Written by Darryl Woodson
Editor’s note: Tom Clarke, the person who spearheaded the effort to purchase Natural Bridge, recently offered his thoughts to local government leaders on ways to infuse new energy into the Virginia Horse Center. A story about his proposal can be found in this week’s issue of The News-Gazette.
What follows is the full text of the memo he submitted to the local governing bodies.
February 8, 2014
1. The Virginia Horse Center Foundation ("VHC") like other notable equestrian facilities was established as a Public Private Partnership with the Commonwealth of Virginia. The partnership and funding by the state has ended and VHC has been operating as a non-profit organization funded by operating revenues, charitable contributions, and local government support. As of June 30, 2013 VHC had assets of $21,680,000 and liabilities of $12,606,000. VHC assets include land valued at $7,394,000 and buildings valued at $12,065,000. VHC held cash of less than $7,000 with accounts payable and accrued expenses of $310,000 as of June 30, 2013.
2. VHC reported a loss of ($846,000) in the year ended June 30, 2012 and a loss of ($659,000) for the period ended June 30, 2013. The most recent loss included charitable donations of $379,000 and government support of $517,000. Without donor and governmental support VHC would have lost ($1,555,000). VHC has an endowment fund of less than $3,000.
3. Of the $3,025,000 of program service fees 86.6 percent consisted of customer payments with an additional 12.4 percent consisting of the sale of stall bedding and shavings. Only 1.0 percent ($33,000) of all program revenues was derived from food, beverage, gift shop, or other ancillary revenue sources.
4. Advertising represents .6 percent ($27,000) of all functional expenses and Information Technology represents .3 percent ($15,000) of all functional expenses. An enterprise depending on market sales which spends less than 1.0 percent of expenses on advertising and information technology is severally handicapped. By comparison, in 2012, Natural Bridge allocated over 20 percent of its costs to advertising and information technology.
5. Interest expense of $512,000 represents 10.6 percent of all functional VHC expenditures.
6. An informal survey of VHC customers describes an aging facility which has not kept pace with technology or amenities. The standards of North Carolina, Georgia, and Kentucky include live internet access to all events and very active Social Media programs. Sponsorship and affiliation (relationship) marketing are all very strong in these states as is State support both financially and through other relationships (Kentucky Horse Park is a part of the Kentucky State Park System).
7. VHC is a valuable asset which needs to be supported and nurtured by the Town of Lexington, Rockbridge County, and the Commonwealth of Virginia. VHC should be one of the centerpieces for marketing Rockbridge County as a tourist destination and local businesses and organizations should actively support VHC. There is no question VHC has the potential to significantly increase its community impact.
8. VHC would benefit from a master plan which addresses not only the unsustainable debt burden but develops a plan for upgrading VHC to compete with our neighboring states. VHC must undertake meaningful capital improvements ($4,000,000+/-), provide the best customer experience, and become a one of a kind showplace!
9. Virginia Conservation Legacy Fund, Inc. ("VCLF") is highly supportive of the VHC mission and wants to contribute to its success. VCLF believes Natural Bridge and VHC can play a central role in establishing Rockbridge County as "the" Nature Based Tourism/Equestrian destination of the East Coast.
10. VHC is uniquely located on the Maury River, an important tributary to the James River and the Chesapeake Bay watershed. VCLF in part funded the Natural Bridge transaction through a $9.1 million Virginia Clean Water Revolving Loan Fund ("VCWRLF") loan over 10 years at a fixed interest rate of .25 percent. VCLF qualified for this loan because of our "Conservation Easement Holder" status under the Code of Virginia and because the loan placed a Conservation Easement on the Cedar Creek tributary to the James River and an additional 1,531.13 acres of land. The loan is to be repaid through the Net Income of Natural Bridge.
11. Similarly, VHC and VCLF could fund $10.0 million on the operations of VHC (with VCLF credit enhancement) through the VCWRLF which would place the VHC land holdings in a Conservation Easement. The easement would still allow for future expansion of VHC, as the VCLF Natural Bridge easement allows for the construction of Natural Bridge State Park. VCLF recommends the $10,000,000 in proceeds be allocated as follows: $1,000,000 to be placed in an operating reserve account, $250,000 in transactional fees, $3,750,000 for the upgrading of the physical facility, and $5,000,000 to be paid on the existing debt as settlement in full. To meet the requirements of the VCWRLF the transaction would have to be structured such that VCLF acquires the land holdings for $10,000,000 from VHC and then VHC allocates the funds as described. VCLF would lease back the land holdings over a 100 year period.
12. The current lender ("USDA") would be an active participant in the negotiations and restructuring and all parties would seek an out of court settlement, or if necessary a pre-packaged proceeding would allow for an expeditious and agreed to court settlement (Chapter 11 Reorganization).
13. We would propose the following actions to reposition VHC for World-Class success:
A. From third-party sources (VCLF can assist in this initiative) obtain $50,000 to establish a state of the art Social Media and internet presence.
B. Undertake the master planning process with all stakeholders. We would target projected debt service coverage of 1.40X on the proposed restructured operations.
C. Establish an aggressive marketing plan based on current capabilities. Much of the marketing will be "relationship sales" at C-suite levels.
D. Seek USDA input on restructuring existing indebtedness. Be prepared for both alternatives.
E. Submit VCWRLF loan application.
F. Submit asset based employment grant for $500,000 with Appalachian Regional Commission ("ARC").
G. Explore status as an independent organization which is a member of the Virginia State Park System. This provides access to 8.5 million annual Internet visits on the State Park WEB site.
H. Develop capital campaign to raise $10 million for the endowment fund. This would only commence after the restructuring. Identify lead contributors as soon as possible.
I. This is a transitional process which will position VHC for the future. This may be a 5 year plan and during the transition, and possibly for the long-term, we will continue to require the generous support of local government. Under this plan local government is making an investment in JOBS and economic impact!