Avalon investor: Stop upgrades

By Don Shilling

Avalon’s CEO says he’s confident golf course operations will become profitable.

VIENNA — A Boardman psychiatrist has a prescription for Avalon Golf and Country Club: Stop spending so much money on upgrading golf courses.

Dr. Anil Nalluri, who owns 9.5 percent of the stock of Avalon’s parent company, questioned the company’s spending habits at its annual meeting Tuesday at its Squaw Creek course.

Dr. Nalluri noted that Avalon Holdings’ cash reserves have been reduced from $21 million to $5 million in the past 10 years.

He said he is concerned because golf course operations are not profitable despite the money spent to acquire and upgrade Squaw Creek and the former Sharon Country Club. The company also owns the Avalon Lakes course next to its Howland headquarters.

The company’s stock price has fallen from more than $10 a year ago to about $5.

“What are you doing to increase shareholder value?” Dr. Nalluri asked.

Ronald Klingle, Avalon chairman and chief executive, told him that he thinks the investments will pay off for the company.

In an interview later, Klingle said memberships have increased from 1,900 to 2,500 in the past year. He said he thinks memberships could easily reach 4,000 as area residents see improvements that have been made. Increased marketing in Pittsburgh and Cleveland also is being considered.

Avalon is in the midst of a $12 million upgrade to the Sharon course and its clubhouse, and is spending more than $500,000 at Squaw Creek to build an indoor tennis facility and upgrade a restaurant.

“Our goal is to create something new in country clubs, and we’re proving that we can do it,” Klingle said. “We are fun, affordable and not stuffy.”

Still, Avalon’s golf course operations lost $300,000 last year, compared with a $400,000 loss in 2006. Operating revenues last year were $7.4 million, up from $5.9 million.

Klingle said he is confident golf course operations will become profitable as memberships grow.

Overall, the company posted a $1.5 million profit last year as the company enjoyed a strong year from its waste management business. That unit posted operating income of $3.7 million last year on revenues of $38.1 million.

With most of its revenues coming from waste management, Avalon is mistaken to invest so much money in golf courses, Dr. Nalluri said after the meeting. This area isn’t a booming southern city that has a strong enough economy to support “super country clubs,” he said.

“You can put gold in here. You can put marble in here, and the same members will pay,” he said.

Dr. Nalluri, who has about 358,000 shares in company stock, said he sold about 60,000 last year when it was trading at about $10 a share. Others did the same, and the stock price plunged, he said.

He said he is afraid that the stock price will be cut in half again if he tries to sell more shares. He said he bought his shares at an average of about $7 a share.

Another shareholder, Paul O’Leary, general partner of Raffle Associates in New York, questioned Klingle in 2002 when the golf course upgrades were just beginning. O’Leary came to subsequent annual meetings but was absent Tuesday.

Reached by phone, he said his attempts to persuade the board of directors failed and he stopped trying to force action because Klingle controls 67 percent of the company’s voting stock.

Like Dr. Nalluri, O’Leary said the company’s cash should have been returned to shareholders in dividends rather than spent on golf course improvements.

“There’s a big question mark about that strategy. They’ve spent a lot of money, and so far there’s little evidence of an adequate return on that investment,” O’Leary said.


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