USD100 Million Debt
The brochure is indeed glossy but provides little in the way of financial breakdown and modelling.
Basically what it says is TRUST us as we load the club up with USD100m of debt. That is about USD 30,000 for each member or about 10 years of dues per member.
F&B at Takanawa will only drop 20%.
Employee costs will drop by 29%...but what about staff numbers?
F&B back at Azabudai will increase 2.3 times in Year 1 over 2005.
Repair & Mainetenance costs will increase in the new club.
Debt service cover is precariously thin and totally predicated upon meeting F&B sales forecasts...and where are interest rates going?
I don't know how many members would put a proposal like this to the board of their company but if they did they would be a braver person than I.
posted by Unlock at 8:18 AM
4 Comments:
TAC is planning to embark on a perilous journey, betting the farm on a moribund F&B operation and piling on tons of debt. La plus ca change...This is a bad bet to make. God help the Club
The financial data provided is rudimentary at best and indicates either; a stunning level of naivety or an equally stunning level of impudence.
It is obvious that the cash available for debt service arrived at in the document is simply the interest payment required for the transition and the total figure for interest and loan repayment for the following 20-30 years.
In other words, the numbers have been done from the bottom line upwards and an appropriate F&B revenue has been put in to get it all to balance and look 'about' right to justify the 'GO' case.
'NO LAND WILL BE SOLD OR GIVEN TO A DEVELOPER'
Playing to an outmoded economic philosophy.
In essence the club is shackling itself with unsustainable debt in an attempt to keep the land on the balance sheet.
God only knows how much it is going to cost the club in 50 years to re-claim the land under the condominiums or use it as collateral for further re-financing.
I would have thought the Azabu Towers experience would have triggered enough alarm bells. Or could it simply be that the current crop of experts have no qualms about leaving ticking bombs in the closet.
If this is such a good business that it is going to throw off USD8m of free cash per annum to service the debt, why not come clean and realise max value for the property NOW.
Sell the lot and lease back the land for the club on a 50 year deal. Allow the condo developer to integrate the condo project into the club project and provide access for condo buyers to the club. Lock the two together and the club will be forever guaranteed tenancy on reasonable terms.
Achieving full value for the property would leave the club with a net debt of between USD 10-15m rather than USD 100m.
Annual rent for the premises at somewhere between USD 3-4m.
If the model shows USD8m of cash being thrown off the business, the club would be debt free in 4-5 years at most.
Over a 50 year time-frame, the club should end up with USD 150-200m in the bank.
Or is this too logical?
annual rent at 4Mn JPY? Man, I was on the "logic" train until then. You are simple.
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