Ark Restaurants Corp. (ARKR) Q3 2017 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ark Restaurants Third Quarter 2017 Results Conference. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Stewart, President and Chief Financial Officer. Thank you, Mr. Stewart. You may begin.

Okay, thank you, operator. Good morning, and thank you for joining us on our conference call for the third fiscal quarter ended July 1, 2017. With me on the call today is Michael Weinstein, our Chairman and CEO, and Vinny Pascal, our Chief Operating Officer. For those of you who have not yet obtained a copy of our press release, it was issued over the wires yesterday and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our homepage at www.arkrestaurants.com. Before we begin, however, I'd like to read the safe harbor statement. I need to remind everyone that part of our discussion this afternoon will include forward-looking statements and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition. I will now turn the call over to Michael.

Hi, everybody. I have 2 goals today. Number one to try to help you make sense of this last quarter. And number two, to be more specific about how we see this business playing out over the next year. We think we're in a wonderful position despite the headline of these earnings through this third quarter. So in this quarter, we are comparing to a third quarter -- fiscal quarter last year, in which we had a one-time event of about a million dollars in operate -- in EBITDA -- additional EBITDA, from a tax refund from the state of Florida, which was the end result of a litigation we started against the state of Florida for a correction of our property taxes at the Hard Rock casinos in Tampa and Hollywood. That has not only returned us $1 million last year in overpaid taxes but has a future benefit in that we will not pay property taxes to those operations going forward, and that's about a $60,000 or $70,000 a year expense that will not occur. The second part of the quarter is -- so if you get rid of that $1 million, the comparison really becomes, for EBITDA, something like $3.4 million in EBITDA this year against $5.6 million last year. So the difference is $2.2 million, and that $2.2 million is a direct result of our closing of Sequoia on January 1 and the fact that we were delayed dramatically by the Georgetown Arts Commission and the Georgetown Building Department in getting permits to complete our construction. We thought we would be open sometime in April. We finally got the inside of the restaurant opened the last week of the third quarter, this third quarter. And the outside is still not opened. Those permits even lagged further. The whole thing will be open sometime in mid-September. So we had a $2.4 million reversal. We made $1 million in the third quarter last year, we lost a $1.4 million in the third quarter this year. So without Sequoia and evening out the EBITDA from last year by subtracting that one-time benefit, the quarter -- for the rest of the business, the EBITDA was up about $300,000 or $400,000. The other thing that's interesting about this quarter was the extremely harsh weather in the Northeast. Bryant Park and Southwest had very few days in which they could function in the outdoor seating. We lost a lot of revenue. So we think the core business continues to be very stable. If you take out the Sequoia comp sales, we were up slightly this year in the third quarter, I think 0.4%. So I hope that gives you an explanation of what occurred in this quarter. There weren't any more moving parts. This is it. We're not uncomfortable with the third quarter. To be more specific about how we think we're set up, obviously, with Sequoia not the outside, which is the big revenue producer in nice weather, with that not being set up until mid-September, we are going to continue to show losses in Sequoia, not as abusive as in the third quarter. But there will be $300,000 to $400,000 of losses in the third quarter -- in the fourth quarter from the operation of Sequoia. So that quarter will be impacted, although I think there are other things going on which will offset that impact. So I don't see anything in the fourth quarter that is worrisome. What I want to do is take you into next year, into next fiscal year. And I want to do that -- and you might want to have a paper and pencil somewhere handy. I want to do that by going back to 2016. In 2016, if you got rid of that one-time tax refund, we had EBITDA of $10 million to $100,000. I would like to build that -- on that for you for next year by going through our different operations and what we see happening, assuming that the stuff that I don't mention stays stable. But here are the big changes that will occur in 2018. The first is the Rustic in Fort Lauderdale. If you've heard these calls before or read our letters, Rustic in 2015 had EBITDA of $3.3 million. I'm not afraid of saying that because we don't have the landlord listening because we own the property. We're our own landlord, so I'm not [indiscernible] a future negotiation. In all of 2016, the main thoroughfare, which is a bridge across the canal, to get you to Rustic Inn, was proclaimed unsafe by the Florida Highway Department. They basically ripped down the bridge and have been in construction to put up a new bridge. So the difference between 2015 and 2016 is our EBITDA at -- our operating profit at Rustic went from $3.4 million to $2.7 million, a $700,000 difference, because this bridge was out all of 2016. That same situation is occurring in 2017. We're about a $2.7 million rate of -- through the end of the fourth quarter projected. So that's been consistent. The bridge will be returned into service in September of this year. So we'll have a full year of that bridge in 2018, and we see no reason why the EBITDA shouldn't go up. And sales have been actually kind of better compared to last year in the last few weeks. And once the bridge is returned, we think we're in a better position, again, to do the $3.3 million. So I've taken it as a projection that we'll do $700,000 more in EBITDA in Rustic above the 2016 base of -- the base year. So that's one plus I think we have next year. The other plus in Florida is Shuckers. When we bought Shuckers, we always thought we could get it to earn a million dollars. In 2016, we did roughly $800,000. This year, we're at a $1.1 million rate. So I think we're doing $300,000 better than the 2016 rate, and I think that's continuing, because Shuckers sales have been very strong and seem to be building. What we did at Shuckers after getting comfortable with the situation, and it takes us 6, 7 months to get it on our accounting system, get our buying systems in place, we raised prices. Jensen Beach is gentrifying. There's a better demographic in terms of spendables in that community right now. So we think the $300,000 that we benefited this year above 2016 will continue. And I'm using $300,000 in that to project into 2018. This year, in Vegas, at New York, New York, we're $700,000 up above 2016 in EBITDA. The reason for that is we're not under construction anymore. New York, New York had expanded its footprint and built a park with a 20,000 square-foot arena. That arena next year, by the way, will have some 40-plus hockey games. The arena is being booked. We are a beneficiary of that additional traffic. And again, we did $700,000 more this year. We're assuming that $700,000 continues into next year, if not better. But we're using that number to build above the 2016 base. In 2016, we were $534,000 in Jupiter. We don't own Jupiter anymore. If you recall, we sold it earlier this -- early in our fiscal year. So that $534,000 loss is -- becomes a plus going forward. So I've added that to the 2016 base. And what also has to be added is Alabama. We acquired the 2 properties in Alabama, the Original Oyster Houses. What's satisfying to us is they are operating exactly as we thought they would operate. Sales are right on point. The P&Ls are right on point. This year we'll do roughly $1.8 million in operating profits there. That's a little understated for 2018. I want to use the $1.8 million because we had some transaction costs that were expensed when we purchased it that we couldn't capitalized. So that's probably good for $2 million. So when I look at all of this, before taking into account Sequoia next year, when I look at all of this, I think there is another $4 million to $4.3 million in EBITDA that is already in place above the 2016 base year. And we don't see, quite honestly, any black clouds. The weather was terrible this year. Maybe it gets worse next year, maybe it gets better. But we're pretty comfortable that this $4 million above the $10.2 million base, or $4.3 million is there. It's in our hands. So let's now go to Sequoia, and in 2016, Sequoia earned $1.4 million. I want to get you into my thinking of what happened at Sequoia, and why we did this refurbishment and reconstruction of the restaurant. The property was bought by a Korean real estate investment trust that has a 5-year horizon line to build up operating profits in themselves and to put all leases coming due in September of 2017. We started conversations with them about a year ago. There was no live body to talk to prior to that. It was uncertain what was going on with the property. We were not putting any money into the property, because we didn't know if we were getting the lease. There was a lot of deferred maintenance. And essentially, through representatives, the Korean trust came to us and said, we know that this is a high grossing restaurant, but that doesn't help us because you're paying about market, and we're not going to get somebody to pay more than you're paying. But if we project out what you're doing, the percentage rent's going to be the same next year and the year after as it is now, and we need to get more in the way of percentage rent or get more rental income from you to build up this property and put it into a position to sell, as they had done with other restaurants in the area. But our lease was the first one coming due. And after negotiating with them, we had 2 options to go forward. One was to do a facelift, and that would've probably cost $5 million because all our kitchen equipment was really in bad shape. The minute you start construction, the last time we did a construction project in Sequoia was when we built it. Building codes have changed dramatically from that point, and we estimated somewhere between $5 million and $6 million, we could do a facelift. Put the [ place ] in perfect condition, but not change the way it looked to the customer other than from the point of view of decoration. So that $5 million, let's say, would've been 3.5x the $1.4 million to $1.5 million of EBITDA. And you say to yourself, hey, that's a good due. We're keeping the EBITDA at a multiple that makes sense for the company. But there's demand that we were unable to fulfill for 2 reasons. One, our bar was on a mezzanine level above the restaurant and was not used at all, the indoor bar. The demand for additional event space for that particular restaurant always ran high. We had one event space at the back of the restaurant. It's a private dining area, holds 200 people. But we were turning down a lot of groups of 100, and the mezzanine space, if it had been turned into a dining space for private events and also could be used for a la carte customers when we have overflow, which is frequent -- to convert that space made a lot of sense to us. The minute we go from taking the bar and eliminating it on the mezzanine to putting it on the restaurant level, that became a big expense. The second thing was that the outside bar, which on a weekend, used to do $50,000, $60,000 in the nice weather, was undersized. We could do much more business. I know $50,000, $60,000 at a bar on a Friday and Saturday may seem like a lot, but there's a lot more potential if we had a bigger bar and more cocktail dining seats. And we decided to move that bar to a different spot in the outdoor area where it would be able to be larger in scope and we think meet this unfulfilled demand. So when we got done with how we wanted this place to look in terms of just the configuration of the restaurant and how we wanted it to be perceived in the community, this was going to cost us another $5 million. So my bet here was the incremental $5 million could bring another $1 million, $1.5 million to the bottom line. There's no assurance of that, obviously. We're comfortable that we're going to do what we did in 2016, but we would think that what we set up here is kind of spectacular. And the buzz, the early buzz, at least on the indoor dining, which has only been for 4 or 5 weeks now since we opened, has been very, very strong. And the numbers on the indoor dining are way ahead of what we were doing last year. And we don't even have the sign up yet. Our signage is temporary. There's been no publicity about the restaurant whatsoever. And we just think we're going to vault that 2016 number. But we may be wrong. I can't give you any projection without the outdoor being open and having some experience. But that's how it's set up, and the only thing I would tell you that could interfere slightly with this 2018 scenario is, again, another round of increases on minimum wage employees and -- on tip employees and non-tip employees in New York. But we think we're not fully priced. We think our menus could be engineered to take care of that. We managed to do that all along. We've been through 2 of these bumps, and we've absorbed them and figured out ways to garner additional revenue. And quite honestly, the demand for our restaurants is very strong. Weather interrupted in the Northeast, but we're seeing very strong demand. And so we're really, really comfortable. Obviously, we've destroyed our balance sheet somewhat with the purchase of -- the $10 million-plus purchase of the Alabama properties and the $10 million construction in Sequoia. Our liquidity is way down, but we have, other than keeping the roofs on, for next year, the only thing that we have in hand right now, is we are starting an expansion at Rustic in Fort Lauderdale. It's got a $2 million expansion. Again, we think we have unfulfilled demand there of the restaurant that's $14 million or $15 million, and there aligns. So we think by adding an area -- there's no bar that people can wait at. They come to the restaurant, they wait 1.5 hours, and they're standing around just waiting, sitting on their car hoods. And so we're adding a reception area that will have both a raw bar and a liquor bar, and -- to hold people while they wait, and we think that's where the lion's share will prove in terms of additional revenue. So in terms of the balance sheet, we think we're getting better liquidity through the cash flow next year. But we have some $17 million of real estate that we own now. We own the properties under the 2 original Oyster Houses, we own the property at Rustic Inn, and we own the property at Shuckers. We're trying to turn -- use that property for long-term money -- long-term fixed money. And we think we'll be up to do that so -- and that shouldn't take very long from this point. So the -- whatever tightness we have right now should ease pretty quickly. We're still paying purveyors well on -- well within their expectations. So even though we're tight, we're functioning well. With that, I hope I've been somewhat clear. I know it's a lot, but I'll take questions.

[Operator Instructions] Our first question comes from the line of Bruce Martin from Still Lake Capital.

So at the end of the quarter, where are we in terms of debt and cash on the balance sheet?

On the balance sheet, cash flows and cash balance, is $300,000. We've had to -- one of the things that we had, it was our credit facility, right now is to -- we were restricted on it in how much money we could actually -- there was a sub credit limit for the Sequoia project. So we've had to use a lot more of our cash to pay for that construction than had originally anticipated. The borrowings are right around $17 million. So we anticipate we might -- we're paying down on our borrowings approximately, right now, $350,000 a month. So that goes down fairly quickly. We anticipate potentially borrowing an additional $2 million. But that's about where we are right now.

Bruce, what happened here is, as Bob just said, we had a sub limit on our credit facility for -- which basically, was $5 million cap on spending at Sequoia. But we borrowed $20 million -- we have a $20 million credit line. The money -- so we are $3 million under the credit line. What we've had to do, and it has not come through yet, but will come through, is adjust the credit line to increase the borrowing that's allowed under Sequoia. That will come through in the next couple of weeks. We've already got an agreement with the Chief Lending Officer of the bank at as well as the President of the bank that we presently use. It just has to go through the credit committee for approval and they're meeting next week. So they'll lift the limit on the Sequoia construction, which will allow us to take down another $2 million to $3 million. So we're in good shape. And by the way, right now, the Sequoia project is basically almost paid for. Maybe we have $1 million left on this thing at most, and the cash flow is -- from the restaurant is kind of good. So over the last week or 2, 2 to 3 weeks, cash has actually been building in our accounts. So that's where we are.

Okay. And then just following up your trying to put together all your sort of rough guidance, I guess, for 2018. If you did roughly $12 million of EBITDA in '16, you're saying you could potentially...

It's at $10.2 million in '16. You got to take away that one-time benefit of the taxes.

So the $10.2 million, you're saying add $4 million to $4.3 million prior to Sequoia and then for Sequoia, you would add what?

I'm not adding anything. I'm just saying in 2016, we did a $1.44 million of EBITDA. We went through this whole exercise to do more, obviously. But I don't have a number to tell you.

But you would add that on top of the $4 million to $4.3 million, is what you're saying?

Yes, what I'm saying to you, I start with $10.2 million, I have all these -- this $4.3 million, which I think is in hand on top of the $10.2 million. And then in 2016, Sequoia under its old format, did $1.4 million. If we do better than $1.4 million, then there would be additional benefits for the EBITDA.

Our next question comes from the line of [ Geoffrey Kay ] with [ Family Office Consulting ].

I've been a long-time and patient shareholder. I really applaud the move of recent years to start to own some properties, and I think it's a very strong positive for the company. I also appreciate the transparency and granularity of the call made this morning in terms of Sequoia and the Fort Lauderdale property with some of the issues that you guys are working through. My question really is on a bigger, grander scale. As a long-term and patient shareholder, what's the vision going forward? Obviously, you folks, insiders, own a tremendous amount of the stock. You've moved a little bit in a different direction in terms of some ownership. I know you instituted a buyback a year or so ago, although I don't think any shares have been repurchased, in terms of stabilizing or helping shareholders. You pay a clearly generous dividend consistently. Is there any consideration for a buyback, or a special dividend, or a stock dividend? Or -- I know there was also a discussion -- I'm rambling a little bit here, excuse me. There was also a discussion on a previous conference call of entertaining, taking on an investor or a sale of the company, and I know that the Meadowlands property was something that you contemplated in terms of what do we do in terms of that sort of transaction. So my question, just to boil it down, is what's the grand plan here? Where do you see the company moving forward? And for a long-term shareholder, how does my patience get rewarded here?

Well, you're not rambling, number one. I tend to ramble, and you're doing a better job than I am. So let's first deal with the buyback. Because that's kind of easy. We made the investment in the Meadowlands, and we had a 5-year time horizon in terms of thinking there'd be a resolution put before voters to amend the constitution to allow for gaming in the north of the state, away from Atlantic City. So 3 years into this, there was a resolution that was put before the voters. And 2 things happened. Number one, I exercised options, because I thought if the resolution were to pass that there would be some appreciation in the price of the stock when people understood that we owned a piece of this thing and had exclusive rights to all the food and beverage in a casino if it occurred, with the exception of a Hard Rock Cafe, and nothing happened to the stock. And we said, Jesus, maybe this thing is under the radar and we should put in place a buyback, because if the resolution were to pass, and the stock were to not do very much, we should be aggressive for ourselves, meaning our shareholders, and having bids out there in case anybody wanted to sell something. That did not -- yes?

[indiscernible]

Yes, that did not occur, and -- so -- but that was the main purpose of the share buyback. I assumed under the scenario I just laid out, if the stock doesn't do -- it does badly and people don't understand where we're headed with next year, if there was capital available to buy back stock, we would do so. But that wasn't the original intent. As far as the grand vision goes, we are seeing properties similar to the ones we have already purchased, the 4 that we own, where we own the property, we're seeing transaction possibilities on a regular basis now. The Rustic represents, really, the type of seller that is interested in being in touch with us. It was a guy in his 90s. He owned the restaurant forever, owned the property. He was making, in the case of Rustic, $1 million to a $1.5 million a year, was probably not efficient, and goes to sell it, and there's no buyer for it that suits him. The reason for it is the brands don't want him who could easily afford the $7 million to $8 million that he's looking for because it doesn't extend the brands, even though it's a good business. But it's not a good enough business for a brand. $1 million, $1.5 million may be enough -- not be enough to move the needle for them. And locals don't have the $7 million, $7.5 million, $8 million or the expertise to make it -- to make the deal he wants. They're going to want to buy it for 30% down and notes over 8 years. And he's saying, "Hey, I don't want to take this thing back. I'm 90." Well, even if you're 80, you don't want to take it back. Quite frankly, if you're 40 or 50, you don't want to take it back. Because if you're going to take it back, you're going to take it back with sales tax owed and a lot of potential litigation. So here we come along and we're able to fund the $7.5 million purchase price, and fortunately, in this particular instance at Rustic, we see a lot of possibilities to improve the bottom line, and we improved it dramatically there. And Shuckers, we haven't improved it dramatically. It's just a natural organic growth of the business that's taken it from an $800,000 EBITDA to $1.1 million EBITDA. Original Oyster House was a very well-run business. We purchased these things at roughly 5.25x earnings, but we own the property. So what did we really pay for the earnings if the property appraises for $9 million? We paid $10.75 million plus inventory purchases. So what we really bought is property, and the earnings are coming to us at one times, or -- it's crazy. So we're looking at more of these. There is a vision that we have beyond this that we haven't been up to satisfy. Certainly, making the investment in the Meadowlands to have the entire food and beverage program there would be a huge revenue boost for us, not dissimilar to what happened in New York, New York. But New York, New York happened substantially like 13, 14 years -- well 1997, so 20 years ago. We haven't been successful in finding something where we could do $50 million, $60 million in one location. But we look, and we have the -- if not on our own balance sheet, we think we have the way of funding something like that. So we're looking specifically now -- and I'm not out ruling that we would do another lease, but specifically, we're looking to buy properties that have restaurants that are showing a decent amount of cash flow that will move the needle here for our shareholders. We're also looking for developments where we could take a bigger piece of the development and not have one restaurant, but 3, 4 or 5. Would have a combination of restaurants and fast food courts. We look at those deals. We were negotiating on one very recently, and quite frankly, we were outbid by somebody, and we just didn't want to raise our bid. We tend to be very conservative. Restaurants are not the safest businesses to be in, and so we don't want have a high risk profile and think everything we do -- we're going to do as being successful. So we try to find rents that are reasonably safe and be involved with landlords who understand us and who are going to support our efforts. So we're not a brand, we're not looking for the same demographics in every city in the United States to put up our shingle. We're looking for areas where we can do significant revenue, preferably own the property underneath it, or have very long-term leases. One of the attractions of Meadowlands is it's -- we have a 40-year lease with the state of New Jersey out there. If the casino happens -- we're going to sign -- we're going to have a 40-year lease with ourselves. So that's the type of deals we're trying to do. I don't know if that helps you. It's a little vague, but we're not a brand. So we're looking for opportunities.

So just a follow-up to that. And I appreciate the answer. As you accumulate properties and the real estate underneath, is there a long-range exit strategy for this? I mean, you're not just -- you then become not just restaurant operators, but real estate owners. Real estate, obviously, is not particularly liquid. So again, back to the grand plan. As you roll up these properties, as you become more -- the value of the company is embedded in underlying real estate as well, what's -- is there an exit strategy for the [indiscernible] in this stuff? If you turn around and find out that the property you paid $5 million for is now worth $12 million, is there an exit strategy? Has that been thought about?

Well, obviously, we did that in Jupiter. I mean, we bought something for $5 million that we flipped immediately for $8 million. But the underlying asset, the restaurant, was not making money. Although, we thought we were on the right path, but it didn't make sense to see that path play out, because -- but look, we're not sufficiently -- in terms of the dollar value of our properties, it's not sufficient enough in terms of the value to really devise a strategy about it. I had said on previous conference calls, one of the things you could say -- let's say with a Rustic or a Shuckers or the Oyster House, is you can go to a real estate investor and say, hey, look I'm making $3 million, $4 million here at Rustic. I'll give you $1 million a year. Will you give me $13 million? Because that would be a 7.5% return in this market. Give me $13 million, and I'll give you the first $1 million a year of cash flow. Well, certainly that makes a cash flow behind it a little bit more risky, and therefore, maybe the multiple on our EBITDA becomes less -- I don't think anybody is doing this empirically right now, but -- because the first $1 million goes to the real estate investor, and essentially do a sale leaseback, and you free up $13 million. I don't know if it's $13 million or $11 million or $10 million, but obviously, there's value in this real estate, and -- but it shrinks our EBITDA on the other side and it makes our EBITDA a little less attractive because it's riskier. We need to beat that $1 million hurdle. So I think there are things we could do immediately to change our balance sheet to make it far more attractive, but I think organically, that's going to happen anyway next year. We're not desperate to do these deals. We're a restaurant company. I agree with you, there's value locked into this balance sheet in terms of properties. At some point -- I'm a great believer that values out, fundamentals do come to the fore, and we'll get value for it. But now is too early to think about it, I believe.

Our next question comes from the line of Bruce Geller with DGHM.

Thank you for the very detailed discussion today. I think that was very helpful. It sounds like, as you were going through that EBITDA bridge, if you add in, hopefully, some incremental earnings from Sequoia with all the work you did, it sounds like something in the $15 million range for EBITDA would be in the ballpark, based on everything you laid out today. Is that fairly accurate?

Look. I can't commit to that number, because the -- I'm very comfortable with the $4 million, the $4.3 million. Obviously, we didn't spend all this money into Sequoia to just stand still and keep it at $1.4 million. But we don't have anything to validate what we're going to do. All right? The only validation we have is that Washington Harbour, which is a project that we are in, the numbers for the restaurants this year, this summer, have been extraordinarily good, for the other restaurants. They were open. We were not. It has become a gathering spot. And what we're doing with artwork on the outside area, where we have 550 or 600 seats, is, I think, extraordinary. And I think it will act as a magnet for people to come to our restaurant as well as others, but specifically to ours. So I'm hoping we vault that 2016 EBITDA number for Sequoia by a lot. But I have no way of knowing that.

What kind of early reviews have you received from the local restaurant media?

It's been very good. We don't pay attention to Yelp reviews, but they've been good. We pay attention to OpenTable reviews, and our managers are going around to the tables and basically, they're getting -- one of the reason the losses were high, other than straight lining rent and depreciation in this 3-month period that just ended in Sequoia, is that we carried our whole -- a good number of our managers and service staff throughout the construction, because they were good, and we -- and so this core staff remained with us. And so we got off to a very good start in terms of service. The same thing in the kitchen. But we've had a lot of people come down from New York to Washington to help the kitchen restart itself and watching the food carefully. And we think we're doing a very good job on the food. And I think that the -- look, there's a lot of good food out there. We want to be on a par or better with that. I think we're doing so, but what will set us apart here is the wow factor. I mean, we have $2.5 million worth of art in this restaurant, and -- contemporary art, and it's wow. I mean, you just a walk in and your jaw drops. And I think that's what's exciting the customers and will continue to excite them. And I don't think anybody else has approached the restaurant quite the way we're doing with this. It's 1,100 seats. It's not -- Bryant Park is 1,100 seats. Now Bryant Park has 600 million square feet of office space facing the park, some number like that. It's in midtown Manhattan. The lunches are off the sheet. You just can't get in. Bryant Park makes multiples of what Sequoia did in 2016 with the same number of seats. But we have a huge lunch business there. We have a big event business at Bryant Park. So we know how to run a restaurant that does $20 million plus, and as a matter of fact, in New York, New York, I think the best day we ever had there, we served 16,000 customers in one day. So we know how to do production and get good food to a customer and get them out on time. My line to everybody with Bryant Park is on a Thursday night, which is the big night there during the seasonally nice weather, there -- at 5:00, there are 1,100 seats, and there are a sprinkling of people in it. But by 6:00, those 1,100 seats are going to be full. And on a good night, we can turn those 1,100 seats 5x. We have the ability to do that in Sequoia, but we don't have the density of office space to support the lunch business. We don't have the density of residential space that can walk there as easily as -- or can cab there as easily as you do in Bryant Park. So there's got to be some discount given. But if -- I can see what we've done in Sequoia adding another $3 million, $4 million in incremental value on the revenue side. Where's it going to come from is a lot of it's going to come from events, because the space has been underutilized in terms of events, and I can tell you the event business in Washington, D.C. has to be as good as the event business in Bryant Park in New York. So -- and we haven't been -- while we're focused on events, and we have a sales team that I think is a very good sales team, we just added another person who we have a long experience with in New York who's very good who moved down there, and we did that because we think we need the manpower, I think the event business is going to take us to a new level of sales. That's my feeling.

That's great. Just going back to the EBITDA number. So assuming it's somewhere in the $14 million to $15 million range, I'm just trying to get a sense of converting that into free cash flow. Obviously, interest and taxes have to come out of that. But beyond that, what does CapEx look like going into next year? And then would you be expecting any swings, or any swings of note in working capital in either direction?

So Bob can answer part of that. Let me answer what the CapEx expense is. Usually -- we keep our restaurants in very, very good shape. We're not deferring anything, unless there's like Sequoia, where there's a lease coming due and we're unsure whether we're going to be up to renew it. But we don't have any lease problems immediately following us. We're in good shape in all the restaurants in terms of maintenance. CapEx expense could run $1.5 million, $2 million a year to keep the roofs on. We just had one blow off an Oyster House in Alabama because of storms. But it's $1.5 million to $2 million. The Rustic project, to expand it, is going to be another $2.5 million. I don't know that, that all will be spent next year -- in the next fiscal year. We have plans. We're now value engineering the plans. I don't know how long it takes to get permits. But I would imagine, most of it will be spent some time in fiscal 2018, although we may not get much -- probably toward the end, and we won't get much revenue benefit in 2018. But it's definitely a project that we want to go do. We already purchased a piece of property contingent to our current parking lot, which fortunately, is always full, to give us another 40 some-odd parking spaces, which was required in order to expand the restaurant. The building department required us to have more parking to support the additional seats. So that was a $0.5 million purchase. That's already taken place. We've written the check. So maybe another $2.5 million above the $1.5 million to $2 million to keep the roofs on. Obviously, if there's another deal that comes our way, we would have to figure out how to finance it. But we're not looking to screw up our lives next year and make it complicated. I think we have a very simple plan going forward that I laid out that will work, and we want to make sure it works. And I'm not looking to overstress management and our balance sheet to do another deal, not next year. And it would really have to be an extraordinary, extraordinary opportunity to make us take a look.

Sure, that would be high-class problem. And I respect your discipline in passing on a recent deal that you mentioned, because...

So Bob can answer the cash flow.

Yes, we've been discussing this with several banks now on how to improve our cash flow, I would say, based on -- right now, the notes that we have outstanding on the properties that we bought are 5-year notes. So it's a very heavy repayment schedule. And what we're looking to do is to turn this into 15-year amortizations, which should free up a lot of cash going forward in the next few years. Our cash position, because we don't have any big expense next year, should build fairly rapidly. So where we have a fairly large working capital deficit this year, that will slowly improve. Yes, I don't see there are any problems. We have more than enough cash flow to support the dividend payments. We're in a really good position. And as Michael said, there's no deals that are coming across our desks that look like we just have to do them. I'm getting -- believe me, I'm getting calls from people in Alabama now on meeting on their restaurants. So there's a lots of people, it seems like, that want to retire in Alabama. So I see it just improving over the next year. We'll be in a much stronger position in a year. And again, the discussions with the banks are ongoing now. So there's no final conclusion on that, but it definitely looks like we'll get this done.

That's great. And my last question is, there was no mention today of Clyde's. Just wondering if there's anything of note with respect to Clyde's. And I know that the lease you have there at times in the past, you've noted that the lease in itself is of pretty good value. Is there any thought of monetizing that somehow to help fund other initiatives?

Look, there's a lot of construction taking place around Clyde's, as you know. Hudson Yards is being built. There are other hotels and apartment buildings being built. We're cash flow positive at Clyde's, but in no way is it a good return as of yet. As you said, our lease there is a very inexpensive lease, it's $35 a foot, or roughly -- the base rent. The area is going for $100 plus a foot right now. We have 200 front feet on a major avenue, 10th Avenue, in New York. And the amount of construction going on around us is just extraordinary. So we're going to wait and see if this business builds with the additional residential and commercial properties being built in the area. Obviously, the Hudson Yards will have restaurants in it as well. But we think that's good for us. We just think it becomes more of a dining area to come to, and we're very happy with the way the place looks. We're happy with the clientele. We're happy that we're cash flow positive. We see this thing building. So there's no immediate need to try to do anything.

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments.

All right. Well, thank you for being on this call. I hope I was able to convey to you that we're excited about where we stand right now. I think we are set up to do very, very well in 2018. I apologize for the delays in getting Sequoia open. I wished we could have gotten open in time for much of the third quarter. And I'm sure if we had, these explanations would not be as needed or excessive. But we are where we are. I think we're in great shape. And I look forward to speaking to you next quarter. Have a good rest of the summer, everybody.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.