PURPOSE

The purpose of this report is to request City Council approval of a five-year Sublease Agreement and Master Lease Modification between the City of Burbank, C.T. Operating Partnership and the Colony Theatre Company relating to the Burbank Center Stage; and approving the Theater Operating Agreement between the City of Burbank and the Colony Theatre Company.

BACKGROUND

The Burbank Center Stage was developed in conjunction with the original development of the Burbank Town Center mall.  The developer was required to devote a portion of the project for a community facility.  In 1992, the City entered into a sublease agreement with the developer and the Redevelopment Agency, as part of a master lease which provided the right for the City to use the premises for a cultural facility, to provide cultural, educational, social and recreational activities.  The lease term was for 50 years, with four 10-year options with rent at $1.00 per year.  In 1992, the City subleased the facility to the Los Angeles County Natural History Museum, however due to poor attendance the museum was closed in 1996.

A competitive Request for Proposal process for the re-use of the facility ultimately led to a decision to convert the former Museum site to a 276-seat performing arts facility.  In March 2000, the Colony Theatre Company, one of the oldest and most successful theater companies in the greater Los Angeles area, was selected as the operator of the facility.  As negotiated in the original operating agreement, the Colony Theatre Company would make available, on a limited basis, the facility to community-based groups and assist them with the staging of their events and productions.  

The terms of the agreements were to commence on the occupancy date and expire on the fifth anniversary of the opening day.  The opening was in August 2000, and the Colony operated the facility through the initial 5 year lease. 

On August 23, 2005, City Council approved an extension of the current agreements to December 1, 2005 to allow the Colony and staff to finalize negotiations for the second five year term.  Upon resuming negotiations, the Colony indicated some concerns regarding their financial status.  A joint meeting between the Colony Theatre, the Colony Theatre Board of Directors, the City Manager, the City Attorney and the Park, Recreation and Community Services Department Staff was held to review and discuss the Colony�s fiscal status.  At that time, in light of the Colony�s current fiscal condition, it was not prudent to initiate a second five year agreement.   

On November 22, 2005, City Council approved a second extension for a period of one hundred eighty-two days, extending the current agreement through May 31, 2006.  City and Colony representatives concurred that this extension would provide the Colony a time period to initiate the first phase of its fundraising plan, kick off its annual subscription drive and implement reductions to operational costs.  During this meeting, Council requested that the Colony develop a business plan addressing both the short and long range fiscal programs.  

In response to Council�s direction and at the invitation of the Colony management, a group of prominent community businessmen volunteered to assist the Colony and its Board of Directors with developing a comprehensive business plan.  Due to the complexity of the process, a third contract extension was approved by Council on May 23, 2006.  This extension expires on November 30, 2006. 

ANALYSIS

The award winning Colony Theater Company was founded in 1975.  They moved to the Burbank Center Stage in 2000 from their previous home in Silver Lake.  The Colony has been presented with numerous Ovation Awards, LA�s equivalent to Broadway�s Tony award.  For the past four years they have been named as one of the �25 Notable US Theater Companies� by the Encyclopedia Britannica�s Almanac and they were voted �Best Live Theater in LA� by the Daily News 2006 Readers Choice Poll.  Locally, for the fifth straight year, they were honored by the Burbank Leader poll as the �Best Live Theater.�  During the 2004-05 program season, the Colony attracted 27,000 patrons, representing 80 percent of the theater�s capacity.  This does not include community events held at the facility.   

The Colony has met all of their goals and objectives during the first five year term.  They have also met their financial obligation of $90,000 during the first five (5) years of the agreement through the rent credit facility enhancement option as allowed for in the current agreement.  Some examples of items approved for rent credit include auditorium acoustics, electrical infrastructure, flooring, and exterior poster cases. Additionally, during the subsequent extension periods, the Colony has met all of their obligations to the City, including quarterly payments, evidence of insurance, and annual reports and goals established for the 2005-06 season. 

The Colony has had a significant positive impact on the community.  In addition to providing a wide range of compelling, well-crafted plays and musicals, the Colony has worked closely with many of the community organizations.  As an example, during the 2005-06 program year, the Colony opened the entire theater facility to The Burbank Chorale for rehearsals and performances, partnered with the YMCA for low-cost acting classes, and provided opportunities for local high school students to earn community service hours, as well as employment and educational opportunities.  In addition to hosting fundraisers and educational seminars, the Colony donated tickets to twenty seven organizations, including Boys and Girls Club of Burbank, Burbank Temporary Aid Center, Joslyn Adult Center and several public and parochial schools.

In the months of August and September 2006, during the run of the �I Have Before Me a Remarkable Document Given to Me by a Young Lady from Rwanda,� the Colony conducted an audience survey.  One of the questions was �Are you shopping or dining out in Burbank before or after the show?�  Of the surveys received, 56 percent responded that they do patronize Burbank businesses in conjunction with their Colony experience.

As requested by staff and Council, the Colony completed its five year business plan in the fall of 2006. (Attachment C)  The plan identified three key areas requiring immediate attention.  They include cash flow, debt reduction, and board recruitment.  They have taken corrective action to satisfy the urgency of the cash flow challenge, significant cuts were made to expenses, the balance of the 2005-06 production season was altered, and unsecured loans from top donors were acquired.  Although there is no timeline on repaying these loans, the Colony has included this debt in their business plan and expects repayment to be made no later than the 2009-10 program season. 

As a result of their corrective action, when compared to the previous fiscal year, the operating deficit for the most recently completed fiscal year which ended May 31, 2006, was reduced by 80 percent.  Staff assignments were temporarily restructured to ensure executive staff members were afforded time to devote to financial analysis and fundraising efforts.  As of September 2006, the Colony has achieved an operating net income for the first quarter of the current fiscal year.

In September 2006, the public accounting firm of Vavrinek, Trine, Day & Co., LLP completed an analysis of the Colony agreement. (Attachment D) The scope of the analysis covered reviewing the management and operations agreement, performing a site visit of the premises, reviewing quarterly rent payments and respective rent credits and reviewing reports and documents provided by the Colony.  The four objectives of the analysis were to: review and inspect the Sublease and Operating Agreements; determine that both parties complied with the agreements, including insurance and indemnification provisions; inspect the documentation for quarterly rent payments and respective rent credits for proper authorization and allowed rent credits; and note any inconsistencies or ambiguities found, and propose suggestions.  There were four items that were noted in the report as possible items that the City may wish to address.  The most significant recommendation was to limit future lease agreements to two-year agreements, until the Colony provides evidence of its long-term financial viability.  The other recommendations included: to have the Financial Service Department establish a format for the submission of the Colony�s annual financial report; to continue keeping record of the approved rent credits; and summarize the rent credits on an annual basis and forward to the Financial Services Department for fixed asset tracking.  The overall report concluded that the Colony substantially complies with the terms of the agreements and all related amendments.

The terms of the proposed new agreements will remain relatively unchanged from the existing agreement.  Most of the alterations were in omitting language related to the tenant improvement necessary in completing the conversion of the facility to a live performance theater.  Briefly summarized, the modified sublease provides for the following terms and conditions:

Extension of Term:  The Sublease provides for the Colony Theatre Company (Sublessee) to extend the term for three (3) separate and successive periods of five (5) years based on the same terms and conditions specified.  The Sublease also allows for annually modifying or eliminating terms and conditions if agreed to by the parties and as approved by the Park and Recreation Board and the City Council.  New Goals and Objectives will be identified and agreed upon future extension.

Rent:  The Sublease requires the Colony Theatre Company (Sublessee) to pay the City $1,500 per month as rent.  It is further agreed that the amount of rent due will be reduced by the amount of any expenditure accrued by the Sublessee for the purpose of: (1) completing tenant improvements or providing certain theatrical equipment needed to operate the facility as a performing arts venue; (2) as direct and quantifiable costs incurred to support the use of the facility by community groups; and (3) for maintenance and repair of items which are the City's responsibility as defined in the Sublease.  Any item or fixture for which the Colony receives rent credit must have prior City staff approval and will become the property of the City or landlord. 

Utilities:  The Colony Theatre Company will pay any and all costs and expenses associated with the operation of Burbank Center Stage, including electricity, water, cable TV, natural gas and telephone.

City Responsibility:  Pursuant to the terms of the Sublease, the City will be responsible for the ongoing maintenance of the HVAC system, for pipes and conduits serving the premises and for maintenance of the elevator.

Sublessee Responsibility:  The Colony Theatre Company as the Sublessee will be responsible for the general cleaning and maintenance of the premises for items such as carpet, seats, painted walls, etc.

Other Provisions:  The Sublease also specifies insurance requirements including Workers' Compensation, General Liability and Property Damage.  The Sublease provides other provisions pertaining to operation of premises; permitted uses; parking regulations; provisions for curing default; cause for termination; terms for assignment and subletting right of entry, etc.

Briefly summarized, the Theater Operating Agreement provides for the following terms and conditions:

Annual Review:  The Colony Theatre Company agrees to operate the premises in furtherance of the Goals and Objectives (Exhibit I to the Operating Agreement).  These Goals and Objectives are to be reviewed on an annual basis with representatives of the Colony Theatre Company and the Park and Recreation Department.

Use by Community Groups:  The facility will be made available for use by community groups as specified in the Operating Agreement.  The language was modified from the original agreement to allow flexibility in scheduling community use, however the number of total dates are not reduced.

Colony Support Services:  The Operating Agreement specifies the support services which will be provided by the Colony Theatre to assist community groups with their use of the Burbank Center Stage.  These services, under supervision, will include use of the Colony's lighting, sound, projection, public address, intercom, etc.; use of backstage areas; consulting services by the Colony's Technical Director; maintenance,  janitorial and lockup services of facility, etc.

Provisions for Use of Facility by Community Groups:  The Operating Agreement also provides the terms for use of the Burbank Center Stage by community groups, including (1) requirement to execute a Use Agreement; (2) concession operation; (3) waiver of rent and service charges; (4) insurance requirements.

Goals and Objectives:  City staff has worked closed with the Colony Theater representative to develop the goals and objectives for the next five years. These goals and objectives establish the bench marks for accomplishment by the Colony Theatre on a year-by-year basis and will be reviewed annually by the Park and Recreation Board.  Goals and Objectives were identified related to the facility, as well as to program offerings for the community including targeted services for seniors and youth The business plan and agreement analysis report were used in developing the goals and objectives.  These goals and objective will ensure that the Colony continue its mission to stimulate, inspire, illuminate and celebrate the common humanity through the shared experience of live theatre, while also meeting its contractual obligations to the City.

FISCAL IMPACT

Under the terms of the agreement, the Colony will continue to pay quarterly rent of $4,500, or equivalent rent credit.  The total revenue collected during the five year period will be $90,000.

RECOMMENDATION

It is Staff�s recommendation that the City Council approve a five-year agreement with the Colony Theater Company for the operation of the Burbank Center Stage.

Attachments

A � Sublease Agreement

B � Operating Agreement

C � Business Plan

D � Audit Report

E � Community Participation from FY 2005-06

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