PEEL HOUSING CORPORATION BOARD OF DIRECTORS

Transcription

1 PEEL HOUSING CORPORATION BOARD OF DIRECTORS AGENDA PHC-7/2014 DATE: September 25, 2014 TIME: LOCATION: 11:30 AM Council Chamber, 5 th Floor Regional Administrative Headquarters 10 Peel Centre Drive, Suite A Brampton, Ontario MEMBERS: G. Carlson B. Crombie F. Dale S. Fennell P. Foley C. Fonseca S. Hames N. Iannicca E. Kolb K. Mahoney S. McFadden G. Miles E. Moore M. Morrison P. Mullin P. Palleschi R. Paterak P. Saito J. Sanderson J. Sprovieri R. Starr A. Thompson J. Tovey R. Whitehead Chaired by President P. Palleschi or Vice-President P. Mullin 1. DECLARATIONS OF CONFLICTS OF INTEREST 2. APPROVAL OF MINUTES 2.1. Minutes of the Board of Directors (PHC-6/2014) meeting held on June 26, APPROVAL OF AGENDA 4. DELEGATIONS

2 PHC-7/2014 Board of Directors Agenda -2- Thursday, September, REPORTS 5.1. Financial Viability Consultant - Final Report (See also Item 5.8) (Deferred from the Peel Living Financial Viability and Governance Review Task Team meeting held September 4, 2014) Peel Housing Corporation Investment Report (For information) 5.3. Procurement Activity Semi-Annual Report - June 30, 2014 (For Information) 5.4. Semi-Annual Financial Report - June 30, 2014 (Unaudited) (For information) 5.5. All Seasons Ground Maintenance Services at Various Peel Living Sites Document T 5.6. Major Underground Parking Garage and Concrete Repairs at Various Peel Living Sites Document T 5.7. Peel Housing Corporation By-Law Amendments (See also By-law ) 5.8. Report of the Corporate Secretary Regarding the Peel Living Financial Viability and Governance Review Task Team (PLTT-6/2014) meeting held on September 4, 2014 (See also Item 5.1) 6. COMMUNICATIONS 7. BY- LAWS By-law : A by-law to amend By-Law being a by-law relating generally to the conduct of the business and affairs of Peel Housing Corporation. (See also Reports Item 5.7) 8. IN CAMERA MATTERS 9. OTHER BUSINESS 10. ADJOURNMENT

3 2.1-1 PHC-6/2014 PEEL HOUSING CORPORATION BOARD OF DIRECTORS M I N U T E S June 26, 2014 The Board of Directors of Peel Housing Corporation met at 11:43 a.m., in the Council Chamber, Regional Administrative Headquarters, 5th Floor, 10 Peel Centre Drive, Suite A, Brampton. Members Present: Members Absent: G. Carlson B. Crombie S. Fennell P. Foley C. Fonseca N. Iannicca E. Kolb K. Mahoney S. McFadden G. Miles E. Moore M. Morrison F. Dale S. Hames P. Mullin P. Palleschi R. Paterak P. Saito J. Sanderson J. Sprovieri R. Starr A. Thompson J. Tovey R. Whitehead (other municipal business) (vacation) Also Present: D. Szwarc, Chief Administrative Officer; J. Menard, Commissioner of Human Services; M.S. Mwarigha, General Manager; D. Bingham, Treasurer; A. Macintyre, Corporate Secretary; C. Law, Deputy Secretary President P. Palleschi presided. 1. DECLARATIONS OF CONFLICTS OF INTEREST Nil 2. APPROVAL OF MINUTES 2.1. Minutes of the Board of Directors (PHC-5/2014) meeting held on May 22, 2014 Moved by Councillor McFadden, Seconded by Councillor Mahoney; That the minutes of the Board of Directors (PHC-5/2014) meeting held on May 22, 2014, be approved. Carried * See text for arrivals See text for departures 3

4 2.1-2 PHC-6/2014 Board of Directors June 26, APPROVAL OF AGENDA Moved by Councillor Starr, Seconded by Councillor Sprovieri; That the agenda for the June 26, 2014, Peel Housing Corporation Board of Directors meeting be approved. Carried DELEGATIONS - Nil 5. REPORTS 5.1. Purchase of Land at Dundas Street East (For information) Received Report of the Peel Living Financial Viability and Governance Review Task Team Meeting (PLTT-5/2014) held May 29, 2014 Moved by Councillor Foley, Seconded by Councillor Paterak; That the minutes of the Peel Living Financial Viability and Governance Review Task Team (PLTT-5/2014) meeting held on May 29, 2014, be approved. B. APPROVAL OF AGENDA RECOMMENDATION PLTT : Carried That the agenda for the May 29, 2014, Peel Living Financial Viability and Governance Review Task Team meeting, be approved. C. DELEGATIONS Approved C.1. Tim Welch and Paul Conley, Consultants, Tim Welch Consulting, Providing an Update on Financial Viability Received

5 2.1-3 PHC-6/2014 Board of Directors June 26, 2014 D. REPORTS D.1. Governance Review Recommendations Arising from Workshop Presentation by Lincoln Bryant, Specialist, Governance and Planning Received RECOMMENDATION PLTT : That the recommendations, as amended, contained in Appendix III of the report of the General Manager of Peel Living, dated May 26, 2014, titled Governance Review Recommendations Arising from Workshop be approved. Approved COMMUNICATIONS - Nil 7. IN CAMERA MATTERS - Nil 8. OTHER BUSINESS - Nil 5

6 2.1-4 PHC-6/2014 Board of Directors June 26, ADJOURNMENT Moved by Councillor Thompson, Seconded by Councillor Whitehead; That the Board of Directors of Peel Housing Corporation now adjourn to meet again on September 25, 2014 at 11:30 a.m. or at the call of the President. Carried The meeting adjourned at 11:47 a.m. President Secretary 6

7 5.1-1 REPORT Meeting Date: Peel Housing Corporation Peel Living Financial Viability and Governance Review Task Team DATE: August 25, 2014 REPORT TITLE: FROM: FINANCIAL VIABILITY CONSULTANT - FINAL REPORT Mwarigha M.S., General Manager, Peel Living RECOMMENDATION That the Financial Viability Consultant s Report attached as Appendix I of the report of the General Manager of Peel Living, dated September 4, 2014, titled Financial Viability Consultant Final Report, be received; And further, that staff be directed to review, validate and refine the financial viability findings and recommendations, including their feasibility and the implications of implementation, and report to the Board of Peel Housing Corporation; And further, that the Peel Living Financial Viability and Governance Review Task Team be dissolved, given completion of its mandate. REPORT HIGHLIGHTS The Financial Viability consultant has conducted an analysis of the Peel Living portfolio as identified in the Request for Proposal. The final report provides detailed information on operational viability and asset sustainability. Options for financial viability are provided in the report and the implications of their implementation and their feasibility require further analysis. Staff will undertake further work on financial viability to explore the feasibility of implementing the report s recommendations and report to the Peel Housing Corporation Board in DISCUSSION 1. Background The Peel Living Financial Viability and Governance Review Task Team, created in December 2013, has a mandate that includes making recommendations to the Peel Housing Corporation Board of Directors on an economically sustainable financial model for the long term viability of Peel Living. 7

8 5.1-2 August 25, FINANCIAL VIABILITY CONSULTANT REPORT The Task Team was created by the Peel Housing Corporation Board based on the financial pressures facing Peel Living brought about by: Increased demand for capital repairs related to aging housing stock Pending End of Operating agreements Need for Peel Living to continue to provide quality affordable housing for tenants Growing need for affordable housing within the Region of Peel A presentation made to the Task Team at their first meeting on February 13, 2014, included a description of the scope of work set out in a request for proposal to address the long term financial viability of Peel Living. The scope included: Audit/investigate 68 buildings in the Peel Living portfolio o Review revenue and expenses with a view to operational viability o Review asset condition and property value with a view to asset viability o Examine social benefits resulting from each property Research best practices Identify patterns/types Develop financial models and options for financial viability Report to the Task Team The successful vendor was Tim Welch Consulting. The consultant presented a work plan to the Task Team on April 3, 2014 and confirmed the scope of the project. An update presentation was made on May 29, Summary of Report Findings a. Operational Viability Based on a set of assumptions, set in consultation with Peel Living and Regional financial staff, operational revenue and expenses were projected to 2040 (a 25 year period). These projections indicate that portfolio operational viability remains positive (i.e., able to generate a surplus) until To improve operational viability the consultant has recommended consideration of a variety of mitigating strategies including: Maximize market rental revenues Attempt to limit manageable costs as much as possible (assumptions are based on a 3 per cent per year increase) Undertake review of energy and water upgrades and their impact on reduction of manageable costs Undertake geomatic mapping of housing inventory based on current Real Property Asset Management (RPAM) and Tim Welch Consulting research data The potential impacts of these strategies suggest that the ability to produce an operational surplus could be pushed out to 2036 or beyond. 8

9 5.1-3 August 25, FINANCIAL VIABILITY CONSULTANT REPORT b. Asset Sustainability The consultant s report base asset sustainability and capital needs on a 2009 Building Condition Assessment (BCA) that has been updated with data from the Asset Planner software used by Peel Living. Input from HOMS Technical Support staff and RPAM has been included in the report. Overall the analysis points to an annual capital need of approximately $20 million. The capital budget has ranged from $13.9 to $23.9 million per year (average $18.1 million) over the past five years. During that same time, operating surpluses contributed to reserves to fund the capital have ranged from $3.0 to $9.6 million per year (average $5.3 million). This is based on available data and is consistent with Regional data from Real Property Asset Management (RPAM). Projection of capital needs throughout the report is based on this annual cost estimate. Currently the overall portfolio is considered to be in fair condition at an average Facility Condition Index (FCI) of 6 per cent. 49 per cent good (FCI 0 to 5 per cent) 32 per cent fair (FCI 5 to 10 per cent) 19 per cent poor (FCI greater than 10 per cent) To address asset sustainability issues the consultant makes a number of recommendations for further consideration and analysis including: Regularly (every five years) use updated BCA s to assess buildings Consider a program of long-term borrowing to meet the need for additional capital expenditures Ensure that future BCA s are more intrusive so that FCI ratings and projected capital requirements are more accurate Assess sites for redevelopment and/or intensification giving particular consideration to buildings facing operational viability issues, high capital needs and available land and zoning for higher density 3. Proposed Direction and Further Work Anticipated It is recommended that the Peel Living Financial Viability and Governance Review Task Team receive and review the consultant s report (Appendix I) and discuss the findings. This report has set the development of a financial viability model in motion. In order for this information to ground the implementation phase further examination and testing of the findings will be necessary. Additional information will need to be gathered and the feasibility of recommendations analyzed. It is therefore recommended that the Task Team direct staff to undertake further work and report to the Peel Housing Corporation Board of Directors early in

10 5.1-4 August 25, FINANCIAL VIABILITY CONSULTANT REPORT a. Areas Requiring Additional Information Three areas require further work to enhance the development of a financial model. They are: Inventory of Peel Living land and its current value Linkages and next steps regarding social return on investment (SROI) and financial viability Energy and water assessment of improvement including a strategic investment strategy b. Examination of Feasibility The report raises several areas that will require feasibility analysis, in conjunction with the Service Manager, including: Long term borrowing to address projected capital needs Continued municipal subsidy Redevelopment and/or intensification of some sites The analysis of these areas may require external expertise on narrow terms of reference. FINANCIAL IMPLICATIONS The study demonstrates that the estimated capital repair requirements over the next 10 years exceed the funding available from operations and reserves. The long term forecast demonstrates operational deficits resulting in difficultly covering its operating costs and capital repair and replacement requirements. The viability analysis will require updating once the Building Condition Assessments are completed. The impacts of the BCA updates and the financial impacts associated with the recommendations will be brought forward to the Board of Directors as part of the implementation plan. With respect to the consultant s work on the financial viability, a budget of $150,000 was approved for 2014 by the Service Manager as part of the regional budget. The work of the financial viability consultant was completed at a cost of $50,000. Sufficient funds ($100,000) remain in the 2014 budget for additional analysis and an appropriate amount will be proposed in the 2015 budget to continue this work. 10

11 5.1-5 August 25, FINANCIAL VIABILITY CONSULTANT REPORT CONCLUSION The final report of the financial viability consultant sets out important information on the current and projected state of the Peel Living portfolio in terms of operational and asset viability as well as social impact. This report sets out financial models for consideration. The next step is to investigate in greater detail the identified financial models, examine the feasibility of its recommendations and bring a report to a future meeting of the Peel Housing Corporation Board of Directors. Mwarigha M.S., General Manager, Peel Living Approved for Submission: D. Szwarc, Chief Administrative Officer APPENDICES Appendix I TWC Consulting Peel Living Financial Viability Report. For further information regarding this report, please contact Mwarigha, Muliwa.mwarigha@peelregion.ca, Ext Authored By: Lincoln G. Bryant 11

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13 5.1-7 Appendix I Financial Viability Consultant Final Report Table of Contents Executive Summary... i 1. Introduction Context and Purpose of this Study Background Peel Living Context Legacy Housing Programs Work Plan Highlights of Project Profiles Financial Information & Operational Viability Purpose of This Section Financial Projections Based on Current Operations Cost-Control Opportunities Conclusions Operating Viability Capital Needs Introduction Building Condition Assessment Data Facility Condition Index Capital Repair Practices and Energy Conservation Future Directions Building Conditions and Capital Social Return on Investment (SROI) SROI Introduction Social Outcomes of Housing: Main Dimensions Pilot Measurements of SROI, and Next Steps Analysis of Sites Introduction and Evaluation Matrix Typology of Sites Redevelopment and Intensification of Existing Peel Living Sites Strategic Directions and Recommendations

14 5.1-8 Appendix I Financial Viability Consultant Final Report Executive Summary Evolving into the Future: A Financial Viability Report for Peel Living Nature and Purpose of the Study This study examines options for Peel Living to support the work of a Task Team established by the Board of Directors, to address the long-term financial and social viability of Peel Living. The context is a portfolio which faces new needs and opportunities, rising operational and capital repair needs, aging buildings, lower mortgages, phase-out of federal subsidy, and potential site redevelopment and intensification. The study examines the operational financial viability, capital repair requirements, site needs and opportunities, and social return on investment, on a site-by-site and portfolio-wide basis. A typology of sites is developed, financial and other options are identified, and recommendations are made to support the long-term financial sustainability of Peel Living. Operational Viability Peel Living data was used to create long-run financial scenarios, using varying assumptions. As mortgages expire and legislated subsidy declines, rental income will cover a rising share of costs (from 62 percent today to a high of 83 percent, falling back to 77 percent by 2040). Some ongoing Regional subsidy will therefore be required for existing operations (before considering the costs of capital repairs); but a year-to-year subsidy increase lower than projected inflation or property tax increases would suffice to cover operating costs. Lower utility costs or manageable costs, or increased market rents would reduce subsidy requirements. Capital Repair Requirements Data from 2009 Building Condition Assessments (BCA s updated by the improvements are used to project capital repair requirements from 2014 to A Facility Condition Index FCI is al ulated, easu i g the u e t ph si al state of Peel Li i g s housi g stock which overall is in the good to fair range. As buildings age and their various components and systems reach the end of their lifespan, more capital repair and replacement will be needed. For the next 10 years ( ) the projected capital expenditures needed for the portfolio are $20 million per year. This figure will need to be updated upon completion of the new BCAs scheduled for later in A Financial Viability Report for Peel Living TWC Inc. July i

15 5.1-9 Appendix I Financial Viability Consultant Final Report Other key capital issues include potential savings from energy retrofits, since 38 Peel Living sites are heated with electric baseboard heating. There are three main options for paying for capital repairs: pay-as-you-go, a reserve fund strategy, or borrowing to do work in stages starting in the near future and repay over time. The report presents an option whereby capital repairs funds are borrowed in rolling five-year tranches, each repaid over the following 25 years. This would enable needed work to be carried out in the short term as needed, while putting the largest financial impact after 2030 when operating subsidy requirements are at lower levels. It may offer a predictable, manageable approach to the combined operating and capital requirements. Social Return on Investment (SROI) SROI can be a means to sustain public support for social housing and a basis for future social finance. This report offers an initial foundation for SROI steps by Peel Living over a longer term. SROI deals with quantitative measurement of outcomes, going beyond performance or output measures. SROI is complex, and usually involves research partners. Social finance in Canada is at an early stage of development. To pursue SROI for social finance, Peel Living will need partnerships with other organizations. It is unlikely that social finance will supplant established financing sources for regeneration, repair, or new supply; support services and new initiatives are the best candidates for social finance. The report identifies 18 main types of social outcomes of housing, based on prior research. Two SROI indicators are measured on a pilot basis. The value of RGI in increased household income and purchasing power is $36.5 million annually. Peel Living capital expenditure generates 600 jobs (person-years) for actual; 810 jobs for requirements. Site Needs and Opportunities Information from site visits, Peel Living staff, and other sources was used to create site profiles for each of the 66 sites that were included in this study. The site profiles summarize housing stock, key financial and condition data, planning status and intensification potential, parking, and nearby transit and services. Most sites are in good condition and are functioning well in social terms. A significant number are well located near transit and services. Market units are readily tenanted. A Financial Viability Report for Peel Living TWC Inc. July ii

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17 Appendix I Financial Viability Consultant Final Report 3. Peel Living should analyse the options, legal aspects, revenue implications and social impacts of switching from the current RGI scale to a shallow flat- ate housi g allo a e subsidy for some share of its units, when operating agreements expire. 4. Peel Living should ensure that the Building Condition Audits planned for 2014 include more intrusive testing; and that FCI ratings and capital budget planning for each site should be updated upon the completion of these new BCAs. 5. Peel Living should undertake an energy and water audit in co-operation with the Region, to identify upgrades providing the best payback and restraint of utility costs, and including review of lessons from recent retrofit work by Peel Living or other providers. 6. Peel Living should systematically examine options, including longer term borrowing, to pay for the additional $60 million in additional capital expenditures (over and above the planned annual $14 million) required by 2024, on a portfolio-wide basis. 7. Peel Living should undertake future financial feasibility updates every five years, using data from updated BCAs as these are carried out from time to time. 8. Peel Living should select two full redevelopment sites and one intensification site in late 2014 and proceed with a feasibility analysis and the creation of a business case in Peel Living should take initial steps to establish capacity to measure social return, as set out in this report. 10. Peel Living should review the implications of this report as they affect its overall financial relationship to Peel Region; determine a preferred future relationship in collaboration with the Region as service manager; and take related transition steps. 11. Peel Living should pursue different priorities for each site, along the lines of the typology presented in this report A Financial Viability Report for Peel Living TWC Inc. July iv

18 Appendix I Financial Viability Consultant Final Report 1. Introduction 1.1 Context and Purpose of this Study In April 2014, Peel Living (Peel Housing Corporation) retained Tim Welch Consulting Inc. to develop a set of options for a financially sustainable model for future years. The new financial model will allow Peel Living to redefine itself and successfully move forward over the next 25 years. The goal is to ensure that Peel Living continues to be a leader in providing quality affordable and social housing in the Region of Peel. This financial viability study is led by housing consulting firm Tim Welch Consulting Inc. (TWC) and the consulting team includes Connelly Consulting Services, Greg Suttor Consulting and GSP Group. The study examines options for Peel Living in terms of the operational, capital and social/community needs of its portfolio and residents. This study also provides an initial foundation for measuring social return on investment (SROI) in Peel Living, and develops a typology of sites to inform strategic decision-making by Peel Living. 1.2 Background Peel Living Peel Housing Corporation is a non-profit housing corporation owned by the Region of Peel. Peel Living owns and manages 68 residential properties with 7,100 residential units. It also manages six Region-owned buildings, two transitional housing residences and three shelters. Peel Living has o e ea s e pe ie e i the de elop e t a d ope atio of housi g that is affordable for low- and moderate-income families, seniors and single people in the Region of Peel. The portfolio includes over 1,000 units developed directly by the Ontario Housing Corporation (OHC) between 1967 and Development of these units was funded through Ontario Housing Corporation debentures, and annual operating subsidies were the shared responsibility of the Federal and Provincial governments. Capital repairs were paid out of annual operating budgets and there were no capital reserve funds or contributions. On January 1, 2001, the Province of Ontario transferred the OHC units in the Region of Peel to Peel Living as part of the devolution of social housing. The former OHC segment of the portfolio (now referred to as Peel Region Housing Corporation or PRHC stock) includes townhouses, and low-, mid- and high-rise apartment units. All of the former OHC housing was initially rented to low-income families and seniors on a Rent-Geared-to-Income (RGI) basis. Since the transfer in 2001, Peel Living has gradually introduced market rent units into the former Ontario Housing Corporation portfolio; typically about 10% of the units in a building, or townhouse complex are now rented at market rents. A Financial Viability Report for Peel Living TWC Inc. July

19 Appendix I Financial Viability Consultant Final Report At the time of devolution, the former provincial responsibility for providing operating subsidies was assumed by the Region of Peel in its role as Service Manager, delivering housing programs under the authority of the Social Housing Reform Act (subsequently replaced by the Housing Services Act). Peel Living developed most of its housing portfolio under various Federal and Provincial housing programs in the 1980s and first half of the 1990s. The housing developed during this time typically had 35-year operating agreements that required a minimum percentage of units to be rented on an RGI basis to low- or moderate-income households. The operating agreements for these developments require that a certain amount of rental revenue must be put aside each year in a capital reserve fund to be used to pay for the capital repairs of a building. This is because, unlike in the private sector, a government guarantee of the mortgage allowed non-profit corporations developing housing during this time to borrow 100% of the capital cost of the project. This, in turn, meant that governments did not wish to see the projects encumbered by further borrowing for capital work (as in the private-sector) and so the only way to amass capital was to create a reserve that required annual contributions from operations. Since 2003, Peel Living has developed and now owns/operates two housing developments funded through capital grants under Federal and Provincial housing new-supply initiatives. These developments also had significant one-time capital funding from the Region. The grants were conditional, in part, on Peel Living setting the rents in these projects at affordable rates (in one development 100% of average market rent, in the other 80% of average market rent) for a period of 25 years. There are no ongoing operating funds provided. While the Peel Living stock is in good condition overall, the portfolio will require continuous repairs and significant capital improvements due to its age, as more than 80% of the stock is 18 years or older and over 1,000 units are years old. The viability of the existing portfolio is important for both current and future Peel Living residents. In addition, there are opportunities for Peel Living to redevelop or expand its stock to help meet the growing need for both low-income and market rental housing in the Region. Peel Region has been growing at a quick pace in recent years, as illustrated by the population figures below. Table 1: Population of Peel Region: ,948 1,159,455 1,296,814 ource: Peel s Housing and Homelessness Plan A Community Strategy A Financial Viability Report for Peel Living TWC Inc. July

20 Appendix I Financial Viability Consultant Final Report This trend of significant population growth is expected to continue. The Government of O ta io s Amendment 2 (2013) To The Growth Plan For The Greater Golden Horseshoe provides for an increase in the egio of Peel s populatio al ost half a illio people to a total of 1,770,000 between 2011 and The current need for affordable housing can be measured many ways. The Region s Housi g and Homelessness Plan notes that almost one third of households spend more than 30% of their income on housing and so need affordable housing. The Regional waiting list for subsidized housing in 2013 contained 13,600 households. The current need and the anticipated population increase indicate that the requirement for affordable housing will almost certainly continue to grow. Peel Living, as part of its future direction, has a significant role to play in helping the Region of Peel a hie e the stated goal of the egio s Housi g a d Ho eless ess Pla : E e o e has a home and homelessness is eliminated. 1.3 Context Legacy Housing Programs As the public housing program stopped developing new units, federal and then the provincial government initiated a number of non-profit housing programs. While these programs had a number of variations in their design, they generally fall into three categories: 1. Federal housing programs: From 1981 to 1988, under Section 15.1 and then Section 56.1 (subsequently renamed as Sec. 95) of the National Housing Act, Peel Living created 2,315 units in 20 developments. Ultimately in Peel Living, 47 percent of combined 15.1 and 56.1 units are RGI, including 18 percent (of the total) funded through rent supplement. The balance of the units had rent levels set at low end of market, rather than average market rent. The operating agreements require regular payments into a capital reserve fund to be used for repairs that were beyond the scope of annual maintenance budgets. In the Sec. 95 program the federal government pays an ongoing operating subsidy to help reduce the cost of the mortgage payment. (This subsidy is scheduled to expire when the mortgage is paid off.) In addition, the province had the option to provide additional rent supplement to a specific number of units to allow tenants who could not afford low-end-of market rents to have affordable housing. The annual Federal government subsidies will begin to expire as early as 2016 on two Peel Living sites with the expiry of the mortgage. The operating agreement governing management of these properties will also expire at that time, and all will expire by Since devolution, the former provincial operating subsidies for the additional rent supplement units have been the responsibility of the Region. A Financial Viability Report for Peel Living TWC Inc. July

21 Appendix I Financial Viability Consultant Final Report 2. Federal-Provincial Municipal programs: Between 1987 and 1994, Peel Living developed 1,662 units in 14 projects under these programs. Originally, these programs required a high percentage of RGI tenants (up to 80%), with operating subsidies shared between the federal and provincial governments according to how many of the RGI tenants were i o e eed, that is ith e lo i o e a d e ui i g deep subsidy to be able to afford their housing. In 2000, the federal government relinquished its role in these programs to the Province, but made a commitment that it would continue to provide block funding at 1996 levels for the Province to administer until the end of the mortgages. Shortly afterward, with the passage of the Social Housing Reform Act (SHRA), the Province terminated the operating agreements providers had signed under these programs, but undertook to continue to pass through the federal subsidy as required on an annual basis till the expiry of the project mortgage. The federal subsidy will begin to decrease in 2022 with the end of the 35-year mortgage of the first project funded under this program. The last mortgage originally funded under an F/P operating agreement will expire 2029 and this will mark the end of the federal responsibility for projects that were developed under these programs. Under the SHRA, as well as terminating the operating agreements, the Province obliged the service managers, including the Region of Peel, to pay the balance of the subsidy not provided by the fede al go e e t that is dete i ed u de the A t s fu di g fo ula. The fu di g formula includes the requirement that housing providers set aside funds annually for future capital repairs. The majority of tenants pay rent on an RGI basis. 3. Provincial Unilateral programs: Peel Living created 1,385 units in 14 developments between 1991 and 1995 under these programs. Essentially, these programs attempted to replicate the F/P programs as set out above, with the province assuming the entire subsidy obligation, since the government of the day wanted a larger housing program than the federal government was willing to cost-share. As with the F/P program, projects funded under unilateral programs had a high percentage of RGI tenants often up to 80%. These operating agreements were also terminated by the SHRA and replaced by a legislative framework and a funding formula that requires a certain amount be set aside from annual operating budgets in a reserve for future capital work. With the passage of the H A, the egio of Peel assu ed the p o i ial go e e t s su sid responsibility for projects funded under these programs. Understanding the financial impact of the expiry of the existing operating agreements on Peel Living, and on the Region of Peel in its role of Service Manager, is a key part of this study. The need for funding an increased amount of capital repairs for the aging housing stock is also a key reason in undertaking this study. A Financial Viability Report for Peel Living TWC Inc. July

22 Appendix I Financial Viability Consultant Final Report The expiry of the operating agreements make it more challenging to continue to provide housing that is affordable to the lowest income households in the community. In general terms the expiry of the operating agreements, after the end of the 35 year period, end both the mortgage payments that Peel Living has had to make on the properties as well as the operating subsidies received from the federal government. The Region of Peel has been paying the portion of the subsidies that the Provincial government used to pay up until the downloading of housing responsibilities in As noted above typically the higher percentage there are of RGI units in a building (such as in PRHC and Provincial unilateral programs) the greater the need for ongoing operating subsidies. Municipal organizations and housing sector organizations have been advocating that the federal government, upon the expiry of the operating agreements (and therefore the end of the requirement for Federal government operating subsidies), should continue to invest the same level in housing with a particular focus on ensuring there are funds for capital repairs and ensuring that the number of RGI households do not decrease. 1.4 Work Plan A work plan was drawn up by the TWC team in order to analyze the current and future situation of Peel Living. This execution of the workplan has as its goal devising a financially viable model for the future of Peel Living to deal with the growing capital repair needs, the implications of the expiry of operating agreements, and the increasing need for new affordable housing. A Financial Viability Report for Peel Living TWC Inc. July

23 Appendix I Financial Viability Consultant Final Report 1. Visiting 66 Peel Living sites by the TWC team to view the buildings and discuss the building issues with the property managers for the various sites. 2. Analyzing the financial and operational data provided by Peel Living staff, including the long-term projections of operating costs and capital needs (giving consideration to the implications of the expiry of mortgages and the end of mandated government operating subsidies). The data analysis also included examining, in a preliminary fashion, some of the Social Return on Investment (SROI) that occurs through the operations of Peel Living communities. 3. Combining the information from site visits and from the SROI analysis with the operational and capital-needs data to create an evaluation matrix which rates the potential for redevelopment and intensification of the sites. 4. Using this evaluation matrix, creating typologies to classify the 66 Peel Living sites. 5. Through the classification of sites and through the aggregate analysis of the data, a number of recommendations are provided that set out financial viability options for Peel Living. 1.5 Highlights of Project Profiles For each of the 66 sites, a four-page summary has been created (see Appendix D) that highlights ea h de elop e t s ke i fo atio, including; Description of the housing stock. Municipal zoning rules and whether the current building underutilizes the zoning. Proximity to transit, retail, schools and other services. Parking utilization. Current and projected financial operations. Building condition information. Recommendations for future directions. The following is a summary of observations made from the site visits or from discussions with Peel Living property managers: A Financial Viability Report for Peel Living TWC Inc. July

24 Appendix I Financial Viability Consultant Final Report A significant portion of the sites are located in good central locations close to transit (higher order transit in some cases), retail, grocery stores and community, recreational, education and social services which are attractive to both market and RGI tenants. In most buildings renting up units is not difficult. The majority of the sites benefit from having a variety of social and community services provided in the common meeting rooms on the sites. Services ranging from seniors hair services and foot examinations to literacy programs for all ages to life-skills in food preparation help build a sense of community in the buildings and provide a larger social return on investment (explored in a later section of the report). The refurbishment of lobbies and stairwells in a number of buildings in recent years has given a sense of pride to both residents (further helping marketability) and staff of Peel Living. There are, however, a few buildings with well worn hallways and lobby areas which give a sense of the building not being looked after. In a number of the townhouses, the high utility costs for market-rent tenants can trigger financial strain, which can either lead to rent arrears or quicker turnover of units. Just over half of the sites have electric baseboard heating, typically a cause of higher utility costs than other heating systems, although arguably simpler to operate and maintain. There are a significant number of parking garages that are underused (in part due to some tenants not owning cars and in other situations tenants illegally parking in visitor spots). While many of the family Peel Living sites work well socially with a high level (80 90%) of RGI households, some Peel Living property managers stated that some family sites could benefit from a greater mix of market rental units. There are some sites that underutilize the land and are possible candidates for either complete redevelopment or intensification through adding to the existing building or adding a new building on to the site. A Financial Viability Report for Peel Living TWC Inc. July

25 Appendix I Financial Viability Consultant Final Report 2. Financial Information & Operational Viability 2.1 Purpose of This Section The purpose of this section is to examine the financial information regarding current revenue and expenses to project the future operational viability of the individual projects and the portfolio as a whole. The projection uses the assumptions set out below (as provided by Peel Living/Region of Peel), applies them to the current budget of each property then aggregates the projections first by program then for the portfolio as a whole. Examining the operational viability is a useful first step since Peel Living needs to be confident about what will be required to ensure it can meet its day-to-day obligations. Only then will it be able to turn to addressing how to fund the capital work that will be required over the next 25 years. 2.2 Financial Projections Based on Current Operations The base case for future budget years uses the following assumptions: Projected annual cost increases are: o Manageable costs: 3% o Minor capital costs: 2% o Taxes: from 2.4% to 3.2% annually between now and 2040 (note: tax-increase projections provided by Peel staff). o Mandated contributions to reserves: 2%. o Water & Sewage: 6.0% annually till 2025, then by 2% annually. o Hydro and gas: Subsequent years Hydro 7.1% 0.7% 3.2% 2% Gas 3.4% 6.6% 6.2% 3% The assumptions about annual increases to revenue are: o Market Rent: 1.8%. o RGI rent: 1.25%. The assumptions about subsidy are: o Federal subsidy fixed till expiry of mortgage, then eliminated o Municipal subsidy generally fixed at current level till expiry of mortgage, except: Subsidy to PRHC properties balances operating deficit A Financial Viability Report for Peel Living TWC Inc. July

26 Appendix I Financial Viability Consultant Final Report Subsidy in projects not included in PRHC, 15.1, 56.1 or F/P Municipal depends on individual arrangements. The aggregate average annual increase for those projects is 0.8%. Using the above assumptions, the following chart shows per-program and portfolio projections till 2040: The Sec program properties will generally show a substantial operating surplus each year, especially once the mortgages are paid off, despite the loss of subsidy. The PRHC properties will require municipal subsidy to break even. It is almost certain these properties will experience losses every year because the low incomes of the residents mean rents will be low and cannot equal total operating costs, thus the need for ongoing subsidy. (In order to help minimize the losses, Peel Living should look at working with other larger non-profit housing providers to establish operating cost benchmarks so that Peel Living would be able to examine its operational expenses on a comparative basis). This is the current financial model for the PRHC program, except that federal funds contribute to the subsidy while there is debt attached to these properties. Ongoing attention to managing operating costs, including through benchmark comparisons with former public housing stock in other Ontario municipalities, will help promote optimal efficiency and mitigate the need for subsidies increases, but in its very design, this portion of the portfolio is non-market, so operating subsidies will be required as long as a large majority of the residents is made up of households ho a t affo d e ts that e ual ope ati g osts. The 15.1 segment of the portfolio (only one project) is projected to start with a slight surplus but then begin to show small annual losses as the annual cost increases outpace the increases in rents. The FP/Municipal program properties are anticipated to show annual operating deficits because the base projection is that federal subsidy will not increase beyond current levels and because expenses are projected to rise faster than rents (as per the base case). A significant portion of the tenants in the F/P Municipal program properties receive social assistance as their source of income. Social assistance rates have only been increasing at 1% annually over the past number of years, less than increases in building operating costs. Operating subsidies will fluctuate over time because of changes to taxes, utilities and operating costs but the overall trend is downwards because the mortgages will be retired on a predictable schedule based on their 35-year amortization period. However, even as mortgage costs drop, the fact that the majority of tenants are in low-income households means that this section of the portfolio will show an operating loss. This is because experience shows that incomes of RGI 1 For consistency with the naming practices of Peel Living, this section of the portfolio is called 56.1 program. In fact, the program design and subsidy rules of these units are now governed by Sec. 95 of the National Housing Act. A Financial Viability Report for Peel Living TWC Inc. July

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31 Appendix I Financial Viability Consultant Final Report of 2% (the lines rise over time), but anticipated rents will not track inflation and so will fall elati el fu the ehi d the osts o e ti e. The p oje ts i the othe atego a e e luded from the above two charts because many of them have beds, not units, so direct comparisons are not possible.) Sensitivity Analysis Here are the results of a sensitivity analysis, starting with the base case above, using the following variations: 1. Manageable cost increases are 2% per annum instead of 3%. All other assumptions are as in the base case. 2. Market-rent increases are 90% of base-case manageable cost increases (i.e. 90% x 3% = 2.7% per annum instead of 1.8%). All other assumptions are as in the base case. 3. Hydro and Gas costs are 100 basis points above the base case. All other assumptions are as in the base case. 4. The final sensitivity analysis changes two variables at once. Hydro and gas costs are 100 basis points above base case, and market rents increase by 2.7% per annum instead of 1.8% as in the base case. A Financial Viability Report for Peel Living TWC Inc. July

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36 Appendix I Financial Viability Consultant Final Report Manageable costs are always an area where housing providers are seeking improvement. Of the 17 projects that constitute the highest-cost-per-unit quartile, 10 are in the FP/Municipal Program, four are 56.1 projects, two are PRHC and one is not funded through a program. It may be useful to investigate why this pattern appears. It could be nothing more than the original base budgets of FP/Municipal projects were set higher than in other programs, so cost inflation has kept them higher on average. However, if there were another factor that could be identified and addressed, then this would have a positive effect on the bottom line. Another consideration would be to find ways to keep increases in manageable costs below 3% annually. Consistently increasing manageable costs significantly above inflation 3 will put pressure on the finances of the corporation, while controlling these increases to below 3% will reduce the need for additional municipal subsidy. As a long-term target, annual increases of 3% may be somewhat conservative. On the one hand, Peel Living has budgeted for above-inflation annual increases to staff salaries (3.0%) and benefits (4.0%). Furthermore, an aggressive preventive maintenance program may also lead to higher cost increases in the short term. On the othe ha d, Peel Li i g s a agea le osts pe u it a tuall d opped. % et ee 2011 and 2013 and the budgeted increase from 2013 to 2014 was only 2.3%, so keeping cost increases below the long-term target has been achievable recently. (By way of comparison, the cost factors for 2012 to 2014 set by the Ministry of Municipal Affairs and Housing averaged an annual increase of 2.51%.) The final key component of the annual budget to consider is market rents. If Peel Living can raise market rents by the maximum permitted under the Ontario Rent Regulation Guidelines and also be aggressive in setting market rents on turnover (to the extent permitted under program guidelines while these are in force and then as much as the market will permit), this additional income will go straight to the bottom line. None of these projections assume a change in the current portfolio RGI/market mix. Since one of the goals of social housing is to provide good-quality housing at an affordable price for lowincome households, it would appear to be good news that Peel Living will not have to reduce the RGI percentage in its portfolio to stay viable assuming the Region is willing to continue to provide a subsidy to bridge the gap between what low-income tenants can afford and the market rent. The projections also do not take into account the possible costs and revenues associated with demolition, intensification, sale or repurposing of any sites. These projections are solely focused on operational viability of the current portfolio. 3 The actuarial assumptions listed in the o po atio s o solidated fi a ial state e ts i lude. % pe ea as the future inflation rate. A Financial Viability Report for Peel Living TWC Inc. July

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38 Appendix I Financial Viability Consultant Final Report 4. As mortgages expire and legislatively mandated subsidy ends, rental income will cover an increasing percentage of total costs, rising from the current level of approximately 62% to a high of 83% after 16 years and then falling back to around 77% by (The decline towards the end of the period is directly a result of the assumption that projected revenues will rise more slowly than projected costs). 5. Controlling increases in manageable costs, vacancies, and utilities will have a significant positive effect on the bottom line. Reductions in these cost increases would reduce the need for municipal subsidy. IMPLICATION FOR ADDRESSING FUTURE CAPITAL NEEDS The projections shown above are for annual operations only. They do not include the provision of funding for capital work. Since the projections show the Peel Living portfolio as a whole will need some level of subsidy to break even on an operating basis, Peel Living therefore cannot fund its future capital needs without additional assistance. (The amount of assistance will be somewhat dependent on how closely the operating results match any of the cases in the sensitivity analysis.) This is as expected in an organization whose role is to provide rents well below market levels. Nevertheless, Peel Li i g s o e all fi a ial situatio appea s to gi e g ou ds fo opti is that it can manage its future capital requirements in a way that can be affordable for the Region. The surpluses identified in the first few years of the projection provide an opportunity to fund some capital requirements directly from operating revenues, or to borrow funds to do the work immediately and then begin repayments from the operating surpluses. Since the subsidy requirement is projected to decline in real terms over the following years, it will be possible for the Region to assist Peel Living in meeting future capital needs without a significant real-dollar increase in the total municipal subsidy contribution. This issue will be subject to a more in-depth examination in the next section of the report. A Financial Viability Report for Peel Living TWC Inc. July

39 Appendix I Financial Viability Consultant Final Report 3 Capital Needs 3.1 Introduction Peel Li i g s po tfolio, uilt f o to 8 with an average age of approximately 29 years, consists of approximately 7,100 units in high- and low-rise apartments, townhouses and stacked townhouses. The most recent building condition assessments (BCAs) commissioned by Peel Living have identified issues regarding the state of individual buildings as well as potential capital shortfalls across the entire portfolio. Note: A Building Condition Assessment is an inspection and assessment of the physical facilities of the buildings. Typically a BCA will include: Inspection of building envelope, interior finishes, electrical/mechanical systems and accessible structural components Assessment of fire/life safety and exterior site features (i.e., walkways, roadways, parking, landscaping, etc.) Written and photographic documentation of each component together with observed deficiencies Review of general documentation on repair/maintenance history of the elements, if available. Cursory review of drawings and/or previous reports pertaining to the building, if available Interviews and discussions with on-site staff regarding repairs/maintenance conducted on the building Compilation of findings in a written report including observed deficiencies, together with a list of recommendations for repair/replacement with associated estimated costs. BCA s ha e li itatio s i that t pi all the involve visual inspections and that the accuracy of the projections about the lifespan of building components can vary from industry standards depending on the quality of the original construction. The older a BCA is, the less reliable the projections typically are. The project team has sought to understand the physical state of the Peel Living buildings and complexes by Analyzing the BCA data and providing detail as to the costs of improvements done over the years ; A Financial Viability Report for Peel Living TWC Inc. July

40 Appendix I Financial Viability Consultant Final Report Analyzing Facility Condition Index (FCI) summary data to indicate the condition across the portfolio as well as for each site/building as data allows. (The concept of FCI is examined later in this section); Determining capital repair shortfalls and requirements for upcoming years. Note: I p o e e ts refers, in this section, to repairs, replacements, modernization and upgrades which are not part of routine operating costs, processes or budgets. 3.2 Building Condition Assessment Data BACKGROUND In 2009, Peel Living hired Nadine International, a consulting engineering firm to conduct a complete assessment of the condition of its portfolio. Nadi e s BCA provided Peel Living with a visual evaluation of its entire housing portfolio by building. Peel Living is due to update its BCA data in the fall of 2014 and is currently validating the 2009 BCA through Asset Planner software, which also allows for FCI (Facility Condition index) analysis across the portfolio. While the recently updated FCI figures need to be further refined in the near future to include the results of the forthcoming 2014 Building Condition Audit, the portfolio appears in good condition over all. BCA DATA ISSUES The BCAs have not been fully updated since 2009 and therefore are somewhat dated as the physical state of the buildings has changed over the past five years some building components have deteriorated more quickly than expected in the 2009 projections while other building components have lasted longer than projected. In addition, over the past five years some unplanned or reactive capital repairs have been undertaken and other scheduled capital improvements based on the BCAs have had to be postponed. BCA data in 2009 was collected by observation only. The new 2014 BCA studies will be more intrusive in their investigations by physically examining some of the mechanical, ele t i al a d othe uildi g o po e ts ehi d the d all. The 2014 BCA should also consider the interior visual appearance of the rental units and the exterior appearance of the buildings/townhouses as it is important for Peel Living to be able easu e the u appeal of the buildings. For costs that were applied to multiple sites (i.e. multi-site contracts), Peel Living assisted by breaking out a site-specific cost attribution. For the most part, there are no building-by-building cost breakouts of improvements already carried out on sites with more than one building for instance, a site with both an apartment building and A Financial Viability Report for Peel Living TWC Inc. July

41 Appendix I Financial Viability Consultant Final Report townhouses which creates some uncertainties in the data used. BCA NEEDS SHORTFALL Looking Back The BCA figures highlight the continuous need to renew capital assets. There has been significant shortfall of funding compared with BCA-identified needs over the last four years. From those needs averaged over $19 million per year while spending on improvements averaged approximately $10 million per year a total shortfall of almost $40M million across the portfolio. Chart 11 RECENT IMPROVEMENTS The project team analyzed spending on improvements across the portfolio from 2009 to Approximately $50M was spent on improvements in this period. Chart 12, below, breaks down this sum by the percentage allocated to each type of improvement over the last five years. Over 25 percent of all improvements are for the exterior building envelope (more if windows are included). Paving and parking including underground parking also accounts for almost 30 percent A Financial Viability Report for Peel Living TWC Inc. July

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43 Appendix I Financial Viability Consultant Final Report Benchmarks are: 0-5% asset is in good condition 5-10% asset is in fair condition 10-30% asset is in poor condition 30% + critical condition Overall, as FCI increases, assets will experience: 1. increased risk of component failure 2. increased facility maintenance and operating costs 3. greater negative impacts to residents and staff As well as measuring the condition of a single building, group of buildings, or allowing for comparisons with a total portfolio or between different portfolios, the FCI can act as a rule of thumb for the annual reinvestment rate (funding percentage) that is needed to stop the deferred maintenance backlog from growing. The FCI can be used to describe the absolute and relative condition of each building, and the spending required to complete all needed repairs and improvements (eliminate deferred maintenance). The FCI is a s apshot of the uildi g s o ditio o, a d indicates which buildings have the greatest need for repairs and maintenance relative to their value. PORTFOLIO FCI AVERAGE The FCI for the Peel Living portfolio on average is just over six per cent. This indicates that the portfolio as a whole is good to fair condition, with some remedial work required. The portfolio has been underfunded over the period of the analysis from 2010 to The average BCA costs estimated as necessary for this period were approx. $19M/year. On the other hand, improvements actually made over this same period were approximately $10M/year. The 2009 BCA data is thought to be out of date, as noted above. More recent data on improvements has been entered into Asset Planner so the updated FCIs take into account work done between 2009 and December Furthermore, the visual method of inspections used in 2009 did not allow for a sufficiently thorough investigation, thus making the projections less reliable than desired. The 2014 BCA is expected to be more intrusive and therefore provide both updated but also more detailed information. The six-per-cent average FCI figure across the portfolio may be a little higher than is the case as the 2009 BCA has recently been revalidated. Improvements have been incorporated and deferred BCA items are being re-examined. FCI estimates are expected to be moderately lower A Financial Viability Report for Peel Living TWC Inc. July

44 Appendix I Financial Viability Consultant Final Report as a result of this process. The new BCA to be tendered in the fall will more adequately verify the state of the portfolio and building conditions. Within the Peel Living portfolio, there is a wide range of ratings. The 2014 FCIs across the buildings in the portfolio are presented in Chart 13, below. The buildings have been grouped by condition to illustrate overall portfolio condition. Of particular concern are the 12 buildings that have high FCI s ed, which indicate they are in relatively poor condition. Of the other buildings, 21 are in fair condition and 32 are in good condition. The BCA/FCI analysis generally lines up with the information provided by property managers and the visual impression from the site visits. A Financial Viability Report for Peel Living TWC Inc. July

45 Appendix I Financial Viability Consultant Final Report Chart 13 A Financial Viability Report for Peel Living TWC Inc. July

46 Appendix I Financial Viability Consultant Final Report FCI ANALYSIS As noted above, the average FCI across the buildings in the Peel Living portfolio is approximately six per cent. The overall asset condition for the portfolio is good to fair. This is partially a reflection of the age of the buildings. Buildings on average are almost 30 years of age, and 29 buildings are more than 30 years old. The FCI also factors the type and size of the building in the index. The relatively good news is that there are no buildings in the critical category (over 30% FCI), i.e. buildings that require constant emergency work and major system replacement. Twelve buildings (17% of the Peel Living portfolio) currently fall into the poor condition category. Buildings in this condition are beginning to show signs of wear. There are increased facility maintenance and operating costs as well as increased risk of major system component failure such as building envelope, heating and plumbing, boilers, windows, elevators, balconies, roof replacements etc. As a result of deferred capital spending there may be more occurrences of system and component failures resulting in more reactive and emergency approaches. Staff time may be diverted from regularly scheduled maintenance and there will be greater issues with residents as a result of repair issues. The esults he e suggest that hile the FCI s of olde sto k sho elati el ell, the also a a greater projected cost burden as assemblies, systems and finishes face expiration of their anticipated life cycles. It is less a question of whether these assets will require capital expenditures than how much and when. FCI ASSUMPTIONS Some of the needs are based on replacement of the same/similar technology No allowance for future technology and advancement or altered work practice FCI may be skewed because underground parking costs are associated with one building and not factored between buildings. Needs generated by the Asset Planner software are based on lifecycle and do not always reflect the actual operation i.e. the asset software (via the BCA) might suggest an interior repair in 2016, with the repair costs a percentage of the replacement value of that component; in reality Peel Living performs some of this interior work at turnover. 3.4 Capital Repair Practices and Energy Conservation ENERGY CONSERVATION On a case-by-case basis, Peel Living has been replacing older building components with the A Financial Viability Report for Peel Living TWC Inc. July

47 Appendix I Financial Viability Consultant Final Report most efficient technology available. While there is presently no formal overarching Peel Living energy conservation program in place, Region of Peel Energy Management has worked with Peel Living to set energy-efficiency standards to ensure up-to-date technology. The present age and condition of the Peel Living housing stock presents an opportunity to replace old and inefficient equipment with more efficient equipment. Peel living staff continues to look to high-efficiency equipment for space heating and hot water heating on a portfolio-wide basis as a best practice. The Canada-Ontario Affordable Housing Renewable Energy Initiative (REI) (2009) provided funding for Peel Living to install solar technology in five projects. Hillside, Ridgewood and Wedgewood are now using solar power to heat their domestic water. Savings in energy consumption are being monitored. Derrybrae and Erindale have photovoltaic systems that are intended to feed electricity into the grid but are not yet operational. Peel Living has 38 electric-baseboard-heated buildings/sites. (A list of sites with electric baseboard heating is set out in Appendix B.) The higher cost to heat these buildings, resulting from the higher cost of electricity as a source of energy for heating, presents both a challenge and an opportunity for Peel Living to reduce future energy costs. Currently, staff from Region of Peel Corporate Energy are preparing an investigation of the available options, that is, weighing the merits of installing more efficient electric heating machinery as opposed to changing the entire heating system. It would beneficial to have Peel Living conduct a full energy audit of its buildings. Following this there should be a cost/benefit analysis of the alternative energy retrofits/replacements possible across the portfolio and within individual buildings. CAPITAL AND MAINTENANCE SPENDING PRACTICES As noted earlier, there are challenges in working with a five-year-old BCA. Staff also indicate there were issues with the 2009 BCA projections. Staff felt that the 2009 BCA, based on visual inspections, did not reflect the true reality in some of the buildings. As a result some capital needs were not articulated by the 2009 BCA. In fact staff indicated that more intensive work to determine the efficacy of foundations and structural integrity would need to be part of the RFP requirements for the new BCA work. Staff also have come to believe that the lifecycle projections are too short and in fact systems are lasting longer than projected. Staff indicate that the most critical needs across the portfolio are now being prioritized and investigation processes have been improved more intrusive testing and processes will be put into the requirements for the new BCA RFP before it is issued. Efforts have been made more recently to fund critical needs as opposed to giving all buildings a component piece of funding annually. Procurement for work across the portfolio has also become more cost-effective as multiple site tenders are issued for items such as windows and A Financial Viability Report for Peel Living TWC Inc. July

48 Appendix I Financial Viability Consultant Final Report furnaces. Capital and maintenance oversight are becoming more integrated within Peel Living. Unit turnovers for instance and the costs associated with this work are being validated with the 2009 BCA so as to make the next BCA a more accurate reflection of projected capital costs. In other words the new BCAs will not reflect current work being done at turnover and as a result, BCA, maintenance and operations costing will be more precise. A continued shortfall of capital funding for scheduled replacement of assets would pose challenges across the portfolio, including: deferral of replacements may eventually result in more emergency failures and unscheduled outages; emergency/unforeseen critical repairs are more expensive than pre-planned and scheduled work, due to after hours work and limitations in obtaining competitive bids during emergency work opportunities to enhance methods for innovation/code improvement may also be lost; opportunities for economies of scale through more preventative approaches may also bypassed. BCA NEEDS AND PER-UNIT COST As an additional metric, the consulting team determined a per-unit cost of future capital repairs for each site/building as BCA data was available. As noted earlier, the reliability of the projected BCA data is an issue until an update of these figures is calculated once the BCAs are updated in the fall of From there are two buildings that have expected per unit capital costs over $56,000. Appendix A lists the buildings with the highest capital expenditures needed through to On average unit BCA costs across the portfolio in the period were approximately $2,300 per unit/year. A Financial Viability Report for Peel Living TWC Inc. July

49 Appendix I Financial Viability Consultant Final Report Chart 14 (The X axis lists the various projects, not identified here by name.) A Financial Viability Report for Peel Living TWC Inc. July

50 Appendix I Financial Viability Consultant Final Report 3.4 Future Directions Building Conditions and Capital BUILDING CONDITION SHORTFALL Future Needs 1. According to the 2009 BCA there are significant capital renewal requirements for the next ten years ( ) as Chart 14 on the previous page indicates. When comparing 2009 projected BCA costs to the Capital Plan by building for the next 10 years there is a projected capital shortfall (over and above the planned expenditures of $14 million annually) of over $60M for the portfolio as a whole. These figures will need to be updated upon the completion of the 2014 BCA in order to fine tune the amounts of capital needs expenditures. 2. Based on a revised FCI index with revised and validated 2014 BCA data approximately $20 million annually would be required to maintain the portfolio in good condition at an FCI of 5%. These annual amounts include the funds required to eliminate the current deferred unmet BCA needs from 2009 to In sum, the recent FCI analysis concludes that Peel Living must spend $20 million annually ($2,800/per unit) from 2015 through the foreseeable future. FINANCIAL OPTIONS FOR CAPITAL REPAIRS/CAPITAL EXPENDITURES There are significant financial challenges with the funding of needed capital repairs. Assuming Peel Living has a goal of eliminating the back log and keeping up to date on addressing capital needs there are three major options to consider for paying for such work: A. Continue with the current practice of making annual contributions to and withdrawals from an annual reserve. B. Pay-as-you-go on an annual basis (this is the approach Peel Living has been moving towards). C. Borrow against the portfolio asset and cash flow (with the backing of the Region) to carry out the work and then pay off the debt as part of a long-term asset-management strategy. Since current reserves are practically exhausted (or will be shortly), option A is essentially impractical. The size of the contributions and withdrawals would match, rendering the concept of a reserve redundant, and making this option look essentially the same as Option B. Option B is also problematic. Current contributions to capital reserves are approximately $5 million annually. Applying this to the required $20 million identified above as the 2015 requirement would leave a shortfall of approximately $15 million. This shortfall could not be addressed without a significant contribution of funds from the Region. In fact, the implication of the annual capital needs figure is that an immediate and permanent increase of between $15 A Financial Viability Report for Peel Living TWC Inc. July

51 Appendix I Financial Viability Consultant Final Report million and $20 million in Regional subsidy over current annual projections would be required. The impracticality of Options A and B thus require a focused investigation of Option C, borrowing for current needs with repayment coming from future cash flow. Here is one approach, presented for discussion purposes. Let us assu e the fu ds a e o o ed i t a hes e ual to fi e ea s o th of apital eeds, minus the amounts that had already been planned to be contributed to capital. Thus, over the next 25 years, the borrowing would be: Table 2: 25-Year Borrowing Plan (Example for Discussion) Tranche Year Amount $75,000, $84,000, $93,000, $97,000, $97,000,000 Total $446,000,000 For each tranche, repayment amounts are calculated based on the following assumptions: It will not be possible to spend all of the tranche in the first year, so assume the actual borrowing and spending takes place over the first three years of the five years. Thus, funds would be advanced on an interest-only basis till the entire tranche had been used up. At that point, P&I payments would begin. The current Infrastructure Ontario rate for lending to municipalities is 3.66% on a 25-year amortized loan. Assuming a slightly more conservative rate of 3.75% both for the interest-only time and the amortization period, the cashflow for the first tranche would be: Table 3: Cash-flow for First Tranche of Capital Borrowing Year Funds Advanced ($25.0 m.) ($25.0 m.) ($25.0 m.) Interest-Only $0.3 m $1.2 m $2.2 m. Payment P&I Payment $4.66 m $4.66 m Total Payments $0.3 m $1.2 m $2.2 m. $4.66 m. $4.66 m The payments of $4.66 million would continue for the following 23 years. The process would be repeated every five years, with the principal amount for each tranche being as shown in Table 2. Of course, the remaining P&I payments from previous tranches would still have to be made till each one was retired, so the overall payment flow would be as follows: A Financial Viability Report for Peel Living TWC Inc. July

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54 Appendix I Financial Viability Consultant Final Report the 2014 BCAs is analysed. 4. Social Return on Investment (SROI) 4.1 SROI Introduction Social return on investment refers to the social, health, quality-of-life and related benefits of program activities, and to measuring these in specific, detailed, financial terms. Measuring social return on investment is seen as having potential to help sustain public support for social housing by demonstrating the alue of Peel Li i g s ole a d se i es. It is also seen as a basis for future social finance and impact investing (see explanation below) in Peel Living. This summary is intended as a preliminary foundation for SROI in Peel Living pointing to initial steps down a path that will take many months and years to develop comprehensively. This SROI section summarizes the following matters, following this introduction. Fuller information on SROI is in Appendix C. Identifying the main social outcomes of housing an essential foundation for SROI Measuring S OI i Peel Li i g o t o pilot i di ato s Next steps on SROI in Peel Living With social housing no longer funded as part of a federal-provincial social safety net, and instead supported at the municipal level, it is important to demonstrate the local social benefits of social housing and the fiscal benefits in terms of savings on other costs. SROI is expected to support Peel Living s dual mandate in quality housing and opportunities for success for tenants. Peel Li i g s i te est i OI efle ts rising interest at Peel in measuring outcomes: for example, Human Services systematically measured social return on its homelessness programs, and Peel Living has measured the value of new affordable housing (see references in Appendix A). 4.2 Social Outcomes of Housing: Main Dimensions Research literature points to several main categories of outcomes of housing, at three scales. This su a is ased o the o sulta t s fa ilia it ith the esea h lite atu e o health, social and economic outcomes of housing sometimes called non-shelter outcomes. (The scope of work did not include a detailed literature review.) Appendix C provides a brief elaboration of each of the following, as well as references to some main research sources. A Financial Viability Report for Peel Living TWC Inc. July

55 Appendix I Financial Viability Consultant Final Report Table 5: Main Dimensions of Social Outcomes of Housing A. Individual and family outcomes 1) Physical health 2) Mental health and general well-being 3) Employment and income 4) Educational outcomes 5) Material well-being 6) Outcomes for vulnerable social groups 7) Outcomes for children and youth B. Neighbourhood & local community outcomes C. Broader societal and economic outcomes 13) Economic multipliers 14) Program costs, cost avoidance, and other fiscal impacts 15) Energy and the natural environment 16) Income inequality and related inequities 17) Conditions and opportunities for disadvantaged social groups 18) Urban form and structure 8) Community connectedness, social capital 9) Social integration/mix in neighbourhoods 10) Safety and security 11) Neighbourhood characteristics 12) Local services 4.3 Pilot Measurements of SROI, and Next Steps The following summarizes the estimated social return at a portfolio- ide le el o t o pilot SROI indicators. Appendix C provides these at a site-specific level. Table 6: Total Value of SROI Outcome Measure Estimated Value in Peel Living Value of RGI i.e. increased household disposable income and therefore $36.5 million ( annual) purchasing power in the local community Multiplier effects of Peel Living capital repair expenditure. Job generation: 600 person-years (actual capital ); 810 person-years (capital requirements ) NEXT STEPS ON S.R.O.I. FOR PEEL LIVING The consultants reviewed the various categories of social outcomes, and specific variables, with feedback from Peel Living staff. They were assessed in terms of (a) how measurable the variable or type of outcome is, and (b) the most feasible measurement approach in Peel Living. A Financial Viability Report for Peel Living TWC Inc. July

56 Appendix I Financial Viability Consultant Final Report The types of outcomes variables were grouped into the following categories in terms of next steps on measurement. This is an initial sorting and is expected to require further refinement. Peel Living pursue as a priority for measurement on a pilot basis Peel Living take steps to make fuller use of operational / administrative data Peel Living consider an expanded tenant survey to obtain data Explore measurement in collaboration with other Peel departments and services, and/or with other funders of community services Pursue research partnerships (usually applies to more complex health and social outcomes) Table 7: Next Steps on SROI Residential stability (avoiding eviction / involuntary moves) Value of RGI as household disposable income & local purchasing power Outcomes for vulnerable groups, e.g. homeless and/or frail elderly Economic multiplier of capital repair expenditure Income trajectory of individual tenant households Rent arrears Employment status Housing quality (need for major repair) Car ownership Enrolment in adult education and computer ownership at home Sense of community connection o ial suppo ts a d eigh ou i g Effects of social housing on overall segregation by income Effects of social housing on overall segregation by ethnoracial group Overall mix of housing tenure and price Incidence of violent crime and of property crime Gang activity or drug-related violence Immigrant settlement services, child care, and Youth programs/recreation Delivery of targeted social programs to disadvantaged populations Homelessness prevention programs and Emergency shelter programs Social assistance costs Assessment base and property tax revenue Effect on overall access to better schools, for disadvantaged families Effect on overall incidence of high shelter/income ratios, etc. Hospital costs Seniors support services, long term care costs, and assisted living costs Residential energy consumption per household or per person Energy use embodied in construction and repair materials Hydrocarbon consumption and greenhouse gas emissions The following next steps are suggested as ways for Peel Living to make itself best prepared for fuller measurement and use of social impact measurement and social return. a) Internal Process Establish a working group (about 6 to 12 staff with research and operational knowledge) from Peel Living and relevant Peel departments, to carry SROI forward. Establish an executive liaison group to provide strategic decisions and resource support. Communicate to tenants about the processes, at suitable points as SROI moves forward. A Financial Viability Report for Peel Living TWC Inc. July

57 Appendix I Financial Viability Consultant Final Report b) Clarifying Goals Critically review the initial analysis undertaken in this report, and revise and refine the suggested directions as appropriate. Determine the priority SROI areas for purposes of sustaining public and political support. Move toward clarifying the aspects of SROI that may be most relevant to potential impact investing, bearing in mind that specific measures for that purposes will need to be developed in partnership with potential lenders or intermediaries. Ascertain the evolving goals of key potential research partners (e.g. Public Health, some academics, LHINs) and clarify what potential common interests and priorities may exist. c) Data and Indicators Confirm what administrative/operational data is most relevant to the SROI priorities of Peel Living and is also feasible to record, track and extract for SROI purposes. Establish IT and operational procedures to support SROI use of admin/operational data. Consider in more detail the costs and benefits of undertaking a tenant survey, possibly in partnership, that may help track key social outcomes data on a longitudinal basis. Explore potential to use support agency data to measure outcomes for vulnerable tenants. (Some agencies may already compile data for their own service management for reporting to the LHIN, which could also help measuring social impacts of housing). A Financial Viability Report for Peel Living TWC Inc. July

58 Appendix I Financial Viability Consultant Final Report d) Process and Partners Participate in provincial processes regarding social housing tenant surveys, with special emphasis on suitable control groups such as low-income tenants in market rental. Investigate the possibility of research partnerships with bodies that are well-equipped to undertake research on health and social outcomes and may be interested in partnership arrangements with Peel Living. In particular, these may be: o Peel Human Services o Peel Planning Department o Public Health o Local Health Integration Networks o Academic researchers Make contact with the MaRS Centre for Impact Investing to explore common interests, potential resources, and frameworks of analysis, and to link to up-to-date information. 5. Analysis of Sites 5.1 Introduction and Evaluation Matrix From the direct observations made of the sites, from the analysis of the planning rules, the existence of a variety of services, and from analyzing operating costs and capital needs, a matrix of all 66 sites was created ranking the sites on a number of criteria using scores. The matrix is listed in Appendix A. While the rankings assigned are kept simple, they provide a helpful tool to consider the properties individually in giving direction to Peel Living in how to approach each site in future years. For example, if the evaluation matrix shows that a site: is significantly below the density permitted by municipal planning rules. has a poo FCI ati g, a d/o sig ifi a t apital epai osts to e u dertaken in the next five years. has higher-than-average operating costs. is walking distance to higher-order transit. then it is likely that this site is a prime candidate for redevelopment. Or, If the evaluation matrix shows that a site: is at its maximum density according to municipal planning rules and the surrounding neighbourhood has similar or lower density than the Peel Living site; A Financial Viability Report for Peel Living TWC Inc. July

59 Appendix I Financial Viability Consultant Final Report has lower-than-average operating costs; is easy to rent up and is close to many services and higher-order transit; then it is likely that the site has the potential to increase the market rents to help with the overall revenue stream of Peel Living. The matrix scoring does not line up perfectly as a predictor of actions for sites to be redevelop. For example there are some sites which have relatively low capital expenditures planned in the next five years (a low score for redevelopment potential) and would need Official Plan amendments (also a low score in redevelopment potential) but have underutilized land and are located on major transit corridors. While not all of the Peel Living sites can be so neatly defined (a number of sites could fit in more than one of the five classifications), the study has created typologies to guide Peel Living with an assessment of the predominant types of sites and to help provide direction for future actions that ill p o ide opti al st ategies a d help e su e Peel Li i g s lo g te fi a ial ia ilit. A Financial Viability Report for Peel Living TWC Inc. July

60 Appendix I Financial Viability Consultant Final Report 5.2 Typology of Sites Our study has suggested a Typology with five classifications for Peel Living sites based on key variables, such as: under-utilization of the land; ease of renting and proximity to key amenities such as transit, employment and retail/services, and therefore the ability to potentially raise market rents; need for repairs; energy efficiency; and need to improve social mix. The five classifications are: 1. Full site redevelopment. Variations within this could include: Peel Living redevelops and operates the whole site; Peel Living sells a portion of the site to a private developer and redevelops part of site itself; and Peel Li i g sells all of site, uses e e ue to epla e lost u its at a othe Peel Li i g site. 2. Intensify or add housing to existing site while preserving all or most of existing buildings. Variations within this include: Peel Living adds to existing building/complex and operates entire development; and Peel Living sells/long term leases a portion of land to private or other developer. 3. Increase operating revenue through increased market rents in good locations. 4. Upgrade physical state of building and/or possible energy upgrades. 5. Change market/rgi mix when it is seen to help with social issues CLASSIFICATIONS OF 66 SITES IN 5 TYPOLOGIES The following charts show the breakdown of Peel living sites by typology classifications then the number of units per classification: A Financial Viability Report for Peel Living TWC Inc. July

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62 Appendix I Financial Viability Consultant Final Report Chart A.1 in Appendix A has a full list of what sites fall into which primary category, noting that some of the sites will have primary classifications but could also have a secondary focus (for example building could have a primary focus on undertaking capital repairs but should also adjust the RGI/market mix). The typology classifications link into a number of key objectives in the long-term financial viability. The 20 sites with a focus on increased revenue through higher market rents will help moderately improve the rate of increasing market rent from the base assumption of 1.8%. The 29 buildings with a focus on the physical state of the buildings will see some improvements in some buildings at good lo atio s, hi h ould the o e the i to a lassifi atio of increasing rental revenue. A significant number of these 29 sites would have a major focus on capital work related to potential energy upgrades, reflecting the significant number of sites with electric baseboard heating. The five sites to be fully redeveloped should see a significant reduction in energy consumption costs (four of the five sites have electric baseboard heating) helping with the long-term financial viability of Peel Living. In newly redeveloped sites there would be many energy efficient options for Peel Living to consider including higher levels of insulation, use of solar energy to heat hot water or generate electricity, or geothermal heating. The five sites to be redeveloped also bring potential to have a moderate decrease in planned capital expenditures as these five sites have planned capital expenditures of $2.43 million in the next 1-5 years and a further $2.97 million in the subsequent 5-10 years. If redevelopment goes ahead, most of these expenditures will not be required, therefore lessening the required capital expenditures. 5.3 Redevelopment and Intensification of Existing Peel Living Sites As set out in the above typologies, there are five of Peel Living sites recommended for redevelopment as well as six recommended for intensification. Both redevelopment and intensification of sites can be a lengthy process often lasting five years in some cases. While the process of redevelopment can be long and detailed, there can be a significant number of positives to redevelopment: Replacing older stock in need of significant capital repairs with new energy efficient housing A Financial Viability Report for Peel Living TWC Inc. July

63 Appendix I Financial Viability Consultant Final Report Replacing walk-up units with new accessible housing The potential to increase the number of affordable units in a community The potential to mix more market housing with social /affordable housing on some Peel Living sites The potential to support more efficient use of existing municipal infrastructure through more intensive use of sites There are some very significant challenges as well in moving ahead with redevelopment: The municipal planning approvals process (most sites looking to redevelop would require at least a rezoning and in some cases an Official Plan Amendment) typically involves 1-2 years even if there is strong municipal planning staff support for the proposed redevelopment/intensification. Ministerial Consent from the Ontario Ministry of Municipal Affairs and Housing, with support from the Region of Peel as Service Manager for any demolition of exiting units is required. A full business case, highlighting a tenant relocation plan, would be required. Only Region of Peel consent is required if there is an addition/intensification which does not demolish any units. The capital funding required to replace units or add additional Peel Living units is significant, likely close to $200,000 per unit. It is assumed that Peel Living would not be reducing its total number of housing units in a redevelopment plan (even if the replacement units are built at a different location). While there can be some significant revenue generated from the sales of land from its sites (estimates range from $15- $20,000 per unit for multi-residential land sales but could be in the $20- $25,000 per unit range for sites close to higher-order transit nodes) it should be assumed that unless there is a conscious decision to reduce the number of Peel Living units, that there will not be any net revenue to Peel Living from the sale of land to potential private-sector developers because that revenue would need to be reallocated to the cost of replacement units. There have been recent examples where Toronto Community Housing (TCH) has tried to maximize revenue by, in addition to payment for land, negotiating with the developer a percentage of the sales price of new condominiums when they are being proposed as part of the redevelopment. This is an approach Peel Living could explore to help it maximize the revenue from redevelopment but it would not be as financially significant as the revenue to be derived from land sales. A Financial Viability Report for Peel Living TWC Inc. July

64 Appendix I Financial Viability Consultant Final Report While land sales revenue and municipal assistance through offsetting grants for development charges and fees can be an important help to new affordable housing development, it is likely that any significant replacement of units would require capital assistance through Federal and Provincial government housing funds. There have been Federal and Provincial government announcements of a five-year extension of the Canada-Ontario Investment in Affordable Housing Program in both the Federal and Provincial budgets of 2014, although it will likely be late summer or early fall before full program details, including the amount of funding allocated specifically for the Region of Peel, are made known. In the recent Toronto Community Housing redevelopment at Regent Park, for example, Federal- Provincial investment in Affordable Housing program funds were required in order to make the replacement of the existing TCH units financially viable. Studies looking at older social housing stock in other municipalities (Waterloo Region, Kawartha Lakes and Niagara Region), indicate that unless units are sold for market value (i.e. converting to ownership housing), rather than being demolished, there will need to be significant additional capital funding from sources such as Federal-Provincial housing programs or other outside sources of significant capital funding in order to create new affordable housing which can replace the existing social housing. In general, the sale of Peel Living sites with a significant number of units (over 40) will not produce enough revenue from land sales to offset the costs of replacing those units. Significant issues in redevelopment related to working with existing Peel Living residents as well as partnering with the private sector are explored further in Appendix B. A Financial Viability Report for Peel Living TWC Inc. July

65 Appendix I Financial Viability Consultant Final Report 6. Strategic Directions and Recommendations Strategic Choices and Opportunities for Peel Living Looking into the next decade and beyond, Peel Living faces significant financial opportunities, some challenges, and major strategic choices as a result. The opportunities are created by two factors. First are real estate opportunities, as Peel Region continues to grow and becomes more diverse, dense, and strategically located in the Greater Toronto housing market. Second is the flexibility arising from expiry of project agreements for the 21 sites (containing about one third of Peel Living units) funded under the Sec. 95 federal housing program. The main challenge is aging buildings. For most Peel Living properties, this creates a need for ongoing capital repair expenditure to keep them in good condition. A second challenge is that like all social housing in Canada Peel Region as service manager and Peel Living will experience a sharp decline in annual federal subsidies over the next decade, tapering to zero by 20 years from now. This leaves Peel Region with sole responsibility for providing capital and operating subsidies after that point. This will reinforce the need for Peel Living to reduce the egio s su sid u de o t olli g ost i eases a d a i izi g i o e while continuing to provide good service to its residents. Other large housing providers in Ontario are dealing with similar issues of capital repairs and have taken new approaches. Ottawa Community Housing, for example, has a larger portion of older public housing stock than Peel Living and has focussed on borrowing on a portfolio wide basis as a means of financing some of its capital repair backlog. Toronto Community Housing has also taken an approach of borrowing on a portfolio wide basis in order to support part of its redevelopment work (which eliminates capital repair backlogs in the units being redeveloped) as well as borrowing to undertake some capital repairs. The financial projections indicate clearly that there will be an ongoing need for operating subsidy to allow Peel Living to remain financially viable. This operating subsidy is projected to rise at less than the anticipated rate of inflation, meaning the cost in constant dollars to the Region is expected to decline (as shown on Chart 10). However, significant additional subsidies will be needed to pay for required capital repairs. As discussed in Part 3, two of the options that might normally be open to social housing providers and their funders will not be viable in Peel in future: covering all required work on a pay-as-you-go basis; and reserve fund contributions and withdrawals. The most viable scenario A Financial Viability Report for Peel Living TWC Inc. July

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67 Appendix I Financial Viability Consultant Final Report The latter would give enough time for operating efficiencies, decisions around sale or redevelopment of sites or even future grants by senior governments (if any) to take effect and improve the bottom line. In broad terms, the borrowing scenario achieves a long-term financial impact that is much better aligned with gradual annual increments in subsidy. The pay-as-you-go scenario creates very large financial impacts over the next decade (approximately ) before mortgage debt service and associated operating subsidy requirements have fallen to lower levels. Note once again that Chart 19 uses data from the base case. If manageable costs were to be controlled at levels below the base case of 3% annual inflation, or if market rental income were to rise at a faster rate than the projected 1.8% annually, then the fiscal pressure on the region would be correspondingly less. Chart 20 shows the potential effect of two other scenarios apart from the base case, either increasing rents to track cost increases more closely or reducing the annual increase in manageable costs. A Financial Viability Report for Peel Living TWC Inc. July

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69 Appendix I Financial Viability Consultant Final Report faster rates than incomes and rents), so future performance that exceeds the assumptions would have the direct effect of reducing the demand for Regional subsidy. Another key direction for Peel Living is looking at redevelopment and regeneration involving a number of its existing sites. Development opportunities exist on various Peel Living sites. These have arisen as buildable densities change over time as due to changes in real estate market, planning norms, the introduction of rapid transit, and as buildings age and project funding/legal agreements expire. And on a few sites there are obsolescent buildings, such as older walk-up apartments. Several sites are good candidates for overall redevelopment, which could be carried out in various ways by Peel Living or in partnership with private-sector developers. This could result in an increased number of affordable rental units; new lower-maintenance, energyefficient buildings; more mix of income and tenure; or financial proceeds from sale or lease of parts of sites which can enhance the overall redevelopment or operational goals of Peel Living. (Also, if it were decided to demolish some buildings, Peel Living could decide to cancel any capital work already planned for them.) Finally, some sites are good candidates for intensifying the use while retaining all or most of the existing buildings. All this points to the strategic importance of the relation between Peel Region and its armslength agency, Peel Living. Decisions may be needed on whether RGI subsidy should continue to be funded in the existing three forms. To manage the financial pressures of the next 5 to 10 years will require a financial strategy between the Region and Peel Living. Options for funding or financing capital repairs may involve the Region either as funder or as the key to getting favourable interest rates from Infrastructure Ontario or private lenders. Progress on measuring Social Return on Investment (SROI) will depend on research partnerships, including the Regional Human Services, Public Health, and Planning Departments. Redevelopment may generate sale or lease revenues but will not easily pay for itself: it is likely to require Regional funding, or Regional allocation of federal-provincial program funds, or a Regional role in facilitating private financing. A Financial Viability Report for Peel Living TWC Inc. July

70 Appendix I Financial Viability Consultant Final Report Recommendations Operations 1. Peel Living should pursue a strategy of raising market rents in advantageous site locations, in order to maximize market rent revenues. Various Peel Living sites are well located: close to good transit and highways, with shopping, schools, employment and other services nearby. Market rent units are readily rented out. As operating agreements expire, a ket e t u its a e set at Peel Li i g s dis etio. (Sitting tenants are covered by the Residential Tenancies Act limits.) In support of this strategy, Peel Living should undertake a market study of rent levels in key neighbourhoods where opportunities to increase rents may exist. 2. Peel Living should attempt to set targets for increases to manageable costs that take into account the three-year rolling average of the provincial rent guideline (and explore the creation of operational benchmarks with similar large scale non-profit housing corporations in Ontario), in order to reduce as much as possible the need for municipal subsidy. 3. Peel Living should analyse the options, legal aspects, revenue implications and social impacts of switching from the current RGI scale to a shallow flat-rate housing allowance subsidy for some share of its units, when operating agreements expire. This option has the potential to provide assistance to needy households in ways that improve the revenue situation of Peel Living. Analysis would be required, and this option would also involve related decisions by Peel Region as service manager. Capital 4. Peel Living should ensure that the Building Condition Audits planned for 2014 include more intrusive testing of its buildings; and that FCI ratings and capital budget planning for each site should be updated upon the completion of these new BCAs. 5. Peel Living should undertake an energy and water audit in co-operation with the Region, to identify upgrades providing the best payback and restraint of utility costs, and including review of lessons from recent retrofit work by Peel Living or other providers. 6. Peel Living should systematically examine options, including longer term borrowing, to pay for the additional $60 million in additional capital expenditures (over and above the planned annual $14 million) required by 2024, on a portfolio-wide basis. A Financial Viability Report for Peel Living TWC Inc. July

71 Appendix I Financial Viability Consultant Final Report Multi-year funding for capital work should be on a portfolio-wide basis, not a projectspecific basis. Options may include: use of reserve funds; financing (borrowing) for capital work with the loans repaid from operating surpluses; more capital work from current operating revenue; Regional capital funding; or other options. Enhanced capital work is required in the near term ( ) and will exceed the projected operating surpluses until the longer term when more mortgages are paid off. Hybrids of these options may be suitable. The $60 million is an approximate estimate, pending completion of the 2014 BCAs. 7. Peel Living should undertake future financial feasibility updates every five years, using data from updated BCAs as these are carried out from time to time. Redevelopment and Intensification of Sites 8. Peel Living should select two full redevelopment sites and one intensification site in late 2014 and proceed with a feasibility analysis and the creation of a business case in The feasibility analysis and business case will identify specific costed development options. The approach to working with existing tenants is integral in this work. It is also likely to require discussions with the Region of Peel regarding funding from the federal-provincial Investment in Affordable Housing (IAH) program or regional resources. In support of this activity, Peel Living should apply for CMHC seed funding and subsequently CMHC Project Development Funding (PDF) to help offset the costs of this predevelopment work. Social Return on Investment 9. Peel Living should take initial steps to establish capacity to measure social return, as set out in this report. Measuring social return requires research capacity and research partners. The suggested steps include establishing a working group and executive liaison group; reviewing the initial analysis undertaken in this report and refining the directions; confirming the suggested priority areas for SROI measurement; making better use of operational data for SROI and considering an enhanced tenant survey; and investigating potential research partnerships. Financial Relation of Peel Living to Peel Region 10. Peel Living should review the implications of this report as they affect its overall financial relationship to Peel Region; determine a preferred future relationship in collaboration with the Region as service manager; and take related transition steps. A Financial Viability Report for Peel Living TWC Inc. July

72 Appendix I Financial Viability Consultant Final Report Key elements of the financial relationship include or potentially include: the decline over the next few years in existing funding under the Housing Services Act; ongoing Regional funding for the PRHC portion of the portfolio; and overall commitment to a 2 percent annual increase in Regional funding; a Regional role in funding or financing of capital repairs; a Regional role in funding regeneration or infill development; any adjustments to RGI or rent supplement funding; and other matters. Implementation of Report 11. Peel Living should pursue different priorities for each site, along the lines of the typology presented in this report Based on the analysis in this report, the typology identifies potential actions and needs in the categories redevelopment, infill, raising market rent revenues, adjusting RGI/market mix, and upgrading the physical state of buildings. This provides an integrated set of strategic priorities reflecting the issues and potential on each site. A Financial Viability Report for Peel Living TWC Inc. July

73 5.2-1 REPORT Meeting Date: Peel Housing Corporation For Information DATE: September 17, 2014 REPORT TITLE: FROM: 2013 PEEL HOUSING CORPORATION INVESTMENT REPORT David Bingham, Treasurer, Peel Living OBJECTIVE To provide the annual results of investment activity in accordance with the investment policy adopted by the Board in the report of the Treasurer, Peel Living, titled Investment Policy dated March 27, REPORT HIGHLIGHTS At December 31, 2013, Peel Housing Corporation (PHC) had holdings totaling $25.3 million, $22.8 million cash invested by the Region of Peel and $2.5 million invested in Social Housing Investment Fund (SHIF) pooled funds. The cash portion received the Region s earnings rate that averaged 3.3 per cent in The SHIF Canadian Bond Fund returned an annualized 4.8 per cent rate of return from the initial investment in September 2007 to redemption in October The SHIF Canadian Equity Fund as at December 31, 2013 had an unrealized annualized return of 2.2 per cent since the initial investment. In keeping with the governance review by the Peel Living Financial Viability and Governance Review Task Team and the Investment Policy, this update is provided directly to the Board instead of its traditional inclusion in the Region of Peel s annual Treasury Report. The Investment Policy has provided sufficient flexibility to generate good overall returns during volatile economic periods and therefore does not require updating at this time. DISCUSSION 1. Background At the April 19, 2007 Peel Housing Corporation Board meeting, the Board adopted the Investment Policy for Peel Living and authorized the Treasurer to utilize all pooled investment funds of Social Housing Services Corporation Financial Inc. (SHSCFI) in accordance with specified limitations to supplement the investment activity performed on behalf of the Corporation by the Region of Peel. The Investment Policy report noted that at the end of 2006, the corporate cash balance was $39 million, made up of $31.7 million in reserves and $7.3 million in working capital. In September 2007, Peel Housing Corporation (PHC) invested $5 million in the Social Housing Investment Fund (SHIF). The $5 million was used to purchase $2.5 million of the Canadian Bond Fund and $2.5 million of the Canadian Equity Fund. 73

74 5.2-2 September 17, PHC INVESTMENT REPORT Under the terms of the Social Housing Reform Act (SHRA) the province established the then titled Social Housing Services Corporation (SHSC) (now Housing Services Corporation HSC) to manage the pooled funds from replacement reserve balances of all eligible housing providers in Ontario. With the exception of Peel, Ottawa and Toronto, all prescribed housing providers were mandated to participate in this pooled investment program. Participation for the three exempt providers was optional. Social Housing Services Corporation Financial Inc. (SHSCFI) was incorporated in September 2002 to manage, on behalf of now HSC, the pooling of capital reserve funds for prescribed providers as required under section 141(b) of the Social Housing Reform Act. This organization is registered with the Ontario Securities Commission and is subject to regulatory oversight in its role as an investment fund. SHSCFl's daily investment activities are conducted by Phillips, Hagars and North (PH&N). Oversight of PH&N is conducted by SHSCFl's board of directors. At the end of 2013, PH&N was managing in excess of $450 million for SHSCFI in three separate product lines: Canadian Short-Term Bond Fund (1 to 5 Year Horizon) Canadian Bond Fund (5 to 7 Year Horizon) Canadian Equity Fund (Beyond 7 Year Horizon) The Canadian Money Market Fund was merged into the Canadian Short-Term Bond Fund after the 2008 economic downturn. PHC s remaining cash balances have been automatically pooled into the Region's own General Fund investment portfolio. Peel Living has been attributed the same earnings rate as has been earned by the broader Peel portfolio. 2. Overview of PHC Holdings The $31.7 million in reserves at the end of 2006 had declined to $8.6 million at the end of Of this, as forecast in the 2007 Investment Policy report, replacement reserves have declined from $24.5 million at the end of 2006 to $1.6 million (after Region of Peel loan) at the end of Working fund reserves, with the drawdown in late 2013, had a year-end balance of $6.1 million, down from $6.9 million at the end of Working fund reserve amounts are balanced with replacement reserves based on discussions with the Service Manager. The balance of Peel Living s holdings consisted of working capital that had ranged from average monthly balances of approximately $5 million to $17 million throughout the year. As noted in the following table, at year end, of the total holdings of $25.3 million, $22.8 million was invested with the Region of Peel and the balance with SHSCFI. 74

75 5.2-3 September 17, PHC INVESTMENT REPORT Dec. 31, 2013 Available Pooled Funds SHIF - Canadian Short-Term Bond Fund - SHIF - Canadian Bond Fund $697 SHIF - Canadian Equity Fund $2,500,000 Total SHIF $2,500,697 Region of Peel $22,826,099 Total Funds $25,326,796 From the time of the original investment in the SHIF funds in 2007, the rates of return on the balances varied as noted in the graph below. Funds held with the Bond Fund fluctuated between -1.1 per cent in 2013 and 8.5 per cent in The returns for the Equity Fund experienced volatile fluctuations with the largest occurring during the 2008 economic downturn. The Region of Peel s earnings rate provided a more consistent rate of return ranging from 3.3 per cent to 4.8 per cent with overall rates of return declining since 2007 due to lower interest rates. 75

76 5.2-4 September 17, PHC INVESTMENT REPORT a) Funds held in SHIF - Canadian Bond Fund The investment policy imposes a limit of $5 million in the long term bond fund. In October 2013, $3.3 million of the fund was redeemed with a realized annualized return of 4.8 per cent. Purchased Sept Redeemed Oct Total Earnings Annualized Rate of Return Canadian Bond Fund $2,500,000 $3,305,403 $806, per cent b) Funds held in SHIF Canadian Equity Fund The investment policy imposes a limit of the lessor of 10 per cent of the reported Equity Fund balance and $5 million. At December 31, 2013, the Equity Fund had a balance of $90.2 million (10 per cent equivalent to $9.0 million) and the initial PHC investment was $2.5 million. PHC s total market value of this holding at year end was $2.9 million. Purchased Sept Market Value Dec. 31, 2013 Unrealized Earnings Annualized Rate of Return Canadian Equity Fund $2,500,000 $2,860,336 $360, per cent c) Funds held with the Region of Peel The investment policy states that a minimum of 25 per cent of the PHC cash portion must be maintained with the Region of Peel. In addition to the SHIF investments, at year end, PHC held $22.8 million with the Region. The Region s earnings rate (monthly General Fund investment rate less administration fees) was applied to PHC s average monthly cash balances (ranging from $11.1 million to $22.1 million in 2013), and for the year averaged 3.3 per cent or interest earnings of $562,000 for Peel Living. More information regarding the Region of Peel General Fund can be found in the report entitled 2013 Treasury Report presented to Region of Peel Council on September 11, Region of Peel General Fund earning rate on varying monthly balances ( ) Annualized Rate of Return 4.0 per cent 76

77 5.2-5 September 17, PHC INVESTMENT REPORT CONCLUSION PHC s Investment Policy allows for an effective and efficient investment management operation that provides the flexibility to adjust investments to the Corporation s changing fiscal condition while providing opportunities to supplement returns earned on behalf of the Corporation by the Region of Peel. David Bingham, Treasurer, Peel Living Approved for Submission: D. Szwarc, Chief Administrative Officer For further information regarding this report, please contact David Bingham, Treasurer Peel Living, 4292, dave.bingham@peelregion.ca. Authored By: Debbie Williams, Region of Peel, Treasury Reviewed in workflow by: Financial Support Unit 77

78 5.3-1 REPORT Meeting Date: Peel Housing Corporation For Information DATE: September 17, 2014 REPORT TITLE: PROCUREMENT ACTIVITY SEMI-ANNUAL REPORT JUNE 30, 2014 FROM: M.S. Mwarigha, General Manager, Peel Housing Corporation OBJECTIVE To provide details of procurement activity as required by the new Purchasing By-law for the period January 1 to June 30, 2014 in order to maintain trust, confidence and transparency in the stewardship of public funds and the Region s Purchasing program. REPORT HIGHLIGHTS The Peel Housing Corporation Board adopted the use of the new Purchasing By-law in January The Purchasing By-law delegates staff to manage the procurement process and to report these activities to the Board on a regular basis. The Peel Housing Corporation awarded four new contracts greater than $100,000 with a total value of $1,208,059 for the period January 1 to June 30, 2014 using competitive processes. The Peel Housing Corporation awarded one new contract in the total amount of $250,000 in the same period using the non-competitive (Direct Negotiation) process in order to retain required security services at various Peel Living locations until the new contract for security services was issued to market and awarded. This report provides a summary of the Peel Housing Corporation s procurement activity for the period January 1 to June 30, DISCUSSION 1. Background In accordance with the new Purchasing By-law, the Director of Purchasing is providing the first semi-annual report to the Peel Housing Corporation Board summarizing the Corporation s procurement activity as follows: Contract Awards Emergency Purchases Awards during Board recesses Non-compliance with the By-law Unforeseen circumstances Final contract payments related to the original purchase contract 78

79 5.3-2 September 17, PROCUREMENT ACTIVITY SEMI-ANNUAL REPORT 2. Definitions The following definitions explain the Procurement Activity provided in this report. Competitive contracts greater than $100,000: These are contracts awarded to vendors as a result of a competitive process. Direct Negotiation contracts greater than $100,000: These are contracts awarded to vendors as a result of a non-competitive process. It refers to the negotiation of an agreement for the purchase of goods and services where there is no open competition among or between vendors. The conditions that allow for direct negotiation are outlined in Part V Purchasing Authorities and Purchasing Methods of the Purchasing By-law. Emergency purchases: These are contracts awarded to vendors in the event of an emergency. Emergency means a situation or impending situation that constitutes a danger of major proportions that could result in serious harm to persons or substantial damage to property and that is caused by the forces of nature, a disease or other health risk, an accident, or an act whether intentional or otherwise. Non-compliant purchases: These are purchases made when a department has engaged a vendor to deliver goods or services without following the procurement processes required by the Purchasing By-law. Unforeseen circumstances: These are amendments made to contracts to facilitate nominal payments for unforeseen work. For example, a contractor must remedy an unknown pre-existing site condition in order to complete the contract. The Purchasing Bylaw delegates authority to the Director of Purchasing to approve these amendments on the condition that the Board is provided full disclosure on all increases resulting from unforeseen circumstances. Final contract payments: These are amendments made to contracts to facilitate final payment to a vendor for additional work required in order to complete the contract. The final payment for the work exceeds the approved contract amount including the allowable amendment value in accordance with the Purchasing By-law. The Purchasing By-law delegates authority to the Director of Purchasing to approve these final contract payments which manages payment delays to vendors on the condition that the Board is provided full disclosure on all final contract payments. 3. Procurement Activity The table below provides a summary of the procurement activity for this period. The Procurement activity section includes information on all awarded contracts that are greater than $100,000, emergency purchases and non-compliant purchases. It also includes amendments made to existing contracts that were a result of unforeseen circumstances or were required for final payment purposes. The Procurement Activity summary excludes: 79

80 5.3-3 September 17, PROCUREMENT ACTIVITY SEMI-ANNUAL REPORT Contract renewal activity Purchasing Card activity A detailed listing of all procurement activity mentioned above is referenced in Appendix I to the subject report. Procurement Activity Total Value of Awarded Contracts Competitive contracts $ 1,208,059 Direct Negotiation contracts ** $ 250,000 Emergency purchases No Activity Non-compliant purchases No Activity Unforeseen circumstances No Activity Final contract payments No Activity ** The Direct Negotiation process was used to extend contract T for security services at various Peel Living sites with Intelligarde International Inc. for a three month period until the new security services contract was secured. Staff needed additional time to investigate different options for service requirements and to revisit the scope of work to include the options before the new contract was sent out to market and awarded. It was essential that there be continuous security services for all Peel Housing in the interim and for this reason the contract extension was requested. As per Purchasing By-Law approval levels, this report was approved by the CFO/Commissioner of Corporate Services. 80

81 5.3-4 September 17, PROCUREMENT ACTIVITY SEMI-ANNUAL REPORT CONCLUSION To maintain trust, confidence and transparency in the stewardship of public funds and the Region s Purchasing program this report is being submitted to provide a summary of Peel Housing Corporation s procurement activity for the period January 1 to June 30, 2014 in accordance with the reporting requirements set out in the Purchasing By-law # M.S. Mwarigha, General Manager, Peel Housing Corporation Approved for Submission: D. Szwarc, Chief Administrative Officer APPENDICES Appendix I: Detailed Procurement Activity For further information regarding this report, please contact James Macintyre, Director, Purchasing, extension 4302 or via at james.macintyre@peelregion.ca. 81

82 APPENDIX I PROCUREMENT ACTIVITY SEMI-ANNUAL REPORT (June 30, 2014) AWARDED CONTRACTS BID COMPETITIVELY > $100,000 Item # Document # Description Vendor Award Amount T Supply and Install Ceramic Tile for Various Peel Living Sites Shining Star General Contracting Mr Green Seal Inc. $190, T Chiller Replacement at Gardenview Court, Mississauga Vic's Group Inc $246, T Security Services for Various Peel Living Locations Intelligarde International Inc. $771, TOTAL VALUE OF CONTRACTS AWARDED BY COMPETITIVE PROCESS > $100,000 AWARDED CONTRACTS - NON COMPETITIVE PROCESS: DIRECT NEGOTIATIONS > $100,000 $1,208, Item # Document # Description Vendor Award Amount 1** N Security Services for Various Peel living Locations Intelligarde International Inc. $250, TOTAL VALUE OF CONTRACTS - NON COMPETITIVE PROCESS: DIRECT NEGOTIATIONS > $100,000 $250,

83 5.4-1 REPORT Meeting Date: Peel Housing Corporation For Information DATE: September 11, 2014 REPORT TITLE: FROM: SEMI-ANNUAL FINANCIAL REPORT - JUNE 30, 2014 (UNAUDITED) Mwarigha M.S., General Manager, Peel Living Dave Bingham, Treasurer, Peel Living OBJECTIVE To present the financial report for the six months ended on June 30, REPORT HIGHLIGHTS Current Operations The Corporation is projected to have a favourable budget variance at year-end of $1.1 million before discretionary reserve transfers representing 1.2 per cent of the total expenditure budget. Forecasted discretionary contributions to capital replacement reserves are $0.5 million higher than budget. Forecasted contributions to working fund reserves are $0.6 million higher than budget. Capital Operations Gross capital spending for the six months that ended on June 30, 2014 was $4.9 million and forecasted spending from July 1 to December 31, 2014 is $8.0 million for a total of $12.8 million. Capital spending is in line with budget. Two loan requests totaling $12.3 million for 2013 and 2014 capital work have been submitted to the Service Manager for review. Financial Control By-law There were no approvals delegated to staff under the Financial Control By-law since the December 2013 Semi-Annual Financial Report that require reporting to the Board. DISCUSSION This report summarizes the financial status of Peel Housing Corporation (PHC) for the six months ended on June 30, 2014 for current operations, capital operations and reserves and projected year end positions. 1. Current Operations Appendix I summarizes Peel Housing Corporation s Statement of Operations for the six months ended June 30, Peel Living s operations are projected to have a net favorable budget variance at year-end of $1.1 million before discretionary reserve transfer. 83

84 5.4-2 September 11, SEMI-ANNUAL FINANCIAL REPORT The projected favorable net financial position is primarily due to lower operating costs of $0.7 million and higher revenue of $0.4 million. The program expenditures are in line with previous years for all sections except Administration. The decreased expenditures of $0.7 million consist of: lower chargeback from the Region of Peel s Housing Operations and Management Services (HOMS) of ($0.1 million) lower utility, insurance and bad debt expenses ($0.8 million) offset by higher expected costs for: property taxes, depreciation related to gifted capital work from the Region, and unbudgeted loan payments to the Region for Norton Lake ($0.2 million) The higher revenue of $0.4 million is a result of: higher rental revenue due to increased market units ($0.2 million) higher interest revenue ($0.3 million) offset by: higher vacancy loss expenses ($0.1 million) The net favourable variance of $1.1 million results in an increased contribution to replacement reserves of $0.5 million and working fund reserves of $0.6 million. 2. Capital Operations The table below summarizes capital operations from January 1, 2014 to June 30, 2014 and the forecast to December 31, It includes the 2014 capital budget, any in-year changes, and any close-outs to arrive at the projected gross carry forward balance of capital projects to Description Jan 1 to June 30 ($ million) Forecast From July 1 to Dec 31 ($ million) Carry Forward Balance 2013 and Prior $12.2 $12.8 Approved 2014 Capital Budget 5.4 Total Approved Capital Available Year to Date Spending (4.9) (8.0) Available Capital Works (January, 2015) $12.8 $4.8 For the reporting period ending June 30, 2014, there were 103 active capital sub-projects. Real Property and Asset Management anticipates that approximately 70 current active capital sub-projects will be completed by the end of As a result, there will be 33 active sub-projects that will be carried forward into 2015, plus any new projects that will be added. Gross capital expenditures involving 58 sub-projects for the 6 month period ending June 30, 2014 were $4.8 million. A summary of capital project expenditures status as well as a forecast to December 31, 2014 is presented in Appendix Il. Staff reviewed all approved capital work and deferred any low risk sub-projects to accommodate emergency site repairs. The capital sub-projects that were deferred will be included in a list of possible 2015 capital sub-projects where their priorities will be evaluated. 84

85 5.4-3 September 11, SEMI-ANNUAL FINANCIAL REPORT The gross spending for 2014 year-end capital is forecasted at $12.8 million, of which $4.61 million will be reimbursed by the Service Manager through an internal loan. PHC anticipates that with this forecasted spending, less than 10 per cent of the capital budget will remain of the 2011 and 2012 capital budgets and 2014 capital projects are underway and will predominantly be spent in the 2015 fiscal year. 3. Reserves and Reserve Funds A high-level overview of the Corporation s reserves as at June 30, 2014 and forecast to December 2014 is provided below. These figures do not include any unrealized gains or losses on investments held for trading. Description Working Fund Reserves ($ million) Energy Reserves ($ million) Capital Replacement Reserves ($ million) Total ($ million) June 30, 2014 Balance $6.26 $0.93 $(1.74) $5.45 Forecasted contributions to Reserves (July to Dec 2014) Estimated loan from Service Manager Projected Cash Flow (July to Dec 2014) (8.90) (8.90) Projected Dec 31 Balance $7.42 $0.93 $0.56 $

86 5.4-4 September 11, SEMI-ANNUAL FINANCIAL REPORT Appendix III provides a more detailed breakdown of fund balances by program and type, as well as a forecasted December 31, 2014 balance, while Appendix IV provides a snapshot of activity up to June 30, The Board has been aware for over a decade that several of the Federal/Provincial Housing programs have a prescribed reserve contribution rate that is not adequate to meet future capital replacement needs. Due to aging buildings, the forecasted capital spending has continued to exceed contributions to the replacement reserves and any interest earned. With the end of operating agreements starting to approach and little evidence of requested future senior government funding to support the repair and replacement needs of the buildings, the Board approved the formation of a Peel Living Financial Viability and Governance Review Task Team to address these issues in a comprehensive manner (see section 4 below). The Service Manager has provided PHC with capital replacement loans in an effort to provide relief to PHC s declining reserves, primarily programs 56.1 and FP/UNI. For 2014, two loans, in the amount of $7.4 million and $5.5 million, have been approved by the Service Manager. Each approved loan consists of a specific capital plan that identifies the buildings and category of work to be completed. PHC will submit loan reimbursement claims periodically as the expenses are incurred. The loans under the Service Manager s policy titled Accessing Capital/Infrastructure Subsidy are to maintain the buildings in a condition that extends the life of the asset. 4. Peel Living Financial Viability and Governance Review Task Team The Task Team received the final report of the Financial Viability consultant on September 4, Included in the consultant s report are the results of an analysis of operational viability and asset sustainability. Based on their findings the consultant has set out eleven recommendations for consideration. In the General Manager s report to the Task Team three recommendations are made to: Receive and discuss the findings, Direct staff to review and refine the findings, including their feasibility, and report to the Board of the Peel Housing Corporation in 2015, and, Dismiss the Task Team. The Board will receive the minutes of the Task Team at the meeting on September 25, 2014 and further analysis of the finding will be presented early in

87 5.4-5 September 11, SEMI-ANNUAL FINANCIAL REPORT 5. Financial Control By-Law Report Requirements a) Authorization to Increase Project Commitments beyond Originally Approved Budget There were no such requests for Projects requiring budget increases beyond these parameters require Board Reports. b) Closed Capital Projects As of June 30, 2014, Peel Living did not close any projects. However, one project is anticipated to be closed by December c) Redeployments Redeployments are processed to facilitate effective management of various programs and projects. All redeployments are processed in accordance with the Financial Control By-law. As of June 30, 2014, there was no redeployment activity. As shown in Appendix II, however, the 2012 Major Capital Project is forecasted to be in a shortfall of $1.3 million. A redeployment of funding from the 2013 Major Capital Project is anticipated in order to fund this shortfall. 6. Mortgage Renewals There were four mortgage renewals during the first six months of 2014 as shown in Appendix V. Decreases in the mortgage interest rates will result in an annualized decrease in payments of $189,708. The average of the four mortgage renewal rates was decreased from per cent to per cent. The lower mortgage costs will result in lower amounts of subsidy payments being received from the Service Manager (Region of Peel). 7. Write Offs Former Tenant Accounts There are $231,242 of uncollected arrears that are to be written off this year; a total of $48,037 lower than the original provision recorded in 2012 as a result of higher collections and the collection of previously written off amounts. Writing off unpaid balances and open credits of former tenant accounts does not affect the subsequent collection of these balances. All outstanding debts remain on the records of both the collection agency (for those arrears greater than $100) and Peel Living (all balances), and collection efforts continue. 87

88 5.4-6 September 11, SEMI-ANNUAL FINANCIAL REPORT CONCLUSION Over the past 3 years, Peel Housing Corporation has implemented operational improvements and measures that have resulted in increased annual surpluses. These surpluses result in increased contributions to working fund and capital reserves. For 2014, a net favorable budget variance before discretionary reserve transfers of $1.1 million is projected. Although there have been operational improvements and increased reserve contributions, the capital requirements continue to outpace funding. The Financial Viability report completed this past year will provide a framework with which to address the capital funding issues. With support from the Service Manager, Peel Housing Corporation will review the recommendations provided in the Financial Viability report and develop an implementation plan to ensure Peel Housing Corporation continues to provide quality housing services to the residents of Peel. Mwarigha M.S., General Manager, Peel Living Dave Bingham Treasurer, Peel Living Approved for Submission: D. Szwarc, Chief Administrative Officer APPENDICES Appendix I Management Statement of Operations Appendix II Status of Capital Projects Appendix III Reserve Balances by Program & Cash Flow Reserve Forecast by Program Appendix IV Continuity Schedule of Reserves Appendix V Statement of Mortgage Renewals For further information regarding this report, please contact Dave Bingham, Treasurer, Peel Living. Authored By: John Arcella, Deputy Treasurer, Peel Housing Corporation 88