14 replies to this topic

[Peter]

CNL Investment Properties today bought Brighton from Boyne USA, and leased it back. In the past few weeks, they have done this with Cypress Mountain, BC, Sierra and Northstar, CA, Snoqualmie, WA, and Loon & Bretton Woods, NH. They have really gone on a buying spree even buying 5 Six Flags theme parks last week. Does anyone know what the deal is with the "buy it and lease it back" thing?

This post has been edited by Skier: 19 January 2007 - 04:15 PM

[SkiBachelor]

I think it's a rather stupid idea and it's probably only done when ski resort owners get into financial trouble.

Lets just use Boyne USA as an example. So Boyne just sold Brighton to CNL for whatever amount, probably in the millions. The money that Boyne received from the sale allows them to invest in other capital improvements for its resorts, which is good. However any improvements that Boyne does to Brighton out of its own pockets, they never see a return on investment except through ticket and lodging sales. When the lease expires, whatever Boyne has spent on capital out of its own pockets (high speed quads, lodges, etc.) for the resort belongs to the owner. Just kind of like what happens when someone leases a truck and decides to put $15,000 more into it by giving it a lift, bigger tires, etc. Well, when the lease it up, the leaser is out $15,000 grand since the dealership is now the full owner of everything. So in this sense, I think it's a rather dumb idea that ski resorts owners would sell their property and CNL is probably not obligated to pay for any capital improvements at Brighton unless the lease agreement is written up that way. I for one wouldn't give any money for capital improvements if I owned a resort that I was leasing to someone. They might not know what the heck they're doing and end up loosing me a ton money.

[Peter]

Brighton: $35 Million
Snoqualmie, Loon, Sierra, Northstar: $170 Million

[Emax]

Brighton: $35 Million
Snoqualmie, Loon, Sierra, Northstar: $170 Million

Verne Sprock - the ole' "Elf Hisself" would be disappointed. I am too.

[Aussierob]

CNL bought about $180M worth of retail real estate off intrawest a few years ago.

[lastchair_44]

sorry to see that Brighton was sold...I guess Evergreen and Millicent will be sticking around for awhile which actually is a good thing what's going on with Boyne that they had to sell Brighton and Cypress? Is it all the upgrades they have planned for Crystal?

[SkiBachelor]

Boyne is probably trying to get the capital to go ahead with its mega expansion for its two biggest resorts (Crystal Mountain and Big Sky), while also upgrading its other resorts.

[skier691]

I'd guess money for expansion and also the fact that they have built and have to pay off several big new lodges and a waterpark nationwide, plus the strugling Michigan economy, all things add up. Anyone in the business knows its hard to break even.

[Peter]

Crystal is having another very strong season, but without real estate, I am not sure it makes a whole lot of money. Big Sky seems to be suffering from lack of snowfall. It is so rocky that it needs a ton of snow.

[SkiBachelor]

Man, I can't believe Boyne will be paying $3.2 million a year to lease Brighton back and that amount is expected to rise to $3.9 in the fallowing years. The lease agreement does allow Boyne to purchase the ski area back in 20 years, but they will have spent about $72 million leasing the resort in that time period. Then they have to buy the ski resort back for about $44 million.

To take out a $35 million loan, the intrest rate would be about $2.8 million a year, which is cheaper than leasing Brighton back.

[Lift Dinosaur]

Since they didn't have "Leasing 101" when I went to college, I might ASSUME that pehaps some or all of the lease payment is tax deductible while the repayment of a simple loan is not.
Ski B- what did they say in your "Leasing 101" class?

[SkiBachelor]

I haven't taken the finance courses yet so I don't really know. However, I've never heard of leasing payments being tax deductible unless your self employed or non for profit.

I can't understand why Boyne's lease payments would be tax deductible when it's the opposite of both these things.

[liftmech]

Skier, on Jan 20 2007, 08:01 PM, said:

Crystal is having another very strong season, but without real estate, I am not sure it makes a whole lot of money.

On the contrary- not having real estate leaves the area free to concentrate on actually being a ski area- which is something many resorts seem to be losing sight of. As far as I'm aware, Crystal rarely operates in the red.

[random_ski_guy]

Lift Dinosaur, on Jan 21 2007, 09:48 AM, said:

Since they didn't have "Leasing 101" when I went to college, I might ASSUME that pehaps some or all of the lease payment is tax deductible while the repayment of a simple loan is not.
Ski B- what did they say in your "Leasing 101" class?

Hi new guy here - occasional lurker.

Lease payments are fully tax deductible while the principal portion of a loan payment is not. Therefore, as a general rule companies prefer to use lease structures for all types of financing whenever the option exists.

In these recent ski area transactions, it seems to me that these ski areas have effectively "sold" their core assets to CNL with a lease back as a means to raise capital to repay old debts, invest in infrastructure and fund new real estate projects. A properly written ground lease could give the lessee (ski area) a comfortable operating position with respect to default matters...such that its as if they really don't have a lease at all, because the terms are so un-intrusive (if you will). Hopefully the lease provides for a lessee first right of refusal to reacquire the land at a predetermined price too. That way, should the ski area ever wish to retake control of the ground or layer on new financing (with better terms) it can replace CNL.

This type of financing is a one time deal and it will complicate future general and real estate base financing for the ski area if its ever needed (because most of your collateral has been given to CNL).

Another consideration is that CNL may have just sold real estate in another transaction with a capital gain. If so, CNL could role its capital gain with the taxes deferred (1034 exchange) into the purchase for the sale-lease back. Had CNL lent the money instead they would have had to pay their capital gains first.

Just some thoughts

[Callao]

He knows the biz!