Estates at River Ranch HOA

Transcription

1 Full Reserve Study Estates at River Ranch HOA Tucson, Arizona Report #: For Period Beginning: January 1, 2017 Expires: December 31, 2017 Date Prepared: June 15, 2016

2 Hello, and welcome to your Reserve Study! W e don t want you to be surprised. This Report is designed to help you anticipate, and prepare for, the major common area expenses your association will face. Inside you will find: 1) The Reserve Component List (the Scope and Schedule of your Reserve projects) telling you what your association is Reserving for, what condition they are in now, and what they ll cost to replace. 2) An Evaluation of your current Reserve Fund Size and Strength (Percent Funded). This tells you your financial starting point, revealing your risk of deferred maintenance and special assessments. 3) A Recommended Multi-Year Reserve Funding Plan, answering the question What do we do now? More Questions? Visit our website at or call us at: or Relax, it s from Association Reserves AZ, LLC

3 Table of Contents 3- Minute Executive Summary...i Reserve Study Summary...i Reserve Component List Table 1... iii Introduction, Objectives, and Methodology...1 Which Physical Assets are Funded by Reserves?...2 How do we establish Useful Life and Remaining Useful Life estimates?...2 How do we establish Current Repair/Replacement Cost Estimates?...2 How much Reserves are enough?...3 How much should we contribute?...4 What is our Recommended Funding Goal?...4 Projected Expenses...6 Expense Graph Figure Reserve Fund Status & Recommended Funding Plan...7 Funding Plan Graph Figure Cash Flow Graph Figure % Funded Graph Figure Table Descriptions...9 Reserve Component List Detail Table Contribution & Fund Breakdown Table Component Significance Table Year Reserve Plan Summary Table Year Reserve Plan Year by Year Detail Table Accuracy, Limitations, and Disclosures...20 Terms and Definitions...21 Component Details... Appendix Association Reserves AZ, LLC

4 3- Minute Executive Summary Association: Estates at River Ranch #: HOA Location: Tucson, Arizona # of Units: 78 Report Period: January 1, 2017 through December 31, 2017 Findings/Recommendations as-of 1/1/2017: Projected Starting Reserve Balance:...$285,100 Current Fully Funded Reserve Balance:...$173,633 Average Reserve Deficit (Surplus) Per Unit:... $(1,429) Recommended 2017 Quarterly Full Funding Contributions:...$3,750 Alternate Minimum Contributions* To Keep Reserves Above $0:...$2,400 Recommended 2017 Special Assessment for Reserves:...$0 Most Recent Budgeted Reserve Contribution Rate:...$6,913 Economic Assumptions: Net Annual After Tax Interest Earnings Accruing to Reserves % Annual Inflation Rate % This is a Full Reserve Study (original, created from scratch ) based on our site inspection on March 30, The Reserve expense threshold for this analysis is $1,000. This means no expenses under $1,000 are funded in the Reserve Study. Because your Reserve Fund is 164% Funded, this means the association s special assessment & deferred maintenance risk is currently low. The objective of your multi-year Funding Plan is to Fully Fund your Reserves, where associations enjoy a low risk of Reserve cash flow problems. Based on this starting point and your anticipated future expenses, we recommend establishing Reserve contributions of $3,750/Quarter for the 2017 Fiscal Year. Annual increases are scheduled thereafter to help offset inflation (see tables herein for details). Association Reserves AZ, LLC i

5 We also recommend creating separate Reserve and Operating accounts on the balance sheet, so it is clearly defined which funds are specifically set aside for Reserve expenses. *officially called Baseline Funding Association Reserves AZ, LLC ii

6 Table 1: Executive Summary Useful Rem. Current Life Useful Cost # Component (yrs) Life (yrs) Estimate 103 Concrete - Repair 5 3 $2, Asphalt - Resurface $250, Asphalt - Seal/Repair 4 0 $18, Pole Lights - Replace $4, Bulletin Boards - Replace $1, Chain Link Fence - Replace $18, Metal Fence/Gates - Replace $3, Guard Rail Posts - Replace 30 5 $11, Monument - Refurbish 20 5 $4,500 9 Total Funded Components Note 1: Useful Life of N/A means a one-time expense, not expected to repeat. Note 2: Yellow highlighted line items are expected to require attention in the initial year. Association Reserves AZ, LLC iii

7 Assoc Introduction A Reserve Study is the art and science of anticipating, and preparing for, an association s major common area repair and replacement expenses. Partially art, because in this field we are making projections about the future. Partially science, because our work is a combination of research and welldefined computations, following consistent National Reserve Study Standard principles. The foundation of this and every Reserve Study is your Reserve Component List (what you are reserving for). This is because the Reserve Component List defines the scope and schedule of all your anticipated upcoming Reserve projects. Based on that List and your starting balance, we calculate the association s Reserve Fund Strength (reported in terms of Percent Funded ). Then we compute a Reserve Funding Plan to provide for the Reserve needs of the association. These form the three results of your Reserve Study. Reserve contributions are not for the future. Reserve contributions are designed to offset the ongoing, daily deterioration of your Reserve assets. Done well, a stable, budgeted Reserve Funding Plan will collect sufficient funds from the owners who enjoyed the use of those assets, so the association is financially prepared for the irregular expenditures scattered through future years when those projects eventually require replacement. Methodology For this Full Reserve Study, we started with a review of your Governing Documents, recent Reserve expenditures, an evaluation of how expenditures are handled (ongoing maintenance vs Reserves), and research into any well-established association precedents. We performed an on-site inspection to quantify and evaluate your common areas, creating your Reserve Component List from scratch. Association Reserves AZ, LLC 1

8 Assoc Which Physical Assets are Funded by Reserves? National Reserve Study Standards outlines a 4-part test to determine which expenses should appear in your Reserve Component List. First, it must be a common area maintenance responsibility. Second, the component must have a limited life. Third, the remaining life must be predictable (or it by definition is a surprise which cannot be accurately anticipated). Fourth, the component must be above a minimum threshold cost (often between.5% and 1% of an association s total budget). This limits Reserve Components to major, predictable expenses. Within this framework, it is inappropriate to include lifetime components, unpredictable expenses (such as damage due to fire, flood, or earthquake), and expenses more appropriately handled from the Operational Budget or as an insured loss. How do we establish Useful Life and Remaining Useful Life estimates? 1) Visual Inspection (observed wear and age) 2) Association Reserves database of experience 3) Client History (install dates & previous life cycle information) 4) Vendor Evaluation and Recommendation How do we establish Current Repair/Replacement Cost Estimates? In this order 1) Actual client cost history, or current proposals 2) Comparison to Association Reserves database of work done at similar associations 3) Vendor Recommendations 4) Reliable National Industry cost estimating guidebooks Association Reserves AZ, LLC 2

9 Assoc How much Reserves are enough? Reserve adequacy is not measured in cash terms. Reserve adequacy is found when the amount of current Reserve cash is compared to Reserve component deterioration (the needs of the association). Having enough means the association can execute its projects in a timely manner with existing Reserve funds. Not having enough typically creates deferred maintenance or special assessments. Adequacy is measured in a two-step process: 1) Calculate the value of deterioration at the association (called Fully Funded Balance, or FFB). 2) Compare that to the Reserve Fund Balance, and express as a percentage. Each year, the value of deterioration at the association changes. When there is more deterioration (as components approach the time they need to be replaced), there should be more cash to offset that deterioration and prepare for the expenditure. Conversely, the value of deterioration shrinks after projects are accomplished. The value of deterioration (the FFB) changes each year, and is a moving but predictable target. There is a high risk of special assessments and deferred maintenance when the Percent Funded is weak, below 30%. Approximately 30% of all associations are in this high risk range. While the 100% point is Ideal (indicating Reserve cash is equal to the value of deterioration), a Reserve Fund in the 70% -130% range is considered strong (low risk of special assessment). Measuring your Reserves by Percent Funded tells how well prepared your association is for upcoming Reserve expenses. New buyers should be very aware of this important disclosure! Association Reserves AZ, LLC 3

10 Assoc How much should we contribute? According to National Reserve Study Standards, there are four Funding Principles to balance in developing your Reserve Funding Plan. Our first objective is to design a plan that provides you with sufficient cash to perform your Reserve projects on time. Second, a stable contribution is desirable because it keeps these naturally irregular expenses from unsettling the budget. Reserve contributions that are evenly distributed over current and future owners enable each owner to pay their fair share of the association s Reserve expenses over the years. And finally, we develop a plan that is fiscally responsible and safe for Board Members to recommend to their association. Remember, it is the Board s job to provide for the ongoing care of the common areas. Board Members invite liability exposure when Reserve contributions are inadequate to offset ongoing common area deterioration. What is our Recommended Funding Goal? Maintaining the Reserve Fund at a level equal to the value of deterioration is called Full Funding (100% Funded). As each asset ages and becomes used up, the Reserve Fund grows proportionally. This is simple, responsible, and our recommendation. Evidence shows that associations in the % range enjoy a low risk of special assessments or deferred maintenance. Allowing the Reserves to fall close to zero, but not below zero, is called Baseline Funding. Doing so allows the Reserve Fund to drop into the 0-30% range, where there is a high risk of special assessments & deferred maintenance. Since Baseline Funding still provides for the timely execution of all Reserve projects, and only the margin of safety is different, Baseline Funding contributions average only 10% - 15% less than Full Funding contributions. Threshold Funding is the title of all other Cash or Percent Funded objectives between Baseline Funding and Full Funding. Association Reserves AZ, LLC 4

11 Assoc Site Inspection Notes During our site visit on March 30, 2016, we started by meeting with Board President Mr. John Andrews. We discussed the property and any issues or concerns. We then started the site inspection with the streets throughout the community. Next, we inspected the perimeter fencing and gates. Finally, we inspected the landscaping and any remaining common areas. Association Reserves AZ, LLC 5

12 Assoc Projected Expenses While this Reserve Study looks forward 30 years, we have no expectation that all these expenses will all take place as anticipated. This Reserve Study needs to be updated annually, because we expect the timing of these expenses to shift and the size of these expenses to change. We do feel more certain of the timing and cost of near-term expenses than expenses many years away. Your first five years of projected Reserve expenses total $41,507. Adding the next five years, your first ten years of projected Reserve expenses are $85,445. Please be aware of your nearterm expenses, which we are able to project more accurately than the more distant projections. The figure below summarizes the projected future expenses at your association as defined by your Reserve Component List. A summary of these expenses are shown in Table 5, while details of the projects that make up these expenses are shown in Table 6. Annual Reserve Expenses $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ Years Figure 1 Association Reserves AZ, LLC 6

13 Assoc Reserve Fund Status The starting point for our financial analysis is your Reserve Fund balance, projected to be $285,100 as-of the start of your Fiscal Year on January 1, As of January 1, 2017, your Fully Funded Balance is computed to be $173,633 (see Table 3). This figure represents the deteriorated value of your common area components. Comparing your Reserve Balance to your Fully Funded Balance indicates your Reserves are 164% Funded. Across the country, less than 1% of associations in this range experience special assessments or deferred maintenance. Recommended Funding Plan Based on your current Percent Funded and both your near-term and longterm Reserve needs, we recommend budgeted contributions of $3,750/Quarter this Fiscal Year. The overall 30-yr plan, in perspective, is shown below. This same information is shown numerically in Tables 5 & 6. Annual Reserve Funding Recommended Alternate (Minimum) $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $ Years Figure 2 Association Reserves AZ, LLC 7

14 Assoc The following chart shows your Reserve balance under our recommended Full Funding Plan and an alternate Baseline Funding Plan, compared to your always-changing Fully Funded Balance target. Target Fully Funded Balance 30-Yr Cash Flow Recommended Funding Plan Alternate (Minimum) $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ Years Figure 3 This figure shows this same information, plotted on a Percent Funded scale. Recommended Funding Plan Percent Funded Alternate (Minimum) Funding Plan 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Years Figure 4 Association Reserves AZ, LLC 8

15 Assoc Table Descriptions The tabular information in this Report is broken down into six tables. Table 1 is a summary of your Reserve Components (your Reserve Component List), the information found in Table 2. Table 2 is your Reserve Component List, which forms the foundation of this Reserve Study. This table represents the information from which all other tables are derived. Table 3 shows the calculation of your Fully Funded Balance, the measure of your current Reserve component deterioration. For each component, the Fully Funded Balance is the fraction of life used up multiplied by its estimated Current Replacement Cost. Table 4 shows the significance of each component to Reserve needs of the association, helping you see which components have more (or less) influence than others on your total Reserve contribution rate. The deterioration cost/yr. of each component is calculated by dividing Current Replacement Cost by Useful Life, then that component s percentage of the total is displayed. Table 5: This table provides a one-page 30-year summary of the cash flowing into and out of the Reserve Fund, with a display of the Fully Funded Balance, Percent Funded, and special assessment risk for each year. Table 6: This table shows the cash flow detail for the next 30 years. This table makes it possible to see which components are projected to require repair or replacement each year, and the size of those individual expenses. Association Reserves AZ, LLC 9

16 Table 2: Reserve Component List Detail Rem. Useful Useful [ --- Current Cost Estimate --- ] # Component Quantity Life Life Best Case Worst Case 103 Concrete - Repair Numerous Sq Ft 5 3 $1,700 $2, Asphalt - Resurface Approx 129,000 Sq Ft $220,000 $280, Asphalt - Seal/Repair Approx 129,000 Sq Ft 4 0 $17,000 $20, Pole Lights - Replace (2) Pole Lights $3,500 $4, Bulletin Boards - Replace (2) Boards $1,000 $1, Chain Link Fence - Replace Approx 1,480 LF $16,000 $20, Metal Fence/Gates - Replace Approx 30 LF $3,200 $4, Guard Rail Posts - Replace Approx (220) Posts 30 5 $10,000 $12, Monument - Refurbish (1) Monument 20 5 $4,000 $5,000 9 Total Funded Components Association Reserves AZ, LLC 10

17 Table 3: Fully Funded Balance Current Fully Cost Effective Useful Funded # Component Estimate X Age / Life = Balance 103 Concrete - Repair $2,000 X 2 / 5 = $ Asphalt - Resurface $250,000 X 13 / 24 = $135, Asphalt - Seal/Repair $18,500 X 4 / 4 = $18, Pole Lights - Replace $4,000 X 20 / 30 = $2, Bulletin Boards - Replace $1,250 X 5 / 15 = $ Chain Link Fence - Replace $18,000 X 1 / 25 = $ Metal Fence/Gates - Replace $3,600 X 25 / 35 = $2, Guard Rail Posts - Replace $11,000 X 25 / 30 = $9, Monument - Refurbish $4,500 X 15 / 20 = $3,375 $173,633 Association Reserves AZ, LLC 11

18 Table 4: Component Significance Current Useful Cost Deterioration Deterioration # Component Life Estimate Cost/Yr. Significance 103 Concrete - Repair 5 $2,000 $ % 201 Asphalt - Resurface 24 $250,000 $10, % 202 Asphalt - Seal/Repair 4 $18,500 $4, % 320 Pole Lights - Replace 30 $4,000 $ % 405 Bulletin Boards - Replace 15 $1,250 $83 0.5% 502 Chain Link Fence - Replace 25 $18,000 $ % 505 Metal Fence/Gates - Replace 35 $3,600 $ % 510 Guard Rail Posts - Replace 30 $11,000 $ % 701 Monument - Refurbish 20 $4,500 $ % 9 Total Funded Components $17, % Association Reserves AZ, LLC 12

19 Table 5: 30-Year Reserve Plan Summary Report Start Date: 01/01/17 Interest: 1.0% Inflation: 3.0% Reserve Fund Strength Calculations (All values as of Fiscal Year Start Date) Projected Reserve Balance Changes Starting Fully Special Loans or Reserve Funded Percent Assmt Reserve Special Interest Reserve Year Balance Balance Funded Risk Contribs. Assmts Income Expenses 2017 $285,100 $173, % Low $15,000 $0 $2,847 $18, $284,447 $177, % Low $15,300 $0 $2,934 $ $302,681 $200, % Low $15,606 $0 $3,119 $ $321,406 $225, % Low $15,918 $0 $3,298 $2, $338,436 $249, % Low $16,236 $0 $3,377 $20, $337,228 $255, % Low $16,561 $0 $3,381 $17, $339,201 $264, % Low $17,364 $0 $3,495 $ $360,060 $293, % Low $18,207 $0 $3,709 $ $381,976 $323, % Low $19,090 $0 $3,803 $25, $378,899 $329, % Low $20,015 $0 $3,907 $ $402,822 $362, % Low $20,986 $0 $4,092 $11, $416,007 $384, % Low $22,004 $0 $2,551 $346, $94,504 $63, % Low $23,071 $0 $933 $26, $92,131 $63, % Low $24,190 $0 $1,032 $2, $114,417 $88, % Low $25,363 $0 $1,277 $ $141,057 $117, % Low $26,594 $0 $1,551 $ $169,201 $148, % Low $27,883 $0 $1,691 $29, $169,088 $150, % Low $29,236 $0 $1,846 $ $200,169 $184, % Low $30,654 $0 $2,148 $3, $229,566 $215, % Low $32,140 $0 $2,468 $ $264,174 $253, % Low $33,699 $0 $2,655 $33, $267,115 $258, % Low $35,334 $0 $2,861 $ $305,309 $298, % Low $37,047 $0 $3,253 $ $345,610 $341, % Low $38,844 $0 $3,647 $3, $384,154 $382, % Low $40,728 $0 $3,691 $74, $354,376 $353, % Low $42,703 $0 $3,714 $12, $388,754 $388, % Low $44,774 $0 $4,130 $ $437,659 $437, % Low $46,946 $0 $4,633 $ $489,237 $489, % Low $49,223 $0 $4,927 $46, $496,484 $496, % Low $51,610 $0 $5,247 $0 Association Reserves AZ, LLC 13

20 Table 6: 30-Year Income/Expense Detail (yrs 0 through 4) Fiscal Year Starting Reserve Balance $285,100 $284,447 $302,681 $321,406 $338,436 Annual Reserve Contribution $15,000 $15,300 $15,606 $15,918 $16,236 Recommended Special Assessments $0 $0 $0 $0 $0 Interest Earnings $2,847 $2,934 $3,119 $3,298 $3,377 Total Income $302,947 $302,681 $321,406 $340,622 $358,050 # Component 103 Concrete - Repair $0 $0 $0 $2,185 $0 201 Asphalt - Resurface $0 $0 $0 $0 $0 202 Asphalt - Seal/Repair $18,500 $0 $0 $0 $20, Pole Lights - Replace $0 $0 $0 $0 $0 405 Bulletin Boards - Replace $0 $0 $0 $0 $0 502 Chain Link Fence - Replace $0 $0 $0 $0 $0 505 Metal Fence/Gates - Replace $0 $0 $0 $0 $0 510 Guard Rail Posts - Replace $0 $0 $0 $0 $0 701 Monument - Refurbish $0 $0 $0 $0 $0 Total Expenses $18,500 $0 $0 $2,185 $20,822 Ending Reserve Balance: $284,447 $302,681 $321,406 $338,436 $337,228 Association Reserves AZ, LLC 14

21 Table 6: 30-Year Income/Expense Detail (yrs 5 through 9) Fiscal Year Starting Reserve Balance $337,228 $339,201 $360,060 $381,976 $378,899 Annual Reserve Contribution $16,561 $17,364 $18,207 $19,090 $20,015 Recommended Special Assessments $0 $0 $0 $0 $0 Interest Earnings $3,381 $3,495 $3,709 $3,803 $3,907 Total Income $357,170 $360,060 $381,976 $404,868 $402,822 # Component 103 Concrete - Repair $0 $0 $0 $2,534 $0 201 Asphalt - Resurface $0 $0 $0 $0 $0 202 Asphalt - Seal/Repair $0 $0 $0 $23,435 $0 320 Pole Lights - Replace $0 $0 $0 $0 $0 405 Bulletin Boards - Replace $0 $0 $0 $0 $0 502 Chain Link Fence - Replace $0 $0 $0 $0 $0 505 Metal Fence/Gates - Replace $0 $0 $0 $0 $0 510 Guard Rail Posts - Replace $12,752 $0 $0 $0 $0 701 Monument - Refurbish $5,217 $0 $0 $0 $0 Total Expenses $17,969 $0 $0 $25,969 $0 Ending Reserve Balance: $339,201 $360,060 $381,976 $378,899 $402,822 Association Reserves AZ, LLC 15

22 Table 6: 30-Year Income/Expense Detail (yrs 10 through 14) Fiscal Year Starting Reserve Balance $402,822 $416,007 $94,504 $92,131 $114,417 Annual Reserve Contribution $20,986 $22,004 $23,071 $24,190 $25,363 Recommended Special Assessments $0 $0 $0 $0 $0 Interest Earnings $4,092 $2,551 $933 $1,032 $1,277 Total Income $427,900 $440,562 $118,508 $117,354 $141,057 # Component 103 Concrete - Repair $0 $0 $0 $2,937 $0 201 Asphalt - Resurface $0 $346,058 $0 $0 $0 202 Asphalt - Seal/Repair $0 $0 $26,377 $0 $0 320 Pole Lights - Replace $5,376 $0 $0 $0 $0 405 Bulletin Boards - Replace $1,680 $0 $0 $0 $0 502 Chain Link Fence - Replace $0 $0 $0 $0 $0 505 Metal Fence/Gates - Replace $4,838 $0 $0 $0 $0 510 Guard Rail Posts - Replace $0 $0 $0 $0 $0 701 Monument - Refurbish $0 $0 $0 $0 $0 Total Expenses $11,894 $346,058 $26,377 $2,937 $0 Ending Reserve Balance: $416,007 $94,504 $92,131 $114,417 $141,057 Association Reserves AZ, LLC 16

23 Table 6: 30-Year Income/Expense Detail (yrs 15 through 19) Fiscal Year Starting Reserve Balance $141,057 $169,201 $169,088 $200,169 $229,566 Annual Reserve Contribution $26,594 $27,883 $29,236 $30,654 $32,140 Recommended Special Assessments $0 $0 $0 $0 $0 Interest Earnings $1,551 $1,691 $1,846 $2,148 $2,468 Total Income $169,201 $198,775 $200,169 $232,971 $264,174 # Component 103 Concrete - Repair $0 $0 $0 $3,405 $0 201 Asphalt - Resurface $0 $0 $0 $0 $0 202 Asphalt - Seal/Repair $0 $29,687 $0 $0 $0 320 Pole Lights - Replace $0 $0 $0 $0 $0 405 Bulletin Boards - Replace $0 $0 $0 $0 $0 502 Chain Link Fence - Replace $0 $0 $0 $0 $0 505 Metal Fence/Gates - Replace $0 $0 $0 $0 $0 510 Guard Rail Posts - Replace $0 $0 $0 $0 $0 701 Monument - Refurbish $0 $0 $0 $0 $0 Total Expenses $0 $29,687 $0 $3,405 $0 Ending Reserve Balance: $169,201 $169,088 $200,169 $229,566 $264,174 Association Reserves AZ, LLC 17

24 Table 6: 30-Year Income/Expense Detail (yrs 20 through 24) Fiscal Year Starting Reserve Balance $264,174 $267,115 $305,309 $345,610 $384,154 Annual Reserve Contribution $33,699 $35,334 $37,047 $38,844 $40,728 Recommended Special Assessments $0 $0 $0 $0 $0 Interest Earnings $2,655 $2,861 $3,253 $3,647 $3,691 Total Income $300,528 $305,309 $345,610 $388,101 $428,573 # Component 103 Concrete - Repair $0 $0 $0 $3,947 $0 201 Asphalt - Resurface $0 $0 $0 $0 $0 202 Asphalt - Seal/Repair $33,413 $0 $0 $0 $37, Pole Lights - Replace $0 $0 $0 $0 $0 405 Bulletin Boards - Replace $0 $0 $0 $0 $0 502 Chain Link Fence - Replace $0 $0 $0 $0 $36, Metal Fence/Gates - Replace $0 $0 $0 $0 $0 510 Guard Rail Posts - Replace $0 $0 $0 $0 $0 701 Monument - Refurbish $0 $0 $0 $0 $0 Total Expenses $33,413 $0 $0 $3,947 $74,197 Ending Reserve Balance: $267,115 $305,309 $345,610 $384,154 $354,376 Association Reserves AZ, LLC 18

25 Table 6: 30-Year Income/Expense Detail (yrs 25 through 29) Fiscal Year Starting Reserve Balance $354,376 $388,754 $437,659 $489,237 $496,484 Annual Reserve Contribution $42,703 $44,774 $46,946 $49,223 $51,610 Recommended Special Assessments $0 $0 $0 $0 $0 Interest Earnings $3,714 $4,130 $4,633 $4,927 $5,247 Total Income $400,793 $437,659 $489,237 $543,386 $553,341 # Component 103 Concrete - Repair $0 $0 $0 $4,576 $0 201 Asphalt - Resurface $0 $0 $0 $0 $0 202 Asphalt - Seal/Repair $0 $0 $0 $42,327 $0 320 Pole Lights - Replace $0 $0 $0 $0 $0 405 Bulletin Boards - Replace $2,617 $0 $0 $0 $0 502 Chain Link Fence - Replace $0 $0 $0 $0 $0 505 Metal Fence/Gates - Replace $0 $0 $0 $0 $0 510 Guard Rail Posts - Replace $0 $0 $0 $0 $0 701 Monument - Refurbish $9,422 $0 $0 $0 $0 Total Expenses $12,039 $0 $0 $46,903 $0 Ending Reserve Balance: $388,754 $437,659 $489,237 $496,484 $553,341 Association Reserves AZ, LLC 19

26 Assoc Accuracy, Limitations, and Disclosures Because we have no control over future events, we do not expect that all the events we anticipate will occur as planned. We expect that inflationary trends will continue, and we expect Reserve funds to continue to earn interest, so we believe that reasonable estimates for these figures are much more accurate than ignoring these economic realities. We can control measurements, which we attempt to establish within 5% accuracy through a combination of on-site measurements, drawings, and satellite imagery. The starting Reserve Balance and interest rate earned on deposited Reserve funds that you provided to us were considered reliable and were not confirmed independently. We have considered the association s representation of current and historical Reserve projects reliable, and we have considered the representations made by its vendors and suppliers to also be accurate and reliable. Component Useful Life, Remaining Useful Life, and Current Cost estimates assume a stable economic environment and lack of natural disasters. Because the physical condition of your components, the association s Reserve balance, the economic environment, and legislative environment change each year, this Reserve Study is by nature a one-year document. Because a long-term perspective improves the accuracy of near-term planning, this Report projects expenses for the next 30 years. It is our recommendation and that of the Financial Accounting Standards Board (FASB) that your Reserve Study be updated each year as part of the annual budget process. Association Reserves and its employees have no ownership, management, or other business relationships with the client other than this Reserve Study engagement. DJ Vlaming, R.S., company president, is a credentialed Reserve Specialist (#61). All work done by Association Reserves AZ, LLC is performed under his Responsible Charge. There are no material issues to our knowledge that have not been disclosed to the client that would cause a distortion of the association s situation. Component quantities indicated in this Report were developed by Association Reserves unless noted otherwise in our Site Inspection Notes comments. No destructive or intrusive testing was performed. This Report and the site inspection were accomplished only for Reserve budget purposes (to help identify and address the normal deterioration of properly built and installed components with predictable life expectancies). The Funding Plan in this Report was developed using the cash-flow methodology to achieve the specified Funding Objective. Association Reserves liability in any matter involving this Reserve Study is limited to our Fee for services rendered. Association Reserves AZ, LLC 20

27 Assoc Terms and Definitions BTU DIA GSF GSY HP LF British Thermal Unit (a standard unit of energy) Diameter Gross Square Feet (area). Equivalent to Square Feet Gross Square Yards (area). Equivalent to Square Yards Horsepower Linear Feet (length) Effective Age: The difference between Useful Life and Remaining Useful Life. Note that this is not necessarily equivalent to the chronological age of the component. Fully Funded Balance (FFB): The value of the deterioration of the Reserve Components. This is the fraction of life used up of each component multiplied by its estimated Current Replacement. While calculated for each component, it is summed together for an association total. Inflation: Interest: FFB = (Current Cost X Effective Age) / Useful Life Cost factors are adjusted for inflation at the rate defined in the Executive Summary and compounded annually. These increasing costs can be seen as you follow the recurring cycles of a component on Table 6. Interest earnings on Reserve Funds are calculated using the average balance for the year (taking into account income and expenses through the year) and compounded monthly using the rate defined in the Executive Summary. Annual interest earning assumption appears in the Executive Summary. Percent Funded: The ratio, at a particular point in time (the first day of the Fiscal Year), of the actual (or projected) Reserve Balance to the Fully Funded Balance, expressed as a percentage. Remaining Useful Life (RUL): The estimated time, in years, that a common area component can be expected to continue to serve its intended function. Useful Life (UL): The estimated time, in years, that a common area component can be expected to serve its intended function. Association Reserves AZ, LLC 21

28 Assoc Component Details Association Reserves AZ, LLC 22

29 Association Reserves Component Details Client: Estates at River Ranch HOA COMMON AREAS Comp #: 103 Concrete - Repair Quantity: Numerous Sq Ft Funded?: Yes. History: Location: Curbs, gutters, walkways, drainage areas throughout community Evaluation: There is no expectancy to completely replace the concrete. This component provides an allowance for periodic repairs and/or partial replacements. Useful Life: 5 years Remaining Life: 3 years Best Case: $1,700 Allowance for repairs and/or partial replacement Cost Source: ARI Cost Allowance Worst Case: $2,300 Higher allowance Comp #: 201 Asphalt - Resurface Quantity: Approx 129,000 Sq Ft Funded?: Yes. History: Originally constructed during Major repairs were completed during Location: Streets throughout community Evaluation: Observed to be generally smooth and in fair shape. Some larger cracks evident. Life span is based on periodically seal coating and maintaining the surface. Useful Life: 24 years Remaining Life: 11 years Best Case: $220,000 Estimate to resurface Worst Case: $280,000 Higher estimate Cost Source: ARI Cost Database June 15, 2016 Page 1 of 7

30 Association Reserves Component Details Client: Estates at River Ranch HOA Comp #: 202 Asphalt - Seal/Repair Quantity: Approx 129,000 Sq Ft Funded?: Yes. History: Last seal coated during Crack seal was completed during Location: Streets throughout community Evaluation: Seal coat asphalt surfaces periodically to prevent premature cracking and deterioration. Useful Life: 4 years Remaining Life: 0 years Best Case: $17,000 Estimate to seal/repair Worst Case: $20,000 Higher estimate Cost Source: Estimate Provided by Client Comp #: 320 Pole Lights - Replace Quantity: (2) Pole Lights Funded?: Yes. History: Location: Common areas Evaluation: Inspected during daylight hours, but assumed to be functional. No plans to replace in the near future. It would still be prudent to plan for replacement eventually. Useful Life: 30 years Remaining Life: 10 years Best Case: $3,500 Worst Case: $4,500 Estimate to replace Higher estimate Cost Source: ARI Cost Database June 15, 2016 Page 2 of 7

31 Association Reserves Component Details Client: Estates at River Ranch HOA Comp #: 403 Mailboxes - Replace Quantity: (7) Clusters Funded?: No. Mailboxes are the responsibility of the Post Office, not the HOA. History: Location: Adjacent to streets Evaluation: No Reserve funding required. Useful Life: Remaining Life: Best Case: Worst Case: Cost Source: Comp #: 405 Bulletin Boards - Replace Quantity: (2) Boards Funded?: Yes. History: Location: Common areas Evaluation: Appear intact and in decent shape. No signs of instability or damages noted. Future replacement should be anticipated. Useful Life: 15 years Remaining Life: 10 years Best Case: $1,000 Worst Case: $1,500 Estimate to replace Higher estimate Cost Source: ARI Cost Database June 15, 2016 Page 3 of 7

32 Association Reserves Component Details Client: Estates at River Ranch HOA Comp #: 420 Concrete Benches - Replace Quantity: (4) Benches Funded?: No. Replace as-needed using Operating funds. History: Location: Common areas Evaluation: No Reserve funding required. Useful Life: Remaining Life: Best Case: Worst Case: Cost Source: Comp #: 502 Chain Link Fence - Replace Quantity: Approx 1,480 LF Funded?: Yes. History: The east section of fence (~450 LF) was replaced during The majority of the fence (~1,030 LF) was replaced during 2016 for ~$12,500. Location: South perimeter of community Evaluation: Funding is provided for complete replacement in the future. Useful Life: 25 years Remaining Life: 24 years Best Case: $16,000 Worst Case: $20,000 Estimate to replace Higher estimate Cost Source: Client Cost History June 15, 2016 Page 4 of 7

33 Association Reserves Component Details Client: Estates at River Ranch HOA Comp #: 505 Metal Fence/Gates - Replace Quantity: Approx 30 LF Funded?: Yes. History: Location: Perimeter of community - (2) vehicle gates, (1) pedestrian gate, & in-ground fence Evaluation: Long life expectancy under normal circumstances. Replacement will still be needed eventually. Periodic repainting should be expected as an Operating expense to maintain the appearance and to inhibit rust. Useful Life: 35 years Remaining Life: 10 years Best Case: $3,200 Worst Case: $4,000 Estimate to replace Higher estimate Cost Source: ARI Cost Database Comp #: 510 Guard Rail Posts - Replace Quantity: Approx (220) Posts Funded?: Yes. History: Location: South perimeter of community Evaluation: This component provides funding to eventually replace the wood guard rail posts. No issues observed or reported. Each post reportedly costs around $50 to replace. Useful Life: 30 years Remaining Life: 5 years Best Case: $10,000 Estimate to replace Worst Case: $12,000 Higher estimate Cost Source: Estimate Provided by Client June 15, 2016 Page 5 of 7

34 Association Reserves Component Details Client: Estates at River Ranch HOA Comp #: 701 Monument - Refurbish Quantity: (1) Monument Funded?: Yes. History: Location: Entrance to community Evaluation: Expect to eventually retile the monument to update and modernize the appearance. Appears intact and in fair shape. Repaint the monument stucco walls periodically as an Operating expense. Useful Life: 20 years Remaining Life: 5 years Best Case: $4,000 Estimate to refurbish Worst Case: $5,000 Higher estimate Cost Source: ARI Cost Database Comp #: 1001 Backflow Valve - Replace Quantity: (1) Valve Funded?: No. Recommend replacing or rebuilding as-needed using Operating funds. History: Location: South perimeter of community Evaluation: No Reserve funding required. Useful Life: Remaining Life: Best Case: Worst Case: Cost Source: June 15, 2016 Page 6 of 7

35 Association Reserves Component Details Client: Estates at River Ranch HOA Comp #: 1002 Irrigation System - Replace Quantity: Lines, Valves, Timers Funded?: No. Repair as-needed using Operating funds. History: Location: Common areas throughout community Evaluation: It is beyond the scope of this Reserve Study to quantify and assess the condition of the irrigation system. Recommend repairing as-needed as part of the annual landscape budget. No Reserve funding required. Useful Life: Remaining Life: Best Case: Worst Case: Cost Source: Comp #: 1005 Landscape Granite - Replenish Quantity: Minimal Tons Funded?: No. Recommend replenishing as-needed using Operating funds. History: Location: Common areas throughout community Evaluation: There is a minimal amount of landscape granite that is HOA responsibility. Recommend top-dressing these areas as-needed using Operating funds, due to the small quantity. Useful Life: Remaining Life: Best Case: Worst Case: Cost Source: June 15, 2016 Page 7 of 7