Tex’s Home-Style Steakhouse Executive summary
This is an investment opportunity to be an owner of a new restaurant to be located in a new high-rise marketplace in a major metropolitan city. The marketplace will be a multi-use retail and entertainment center with over 200 retail shops. The restaurant would be developed and owned by a limited partnership, to be formed. The general partner would be a corporation owned by Brad Lee and Lydia Lopez, who are veteran operators of restaurants and nightclubs in the United States. The general partner would have the responsibility for all development and operations of the restaurant.
The investment opportunity is available in limited partnership units of $25,000 each. Limited partners would have no financial obligation beyond the initial investment in the property. Once adequate working capital reserves have been established, 75% of the distributable cash flow will be paid quarterly to the limited partners and 25% to the general partners. Upon return of their initial contributions, the limited partners will then receive 50% of the distributable cash flow, and the general partner will receive the remainder.
Tex’s Roadhouse is an established restaurant franchise with a reputation for high-quality steaks and barbeque, making the restaurant instantly recognizable to potential customers. Projected annual sales are expected to fall between $2,200,000 and $4,200,000. Based on these sales projections, the pro-forma projection of pre-tax cash flow from this restaurant ranges from $375,000 and $680,000 annually, for a cash-on-cash return ranging from 65% to 115%.
The capital budget to construct and open this restaurant is $1,600,000 of which the general partner will procure the sum of $1,000,000 in the form of a Real Estate tenant allowance. The remaining $600,000 is required in the form of limited partner equity. The monthly rental is the greater of $15,000 or 9% of sales. In this instance, percentage rent will begin when the annual sales exceed $2,000,000.
Texas Steakhouse
Source and use of funds
Source of funds
Cash Equity $600,000
Tenant Improvement Allowance $1,000,000
Total $1,600.00
Use of funds
Leasehold Improvements $972,000
Furniture, fixture and equipment $355, 250
Pre-opening, Marketing and inventory $272, 750
Total $1,600.000
Analyze the sources and use of funds information provided. Is there enough information to answer all of the questions below? Is sufficient information is provided, please respond. If not what is missing?
How much new capital is required to execute the business plan?
Besides the money provided by equity investors, where is capital to finance the project coming from?
How much equity is the sponsor investing in the deal?
Whose money is going into the deal first?
Whose money is coming out of the deal first?
How soon will the investors receive a return on their capital, and what is the exit strategy?