The Army Residence Community San Antonio

Transcription

1 The Army Residence Community San Antonio August 10, 2016 Dear Investors, With the finish of the final phase of an expansion project (2010 to 2016), the Army Residence Community (the" ARC") has entered into a stabilized peliod. ARC will now concentrate on maintaining high quality services and amenities, while continuing a multiyear trend of improving operations. Below is a summmy report of my observations for the unaudited financial statements for the 12 months ended June 30, 2016: 1) Balance Sheet For the peliod ending June 30,2016, Umestricted Cash and Investments declined $3.5 million as ARC spent $3.2 million finishing the last phase of its expansion project resulting in 24 new cottages. Account Receivables increased $1 million as the result of an insurance settlement from hail damage to the "legacy" cottage roofs. The insurance proceeds will be used to replace all of the legacy cottage roofs, such expense was planned to be paid from cash in Total Liabilities decreased $860,000. Cun ent Liabilities decreased $1.6 million as a result of finishing the ARC's 24 cottage expansion. Long-Term liabilities (defen ed and refundable entrance fees) increased with the addition of entrance fees. Long-Term bond debt decreased by $1.3 million due to scheduled payments. Net Assets declined in FY 2016 by $1.0 million. 2) Income Statement The ARC's area of focus is moving from the execution of a successful expansion plan to the implementation of an enhanced operating plan as occupancy stabilizes. Net Assets decreased $1 million in FY 2016, much improved over FY 2015 when Net Asset decreased $3.1 million. This $2 million positive improvement was created by increases in core resident operational revenues of$1.0 million (3.9%), while core resident expenses grew $424,000 (1.8%), resulting in a $588,000 (22%) increase in core resident service net income. Realized/Unrealized investment losses sustained in FY 2015 of ($1.35 million) declined to ($169,584) in FY The lower losses accounted for a large pmtion of the positive Net Asset improvement mentioned above. Non-Cash deferred income declined ($517,000), while non-cash depreciation grew ($412,000) which resulted in muting the overall effect of gains in core operations. Interest expense declined by $31,640 and will continue to trend downward with the routine payment of principal as called for in ARC bond agreements. 3) Statements of Cash Flow Cash and Cash Equivalents decreased $1.66 million to $7.7 million down fi'om FY 2015's cash position of$9.4 million. The decline can be attributed to paying construction-related retainage and payments for final draws due on the final phase of the expansion project of $2.1 million Crestway San Antonio, Texas (210) website: mari<etinq@arrnyresidence.com Planned, Built, and Managed by Retired Officers- Accredited by the Continuing Care Accreditation Commission

2 With regard to cash flow fi om Investing Activities, reduced purchases of plant and equipment in FY 2016 meant less cash was needed to be raised from the sale of investment and more cash remained in investments. With regard to cash flow from Financing Activities, FY 2016 saw a growth in cash fi om the receipt of Entrance Fees over Entrance Fee Refunds. In order for the Board and Management to better track financial perfmmance, the presentation of the Income Statement bas been changed to reflect results from operations (1 st), then non-cash operating items (2"ct) and finally unrealized/realized gains or losses on investments (3'ct). The ARC closely tracks its Operating Ratio, Debt Service Coverage Ratio and Days Cash on Hand Ratio and repmis regularly on these to the Board. Please note that the ARC's financial covenants are measured at FYE only. l) Operating Ratio (OR): Defined as cash operating expenses to cash operating revenues was for the FY 2016, a positive improvement from in FY The ARC strives for a result closer to J. Debt Service Coverage (DSC) Ratio: Decrease in Net Assets Less unrealized gains on investment Add back depreciation & ammiization Add back interest expense Less ammiization of defen ed entrance fees Net Entrance Fee received Net Cash Available for Debt Service 12 months ended 6/30/2016 $ ( 1,062,075) ( 763,496) 5,815,498 4,922,961 (5,508,326) 8,271,141 $ 11,675,703 Net cash available for debt service was $11.68 million, an improvement of$1.2 million from FY2015. This resulted in a DSC ratio of 1.86x of maximum annual debt service. Il Days Cash on Hand ratio: 404 days of cash expenses for the FY ) Occupancy: ARC's financial engine can be broken down into two main variables: Operating margin and occupancy. The tables below show the gains the ARC has made as of the end of the 2016 fiscal year. The ARC has stabilized at a 92% occupied rate and a 93% sold rate for Independent Living Units (IL). These rates demonstrate high demand in the market place. a) Independent Living 06/30/ /30/2016 Units Available Units Occupied Percentage 96% 92% b) Assisted Living Rooms Rooms Available Room Occupied Percentage 97% 80% c) Assisted Living Apartments Apartments Available Apartments Occupied Percentage 94% 96% (3 rooms have double occupancy and are charged a higher rate) Page2

3 d) Healthcare (semi- pvt.)rooms (Licensed) SNF Rooms Available SNF Rooms Occupied SNF Private (both sides paid for) Percentage Occupied 60% 53% Percentage Paid for 83% 76% e) All levels of Care Units & Beds Available Units and Beds Occupied Percentage paid for 94% 89% 2) Payor Mix: The ARC's market focus is career (minimum service of20 years) military officers with federal pensions and healthcare benefits for life. These pensions adjust annually with the cost of living calculated for social security. Nern ly all residents had second careers after their military service. FY2015 FY2016 %Change Revenue Medicaid $ -0- $ -0- Medicare 1,698,436 1,499,264 (11.7)% Ptivate Pay 24,247,332 25,461,317 5% Total Operating Revenues $ 25,945,768 $ 26,960,581 4% ) Marketing sales data: The ARC has seen positive results from its marketing activities with 62 new ptiority holders in FY These futw e residents equal17.6% of the total351 ptimity number holders who previously paid either $1,500/couple or $1,000/single to the ARC for the privilege of being considered for retirement living at some future date. Deposits and down payments New primity holders Refunded deposits New down payments Refunded down payments Existing units sold Refunded Entrance Fees ) The ARC's investment management is overseen by an inveshnent committee of the Board. The ARC engaged an Investment Advisor and has adopted an investment policy. The current investment goals are to maximize operational income, manage tisk through a 50% Equity and 50% Fixed Income mix, with growth of capital balanced with investment preservation. I hope this letter provides you the insight on what is happening at the ARC. Sincerely, Director of Finance Page3

4 The Army Residence Community and Affiliates Consolidated Statements of Activites and Changes in Net Assets Audited 12 Months Ending June 30 FY 2015 FY 2016 CHANGES IN UNRESTRICTED NET ASSETS Core Services Revenue Residence Center $ 13,655,677 $ 15,122,033 Health Care Center $ 7,652,563 $ 7,357,652 Dining Service $ 3,287,094 $ 3,359,082 Investment Income $ 1,350,434 $ 1 '150,364 Net Assets Released from Restriction $ 30,448 $ 28,550 Services revenue $25,976,216 $ 26,989,131 Core Services Expense Residence Center $ 8,945,434 $ 8,155,485 Health Care Center $ 5,511,054 $ 5,282,326 Dining Service $ 6,522,489 $ 6,497,549 General and Administrative $ 2,357,845 $ 3,825,673 Services expense $ 23,336,822 $ 23,761,034 Core Services Net Income $ 2,639,394 $ 3,228,096 Other Operating Income Deferred Entrance Fees $ 6,025,193 $ 5,508,326 Contributions $ 10,002 $ 37,422 Total other revenues and gains $ 6,035,195 $ 5,545,748 Other Operating Expenses Depreciation and Amortization $ 5,266,186 $ 5,690,555 Bond Interest $ 4,954,601 $ 4,922,961 Other Debt Service Cost: Amort of Bond Issue Costs and Initial Issue Discount $ 174,413 $ 124,943 Total other operating expenses $ 10,395,200 $ 10,738,459 Total Operating Earnings $ (1,720,611) $ (1,964,614) Unrealized gain (loss) Investments $ (2,023,027) $ 763,496 Realized gain (loss) on investment $ 674,165 $ (933,080) Realized gain (loss) on Insurance Settlement $ $ 1,087,816 lnc/(dec) in unrestricted investments $ (1,348,862) $ 918,232 TEMPORARILY RESTRICTED NET ASSETS Contributions Investment income (Net of Fees) $ $ 18,511 Unrealized gain(loss) on investment $ (7,603) $ (5,655) Net assets released from restriction $ (30,448) $ (28,550) Increase (decrease) in temporarily restricted net assets $ (38,051) $ (15,694) INCREASE (DECREASE) IN NET ASSETS $ (3, 107,524) $ (1,062,075) NET ASSETS AT BEGINNING OF YEAR $ 9,053,579 $ 5,946,055 NET ASSETS AT END OF YEAR $ 5,946,055 $ 4,883,980

5 The Army Residence Community and Affiliates Consolidated Statements of Financial Position Audited 30-Jun ASSETS Cash and cash equivalents $ 7,634,635 $ 5,439,511 Accounts receivable $ 655,320 $ 1,566,469 Prepaid expenses $ 605,544 $ 576,654 Current portion of assets whose use is limited $ 260,262 $ 3,558,442 Total current assets $ 9,155,761 $ 11,141,077 Assets whose use is limited: Cash and cash equivalents $ 1,735,099 $ 2,265,883 Investments, at fair value $ 7,741,659 $ 7,147,385 $ 9,476,758 $ 9,413,268 Less current portion required for current liabilities $ (260,262) $ {3,558,442) Total noncurrent assets whose use is limited $ 9,216,496 $ 5,854,826 Investments, at fair value $ 27,451,152 $ 26,183,114 Bond issue costs, net of accumulated amortization $ 2,291,750 $ 2,134,086 Property, plant and equipment, net $ 105,787,365 $ 106,667,325 Total Assets $ 153,902,524 $ 151,980,427 LIABILITIES AND NET ASSETS Accounts payable and other liabilities $ 1,850,478 $ 741,466 Retainage Payable $ 754,249 $ Accrued payroll and related items $ 1,173,181 $ 1,260,712 Accrued interest expenses $ 2,231,967 $ 2,208,442 Current portion of long-term debt $ 1,175,000 $ 1,350,000 Total current liabilities $ 7,184,875 $ 5,560,620 Deferred compensation $ 199,199 $ 199,199 Fair value of basis swap contract $ Retainage payable $ Long-term debt, less current portion $ 90,499,043 $ 89,116,321 Unearned deposits and down payments $ 1 '144,957 $ 523,955 Refundable entrance fees $ 2,887,344 $ 3,445,559 Deferred entrance fees subject to refund period $ 15,961,025 $ 14,309,390 Deferred entrance fees - non refundable $ 30,080,026 $ 33,941,405 Total liabilities $ 147,956,469 $ 147,096,448 Net Assets Unrestricted: Designated $ 2,768,985 $ 2,809,279 Undesignated $ 2,001,806 $ 915,129 Total unrestricted net assets $ 4,770,791 $ 3,724,409 Temporarily restricted $ 1 '175,264 $ 1 '159,570 Total net assets $ 5,946,055 $ 4,883,979 Total liabilities and net assets $ 153,902,524 $ 151,980,427

6 The Army Residence Community and Affiliates Consolidated Statements of Cash Flows Audited 12 months ending June 30 FY 2015 FY 2016 OPERATING ACTIVITIES Increase in net assets $ (3,107,524) $ (1,062,075) Adjustments to reconcile increases in net assets to net cash provided by operating activities: Amortization of entrance fees $ (6,025, 193) $ (5,508,326) Net realized investment losses (gains) $ (680,857) $ 933,080 Net unrealized investment losses (gains) $ 2,034,189 $ (763,496) Depreciation and amortization $ 5,266,186 $ 5,690,555 Bond premium & discount amortization $ (40,826) $ (16,431) Bond issue cost $ 174,413 $ 124,943 Provisions for Dooubtful Accoounts $ 51,649 $ Loss on sale fo property, plant and equipment $ 12,780 $ Changes in: Accounts Receivable $ (60,678) $ (911 '149) Prepaid expenses $ (78,063) $ 28,890 Accounts payable and other liabilities $ 1,461,748 $ (1,863,261) Accrued payroll and related items $ (47,912) $ 87,531 Accrued interest expense $ (20,017) $ (23,525) Deferred compensation $ (90,836) $ (0) Net cash provided by operating activities (1,150,941) (3,283,265) INVESTING ACTIVITIES Purchases of investments, deposit escrow fund, and assets whose use is limited $ (11,606,309) $ (12,861,842) Sales and maturities of investments, deposit escrow fund, and assets whose use is limited $ 19,122,725 $ 13,806,612 Purchases of property plant and equipment $ (12,048,391) $ (6,211,985) Proceeds from sale of plant, property and equipment $ 4,850 $ Net cash used in investing activities $ (4,527,125) $ (5,267,215) FINANCING ACTIVITIES Proceeds from entrance fees and deposits $ 7,311,783 $ 8,943,887 Refunds of entrance fees and deposits $ (377,930) $ (672,746) Long-term debt issuance costs $ $ Principle payments of long-term debt $ (925,000) $ (1,385,000) Net cash provided by financing activities $ 6,008,853 $ 6,886,141 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 330,787 $ (1,664,340) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 9,038,947 $ 9,369,734 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,369,734 $ 7,705,394