Windstar Estates Strata Budget & Depreciation Report Term: Fiscal

Transcription

1 Windstar Estates Strata Budget & Depreciation Report Term: Fiscal Windstar Estates Budget Document Ending May v5 Page 1

2 Table of Contents Topic Page # 1. Table of Contents 2 2. Introduction 3 3. Purpose 3 4. Financial Strategy: Fiscal Operating Budgets, YE Depreciation Reporting: a. Background 5 b. Approach 6 c. Common Fixed Assets 7 d Asset Value Summary & Comments 8 7. Contingency Fund Mechanics a. CF Contribution Logic 9 b. Contingency Fund Revenue Planning 10 c. 15 Year Forward Contingency Fund Expense Projection 11 / 12 d. Analysis 13 / 14 e. Risks 15 f. 15 Year Projected Contingency Fund Growth 15 Windstar Estates Budget Document Ending May v5 Page 2

3 Introduction The Windstar Estates Strata Corporation requires clear and concise budgets for annual operations as well as long term capital expense planning purposes. As such, the following document shall provide written budget plans for the fiscal period ending May 31, 2014, as adopted by the strata council on behalf of the owners of Windstar Estates, along with the current depreciation report. Purpose The purposes of providing detailed annual operating and capital planning budgets include: To provide council with a clear planning tool used to determine appropriate annual strata fees, including contingency fund contributions To provide property owners with visibility into the intended planned usage of strata fees To reasonably ensure the strata property can maintain aesthetically pleasing and acceptable common property grounds To maintain the value of common fixed assets, including related forward cost projections Financial Strategy; Fiscal The Strata Council adopts a financial strategy for the fiscal period ending 2014, supporting strata fees to cover: 100% of projected annual operating costs 100% of planned capital expenditures Contribution to the Contingency Fund (CF) of $6,400 In the event that either operating costs or capital costs exceed budget during the fiscal period, the order of funding sources (subject to BC strata laws) used to cover said cost overruns shall be as follows: 1. Redistribution of unused operating funds during said fiscal period 2. Utilization of funds originally intended for CF investment 3. Redemption of contingency fund investment accounts, to a maximum of 20% of total funds on deposit 4. Implementation of a Special Assessment Windstar Estates Budget Document Ending May v5 Page 3

4 Figure 1: Operating Budgets, YE 2014 Fiscal Year (FY) Budget /2014 Year Ending Budget Item May Budget Income & Roll Over Bank Balance Penalties 0.00 Misc. Sources 0.00 Investment Account Revenue 0.00 Special Assessment 0.00 Roll Over Bank Balance at Yr end 5, * Strata Fees (Op Ex & CF Contributions) 18, Total Income 24, Expense & Rollover Bank Balance Bank Charges Bylaw/legal 4, Fire Hydrants (Inspections) Hydro Insurance 1, Irrigation Landscaping 4, Meeting Fees Misc Office Supplies Snow Removal Street Lamps Fence Shed and Sign Powerwash and Paint Contingency Fund Contribution 6, Sub-Total Op. Ex. & CF Contribution 21, Bank Balance Rollover: Opening Balance to Next Fiscal Year 3, Total Expense 24, Strata Fee Analysis Budget Total Annual Fees 18, Total Monthly Fees 1, Number of Strata Lots Annual Fees per Owner Monthly Fees per Owner Contingency Fund at year end: $49, Contingency Fund at start of next financial year: $56, Contingency fund is 3x annual strata fees * This includes a $ 2,678 surplus of income over expenditure for the finacncial year 2012 / 2013 Windstar Estates Budget Document Ending May v5 Page 4

5 Depreciation Reporting a) Background: Prudent financial planning for any strata corporation must include an annual contribution beyond those budgeted operating and capital expenses intended to maintain strata owned common assets, and placed into a separate reserve frequently referred to as the Contingency Fund (CF). Thoughtful planning is required to determine the appropriate level of said CF contributions for each year, as the CF is intended to cover both projected capital expenses (planned repair, maintenance and/or replacement of capital assets), as well as extraordinary (or unforeseen) expenses which may occur from time to time related to these same strata owned assets. Critical to the successful operation of any strata organization, is to ensure a logical level of CF contributions, neither too high nor too low. It is the opinion of this strata council, that planning and maintaining appropriate levels of contingency funds, shall maximize individual property values on the resale market. A strong CF is a corner stone of maintaining property values for current property owners, as prospective buyers will be well advised to only pursue strata properties demonstrating strength in the CF. The BC Government has enacted legislation requiring strata corporations to commission a depreciation report by Dec 13, Such depreciation reports dovetail perfectly with the current CF planning model currently in use by the Windstar Strata Council, and as such shall be included in this report. Determining the value at any point in time of depreciating assets is more a theoretical exercise than a practical one, as it pertains to developing an adequately financed contingency fund. The primary goal in building and maintaining a contingency fund is to strike a logical balance between being underfunded and overfunded. In order to achieve such a goal, a model must be developed that is both clear and logical in determining the annual contribution levels to the fund. For this reason, the prudent strata council will review said contingency fund levels annually, or when significant events occur that may impact the fund, and therefore require changes to either the logic or the fund contribution levels, annually. Unlike a more conventional strata model typically in place at a condominium or townhouse complex, Windstar Estates is a Bare Land strata corporation, and as such requires a substantially different financial model as it relates to contingency fund planning. This is due to the fact that less than 2% of the total common assets owned by the Windstar Estates Strata Corporation, are ever likely to reach the end of their useful service life such that they require total replacement. However, owners are cautioned by council that while these long term assets may likely never require full replacement, they will require a combination of repair and maintenance. Therefore the council is of the opinion that there are three primary reasons to build the contingency fund, including: Replacement of those assets that will reasonably reach the end of useful service lives Repair and maintenance of those assets not anticipated to reach the end of their respective useful lives Catastrophic incidents requiring unscheduled repair/replacement of any asset(s) A formal, professionally prepared depreciation report for the Windstar Strata is anticipated to cost in the neighbourhood of $5,000 or more. Due to the fact that the current CF fund is well capitalized, and the total number of assets likely to require full replacement is relatively few compared to much larger strata corporations, the current council determined such a report was well within the skills of those individuals serving the council, and therefore elected to save the cost of the professional report by having said report prepared in house. Windstar Estates Budget Document Ending May v5 Page 5

6 b) Approach (Note - All values in constant dollars ): List all common fixed assets and determine treatment of each (Table 1): o Replace only o Maintain only o Repair only o Any combination of replace / maintain / repair Determine the Asset Value (Table 2), including: o Original value o Current value (aka: depreciated value) For those assets that involve scheduled replacement, determine: o Total replacement cost (tax and labour included Table 2) o Service life of each asset (Table 2) o Rate of Contribution collection (Table 3) o Collection factor (expressed in terms of percent Table 3) For those assets that require scheduled maintenance (Table 3): o Determine frequency of required maintenance o Rate of Contribution collection o Collection factor (expressed in terms of percent) For those assets that require repair only (Table 3): o Plan for repairs based on repair history and reasonable forward projections o Rate of Contribution collection o Collection factor (expressed in terms of percent) Determine appropriate target value of CF to maintain (Recommendation): o Expressed as a percentage of assets to be supported o Calculate current year contribution to CF, based upon: Projected costs to maintain strata corporation assets for budget year Plus required contribution to maintain target CF level Windstar Estates Budget Document Ending May v5 Page 6

7 c) Common Fixed Assets Common property belonging to Windstar Estates includes a number of specific fixed assets. These assets are broken into the following three category types: Assets that are replaced only (in whole or in part), not likely repaired or maintained Assets with scheduled maintenance dates, then ultimately replaced at end of life Assets likely never replaced, but rather are maintained only Table 1 below illustrates the category each of the currently identified fixed assets of Windstar Estates falls under. The reader will note many assets qualify for more than one Treatment Type. Asset Treatment Types Name Replacement Scheduled Mtce Repaired Only Sprinkler Nozzles 4 Zone TBOS Controller Irrigation Plumbing Electrical Shed Street Lighting Fire Hydrants Landscaping Entrance Sign Perimeter Fencing Roadway Sanitary Sewer Storm Sewer Fire Water Plumbing Potable Water Pluming Table 1: Fixed Asset Treatment Windstar Estates Budget Document Ending May v5 Page 7

8 Assets for Repair & Assets for Planned Maintenance Only Full Replacement d) 2013 Asset Value Summary Source: File: 15 Year Forward Cap Ex Projection Model, Tab: Asset Depreciation Calculator Windstar Completion Date: 2001 Last Table Update: 2013 # Asset Qty Replacement Labour Taxes Sub-Total Extended Mtce Service Current Depreciated Replacement Cost (ea) (per unit) (per unit) (per unit) (total) Budget Life Age Value Date 1 Sprinkler Nozzles 10 $10 $40 $6 $56 $560 $0 5 4 $ TBOS Controller 1 $500 $200 $84 $784 $784 $0 5 3 $ Entrance Sign 1 $4,000 $500 $540 $5,040 $5,040 $ $1, Perimeter Fence 1 $10,000 $0 $1,200 $11,200 $11,200 $ $8, Electrical Shed 1 $1,500 $1,000 $300 $2,800 $2,800 $ $1, Street Lights 10 $1,000 $500 $180 $1,680 $16,800 $ $11, Fire Hydrants 4 $5,000 $2,500 $900 $8,400 $33,600 $ $25, Landscaping 1 $20,000 $10,000 $3,600 $33,600 $33,600 $4, $22,080 Mtce Only 9 Roadway 1 $300,000 $700,000 $120,000 $1,120,000 $1,120,000 $ $851,200 Repair Only 10 Irrigation Plumbing 1 $3,000 $6,000 $1,080 $10,080 $10,080 $ $5,242 R & M Only 11 Sanitary Sewer 1 $200,000 $600,000 $96,000 $896,000 $896,000 $ $680,960 R & M Only 12 Storm Sewer 1 $200,000 $600,000 $96,000 $896,000 $896,000 $ $752,640 R & M Only 13 Fire Water Plumbing 1 $300,000 $600,000 $108,000 $1,008,000 $1,008,000 $ $846,720 R & M Only 14 Potable Water Plumbing 1 $200,000 $600,000 $96,000 $896,000 $896,000 $ $752,640 R & M Only Analysis: Asset Group Planned Full Replacment Assets (FRA) Repair and Maintain Only (RMO) Total All Assets $4,930,464 $3,957,556 Current % of Estimated % of Replacement Total Depreciated Total Value Value $70, % $46, % $4,859, % $3,911, % $4,930, % $3,957, % Table 2: Asset Value Summary Table Note: Items 9/11/12/13/14 in Table 2 above, utilize Nominal Values for purposes of replacement and labour costs, respectively. Comments Bulk of our assets are long term (> 98%), therefore relatively little depreciation has occurred in the past 12 years Labour component to replace long term assets, is in many cases greater than the asset itself. By planning to never fully replace any long term asset, but rather to maintain and repair same, a substantial savings to the strata shall be realized through labour costs normally associated to full replacement Windstar Estates Budget Document Ending May v5 Page 8

9 Contingency Fund Mechanics a) CF Contribution Logic: As can be seen in Table 2, the bulk of Windstar Estates strata owned assets are comprised of items that in fact will likely never be replaced. A contingency fund model that attempted to collect contributions for associated labour on items which in fact will likely never be replaced, would be representative of a model Over Collecting for the contingency fund, not to mention unnecessarily costly for property owners. On the other hand, a prudent council will recommend to owners that some contributions intended to support each of these assets be collected, in small amounts and continually over the longer term for use at later dates, based upon the requirement these assets will have in the form of repair / maintenance, as the case may be. In order to develop a contingency fund contribution model to address such a wide ranging asset mix, the Windstar assets are divided into the following categories (aka: Treatment Types): Assets scheduled for full replacement at the end of their projected service life Assets intended to be repaired only, and never fully replaced Assets intended to be maintained only, and never fully replaced Assets intended to be both repaired and maintained, but also never fully replaced Table 3 below details each Treatment Type along with a corresponding Rate of Contribution Collection calculation, to which a Factor is applied, for calculation purposes. Future strata councils will easily be able to adjust this Factor, as time goes on and each asset proves its true ability to age. In fact, this approach would appear much more valuable in projecting future contribution levels on an annual basis, than attempting to project 15 years forward using a theoretical asset depreciation model. Source: File: 15 Year Forward Cap Ex Projection Model, Tab: Expense Planning CF Contribution Logic: Treatment Type Scheduled Replacement: Mtce Only Repair Only R & M Only Rate of Contribution Collection (Total Replacement Cost / Service Life) Op Ex Budgeted Item (Total Replacement Cost / Service Life) (Total Replacement Cost / Service Life) Factor 100% 0% 2% 5% Table 3: Contingency Fund Contribution Logic Windstar Estates Budget Document Ending May v5 Page 9

10 b) Contingency Fund Revenue Planning Model Table 4 below illustrates each of the Windstar Strata owned assets, including key specifics. The reader will note the following: Items 1 7: Are each intended to be fully replaced at the end of their useful service lives. For contribution calculation purposes, replacement costs include the capital cost of the items, as well as a component for labour and taxes. To these totals, a Factor of a full 100% is applied, and used in the final CF contribution calculation. Item 8: Landscaping is considered a strata owned asset of Windstar Estates. Interestingly, although the landscaping has significant value in the overall portfolio, it s Treatment Type by council calls for maintenance only. As such, 100% of all costs associated with such maintenance are provided for in the Operating Budget of the strata each year, and as such, there will be zero dollars collected by the contingency fund to support this asset, at this time. Item 9: The roadway traversing throughout the complex is also a strata owned asset, and another example of an asset that will likely never be fully replaced in the life of the complex. Unlike landscaping however, this asset may require repair during its lifetime, infrequent as that maybe. This low frequency of repair is the basis for the Factor (2%) applied to the value calculation, for purposes of contribution to the contingency fund. Items 10 14: Each of these assets share certain commonalities such as their extended anticipated service life, and perhaps more importantly, their financial impact should any of these ever require full replacement. The fact is however, should any of these water systems require any form of repair, in no reasonable or typical instance shall the entire system require full removal and replacement of same. These particular assets also have a maintenance component however. For these two reasons, a Factor of 5% is applied for purposes of contribution to the contingency fund. Source: File: 15 Year Forward Cap Ex Projection Model, Tab: Expense Planning Contingency Fund Revenue Planning Model (Constant Dollars) Service Last Total Replace (Tax In) CF Contribution Treatment Replacement Collection # Item Qty Life Replaced Date Labour Incl. Per Year Type Year Factor 1 Sprinkler Nozzels $560 $112 Replacement % 2 T-BOS Controller $784 $157 Replacement % 3 Windstar Entrance Sign $5,040 $336 Replacement % 4 Fence $11,200 $1,120 Replacement % 5 Electrical Shed $2,800 $140 Replacement % 6 Street Lights $16,800 $480 Replacement % 7 Hydrants $33,600 $672 Replacement % 8 Landscaping N/A $33,600 $0 Mtce Only N/A 0% 9 Roadw ay $1,120,000 $448 Repair Only N/A 2% 10 Irrigation Plumbing $10,080 $20 Repair / Mtce N/A 5% 11 Sanitary Sew er $896,000 $896 Repair / Mtce N/A 5% 12 Storm Sew er $896,000 $597 Repair / Mtce N/A 5% 13 Fire Water Mains $1,008,000 $672 Repair / Mtce N/A 5% 14 Potable Water Mains $896,000 $597 Repair / Mtce N/A 5% Total Annual Contingency Fund Contribution $6,248 Table 4: Revenue Planning Model Comments: Following the above methodology for calculation of contingency fund contributions shall provide not only a clear understanding to all concerned parties as to how the contingency fund contributions are determined for each coming year but also provide future strata councils the flexibility to plan contingency funding accordingly. Windstar Estates Budget Document Ending May v5 Page 10

11 c) 15 Year Forward Contingency Fund Expense Projection The BC Government legislation requiring depreciation reports stipulates a 15 year projection be included, to remain in compliance with the act. Table 5, page 12 below illustrates this forward projection, as it may apply to Windstar Estates. While the raw data is displayed in the Analysis section of table 5 below, Illustration 1 found on page 15, clearly demonstrates the following key points: The attached model utilizes a CF contribution of $6,248 per annum, and as such indicates the CF is projected to grow at a reasonable rate. The actual budgeted CF contribution figure of $6,400 per annum is therefore considered by council as sufficient to maintain said growth. CF contributions that remain consistent and predictable over the longer term enable property owners to project their annual strata fees year to year. Based on the projected expenses, the model proves a solid business model at the current annual CF contribution level. Windstar Estates Budget Document Ending May v5 Page 11

12 Table 5: Contingency Fund Forecasting Model source: File: 15 Year Forward Cap Ex Projection M odel, Tab: Expense Planning 15 Year Forward Contingency Fund Expense Budget Planning Model & Analysis (2013 Constant Dollars) Description Fiscal Year ENDING: # Sprinkler Nozzels $560 $560 $560 2 T-BOS Controller $784 $784 $784 3 Windstar Entrance Sign $5,040 4 Fence $11,200 5 Electrical Shed $2,800 6 Street Lights 7 Hydrants 8 Landscaping Mtce Only Mtce Only Mtce Only Mtce Only 9 Roadw ay $1,000 $1,000 $1, Irrigation Plumbing $750 $750 $ Sanitary Sew er $3,000 $3, Storm Sew er $2,000 $2, Fire Water Mains $3, Potable Water Mains $750 $750 $750 Projected Expense $0 $560 $784 $3,000 $1,500 $3,000 $3,560 $784 $14,000 $6,540 $1,000 $560 $784 $3,000 $1,500 $3,000 Analysis Year Ending > CF Planned Revenue 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 6,248 Projected C/Fund Expense $0 $560 $784 $3,000 $1,500 $3,000 $3,560 $784 $14,000 $6,540 $1,000 $560 $784 $3,000 $1,500 $3,000 Annual Net Income $6,248 $5,688 $5,464 $3,248 $4,748 $3,248 $2,688 $5,464 -$7,752 -$292 $5,248 $5,688 $5,464 $3,248 $4,748 $3,248 CF Previous Balance $49,679 $55,927 $61,615 $67,079 $70,326 $75,074 $78,322 $81,010 $86,474 $78,722 $78,430 $83,677 $89,365 $94,829 $98,077 $102,825 CF Balance Forw ard $55,927 $61,615 $67,079 $70,326 $75,074 $78,322 $81,010 $86,474 $78,722 $78,430 $83,677 $89,365 $94,829 $98,077 $102,825 $106,073 Windstar Estates Budget Document Ending May v5 Page 12

13 d) Analysis What percent of our assets, are covered by the contingency fund? Source: File: 15 Year Forward Cap Ex Projection Model, Tab: Depreciated AV Projections 15 Year Projected Depreciated Asset Values Planned Full Repair and Maintain Total Year Replacement Assets (FRA) Only (RMO) All Assets 2013 $46,074 $3,911,482 $3,957, $44,961 $3,832,464 $3,877, $43,064 $3,753,449 $3,796, $40,383 $3,674,432 $3,714, $37,702 $3,595,415 $3,633, $35,022 $3,516,400 $3,551, $32,901 $3,437,382 $3,470, $31,004 $3,358,365 $3,389, $42,323 $3,279,350 $3,321, $44,682 $3,200,333 $3,245, $41,498 $3,121,316 $3,162, $38,873 $3,042,300 $3,081, $36,472 $2,963,283 $2,999, $33,287 $2,884,266 $2,917, $30,102 $2,805,251 $2,835, $26,918 $2,726,234 $2,753,152 Table 6: Asset Values 15 Year Projection Source: File: 15 Year Forward Cap Ex Projection Model, Tab: Depreciated AV Projections Analysis Year RMO / Total Assets CF Balance Forward CF Balance / FRA CF Balance / RMO CF Balance / All Assets % $55, % 1.43% 1.41% % $61, % 1.61% 1.59% % $67, % 1.79% 1.77% % $70, % 1.91% 1.89% % $75, % 2.09% 2.07% % $78, % 2.23% 2.21% % $81, % 2.36% 2.33% % $86, % 2.57% 2.55% % $78, % 2.40% 2.37% % $78, % 2.45% 2.42% % $83, % 2.68% 2.65% % $89, % 2.94% 2.90% % $94, % 3.20% 3.16% % $98, % 3.40% 3.36% % $102, % 3.67% 3.63% % $106, % 3.89% 3.85% Table 7: Contingency Fund / Asset Category Windstar Estates Budget Document Ending May v5 Page 13

14 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% CF Balance / FRA (Full Replacment Assets) CF Balance / FRA illustrates the current contingency fund of $55,927 as representing 121% of assets scheduled for full replacement, at their current depreciated value Current contingency fund of $55,927 represents 79% of the same assets, at full replacement cost (not shown) 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% CF Balance / RMO (Assets for Repair & Maintenance Only CF Balance / RMO illustrates the current contingency fund of $63,346 as representing 10.9% of assets scheduled for repair & maintenance only, at their current depreciated value As this category includes only those assets never intended to be fully replaced, it is the opinion of this council the ratio is adequate 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% CF Balance / All Assets Illustrated is a trending of strongly positive growth for the contingency fund, as compared to the depreciated value of all assets Windstar Estates Budget Document Ending May v5 Page 14

15 e) Risks Readers shall note there has been no provision included in any calculations contained within this report, for catastrophic loss and subsequent impact to the contingency fund. By definition, the contingency fund is in place to address precisely this type of unexpected capital expense, such that unexpected expenses to the property owners may be mitigated as much as possible. f) 15 Year Projected Contingency Fund Growth Source: File: 15 Year Forward Cap Ex Projection Model, Tab: Expense Planning Illustration 1: Contingency Fund Growth vs. Annual Net Income Windstar Estates Budget Document Ending May v5 Page 15