Memo 5.2 Attachment A, April 29, 2003

APPENDIX A

Rancho del Pueblo Golf Course

Summary of Financial Performance of Rancho del Pueblo Golf Course:

The feasibility study and proforma for this facility were prepared by Golf Realty Corporation, and subsequently reviewed and revised by National Golf Foundation Consulting, Inc. (NGFC) in 1997. The final NGFC proforma was based on certain assumptions including the following:

· Fee structure (this fee structure is the current fee structure at Rancho del Pueblo)

Rounds estimates (based on the number of rounds reported by area course operators)
Tee time intervals (every 7.5 minutes)
The course would be open for play 365 days per year and, on average, 12 hours per day
Each and every group would consist of four players (32 players an hour would start from the first tee)
74,000 rounds would be played in Year 1 increasing to approximately 88,000 rounds by Year 6 (stabilization)

Rancho del Pueblo Golf Course opened to the public on March 1, 2000. There were four (4) months of operations in F/Y 1999-2000 (March through June), since the operation is on the same fiscal year as the City. The facility’s first full fiscal year of operations was July 1, 2000 through June 30, 2001, and the second full fiscal year concluded June 30, 2002.

The chart below contrasts the NGFC projections of net income after expenses (before debt service), actual Rancho net income after expenses (before debt service), and the scheduled debt service on the bonds that financed the course land acquisition and improvements.

Fiscal Year	NGFC Feasibility Projected Net Income after Expenses (before Debt Service)	Actual Rancho Net Income after Expenses (before Debt Service)	Debt Service on Bonds
1999-2000/Yr 1	$358,232*	($31,741)**	$466,664
2000-01/Yr 2	$379,776	($75,642)	$483,820
2001-02/Yr 3	$376,416	$79,816	$486,914

*NGFC’s Net Income after Expenses projection in 1999-2000 is for 12 months of

operation.

**Actual Net Income after Expenses in 1999-2000 is for four months of operation.

There are a number of reasons the NGFC feasibility study proforma and actual facility Net Income after Expenses (before debt service) differ. They include:

1. The feasibility study proforma assumed a 7.5-minute tee time interval. For safety and pace of play reasons and based on the actual course build-out, the actual tee time interval is every 10 minutes. If the NGFC proforma had assumed a 10-minute tee time interval (instead of 7.5), the Net Income after Expenses (before debt service) projected by NGFC in the first year alone would have been lower by approximately 45% (or $197,000 as compared with $358,232).

2. Within the first month of operation (March 2000), the net along the King Road side of the driving range was identified as too low. The height of this netting was increased as a result. Until that project was completed (in May of 2001), the operator maintained an ‘irons only’ policy at the range. This accounted for much lower revenue production from the range than had originally been expected. The following chart shows the projections and actuals for the last two full fiscal years of range activity:

NGFC Projections of

Range Revenue

Actual

Range Revenue

Year 2 (F/Y 2000-01)

$252,681

$94,036

Year 3 (F/Y 2001-02)

$271,635

$207,331

3. Actual rounds played at Rancho have been 42%- 48% lower than proforma projections.

4. Certain actual expenses (e.g. utilities and water) at the course have exceeded what was projected in the NGFC proforma.

Fiscal Year 2001-02 Achievements compared with Fiscal Year 2000-01:

In Fiscal Year 2001-02, San Jose Golf, LLC (with no change in greens fees and other facility user fees) achieved the following as compared with Fiscal Year 2000-01:

*Increased rounds by 16.4% (from 40,000 to over 46,000)

*Increased Driving Range revenue by 120% (from $94,000 to over $200,000)

*Increased Adjusted Gross Revenues by 31% (from $613,000 to $805,000)

*Increased Net Income after Expenses (before debt service) to the City by 205%

*Operated with approximately $80,000 in Net Income after Expenses (before debt

service) to the City

*In conjunction with the San Jose Sports Authority, and through a $50,000 grant from the

United States Golf Association, instituted the Eagles Program for socio-economic disadvantaged youth and has graduated 150 from the program since it began in the Spring of 2001.

The increases between 2000-01 and 2001-02 are notable in light of a report produced by the National Golf Course Owners Association and National Golf Foundation in 2002. The report’s purpose was to measure the number of rounds being played in the United States. Results indicate that between calendar years 2000 and 2001, player rounds were down in the Southwest geographical region (of which the State of California is a part) by .8%. Further, 9-hole rounds were down 4.7%. The primary reasons identified for the decrease in rounds in this specific region were weather, September 11, 2001, and the economy.

Fiscal Year 2002-03 Trends based on Financial Information from July 2002 through January 2003

Comparing Fiscal Year 2002-03 financial information (July 2002 through January 2003) with the same period from Fiscal Year 2001-02, the observations below are offered. It should be noted that no change in greens fees occurred during this period and Los Lagos Golf Course opened to the public in April 2002:

*Rounds are down 18%

*Driving Range revenues are down 6%

*Overall Gross Revenue is down 7%

*Overall Expenses are up 5%

*Net Income after Expenses, before debt service, is down 118% (This percentage reflects

a decline in Net Income after Expenses of approximately $36,000. Of this difference, $8,000 is attributable to the payment of an incentive fee to the operator that is based on percent of gross.)

*The Eagles youth golf program at Rancho del Pueblo is benefiting from a $53,000

contribution from SBC Pacific Bell Golf Classic 2002 presented to the City of

San Jose in January 2003.