The attached financial outlook for the Estonian Cultural Centre is based on the numbers that have been made available to the public as well as estimates that are available to us via the internet.

Estonian Cultural Centre on Madison - February 17, 2018

EXECUTIVE SUMMARY
The latest projection by David Kalm indicates that the total project would now be 31,150 sq. feet with a projected cost of $22 million.

We could defer building the annex to 11 Madison (estimated to be 13,830 sq. feet. and thus, get back down to 23,000 sq. feet and get it built for $18 million.

Without the annex for 11 Madison we lose class room space, boardroom space, foyers, elevators, and kitchen facilities. From a financial sustainability point of view this would not be an optimal solution.

The business case must look at the total project of 31,150 sq. feet at a cost of $22 million.

An offer of Purchase and sale for Estonian House and the adjacent ESK properties has been executed for $12.0 Million to $18.0 Million. Best case scenario after accounting for the inclusion of the ESK properties, debt obligations, and registration and legal fees we are left with $12,611,500 to build the Estonian Cultural Centre on Madison.

Construction costs (excluding the purchase of Madison Street properties) is estimated at $18 million.

Additional costs to make the site occupancy ready are estimated at $1,683,400. Consultant fees such as architectural, engineering, marketing, legal are estimated at 10% of the project cost or $2.2 million.

Total cash requirements to complete the project on Madison is estimated at $ 21,833,400

Best case scenario: there is a funding shortfall of $9,271,900

FUNDS AVAILABLE
Our available cash is derived from the sale of 958 Broadview Ave.

We have executed an offer of Purchase and sale - it ranges from $12 million to $18 million.

It is subject to the re-zoning the developer can achieve - best case is $18 million.

The sale price includes the purchase of the Estonian Foundation properties, two semidetached properties on Broadview and the house on Chester Hill. These properties are included in the offer of Purchase and Sale. The Estonian House must acquire these properties and transfer ownership to the developer. Estonian Foundation values these properties at $4,000,000.

Best case: From the sale, cash available to Estonian House will be $14 million.

COSTS TO BE ACCOUNTED FOR
Estonian House has debt obligations that need to be discharged upon the sale of the house.

Re-imburse 3 orgs for initial due diligence costs ..... $275,000
Repay balance of HELOC mortgage with ETCU ..... $750,000
Sub total .................................................... $1,025,000

REGISTRATIONS AND LEGAL FEES (subject to adjustments)
Legal costs to close sale of 958 Broadview .............. $5,000
* Purchaser to pay land transfer fees
Legal cost to discharge mortgage ........................... $ 600
Legal costs to purchase/transfer ESK properties ....... $5,000
** Land transfer costs not included
Legal costs to purchase 11 Madison ...................... $1,000
11 Madison land transfer costs .......................... $122,950
Legal costs to close deal on 9 Madison ................... $1,000
9 Madison land transfer costs ............................. $32,950
Capital reserve for 958 Broadview (15 months) ..... $100,000
*** Capital repairs reserve
Moving costs from 958 Broadview ....................... $50,000
Liquidation costs E-store .................................... $20,000
Temporary storage costs artworks ...................... $20,000
Temporary storage costs Archives ....................... $5,000
Sub total ..................................................... $363,500


Cash Available from the sale of Estonian house (best case) will be .... $12,611,500
($14,000,000 – $1,025,000 - $363,500)

CONSTRUCTION COSTS
Our $22.0 Million estimated construction costs for the Madison project include
Purchase of 9 Madison from the city of Toronto .... $1,000,000
Purchase of 11 Madison from the ETCU .............. $3,000,000
Sub total ....................................................... $4,000,000

In addition to stated construction costs the project will require Tenant Improvements:
Tenant improvements: basic @ $50/sq ft for leasable space *(estimates by Kirksey Architecture)

Leasable space estimate by David Kalm. 62% of 31,150 = 19,300 sq ft.

Can either be done as an allowance for the tenant or by the landlord ... $965,000

Site specific requirements not included in construction costs:
Security systems inside and outside security cameras ... $15,000
Exterior lighting – landscape perimeter, security .......... $ 25,000
Landscaping – planting, trees, fixtures ....................... $40,000
Flag Poles …… 2, one Canadian flag, one Estonian Flag ... $2,000
Sub Total ............................................................ $82,000

Specialized Tenant improvements
Climate controlled storage room for Grand Piano ............. $10,000
Commercial Kitchen for the banquet hall ...................... $200,000
* includes exhaust fans, grease traps, commercial kitchen equipment
Tenant improvements for the Coffee bar ..................... $ 50,000
*includes specialty equipment
Furniture for the banquet hall 35 tables @150.00 ................ $6000 (includes delivery + host)
Estimate provided by Universal chairs 400 chairs @34.95 ... $15,600 (includes delivery +host)
Furniture for classrooms 8 tables @ $243 .......................... $2000
80 chairs @ 35.95 ....................................................... $2800
Tenant Improvement allowance for the Bank 5000 sq. feet @$50.00 .... $250,000
Bank vault .............................................................................. $100,000

Specialized tenant/facility improvements Sub total ................................$636,400

Consulting fees for the project 10 % of project cost sub total ............ $2,200,000

The $22 million cost estimate included the cost for the properties on Madison
Estimated cost to build ($22.000,000 - $4,000,000) ..................... $18,000,000
Add general tenant improvements ............................................... $ 965,000
Add site specific requirements ........................................................$82,000
Add specialized tenant/site improvements ...................................... $636,400
Add consulting fees ................................................................ $2,200,000
Total cash requirements to build Madison ..................................$21,883,400

Cash Available from the sale of Estonian house ......................... $12,611,500
Funding shortfall (best case scenario) ...................................... $9,271,900

If the developer does not get his proposed zoning the purchase price is $12,000,000.
Then the shortfall would be $15,271,900.

Other Issues:
Capital Gain on the disposition of 958 Broadview. Interpretive bulletin IT-491 permits the taxpayer to defer recognition of a capital gain if the proceeds are used to acquire another small business investment. Tax guide on Capital Gains T4037. This implies that when Estonian House sells its property at 958 Broadview it can defer the capital gain provided it acquires the Cultural Centre on Madison.

TO DEFER CAPITAL GAIN ON THE SALE OF 958 Broadview ESTONIAN HOUSE MUST TAKE TITLE TO THE ESTONIAN CULTURAL CENTRE ON MADISON.

Land Transfer taxes: The purchaser is responsible to pay the land transfer taxes: For the sale of 958 Broadview the purchaser pays the land transfer taxes. The sale has been “bundled” with the ESK properties. We need to ensure that the “purchase agreement” between Estonian House and ESK is transferable to the purchaser of 958 Broadview. On $18 million land transfer tax is $872,950 By splitting the purchase between Estonian House and the ESK Properties the purchaser pays $811,800

The purchase of the ESK properties should re-assigned individually to the purchaser to minimize land transfer taxes. If Estonian House is forced to take possession of the ESK properties, then the tax liability for Estonian House would be $138,850

Land transfer tax on 11 Madison. There is no way to avoid the land transfer tax when selling 11 Madison to the Estonian Cultural Centre. On a 3.0-million-dollar transaction this would be $122,950.

Land transfer tax on 9 Madison: if the offer of purchase was $1.0 million, it would be $32,950

Site security in this neighbourhood is extremely important. We require both exterior and interior security cameras with 24 hour monitoring, along with exterior security lighting. Hydro cables must be encased under ground along with security camera leads.

BOTTOM LINE:
The project funding is short by $9,271,900 at best and potentially by as much as $15,271,900

The Commitment made in Schedule A. Section 3 e - Sale of Estonian House conditions,
“If the proceeds from the sale of Estonian House are insufficient to proceed with the project, the purchase of 9 Madison does not proceed.” and Estonian House does not sell.

Väino Einola – President
Estonian Business Club

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