Jan 21/04 Board Item 4

Transcription

1 Date: January 14, 2004 Jan 21/04 Board Item 4 To: Board of Directors From: Chief Executive Officer Resolution Subject: REVENUE PLAN (TCHC: ) PURPOSE: To provide the Board of Directors with information on the development of revenue initiatives as identified in the Community Management Plan (CMP) prior to submission of the implementation plan for approval. RECOMMENDATIONS: At its meeting on January 12, 2004, the Finance/Audit Committee approved the recommendations outlined below. (1) receive the report and direct the CEO to notify Tenant Representatives of the revenue plan implementation and provide an opportunity for input on the implementation plan; (2) review the results of the feedback from Tenant Representatives at a meeting of the Finance/Audit Committee as early as possible in 2004 in order to forward to the Board of Directors recommendations on implementation of the revenue plan; and (3) request the CEO to report to the Finance/Audit Committee on a business plan for increasing signage revenue. This report is forwarded to the Board of Directors for information. As directed by the Finance/Audit Committee recommendations on implementation of the plan will come back to the Board through the Finance/Audit Committee. This is expected to be at the March or April meeting of the Board. BACKGROUND: The Board approved the 2003 Community Management Plan (CMP) with strategic initiatives based on a $25m in available cash flow by 2005 to be delivered through $20m in operational efficiencies and $5m in d revenue. The longer term revenue target is set at $7.1m by the end of The three related initiatives in CMP are: Revenue Plan Page 1 of 17

2 establish low-end of market charges for TCHC supplied services; commercial revenues; and market services externally. Other than s in renewal of commercial leases and a limited number of additional sites for signage, the above initiatives were not implemented in 2003, the first year of the business plan. Priority was placed on reorganizing operations and establishing operating policies and procedures. The delay in implementation of the revenue plan was noted to the Board in the quarterly reports of Close to 75% of the non-rental revenue targets for the 2003 and 2004 period are related to moving to low-end of market charges for tenant service charges. Tenant services include services currently available such as laundry installations, parking and cable, and new services that may be made available such as tenant content insurance services and vending machine services. Commercial revenue is derived from the real estate assets owned by the corporation and rented out to commercial enterprises and includes renting rooftops for cell-phone antenna and advertising banners as well as the rental of retail and office space. During the development of the CMP, staff committed to seeking prior Board authority where the implementation of initiatives in the Community Management Plan might have an impact on tenants and staff. This report outlines the implementation initiatives discussed by the Board at initial CMP workshops and identifies the method for implementation and the impacts on tenants and staff. REASONS FOR RECOMMENDATIONS: The revenue plan principles and broad outlines are set out in the Community Management Plan (CMP). During the consultations on the CMP the issue of rates for specific services was raised by tenants and others, and this issue was included in deputations made to the Board at the time of approval. The CMP states that TCHC is not able to subsidize the cost of services to tenants, but would set charges so as to be at the low-end of the market for services to tenants, creating equitable charges for tenants across all TCHC communities. Equitable charges are defined here as charges that are determined using a consistent approach and methodology, and the treatment of tenants is consistent across the portfolio. It does not mean in all cases that the pricing is the same for similar services in all communities. Specific information about the rates to be charged (pricing) and implementation of the revenue plan have not been discussed with tenants. Therefore, it is recommended that Tenant Representatives be provided with an opportunity to comment on the implementation Revenue Plan Page 2 of 17

3 plan prior to recommendations being made to the Board, and that those discussions assist staff in mitigating potential impacts. REVENUE PLAN: General Under the Social Housing Reform Act, 2000 (SHRA), housing providers are expected to maximize generation of non-rental revenues. That is, housing providers are expected to set charges for non-rental services to tenants and others at low-end of prevailing market levels and to seek additional ways to generate income. Subsidy is to be applied to rental costs only. This lessens the financial burden of the Service Manager (City of Toronto), a key funder of social housing under SHRA, as well as other GTA municipalities. Costs of social housing in the GTA are pooled. That is, total program costs are shared among the GTA municipalities and allocated to each municipality based on their share of the property tax assessment base. Under the pooling formula, Toronto (and thus TCHC) are net beneficiaries of social housing funds from other GTA municipalities. Therefore, there is an expectation that social housing providers in each of the area municipalities will seek to manage the overall cost of their program to ensure that the pooled costs are managed. This includes setting reasonable rates for services delivered to tenants. For TCHC, moving to low-end of market charges will create equity across TCHC communities for similar services. This is not currently the case. Some communities are charged for services that others are not, while others are charged different rates. Moving non-rental charges to the low end of market would meet TCHC s financial obligations under the SHRA, provide equity across the portfolio and contribute toward TCHC s financial and strategic objectives to: maintain and improve the housing stock regenerate communities affordable housing invest in communities social investment Toronto Community Housing set a goal in the 2003 business plan to non-rental income from tenant services by $3.4m by 2005 and $5.5m by 2007, primarily by moving charges to the low-end of prevailing market prices and increasing commercial revenues by $1.0m by 2005 and $1.6m by Revenue Plan Page 3 of 17

4 Revenue Framework Consistent with what was heard through the CMP consultation process from tenants, staff and the Board, the development and implementation of a business plan for revenue generation is based on setting charges and the implementation of these charges within the following framework: 1. Market based pricing at the low-end of market for tenant services Charges for services delivered to tenants should be at low-end of market rates across the portfolio. Depending on the services and the practices of the legacy companies, current prices vary significantly, between the legacy companies and between communities. In many instances, prices for tenant services have not been adjusted in the past two or more years, and do not reflect the s in TCHC costs (labour, utilities, etc.). The prices are often below the low-end of market prices in the GTA. By moving to prices at the low-end of market for tenant services, TCHC will create a more equitable pricing program for all tenants, eliminating the advantage some tenants have with below-market charges, and recovering all costs for delivery of services where these may presently be delivered at subsidized rates. For example, in some instances, TCHC is not recovering the cost of providing laundry services. The move to low-end of market across the portfolio TCHC alone will potentially improve revenue from laundry and parking operations by $5m to $6m per annum --the CMP 5-year revenue target for tenant services. Implementation will take up to three years and is likely best executed on a CHU by CHU basis with each community having some flexibility to set prices based on market comparable prices in their communities and within the implementation framework outlined below. It should be noted that, even though TCHC would only go to low-end of market for tenant-based services and would do this equitably across the portfolio, s of any kind are not likely to be received favourably. 2. Market based pricing for non-tenant real estate services Rates related to non-tenant revenues should be at market. This is the current strategy, however a greater focus needs to be placed on implementation. Awareness of the market and market prices is essential for all real estate related revenues. Currently there is no systematic approach for setting market prices. Greater attention to renting unused tenant parking spaces for non-tenant parking could generate further income. Greater attention to the market for signs and antennas also has revenue potential. Demand for signage is limited primarily to downtown locations, however TCHC has significant exposure in high demand locations. It should be noted that municipal bylaw restrictions with respect to outdoor signage limit the potential of this market unless there is support by local Councillors. Slowed growth in the telecommunications field has slowed means that revenue from antenna installations Revenue Plan Page 4 of 17

5 has stabilized or even declined in the recent past. 3. Improved services and facilities To provide value for services, the affected services and facilities, such as laundry, parking and retail space must be clean, modern and all equipment fully operational. Parking facilities should be well lit, secured and have proper parking control. A commitment to updated, well-maintained facilities is an integral part of the framework. Compared with commercially operated laundry, parking and retail real estate facilities, many TCHC facilities need to be upgraded. To achieve low-end of market pricing in tenant services means that TCHC must provide comparable services. TCHC s commercial real estate portfolio is in competition with other retail real estate properties. The product and services must be as good, if not better than the competition. 4. Organizational structures and systems capable of developing and maintaining a focus on revenue generation The total non-rental revenue budget is in excess of $30m. This aspect of our operations requires a specific mandate and focus within the TCHC rather than just an adjunct to rental operations, as is currently the case. Although, traditionally, revenue generation has not been a primary focus of the corporate operations, the importance of providing excellent services and the need to ensure planned revenues are realized require organizational changes. An organizational structure that encompasses a revenue generation business focus with a clear mandate is essential. The CEO will initiate this structure early in the new year. Charges 1. Laundry Service The majority of TCHC s sites contain laundry facilities of some type. The facilities, systems and processes operate in a variety of ways based on the different histories of the legacy organizations. In some cases changing the approaches will take time as there may be time-defined contracted services in place. TCHC operates its own laundries (in-house laundry system) in approximately 174 of its buildings (primarily former Toronto Housing Company (THC)). In these cases, the washers and dryers are company owned. They are generally new and energy efficient front-end loader washers and gas dryers. Almost all are operated by TCHC. External services are used for maintenance, money and data collection and supported by inhouse staff for administration. Building staff is responsible for cleanliness of the laundry room. Revenue Plan Page 5 of 17

6 All of the former Metro Toronto Housing Corporation (MTHC) sites use external laundry operators on a contractual basis. There are a number of leases which are generally based on fixed price. In some instances the contracts use a percentage of revenue form of lease with auditing mechanisms to determine the total revenue and contract entitlements. There are a limited number of suppliers for these services. Due to industry consolidations most contracts are with Coinamatic, the largest such company in Canada and a virtual monopoly in Eastern Canada. The former THC laundry system charges on average, $1.00 per wash and $0.50 per thirty minute dry cycle. The former MTHC charges on average, $0.75 per wash and $0.50 per thirty minute dry cycle. Many communities have not had a rate for many years. Since TCHC is paying for utilities, the significant in the cost of utilities has resulted in a decline in laundry revenue after the costs of utilities in recent years. To determine the low-end of market prices, data was collected from various industry sources including large rental managers, industry experts, other municipal housing providers in GTA and a survey of public laundromats in 40 neighborhoods in the city. Table 1: Comparison of Wash and Dry Prices Source Traditional Laundromat Industry Source Number of Locations Wash Price Dry Price * 200 $1.50 / $1.75 $1.50 / $1.75 Laundromat Survey - Low 40 $1.25 $ 1.50 Laundromat Survey - High 40 $ 2.00 $ 0.25 per 7 min Greenwin Property Management $1.50 / $1.75 $1.50 / $1.75 Del Property Management $1.50 / $1.75 $1.50 / $1.75 Peel Living All locations $1.50 $1.50 New Express Laundromats 20 $ 2.00 $ 0.34 per 8 min * 60 minute cycle unless otherwise noted As noted above, the predominant low-end market prices are $1.50 per wash cycle and $1.50 per 60 minute dry cycle. Most of the premises surveyed are in good condition and most public laundromats offer additional services such as a washer and dryer for bigger loads (double and triple), incremental dry cycle, dry cleaning pickup, etc. The physical attractiveness of the facility has a real impact on use. It is recommended that TCHC moves to a global charge of $1.50 per wash and an equivalent of $1.50 per 60 minute dry cycle (ie 0.75 per 30 minute cycle). Where a Revenue Plan Page 6 of 17

7 case can be made that the prevailing low-end of market cost in a particular community is below this price, the TCHC price will be adjusted to reflect this local pricing. This change will primarily have an impact on former MTHC tenants as they have the lowest rates among the legacy companies. This group represents nearly one-half of the portfolio. When the price of laundry services reach $1.50 per wash and $1.50 per dry overall TCHC revenues will by close to $2m annually. As part of the pricing implementation, TCHC will upgrade facilities and implement new energy efficient equipment in all locations. Improvements will be made prior to any change in pricing. The cost of capital improvements and new equipment can be carried within the envelope of new revenues. TCHC will also investigate the use of smart card technology to reduce vandalism through removing cash from the machines The need to prepay for services may not be financially feasible for some tenants. 2. Parking There are two types of parking: tenant parking and non-tenant parking. Tenant parking is optional parking available to tenants for a monthly fee. Non-tenant parking is parking for visitors and parking spots rented commercially. There are separate requirements and approaches for each. Tenant Parking As with laundry, tenant parking and the pricing of parking were handled differently by the legacy companies. Former Cityhome (a predecessor of Toronto Housing Company), with its predominantly downtown locations, operated a system with local autonomy in terms of pricing (market price based on local conditions), managing and enforcement. Pricing ranges from $30 to $85 per month in the downtown core area Tenant parking at former MTHCL (also a predecessor of Toronto Housing Company) buildings are locally managed but all tenants are charged a flat rate for tenant parking regardless of location. The rates are $30 and $40 for outdoor and indoor spots respectively. There is limited parking enforcement in this system resulting in increasing unauthorized use of parking and abandoned vehicles. Tenants of former MTHC sites are charged a flat rate of $30 per month regardless of location. Parking is operated through a central parking facility with centralized enforcement and local management issuing parking stickers. This system has some advantages, for example it is observed that there are fewer abandoned vehicles in the former MTHC buildings due primarily to the use of parking enforcement and less revenue erosion through unauthorized use of parking spaces. Revenue Plan Page 7 of 17

8 The enforcement unit employs Parking Enforcement Officers who issue parking tags. The revenue from this activity goes to the City of Toronto with no cost or revenue sharing with TCHC. It is estimated that an enforcement officer will write 700 tickets per month. Assuming an average ticket of $20, this can result in an income to the City of $168,000 per officer per year. With a complement of eight officers this is an income to the City of $1.3m per year. TCHC cost of enforcement is currently $500,000 per year. This cost will with implementation of the commitment of d enforcement (improved service to tenants) Any share of parking tag revenues will assist in off-setting the cost of enforcement. To determine the low-end of market prices for tenant parking, survey data was collected from private sector landlords throughout the city covering 115 apartment buildings. The average monthly rates were summarized by area of the city as follows: Table 2: Average Parking Rates Area Boundary Average $/month Downtown South of St. Clair, bounded by Spadina & Sherbourne $83 Midtown St Clair to Lawrence, bounded by Spadina & Bayview $79 North North of Lawrence, bounded by Spadina & Don Valley $77 North East North of Lawrence beyond Don Valley (do you mean East of Don Valley Pkwy) $54 North West North of Lawrence beyond Spadina (West of Spadina) $57 East East of Bayview / Don Valley & North of St Clair $57 South East East of Bayview / Don Valley & South of St Clair $55 West West of Spadina & North of St. Clair $51 South West West of Spadina & South of St Clair $49 Revenue Plan Page 8 of 17

9 Parking rates vary across the city, but in general, the central part of the city (downtown, mid-town and north Toronto) tend to have higher parking rates (ranging from $85 to $77 per month) than the suburban communities to the east and west (in the $50 to $60 range). While current TCHC tenant parking rates have no consistency or equity across the portfolio they are generally considerably below prevailing low-end of market rates throughout most of the portfolio and particularly in the former MTHC buildings where $30 is charged regardless of location. It is recommend that TCHC introduce a flat rate of $50 per month across the portfolio except for those properties already above this (which this, do you mean the levels detailed in the chart above ) level (mostly in the downtown neighborhoods). In the central areas of the city parking rates will be set at $75. Where current rates are above this level, the rates will remain unchanged. Over time, central rates will be adjusted as market conditions change. The current tenant parking rates have been in place since the early 1990 s. Based on current parking usage, once prices reach a flat rate of $50 it will generate an additional $3m of tenant parking revenue while remaining at the low-end of market rates. The in the tenant parking rate will affect the 15,300 registered users of the parking facilities. About 12,000 users currently paying $30 (former MTHC and former MTHCL outdoor rate) are most affected. Staff recommends mitigating this impact by capping the for tenants currently paying for parking at $10 of the current rate each year until it reaches the $50 per month rate. Additionally, there is for generating revenue through enforcement. It is believed that the City currently shares parking revenue with the Toronto Police Services and a recent by-law change allows the Toronto Parking Authority to keep all revenue from the parking tags issued by its enforcement officers. Allowing for a similar change to TCHC could provide a significant revenue stream. Non-Tenant Parking TCHC manages non-tenant parking centrally. The rates are at market, determined by local conditions from time to time. For most downtown locations, an average of more than $100 per month for non-tenant parking is common. Clients rent everything from single spots to entire indoor parking floors (i.e. individual renters to car dealers storing inventory). TCHC also has a large number of visitor parking spaces. Management of the visitor parking varies across communities, but generally is a local management responsibility. Management of visitor parking is a long-standing issue in many communities. Often the spaces are used by tenants or long-term guests, and do not cycle frequently enough to assist with short-term parking needs. To alleviate this problem, a number of trial locations have pay and display and/or meters installed by Revenue Plan Page 9 of 17

10 third party vendors. These trial sites share income with the equipment service providers to the rate of 50% with the first dollars flowing to the service provider. The pay and display machines cost in the range of $15,000 and in most cases pay for themselves in a very short time frame. Based on the results of the pay and display trials, TCHC proposes to implement these systems in more communities, purchasing and operating these machines directly, rather than using third party vendors. Implementation of the machines will also generate revenues. The implementation of the pay and display system will be subject to compliance with local by-laws and related regulations. In the event that this approach is not possible due to changes in City by-laws, TCHC may not be able to manage the visitor parking as proposed. 3. Cable Services The delivery of cable services is also tied to the history of the legacy organizations. Most TCHC tenants (former Cityhome and MTHC) contract directly with the cable company, paying full market rate for cable services. TCHC has a bulk cable agreement with Rogers for the former MTHCL portfolio (20,000 units). The service is for basic plus services (up to channel 42). TCHC buys the signal from Rogers and re-sells the services to tenants at a charge that is added to monthly rent payments. The bulk cable service rate is below prevailing market rates. Current tenant charges are based on the principle/premise of passing through the bulk cable cost plus an administration fee of $3.50 per unit. However, while the cost of bulk cable services has d significantly in recent years the tenant cable charge has remained at $19 per month, unchanged for the past few years, and does not currently reflect the TCHC cost of delivery. The 2003 cost of bulk cable to TCHC is $20.14 per unit per month, plus TCHC administrative costs. The market price for similar services is about $40 per month (including GST & PST). With the tenant cable charge at only $19 per month, there is a 2003 cash flow deficit of approximately $300,000. In addition, Rogers has given notice that there will be an in the bulk cable rate in 2004 of 3% to 5%. The exact amount of the is yet to be determined. The bulk agreement with Rogers will expire at the end of In addition, in buildings where cable service is bulk delivered through TCHC, upgrades to the cable infrastructure have not been made as these have to be borne by TCHC and the capital funds have been directed to building improvements as a priority. Where tenants pay for cable services directly, cable infrastructure has been upgraded by Rogers and digital service is available. It is recommended that the tenant cable charge policy be set as cost pass through plus an administration fee of $3.50 per month for those tenants receiving bulk cable services. The $3.50 administration fee was noted in the recently approved 2004 Interim Operating Plan. TCHC will negotiate with Rogers to upgrade the cable wiring in the former MTHCL buildings in order to enable delivery of digital services to those Revenue Plan Page 10 of 17

11 tenants who want to subscribe to them directly from Rogers. The cable administration fee, effective until the expiration of the bulk agreement, will affect about 20,000 units (1/3 of the portfolio) and generate approximately $600,000 per year to offset some of the costs to maintain the bulk cable service. At the expiry of the current bulk cable agreements, TCHC proposes to withdraw from the delivery of bulk cable signal, and to allow all tenants to purchase commercial services. Staff do not recommend maintaining a differential form of cable service delivery, or the continued capital investment in maintaining, and over time, upgrading the building wiring. There is uncertainly in being able to sustain a bulk purchase agreement at economic levels beyond In addition, staff do not recommend investment of scarce capital in cable distribution technology, particularly where there is likely d volatility in signal markets with competition form satellite and broad-band. 4. Insurance Services Discussions with insurance providers have been restarted to explore the potential for providing two services which could also generate limited income to defray administrative costs related to the program as well as providing a service to tenants. The first is to offer tenant protection insurance on a group basis. There is a recognized need for tenants to have such insurance but it can be difficult to get and can be expensive. Tenant insurance services provide another way to share the risk of insurable loss (for example in case of fire in the unit) and can reduce the premiums on TCHC property insurance. By providing a group plan the price can be reduced, the availability d and TCHC can earn a 5% of premium income. Participation in such a program would be voluntary for all tenants Tenant s are responsible for obtaining insurance as per the terms of their leases. In addition, previous discussions have opened up the possibility of offering employees homeowner and car insurance. The premiums for these services are higher than for tenant insurance and the income potential worthwhile pursuing. Both types of insurance services are available to tenants and staff in the co-op housing sector through the Co-op Housing Federation (CHF). There is a potential to earn $ 60,000 per annum from employee plans and $180,000 from tenant services. 5. Vending Services TCHC is working with a vending company to offer vending services on a trial basis. It is anticipated that this would be tried out in one CHU in the first instance. TCHC will receive a share of revenue depending on volumes sold. The sharing is typically in the 20% range. If the service is viable, the service will be implemented across the portfolio through an RFP process. On a portfolio-wide basis, this could amount to $300,000 per annum. Revenue Plan Page 11 of 17

12 Revenue Generation - Real Estate Based Revenues Real estate based revenues come from antennas and signs on roofs as well as the leasing of retail real estate space. In general the key to managing all of these operations is to develop and manage lease contracts. TCHC has developed a model for the rental of antenna and sign locations. The intent of the strategy is to become a preferred landlord with a structured process for developing new sites priced at a fair market price. This requires a structured process that makes it easy for antenna and sign companies to develop new sites and have a master agreement priced at a fair market price. Antenna and sign companies respond well to this strategy, which has been implemented in the former THC portfolio, and will be extended across the TCHC portfolio. 1. Antenna With more than 100 antenna sites, TCHC has more sites than any property owner in the city. However, the growth in the telecommunications field has slowed and prices have stabilized or even declined in the recent past with regard to antenna sites. The much anticipated growth in the wireless data transmission field has yet to be materialized. When the market was in its growth stage telecommunication companies were actively competing for sites. The current market is one of replacement and renewal more than new site growth. In addition, it would appear that telecommunication companies are cooperating more and sharing information on lease pricing and, in the process, attempting to push prices downward. Two of the four cellular telephone companies are still facing financial difficulties and are not keen in competing for new sites. TCHC is marketing itself as a partner able to deliver to companies many locations across the City, reducing the administrative costs for providers and simplifying their service needs. The 2003 income from antenna is approximately $950,000. While the telecommunication companies have not identified specific future demand for TCHC properties, it is estimated that a 10% to 20% ($0.15m) in the next 3 years would appear to be attainable. 2. Signage Current city by-laws generally allow commercial signs atop commercial buildings but not on residential. However exceptions do occur and variances are given, in particular if there is local support from the relevant Councillor. A number of TCHC properties are zoned as commercial and some of these do have signs or wall hangings on them. In addition, a number of TCHC properties are highly desirable from an advertisers perspective but have not yet had a variance allowing signage. This is particularly relevant to those properties abutting the Gardener Expressway. Revenue Plan Page 12 of 17

13 Discussions have taken place with some of the major banner/sign advertising companies and they have had an opportunity to review the total portfolio. In general the buildings of interest are those in the downtown core. In order for the above revenues to be generated a number of building variances are required and it is important to have the local Councillor in support of the change. Not all Councillors support the notion of large advertising signs and banners. Advertising companies are willing to help and participate in the process but responsibility really lies with the owner of the real estate as advertising companies tend to focus on buildings with existing variances and spend less time working with city hall. The key to success in this area of revenue generation is active management of the portfolio with both sign/banner companies and with City Hall, particularly working with key Councillors. Currently there are four sites for banner or signs generating approximately $90,000 per annum. There is an immediate opportunity to expand the revenue base to approximately $143,000 per annum. In addition there is a medium term opportunity (next 5 years) to expand the revenue to an estimated $ 430,000 per annum based on a verbal response from one company or an of $300,000 by Retail Commercial Real Estate TCHC has approximately 210 retail spaces that it leases to a variety of tenants. Many of these properties are less than prime retail and as a result are leased to non-prime tenants. Many are either used by TCHC itself as office space or leased to community groups at very low-end of market rates. One of the reasons for the quality of the portfolio is historical. Many buildings were built by developers who, as part of the development built retail space to rent on a long-term profitable basis by maintaining a long term head-lease on the commercial portion of the property. When some of these retail spaces proved to be difficult to lease, the builder walked away from the property leaving TCHC with the vacancy problem. Thus unprofitable commercial head leases end up in the TCHC portfolio while profitable ones remain in the hands of the developer. In some locations, TCHC has been able to turn it around while others remain problematic. An audit of the commercial portfolio by a real estate expert identified several rental and lease administration issues as well as quality of the products. Some of the lease administration issues include the need for a more aggressive approach to seek remedy for default, realizing market rent at renewal and improving the leasing process. Much of the quality problem relates simply to location and the fact that the retail space is not consumer friendly. While it is not possible to move the real estate, it is still possible to maximize revenue by improving the quality and identifying alternate uses that are less sensitive to walk-in traffic for those located in less than prime locations. It is also important to maximize revenue for the few downtown prime locations such as those in the St. Lawrence neighbourhood and Senator Croll Mall at Revenue Plan Page 13 of 17

14 Bloor. Commercial real estate management is not the same as social housing rental and the above tenant services. To optimize TCHC s medium size commercial real estate portfolio, professional management will be required. Current gross revenues are $6.3m including shared costs chargeback (taxes and utilities of approximately $2m). It is not anticipated that this can be d significantly in the short term. In the medium term and with professional management, it is expected that net revenue from the commercial portfolio should achieve at least inflation gain of 3% or annual of $120,000. Summary Significant revenue enhancement is possible within the business portfolio of TCHC as can be seen in the summary table below: Table 3: Summary of Revenue Increases Source Revenue Increase Timing Tenant Related Services Laundry $ 2.00m 2004/2005 Parking $ 4.00m 2004/2005/2006 Insurance $ 0.24m 2005 Cable $ 0.60m 2004 Vending $ 0.30m 2005 Real Estate Based Antenna $ 0.15m 2006/2007 Signage $ 0.30m 2006/2007 Commercial Retail Real Estate $ 0.12m 2005 Total $ 7.71m 2007 Revenue Plan Page 14 of 17

15 Implementation There has been a significant lag in adjusting service charges for tenant and commercial services. Increases in any costs to tenants, even those costs not related to rental of the unit, is a sensitive matter. TCHC through the Community Management Plan has made the decision to move to low-end of market pricing. Staff recommends that the issues related to the pricing of services delivered to tenants be addressed at this time. The bigger the gap between charges to tenants and the true cost of the service creates the potential for subsidization of non-rental services. This issue is further aggravated by the fact that not all tenants pay the same rate for the same services. These differential rates are not the result of a planned policy approach, but rather the history of how such services have been delivered in the past. To move the delivery of tenant related services to a more even base, it is recommended that subsequent to Board approval of all new charges, the service rates as approved be implemented in a phased manner, as per the table below: Table 4: Implementation of Charges Tenant Services Laundry (wash) Laundry (dry) Parking (general) ** Parking (central) ** Cable (bulk) Real-estate based Target Price* $1.50/load $1.50/hour $50/month $75/month Actual bulk cost plus $3.50 admin fee (see above) $0.25/load $0.25/load $10 $10 Actual bulk cost plus $3.50 admin fee Increase to market ASAP $0.25/load $0.25/load $10 $10 Actual bulk cost plus $3.50 admin fee market charges market charges market charges $10 Actual bulk cost plus $3.50 admin fee * Target price will be adjusted annually based on cost inflation and market changes ** No if at target market charges market charges market charges market charges Actual bulk cost plus $3.50 admin fee Revenue Plan Page 15 of 17

16 CONCLUSION: The impact of changes to rates on each tenant household will vary considerably, depending on what services are used, and to which former portfolio the community belonged. Overall, the new pricing will allow TCHC to meet the revenue targets identified in the Community Management Plan, meet the revenue obligations set out in the SHRA and will create greater equity of pricing for all TCHC tenants. LEGAL IMPLICATIONS: TCHC will follow all requirements for notice as set out in applicable legislation, including the Tenant Protection Act, with respect to any s in charges for services available to our residential tenants. With respect to commercial activities, it is a standard term in all of our commercial license/lease agreements that the licensee/lessee conduct its business in accordance with all applicable federal and provincial legislation and municipal by-laws. FINANCIAL IMPLICATIONS: The financial implications are as noted above in the report. TCHC will, through implementation of the Revenue Plan, meet the revenue targets set out in the Community Management Plan. The additional revenues will allow for facilities improvements in laundry and parking, and provide revenues to staff in the implementation of the Revenue Plan and in areas such as enforcement of parking. COMMUNICATIONS IMPLICATIONS: Any in rates for any tenant related service will generate concern among many tenants and tenant advocates. During the consultation on the Community Management Plan concerns were raised about the impact rate s would have on low-income households. In approving the CMP, the Board gave due consideration to these concerns, and adopted the target of low-end of market charges, articulating a preference not to subsidize services to tenants or to provide services at significantly lower prices than would be available to other persons in the community, but to ensure services were priced on par with those available at low-end of market generally across the city. The primary objective for TCHC is to deliver subsidized housing for low and moderate income households. TCHC has also committed to improving the quality of housing and providing support services to communities. As discussed in the Community Management Plan, the additional revenues, assist in achieving these goals. Revenue Plan Page 16 of 17

17 Feedback from Tenant Representatives on the implementation of the plan will be provided to the Finance/Audit Committee for their consideration, prior to forwarding recommendations to the Board of Directors. Derek Ballantyne Chief Executive Officer Staff Contact: Gordon Chu, Vice President for Finance and Treasurer Revenue Plan Page 17 of 17