December 15, 1998
To:Economic Development Committee
From:Commissioner of Economic Development, Culture and Tourism
Subject:Factory Theatre Capital Request
Purpose:
The purpose of this report is to seek approval for provision of a guarantee of a line of credit
for the Factory Theatre, in the amount of $200,000.00.
Funding Sources, Financial Implications and Impact Statement:
Issuance of a line of credit is considered a financial commitment of the City. A commitment
of $200,000.00 is within the updated Debt and Financial Obligation Limit of the City of
Toronto.
Recommendations:
It is recommended that:
(1)authority be granted to enter into an agreement with the Factory Theatre's bank for a
guarantee of a line of credit in the amount of $200,000.00 for the period from February 10,
1999 to February 9, 2004, on terms and conditions satisfactory to the Solicitor and Chief
Financial Officer and Treasurer;
(2)authority be granted to enter into an agreement with the Factory Theatre with respect to the
line of credit guarantee on terms and conditions approved by the Solicitor, the Chief Financial
Officer and Treasurer and the Commissioner of Economic Development, Culture and
Tourism, including the taking and registration of any security interest against the assets and
property of the Factory Theatre as considered appropriate by those officials in order to protect
the interests of the City of Toronto; and
(3)the appropriate officials be authorized to take the necessary action to give effect thereto.
Council Reference/Background/History:
The Factory Theatre is a not-for-profit charitable company founded in 1970 to create, develop
and produce new Canadian theatre with an emphasis on original Canadian plays and the
development of Canadian playwrights. The company seeks to work with a broad range of
artists from across the country and to present the work in a national context.
Now in its twenty-ninth year of operation, the Factory Theatre is an important cultural
institution in Toronto, reaching about 35,000 people at its theatre annually. The company
employs six full-time staff, eighty part-time staff and contract staff and has attracted in excess
of two hundred volunteers.
The Factory Theatre's 1998/99 operating revenues will total $921,830.00 at fiscal year-end,
June 30, 1999. Its operating grant from the City in 1997 was $133,000.00 or 17.8 per cent of
total 1997/98 revenues of $859,605.00. Other governments' support for the operations totalled
$271,06.00. The company generated $362,760.00 in earned revenue and $72,840.00 in
donations, sponsorships and other private sector revenue. In addition, a philanthropic gift of
$50,000.00 was recently received by the group. A copy of the most recent audited statements
is attached as Appendix 1.
The Factory Theatre currently occupies and has committed to purchasing 125 Bathurst Street,
located at the north-east corner of Bathurst Street and Adelaide Street West in the westerly
portion of downtown Toronto. The main part of this landmark building was constructed in
1869 as a private home with the theatre being added in 1910. The building, which has been
historically designated, consists of a 200-seat mainspace, 100 seat studio theatre,
administrative space and shop/storage area.
The Factory Theatre has leased and occupied the property for the past fourteen years. In May
1998, the building was sold as part of a parcel of properties to Allied Canadian, a private
developer with a background in retrofitting historically interesting, centrally-located buildings
for commercial use. The new owner agreed to sell the property to the Factory Theatre for
$1,150,000.00, conditional upon a closing of December 17, 1998. A sixty day option to
extend to February 15, 1999 has been exercised.
An independent appraisal of the property provided by S. Andrews and Associates Appraisal
Limited has indicated a market value of $1,150,000.00. In addition, staff of Corporate
Services has undertaken an estimate of value and has indicated that the current market value
ranges from $1,000,000.00 to $1,200,000.00.
Municipal History of Capital Requests
In most of the former municipalities, the practice of providing grants for capital projects was
relatively limited.
While the former City of Toronto did not have a formal capital grants policy, it did have a
practice of not approving capital grants for improvements to non City-owned facilities.
However, City assistance was provided on an exception basis to support facilities with
pressing needs threatening their viability. The City's evaluation of these grant requests
included a staff assessment of the proposed scope of work and a review of the group's
financial situation to determine the financial viability of the request. City support was
provided by way of grants, loans/loan guarantees and in-kind services, where appropriate.
The former Municipality of Metropolitan Toronto assessed capital grant requests against a
Council-approved capital grant policy adopted in the earlier 1990's which stated that "no
capital grants be considered except in cases where such grants would have an 'extraordinary'
impact on the broad social and cultural life of Metropolitan Toronto".
Comments and/or Discussion and/or Justification:
On November 11, 1998, representatives of the Factory Theatre met with the Chair of the
Economic Development Committee, the Chair of the Municipal Grants Review Committee,
Culture Office staff and myself, to request financial support from the City for the acquisition
of 125 Bathurst Street. Specifically, the company has requested a one-time grant of
$100,000.00 and a loan of $100,000.00, repayable over three years.
The City's response to this request is needed before the closing date of February 17, 1999,
already extended from the original date of December 17, 1998. Confirmed funding to date
totals $922,000.00, including a mortgage commitment for 62 per cent of the total acquisition
costs of $1,200,000.00 and funds on hand for 10% of that amount.
The organization has requested $100,000.00 from each of the provincial and federal
governments. According to staff at both levels, support for the property acquisition is unlikely
whereas support towards future facility upgrades such as improved accessibility is more
probable.
At its meeting with City representatives, the Factory Theatre representatives were requested to
develop, in consultation with staff, a business plan which demonstrates the feasibility of
purchasing 125 Bathurst Street and retaining longer term financial stability including the
management of an accumulated deficit. The business plan, a copy of which is attached as
Appendix 2, provides an overview of the company's financial, facility management and
fundraising strategies to accomplish these goals. The plan proposes repayment of a
$100,000.00 loan from the City primarily through cost savings realized by lower mortgage
payments relative to rent, and funds raised through an ambitious three-year capital campaign
commencing in May, 1999.
Rationale for Support
The rationale for recommending support to the Factory Theatre for the acquisition of the
property includes a variety of considerations. The company in its current facility clearly forms
part of the City's facility-based, cultural infrastructure. Loss of the building as a theatre space
would be a serious loss to the not-for-profit theatre community and audiences.
Retention of the current usage is also consistent with the City's articulated urban planning
goals for the King/Spadina Area which encourage a diversity of usages.
As the producer and presenter of original, critically-acclaimed and award-winning theatre, the
Factory Theatre is an important theatre company in Toronto and in Canada. The company has
received consistently positive assessments through the cultural grants process in past years. Its
current artistic and administrative team has demonstrated sound leadership and stability. With
strong facility management and fundraising expertise evident in the board, the company is
well positioned to assume ownership of the property.
As indicated in the preceding section, the company's financial plan for repayment of a loan
from the City and retention of its longer term stability appears viable. Finance staff has
reviewed the business plan and supporting documentation, and is supportive of the proposed
approach.
Economic Impact
In addition to the significant impact Factory Theatre makes on the broad social and cultural
life of the City, the organization also contributes to the local economy. Recent statistics
provided by Statistics Canada indicate that the combined direct and indirect impact of the
culture sector in the City of Toronto on the Gross Domestic Product (GDP) is $5.3 billion.
This accounts for over fifty per cent of the provincial contribution to the GDP. Statistics
Canada has also confirmed that the impact of the professional performing arts sector in
Toronto on employment is 16,730 jobs. While economic impact data specific to Factory
Theatre is not available, the company is an important player in the Toronto not-for-profit
theatre community, in terms of the extent of its programming, audience size and critical
acclaim. Neighbouring businesses have indicated a significant positive impact due to the
Factory's performances. Ten letters of support from these businesses have been received to
date to endorse the company's plans to purchase 125 Bathurst Street.
Options
Three options exist with respect to providing financial support to the Factory Theatre as per its
request. These are described below.
Option 1:Partial Loan and Grant
The option of provision of a one-time only grant of $100,000.00 and a loan of $100,000.00,
repayable over three years, is in accordance with Factory Theatre's request. Relative to the
other two options presented in this report, it provides the company with the most financial
stability.
Financing the $100,000.00 grant is problematic given current financial constraints faced by
the City of Toronto. The Chair of the Municipal Grants Review Committee, has expressed
serious concerns that the required funding in this case is not available from the 1999
consolidated grants envelope due to that allocation being held at the 1998 level.
While a solid rationale for supporting this request clearly exists and is described in the
preceding section, the rationale has been developed in response to this particular case and in
the absence of a Council-endorsed capital grants policy. Cultural, grants or other policies
developed in future months by staff will likely articulate assessment criteria which, pending
Council approval, will provide a corporate framework within which to respond to requests
such as this in a consistent, equitable and accountable manner.
Option 2:Full Loan
A second option is the provision of a loan of $200,000.00. The Factory Theatre staff has
indicated that a $200,000.00 loan is feasible, assuming that it is interest-free and repayable
over five years, beginning in the year 2000. These terms would enable the building purchase
while not jeopardizing the financial health of the organization.
A benefit of this option is that pending no default by the Factory Theatre on its loan, there is
no financial cost to the City other than the opportunity cost for not having invested the
monies.
The City of Toronto, since amalgamation, has not established any practice with respect to the
provision of interest-free or other loans.
Option 3:Line of Credit Guarantee
Provision of a guarantee of a line of credit or loan supplied by the Factory Theatre's financial
institution in the amount of $200,000.00 is a third option. Assuming no defaults by the
Factory necessitating the financial institution to draw on the City's security, this option
represents the least cost and least financial risk.
Relative to the other two options, the line of credit guarantee option will result in the greatest
cost to the company. Depending on the rate of interest to be charged by the financial
institution, the group's annual interest expense of $16,000.00 to $20,000.00 may offset the
cost savings projected in the business plan, resulting in a greater dependency on the proposed
capital fundraising.
Since January, 1998, the City has secured lines of credit for two organizations to assist with
working capital needs, both of which are currently in effect. City Council approved a
$250,000.00 line of credit guarantee for Young People's Theatre with the Toronto Dominion
Bank for the period from November 1, 1998 to October 31, 2001. It has also approved a
$140,000.00 guarantee for Theatre Passe Muraille with the Canadian Imperial Bank of
Commerce for the period from January 1, 1999, to December 31, 2001, extending a former
Metropolitan Toronto guarantee originating in 1997. There have been no defaults to date.
Recommended Option
Option 3 is recommended. Provision of a line of credit guarantee represents the least cost to
the City and limits its financial exposure. Adoption of this option is consistent with the City's
past practice of support to cultural organizations through provision of line of credit
guarantees. Provision of the guarantee will enable the company to achieve its objective of
purchasing 125 Bathurst Street.
In order to monitor the Factory Theatre's financial progress and reliance on the City-secured
line of credit, staff will require bi-annual financial reports from the company.
The Factory Theatre line of credit guarantee will be considered a financial obligation of the
City. As such, the Chief Financial Officer and Treasurer's approval will be sought on the
terms and conditions of the agreement regarding the line of credit guarantee.
Conclusion:
The City of Toronto has been recognized as the second largest theatre centre in North America
and third largest English-speaking theatre centre in the world. The City derives considerable
benefit from the presence of its not-for-profit theatre companies including the Factory Theatre,
both in terms of quality of life and economic impact.
Provision of a line of credit guarantee for a period of five years will enable the company to
accomplish its goal of purchasing 125 Bathurst Street and securing its future in that facility.
The Chief Financial Officer and Treasurer concurs with the financial aspects of this report and
the Solicitor is satisfied with the legal requirements.
Contact Name:
Beth Hanna, Culture
392-5225
Joe Halstead
Commissioner of Economic Development, Culture and Tourism
