Cherokee invests $15 million with Kituwah LLC
The Cherokee Tribal Council voted unanimously this month to allocate $15 million to Kituwah LLC as an equity investment from the tribe.
While large, the sum is substantially smaller than the $35 million the tribe gave the LLC in March or the $25 million it approved in October 2020. Both of those allocations were for development of the 200-acre property the tribe purchased in 2019 along Interstate 40 in Sevier County, but the Nov. 4 resolution approving the $15 million did not specify what the money would fund. The original version also did not specify where the money would come from, but floor amendments approved that day stated it would come from the tribe’s investment accounts.
Prior to the Nov. 4 vote, Tribal Council held a closed session in which it discussed the projects Kituwah LLC is pursuing and would use the money for. However, that list is not yet public, said Kituwah CEO Mark Hubble.
“Because we are in active negotiations with outside parties and the uses of the equity were discussed in closed session, I cannot comment except to say that some portion of the funds will be used for theatre upgrades, including the introduction of reclining seating, as well as added food and entertainment options,” Hubble said.
The public discussion Nov. 4 focused on how the money might impact the Cherokee Phoenix Theater. Kituwah plans significant upgrades for the facility in response to changes in consumer expectations for the movie theater experience.
“Cinemas who do not (make these improvements), they’re just going to go away,” Hubble told Tribal Council. “We’ve seen that with AMC’s theaters. AMC bought some middle-class, lower theaters. Those are struggling. The ones that they upgraded are doing fine. This is a phenomenon that’s happening throughout the cinema industry, and it’s a necessary phenomenon, I think, to survive.”
The movie theater is one of many projects that are either in progress or in the discussion phase at Kituwah LLC. The company’s endeavors span the gamut from a medical complex that it purchased in Weaverville to a Virginia modular manufacturing factory that it bought out of bankruptcy in 2019 to a stake in a medical marijuana manufacturing facility in Pennsylvania.
Business is going well, Hubble told Tribal Council. First established in 2018, the LLC began conducting business in fiscal year 2019 and had budgeted to lose money for the first two years, finally starting to turn a profit in fiscal year 2021. But the profits began to roll in a year earlier than planned, and the gains are only accelerating. On average, Hubble said, investments are coming in “slightly north of 10%.”
Despite that early success, the LLC is not yet paying dividends to the tribe or its members, a fact that constantly elicits questions from tribal citizens accustomed to the direct link between casino revenues and the checks that reach their mailboxes a few months later.
Hubble told Tribal Council that delaying the start of dividend payments will ultimately make the company more profitable. Online retail giant Amazon, for example, didn’t pay a single dividend for 15 years, and that delay allowed the company to reinvest its income and ultimately become bigger than it would have been able to otherwise.
Kituwah will likely adopt an official dividend policy after about four years or so of doing business, according to the appendix attached to the company’s annual report to Tribal Council. The recommended dividend policy included in the document says that dividends might begin in year five at 10% and slowly increase to a maximum of around 25% after 10 years.