CNL Lifestyle Properties REIT suffers another sharp drop in value

The estimated per share valuation of CNL Lifestyle Properties Inc., a large nontraded real estate investment trust, continues to sink despite the recent broad rally in commercial real estate.
CNL Lifestyle Properties, with $2.5 billion in total assets, on Tuesday said its board of directors unanimously approved a valuation of $5.20 per share as of the end of December, according to a filing with the Securities and Exchange Commission.
That valuation represents a drop of 24% from the end of December 2013; at that time, the board revised its per share valuation to $6.85. In August 2012, the board pegged an estimated per share valuation of $7.31 for the REIT’s shares.
The REIT was launched over a decade ago and started selling in May 2004 for $10 per share, the standard offering price for a nontraded REIT. Other large nontraded REITs that raised money from investors before the 2007 and 2008 credit and mortgage crisis have also seen severe drops in valuations.
Meanwhile, the NCREIF Property Index, which tracks a broad basket of private illiquid real estate investments has posted consecutive positive quarterly returns starting in the first quarter of 2010, according to the website for the National Council of Real Estate Investment Fiduciaries. Last year, the returns for the four quarters ranged from 2.63% to 3.04%, according to the website.
POTENTIAL SALE, LISTING
CNL Lifestyle Properties, which owns properties in ski and mountain resorts, senior housing and other lifestyle sectors, has hired Jefferies, an investment bank, to examine the potential for a sale of its properties or listing on an exchange, the company said in its filing with the SEC on Tuesday. It has also recently been selling assets and using the majority of the proceeds to pay down debt.
One adviser was scratching his head about the drop in the NAV for CNL Lifestyle Properties.
“We realize that real estate valuations can be very subjective and are assumptively driven, but this makes us question the usefulness and reliability of the appraised value of this asset for performance reporting and explaining results to clients,” said Larry Solomon, director of investments and financial planning with OptiFour Integrated Wealth Management. “Ultimately, I guess we will need to reserve judgment until the market gives its appraisal of CNL Lifestyle when it lists.”
Pointing to the disclosure in the SEC filings, Monty Hagler, a spokesman for CNL Lifestyle Properties, noted that the board’s assessment of a $5.20 per share valuation was due to the increase in information and data it received from Jefferies, along with real estate investment bank CBRE Capital Advisors Inc., as it shopped the REIT’s portfolio in the market.
“The drop in valuation is a reflection of the process,” he said. The investment banks have “looked at different liquidity options and talked to more than 150 potential bidders. They recognized the true value of different pieces in the portfolio and that was reflected in the new share price.”