Board of Management. Robin D. Hale Chief Operating Officer FOOD SERVICES OPERATION RFP RESULTS. Date: Summary:

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1 To: From: Subject: Board of Management Robin D. Hale Chief Operating Officer FOOD SERVICES OPERATION RFP RESULTS Date: Summary: This report outlines the results of the Request for Proposal (RFP) process for the Food Services Operations at the Toronto and recommends the award of a ten year agreement to the preferred proponent. The conclusions in this report are the result of a comprehensive review of proponent submissions related to RFP #40 ( ) and successful evaluation process. Recommendation: It is recommended that the Food Services Management Agreement be awarded to Compass Group Canada Ltd., at a fee of four (4) percent per annum, for a ten (10) year period on the terms and conditions specified in the RFP. This will include an up-front investment by Compass of $3.0 million, including a $1.5 million capital contribution to be recovered through operations (without interest) over the initial term, and a $100.0 thousand donation per year by the Operator to be applied against the portion of the contribution amortized over the term of the Agreement. Financial Impact: Total sales are estimated to grow to $10.8 million by 2024 from the actual level of $7.7 million experienced in 2013 and the forecast of $6.0 million in The profit projection for the would increase from $1.8 million in 2013 to $2.6 million by This equates to an increase of 40 percent over the extended term of the contract from the actual levels realized in Background: The Food Services Management Agreement was initially awarded to Beaver Foods (Cara) Ltd. by the Board of Management on The original term of the Agreement was for a ten year period expiring on The Agreement was assumed during the initial term by Compass Group Canada which purchased Beaver Foods in In 2010, the Agreement was renewed by the Board for a further five year period based on a proposal by Compass that provided for an up-front investment in facility improvements of $800.0 thousand, plus a $250.0 thousand donation which was applied against the investment cost and amortized over the term of the Agreement.

2 Food Services Operation RFP Results Page 2 of 4 Compass has successfully operated the food services and has grown the business from a level of $3.3 million in gross sales to the level of $7.7 million in 2013 which represents a 133 percent increase over the life of the Agreement. Over the same period the profit to the has increased from $350.0 thousand to $1.9 million in 2013 representing an increase of 443 percent. We have been very satisfied with the level of service, customer satisfaction and food quality provided by Compass over the years. Comments/Discussion: The RFP for Food Services was issued on Three proposals were received by the due date of , however, one was incomplete and was disqualified as the mandatory bid security was not provided at the time the bidding closed. The remaining two proposals received were from Sodexo Canada Ltd. (Sodexo) and Compass Group Canada Ltd. (Compass). Both companies have a proven track record of success and experience with large food service operations. The proposals from both Sodexo and Compass include a significant capital contribution to fund improvements to the food services operations structurally and through new brand offerings, forming a basis for the projected revenue growth of each company. A summary overview of the key elements of each proposal is included in Appendix I. To assist with the selection process, the services of fsstrategy Inc. were retained to participate in the review, evaluation, and selection process along with 3 members of the Toronto management team. fsstrategy Inc. is a respected consultant serving only the hospitality industry, with special emphasis on food service. They advise clients in all aspects of the hospitality and food service sectors and bring over 35 years of combined industry experience. Sodexo has over 40 years of experience delivering on-site services in Canada. The company serves over 500 sites for over 200 clients with 10,000 employees in Canada. The company has been recognized as a top employer for the past three years and operates in 80 countries with 428,000 employees serving 75 million customers per day in 33,300 sites. Sodexo listed history of success includes increases in revenue (retail and catering) at the Canadian Museum of History, the Canadian War Museum, Sony Centre, and several zoos and aquariums in the United States. Compass has over 50 years of experience and 2,000 accounts, with 26,000 employees and is a top 100 employer in Canada. Its parent company (Compass Group PLC) is the 11th largest private sector employer in the world with $25 billion in revenue and over 500,000 associates in 50 countries. Compass has extensive institutional foodservice market coverage in attractions, business dining, healthcare, higher education and remote sites and a dedicated Leisure and Entertainment division in Canada. Compass reference experience includes stadiums, convention centres and lounges, the Ontario Science Centre, Museum of Nature, Edmonton Valley, TD Place (Ottawa), Tim Hortons Field (Hamilton), Chatham Convention Centre, Telus Science Centre (Calgary), HBC and Air Canada Lounges, Copps Coliseum, and the Kitchener Auditorium.

3 Food Services Operation RFP Results Page 3 of 4 Proposal Evaluation: The submissions from each proponent were reviewed and scored individually by the respective team members (Stage 1) in advance of their first evaluation meeting to discuss the submissions. The factors considered in the evaluation process included a detailed review of: 1. Experience (including references); 2. Marketing and environmental initiatives; 3. Product, service quality and operations; and, 4. Financial considerations / benefits. The Stage 1 scoring resulted in Compass achieving a higher score from the evaluation team in each element of the review criteria with the exception of Marketing and Environmental Initiatives. In evaluating the financial considerations a net present value (NPV) analysis was completed by fsstrategy using the financial data included in the submission from each proponent. The first NPV analysis compared the individual data provided to complete a 10 year projection using specific growth assumptions. The second NPV analysis used an assumption of equal revenues each year for both proponents to complete the 10 year projection. The assumed revenues were determined by averaging the data from the two proposals. The results of each NPV analysis are included for your reference in Appendix II (a) and (b). As a follow-up to the Stage 1 evaluation, each proponent was asked to attend a meeting to present their proposal and plans for the food services operations at the Toronto and to also answer questions from the evaluation team (Stage 2) based on the same criteria. The overall scoring for Stage 2 resulted in Compass achieving higher scores in every category of the review. Based on the results compiled in the evaluation process, the evaluation team concluded that Compass Canada Group Ltd. is the preferred candidate. Compass Proposal Terms: The following key terms are provided in the Compass proposal: a) The proposed management fee is consistent with the current agreement at 4 percent. b) In year one, Compass will provide an up-front investment of $3.0 million for renovations, upgrades, and new equipment, at no cost to the Toronto to generate the revenues anticipated in their submission. Of this initial amount, $1.5 million will be recovered from operations over the 10 year agreement; c) Compass will provide a donation of $100.0 thousand per year for ten years ($1.0 million in total) to be used at the discretion of the Board. It is recommended that these funds be used to offset the recovery of the $1.5 million capital contribution (b) from operations. This will reduce the annual recovery from $150.0 thousand to $50.0 thousand. Toronto will provide recognition for the donation in the form of signage at the restaurant;

4 Food Services Operation RFP Results Page 4 of 4 d) In year six, Compass will provide an additional non-repayable investment of $500.0 thousand for a refresh of the facilities, at no cost to the Board; e) Compass will provide a performance guarantee of 20% of revenue in Net Profit over the 10 year agreement; f) The Volume Allowance Reduction of $75.0 thousand per year over the term of the contract will be continued to reflect a contribution to the Toronto for Compass rebates from supplier agreements; g) The agreement provides the option for a renewal for a further five (5) year period on mutually satisfactory terms, at the discretion of the Board. As outlined in Appendix II (a), the projection based on the Compass proposal anticipates revenues growing from the projected $6.0 million in 2014 to $10.8 million by 2024, an increase of 40 percent over 10 years. This growth is expected from changes in operations, new brand initiatives and additional emphasis on group sales. New brands proposed include Tim Horton s, Booster Juice, Extreme Pita, Subway and Dairy Queen. These initiatives address important consumer needs of quality, variety, good value food prepared and served quickly. The proposed new contract incorporating the above terms is recommended for approval as the experience with Compass Group Canada as our food services management operator has been excellent to date, the investment will allow for necessary improvements to restaurant facilities, and the terms represent an improvement over the existing agreement. R. D. Hale Chief Operating Officer List of Attachments: Appendix I Key Elements of Proponent Submissions Appendix II (a) Food Services 10 -Year Projection and NPV Appendix II (b) Food Services 10 Year Projection (Average Revenues) and NPV G:\BRDGRP\2014\NOV\Food.Services.Operation.RFP.Results.doc

5 Appendix I Proposal Compass Sodexo Proposed concepts Add brands including Tim Hortons limited menu, Tim Hortons coffee at retail operations, Subway and more Beavertails, BBQ at Splash Pad Pizza Pizza, Smoke s Poutinerie and Mandarin brands retained Tim Hortons coffee and iced drinks at five outlets, Freshii at Peacock Cafe, Gorilla Grill, Dippin Dots Pizza Pizza and Mandarin brands retained Marketing Initiatives Environmental programs Product/Service Quality and Operations Revenue Projections Financial Proposal A variety of initiatives including a significant number of technology-based marketing initiatives Budget 0.5% of revenues for marketing initiatives; also referenced considerable corporate investment in proposed technology programs Strong environmental programs Strong proposed program Includes establishing KPIs in collaboration with the $8.6 million Year 1 increasing to $10.4 million by Year 3 4% management fee, 0.5% discount for invoices paid within 30 days A variety of initiatives, less technology based initiatives than Compass Budget 1% of revenues for marketing Strong environmental programs Strong proposed program including sound transition plan Will establish KPIs in collaboration with the Toronto $8.3 million Year 1 increasing to $9.1 million by Year 3 6% management fee, no discount on invoices paid within 30 days Performance Guarantee Capital Contribution Guarantee 20% of revenue to the Toronto Guarantee annual purchasing rebate to the Toronto of $75,000 $3.0 million in Year 1 (Africa Restaurant after the Year 1 peak season) with $1.5 million to be recovered from operations on a straight line basis over the ten-year agreement $500,000 Year 6 Donation to Toronto of $100,000 per year Year 1 $2.1 million increasing to $2.5 million in Year Will risk 40% of its management of 6% based on achievement of KPIs to be negotiated with the Toronto $2.7 million in Year 1 ($1.87 million prior to the Year 1 peak season and $870,000 after end of peak season Will pay $140,000 in opening costs Projected returns to the 3 Year 1 $2.0 million increasing to $2.4 million in Year 3 Contract Amendments None proposed Proposed several amendments, although expressed a willingness to negotiate these

6 Appendix II (a) NPV Analysis - Projections Based on Proponent Submissions Compass Proposal fs STRATEGY Projections Net Present Value Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 5% Discount 10% Discount Compass Per Capita Revenue $ 6.16 $ 6.60 $ 6.91 $ 7.05 $ 7.19 $ 7.40 $ 7.55 $ 7.70 $ 7.86 $ 8.01 Revenue $ 8,627,833 $ 9,239,485 $ 10,361,159 $ 9,511,544 $ 9,701,775 $ 9,992,828 $ 10,192,685 $ 10,396,538 $ 10,604,469 $ 10,816,558 Total Expenses $ 6,250,517 $ 6,651,394 $ 7,449,465 Gross Profit $ 2,377,316 $ 2,588,091 $ 2,911,694 $ 2,672,935 $ 2,726,394 $ 2,808,186 $ 2,864,349 $ 2,921,636 $ 2,980,069 $ 3,039,670 Management Fee $ 345,113 $ 369,579 $ 414,446 $ 380,462 $ 388,071 $ 399,713 $ 407,707 $ 415,862 $ 424,179 $ 432,662 Net Profit $ 2,032,203 $ 2,218,512 $ 2,497,248 $ 2,292,473 $ 2,338,323 $ 2,408,472 $ 2,456,642 $ 2,505,775 $ 2,555,890 $ 2,607,008 Capital $ 3,000,000 $ 500,000 Board Donation $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 Total Investment $ 3,100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 600,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 Total Value to $ 5,132,203 $ 2,318,512 $ 2,597,248 $ 2,392,473 $ 2,438,323 $ 3,008,472 $ 2,556,642 $ 2,605,775 $ 2,655,890 $ 2,707,008 $ 22,312,650 $ 18,077,017 Sodexo Per Capita Revenue $ 5.92 $ 6.33 $ 6.09 $ 6.21 $ 6.33 $ 6.46 $ 6.59 $ 6.72 $ 6.86 $ 6.99 Revenue $ 8,287,327 $ 8,867,440 $ 9,133,464 $ 8,384,520 $ 8,552,210 $ 8,723,255 $ 8,897,720 $ 9,075,674 $ 9,257,188 $ 9,442,331 Total Expenses $ 5,778,987 $ 6,005,420 $ 6,164,376 Gross Profit $ 2,508,340 $ 2,862,020 $ 2,969,088 $ 2,725,623 $ 2,780,135 $ 2,835,738 $ 2,892,453 $ 2,950,302 $ 3,009,308 $ 3,069,494 Management Fee $ 497,240 $ 532,046 $ 548,008 $ 503,071 $ 513,133 $ 523,395 $ 533,863 $ 544,540 $ 555,431 $ 566,540 Net Profit $ 2,011,100 $ 2,329,974 $ 2,421,080 $ 2,222,552 $ 2,267,003 $ 2,312,343 $ 2,358,590 $ 2,405,761 $ 2,453,877 $ 2,502,954 Capital $ 2,691,322 Board Donation $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Investment $ 2,691,322 $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Value to $ 4,702,422 $ 2,329,974 $ 2,421,080 $ 2,222,552 $ 2,267,003 $ 2,312,343 $ 2,358,590 $ 2,405,761 $ 2,453,877 $ 2,502,954 $ 20,436,439 $ 16,588,756 For Years four to ten, fsstrategy has assumed a 2% increase in per capita revenue, attendance of 3.5 million and gross profit and calculated management fees according to the proposals (4% for Compass, 6% for Sodexo)

7 Appendix II (b) NPV Analysis - Projection Based on Average Revenue from Compass and Sodexo Proposals Compass Proposal fs STRATEGY Projections Net Present Value Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 5% Discount 10% Discount Compass Per Capita Revenue $ 6.04 $ 6.47 $ 6.50 $ 6.63 $ 6.76 $ 6.96 $ 7.10 $ 7.24 $ 7.39 $ 7.54 Revenue $ 8,457,580 $ 9,053,463 $ 9,747,312 $ 8,948,032 $ 9,126,993 $ 9,400,802 $ 9,588,818 $ 9,780,595 $ 9,976,207 $ 10,175,731 Total Expenses $ 6,127,176 $ 6,517,479 $ 7,008,121 Gross Profit $ 2,330,404 $ 2,535,984 $ 2,739,191 $ 2,514,577 $ 2,564,868 $ 2,641,814 $ 2,694,651 $ 2,748,544 $ 2,803,515 $ 2,859,585 Management Fee $ 338,303 $ 362,139 $ 389,892 $ 357,921 $ 365,080 $ 376,032 $ 383,553 $ 391,224 $ 399,048 $ 407,029 Net Profit $ 1,992,101 $ 2,173,845 $ 2,349,298 $ 2,156,656 $ 2,199,789 $ 2,265,782 $ 2,311,098 $ 2,357,320 $ 2,404,466 $ 2,452,556 Capital $ 3,000,000 $ 500,000 Board Donation $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 Total Investment $ 3,100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 600,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 Total Value to $ 5,092,101 $ 2,273,845 $ 2,449,298 $ 2,256,656 $ 2,299,789 $ 2,865,782 $ 2,411,098 $ 2,457,320 $ 2,504,466 $ 2,552,556 $ 21,383,035 $ 17,365,453 Sodexo Per Capita Revenue $ 6.04 $ 6.47 $ 6.50 $ 6.63 $ 6.76 $ 6.90 $ 7.03 $ 7.17 $ 7.32 $ 7.46 Revenue $ 8,457,580 $ 9,053,463 $ 9,747,312 $ 8,948,032 $ 9,126,993 $ 9,309,532 $ 9,495,723 $ 9,685,638 $ 9,879,350 $ 10,076,937 Total Expenses $ 5,897,709 $ 6,131,403 $ 6,578,675 Gross Profit $ 2,559,871 $ 2,922,060 $ 3,168,636 $ 2,908,808 $ 2,966,984 $ 3,026,324 $ 3,086,850 $ 3,148,587 $ 3,211,559 $ 3,275,790 Management Fee $ 507,455 $ 543,208 $ 584,839 $ 536,882 $ 547,620 $ 558,572 $ 569,743 $ 581,138 $ 592,761 $ 604,616 Net Profit $ 2,052,416 $ 2,378,852 $ 2,583,798 $ 2,371,926 $ 2,419,365 $ 2,467,752 $ 2,517,107 $ 2,567,449 $ 2,618,798 $ 2,671,174 Capital $ 2,691,322 Board Donation $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Investment $ 2,691,322 $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Value to $ 4,743,738 $ 2,378,852 $ 2,583,798 $ 2,371,926 $ 2,419,365 $ 2,467,752 $ 2,517,107 $ 2,567,449 $ 2,618,798 $ 2,671,174 $ 21,450,597 $ 17,364,890 For Years four to ten, fsstrategy has assumed a 2% increase in per capita revenue, attendance of 3.5 million and gross profit and calculated management fees according to the proposals (4% for Compass, 6% for Sodexo)

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