ASSOCIATION OF APARTMENT OWNERS SANDS OF KAHANA LAHAINA, HAWAII

1 ASSOCIATION OF APARTMENT OWNERS SANDS OF KAHANA LAHAINA, HAWAII July, 1996 Reserve Study Analysis Prepared by Barrera and Company TABLE OF CONTENTS Introduction..................................................... Page 2 Project Description............................................... Page 3 Roofing........................................................ Page 3 Painting....................................................... Page 4 Asphalt & Concrete Surfaces....................................... Page 4 Fencing....................................................... Page 5 Pools......................................................... Page 5 Tennis Courts................................................... Page 6 Landscaping.................................................... Page 7 Lighting........................................................ Page 7 Elevators...................................................... Page 8 Mechanical Equipment............................................ Page 8 Fire System.................................................... Page 9 Miscellaneous................................................... Page 9 Contingency.................................................... Page 10 Analysis of Project............................................... Page 10 Financial Report Percentage Funded & Funding Options............................... Pages A1-A16 Reserve Analysis Summary & Component Sheets....................... Pages S1-S6 BARRERA AND COMPANY

2 INTRODUCTION This report is an evaluation of various major reserve components of the Sands of Kahana Association of Apartment Owners. The purpose of this report is to provide information about the existing condition, life expectancy and estimated cost for maintenance and replacement of the physical elements which the Association is responsible for maintaining. This evaluation is designed to comply with the Condominium Property Regime Law, 9514-83.6. The study consists of visual inspection, measurement\inventory, and estimate of condition of the identified reserve components which wear out predictably. The actual on-site visual inspection was conducted in June, 1996. This evaluation is limited to a brief examination of the major reserve components and items not readily apparent by visual observation may not be included. The report also relies on information supplied by the Association s property manager, resident manager, Board of Directors, contractors and published replacement guides modified for local conditions related to reconstruction. The cost figures includes a inflationary factors which should be updated and reincorporated into the reserve budget whenever the annual inspection indicates that the rate of deterioration has changed or when there have been significant changes in the cost of materials and/or labor. The cost figures are then tabulated; the estimated useful and remaining lives are then established, and replacement costs are developed. This information is then incorporated into a projected future new replacement cost for each component at the end of its life cycle. Some assumptions have been made about costs, conditions, and future events and circumstances which may occur. Some assumptions inevitably will not materialize and unanticipated events and circumstances may occur subsequent to the date of this report. Therefore, the actual replacement costs and remaining lives may vary from this report and the variations could be material. If we were to assume liability for failure to anticipate the irregular, i.e, non-standard replacement cycles or costs, we would be inclined to unreasonably reduce the life expectancy and increase the replacement costs. This would not be in the interest of the owners or even the future owners if the reserve estimating were based on a standard of accuracy which is unattainable. It is imperative that these assets be reviewed annually to consider the impact of changing conditions. Subsequent annual studies by Barrera and Company will be in the form of a cost component sheet update and accountant s report, with visual inspection needed every third year. The findings in the following report are applicable as of the study s completion date, and those items which will not undergo major repair or replacement within a twenty (20) year time frame have been defined as exempt association property and are not included. These items may include but are not limited to building superstructures, concrete surfaces, sewer and water mains. Our report is to be used only for the purpose stated herein; any use or reliance for any other purpose, by you or third parties, is invalid. You may show our report in its entirety to those third parties who need to review the information contained herein. No reference to our name or our report, in whole or part, in any document you prepare and/or distribute to third parties may be made without our written consent. BARRERA AND COMPANY

3 PROJECT DESCRIPTION The Association of Apartment Owners Sands of Kahana, located in Lahaina, Hawaii, is a community association comprised of 4 buildings housing 196 units. This project was completed in 1981 and the common area components consist of roofing, asphalt t surfaces, painted exterior surfaces, fencing, (2) pools, (3) tennis courts, lighting, (4) elevators, mechanical equipment, trellis structures, restaurant, lobby, walkways, and common area landscaping. NOTE A: All replacement costs given in report are future costs, calculated on a 3.5% yearly inflation factor. They are designed to dramatize the future costs of items. When funding reserves, the present replacement cost (see component spread sheets) should always be used. Costs should then be updated annually to reflect actual rises in materials and labor. NOTE B: Barrera and Company was requested to include only those components which (in aggregate) contributed $^.00 or more to the total estimated new replacement cost. However, we did include certain components that totaled less than $^.00 inasmuch as they were considered to be part of a larger group of components. ROOFING The aluminum roofing areas when applied in accordance with strict building specifications, they will typically have a normal life expectancy of 20 years. Major reroofing will be required within 20 mote years, at a total projected cost including new flashing of $672,875. The built-up flat roofing are experiencing normal deterioration and considered to be in fair condition (exhibit A). These low-sloped roofs (limited to a slope of not over 2 in 12)require a more watertight system and are applied in layers by laminating saturated roofing felts with hot asphalt. This type of membrane bitumen roofing system will normally have a life expectancy of 25 years and will require major reroofing within 7 more years, at a total projected cost of $196,681. The gutters and downspouts (copper) are projected to have a service life of 35 years. It is estimated that replacement will be required within 20 more years at a total cost of $153,800. An annual expense of $50,000 has been incorporated into the reserve funding per the Board of Directors. It is recommended that these expenditures and components be evaluated each year to assure all requirements will be met. Maintenance: These steps should be done semi-annually, preferably before and after the winter rains: A) Routine inspection and cleaning to keep the roofs and storm drain, catch basins free from debris (leaves, etc). Screen all scuppers and downspouts. B) Check all roof venting at pipe jack collars and other penetrations for leaks, patching with roof mastic to prevent water penetration. C) Check all metal roof flashing for twists and corrosion, and repair using elastomeric sealant. D) Ridgecaps and damaged tiles should be repaired and checked for water tightness as needed. Any BARRERA AND COMPANY

4 localized intermittent failures and leaks should be treated as emergency repairs until the complete reroofing of the building is necessitated according to the evaluated timetable. As well as this, adopting an on-going annual preventive maintenance program with a qualified roofing contractor, would help keep the system water tight and insure maximum life expectancy of the roofing materials/applications. PAINTING The exterior painted concrete surfaces are considered to be in good condition and will normally experience a useful life of 8 years before requiring repainting (exhibit B). This will need to be done within 8 more yeats, at a total projected cost including necessary prep of $801,536. Stained areas may be cleaned and waterproofed to aid in water runoff from the walls. The unit entry doors should be painted on a 10 year cycle. This should be done in 2 more years, at a cost.of $16,229. The spalling repairs are to be completed in conjunction with the concrete painting cycle of 8 years. This is projected to be required within 8 more years at a total future cost of $190,842. The garage wails are in poor condition and should be painted on a 10 year cycle. This painting needs to be done in 2 more years, at a future cost of $62,100. We feel exterior painted or stained surfaces, for aesthetic and protective reasons, should be redone approximately every 5 to 10 years. The rate of weathering will vary according to the amount of direct exposure to the elements. When refinishing doors, specific attention should be given to the tops and bottoms. The project should be inspected annually, so that any of the areas that are beginning to deteriorate or requiring painting will be brought to the management s attention for future scheduling. Maintenance: Curtailing surface deterioration by touching up will reduce the frequency and cost of a major repaint. Sand all doors lightly, scrape all deteriorated paint, and prime raw areas where needed is the primary preparatory maintenance required. Painting should also be carried out in accordance with the manufacturer s recommendations, with all minor openings filled with a recommended sealant. ASPHALT AND CONCRETE SURFACES The asphalt surfaces have proper slope drainage and are in overall fair condition. The life expectancy of the asphalt is anticipated to be 20 years from the time of original installation, with 5 years remaining before a one-inch overlay is required, at a total projected cost of $130,400. The asphalt resealing is generally in poor condition (exhibit B). It is common practice that eroded, porous, or any other damaged sections (from nearby tree roots, marginal designs to facilitate BARRERA AND COMPANY

5 water runoffs and soil compactions) be properly removed and replaced with new to prevent further deterioration. This is generally done on a 5 year cycle just prior to resealing and will be required in 1 more year, at an estimated cost including asphaltic removals down to new compacted bases, 112 skinpatches, 2-coat oil-seal, curb painting and restriping/stenciling of all pavement markings of $28,409. The concrete surfaces throughout the project are considered to be in good condition and should last the life of the project with proper maintenance. They should be checked annually for cracking and vertical displacement which could cause a hazardous condition for pedestrians. Any infrequent concrete repairs after initial settling and from surface roots of nearby trees will be funded out of the operating accounts. Maintenance: The anticipated life expectancy of the asphalt is provided that regular sealing and a prudent preventive program is maintained in the interim period. The asphalt paving should have semi-annual inspections to verify surface conditions, possible deterioration of curbs and pavement edges, base material failure, and tearing due to root growth under the pavement. All surfaces should be kept free of debris and rock so that vehicles do not force these objects through the thin sealed layers of the pavement. FENCING The common area wood fencing are considered to be in fair condition. In many cases, they are in direct contact with the soil and moisture causing deterioration of the fence and its supports. This type of fencing has a useful life of 20 years and will need to be rebuilt and treated post reset within 5 more years, at a total projected cost of $29,319. Sprinkler system heads should be checked and angled to help ensure the prevention of water saturation and potential wet/dry rot damage. The chain link fencing are in fair condition. Fencing of this nature is anticipated to last 20 years and will need replacements within 15 more years, at a projected cost of $23,471. Any necessary repairs to include resetting posts, mesh replacements, new fittings and rebracing may be done on an as-needed basis out of the operating accounts. Maintenance: Special attention should be given to the upright supports of all the fencing, and they should be replaced or repaired immediately on signs of weakening. In addition, maintaining proper base clearances, minimizing vegetation fence growth, adjusting sprinkler heads, and painting on a regular 5 year cycle, whelp prolong the life of the fencing. POOLS, DECKING AND EXTRAS The adult pool surfaces are generally in poor condition. With proper pre-treatments and scheduled BARRERA AND COMPANY

6 maintenance, resurfacing of the pool should be done on a regular 10 year cycle, at a total future cost of $27,000, and should be done in 1 more year. The resurfacing of the children s pool may require attention within 8 more years at a total future cost of $19,084, To help damage from occurring make sure that the ph and other chemicals are in proper balance at all times (note exhibit D). The fish pond surfaces are considered to be in good condition. These areas will require attention within 5 more years at a future cost of $1,549. The mechanical equipment for the pools (filters, pumps, etc...) are all in generally poor condition. Equipment such as this will be replaced on an average 10 year cycle and should last 1 more year, at a projected cost including miscellaneous expenses of $13,000. The furnishings are to be replaced on an as needed basis and funded from the operating budget. Maintenance: The joints in the concrete decks surrounding the pool areas and especially the joints between the concrete deck and coping tiles, require semi-annual inspections to insure that they are watertight and are preventing water from reaching the underlying soil. The joints, as well as any cracks that may develop ri the concrete surface, should be cleaned out and sealed promptly. It is extremely important to maintain a watertight barrier between the pool deck and the underlying soil. Failure to do so greatly reduces the normal life expectancy of the pool deck as the soil swells and shrinks from varying moisture content. An acid wash k solely for cosmetic and maintenance purposes, and its necessity relies on the quality of your maintenance. An acid washing removes the somewhat glazed finish on the original paster, leaving it more suspectible to staining from any chemicals being added subsequently. Each time this is done, it reduces the remaining life of the plaster finish. Acid washing could be needed as often as every 3 years, and is today at the discretion of the Association. The cost for a periodic acid wash has not been included in the overall equipment cost. TENNIS COURTS The playing surfaces of the (3) tennis courts are in fair condition and should last 3 more years on a 6 year cycle (exhibit 5). Resurfacing to include any necessary patching of blemishes/cracks with an acrylic mix, 3-layer coats of color 12 sand and 1 final chrome coat applied to deepen colors) and line to USTA specifications should be done at a total projected cost including any necessary site prep of $12,855. Nets may be replaced as needed from the operating budget. Maintenance: The joints in the concrete playing surfaces of the courts should be checked semi-annually to insure that they are watertight. Any noticeable cracking which develop should be cleaned out and BARRERA AND COMPANY

7 sealed promptly to prevent water from reaching the underlying soil. After the replacement of the windscreening, periodic inspections should be made for signs of deterioration in order to better anticipate the next scheduled date of replacement. Keeping the playing surfaces free of debris and not allowing skating on the courts, is the primary maintenance that is required. LANDSCAPING The automatic irrigation controller clocks are considered to be in good to fair condition, with a total projected replacement cost of $1,408. Each station has its own plastic control valve and their total projected replacement cost is $6,400. The life expectancy of this equipment is anticipated to be 12-15 years and will require replacements within 3-6 more years. Being a recurring expense, removal expenditures as well as funds for supplies, plants and general maintenance considerations, are currently incorporated into the Maintenance Operating Budget and allocated likewise. Due to the unpredictable nature of this category, this should be constantly reviewed and amounts revised to properly reflect its history. At time of inspection, most all the trees appear to conform with the desired architecture, with only minor apparent root problems if trimmed regularly. Careful monitoring of any potential tree problems should be maintained, so as to be addressed into future updated Reserve Studies. Maintenance: A/though replacement of valves is done periodically on an as-needed basis, their total replacement cost is included ri, the reserve study for the sake of completeness. The subsurface drainage systems should be kept free of debris at all times and the irrigation system periodically evaluated for reduction or any discontinuance in those shaded areas where over-watering is evident. Overall, the grounds are li good condition and with continued proper maintenance on a regular schedule, should experience few problems beyond the sporadic replacements mentioned above. LIGHTING The quantity and description of the lighting is as follows: 646 Ceiling mounted fixtures. 12 Post mounted parking fixtures (exhibit F). 42 Ground fixtures. 12 Ground pagodas. 30 Ground mounted floods. 68 Exit fixtures. 18 Tennis fixtures. These light fixtures have a normal life expectancy of 10-30 years and are generally in good to fair BARRERA AND COMPANY

8 condition. Total replacement is estimated to be approximately $210,064 and they should be replaced within 3-15 more years. Maintenance: All lighting fixtures should be inspected annually for signs of deterioration, especially at the fixture bases where they meet the ground eve and point of fixture attachment to the post or mounting base. Any needed replacements for bulbs or covers wi occur on such a sporadic schedule that they more than likely will be cleaned and replaced on an as-needed basis. ELEVATORS The (4) passenger elevators are covered under a full maintenance agreement except for the upgrading of the mechanical systems. This work is projected to be required on a 25 year service cycle and may be needed within 18 more years at a total future reserve cost of $817,738. Renovations of the car interiors are done on an average 20 year cycle, and may be needed in 5 years, at a future cost of $27,541. Preventive maintenance and associated service repair and/or replacements are the responsibility of the Schindler Elevator Company. These expenditures, as well as safety tests are being incorporated into the annual Operating Budget. MECHANICAL EQUIPMENT Sewer Lift Station: The Lahaina and Napili control panels range from excellent to fair condition. These panels are projected to require servicing every 15 years and will need to be addressed within 5-15 years at a total cost of $8,575. Sewer lift pumps are expected to last 12 years and also range from excellent to poor condition. Napili pump #1 is in excellent condition and may require attention within 12 more years at a future cost of g,840. The remaining pumps (Lahaina #1, #2 & Napili #2) may need to be replaced within 1-2 more years at a total cost of $12.280. Booster Pumps: The 2Hp booster pumps for the four buildings are considered to be in excellent condition and may require replacement within 10 more years at a projected total cost of $8,176. The 5Hp pumps will require attention within 1-2 more years at a total cost of $12,315. These booster pumps are projected to have a service life of 10 years. BARRERA AND COMPANY

9 FIRE SYSTEM The fire system is in excellent condition. This system has been included into the reserve funding with a service life of approximately 20 years. Replacement has been projected to be needed within 18 more years at a future cost of $1,184,486. MISCELLANEOUS The project signs appear to be in fair condition. These signs have a projected life expectancy of 20 years and will need replacements within 5 more years, at a total future cost of $11,475. tile located at the walkways is considered to be in fair condition. The replacement of the tile is projected to be required every 18 years and may need to be addressed within 3 more years at a total cost of $617,026. The entry trellis structure is in excellent condition and with a service life of 15 years may need to be replaced within 13 more years at a total cost of $37,777. The remaining trellis structures (napili, parking, shop) have a service life of 20 years and are in fair condition. Replacement of these trellis s is expected to be required within 5 more years at a total cost of $63,113 (note exhibit G). The building vents are projected to last 20 years and currently appear to be in fair condition. These vents may require replacement within 5 more years at a total cost of $58,524. Per information provided by the association the renovation of the lobby and restaurant roofing is to be completed within 2 more years at a total cost of S258,750. Renovation to these areas is then projected to be required on a 20 year cycle. The renovation to the restaurant bathrooms has been completed and with a 15 year service life may require attention again within 14 more years at a total cost of $46,919. An annual replacement amount of $5,000 has been included into the reserve report for the replacement of the metal doors (approximately 10 doors per year). The fumigation/tenting of the buildings and local treatments to miscellaneous areas will normally be required in time. Termite inspections of entire project should be carried out to determine the extent of any infestations. Once completed, reserves and/or methods of funding can then be set up to adequately cover necessary infestation treatments. It is the assumption arrived from general building standards that underground utilities comprised of gas, water, electric, storm and sanitary sewer lines are excluded from this report. These are generally treated as maintenance or capital improvements. Such systems may have lives equal to that of the overall project, and never need total replacement. Any minor miscellaneous plumbing repairs, including the possible installation of pressure regulator valves may be funded out of the operating accounts or through special assessments. BARRERA AND COMPANY

10 CONTINGENCY It is recommend that a yearly general reserve contingency fund be included for, but not limited to the following: (i) Unexpected contingencies which, in the reasonable judgement of the Board, may occur; (2) The payment of insurance deductibles or other expenses relating to insurance; (3) Legal expenses and lease renegotiation or fee purchase expenses; (4) Exempt association property or additions and improvements to the association property, such as new construction; or (5) Late payment or non- payment of an assessment by any owner. This should be based on 30~ to 5% of the total annual budget, including operating and reserve allocations. ANALYSIS OF INSPECTION Overall, the reserve elements of the Association of Apartment Owners Sands of Kahana were found to be in good condition and a good maintenance program is being provided for. The replacement cost estimates and life expectancies are based on visual inspection, apparent condition, and current costs. It is imperative that these parameters be reviewed annually and the reserves adjusted to meet changing conditions. Expected life figures assume reasonably sound maintenance programs. With better than average maintenance, useful life may be extended beyond that which is given. Conversely, below average or no maintenance will reduce useful life. Replacement costs given are arrived at by considering terms such as adequate, average and normal. Some Associations will wish to expand their reserves beyond those boundaries. This preference should also be taken into consideration when setting reserves. The service provided by Barrera and Company was performed in accordance with our professional practices and standards. Our compensation was not contingent in any way upon our conclusions. We have assumed without independent verification, the accuracy of all data provided to us. We acted as an independent contractor. All files, work papers or documents developed by us during the course of the engagement will be our property and we will retain this data for three (3) years. There are three factors that have the greatest effect upon the estimated lives of depreciable assets: physical deterioration, management intentions, and technical obsolescence. 1. Physical deterioration limits the life of an asset to what is normally known as its physical life. An asset s physical life often varies according to maintenance policies and location. An asset s location directly affects its usage, and therefore, is life. 2. Management intentions can significantly alter an assets life. For example, only a small utility building may be required at this time; however, a larger one may be planned which would require the removal of the existing building before its service life expires. Still yet another example would be the removal of components in a time period shorter than suggested in order to avoid high maintenance costs in later years (often called cost effectiveness ). 3. Technical obsolescence involves the replacement of an asset before the expiration of its physical life. Economic life is determined by the development of new materials, equipment, and BARRERA AND COMPANY

11 improvements in existing technologies. An example might be the partial replacement of a current water heating system with a solar system, or the replacement of an existing security system with a more sophisticated system. Although certain components will be kept in service for a longer or shorter period than the estimated useful lives indicated here, the estimates are believed to be industry averages that will permit an equitable allocation of the costs of the assets over their lifetimes. Remaining lives should be reviewed annually and, if actual experience or new circumstances dictate, should be adjusted. We will be indemnified and held harmless against all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys fees, to which we may become subject in connection with this engagement, because of any false, misleading or incomplete information which we have relied upon as supplied by you or others under your direction, or which may result from any improper use or reliance on the report by you or third parties under your control or direction. The terms of our report did not provide for reporting on events and analyses subsequent to the date of this report. Therefore, the final decisions for implementation, updating or revising the information obtained in this report, for any changes in assumptions, is the sole right and responsibility of the Board of Directors. This report and the numbers generated herein are for use only for the 1995-96 Reserve Study Analysis for which they were developed. Barrera and Company is not responsible for the use of this report in any subsequent year, or in updating this report in any subsequent year, or in updating this report for events and circumstances occurring after the date of this report. We appreciate the opportunity to be of service to the Association of Apartment Owners Sands of Kahana. Respectfully Submitted, Barrera and Company BARRERA AND COMPANY

FINANCIAL REPORT FOR THE ASSOCIATION OF APARTMENT OWNERS SANDS OF KAHANA JULY, 1996 Barrera and Company Reserve Study, 1996

Introduction Hawaii Revised Statutes, 514A-83.6 with Act 132 (Session Law Hawaii 1991) and Act 189 (Session Law 1992) were enacted to ensure that Condominium Associations have adequate funds on hand for repairs and replacement of reserve components. An adequate reserve fund is sufficient to maintain, repair, or replace a reserve component at the time the expense must be made (the end of the component s useful life). An adequate reserve fund is generally defined as equal to the projected cost for replacement or maintenance required for a component at the end of its estimated useful life. In application, adequate reserves are accumulated by dividing the projected replacement cost for each component by it s useful life, and allocating that amount of savings to reserves each year. Act 189 requires associations with inadequate funds to achieve a minimum funding standard of 5096 of the full amount required for adequate funding. This funding level must be met by 1 January 2000. The following Reserve Study Financial Report begins with a summary of the financial projection tables. The summary describes the procedures and methods used for calculating and establishing the reserve projections, presents a brief discussion of the results and implications of the three funding methods which have been calculated, and is followed by definitions of calculated values (Chart 1). Tables presenting the detailed numerical analyses, a twenty year projection of reserve disbursements, and two funding program options projected in twenty year cash flow diagrams are included as supporting detail for the summary and as resource information for the Association. The contents of this financial report are based on estimates of the most probable reserve component replacement costs and remaining useful lives as described in the Contractor s Component Worksheet and accompanying narrative. Accordingly, the funding options reflect consultant judgments of the most likely costs, conditions, and remaining lives, based on circumstances at the time of inspection. The Association may elect to implement either of the funding options presented, or may elect to develop a variation of these methods. Because the compilation of the reserve funding options and related projections is limited as described above, no conclusion or any other form of assurance on the funding options or projections is provided. No responsibility to update this report for events and circumstances occurring after the date of this report is assumed. Barrera and Company Reserve Study, 1996 A-1

Current Replacement Reserve Assessment Based on the estimated current replacement costs of $5,079,565 and estimated useful lives and remaining useful lives for the individual reserve components, the Full Replacement Reserve for the AOAO Sands of Kahana at the financial year end (12/31/95 is $2,467,332. As of 12/31/95 the association reported to have $64,336 in savings available for reserve funds. This is a deficit of $2,402,996 under the full replacement reserve. Based on these numbers, AOAO Sands of Kahana is 3% funded. The Estimated Replacement Reserve funding level for 1996 is $902,400. This percent funded value is presented on the first page of the financial projection tables, and is calculated by dividing the projected cash reserve savings by the Full Replacement Reserve amount. The maximum reported percentage is 10046, and indicates an association is currently fully funded. Funding and disbursement projections presented have been computed with a Time Value of Money approach. An annual 3.59b inflation rate and 3.596 average interest rate were assumed. Inflation was applied to the projected disbursements, and interest to the ending cash balance values. A straight-line method of calculation was employed for both time value rates. Respectfully Submitted, F. Shawn Barrera President Barrera and Company Reserve Study, 1996 A-2

Description of Funding Options The following funding options summarize the projections found on pages A-Il & A-12. Refer to page A-4 for term definitions. Funding Option I: Compliance Funding This option projects the lowest annual funding feasible over the next 20 years which will meet all statutory reserve requirements. These requirements ate threefold. First, the annual funding level must meet the Statutory Replacement Reserve for the year. Second the beginning Reserve Funds on hand by January 1, 1997 must be 25 4% of the year 2000 s beginning projected Full Replacement Reserve. Finally the beginning Reserve Funds for the year 2000 and every year thereafter must meet 5096 of that years Full Replacement Reserve. The allocation of $736,270 ($313.04 monthly per unit) is required for the first year of implementation. This method of funding considers total disbursements one year at a time and annual requirements may fluctuate widely. If implemented, this allocation should be reviewed on a regular basis and adjusted as required to ensure future funding requirements will be met. This option, as projected in the cash flow tables, will provide a funding level of 5396 at the end of 1999. This percentage is an estimate based on the assumption that reserve components and their useful lives will remain constant, that the remaining life will decrease by one each year, and that actual reserve contributions, inflation, and interest will equate to the respective projected values. Funding Option 2: Current Funding Level This option projects the Reserve Fund over the next 20 years based on a funding level equal to the Association s current assessments for reserve assets. The level of $24,000 or $10.20 per unit monthly will not meet reserve requirements as they occur and at this funding level will be 0% funded by the end of fiscal year 1999. Funding Option 3: Full Funding This option projects the annual funding necessary to meet the Full Replacement Reserve, by allocating the difference between each asset s Current Replacement Cost and its current allocated Reserve Funds over the remaining life of the asset. Full funding requires an allocation of $902,400, or $383.67 dollars per unit per month, over the first year. This amount will gradually decrease as the deficits for assets are funded. This funding option is considered the ideal, compensating for any past funding deficiencies, and providing adequate reserve savings for all expenses. Implementation of this funding method will accrue the projected replacement or maintenance cost over the estimated useful life of each component, and will provide an estimated funding level of 10046 by the end of 2001. As noted above, the percentage stated for 1999 year end is an estimate based on the assumption that reserve components and their useful lives will remain constant, that the remaining life will decrease by one each year, and that actual reserve contributions, inflation, and interest will equate to the respective projected values. 1 See Chart I Definitions, Page A-4. Barrera and Company Reserve Study, 1996 A-3

DEFINITIONS AND TERMS Asset - Any part of the association property. Association Property - Those parts of a condominium project which an association is obligated to maintain, repair, or replace, including but not limited to: 1) All of the common elements of the project, as determined from the project s declaration and the bylaws of the association and any master deeds, restrictive covenants, apartment deeds, apartment deeds, apartment leases, or other documents affecting the project. 2) Any real property which is not part of the common elements but which the association either owns or leases for a term of more than one year, such as a manager s apartment acquired by the association after the project was developed. 3) Any personal or movable property owned or leased by the association; and 4) Any fixtures owned or leased by the association. Association Property - Does not include any part of the project which is exempt association property or which fewer than all owners are obligated to maintain, such as apartments or certain limited common elements. Budget Year - The association s fiscal year for accounting and budgetary purposes. Current Allocated Reserves: Current value of cash savings allocated for repairing, replacing or refurbishing the listed reserve components. Estimated Age - The estimated useful life of an asset minus its estimated remaining life. Estimated Remaining Life - any period: 1) Which is shorter than the estimated useful life of an asset; and 2) for which the asset will continue to serve its intended function without requiring capital expenditures or major maintenance. Estimated Replacement Reserves - Funds which an association s reserve study indicated must be assessed and collected during a budget year to establish a full replacement reserve for the association by the end of that budget year. Estimated Useful Life - The period of time a new asset, or an existing asset which has been newly restored or refurbished, will serve its intended function without requiring capital expenditures or major maintenance. Exempt Association Property - Any asset which: 1) At the end of its estimated useful life will require capital expenditures or major maintenance of less than $1,000 or less than 0.1 percent of the association s annual operating budget, whichever is greater: or 2) Has an estimated remaining life of more than twenty years. Any asset which because of the passage of time ceases to be exempt shall become association property and be subject to the transitional rules stand in 16-107-71. Existing Association - An association which has held its first association meeting before January 1, 1993. Full Replacement Reserve - Reserve funds for an asset equal to: The projected capital expenditure or major maintenance required for the asset at the end of its estimated useful life; multiplied by a fraction which has as its numerator and denominator the asset s estimated age and estimated useful life respectively. The total of the full replacement reserves for each asset shall be a full replacement reserve for the association. Managing Agent - Any person who prepares a replacement reserve study and who: 1) Is a managing agent as defined by Chapter 514A, HRS, and commission rules and policies relating to managing agents: 2) Meets all legal requirements for managing agents; and 3) Is the managing agent for the association for which the reserve study is prepared. Minimum Replacement Reserve - Fifty per cent (505) of full replacement reserve. Reserve Funds - Cash or cash equivalents but excluding any funds which the association has borrowed. No borrowed funds shall be included when calculating whether an association has collected its statutory. Statutory Replacement Reserves - Fifty per cent (50%) at an associations estimated replacement reserves. Substantially Deplete - Any expense for an emergency which reduces the association s replacement reserves and contingency reserves by more than seventy-five per cent (75%). A-4

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AOAO Sands of Kahana Barrera and Company, 1996 A-16

Barrera and Company Reserve Analysis, 1996 (800) 543-8670 Fax (800) 543-8672 S-1

RESERVE COMPONENT WORKSHEET DEFINITIONS: Component: Component: Identifies the item to be included for reserve funding. Normal Life: The estimated total life of a reserve component using published information and professional experience. For components in which the economic of useful life should equal that of the project, no life expectancy has been projected (i.e. plumbing, framing, etc...) Estimated Remaining Life: An estimate of expected remaining longevity of that component based on information provided, visual inspection, and assumptions of probability. Replacement Percentage: The percentage of the reserve component that is to be repaired or replaced at the end of that components remaining life. This may also be used as a contingency Cost Per Unit: The approximate amount of money it will take to replace the reserve component, per the measurement it is defined by (i.e. sf = Square Feat). Approximate Quantity: The approximate total amount of the reserve component as it has been defined under Cost Per Unit. Present Cost: This indicates the approximate cost of replacing the reserve component at the present time. Future Cost: This indicates the estimated expenditure by the Association when the component is in need of repair or replacement. The future cost has been calculated on a 3.5% yearly inflation factor. It is assumed that any repairs or replacement of any reserve component below $ 1,000 in any given year will be expended from the operating accounts. Condition Code: The present general condition code: P-Poor F-Fair G-Good E-Excellent Source Code: The means by which the information for the reserve component has been obtained. The source code is as follows: 1 - National Construction Estimator(Craftsman Press, 1996 Edition) 2 - Vendor Data 3 - Actual Costs & Bids. 4 - Management and/or Board Data 5 - Previous Years Reserve Study Barrera and Company Reserve Analysis, 1996 (800) 543-8670 Fax (800) 543-8672 S-2

KAHANA.XLS 7/30/96 Reserve Study by Barrera and Company, 1996 S-3

KAHANA.XLS 7/30/96 Reserve Study by Barrera and Company, 1996 S-4

KAHANA.XLS 7/30/96 Reserve Study by Barrera and Company, 1996 S-5

KAHANA.XLS 7/30/96 Reserve Study by Barrera and Company, 1996 S-6