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

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Magic Springs and Crystal Falls  AR

Ancala Country Club  AZ

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Continental Golf Course  AZ

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Fiddlesticks Fun Center*  AZ

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"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."


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."


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:



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