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The REITing Is On The Wall

By Craig Altschul
June 04, 2007

CNL brought snow industry veteran Steve Rice to Orlando in May as Vice President of Investments of CNL Income Corp., the advisor to CNL Income Properties, Inc., a REIT that invests in income-producing properties with a focus on lifestyle-related industries.

"REITs are becoming increasingly attractive to owners and ownership groups in the snow industry," Rice told The Industry Report in an interview from his new Florida base, "because they allow current management to stay deeply involved.”

Rice's industry career runs the gamut from ski patrol (Stowe) to marketing (Cranmore) to President/GM (Whitetail, Snowshoe) to the past seven years as Executive Vice President and COO for Intrawest's eastern operations. There were intermediate stops to run Appalachian Mountain Club's eastern activities to a stint in state politics as Commissioner for New Hampshire's Department of Resources and Economic Development.

"My role at CNL Income Corp. is primarily to build relationships, advise on potential ski resort acquisitions, and to review and approve new capital investments in CNL-owned resorts."

But, let's back up a bit in case this whole REIT concept is a mystery. REITs are not new, but their ties to the snow industry certainly are. A panel on the subject drew a large, curious audience to a seminar at the recent NSAA conference in California.

Investors look to REITs for steady income potential, since REITs must pay distributions of at least 90 percent of their taxable income to investors. REITS may be publicly traded on a stock exchange such as NYSE or NASDAQ or non-traded.

CNL's REITs are public, but not initially traded on a national stock exchange. Non-traded REITs, such as CNL Income Properties, generally are not subject to the same market volatility. They can represent a more long-term, conservative investment in a portfolio by their predictable stock price and the distributions declared and paid.

CNL Income Properties and Crosland and Celebration Associates own about half of the 1,891 acres that make up the recreation center in the shadow of Mt. Washington, N.H. CNL Income Properties reportedly paid $40 million last year for 991 acres, including the Mount Washington Hotel, the Bretton Arms Country Inn, The Lodge at Bretton Woods, the Bretton Woods Ski Area, and other related assets.

Crosland and Celebration Associates reportedly paid $40 million for their 900 acres, which include the Mount Washington Golf Course, an adjacent 9-hole course, equestrian stables and paddocks, Nordic ski center, and a water and cable company. National Resort Management Group, current operators of the 104-year-old recreation area, will continue to manage it through a lease. A new $21 million three-story spa and conference center is said to be in the works.

CNL Income Properties also owns Northstar-at-Tahoe Resort and Sierra-at-Tahoe, Calif; Loon Mt., N.H.; The Summit at Snoqualmie, Wash.; Brighton, Utah; and Cypress Mountain, B.C.

Those resorts were acquired from Booth Creek and Boyne Resorts and were leased back for management. CNL Income Properties, Inc. also owns 80 percent of seven Intrawest Villages (that's a hint why Rice's move to CNL Income Corp. was amicable).

Rice explains how the sale leaseback works this way: Let's say Mount X is owned by an industry entrepreneur. He or she has invested in it and grown it to the point where the resort's performance is predictable and has long-range growth potential and sustainability.

The decision inevitably can come down to "do I want to continue to own the resort or is there a viable alternative to selling it outright these days?" A REIT like CNL Income Properties could be the answer. They agree on a sales price. CNL Income Properties pays it and then leases it back to the same previous owners or a new operator to manage.

"The beauty of all this is CNL Income Properties is joined at the hip to the resort operator," Rice says. "We support the resort's continued growth and development, so when expansion needs to take place in terms of equipment, lodging, or terrain, we could provide the capital, negating the need to go back to the bank."

The risk that an operator will be forced out by new ownership is minimal as the leasebacks are generally long-term, multi-year agreements.

CNL Income Properties, Rice says, is the result of "key early visionaries in the company who developed REITs to follow the leisure and lifestyle pursuits of the baby boomers and their cohorts, Gen Xers and echo boomers." CNL Income Properties owns golf courses, attractions, marinas, destination retail villages, and "even the Route 66 Harley-Davidson dealership in Tulsa."

The company's portfolio in the lifestyle resort market has developed quickly. "CNL Income Properties had less than $500 million in assets a year ago, and sits at $1.3 billion today," he says.

"I plan to work with ski resorts to go beyond the terms of the lease by looking at what shared systems can be developed, what are best practices, perhaps develop purchasing buying power programs, and more that can be passed between the resorts CNL Income Properties owns," Rice says.

Will we hear the REIT acronym more and more? There's little doubt of that. "REITs don't work in every situation, but they are a very positive option for many owners and ownership groups." Translation: We'll hear lots more.

The industry has indeed noticed. The REITing is on the wall.

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