Believe it or not, I think it's good news. Yeah, the rate sucks, (13.9) but it's not like the company can borrow the money on it's own, and in the near term it's a much better alternative than dilution. They probably saw the cornhole deal they got from the lease company on the three store deal and felt they could put a better package together. As for Wag's current 3% guarantee fee he gets now, look at it this way - if the company goes broke, he's on the hook for all of it. The company would not have been able to get financing otherwise so it's a reasonable expectation.
What the agreement does is free up a bunch of cash (that they don't have) and raises the possibility that they can finish out the 4-6-8 plan without more dilution. If they can hold off the secondary until the cluster is complete, that would be huge. They're not that far away from being cashflow positive.
As for the building terms getting amended, I'm still trying to figure that one out. Apparently there were fixed rent increases built into the original agreement. Until we figure out what those were it's hard to pass judgement on that facet. The change in terms could be either better or worse for the company.
Bottom line: Get the 4-6-8 done by whatever means necessary, prove it to be extremely successful & profitable, and do a big secondary go get rid of the debt and put the company on solid financial footing so we don't HAVE to rely on Dunham and can negotiate better terms from a position of strength.
If you borrow $1,400,000 on a 5 year loan at 13.9% payments come up to $32,503.02/month or $390,036.24/year for 5 years. This is only making payments on fixtures and equipment. How do you expect the store to show a profit or have any cash flow in the first five years after adding your other expenses?
This is really a liquidity issue. The company to this point has been spending this money out of pocket. The additional cost is the interest paid. It's easier to come up with $390k at $32.5k/mo than $1.4m all at once.
Look at this as a bridge until they can get to their economies of scale point of 26 stores. The alternative to securing $16m in financing would be to sell a million shares at $4.00/share or delay expansion. Since they're not at a point of economies of scale that would be bad for obvious reasons. Dillution is inevitable, but given the choice I'd rather see those shares sold for $6 or $7 per share later and pay 13.9% now than sell those shares for $4. Financing equipment is not a long term strateqy of the company.
Your're right Honda --- I recently met with Don Dunham and with this lease deal they think they have enough money to finish the build out of the remaining stores. You are also right about the lease. This one is different because it's on lease land only from General Growth and the building reverts to General Growth at end of lease, therefore no "return of principle" to the lease investors. Somethings got to "sweeten the deal" or no one will put up the money to build the store.