by Timothy McQuiston Vermont Business Magazine Okemo Mountain Resort in Ludlow is changing ownership as part of what is reported as the largest ski resort sale in history. Okemo, along with New England resorts Sunday River and Sugarloaf in Maine and Loon Mountain and Mount Sunapee in New Hampshire are being sold to a New York hedge fund as the former Florida company that owned them is liquidating. The total deal is valued at over $800 million and includes properties across the country and into Canada.
Kansas City, MO-based EPR Properties (NYSE:EPR) announced Wednesday that it has entered into a definitive Purchase and Sale Agreement with CNL Lifestyle Properties, Inc. (“CNL Lifestyle”) and funds affiliated with Och-Ziff Real Estate (“OZRE”). The agreement provides for the Company’s acquisition of Northstar California Ski Resort, 15 attraction properties (waterparks and amusement parks) and five small family entertainment centers for aggregate consideration valued at approximately $456 million.
Additionally, the Company has agreed to provide approximately $244 million of five-year secured debt financing to OZRE for the purchase of 14 CNL Lifestyle ski properties valued at approximately $374 million. The Company’s aggregate investment in this transaction is projected to be valued at approximately $700 million and is expected to be funded with approximately $647 million of the Company’s common shares and $53 million of cash before pro-rations, transaction costs and closing adjustments, a portion of which will be included in the secured debt financing to OZRE.
The aggregate consideration to be received by CNL Lifestyle in connection with the Company’s acquisition and the OZRE acquisition is estimated to consist of $183 million of cash and $647 million of the Company’s common shares before pro-rations, transaction costs and closing adjustments.
“We are extremely pleased to announce this transaction, which is the culmination of a two-year process of disciplined underwriting, due diligence and negotiations,” commented company President and CEO Gregory Silvers. “This portfolio of high quality ski and attractions assets builds on our expertise in the Recreation segment, where we have a track record of delivering consistent and reliable cash flows. The transaction is not only expected to be immediately accretive, but it will also diversify our portfolio with proven, durable assets that are aligned with the positive trends we are seeing in the experience economy.”
Stephen H. Mauldin, CEO of CNL Lifestyle Properties stated, “CNL Lifestyle Properties is proud to have built a unique portfolio of diversified properties, many of which are long-established and iconic of the American lifestyle, that created long-term value for shareholders. We have deep respect for the approach EPR takes to managing its properties and believe this transaction is the best fit for selling the remaining properties in our portfolio as we complete our exit strategy to provide liquidity to shareholders.”
Transaction Merits
This transaction demonstrates the execution of the Company’s strategy of providing long-term value to its shareholders, supported by the following:
- High Quality Assets – the acquired and financed assets have a proven history with strong operators and tenants
- Disciplined Approach – the transaction represents the culmination of a two-year process of negotiations, underwriting and due diligence
- Highly Durable – the acquired and financed assets have high coverage ratios, conservatively underwritten to five year EBITDAR averages
- Increased Diversification – the transaction significantly expands the geographic and operator diversification within the Company’s Recreation segment
- Positive Financial Impact – the acquired and financed assets are expected to be immediately accretive, with the Company’s common shares consisting of over 90% of the purchase consideration and financing provided by the Company in the transaction
- Investing in the Experience Economy – the transaction will expand the Company’s investments in its “experienced based” Recreation segment.
Financial Considerations
The Company anticipates earning an average initial cash yield of 9.35% on its $456 million purchase of Northstar California and the Attractions Portfolio, based on leases currently in place or expected to be in place at the time of closing.
The Company has agreed to finance approximately 65% of the cost of the OZRE acquisition, providing mortgage debt financing of approximately $244 million (which will be increased by 65% of OZRE‘s transaction costs). The Company has also agreed to fund 65% of pre-approved, future property improvements if requested by OZRE, with such advances capped at $52.0 million. All OZRE financing will bear interest at 8.5%.
CNL Lifestyle is required to distribute the EPR shares to its shareholders promptly after the closing. The actual number of shares to be issued to CNL Lifestyle shareholders will be calculated based on the Company’s volume weighted average price, or VWAP, over the 10 trading days ending on the second trading day prior to close (the “Average EPR Share Price”) and subject to the collar mechanism described below.
Collar Mechanism
The Company’s common share consideration is subject to a two-way collar between Average EPR Share Prices of $68.25 and $82.63. If the Company’s share price increases between the signing of the Purchase and Sale Agreement and the closing, CNL Lifestyle will receive fewer shares until the Average EPR Share Price reaches $82.63, at which point the number of shares will be fixed at approximately 7.8 million. Conversely, if the Company’s share price decreases between signing of the Purchase and Sale Agreement and closing, CNL Lifestyle will receive more shares until the Average EPR Share Price reaches approximately $68.25, at which point the number of shares will be fixed at approximately 9.5 million. Post transaction, CNL Lifestyle will be issued between approximately 11% and 13% of the Company’s pro forma shares outstanding before distributing the shares to the CNL Lifestyle shareholders.
Approvals Required
The Board of Trustees of EPR Properties and the Board of Directors of CNL Lifestyle have unanimously approved the Purchase and Sale Agreement and the transaction. This transaction is subject to customary closing conditions, including the approval of the transaction by shareholders holding at least a majority of the shares of common stock of CNL Lifestyle and various third party consents and governmental permits. The sale to the Company cannot occur without the sale to OZRE and vice versa. The approval of this transaction by the holders of common shares of EPR Properties or equity owners of OZRE is not required. It is anticipated that this transaction will close in early second quarter of 2017.
Advisors
Barclays and Kimberlite Advisors, LLC served as financial advisors to EPR Properties and Goodwin Procter LLP served as legal advisors to EPR Properties. Jefferies LLC served as financial advisor and Arnold & Porter LLP served as legal advisor to CNL Lifestyle. Robert A. Stanger & Co., Inc. and Latham & Watkins LLP served as advisors to the Special Committee for the Board of Directors for CNL Lifestyle. Bryan Cave LLP served as legal advisors to OZRE
Conference Call and Webcast
The Company will discuss this announcement during our third quarter earnings call to be held on Thursday, November 3, 2016 at 8:30 a.m. Eastern Time, in conjunction with our third quarter earnings call. The third quarter earnings call was previously scheduled for November 3, 2016 at 5 p.m. Eastern Time. The conference call and accompanying slide presentation will be webcast and can be accessed via the Company’s website at www.eprkc.com/earnings. The webcast is also being distributed through the Thomson Reuters Network.
To access the live call, audio only, dial (866) 587-2930 and when prompted, provide the passcode #1134774.
A replay of the webcast and the accompanying slide presentation will be available on Monday, November 7, 2016 on the Company’s website, www.eprkc.com/earnings.
About EPR Properties
EPR Properties is a specialty real estate investment trust (REIT) that invests in properties in select market segments which require unique industry knowledge, while offering the potential for stable and attractive returns. Our total investments exceed $5 billion and our primary investment segments are Entertainment, Recreation and Education. We adhere to rigorous underwriting and investing criteria centered on key industry and property level cash flow standards. We believe our focused niche approach provides a competitive advantage, and the potential for higher growth and better yields.
KANSAS CITY, Mo.--(BUSINESS WIRE)--EPR Properties. CNL. 11.2.2016.