Director Jim Mayfield's Restaurant Recommendation....VOTED DOWN BY BOARD

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.

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.

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.

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.