THE REGIONAL MUNICIPALITY OF YORK

Transcription

1 THE REGIONAL MUNICIPALITY OF YORK Housing York Inc. Report of the General Manager and Treasurer 2012 FINANCIAL STATEMENTS 1. RECOMMENDATIONS It is recommended that: 1. The attached and explanatory notes for Housing York Inc. (see Attachment 1) be approved by the Board and submitted to York Region, in its role as Service Manager and Shareholder of the Corporation. 2. The attached 2012 Annual Information Return for the Housing York Inc. Provincial Reform Program (see Attachment 2) be approved by the Board and submitted to York Region, in its role as Service Manager and Shareholder of the Corporation. 2. PURPOSE This report presents the 2012 annual financial statements for Housing York Inc. (Housing York), along with the Annual Information Return, a housing program report mandated under the Housing Services Act, 2011, for the Board of Directors approval. 3. BACKGROUND Housing York s annual audit and financial statements comply with Regional and legislative requirements The Region is Housing York s sole shareholder and as such, Housing York s annual results become part of the consolidated Regional financial statements. Consequently, the Housing York audit is performed as part of the full York Region audit, ensuring that intercompany transactions, such as subsidy and payroll costs, are fully examined on both sides. The Board approves Housing York financial statements which are consolidated across all programs. This facilitates year-over-year financial comparisons at the corporate level. Housing York Inc. 1

2 Program Public Housing Provincial Reform Regional Housing The auditors review supplementary schedules to validate subsidy settlement for the various housing programs managed by Housing York. These supplementary schedules are provided to the Region as supporting documents to facilitate the subsidy reconciliation process. In addition to consolidated financial statements, the auditors review an Annual Information Return that is prepared for the Provincial Reform Program properties, as required under the Housing Services Act, The Annual Information Return uses social housing program accounting rules originally established by the Province and subsequently adopted by the Region. The audited financial statements and audited Annual Information Return are presented to the Board as drafts. Board approval is required prior to submission to the Region in its role as Service Manager and funder. External auditors will be attending the Board meeting to respond directly to queries from Board members. Housing York s portfolio operates under three distinct funding formulas Public Housing Program funding remains as it was prior to the transfer of administrative responsibilities to the Region in November The funding formula for the Provincial Reform Program is based on the components shown in Table 1, under the Subsidy Eligibility Section. The Regional Housing Program is not eligible for any subsidy and funds its own capital reserve from operating surplus. The following table summarizes Housing York s eligibility for subsidy funding. Table 1 Summary of Housing York s 2012 Programs and Subsidy Eligibility No. of Buildings Construction No. of Units Unit Mix Subsidy Eligibility Operating, which RGI 100% includes Capital ,038 RGI 68% Market 32% Market 100% Total 34 2,201 RGI 81% Market 19% Mortgage, Taxes, RGI Subsidy and Mandatory Contribution to Capital Reserve Construction capital contribution No operating subsidy 66% of the households receive rent subsidy from the Region s rent supplement program. 2 Housing York Inc.

3 4. ANALYSIS AND OPTIONS How to interpret the contents of the financial statement package The financial statements consist of a: Balance Sheet Statement of Revenue and Expenditures and Retained Earnings Statement of Cash Flows Supplementary notes and tables All results are consolidated at the corporate level of Housing York as is customary for financial statement presentation. Discretionary reserves previously approved by the Board are reflected on the financial statements to restrict a portion of accumulated Retained Earnings for specified uses. These reserves relate to emergency power, insurance claims, and strategic projects. Housing York s 2012 surplus is $236,493 after internal allocations The Statement of Revenue and Expenditures and Retained Earnings shows a surplus of $261,493 after the mandatory contribution to the Provincial Reform portfolio capital reserve, and the allocation of 75% of the Regional program s net operating income to the capital reserve, in accordance with the Board approved reserve funding policy. The consolidated surplus was also reduced by a $25,000 allocation to the insurance reserve, resulting in a consolidated net operating surplus of $236,493. The Balance Sheet remains healthy As at December 31, 2012, Housing York has total assets of $116,720,134, 88% of which was in property holdings, net of accumulated depreciation. Total assets are 4% lower than $120,961,381 in This decrease is due to the depreciation of Provincial Reform property holdings and the reduction in the capital reserve investment balance. Table 2 summarizes the three main asset categories. Table 2 Asset Summary Balance Sheet Assets Categories Current Assets $ 5,910,823 $ 4,435,005 Restricted Cash and Investments 8,588,636 10,391,051 Property Holdings 102,220, ,135,325 Total Assets $116,720,134 $120,961,381 Housing York Inc. 3

4 Housing York reallocated some funds from its restricted cash and investments holdings to the operating bank account to cover the 2012 capital expenditure commitments. This explains most of the increase in current assets and the decrease in restricted cash and investments. Restricted cash and investment items include tenant rental deposits, capital reserve, internal reserves, and investments related to surplus operating funds. Further information regarding Housing York s reserves is provided in Table 5 of this report. Modest change in liability obligations On December 31, 2012, Housing York had total liabilities of $95,072,699, consisting of current liabilities of $11,124,191(12%) and building financing of $83,948,508 (88%). Table 3 summarizes the liability categories. Table 3 Liability Summary Balance Sheet Short and Long Term Liabilities Accounts Payable and Accrued Liabilities $ 2,480,481 $ 1,988,373 Deferred Revenue 781, ,194 Amounts Due to Regional Municipality of York 3,548,220 3,387,615 Current Portion of Mortgage Payable 4,313,599 14,045,974 Current Liabilities $11,124,191 $19,984,156 Loan Agreements 5,834,000 5,834,000 Mortgages Payable 78,114,508 72,367,383 Total Liabilities $95,072,699 $98,185,539 Accounts Payable is slightly higher than last year. The deferred revenue amount of $781,891 consists of last month s rent deposits, as well as antenna revenue and subsidy received for future periods. The year-over-year increase in deferred revenue reflects the additional tenant rent deposits received from the addition of Mackenzie Green and Mapleglen Residences. These amounts are recognized as revenue in the appropriate future period or returned to tenants, depending on the circumstances. The amount owing to the Region in 2012 is $3,548,220: Payroll, Regional Allocations, Energy Management Loan $2,466,805 Subsidy Settlements (2011 and 2012) 1,081,415 Payable to York Region December 31, 2012 $3,548,220 4 Housing York Inc.

5 The loan agreements and mortgages payable shown on the balance sheet represent various financing obligations on buildings within the Provincial Reform and Regional Housing programs. The classification of the mortgages that are up for renewal changes to current from long term as the entire balance is due before the renewal date. Upon renewal, the mortgages are reclassified as long term. Therefore, the current or short term portion of mortgage payable is lower than last year due to mortgage renewals completed in 2012 at Thornhill Green and Rose Town properties. Asset amortization policy has changed Overall, Housing York s equity is $1,128,407 lower than 2011, primarily due to the declining balance in the reserve fund for capital replacement. In order to comply with the Generally Accepted Accounting Principles (GAAP), Housing York was required to report depreciation expense on buildings that are not covered by the Housing Services Act, 2011 (HSA) up to the end of Starting in 2012, the accounting policy for recording asset amortization is changing. The amortization for all buildings and other assets not covered by HSA is recorded at the consolidated Regional level rather than at Housing York level. Amortization of Regional program buildings is now recorded only on the Region s consolidated financial statements, consistent with the GAAP exception depreciation practices required for the Public Housing program. Detailed information on Housing York s amortization policies for HSA buildings are explained in the notes accompanying the financial statements. Table 4 summarizes the equity categories. Table 4 Summary of Equity Balance Sheet Equity Reserve Fund for Capital Equipment Replacement $ 4,359,107 $ 5,511,985 Reserve Fund for Energy Management Strategy 844, ,491 Reserve Fund for Emergency Power Project 526, ,541 Reserve Fund for Insurance Deductibles 181, ,127 Reserve Fund for Voyager Upgrade Project 39,897 93,454 Reserve Fund for Fairy Lake Pond 233, ,225 Reserve Fund for Strategic Projects 24,441 42,713 Shareholder Contribution 14,404,930 14,334,330 Retained Earnings 1,032, ,976 Total Equity $21,647,435 $22,775,842 Housing York Inc. 5

6 Table 5 summarizes 2012 activity in and out of the reserves. Table 5 Summary of Reserve Activity Capital Reserve Energy Management Strategy Energy Power Reserve Insurance Reserve Strategic Projects Reserve Activity Balance January 1, 2012 $5,511,985 $882,491 $539,541 $161,127 $42,713 Transfers-In from operating 1,116, ,000 - Transfers-In other sources 588, , Expenditures in 2012 (2,858,183) (382,129) (13,229) (4,214) (18,272) Balance December 31, 2012 $4,359,107 $844,576 $526,312 $181,913 $24,441 The Housing Services Act, 2011, requires Provincial Reform program housing providers to invest their capital reserve in a pooled investment fund through the Housing Services Corporation (HSC). The HSC, through its financial service company, offers a wide range of investment vehicles and expertise to ensure housing providers effectively invest their capital reserves. Housing York has invested $2,906,911 or 66.7% of its capital reserve in the Social Housing Investment Fund. The remaining portion of the reserve is invested in an interest earning bank account. The energy management strategy reserve has the balance needed to cover the planned activity for the fifth year of the retrofit program and repayment of outstanding loan balance. Lower operating revenue and lower costs compared to budget The Statement of Revenue, Expenditures and Retained Earnings incorporates the consolidated operating results of the three housing programs, as well as general and administrative overheads. The 2012 approved budget is provided for reference, and a discussion of the variances from budget follows. Rent revenue is below target due to later completion of Mackenzie Green Mackenzie Green opened in February 2013, five months later than estimated when Housing York prepared the 2012 budget. As a result, rental revenue was affected in the last quarter of Additionally, in the first quarter, there was a reduction in revenue while new tenants were gradually accommodated in Mapleglen Residences. The impact on rental income in 2012 was $593,489 or 3.6% lower than budget. The rental revenue and minor miscellaneous revenue streams were on target for the rest of the portfolio. Maintaining solid revenue performance is essential to working within the funding formula framework. Housing York continues to monitor rent and investment income. 6 Housing York Inc.

7 Table 6 provides a revenue summary for Table 6 Summary of 2012 Revenues Revenue Summary 2012 Budget 2012 Actual $ Var. F/(U)* % Var. F/(U) Rental Income $16,529,314 $15,935,825 $(593,489) (3.6)% Non Rent Revenue 888, ,123 (338,569) (38.1)% Government Subsidies 8,697,963 8,093,348 (604,615) (7.0)% Operations Surplus 359, ,493 (123,113) (34.2)% Total Revenues $26,475,575 $24,815,789 $(1,659,786) (6.3)% *F Favourable; U Unfavourable The subsidy budget is estimated and approved during the annual budget process. The Region releases estimated funds to Housing York throughout the year. At year-end, the actual subsidy entitlement is recalculated based on results. The year-end calculation, known as subsidy reconciliation, determines whether Housing York s subsidy entitlement is more or less than advanced throughout the year based on the budget estimate. Due to higher rent geared-to-income rental revenue and lower utility costs, Housing York qualifies for less funding than estimated. Overpayment of subsidy is ultimately captured as a liability on the balance sheet owing back to the Region. Operating expenses reflect lower mortgage costs, property taxes, and utility expenses Overall total operating expenses were $1,734,982 or 6.9% lower than budget as shown in Table 7. Table 7 Summary of 2012 Operating Expenses Expenditure Summary 2012 Budget 2012 Actual $ Var. F/(U) % Var. F/(U) Mortgage/Lease Payments $ 9,787,949 $ 9,262,764 $(525,185) (5.4)% Administration and 7,713,679 7,668,494 (45,185) (0.6)% Maintenance Utilities 3,396,830 2,665,343 (731,487) (21.5)% Property Taxes 2,553,333 2,282,790 (270,543) (10.6)% Public Housing Capital 1,145,103 1,015,906 (129,197) (11.3)% Insurance 358, ,122 9, % Shelter Costs 134, ,347 (16,390) (12.2)% Bad Debts 83,199 57,100 (26,099) (31.4)% Total Expenditures $25,172,848 $23,437,866 ($1,734,982) (6.9)% Housing York Inc. 7

8 The significant variances on mortgages are a direct result of the later completion of Mackenzie Green, and a change in Mapleglen Residences debenture payment that shifts the expenditure from Housing York s records to the Region s records. The mortgages and property taxes variances do not carry any financial impact on Housing York s year-end results. These costs are funded for actual dollars spent and variances in these categories become part of the subsidy reconciliation. The refundable portion of the subsidy is returned to the Region as Service Manager and program funder. Public Housing capital costs were under budget by $129,197 or 11.3% because Housing York was able to introduce a staggered project execution approach for several of its budgeted projects. Projects that have lower priority or flexible timelines were postponed to future fiscal periods. Unused Public Housing capital funds are returned to the Region in the subsidy reconciliation. Insurance premiums continue to increase consistent with a three-year trend of sector-wide increases. This year, there was a 2.5% increase over and above the increase provided in the 2012 budget. Utility costs were under budget due to energy conservation efforts. Bad debts were under budget by $26,099 (31.4%) due to enhanced arrears collection efforts. Operating surplus is allocated to reserves and retained earnings Table 8 explains how the operating surplus is derived and allocated. Table 8 Distribution of 2012 Surplus Operating Funds Total Revenue $ 24,815,789 Total Expenses (23,437,866) Excess Revenue over Expenditures 1,377,923 Contribution to Capital Reserve Fund (1,116,430) Excess Revenue over Expenditures Available for Internal Use $ 261,493 Retained Earnings, January 1, ,976 Contributions to Insurance Reserve (25,000) Energy Management Program 80,000 Retained Earnings, December 31, 2012 $ 1,032,469 8 Housing York Inc.

9 Statement of Cash Flows validates reported results This statement monitors the movement of funds in and out of Housing York throughout the year. The cash amount of $4,516,050 at the end of 2012 is viewed to be sufficient cash flow to maintain normal operations. There are no unusual cash flow activities reported during the period. Housing York continues to invest in major repairs/replacement expenditures Almost $3.9 million dollars was approved for investment in capital repairs and replacement. Housing York completed over 100 capital projects, part of a sustained effort to maintain a high quality housing asset pool. The capital reserves decreased from $5,511,985 at the beginning of the year to $4,359,107 at the end of the year, as noted in Table 4. The three different housing programs each have a different approach to capital repair funding. The Region funds Public Housing Program building repairs as part of the annual operating subsidy. The former Provincial Reform Program includes limited reserve funding. Reserves for these buildings (12) will likely be depleted by At that time, like other housing providers, Housing York will need Regional assistance to fund capital repairs. The newer Regional Housing Program buildings set aside more funds per unit for reserves than the former provincial program and therefore, they have a healthy reserve outlook. As part of the Housing York Strategic Plan, the Board will receive, in 2014, a long term financial and reserve strategy. Funding sources for all major repairs and replacement expenditures for all programs are summarized in Table 9. Table 9 Funding for Major Repairs and Replacement (Capital) Funded from the Capital Reserve Replacement Fund: Provincial Reform and Regional Housing Program $2,858,184 Funded from the Operating Budget: Public Housing Program 1,015, Major Repairs and Replacement Expenditures $3,874,090 Housing York Inc. 9

10 5. FINANCIAL IMPLICATIONS Housing York ended the year in a positive position. Retained earnings increased from $715,976 to $1,032,469. One of the contributing factors was the change in the accounting policy to transfer the recording of asset amortization to the corporate level. Another major factor was the increase in the operating surplus from $99,240 in 2011 to $236,493 in This increase is mainly attributable to the portfolio growth. New properties receive capital contributions to reduce the debt carrying costs and allows for surplus generation to fund capital reserves. The additional operating surplus has a positive impact on Housing York s capital reserve. 6. LOCAL MUNICIPAL IMPACT Housing York Inc. provides affordable housing throughout the local municipalities in York Region. The additional major repairs and retrofits completed in all municipalities enhance tenant living experiences through safe, efficient and well maintained housing communities. 7. CONCLUSION Housing York Inc. has continued to operate with a solid financial healthy outlook, in accordance with program requirements and funding formula expectations was another year of growth with 84 new units added to the portfolio, and more than $3.8 million in major repairs and retrofits completed. For more information on this report, please contact Sylvia Patterson, Assistant General Manager, Housing York Inc. at Ext Housing York Inc.

11 The Senior Management Group has reviewed this report. Recommended by: Sylvia Patterson Assistant General Manager Approved for Submission by: Adelina Urbanski General Manager Bill Hughes Treasurer May 30, 2013 Attachments - 2 /cc # Housing York Inc. 11