Cafe V....a Board
Member's Recommendation...that was VOTED DOWN by the Remaining Board
Members
Anthem Opinions received a copy of a statement that Board Member, Jim Mayfield, asked to be added to the official minutes of the January 22, 2015 board meeting.
We at Anthem Opinions...believe you should be aware of this as Mr. Mayfield and Mr. Schramski were the only two members of the Sun City Anthem Board of Directors to VOTE AGAINST THE RECENT LEASE MODIFICATION FOR CAFE V...reducing the rent in half once again to a palty sum of $1,000 per month... (Originally it was $4,000 at time of initial lease agreement).
FURTHER INCREASING THE AMOUNTS ALL RESIDENTS MUST PAY IN ORDER TO FINANCE THAT PRIVATE ENTITY.
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Restaurant
Analysis
Board Meeting 22 January
2015
MEMORANDUM TO MINUTES
The
purpose of this memorandum to attach to the minutes of the 22 January 2015
meeting of the SCACAI Board of Directors is to document my analyzes of whether
or not the proposed lease modification agreement with Anthem Restaurant Partners
(ARP) should be approved by the SCACAI Board.
Analysis of Vic's as a Viable Operation
The
National Restaurant Association and the their accountants--Deloitte &
Touche--state that the typical profit margin for a restaurant is between 2% and
6% and that the profit margin for a full-service restaurant is typically 2%.
The attached report from the Restaurant Resource Group lists 10 Red Flags that are signs of a restaurant that is having problems.
Most, if not all, of these Red Flag conditions appear to be attributes of the ARP operation in Anthem Center.
Particular attention should be given to Red Flag #8 that warns of a restaurant that falls behind on meeting its liabilities and attempts to operate with impaired working capital.
The attached report from the Restaurant Resource Group lists 10 Red Flags that are signs of a restaurant that is having problems.
Most, if not all, of these Red Flag conditions appear to be attributes of the ARP operation in Anthem Center.
Particular attention should be given to Red Flag #8 that warns of a restaurant that falls behind on meeting its liabilities and attempts to operate with impaired working capital.
Based
upon the above reports and data, my assessment is that ARP will not make it.
ARP has consistently asked the Association for relief from the terms of its lease because it has not generated sufficient cash flow from the revenues it has produced to operate the restaurant and catering operation and meet current liabilities.
It has again reiterated this position and asks for another modification to its lease agreement but without providing a business plan or other evidence that it will be able to produce a cash flow in the near term necessary to operate the restaurant plus meet its existing current liabilities.
Furthermore, no evidence has been provided that the amount of the concession ARP is asking SCA to provide will be sufficient to resolve ARP's working capital difficulties.
My view is that the Board approving this agreement will only delay the inevitable, which will make moving on more difficult both in creating supporting for a restaurant with SCA Members and attracting an alternate operator for the restaurant space.
ARP has consistently asked the Association for relief from the terms of its lease because it has not generated sufficient cash flow from the revenues it has produced to operate the restaurant and catering operation and meet current liabilities.
It has again reiterated this position and asks for another modification to its lease agreement but without providing a business plan or other evidence that it will be able to produce a cash flow in the near term necessary to operate the restaurant plus meet its existing current liabilities.
Furthermore, no evidence has been provided that the amount of the concession ARP is asking SCA to provide will be sufficient to resolve ARP's working capital difficulties.
My view is that the Board approving this agreement will only delay the inevitable, which will make moving on more difficult both in creating supporting for a restaurant with SCA Members and attracting an alternate operator for the restaurant space.
Provide an Allowance for Doubtful Account
The
Board, through the Audit Committee, should notify the SCA CPAs to provide a 100%
allowance for doubtful accounts for the amount of the current note as of
12/31/2014.
Payments on the ARP’s note to SCA received should be recognized as income as received.
Payments on the ARP’s note to SCA received should be recognized as income as received.
General Analysis of a Restaurant at SCA.
My
position regarding a restaurant at SCA is that all services and activities
offered at SCA are underwritten.
The need to pay for these services and
activities is why the Association has a general assessment each year.
I also
believe that a restaurant in Anthem Center is viewed by the majority of
residents as a valued attribute to SCA, particularly when the benefits of the
catering functions are added.
But, experience teaches us that to have a
restaurant, the operation will require some level of underwriting, just like
other services provided by the Association.
Our focus on the Board should be on
two questions.
First, do a majority of SCA Members believe a restaurant is a
desirable service to be provided by the Association, and if so, are they willing
to support the partial underwriting of a restaurant.
Second, we should determine
what level of underwriting will be required to support a successful outsource
arrangement with a restaurant operator to attract and retain a restaurant &
catering operator.
I
have put together the following list as a starting point for the discussion.
1.
No rent.
2.
Charge the restaurant the differential between the utilities consumed with the
restaurant operating and the utilities consumed if the space is dark.
Charge
this estimated amount for utilities the operator will pay over 12 equal
installments and square up the differential as of 12/31 of each year.
This
approach will avoid having the heaviest utility charges occur during the period
of the lowest revenues in the annual operation
cycle.
3.
Charge the restaurant the differential between the amounts of the property taxes
paid if the space is an outsourced restaurant versus if it were an exempt
utilization of the space.
4.
Provide a restaurant operator with the right of first refusal on catering access
to events held in Anthem Center and reasonable advance access to advance booking
of rooms.
This
level of concessions is well beyond what should be approved absent a new RFP
process.
Summary
The
time has come to let allow ARP to rise or fall under the terms of the original
lease agreement.
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