as if the Closing VWAP were $82.63. We anticipate distributing to stockholders the EPR common shares (and a portion of the cash consideration after repayment of associated liabilities) within two weeks after the closing.
Upon consummation of the Sale, we will transfer all of our remaining properties to EPR and SRH, as applicable, and we will continue to exist as a separate legal entity until our subsequent liquidation and dissolution pursuant to the Plan of Dissolution.
We currently operate and have elected to be taxed as a REIT for federal income tax purposes. As a REIT, we generally will not be subject to federal income tax at the corporate level to the extent that we distribute at least 100% of our REIT taxable income and capital gains to our stockholders and meet other compliance requirements. We are subject to income taxes on taxable income from certain properties operated by third-party managers. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on all of our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could

28


materially and adversely affect our operating results and cash flows. We are organized and believed we had operated in a manner to qualify for treatment as a REIT beginning with the year ended December 31, 2004. In November 2016, we determined that we needed to accrue a provision for income tax in connection with retaining our REIT status, as described further below in "Liquidity and Capital Resources - Uses of Liquidity and Capital Resources." We intend to continue to be organized and to operate so as to remain qualified as a REIT for federal income tax purposes.
Our Exit Strategy
We began a process of evaluating strategic alternatives in an effort to provide stockholders with liquidity of their investment. In connection with these objectives, in March 2014, we engaged Jefferies LLC ("Jefferies") and formed a special committee comprised solely of our independent directors to assist management and the board of directors in actively evaluating various strategic opportunities. In connection with this process, between 2014 and 2015, we sold 104 properties and also sold our 81.98% interest in the DMC Partnership, an unconsolidated joint venture that owned and operated the Dallas Market Center (the “DMC Partnership”), for aggregate net sales proceeds of approximately $1.5 billion. We used the net sales proceeds from the sale of these properties to repay indebtedness during 2014 and 2015. In accordance with our undertaking to provide stockholders with partial liquidity, we also used a portion of net sales proceeds received from the sale of properties during the year ended December 31, 2015 to make a special distribution to stockholders of approximately $422.7 million during December 2015.
During 2016, we completed the sale of our remaining five marina properties and our unimproved land for more than their carrying value. Additionally, in April 2016 we acquired our co-venture partner’s 20% interest in the Intrawest Venture and subsequently in October 2016, we sold the seven ski and mountain lifestyle properties, which were owned through the Intrawest Venture, at their net carrying value. As of December 31, 2016, we held ownership interests in 36 properties.
As described above, in November 2016, we entered into the Sale Agreement for the sale of our remaining 36 properties for approximately $830.0 million. In connection with the transaction contemplated by the Sale Agreement, in November 2016, our board of directors approved the Plan of Dissolution. The board of directors also declared a special cash distribution of $162.6 million, or $0.50 per share. In addition, in light of the Plan of Dissolution, our board of directors also approved the suspension of our quarterly cash distribution on our common stock effective as of the fourth quarter 2016 distribution.
As of March 16, 2017, our remaining portfolio of 36 lifestyle properties, when aggregated by initial purchase price, was diversified as follows: approximately 58% in ski and mountain lifestyle and 42% in attractions.
Portfolio Trends
The majority of properties in our real estate portfolio are operated by third-party tenant operators under long-term triple-net leases for which we report rental income and are not directly exposed to the variability of property-level operating revenues and expenses. We also engage third-party managers to operate certain properties on our behalf for which we record the property-level operating revenues and expenses and are directly exposed to the variability of the property’s operations which impacts our results of operations. We believe that the financial and operational performance of our tenants and managers, and the general conditions of the industries within which they operate, provide indicators about our tenants’ health and their ability to pay contractually obligated rent. For example, positive growth in visitation and per capita spending may result in our receipt of additional percentage rent and, conversely, declines may impact our tenants’ ability to pay rent to us.
The following table illustrates property level revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) reported to us by our tenants and managers for the asset types below and includes both our leased and managed properties. We have only included property-level operating performance for consolidated properties (for all periods presented) in the table below. Our tenants and managers are contractually required to provide this information to us in accordance with their respective lease and management agreements. While this information has not been audited, it has been reviewed by management to determine whether the information is reasonable and accurate in all material respects. In connection with this review, management reviews monthly property level operating performance versus budgeted expectations, conducts periodic operational review calls with operators and conducts periodic property inspections. We monitor the credit of our tenants by reviewing their rental payment history, timeliness of rent collections, their operational performance on our properties and by monitoring news and industry reports regarding our tenants and their underlying businesses. We have aggregated this performance data on a “same-store” basis only for comparable properties that we have owned during the entirety of all periods presented. We have not included performance data on acquisitions or dispositions made after January 1, 2014 because we did not own those properties during the entirety of all periods presented below. For these reasons, we consider the property level data to be performance information that gives us information on trends which does not directly represent our results of operations. We do not consider this information to be a non-GAAP measure which can be reconciled to our GAAP financial statements because it includes the performance of properties that are leased to third-party tenants. However, we believe this information is useful to help readers of our financial statements understand and evaluate trends, events and uncertainties in our business as it relates to our prior periods and to broader industry performance (in thousands):

29


 
 
 
 
Year Ended December 31,
 
 
 
 
Number of
properties(1)
 
2016
 
2015
 
Increase/(Decrease)
 
 
Revenue
 
EBITDA (2)
 
Revenue
 
EBITDA (2)
 
Revenue
 
EBITDA
Ski and mountain lifestyle
 
16

 
$
432,763

 
$
127,837

 
$
369,991

 
$
91,386

 
17.0
 %
 
39.9
 %
Attractions
 
19

 
201,830

 
49,102

 
211,256

 
62,444

 
(4.5
)%
 
(21.4
)%
 
 
35

 
$
634,593

 
$
176,939

 
$
581,247

 
$
153,830

 
9.2
 %
 
15.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
 
 
 
Number of
properties
(1)
 
2015
 
2014
 
Increase/(Decrease)
 
 
Revenue
 
EBITDA (2)
 
Revenue
 
EBITDA (2)
 
Revenue
 
EBITDA
Ski and mountain lifestyle
 
16

 
$
369,991

 
$
91,386

 
$
383,902

 
$
98,676

 
(3.6
)%
 
(7.4
)%
Attractions
 
19

 
211,256

 
62,444

 
191,950

 
51,104

 
10.1
 %
 
22.2
 %
 
 
35

 
$
581,247

 
$
153,830

 
$
575,852

 
$
149,780

 
0.9
 %
 
2.7
 %
 
 
FOOTNOTE:
 
(1)
Excludes property operating results for one attractions property which was not owned for all periods presented.
(2)
Property operating results for tenants under leased arrangements are not included in the company’s operating results. Property-level EBITDA above is disclosed before rent and capital reserve payments to us, as applicable.
Overall, for the year ended December 31, 2016, our same-store tenants and managers reported to us an increase in property level revenue and property-level EBITDA of 9.2% and 15.0% respectively, as compared to the same period in the prior year. The increase in property-level revenue was primarily attributable to our ski and mountain lifestyle properties. Results of the 2015/16 winter season reflect varying performance between our Western and Northeastern ski resorts, with further distinction between northern and southern resorts within those larger geographic areas. In the West, our resorts in Northern California, the Pacific Northwest, and British Columbia performed exceptionally well due to a generally strong start to the season, coupled with numerous well-timed snowstorms throughout the winter, bringing ample snowfall to ski areas in those regions. In the Pacific Northwest, one of our resorts set an all-time skier visit record, while another one of our resorts set an all-time revenue mark. In Southern California, one of our properties did not see the above-average snowfall typical of the El Niño weather pattern forecasted for 2016 and was forced to close in late February 2016 despite having an improved 2015/16 season-to-date compared to the prior two winters. Resorts in the Tahoe region of Northern California once again saw a more normalized snowfall pattern and performed well throughout the 2015/16 season. Our resorts in the Rocky Mountain region had robust performance from start to finish, with one of our resorts benefiting from additional visitation by destination guests to Utah’s Wasatch Mountains. In the Northeast, warmer temperatures, considerable rain and significantly less snowfall than average, constrained skier visits throughout New England, particularly at those resorts in southern Vermont, southern New Hampshire, and Massachusetts. The remaining three resorts located in northern New Hampshire and Maine fared better once colder temperatures arrived in January 2016 and snowmaking efforts commenced in earnest, drawing skier visits from other resorts in the more southerly parts of New England which were not able to provide a consistent on-snow experience. Revenues for the 2016/17 ski season that started in the fourth quarter of 2016 exceeded the prior year revenues for the same period by approximately 11.8% primarily due to ample natural snowfall at most Western ski resorts and favorable snowmaking conditions at Northeastern resorts, with generally on-time openings amongst all resort areas. Much of the revenue gains for the ski portfolio came from the Northeastern region, where the fourth quarter of 2015 saw many of those resorts opening late and with limited terrain due to the poor weather conditions to start the season. A strong holiday period capped the fourth quarter of 2016 with resorts in both Western and Northeastern regions turning in favorable performances as compared to the prior year holiday period.
As for our attractions properties, some parks offer holiday events through the fall and winter, but generally our operations are mostly complete for the waterparks by the close of the third quarter. Revenue decreases were primarily attributable to several parks in Texas and Washington where unseasonable rain and cool temperatures resulted in lower daily visitation. The decrease to prior year in property-level EBITDA was caused mainly by the decrease in revenues and minimum wage increases.
Overall, for the year ended December 31, 2015, our same-store tenants and managers reported to us an increase in revenue and property-level EBITDA of 0.9% and 2.7%, respectively, as compared to the same period in the prior year. The increase in property-level revenue was primarily attributable to our attractions properties. Our attractions properties exhibited an increase due to higher ticket sales and in-park spending. The increase was partly offset by a decrease from our ski and mountain lifestyle properties. Even though most of our ski resorts on the East Coast recorded record revenues for the ski season that ended in April 2015 due to ample snowfall and long stretches of ideal snowmaking temperatures, these positive results were not enough to offset the effects of a

30


fourth year of California drought and record warm winter temperatures, which resulted in an all-time record low snowfall that affected our ski property resorts in the Pacific Northwest. Summer revenues met or exceeded prior year revenues in the East, where our ski resorts offer a range of summer revenue-generating activities. While the same is true for the two western CNL resorts, Crested Butte and Northstar, the remaining five offer few or no summer activities. Revenues for the ski season that started in the fourth quarter of 2015 exceeded the prior year revenues particularly in California and the Pacific Northwest, with snowfalls returning due to a pronounced El Nino effect. However, the same weather phenomenon caused a snow drought and record warm temperatures in the East, offsetting in part the effects of the highly favorable early season snow conditions in the West.
We continue to closely monitor the performance of all tenants, their financial strength and their ability to pay rent under the leases for our properties. Our asset managers review operating results and rent coverage compared to budget for each of our properties on a monthly basis, monitor the local and regional economy, competitor activity, and other environmental, regulatory or operating conditions for each property, make periodic site visits and engage in regular discussions with our tenants.
Seasonality
Our ski properties and our attractions properties in which we invest experience seasonal fluctuations due to the nature of their business, geographic location, climate and weather patterns. As a result, these businesses experience seasonal variations in revenues that may require our tenants to supplement operating cash from their properties in order to be able to make scheduled rent payments to us. We have structured the leases for certain tenants such that rents are paid on a seasonal schedule with most, if not all, of the rent being paid during the tenant’s seasonally busy operating period.
As part of our portfolio diversification strategy, we considered the varying and complimentary seasonality of our ski and attractions properties. For example, the peak operating season for our ski and mountain lifestyle assets is highly complementary to the peak seasons for our attractions to balance and mitigate the risks associated with seasonality. Generally, seasonality does not significantly affect our recognition of rental income from operating leases due to straight-line revenue recognition in accordance with GAAP. However, seasonality does impact the timing of when base rent payments are made by our tenants, which impacts our operating cash flows and the amount of rental revenue we recognize in connection with capital improvement reserve revenue and percentage rents paid by our tenants, which is recognized in the period in which it is earned and is generally based on a percentage of tenant revenues.
In addition, seasonality directly impacts certain of our attractions properties where we engage independent third-party operators to manage the properties on our behalf and where we record property operating revenues and expenses rather than straight-line rents from operating leases. These properties will likely generate net operating losses during their non-peak months while generating most, if not all, of their operating income during their peak operating months. Our consolidated operating results and cash flows during the first, second and fourth quarters will be lower than the third quarter primarily due to the non-peak operating months of our larger attractions properties.
Loan Foreclosures, Tenant Workouts, Provisions and Impairments
As described above under "Our Exit Strategy," in November 2016, we entered into the Sale Agreement for the sale of our remaining 36 properties and in connection therewith we determined that the carrying value of certain properties exceeded the estimated sales price less costs to sell. As a result, at December 31, 2016, we recorded approximately $8.1 million of impairment provisions to write down the book values of certain properties to the sales price expected under the Sale Agreement less costs to sell. During the years ended December 31, 2015 and 2014, we recorded impairments of approximately $132.6 million and $68.3 million, respectively, to write down the book values of certain properties to estimated fair values based on either discounted cash flows or estimated sales prices from third party buyers less costs to sell. As described above under “Our Exit Strategy”, we actively evaluated various strategic alternatives to provide liquidity to our stockholders. As part of this process, we reviewed the operating performance for each property, developed projected cash flows that used revised assumptions to include projected capital improvement costs to remain competitive, and to retain and enhance visitations and attendance at our ski and attractions properties. We evaluated these revised cash flow projections and reviewed materials provided by our global investment banking and advisory firm, including revised market assumptions and other indications of value received in connection with our strategic alternatives process from several potential buyers, to determine whether it was likely that their carrying value would be recoverable. The revised cash flows also reflected the restructure of our leases with one tenant on three attractions properties, as described below.
During 2014, one of our ski tenants with two leases on properties in the Pacific-Northwest began experiencing financial difficulties and was unable to pay rent in 2015 due to lower operating results from the low levels of snow accompanied by unusually warm weather. Due to their financial difficulty and the continued low level of snow during the first quarter of 2015 at these two locations, we recorded a loss on lease termination of approximately $8.9 million (representing the write-off of straight-line rents) during 2014. Additionally, during 2015 we reserved their outstanding 2015 rent related receivables relating to the ski season that ended through April 2015 and recorded bad debt expense of approximately $8.5 million due to uncertainty of collectability. Even though these properties experienced improved snowfall levels during the 2015/16 ski season, due to this tenant's continued financial difficulties we recorded bad debt expense of approximately $1.9 million during the year ended December 31, 2016 due to uncertainty of collectability from this tenant. Based on weather challenges impacting different regions, additional tenants may experience

31


financial hardships and be unable to make payments under their leases, which may result in additional losses on lease terminations and bad debt expense.
During 2015, we restructured the leases with one tenant relating to three attractions properties and reduced 2015 and 2016 rents due, including percentage rent, by approximately $1.5 million and $1.0 million, respectively.
During 2015, we received an early repayment of both of our mortgage receivables at discounted amounts and recorded loan loss provisions of approximately $9.3 million for the year ended December 31, 2015. We collected the remaining balance of approximately $9.8 million as full satisfaction of the notes during 2015. During the year ended December 31, 2014, we recorded loan loss provisions of approximately $3.3 million, relating to our mortgage and other notes receivable with one of our golf operators, as a result of uncertainty related to the collectability of the note receivable. We collected the remaining $1.3 million balance of the note as full satisfaction of the note during 2014. During 2014, we also foreclosed on an attractions property and recorded the collateral at approximately $7.9 million, which approximated the carrying value of the loan.
Litigation
From time to time, we may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including proceedings to enforce our contractual or statutory rights. While we cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, we do not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on our results of operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
General
Our principal demand for funds are for operating expenses, debt service and, prior to the suspension of our cash distribution policy in November 2016, as described above in “Our Exit Strategy”, was for cash distributions to stockholders. Generally, our cash needs have been covered by cash generated from our investments including rental income and property operating income from managed properties. As described above in “Our Exit Strategy”, we used the net sales proceeds received from the sales of assets to retire indebtedness, make special distributions to our stockholders, enhance existing assets or for other corporate purposes. Having obtained stockholder approval on March 24, 2017 on the Sale Agreement, we intend to consummate the Sale during the second quarter of 2017 and use net sales proceeds from the Sale of our assets to repay indebtedness, satisfy all of our liabilities and pay liquidating distributions to our stockholders.
We believe that current liquidity needs for operating expenses and debt service will be adequately covered by cash generated from our investments. We extended the maturity date on two loans from April 2017 to October 2017. Our liquidity needs will be reduced upon consummation of the Sale described above under Our Exit Strategy.
Cash Flows. Our primary sources of cash have included rental income from operating leases, property operating revenues and proceeds from the sales of properties, and through 2015, also included collection of principal and interest on loans we made, distributions from our unconsolidated entities and borrowings under our revolving line of credit, offset by payments made for operating expenses, including property operating expenses, asset management fees to our Advisor, debt service payments (principal and interest), real estate investments (including capital expenditures) and distributions (through the suspension of our quarterly distribution in November 2016). The following is a summary of our cash flows (in thousands):
    
 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Cash at beginning of period
 
$
83,544

 
$
136,985

 
$
71,574

Cash provided from (used in):
 
 
 
 
 
 
Operating activities
 
90,029

 
62,643

 
126,934

Investing activities
 
136,441

 
1,057,214

 
273,986

Financing activities
 
(253,132
)
 
(1,173,246
)
 
(335,458
)
Effect of foreign currency translation on cash
 
(66
)
 
(52
)
 
(51
)
Cash at end of period
 
$
56,816

 
$
83,544

 
$
136,985

Sources of Liquidity and Capital Resources
Operating Activities. Net cash provided from operating activities increased $27.4 million, or 43.7%, for the year ended December 31, 2016 as compared to the same period in 2015. The increase is primarily attributable to (i) a decrease in interest expense on our indebtedness due to a decrease in weighted average debt outstanding, (ii) a decrease in asset management fees to our Advisor due to a decrease in average assets under management and (iii) an increase in net rental income related to the consolidated operations of the seven properties held by the Intrawest Venture during the period April 2016 through October 2016. The increases

32


were partially offset by (i) a reduction in net operating income from managed properties due to the sale of six and 37 properties in 2016 and 2015, respectively, and (ii) a reduction in distributions received from our unconsolidated joint ventures as a result of the sale of our interest in one unconsolidated joint venture in April 2015.
Proceeds from Sales of Real Estate and an Unconsolidated Entity. As described above in “Our Exit Strategy”, we engaged Jefferies to assist management and our board of directors in actively evaluating various strategic opportunities including the sale of our assets. During the years ended December 31, 2016, 2015 and 2014, we received aggregate net sales proceeds of approximately $148.3 million, $992.7 million and $384.3 million, respectively, from the sale of 13, 55 and 49 properties, respectively. We used the net sales proceeds from the sales of the properties to pay down the indebtedness associated with the properties sold and to pay off our line of credit, repurchase our senior unsecured notes and make a special distribution to our stockholders, as further described below under “Uses of Liquidity and Capital Resources.” During the year ended December 31, 2015, we received approximately $139.5 million from the sale of our 81.98% interest in the DMC Partnership. We did not sell any interests in unconsolidated joint ventures during 2016 and 2014.
Proceeds from Insurance – Hurricane, Storm and Other Damage. Several of our properties were impacted by storms and other events during 2016, 2015 and 2014. We maintain insurance coverage on these properties and filed property insurance claims to cover the cost of the required repairs. During the years ended December 31, 2016, 2015 and 2014, we collected approximately $1.7 million, $4.7 million and $10.2 million, respectively, in insurance proceeds for damages to these properties.
Proceeds from Mortgages and Other Notes Receivable. During the years ended December 31, 2015 and 2014, we received approximately $9.8 million and $83.5 million, respectively, from repayment of loans receivable. We did not have any mortgages and other notes receivable outstanding as of December 31, 2016 and 2015.
Distributions from Unconsolidated Entities. We were entitled to receive quarterly cash distributions from our two unconsolidated entities to the extent there was cash available to distribute. For the years ended December 31, 2016, 2015 and 2014, we received distributions of approximately $1.1 million, $13.1 million and $13.5 million, respectively, from investments in seven, eight and eight properties, respectively. In April 2016, we acquired the remaining 20% non-controlling interest from our co-venture partner of the Intrawest Venture, in accordance with the buy-sell provisions of the Intrawest Venture partnership agreement. As a result of owning a combined 100% controlling interest in the Intrawest Venture, we began consolidating all of the assets, liabilities and results of operations of the Intrawest Venture. The reduction in distributions received for the year ended December 31, 2016 as compared to the same period in 2015 was the result of the sale of our 81.98% interest in DMC Partnership to our co-venture partner in April 2015, which was partially offset by an increase in distributions from our interest in the Intrawest Venture in 2015 due to the removal of restrictions on cash available for distribution resulting from the repayment of debt by the Intrawest Venture, as described below in “Liquidity and Capital Resources – Investments in Unconsolidated Entities.” We did not own any investments in unconsolidated entities effective April 2016 and will no longer receive distributions from unconsolidated entities in the future.
Cash Assumed through Purchase of Controlling Interest of Investment in Unconsolidated Entity. As described above, in April 2016 we purchased our co-venture partner’s 20% interest in the Intrawest Venture for a nominal amount. As part of the acquisition, we assumed approximately $11.9 million in cash and cash equivalents.
Distribution Reinvestment Plan. In 2011, we completed our final offering and subsequently filed registration statements on Form S-3 under the Securities Act of 1933, as amended, to register the sale of shares of common stock under our DRP. On September 4, 2014, our board of directors approved the suspension of our DRP effective as of September 26, 2014. As a result of the suspension of the DRP, beginning with the September 2014 quarterly distributions, stockholders who were participants in the DRP received cash distributions instead of additional shares in the Company. During the year ended December 31, 2014, we raised approximately $27.2 million through the DRP. We did not raise any proceeds from our DRP during the years ended December 31, 2016 and 2015.
Borrowings. We borrowed money to fund ongoing enhancements to our portfolio, pay certain related fees and to cover periodic shortfalls between distributions paid and cash flows from operating activities. As a result of exploring strategic alternatives to provide stockholder liquidity, as described above under Our Exit Strategy, we did not receive any proceeds from indebtedness during the years ended December 31, 2016 and 2015 due to sufficient cash on hand from proceeds from sales of assets, as described above, to meet our current liquidity needs. For the year ended December 31, 2014, we received aggregate proceeds from indebtedness of approximately $290.3 million. Proceeds from 2014 were used to fund acquisition of properties and meet our liquidity needs.
We had a revolving line of credit with available capacity of $100 million that matured in August 2016. Due to exploring strategic alternatives, including the sale of the remainder of our assets, we terminated our line of credit in August 2016.
In January 2017, the Company extended the maturity dates of two of its mortgage loans from April 5, 2017 to October 5, 2017. All other terms remained the same.


33


Uses of Liquidity and Capital Resources
Provision for Income Tax. During the fourth quarter of 2016, we determined that five tenants from whom we receive leasehold income are viewed for federal income tax purposes as the same party who also serves as an eligible third-party manager, also known as an “independent contractor” (within the meaning of section 856(d)(3) of the Code) on our behalf with respect to two properties for which we previously made an election pursuant to applicable Treasury Regulations to treat such properties as “foreclosure property.” Because of the relationship between the tenant entities and the independent contractor entities, we are viewed as deriving or receiving income from the independent contractor, which affects our compliance with the federal income tax rules applicable to REITs. The “foreclosure property” elections terminated and, as of the first day following such termination, the gross income we derived from such properties was not qualifying income under the gross income tests that are applicable to REITs. In order to maintain qualification as a REIT, we annually must satisfy certain tests regarding the source of our gross income. The applicable federal income tax rules provide a “savings clause” for REITs that fail to satisfy the REIT gross income tests if such failure is "due to reasonable cause and not due to willful neglect" and the REIT complies with certain disclosure and filing requirements. In general, a failure is considered due to reasonable cause and not due to willful neglect if the REIT exercised ordinary business care and prudence in attempting to satisfy the gross income requirements. Such care and prudence must be exercised both at the time each transaction is entered into by the REIT and at any later time when the REIT determines that any prior transaction may result in the receipt of nonqualified income which reasonably can be expected to result in a violation of the gross income requirements. A REIT that qualifies for the savings clause will retain its REIT status but may be required to pay a tax under section 857(b)(5) of the Code and related interest. We are pursuing the available relief under such savings clause and believe we satisfy the requirement that such failure was due to reasonable cause and not willful neglect. Nonetheless, we are seeking confirmation from the applicable district director at the IRS that any such failure to satisfy the gross income tests was due to reasonable cause, though we can give no assurances that the IRS will provide such confirmation as applied to this particular set of facts and circumstances. In the event that the IRS determines that the relief under the “savings clause” described above does not apply, we could be treated as having failed to qualify as a REIT for one or more taxable years. If we fail to qualify for taxation as a REIT for any taxable year, our income will be taxed at regular corporate rates resulting in higher taxes for the Company for years 2014, 2015 and 2016, and we could be prevented from re-electing REIT status until 2019. In the event that the IRS were to determine that we were not eligible for such relief, there could be a material adverse effect on our business financial condition and results of operations.
As a result of not being able to satisfy the gross income test described above, at December 31, 2016, we accrued an income tax liability of approximately $8.4 million plus approximately $0.3 million in related interest, to reflect our belief that we qualify for the “savings clause” discussed above. The amount accrued represents the estimated liability and interest, which remains subject to final resolution and therefore is subject to change. One of the above referenced properties was sold in 2015. The other property is expected to have immaterial gross revenues for the periods prior to the Sale. We will continue to monitor the gross revenue from this property and will restructure, if necessary, in such a manner as to allow the Company to satisfy the REIT gross income tests during 2017. Accordingly, we will continue to accrue interest on the income taxes, for which accrual will continue in 2017, and intend to pay the tax provision plus accrued interest in 2017. Other than the interest, assuming that the IRS determines that the Company qualified for relief under the "savings clause," we do not expect to incur tax expense associated with a failure of the REIT gross income tests in future periods commencing January 1, 2017.
Indebtedness – Repayments. During the year ended December 31, 2016, we repaid $10.5 million relating to the outstanding indebtedness collateralized by three properties that were sold, $18.2 million in repayment of indebtedness related to one property that matured in September 2016 and $10.5 million in scheduled principal payments under our mortgage loans.
During the year ended December 31, 2015, we used net sales proceeds from the sales of real estate and our interest in an unconsolidated entity and repaid $529.9 million of indebtedness (which included $12.8 million in scheduled principal payments, early repayments of $198.8 million related to senior housing properties sold and indebtedness collateralized by two attractions properties and one ski and mountain lifestyle property, and early repayment of all of our senior unsecured notes with an outstanding principal amount of $318.3 million at a premium of 103.625%) and repaid $152.5 million of our revolving line of credit.
During the year ended December 31, 2014, we repaid $365.2 million of indebtedness (which included $145.0 million of outstanding mortgage loans related to 49 assets sold during 2014, $42.2 million in scheduled principal payments, early repayments of $92.7 million, $80.8 million in cash to repurchase at a premium the face value of $78.3 million of our senior notes, and $7.0 million related to a bridge loan which originally matured in June 2014) and $130.0 million of our revolving line of credit.
We have scheduled debt repayments and maturities of $138.5 million within the next twelve months. As a result of obtaining stockholder approval for the Sale of our remaining 36 properties, we intend to repay our outstanding indebtedness using net sales proceeds from the Sale which we anticipate will occur during the second quarter of 2017. In the event the Sale does not occur, we intend to refinance our debt.

34


Acquisitions and Capital Expenditures. During the year ended December 31, 2014, we paid $128.4 million (net of debt assumed) to acquire eleven properties. We did not use any funds to acquire any properties during the years ended December 31, 2016 and 2015.
During the years ended December 31, 2016, 2015 and 2014, we funded approximately $27.1 million, $49.3 million and $79.1 million, respectively, in capital improvements at our properties.
Investments in Unconsolidated Entities. As described above in “General—Our Exit Strategy,” in April 2016, as part of acquiring the remaining 20% interest from our co-venture partner during the year ended December 31, 2016, we contributed approximately $5.8 million to the Intrawest Venture and the Intrawest Venture used the proceeds and repaid a mezzanine loan from its joint venture partner and related accrued interest of $5.8 million. Upon acquiring, for a nominal amount, the remaining interest in the Intrawest Venture, which owned seven ski and mountain lifestyle properties, we began consolidating all of the assets, liabilities and results of operations in our consolidated financial statements effective April 2016. Effective April 2016, we did not own any investments in unconsolidated joint ventures.
During the year ended December 31, 2015, we contributed approximately $54.6 million to the Intrawest Venture and the Intrawest Venture repaid two mortgage loans of approximately $54.6 million, which matured in January 2015 and June 2015. We did not make any contributions to unconsolidated entities during the year ended December 31, 2014.
Related Party Arrangements. Our Advisor received certain fees and compensation in connection with the acquisition, management and sale of our assets. In March 2014, our Advisor amended the advisory agreement, effective April 1, 2014, to eliminate acquisition fees on equity, performance fees, debt acquisition fees and disposition fees, and to reduce asset management fees to 0.075% monthly (or 0.90% annually) from 0.083% monthly (or 1.00% annually), of average invested assets. Amounts incurred relating to these transactions were approximately $12.1 million, $19.7 million and $31.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. Our Advisor and its affiliates were also entitled to reimbursement of certain expenses and amounts incurred on our behalf in connection with our acquisitions and operating activities. Reimbursable expenses for the years ended December 31, 2016, 2015 and 2014, were approximately $5.3 million, $5.5 million and $6.9 million, respectively. Of these amounts, approximately $0.5 million and $0.4 million are included in due to affiliates in the accompanying consolidated balance sheets as of December 31, 2016 and 2015, respectively.
Pursuant to the advisory agreement, we will not reimburse our Advisor for any amount by which total operating expenses paid or incurred by us exceed the greater of 2% of average invested assets or 25% of net income (the “Expense Cap”) in any expense year. For the expense years ended December 31, 2016, 2015 and 2014, operating expenses did not exceed the Expense Cap.
Common Stock Redemptions. Our redemption plan was designed to provide eligible stockholders with limited interim liquidity by enabling them to sell shares back to us prior to any listing of our shares. The aggregate amount of funds under the redemption plan was determined on a quarterly basis in the sole discretion of our board of directors. On September 4, 2014, the board of directors approved the suspension of our redemption plan effective as of September 26, 2014.
For the years ended December 31, 2014, redemptions were approximately $9.6 million (1.4 million shares).
Distributions. We declared and paid distributions on a quarterly basis through November 2016. In November 2016, as part of entering into the Sale Agreement to sell our remaining 36 properties, our board of directors approved the suspension of our quarterly cash distributions on our common stock effective as of the fourth quarter of 2016. The amount of distributions declared to our stockholders through the suspension of our quarterly distribution was determined by our board of directors and was dependent upon a number of factors, including:
Sources of cash available for distribution such as expected cash flows operating activities, FFO and MFFO on a rolling 12 month basis; and
Other factors such as the reduced earnings base and cash flow from the disposition of properties as part of our Exit Strategy, our objective of continuing to qualify as a REIT, capital requirements, the general economic environment and other factors.
For the years ended December 31, 2016, 2015 and 2014, we paid distributions to our stockholders of approximately $211.4 million, $487.8 million and $110.7 million, respectively. In March 2015, our board of directors lowered quarterly distributions from $0.10625 per share to $0.05 per share and paid $65.1 million during 2015. Distributions during the year ended December 31, 2015, also included a special cash distribution of $1.30 per share and totaled approximately $422.7 million. As mentioned above in Our Exit Strategy, in November 2016, in connection with the transaction contemplated by the Sale Agreement, the board of directors declared a special cash distribution of approximately $162.6 million, or $0.50 per share. In addition, in light of the Plan of Dissolution, our board of directors also approved the suspension of our quarterly cash distribution on our common stock effective as of the fourth quarter distribution. We will not declare and pay quarterly cash distributions going forward.
Our cash flows from operating activities covered 42.6%, 12.9% and 92.1% of distributions paid for the years ended December 31, 2016, 2015 and 2014, respectively. The shortfall in cash flows from operating activities versus distributions paid for the years

35


ended December 31, 2016, 2015 and 2014 (including the special distributions) was 57.4%, 87.1% and 7.9%, respectively, and was covered by proceeds from sales of properties in 2016 and 2015 and by borrowings in 2014.
The following table represents total distributions declared including cash distributions, distributions reinvested and distributions per share for the years ended December 31, 2016, 2015 and 2014 (in thousands except per share data):
 
 
Distributions
Per Share
 
Total
Distributions
Declared
 
Distributions
Reinvested (1)
 
Net Cash
Distributions
 
Cash Flows
From (Used
in) Operating
Activities (2)(3)
2016 Quarter
 
 
 
 
 
 
 
 
 
 
First
 
$
0.0500

 
$
16,259

 
$

 
$
16,259

 
$
31,215

Second
 
0.0500

 
16,260

 

 
16,260

 
19,074

Third
 
0.0500

 
16,259

 

 
16,259

 
44,742

Fourth(4)
 
0.5000

 
162,591

 

 
162,591

 
(5,002
)
Year
 
$
0.6500

 
$
211,369

 
$

 
$
211,369

 
$
90,029

2015 Quarter
 
 
 
 
 
 
 
 
 
 
First
 
$
0.0500

 
$
16,259

 
$

 
$
16,259

 
$
36,075

Second
 
0.0500

 
16,259

 

 
16,259

 
6,074

Third
 
0.0500

 
16,259

 

 
16,259

 
38,791

Fourth(5)
 
1.3500

 
438,997

 

 
438,997

 
(18,297
)
Year
 
$
1.5000

 
$
487,774

 
$

 
$
487,774

 
$
62,643

2014 Quarter
 
 
 
 
 
 
 
 
 
 
First
 
$
0.1063

 
$
34,278

 
$
13,627

 
$
20,651

 
$
37,560

Second
 
0.1063

 
34,442

 
13,582

 
20,860

 
39,197

Third
 
0.1063

 
34,608

 

 
34,608

 
56,061

Fourth
 
0.1063

 
34,552

 

 
34,552

 
(5,884
)
Year
 
$
0.4252

 
$
137,880

 
$
27,209

 
$
110,671

 
$
126,934

 
 
FOOTNOTES:
 
(1)
Distributions reinvested may be dilutive to stockholders to the extent that they are not covered by cash flows from operations, FFO and MFFO and such shortfalls are instead covered by borrowings. In September 2014, our board of directors suspended the DRP and beginning with the September 2014 quarterly distributions, stockholders who were participants in the DRP received cash distributions instead of additional shares of our common stock.
(2)
Cash flows from operating activities calculated in accordance with GAAP are not necessarily indicative of the amount of cash available to pay distributions. For example, GAAP requires that the payment of acquisition fees and costs be classified as a use of cash in operating activities in the statement of cash flows, which directly reduces the measure of cash flows from operations. However, acquisition fees and costs are paid for with proceeds from our offerings and debt financings as opposed to operating cash flows. The board of directors also uses other measures such as FFO and MFFO in order to evaluate the level of distributions.
(3)
The shortfall between total distributions and cash flows from operating activities was covered by financing or investing activities such as borrowings or net sales proceeds from sales of properties.
(4)
In November 2016, in connection with the Sale Agreement and the Plan of Dissolution, the board of directors approved the suspension of our quarterly cash distribution and declared a special distribution of $0.50 per share, payable to stockholders of record of the Company's common stock, which was funded using net sales proceeds from the sale of real estate.
(5)
In December 2015, the board of directors declared a special distribution of $1.30 per share, payable to stockholders of record of the Company’s common stock, which was funded using net sales proceeds from the sale of real estate.
Our cash flows from operating activities fluctuated due to the seasonality of certain properties. As such, cash flows from operating activities increased during the third quarter to reflect the peak seasonal period of our attractions properties.
The tax composition of our distributions declared for years ended December 31, 2016, 2015 and 2014 were as follows:

36


 
 
December 31,
Distribution Type
 
2016
 
2015
 
2014
Taxable as ordinary income
 
1.2
%
 
28.0
%
 
%
Taxable as qualified dividends
 
0.2
%
 
%
 
%
Taxable as capital gain
 
%
 
18.3
%
 
%
Return of capital
 
98.6
%
 
53.7
%
 
100.0
%
Due to a variety of factors, the characterization of distributions declared for the year ended December 31, 2016 may not be indicative of the characterization of distributions that may be expected for the year ending December 31, 2017.
No amounts distributed to stockholders for the years ended December 31, 2016, 2015 and 2014 were required to be or have been treated as a return of capital for purposes of calculating the stockholders’ return on their invested capital as described in our advisory agreement.
Results of Operations
As described above in “Our Exit Strategy,” in March 2014, we engaged Jefferies, a leading global investment banking firm, to assist us in actively evaluating various strategic alternatives, including the sale of several assets, in preparation for an exit strategy. Between 2014 and 2015, we sold 105 properties and during 2016 we sold 13 properties as described above in “Sources of Liquidity and Capital Resources — Proceeds from Sales of Real Estate and an Unconsolidated Entity.” As a result of these dispositions of assets, our number of investments, rental income from operating leases and net operating income from managed properties declined during 2016 as compared to 2015. As described above, on March 24, 2017, our stockholders approved the Sale of our remaining 36 assets which we anticipate will occur during the second quarter of 2017.
We had invested in properties through the following investment structures as of:
 
 
December 31,
 
 
2016
 
2015
 
2014
Wholly-owned:
 
 
 
 
 
 
Leased properties
 
24

 
24

 
42

Managed properties(1)(2)
 
12

 
17

 
54

Unimproved land
 

 
1

 
1

Unconsolidated joint ventures:(3)
 
 
 
 
 
 
Leased properties
 

 
7

 
8

 
 
36

 
49

 
105

 
FOOTNOTES:
 
(1)
As of December 31, 2016, 2015 and 2014, wholly-owned managed properties are as follows:
 
 
December 31,
 
 
2016
 
2015
 
2014
Ski & Mountain Lifestyle
 

 

 
1

Attractions
 
12

 
12

 
16

Senior housing
 

 

 
20

Marinas
 

 
5

 
17

 
 
12

 
17

 
54

(2)
Under certain applicable tax regulations, properties are permitted to be temporarily managed and certain properties are permitted to be indefinitely managed. As of December 31, 2016 and 2015, all of our managed properties were temporarily managed. As of December 31, 2014, we had 30 and 24 properties that were temporarily and indefinitely managed, respectively, under management agreements.
(3)
In April 2015, we sold our 81.98% interest in the DMC Partnership, which held one property. In April 2016, we acquired the remaining 20% interest in the Intrawest Venture from our co-venture partner. See “Distributions from Unconsolidated Entities” above for additional information.

Year ended December 31, 2016 compared to Year ended December 31, 2015
Rental income from operating leases. Rental income for the year ended December 31, 2016 increased by approximately $14.1 million as compared to the same period in 2015. Rental income for the year ended December 31, 2016 from our ski and mountain lifestyle properties increased approximately $9.4 million related to the addition of seven properties we wholly owned for seven

37


months after we completed the acquisition of our co-venture partner's 20% interest in the Intrawest Venture in April 2016. We sold these seven properties in October 2016. Additional billings permitted under our leases calculated as a percentage of ski property level operating revenues generated by our tenants increased by approximately $6.2 million during the year ended December 31, 2016 as compared to the same period of the prior year, primarily as a result of favorable weather conditions during the peak ski season. Our ski properties in the Pacific Northwest had all-time record low snow conditions for the 2014/2015 ski season, but saw increased revenues for the 2015/2016 ski season due to snowfall returning to more normalized levels in the Pacific Northwest as a result of a pronounced El Nino effect. However, the same weather phenomenon caused a snow drought and record warm temperatures on the East Coast negatively impacting the 2015/2016 ski season for our properties located in the East. Rental income from our attractions properties declined by approximately $1.5 million during the year ended December 31, 2016 as compared to the same periods of 2015, primarily due to amending certain leases, which resulted in lower rents due under the leases, as described further above in “General — Loan Foreclosures, Tenant Workouts, Provisions and Impairments.”
The following information summarizes trends in rental income from operating leases and base rents for certain of our properties excluding properties that have been classified as discontinued operations (in thousands):
 
 
For the Year Ended
December 31,
 
 
 
 
Properties Subject to Operating Leases
 
2016
 
2015
 
$ Change
 
% Change
Ski and mountain lifestyle
 
$
110,783

 
$
95,167

 
$
15,616

 
16.41
 %
Attractions
 
28,582

 
30,072

 
(1,490
)
 
(4.95
)%
Total
 
$
139,365

 
$
125,239

 
$
14,126

 
11.28
 %
As of December 31, 2016 and 2015, the weighted-average lease rate for our portfolio of wholly-owned leased properties was 10.0% and 10.2%, respectively. These rates are based on annualized straight-line base rent due under our leases and the weighted-average contractual lease basis of our real estate investment properties subject to operating leases. The weighted-average lease rate of our portfolio will fluctuate based on our asset mix, timing of property acquisitions, lease terminations and reductions in rent granted to tenants.
Property operating revenues. Property operating revenues from managed properties, which are not subject to leasing arrangements, are derived from room rentals, food and beverage sales, ski and spa operations, ticket sales, concessions, waterpark and theme park operations, and other service revenues. The following information summarizes the revenues of our properties that are operated by third-party managers for the years ended December 31, 2016 and 2015 (in thousands):
    
 
 
For the Year Ended
December 31,
 
 
 
 
Properties Operated by Third-Party Managers
 
2016
 
2015
 
$ Change
 
% Change
Ski and mountain lifestyle
 
$

 
$
51,942

 
$
(51,942
)
 
(100.00
)%
Attractions
 
101,750

 
159,162

 
(57,412
)
 
(36.07
)%
Total
 
$
101,750

 
$
211,104

 
$
(109,354
)
 
(51.80
)%
As of December 31, 2016 and 2015, we had a total of 12 managed properties (excluding properties that we classified as discontinued operations), respectively, of which certain properties are operated seasonally due to geographic location, climate and weather patterns. The decrease in property operating revenues is primarily due to the sale of four attraction properties and the Omni Mt. Washington Resort, our one managed ski and mountain lifestyle property, during 2015.
Interest income on mortgages and other notes receivable. Interest income on mortgages and other notes receivable was approximately $1.3 million for the year ended December 31, 2015. There was no interest income on mortgages and other notes receivable during year ended December 31, 2016, as all of our notes receivables were collected during 2015.
Property operating expenses. The following information summarizes the expenses of our properties that are operated by third-party managers for the years ended December 31, 2016 and 2015 (in thousands):
    
 
 
For the Year Ended
December 31,
 
 
 
 
Properties Operated by Third-Party Managers
 
2016
 
2015
 
$ Change
 
% Change
Ski and mountain lifestyle
 
$

 
$
42,702

 
$
(42,702
)
 
(100.00
)%
Attractions
 
80,881

 
131,409

 
(50,528
)
 
(38.45
)%
Total
 
$
80,881

 
$
174,111

 
$
(93,230
)
 
(53.55
)%
Property operating expenses decreased primarily due to the sale of four attraction properties and the Omni Mt. Washington Resort, our one managed ski and mountain lifestyle property, during 2015.

38


Asset management fees to advisor. Monthly asset management fees equal to 0.08334% prior to April 1, 2014 and 0.075% effective April 1, 2014 of invested assets were paid to the Advisor for the management of our real estate assets, loans and other permitted investments. For the years ended December 31, 2016 and 2015, asset management fees to our Advisor were approximately $11.9 million and $15.7 million, respectively. The decrease in such fees is primarily attributable to a decrease in invested assets under management due to the sale of 55 properties in 2015 and 13 properties in 2016.
General and administrative. General and administrative expenses totaled approximately $15.1 million and $15.6 million for the years ended December 31, 2016 and 2015, respectively. General and administrative expenses were comprised primarily of reimbursable personnel expenses of affiliates of our Advisor, accounting and legal fees, and board of directors’ fees.
Ground leases and permit fees. Ground lease payments and land permit fees are generally based on a percentage of gross revenue of the underlying property over certain thresholds. For properties that are subject to leasing arrangements, ground leases and permit fees are paid by the tenants in accordance with the terms of our leases with those tenants and we record the corresponding equivalent revenues in rental income from operating leases. For the years ended December 31, 2016 and 2015, ground lease and land permit fees were approximately $11.3 million and $10.3 million, respectively, of which approximately $7.5 million and $6.7 million, respectively, represents the corresponding equivalent revenues in rental income from operating leases. The increase in ground leases and permit fees is primarily due to additional billings permitted under our leases calculated as a percentage of ski property level operating revenues generated by our tenants.
Other operating expenses. Other operating expenses totaled approximately $12.1 million and $6.9 million for the years ended December 31, 2016 and 2015, respectively. The increase is primarily attributable to expenses related to seven properties for seven months effective with the April 2016 acquisition of our co-venture partner's 20% interest in the Intrawest Venture (and subsequent sale of the properties in October 2016) as described above in "General - Our Exit Strategy," and an increase in repair and maintenance expenses related to our properties subject to operating leases.
Bad debt expense. Bad debt expense totaled $1.9 million for the year ended December 31, 2016, as compared to bad debt expense of approximately $8.5 million for the year ended December 31, 2015. As described above in “General — Loan Foreclosures, Tenant Workouts, Provisions and Impairments,” during 2015, one of our ski tenants with two leases on properties in the Pacific-Northwest experienced financial difficulties as a result of lower operating results from the low levels of snow accompanied by unusually warm weather. Although this tenant was able to pay rents in 2016 related to the 2015/16 ski season, due to continued financial difficulties of this tenant for the ski season that started in the fourth quarter of 2016, we recorded bad debt expense of approximately $1.9 million during the year ended December 31, 2016 due to uncertainty of collectability.
Loan loss provision. Loan loss provisions were approximately $9.3 million for the year ended December 31, 2015. During the year ended December 31, 2015, as described above in “Loan Foreclosures, Tenant Workouts, Provisions and Impairments”, we recorded loan loss provisions to record our mortgage receivables at their net realizable values. All mortgage and notes receivables were collected in full during 2015. Accordingly, there was no loan loss provision during the year ended December 31, 2016.
Impairment provisions. Impairment provisions were approximately $8.1 million and $124.9 million for the years ended December 31, 2016 and 2015, respectively. As described above in "General Loan Foreclosures, Tenant Workouts, Provisions and Impairments," we entered into a Sale Agreement and adjusted the net carrying value of certain properties to the estimated sales price, less estimated closing costs during the year ended December 31, 2016. Impairment provisions recorded during the year ended December 31, 2015 related primarily to several attractions and ski and mountain lifestyle properties to write down their book values to estimated fair values based on discounted cash flows and residual values, as described above under “Loan Foreclosures, Tenant Workouts, Provisions and Impairments.”
Depreciation and amortization. Depreciation and amortization expense was approximately $66.8 million and $83.5 million for the years ended December 31, 2016 and 2015, respectively. Depreciation and amortization expenses decreased primarily due to a lower depreciable basis of certain of our properties as a result of impairment provisions recorded in December 2015 and as a result of five properties that were sold in 2015 that did not qualify as discontinued operations.
Interest and other income. Interest and other income was approximately $1.6 million and $2.2 million for the years ended December 31, 2016 and 2015, respectively.
Interest expense and loan cost amortization. Interest expense and loan cost amortization was approximately $11.1 million and $26.9 million for the years ended December 31, 2016 and 2015, respectively. The decrease is primarily attributable to the repayment of approximately $621.9 million in 2015, related to our senior unsecured notes, line of credit and other indebtedness.
Loss on extinguishment of debt. Loss on extinguishment of debt was approximately $25 thousand and $21.1 million for the years ended December 31, 2016 and 2015, respectively. The loss on extinguishment of debt incurred during the year ended December 31, 2015 related to the early repayments of our senior unsecured notes and certain loans during 2015. Loss on extinguishment of debt included legal fees incurred with the transaction, prepayment penalty fees and the write-off of unamortized bond issue costs and loan costs.

39


Equity in earnings (loss) of unconsolidated entities. The following table summarizes equity in earnings from unconsolidated entities (in thousands):
 
 
For the Year Ended
December 31,
 
 
 
 
 
 
2016
 
2015
 
$ Change
 
% Change
DMC Partnership
 
$

 
$
2,475

 
$
(2,475
)
 
(100.00
)%
Intrawest Venture
 
1,290

 
3,678

 
(2,388
)
 
(64.93
)%
Total
 
$
1,290

 
$
6,153

 
$
(4,863
)
 
(79.03
)%
Equity in earnings of unconsolidated entities was approximately $1.3 million and $6.2 million for the years ended December 31, 2016 and 2015, respectively. As described above in "Liquidity and Capital Resources – Distributions from Unconsolidated Entities," in April 2015 we sold our 81.98% interest in the DMC Partnership and in April 2016, we acquired our co-venture partner’s 20% non-controlling interest in the Intrawest Venture, which resulted in a combined 100% controlling interest in the Intrawest Venture. As a result, we began consolidating all of the results of operations of the Intrawest Venture. We did not own any investments in unconsolidated entities as of December 31, 2016 and will not record equity in earnings going forward.
Gain from purchase of controlling interest in investment in unconsolidated entity. Gain from purchase of the remaining 20% interest in our Intrawest Venture effective April 2016, was approximately $30.0 million for the year ended December 31, 2016. We did not acquire any interests in unconsolidated entities during the year ended December 31, 2015.
Income tax benefit (expense). Income tax expense was approximately $(9.8) million for the year ended December 31, 2015. The income tax expense was recorded as we did not satisfy the gross income tests applicable to REITs, as further described above under "Uses of Liquidity and Capital Resources – Provision for Income Tax." The Company revised its estimate of this liability to $8.4 million as of December 31, 2016, which resulted in a $1.4 million income tax benefit during the year ended December 31, 2016.
Income from discontinued operations. Income from discontinued operations was approximately $9.7 million and $204.7 million for the years ended December 31, 2016 and 2015, respectively. The results of operations of 104 properties (which included our 17 marinas properties sold during 2016 and 2015, and the 38 senior housing properties sold during 2015), are reflected in discontinued operations for all periods presented. During the years ended December 31, 2016 and 2015, income from discontinued operations included net gains of $9.7 million and $200.2 million, respectively, from the sale of five properties and 50 properties, respectively, and included approximately $7.7 million in impairment provisions during 2015 related to the marinas properties to write down the book value of the marinas properties to expected sales proceeds, less costs to sell.
Gain on sale of real estate. Gain on sale of real estate from continuing operations was approximately $0.1 million and $46.6 million for the years ended December 31, 2016 and 2015, respectively. The net gain on sale of real estate primarily related to the sale of our unimproved land and seven ski and mountain lifestyle properties in 2016, and the sale of our four attractions properties and one ski and mountain property in 2015, respectively.
Gain from sale of unconsolidated entities. The gain from the sale of our interest in the DMC Partnership, one of our unconsolidated joint ventures, was approximately $39.3 million for the year ended December 31, 2015. There was no gain on sale of unconsolidated entities during 2016.
Year Ended December 31, 2015 compared to Year Ended December 31, 2014
Rental income from operating leases. Rental income for the year ended December 31, 2015 decreased by approximately $2.8 million as compared to the same period in 2014. Additional billings permitted under our leases calculated as a percentage of ski property level operating revenues generated by our tenants declined by approximately $3.0 million during the year ended December 31, 2015, primarily due to unfavorable weather conditions. Our ski properties in the Pacific Northwest had all-time record low snow conditions for the 2014/2015 ski season, but saw increased revenues for the start of the 2015/2016 ski season due to snowfall returning to more normalized levels in the Pacific Northwest due to a pronounced El Nino effect. However, the same weather phenomenon caused a snow drought and record warm temperatures on the East Coast negatively impacting the start to our 2015/2016 ski season for our properties located in the East. This decline in ski revenues was partially offset by an increase in revenues attributed to capital improvements made at our attractions properties that resulted in higher lease basis, which increased rent due from our tenants. Rental income from our attractions properties declined by approximately $1.5 million due to amending the lease and lowering rents due under the leases, as described above in “Tenant Workouts, Bad Debt Expense and Loan Provisions.”

40


The following information summarizes trends in rental income from operating leases and base rents for certain of our properties excluding properties that have been classified as discontinued operations (in thousands):
 
 
For the Year Ended
December 31,
 
 
 
 
Properties Subject to Operating Leases
 
2015
 
2014
 
$ Change
 
% Change
Ski and mountain lifestyle
 
$
95,167

 
$
98,440

 
$
(3,273
)
 
(3.32
)%
Attractions
 
30,072

 
29,583

 
489

 
1.65
 %
Total
 
$
125,239

 
$
128,023

 
$
(2,784
)
 
(2.17
)%
As of December 31, 2015 and 2014, the weighted-average lease rate for our portfolio of wholly-owned leased properties was 10.2% and 10.0%, respectively.
Property operating revenues. The following information summarizes the revenues of our properties that are operated by third-party managers for the years ended December 31, 2015 and 2014 (in thousands):
 
 
For the Year Ended
December 31,
 
 
 
 
Properties Operated by Third-Party Managers
 
2015
 
2014
 
$ Change
 
% Change
Ski and mountain lifestyle
 
$
51,942

 
$
54,019

 
$
(2,077
)
 
(3.84
)%
Attractions
 
159,162

 
182,841

 
(23,679
)
 
(12.95
)%
Total
 
$
211,104

 
$
236,860

 
$
(25,756
)
 
(10.87
)%
As of December 31, 2015 and 2014, we had a total of 12 and 17 managed properties (excluding properties that we classified as discontinued operations), respectively, of which certain properties are operated seasonally due to geographic location, climate and weather patterns. The decrease in property operating revenues was primarily due to the sale of one attractions property in June 2015, three attractions properties in November 2015 and one ski and mountain lifestyle property in December 31, 2015. The decrease was partially offset by increases in property operating revenue for our other attractions properties primarily due to higher ticket sales, retail shop sales and food and beverage sales.
Interest income on mortgages and other notes receivable. Interest income on mortgages and other notes receivable was approximately $1.3 million and $8.4 million for the years ended December 31, 2015 and 2014, respectively. The decrease was primarily attributable to the repayment of approximately $83.5 million for two of our loans that matured in September 2014 and the collection of all remaining notes receivable during 2015.
Property operating expenses. Property operating expenses decreased primarily due to the sale of one attractions property in June 2015, three attractions properties in November 2015 and one ski and mountain lifestyle property in December 2015. The following information summarizes the expenses of our properties that are operated by third-party managers for the years ended December 31, 2015 and 2014 (in thousands):
 
 
For the Year Ended
December 31,
 
 
 
 
Properties Operated by Third-Party Managers
 
2015
 
2014
 
$ Change
 
% Change
Ski and mountain lifestyle
 
$
42,702

 
$
45,940

 
$
(3,238
)
 
(7.05
)%
Attractions
 
131,409

 
144,225

 
(12,816
)
 
(8.89
)%
Total
 
$
174,111

 
$
190,165

 
$
(16,054
)
 
(8.44
)%
Asset management fees to advisor. Monthly asset management fees equal to 0.08334% prior to April 1, 2014 and 0.075% effective April 1, 2014 of invested assets were paid to CLP’s Advisor for the management of our real estate assets, loans and other permitted investments. For the years ended December 31, 2015 and 2014, asset management fees to our Advisor were approximately $15.7 million and $18.7 million, respectively. The decrease in such fees was primarily attributable to the reduction in asset fee rates described above and the sale of five real estate properties (excluding properties classified as discontinued operations) and our interest in the DMC Partnership during 2015.
General and administrative. General and administrative expenses totaled approximately $15.6 million and $17.1 million for the years ended December 31, 2015 and 2014, respectively. The decrease in general and administrative expenses was primarily the result of a reduction in legal, accounting and other professional services necessary to account and report on a declining portfolio of assets due to asset sales as a result of our exit strategy, as described above in “Our Exit Strategy.”

41


Ground leases and permit fees. For the years ended December 31, 2015 and 2014, ground lease and land permit fees were approximately $10.3 million and $10.2 million, respectively, of which approximately $6.7 million and $6.8 million, respectively, represented the corresponding equivalent revenues in rental income from operating leases.
Acquisition fees and costs. Acquisition fees were paid to our Advisor for services in connection with the selection, purchase, development or construction of real property and were generally 3% of gross offering proceeds, including proceeds from our distribution reinvestment plan. Acquisition fees and costs totaled approximately $0.7 million for the year ended December 31, 2014. We did not incur acquisition fees during the year ended December 31, 2015 as we did not purchase any real estate properties during 2015 and we suspended the distribution reinvestment plan in September 2014.
Other operating expenses. Other operating expenses totaled approximately $6.9 million and $5.3 million for the years ended December 31, 2015 and 2014, respectively. The increase is primarily attributable to an increase in repair and maintenance expenses related to our properties subject to operating leases.
Bad debt expense. Bad debt expense was approximately $8.5 million and $0.03 million for the years ended December 31, 2015 and 2014, respectively. The increase was related to one of our ski tenants with two leases on properties in the Pacific-Northwest that experienced financial difficulties as a result of lower operating results from the low levels of snow accompanied by unusually warm weather during the 2014/2015 ski season. As described above in “General—Tenant Workouts, Bad Debt Expense and Loan Provisions,” due to improved snowfall levels, this tenant has paid rental amounts related to the ski season that started in the fourth quarter of 2015.
Loan loss provision. Loan loss provisions were approximately $9.3 million and $3.3 million for the years ended December 31, 2015 and 2014, respectively. During the year ended December 31, 2015, as described above in “General—Loan Foreclosures, Tenant Workouts, Provisions and Impairments,” we recorded loan loss provisions to record our mortgage receivables at their net realizable values. During the year ended 2014, we recorded a loan loss provision of approximately $3.3 million on one of our mortgage and other notes receivable with one of our golf operators, as a result of uncertainty related to the collectability of the note receivable. We collected the remaining $1.3 million balance of the note as full satisfaction of the note during 2014.
Loss on lease terminations. Loss on lease terminations was approximately $8.9 million for the years ended December 31, 2014. As described above in “General—Loan Foreclosures, Tenant Workouts, Provisions and Impairments,” one of our ski tenants on two leases experienced financial difficulties and was unable to pay rent in 2015 due to low levels of snow accompanied by unusually warm weather. In connection with the ongoing financial difficulties, we recorded a loss on lease termination (for the write off of straight-line rents) of approximately $8.9 million during the year ended December 31, 2014. We did not record any (gain) loss on lease terminations during the year ended December 31, 2015.
Impairment provisions. Impairment provisions were approximately $124.9 million and $30.4 million for the years ended December 31, 2015 and 2014, respectively. Impairment provisions recorded during the year ended December 31, 2015, related primarily to several attractions and ski and mountain lifestyle properties to write down their book values to estimated fair values based on discounted cash flows and residual values, as described further under “General—Loan Foreclosures, Tenant Workouts, Provisions and Impairments.” Impairment provisions recorded during the year ended December 31, 2014, related to one of our attractions properties and our unimproved land to write down the book values related to these properties to estimated sales prices from third party buyers less costs to sell.
Depreciation and amortization. Depreciation and amortization expense was approximately $83.5 million and $98.7 million for the years ended December 31, 2015 and 2014, respectively. The decrease year-over-year was primarily due to discontinuing the recognition of depreciation and amortization expense upon the determination of recording the properties as real estate held for sale.
Interest and other income. Interest and other income was approximately $2.2 million and $0.8 million for the years ended December 31, 2015 and 2014, respectively. The increase in interest and other income was primarily due to gain on insurance proceeds of approximately $0.8 million received from insurance claims as described above in “Sources of Liquidity and Capital Resources—Proceeds from Insurance—Hurricane, Storm and Other Damage” and an increase in interest income due to maintaining larger cash balances from holding net sales proceeds prior to the special distribution paid in December of 2015.
Interest expense and loan cost amortization. Interest expense and loan cost amortization was approximately $27.0 million and $57.3 million for the years ended December 31, 2015 and 2014, respectively. The decrease was primarily attributable to the repayment of approximately $621.9 million of indebtedness, excluding indebtedness related to properties classified as discontinued operations, subsequent to December 31, 2014.
Loss on extinguishment of debt. Losses on extinguishment of debt was approximately $21.1 million and $1.4 million for the years ended December 31, 2015 and 2014, respectively. The increase in loss on extinguishment of debt related to the early repayments of our senior unsecured notes and certain loans during 2015. Loss on extinguishment of debt included legal fees incurred with the transaction, prepayment penalty fees and the write-off of unamortized bond issue costs and loan costs.

42


Equity in earnings (loss) of unconsolidated entities. The following table summarizes equity in earnings from our unconsolidated entities (in thousands):
 
 
For the Year Ended
December 31,
 
 
 
 
 
 
2015
 
2014
 
$ Change
 
% Change
DMC Partnership
 
$
2,475

 
$
8,519

 
$
(6,044
)
 
(70.95
)%
Intrawest Venture
 
3,678

 
(766
)
 
4,444

 
(580.16
)%
Total
 
$
6,153

 
$
7,753

 
$
(1,600
)
 
(20.64
)%
Equity in earnings of unconsolidated entities was approximately $6.2 million and $7.8 million for the years ended December 31, 2015 and 2014, respectively. The decrease was primarily due to the sale of our interest in the DMC Partnership in April 2015. This decrease was offset by improved results from our Intrawest Venture in 2015 due to the fact that during 2014, we recorded catch up depreciation and amortization expense due to the reclassification of six Intrawest village retail properties from assets held for sale to held and used.
Income tax provision. Income tax provision was approximately $9.8 million for the year ended December 31, 2015. The income tax provision was recorded as we did not satisfy the gross income tests applicable to REITs, as further described above under "Uses of Liquidity and Capital Resources – Provision for Income Tax." We did not record any income tax provision for the year ended December 31, 2014.