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CNL Lifestyle Properties, Inc. Risk Factors
An investment in CNL Lifestyle Properties, Inc. is subject to significant risks.
We summarize some of the more important risks below. A more detailed description
of the risks associated with this offering is found in the section of the prospectus
entitled “Risk Factors.” Investors should read and understand all of the risk factors
before making a decision to invest in shares of our common stock.
Please read the risk factors below and then click “OK” to proceed to the CNL Lifestyle
Properties Web site.
- The price of shares of our common stock is subjective and may not
bear any relationship to what stockholders could receive if their shares were resold.
- We may delay investing the proceeds from this offering due to the
inability of our advisor to find suitable properties, loans or other permitted investments
and/or tenants and operators for those investments. Therefore, we might experience
a delay in the receipt of returns from such investments.
- Our common stock should be considered a long-term investment. Currently,
there is no market for our shares, so stockholders may not be able to promptly sell
their shares at a desired price. Stockholders are also limited in their ability
to sell their shares through our share redemption program.
- We may have difficulty funding distributions solely from cash flow
from operations. If our properties do not generate sufficient cash flow or our other
operating expenses require it, we may fund our distributions from borrowings. This
could reduce the funds we have available for investments and the overall return
to our stockholders.
- We can make no assurances that we will continue to pay distributions
on any schedule or that we will not reduce the amount of or cease paying distributions
in the future.
- We may be unable to invest the proceeds we receive from our common
stock offering in a timely manner which could reduce the rate at which we pay distributions
to our stockholders.
- Our advisor may immediately realize substantial commissions, fees
and other compensation as a result of any investment in or sale of an asset by us.
Our board of directors approves each investment and sale, as well as our advisor’s
fees, but our advisor’s recommendation to our board of directors may be influenced
by the impact of a transaction on our advisor’s compensation.
- The current economic slowdown has affected certain of the lifestyle
properties in which we invest, and a prolonged or expanded period of economic difficulty
could adversely affect other of our lifestyle properties. Although a general downturn
in the real estate industry would be expected to adversely affect the value of our
properties, a downturn in the ski, golf, attractions and other lifestyle industries
in which we invest could compound the adverse affect. Economic weakness combined
with higher costs, especially for energy, food and commodities, has put considerable
pressure on consumer spending, which, along with the lack of available debt, has
resulted in certain of our tenants experiencing poorer financial and operating performance
over the past twelve months than in prior periods. Reductions in consumer spending
due to weakness in the economy and uncertainties regarding future economic prospects
have adversely affected some of our tenants’ abilities to pay rent to us, resulting
in a renegotiation of certain of their leases with us or in the termination of those
leases, and we believe that additional tenants could experience similar difficulties
in the event of a continued downturn in the economy. The continuation or expansion
of such events could have a negative impact on our results of operations and our
ability to pay distributions to our stockholders. In addition, negative events impacting
the capital markets may reduce the amount of working capital available to our tenants
which may affect their ability to pay rent.
- We do not have control over market and business conditions that
may affect our success. External factors, as well as other factors beyond our control,
may reduce the value of properties that we acquire, the ability of tenants to pay
rent on a timely basis or at all, the amount of the rent to be paid and the ability
of borrowers to make loan payments on time or at all. Further, the results of operations
for a property in any one period may not be indicative of results in future periods,
and the long-term performance of such property generally may not be comparable to,
and cash flows may not be as predictable as, other properties owned by third parties
in the same or similar industry. If tenants are unable to make lease payments or
borrowers are unable to make loan payments as a result of any of these factors,
cash available for distributions to our stockholders may be reduced.
- Our exposure to typical real estate investment risks could reduce
our income. Such risks include the possibility that our properties will generate
rent and capital appreciation, if any, at rates lower than we anticipated or will
yield returns lower than those available through other investments. Further, there
are other risks by virtue of the fact that our ability to vary our portfolio in
response to changes in economic and other conditions will be limited because of
the general illiquidity of real estate investments.
- Income from our properties may be adversely affected by many factors
including, but not limited to, an increase in the local supply of properties similar
to our properties, a decrease in the number of people interested in participating
in activities related to the businesses conducted on the properties that we acquire,
adverse weather conditions, changes in government regulation, international, national
or local economic deterioration, increases in energy costs and other expenses affecting
travel, which factors may affect travel patterns and reduce the number of travelers
and tourists, increases in operating costs due to inflation and other factors that
may not be offset by increased room rates, and changes in consumer tastes.
- Multiple property leases or loans with individual tenants or borrowers
increase our risks in the event that such tenants or borrowers become financially
impaired. As a result, a default by, or the financial failure of, a tenant or borrower
could cause more than one property to become vacant or be in default or more than
one lease or loan to become non-performing. Defaults or vacancies can reduce our
cash receipts and funds available for distribution and could decrease the resale
value of affected properties until they can be re-leased.
- If one or more of our tenants file for bankruptcy protection, we
may be precluded from collecting all sums due. If a lease is rejected by a tenant
in bankruptcy, we would only have a general unsecured claim against the tenant,
and we 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 mean a reduction
in our cash flow and the amount available for distribution to our stockholders.
In the event of a bankruptcy proceeding, we cannot make assurances that the tenant
or its trustee will assume our lease. If a given lease, or guaranty of a lease,
is not assumed, our cash flow and the amounts available for distribution to our
stockholders may be adversely affected.
- When we make loans, we are at risk of default on those loans caused
by many conditions beyond our control, including local and other economic conditions
affecting real estate values and interest rate levels. We do not know whether the
values of the properties collateralizing mortgage loans will remain at the levels
existing on the dates of origination of the loans. If the values of the underlying
properties drop or in some instances fail to rise, our risk will increase and the
value of our interests may decrease.
- When we acquire property by foreclosure following defaults under
our mortgage, bridge or mezzanine loans, we have the economic and liability risks
as the owner of such property. This additional liability could adversely impact
our returns on mortgage investments.
- There is no guarantee that borrowing arrangements or other arrangements
for obtaining leverage will continue to be available, or if available, will be available
on terms and conditions acceptable to us.
- In the event we are unable to maintain or extend existing and/or
secure new lines of credit or collateralized financing on favorable terms, our ability
to make investments and our ability to make distributions may be significantly impacted.
- We have borrowed and will likely continue to borrow money to acquire
assets to preserve our status as a REIT or for other corporate purposes. We may
not borrow more than 300% of the value of our net assets without the approval of
a majority of our independent directors and the borrowing must be disclosed and
explained to our stockholders in our first quarterly report after such approval.
Borrowing may be risky if the cash flow from our properties and other permitted
investments is insufficient to meet our debt obligations. In addition, our lenders
may seek to impose restrictions on future borrowings, distributions and operating
policies, including with respect to capital expenditures and asset dispositions.
If we mortgage assets or pledge equity as collateral and we cannot meet our debt
obligations, then the lender could take the collateral, and we would lose the asset
or equity and the income we were deriving from the asset.
- Because our revenues are highly dependent on lease payments from
our properties and interest payments from loans that we make, defaults by our tenants
or borrowers would reduce our cash available for the repayment of our outstanding
debt and for distributions.
- If any of our properties are foreclosed upon due to a default,
our financial condition, results of operations and ability to pay distributions
to stockholders will be adversely affected.
- 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. Our continued
qualification as a REIT will depend on our continuing ability to meet highly technical
and complex requirements concerning, among other things, the ownership of our outstanding
shares of commons stock, the nature of our assets, the sources of our income, the
amount of our distributions to our stockholders and the filing of taxable REIT subsidiary
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, we would be subject to federal
income tax at regular corporate rates. Unless we are entitled to relief under specific
statutory provisions, we also could not elect to be taxed as a REIT for four taxable
years following the year during which we were disqualified. Therefore, if we fail
to qualify as a REIT, the funds available for distribution to stockholders would
be reduced substantially for each of the years involved.
- You should be aware that the conclusions stated in the opinion
of our tax counsel are conditioned on, and our continued qualification as a REIT
will depend on, our company meeting various requirements and are not binding on
the IRS or any court.
- We believe that our assets will not be deemed to be “plan assets”
for purposes of ERISA and/or the Code, but we have not requested an opinion of counsel
to that effect, and no assurances can be given that our assets will never constitute
“plan assets.” Among other things, ERISA makes plan fiduciaries personally responsible
for any losses resulting to the plan from any breach of fiduciary duty, and the
Code imposes nondeductible excise taxes on prohibited transactions. If such excise
taxes were imposed on us, the amount of funds available for us to make distributions
to stockholders would be reduced.
Investing in real estate or REITs may not be suitable for all investors. They are
subject to special risks of the program’s underlying investments and potential illiquidity
of the shares. There is no assurance that the stated investment objectives will
be met and redemption may be more or less than the original amount invested. For
this reason, investors should carefully consider their personal investment time
horizon and investment objectives before making an investment decision.
The shares will be offered to the public through CNL Securities Corp., which will
act as the managing dealer, and through other members of the Financial Industry
Regulatory Authority or with the assistance of registered investment advisors. Securities
are not FDIC-insured, nor bank guaranteed, and may lose value.
This material must be read in conjunction with the prospectus in order to understand fully the implications
and risks of the offering of securities to which it relates and must not be relied
upon to make an investment.
Notice to New York Investors: This is not an offering. No offering
is made except by a prospectus filed with the Department of Law of the State of
New York. The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering.
Please see the prospectus for a complete list of defined terms and discussion of
the risks associated with the offering.
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