Lockwood Folly Country Club. Quarterly Meeting 10/21/ AM- POA Clubhouse

Transcription

1 Lockwood Folly Country Club Quarterly Meeting 10/21/ AM- POA Clubhouse

2 Agenda Opening Remarks Jon Peters LFCCI Quarterly Review Ken Palumbo POA/LFCCI Equity Sharing Proposal Ken Palumbo Concluding Remarks Jon Peters

3 President s Opening Remarks Single Topic Presentation Will Stay As Long As It Takes One Question Per Member At A Time

4 LFCCI QUARTERLY REVIEW Year to date performance Year end cash outlook Potential special year end assessment Potential solution to assessments

5 LFCCI QUARTERLY REVIEW (8/31/2011) PERFORMANCE TO BUDGET YEAR TO DATE YEAR TO DATE ACTUAL BETTER/ (WORSE) ACTUAL BUDGET BUDGET MEMBERS FULL YEAR OUTLOOK INCOME $876,844 $872,907 $3937 $1,181,439 EXPENSE $804,603 $740,390 $(64,213) $1,248,362 NON-CASH EXPENSES $92,789 $90,000 $(2789) $137,449 TOTAL P/L $(20,548) $45,517 $(63,065) $(204,372)

6 LFCCI YEAR END OUTLOOK 2011 (as of 8/31/2011) If we make both revenue and expense targets for next 5 months we will end the year with a cash loss of between $125,000 and $160,000 The ending cash balance will be effectively $0 Some judicious cost cutting is necessary to ensure we are at the low end of the cash loss estimate

7 LFCCI QUARTERLY REVIEW YEAR END SPECIAL ASSESSMENT 2011 year end special assessment looks to be in the neighborhood of $500-$700 per member. Revenue has not been keeping up with the increases in costs thus we have depleted cash at a rate of $100,000 to $150,000 per year for the last 3 years. Activities to increase revenue have only had limited success.

8 LFCCI QUARTERLY REVIEW ECONOMIC CLIMATE The economic climate has been poor with no signs for speedy a recovery. Competition has chosen to reduce prices to fill their courses e.g. Legends. Golf play is down in the area It is hard to draw players to Lockwood Folly due our location. Players aren t willing to pay extra to play a superior course (price points are key)

9 LFCCI QUARTERLY REVIEW FISCAL OPTIONS NOT RECOMMENDED Raise member Play Packages significantly Continue special assessments to balance budget Reduce maintenance of the course (degrade playability and beauty) Sell course to an outside buyer

10 LFCCI QUARTERLY REVIEW SALE OPTION Golf course sales have been well below market value. Length of time required to find a buyer Default on loan and BB&T takes over the course Members have to continue to pay special assessments to keep the course operational LFCCI Board does not recommend this option

11 LFCCI QUARTERLY REVIEW FISCAL OPTIONS RECOMMENDED MERGE WITH LOCKWOOD FOLLY POA

12 LFCCI QUARTERLY REVIEW ADVANTAGES OF MERGER LFCCI maintains control of the course There will be little or no need to raise play packages or have special assessments Equity members will have expanded tee times and advance booking options The course will maintain its high quality The whole of the Lockwood community will support the course All of our property values will benefit from a well maintained course.

13 POA / LFCC Joint Cooperation Presentation POA / LFCC Equity Sharing Proposal

14 The Facts The Lockwood Folly golf course is the centerpiece of our community 70% of our homes & lots border the golf course and have golf views Your property values rely on the continuing operation of the Lockwood Folly golf course If the golf course fails, every property in our community will experience a disastrous and irretrievable plunge in value

15 Financial Facts LFCC s operating cash balances have steadily declined over the years Membership losses have contributed to this, going from a high of 216 to the current 163 The economic downturn of 2008 cut outside play revenues and started a string of 3 bad financial years in a row In 2010 the club lost 20 members, and the dead real estate market is not yielding new member opportunities The bad economy has driven greens fees to all time lows as courses struggle to retain cash flows

16 Financial Facts In June, LFCC s balloon loan came due and was renegotiated; the interest rate went up 3% BB&T also now requires us to make principal payments on our line of credit loan LFCC s interest and principal payments have increased by about $24,000 per year Bottom line: LFCC s revenues are declining and expenses are increasing, which accelerates the cash loss

17 LFCC Financial Facts 2010 Total Revenues 2010 $1,200,870 Expenses & Loan Payments $1,284,714 Gain/Loss ($83,844) Assets Purchased ($18,294) Redemptions Paid ($28,000) Total Cash Gain/Loss ($130,138) Beginning Cash Jan $224,207 Add $350 Assessment $62,500 Cash Loss ($130,138) Ending Cash Balance $156,569

18 LFCC Financial Facts 2011 Beginning Cash 2011 $156,569 Budgeted Loss ($83,200) YTD Performance to Budget ($45,688) Budget Projection for Year End Cash $27,681 Year End Cash 2011 $27,681 Cash Flow 2011 ($128,888)

19 LFCC Financial Summary Cash Flow 2010 ($130,138) Projected Cash Flow 2011 ($128,888) Debt Service costs have increased $24,000 LFCC loses 10 members per year on average(3 year average) Beginning 2012 Cash Balance $27,681 Expected Cash Flow 2012 (with spending restraints)-- ($100,000 to $130,000) LFCC will run out of cash sometime during 2012 and will not be able to make its BB&T loan payments

20 Losing the Golf Course Put in Perspective--- Assume that on average, each of Lockwood s 318 homes is worth $350K 318 times $350,000 is $111,300,000 Assume that on average, each of Lockwood s 296 undeveloped lots is worth $40K 296 times $40,000 is $11,840,000 Lockwood Folly s total combined property value is around $123,000,000 If the golf course closes and our property values drop by an estimated 30%, we lose a collective $37,000,000 You can use any estimate of the impact on property values, but by any devaluation estimate, the total loss to our community will be enormous

21 How Can We Save LFGC? Why doesn t the LFCC board assess LFCC members to keep the golf course open? They are paying assessments, but with membership declining every year, each member would have to pay about $700-$1000 more per year to make up the losses at the current member level Each time membership costs go up, more members drop out With the depressed real estate market, potential golfers are not moving to Lockwood Folly Competition has driven greens fees so low that it will soon cost more to play Lockwood as a member than to play other area courses as a walk on If LFCC passes assessments and more members drop out, soon the costs to belong will be prohibitive for the remaining LFCC members So, new LFCC assessments may delay failure for a few months, but inevitably, we will still lose the golf course to the bank

22 How Can We Save LFGC? Why doesn t LFCC sell the golf course? First of all, Myrtle Beach golf courses in bankruptcy are a dime a dozen Our location makes recruiting players more difficult than courses closer to Myrtle Beach or Wilmington, so there will be less interest from prospective buyers It is likely that LFCC will default on its loan obligations before a buyer can be found If the golf course defaults and BB&T closes it, there is no telling when, or if, a buyer can be found If control of the golf course falls to an outside buyer, there will be some level of community disruption resulting from a fully public golf course It is clearly more advantageous for our Lockwood community to control the golf course

23 How Can We Save LFGC? Therefore: The POA acknowledges we cannot afford to see the golf course closed or owned by an outsider For the last several months we have been working with LFCC on a plan to save the golf course Unlike other buyout plans that have been proposed in the past, this plan is an equity sharing plan that overcomes the financial obstacles posed in previous proposals

24 The Basic POA Plan The POA agrees to purchase a 50% equity share of the golf course by paying LFCC an annual amount equal to its loan obligations The POA is not assuming LFCC s loan obligations The POA will not be a signee, co-signee or a guarantor of any LFCC note The POA will not remit loan payments to BB&T All loans will remain a liability of LFCC The POA will write a check monthly to LFCC in the amount of the principal and interest due on LFCC loans as payment for its equity purchase

25 The Basic POA Plan LFCC can only use these funds to make loan payments This guarantees that BB&T will not foreclose on our golf course and close it It ensures survival of LFGC until real estate sales improve and golf memberships return to normal levels It allows LFCC to focus on strategies to generate revenues rather than how to make their loan payments It does not guarantee LFCC profitability; but it gives LFCC time to focus on making the golf course selfsupporting

26 Plan Fundamentals There will be no POA special assessments or dues increases to cover these costs When the POA becomes a 50% equity owner, LFCC s dues will be reduced by 50% Loan principal & interest payments are estimated per the following the table: Years 1 5 $130,000 per year Years 6 10 $86,000 per year Years $30,000 per year Year 16 Pay off balance $121,000

27 Put in Perspective-- Adding up the payments, the POA will invest about $1.35M over 15 years to guarantee the golf course stays open and remains a community asset How much would you invest to save $37,000,000? Your board believes that investing $1.35M in our community to save an astounding loss of property value is a wise decision

28 Plan Fundamentals In years 1-10 loan payments are the only cash contribution that the POA will make to LFCC The POA will make no payments to LFCC for operating expense; LFCC must use golf revenues to cover these costs The POA will make no payments to LFCC for capital improvements during the first 10 years of this agreement The purpose of this plan is not to subsidize golf course operations The purpose of this plan is to guarantee that BB&T does not take over and close the golf course

29 What Does the POA Get in Return? The POA will receive its 50% equity share up front when the agreement is signed This means that every equity owner share is reduced by 50% the date of the agreement The POA share will remain at 50% for 10 years New classes of votes will be established which grant the POA 50% of votes involving any major financial decisions The POA will have 1 vote in LFCC board elections, same as any single equity owner

30 Plan Fundamentals When the POA is granted 50% equity, the golf course becomes a Lockwood Folly amenity available to all property owners This means that every POA member will become a course member with play privileges You will be able to play the golf course at rates lower, on average, than the local county resident rate Like any LFCC member, you are granted free range balls and may participate in certain LFCC functions or events Like any LFCC member, you are eligible for any pro shop or special offer discounts Course membership is a grant provided by your POA membership and transfers to any subsequent property owner

31 Plan Fundamentals POA membership does not convey full LFCC membership You will not have an individual equity stake in LFCC You are not required to pay LFCC dues and assessments You will not have individual LFCC voting rights You will not be eligible to serve on the LFCC board of directors You will not be eligible to purchase a full play golf package unless you upgrade to a full LFCC membership Your membership status allows you to play the golf course at a reduced rate and use the practice range at no charge

32 Plan Fundamentals You may upgrade your POA Course membership status You can convert to a non-equity full membership at no cost This allows you to purchase full play packages, which offer savings to frequent golfers You will assume the obligation of paying LFCC annual dues You will assume the obligation of paying the $30 monthly food and beverage minimum as long as it is required You will be eligible to vote on LFCC issues and serve on the LFCC board of directors Equity memberships will no longer be offered by LFCC and no redemptions payable

33 Operational Changes The basic management structure of the club will not change: Day to day golf operations will continue as they are The LFCC board will continue to oversee golf operations The LFCC board will continue to be responsible for the financial performance of the golf course

34 Operational Changes A new 6 person oversight board of directors will be formed, composed of the presidents, vice presidents and treasurers of the POA and LFCC This oversight board will function much like that of a publicly held company s board of directors It will be responsible for reviewing and approving strategic and financial club decisions: Formation of an initial strategic and long range cash flow plan Budgets New borrowing Capital projects Revenue Plan Strategy decisions that have financial impact Policies that impact the community The oversight board may review and amend any LFCC board decision it deems not in the community best interests

35 Operational Changes Since the representation of the new board is 50% POA and 50% LFCC, each party has equal say in key decisions This means that if disagreements arise, a compromise solution must be worked out that is agreeable to both parties before any action is taken It guarantees that POA member benefits cannot be changed without POA board permission It guarantees that POA members retain the right to play the golf course for rates below the posted local rate

36 Additional LFCC Changes After 10 years, the agreement enters another phase The POA will continue making loan contributions until they are paid off in year 16 Starting in year 11 the POA will fund LFCC capital expenses approved by the oversight board During years 11 20, the POA will accumulate an additional 5% equity per year and the LFCC dues will be decreased by 5% per year In year 20, when the POA has accumulated 100% ownership, it will pay a dividend to each equity member (in good standing) of record at the time of signing this agreement plus 2 years of active package membership (in good standing) 20% of his/her original equity investment

37 Additional LFCC Changes Additionally, management of golf operations will change A position of Managing Director will be added as an ad hoc board position The Managing Director will have full board status and be responsible for golf operations (but not grounds & greens) This change guarantees managerial continuity and competency regardless of LFCC/POA board turnover

38 Additional LFCC Changes LFCC s by-laws will be changed to require the LFCC board to submit an annual zero (or better) net cash flow budget Only the 6 person oversight board may approve a budget with negative cash flow Any budget overspending proposals will be approved by the 6 person oversight board Any expected budget shortfalls will be minimized by an equivalent operating cost reduction plan If future losses are absolutely unavoidable, the 6 person oversight board will be required to propose a recovery plan

39 Additional Changes LFCC will develop a long term business model The model will project cash flows that satisfy the net zero (or better) cash flow budget mandate: It will project as accurately as possible future outside and resident play revenues It will accurately project membership level and dues revenues subsequent to approval of this proposal With member play revenues the final revenue component, it will propose a new member package play strategy, with accompanying rates, that complete the revenue picture It will identify necessary capital projects The model will project cash flows for at least 5 years The model will serve to establish LFCC s financial goals The model will allow testing of various strategies for maximizing revenues and costs

40 New Projected Cash Flows LFCC would have expected to deplete cash by $120K in 2012 (without the merger) The POA reduces LFCC s cash outflow by $130K in years 1 5 by making payments equal to the loan payments LFCC effectively becomes a break even operation when the POA begins making payments The 50% reduction in LFCC s dues granted by the POA generates profits of roughly $35K The new business model will document more accurately this rough estimate

41 New Projected Cash Flows Expected maximum LFCC cash flow loss $-120,000 LFCC revenue from POA Equity Purchase $130,000 POA dues reduction $ 25,000 Expected 2012 LFCC cash flow $ 35,000 Conclusion POA costs for the LFCC agreement are as communicated; the POA will not cover any additional LFCC losses, as there should be none

42 Other Benefits We all know that some former LFCC members and non-golfing POA members have had issues and/or disagreements with LFCC policies in the past The LFCC board of directors acknowledges these problems and agrees that now is the time for a new start To promote a fresh start POA/LFCC relationship, every POA member will receive a one time grant of 5 free golf rounds for each property they own, fully transferrable to family or friends, with no expiration date.

43 Other Benefits If you have your property for sale, a course membership to LFCC will help you find a buyer If you are a non-lfcc member lot owner who plays occasionally at Lockwood, your membership allows you to play at very competitive rates If you are a non-golfing resident, you can rest assured that your property value will not be destroyed by a failed golf course

44 Summary The current golf market climate virtually guarantees LFCC will soon run out of cash and default on its loan obligations The purpose of the POA s loan guarantee is to preserve Lockwood s most prized asset and protect your property values In return, the POA will become a 50% owner of the golf course initially, then a 100% owner The golf course will immediately become an amenity available to all POA members at bargain prices It will not affect your POA dues; there are no assessments If you sell your property, golf membership is an added benefit to prospective buyers Long term, when the housing market and economy turn around, LFCC loans are paid off and the golf course becomes profitable, the profits will accrue to the POA

45 POA Costs Explained The loan payoff amount is expected to be about $1.35M is over 15 years the present value of that amount is $1M The capital requirements beginning in year 11 are not known, but should not be large with a new community center, new septic and new parking lot We expect the economy to be in recovery by year 10, and the golf course will pay for itself or generate profits for the POA Bottom line, this investment long term is expected to be self supporting and even generating returns which will ultimately lower our POA costs

46 WHY IS THIS GOOD FOR LFCCI MEMBERS? Remain in control of the golf course for 20 years Have preferred and expanded tee times Get 20% equity return in 20 years Minimize the need for special assessments Decrease annual package price increases (after 4th year of merger) Maintain golf course in same condition Major capital expenditures will be a POA responsibility (after year 10) Bring the community together

47 Cost Savings estimates 2012 Capital monthly charge eliminated ($240 annual savings) No special assessment necessary No dues Increases 2013 No dues increase 2014 and beyond Major dues decreases Possibility of food and beverage minimum reduced

48 POSSIBLE RISKS THE TO PLAN Membership drops precipitously POA does not build a new club house by 2015 Outside play drops drastically Multiple hurricanes and or storms occur prior to building reserves

49 SUMMARY This is the only viable way for LFCCI to continue to survive as a community asset If the LFCCI had to continue without a merger There would have to be yearly assessment at a rate of $700 to $1000 The capital fund would have to be in place forever Play packages would have to increase yearly to cover ever increasing operating costs This is the most cost effective and community friendly solution It took years to get to this position and it will take a few years to dig out

50 NEXT STEPS These slides will be posted on the LFCCI web site following this presentation A vote will be taken for approval to move forward effective 12/31/2011 If approved the implementation will follow effective 1/1/2012

51 Concluding Remarks Ballot Mailing Proxies Will Stay As Long As It Takes One Question Per Member At A Time

52 BALLOT PROPOSED ACQUISITION OF LFCC BY POA PURPOSE: To initiate the action to enable the planned purchase of the LFCCI golf course and associated facilities by the POA. The property and associated facilities to be purchased are the golf course property, pro shop and café, cart barn, putting green, practice range, parking lot, and the lots between the pro shop and current POA clubhouse. This purchase will ensure the preservation of Lockwood s most prized asset and protect the property values of all residents and lot owners. Additionally it will ensure the financial stability of LFCC and enable the implementation of long term financial planning. The LFCCI board of directors recommends approval of this initiative. Ballots must be received by 11/10/2011, 5:00 pm Vote yes for proposed acquisition Vote no for proposed acquisition

53 Proxy ballot - select Form 1 or Form 2 (choose one) In order for this proxy to be valid, both the member and the designee must be in good standing. FORM 1 TO: Don Brewer, Vice President, LFCCI, 19 Clubhouse Drive, Supply, NC I, (print name), designate (print name), to cast my vote on the proposed acquisition of LFCC by the POA. Signed: (signature) Date:

54 FORM 2 TO: Don Brewer, Vice President, LFCCI, 19 Clubhouse Drive, Supply, NC I, (print name), designate (print name), to cast my vote on the proposed acquisition of LFCC by the POA as follows: Yes for the proposed acquisition No for the proposed acquisition Signed: (signature) Date:

55 Questions