Acquisition Feasibility Analysis For Palm Harbor Golf Club in Palm Coast, Florida

Transcription

1 Acquisition Feasibility Analysis For Palm Harbor Golf Club in Palm Coast, Florida Prepared For: City of Palm Coast Mr. John P. Jackson Recreation & Parks Director 305 Palm Coast Parkway NE Palm Coast, FL Prepared By: 1150 South U.S. Highway One, Suite 401 Jupiter, FL (561) May 2007

2 Acquisition Feasibility Analysis For Palm Harbor Golf Club in Palm Coast, Florida May 2007

3 Table of Contents INTRODUCTION AND EXECUTIVE SUMMARY...1 Purpose...1 Background...1 Summary of Findings...2 Subject Facility...2 Market Area Overview...3 Golf Market Summary...3 Subject Facility Recent Operational Performance...4 Financial Overview Base Scenario...4 Financial Overview Shorter Golf Course / No Driving Range...4 Summary Conclusion...5 SUBJECT FACILITY THE PALM HARBOR GOLF CLUB...6 Site Overview...6 Location Local Context...6 Location Regional Context...7 Inventory of Facilities...7 Golf Course...7 Ancillaries...8 Re-opening Considerations...8 Option One Re-open with no Design Changes...8 Option Two Re-open with Reduced Golf Configuration...10 Summary The Palm Harbor Golf Club...10 MARKET ENVIRONMENT...11 Defining The Market...11 Palm Harbor Golf Club Primary Market Area...12 Demographic Overview...12 Seasonal Population...13 Key Economic Factors...13 Flagler County Growth...14 Future Palm Coast Development...15 Transportation Infrastructure...16 Employment Data...16 Golf Market Supply and Demand Indicators...17 National Trends in Golf...18 Golf Demand Factors...20 Visitor Golf Demand...21 Corporate Market Demand...21

4 Golf Supply Factors...22 Market Overview Summary...24 GOLF MARKET COMPETITIVE ANALYSIS...25 Competitive Public Access Golf Facilities Map...25 General Findings Local Supply...26 Palm Harbor GC Primary Competition...27 Local Golf Facility Comparison Charts...27 New Golf Courses...32 Golf Market Summary and Preliminary Use Estimate...32 Trends in Municipal Golf Facility Operations...33 PALM HARBOR GOLF COURSE BASIC OPERATIONS AND PRELIMINARY FINANCIAL PROJECTIONS...35 Revenue Sources...35 Most Recent Golf Fees...35 Activity Levels...36 Revenue Analysis...36 Palm Harbor Golf Club Operations Summary...37 Preliminary Financial Analysis...38 Market Share Conclusions...38 Green Fee/Activity Assumptions...38 Palm Harbor Golf Club Expense Projections...39 Cash Flow Statement...42 Analysis of Shorter Golf Course and No Driving Range...44 Cash Flow Assumptions...44 Reduced Facility Scenario Cash Flow Pro-Forma...45 Limiting Conditions...47 SUMMARY STATEMENT...48 APPENDICES...1 Appendix A Palm Harbor Golf Club Configuration...2 Previous Operation...2 Golf Course with Proposed Centex Development Plan...3 Appendix B Demographic Detail...4

5 Introduction and Executive Summary PURPOSE NGF Consulting, a subsidiary of the National Golf Foundation, was retained by the City of Palm Coast to assist in evaluating the possibility of the City acquiring the Palm Harbor Golf Club (Palm Harbor GC) and operating it as a City-owned municipal golf course. The City of Palm Coast is considering the feasibility of the acquisition, and the results of this market and facility analysis will be used to help determine the appropriate course of action. BACKGROUND When open, the Palm Harbor Golf Club was a daily fee golf facility that included an 18-hole regulation-length golf course, driving range and a clubhouse (with a snack bar/grill and pro shop), all of which are presently closed and the clubhouse demolished. The facility is now owned by Centex Destination Properties, which is considering a re-development of the property to include several condominium units on the present driving range portion of the property. The Palm Harbor Golf Club is also being considered for re-development by the owners due to the declining golf revenues experienced at the facility in the last few years. Under consideration for this report is the present condition of the Palm Harbor Golf Club, and the status of the greater Palm Coast/north Daytona Beach area public golf market. If acquired, the Palm Harbor Golf Club facility will be operated as a pay-for-play golf facility that may include some discounting for City residents and/or some form of resident season pass or annual membership. The purpose of this market and facility analysis is to provide the City with an evaluation of the local golf market and an estimate of the overall economic potential of the Palm Harbor Golf Club as a City-run municipal golf course. The key issues to be evaluated in this report include: Status of the local golf market Requirements for re-opening the Palm Harbor Golf Club Economic potential of the Palm Harbor facility after City acquisition Amount of debt that can be supported by the golf operation Activities conducted in completion of this consultant s report included meetings with the City of Palm Coast City Manager, Chief Financial Officer, and Parks and Recreation Director, an inspection of the Palm Harbor GC facility by the project team architect, meetings with key stakeholder groups in Palm Coast, collection of materials to aid in understanding the Palm Coast area golf market, and visits to several of the area s competing public golf facility operations. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 1

6 SUMMARY OF FINDINGS NGF Consulting has studied the golf market in the Palm Coast/north Daytona Beach, Florida area, with special focus on utilization and pricing of the existing golf courses. In summary, there are indications that the golf market in this area is highly seasonal, and that the golf courses tend to be very crowded in the peak winter season (January April) and mostly under-utilized for the remainder of the year. This has resulted in a golf market driven by numerous public golf courses trying to maintain market share through aggressive discounting of fees in the summer months. When open, it does not appear that the subject Palm Harbor Golf Club was successful with its discounting program, and the course had experienced a rapid decline in rounds activity in the 2000 to 2006 period. It is clear from our review of this market that the immediate permanent resident population around the subject Palm Harbor Golf Club appears sufficient to sustain a lower-priced municipal golf course, with weekend morning green and cart fee at or under $46 in peak season, and appropriate discounts applying for off peak periods. At this fee structure, and considering NGF Consulting s projection of activity levels, golf course operations will support a capital investment of no more than +$3,200,000, assuming the facility can be re-opened under the same physical design as exists today. If the property is to be reduced to make way for a condominium development, the reduced revenue from a shorter golf course without a driving range would not support any large-scale capital investment to re-develop the site. Even if the facility can be re-opened under its previous design, the City s economic interest in the facility will continue to be at risk for bad weather and other unpredictable factors that may reduce revenue, increase costs, or limit funds available to create any required operating reserves. Any contribution from an alternative funding source separate from the golf facility used to reduce the initial capital investment (i.e. City donation or grant) will help to reduce or eliminate this risk and help the facility achieve break even within one year after acquisition. The key NGF Consulting findings from this feasibility study are shown below. Subject Facility The Palm Harbor Golf Club could become an appropriate fit as a municipal golf course for the City of Palm Coast. When operating, the subject facility included a regulation-length 18-hole golf course and driving range and other support amenities with some history surrounding the facility. The facility is also extremely well located in the heart of Palm Coast, and is well situated to take advantage of community growth patterns. The overall participation rate at the facility from local sources, including the City of Palm Coast residents, also adds to the appeal of the facility as a municipal golf course. NGF Consulting notes that the subject facility included ancillary support structures such as a driving range and clubhouse that do not exist at the site today. As of the writing of this feasibility report it was uncertain exactly what configuration of property would become the municipal golf course. NGF Consulting has assumed two options for re-opening the Palm Harbor Golf Club (1) re-open under the same configuration and amenities that existed when open, with a new clubhouse; or (2) re-open the facility on a reduced parcel resulting in a reconfiguration of the golf course to make room for clubhouse and other ancillary facilities. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 2

7 Market Area Overview The immediate Palm Coast market area exhibits age and income demographics that generally coincide with strong demand for golf. The roadway and traffic infrastructure tend to support the subject Palm Harbor Golf Club as a good location for ease of access from all parts of the community. The most positive aspect of the local Palm Coast/Northeast Florida market area is the growth in demand for residential housing from both primary and secondary homebuyers, and the growth in the number of employed households among the permanent resident population. Continued growth in these two factors is viewed by NGF Consulting to be supportive of the acquisition of the subject Palm Harbor Golf Club. The local Palm Coast golf market is of limited size due to the relatively small population of the City of Palm Coast itself, but the area is a popular visitor destination and is in proximity to other large markets such as Jacksonville and Daytona Beach. Golf Market Summary National Golf Foundation research into golf participation, frequency and the overall health of golf facilities indicates that the golf industry is in a period of what golf insiders call an uneasy equilibrium. This means that while the general status of the golf business is strong, participation in the sport is not growing as rapidly as the supply of golf courses. This finding has implications for any golf operation in the U.S., and in Palm Coast, Florida. NGF Consulting estimates indicate that while the area s golf population may be somewhat small, the activity rate is extremely high. This finding, coupled with other findings regarding median age, average household size, and resident labor force all indicate a large retiree population. The supply analysis prepared by NGF Consulting for this report suggests that there will be a reduction in the number of public golf facilities, as some of the area s courses will be converting to private clubs, and another course may close. This will leave a general shortage of affordable public golf in the immediate Palm Coast market area. The proposed new Oak Branch and Plantation Oaks golf courses, along with the re-opened Palm Harbor Golf Club, will compete to fill this void. The peak golf season in the Palm Coast market is from January through April each year. The competition in the other (summer) months is reflected in the operational policies and fees of the area s golf facilities. The established market suggests that a municipal golf operation with peak winter green and cart fees in the $46 per player range should be able to host rounds totals in the 40,000+ rounds per year range. This is assuming that the newly converted municipal Palm Harbor GC would have a schedule of discounts for offpeak green fees, as well as resident, senior, junior and off-season discounts. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 3

8 Subject Facility Recent Operational Performance The Palm Harbor Golf Club operated as a daily fee golf club with six primary sources of revenue: annual pass fees, carts, green fees, driving range, merchandise and food and beverage. In total, these revenue drivers have generated as much as $2.0 million in revenue, although at the time of its closing the facility was probably at a level close to half that amount. Total expenses to operate the facility at present cannot be calculated due to the private business nature of the facility in its last few years of operation. Overall, it is expected that the operational expense structure for the City of Palm Coast will be significantly higher than that currently being experienced by the private operator should the City purchase and operate the facility. This will be addressed, and City of Palm Coast expense estimates provided, in the financial section of this report. Financial Overview Base Scenario NGF Consulting has created a cash flow model for the continued operation of the Palm Harbor Golf Club under the assumption of City operation beginning in 2008, as well as the other assumptions outlined below. The primary assumption that drives the NGF Consulting financial projections is that the Palm Harbor Golf Club will be operated to a standard of quality comparable to what exists at the facility today, and that the City of Palm Coast will self-operate the facility within its Parks and Recreation Department. While we recognize that the City may look to a private operator to manage the facility for the City, this estimate will help to establish parameters under which the City can reasonably determine an appropriate management fee and/or lease arrangement. The results of NGF Consulting s preliminary cash flow projection shows that the Palm Harbor Golf Club can expect to generate approximately $1.36 million in gross operational revenue in the first full year after acquisition (2008), growing to $1.93 million by the fifth year of operation reflecting expected boosts from population growth, competitive course closures, improved player-development programs and enhanced City-wide marketing. Considering all preliminary expense estimates prepared by NGF Consulting for this study, the annual profit available for capital investment reduction will be just under $250,000 by the fourth year of operation if all activity assumptions can be realized. Based on a preliminary capital cost reduction schedule prepared by NGF Consulting for this study, the newly acquired Palm Harbor Golf Club would be able to earn enough in net income to cover a $3.2 million in debt for the acquisition and improvement of the facility. Even at this projected debt level it is expected that the facility would lose money for the first four years of operation, finally breaking even (after debt service) in the fifth year of operation. If the activity levels are not achieved it is likely that the facility will operate with continued losses and require further subsidies from the City. Financial Overview Shorter Golf Course / No Driving Range NGF Consulting also created a cash flow model for the operation of the Palm Harbor Golf Club under the assumption that the present owner retains a portion of the property, the site of the present driving range and clubhouse, to be redeveloped as condominiums. The remaining facility left to become the City-run Palm Harbor Golf Club would include a shorter (5,800-6,000 yards) golf course, smaller clubhouse and no driving range. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 4

9 The results of this cash flow projection shows that the Palm Harbor GC can expect to generate approximately $830,000 in gross operational revenue in the first full year after acquisition (2008). This amount is lower than the estimate in the base scenario as the NGF team anticipates only a small, temporary clubhouse operation and no driving range with the shorter golf course. Considering all preliminary expense estimates prepared by NGF Consulting for this study, it is not expected that the facility will be able to produce revenues sufficient to consistently cover any capital investment reduction. In this case, even if the activity levels projected by NGF Consulting are achieved it is likely that the facility will operate with continued losses and require subsidies from the City. Summary Conclusion In summary, NGF Consulting believes that there is demonstrated demand for lower-fee public golf in the Palm Coast market. However, the expense to acquire, renovate and then operate the subject Palm Harbor Golf Club may put the whole acquisition concept on less-than-stable fiscal footing, at least for the first few years after the acquisition. As a result, this is a highly competitive business environment for public golf courses, particularly for those at Palm Harbor Golf Club s price point. Finally, NGF research indicates that the greater Daytona Beach area is a relatively inactive golf market, exacerbating the fight for market share. The golf market dynamic means that the viability of the Palm Harbor Golf Club, if acquired, will be highly dependent on the facility s ability to create a good quality public golf experience at an affordable green fee level. This means that appropriate pricing, including a frequent user discount card, will be necessary for the new facility to distinguish itself and attract adequate play levels from all market segments. Important target markets include the beginner, female, and family/junior golf segments, which could contribute significant play to the converted municipal golf course. If the current property owners elect to develop new condominiums on the site of the existing clubhouse and driving range, it is much less likely that the remaining golf facility would be economically viable due to lower expected rounds activity AND lower expected fees. NGF Consulting fully expects that the subject golf course, with improvements as recommended, good management, expert maintenance, properly targeted marketing, and good customer service, should be able to achieve the market projections made in this study. If the projections in the base scenario (no physical changes in facility design & amenities) are achieved, the Palm Harbor Golf Club should be able to support a total initial capital investment of about $3.2 million to acquire and renovate the facility. Assuming a debt to equity ratio on the project of 50%, the City of Palm Coast could support a total acquisition and re-development project of $6.4 million. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 5

10 Subject Facility The Palm Harbor Golf Club The subject property is the Palm Harbor Golf Club, an 18-hole golf facility located just along the heavily traveled Palm Coast Parkway in the Heart of Palm Coast, 2.5 miles due east of Interstate-95. When open, the golf facility included one regulation 18-hole golf course (opened 1973), as well as a driving range, pro shop, and full-service clubhouse (since demolished). The facility was originally part of the Palm Coast Resort, which includes six other 18-hole golf courses, making the property the first to have Gary Player, Arnold Palmer and Jack Nicklaus designed golf courses all under one resort umbrella. Originally opened in 1973, the Palm Harbor course was designed by Bill Amick and was known for requiring accuracy through tall palms and pines. For many years, Palm Harbor was also the home course of Hall of Fame golfer Nancy Lopez. The Palm Harbor course was purchased in August 2005, along with the Harborside Inn and Palm Harbor Marina by Centex Destination Properties. Centex demolished the Harborside Inn to make way for a new condominium condo/hotel project that is presently under construction. Centex engaged Nicklaus Design (Jack Nicklaus) to redesign the Palm Harbor course. Upon the planned re-opening in the fall of 2008, the renovated course was to be known as The Harbor Course at Palm Coast Resort. However, the impending sale of all Centex properties in Flagler County has clouded the future. SITE OVERVIEW The Palm Harbor Golf Club is located 2.5 miles east of the Interstate-95/Palm Coast Parkway interchange. Access to the course is provided by via Palm Harbor Drive, which intersects with Palm Coast Parkway. It is generally easy for customers to locate the course. The subject property location is displayed below: Location Local Context National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 6

11 Location Regional Context INVENTORY OF FACILITIES Golf Course The Palm Harbor Golf Club opened in 1973 and features an 18-hole golf course designed by Bill Amick. The Palm Harbor Golf Club played to just over 6,570 yards from its longest tee and was generally considered a very user-friendly golf facility. The course had narrow, bending fairways lined with towering palms, oaks and pines. This, combined with elevated greens, required golfers to be highly accurate in achieving low golf scores. In addition to the trees, condominiums line almost every fairway. The 400-yard par-4 fifth hole is the number one handicap hole on the course with out-of-bounds lining the right side and trees lining the left. Appendix A displays the facility configuration when the golf course was open and property boundaries. The perimeter of the property is defined by condominiums, with almost the entire golf course bounded by single and multi-unit residential elements. There are a total of 51 sand bunkers on the golf course. The course includes three sets of playing tees to accommodate golfers of all skill levels. The scorecard for Palm Harbor Golf Club is as follows: Palm Harbor Golf Club Tee Par Yards Slope Rating Blue 72 6, White 72 6, Red 72 5, The above scorecard shows the general difficulty of the golf course, even from its forward tees where the USGA slope rating is 128, or about 10 percent harder than the standard USGA National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 7

12 Slope Rating of 120. This is due to the narrowness of the holes and the presence of several forced carry shots. Overall, the Palm Harbor Golf Club has high appeal for golfers of all skill levels for both playability and aesthetics. Ancillaries The Palm Harbor Golf Club included a driving range, practice green and a short-game practice area. These facilities were available for use by golfers who can pay for range balls on a per-use basis. There is no clubhouse present on the Palm Harbor Golf Club as of May 2007, although the maintenance complex does remain. RE-OPENING CONSIDERATIONS At present, the Palm Harbor Golf Club is owned by Centex Destination Properties. Centex is exploring possibilities in re-developing portions of the Palm Harbor development including a portion of property that once contained the Palm Harbor Golf Club driving range. As of the writing of this report NGF Consulting assumes that the City would acquire the golf course under one of two scenarios either as-was or reconfigured to exclude the driving range and clubhouse site. These are the two options considered by NGF Consulting. Option One Re-open with no Design Changes This option is based on the City retaining the existing golf course design and site footprint as it was when the golf course was in operation. This includes 18 holes of golf and the site for the practice and other facilities that will now need to be reconstructed. A temporary clubhouse could be considered to reduce the initial investment required. If the facility is to be re-opened, the following items must be addressed: All major components (i.e. irrigation, drainage, bunkers, greens and tees) will need to be reconstructed. Existing turf is primarily dead and weed infested. All Bermuda turf areas should be stripped, buried and re-grassed. The Course needs continuous concrete cart paths throughout the entire eighteen (18) holes. The maintenance area is on the left side of #13 fairway and looks to be of sufficient size. Hole #1 The back tee has been encumbered by the proposed development on the practice range. The front nine appears to be high and dry, the tees are large and elevated. Holes #15 and #16 were formerly wet holes and will require additional drainage. Cost to Re-open Estimate NGF Consulting has prepared a preliminary cost estimate to rebuild the entire golf course and practice facilities as originally designed. Generally, all components (tees, greens, bunkers, fairways, irrigation, drainage) of the original golf course are antiquated and should be rebuilt and/or re-grassed. We have also included a ball park budget for a modest clubhouse of 10,000 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 8

13 s.f. that includes 6,000 s.f. of air-conditioned space and 4,000 s.f. for cart storage. Please note this estimate can vary dramatically depending on the final architectural design. Palm Harbor Golf Club Preliminary Budget May 24, 2007 "SOFT" COSTS Item TOTALS Clubhouse Architect / Interior Designer $ 250, Golf Architect 300, Irrigation Consultant 50, Landscape Architect 40, Civil Engineer 70, Permit Fees 40, Subtotal $ 750, "HARD" COSTS GOLF COURSE* Item Units Quantity Unit Price Totals Mobilization Ls 30,000 $ 30, Layout Ls 15,000 15, Clearing Ls 50,000 50, Strip/ Bury Ac 80 2, , Cart Path Removal Lf 18, , Site Cut/Fill Cy 50, , Rough Shaping Ac 80 2, , Catch Basin Ea , " Solid Pipe Lf 10, , " Solid Pipe Lf 5, , " Solid Pipe Lf 2, , Greens (USGA Spec) Sf 100, , Tees Sf 100, , Bunkers (Fairways And Greens) SF 80, , Native Areas Ac 20 6, , Cart Paths (Concrete) Lf 20, , Fine Grading Ac 80 1, , Seedbed Preparation Ac , Grassing - Tee Tops Sf 100,000 1,500 10, Grassing - Fairways / Roughs Ac , Grassing - Greens Sf 100, , Grassing - Sod Sf 300,000 1, , Irrigation Phd , , Irrigation Pump Station Ea 1 100, Estimated Construction Costs $ 3,163, "HARD" COSTS - CLUBHOUSE / CART STORAGE ** Clubhouse Building Sf 10, $ 2,000, Infrastructure Ls 200, , Landscape / Irrigation Ls 100, , Subtotal $ 2,300, PROJECT TOTAL $ 6,213, *The preliminary cost estimate for re-construction of the golf course assumes the course will be rebuilt to USGA Specifications where applicable and normal industry standards as defined by the Golf Course Builders Association of America ** Subject to change with design National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 9

14 Option Two Re-open with Reduced Golf Configuration This option assumes that Centex retains a portion of the Palm Harbor property according to the Centex Development Plan and as depicted in the second aerial photo contained in Appendix A. In this option the land available for ancillary amenities (clubhouse, parking, etc.) has been impacted and the golf course re-configured. As shown, the Centex plan involves the entire practice range, clubhouse area, #1 tee, #10 tee, #9 green, #14 tee and #18 green. These five holes would each be shortened by an average of 60 to 80 yards, once the tees and greens are relocated. The absence of the practice range would diminish potential revenues and desirability of the facility. The Centex Development Plan shows the golf clubhouse and practice green on the interior of the project surrounded by residential units and cut off from the golf course. We can only speculate as to how this arrangement would restrict golf operations and golfer circulation. The cost to reconstruct the golf course for OPTION 2 would be similar to OPTION 1. Even though there would be about twelve (12) acres less land area the entire golf course would need to be re-constructed. There is a distinct possibility the proposed Centex Development Plan would require additional area for storm water management so impacts to the golf course could be greater than shown. SUMMARY THE PALM HARBOR GOLF CLUB The Palm Harbor Golf Club could become an appropriate fit as a municipal golf course for the City of Palm Coast. When operating, the subject facility included a regulation-length 18-hole golf course and driving range and other support amenities with some history surrounding the facility. The facility is also extremely well located in the heart of Palm Coast, and is well situated to take advantage of community growth patterns. The overall participation rate at the facility from local sources, including the City of Palm Coast residents, also adds to the appeal of the facility as a municipal golf course. NGF Consulting notes that the subject facility included ancillary support structures such as a driving range and clubhouse that do not exist at the site today. As of the writing of this feasibility report it was uncertain exactly what configuration of property would become the municipal golf course. NGF Consulting has assumed two options for re-opening the Palm Harbor Golf Club (1) re-open under the same configuration and amenities that existed when open with a new clubhouse; or (2) re-open the facility on a reduced parcel resulting in a reconfiguration of the golf course to make room for clubhouse and other ancillary facilities. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 10

15 Market Environment To accurately estimate the net cash flow potential of Palm Harbor Golf Club over the next five years, the environment in which the course operates must be fully understood. Like any other business, the golf course is an integral part of the local community and economy. In this section of this report, NGF Consulting will provide an overview of important factors that characterize the primary market area for Palm Harbor Golf Club. This overview will include an investigation of the area s demographics, as well as a brief discussion of the local economy. DEFINING THE MARKET The Golf Consumer Profile, a research document developed by the NGF in cooperation with Market Facts, Inc., determined that on the average nationally, golfers travel about 12 miles one way to play their most frequently played golf course. That translates into a 19-minute trip to the average golfer s most often played course. The survey also determined that golfers travel a considerable distance farther to regularly play a good course (average of 26 miles or a trip of about 36 minutes), and occasionally play an ultra high-quality golf course (48 miles /60 minutes). Most of the golf operators in this market report that a majority of play is coming from both permanent and seasonal residents living within a 20-minute or so drive time of their course. It is expected that the subject Palm Harbor GC would have similar market characteristics if it were to be re-opened as a municipal golf course. NGF has determined that an area comprising a 10- mile radius around the golf course location is the primary market area for this facility. This will be the facility s fall out of bed market, from which the majority of its play will be drawn. NGF Consulting recognizes that the course will draw occasional play from golfers living beyond these boundaries, from areas such as south St. Augustine and northern Volusia County. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 11

16 Palm Harbor Golf Club Primary Market Area The map below illustrates the defined 10-mile primary market and 20-mile secondary market areas for the Palm Harbor Golf Club. DEMOGRAPHIC OVERVIEW Utilizing research materials provided by the National Golf Foundation, Tactician Corporation, and Applied Geographic Solutions, Inc. (a supplier of demographic research based on U.S. Census results), NGF Consulting has examined relevant characteristics of the local population. In the following table, NGF Consulting indicates the population, median age, and median household income trends for the defined market ring areas, Flagler County, Jacksonville DMA, the state of Florida, and the United States. More detailed demographics are provided in the tables of Appendix B. Flagler Jacksonville SITE 10 Miles 20 Miles County DMA Florida U.S. Summary Demographics Population ,307 65,697 28,701 1,226,684 12,937, ,709,429 Population ,867 97,084 49,832 1,476,466 15,982, ,421,211 CAGR % 3.98% 5.67% 1.87% 2.14% 1.24% Population 2006 Estimate 62, ,087 78,519 1,648,258 18,071, ,086,923 CAGR % 6.83% 9.52% 2.23% 2.49% 1.23% Population 2011 Projected 80, , ,880 1,789,500 19,757, ,516,904 CAGR % 4.23% 5.35% 1.66% 1.80% 0.95% Median HH Inc $45,844 $47,019 $45,923 $46,350 $44,442 $48,443 Median Age CAGR = Compound Annual Growth Rate National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 12

17 From the data presented above, NGF Consulting has made the following observations regarding the local demographics: The population in the immediate Palm Coast market area is of modest size, but grew very rapidly during the last six years (eight times the U.S. rate), with strong growth expected through Still, with only +62,000 permanent residents within 10 miles (81,000 by 2011), all public golf facilities in Palm Coast have to draw customers from the broader regional market of residents and tourists in addition to the local population. The median age in the immediate Palm Coast market area is much older than the U.S. as a whole, and also older than the neighboring Jacksonville, Melbourne, Orlando and Daytona areas. Generally speaking, a comparatively older population in a market area tends to increase golf frequency, as older golfers tend to play more often than younger age segments. As a result, higherthan-average rounds played are generally expected in older markets. Median household income in the immediate Palm Coast market area is roughly equal to the surrounding region, which in turn is slightly below average when compared to the nation. Approximately 73 percent of the residents in the Northeast Florida market have incomes under $50,000 per year, compared to only 64 percent nationally. In general, higher income residents are more likely to participate in golf with a high level of frequency. Seasonal Population The Palm Coast area is home to a large and growing population of seasonal visitors during the peak winter season. The table below shows the City s seasonal resident estimate. Adjusted Seasonal Population City Seasonal Rate 4.51% 7,969 County Seasonal Rate 11.00% 482 Additional City Population 17,293 Additional County Population 1,046 Adjusted City Population City as a percent of County population at the end of 2003: 94% Source: City of Palm Coast 2020 Comprehensive Plan KEY ECONOMIC FACTORS In addition to identifying demographic trends and characteristics of the area, we have examined certain economic indicators and other mitigating factors that have the potential to affect the performance of the Palm Harbor Golf Club. The underlying support for the regional economy comes from a local residential base that is predominantly homesteaded with a relatively low proportion of employed persons. The growing industry and employment in the nearby Jacksonville and Daytona markets is beginning to have a housing demand impact in the Palm Coast market. Tourism and coastal (beach) visitation is also supporting the local Palm Coast business community. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 13

18 Flagler County Growth Flagler County is ranked the fastest growing county in the nation for 2000 to 2006, based on figures released by the US Census Bureau in March From April 1, 2000 through July 1, 2006, the bureau estimates that Flagler County lead all other counties in the nation, with its population increasing from 49,835 to 83,084, a 66.7% increase. If the '05 to '06 growth rate remains constant, Flagler County will easily pass the 90,000 mark this year. Population Estimates for the 100 Fastest Growing U.S. Counties with 10,000 or More Population in 2006: April 1, 2000 to July 1, 2006 Rank Geographic Area July 1, 2006 Population Estimates Change, 2000 to 2006 April 1, 2000 Estimates Base Number Percent 1 Flagler County, FL 83,084 49,835 33, Kendall County, IL 88,158 54,520 33, Rockwall County, TX 69,155 43,074 26, Loudoun County, VA 268, ,599 99, Forsyth County, GA 150,968 98,407 52, Pinal County, AZ 271, ,537 91, Douglas County, CO 263, ,766 87, Henry County, GA 178, ,344 58, Paulding County, GA 121,530 81,608 39, Lyon County, NV 51,231 34,501 16, Source: Population Division, U.S. Census Bureau, Release Date: March 22, 2007 Further, this rapid growth will require additional housing units be added in order to keep pace with the expected growth. Figures from the 2020 Comprehensive Plan are displayed below: Total Housing Needed by Number and Type Type Total Population in Occupied Housing Units 32,457 45,465 58,473 72,242 87,540 Single-Family Persons 29,211 39,782 49,702 59,600 70,032 Multi-Family Persons 3,246 5,683 8,771 12,642 17,508 Single-Family Units (2.33 persons/du) Multi-Family Units (2.71 to 2.51 Persons/DU) 12,537 17,074 21,331 25,579 30,057 1,198 2,145 3,373 4,958 7,003 Total Units 13,735 19,218 24,705 30,537 37,060 Source: City of Palm Coast 2020 Comprehensive Plan National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 14

19 Future Palm Coast Development As noted, the area is becoming known for its rapid growth. In order to meet the needs of a growing household base as detailed above, the City of Palm Coast is active in expanding the boundaries of City services through annexation. The City also intends to evaluate any type of annexation on how the quality of life of current residents and potential residents will be affected, typically expressed in terms of parks, recreation and also intangible issues such as security, property values and the availability of municipal services. Town Center Project The City of Palm Coast is presently in the process of developing a new Town Center project that will include a new downtown with storefronts, offices, research and all forms of mixed-use residential components. It is expected that this development will continue to shift the focus of the City of Palm Coast to the west of both Interstate-95 and U.S. 1. This growing change in the Palm Coast market area certainly bodes well for the continued operation of a municipal golf course in this city. Vacant Land Within Palm Coast, there is a significant inventory of vacant/undeveloped land that may be classified in three distinct categories: un-developable/environmentally sensitive lands, building lots, and future development sites. There are many vacant lands in and adjacent to Palm Coast that are environmentally sensitive or otherwise un-developable, including uplands, wetlands, and other features. A significant inventory of vacant, undeveloped lots exists within previously platted residential subdivisions. The third category of vacant land is comprised of large development parcels that were not previously platted as part of the original ITT development. These parcels consist of reserve parcels located throughout the City that were set aside by ITT for future development as well as large parcels held for future development within Palm Coast, including the Town Center site. (Source: City of Palm Coast 2020 Comprehensive Plan) Land Use Analysis Existing Land Use Existing Land Use in Acres % of Existing Land Use Agricultural % Commercial % Educational % Industrial % Institutional % Recreational % Residential Low 4, % Residential Medium % Residential High % Spoil % Transportation/Utilities 4, % Water 1, % Wetlands 6, % Vacant 1 20, % Totals 39, % 1 Includes barren, extractive, open, public open, range, upland lands, and 1,396 acres of canals Source: City of Palm Coast 2020 Comprehensive Plan National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 15

20 Transportation Infrastructure Employment Data Local Area Employment Statistics December 2006 Area Labor Force Employment Unemployment Number Unemployment Rate Jacksonville MSA 654, ,231 20, % Baker County 11,360 11, % Clay County 87,415 84,929 2, % Duval County 439, ,917 14, % Flagler 34,671 33,431 1, % Nassau County 33,512 32, % Putnam County 31,623 30,422 1, % St. Johns County 82,824 80,735 2, % Source: Agency for Workforce Innovation National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 16

21 Top Employers Located in Flagler County Company Employees Product or Service Flagler County School System 1,889 Public school system Palm Coast Data Ltd. 900 Subscription fulfillment center serving over 100 national magazines needs for subscriptions, Florida Hospital Flagler 626 Public Health facility Wal-Mart 700 Retail and Grocery Sea Ray Boats, Inc. 592 Luxury motor yachts The Club at Hammock Beach 377 Resort City of Palm Coast 363 Municipality Government Ocean Hammock Resort 320 Resort Flagler County 315 County government operations Flagler County Sheriff s Office 191 County Law Enforcement Source: Jacksonville Cornerstone Regional Development Partnership, December 2006 GOLF MARKET SUPPLY AND DEMAND INDICATORS Having identified key demographic and economic factors that may affect the future performance of the Palm Harbor Golf Club, we now turn our attention to the current golf demand climate in this market. NGF Consulting uses predictive models as benchmarks for estimating potential market strength. The methodology for determining the relative strength of the subject market is described in the following section. The basic measures of golf demand and supply that may affect the performance of Palm Harbor Golf Club as a municipal facility are outlined below. The methodology for determining the relative strength of the subject market is based on ongoing NGF research of American golf participation habits. The NGF Golf Demand Model includes the critical combination of age and income, regional seasonality, and available golf course supply, as well as existing and emerging demographic trends in a particular market area. This model can be used as a benchmark for estimating potential market strength in a particular area. The objective of this section is to provide an overview of demand potential for the subject facility s primary geographic market area. The predictive demand models are based on historical golfer participation characteristics of State of Florida residents, and incorporate existing and emerging demographic trends in the subject market areas. NGF Consulting expects that the primary source of play for the Palm Harbor Golf Club will continue to be permanent residents living within 10 miles of the site, plus seasonal residents and tourists to the Palm Coast area. The basic measures of golf demand and supply for the local market areas are outlined below. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 17

22 National Trends in Golf Participation Golf participation in the U.S. has grown from 3.5% of the population in the early 1960s to about 12.6% of the population today. NGF estimates that 36 million golfers reside in the U.S., with growth slowed to about 1.0% per year. Other surveys completed outside the golf industry show the number of people who identify themselves as golfers is as high as 45 million, indicating a large potential latent demand from very inactive golfers. As rapidly as the demand for golf has grown, the supply has grown even faster, with an average increase of about 2.1% per year. With the increase in supply, we are seeing a marked increase in competition, and the supply is greater than the demand in some markets. In addition to increased competition, four other factors have contributed to a decline in the number of rounds per course nationally during the 2002 to 2006 period. These include: 1) an uneven national economy; 2) the aftereffects of 9-11, which greatly reduced the traveling golfer market; 3) the increasing time pressure on individuals and families; and 4) abnormally poor weather conditions over the past few years in much of the U.S. The combination of these factors has caused many golf facilities to become distressed, particularly those that have a high debt load because of higher construction costs and the perceived need to build high-end courses. The level of golf course closings has quadrupled from an annual average of 24 courses per year in to 48 courses in , 63 courses in 2004 and more than 100 courses in In 2006, there was negative net growth in golf facilities for the first time in six decades, with hole equivalents closing and opening. In terms of the total number of rounds produced, NGF estimates that rounds fell about 1.5% in 2003, after a 3% drop in End-year NGF research indicates a rebound of about 0.7 percent in 2004, and a very slight decline of 0.1% in The Southeast Region, which includes Florida, saw rounds increase by about 1.0 percent in 2006, after a 0.9 percent decline in We also note a 3.6 percent decline from NGF research indicates that rounds played were down by nearly 25% in the Northwest Region during the first three months of 2006, likely due to unfavorable weather. On the positive side, the growth in golf course development has slowed considerably nationally and in the majority of local markets, a trend that should help ease some of the competitive pressure. Another positive trend is the aging of America. Baby boomers are rapidly approaching retirement age when golf activity flourishes. The baby boomers represent not only the largest single demographic in the US, but they also approach retirement age with more disposable income than any previous generation. Municipal Golf Municipalities were largely responsible for helping bring golf to the masses by creating affordable golf courses for their citizens. The role of municipal golf has changed dramatically over the past 30 years, with fewer municipalities viewing golf in the same vein as other recreational opportunities offered simply an amenity for its citizens. Still, many municipalities remain that are willing to subsidize municipal golf. Though these municipalities certainly prefer to earn a profit, they recognize the value of offering affordable golf to their residents with respect to quality of life and even longevity, due to health benefits. Several factors have changed over the last few decades that have, at least temporarily, altered the golf course market and the role of the municipally owned golf course. The main factor has National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 18

23 been increased competition. As noted, in the last two decades the supply of public golf courses has increased dramatically, thus eliminating the near-monopoly that municipalities used to have on public golf. Now municipal courses are finding themselves competing head-to-head for market share with private enterprise. Unfortunately, few municipalities find they are equipped to handle this type of competitive environment. There are several factors that typically inhibit municipalities in their ability to compete successfully with private enterprise. These include: 1. Slow response: By nature of the bureaucracy that is typically involved in making decisions, government-owned business are typically very slow to respond to market conditions such as rates, promotions, etc. 2. Budget Constraints: Often budgetary problems in other departments can have an adverse affect on golf operations. 3. Personnel Policies: One of the most glaring areas separating municipal governments from private enterprise is in relation to personnel policies and costs. This is particularly true with regards to: Benefits: Municipalities typically offer very rich benefit packages far superior to what is normally the case within the golf industry. This results in the municipality paying far more for labor than competing private facilities. Termination: With most private enterprises, if an employee is not productive, they are terminated and often quickly. With governments, however, it can be extremely difficult to get unproductive employees terminated. Marketing: Most municipalities lack marketing expertise that is critical to succeeding in a competitive business. Procurement: When large items, especially capital improvements, are needed, municipalities are often constrained with lengthy procedures and mandated policies that slow the process down and can lead to situations where the best product or contractor is not selected. Another issue regarding procurement is getting funding, which can often take months longer than in private industry. Incentive: With most municipal golf operations where all the employees are employees of the municipality, there are little or no incentives given to the managers for superior performance. As a result, municipal golf managers often earn the same secure income regardless of how successful the facility may be. In summary, municipal golf facilities face considerable challenges to survive in the modern golf industry, and the City of Palm Coast is likely to face some of these same issues if it gets into the golf business. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 19

24 Golf Demand Factors DMA Rankings Palm Coast lies within the Jacksonville, Florida Designated Market Area (DMA), and within immediate proximity to the Orlando-Daytona Beach-Melbourne, FL DMA. The table below illustrates how these DMA s ranks in relation to the other 209 DMAs nationwide on some key golf demand and supply measures. Orlando-Daytona Beach- Melbourne FL Jacksonville FL Characteristic Rank (of 210 DMAs) Total Number of Facilities 15 T70 Public Facilities 12 T81 Private Facilities T31 T46 Premium Facilities T11 T37 Standard Facilities 13 T40 Value Facilities 28 T118 Predicted Household Participation Rate 17% 17% Rank (of 210 DMAs) Predicted Number of Golfing Households 228, ,663 Rank (of 210 DMAs) Predicted Number of Rounds Demanded ,245,430 3,551,918 Rank (of 210 DMAs) T' indicates tied with at least one other DMA for this rank Predicted Golf Demand The Golfing Household Index is based on Predicted Number of Golfing Households, and compares golfing household participation in a particular geography to the national base index of 100. The Rounds Index is based on Predicted Number of Rounds, and compares the propensity of rounds played per household in a particular geography to the national average rounds index of 100. The predictive indices for golfing households and rounds demanded were developed in order to determine the relative strength of a particular golf market area in comparison to other golf markets and the nation as a whole. These predictive demand indices help identify where golfing households and rounds activity are concentrated by comparing various geographies with one another and the national average, which is 100. For example, if a DMA has a Golfing Household Index of 120, that area is estimated to have 20 percent higher golf participation rate as compared to the U.S. average. And, if a DMA has a Rounds Index of 120, that area is estimated to have 20 percent higher average rounds per household as compared to the U.S. average. Although both the golfing household index and the rounds index help to predict golf demand in a particular market, each index is derived independently and does not necessarily relate to the other. It is possible for an area with a low golfing household demand index to have a high rounds demand index and vice versa. In other words, some markets may have fewer golfing households, but those households play more rounds of golf; other markets may contain a large number of golfing households but the households play less frequently. A market area with a higher than average golfing household index in conjunction with a higher National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 20

25 than average rounds index would be considered a prime area in terms of overall predicted golf demand. SITE 10 Miles 20 Miles Flagler County Jacksonville DMA Florida U.S. Golf Demand Indicators # of Golfing Households 4,250 9,393 5, ,663 1,190,760 21,249,204 Number of Rounds Played 166, , ,883 3,551,918 42,513, ,088,704 Golfing Household Index Rounds Played Index The golf demand index for the primary market area indicates a predicted golf participation rate that is approximately 7% lower than the U.S. benchmark, while the rounds played index shows that predicted rounds activity per household is 55% higher than the U.S. benchmark. This result is an indication of a demographic profile that is consistent with high golf activity to a high frequency rate for area golfers. These figures also understate demand somewhat, as the large number of tourists and seasonal residents are not accounted for in the predictive model. Visitor Golf Demand Flagler County and northeast Florida have large seasonal resident and tourist populations during the winter and early spring. Earlier in this report we noted that the number of seasonal residents in Palm Coast is estimated at about 17,000, while other areas of the county host another 1,000+ seasonal residents. Additionally, though the county s Tourist Development Council does not currently track visitation, the number of annual tourists is significant and growing each year. These seasonal residents and visitors have a significant impact on local golf course activity, especially during the winter season when the majority of each golf course s annual rounds are realized. Corporate Market Demand As we saw in the Market Area Overview section of this report, there are a handful of employers in the Palm Coast area, while Jacksonville and Daytona Beach / Melbourne is home to a significant number of major corporate and public employers. Although potential corporate demand for public golf rounds is difficult to quantify, it is clear that the operators of the Palm Coast Golf Course should target this market by emphasizing the high quality of the facility and the willingness of the staff to accommodate large group events and outings. The Palm Harbor GC may not be the most ideal layout for hosting large outings of up to 140 golfers due to the links style loop layout on its 18-holes and the limited size of the existing clubhouse and staging area. This corporate/organizational tournament play has the potential to augment the public rounds expected from the resident market and should be considered in any re-opening of the Palm Harbor GC. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 21

26 Golf Supply Factors Current Golf Course Supply Including the subject course, there are five total golf facilities, three public (resort) and two private, within a 10-mile radius of the Palm Harbor location, comprising 81 holes. The 20-mile market area includes 12 facilities, eight public, comprising 216 total and 144 public golf holes. The ratio analysis that follows puts these numbers in context, compared to national benchmarks. SITE 10 Miles 20 Miles Golf Supply Summary Flagler Jacksonville County DMA Florida U.S. Total Golf Facilities ,059 15,995 Public Golf Facilities ,616 Private Golf Facilities ,379 Total Golf Holes ,566 21, ,235 Public Golf Holes ,026 12, ,431 Private Golf Holes ,315 78,804 Household/Supply Ratios and Indices The Household/Supply Ratios are derived by dividing the total number of households by the number of 18-hole equivalent courses. This measure is used as a benchmark to establish the support (households) that is available for each 18 holes of golf in the market. A Household/ Supply index is derived from these ratios and compared with the base national figure of 100. As the tables below indicate, the Palm Coast market area has a limited supply of households available to support each golf course, relative to the U.S. benchmark of 7,476 homes per 18 holes of golf. For instance, in the 10-mile ring around the subject Palm Harbor site, there are 40 percent fewer households to support each 18 holes of golf than we observe nationally. Again we note that this analysis does not consider tourists or seasonal residents. Flagler Jacksonville SITE 10 Miles 20 Miles County DMA Florida U.S. Household/Golf Supply Indicators Households per 18 Holes: Total 5,349 4,492 4,781 7,053 5,840 7,476 Households per 18 Holes: Public 9,628 6,739 8,879 10,766 10,226 10,570 Households per 18 Holes: Private 12,035 13,477 10,359 20,455 13,615 25,542 Households Supply Index: Total Households Supply Index: Public Households Supply Index: Private National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 22

27 Recent Construction Activity SITE 10 Miles 20 Miles Golf Course Construction Activity Flagler Jacksonville County DMA Florida U.S. Total holes added past 10 years ,933 44,766 Public holes added past 10 years ,520 35,874 Private holes added past 10 years ,413 8,892 Percent Total Holes Added 88.90% 45.80% 61.50% 23.00% 18.10% 16.60% Percent Public Holes Added 80.00% 31.30% 57.10% 26.30% 20.30% 18.80% Percent Private Holes Added % 75.00% 66.70% 16.70% 15.20% 11.30% Total holes added past 5 years ,332 14,139 Public holes added past 5 years ,999 Private holes added past 5 years ,140 Percent Total Holes Added 44.40% 16.70% 30.80% 8.00% 6.10% 5.30% Percent Public Holes Added 0.00% 0.00% 0.00% 7.00% 5.20% 5.30% Percent Private Holes Added % 50.00% 66.70% 10.00% 7.40% 5.30% Total holes added previous 5 years ,601 30,627 Public holes added previous 5 years ,881 25,875 Private holes added previous 5 years ,752 Percent Total Holes Added 44.40% 29.20% 30.80% 14.90% 12.00% 11.40% Percent Public Holes Added 80.00% 31.30% 57.10% 19.30% 15.20% 13.60% Percent Private Holes Added 0.00% 25.00% 0.00% 6.70% 7.70% 6.00% Compared to many markets we have observed nationally, the rate of new golf course construction has been more rapid in the Palm Coast/Jacksonville area. A total of 360 holes of golf have been added in the Jacksonville DMA since 1997, representing 23% of the total existing inventory. (Nationally, 18% of supply was constructed during that time). Supply / Demand Interaction Using the most basic measures of golf demand and supply, NGF Consulting classifies the defined 5-mile primary market area as active. This means that the local market has a low proportion (relative to the national benchmark) of households available to support each 18 holes of golf in the community, but that these households tend to exhibit relatively high demand for golf rounds. What is nearly always the case in markets that we term as active is that success is highly dependent on taking market share from existing golf operators in the market by creating a differential product advantage. Additionally, cultivation of player development programs, offering loyalty incentives that increase frequency of play, and marketing actively to draw supplemental play from outside the primary trade area are essential. Though the predictive demand model and supply ratio analysis is very useful in evaluating the relative strength of golf markets, it cannot stand on its own in determining whether a market can support additional (or re-opened) golf facilities. Rather, these analyses must be considered in the context of what is actually happening on the ground in the market, in terms of price point and activity level trends at existing golf courses. In the next section we will take a close look at the golf market dynamics in the Palm Coast area. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 23

28 MARKET OVERVIEW SUMMARY The local demographic and economic factors affecting the demand for public-access golf in this market tend to be mixed in that there is a strong and active golf market of generally lowerincome retirees. However, the area is in reasonable proximity to most of the larger and more commercially active areas of Jacksonville and Daytona Beach, communities that will be a key attraction if the re-opened Palm Harbor GC is to be successful. Further, the area is a popular seasonal destination that attracts a large volume of visitors, many of whom seek to play golf while in the region. The most positive aspect of the local Palm Coast/Northeast Florida market area is the growth in demand for residential housing from both primary and secondary homebuyers, and the growth in the number of employed households among the permanent resident population. Continued growth in these two factors is viewed by NGF Consulting to be supportive of the acquisition of the subject Palm Harbor Golf Club. All indications are that the Palm Coast area is ready to handle the large growth with a comprehensive City plan and a willingness to move forward with infrastructure improvements. The area is planning to add a significant number of new households in the next five to ten years and it appears that the infrastructure planning is in place to provide the services needed to support the growth. The overriding desire of the City of Palm Coast to be seen as a bedroom community with limited commercial interests and large tracts of open space is generally consistent with the desire to protect the Palm Harbor Golf Club in its present (or close to it) state. The experience the City has in successfully promoting activity and open space in its past annexations is also a positive factor in the City golf acquisition proposal. The importance of golf and golf resorts in both the initial development of the Palm Coast area and the present attraction of the area to tourists is clear. This will be key for the development and operation of any new public-access golf course in this market area. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 24

29 Golf Market Competitive Analysis Previous sections of this analysis have focused on the market s current economic condition and potential golf demand from area residents and tourists. This section of the market study examines existing public golf facilities in the defined 20-mile Palm Coast market area. NGF Consulting visited or contacted eight golf facilities (3 fully public and 5 semi-private/resort) in the Palm Coast area that represented the market for public golf in the Flagler County area. We do not consider private golf facilities to be potential competitors of the subject Palm Harbor Golf Club if it were to be re-opened as a municipal golf facility, as private club customers tend to join for more than just golf service. In addition, we have identified one potential new golf course that is currently under construction. The following is a list of area golf courses, as defined above. Local Public Golf Courses Local Semi-Private/Resort Facilities Under Construction Ocean Palm GC (9H) St. Augustine Shores GC (18H) St. Johns County GC (27H) Palm Harbor GC (18H) Ocean Hammock GC (18H) The Grand Club Matanzas Course (18H) The Grand Club Pine Course (18H) The Grand Club Cypress Course (18H) Plantation Oaks of Ormond Beach COMPETITIVE PUBLIC ACCESS GOLF FACILITIES MAP National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 25

30 GENERAL FINDINGS LOCAL SUPPLY NGF Consulting research indicates the following general findings regarding the supply of public golf facilities in the Palm Coast/Northeast Florida market. Following these comments are comparative charts highlighting key operational factors for each facility. Within the Primary market area (20-mile radius), there are eight public-access courses and four private facilities. One private facility has two 18-hole courses, while the others are 18-hole courses. Three of the public courses (The Grand Club Pine Course, Matanzas Course, and Cypress Course) and one of the private courses (Grand Haven) are owned by the same entity -- Hampton Golf. Four of the Primary area public courses feature name architects (Jack Nicklaus, Arnold Palmer (2) and Gary Player). The Grand Club Cypress Course re-opened after renovation in November The Pine Course was renovated and re-opened in December In all, the number of publicly accessible golf courses in Palm Coast has been reduced with these developments and the closing of the subject Palm Harbor Golf Club. Local public play is also affected by a number of courses that lie just outside the 20-mile radius, both north and south of Palm Coast. However, it appears that the courses to the south (Ormond Beach) receive more business from Palm Coast residents than those farther north. Rates are seasonal at three of the courses (Ocean Hammock, Ocean Palms and St. Johns County), with prime season running from January to May. Only one course (St. Johns County) charges a different (higher) fee on weekends, and then only in off-season. Ocean Hammock, which is a resort course that gets very little daily fee play, is an outlier in the local public golf market. The course features holes that border the Atlantic Ocean. Most of the play comes from tourists staying in the lodge or condos. The current daily fee charge is $195 out-of-season and $235 in-season three times that of the next highest competitor. It would be considered the area s premier facility. The lack of weekend rates, the presence of seasonal rates that correspond to the tourist season, and verbal reports from operators indicate that tourist trade and seasonal residents make up a significant portion of the business at the public courses in the area. The three public courses owned by Hampton Golf, all in the Primary market, are planning to become private as soon as the combined membership reaches 1,200. Currently at 950, they estimate that the membership goal will be reached by This means that by 2008, there will only be one public-access golf course in Palm Coast (other than the subject), which costs more than $200 a round to play. In addition, Ocean Palm is being actively marketed and if sold the course will be closed and the land redeveloped. As a result the number of area public courses may be reduced even further. In particular, there will be notable lack of high quality, mid-priced facilities. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 26

31 Palm Harbor GC Primary Competition St. Johns Golf Club. This is a 27-hole facility that is owned and operated by St. Johns County, Florida. The course offers a complement of amenities including a 30-station driving range, putting green, chipping area, and a practice bunker area. The clubhouse is medium in size and offers a complete pro shop full of merchandise as well as a full-service food and beverage area. The course offers individual ($1,031.91) and family ($1,579.93) memberships. The course offers play tickets: 12 tickets for $ & 50 tickets for $ This does not include cart, which is $16.00 There is no price break for resident vs. non-resident. The course does allow walking in off season times only. Overall, this course is a great value for the price, is in relatively good condition, and has no major competition with 10 miles. St. Augustine Shores Golf Club. This is an 18-hole par-70 daily fee golf course. The course does offer memberships (individual - $890, couple - $1,390) but as of the site visit, the course only has 90 full-time members. The majority of play on the course comes from retirees. The course sits in the middle of a large residential community with all residents over the age of 55. The clubhouse is modest in size and has a small pro shop with limited merchandise and a full service food and beverage operation. The facility has a driving range (20 hitting stations), and a small chipping and putting green. The range is in poor condition. Range balls: $3.25 sm, $4.75 med, $7.00 lg. There are no seasonal vs. non-seasonal rates. The rates are year round. Walking is permitted after 2:30 for $ Members receive 30% off everything (pro shop, food & beverage, range balls, etc.). 9-hole rates apply only from May-December at the rate of $19.50, which includes cart. Overall, this course is in poor condition and the facility needs some major upgrades to the clubhouse and driving range. Local Golf Facility Comparison Charts The tables on the following pages provide some general comparative information regarding the operation of primary market area golf facilities. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 27

32 Competitive Facilities Course Name Mrkt City County Type # Holes Age Architect Clubhs Proshp Greens Overseed Palm Harbor Golf Club P Palm Coast Flagler SP William Amick 6, Bermuda Yes Ocean Hammock Golf Course P Palm Coast Flagler Resort 18 4 Jack Nicklaus 1,500 Tif Dwarf Yes The Grand Club Matanzas Course P Palm Coast Flagler SP Arnold Palmer 2, Floradwarf Yes The Grand Club Pine Course P Palm Coast Flagler SP Arnold Palmer (r) Palmer Course Design 8, Floradwarf Yes The Grand Club Cypress Course P Palm Coast Flagler SP Gary Player (r) Frank Henegan/ Gary Player Design 1,000 Floradwarf Yes Ocean Palm S Flagler Beach Flagler DF 9 45 Fred Bolton 1, Salt resistant Yes St. Augustine Shores S St. Augustine St. Johns DF John Denton 4, Bermuda Yes St. Johns County Golf Course S Elkton St. Johns MU Robert Walker 3, Bermuda Yes AVERAGE , Mrkt: P = Primary; S = Secondary Type: SP = Semi-private; DF = Daily Fee; MU = Municipal National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 28

33 Back Tees Champ Tees Regular Tees Senior Tees Forward Tees Course Name M Par W Par # Tees Yard Slp Yard Slp Yard Slp Yard Slp Yard Slp # Traps Palm Harbor Golf Club , , , , Ocean Hammock Golf Course , , , , , The Grand Club Matanzas Course , , , , The Grand Club Pine Course , , , , , The Grand Club Cypress Course Ocean Palm ,636 4,636 4,066 4 St. Augustine Shores , , , St. Johns County Golf Course , , , , AVERAGE , , , , , Course Name Driv Rng Cart Path Pace PGA Grill Alcohol 5 Sms GPS Tee Times Strt Rng Bev Crt Palm Harbor Golf Club Yes Partial 5 Yes Yes Full No No Ocean Hammock Golf Course Yes Full Yes Yes Full No Yes The Grand Club Matanzas Course Yes Full 4.5 Yes Yes Full No No The Grand Club Pine Course Yes Full Yes Yes Full No No The Grand Club Cypress Course Yes Full Yes Yes Full No No Ocean Palm Yes No 3.5 No Yes Beer No No St. Augustine Shores Yes Full 4 Yes Yes Full No Yes St. Johns County Golf Course Yes Partial 4.5 Yes Yes Full No No AVERAGE National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 29

34 Membership Driving Range Course Name Type No. Initiation Single Family Sm # Sm $ $/ball Lrg # Lrg $ $/ball Palm Harbor Golf Club Annual 100 $1,550 $2, $2.68 $ $5.35 $0.076 Ocean Hammock Golf Course Permanent $80,000 $6,500 $6,500 The Grand Club Matanzas Course Permanent 325 $500 $2,162 $3, $5.00 $ $8.00 $0.114 The Grand Club Pine Course Permanent 325 $500 $2,162 $3, $5.00 $ $8.00 $0.114 The Grand Club Cypress Course Permanent 325 $500 $2,162 $3, $5.00 $ $8.00 $0.114 Ocean Palm 50 play card 50 $500 $3.00 $4.00 St. Augustine Shores Annual 90 $890 $1, $2.75 $ $6.30 $0.057 St. Johns County Golf Course Annual 250 $1,032 $1, $4.00 $ $6.00 $0.080 AVERAGE $20,375.0 $2,119.8 $2, $3.92 $ $6.52 $0.093 Peak Season Rates (Incl. Cart) Off Season Rates (Incl. Cart) Course Name Cart Fee Weekday Weekend 9 Hole Afternoon Twilight Weekday Weekend 9 Hole Afternoon Twilight Palm Harbor Golf Club $17.12 $55.00 $55.00 $30.00 $40.00 $40.00 $24.00 $25.00 Ocean Hammock Golf Course $ $ $ $ The Grand Club Matanzas Course $17.12 $65.00 $65.00 $45.00 $35.00 $65.00 $65.00 $45.00 $35.00 The Grand Club Pine Course $17.12 $65.00 $65.00 $45.00 $35.00 $65.00 $65.00 $45.00 $35.00 The Grand Club Cypress Course $17.12 $65.00 $65.00 $45.00 $35.00 $65.00 $65.00 $45.00 $35.00 Ocean Palm $10.00 $30.00 $30.00 $20.00 $25.00 $25.00 $20.00 St. Augustine Shores $16.00 $29.50 $29.50 $19.50 $21.50 $21.50 $29.50 $29.50 $19.50 $21.50 $21.50 St. Johns County Golf Course $18.00 $46.00 $46.00 $18.00 $26.00 $35.50 $40.50 $18.00 $26.00 AVERAGE $16.07 $73.81 $73.81 $21.88 $36.50 $31.63 $65.00 $65.63 $20.38 $39.30 $30.50 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 30

35 Rounds Course Name Trend % Memb % Tourn Rnds % Ride Notes Pro Rate Pro Rank Palm Harbor Golf Club 26,000 up 10% 5% 1,300 99% Ocean Hammock Golf Course 26,000 same 10% 30% 7,800 98% Lodge on site The Grand Club Matanzas Course 30,500 same 65% 15% 4, % Renovation? The Grand Club Pine Course 32,000 same 82% 12% 3,840 98% Renovation completed 12/ The Grand Club Cypress Course N/A N/A N/A N/A N/A N/A Renovation completed 11/05 N/A N/A Ocean Palm 39,000 same N/A 0% N/A 40% N/A N/A St. Augustine Shores 37,000 Same 30% 7% N/A 90% N/A N/A St. Johns County Golf Course 52,000 Down 50% 8% 7,750 95% AVERAGE 38, % 11.0% 5, N/A = Information not available National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 31

36 New Golf Courses Golf Course Construction Activity Recent Construction of Golf Facilities ( ) 10 Miles 20 Miles Flagler County Jacksonville DMA Florida U.S. Total holes added past 10 years ,933 44,766 Public holes added past 10 years ,520 35,874 Private holes added past 10 years ,413 8,892 Percent Total Holes Added 88.90% 45.80% 61.50% 23.00% 18.10% 16.60% Percent Public Holes Added 80.00% 31.30% 57.10% 26.30% 20.30% 18.80% Percent Private Holes Added % 75.00% 66.70% 16.70% 15.20% 11.30% NGF Consulting has discovered two new public golf facilities under construction in the market area in addition to the subject Palm Harbor Golf Club. These include the Oak Branch Golf Course in Bunnell and Plantation Oaks in Ormond Beach. Oak Branch is a new 18-hole, par-72 golf course under construction along US 1 in Bunnell that used to be known as Grand Reserve. This facility is scheduled to open in December 2007 and may present direct competition to the subject Palm Harbor GC (if re-opened as proposed), although at an inferior location. Plantation Oaks just began construction on a new 18-hole daily fee golf course scheduled to open in late 2008 or early When opened, the Plantation Oaks golf course could also be potentially competitive with the re-opened Palm Harbor Golf Course. GOLF MARKET SUMMARY AND PRELIMINARY USE ESTIMATE NGF Consulting has indicated the following significant findings of the area s public golf market: National Golf Foundation research into golf participation, frequency and the overall health of golf facilities indicates that the golf industry is in a period of what golf insiders call an uneasy equilibrium. This means that while the general status of the golf business is strong, participation in the sport is not growing as rapidly as the supply of golf courses. This finding has implications for any golf operation in the U.S., and in Palm Coast, Florida. The local Palm Coast golf market is of limited size due to the relatively small population of the City of Palm Coast itself, but the area is a popular visitor destination and is in proximity to other large markets such as Jacksonville and Daytona Beach. NGF Consulting estimates indicate that while the area s golf population may be somewhat small, the activity rate is extremely high. This finding, coupled with other findings regarding median age, average household size, and resident labor force all indicate a large retiree population. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 32

37 Corporate and visitor golf demand is expected to be a key element in the area s golf market. Any circumstance that would impact the overall visitation level to this area will have impact on golf activity, as was evidenced in the immediate aftermath of September 11, 2001 when the visitor golf market shrank along with the tourist market. The supply analysis prepared by NGF Consulting for this report suggests that there will be a reduction in the number of public golf facilities, as some of the area s courses will be converting to private clubs, and another course may close. This will leave a general shortage of affordable public golf in the immediate Palm Coast market area. The proposed new Plantation Oaks golf course, along with the re-opened Palm Harbor Golf Club, will compete to fill this void. The peak golf season in the Palm Coast market is from January through early May each year. The competition in the other (summer) months is reflected in the operational policies and fees of the area s golf facilities. The established market for combined green and cart fees in the Palm Coast area in peak season 2007 is roughly $65 for 18 holes, to as low as $40 at St. Johns County Golf Course. Various discounts (9-hole, twilight, off-season, etc.) bring fees down into the $35 to $45 range with St. Johns County GC going as low as $26 for an afternoon 18-hole round with cart in season. Rounds activity caps out at about 40,000 rounds per 18 holes per year at the Palm Coast area courses, although these facilities tend to have a higher, resortoriented fee structure. The St. Johns County Golf Course achieved rounds on 27 holes totaling about 51,000 in 2006, or about 34,000 rounds per 18 holes on a comparable municipal golf course. This total is augmented by the presence of about 250 low-priced annual golf passes at $900 (single) and $1,300 (family). A rounds total of 42,000 to 44,000 is a realistic target for an 18-hole municipal golf course with below-average fees in the immediate Palm Coast area market. TRENDS IN MUNICIPAL GOLF FACILITY OPERATIONS Coupled with the declining rounds activity, many municipal golf facilities in the U.S. have been experiencing declines in total revenue. As golf facilities are often valued like other commercial real estate, the total revenues and bottom line net incomes become important measures for establishing value. National Norms Municipal Golf Operations As part of NGF Consulting s review of the proposed acquisition of the Palm Harbor Golf Club by the City of Palm Coast, we have compared the actual performance of the subject golf facility to our national research into municipal golf performance. A basic comparison with municipal golf courses nationally, as derived from 2004 actual results contained in the National Golf Foundation s publication, Operating & Financial Performance Profiles of 18-hole Golf Facilities in the U.S., shows the following. For comparison purposes, NGF Consulting uses the industryestablished definition of a golf round as one player teeing off in an authorized start. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 33

38 U.S. Averages Rounds Played per 18-holes 2004 If the Season is If Total Revenue is U.S mos. <10 mos. Below $1.0 mm Above $1.0 mm Bottom 25 Percent 27,500 26,860 27,500 24,020 34,510 Median 35,390 39,830 33,720 29,220 40,930 Top 25 Percent 44,730 58,170 40,680 36,400 53,240 Palm Harbor Golf Club 26,000 Source: Operating & Financial Performance Profiles of 18-Hole Facilities in the U.S Edition, National Golf Foundation. U.S. Averages Total Revenue 2004 If the Season is When Total Revenue is U.S mos. <10 mos. Below $1.0 mm Above $1.0 mm Bottom 25 Percent 625, , , ,000 1,170,000 Median 983,580 1,030, , ,030 1,457,820 Top 25 Percent 1,433,280 1,683,530 1,349, ,510 1,889,750 Palm Harbor Golf Club $1,100,000 Source: Operating & Financial Performance Profiles of 18-Hole Facilities in the U.S Edition, National Golf Foundation. U.S. Averages Total Expenses 2004 If the Season is When Total Revenue is U.S mos. <10 mos. Below $1.0 mm Above $1.0 mm Bottom 25 Percent 578, , , , ,520 Median 851,350 1,051, , ,950 1,224,090 Top 25 Percent 1,233,930 1,385,310 1,113, ,370 1,670,060 Palm Harbor Golf Club Data not available Source: Operating & Financial Performance Profiles of 18-Hole Facilities in the U.S Edition, National Golf Foundation. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 34

39 Palm Harbor Golf Course Basic Operations and Preliminary Financial Projections The Palm Harbor Golf Club was operated as a daily fee golf club for non-exclusive use by daily fee players and some members. Complete operating data for the last few years at the subject facility has not been provided in this NGF Consulting report. Although this information is helpful in a full understanding of the subject golf property, the fact that the facility is being run as part of a larger private business makes the actual operating data of this golf course somewhat irrelevant to this analysis, especially as it applies to operating expenses. The Palm Harbor GC owners did provide NGF Consulting with basic rounds and gross revenue data that NGF Consulting will use for this analysis. It is the experience of NGF Consulting that an existing golf facility will tend to retain its basic activity and revenue characteristics for the first few years after an acquisition by a municipality. It is on the expense side that we recognize that no valid comparison can be made between a municipality and a large private business. REVENUE SOURCES As Palm Harbor Golf Club is primarily a daily fee golf club, the predominance of revenues generated by the facility were derived from daily green and cart fee revenue, as well as some fees from the driving range, concessions, and roughly 100+ pre-paid golf memberships. In all, revenues at Palm Harbor GC will come from green fees, cart fees, driving range fees, member dues, and concessions such as merchandise and food and beverage sales. The following paragraphs summarize each of these revenue sources. Most Recent Golf Fees Below is the Palm Harbor GC s most recent green fee structure. As can be seen, there was a discount off of peak winter rates for various tee times such as off-season (summer) and twilight. Palm Harbor GC Green Fee Structure Peak Season Off Season Regular (incl. Cart) Weekday $55.00 $40.00 Weekend $55.00 $ Hole Monday-Friday $30.00 $24.00 Saturday-Sunday $30.00 $24.00 Afternoon/Twilight Monday-Friday Not Offered $25.00 Member Cart Fee $17.00 $17.00 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 35

40 Activity Levels At the time of its closing, the Palm Harbor Golf Club had a relatively low level of rounds activity, especially when compared to previous years reported activity. The facility experienced its most significant declines in the period (46% drop), at a time when the future of the facility was in doubt. A history of NGF estimated (or collected) rounds played is shown below: Palm Harbor GC Annual Rounds Played Year Total Rounds % Change 1998* 60, * 48, % 2004* 26, % Source: Palm Harbor GC and NGF Consulting. *NGF Consulting Estimate Capacity Issues A golf course s theoretical capacity can be determined mathematically by multiplying the number of available tee times (utilizing only the first tee as the starting hole) in an hour by the number of hours of daylight, minus two hours, multiplied by the maximum number of players in a group, usually a foursome. A more realistic measure, a golf course s actual capacity takes into account the loss of tee times for weather, unplayable conditions, cancellations, no-shows, groups of less than four players, and other reasons a golf course would never actually play the theoretical capacity such as a desire to maintain conditions. In estimating capacity, NGF Consulting has defined a round as one person teeing off in an authorized start, so 9-hole and 18-hole rounds are counted equally. The actual capacity for a given course is difficult, if not impossible, to calculate because most courses differ in physical characteristics and management procedures. For example, a course that has paved cart paths and good drainage can quickly resume play after a heavy rain, whereas a course that does not have paved cart paths and/or has poor drainage may have to suspend play for several hours or the entire day. In the northeast Florida market the 18-hole public-access golf courses have demonstrated activity as high as 70,000 on 18-holes in past years, but today few public courses in the area achieve much higher than 40,000 rounds per year. As such, the Palm Coast golf operation should not expect to host total rounds played levels much beyond 40,000 rounds per year without considerable targeted discounting and programs/promotions. Revenue Analysis NGF Consulting s review of previous revenue performance shows a facility after the general decline in rounds noted above. The range of revenues earned in selected revenue categories is shown in the table below. While not absolute, most of the higher revenue totals are from the last decade and the lower estimates more recent. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 36

41 Palm Harbor GC Range of Reported Revenues ( ) Low High Revenue Golf Shop $85,000 $150,000 Green + Cart Fees $980,000 $1,600,000 Memberships $140,000 $250,000 Driving Range $70,000 $140,000 Food / Bev. Sales $50,000 $120,000 Total Revenue $1,100,000 $2,100,000 Source: Palm Harbor GC and NGF Consulting. High low estimates for total revenue do not sum. Revenue Ratios Palm Harbor Golf Club revenue is derived from five primary sources: green + cart fees, annual membership dues, range revenue, retail sales and food and beverage sales. As can be seen in the table that follows, total average revenue per round had generally held steady through the first half of this decade, with revenue declines largely a result of declines in rounds activity. Overall, the City should not expect to generate revenue in excess of $40 per round of golf at this facility if it re-opens under a similar operating structure than what existed at this facility just prior to its closing. Average revenue per round estimates are displayed below: Palm Harbor GC Range of Average Revenues ( ) Low High Revenue Golf Shop $2.75 $3.25 Green + Cart Fees $37.00 $38.00 Driving Range $2.00 $2.75 Food / Bev. Sales $2.00 $4.00 Total Revenue $38.00 $42.00 Source: Palm Harbor GC and NGF Consulting. High low estimates for total revenue do not sum. PALM HARBOR GOLF CLUB OPERATIONS SUMMARY The Palm Harbor Golf Club operated as a daily fee golf club with six primary sources of revenue: annual pass fees, carts, green fees, driving range, merchandise and food and beverage. In total, these revenue drivers have generated as much as $2.0 million in revenue, although at the time of its closing the facility was probably at a level close to half that amount. Total expenses to operate the facility at present cannot be calculated due to the private business nature of the facility in its last few years of operation. Overall, it is expected that the operational expense structure for the City of Palm Coast will be significantly higher than that currently being experienced by the private operator should the City purchase and operate the National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 37

42 facility. This will be addressed, and City of Palm Coast expense estimates provided, in the financial section of this report. PRELIMINARY FINANCIAL ANALYSIS NGF Consulting has created a cash flow model for the continued operation of the Palm Harbor Golf Club under the assumption of City operation beginning in 2008, as well as the other assumptions outlined below. The primary assumption that drives the NGF Consulting financial projections is that the Palm Harbor Golf Club will be operated to a standard of quality comparable to what exists at the facility today, and that the City of Palm Coast will self-operate the facility within its Parks and Recreation Department. While we recognize that the City may look to a private operator to manage the facility for the City, this estimate will help to establish parameters under which the City can reasonably determine an appropriate management fee and/or lease arrangement. Market Share Conclusions When considering the total market share of the subject facility, it is important to realize that the total number of rounds to be played at the course during the first few years after acquisition may be lower than the market opportunity appears to suggest. It is typical for an existing public access golf facility to achieve only a portion of its total potential in the initial years after an acquisition by a municipality. Our estimates of performance for the Palm Harbor Golf Club could change should the following conditions occur: Stronger Performance Future course closings Faster population growth than projected Positive regional/ national publicity Lack of loyalty to existing courses Unforeseen surge in golf interest Excellent yearly weather conditions Weaker Performance New course openings Incorrect price levels Poor customer service Low quality facility Poor yearly weather conditions Regional economic recession It is important to measure a newly acquired course s likely performance in such a way as to help the City make financial decisions based on realistic expectations. It is obviously possible that either more or fewer rounds will be realized. We note that our projections for future performance of the Palm Harbor Golf Club do anticipate increases in activity that may not occur, potentially leading to continued City subsidies. Green Fee/Activity Assumptions There will be four types of rounds activity expected at the Palm Harbor Golf Club upon re-opening: Premium Fee rounds (peak demand during peak season); Midfee1 rounds (peak demand off-season + other non-peak tee times); Midfee2 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 38

43 rounds (18-hole twilight, some resident discounts, some 9-hole); and Discount rounds (most 9-hole, league, juniors, off-season residents, etc.). NGF Consulting has assumed no memberships or pre-paid green fee arrangements of any kind will be present at the Palm Harbor Golf Club. Total rounds projection has been estimated based on the market tolerances observed in this study and the assumption of an extensive marketing effort by the City of Palm Coast. Rounds of play are expected to be 15% premium, 30% midfee1, 30% midfee2, and 25% discount. The green and cart fee schedule has been estimated based on the actual fees charged at comparable facilities in the market like St. Johns County Golf Course and the subject Palm Harbor Golf Club (when open). This means a peak weekend/holiday AM green and cart fee in the $46 range, with discounts all the way down to $16 for some resident play without cart. NGF Consulting has assumed the inclusion of a driving range as part of the Palm Coast Golf Course development. Patrons are assumed to spend $2.00 per round of golf on the driving range. Palm Harbor is assumed to operate out of a temporary (modular) clubhouse for the first two years of operation. Beginning in Year 3 a new modest +6,500 sf clubhouse is added with a small pro shop and snack bar/grill. Spending on ancillary items such as merchandise and food/beverage items has been estimated to peak at $5.25 per round for food and beverage and $2.65 per round for merchandise. Palm Harbor Golf Club Expense Projections NGF Consulting has prepared estimates of expenses for the 18-hole Palm Harbor Golf Club under the assumption of self-operation by the City of Palm Coast through the Parks and Recreation Department, and with an on-site golf facility manager reporting to the Parks and Recreation Director. Fixed Expenses Golf course maintenance expenses (includes practice facility) have been estimated to be $710,000 in the first full year of operation (2008), growing at three percent per year to just under $800,000 by the fifth year of operation. A modest water budget has been assumed based on experience at other courses in the Northeast Florida area. Overall, golf course maintenance expenses are expected to conform to the following general schedule prepared by NGF Consulting. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 39

44 Estimated Golf Course Maintenance Expense Palm Harbor Golf Club Salaries & Wages Full-Time Employees Course Superintendent 2 Asst. $35,000 1 $30,000 5 Crew $20,000 each Benefits & 30% $60,000 70,000 30, ,000 80,000 Part-Time Labor 9,000 $11.11/hr. 100,000 Total Salaries & Wages $440,000 Utilities Incl. Water 85,000 Seed, Sod & Sand (incl. Top-Dress program) 50,000 Supplies (Chemicals & Fertilizer) 50,000 Repairs & Maintenance 25,000 Fuel & Oil 20,000 Miscellaneous (incl. Landscaping) 20,000 Maintenance Administration 20,000 Total Course Maintenance Expense $710,000 General and administrative expenses have been estimated to be $370,000 in the first year of operation, growing at three percent per year to about $416,000 by the fifth year of operation. The general and administrative expenses have been estimated based on the operation of a good quality municipal golf course. A large advertising budget has been included for the Palm Harbor Golf Club based on the need to attract residents and tourists in a larger geographic area. Overall, general and administrative expenses are expected to conform to the following general schedule prepared by NGF Consulting. Administrative & General Expense Salaries & Wages Full-Time Employees General Manager/Director of Golf $60,000 Assistant MGR./Marketing Director 40,000 3 Assistant Golf $28,000 84,000 Benefits & 30% 56,000 Part-Time Labor Shop Clerks, starters, rangers, etc. 66,000 (6,000 $11.11/hr.) Advertising & Promotion 25,000 Professional Services 15,000 Insurance 10,000 Supplies 10,000 Miscellaneous 4,000 Total Administrative & General Expense $370,000 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 40

45 Other Expenses Expenses associated directly with revenue centers, such as merchandise and food and beverage, have been assumed based on historical patterns established at U.S. golf facilities of this type. Shop merchandise expenses (cost of goods sold) are assumed at 65% of total merchandise sales revenue. An estimate of 75% is used for direct costs for food and beverage sales in the snack bar. Expenses associated with operating a fleet of 63+ golf carts has been estimated based on an accepted industry estimate of roughly $800 per cart per year. This estimate was intended to include all maintenance and operational expenses, and applies regardless of whether carts are purchased or leased by the golf course. The estimate increases by four percent each year. In addition to cost of goods sold, an additional $10,000 in fixed expenses are assumed for the clubhouse operation in Year 1-2 with $90,000 beginning in Year 3. This figure is increased at three percent per year. Maintenance and repair expenses in addition to the aforementioned normal maintenance may be necessary during the course of operating a quality golf facility, especially with the amount of netting used in the operation. NGF Consulting has included a schedule for capital improvements for an 18-hole facility of $50,000 per year. This money can be spent each year, or saved as a reserve for major repairs in the future. This amount is consistent with expectations at golf courses nationwide. In keeping with the conservative posture taken for this feasibility study, NGF Consulting has assumed an operations reserve contingency expense to account for any possible unforeseen expenses, and/or cover any annual revenue shortfall. This contingency has been estimated to be 2.5 percent of all expenses, excluding cost of goods sold and the capital expense reserve. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 41

46 Cash Flow Statement NGF Consulting has utilized the previously mentioned assumptions to create the cash flow statements in the following exhibits. Each category of revenue has been listed separately, and an estimate of the total facility average revenue per round has been provided. Palm Harbor Golf Club 18-Hole Layout ROUNDS PLAYED: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Premium 5,100 6,000 6,300 6,450 6,600 Midfee1 Rounds 10,200 12,000 12,600 12,900 13,200 Midfee2 (18H Twilite + 9HWE) 10,200 12,000 12,600 12,900 13,200 Discount Rounds 8,500 10,000 10,500 10,750 11,000 Total Projected Rounds 34,000 40,000 42,000 43,000 44,000 PROJECTED FEES: Premium $36.00 $36.90 $37.82 $38.77 $39.74 Midfee1 Rounds $25.00 $25.63 $26.27 $26.92 $27.60 Midfee2 (18H Twilite + (9HWE) $20.00 $20.50 $21.01 $21.54 $22.08 Discount Rounds (9H) $16.00 $16.40 $16.81 $17.23 $17.66 Average Cart Fee $10.50 $10.76 $11.03 $11.31 $11.59 PROJECTED DEPARTMENTAL REVENUES/ROUND: Pro Shop Sales $1.00 $1.03 $2.50 $2.56 $2.63 Food & Beverage Sales $2.00 $2.05 $5.00 $5.13 $5.25 Driving Range Sales $2.00 $2.05 $2.10 $2.15 $2.21 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 42

47 Palm Harbor Golf Club 18-Hole Layout Preliminary Sketch Proforma REVENUES: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Green Fee Revenue $778,600 $938,900 $1,010,491 $1,060,414 $1,112,202 Cart Fee Revenue 321, , , , ,965 Pro Shop Revenue 34,000 41, , , ,600 Driving Range Sales 68,000 82,000 88,300 92,600 97,100 Food & Beverage Revenue 68,000 82, , , ,100 TOTAL REVENUE $1,269,900 $1,531,400 $1,830,800 $1,921,200 $2,015,000 Avg. Per Round $37.35 $38.29 $43.59 $44.68 $45.80 Less: Cost of Sales Pro Shop $22,100 $26,700 $68,300 $71,600 $75,100 Food & Beverage 51,000 61, , , ,300 Total Cost of Sales $73,100 $88,200 $225,800 $236,900 $248,400 ADJUSTED GROSS INCOME $1,196,800 $1,443,200 $1,605,000 $1,684,300 $1,766,600 EXPENSES: Administrative and General $370,000 $381,100 $392,500 $404,300 $416,400 Course Maintenance 710, , , , ,100 Clubhouse Expenses 10,000 10,300 90,000 92,700 95,500 Cart Lease & Maintenance 50,000 51,500 53,000 54,600 56,200 Capital Reserve 50,000 50,000 50,000 50,000 50,000 Contingency (2.5%) 28,500 29,400 32,200 33,200 34,200 TOTAL EXPENSES $1,218,500 $1,253,600 $1,370,900 $1,410,600 $1,451,400 NET OPERATING INCOME ($21,700) $189,600 $234,100 $273,700 $315,200 ESTIMATED SUPPORTABLE DEBT $3,570,000 (Assumes 20 years at 5%) Cash Flow Results The results of NGF Consulting s preliminary cash flow projection shows that the Palm Harbor Golf Club can expect to generate approximately $1.27 million in gross operational revenue in the first full year after acquisition (2008), growing to $1.77 million by the fifth year of operation reflecting expected boosts from population growth, competitive course closures, improved player-development programs and enhanced City-wide marketing. Considering all preliminary expense estimates prepared by NGF Consulting for this study, the annual profit available for capital investment reduction will be just under $275,000 by the fourth year of operation if all activity assumptions can be realized. Based on a preliminary capital cost reduction schedule prepared by NGF Consulting for this study, the newly acquired Palm Harbor Golf Club would be able to earn enough in net income to cover a $3.57 million in debt for the acquisition and improvement of the facility. Even at this projected debt level it is expected that the facility would lose money for the first four years of operation, finally breaking even (after debt service) in the fifth year of operation. If the activity National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 43

48 levels are not achieved it is likely that the facility will operate with continued losses and require further subsidies from the City. ANALYSIS OF SHORTER GOLF COURSE AND NO DRIVING RANGE NGF Consulting has created a cash flow model for the operation of the Palm Harbor Golf Club under the assumption that the present owner retains a portion of the property, the site of the present driving range and clubhouse, to be redeveloped as condominiums. The remaining facility left to become the City-run Palm Harbor Golf Club would include a shorter (5,800-6,000 yards) golf course, smaller clubhouse and no driving range. Cash Flow Assumptions All assumptions outlined in the estimate shown above are included in the shorter golf course/no driving range scenario with the following exceptions: The shorter facility would be less appealing and play approximately 10 percent fewer total rounds. The fee schedule is roughly 85% of fees in the base scenario. Ancillary revenues (food, beverage, merchandise) would be lower due to smaller (perhaps modular) clubhouse. Additional clubhouse expense is reduced to $10,000. The facility would operate with only 50 carts. Golf maintenance is decreased to reflect less area to maintain as well as a general lower quality of golf course expected under this scenario. The course maintenance expenses are expected to conform to the following general schedule prepared by NGF Consulting: National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 44

49 Estimated Golf Course Maintenance Expense Palm Harbor Golf Club Shorter GC with No Driving Range Salaries & Wages Full-Time Employees Course Superintendent 1 Asst. $35,000 1 $30,000 4 Crew $20,000 each Benefits & 30% $60,000 35,000 30,000 80,000 60,000 Part-Time Labor 9,000 $11.11/hr. 100,000 Total Salaries & Wages $365,000 Utilities Incl. Water 65,000 Seed, Sod & Sand (incl. Top-Dress program) 40,000 Supplies (Chemicals & Fertilizer) 40,000 Repairs & Maintenance 20,000 Fuel & Oil 15,000 Miscellaneous (incl. Landscaping) 15,000 Maintenance Administration 215,000 Total Course Maintenance Expense $575,000 Reduced Facility Scenario Cash Flow Pro-Forma NGF Consulting has utilized the previously mentioned assumptions to create the cash flow statements in the following exhibits. Each category of revenue has been listed separately, and an estimate of the total facility average revenue per round has been provided. Palm Harbor Golf Club 18-Hole Layout Shorter Course with No Driving Range ROUNDS PLAYED: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Premium (WE & Hol.) 4,800 5,400 5,700 5,850 6,000 Midfee1 Rounds (WD) 11,200 12,600 13,300 13,650 14,000 Midfee2 (18H Twilite + 9HWE) 8,000 9,000 9,500 9,750 10,000 Discount Rounds 8,000 9,000 9,500 9,750 10,000 Total Projected Rounds 32,000 36,000 38,000 39,000 40,000 PROJECTED FEES: Premium (WE & Hol.) $26.00 $26.65 $27.32 $28.00 $28.70 Midfee1 Rounds (WD) $17.00 $17.43 $17.86 $18.31 $18.76 Midfee2 (18H Twilite + (9HWE) $13.50 $13.84 $14.18 $14.54 $14.90 Discount Rounds (9H) $10.00 $10.25 $10.51 $10.77 $11.04 Average Cart Fee $8.00 $8.20 $8.41 $8.62 $8.83 PROJECTED DEPARTMENTAL REVENUES/ROUND: Pro Shop Sales $1.00 $1.03 $1.05 $1.08 $1.10 Food & Beverage Sales $2.00 $2.05 $2.10 $2.15 $2.21 Driving Range Sales $0.00 $0.00 $0.00 $0.00 $0.00 National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 45

50 Palm Harbor Golf Club 18-Hole Layout Shorter Course with No Driving Range PRELIMINARY SKETCH PROFORMA REVENUES: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Green Fee Revenue $503,200 $580,253 $627,801 $660,430 $694,298 Cart Fee Revenue 230, , , , ,898 Pro Shop Revenue 32,000 36,900 39,900 42,000 44,200 Driving Range Sales Food & Beverage Revenue 64,000 73,800 79,800 84,000 88,300 TOTAL REVENUE $829,600 $956,600 $1,035,000 $1,088,800 $1,144,700 Less: Cost of Sales Pro Shop $20,800 $24,000 $25,900 $27,300 $28,700 Food & Beverage 48,000 55,400 59,900 63,000 66,200 Total Cost of Sales $68,800 $79,400 $85,800 $90,300 $94,900 ADJUSTED GROSS INCOME $760,800 $877,200 $949,200 $998,500 $1,049,800 EXPENSES: Administrative and General $270,000 $278,100 $286,400 $295,000 $303,900 Course Maintenance 555, , , , ,800 Clubhouse Expenses 10,000 10,300 10,600 10,900 11,200 Cart Lease & Maintenance 40,000 41,200 42,400 43,700 45,000 Capital Reserve 25,000 25,000 25,000 25,000 25,000 Contingency (2.5%) 21,900 22,500 23,200 23,900 24,600 TOTAL EXPENSES $921,900 $948,800 $976,500 $1,005,100 $1,034,500 NET OPERATING INCOME ($161,100) ($71,600) ($27,300) ($6,600) $15,300 ESTIMATED SUPPORTABLE DEBT $170,000 (Assumes 20 years at 5%) Cash Flow Results The results of this cash flow projection shows that the Palm Harbor GC can expect to generate approximately $830,000 in gross operational revenue in the first full year after acquisition (2008). This amount is lower than the estimate in the base scenario as the NGF team anticipates only a small, temporary clubhouse operation and no driving range with the shorter golf course. Considering all preliminary expense estimates prepared by NGF Consulting for this study, it is not expected that the facility will be able to produce revenues sufficient to consistently cover any capital investment reduction. In this case, even if the activity levels projected by NGF Consulting are achieved it is likely that the facility will operate with continued losses and require subsidies from the City. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 46

51 LIMITING CONDITIONS The income estimates and warranted investment analysis presented by NGF Consulting have been prepared based on existing and projected market conditions, the quality of the subject facility and the intended segment of the golf market toward which it is oriented. Particular focus was paid to the reality of golf supply in the immediate local market where several golf facilities have been struggling to generate enough golf rounds to meet their obligations. Proper uses of these estimates include but are not limited to: Establishing reasonable parameters for value of the subject facility Determining an appropriate level of debt that the facility can support under City of Palm Coast operation Establishing the basis for financing determinations Providing guidelines for acquisition cost determinations NGF Consulting is confident that the stated financial projections and value estimates can be achieved at the subject facility. From a practical standpoint, those managing the facility will need to respond to variable market conditions as well as unforeseen maintenance needs. Due to the fact that these conditions are more likely to change as the course continues to mature, NGF Consulting has limited its projections to a five-year period. Nevertheless, we are confident that the facility will be able to continue to achieve similar results beyond the next five years of operation. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club 47

52 Summary Statement In summary, NGF Consulting believes that there is demonstrated demand for lower-fee public golf in the Palm Coast market. However, the expense to acquire, renovate and then operate the subject Palm Harbor Golf Club may put the whole acquisition concept on less-than-stable fiscal footing, at least for the first few years after the acquisition. As a result, this is a highly competitive business environment for public golf courses, particularly for those at Palm Harbor Golf Club s price point. Finally, NGF research indicates that the greater Daytona Beach area is a relatively inactive golf market, exacerbating the fight for market share. The golf market dynamic means that the viability of the Palm Harbor Golf Club, if acquired, will be highly dependent on the facility s ability to create a good quality public golf experience at an affordable green fee level. This means that appropriate pricing, including a frequent user discount card, will be necessary for the new facility to distinguish itself and attract adequate play levels from all market segments. Important target markets include the beginner, female, and family/junior golf segments, which could contribute significant play to the converted municipal golf course. If the current property owners elect to develop new condominiums on the site of the existing clubhouse and driving range, it is much less likely that the remaining golf facility would be economically viable due to lower expected rounds activity AND lower expected fees. NGF Consulting fully expects that the subject golf course, with improvements as recommended, good management, expert maintenance, properly targeted marketing, and good customer service, should be able to achieve the market projections made in this study. If the projections in the base scenario (no physical changes in facility design & amenities) are achieved, the Palm Harbor Golf Club should be able to support a total initial capital investment of about $3.2 million to acquire and renovate the facility. Assuming a debt to equity ratio on the project of 50%, the City of Palm Coast could support a total acquisition and re-development project of $6.4 million. National Golf Foundation Consulting, Inc. Palm Harbor Golf Club DRAFT REPORT 48

53 Appendices National Golf Foundation Consulting, Inc. Palm Harbor Golf Club Appendix 1

54 APPENDIX A PALM HARBOR GOLF CLUB CONFIGURATION Previous Operation National Golf Foundation Consulting, Inc. Palm Harbor Golf Club Appendix 2

55 Golf Course with Proposed Centex Development Plan National Golf Foundation Consulting, Inc. Palm Harbor Golf Club Appendix 3