Exciting things have been happening at Terlingua Ranch Resort. We have been making many much-needed improvements in the facilities that are generating a great deal of interest and increase in revenues. The recently completed Strategic Plan has changed the focus for the resort slightly by reaffirming the facility as an asset for the Association that deserves our support. However, keeping in mind our obligation to the membership, we are continuing to strive towards operational self-sufficiency. To learn more about what Terlingua Ranch Resort is all about check out -- www.terlinguaranch.com -- and come visit soon!

February 7, 2006:

REVISIONS TO RESORT STRATEGIC PLAN

By Alida Lorio, General Manager

Following the October, 2005, Board review of the Initial Resort Task Force Report consensus seems to be that POATRI should continue operating the resort facility but should not attempt full scale marketing efforts.

A combination of two options presented in the task force report seems to be most acceptable at the current time. Therefore it is proposed that the consensus plan would entail:

• Preserve owner investment through judicious improvements
• Control types of visitation to minimize impact to owners and control growth
• Reinforce TR Maintenance Association agreement which does not limit assessments to roads
• Current 30% assessment support is acceptable
• Self-sufficiency is doubtful
• Reduce expenses rather than increase revenues
• Maintain as a service to property owners and guests

Working under the assumption that the above statements are acceptable, management will move forward as follows:

• Reduce hours of the restaurant and resort office effective February 1, 2006, and continue to reduce operational expenses wherever possible
• Increase room rental rates by 7% effective April 1, 2006
• Continue improvement plans to physical structure such as replacing cabin porches, kitchen equipment, etc. only as needed
• Pursue environmentally friendly visitors through judicious marketing with a small increase in marketing budget
• Market the resort to owners as an asset of the corporation and a special place for them to visit by improving discount programs for owners in good standing who use the facility
• Limit use of assessment support to no more than 30% of collected annual assessments

We have revised the Resort Vision, Objectives and Goals of the Strategic Plan based on these assumptions. We have also revised the 2006 budget projection based on these same assumptions.

November 8, 2005:

Earlier this year we formed a Resort Task Force, comprised of nine property owners, to re-evaluate the proposed Strategic Plan Vision for the resort facility. Posted below is the initial report of that task force as presented to the Board of Directors at the October quarterly meeting:

The Terlingua Ranch Resort Task Force was formed by management at the July, 2005, Board meeting. Its stated mission was to re-evaluate the current Strategic Plan Vision statement which says POATRI will:

·        Successfully manage rustic and accommodating resort facilities through an increase in an average annual occupancy to 35% to achieve self-sufficiency, yet resulting in low impact to our unique setting and sensitive environment

This re-evaluation was considered necessary due to three factors:

·        it is not clear that 35% occupancy is reachable, given current resources and organizational structure, nor further that 35% occupancy will produce a break even position given the current rising cost of business

·        it is not clear that POATRI members continue to be willing to support the resort operation with any part of the Association assessment

·        it is not clear that those owners who do support the resort wish POATRI to encourage the visitation it would take to make the resort self-sufficient

The task force was composed of nine owners, resident and non-resident, who formed subgroups to investigate the following four options:

1.     Continue with current strategic plan to increase revenues

2.     Commit to tourism; market & operate professionally

3.     Sell, lease or shut down the facility

4.     Operate as a POATRI member club, with minimal outside visitation

This report will attempt to summarize the findings and conclusions of each group and present to the POATRI Board of Directors the general pros and cons of each of the options studied. It is hoped that the Board can use these findings and conclusions to either reconfirm or modify its current Strategic Plan Vision for the Resort Operation.

Option #1:  Continue with current strategic plan to increase revenues

·        Continue assessment support (30%) with enforced reduction each year

·        Preserve owner investment through judicious improvements

·        Control types of visitation to minimize impact to owners and control growth

·        Reinforce TR Maintenance Association agreement which does not limit assessments to roads

Management Note Option #1:

·        Some investment in marketing & services is necessary to increase visitation (owner and non-owner alike) to the planned 35% level. Reduction in support should begin at the third year of the plan.

Option #2:  Commit to tourism; market & operate professionally

·        Will require front end investment in improvements, marketing and staffing

·        Location best utilized by being a primary destination

·        Marketing as a primary destination requires activities that cannot be limited to POATRI property

·        Including all of Terlingua Ranch enhances marketability, but requires owner cooperation or further POATRI investment

·        Doubling average annual occupancy in 3-5 years to 50%, with proportionate increase in revenues would produce a 10% profit

·        Profit would go toward further capital improvement of resort plus add funds to other POATRI activities such as road repair

Management Note Option #2:

·        To make this option viable POATRI should consider separating the Resort from the Association Operations and adding full-time management with good marketing background. To make this attractive some sort of bonus system should be emplaced for both the new management and the employees with contractual agreements as to types of acceptable visitation, owner services and benefits, etc.

Option #3:  Sell, lease or shut down resort

·        Definitely saleable; improvements needed to maximize price; location is great; could be easily sold to a large hotel group; current value no more than $1,000,000, perhaps considerably less

·        Development in the area will do nothing but raise the value of the asset five years down the line; maintain equity in asset

·        Leasing loses the same control that selling does and has more potential downside in asset degradation

·        Shutting down has same asset degradation potential

Management Note re Option #3:

·        Fixed costs of shut down is approximately $80,000 annually to be paid from assessments: property tax, insurance, maintenance payroll, repair & maintenance costs

·        Leasing would require POATRI to pay certain fixed costs as well, such as insurance, property tax and certain capital improvements and repair and maintenance; estimated fixed costs to POATRI with total lease is minimum of $50,000 annually

Option #4:  Owners Lodge with minimal outside visitation

·        Current 30% assessment support is acceptable

·        Self-sufficiency is doubtful

·        Maintain control of types of visitation to minimize impact on owners

·        Reduce expenses rather than increase revenues

·        Maintain as a service to property owners and guests

Management Note re Option #4:

·        Owner visitation is up 2% so far this year, after a steady decline over the past five years; primarily due to new owners.

·        Consider a membership card, good for one year only, receivable upon payment of assessments, which gives a 10% discount across the board on goods and services. New TRIPOD system makes it possible.

·        Raise non-owner rates to compensate for "loss" from discounts

MANAGEMENT SUMMARY:

Over the last few years POATRI has gathered information, on an informal basis, using occupancy records, comments cards, visitor feedback and owner input, which leads us to conclude that Terlingua Ranch Lodge is one of the better kept secrets in Texas. A recent marketing study commissioned for the Board has pointed out that word of mouth and our excellent web site account for at least 50% of our visitation, with a large ratio of repeat customers who keep coming back because of our unique location, our friendliness and hospitality and our "no frills" approach to relaxation.

I have no doubt that with proper marketing and full time hotel management Terlingua Ranch Lodge could indeed live up to, or exceed, the potential that so many visitors see in it. However, after reviewing the reports of this task force and listening to the input of many other owners, I am equally certain that POATRI has a responsibility beyond the strict financial one that operating a business imposes.

I believe we can say with certainty that a majority of Terlingua Ranch owners:

·        do not oppose supporting the resort operation with assessments, within limits

·        do support non-owner visitation, within limits

·        do fear uncontrolled commercialization of Terlingua Ranch Lodge and Terlingua Ranch itself

·        do recognize the resort operation as an asset, but at the same time see the road system as a far more important asset

I believe it is these four factors that must shape POATRI's strategic planning regarding the resort operation, rather than any "bottom-line" thought process. With POATRI acceptance of these limitations, I believe it will be possible to formulate a business plan that encompasses the needs of a majority of our members. While the "bottom line" is important in a business venture, an organization such as ours has a primary duty to serve the well-being of a majority of its members.

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