February 10, 2011

On the brink of change at ski resorts

The owner of Sugarloaf and Sunday River is set to decide how much to spend on improvements and growth.

By Tux Turkel tturkel@pressherald.com
Staff Writer

The real estate investment trust that owns Maine's two largest ski resorts is considering how much money to allocate for improvements and growth and will make a decision within weeks, according to an asset manager at the trust.

Spillway East Chairlift, Sugarloaf Mountain
click image to enlarge

The recent malfunctioning of this chairlift at Sugarloaf makes CNL Lifestyle Properties’ willingness to invest in its Maine holdings especially relevant.

2010 Associated Press file

Related headlines

Properties Owned by CNL

Brady Mountain Resort and Marina  AR

Magic Springs and Crystal Falls  AR

Ancala Country Club  AZ

Arrowhead Country Club  AZ

Continental Golf Course  AZ

Desert Lakes Golf Course  AZ

Fiddlesticks Fun Center*  AZ

Foothills Golf Club  AZ

Funtasticks Fun Center*  AZ

Kokopelli Golf Club  AZ

Legend at Arrowhead Golf Resort  AZ

London Bridge Golf Course  AZ

Raven Golf Club at South Mountain™  AZ

Stonecreek Golf Club  AZ

Superstition Springs Golf Club  AZ

Tatum Ranch Golf Club  AZ

Mesa del Sol Golf Club  AZ

Anacapa Isle Marina  CA

Ballena Isle Marina  CA

Cabrillo Isle Marina  CA

Camelot Park  CA

David L. Baker Memorial Golf Course  CA

Meadowlark Golf Course  CA

Micke Grove Golf Course  CA

Mountain High Ski Resort  CA

Northstar-at-Tahoe™ Resort  CA

Shandin Hills Golf Club  CA

Sierra-at-Tahoe® Resort  CA

The Village at Northstar*  CA

Valencia Country Club  CA

Ventura Isle Marina  CA

Village at Mammoth Mountain*  CA

WaterWorld  CA

Cypress Mountain  Canada

Whistler Creekside*  Canada

Village at Blue Mountain*  Canada

Arrowhead Golf Club  CO

Crested Butte Mountain Resort  CO

Elitch Gardens  CO

Granby Developement Lands  CO

Village at Copper Mountain*  CO

Coco Key Hotel and Water Resort  FL

Grand Prix Tampa  FL

Mizner Court at Broken Sound  FL

Village of Baytowne Wharf*  FL

Weston Hills Country Club  FL

Wet'n'Wild Hawaii  HI

Eagle Brook Country Club  IL

Mission Hills Country Club  IL

Ruf FLed Feathers Golf Club  IL

Tamarack Golf Club  IL

Deer Creek Golf Club  KS

Painted Hills Golf Course  KS

Tallgrass Country Club  KS

Beaver Creek Resort  KY

Burnside Marina  KY

Jiminy Peak Mountain Resort  MA

Bohemia Vista Yacht Basin  MD

Hacks Point Marina  MD

Hunt Valley Golf Club  MD

Montgomery Country Club  MD

The Links at Challedon Golf Club  MD          

Sugarloaf Mountain Resort  ME

Sunday River Resort  ME

Great Lakes Marina  MI

Majestic Oaks Golf Club  MN

Forest Park Golf Course  MO

Royal Meadows Golf Course  MO

Zuma Fun Center*   NC

Loon® Mountain Resort >NH

Mount Sunapee Resort  NH

The Omni Mount Washington Resort  NH

Manasquan River Club  NJ

Crystal Point Yacht Club  NJ   

Las Vegas Golf Course  NV

Painted Desert Golf Club  NV

Darien Lake  NY

Fox Meadow Country Club  OH

Great Wolf Lodge – Sandusky  OH

Lakefront Marina  OH

Sandusky Harbor Marina  OH

Signature Golf Club  OH

Weymouth Country Club  OH

Frontier City  OK

Meadowbrook Country Club  OK

Route 66 Harley-Davidson  OK

White Water Bay  OK

Myrtle Waves Water Park  SC

Palmetto Hall Plantation Club  SC

Eagle Cove Resort  TN

Gatlinburg Sky Lift  TN

Holly Creek Marina  TN

Zuma Fun Center*  TN

Bear Creek Golf Course  TX

Canyon Springs Golf Club  TX

Clear Creek Golf Club  TX

Cowboys Golf Club  TX

Dallas Market Center*  TX

Golf Club at Fossil Creek  TX

Hawaiian Falls – Garland  TX

Hawaiian Falls – The Colony  TX

Lake Park Golf Club  TX

LakeRidge Country Club  TX

Mansfield National Golf Club  TX

Mountasia Family Fun Center*  TX

Pier 121 Marina and East Hill Park  TX

Plantation Golf Club  TX

Splashtown  TX

The Golf Club at Cinco Ranch  TX

Zuma Fun Center*  TX

Zuma Fun Center*  TX

Brighton Ski Resort  UT

Broad Bay Country Club  VA

Kiskiack Golf Club  VA

The Crossings  VA

Okemo Mountain Resort  VT

Village at Stratton*  VT

Summit-at-Snoqualmie Resort  WA

Wild Waves & Enchanted Village  WA

Great Wolf Lodge-Wisconsin Dells  WI

Village at Snowshoe Mountain*  > >WV

*CNL has partners but holds majority ownership

"We're in the review process," said Stephen Rice, vice president and managing director of CNL Lifestyle Properties, Inc. of Orlando, Fla. "In February, we'll be specific and reveal our commitment to both resorts for the coming year."

CNL owns the Sugarloaf Mountain Resort and the Sunday River Ski Resort. The trust's ability and willingness to invest in Maine has become especially relevant since last month, when a 35-year-old chairlift malfunctioned at Sugarloaf, sending eight people to the hospital. While the accident's cause remains under investigation, the operator of Sugarloaf and Sunday River -- Boyne USA Resorts -- has said the lift was first in line to be replaced under a proposed plan to improve facilities at the mountain.

Sugarloaf and Sunday River account for more than 60 percent of all skier visits in Maine, so their health has implications for western Maine's overall economy. Skiing is a $300 million-a-year industry in Maine, the state's tourism office calculates.

Specific operating details at Sugarloaf and Sunday River are confidential. But the public scrutiny of the ski areas since the accident may put pressure on Boyne to disclose CNL's investment commitment for 2011.

Boyne's planned improvements, however, hinge on a financial relationship that's relatively new in the ski industry and unknown to most skiers. In this arrangement, a real estate investment trust, called an REIT, owns recreational properties and leases back resort operations on a long-term basis.

The Maine areas were leased to Boyne in 2007, under a 40-year agreement in which Boyne is responsible for taxes, insurance and maintenance. Capital investments that go beyond maintenance are based on factors including the resort's performance, growth potential and competition for funds from other properties in the REIT.

An examination of CNL's regulatory filings, as well as interviews with analysts and top executives, suggests that CNL is a well-capitalized trust with a strong interest in the ski industry. Ski and mountain properties currently make up nearly 28 percent of its portfolio. As such, it has strategic reasons to invest in the Maine resorts, if it can achieve its targeted return on investment.

"It would be fair to say they have the money to take care of their assets," said Kevin Gannon, managing director at Robert A. Stanger & Co., a Shrewsbury, N.J., investment banking firm that tracks REITs. "They're not strapped for cash."

CNL raised $330 million last year, Gannon said, and is one of the country's largest, non-traded REITs. Documents show it paid stockholders $120 million in cash and stock in the first nine months of last year and had $200 million in cash on its balance sheet.

"On the face of it, CNL's a pretty strong company," Gannon said. "They should be in a position to continue to improve those properties."

CASH FLOW UP AT SUGARLOAF

Boyne is CNL's largest tenant. The company began operating the Maine resorts just before the recession. Sugarloaf didn't generate enough cash flow in the first two years of ownership to support Boyne's lease payments, both Boyne and CNL confirm.

The situation has improved over the past year or so, according to Stephen Kircher, Boyne's president. Cuts in snowmaking costs, energy and labor have lowered expenses. A phaseout of free and compensation tickets has boosted paid visits, and season passes are up. These and other improvements have brought Boyne to a point where it can ask CNL for more capital to grow, Kircher said.

Both Kircher and Rice stressed that the money being requested is beyond what's put aside each year for routine maintenance expenses. CNL requires 6 percent of every dollar in revenue to be placed in a reserve account for maintenance at each property. More than $1 million a year is being placed in capital reserves each year at Sugarloaf, Kircher said, and nearly $2 million at Sunday River.

In an interview earlier this month, Kircher said Boyne hopes to put an additional $25 million into Sugarloaf over 10 years, as part of a long-range improvement plan for snowmaking, lifts and amenities. He since has revised that estimate, saying it could be twice as much, but that the total depends on CNL's assessment of how the property is performing on an annual basis. A similar plan is being proposed for Sunday River, he said.

As CNL's asset manager for ski resort investments, Rice will play a key role in the decision. And he is extremely familiar with the Maine resorts, having spent part of his career at New Hampshire ski areas, as well as working for the Appalachian Mountain Club and New Hampshire's economic development agency.

"I feel excitement about their futures," Rice said of Sugarloaf and Sunday River. "The opportunity to strengthen the resorts through further investment is quite compelling."

INDUSTRY POISED FOR INVESTMENT

Sugarloaf's high-mountain character and Sunday River's large terrain make them destinations in the Northeast, Rice said. But their futures are tied, in a broad sense, to the general health of skiing and snowboarding.

Following a bad period during the recession, skier visits shot up to the second-highest on record last season, according to the Kottle National End of Season Survey. But on a regional basis, visits were down 2.7 percent in the Northeast, which suffered from a prolonged snow drought.

Looking back from 1978 to 2010, visits in the Northeast were up 7.8 percent. That was the second-weakest regional growth trend on record, and only half the growth in the Rocky Mountains, the nation's leading ski region.

In Maine alone, visits fell last season to 1.28 million from roughly 1.37 million in 2008-2009. The warm winter and reduced number of free tickets were contributing factors, according to the Ski Maine Association.

But as the economy recovers, the ski industry is poised for a new round of investment, according to Michael Berry, president of the National Ski Areas Association. Investment plans tend to run in 10-year cycles, Berry said, and many owners upgraded lifts and snowmaking from the mid-1990s through 2006.

CNL Lifestyle Properties announced recently that the REIT would terminate its currently public stock offering in April, after accumulating $2.7 billion in assets. It plans to launch another REIT this year, CNL Diversified Lifestyle Properties. The new REIT also will focus on ski areas and other recreational investments, but will diversify into other "lifestyle" properties. Last month, a CNL subsidiary formed a joint venture to own 29 senior living facilities in a deal valued at $630 million.

CNL's plans are an encouraging sign, but REITs have owned ski areas only for about five years, Berry noted. The next investment cycle will be an indicator of whether the ownership trend is good for the ski industry in general, and Maine in particular.

"I don't think we have sufficient data to make an observation, at this point," he said.

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

tturkel@pressherald.com

 

Were you interviewed for this story? If so, please fill out our accuracy form

Send question/comment to the editors




Further Discussion

Here at PressHerald.com we value our readers and are committed to growing our community by encouraging you to add to the discussion. To ensure conscientious dialogue we have implemented a strict no-bullying policy. To participate, you must follow our Terms of Use.

Questions about the article? Add them below and we’ll try to answer them or do a follow-up post as soon as we can. Technical problems? Email them to us with an exact description of the problem. Make sure to include:
  • Type of computer or mobile device your are using
  • Exact operating system and browser you are viewing the site on (TIP: You can easily determine your operating system here.)