Market Opportunities Analysis for Watchung Stables in Mountainside, NJ

Transcription

1 Final Report Market Opportunities Analysis for Watchung Stables in Mountainside, NJ Prepared for Union County Department of Parks and Community Renewal Union County, New Jersey Submitted by Mareth Advisors, LLC October 2012 Project No. 218 Mareth Advisors, LLC 142 North Abingdon Street Arlington, VA (571)

2 Table of Contents Limiting Conditions... 1 Introduction... 2 Executive Summary... 4 National Overview of the Equestrian/Horse Stable Market Review of Key Market Demographic and Economic Trends Review of Historic Operating Performance and Market Position Competitive/Comparable Facility Review Leasing and Third Party Management Options Stakeholder Interviews Conclusions and Recommendations Financial Analysis Appendix Table of Figures Figure 1: Horseback Riding Participation Trend Figure 2: 2011 Horseback Riding User Types Figure 3: Horseback Riding Participants by Gender and User Type Figure 4: Distribution of Participants within Age Cohort Figure 5: Participation Rate by Age Cohort Figure 6: Participation Rate by Income Bracket Figure 7: Distribution of Participants within Income Bracket Figure 8: Participation Rates by Geography Figure 9: Distribution of Participants by Geography Figure 10: Participation Rates by Rural vs. Urban Setting Figure 11: Distribution of Participants by Rural vs. Urban Setting Figure 12: Participation Rates by Currently Attained Education Level Figure 13: Distribution of Participants by Currently Attained Education Level Figure 14: 2011 Demographic Characteristics of Horseback Riders Figure 15: 2011 Demographic Characteristics of Horseback Riders (continued) Figure 16: Population Estimates Figure 17: 2010 Household Composition Figure 18: Market Age Characteristics Figure 19: Household Incomes Figure 20: Households by Income Bracket Figure 21: New Jersey Economic Cycles 1980 to Present Figure 22: Labor Force Trends Watchung Stables Market Analysis Final Report i

3 Figure 23: Employment Trends Figure 24: Unemployed Trends Figure 25: Unemployment Rate Trends Figure 26: Single Family Permits 2002 April Figure 27: Market Share of Statewide Single Family Permits Figure 28: Single Family Residential Permits Issues Figure 29: Union County Single Family Permit Activity by Town 2002 YTD 2012 (April) Figure 30: Watchung Utilization Trends Figure 31: 2011 Utilization by Residents/Non Residents Figure 32: Troop Horse Show Events per Registrant Figure 33: Union County Source Locations for Tracked Activities Figure 34: Residence Location of Tracked Users Figure 35: Non Resident Source Locations for Tracked Activities Figure 36: Horse Utilization Days by Hour Ranges and Months Figure 37: Percentage Distribution of Horse Utilization by Hour Ranges and Day of Week Figure 38: Horse Utilization by Hour Ranges and Day of Week Figure 39: Theoretical Sizing of Watchung Work Horse Herd Figure 40: Financial Performance Estimate Figure 41: Year Over Year Revenue and Expense Change Figure 42: Recent Upgrades and Capital Investment Figure 43: Labor Analysis Figure 44: Distribution of Revenue by Activity Figure 45: Activities by Type and Average Transaction Value Figure 46: Lord Stirling Income Statement YTD Figure 47: Lord Stirling Source Markets Figure 48: Lord Stirling s Somerset County Source Markets Figure 49: Union and Morris County Sources of 2011 Demand at Lord Stirling Stable Figure 50: Market Pricing Comparison Figure 51: Market Pricing Comparison (continued) Figure 52: Market Pricing Comparison (continued) Figure 53: Pricing Notes Figure 54: Revenue Assumptions Figure 55: Revenue Assumptions (continued) Figure 56: Revenue Assumptions (continued) Figure 57: Labor Expense Assumptions Figure 58: Estimated Net Income (Stabilized) Figure 59 Appendix: Building Permit Totals Figure 60 Appendix: Building Permit Market Share Figure 61 Appendix: Employment Tables Figure 62 Appendix: Watchung Horse Hour Utilization by Day of Week Figure 63 Appendix: Watchung Horse Hour Utilization by Month Figure 64 Appendix: Watchung Horse Hour Use Ranges by Frequency Watchung Stables Market Analysis Final Report ii

4 Limiting Conditions This study is based on estimates, assumptions and other information developed by Mareth Advisors, LLC (Mareth Advisors) from its independent research effort, general knowledge of the industry, and information provided by and consultations with the client and the client's representatives. No responsibility is assumed for inaccuracies in reporting by the client, the client's agent and representatives, or any other data source used in preparing or presenting this study. This report is based on information that was current as of August 2012 and Mareth Advisors has not undertaken any update of its research effort since such date. Every reasonable effort has been made to ensure that the data contained within this report are accurate as of the date of this study. However, factors outside the control of Mareth Advisors do exist and these may affect the estimates and/or projections presented herein. Because future events and circumstances, many of which are not known as of the date of this study, may affect the estimates contained therein, no warranty or representation is made by Mareth Advisors that any of the projected values or results contained in this study will actually be achieved. Further, statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan," project, or other words or expressions of similar meaning have been utilized. These statements reflect our judgment on the date they are made and we undertake no duty to update such statements in the future. In the production of this report, Mareth Advisors has served solely in the capacity of consultant and Mareth Advisors has not rendered any expert opinions and does not hold itself out as an expert (as the term expert is defined in Section 11 of the Securities Act of 1933). Possession of this study does not carry with it the right of publication thereof or to use the name of "Mareth Advisors" in any manner without first obtaining the prior written consent from Mareth Advisors. No abstracting, excerpting or summarization of this study may be made without first obtaining the prior written consent of Mareth Advisors. This report is not to be used in conjunction with any public or private offering of securities, debt, equity, or other similar purpose where it may be relied upon to any degree by any person other than the client, nor is any third party entitled to rely upon this report, without first obtaining the written consent of Mareth Advisors. This study may not be used for purposes other than that for which it is prepared or for which prior written consent has first been obtained from Mareth Advisors. This study is qualified in its entirety by, and should be considered in light of these limitations, conditions and considerations. Watchung Stables Market Analysis Final Report 1

5 Introduction The national economic recession that commenced arguably in 2007 has spared few municipal governments. Union County is no exception. Faced with significant challenges, the county is exploring cost savings opportunities and making difficult decisions to bring its budget back into line. Watchung Stables ( Watchung ), which consistently operates as a net annual expense item, is just one of many areas within the county that is under review. This study was commissioned by the Department of Parks and Community Renewal to better understand the extent to which performance challenges are management and/or market related and inform the decision making process regarding possible changes that could materially improve Watchung s results/fiscal stability. The process by which this report s conclusions and recommendations were developed included review of broader national trends in equestrian activities, interviews with key stakeholders within key user groups, evaluation of Watchung s recent utilization and financial performance data, interviews with Watchung s managers and managers of other competitor facilities within the region, evaluation of Watchung s relative pricing and utilization levels, and investigation of expense profiles with the area s comparable and/or competitive facilities. Overview of Facility Union County s Watchung Stables has operated as a public facility since Its mission, broadly stated, is to teach and enhance equestrian skills and provide opportunities for people to enjoy the 26 miles of bridle paths within Watchung Reservation. The facility was moved to its current location in the early 1980s when the development of I 78 caused the property to become isolated within Watchung Reservation. Today s site, which formerly housed a Nike Missile installation, was developed in two distinct phases. The first phase included the construction of the administration building, main barn, and the main ring. The second phase in the late 1980s completed most of what is currently at the facility, with the exception of a few paddocks and other minor additions that have occurred over the years. Plans were developed for a third phase, which would include an indoor riding arena, completion of the snack bar and the addition of more paddocks was noted, but this phase has not yet been implemented. Today, Watchung s complex consists of a 100 horse main barn, which currently houses approximately 54 county owned work horses and 28 privately owned boarders, four riding rings, a show ring, an outside hunter course, and an 8 stall isolation barn. The administration building includes a reception area, general purpose room, small tack shop, management offices, and an apartment above that is currently occupied by the stable manager as part of her compensation. Investment in Watchung is an ongoing process. Capital and other maintenance projects, described in greater detail within the Review of Historic Operations section, totaled over $684,000 over the past four Watchung Stables Market Analysis Final Report 2

6 years. Future projects include a $900,000 cost to replace the four outdoor rings and an estimated $400,000 to replace paddocks. Watchung is widely recognized for its Troop Program ( Troop ), a group riding lesson program. Since its inception in 1935, estimates are that 40,000+ riders have passed through this program, providing an affordable opportunity to learn and improve basic riding techniques. Watchung s Troop participants seeking to increase their proficiency are a key source of lesson demand for not only Watchung s own offerings, but also a host of smaller show barns within the area that provide more advanced teaching and/or greater exposure to show competitions. Public recreation is at Watchung s core; the facility offers a host of other activities that includes horse shows, barn tours, birthday parties, Scouting badges, adult riding programs, trail rides, a Date Night program, and community service fulfillment. Three organizations operate within Watchung, providing a social framework for riders to interact and an active interface with management. Watchung Auxillary The PTA of Watchung that includes mostly parents of Troop participants. The Auxillary includes Show Horses of Watchung (SHOW), a sub organization that supports retired horses at Watchung Watchung Riders and Drivers Club An organization of adult riders Watchung Jr. Hunt Club The organization for youth riders Leaders of these organizations were interviewed and those discussions are more fully described in the stakeholder interview section of this report. Watchung Stables Market Analysis Final Report 3

7 Executive Summary This report includes a detailed analysis to support the decision making process regarding the future operation of Watchung. A summary of key areas of analysis and resulting options for consideration is included below. The Industry The Sporting Goods Manufacturing Association s 2011 survey identified a horseback riding population of 9.33 million people within the United States The steady decline from 12.1 million riders in 2007 indicates a total loss of nearly 2.8 million participants for an average of 552,000 fewer riders each year over the past five years Horseback riders are predominantly casual users (12 times or less per year), women (64%), and demonstrate the highest participation rates for those in the 6 to 12 year age cohort The characteristics of the frequent participant (25 or more times per year) are women (75% of riders), teenagers (1.2% participation is double any other age cohort), and households with incomes over $50,000 per year Market Demographics Projections for Union County s 2016 population and households are for a flat to slightly downward change The lack of population and household growth suggests that improved demand capture for horseback riding, or any fee based recreation activity for that matter, must primarily occur through better capture of existing market share (rather than an expanding market) A projected decline in Union County s teenage population a key age cohort for the horseback riding industry over the next five years only heightens necessity of capturing a greater market share to grow demand Union County s household income distribution will remain consistent with that of the State of New Jersey suggesting that relative affluence levels will not change within the foreseeable future Economic Trends Overall economic conditions are beginning to show signs of slow improvement and the thus we should begin to see a decrease in the drag on more expensive discretionary activities like horseback riding This simultaneous movement of the growing numbers of employed and the increasing size of the labor market, despite the higher unemployment rates this causes, is seen as a welcome indicator of improving economic conditions Single family home permit activity, while modest, is occurring in locations that are proximate to Watchung; Westfield and Scotch Plains have averaged the greatest number of new homes per year over the past 10 and are also within the top 5 source locations for Watchung demand Watchung Stables Market Analysis Final Report 4

8 Watchung Operating History Utilization is currently tracked for 41 different activities using Rec Trac recreation management software The largest activities, in terms of total participation, are the facility s birthday parties/room rentals Use of Watchung s facilities is predominantly by Union County residents o In 2011, total use by non residents equated to 3.0 percent all transactions o For those activities that are more closely tracked, the percentage of non resident use equates to 14 percent The towns/boroughs of Cranford, Mountainside (location of Watchung), Scotch Plains, Summit, and Westfield, which are also proximate to Watchung, account for 62 percent of tracked activity More distant locations to the south and east generate only limited demand for the facility, underscoring the distance decay relationship for demand In 2011 a total of 3,180 people attended birthday or other parties at the stables during the 159 events (20 person average) held in 2011 and accounted for about one third of the total activity o This total is well below 2009 and 2010 when 306 and 351 birthday events were held hosting 6,120 and 7,020 people, respectively o The downward birthday party trend is attributed to a short term price increase that was rolled back when demand was disproportionately impacted Horse show participants are the facility s second largest activity in terms of total use, while horse rentals, lessons, Troop, trail rides, and camp are other significant activities o Based on review of the Fall & Spring Troop Show guides, between 213 and 221 participants were preregistered for 602 classes for an average of 2.7 classes (entries) per participant o Examination of the individual names of participants in the Fall & Spring Troop Show revealed that 82 participants (just under one third) who entered in the Fall Show (218 participants) did not enter the Spring Show (209 participants) and 74 who entered the Spring did not participate in the Fall o Comparing the 135 names listed in both the Fall and Spring Shows, 40 entered more events, 25 entered fewer, and 70 entered into the same number; while this analysis may suggest a possible positive trends in Troop Show participation, it importantly provides some understanding of the size of Watchung s core user market, and the names themselves (175 likely female gender, 8 likely male gender) highlight the split between female and male participation Horse rentals increased from 478 transactions in 2009 to 1,212 in 2011 Lessons increased nearly eight fold, from 96 in 2009 to 754 in 2011 Across the entire year, the mean or average daily horse activity totals 55 hours with a median of 20 hours o Slightly more than 50 percent of days total less than 20 hours horse activity Watchung Stables Market Analysis Final Report 5

9 o o o Watchung currently has seven days of activity above the 200 horse hour threshold, five of which are the two Troop Horse Shows (May & October), the Junior Hunt Club Show (June), the Summer Show (July), and the Camp Show (August) More typical active days at the stables total between 160 and 200 hours of work horse activity From a theoretical probability perspective, to achieve a 95 percent certainty of being able to accommodate the facility s reported level of demand (within two standard deviations of the mean), the facility would need to plan around 186 horse hours of peak activity Watchung s Recent Financial Performance The financial data presented within this report, while excluding some minor expenses for maintenance provided from other county departments, presents a sufficiently accurate overview of recent performance levels and trends to make higher level decisions regarding Watchung Stables Over the past three calendar years, the net cost to operate the stables ranged roughly between $500,000 and $700,000 per year o For every dollar the facility brings in, Union County spends that plus just over another dollar more While the recent revenue trend is positive and increasing, expense increases are slightly exceeding that pace Mareth Advisors attributes these higher costs to a couple of primary factors: the wage scale associated with operation s full time employees, and the labor intensive nature of the business itself o Labor costs totaled between $554,000 and $574,000 per year over the past three, equating to between 125 percent and 150 percent of total revenue o Average unburdened hourly cost per regular hour of work per full time employee totaled $23.04 in 2011 o Private show barns reviewed for this study report a wage of approximately $15 per hour for better full time barn workers Ongoing investment at Watchung is continual with over $640,000 expended on facility improvements over the past four years; these costs are exclusive of several in house projects completed by staff and pro bono labor and materials provided by the facility s support organizations Future capital projects include the repair/replacement of the facility s remaining four rings at a cost of $900,000 and another $400,000 to repair/replace paddocks Mareth Advisors would recommend the county explore if a change to Rec Trac is possible that would allow the system to treat prepayment of future activities as deposits (cash accrual) and then recognizes the date when the service is consumed to provide a more accurate understanding of daily activity and serve as a more useful management tool Watchung Stables Market Analysis Final Report 6

10 Better and sufficiently detailed customer data and record keeping should be demanded to ensure that plans and actual operating results are more easily measured against budgets and other goals Key Stakeholder Interviews Watchung s support organizations all share a clear emotional bond with Watchung and a sincere desire for the best to occur Engaging with these key groups, and communicating about how Watchung must address market realities and financial limitations in order to remain viable, is a critical element of building support for any changes to come Competitive/Comparable Facility Review Review of the market s competitive offerings revealed a couple of significant points: privately held barns operate with a substantially different business model, with a stronger focus on lessons, shows, and boarding Lord Stirling, the area s other public recreation barn, offers a similarly diverse array of activities and operates a loss level not dissimilar to Watchung s Lord Stirling s market and financial position highlight similar issues encountered by Watchung: challenges drawing demand from afar, the high fixed cost nature of operating a recreation barn, labor intensiveness of the operation, and the challenges of having a live animal as the means for the service o Generates revenue of $650,00 and $693,00 per year o Total expenses of $1.2 to $1.3 million per year (labor cost 100% of revenue) o Annual deficit/cost ranging from $563,000 to $645,000 per year Show barn operators have struggled over the past couple of years with some reporting negative financial results Watchung s pricing is generally consistent with Lord Stirling s with the exception of boarding fees Boarding fees at Watchung are approximately $300 less than Lord Stirling and nearly $500 less than the area barns reviewed Staffing levels are difficult to compare given how smaller barns more regularly use trade outs, varying ways at which instructors are retained (PT, FT or Independent Contractor), and the varying skills that are demanded by the different business models; no standard could be derived for the market o For example, Lord Stirling, the most comparable of the facilities evaluated, maintains a reported staff of 16 full time year round personnel, 3 FTEs of part time barn workers (16 to 25 people), 12 part time instructors that average two hours of work per day (~4.2 FTEs), 2 part time weekend administrative assistants, and 15 to 20 volunteers that help keep the facility clean Watchung Stables Market Analysis Final Report 7

11 Conclusions and Recommendations Watchung Stables in its current format will likely continue to experience negative financial results going forward. Can its financial position improve? We believe the answer is unequivocally yes. County leaders will be faced with a difficult decision regarding the future of Watchung; the options and a synopsis of their potential outcomes are as follows: o Option 1 Status Quo Business Plan Operations do not fundamentally change Management is tasked with improving overall performance Require management to develop a comprehensive business (and staffing) plan Realistic expectation is that the losses are narrowed, but do not go away completely Set a two to three year period for improvement to occur and move onto another Option if results are not achieved o Option 2 Demand Profitability Plan Plan focuses on the fiscal issues Management is tasked with reorganizing the stables to achieve a minimum break even proposition Business model probably will evolve to something that more closely resembles a show barn with a more streamlined business model that focuses on private lessons, boarding, shows, and summer camps Some of the activities and character that are its legacy and make Watchung what it is today are likely at risk o Option 3 Third Party Lease Plan Essentially Option 2, but a third party manager assumes the operating risk Absent any specific language dictating otherwise, a third party operator will gravitate toward a business model that is more similar to show barns (Option 2) than recreation barns Demand that a third party maintain the current business concept will likely result in a limited interest response, as was encountered by Bergen County Based on the types of respondents Bergen County received, there is little indication that a national player will respond Expect a mix of local operators with varying degrees of expertise None is necessarily more capable than current management May also provide an opportunity for the development of an indoor ring, if the lease horizon is sufficiently long for the lessee to recover their investment Challenging and ultimately may not bring about changes that are broadly seen as a win win for the county and the current users of the facility o Option 4 Close facility Plan Mareth Advisors does not believe it should necessarily be outside the realm of considered possibilities Watchung Stables Market Analysis Final Report 8

12 Financial Analysis Eliminates the financial woes and the challenges and expenses of finding a thirdparty Drastic and politically the most challenging Eliminating this feeder market source will almost certainly have a ripple effect through the broader equestrian economy The two financial scenarios evaluated by Mareth Advisors included the third party lease (Option 3) and the continued operation as a county run facility (Option 1). In addition to the points outlined on the previous page, leasing considerations include: Leasing represents a substantial potential financial windfall to the county, as it eliminates the current operating losses and associated risk. Deals in the market are relatively consistent, ranging between $8,000 and $12,271 (latter is Bergen) per month equating to annual values between $96,000 and $147,000, exclusive of capital improvement requirements. Realized value will be predicated on a number of factors including: term, capital investment requirements, operational concessions, demanded resident discounts, minimum operating requirements (hours, etc.), and other conditions placed upon the prospective lessor. Leasing will result in a loss of control and expectations that status quo will remain intact are uncertain at best It may be difficult to find a quality operator, if Bergen County s experience is representative. While the above challenges are likely already well understood, given Union County s previous evaluation of this option, these challenges should continue to be reviewed as Union County goes through this decision making process. Evaluation of the financial potential as a continued county run recreational facility examined the financial improvement potential resulting from the changes to several key revenue and expense items to better match market conditions. These items provide an outline to direct management s efforts to improve financial performance. Increase facility revenue o Shift barn occupancy from 28 to 40 rental stalls; maintain current work horse herd at approximately 55 horses o Adjust monthly boarding fees from the current $460 per month to $600 per month, maintaining below market pricing; generates a revenue windfall of $92,000 o Eliminate turnout fee structure and include within monthly boarding fee o Focus on regaining lost birthday party market share to 250 events per year (below historic levels); would generate $35,000 of additional revenue Watchung Stables Market Analysis Final Report 9

13 Estimated improvements resulting from these and other minor improvements equates to$133,000 per year. Reduce labor costs o Target average full time hourly wage rates $19.00 per hour (below current $23.04 per hour, but roughly $4 above market labor rate for reported good full time barn staff) o Increase barn full time equivalent (FTE) staff from 7.0 to 8.0 jobs o Target reduction of full time labor burden cost from 37 to 32 percent o Target average part time wage at $10.00 per hour, slightly below current level o Add an office manager position at $35,000 per year ($17/hr.) Estimated labor expense reductions total more than $100,000 per year. Inclusive of a $10,000 marketing budget and increased supplies associated with additional 12 boarding horses, overall expense savings are estimated at approximately $70,000 per year Net financial performance is estimated to improve slightly more than $200,000 per year, reducing the annual net cost to operate Watchung by roughly one third. Watchung Stables Market Analysis Final Report 10

14 National Overview of the Equestrian/Horse Stable Market The Sporting Goods Manufacturing Association (SGMA) conducts annual surveys of sports participation. In 2012 SGMA evaluated 2011 participation in 118 individual sports, including horseback riding. According to SGMA, a total of 38,172 online interviews were completed by a nationwide sample of both individuals (N=15,113) and households (N=23,059) at the beginning of SGMA further noted that the 2011 survey sample size provides a high degree of statistical accuracy. However, as with any survey, some level of standard error is inherent. Notwithstanding the possible statistical variances, the data collected by SGMA presents a fairly clear picture of the current trends in horseback riding participation at the national level. Importantly, the data also provides insight into the trends at both Watchung and those reported by local owners and managers of stables that are described within this report. Participants and Participation Rates According to SGMA, there were 9.33 million people age six and over that participated in horseback riding activities in The number of participants has been in a steady decline over the past five years. According to SGMA, 12.1 million people over the age of 6 participated in the sport at least once in The 2011 total represents an absolute decline of nearly 2.8 million participants. Just over six percent or 552,000 of the participants left the sport annually during this time frame. Set against a population that is increasing by just under one percent per year, the horseback riding participation rate continues to slide, decreasing from 4.4 percent of the population 6 and over in 2007 to 3.3 just percent in Figure 1: Horseback Riding Participation Trend C.A.G.R. All Participants (000 s) 12,098 11,457 10,286 9,782 9, % Population 6+ (000 s) 276, , , , , % Participation Rate 4.4% 4.1% 3.7% 3.4% 3.3% C.A.G.R. = Compound annual growth rate Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding Watchung Stables Market Analysis Final Report 11

15 Demographic Qualities of Horseback Riders According to the SGMA data, horseback riders are predominantly casual users that ride 12 times or less per year. This group totals 6.8 million people that account for 73 percent of all participants. Regular users (12 to 24 times per year) total 685,000 people account for another seven percent of users, while frequent users (25+ times per year) total 1.84 million people and comprise the remaining 20 percent of the market. Presented in the following text are the relationships between key demographic variables, participation rates in horseback riding, and the distribution of users within the casual, regular, and frequent user categories. Figure 2: 2011 Horseback Riding User Types Source: : Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Gender Horseback riding is predominantly a female sport. Accordingg to the SGMA study, female riders account for 64 percent of all participants and generate a participationn rate of 4.1 percent vs. 2.4 percent for male riders. The dominance of female participation becomes even stronger as riding frequency increases. Female riders comprise 60.7 percent of the casual users, 71 percent of the regularr users, and 75 percent of the frequent users. Figure 3: Horseback Riding Participants by Gender and User Type Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 12

16 Age Horseback riding, like many active pursuits, declines with adult age. The 1.8 million children between the ages of 6 and 12 comprise roughly 20 percent of the national market. They are predominantly casual riders (83%), and generate a participation rate equal too 5.4 percentt of the national population in this age cohort. By the time riders reach the 13 to 17 age cohort, there is a clear shift from casual and regular use to frequent use. While the market is smaller at 1.01 million teens, the percentage of teens that ride horses casually decreases to 71 percent of the users. Just four percent are regular users and 25 percent become frequent users. This suggests a cycle where childrenn are introduced to the sport and then most discontinue. For those that remain, there s a clear increase inn frequency of use during the teen years. By collegee age (18 to 24), many of the frequent users shift back into a regular pattern. The percentage of frequent riders in this age group decreases by ten percentage points to 15 percent of the total, while regular users comprise 13 percent or nine percentage points higher than the 13 to 17 year olds. We surmise that this pattern reflects the post high school time requirements that may include college or work and the financial demands that coincide with these life changes. Figure 4: Distribution of Participants within Age Cohort Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 This shift is also reflected in the participation rate of frequentt users that iss 1.2 percent among the 13 to 17 year olds and then decreases to 0.6 percent for the 18 to 24 year olds. The corresponding increase in regularr user participation rates in the 18 to 24 year olds mirrors the participant type breakdown. Frequent users age 25 through the age of 54 reflect a consistent pattern of low participation rates that slowly increase with age. Casual use participation rates steadily decreases across all age cohorts while regular use rates hold steady, but at a level that is less than half of the frequent user rate. This pattern suggests that those participants who stick with the sport are also more likely to be dedicated, frequent riders. Watchung Stables Market Analysis Final Report 13

17 Figure 5: Participation Rate by Age Cohort Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Income Households with incomes of $100,000 or higher are much more likely to be include casual horseback riders, participating at three times the rate of those earning less than $25,,000. Participation within the regular category is not correlated to income. Frequent riders, however, are and demonstrate a generally increasing rate of participation with income, with the exception of households earning between $75,000 and $100,000. The pattern between low and high income household participation rates in the frequent category is similar to the pattern for casual users, but less volatile. Figure 6: Participation Rate by Income Bracket Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Examining the breakdown of each income bracket by user type, household income is only a minor determinant on what type of user the rider is likely to be. Casual riders consistently comprise between Watchung Stables Market Analysis Final Report 14

18 70 and 80 percent of users across all income levels. Regular users consistently comprise 10 percent or less while frequent users between 16 and 21 percent. Figure 7: Distribution of Participants within Income Bracket Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Location New Jersey is includedd in SGMA s survey as a Middle Atlantic state, a designation that also includes New York and Pennsylvania. The overall horseback riding participation rate for this region totals 3.1 percent, which is slightly below the national average of 3.2 percent. The area s casual participation rate of 2.6 percent is slightly above the national level of 2. 4 percent. The Middle Atlantic s participation rate for regular use is 0.2 percent, equal to that of the nation. The area s frequent user participation rate is 0.4 percent, slightly below national rate of 0.6 percent. Figure 8: Participation Rates by Geography Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 15

19 The distribution of riders by geography indicates that those residing in the subject Middle Atlantic area are slightly more likely to be categorized as casual, participating 12 times or less per year. Frequent riders in the Middle Atlantic comprise 11 percent of riders in the region, a percentage that is roughly half of the national distribution at 20 percent. Figure 9: Distribution of Participants by Geography Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Rural vs. Urban Place of residence dataa indicates expectedly that residents inn dense urban areas, where land is likely at a higher premium, do participate at lower rates than residents in non MSA locations. This is generally true across all rider categories. Figure 10: Participation Rates by Rural vs. Urban Setting Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 16

20 Horseback riders in the largest MSAs are more likely to be casual riders, totaling 75 percent of participants in those locations. Rural riders are most likely too be frequentt riders, with 25 percent categorized as frequent users. This compares to 18 percent of riders in the largest MSAs. Notwithstanding this characteristic, the overall size of the market in the largest MSAs cannot be understated. These riders total 2.5 million people and account for 37 percent of the U.S. market. Figure 11: Distribution of Participants by Rural vs. Urban Setting Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Education Level of Users The attained (not final) education levels of riders generally reflect a combination of the age and income characteristics of the national market. Notwithstanding the small number of those with other levels of education, the highest participation rates are exhibited by those in highh school (age relationship) and those with post graduate degrees (income relationship). Figure 12: Participation Rates by Currently Attained Education Level Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 17

21 The distribution of riders within each education grouping demonstrates a similar pattern, with pre higpeople. This school students comprising the largest group of participants in the sport at 1.7 million equates to 82 percent of the users with this level of attained education. Regular riders represent less than 10 percent of the riders in each of the education levels. Those users with a currently reported high school level of education demonstrate the highest percentage of frequentt users, with 25 percent riding more than 24 times per year. Figure 13: Distribution of Participants by Currently Attained Education Level Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 The preceding charted data is presented in a tabular format on the following two pages. Watchung Stables Market Analysis Final Report 18

22 Figure 14: 2011 Demographic Characteristics of Horseback Riders Number (000s) % Within Category Segment % Participation Rate by Group Casual Regular Frequent All Casual Regular Frequent All Casual Regular Frequent All Casual Regular Frequent All Participants 6, ,837 9,335 73% 7% 20% 100% 73% 7% 20% 100% 2.4% 0.2% 0.6% 3.3% Gender Male 2, ,356 80% 6% 14% 100% 39.3% 29.0% 24.8% 36.0% 1.9% 0.1% 0.3% 2.4% Female 4, ,381 5,979 69% 8% 23% 100% 60.7% 71.0% 75.2% 64.0% 2.8% 0.3% 0.9% 4.1% Age , ,810 83% 6% 10% 100% 22.2% 15.6% 9.5% 19.4% 5.4% 0.4% 0.6% 6.5% ,083 71% 4% 25% 100% 11.2% 7.1% 14.5% 11.6% 3.4% 0.2% 1.2% 4.8% ,106 73% 13% 15% 100% 11.8% 21.5% 8.8% 11.8% 2.8% 0.5% 0.6% 3.8% , ,390 78% 6% 15% 100% 15.9% 12.4% 11.7% 14.9% 2.6% 0.2% 0.5% 3.3% ,331 72% 8% 20% 100% 14.1% 15.7% 14.3% 14.3% 2.3% 0.3% 0.6% 3.1% ,467 68% 8% 24% 100% 14.7% 17.0% 19.4% 15.7% 2.1% 0.2% 0.8% 3.1% % 6% 30% 100% 7.5% 6.4% 12.9% 8.4% 1.5% 0.1% 0.7% 2.3% % 8% 45% 100% 2.6% 4.2% 8.8% 3.9% 0.4% 0.1% 0.4% 0.9% Household Income < $25K % 10% 20% 100% 10.2% 14.8% 10.9% 10.6% 1.4% 0.2% 0.4% 2.0% $25K to $50K 1, ,996 70% 10% 21% 100% 20.4% 29.4% 22.6% 21.4% 2.1% 0.3% 0.6% 3.0% $50K to $75K 1, ,935 71% 8% 21% 100% 20.2% 21.4% 22.5% 20.7% 2.4% 0.3% 0.7% 3.4% $75K to $100K ,242 79% 4% 16% 100% 14.5% 7.8% 10.5% 13.3% 2.4% 0.1% 0.5% 3.1% $100K+ 2, ,170 75% 6% 19% 100% 34.7% 26.6% 33.4% 34.0% 3.2% 0.2% 0.8% 4.3% Frequency for groupings: All = 1+/year, Cas ual = 1 12/year, Regular = 13 24/yr, Frequent = 25+/year Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 19

23 Figure 15: 2011 Demographic Characteristics of Horseback Riders (continued) Number (000s) % Within Category Segment % Participation Rate by Group Casual Regular Frequent All Casual Regular Frequent All Casual Regular Frequent All Casual Regular Frequent All Geography New England % 7% 12% 100% 4.6% 3.9% 2.5% 4.2% 2.3% 0.2% 0.3% 2.8% Middle Atlantic 1, ,242 82% 6% 11% 100% 14.9% 10.8% 7.6% 13.3% 2.6% 0.2% 0.4% 3.2% East North Central 1, ,578 79% 8% 12% 100% 18.3% 18.8% 10.7% 16.9% 2.8% 0.3% 0.4% 3.6% West North Central % 12% 27% 100% 7.0% 13.9% 11.0% 8.2% 2.5% 0.5% 1.1% 4.0% South Atlantic 1, ,698 68% 8% 25% 100% 16.8% 19.7% 23.1% 18.2% 2.1% 0.2% 0.8% 3.0% East South Central % 8% 25% 100% 5.6% 6.8% 7.8% 6.1% 2.2% 0.3% 0.8% 3.3% West South Central ,046 73% 4% 23% 100% 11.2% 5.4% 13.1% 11.2% 2.4% 0.1% 0.7% 3.2% Mountain % 4% 21% 100% 8.3% 3.9% 8.8% 8.1% 2.8% 0.1% 0.8% 3.7% Pacific ,293 70% 9% 22% 100% 13.2% 16.8% 15.5% 13.8% 2.0% 0.3% 0.6% 2.9% Urban vs. Non Urban Non MSA 1, ,690 66% 8% 26% 100% 16.6% 20.0% 23.6% 18.1% 2.6% 0.3% 1.0% 3.8% MSA <500,000 1, ,947 73% 7% 19% 100% 21.0% 20.6% 20.5% 20.9% 2.6% 0.3% 0.7% 3.6% MSA 500,000 2,000,000 1, ,312 74% 8% 18% 100% 25.1% 27.1% 22.7% 24.8% 2.4% 0.3% 0.6% 3.3% MSA 2,000,000+ 2, ,387 75% 7% 18% 100% 37.4% 32.3% 33.3% 36.3% 2.2% 0.2% 0.5% 2.9% Educational Level 8th Grade or Less 1, ,087 82% 5% 12% 100% 25.0% 15.8% 14.0% 22.4% 4.7% 0.3% 0.7% 5.8% 1 3 years of High School % 8% 26% 100% 8.0% 9.7% 11.6% 8.8% 2.8% 0.3% 1.1% 4.1% High School Grad % 6% 23% 100% 10.2% 8.4% 12.4% 10.5% 1.3% 0.1% 0.4% 1.9% 1 3 years of College 1, ,831 67% 9% 24% 100% 18.2% 23.7% 23.9% 19.6% 1.8% 0.2% 0.6% 2.6% College Grad 1, ,188 71% 8% 21% 100% 22.8% 26.7% 25.0% 23.4% 2.3% 0.3% 0.7% 3.2% Post Grad Studies ,332 74% 8% 18% 100% 14.5% 15.8% 12.8% 14.3% 2.7% 0.3% 0.6% 3.6% Other % 0% 7% 100% 1.3% 0.0% 0.3% 1.0% 6.8% 0.0% 0.5% 7.5% Middle Atlantic Region includes NJ, NY, & PA Frequency for groupings: All = 1+/year, Cas ual = 1 12/year, Regular = 13 24/yr, Frequent = 25+/year Source: Sporting Goods Manufacturing Association's, 2012 Single Sport Participation Report Horseback Riding, and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 20

24 Review of Key Market Demographic and Economic Trends As noted in the overview of participation, several demographic variables underpin demand for horseback riding and their related activities. This section of the report reviews those variables within the context of Union County, and outlines Mareth Advisors insights into future demand pressures for Watchung Stables based on those variables/trends. Demographic benchmark comparisons are provided for the contiguous counties of Essex, Middlesex, Somerset, and Morris as well as the State of New Jersey and the United States. As detailed in the Review of Historic Operating Performance and Market Position, only limited demand at Watchung arises from outside of Union County. Population Estimates for 2011 indicate that Union County s population totals 536,279 residents. The population is projected to increase roughly 3,000 people by 2016, indicating a population growth rate of just 0.13 percent per year. This rate of change is about one half of that recorded between 2000 and 2010, when the county s population increased at a rate of 0.26 percent per year. Despite the low growth rate, Union County is not the slowest growing county in the area. Essex County experienced an overall population decline in the last decade. Projections through 2016 indicate that Essex County s population will decrease by another two hundred people. The most rapidly increasing population within the area is forecast for Somerset County, at 0.65 percent annually. This again is lower than the 0.84 percent that occurred in the previous decade. This pattern of slower growth over the next five years is consistent not only for the contiguous counties under study, but for the state and nation as well. Union County contains 188,040 households. Just under three quarters (72 percent) of all households are family households. This percentage is highest in the region and six percentage points above the national average. The number of Union County households, and family households within that group, is projected to remain static through This is slightly anomalistic within the area, where other nearby counties are expected to experience small, but positive, household and family household formation rates. Somerset County will experience the fastest annual rates for family and household formation through 2016 at 0.48 percent and 0.44 percent, respectively. These household formation rates are roughly three times the rate for New Jersey (0.14%), but still lag the projected national rate of 0.51 percent Union County s population and household changes highlight the maturity of the county within development cycles. The smaller projected increases in population combined with static to slightly decreasing numbers of family households are not positive indicators that organic market growth will solve any lagging demand issues. This trend suggests that any improved demand capture for horseback riding, or any activity for that matter, must primarily occur through better capture of market share. Watchung Stables Market Analysis Final Report 21

25 Figure 16: Population Estimates Essex Middlesex Somerset Union Morris NJ USA 2011 Total Population 785, , , , ,572 8,806, ,704, Population in Households 761, , , , ,706 8,620, ,716, Population in Families 623, , , , ,396 7,193, ,035, Population in Group Qrtrs 23,772 23,835 3,970 6,804 8, ,876 7,987, Total Population 785, , , , ,983 8,939, ,315, Population in Households 761, , , , ,117 8,752, ,327, Population in Families 621, , , , ,390 7,281, ,228, Pop. Growth Rate 0.12% 0.77% 0.84% 0.26% 0.46% 0.44% 0.93% Pop. Growth Rate 0.13% 0.26% 0.44% 0.03% 0.21% 0.14% 0.51% Pop. Growth Rate 0.00% 0.49% 0.65% 0.13% 0.34% 0.30% 0.67% 2011 Total Households 284, , , , ,018 3,220, ,457, Family Households 189, ,741 85, , ,632 2,231,231 78,084, Family Household % 67% 72% 72% 72% 72% 69% 66% 2011 Average Household Size Average Family Size Family Growth Rate 0.17% 0.31% 0.48% 0.05% 0.24% HH Growth Rate 0.13% 0.27% 0.44% 0.03% 0.21% 0.14% 0.51% Source: ESRI and Mareth Advisors, 2012 Household Composition According to the 2010 Census, household composition within Union County is 72 percent family and 28 percent non family. This distribution is consistent with Somerset and Morris Counties, three percentage points higher than the State of New Jersey, and six points higher than the U.S. Married couples comprise 70 percent of the family households in Union County, a percentage that is slightly below the state wide and national averages and well below the 82 to 83 percent within Somerset and Morris Counties, respectively. A total of 71,955 households within Union County include children 6 to 17 years of age, equating to 38 percent of all households. Just over one quarter of Union County s households include children between these ages, an average percentage within the studied geographies. Notably, women are three times more likely to lead single parent households. Watchung Stables Market Analysis Final Report 22

26 Figure 17: 2010 Household Composition Essex Middlesex Somerset Union Morris NJ USA Family Households (HHs) 189, ,954 84, , ,242 2,226,606 77,538,296 Nonfamily HHs 94,373 78,232 33,143 53,444 51, ,754 39,177,996 Total Households 283, , , , ,534 3,214, ,716,292 Family Households 67% 72% 72% 72% 72% 69% 66% Nonfamily HHs 33% 28% 28% 28% 28% 31% 34% Total HHs 100% 100% 100% 100% 100% 100% 100% Family Households Husband Wife 113, ,214 69,211 94, ,662 1,643,377 56,510,377 Male Head 17,206 12,638 4,255 11,020 6, ,134 5,777,570 Female Head 58,460 33,102 11,150 29,329 15, ,095 15,250,349 Total Family HHs 189, ,954 84, , ,242 2,226,606 77,538,296 Family Households Husband Wife 60% 77% 82% 70% 83% 74% 73% Male Head 9% 6% 5% 8% 5% 7% 7% Female Head 31% 16% 13% 22% 12% 19% 20% Total Family HHs 100% 100% 100% 100% 100% 100% 100% HHs w/ Children 6 17 Husband Wife Family 59,246 79,799 36,057 48,561 53, ,305 25,348,130 Male Head Family 8,743 6,003 2,061 5,616 3,063 76,930 3,321,357 Female Head Family 38,009 18,502 6,344 17,363 8, ,360 9,946,101 Non Family , ,631 Total w/ Children 106, ,834 44,677 71,955 64,536 1,126,325 38,996,219 HHs w/ Child 6 17 Husband Wife Family 21% 28% 31% 26% 29% 25% 22% Male Head Family 3% 2% 2% 3% 2% 2% 3% Female Head Family 13% 7% 5% 9% 4% 8% 9% Non Family 0% 0% 0% 0% 0% 0% 0% Total w/ Children % 37% 38% 38% 36% 35% 33% Source: 2010 Census via ESRI and Mareth Advisors, 2012 Age Union County s population is most heavily concentrated in the 35 to 44 and 45 to 54 age cohorts, a pattern that is consistent regionally and also with New Jersey and one that highlights the broader national trend of an aging U.S. population. Within the key horseback riding age cohorts of 6 to 12 and 13 to 17, Union County s population is distributed at levels that are generally consistent for the region, New Jersey and national population age distributions. Looking forward, 2016 projections for Union County decreasing population within the key horseback riding ages between 6 and 17 are consistent with regional and national trends. Despite the projected overall population increase, the number of children between these ages will decrease by roughly 3,200. Watchung Stables Market Analysis Final Report 23

27 The decrease of roughly 9,500 people in the age cohorts between 35 and 54 likely corresponds to the people that are parents of this group. As a percentage of the total, Union County s population will increase in the 0 to 5, 25 to 34, and older than 55 age cohorts. All other age groups will comprise a smaller percentage of the county s total. Watchung Stables Market Analysis Final Report 24

28 Figure 18: Market Age Characteristics Total Population Population Age Distribution 2011 Essex Middlesex Somerset Union Morris NJ USA 2011 Essex Middlesex Somerset Union Morris NJ USA ,881 59,661 23,581 42,447 33, ,852 24,123, % 7.3% 7.3% 7.9% 6.8% 7.3% 7.8% ,190 71,792 32,583 50,604 47, ,082 28,782, % 8.8% 10.0% 9.4% 9.7% 9.1% 9.3% ,315 55,132 22,542 36,190 33, ,099 21,529, % 6.8% 6.9% 6.7% 6.8% 6.7% 6.9% ,935 81,479 23,292 47,045 37, ,191 30,605, % 10.0% 7.2% 8.8% 7.5% 8.9% 9.9% , ,374 36,783 69,533 52,129 1,115,919 41,479, % 13.8% 11.3% 13.0% 10.6% 12.7% 13.4% , ,212 48,851 77,936 71,931 1,232,935 41,081, % 14.4% 15.0% 14.5% 14.6% 14.0% 13.2% , ,366 57,386 82,730 84,913 1,370,465 44,920, % 14.9% 17.6% 15.4% 17.2% 15.6% 14.5% ,734 92,457 39,461 61,223 63,165 1,060,604 37,146, % 11.4% 12.1% 11.4% 12.8% 12.0% 12.0% , ,033 40,743 68,571 69,211 1,202,825 41,035, % 12.4% 12.5% 12.8% 14.0% 13.7% 13.2% Total 785, , , , ,572 8,806, ,704,322 Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 2016 Essex Middlesex Somerset Union Morris NJ USA 2016 Essex Middlesex Somerset Union Morris NJ USA ,284 61,519 24,549 42,983 34, ,377 25,075, % 7.4% 7.3% 8.0% 6.8% 7.4% 7.8% ,909 73,294 33,597 50,733 48, ,614 29,604, % 8.8% 10.0% 9.4% 9.6% 9.1% 9.2% ,196 54,301 22,442 34,975 32, ,272 21,329, % 6.5% 6.7% 6.5% 6.6% 6.4% 6.6% ,645 79,834 22,926 45,145 35, ,539 30,141, % 9.6% 6.8% 8.4% 7.2% 8.5% 9.4% , ,556 38,896 71,456 54,090 1,153,828 43,652, % 14.1% 11.6% 13.2% 10.8% 12.9% 13.6% , ,389 48,396 75,231 69,877 1,197,990 40,694, % 13.9% 14.4% 13.9% 13.9% 13.4% 12.7% , ,464 54,125 75,920 78,644 1,266,777 42,249, % 13.6% 16.1% 14.1% 15.7% 14.2% 13.1% , ,929 43,500 65,650 68,392 1,144,913 40,780, % 12.1% 12.9% 12.2% 13.6% 12.8% 12.7% , ,502 47,487 77,553 79,339 1,372,978 47,785, % 14.0% 14.1% 14.4% 15.8% 15.4% 14.9% Total 785, , , , ,983 8,939, ,315,318 Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Abs. Chg. Essex Middlesex Somerset Union Morris NJ USA Change Essex Middlesex Somerset Union Morris NJ USA , , , % 0.04% 0.06% 0.05% 0.03% 0.03% 0.04% 6 12 (281) 1,502 1, , , (0.03%) (0.03%) (0.02%) (0.03%) (0.04%) (0.05%) (0.05%) (2,119) (831) (100) (1,215) (747) (15,827) (200,029) (0.27%) (0.27%) (0.25%) (0.27%) (0.26%) (0.28%) (0.29%) (3,290) (1,644) (366) (1,899) (1,166) (25,652) (463,478) (0.42%) (0.44%) (0.34%) (0.41%) (0.36%) (0.42%) (0.47%) ,202 5,182 2,113 1,923 1,961 37,909 2,173, % 0.29% 0.27% 0.28% 0.21% 0.24% 0.24% (4,519) (1,823) (455) (2,705) (2,054) (34,945) (386,840) (0.57%) (0.57%) (0.61%) (0.59%) (0.65%) (0.60%) (0.56%) (9,907) (7,902) (3,261) (6,810) (6,269) (103,688) (2,670,872) (1.26%) (1.31%) (1.53%) (1.36%) (1.54%) (1.39%) (1.31%) ,639 8,472 4,039 4,427 5,227 84,309 3,633, % 0.74% 0.82% 0.75% 0.83% 0.76% 0.74% ,718 15,469 6,744 8,982 10, ,153 6,750, % 1.55% 1.61% 1.58% 1.78% 1.70% 1.66% Total (154) 20,283 10,696 3,367 8, ,316 10,610,996 Total 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Note: Population estimates provided by ESRI in 5 year increments were redistributed by Mareth Advisors to mirror SGMA's survey groupings Source: ESRI and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 25

29 Income As noted in the overview of horseback riding, participation generally increases with income. Income, however, is much less of an indicator of the category of rider (casual, regular, frequent) or of how often that rider will participate in the sport. Within the contiguous counties under study, Union County possesses slightly below average wealth characteristics when compared to the statewide average. The county s 2011 median household income of $65,302 falls just below the statewide average of $67,128, but well below Somerset County s $97,053. A similar pattern is observed for average household income, where Union County is at the statewide average of roundly $90,000 but well below Somerset County s $123,755. Per capita income for Union County in 2011 totaled $31,955, slightly below the statewide average and higher than only Essex County s $30,008. Somerset County, followed closely by Morris County, demonstrated the highest per capita income totals of roundly $45,000. Projections indicate that Union County s median household income levels will increase by just over $13,000 by 2016, exceeding all other geographies under study. Average income will increase, in absolute amounts, by over $24,000 in Somerset County. Median income will increase by roughly $13,000. Average household income, however, is projected to increase most rapidly again in Somerset and Morris Counties, indicating an increasing spread between the more affluent and less affluent counties. Figure 19: Household Incomes Essex Middlesex Somerset Union Morris NJ USA 2011 Median HH Inc. $52,839 $77,382 $97,053 $65,302 $97,036 $67,128 $50, Average HH Inc. $80,117 $95,543 $123,755 $90,037 $122,021 $90,305 $68, Per Capita Income (PCI) $30,008 $34,157 $45,468 $31,995 $45,353 $33,728 $26, Median HH Inc. $62,437 $87,485 $106,233 $78,785 $106,280 $79,868 $57, Average HH Inc. $94,082 $110,265 $148,003 $105,509 $143,731 $105,135 $77, Per Capita Income (PCI0 $35,214 $39,127 $54,195 $37,268 $53,531 $39,193 $30,027 Abs. Chg. Median HH Inc. $9,598 $10,103 $9,180 $13,483 $9,244 $12,740 $7,309 Abs. Chg. Average HH Inc. $13,965 $14,722 $24,248 $15,472 $21,710 $14,830 $9,463 Abs. Chg. Per Capita Income $5,206 $4,970 $8,727 $5,273 $8,178 $5,465 $3, Med HH Inc. C.A.G.R. 3.39% 2.48% 1.82% 3.83% 1.84% 3.54% 2.75% PCI C.A.G.R. 3.25% 2.75% 3.57% 3.10% 3.37% 3.05% 2.62% Note: C.A.G.R. = Compound Annual Growth Rate Source: ESRI and Mareth Advisors, 2012 Household income distributions reveal this pattern more clearly as nearly 50 percent households in the more affluent counties of Somerset and Morris earn $100,000 or more. This compares to 32 percent in Union County. While Union County s income distribution is nearly identical to the statewide distribution, within the region the county s wealth characteristics are skewed toward lower income brackets. The percentage of households that earn less than $25,000 within Union County totals 19 Watchung Stables Market Analysis Final Report 26

30 percent. Only Essex County exhibits a higher percentage, with 27 percent of all households earning less than $25,000 per year. Looking forward, 2016 projections for household income levels reflect the impact on wage growth and inflation. Those forces present a shift toward increasing numbers of households within higher income brackets. Union County alone is projected to experience an increase of 9,923 household in the $100,000+ income bracket and a smaller but sizable gain in the number of households earning between $75,000 and $100,000. The fact that Union County s household income distribution remains roughly at statewide levels in 2016 suggests that relative affluence levels will not disproportionately change with Union County over the foreseeable future. Watchung Stables Market Analysis Final Report 27

31 Figure 20: Households by Income Bracket Total Households Income Distribution 2011 HH Essex Middlesex Somerset Union Morris NJ USA 2011 HH Essex Middlesex Somerset Union Morris NJ USA <$25K 76,365 37,183 11,365 35,078 16, ,099 28,956,197 <$25K 27% 13% 10% 19% 9% 18% 25% $25K to $50K 59,130 49,806 15,486 37,875 24, ,100 29,472,671 $25K to $50K 21% 18% 13% 20% 14% 20% 25% $50K to $75K 42,091 48,626 17,790 30,426 26, ,986 21,555,982 $50K to $75K 15% 17% 15% 16% 15% 17% 18% $75k to $100K 31,339 43,131 16,058 24,960 25, ,580 14,150,762 $75k to $100K 11% 15% 14% 13% 14% 14% 12% > $100K 75, ,379 57,715 59,701 88,139 1,042,262 23,320,798 > $100K 26% 37% 49% 32% 49% 32% 20% Total 284, , , , ,018 3,220, ,456,410 Total 100% 100% 100% 100% 100% 100% 100% 2016 HHs Essex Middlesex Somerset Union Morris NJ USA 2016 HHs Essex Middlesex Somerset Union Morris NJ USA <$25K 70,376 32,125 9,479 31,028 13, ,452 25,794,604 <$25K 25% 11% 8% 16% 7% 16% 21% $25K to $50K 50,850 40,303 12,187 31,239 18, ,527 25,380,302 $25K to $50K 18% 14% 10% 17% 10% 16% 21% $50K to $75K 36,807 40,980 14,780 25,858 21, ,722 24,485,584 $50K to $75K 13% 14% 12% 14% 12% 14% 20% $75k to $100K 39,262 52,795 19,664 30,631 30, ,829 18,168,543 $75k to $100K 14% 18% 16% 16% 16% 17% 15% > $100K 87, ,824 65,967 69, ,787 1,227,352 27,882,519 > $100K 31% 42% 54% 37% 55% 38% 23% Total 285, , , , ,821 3,270, ,711,552 Total 100% 100% 100% 100% 100% 100% 100% Abs. Change Essex Middlesex Somerset Union Morris NJ USA Abs. Change Essex Middlesex Somerset Union Morris NJ USA <$25K (5,989) (5,058) (1,886) (4,050) (3,028) (59,647) (3,161,593) <$25K (2.2%) (2.0%) (1.8%) (2.2%) (1.8%) (2.1%) (3.5%) $25K to $50K (8,280) (9,503) (3,299) (6,636) (5,694) (107,573) (4,092,369) $25K to $50K (3.0%) (3.7%) (3.1%) (3.6%) (3.4%) (3.6%) (4.2%) $50K to $75K (5,284) (7,646) (3,010) (4,568) (4,914) (75,264) 2,929,602 $50K to $75K (1.9%) (3.0%) (2.9%) (2.5%) (3.0%) (2.6%) 1.8% $75k to $100K 7,923 9,664 3,606 5,671 4, ,249 4,017,781 $75k to $100K 2.7% 3.0% 2.5% 3.0% 2.3% 3.1% 2.9% > $100K 12,551 18,445 8,252 9,923 12, ,090 4,561,721 > $100K 4.3% 5.7% 5.3% 5.2% 5.8% 5.2% 3.1% Total 921 5,902 3, ,803 50,855 4,255,142 Total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Source: ESRI and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 28

32 Labor Force, Employment, and Unemployment Trends Labor market trends are significant indicators of demand for discretionary leisure spending. Horseback riding, with its cost structure, is not immune to the cyclical issues that arise when employment is less certain. Looking back at the last four significant economic cycles that impacted the State of New Jersey, none have generated rates of unemployment similar to that of thee current cycle. Statewide unemployment peaked in 2010 at 9.6 percent, about one percentage point higher than the downturns in early 1980 and early Those cycles lasted between five and six year each from the mid level of the rising unemployment to the mid level of the falling unemployment. While one cannot understate the significant challenges of the past few years, historical cycles would suggest that the worst may be over, though the recovery may last slightly longer. Figure 21: New Jersey Economic Cycles 1980 to Present Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 29

33 Labor Force Union County s labor force is a relative constant in the market place and reflective of the lower rates of population change as well as household formation. The county s labor force increased from 270,266 people in 1999 to 277, 204 people as of May The 7,000 person increase in the size of the labor force equates to a growth rate of 0.2 percent per year and reflects the low growth rate of Union County when compared to the state or nation. Within the region, Middlesex County is experiencing the fastest rate of growth at 0.4 percent. This still falls below the statewide average annual increase of 0.6 percent that occurred since The other counties under study exhibited similar flat growth of their respective labor markets. Essex County is the only location evaluated with a different trend a smallerr labor force today than in Figure 22: Labor Force Trends Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 30

34 Employment Employment trends in Union County indicate a slightly shrinking job base.. In 1999 nearly 258,000 county residents were employed. Currently just over 251,0000 county residents are counted within the numbers of employed. This negative longer term trend is consistent across the region. Only Middlesex County and the State of New Jersey currently maintain total employment levels at or above their 1999 levels. Year to date, however, employment levels are up by between 0.4 and 1.0 percent. Union County, along with Essex and Morris Counties, achieved the largest percentage increase in the number of employed year to date, increasing by 0.9 percent above year 2011 totals. The consistency of this current pattern suggests that the economy has begun to turnn in a more positive direction. Figure 23: Employment Trends Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 31

35 Unemployed The numbers of unemployed acrosss the region and at the state level all exhibit a similar pattern of rising numbers through and a flattening to a slight decrease inn Year to date data indicates some remaining volatility in the number of unemployed. When considering this near term change in light of the slowly increasing labor market presented in Figure 22, a portion of this is attributable to the increasing numbers of people restarting their active job search and thus are again being counted within the labor force as unemployed. Union County s unemployment numbers mirror this pattern. Between 1999 and 2007 the number ranged consistently between 10,000 and 15,000, with a minor upswing in 2002 that coincided with the post 9/111 economic downturn. The number of unemployed since 2007 has roughly doubled to between 25,000 and 26,000 people, peaking at 27,399 in February Small gains have occurred since. Figure 24: Unemployed Trends Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Unemployment Rates Unemployment rates in Union County are consistently rankedd second highest among the local jurisdictions, lagging only Essex County, and typically slightly higher than statewide rates. Watchung Stables Market Analysis Final Report 32

36 Unemployment levels in the county hovered around the five percent level throughout much of the 1980s and then rapidly escalated between 2008 and 2010 to a year end high of 9.7 percent in Within the immediate area, the more affluent Morris and Somerset Counties also maintain the lowest unemployment rates. While the rate doubled, the shift was from around 3.5 percent, or what is considered to be full employment, to the low 7 percent range, which is slightly above the long term national average. Year to date unemployment rates for Union County spiked inn February to 9.9 percent. This pattern was matched in all the local jurisdictionss under study. As noted inn the numberr of unemployed, this increase was due to the outpacing of the increasing labor force growthh against a positive, but less quickly rising, level of employment. Since February, unemployment rates decreased to 9.3 percent as job growth (+2,131 jobs) within Union County outstripped increases in the labor market (+1,318) by 813 people. This simultaneous movement of a growing labor market and the numberss of employed is a welcome indicator of improving economic conditions. Figure 25: Unemployment Rate Trends Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 33

37 Single Family Permits Single family housing permits are often hailed as a bell weather economicc indicator, falling prior to economicc downturns and rising in advance of economic recoveries. Permit data for the areas under study reveal a similar pattern rising through 2004/2005 and then beginning to slide in 2006, almost one year before the employment market collapsed. That being said, the uptick in 2010 resulted in a positive outlook for The results, however, were lower in Every jurisdiction under study, as well as the state issued fewer single family permits in Year to date data suggest renewed optimism that housing will again lead the nation down the path toward recovery. Except for Middlesex County, all jurisdictions are ahead of pace through April of Figure 26: Single Family Permits 2002 April 2012 Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Union County s story is typical for the region, with rising numbers of permits through 2005 followed by a strong decline between 2006 and 2007 and then a steady falll off thereafter. What s notable of the county, however, is relative lack of volatility when compared to the trendss in Middlesex County and the entire State of New Jersey. This again reflects the relatively well developed nature of the county and the Watchung Stables Market Analysis Final Report 34

38 lack of significant building opportunities when compared to the higher growth areas farther from New York City. On a relative market share basis, Union County consistently issues between two and three percent of the state s total single family permits. In other words, the county is not disproportionately impacted by changes in the housing industry. Year to date data indicates that Union County is increasing its market share of single family permit activity to its historic high since 2002 at around three percent. Unlike the volatility in Middlesex County where market share is rapidly changing and even declining inn the face of a rising market, Union County continues on a steady path that reflects its mature position inn terms of overall development. Figure 27: Market Share of Statewide Single Family Permits Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 35

39 Looking more closely within the county, single family development is most concentrated in Westfield and Scotch Plains, which have averaged 48 and 45 single family permits, respectively, over the past 10 years. Overall home development, however, is not consistent year over year. Developer opportunities undoubtedly dictate the pace of permit issuance and individual projects can distort the longer term picture. Nonetheless, they do provide some indication of where development is generally occurring. From the perspective of Watchung Stables, where development occurs is important, as its activity is more concentrated within some of the adjacent towns. Presented in the table below are the 21 Censusdesignated towns in Union County and their recent single family permit activity. Those designated with a * after their names are also a top five source location of resident activity at the stables. Figure 28: Single Family Residential Permits Issues Town/Borough Westfield * Scotch Plains * Rahway Linden New Providence Berkeley Heights Cranford * Garwood Summit * Clark Elizabeth Union Mountainside * Roselle Park Kenilworth Plainfield Fanwood Springfield Hillside Roselle Winfield Total Note: Top 10 totals highlighted in red Note: * designates town/borough as a top five Union County source location for Watchung Stables YTD Through April Source: New Jersey Department of Labor and Workforce Development and Mareth Advisors, 2012 ( 10 Yr Avg. YTD 2011 YTD 2012 Watchung Stables Market Analysis Final Report 36

40 Figure 29: Union County Single Family Permit Activity by Town 2002 YTD 2012 (April) Source: New Jersey Department of Labor and Workforce Development and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 37

41 Review of Historic Operating Performance and Market Position Introduction This section provides an overview of Watchung s offerings, utilization levels, and recent financial performance. With respect to the latter two items, Mareth Advisors must note that the available data for Watchung was limited, despite the facility s long history. While we recognize that the County recently implemented a management tool from the vendor Rec Trac, that point of sale cashiering system provides limited insight, as its setup provides data only on the time of transaction and not the time of utilization. Thus, when a customer pays for a summer Troop class in early spring, that transaction provides no insight into the daily utilization levels that occur when the class actually takes place. Rather, that data is maintained by the manager on a daily paper form that does not appear to be any part of the current management reporting system. By special request of this consultant, that data was consolidated into an Excel spreadsheet for analysis that is presented herein. Some services are currently provided by other Union County departments (e.g. grass cutting, vehicle maintenance) and not accounted for within the stables cost structure. While this is not atypical for public recreation departments, the cost to operate the stables is probably slightly understated. Moreover, it was noted that the provision through the county s centralized services does create some issues with respect to the timeliness of services and some very minor impacts on the day to day operations. Notwithstanding these limitations, we believe the data presented herein does present a sufficiently accurate overview of recent performance levels and trends to make higher level decisions regarding Watchung Stables. Utilization Trends Utilization is currently tracked for 41 different activities at Watchung Stables. The largest activity, in terms of overall participation, is the facility s birthday and room rental events. In 2011 a total of 3,180 participants attended parties at the stables during the 159 events (20 person average) held in This activity accounted for 32 percent or about one third of the total activity. This total, however, is well below 2009 and 2010 when 306 and 351 birthday events were held hosting 6,120 and 7,020 people, respectively. The downward birthday party trend is attributed to a short term price increase that was rolled back when demand was disproportionately impacted. Horse rentals increased from 478 transactions in 2009 to 1,212 in 2011 while lessons increased nearly eight fold, from 96 in 2009 to 754 in Horse show participants are the facility s second largest activity in terms of total uses, while rentals, lessons, Troop, trail rides, and camp are other significant activities. Watchung Stables Market Analysis Final Report 38

42 Figure 30: Watchung Utilization Trends Period Start Date 1 Jan 09 1 Jan 10 1/1/2011 Change 1/1/2012 Period End Date 17 Nov 09 12/14/ /30/ /20/2012 COMMENTS Activity Number of Entries/Participants* Horse Rentals , Private Lessons Fall Troop Horse Show snow, 2009 in back paddock Spring Troop Horse Show Paid entries Brownie Try lt program WJHC Horse Show cxl'd ring under construction Lead Line Horse Rides Barn Tours (#) Private Trail Rides Camp Horse Show cxl'd ring under construction Summer Horse Show cxl'd ring under construction Watchung Jr. Hunt Club Riding Clinics (X4) rain Spring rain out Girl Scout Badge Pre horse Show Riding Clinic WJHC Gymkhana rained out Children's & Sr. Troop (Fall) Dentist & Vet Clinics New in 2011 Thursday Night Fun Clinics (Spring & Fall) Date Night Rides spring rain out (2x) Drill Team (Fall) Drill Team (Spring) Public Trail Rides hurricane & snow damage Father's Day Trail Rides Adult Troop (Fall) WRDC Trail Rides Adult Troop (Spring) Semi private Riding Clinics 8 8 Mother's Day Trail Rides Just the Two of Us (Private/Spring & Fall) 6 6 Summer Equesterian Camp (all) # of Horses Boarded at Watchung Stables Adult Riding Clinic 8 WRDC Cider Ride 19 History Trail Ride 9 Just the Two of Us (Group Spring & Fall) (8) 10 Kidde Clinics (16) cxl'd (strangles virus) Nature Trail Rides 32 4 (28) 2011 rain/hurricane Winter Clinics (32) cxl'd (strangles virus) Children's & Sr. Troop (Spring) (44) 431 Birthday Parties ** 6,120 7,020 3,180 (2,940) 113 Paid Program Attendance 9,351 12,843 9, ,474 Open House Free program * Participants do not equal individuals for all activities as some may participate in more than one per event (e.g. shows) ** Estimated attendance based on a reported 20 person average Source: Watchung Stables and Mareth Advisors, 2012 Use of Watchung s facilities is predominantly by Union County residents. In 2011, tracked use by nonresidents equated to 3.0 percent total utilization. We note that only a handful of the key activities are tracked and for those that are, the percentage of non resident use equates to 14 percent. The types of activities that are most heavily consumed reflect the facility s core user group that management confirmed as young women between the ages of eight and eighteen. Watchung Stables Market Analysis Final Report 39

43 Figure 31: 2011 Utilization by Residents/Non Residents Activity Resident Non Res. Total Resident Non Res. Total Horse Show Participants 1,643 1, % 16.5% Horse Rentals 1, , % 1.3% 12.1% Private Lessons % 7.6% Children's (Jr & Sr) Troop fall % 0.4% 4.2% Trail Rides % 4.3% Children's (Jr & Sr) Troop spring % 0.5% 4.1% Summer Riding Camp % 0.3% 3.2% Brownie programs % 3.3% Barn Tours % 2.0% Lead Line Rides % 0.4% 1.7% Girl/Boy Scout programs % 1.4% Private Trail Rides % 1.4% Pre Horse Show Clinics % 1.1% WJHC Clinic % 0.7% Adult Troop Spring % 0.1% 0.5% Adult Troop Fall % 0.1% 0.5% Boarders % 0.0% 0.4% Winter Clinics % 0.4% Mothers Day Trail Rides % 0.4% Fathers Day Trail Rides % 0.4% WJHC Gymkhana % 0.3% Kiddie Clinics % 0.3% Date Night Trail Ride Spring % 0.3% Vet Clinics % 0.3% Just the Two of Us Spring % 0.2% Thurs Night Fun Clinics Sp & Fall % 0.2% Drill Team Fall % 0.2% Drill Team Spring % 0.2% WRDC Trail Ride Spring % 0.1% Riding Clinics % 0.1% Private Just the Two of Us % 0.0% 0.1% Nature Trail Ride % 0.0% Parties & room rentals* 3,180 3, % 31.9% Total 9, , % 3.0% 100.0% Note: Non resident use only tracked for activities with totals above Note: Excludes annual Open House which attracted a reported 750 people in 2011 * 159 avg. 20 person attendance ** For resident/non resident tracked activates only Source: Watchung Stables and Mareth Advisors, 2012 Noting that horse shows are significant component of overall demand, Mareth Advisors examined the registered competitor listing for the past two Troop Horse Shows to better understand the quantity of people driving that participation. Based on that listing, the Fall Troop Horse Show held between October 28 and 30, 2011 was slightly larger than the most recent Spring Troop Horse Show held May 25 27, A total of 221 numbered participants were preregistered for 602 classes. This equates to 2.7 classes per participant. The Spring Show included 213 numbered registrants in 593 events, also equating to 2.8 classes per participant. Combined, they represent over four fifths of the 1,467 horse show participants reported in calendar year Watchung Stables Market Analysis Final Report 40

44 The largerr majority (83%) of Watchung s Troop Show participants preregister for threee or fewer events. Twenty riders comprise the more avid participants who preregistered for more than five events in the Fall Show. A slightly smaller number of 18 riders preregistered for more than five events during the past Spring Show. While gleaning trends is difficult with only two points of data, we noted through examination of the individual names of participants in these two shows that 82, or just underr one third of the participants, who entered in the Fall Show (218 participants) did not enterr the Spring Show (209 participants). Of the 135 names that were listed for both the Spring Show and Falll Show, 40 entered more events, 25 entered fewer, and 70 entered into the same number. The other 74 participants (35%) were new to the Spring Show. While this analysis suggests a possible positive start too Troop Show participation trends, it importantly provides some understanding of the size of core user market for Watchung. In addition, the name themselves (175 likely femalee gender, 8 likely male gender) highlight the split between female and male participants in those shows and broader use of Watchung Stables ass well. Figure 32: Troop Horse Show Events per Registrant Source: Watchung Stables and Mareth Advisors, 2012 Source Markets As detailed in Figure 31, utilization is predominantly comprised of Union County residents. Noting that current record keeping only tracks about 12 percent of participants for place of residence, for those that are tracked by place of residence, just 14 percent of use is generated from outside of Union County. Current source locations indicate a fairly obvious pattern thatt proximity to Watchung Stables is a key factor in who uses the facility. Presented below and depictedd graphically in Figure 34, the adjacent towns/boroughs of Cranford, Mountainside (location of Watchung), Scotch Plains, Summit, and Westfield account for 62 percent of tracked activity. More distant locations to the south and east Watchung Stables Market Analysis Final Report 41

45 generate only limited demand for the facility. This pattern, as we detail in the competitor overview section, is a consistent feature of the market. Figure 33: Union County Source Locations for Tracked Activities WITHIN UNION COUNTY (I/C) County Children's (Jr & Sr) Troop spring Children's (Jr & Sr) Troop fall Adult Troop Spring Berkeley Hgts Union % Clark Union % Cranford Union % Elizabeth Union % Fanwood Union % Garwood Union % Hillside Union % Kenilworth Union % Linden Union % Mountainside Union % New Providence Union % Plainfield Union % Rahway Union % Roselle Union % Roselle Park Union % Scotch Plains Union % Springfield Union % Summit Union % Union Union % Westfield Union % Winfield Park Union 1 1 0% Town Indicated Union ,182 12% No Town Union 8,320 88% l/c TOTAL Union , % Source: Watchung Stables and Mareth Advisors, 2012 Adult Troop Fall Summer Riding Camp Boarders Drill Team Spring Drill Team Fall TRACKED TOWN TOTAL Distribution Watchung Stables Market Analysis Final Report 42

46 Figure 34: Residence Location of Tracked Users Watchung Stables Source: Watchung Stables and Mareth Advisors, 2012 Out of county source markets comprise only a small portion of demand, but also exhibit a similar pattern of proximity. The affluent and nearby communities of Millburn/Short Hills, Maplewood and South Orange in Essex County generate about one third of non resident demand. Chatham, located nearby in Morris County generates another 20 percent of thee non resident demand. Edison, in Middlesex County, is the only non resident source market that is both significant (although relatively small in comparison to overall totals) and not proximate to the stables. Consistent with overall use of Watchung Stables, non resident users are predominantly children participating in Troop or summer camp activities. Watchung Stables Market Analysis Final Report 43

47 Figure 35: Non Resident Source Locations for Tracked Activities NON COUNTY (O/C) County Children's (Jr & Sr) Troop spring Children's (Jr & Sr) Troop fall Adult Troop Spring Edison Middlesex % Maplewood Essex % Millburn/Short Hills Essex % Chatham Morris % Peapack Somerset % Metuchen Middlesex % South Orange Essex % Livingston Essex % Hampton Sussex % Warren Somerset % Green Brook Somerset % Verona Essex % Watchung Somerset % Jersey City Hudson % Woodbridge Middlesex % Glen Ridge Essex 2 2 1% Bayonne Hudson % North Plainfield Somerset % East Greenville, PA % Middlesex Middlesex 2 2 1% Iselin Middlesex 1 1 0% Perth Amboy Middlesex 1 1 0% Piscataway Middlesex 1 1 0% Pittstown Hunterdon 1 1 0% Cedar Grove Essex 1 1 0% Carteret Middlesex 1 1 0% Florham Park Morris 1 1 0% Irvington Essex 1 1 0% Morristown Morris 1 1 0% Town Indicated % No Town % O/C TOTALS % Adult Troop Fall Summer Riding Camp Boarders Drill Team Spring Drill Team Fall TRACKED TOWN TOTAL Distribution Grand Total ,805 9,805 In County 88% 90% 85% 91% 90% 89% 100% 100% 97% Out of County 12% 10% 15% 9% 10% 11% 0% 0% 3% Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 44

48 Horse Utilization Analysis Equestrian facilities are uniquely positioned within the array of recreation offerings due to the fact that they rely on a living creature to deliver the product to the consumer. This aspect places a unique set of responsibilities on the operator/manager to not only care for the well being of horse stock, but also to deal with the fact that horses will at times not want to work, will be sick, or come up lame. Sizing the herd to the business is critical as the care and feeding of the horses is expensive, labor intensive, and continuous. The high levels of fixed costs associated with this type of enterprise makes the sizing of the herd critical. To better understand the work horse demand at Watchung, Mareth Advisors worked with management to gather detailed daily utilization data. As mentioned earlier, this data was not readily available from the Rec Trac management reporting system, but rather through the diligent compilation of manager s daily paper reports into an Excel spreadsheet for analysis. Presented in the following tables and charts are that daily utilization data. This data was then extrapolated into horse hours of activity that occurs at Watchung by an application of a time interval for each activity. Within this analysis we examined total horse hours, seasonality patterns, and periodicity patterns within the week. In 2011, Watchung logged an estimated 20,149 horse hours of activity. Activity peaks in July, with secondary activity increases in April, May, and October. The latter two months are primarily impacted by the biannual Troop Horse Shows held in those months. The off season period between December and January reflect winter conditions and the facility s lack of indoor riding space. Figure 36: Horse Utilization Days by Hour Ranges and Months Horse Hour Days Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total < 20 hours hours hours hours hours hours hours hours hours hours hours hours Total Total Hours ,270 2,574 2,428 2,109 3,368 2,177 1,927 2,533 1, ,149 Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 45

49 Across the entire year, just over 50 percent of days have less than 20 hours of horse activity. Watchung currently has seven days of activity above the 200 horse hour threshold, five of which are the two Troop Horse Shows (May & October), the Junior Hunt Club Show (June), the Summer Show (July), and the Camp Show (August). More typical active days at the stables are between 160 and 200 hours of work horse activity. Figure 37: Percentage Distribution of Horse Utilization by Hour Ranges and Day of Week % Horse Hour Days Friday Saturday Sunday Monday Tuesday Wednesday Thursday Total < 20 hours 40% 49% 38% 96% 44% 40% 42% 50% hours 4% 17% 15% 2% 4% 2% 6% hours 15% 2% 12% 4% hours 19% 4% 31% 21% 11% hours 17% 4% 8% 6% 4% 5% hours 6% 27% 2% 2% 5% hours 2% 6% 4% 2% hours 4% 1% hours 8% 34% 2% 8% 6% 8% 9% hours 9% 8% 10% 8% 5% hours 2% 2% 2% 2% 2% 1% hours 4% 1% Total 100% 100% 100% 100% 100% 100% 100% 100% Note: Watchung is usually closed on Monday Source: Watchung Stables and Mareth Advisors, 2012 Demand is fairly evenly spread across the days of the week and no single day stands out as dramatically more demanding in terms of horse use. Each day of the week accommodates around 3,000 horse hours of activity, annually. Sunday is the slowest day, on average. The facility is closed for normal business on Monday. Figure 38: Horse Utilization by Hour Ranges and Day of Week Horse Hour Days Friday Saturday Sunday Monday Tuesday Wednesday Thursday Total < 20 hours hours hours hours hours hours hours hours hours hours hours hours 2 2 Total Days Total Hours 3,526 3,386 2, ,779 3,200 3,048 20,149 Note: Watchung is usually closed on Monday Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 46

50 Across the entire year in 2011, the mean or average daily horse activity totals 55 hours with a median of just 20 hours. The high standard deviation of 65 hours within the 2011 sample highlights the tremendous swings in activity that occurs. From a theoretical probability perspective, to achieve a 95 percent certainty of being able to accommodate the facility s demand (within two standard deviations of the mean), the facility would need to plan on accommodating 186 horse hours of activity. This factor has specific implications for Watchung and the size of its work horse herd. Area managers allow their work horses varying amounts of daily activity. Jumping activities are typically more strenuous than trail riding. Jumpers were limited to two hours per day by some operators. More passive activities allowed for significantly more work hours, sometimes up to five hours per day. Presented in the table below is Mareth Advisors estimate for necessary herd size to satisfy a 186 hour and 200 hour peak work load. The latter reflects the higher level of more sustained peak times. Assuming that 10 percent of the available horses are out of service at any given time, the size of the herd necessary to statistically satisfy demand at these levels ranges from 111 horses at two hours of work per peak day to 34 horses at six hours per peak day. At the current work herd size of 54 horses, the table suggests that Watchung s horses need to work on average four hours per day to accommodate current peak demand levels. At full utilization of the barn s capacity of around 70 work horses, this peak theoretical work requirement drops to three hours. The table below importantly indicates that the current work horse herd appears to be reasonably wellsized to accommodate current peak levels of demand. Figure 39: Theoretical Sizing of Watchung Work Horse Herd Daily Work Horses 186 Peak Horse Peak Horse 2.0 hours per work horse hours per work horse hours per work horse hours per work horse hours per work horse Assumptions: 10% of horses out of service at any given time Note: Current herd is totals 54 work horses Source: Mareth Advisors, 2012 Opportunities to enhance this relationship between herd size and production rates is actively being tweaked by management, with unproductive horses sold and replaced, when possible, with those that are hoped to be a better fit with the specific demand requirements of the stable. We note, however, that work horses are not uniformly suited for varying rider abilities, horse attitudes can change from day, and that each is each unique in its ability to provide work on any given day. Further, when obtaining new horses, until that horse is placed at Watchung, its ability to fill a specific niche need is not fully known and presents fundamental challenge that every barn manager faces. Watchung Stables Market Analysis Final Report 47

51 Additional charts depicting the aforementioned data is presented in the appendix of this report. Recent Financial Performance Financial details for Watchung Stables indicate that revenue production is on an upward trajectory. The 2011 total of $608,175 is somewhat improved over the $580,548 in 2010 and $150,000 more than 2008 and 2009 totals of $548,159 and $497,150, respectively. Mareth Advisors review of an unofficial revenue report provided by the facility manager for the period 1987 through 2004 indicated that the facility s high revenue mark trended upward from 1987 to 2000, achieving a peak of $677, , and then declined steadily to $596,109 in the report s final year of While the recent revenue trend is increasing, expenses are slightly exceeding that pace. Over the past four years, total expenses increased from $1.06 million in 2008 to $1.27 million in The net cost to operate the stables ranged roughly between $500,000 and $700,000 per year. For every dollar the facility brings in, Union County spends that plus just over another dollar more. Figure 40: Financial Performance Estimate est. STABLES $ % $ % $ % $ % $ % Revenue $ 548, % $ 497, % $ 580, % $ 608, % $ 608, % Operating Expenses $ 289,016 53% $ 377,749 76% $ 373,647 64% $ 428,686 70% $ 417,040 69% Water 10,190 2% 10,190 2% 15,083 3% 15,169 2% 15,169 2% JCP&L 52,747 10% 52,747 11% 35,253 6% 51,256 8% 51,256 8% Insurance 11,539 2% 11,539 2% 11,539 2% 11,539 2% 13,365 2% Salaries Fulltime 415,246 76% 428,419 86% 399,897 69% 387,677 64% 387,677 64% Fringe 122,913 22% 135,312 27% 128,063 22% 132,644 22% 145,154 24% Part Time & Seasonal Labor 145,834 27% 141,698 29% 177,404 31% 218,540 36% 218,540 36% Overtime 13,073 2% 40,153 8% 17,708 3% 21,571 4% 21,571 4% Total Of Expenses $ 1,060, % $ 1,197, % $ 1,158, % $ 1,267, % $ 1,269, % Net Profit / (Loss) $ (512,399) (93%) $ (700,657) (141%) $ (578,046) (100%) $ (658,907) (108%) $ (661,597) (109%) Labor Cost % (All) Fringe % Labor Full Time (inc. fringe) Labor PT & Seasonal 127.2% 150.0% 124.5% 125.0% 127.2% 29.6% 31.6% 32.0% 34.2% 37.4% 78.7% 79.9% 74.8% 70.4% 70.9% 21.3% 20.1% 25.2% 29.6% 29.1% Note: Insurance and JCP&L (energy) are internal estimates of county wide costs Source: Watchung Stables and Mareth Advisors, 2012 Examining the year over year changes to revenues and expenses, the pattern is highly variable. Revenues are generally on the rise while operating expenses flip back and forth between higher substantial increases one year followed by smaller decreases the next. Water, utilities, and insurance costs are relatively stable, and there is a clear effort to reduce overtime costs and shift the labor pool to a higher utilization of part time and seasonal staff. Fringe benefits are continuously increasing. While the overall net financial position continues to operate at a loss, year over year improvements occurred between 2010 and Current year end 2012 projections indicate limited change is expected in terms of revenue, expenses, and facility net. Watchung Stables Market Analysis Final Report 48

52 Figure 41: Year Over Year Revenue and Expense Change Source: Watchung Stables and Mareth Advisors, 2012 Ongoing Investment and Improvements Union County continues to make ongoing investments into Watchung Stables. Over the past four year over $684,000 has been spent on minor to significant capital upgrades. Significant projects include upgrades building systems/infrastructure and reconstruction of the facility s main ring. Additional improvements are currently out for bid or in planning. Reconstruction of the remaining four rings and the addition of all weather footing in the main ring are currently out for bid with an anticipated cost of just over $900,000. Construction of new paddocks is anticipated to require another $400,000. In addition, the facility has undertaken several projects with in house labor that have are excluded from these totals. Combined with the pro bono labor contributions of the facility s support organizations, the reinvestment is even more substantial. These costs are more fully detailed and summarized on the following page. Watchung Stables Market Analysis Final Report 49

53 Figure 42: Recent Upgrades and Capital Investment Item Year Amount Air Conditioning Admin Bldg $20,000 Fencing Repaired ,000 Code Violations Repaired ,000 Outdoor Lighting Under paddocks ,000 Bridle Trail Construction ,520 Meeting Room Floor Repaired/Secured 2009 in house Several repairs to water troughs 2009 in house New Fire Alarm/Sprinkler System 2009/ ,000 New Boiler/heat system in Barn 2009/ ,000 Main Ring Reconstruction 2009/ ,795 Renovation of Bathrooms 2011 in house Mats for horse boarders ,000 Benches ,000 Picnic Tables ,000 New Pickup truck ,000 Planters/Trash/Recycling Cans ,000 Gutters on main barn ,000 New Bleachers ,000 Total $684,315 Projects in Planning or to be Awarded Reconstruction of 4 remaining rings/all weather footing In Process 900,210 Paddocks Estimated cost In Process 400,000 Source: Union County Department of Parks and Community Renewal Labor Costs/Staffing Labor costs represent the single highest expense category, which alone outstrips all facility revenue. In each of the past four years, labor costs have totaled between $554,000 and $574,000 per year, equating to between 125 percent and 150 percent of revenue. Mareth Advisors attributes these higher costs to a couple of primary factors: the wage scale associated with operation s six full time employees, and the labor intensive nature of the business itself. This latter aspect is important in that we believe marginal improvements can be made over time through the natural attrition of higher hour rate employees. As noted earlier, there is a clear pattern of shifting labor costs from full time into part time and seasonal positions. This effort recognizes the savings with the elimination of the payroll burden. Full time payroll costs, inclusive of overtime, decreased roundly from $428,000 to $335,000 between 2008 and 2011, representing a $93,000 shift. Average unburdened hourly cost per regular hour of work totaled $23.04 in Watchung Stables Market Analysis Final Report 50

54 Part time and seasonal wages increased during this period from $146,000 to $219,000, or moved up by $73,000, resulting in a $20,000 reduction in overall payroll costs. Total manpower, however, increased from 33,208 to 34,534 person hours of employment. Average hourly cost totaled $10.94 in Total manpower equated to 16.6 full time equivalent (FTE) positions in 2011, up slightly from 16.2 in Full time labor in 2011 totaled 7.0 FTEs in 2011 versus 9.6 FTEs from part time labor. This undoubtedly reflects the successful efforts to reduce labor costs. In 2008, for example, labor was comprised of 9.3 FTEs of full time labor and 6.7 FTEs of part time labor. Payroll burden on full time salaries is steadily increasing as a percentage of full time payroll costs. In 2008 the burden equated to 29 percent of regular and overtime pay. In 2011, the burden equated to 37 percent of labor. To provide some perspective on this cost, for every full time hour worked, the burden in 2011 equated to $8.44 per hour. Overtime costs are another area of management focus, as these costs were eliminated in This is an understandable area for expense savings as the hourly cost on full time base rates averaged over $33 per hour in 2010, exclusive of the additional burden expenses. As a theoretical, had Watchung hired seasonal staff to work overtime wages earned by full time staff, they would have purchased roundly 1,700 hours of labor at the average seasonal wage rate. This compares to 413 actual overtime hours in While this is somewhat simplistic and doesn t recognize the specific work requirements associated with the overtime pay, it highlights the tradeoffs that are occurring. A shift in manpower from full time to part time/seasonal is not without costs. These employees are governed by local regulations that stipulate how much they can work while maintaining this designation. This requires that these employees must take layoffs during the year to maintain this status. The laborintensiveness of this effort was noted by management. We believe this creates additional challenges from a product delivery and overall management perspective as well. Watchung Stables Market Analysis Final Report 51

55 Figure 43: Labor Analysis Wages FT $ 415,246 $ 364,431 $ 373,263 $ 335,421 PT & Seas. 145, , , ,540 OT (FT only) 13,073 45,086 13,787 Total Wages $ 574,154 $ 563,095 $ 564,455 $ 553,961 Burden Cost $ 122,913 $ 122,914 $ 122,915 $ 122,916 Burden % 29% 30% 32% 37% Total Labor Cost $ 697,067 $ 686,009 $ 687,370 $ 676,877 Hours FT 18,843 16,678 16,640 14,560 PT & Seas. 13,942 14,484 16,634 19,974 OT (FT only) 423 1, Total Hours 33,208 32,433 33,687 34,534 FTEs FT PT & Seas OT (FT only) Total FTEs Avg. Rate FT $ $ $ $ PT & Seas OT (FT only) $ $ $ $ Burden Cost/FT Hr $ 6.38 $ 6.85 $ 7.21 $ 8.44 OT PT Seasonal Rate (includes addition of burden) Source: Watchung Stables and Mareth Advisors, 2012 Details gleaned from the facility s implementation of Rec Trac management system provide some insight into what drives facility revenue. We note that the reporting period of the data provided is not calendar year data, but rather for the 11 month period between July 2011 and May While revenue totals do not reflect year end totals, we believe that the distribution of income and types of activities purchased are representative of annual activity at Watchung. We also should note that the data collected through Rec Trac recognizes only the date of payment and not the date when the service is consumed. This limitation substantially diminishes the value of Rec Trac as a management tool. Mareth Advisors would recommend the county explore a change to Rec Trac that books prepayment of future activities as deposits and then recognizes use of those deposits on the date the service is consumed. This would provide more accurate accounting of actual daily activity and serve as a more useful tool for management. Watchung Stables Market Analysis Final Report 52

56 Presented in the table below, Troop (group lessons) is the facility s largest revenue generator, providing over one third of the total income. Boarding fees comprise another 20 percent while summer Camp provides another 17 percent. Combined, these three items account for 71 percent of the revenue. The top 11 items account for 95 percent of all revenue and 75 percent of all transactions. Figure 44: Distribution of Revenue by Activity Total Rev # Trans Rev. Per % Rev. % Trans Troop $ 212,578 1,270 $ % 12% Boarding 118, % 9% Camp 99, % 3% Trail Ride 26, % 8% Show 23,679 1, % 17% Adults 22, % 1% Clothing 20,458 1, % 10% Instruction 17, % 5% WE Horse Rental 11, % 6% Drill Team 10, % 0% WD Horse Rental 10, % 4% Turnout 7,884 1, % 18% Clinic 6, % 2% Late Fee 3, % 0% Party 3, % 0% Lead Line 2, % 1% Special Event 1, % 0% Gift Certificate 1, % 0% Tour % 0% Trail Card % 1% Locker % 0% Wait List Deposit % 0% Medications % 0% Trailering % 0% Yearly Renewal % 0% Discounts (130) 31 (4.19) 0% 0% $ 603,475 10,863 $ % 100% Note: July 2011 May 2012 Source: Watchung Stables and Mareth Advisors, 2012 Presented in Figure 45 on the following page, these activities place varying demands on staff. Troop is a high volume, middle value transaction, while camp is a high value, lower volume activity. Collection of boarding fees is another middle volume, middle value activity for the stables. Nearly all other activities fail to fall on a typically shaped price/volume curve where higher prices typically result in lower volumes. Rather, there appears to be either substantial participation (show, trail rides) within activities that cost less than $50 or much smaller numbers of activities where participants (adults and drill team) are not price sensitive. Watchung Stables Market Analysis Final Report 53

57 Figure 45: Activities by Type and Averagee Transaction Value Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 54

58 Competitive/Comparable Facility Review Excluding racing facilities, the market s equestrian facilities are generally comprised of three distinct typologies, as defined by Mareth Advisors. These and their core focus areas are as follows: Recreational Barns Publicly owned facilities that offer a wide array of equestrian related activities including boarding, group lessons (Troop), private lessons, trail rides, birthday parties, clinics and a host of other programs that serve a broad spectrum of users. Watchung and Lord Stirling are the two market area facilities that fall into this category. Show Barns Typically privately owned or operated facilities that offer a narrower array of services including boarding, lessons, clinics, and shows, with a limited number involved in the buying and selling of horses as a service. Essex Equestrian Center, Red Oak Farm, Briarwood Farm and Saddle Ridge Riding Center are market area facilities that fall within this category. Event Facilities The primary purpose is to hold horse show events and clinics. There are no facilities within Watchung s market area that are positioned in this regard. The Horse Park of New Jersey located about one hour south Allentown, New Jersey is the closest to Watchung Stables. Facilities identified as either competitive or comparable within the market area are as follows: Lord Stirling Stable (Somerset County Facility) Briarwood Farm Essex Equestrian Center Red Oak Farm (nee Black Brook Stables) Saddle Ridge Riding Center (Bergen County Facility) From a competitive and comparability perspective, Lord Stirling is most similarly aligned with Watchung. As a large, publicly operated recreation barn, it provides unique insights into the challenges and opportunities of the public recreation barn. The remaining facilities are positioned more as show barns, and as the descriptions will detail, they put substantially less emphasis on providing affordable recreation opportunities. This differentiation is readily apparent in the discussion of pricing that follows and the variations in the products/services that are offered. Also included within this section is a discussion of Overpeck Riding Center, a Bergen County owned facility that once maintained broad market recognition as an upper tier public recreational barn. Recently, Overpeck successfully identified a new operator after three previous RFP attempts and nearly three years of closure since commencing substantial improvements in Watchung Stables Market Analysis Final Report 55

59 Lord Stirling Stables Indoor Riding Pavilion Covered Pony Ride/Birthday Party Area Lord Stirling Stables, operated by Somerset County Park Commission, is unquestionably the most comparable and likely the most competitive equestrian facility within Watchung s market area. Offering a menu of activities that is almost identical to Watchung s, the facility s performance provides a very useful benchmark. Opened in 1968, Lord Stirling Stable is situated on 490 acres of land that include 70 acres of pasture. The facility contains 62 indoor stalls, 73 horses (was at 83), three outdoor arenas, four run in sheds, 18 miles of hacking trails, a lead line area for pony rides, and the above pictured indoor arena and covered party area. Review of the facility s income statements not only highlights the similar financial position, but also the key activities that are demanded. Programming generates between 80 and 83 percent of total revenue, with group lessons alone contributing 71 to 73 percent. Lessons and workshops provide incremental revenue within this category. Activities, such as hacking, trail rides, parties and horseshows combined contribute just under 10 percent of facility income. The remaining 9 to 10 percent of revenue is derived from the four boarded horses ($750 per month, outdoor boarding only), contributions from Friends of Lord Stirling Stable (FLSS) whose annual donations range between $17,000 and $27,000, and other miscellaneous sources. Total revenue over the past three calendar years ranged from $653,000 to $693,000, a level that is somewhat higher than Watchung s most recent total of just over $600,000. The facility s expense profile highlights the labor intensiveness of recreation barns. Full time staffing of 16 people generates labor costs that range around $650,000 per year inclusive of overtime, an amount alone that equals the facility s annual revenue total. Part time labor includes 16 to 25 employees whose total hours amount to a reported 3.0 full time equivalent employees (FTEs), two seasonal barn workers (1 FTE), two weekend administrative assistants, and a bullpen of 12 instructors that average Watchung Stables Market Analysis Final Report 56

60 about 12 hours per week (3.5 FTEs). Annual part time labor costs total about $170,000 per year, inclusive of overtime. In addition to paid staff, a volunteer group of 15 to 20 people (age 14+ and adults) donate their time to perform minor tasks, but predominantly help clean the facility. Figure 46: Lord Stirling Income Statement YTD 2009 * ** 2012YTD (thru 6/1) Revenues $ % $ % $ % $ % Programming Group Lessons $ 475,824 73% $ 503,699 73% $ 478,509 71% $ 237,707 71% Private Lesson (indiv.) 7,920 1% 16,305 2% 17,415 3% 8,050 2% Semi Private Lesson 0% 0% 4,260 1% 3,915 1% Mini Workshop 935 0% 4,750 1% 2,690 0% 1,939 1% Summer Workshop 25,700 4% 28,960 4% 46,486 7% 31,716 10% Equine Art 780 0% 1,470 0% 1,650 0% 500 0% Lead Line Pony Rides 8,597 1% 8,540 1% 6,948 1% 2,097 1% Testing/Permits 2,731 0% 2,678 0% 2,021 0% 1,050 0% Non County ID 2,400 0% 2,400 0% 2,250 0% 3,150 1% Sub Total $ 524,887 80% $ 568,802 82% $ 562,229 83% $ 290,124 87% Activities Introductory Trail Rides $ 3,760 1% $ 4,460 1% $ 4,156 1% $ 870 0% Beginner Trail Rides 846 0% 1,314 0% 755 0% 248 0% Moonlight Trail Rides 1,038 0% 1,024 0% 64 0% 0% Hacking 27,082 4% 21,221 3% 14,944 2% 4,150 1% Holiday Hack Tickets 5,983 1% 7,204 1% 6,012 1% 0% Pony Parties 16,044 2% 16,719 2% 12,657 2% 5,126 2% Group Rides 2,540 0% 7,571 1% 12,275 2% 9,323 3% Horse Show 0% 0% 0% 0% Junior Horse Show (2 shows) 2,209 0% 2,533 0% 2,769 0% 0% Adult Horse Show (1 show) 1,142 0% 878 0% 714 0% 0% Sub Total $ 60,644 9% $ 62,924 9% $ 54,346 8% $ 19,717 6% Other Board 30,203 5% 36,094 5% 42,255 6% 21,612 6% Miscellaneous 11,496 2% 8,119 1% 652 0% 1,085 0% FLSS Reimbursement 26,693 4% 17,516 3% 17,155 3% 560 0% Sub Total $ 68,392 10% $ 61,729 9% $ 60,062 9% $ 23,257 7% Total Revenue $ 653, % $ 693, % $ 676, % $ 333, % Expenses FT Wages $ 657, % $ 649,644 94% $ 651,104 96% $ 212,594 64% PT Wages 170,526 26% 170,231 25% 169,835 25% 80,328 24% Operating Exp 394,804 60% 423,856 61% 261,322 39% 89,408 27% Utlilities 49,412 8% 9,507 1% 13,538 2% 6,074 2% Maintenance 13,411 2% 10,140 1% 10,559 2% 4,380 1% Supplies 2,565 0% 2,708 0% 7,393 1% 6,363 2% Resale 750 0% 3,475 1% 117,871 17% 32,900 10% A&G 9,261 1% 13,396 2% 8,306 1% 2,825 1% Total Expenses $ 1,298, % $ 1,282, % $ 1,239, % $ 434, % Net Operating Income $ (644,805) (99%) $ (589,502) (85%) $ (563,291) (83%) $ (101,774) (31%) *Lipizzan event year ** Two rides were cancelled due to heavy rain and two rides were cancelled for hurricane to storm damage Source: Lord Stirling Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 57

61 Overall financial performance is a similar challenge for Lord Stirling Stable, with net losses over the past three years totaling between $563,000 and $644,000. In all three years, labor costs alone were enough to outstrip revenues, highlighting the labor intensiveness of operating a recreation stable. The customer base is described as 70 percent children, primarily between the ages of 9 and 15, and athome women, a term Mareth Advisors uses to describe either stay at home moms, women working from home, or others that have greater flexibility to plan their time. Night time use expectedly has greater numbers of families that ride together. Management noted a trend toward greater use by children, driven predominantly through the establishment of relationships with area private schools. Across the year, the facility is busiest spring and fall, with a slight drop in the summer as vacations impact demand. Geographically, management estimates that 60 percent of demand emanates from locations within 15 minutes of the facility, 35 percent between 15 and 30 minutes, and all remaining customers from within 45 minutes. Mareth Advisors review of the facility s source market data reveals a slightly more distributed market when compared to Watchung s. Presented in the figure below, 97.7 percent of Lord Stirling s demand emanates from New Jersey, but just 65 percent from within Somerset County itself. As noted earlier in this report, Watchung s incounty percentage is around 85 percent for activities that are specifically tracked. It appears that Lord Stirling has done a better job at reaching out to the broader marketplace for its customers. Nearly all out of state demand is sourced to New York, with the majority reported to come out of New York City. The opportunity to attract NYC demand is partially attributed a commuter train station located just 1.5 miles from the facility. Watchung Stables Market Analysis Final Report 58

62 Figure 47: Lord Stirling Source Markets Lessons All Other Programs Total New Jersey Counties # % # % # % Somerset % 1, % 1, % Morris % % % Union % % % Essex % % % Middlesex % % % Hunterdon 6 0.7% % % Sussex 8 1.0% % % Bergen 2 0.2% % % Hudson 6 0.7% 8 0.4% % Warren 2 0.2% 7 0.3% 9 0.3% Passaic 4 0.5% 5 0.2% 9 0.3% Monmouth 0.0% 4 0.2% 4 0.1% Camden 0.0% 3 0.1% 3 0.1% Mercer 1 0.1% 3 0.1% 4 0.1% Ocean 0.0% 2 0.1% 2 0.1% Total NJ % 1, % 2, % Other States New York % % % Massachusetts 0.0% 3 0.1% 3 0.1% Maryland 0.0% 3 0.1% 3 0.1% Pennsylvania 0.0% 3 0.1% 3 0.1% New Hampshire 0.0% 1 0.0% 1 0.0% Wisconsin 0.0% 1 0.0% 1 0.0% South Carolina 0.0% 1 0.0% 1 0.0% Connecticut 0.0% 1 0.0% 1 0.0% Kentucky 0.0% 1 0.0% 1 0.0% Total Other States % % % Grand Total % 2, % 2, % Source: Lord Stirling Stables and Mareth Advisors, 2012 When we examine the intra county 2011 source locations for Somerset, a distance decay pattern similar to Watchung s is exhibited. Residents from Basking Ridge generate 958 of the county s 1,804 transactions, or about one half of the 2011 totals. Similar locations in the northern portion of the county (north of I 78) and closer to Lord Stirling account for 65 percent of in county demand, while midcounty locations (south of I 78 and adjacent to Route 202/I 287) generate 28 percent of demand. Such locations as Somerset, Neshanic Station, and others that lie in the southernmost and most distant portions of the county generate just 7 percent of resident demand. Watchung Stables Market Analysis Final Report 59

63 Figure 48: Lord Stirling s Somerset County Source Markets Lord Stirling Source: Lord Stirling Stable and Mareth Advisors, 2012 With Lord Stirling situated on the border with Morris County,, it is not surprising that it is an important source market, generating 414 transactions or 14.5 percent of the 2011 total. Of this demand, 80 percent is for lessons. Stirling, Morristown, Chatham, Morriss Plains, and Mendham generate just over half of Morris County demand. These locations all share one obvious characteristic proximity to Lord Stirling Park. Watchung Stables Market Analysis Final Report 60

64 Lord Stirling s demand from Union County s is less obviously tied to geography as about one half of demand is sourced to Cranford, Scotch Plains, Summit and Plainfield, locations that are also key sources for Watchung Stable. Unlike Morris County users of Lord Stirling, Union County users are less likely to take lessons, but rather participate in the other programs that are offered. Why these users opt for Lord Stirling, when Watchung is more convenient for some of these communities, is an important area of inquiry that should be explored to understand the causes of this leakage and opportunities to better meet market expectations. Figure 49: Union and Morris County Sources of 2011 Demand at Lord Stirling Stable Union County Lessons All Other Total % Total Morris County Lessons All Other Total % Total Cranford % Stirling % Scotch Plains % Morristown % Summit % Chatham % Plainfield % Morris Plains % Garwood % Mendham % Westfield % Butler % Elizabeth % Madison % Clark % Cedar Knolls % New Providence % Dover % Berkeley Heights % Chester % Mountainside % Gillette % Fanwood % East Hanover % Springfield % Convent Station % Hillside % Pompton Plains % Linden % Mount Tabor % Roselle % Millington % Kenilworth % Long Valley % Rahway % Brookside % Roselle Park % Randolph % Succasunna % Danville % Ledgewood % New Vernon % Montville % Mountain Lakes % Parsippany % Mine Hill % Morris % Green Village % Whippany % Boonton % Total % Total % User Types 42% 58% 100% User Types 80% 20% 100% Source: Lord Stirling Stable and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 61

65 Briarwood Farm Indoor Riding Pavilion Show Ring Briarwood Farm is a regional show barn located north of Flemington, NJ. The facility is clearly positioned within a more affordable category of show and lesson oriented facilities, relying on facilities like Watchung and Lord Stirling to provide a consistent source of demand. Mareth Advisors met with the facility owner to discuss market trends and facility performance. Briarwood Farms was established in 1975 Green Village, NJ and in 1993 moved to its current location in Readington, NJ. Jack Benson founded Briarwood. After he married his wife Katie in the early 1990s, the operation became a family business. This is no less true today, even with the passing of Jack Benson in The leased stable property includes 65 acres of a much larger 300 acre parcel that is owned by Mr. Paul Prefetta, who purchased the property in The 20 year lease term is set to expire in In anticipation of that eventuality, Jack and Katie Benson purchased a 158 acre farm in Hillside to relocate the stables. While the Hillside farm is actively being hayed to the benefit of Briarwood, its future is less certain today. The physical improvements at Briarwood include five outdoor rings, an indoor ring, and twenty boarding stalls. Over the past three years, sixteen of those stalls have been occupied. Total horse population on the farm is reported at 65 head, indicating a workhorse herd of 49. These horses are cared for by a crew of seven full time workers, indicating a ratio of approximately nine horses per person. The six salaried positions (in addition to the owner) include four laborers, a barn manager, and an instructor. Two independent contractor instructors augment the owner s teaching capacity and are paid $25 per hour for their services. Seasonal hires include one teen at minimum wage and camp counselors who trade a portion of their compensation for year round riding privileges. Watchung Stables Market Analysis Final Report 62

66 Management describes the mix of users as evenly split between youth (mostly girls) and older professional women. Demand is predominantly (75 percent) sourced to locations within 15 minutes of the farm and the remainder from within 30 minutes. Since the onset of the national economic woes, financial performance is reportedly challenged, with break even status being elusive in 2010 and Current year performance has picked up and a yearend positive cash flow is expected. Some of the performance metrics revealed by the facility owner included an expectation that the farm s boarding program at a minimum cover the monthly lease ($7,500) and insurance payment of $9,500 per month. That goal is being easily met. Other key sources of income are primarily lessons, shows, and a small contribution from summer camps. Lesson activity was reportedly substantially down in 2010 and 2011 at between 40 and 45 hours of instruction per week. This is substantially below the high water mark of over 100 hours per week in the early 2000 s. Current year lesson activity has improved substantially at a reported level of 80 hours per week. Camps, however, continue to struggle. Prior to 2009, camps would attract the full quota of 28 campers per week, with many of the kids attending six weeks, and a substantial waitlist. With the economic downturn, spaces are filling, but campers are attending just two weeks and the waitlist no longer exists. Essentially, Briarwood is fighting harder for its business. Shows are one of Briarwood s primary activities. The facility s historic high, in terms of the number of horses for any one show, was attained in 2006 with 337 head. In 2012, the reported peak was 240 horses, a level that indicates substantial improvement over the 197 and 150 in 2011 and 2010, respectively. Briarwood believes the improvement in show activity is a combination of a couple of factors. The first was the return to normalcy following a two year period of increased competition from smaller barns in the region that sought to augment their business model through shows. This competition, however, was temporary as the riders that dabbled quickly realized that the quality of Briarwoods shows was not being matched. Further, Briarwood s recognition by New Jersey Horse Show Association (NJHSA), and New Jersey Professional Horsemen's Association (NJHPA) and many events sanctioned by the United States Equestrian Federation (USEF), provides the accreditation that many show riders seek. Last, it is generally believed that overall economic conditions are improving and that this gain in confidence is reinvigorating demand. According to the Briarwood s show calendar, the facility will host 13 shows by year s end. The economics of producing a show require that each exceed the reported $10K to $12K of expenses for judging, prizes, and other associated costs. Revenues are primarily derived from a $25 grounds fee per horse and entry fees of $25 per class. At the reported average of four classes per rider, each competing horse generates about $125 in revenue. At a $12,000 show cost, break even is achieved at 96 horses. Watchung Stables Market Analysis Final Report 63

67 At 240 horses, these averages suggest revenue of $30,000 per event and annual show revenue between $350,000 and $400,000 are possible. Overall financial performance at Briarwood is reportedly mixed. The operation provided positive cash flow for the period between 1995 and 2006, exceeding the reported $650,000 break even level. More recently, the operation operated in the red both in 2010 and 2011, but expects to return to the positive in Revenue generated by the facility reportedly exceeded$1.0 million per year in the best year. Other non labor costs identified by the owner included: Insurance $40,000 per year Rent $90,000 per year Utilities $24,000 per year Overall, the owner believes the facility is well positioned for its market. Key wish list items include the desire for an indoor viewing area for the single indoor ring and a warm room for horses waiting to utilize the ring. In addition, the owner felt that a second indoor ring would create a unique market niche, though it was acknowledged that this desire was not specifically studied or considered from a feasibility perspective. Red Oak Farm (nee Black Brook Stables) Indoor Riding Arena Indoor Stalls Formerly Black Brook Stables, Red Oak Farm, LLC (Red Oak) is a 40 stall show barn located in Stirling, New Jersey, approximately 2.5 miles southeast of Lord Stirling Stable. The 20 acre site was first developed into an equestrian facility in The Dayton family took over operations and renamed the facility in October According to current land records, the acre property is owned by Sterling Farm, LLC. The property was purchased in November 2005 for $1.7 million. According to the stable owner, it is her understanding that the owner purchased the land for residential development opportunities. The Watchung Stables Market Analysis Final Report 64

68 downturn in the national housing economy followed by increased local scrutiny on land use policies has undoubtedly made that proposition much more challenging. The property is currently leased under a 5 year agreement with a 5 year renewal option that commenced in This total was reported to Mareth Advisors, but requested that the specific amount remain private. We would note that the monthly rent is well bracketed by others reported in this section. From an operations and management perspective, Bethie Dayton and her daughter provide the public persona, teaching, training, and interacting with customers. According to Bethie, her husband maintains the books and performs mostly back of house activities. Since taking control of the facility, approximately $200,000 has been invested in the property. Key items receiving capital expenditures included fencing, footing, hot water supply, and other general renovations that helped the facility escape a soured reputation in the market gained under the previous operator/lessee. Red Oak s website lists the following improvements: Two outdoor arenas Indoor arena (with lights, windows, and mirrors) connected to barn 12 stall front aisle with tack room and tack lockers 18 stall back aisle with tack room, tack lockers, and grooming stall 4 stall outdoor back barn Four large grass fields Five sand turnouts Outdoor round pen for lunging or turnout Heated/air conditioned upstairs viewing room overlooking indoor ring Heated tack cleaning room The indoor riding area with the upstairs heated viewing area is perhaps the most unique feature of Red Oak, from an improvement perspective and as a point of differentiation with the competition. From a positioning perspective, Red Oak is the most show oriented facility reviewed by Mareth Advisors. This show calendar currently posted on their website includes dates from June to November. The calendar listed two of the four annual home shows reported by the owner and another 27 away shows that totaled 86 days of events. Home shows typically attract 60 +/ participants that average four classes each. The largest show, held each fall in support of the Valerie Fund, attracts 75 participants. Children under the age of 18 are the primary consumers of the stable s services, comprising a reported 90 percent of total demand. Adult users, mostly women, comprise the remaining 10 percent. Most clientele that use Red Oak s facilities are already riding, coming out of Lord Stirling, Watchung, and other smaller barns nearby. Over 80 percent of demand is estimated to emanate from locations within 15 minutes of Red Oak. There are 32 horses currently boarded at Red Oak. This level has been stable over the past three years. Of the 32 horse currently boarded, they include a mix of leased, privately owned, and work horses. At Watchung Stables Market Analysis Final Report 65

69 the reported percentages of 20, 65 and 15 percent, respectively, the herd consists of 6 leased, 21 privately owned, and 5 work horses. Monthly boarding is priced at $1,107 per month, inclusive of hay, feed, bedding and turnout. Fullservice pricing that includes daily grooming is priced at $1,374 per month, inclusive of taxes. Monthly expenses related to boarding are reportedly on the rise. The stable s monthly cost is between $900 and $1,000 per horse, indicating a relatively minor to break even profit margin for this activity. With 27 horses generating boarding fees, revenue from this activity is estimated by Mareth Advisors at $340,000 per year. Camps are utilized to fill slower summer months. This year s calendar included seven weeks of half day camp (9 am to 1 pm) priced at $525 per week for children four and older. Capacity is limited to 10 children per week. Over the past three years, camp participation has average between 7 and 10 children. At the reported pricing and capacities, Mareth Advisors estimates the seven weeks of camp generate around $30,000 to $35,000 per year. Total revenue from boarding and camps is estimated at roundly $370,000 per year. When compared against the reported annual cost to operate the facility of $360,000 per year, these two activities alone cover the base facility expenses. Other activities such as lessons and other minor services provide the profit. Unfortunately, lesson utilization data was not shared with Mareth Advisors. Current pricing of $75 for a private one hour lesson are roundly $25 more expensive than Watchung s. If other facilities lesson activity of 30 to 40 hours per week holds true at Red Oak, the total may amount to over $100,000 per year. Add in show related revenues, horse buy/sell transaction fees, and other minor revenue sources, it becomes clearer how this business model is sustainable in a family held environment. Other annual cost metrics identified by the operator included: $12K utilities $7K manure removal $22K insurance Paid manpower that augments the Dayton s efforts include a facility manager, 4.5 FTE barn workers, and an accountant. During the summer season the labor pool is augmented with local teens that trade out their labor for riding privileges. Hourly rates for well qualified year round barn workers are reported at between $13 and $15 per hour, a rate that is similar to Briarwood s. Watchung Stables Market Analysis Final Report 66

70 Saddle Ridge Riding Center Indoor Riding Arena Stalls w/ Attached Small Paddock Saddle Ridge is located in the northwestern corner of Bergen County. The Bergen County owned facility was identified by Watchung management as one a competitor/ comparable facility within the area. Based on our review, however, we do not believe that it competes directly with Watchung. Rather, it serves as a useful and additional indicator of trends and performance and, perhaps more importantly, provides some insight into the public landlord tenant dynamic. The facility was developed on surplus federal lands that were donated in the late 1960s under President Nixon s Legacy of Parks program to be used in perpetuity for public park, recreation or wildlife purposes. The facility is additionally protected under New Jersey s Green Acres Program that dedicates the lands permanently for parks and open space. The current lessor, Gina Demuro, acquired the lease in 2003 under a 5 year initial term with a 5 year renewal. The fundamentals of the agreement are that the lessor properly maintain the property, keep a minimum of 30 horses on site (15 school and 15 Western), and work with the county to identify capital improvements and then pay for them. Those improvements are determined through site visits by county personnel. Monthly lease payments are reported at $6,000 per month, triple net. The facility includes 3 outdoor rings, an indoor ring (70x120), and 30 boarding stalls. Currently there are 20 boarders, down from 28 in 2011 and 30 in The loss of boarders is attributed to cost saving measures by owners that are opting for lower cost barns. Current pricing for board ranges from $837 to $897 per month, depending upon the level of service. Basic service includes: AM, PM and lunch time feeding Nutritionist Medications & First Aid Rubber matted stall flooring, bedded with Canadian shavings Half day turnout Watchung Stables Market Analysis Final Report 67

71 Board is set at the higher end of the price range and includes grooming, tacking and training sessions. With the typical 30 horse capacity filled, board revenues total around $300,000 per year. The 2012 total of 20 boarders has reduced this income potential by an estimated $100,000, likely straining the operation financially. From a curb appeal perspective, Saddle Ridge does not maintain the same visual quality as others in the market visited by Mareth Advisors. Buildings and improvements all appear older and more worn. Whether this speaks to the operator, owner, or state of the business cannot be determined specifically, yet it could suggests that there may be insufficient financial capacity to fund aesthetic improvements. The downturn in boarding is being mirrored among other activities as well. Management reports downward trending participation in camps, show participation, and general level of activity. This is somewhat contrary to the rest of the evaluated facilities that generally report slightly improving trends in This downward trend may also reflect Saddle Ridge s unique source market configuration, where 30 percent of demand is estimated to reside within 15 minutes, 70 percent within 30 minutes, and 100 percent at the 45 minute interval. The fact that the core of their demand is not located proximate to the facility also makes it more likely that it is intercepted by a competitor. Shows are a minor activity at Saddle Ridge, with in house spring (May) and fall (October) shows held annually. These shows historically attract approximately 30 riders each, though the spring 2012 show attracted just 20 riders. Lessons are the facility s core revenue generator. Peak spring and fall months generate, on average, 30 lessons per week. Winter months average 5 to 10 lessons per week, while the summer average is closer to 15 per week. A private one hour resident lesson is currently priced at $83, a rate that is at the top of the set of properties evaluated and about $30 higher than at Watchung. Based on these inputs, Mareth Advisors estimates the facility generates a minimum of 1,300 lessons about $100,000 in revenue per year. Management would not confirm any financial details. Camps sessions are offered for 10 weeks during the summers for children ages 6 to 15. Capacity is limited to 15 students per session each paying fees of $450 for the 9 am to 1 pm slot. At full capacity, camp revenue equates to $67,500 per year. Boarding, lessons, and camps generate an estimated $475,000 per year. Rent, at 6,000 per month or $72,000 per year, equates to just over 8 percent of this estimated revenue. Staffing levels reported by Saddle Ridge include the owner/manager and an assistant (a lead trainer that covers the manager s days off). Year round hourly labor consists of 2.0 FTEs paid around $10 per hour. An additional 4.0 FTE seasonal hires are added each year at similar pay rates. Instructors are independent contractors that are compensated with a 50 percent split of lesson revenue.. Watchung Stables Market Analysis Final Report 68

72 Essex Equestrian Center Typical Stall Indoor Riding Arena (note therapeutic riding concession at rear) Mareth Advisors visited Essex and was introduced to the facility manager Samantha Garner. After several follow up efforts and unreturned calls, it was made clear that Essex did not want to participate in the research effort. As such, the data below was either gathered from the facility s website, provided by third parties, or discerned by Mareth Advisors. Essex Equestrian Center is uniquely situated on three parcels totaling approximately 3.5 acres within a single family residential section of West Orange, New Jersey. According to public land records, the registered owner of the property is R & L Stables, LLC. The public land records also note that the property was sold to The Riding Academy of Montclair in 1997 for $3.08 million and the facility operated as the Montclair Riding Academy until The property is assessed today at $1.92 million. The standout feature of the facility, besides its setting, is the Olympic size heated indoor arena. One end of the building encompasses the entry lobby and viewing area while the far end of the facility is used by a third party to provide therapeutic riding. Other features gathered from the website include: Outdoor arena with full hunter jumper course 40 (12x12) stalls 3 wash stalls Party room for parties and camp Lobby with front row view of indoor arena 6 round pens for turn out and lunging Tack shop Review of the programs and services offered and pricing data provided by the website highlights the focus of the operation. Lessons and training top their list of activities. Pricing for a 30 minute private lesson is currently set at $55, a rate that is consistent with other providers. Watchung Stables Market Analysis Final Report 69

73 Two boarding options are available. The slightly larger 12x12 stalls rent at $975 per month, inclusive of board, rent, and any applicable NJ taxes. The slightly smaller 12x12 stalls are priced at $925 per month. A full service boarding option is provided for an additional fee. Other upcharges include lunging ($30), worming ($20 per tube), and tack locker rentals ($200 per 6 months). Essex s Summer Riding Camp is offered for 10 weeks each summer in both full and half day options. The full day runs from 9 am to 4 pm and is priced at $695 per week. The half day runs until 1 pm is priced at $425 per week. Each week of full day camp alternates between A and B rider skill designations. The A designations describes riders that can walk, trot and canter, while the B is for riders of any ability. Half day sessions are limited to 15 participants, A is limited to 10, and B to 12. Birthday party slots are offered Saturdays and Sundays from either 11am 1pm or 2pm 4pm. Party activities include a pony ride, a personal barn tour, grooming demonstration and the room rental. The advertised price is $30 per child with no minimum requirement noted. For parties larger than 15 children, an additional $50 fee is applied for a second pony. Barn tours are priced at $25 per child and include a grooming demonstration and pony ride. Other aspects of the operation detailed on their website include show team, a small retail outlet named Tic Tac Shop, and a section for leasing or purchasing horses. While our understanding of Essex was undoubtedly diminished by their refusal to meet with us, their focus on just a couple of key equestrian activities that include lessons, camps, and show and the much higher cost structure for boarding are quite similar to other privately operated barns. Bergen Equestrian Center (BEC) Formerly Overpeck Farm, BEC is one of two equestrian facilities owned by Bergen County. The other is the earlier described Saddle Ridge Riding Center located 20 miles northwest in Franklin Lakes. Bergen Equestrian Center is located within Overpeck County Park in Leonia, just five miles west of New York City. The park was first conceived in the mid 1950s and was planned to rival Central Park. The equestrian facility first opened in the early 1970s. The facility has been managed by various people and companies through a series of agreements. To Mareth Advisors best understanding, the timeline of operators and their periods of oversight included: Steve and Linda Shahanian 1980s Paul Novagrad 1990s (also ran Claremont Riding Academy in NYC) Rusty Holzer early 2000s Equestrian Services late 2000s until closure in May 2009 Anna & Joseph Gassib Jr. (recently selected lessor) According to a NorthJersey.com article published on August 13, 2011, Anna and Joseph Gassib were the successful respondents to Bergen County s fourth RFP attempt to find a lessee. The County s stated goal was, to provide the highest quality of affordable equestrian experience to the greatest number of customers, with a focus on Bergen County residents. Watchung Stables Market Analysis Final Report 70

74 The Gassib s Indian Hills Farms bid was one of four received. The remaining three were deemed nonresponsive for generally technical reasons. The Gassibs are also the current operator of Garrett Mountain Equestrian Center, a Passaic County owned facility located in Franklin Lake. According to Gina Demuro, who operates Saddle Ridge Riding Center, previous bidders on earlier RFPs included herself and Mark Leone, a well known equestrian operator in the region. The selection of the operator undoubtedly comes with some financial relief to Bergen County. The equestrian facility was closed in May of 2009 to undergo $4.7 million of controversial improvements and has been closed since. The improvements were points of concern for both fiscal conservatives and horse lovers alike, the former for the amount of spending and the latter for the cost s potential impact to pricing. The online article further noted that the terms of the agreement include 10 year initial lease period (with one five year option) and free rent for the first nine months. Rent payment will escalate from $10,101 in the first year to $17,000 in the tenth. This change equates to a 5.4 percent annual escalation clause. At an average lease payment of $13,550 per month ($12,261 average per month when considering free rent) or $162,600 per year, the County s return on investment equates to a negative 1.5 percent of the $4.7 million spent on the improvements in Clearly the county was motivated to secure this deal and reopen the facility. The county s position, however, will be enhanced by the additional capital improvements the new lessors have committed to undertake. They include replacing footing in the indoor arena, reconfiguring fencing, and repairing the roof over the main barn, a cost that was reported by an unsuccessful bidder of an earlier RFPs interviewed by Mareth Advisors to total around $180,000. The history of the facility s operation and the series of RFP requests highlight management challenges for an industry that demands high emotional investment, but also the negative impacts of stringent terms demanded by Bergen County and the softening of those terms as the process moved forward. The initial two RFPs issued by Bergen County Improvement Authority (BCIA) were supplanted by a county issued document following the transfer of the equestrian facility from BCIA to the Department of Parks and Recreation. This change in oversight followed, what NorthJersey.com reported, the indictment of Ronald O Malley, BCIA s former executive director, on 68 counts of fraud and conspiracy to commit fraud in late As detailed below, the primary changes that evolved through the successive RFP efforts included the extension of the term from up to five years to ten years, a gradual softening of the employee retention requirements, softening of the reporting requirements, and elimination of the horse purchase requirement. Regarding this last point, it is interesting to note that the county sold nine of the remaining 18 workhorses earlier in the year to reduce the center's expenses average cost of about $18,000 per month, including a reported $10,000 per month to feed the horses($550 each). The Gassibs, coincidentally, also secured that deal, purchasing the horses for $1 apiece for use in their therapeutic program and the couple s pony ride concession at Van Saun Park in River Edge, NJ. Watchung Stables Market Analysis Final Report 71

75 According to an unsuccessful bidder to one of the earlier RFPs, the bond security item and the additional capital to complete repairs were their most significant hurdles. May 5, 2010 RFP Two to five year contract term Provide performance and payment bond worth 100 percent of the guaranteed bid for the year plus any agreed to capital improvements Retain the current stable staff for at least four weeks Provide the county Parks Department with quarterly reports June 2, 2010 RFP Two to five year contract term Provide performance and payment bond worth 100 percent of the guaranteed bid for the year plus any agreed to capital improvements Buy an unspecified number of horses from the BCIA Provide the county Parks Department with quarterly reports Nov.9, 2010 RFP 10 year contract, with a five year renewal option exclusive to Bergen County Provide performance and payment bond worth 100 percent of the guaranteed bid for the year plus any agreed to capital improvements Retain three members of the current stable for at least sixty days at current rates Staff members that occupy on site must have a 30 day notice for termination of housing arrangement Other provisions of the Nov RFP noted in Mareth Advisors review of that document included the following: Minimum rent amount of $1,200 per month, triple net (exceeded by actual bid) Annual renewal of bond assurance for annual lease payment and any additional proposed capital expenditures Free board, tack, feed, and related care for up to two police horses, with unfettered 24 hour access Two event days per year provided for county use at no charge Sufficient work horse herd to provide up to 70 lessons per day Fees approved annually with 10 percent discount for residents Maintain 5 stall quarantine barn for sick horses Accept ownership of any horses on property or agree to sell undesired stock within 60 days Mareth Advisors attempted to contact Ron Kistner, the director of Bergen County s Parks and Recreation Department, on several occasions to confirm the aforementioned details. Those calls were Watchung Stables Market Analysis Final Report 72

76 not returned. Notwithstanding this limitation, the data gleaned from the online news reports do provide insight into Bergen County s challenges in securing the selected operator, the types of operators attracted to the opportunity, and other expense related data. Reopening is currently scheduled for late September Market Pricing The pricing comparison that follows highlights both the affordable nature of Watchung s pricing and the substantial differences between the operational model of the public recreation barn and the privately held or operated barn. The obvious difference, besides pricing, was the sheer number of activities at the publicly operated barns. While on one hand this highlights the broad array of recreation opportunities, this also highlights the substantially more diverse (and complicated) nature of the operations when compared to the streamlined offerings of the private barns. The item that Mareth Advisors believes is the most underpriced is boarding, which exclusive of the $4 daily turnout fee is nearly half the cost of other facilities offering indoor boarding. If Watchung were to add another $120 to account for 30 days of turnout and provide a more equal basis of comparison, Watchung s resident boarding rate of roundly $575 per month is still $300 less per month than the next least expensive barn offer indoor boarding. Lord Stirling, which only offers four slots for outdoor boarding in turn in sheds, is still priced at higher at $750 per month. Watchung instruction appears to be well priced relative to the market. Pricing is very comparable to Lord Stirling, its primary competitor/comparable, and only slightly below private barns. Trail riding is only offered at Watchung, Lord Stirling, and Saddle Ridge. Most operators cited insurance costs as the primary concern in their decision not to provide. Watchung and Lord Stirling are similarly priced, with the latter priced at $23 for a resident weekend hour ride versus $ 28 at the subject. Saddle Ridge trail rides are priced at $50 per hour. Watchung s camps run four days per week from 9 am to 3 pm, providing 24 hours of activity priced at $308 for the first child, equating to a cost of $12.83 per hour. Lord Stirling Camps are priced at $250 for five days of instruction from 9 am to 1 pm. The 20 hours of activity translate to a cost of $12.50 per hour. These comparably priced activities are priced $150 less than Briar Wood ($450 per week), the next lowest cost private provider among the surveyed facilities. Similarly, birthday parties and barn tours are expectedly less expensive at the public facilities, but within market parameters. Watchung Stables Market Analysis Final Report 73

77 Figure 50: Market Pricing Comparison 2012 Pricing Watchung Lord Stirling Red Oak Briarwood Essex Saddle Ridge /19 Resident Non Res. Resident ID Holder /4 Non Res. Non Boarder Boarder Resident Boarding and Services Box stall monthly /3, 8 $446 $578 $725 $725 $725 $1,107 or $1,375 $850 $925 to $975 $837 to $897 Box stall daily $15 $20 $25 $25 $25 Tie stall monthly $362 $435 Tie stall daily $12 $15 Turn out (per hour) $4 $4 Hold empty stall monthly /16 $150 $180 Hold empty stall daily $5 $6 Late fees $42 $42 Wait list fee (initial) $20 $20 Wait list fee (renew) $5 $5 Grooming $15 $15 Bathing $20 $20 Tack w/ grooming & tack clean $35 $35 Mane pull $20 $20 Blanket Fee (monthly) $60 $60 $60 Non Res. Horse Rentals Weekday 1/2 hr. $24 $32 Weekday 1 hr. $15 $23 $22 n/a $29 WE/Holiday 1/2 hr. $27 $35 WE/Holiday 1 hr. $18 $25 $25 n/a $33 Weekly Horse Rentals /1 $220 $325 See Notes on Page 77. Source: Respective operators and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 74

78 Figure 51: Market Pricing Comparison (continued) 2012 Pricing Watchung Lord Stirling Red Oak Briarwood Essex Saddle Ridge /19 Resident Non Res. Resident ID Holder /4 Non Res. Non Boarder Boarder Resident Non Res. Instruction (per lesson) Senior Troop/Group Lesson/2,6 $28 $37 $27 $35 $44 $65 Junior Troop/Group Lesson /2,6 $23 $32 $65 Adult Troop/Group Lesson /2,6 $29 $41 $55 $40 $65 Each Addt'l family member /2,6 $22 $31 Private (1/2 hour) $55 $50 $55 $48 $50 Private hour Weekday /5 $54 $62 $60 $75 $90 $85 $75 $45 $83 $85 Private hour Weekend /5 $57 $65 $60 $75 $90 $85 $75 $83 $85 Semi private hour /10 $45 $62 $68 $65 $55 $45 $77 $89 Professional Training Ride $50 $50 $70 Testing Fee $10 $10 $10 $45 Jumping Class Lesson $31 $39 $47 $75 Show Coaching Home $75 Show Coaching Away $55 Lead Line/Group/Pony Rides (per per.) 1/2 hr. w/parent (9 & under) $15 $23 Pony Ride Weekday $9 $11 $30 Pony Ride WE/Holiday $10 $12 $50 Youth Group /11 $25 $25 $25 Adult Group /11 $30 $30 $30 Trail Rides/Hacking (per person) Weekday $25 $36 $21 n/a $27 $50 $50 WE/Holiday $28 $39 $23 n/a $31 $50 $50 1/2 Hour $40 $40 Private reserved Add $30 Add $30 Beginner Trail Ride $26 n/a $34 See Notes on Page 77. Source: Respective operators and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 75

79 Figure 52: Market Pricing Comparison (continued) 2012 Pricing Watchung Lord Stirling Red Oak Briarwood Essex Saddle Ridge /19 Resident Non Res. Resident ID Holder /4 Non Res. Non Boarder Boarder Resident Non Res. Summer Riding Camp/Instruction Full Day First family member /12, 18 $308 $408 $525 $525 $450 $695 Each Additional $293 $388 $695 Half Day /14, 17 $250 $375 $300 $425 $450 $450 Mini Workshops /13 $55 $93 Other Activities Barn Tours Rate /9 $45 $90 $15 ea. Birthday Parties (2 hours) /7 $150 $200 $175 $250 $25 or $30 ea. $300 to $500 Assembly Room Rental Fee (per hour) $60 $75 Horse Fan Badge (per person, min 5) $10 $10 $8 $10 Brownie Try It (per person, min 10) $5 $5 Moonlight Rides $32 $40 Introductory Rides $35 $40 Trail Permits (annual) $20 $32 Trail Permits (one day) $8 $12 Hay Rides /15 $10 $10 Equine Art Class $50 $50 Drill Team (8 rides +perform.) $231 $310 See Notes on Page 77. Source: Respective operators and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 76

80 Figure 53: Pricing Notes Notes /1 Watchung weekly horse rentals only available weekdays and off season /2 Watchung troop pricing includes 10 lessons for senior and junior troop, 8 lessons for adult troop /3 Red Oak higher "deluxe" pricing includes daily grooming; Lord Stirling has "Retirement" pricing of $360 per month for stall and $240 per month for pasture boarding /4 ID can be purchased for $150, providing non resident frequent users with a discounted cost from the non resident rate /5 Watchung private lessons are 45 minutes /6 Essex offers buy 10 get one free packages /7 Watchung pricing is up to 15 people; Lord Stirling is up to 30 people; Essex's lower rate includes pony ride and party room, $30 price adds tour of barn and grooming demonstration /8 Essex has two slightly larger "upstairs" 12x12 stalls at the higher rate /9 Watchung's barn tour is "group" priced, with no maximum group size indicated on pricing sheet /10 Lord Stirling semi private lesson prices listed per person (actual cost is double for a two person lesson) /11 Lord Stirling group rate is priced at a 10 person minimum (e.g. $250 per youth group) with an extra charge of $28 per youth and $32 per adult for groups over ten /12 Watchung camps are 4 day sessions /13 Mini workshops offered at Lord Stirling are two hour sessions held on five consecutive Saturdays in the summer. /14 Named "summer workshops" at Lord Stirling, program includes one hour of riding daily /15 Lord Stirling hay rides are $8 for each additional person after the 10th /16 Watchung stalls can be held up to four months /17 Half day camps at Briarwood for 6 & 7 year olds only. /18 Briarwood and Red Oak offer a multiple week or sibling discount of $25 for each additional (e.g. 1st week or sibling at $450, 2nd is $425, etc. etc.) /19 Saddle Ridge lesson pricing is for riders with less than 7 years of experience. Price increases nominally for more experienced riders. Source: Respective operators and Mareth Advisors, 2012 Watchung Stables Market Analysis Final Report 77

81 Leasing and Third Party Management Options Given the recent financial performance of Watchung Stables, Union County requested that Mareth Advisors evaluate the opportunities to lease the facility to a third party or alternatively find a third party management company. This effort, we believe, reflects the county s experience in shifting their golf operations to a management company that has resulted in positive performance both in terms of overall utilization and financial performance. After review of the subject market, review of the Bergen Equestrian leasing effort, and discussions with operators, owners, and others knowledgeable of New Jersey Equine industry, we believe that the County s desire to consider either of these third party options will be challenging and ultimately may not bring about changes that are broadly seen as a win win for the county and the current users of the facility. The opportunities and constraints, as we see them, are as follows: Opportunities Shifts the financial risk away from county Market rate rents of between $10,000 and $13,000 per month Brings focused expertise and experience to the business Brings new ideas to bear May provide economies of scale and other efficiencies Constraints Industry continues to be almost exclusively mom & pop operators that get into the business often for their love of horses No identifiable national operators; bidders for Bergen Equestrian Center (Overpeck) all local, smaller enterprise operators, though some have multiple facilities under management Watchung and Lord Stirling both highlight the challenges of making a profit under their similar business models A third party operator may need to change business model (i.e. streamline) to achieve financial goals; this creates some risk that legacy offerings go away, prices go up, or bidders will be hard to attract if County demands a continuation of the same model Lack of indoor riding space may be perceived as a substantial competitive disadvantage for a third party Watchung Stables Market Analysis Financial Analysis Section Draft 78

82 Stakeholder Interviews Mareth Advisors conducted interviews with leadership of the three primary support organizations at Watchung. This effort provided a better understanding of the organizations purpose, how they interacted with the facility/management, and their perceptions on the issues and opportunities related to Watchung. Watchung Stable Auxiliary, Inc. The Watchung Stable Auxiliary, Inc. ( the Auxillary ) is comprised primarily of parents of riders in the Troop program. The organization hosts numerous fundraisers yearly, donating horses and related equipment to Troop. The Auxiliary also coordinates educational seminars. In addition, the Auxillary runs Watchung s SHOW (School Horses of Watchung) retirement program whose mission is, to provide dignified, healthy and comfortable retirement for the school horses of Watchung. The organization was founded in 1993 to resist Union County s desire to privatize the stable operation. Mareth Advisors spoke with Karen Suric, the group s current president. The Auxillary members currently total 144 people, inclusive of 4 to 6 people dedicated to the group s SHOW subsidiary. The group organizes two main fundraisers per year that include the fall Citrus Fundraiser and the Mother s Day plant sale in the spring. The group also organizes two of the Watchung s four annual horseshows. The composition of the Auxiliary s board of directors has caused it to focus more intently on business practices at the stables. Their observations mirror other general comments from other user groups that include a lack of adult programming and a lack of year round opportunities. There is a sense that a lot of well intentioned effort is being expended, but seemingly without a plan or how the Auxillary can help a plan move forward. Watchung Riding & Driving Club The Watchung Riding & Driving Club ( WRDC ) is an adult organization that is dedicated to highlighting programs offered at the facility, as well as raising money for the purchase of stable equipment and show jumps. Each year they sponsor a variety of activities, including riding clinics and hunter paces and horse shows. Mareth Advisors spoke with Linda Dorn O Donnell, the organization s current vice president. The organization is comprised of 30 members that raises between $1,000 and $2,000 per year to provide blankets, jumps, saddle pads, or other non budgeted items that are in need. The organization holds bi monthly meetings regularly attended by about 10 members. The organization noted a substantial shift in focus at Watchung over the past ten years or so away from adult to youth programs. This shift reportedly occurred when management shifted from Hilton Williams to Mark Burrows, the latter being the manager just prior to Rachel Baris Becthold, the current manager. Watchung Stables Market Analysis Financial Analysis Section Draft 79

83 Concerns voiced by members of WRDC, as described by their representative and aside from the perceived lack of adult opportunities compared to earlier times, include the quality of the horse stock, a general lack of new ideas or innovation, and the lack of an indoor riding ring. Watchung Junior Hunt Club The Watchung Junior Hunt Club ( WJHC ) is similar to R&DC but is comprised of junior riders, ages 9 to 17. In recent years, the club donated a horse to Troop, organized trips to horse shows and ran a food drive for the needy during the Troop Horse Show. Mareth Advisors spoke with Lori Puhak, the group s adult advisor. WJHC is currently comprised of 100 members between the ages of 9 and 18. Of this total, just three are boys. The active members are reported to total about 80. Of the three users groups interviewed by Mareth Advisors, this is the most rapidly growing. Prior to 2009, the active component more typically totaled fewer than 40 people. WHJC s expansion is attributed to a dynamic group of leaders within the group that are actively recruiting and speaking the group s benefits. This energy is reflected in the financial contributions in 2012 that reportedly totaled around $8,000, compared to previous year totals around $1,000. Fund raising primarily occurs through bake sales, sales of carrots, t shirt sales, and operation of a food stand during shows. These funds will be used by the club to purchase a horse. In years past, lesser amounts have purchased saddle pads, jumps, and other miscellaneous items for the stable. While these organizations all share several common traits, the most significant is their users clear emotional bond with Watchung and a sincere desire for the best to occur. They all also recognize the proximity of the stables to their users, the advantageous pricing, and widespread recognition that the current manager is an important reason behind their improved perceptions as users and organizers at the stables. Given the enthusiasm and commitment of these organizations, they could perhaps be more effectively utilized by Watching management. Yet, from Mareth Advisors point of view, these organizations are underutilized as a management tool and appear to be operating autonomously, receiving little formal direction from either the stable manager or the County on how they can fit into a broader plan for the stables. Watchung Stables Market Analysis Financial Analysis Section Draft 80

84 Conclusions and Recommendations Based on the review of national recreation trends, anticipated changes in the market s demographic makeup, and trends in the competitive marketplace, it is Mareth Advisors opinion that Watchung Stables in its current format will continue to experience negative financial results going forward. Can its financial position improve? We believe the answer is yes. These statements reflect our opinion that the business model for Watchung is fundamentally challenged from a profit perspective. The incremental hours that each horse can provide are limited. Yet the fixed costs required to care and tend to a product that is delivered by a living, sentient creature ease only slightly when utilization is low. Unlike widgets, horses do not always cooperate and are not always suited for every rider that walks in the door. They can go lame or just choose to stop working. Given these challenges we believe there are several potentially viable options and no single right answer, but rather an answer that the community, through its elected leaders, can select. Option 1 Status Quo Business Plan: Under this option, the way Watchung Stables are operated does not fundamentally change. Management is tasked with improving overall performance through better utilization of horse inventory and introduction of greater expense efficiencies. This will require management to develop a comprehensive business (and staffing) plan, something that currently does not exist and represents a significant challenge to effective short and long term facility management. A realistic expectation is that the losses are narrowed, but do not go away completely. Set a two to three year period for improvement to occur and move onto another Option if results are not achieved. Option 2 Demand Profitability Plan: This plan focuses on the fiscal issues. Management is tasked with reorganizing the stables and eliminating unproductive activities, adjusting staffing levels, horse inventories, etc., to modify the business model to achieve a minimum break even proposition. We believe that this will require the business model to evolve to something that more closely resembles a show barn. This would likely demand a greater focus on the recovery of boarding costs, camps, lessons, and shows as the primary revenue generators. Some of the activities and character that are its legacy and make Watchung what it is today are likely at risk. Option 3 Third Party Lease Plan: Essentially Option 2, but a third party manager assumes the operating risk. Mareth Advisors believes that absent any specific language dictating otherwise, a third party operator will gravitate toward a business model that is more similar to show barns (Option 2) than recreation barns. Should the county demand that a third party maintain the current business concept, we believe that it will likely result in a limited interest response, as was encountered by Bergen County. Based on the types of respondents Bergen County received, there is little indication that a national player will respond. We would expect a mix of local operators with varying degrees of expertise. None is necessarily more capable than current management. Option 3 may also provide an opportunity for the development of an Watchung Stables Market Analysis Financial Analysis Section Draft 81

85 indoor ring, if the lease horizon is sufficiently long for the lessee to recover their investment. The shift of risk and the possibility of attracting third party capital may be compelling factors. Option 4 Close facility Plan: Eliminates the financial woes and the challenges and expenses of finding a third party. This plan is the most drastic and politically the most challenging. It also does the most damage to New Jersey s equestrian economy. The numbers of riders at other barns that rode early in their careers at Watchung is substantial. Eliminating this feeder market source will almost certainly have a ripple effect through the broader equestrian economy. Within Option 1 or Option 2, we believe that Union County will need to implement changes to achieve more successful financial results. Presented below are the key areas of focus we believe can have the greatest and most immediate impact. The degree to which the screws are tightened on the expense items ultimately will rest with the county s overarching goals for the facility and the timeliness under which the changes must occur. Develop a business plan that outlines the specific goals and actions that will occur to meet those goals o Measure progress against the plan o Demand accountability from managers and management staff Demand better records for financial accounting. o Provide ability to cost account each activity to understand its contribution to the operation, both in terms of profitability and contribution to the experience o Not all activities have to make a profit, but understanding which do and which don t is a fundamental building block for creating a successful business plan Gain a better understanding of who the customers are or are not o Understanding the customers better will help management identify opportunities that have the broadest support and thus the greatest opportunity for success o Find out why some Union County residents are opting for Lord Stirling Stable and not using Watchung o Continue to Engage the Watchung user groups to solicit their ideas, better understand their concerns, and begin to build support for necessary changes. Grow revenue o Much more challenging proposition given the current movement in the industry and Union County s demographic trends o Specifically reevaluate boarding fees and set pricing to achieve a better recovery of the actual cost; lump turn out fees into the cost increase as a way to guarantee that revenue and highlight the increased services Reduce labor costs o Private barns indicated unburdened hourly rates of around $15 per hour are sufficient to attract good help Watchung Stables Market Analysis Financial Analysis Section Draft 82

86 o Watchung s average hourly rate, prior to the $8.44 per hour burden, currently averages $23.04 Optimize horse inventory o Continue efforts to cull non working horses and to better match horse inventory to the skill level of demand o Consider reducing herd size. Financially, its more advantageous to have a waitlist (or raise prices) for high demand activities (e.g., Troop or Camp) than to pay the cost to maintain a larger herd that has too much slack time over a large portion of the year Watchung Stables has a strong minded and dedicated group of users, often families that are multi generational participants. Through the various support groups, many of these people already commit substantial amounts of free time and energy to support Watchung. Engaging with these key groups, and communicating about how Watchung must address market realities and financial limitations in order to remain viable, is a critical element of building support for any changes to come. Watchung Stables Market Analysis Financial Analysis Section Draft 83

87 Financial Analysis This report section evaluates two potential financial scenarios for Watchung Stables: As a leased/concessioner operation Continued county operation Each, along with qualitative assessment, is described in the following paragraphs Leasehold Option Leasing Watchung to a 3 rd party operator represents a substantial financial windfall to the county, as it eliminates the current operating losses and associated risk. Current deals in the market are relatively uniform in their values, ranging between $8,000 and $12,271 per month. This suggests annual values between $96,000 and $147,000. The 15 year (10+5) Bergen Equestrian Center deal at $147,000 per year (adjusted for 9 months free rent) is probably the best indicator of leasehold value for Watchung. As noted previously, this deal includes a $180,000 lessee capital expense to fix the facility s roof. Any actual Watchung lease value, however, will be predicated on a number of factors that include, but are likely not limited to: Term of the lease Demanded capital investment/ongoing improvements from the lessor Demanded operational concessions for county or other free/discounted use Resident discounts/pricing requirements Stipulations on the hours of operation Minimum daily capacity requirements Any other conditions that are placed upon the lessor Moving into a leasehold situation is not without risks. The county will certainly give up all or a substantial level of control. While this may appear to be financially beneficial, the operator and their financial goals may dictate that their operating model be substantially different than the current model, and their standards for service may also be different. As suggested in the recommendations section of this report, we would anticipate that lessors might seek to gravitate toward a private show barn model that offers a smaller array of activities focused on private lessons, show activities, boarding, and camp. Their appetite for beneficial public recreation activities could be constrained by their financial realities. Finding a qualified lessor could also pose a challenge, if the experience at Bergen Equestrian Center (BEC/nee Overpeck) represents a realistic case. While Bergen County s demands were substantial, the process of finding their operator for BEC required four separate requests for proposals. The process Watchung Stables Market Analysis Financial Analysis Section Draft 84

88 attracted a number of operators that are all local in nature. Many were reportedly challenged by the capital stipulations and the county had to soften several key deal terms. Free rent for the first nine months was a substantial concession. Moreover, the selected operator, while assumed to be fully vetted, has not yet had sufficient time to prove out their abilities to operate a financially viable business at BEC. Leasing Watchung Stables is not a new consideration for the county and many of the challenges and opportunities are already known. And, while we do believe that the county can identify an interested operator in the marketplace, the complexities of such a decision will ultimately rest in the details of the deal and the broader goals of the community. Continued County Operation The financial analysis of Watchung as an ongoing county operation is based on evaluation of recent utilization, pricing, and expenses, with several key market based adjustments that are estimated to improve operating income, reduce costs, and reduce the county s overall net annual cost. This analysis highlights what we believe are the most obvious market based opportunities that should receive management s attention. The following pages detail key revenue and expense assumptions. Supporting tables are provided beginning on page 88. Of note, current pricing and utilization relationships between resident and nonresidents are maintained at current levels throughout the analysis. Revenue Opportunities Watchung s key revenue opportunities above recent performance levels (evaluated for year end 2011 and RecTrac measured performance from May 2011 to June 2012), include a combination of activities that are underpriced (boarding), substantially underutilized (boarding and birthday parties), and ones where minor upside reflect recent performance gains (horse rentals and instruction). All other revenue items are assumed to remain essentially revenue neutral relative to recent performance levels, though could increase as expected overall activity increases. These key items and our underlying assumptions are as follows: Boarding Boarding, both in terms of utilization and pricing, represent the single largest revenue opportunity at Watchung. Resident pricing at $460 per month is $280 per month less expensive than at Lord Stirling, a facility that offers only four covered, outside boarding opportunities. Private facilities that offer indoor boarding charge no less than $850 per month. We believe that a monthly rate of $600 per box stall represents a reasonable midpoint between current pricing and the market, and moves the boarding operation closer toward a break even price point, which was widely reported at $800 or more per month. Non resident pricing is 30 percent above resident rates, as currently priced, at $778 per month. Watchung Stables Market Analysis Financial Analysis Section Draft 85

89 More aggressive price increases nearer to full cost recovery will heighten risk that some customers will no longer be able to afford the facility, and could soften wait list demand. We believe that a more measured approach will still position Watchung as a relative bargain and reduce these risks. In terms of the number of leased stalls, Mareth Advisors would recommend increasing that amount to 40 stalls. This would essentially limit the size of the work horse herd to 60 or less. Recalling that the current peak work load could be achieved with a herd size of 56 horses working 4 hours on peak days, this mix should ensure greater efficiencies of use, and demand that management further optimize the herd to match the customer skill level requirements. With a current full boarder load of 28 stalls and a 17 person wait list, total demand for the facility is 45 stalls. However, the quality of wait list is uncertain, and a longer, two to three year ramp up may be required to achieve this level of boarding. Mareth Advisors assumed in its analysis that box stall boarders would occupy the stalls 70 percent of the year, generating nearly $205,000 per year, an increase of almost $93,000 over recent performance levels. Other minor adjustments within the financial model included setting pricing for daily box and tie stall use at a uniform ratio of 1/25 th the monthly rate, versus rates that are 1/29 th to 1/36 th of the monthly rate currently used, respectively. Last, turnout fees were eliminated in the financial model with a recommendation that this service be included within the boarding fee without extra cost. Overall, boarding related revenue is estimated to increase from $140,000 to $225,000, representing an $85,000 gain over recent performance. Horse Rentals Horse rental income is set at 1,250 rentals per year, just slightly above the 1,212 achieved in This slight improvement reflects the upward trajectory of horse rentals, but is assumed to plateau due to a static working horse herd size. Horse rental income is calculated using the same price and 2011 distribution (rental categories and resident/non resident use) extrapolated to 1,250 sales. This increases estimated sales roundly by $5,000, from $24,000 to $29,000. Camp, Shows, and Instruction A small increase in private instruction revenue is estimated over recent levels. The additional $4,800 is derived from a at 750 lessons each generating $30. All other items within this revenue category are assumed to remain revenue neutral, with both camps and shows remaining near current levels. Programs and Activities Birthday parties represent the second largest revenue opportunity for Watchung. The activity appears to be on the rebound after a price increase in 2011 reduced demand. Birthday demand is estimated at 250 events, which is slightly below historic highs well over 300 events. This estimate is considered to be Watchung Stables Market Analysis Financial Analysis Section Draft 86

90 achievable and maybe even slightly conservative given the facility s recent acquisition of a pony to support this activity. Total Facility Revenue Total revenue is estimated at roundly $759,000, representing an increase of $132,000 over recent performance levels. Nearly two thirds of this gain is estimated from boarding activities and nearly all of the remainder from birthday parties. This focus will be useful in directing resources and efforts most effectively and sets the stage to establish clear goals for the upcoming year and beyond. Watchung Stables Market Analysis Financial Analysis Section Draft 87

91 Figure 54: Revenue Assumptions Recent Quantity Annual Totals Pricing Current Modeled Resident Revenue Recent Variance Totals* Inputs Resident Non Res. Resident Non Res. Res. Disc.% Res. Disc.% User % Estimate $ Boarding Items Board Box (monthly) $ $ % 30% 93.8% $ 204,600 $ 111,975 $ 92,625 Board Tie Monthly (monthly) $ n/a 100.0% 5,800 5, Board Box Daily (monthly) $24.00 n/a 100.0% 8,100 7, Board Tie Daily (monthly) $19.00 n/a 100.0% Holding Monthly (monthly) $ n/a 100.0% 3,600 3,927 (327) Holding Daily (monthly) $5.00 n/a 100.0% 1,000 1,009 (9) Box Stall Late Fee (monthly) $42.00 n/a 100.0% 1,000 1,100 (100) Turnout (monthly) $4.00 n/a 100.0% 8,601 (8,601) Stall Wait List (monthly) $20.00 n/a 100.0% Yearly Renewal (monthly) $5.00 n/a 100.0% 33 (33) Medications (monthly) $5.00 n/a 100.0% 33 (33) Wormers (monthly) $14.00 n/a 100.0% Subtotal 94.5 $ 225,200 $ 140,059 $ 85,141 Note: Daily box stall boarding rates set at 1/25th of monthly rate versus 1/29th currently charged Note: Daily tie stall boarding rates set at 1/25th of monthly rate vers us 1/35th currently charged Note: Resident discount equates to 30% off non resident rate Increase in Boarding Costs is 35% above 2012 pricing Note: Monthly box boarding occupancy rate assumption: 70% * Recent Total is based on evaluation of 2011 YE data and RecTrac data for the period between May 2011 and July Blanks reflect inability to fully match up activity categories reported through Rec Trac system and prior full yea r data. Note: Red items represent model inputs Note: n/a = not applicable for resident/non resident pricing, as non resident rates are not currently offered Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Financial Analysis Section Draft 88

92 Figure 55: Revenue Assumptions (continued) Recent Quantity Annual Totals Pricing Current Modeled Resident Revenue Recent Variance Totals* Inputs Resident Non Res. Resident Non Res. Res. Disc.% Res. Disc.% User % Estimate $ Horse Rentals (net of taxes) Horse Rental WD 1/2 Hour 2% 27 1 $14.00 $ % 53% 95.0% $ 400 $ 314 $ 86 Horse Rental WD 1 Hour 45% $22.00 $ % 33% 86.4% 12,900 11,101 1,799 Horse Rental WE 1/2 Hour 13% $17.00 $ % 39% 91.7% 2,900 2, Horse Rental WE 1 Hour 39% $25.00 $ % 30% 91.9% 12,600 10,090 2,510 Total Horse Rentals 1,212 1,250 $ 28,800 $ 23,778 $ 5,022 Troop Troop Jr. (Spring & Fall) $ $ % 40% 88.0% $ 159,300 $ 159,345 $ (45) Troop Jr. 2nd (Spring & Fall) $ $ % 41% 96.9% 36,600 36, Troop Sr. (Spring & Fall) $ $ % 35% 94.2% 14,000 14,591 (591) Troop Jr. Daily (Spring & Fall) $24.00 n/a 100.0% Troop Child & Sr. Daily (Spring & Fall) $40.00 n/a 100.0% Troop Adult Daily (Spring & Fall) $29.00 n/a 100.0% 1,300 1, Subtotal $ 211,600 $ 211,626 $ (26) Camp, Shows & Instruction Sumer Camp $ $ % 32% 90.0% 78,300 $ 76,628 $ 1, Sumer Camp 2nd $ $ % 32% 89.5% 22,300 23,028 (728) Drill Team $ n/a 100.0% 12,000 12,096 (96) Private Instruction $30.00 n/a 100.0% 22,500 17,670 4,830 Horse Show Entry 1,643 1,670 1,670 0 $13.00 n/a 100.0% 21,700 22,659 (959) Horse Show Post Entry $17.00 n/a 100.0% 1,000 1,020 (20) Trail Ride Instructor $30.00 n/a 100.0% 2,300 2,356 (56) Subtotal 2,747 2,932 $ 160,100 $ 155,457 $ 4,643 Clinics Hour Clinic $38.00 $ % 32% 91.2% 3,300 $ 3,877 $ (577) /2 Hour Clinic $45.00 $ % 24% 92.3% 1,100 1,300 (200) Kiddie Clinics $10.00 n/a 100.0% Medical Clinics $25.00 n/a 100.0% Winter Clinics $20.00 n/a 100.0% 1,200 1,658 (458) Subtotal $ 7,200 $ 7,812 $ (612) * Recent Total is based on evaluation of 2011 YE data and RecTrac data for the period between May 2011 and July Blanks reflect inability to fully match up activity categories reported through Rec Trac system and prior full year data. Note: Red items represent model inputs Note: n/a = not applicable for resident/non resident pricing, as non resident rates are not currently offered Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Financial Analysis Section Draft 89

93 Figure 56: Revenue Assumptions (continued) Recent Quantity Annual Totals Pricing Current Modeled Resident Revenue Recent Variance Totals* Inputs Resident Non Res. Resident Non Res. Res. Disc.% Res. Disc.% User % Estimate $ Programs and Activities Lead Line $14.00 $ % 53% 76.0% $ 2,900 $ 2,657 $ 243 Birthday Party 20 ppl. per) $ $ % 33% 90.5% 38,300 3,545 34,755 Adults $ $ % 40% 87.2% 24,900 24,905 (5) Date Night Ride $56.00 $ % 39% 92.3% 1, Just the 2 of Us $20.00 $ % 30% 86.4% Private J2US $30.00 $ % 20% 50.0% WD Trail Ride $25.00 $ % 44% 67.5% 6,200 6,328 (128) WE Trail Ride $28.00 $ % 39% 73.4% 19,700 20,144 (444) Brownie Try It $5.00 n/a 100.0% 1,700 1, Girl Scout HLB $10.00 n/a 100.0% 1,500 1, Locker Rental $20.00 n/a 100.0% Barn Tours $45.00 n/a 100.0% (82) Subtotal $ 99,000 $ 62,855 $ 36,145 Merchandise Clothing No Tax 59% 764 n/a $29.00 n/a 100.0% $ 22,200 $ 19,820 $ 2,380 Clothing Taxable 41% 536 n/a $5.00 n/a 100.0% 2,700 2, Subtotal 1,300 $ 24,900 $ 22,319 $ 2,581 Miscellaneous Gift Cert Purchase $50.00 n/a 100.0% $ 1,400 $ 1,527 $ (127) Trail Card $5.00 n/a 100.0% Trailering $80.00 n/a 100.0% Subtotal $ 2,400 $ 2,487 $ (87) Grand Total $ 759,200 $ 626,394 $ 132,806 * Recent Total is based on evaluation of 2011 YE data and RecTrac data for the period between May 2011 and July Blanks reflect inability to fully match up activity categories reported through Note: Red items represent model inputs Note: n/a = not applicable for resident/non resident pricing, as non resident rates are not currently offered Source: Watchung Stables and Mareth Advisors, 2012 Watchung Stables Market Analysis Financial Analysis Section Draft 90

94 Expenses Mareth Advisors estimate of facility operating expenses includes a combination goal of lowering overall labor costs and increasing the facility s marketing budget. Labor Cost As noted in the review of Watchung s labor cost profile, the facility s average hourly cost for full time labor is substantially above the private sector. At an average unburdened cost of $23.04 per hour, Watchung s average full time rate is roughly $8 per hour above what the private market is reporting for quality full time help. With labor consuming over 100 percent of facility revenue, it is clear that the business model does not support these hourly rates. The labor estimates provided herein are based on the facility achieving an average full time labor rate of $19 per hour, a rate that is the midway between what the market is reporting and what is currently being paid, a reduction of the payroll burden from 37 percent to 32 percent of base hourly pay, and the elimination of overtime costs. As presented below, Mareth Advisors estimate of labor includes the overall reduction of labor rates describe above, but also the addition of one additional full time employee an Office Manager position at $17 per hour or $35,000 per year and a reduction of average part time hourly rates to a $10 per hour target. Combined, these estimates result in a cost reduction of just over $100,000 per year. Figure 57: Labor Expense Assumptions Inputs: Recent Totals Variance Avg. Annual Wage FT Labor FTEs FT Avg. Hourly Rate $19.00 $23.04 $(4.04) $39,520 Office Mgr. Position FTEs Office Mgr. Hourly Rate $17.00 $ $17.00 $35,360 FT Burden % 32% 37% 5% PT Workers FTEs PT Hourly Rate $10.00 $10.94 $(0.94) $20,800 FTE Annual Hours 2,080 2,080 OT hours Total Labor $672,006 $772,942 $(100,936) FTE = Full Time Equivalent Positions Source: Watchung Stables and Mareth Advisors, 2012 Other expense assumptions include a 5.0 percent increase in operating costs to reflect the 12 horse population increase and the addition of a $10,000 annual marketing budget to better promote the facility. Overall, expenses are estimated to decrease by $70,000 per year. Combined, the revenue and expense inputs are estimated to reduce the county s annual cost by $203,000 per year, to a net loss of $440,000. Draft Watchung Stables Market Analysis v.3 91

95 Figure 58: Estimated Net Income (Stabilized) Estimate Recent* Variance Revenue Boarding Items $ 225,200 $ 140,059 $ 85,141 Horse Rentals (net of taxes) 28,800 23,778 5,022 Troop 211, ,626 (26) Camp, Shows & Instruction 160, ,457 4,643 Clinics 7,200 7,812 (612) Programs and Activities 99,000 62,855 36,145 Merchandise 24,900 22,319 $ 2,581 Miscellaneous 2,400 2,487 (87) Total Revenue $ 759,200 $ 626,394 $ 132,806 Expenses Estimate Recent* Variance Operating Costs $ 437,892 $ 417,040 $ 20,852 Water 15,169 15,169 JCP&L 51,256 51,256 Insurance 13,365 13,365 Marketing 10,000 10,000 Salaries Fulltime 351, ,677 (36,157) Fringe 112, ,154 (32,668) Part Time & Seasonal Labor 208, ,540 (10,540) Overtime 21,571 (21,571) Total Expenses $ 1,199,688 $ 1,269,772 $ (70,084) Net Income/(Loss) $ (440,488) $ (643,378) $ 202,889 * Recent amounts based on evaluation of 2011 YE data and RecTrac data for the period between May 2011 and July Source: Watchung Stables and Mareth Advisors, 2012 Draft Watchung Stables Market Analysis v.3 92

96 Appendix Figure 59 Appendix: Building Permit Totals Market Area Counties YTD '11 YTD '12 Essex County Middlesex County 1,623 1,808 1,899 1,774 1, Morris County 1, Somerset County Union County Marekt Area Subtotal 4,217 4,182 4,431 4,836 3,794 2,969 2,180 1,750 2,186 1, Other New Jersey Counties Atlantic County 1,851 2,058 1,970 1,839 1,536 1, Bergen County 1, ,220 1, Burlington County 2,026 1,639 1,302 1, Camden County 792 1,245 1,222 1, Cape May County 814 1,099 1,101 1, Cumberland County Gloucester County 1,689 1,560 1,638 1,882 1, Hudson County Hunterdon County Mercer County 1, , Monmouth County 2,213 2,068 2,179 1,932 1,517 1, Ocean County 3,376 3,305 3,300 2,743 2,079 1,544 1, Passaic County Salem County Sussex County Warren County New Jersey 22,379 26,345 26,860 27,100 20,907 16,035 11,355 8,961 9,564 8,320 2,612 2,733 Source: U.S. Census Bureau, New Jersey Department of Labor and Mareth Advisors, 2012 Draft Watchung Stables Market Analysis v.3 A 93

97 Figure 60 Appendix: Building Permit Market Share Market Area Counties YTD '11 YTD '12 Essex County 2% 1% 2% 3% 3% 3% 4% 3% 3% 2% 2% 3% Middlesex County 7% 7% 7% 7% 6% 5% 5% 7% 9% 9% 7% 7% Morris County 5% 3% 3% 3% 4% 4% 4% 4% 4% 5% 4% 5% Somerset County 4% 3% 3% 3% 3% 4% 4% 4% 5% 4% 3% 4% Union County 1% 1% 2% 2% 3% 2% 3% 3% 2% 2% 2% 3% Marekt Area Subtotal 19% 16% 16% 18% 18% 19% 19% 20% 23% 22% 18% 21% Other New Jersey Counties Atlantic County 8% 8% 7% 7% 7% 6% 6% 5% 4% 4% 5% 4% Bergen County 5% 3% 3% 5% 5% 6% 6% 6% 6% 6% 6% 6% Burlington County 9% 6% 5% 5% 5% 5% 6% 5% 5% 4% 5% 4% Camden County 4% 5% 5% 4% 4% 4% 3% 3% 3% 3% 2% 3% Cape May County 4% 4% 4% 4% 4% 4% 3% 3% 3% 4% 4% 3% Cumberland County 1% 1% 2% 2% 3% 4% 3% 2% 2% 2% 2% 2% Gloucester County 8% 6% 6% 7% 5% 6% 7% 7% 5% 6% 6% 5% Hudson County 0% 1% 1% 1% 1% 1% 1% 1% 1% 1% 6% 1% Hunterdon County 3% 3% 2% 2% 1% 1% 1% 2% 2% 2% 2% 1% Mercer County 5% 3% 3% 5% 3% 3% 3% 2% 2% 2% 3% 2% Monmouth County 10% 8% 8% 7% 7% 7% 7% 8% 6% 7% 8% 8% Ocean County 15% 13% 12% 10% 10% 10% 10% 10% 9% 9% 8% 13% Passaic County 3% 3% 2% 1% 2% 2% 2% 2% 2% 2% 2% 1% Salem County 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Sussex County 3% 2% 2% 2% 3% 2% 2% 2% 2% 2% 2% 2% Warren County 4% 2% 2% 2% 2% 2% 1% 2% 2% 2% 3% 1% New Jersey 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Source: U.S. Census Bureau, New Jersey Department of Labor and Mareth Advisors, 2012 Draft Watchung Stables Market Analysis v.3 A 94

98 Figure 61 Appendix: Employment Tables Labor Force Employment Year/Month Essex Middlesex Morris Somerset Union Statewide Year/Month Essex Middlesex Morris Somerset Union Statewide , , , , ,266 4,284, , , , , ,558 4,092, , , , , ,680 4,287, , , , , ,446 4,130, , , , , ,373 4,302, , , , , ,117 4,117, , , , , ,672 4,370, , , , , ,547 4,117, , , , , ,107 4,363, , , , , ,137 4,108, , , , , ,034 4,358, , , , , ,970 4,144, , , , , ,313 4,416, , , , , ,592 4,218, , , , , ,270 4,477, , , , , ,192 4,269, , , , , ,313 4,462, , , , , ,287 4,271, , , , , ,553 4,509, , , , , ,902 4,262, , , , , ,728 4,546, , , , , ,504 4,138, , , , , ,137 4,554, , , , , ,502 4,116, , , , , ,886 4,556, , , , , ,244 4,131,832 Jan , , , , ,372 4,572,935 Jan , , , , ,628 4,161,029 Feb , , , , ,715 4,575,888 Feb , , , , ,316 4,161,849 Mar , , , , ,507 4,574,177 Mar , , , , ,033 4,161,431 Apr , , , , ,495 4,584,516 Apr , , , , ,831 4,167,280 May , , , , ,204 4,596,073 May , , , , ,375 4,172, Yr C.A.G. R. 0.1% 0.4% 0.2% 0.3% 0.2% 0.6% 10 Yr C.A.G. R. 0.5% 0.0% 0.2% 0.1% 0.2% 0.2% 5 Yr C.A.G. R. 0.5% 0.7% 0.2% 0.1% 0.7% 0.6% 5 Yr C.A.G. R. 0.6% 0.2% 0.7% 0.8% 0.4% 0.5% Chg. '11 May '12 0.5% 0.5% 0.8% 0.6% 0.5% 0.9% Chg. '11 May '12 0.9% 0.4% 0.9% 0.4% 0.9% 1.0% Unemployment Unemployment Rate Year/Month Essex Middlesex Morris Somerset Union Statewide Year/Month Essex Middlesex Morris Somerset Union Statewide ,877 15,105 7,282 4,099 12, , % 3.6% 2.7% 2.3% 4.7% 4.5% ,394 13,379 6,907 4,281 10, , % 3.3% 2.6% 2.6% 3.9% 3.7% ,646 16,394 8,551 5,469 12, , % 4.0% 3.3% 3.3% 4.6% 4.3% ,851 23,246 12,208 8,168 17, , % 5.6% 4.6% 4.8% 6.4% 5.8% ,860 22,756 12,206 7,897 16, , % 5.5% 4.6% 4.6% 6.3% 5.9% ,549 18,801 9,716 6,409 14, , % 4.6% 3.7% 3.7% 5.3% 4.9% ,390 17,601 8,765 5,996 12, , % 4.2% 3.3% 3.4% 4.8% 4.5% ,230 18,312 9,071 6,214 13, , % 4.3% 3.3% 3.4% 4.9% 4.6% ,391 16,274 8,251 5,575 12, , % 3.9% 3.0% 3.1% 4.5% 4.3% ,154 21,453 11,056 7,460 15, , % 5.0% 4.0% 4.1% 5.8% 5.5% ,599 36,054 19,279 13,121 25, , % 8.4% 7.0% 7.2% 9.2% 9.0% ,017 37,932 20,029 13,599 26, , % 8.7% 7.3% 7.5% 9.7% 9.6% ,080 36,682 19,130 12,863 26, , % 8.4% 7.0% 7.1% 9.7% 9.3% Jan 12 39,090 35,263 19,001 12,764 26, ,906 Jan % 8.2% 7.0% 7.2% 9.7% 9.0% Feb 12 39,387 36,784 20,030 13,502 27, ,039 Feb % 8.5% 7.3% 7.5% 9.9% 9.0% Mar 12 38,360 35,790 19,168 12,777 26, ,746 Mar % 8.2% 7.0% 7.1% 9.6% 9.0% Apr 12 37,092 36,684 18,737 12,618 25, ,236 Apr % 8.4% 6.8% 7.0% 9.3% 9.1% May 12 39,104 37,303 19,143 13,418 25, ,287 May % 8.5% 7.0% 7.4% 9.3% 9.2% 10 Yr C.A.G. R. 0.51% 0.01% 0.17% 0.13% 0.20% 0.16% 10 Yr C.A.G. R. 4.9% 4.9% 4.2% 5.1% 4.6% 4.7% 5 Yr C.A.G. R. 15.1% 18.0% 18.3% 19.2% 16.5% 17.3% 5 Yr C.A.G. R. 5.2% 4.7% 3.9% 4.3% 4.8% 4.9% Chg. '11 May '12 2.4% 1.7% 0.1% 4.3% 3.1% 0.3% Chg. '11 May '12 0.3% 0.1% 0.1% 0.3% 0.3% 0.1% Source: U.S. Bureau of Labor Statistics and Mareth Advisors, 2012 Draft Watchung Stables Market Analysis v.3 A 95

99 Figure 62 Appendix: Watchung Horse Hour Utilization by Day of Week Source: Watchung Stables and Mareth Advisors, 2012 Draft Watchung Stables Market Analysis v.3 A 96