ASSET MANAGEMENT PLAN

Transcription

1 Final Report ASSET MANAGEMENT PLAN MOOSE CREEK (CRG File No ) May 2010 Prepared for: XYZ Housing Main Street Metropolis Territory, Canada M2N 6N5 Prepared by: CRG CanadaWest, a Division of CRG Consulting PO Box 48432, 595 Burrard Street Vancouver, British Columbia V7X 1A2 Tel: (778) CRGCanadaWest@thecrg.com The Corporate Research Group i May 2010

2 TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY STRATEGIC CONTEXT Background Partners/Stakeholders Housing Strategies, Policy, and Objectives Tiering ASSET DESCRIPTION KEY PLAN ASSET CONDITION Capital Repair Summary Summary of Design Problems / Deficiencies Summary of Deferred Maintenance Environmental/Health & Safety Considerations PCB Storage Asbestos and Mould Storage Tanks Natural Features Heritage Considerations Code Compliance Summary of Five and Twenty-Five Year Repair and Capital Work Plans Conclusions OPERATIONAL PERFORMANCE Sub-Service Contracts Utilization Occupancy Performance Analysis Financial FCA vs. Market Rates & Capital Expenditures Utility Cost Analysis Operating Performance Comparison: KPI Operational Efficiency Performance in Relation to Public and Private Peer Standards Net Greenhouse Gas Emissions (GHG) Overall Summary of Operating Performance FUNCTIONAL PERFORMANCE Opportunities for Space Optimization The Corporate Research Group i May 2010

3 7.2 Analysis of Tenant Issues/Concerns Functional Performance Indicators Conclusion FINANCIAL PERFORMANCE Actual Pro Forma Estimated Market Pro Forma Conclusion SUPPLY & DEMAND Supply Demand Gap Analysis MARKET ANALYSIS & VALUATION Central Metropolitan Area Rental Market Overview Metropolis Apartment Investment Overview Market Valuation Conclusion RE-DEVELOPMENT/DEVELOPMENT POTENTIAL IDENTIFICATION AND EVALUATION OF ALTERNATIVES Context and Approach Description of the Service Challenge/Problem Summary of Issues Preliminary Evaluation of Options An Indicative Cost Estimate Option Evaluation (Financial Results) Key Performance Indicators Sub-Options PRE-DESIGN STUDY AND CONCEPT LAYOUT Implementation Plan Cash Flow Risk Register (example template only) APPENDIX A APPRAISAL REPORT APPENDIX B FINANCIAL ANALYSIS The Corporate Research Group ii May 2010

4 Moose Creek, Metropolis Territory, CANADA 1.0 Executive Summary XYZ Housing has developed the following visioning statements, which collectively form XYZ Housing s Vision for their social housing portfolio: We will deliver an ample supply of diverse, good quality, affordable housing of maximum utility that delivers optimum social value and is aligned with the needs of our clients and tenants and their communities; We will develop and maintain a comprehensive, integrated long term asset plan that supports government priorities and is coordinated with the plans of our service and delivery partners; and, We will develop and maintain our portfolio cost effectively to add social value through innovative solutions and high organizational effectiveness. In the context of the portfolio vision, the following are characteristics that form the target of success, which are both tangible and measurable. By achieving a portfolio posture that exhibits these characteristics, a successful migration will have occurred: Portfolio composition driven by client needs; Assets having a predominantly social use; A portfolio reflecting well built, managed and operated assets that maximize opportunities; A balanced and contemporary supply profile; Supports the government agenda for social, strategic and economic programs; Has a safe, secure and comfortable setting; Is responsive to changing client and community needs and priorities. Financially performing assets; Regular determination of the physical condition, functionality and value of owned assets; Assets with have a business plan and strategy, updated annually; and, Prioritizing reinvestment dollars to performing assets. It is within this context, that Moose Creek, considered a premiere site located in Metropolis, be examined through an. Moose Creek is: a large site; with underutilized density; a site whose land value as vacant is greater than that with site improvements; in need of capital upgrade; owned; and free for debenture obligations. Analysis is required to study the long term posture and requirements for development. The accompanying (AMP) provides a real property strategy for Moose Creek, a 26 building social housing complex owned by XYZ Housing and located at East 99th Avenue and Deerbuck Street, in the City of Metropolis, British Columbia. The AMP reviews the asset in terms of its physical, functional, operational and financial performance all within the context of policy and needs/requirements. The AMP also identifies steps needed to correct any problems, and assesses alternative options to providing the accommodation, leading to recommendations for the future of the asset and associated site. The AMP analyses the asset from various performance perspectives, focusing on a triplebottom-line objective. The Corporate Research Group 1 May 2010

5 Moose Creek, Metropolis Territory, CANADA The Moose Creek complex consists of 26 residential townhouse and walk-up apartment buildings, built at a relatively low density on a site area of approximately 8.9 acres, in south central Metropolis. The complex provides a mix of family and seniors housing units, for which existing and longer term demand has been confirmed. Current vacancy in the complex is low and in alignment with or below market rates in the community. The buildings were constructed in 1957 and thus carry a chronological age of 53 years. While they have been well maintained and periodically upgraded, condition reporting shows they require significant recapitalization and are generally reaching the end of their useful and effective lives. The table below summarizes recommended capital requirements over a 25 year horizon, in the event the buildings are retained and upgraded. A total of $ M in repairs and upgrades is recommended over the next five years, including $15.7M in year 1. Over the next 25 years, it is estimated that $23.4M in repairs and upgrades will be required 2, if the buildings are to be retained and maintained. These amounts approach the estimated market value of the complex ($39.3M). A review of financial performance shows that Moose Creek generates a positive operating cash flow, but a loss if capital upgrades are included. Table 1-1, - Five and Twenty-Five Year Upgrade Summary, Moose Creek Year 1 Year 2 Year 3 Year 4 Year 5 5 Year Total 25 Year Total $15,735,029 $678,416 $713,096 $0 $662,211 $17,788,752 $23,374,232 Source: XYZ Housing, 102 Moose Creek 30 Year Needs The AMP also assessed the Operating Performance of the asset, which is generally considered good. In the context of environmental performance, the Operating Performance of the asset, and analytical options, must consider XYZ Housing s environmental stewardship role under provisional legislation. In this vein, energy consumption is within market norms and hazardous materials and greenhouse gas emissions have been measured and intervention strategies have been identified for improvement. Federal Infrastructure funding has been obtained and improvements are being implemented with an expectation of reduced operating costs, energy consumption and greenhouse gas emissions. A market valuation (Appraisal) was completed as part of this AMP and concludes that the estimated market value of the asset is $39.3M 3 (January 2010). The value of the land as if vacant was also valued, and determined to be $50.1M. This value exceeds the value as-is, an indication that the asset is reaching the end of its economic life and redevelopment should be considered for all or parts of the site. The Appraisal Report also notes that the Moose Creek site is developed well below its potential maximum density, and if the site were vacant, new development could potentially be built to a much greater density. This further supports the notion of redevelopment. The Highest and Best Use (HBU) assessment yielded the following results: 1 XYZ Housing,102 Moose Creek 30 Year Needs 2 Source: XYZ Housing Commission 3 Future Value International, Appraisal Report, January 2010 The Corporate Research Group 2 May 2010

6 Moose Creek, Metropolis Territory, CANADA As Improved: An existing property should be retained as long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing. Therefore, the current use should continue to produce holding income pending multi-family redevelopment to estimated density of (FAR) 1.5. As Vacant: Develop in accordance with a revised Comprehensive Development (CD) zoning bylaw with an estimated multi-family residential density (FAR) of 1.5. A series of options were identified and assessed for the development, in order to determine an appropriate longer term strategy. The options identification and assessment, was completed in the context of corporate objectives, portfolio vision, and portfolio objectives, through a multidimensional analytical framework and approach. A full range of options, including those options that involved continued ownership, disposition, and other innovative models, were identified and assessed. These reflect the condition of the development, the demand for the units (tenant needs), as well as market and non-market factors such as the relatively low level of development currently. The rationale associated with the selection of options is described herein as-is the rationale for excluding any options not deemed viable. Key issues affecting Moose Creek and which guide the determination of options can be summarized as follows: There is an identified need for the social housing supply currently provided at Moose Creek; The asset is in fair to good condition but is reaching the end of its useful and economic life, requiring capital upgrades and life-cycle renewal if it is to be retained/maintained; Operating and functional performance are generally good; Financial performance is negative (when capital upgrades are considered); and, The site is not fully developed, and the highest and best use is identified as an increase in density. The Options studied and their financial results are presented in the table below. Financial performance for each option is measured in terms of Net Present Value (NPV), over a 25 year horizon. As shown in the table, selected options yield a positive NPV, meaning in these cases revenues exceed costs. In other cases, costs exceed revenues. The highest positive NPV is associated with Option 4C: Re-development / Densification. In this option, XYZ Housing would act as developer redeveloping the entire site with a mix of social and market housing. The table also identifies whether, and to what extent, the option generates up-front proceeds to XYZ Housing. This reflects a key objective of the analysis, that being to identify ways and means to unlock equity from the assets. On this measure, Stratification and Sale/Lease-Back yield the greatest up-front proceeds to XYZ Housing. The Corporate Research Group 3 May 2010

7 Moose Creek, Metropolis Territory, CANADA Table 1-2, Net Present Value of Options Option Option 1A: Retention (with Full Reinvestment) Option 1B: Retention (with Minimal Reinvestment) Option 2A: Transfer via Sale to Non-Profit Option 2B: Transfer via Long- Term Lease to Non-Profit Option 3A: Adaptive Re-Use (Stratification, 25%) Option 3B: Adaptive Re-Use (Stratification, 100%) Option 4A: Re-development / Densification (FSR 0.75) Option 4B: Re-development / Densification (FSR 1.50) Option 4C: Re-development / Densification (XYZ Housing Develops Land) Option 5A: Divestiture and Purchase Option 5B: Divestiture and Build Net Present Value (NPV) Proceeds to XYZ Housing 25 Year Annual Average Return on Investment (ROI) Internal Rate of Return (IRR) -$20.2M $0.0M -28.9% 3.79% -$9.4M $0.0M 0.5% 4.78% N/A (not feasible/ analyzed) N/A (not feasible/ analyzed) N/A N/A N/A N/A N/A N/A -$15.8M $10.5M 0.1% 3.74% -$3.3M $39.2M 4.0% N/A $3.5M N/A N/A 6.8% $8.4M N/A N/A 9.2% $19.3M N/A N/A 8.0% -$4.6M $4.5M 2.2% 5.1% $9.1M $8.1M N/A 9.6% Option 6: Sale Lease-Back $4.3M $39.3M N/A N/A In view of XYZ Housing s requirement for multi-dimensional analysis, the Options identified were also assessed against XYZ Housing s triple-bottom-line oriented Key Performance Indicators (KPIs). An assessment was completed of how each option could contribute to realizing the KPI and what would be the probability of success. This assessment identified Option 4 (Re-development / Densification) as being the most favourable in this regard. In support of XYZ Housing s objective of promoting and identifying innovation in real property decision making, the AMP also considers smaller-scale development-based innovations. A total of 15 innovative concepts/strategies have surfaced within the portfolio priorities. These were examined for the options identified. The results indicate that a number of innovative strategies may exist for Moose Creek, which are largely independent from the option pursued. The pursuit of re-zoning, integrated social service delivery with partners, and the examination of renewable energies are all advisable innovation strategies. In view of its superior financial and non-financial performance, Option 4C Re-Development / Densification (with XYZ Housing acting as developer and redeveloping the entire site), is identified as the preferred strategy for Moose Creek. A number of associated innovative strategies are also recommended. The Corporate Research Group 4 May 2010

8 Moose Creek, Metropolis Territory, CANADA The implementation plan associated with this option would involve numerous steps and significant pre-planning including re-zoning of the property, tenant engagement programming, undertaking related studies, then seeking swing space. With these tasks completed, redevelopment of the site could be initiated. The pre-planning process is expected to take 2-3 years with the entire redevelopment likely occurring over a multi-year period (estimated at 5-7 years). The estimated cash flow and major steps over this horizon are described at a high level herein. Detailed implementation and associated planning would require further study and analysis. A risk management plan for the preferred option is provided. The Corporate Research Group 5 May 2010

9 Moose Creek, Metropolis Territory, CANADA 2.0 Strategic Context This and the options considered have been developed in recognition of key policies and strategies already developed and approved. Key highlights are below. 2.1 Background The asset is under the control/custodianship of XYZ Housing, a Territorial agency that reports through a Board of Directors to territorial government. XYZ Housing was created in 1955 to fulfill the government's commitment to the development, management and administration of subsidized housing. 2.2 Partners/Stakeholders Service Partners External service partners including NGOs and Health Authorities are involved in service delivery rather than building construction. They provide social housing support services for tenants/clients and building maintenance as part of property management activities. Tenant/client services may include mental health/addition support, skills & employment training, literacy initiatives and community development and participation activities. The relationship between Service Partners and XYZ Housing is normally contractual; XYZ Housing provides contract funding for services as part of an Operating Agreement. Partners and stakeholders involved in the governance and direction of social housing in Metropolis, Canada include: Canada Mortgage and Housing Corporation (CMHC) is Canada's national housing agency. CMHC partners with XYZ Housing through the Canada-Metropolis Affordable Housing Agreement. CMHC also contributes to other housing developments that are jointly funded with XYZ Housing through earlier housing programs. Metropolis Non-Profit Housing Association (MNPHA) provides leadership and support to members in creating and supporting a high standard of affordable housing throughout Metropolis. MNPHA members are primarily non-profit housing providers. Other members include individuals and organizations who care about affordable housing. MNPHA s mission is to ensure that: o All households in Metropolis, Canada have access to safe, secure, and affordable housing o All non profit housing providers who are members of the Association consistently achieve excellence as defined by best practices o All non profit housing providers who are members of the Association provide safe, secure, and affordable housing to their tenants o The public, private, and non profit sectors work respectfully together towards developing and maintaining safe, secure, and affordable housing Human Resources and Skills Development Canada (HRSDC) provides financial support to address homelessness through the National Homelessness Initiative (NHI). The NHI helps governments and community organizations work together to alleviate homelessness. Delivery Partners New construction, renovation and development projects are historical core programs for the Housing Agency. In conjunction with a multitude of private sector, not-for-profit organizations The Corporate Research Group 6 May 2010

10 Moose Creek, Metropolis Territory, CANADA and various levels of government, units and beds are brought on-stream annually to meet the needs of those who require affordable accommodation or are at risk. Partners include Cities and Municipalities, Ministry of Education, Financial Institutions, and Development Companies. Policy Partners Government Ministries and Agencies make primary, government-wide policy decisions that impact the way XYZ Housing conducts its business. While XYZ Housing does not set public policy it has a reciprocal, influencing impact on social and affordable housing policy Some Policy Partners include: National Accommodation and Real Estate Services of Shared Services Canada is in the process of producing the NARES High Performance Building Policy. Due to restructuring of the department, CRG understands that the Policy is still in a very draft form and not available for release. CRG has been made aware that the focus is on LEED Gold as policy for new buildings. Human Resources and Skills Development Canada - The Supporting Communities Partnership Initiative (SCPI) is the centerpiece of the National Homelessness Initiative. SCPI encourages territorial and municipal governments and the private and voluntary sectors to collaborate to strengthen capacity and develop new responses to homelessness. XYZ Housing works with HRSDC to develop new housing in Metropolis. Territorial Government - public partners include: o Ministry of Health; o Ministry of Economic and Employment; o Ministry of Family Care; o Territorial Emergency Program; and, o Risk Management Branch and Government Security Office. Smart Growth is a collection of land use and development principles that aim to enhance our quality of life, preserve the natural environment, and save money over time. Smart Growth principles ensure that growth is fiscally, environmentally and socially responsible and recognizes the connections between development and quality of life. Smart growth enhances and completes communities by placing priority on infill, redevelopment, and green space protection. Contribution Partners To deliver on its strategic commitments, XYZ Housing provides or receives funding in partnership with numerous organizations. Contributions can also take the form of land, fasttracking of processes, tax relief etc. Contributing Partners include Government Agencies and Ministries and the School Districts and two Health Authorities. 2.3 Housing Strategies, Policy, and Objectives Via the Territorial housing strategy, Metropolis Housing Strategies, the Government has affirmed its commitment to XYZ Housing and the following strategic directions: 1. the homeless have access to stable housing with integrated support services; 2. Metropolis's most vulnerable citizens receive priority assistance; 3. aboriginal housing need is addressed; 4. low-income households have improved access to affordable rental housing; The Corporate Research Group 7 May 2010

11 Moose Creek, Metropolis Territory, CANADA 5. homeownership is supported as an avenue to self-sufficiency; and, 6. Metropolis's housing and building regulatory system is safe, stable and efficient. In addition to the 6 strategic directions, 2 new policy changes are in effect: 1. Individuals of households with special housing needs will be given priority access to subsidized housing. 2. Publicly-owned subsidized housing will be renovated to better meet the needs of lowincome households with special housing needs, such as seniors with enhanced accessibility requirements. Older, obsolete building built on under-utilized land will be developed over time to serve more households in need of housing assistance. XYZ Housing, in February 2010, prepared a document entitled Asset Maximization Leveraging Our Portfolio, which outlines a series of strategies and/or vehicles to be considered for each asset to aid in the realization of key strategic directions/objectives and policies of social housing in Metropolis, as summarized above and developed through Metropolis Housing Strategies. This document identifies the following actions that can be taken to satisfy social housing needs: Actions: Adapt existing stock to target resources to those in most need of housing and tenancy support services; Renovate or convert subsidized housing units, or if not feasible, offering units for sale to tenants or for private sale; and, Reinvest the net proceeds of disposition back into housing assistance programs including private market rent subsidies. Key objectives and concerns identified in the report that must also be considered while executing any strategy or action to satisfy social housing needs are: Table 2-1, Portfolio Objectives/Concerns Portfolio Objectives Issue 1. Alignment with Mandate Properties were originally developed to serve different clientele (singles and large families); current client profile is migrating to most vulnerable. 2. Meet emerging Need & Current and projected demand will occur in homeless and seniors Demand for Housing segments. 3. Capture Unrealized Value Many sites located in prime locations with underutilized density. 4. Address Substantial Capital Identified capital liabilities within the XYZHC portfolio currently Renewal Needs millions of dollars. 5. Rationalize Underperforming Average age profile of all XYZHC assets exceeds 35 years; many Assets properties are considered functionally obsolete. Source: XYZ Housing, Asset Maximization, Leveraging Our Portfolio (February 2010) The alignment of potential strategies, financial vehicles and partnerships with portfolio objectives and financial benefits is detailed in Table 2-2. The Corporate Research Group 8 May 2010

12 Moose Creek, Metropolis Territory, CANADA Table 2-2, Alignment of Strategies, Financial Vehicles & Partnerships with Objectives Portfolio Objectives Financial Benefits Portfolio Disposition Potential Timeline To Realize Value Alignment with Mandate Meet emerging Need & Demand Capture Unrealized Value Address Substantial Capital Renewal Rationalize Underperforming Assets Net Revenue Generation Operational Savings Reduced Capital Liability Risk Transfer Strategies A. Own & Operate B. Divestiture $ $ $ $ C. Adaptive Re-Use / Affordable Housing (Stratification) 0-3 years $ $ $ $ Redevelopment / Densification D. (Infill) $ $ $ E. Transfer to Non-Profit $ P $ $ Financial Vehicles F. Asset backed Securitization $ $ $ $ G. Bond Placements $ $ H. I. Real Estate Investment Trusts 0-3 years (REIT) $ $ Joint Venture Development Corporations $ $ $ $ Partnerships J. Aboriginal Partnerships K. $ $ $ $ Other Private-Public- Partnerships 3-5 years $ $ $ $ Other Public-Public- L. Partnerships $ $ $ $ = Meets Portfolio Objectives, $ = Provides financial benefits, P = possible Source: XYZ. Housing, Asset Maximization, Leveraging Our Portfolio (February 2010) On an asset-by-asset basis, where feasible and aligned with Metropolis Housing Strategies 6 strategies and 2 policy changes, the above strategies and innovations are to be considered in a detailed options analysis. The identification and analysis of Options for Moose Creek is in alignment with these identified strategic directions. 2.4 Tiering In 2009/2010 XYZ Housing embarked on an initiative to Tier their portfolio, with the objective of categorizing developments in their Directly Managed portfolio as either performing or nonperforming. As a result, a tool was developed for the study and analysis of the portfolio. Portfolio tiering involved categorizing developments in their Directly Managed portfolio on a scale of The Corporate Research Group 9 May 2010

13 Moose Creek, Metropolis Territory, CANADA performance - including economic / financial performance, social value, and strategic value all through the application of consistent evaluation criteria. Tiering is considered a form of facilitated decision making in alignment with corporate and portfolio objectives. Within each of the triple-bottom-line elements are several individual evaluation criteria that collective score developments in terms of performance. Using pre-determined evaluation criteria at the asset level, with appropriate weighting, each property in the portfolio is assigned to a Tier. The application of portfolio-wide indicators follows, in order to generate an Adjusted Tier for each property. The following schematic explains the process: Figure 2-1, Tiering Schematic Source: XYZ Housing Tiering Logic Diagram (in association with CRG Consulting) Each Tier is accompanied by a definition and potential options and actions for exploration: Table 2-2, Tiering Definitions and Actions Tiers Tier Definitions Tier Options and Actions Tier 1 (High) Tier 2 (Good) Tier 3 (Fair) Tier 4 (Low) The property has high Net Operating Income (NOI), provides strong social benefits and aligns well with strategic objectives. The property has good Net Operating Income (NOI), provides some social benefit and aligns with strategic objectives. The property has fair Net Operating Income (NOI), provides limited social benefit and may not align with strategic objectives. The property has poor Net Operating Income (NOI), provides no social benefit and does not align with strategic objectives. Retain and Maintain; Sell and Invest / Swap; Sell-Lease-Back; Property Bundling; Commercial Opportunities; Densification. Retain, Maintain, and Invest; Partnerships / Leveraging; Densification; Adaptive Re-use. Market for Sale; Hold Strategy; Interim Re- Use; Property Bundling; Partnerships. Demolish and Hold; Demolish and Re-build; Demolish and Sell; Phased Rust Out; Donation; Land Lease; Commercial Opportunities. The Corporate Research Group 10 May 2010

14 Moose Creek, Metropolis Territory, CANADA Source: XYZ Housing Tiering Model (in association with CRG Consulting) The Adjusted Tiering criteria used included three portfolio based performance indicators: Net Operating Income - The Net Operating Income (NOI) of a development seeks to identify how much revenue or income value a development has, after all expenses are charged to the development. Essentially, the NOI is the annual value of a series of charges / expenses against a development, compared to revenues generated; Corporate Social Demand - The Corporate Social Demand (CSD) involves the identification of quantified potential demand for social housing in defined geographic areas in which XYZ Housing inventory resides. The concept involves examining the core need that is currently tracked by the Canadian Housing and Mortgage Corporation, and subtracting the XYZ Housing presence in that same geographic area; and, Property Performance Indicator - The Property Performance Indicator (PPI) involves the identification of the potential liquidity of the property associated with the development. The indicator assumes liquidity based on the monetary value of the land, depreciated by select liabilities, factoring marketability. The results of the Tiering exercise include: 5 developments categorized as Tier 1, 70 as Tier 2, 78 as Tier 3, and 39 as Tier 4. The results of the adjusted Tiering amend the results to be: 4 developments categorized as Tier 1, 74 as Tier 2, 91 as Tier 3 and 23 as Tier 4, The results for the Metropolis Region, the area which includes Moose Creek, are as follows: Table 2-3, Metropolitan Region Tiering Results Tier Tiering Result Adjusted Tiering Result Tier Tier Tier Tier The Moose Creek development was Tiered based on its three separate land parcels Metropolis Housing Property identification of 1002, 1003, and 1004, all sub-components of File Reference 102. The following results are displayed at the Metropolis Housing Property identification levels. Moose Creek 1002 achieved a Tier 3 result for both the initial Tiering result and the adjusted Tiering result. The following provides the Tiering results for the evaluation criteria of economic / financial performance, social value, strategic value, and the portfolio-based evaluation for Moose Creek 1002: Economic / Financial Performance: o Facility Condition Index scores of 1 or poor. o Operating Cost score of 2 or fair. o Maintenance Cost score of 1 or poor. o Vacancy Rate score of 3 or good. o Assessed Value score of 1 or poor. o Total Overall Score of Performer. The Corporate Research Group 11 May 2010

15 Moose Creek, Metropolis Territory, CANADA Social Value: o Community Demand score of 3 or good. o Proximity score of 3 or good. o Employment Benefits score of 3 or good. o Environmental score of 2.2 or good. o Stakeholder Satisfaction of 1 or poor. o Total Overall Score of Diamond. Strategic Value: o Corporate Linkages score of 1.7 or fair. o Future Potential for Development score of 0.3 or poor. o Leveraging Opportunities for Partnership score of 2 or good. o First Nation / Aboriginal Interests score of 0 or poor. o Total Overall Score of Negligible. Portfolio Indicators: o Net Operating Income score of 3 or good. o Property Performance Indicator scores of 3 or good. o Corporate Social Demand score of 1 or poor. o Total Overall Score of good. The Tiering results indicate that Moose Creek 1002 is one of 12 moderately performing assets in the Metropolitan Region and one of 91 in the Territorial directly managed stock. Moose Creek 1003 also achieved a Tier 3 result for both the initial Tiering result and the adjusted Tiering result. The following provides the Tiering results for the evaluation criteria of economic / financial performance, social value, strategic value, and the portfolio-based evaluation for Moose Creek 1003: Economic / Financial Performance: o Facility Condition Index scores of 1 or poor. o Operating Cost score of 2 or fair. o Maintenance Cost score of 1 or poor. o Vacancy Rate score of 3 or good. o Assessed Value score of 1 or poor. o Total Overall Score of Performer. Social Value: o Community Demand score of 3 or good. o Proximity score of 3 or good. o Employment Benefits score of 3 or good. o Environmental score of 2.2 or good. o Stakeholder Satisfaction of 1 or poor. o Total Overall Score of Diamond. Strategic Value: o Corporate Linkages score of 1.7 or fair. o Future Potential for Development score of 0.3 or poor. o Leveraging Opportunities for Partnership score of 2 or good. o First Nation / Aboriginal Interests score of 0 or poor. o Total Overall Score of Negligible. Portfolio Indicators: o Net Operating Income score of 3 or good. o Property Performance Indicator scores of 3 or good. The Corporate Research Group 12 May 2010

16 Moose Creek, Metropolis Territory, CANADA o o Corporate Social Demand score of 1 or poor. Total Overall Score of good. The Tiering results indicate that Moose Creek 1003 is of the same value as Moose Creek 1002, and is one of 12 moderately performing assets in the Metropolitan Region and one of 91 in the Territorial directly managed stock. Moose Creek 1004 achieved a Tier 3 result as well for the initial Tiering result and migrated to a Tier 2 in the adjusted Tiering results. The following provides the Tiering results for the evaluation criteria of economic / financial performance, social value, strategic value, and the portfolio-based evaluation for Moose Creek 1004: Economic / Financial Performance: o Facility Condition Index scores of 1 or poor. o Operating Cost score of 2 or fair. o Maintenance Cost score of 1 or poor. o Vacancy Rate score of 3 or good. o Assessed Value score of 2 or fair. o Total Overall Score of Performer. Social Value: o Community Demand score of 3 or good. o Proximity score of 3 or good. o Employment Benefits score of 3 or good. o Environmental score of 2.2 or good. o Stakeholder Satisfaction of 1 or poor. o Total Overall Score of Diamond. Strategic Value: o Corporate Linkages score of 1.7 or fair. o Future Potential for Development score of 0.3 or poor. o Leveraging Opportunities for Partnership score of 2 or good. o First Nation / Aboriginal Interests score of 0 or poor. o Total Overall Score of Negligible. Portfolio Indicators: o Net Operating Income score of 3 or good. o Property Performance Indicator scores of 3 or good. o Corporate Social Demand score of 1 or poor. o Total Overall Score of good. The Tiering results indicate that Moose Creek 1004 is one of 21 performing assets in the Metropolitan Region and one of 74 in the Territorial directly managed stock. Overall Moose Creek achieved a Tier 3 result. The recommended actions for an asset in this tier include: Market for Sale; Hold Strategy; Interim Re-Use; Property Bundling; Partnerships. The option analysis considers these and associated options and is therefore in keeping with this strategic direction. The Corporate Research Group 13 May 2010

17 Moose Creek, Metropolis Territory, CANADA 3.0 Asset Description Asset Name: Municipal Address: Occupancy Type: Responsibility Centre: 102 Management Responsibility & Model: Business Unit #: Building Construction: Building Class: # of separate buildings on site: 26 Asset Profile Moose Creek Complex Multiple locations on: East 99th Avenue and Deerbuck Street, West 33 rd in the City of Metropolis, Canada Seniors and Family XYZ Housing Moose Creek 102A - 102Z Wood Frame low to medium rise Residential Digital Picture File of Building Elevations & Site: (digital pictures removed) Site Profile Lot Area & Dimensions: Maximum Permitted Building Area (square feet): Land Use: Location Analysis: a) Site Accessibility/Public Transportation b.) Proximity to health care centres, other amenities etc.) Public Utilities & Services: Site Access: Special Operating Considerations: Parking Stalls Available: Topography: Environmental Liabilities: (Site Assessment - Phase 1 or 2): HazMat Survey: Municipal Services: Street Improvements: Three parcels of land totalling 385,654 ft² A) th Street ft x ft B) 5678 Stirling Street x 1,177.3 x C) 7890 Berkeley St x x 1, ,692 ft², potential for increased density Medium Density Residential Within walking distance of public transit Child Care Facilities, Clinics, Community Recreation Centres, all within 1 km of site. All municipal services and programs that are typical within a central suburban location. Vehicle access from all thoroughfares and pedestrian access from a series of walkways and paths Section 97 Asset Exterior Only, Undefined Flat Some asbestos containing materials (drywall compound only) in 5555 Nanaimo Street Older fluorescent light fixture ballasts may contain polychlorinated biphenyls Lead paint in areas. All services usual to a suburban site including natural gas, electricity, water, sanitary and storm sewer, telephone, fire and police protection A series of low rise and walk up wood frame buildings. Landscape The Corporate Research Group 14 May 2010

18 Moose Creek, Metropolis Territory, CANADA Services & Amenities: Parking Requirement under Zoning: improvements and shrubbery Shared laundry facilities, recreation facilities run by outside agency programs, meeting spaces N/A Legal Profile Legal Description: A) Block 123 District Lot 456 & 457 Plan B) District Lot 777 Plan C) District Lot 777 Plan PID: A) B) C) Current Zoning: CD-1 Future Zoning Potential: Potential increase in FSR from 0.37 to 1.5 Heritage Designation: No Encroachments: N/A Easements / Rights of Way: N/A Date of Construction: 1957 Chronological Age: 53 years 4 Remaining Economic Life: 10 (est.) Investment Profile Major Renovation Dates: re-piping Present Market Valuation: $39,250,000 as at December 22, 2009 Replacement Valuation: N/A Critical Assumptions Income was estimated based on non-restricted market rates; (Valuation): Operating Costs were estimated based on industry averages reflecting similar asset type Net Heated Floor Area: 144,513 ft² Gross Floor Area: 144,513 ft² Rentable Floor Area: a.) Residential 144,513 ft² b.) Office N/A c.) Storage N/A d.) Commercial N/A Total 144,513 ft² Usable Floor Area (U): a.) Residential 144,513 ft² b.) Office N/A c.) Storage N/A d.) Commercial N/A Total 144,513 ft² Effective Age: 30 Estimated Service Life 10 Remaining: Assessment & Tax Data: Land: 2010 Assessment: A) Land - $949K, Improvements - $660K = $1,609K 4 Estimates are provided in the absence of a Cost Approach valuation of the property. Economic life of this type of building is estimated to be 60 years. The Corporate Research Group 15 May 2010

19 Moose Creek, Metropolis Territory, CANADA B) Land - $11,937K, Improvements - $284K = $12,221K C) Land - $4,235K, Improvements - $3,772K - $8,007K Existing Debentures & N/A, Fully amortized January 1, 2010 Outstanding Mortgages: Property Strengths: Established residential neighbourhood; Ongoing demand for the units; Potential redevelopment site; Good setting for families; Unit mix comprises mostly 2 and 3 bedrooms, responds to need Property Weaknesses: Reaching the end of its economic life Does not maximize site potential Requires recapitalization Property Summary: The complex was constructed in 1957 and consists of: 169 units of: o 18 - studio apartments; o 32-1 bedroom units; o 73-2 bedroom units; o 42-3 bedroom units; o 3-24 bedroom units; and, o 1 - Other units. Book Valuation: N/A Space Optimization / Utilization: N/A, the utilization of the asset matches to the demand and tenant profile. Occupancy Profile Tenant/Use Profile (Description Supportive Senior (36 units) and Family (132 units) & Program Strategy): Current Vacancy Rate: 1% (September 2010) Projected Average Occupancy 98% + Rate: Occupancy & Vacancy The actual vacancy rate of 1% is lower than the average market Performance Analysis vacancy rate of 1.2% for bachelor and 1 bedroom apartments. Current Building Occupancy 99% Rate: Market Vacancy Rate: 1.2% Expiring Lease's / OIs: N/A Market Data Market Value (Stabilized $39,250,000 Occupancy) : Vacant Land Value: $50,140,000 Effective Gross Rents Market Actual Residential : $800 to $1,725 $430 average Subject Leases: N/A N/A Office: N/A N/A Commercial: N/A N/A Storage: N/A N/A Capitalization Rate: 3.32% Maximum Building Density Built to zoning capacity however potential for increased density Utilization: Highest & Best Use: Future redevelopment Highest & Best Use as Similar use but at higher density Improved: The Corporate Research Group 16 May 2010

20 Moose Creek, Metropolis Territory, CANADA Capital & Repair Budget Year 1 Year 2 Year 3 Year 4 Year 5 Total $15,735,029 $678,416 $713,096 $0 $662,211 $17,788, Year Capital Plan Total / per sq. ft. $161.74/ft² Annual Cost of Capital / per sq. ft. $5.39/ft²/year Total 25 Year Capital Budget: $23.4M Summary of Deferred Maintenance: a) Sample of Individual $23,374,232 Building Condition Report b) Summary of Design Moisture ingress at some locations of stucco walls. Problems/Deficiencies c) Environmental/Health & Old freezers/fridges may contain CFCs Safety Considerations Cinder block walls may contain vermiculite Some lead pain is present d) PCB Storage Old fluorescent fixtures may contain PCBs e) Asbestos and Mould Asbestos containing materials were identified in selected buildings f) Storage Tank N/A but electromagnetic and ground penetration radar surveys are recommended i) Other considerations N/A Financial Analysis (5-Year Historic) Year 1 Year 2 Year 3 Year 4 Year 5 Total 5 Year ROI: 0.58% 0.55% 0.65% 0.41% 0.84% 3.04% 5 Year Average 0.61% ROI: Net Present Value: 25 Year -$11.4M EACOA (25 Year): N/A N/A N/A N/A N/A N/A Subject O&M $353.3K $409.9K $380.0K $556.1K $472.7K $2,172.2K Expenses: PILT: $80.5K $93.2K $90.6K $92.5K $83.6K $440.5K Capital: $0 $0 $112.8K $210.6K $0 $323.5K HOLDING - PV of 5 $38.9M initial investment less reversion value): TOTAL EACOA N/A N/A N/A N/A N/A N/A Operational & Functional Indicators (Summary and Comparison) Overall Building Condition Building components are rated from poor to good, but most Report Summary: upgrades ranked as low priority. Building Energy Performance 24 ekwh/ft² Index (BEPI) Building Efficiency Analysis: Gross/Rentable = 0% Gross and rentable are reported as equal Operating Performance Comparison (summary): The subject site, when compared to the XYZ Housing portfolio, is within operating norms. Code & Bylaw Compliance: The asset is in conformance with local zoning and bylaws Facility Condition Index (FCI): 22% Year 1 5 Difference of market value ($39.2M) and CMHC loan at date of transfer ($0.4M) The Corporate Research Group 17 May 2010

21 Moose Creek, Metropolis Territory, CANADA Tenant Satisfaction: Overall Summary of Operating Performance (summary): Utility Cost Analysis (summary): 62% satisfied Areas for improvement in GHG emissions and utility consumption have been identified. Electricity and fuel are utilized at the site. Electricity represents roughly one third of energy consumption however it represents almost half of energy costs. Upgrades to the building have been identified that can reduce energy consumption. The Corporate Research Group 18 May 2010

22 Moose Creek, Metropolis, CANADA 4.0 KEY PLAN The following maps and photos identify Moose Creek, (anonymous) location and associated elements. Figure 4-1, Locational Map (hypothetical) (removed) Source: Google maps Canada The Corporate Research Group 19 May 2010

23 Moose Creek, Metropolis,, CANADA Figure 4-2, Locational Map (in context to neighbourhood) (removed) Source: XYZ Housing Figure 4-3, 4843 Main Street (example photos only) Source: Google maps Canada Figure 4-4, 4375 James Street (foreground) and 5498 John Street (background) (photos are examples only) The Corporate Research Group 20 May 2010

24 Moose Creek, Metropolis,, CANADA Source: Google maps Canada Figure 4-5, th Avenue (example photo only) Source: Google maps Canada Figure 4-6, 5439 Jane Street (example photo only) The Corporate Research Group 21 May 2010

25 Moose Creek, Metropolis,, CANADA Source: Google maps Canada Figure 4-7, 4378 Michael Street (example photo only) Source: Google maps Canada The Corporate Research Group 22 May 2010

26 Moose Creek, Metropolis,, CANADA 5.0 Asset Condition Asset condition was determined through a building audit performed by XYZ Housing in 2008 and 2009 along with a Life Cycle Model. The objective of this work was to identify repair and capital items for the asset and to determine the following characteristics: Discipline; Component; Description of required intervention; Urgency of intervention; Action type e.g., replace, renovate; Action priority e.g., low, medium, high; Year of intervention; and, Estimated cost of intervention. Sub-Structures No deficiencies have been identified for this discipline. Shell Many of the components date as far back as 1957 with updating, some as recently as The condition of the shells range from poor to fair with the majority of the components having an urgency rating of either medium or high and requiring immediate attention in the short-term. Actions deemed as having a high priority are: Perform investigation of the face sealed stucco cladding at the row houses; Replace exterior wood doors in conjunction with the rehabilitation of the exterior walls; and, Replace windows in conjunction with the rehabilitation of the exterior walls. Interiors Some recent work was performed in 1996; however, the majority of the interior finishes date back to 1957, with their condition ranging from poor to good. The urgency of these upgrades is considered to be low, with the following recommendations targeted to be completed in the near-term: Replace bathroom vanities and counter tops as required, upon change in occupancy; Repaint suite entry doors; Replace kitchen cabinets and counter tops as required, upon change in occupancy; Repaint suite interior walls upon change in occupancy; Replace carpet and resilient flooring in suites as required, upon change in occupancy; and, Replace suite interior doors upon change in occupancy. The Corporate Research Group 23 May 2010

27 Moose Creek, Metropolis,, CANADA Services Since 2003 upgrades have been performed on the following components: Domestic Water Distribution; Intercommunications And Paging; Security Systems; and, Exit & Emergency Light Systems. Most of the services are in good condition; however, the following items have been identified as a high priority: Domestic water piping in row houses has surpassed its life expectancy and requires replacement. The replacement of the domestic water piping is expected to cost in excess of $2.5M over the investment horizon. Equipment and Furnishings Although these components date as far back as 1957, they are in good condition and have an action priority of low. The entire cost over the investment horizon is roughly $1.2M and this is split between short-term needs (0 to 5 years) and long-term needs (20+ years). Building Site Work Identified site upgrades recommended to be undertaken in the near-term include: Repair curbs and parking lots; Replace concrete patio slabs; Repair, patch and seal asphalt paving as required; Repaint wood fences and repair any damaged portions of the fences; Repaint wood fences at perimeter of cottages and repair any damaged portions of the fences; Repair stone work at concrete steps; Replace concrete stairs; Re-grade landscaping at building perimeter. Install cribbing and drain-rock, as required; and, Repair wood sheds as required and repaints. 5.1 Capital Repair Summary The identified 30-year total cost of upgrades is $23.4M 6, 76% ($17.83M) is recommended to be undertaken within the first five years. Recommendations deemed to be of high urgency include: Replace domestic water piping; Investigate face sealed stucco cladding; 6 Source: XYZ Housing, 102 Moose Creek 30 Year Needs The Corporate Research Group 24 May 2010

28 Moose Creek, Metropolis,, CANADA Replace exterior doors; and, Replace windows. The total cost of high priority components is roughly $5.5M, of which $2.7M is recommended to be undertaken in year 1. The following graphs show the share of costs based on categories. Figure 5-1, Capital Cost Timing (less infrastructure subsidy) Source: XYZ Housing, 102 Moose Creek 30 Year Needs Figure 5-2, Priority Costing Source: XYZ Housing, Detailed Needs Listing 102,104,111,114,172 -Pivot Costs -Discipline The Corporate Research Group 25 May 2010

29 Moose Creek, Metropolis,, CANADA Figure 5-3, Discipline Costing Source: XYZ Housing, Detailed Needs Listing 102,104,111,114,172 -Pivot Costs -Discipline 5.2 Summary of Design Problems / Deficiencies Only minor design problems/deficiencies were noted and identified: On all buildings, the face sealed stucco walls are generally in poor condition, with evidence of moisture ingress at some locations; and, At 5826 Southwest Street, the level of surrounding grade is too high with respect to cladding and the top of foundation. 5.3 Summary of Deferred Maintenance Deferred maintenance is the practice of purposely postponing maintenance or recapitalization activities such as repairs in order to save costs, meet budget funding levels, or realign available budget monies. This practice can lead to asset deterioration and ultimately asset impairment. While there is no evidence of intended deferrals, recent condition reporting undertaken at Moose Creek indicates a cumulative renewal requirement in excess of $ M in Environmental/Health & Safety Considerations In November 2009, Atlantic Environmental Consulting Services (PECS) was engaged by XYZ Housing to complete a Phase 1 Environmental Site Assessment of the properties at Moose Creek. The report identified only minor issues as highlighted below. The report also concluded that the site s environmental risk rating was low and that subsurface intrusive investigation did not appear to be warranted at that time. Fridge/freezers may contain chlorofluorocarbons (CFCs) and must be disposed of in accordance with the Ministry of Environment s Territorial Ozone-Depleting Substances 7 Source: XYZ Housing, 102 Moose Creek 30 Year Needs The Corporate Research Group 26 May 2010

30 Moose Creek, Metropolis,, CANADA and Halocarbons Regulations (2004). Any fridge/freezer must be treated as a CFCcontaining until it has been determined otherwise; Cinder block wall can potentially have asbestos-containing insulation (in the form of vermiculite) contained within them; and, A total of five (5) samples of paint suspected of containing lead were collected. 5.5 PCB Storage Fluorescent light fixtures were observed throughout most buildings in the Moose Creek Complex. The light ballasts within these fixtures may contain PCB s. Prior to renovations or demolitions, potentially affected fluorescent light fixtures that contain PCBs must be identified. Any ballast found to contain PCBs must be disposed of in accordance with applicable regulations. Environmental analysis undertaken is silent on the issue of PCB storage. 5.6 Asbestos and Mould Mould: No mould was reported within Moose Creek. Asbestos: Bulk samples for asbestos-containing material were taken by PECS in June 2005 and November 2009 and indicate the presence of asbestos containing materials at 5749 Bushbuck Street. There is no regulatory requirement for identified asbestos-containing materials to be removed. However, all asbestos-containing materials remaining in place must be incorporated into an Exposure Control Plan (ECP) to ensure they are suitably labelled and monitored. This will ensure the well being of building occupants by instigating procedures to ensure that occupants and contract workers are not inadvertently exposed to airborne asbestos fibres. If any of the asbestos-containing materials are to be removed, appropriate asbestos abatement work procedures must be utilized. 5.7 Storage Tanks Presence of underground storage tanks (or former tanks) is not known with certainty. For due diligence, it is recommended that electromagnetic and ground penetration radar surveys be carried out to confirm/refute possible underground storage tanks on site. 5.8 Natural Features The site contains lawns, flower gardens, bushes and hedges. All plantings are well maintained and well manicured. 5.9 Heritage Considerations There are no heritage issues or designations which apply or impact the subject asset Code Compliance No code issues were identified for the Moose Creek complex Summary of Five and Twenty-Five Year Repair and Capital Work Plans The five and 25 year capital plans for Moose Creek are summarized in the table below. As shown, more than $18M in repairs and upgrades are recommended over the next five years and The Corporate Research Group 27 May 2010

31 Moose Creek, Metropolis,, CANADA in excess of $40.7M over the 25 year horizon. A review of these items shows more than 50% are deemed low priority items, and are therefore not considered mandatory at this time. Table 5-1, Five and Twenty-Five Year Upgrade Summary Year 1 Year 2 Year 3 Year 4 Year 5 5 Year Total 25 Year Total $15,735,029 $678,416 $713,096 $0 $662,211 $17,788,752 $23,374,232 Source: XYZ Housing, 102 Moose Creek 30 Year Needs 5.12 Conclusions Condition of the asset is reported to be fair to good, with only minor issues reported. However, condition reporting indicates numerous of the buildings and systems require significant upgrading and recapitalization, and many are nearing the end of their useful and economic lives. The Corporate Research Group 28 May 2010

32 6.0 Operational Performance 6.1 Sub-Service Contracts XYZ Housing is the owner of the asset and provides day-to-day management. On site XYZ Housing property and asset management personnel are supported by numerous contracts/contractors (garbage/snow removal, etc.). 6.2 Utilization The asset comprises 169 residential units providing accommodation for single seniors and families. There is a mix of units and unit types, with the 169 units in the assets divided as follows: Figure 6-1, Utilization Rate Moose Creek Source: XYZ Housing, Property Data The utilization matches the current tenant profile. 6.3 Occupancy Performance Analysis The asset is operating at/near full capacity, with a current vacancy of only about 1%. This is below market averages. This level of occupancy and vacancy has been reported for a considerable length of time, an indication of longer term demand for the units. 6.4 Financial Cumulatively over the last five years, Moose Creek has generated a positive Net Operating Income (NOI), excluding recapitalization costs. For every dollar collected in revenue, $0.68 went towards paying operating costs, utilities, and taxes, leaving $0.32 as the NOI. The Corporate Research Group 29 May 2010

33 Market analysis suggests that a private sector building, offering a similar level of accommodations as Moose Creek would report a greater NOI, likely in the range of 70%. 8 Lower/poorer financial performance at Moose Creek is deemed to largely reflect its lower rental income which is not market based but rather established as a percentage of the occupants gross income. Indeed, operating costs at Moose Creek are lower than market norms, which would suggest a higher NOI, not lower as is the case. The detailed operational and financial assessment is provided in Section 5.7 and Section FCA vs. Market Rates & Capital Expenditures Condition reporting undertaken by/for XYZ Housing identifies forecasted/recommended repairs and upgrades for Moose Creek, and other XYZ Housing assets. This analysis indicates a significant requirement for recapitalization over the next five and 30 year horizons. Additionally, Turnkey Canada on behalf of XYZ Housing researched the Deferred Maintenance Backlog for selected XYZ Housing assets and developed Facility Condition Indices (FCI s) for these assets, including Moose Creek. FCI is a measure to determine and rate the condition of a building, group of buildings or portfolio. FCI ratings have been adopted by the U.S. Government Accounting Standards Board (GASB), as standard practice for Facility Condition Assessments (FCA) and Building Evaluation Reports (BER). FCI represents the backlog of needed upgrades (unfunded liability) as a proportion of replacement cost of an asset and can be calculated at any point in time. The following represent accepted FCI benchmarks: A Good FCI rating is achieved when the unfunded liability for the asset(so) is less than 5% of the current asset(s) replacement value; A Fair FCI rating is achieved when the unfunded liability for the asset(s) is between 5% and 10% of the current asset(s) replacement value; A Poor FCI rating is achieved when the unfunded liability for the asset(s) is between 10% and 30% of the current asset(s) replacement value; and A Critical FCI rating is achieved when the unfunded liability for the asset(s) is greater than 30% of the current asset(s) replacement value. The current (2010) FCI for Moose Creek is 22. A rating at this level is considered Poor. Significantly, recent capital infusions (Infrastructure Funding) will reduce the asset s FCI to 8, categorizing the assets considerably lower, at a Fair rating. 6.6 Utility Cost Analysis The average annual cost of utilities at Moose Creek was reported to be $138,005 (5 year average). This represents 15% of all expenses, or $817 on a per unit basis. A review of selected market rental buildings suggests that on a percentage basis utility costs are in-line with industry norms, although on a per unit basis they are well below norms, with a market average in excess of $1,150, versus $817 per unit at the subject. 8 Source: Appraisal Report, Future Value International, January 2010 The Corporate Research Group 30 May 2010

34 The following tables summarize overall energy usage per square foot from They also provide the cost and total amount of greenhouse gas emissions for Moose Creek (144,513 ft²), in comparison to all 473 XYZ Housing sites (~8.7M ft²) that were reviewed as part of a 2009 study (Crystall Engineering Operations Energy Performance Report): Table 6-1, Fuel Consumption and GHG Emissions Moose Creek XYZ Housing (all sites) Year Consumption Emissions Cost Consumption Emissions Cost (ekwh/ft²) (tonnes /ft²) ($/ft²) (ekwh/ft²) (tonnes /ft²) ($/ft²) Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) Table 6-2, Electricity Consumption and GHG Emissions Moose Creek XYZ Housing (all sites) Year Consumption Emissions Cost Consumption Emissions Cost (ekwh/ft²) (tonnes /ft²) ($/ft²) (ekwh/ft²) (tonnes /ft²) ($/ft²) Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) Table 6-3, Total Energy Consumption and GHG Emissions Moose Creek XYZ Housing (all sites) Year Consumption Emissions Cost Consumption Emissions Cost (ekwh/ft²) (tonnes /ft²) ($/ft²) (ekwh/ft²) (tonnes /ft²) ($/ft²) Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) When fuel and electricity usage are combined, Moose Creek s equivalent kilowatt hours per square footage of the heated floor area (ekwh/ft²) or Building Energy Performance Index (BEPI), was 24.3 in Other XYZ Housing properties range from 0 to 78, with the average BEPI being Moose Creek is ranked 229 th in efficiency of the 473 properties studied. The Corporate Research Group 31 May 2010

35 Figure 6-2, Building Energy Performance Indicators (BEPI) Moose Creek Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) Energy costs, consumption and greenhouse gas emissions for Moose Creek are in the mid range, when compared to other XYZ Housing properties. In October 2008, XYZ Housing retained independent energy service companies to complete comprehensive energy audits and feasibility studies at all Territorial public housing buildings. The assessments confirmed the scope of renovation or retrofit measure, its cost and the resulting Net Savings (net energy, greenhouse gas emission, and operational cost savings) utilizing the following basic criteria; The intent to reduce GHG emissions by 50% averaged over the entire portfolio of directly managed facilities; and, GHG emissions still being produced after April 2010 will need to be offset through the purchase of Carbon Credits at a cost of $25/tonne per year for all GHG emissions produced. $4.6M was budgeted and approved to perform the following upgrades at Moose Creek with a goal of reducing energy consumption and subsequently GHG emissions: Lighting retrofits in common and tenant areas along with various electrical upgrades; Low flow fixture replacement along with the installation of a site water meter; Mechanical system upgrades including boiler and furnace replacement along with a new controls system; Building envelope upgrades including window and cladding replacement; and, Domestic cold water re-pipe of the townhouses. The scope of work will not only improve energy consumption but also reduce the effective age of the asset increasing its life expectancy by 11 years. It has been estimated that the recommended improvements will result in annual utility savings of $36,745 which will reduce GHG emissions by 17% or 92 tonnes. This equates to a 63 year simple payback. The Corporate Research Group 32 May 2010

36 6.7 Operating Performance Comparison: KPI Operational Efficiency Table 5-5 provides the operating performance history of the asset including a breakdown of revenues and all expenses. Of note, expenses (expenditures) include mortgage costs. These are fully reimbursed (by CMHC) and are therefore a pass-through and have been removed for purposes of calculating NOI. Table 6-4, Unit Financial Performance 5 Year Annual Average 5 Year Monthly Average Total /ft² /Unit Total /ft² /Unit Revenue Territorial Contribution Tenant Rent 743, ,400 61, Sundry Revenue 17, , Revenue 760, ,502 63, Expenditures Salaries & Labour 92, , Mortgage Costs 323, ,915 26, Modernization & Improvements 64, , Building Maintenance 157, , Utilities 138, , Operating 46, , Grants In Lieu Tax 88, , Office And Overhead Expenditures 910, ,390 75, Net - 150, , Net before Capital and Debt (P&I) 238, ,410 19, Source: XYZ Housing, Moose Creek Operating 5 yr Statements xlsx 6.8 Performance in Relation to Public and Private Peer Standards Performance in relation to other public and private sector norms/standards, is presented in detail in Section 11 and in the accompanying Appraisal Report, and generally shows Moose Creek to be in-line with both market and public sector norms. 6.9 Net Greenhouse Gas Emissions (GHG) Metropolis's government Bill 22 states that the province must reduce greenhouse gas emissions by 25% by the year 2010 and that all public sector organizations (including XYZ Housing) must be carbon neutral by the year Accordingly, XYZ Housing retained the services of Crystall Engineering Ltd., to prepare an Operations Energy Performance Report which was to collect, organize and consolidate data for the XYZ Housing portfolio as required to meet the GHG reporting requirements. The report includes: Overall energy use summary; The Corporate Research Group 33 May 2010

37 Benchmarking of energy use by site for various groupings; Site level energy use reporting; and, Meter level CUCUM savings reporting compared to 2005 base year. The portfolio summary of energy consumption and costs is highlighted in figures below. Figure 6-3, Portfolio Energy Consumption Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) The above figures illustrate that fuel represents roughly 2/3 of total energy consumptions; however, it represents only slightly more than half of all costs. Total consumption by type of energy and the total amount of greenhouse gas emissions for 2008 are: Table 6-5, 2008 Energy Consumption and GHG Emissions Type Consumption GHG Emissions (tonnes CO 2 e) Fuel 464,568 GJ 23,131CO 2 e Electricity 62,630,572 kwh 1,385 CO 2 e Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) At an estimated carbon tax of $25/tCO 2 e the total tax cost is roughly $612,900 with fuel generating the most GHG emissions representing approximately 94%. The following energy consumption and GHG levels were calculated for Moose Creek: Table 6-6, Energy Consumption and GHG Emissions Year ekwh (millions) Consumption Cost Emissions ekwh/ft² $ $/ft² Tonnes Tonnes/ft² $183,384 $ $183,186 $ $184,336 $ $191,676 $ Source: Crystall Engineering Ltd, Operations Energy Performance Report (September 2009) The Corporate Research Group 34 May 2010

38 6.10 Overall Summary of Operating Performance Operating performance of Moose Creek is considered good, with energy costs and consumption levels within norms when comparing Moose Creek to other XYZ Housing assets. Steps have been identified to reduce energy costs and greenhouse gas emissions, ensuring this asset remains in accordance with the requirements of Bill Functional Performance The functional performance of an asset relates to its ability to provide services to/for its intended occupancy. While XYZ Housing has no formal accommodation or functional standards, it is noted that Moose Creek was originally constructed to provide social housing and related services and specifically to serve families and seniors (single and multiple occupancies). It continues to provide this same service and to these same groups, and on this basis it can be concluded that it remains a functional asset. 7.1 Opportunities for Space Optimization Opportunities for space optimization are considered minimal, as the asset continues to serve its original purpose and is essentially at full capacity/occupancy. Nonetheless, in keeping with tenant needs and requirements, internal space and accommodation alterations and optimizations are ongoing. 7.2 Analysis of Tenant Issues/Concerns Tenant issues/concerns are highlighted from tenant surveys. The most recent survey conducted by Survey Inc was sent to all XYZ Housing tenants in the province in December 2009 (both online and in paper format). Out of the total 6,495 surveys sent out, 2,449 were returned, resulting in an overall response rate of 37.7%. The survey consisted of questions regarding the physical condition of the building, and services and accommodations provided. The survey results indicate overall high levels of tenant satisfaction. Highlights of the survey for Moose Creek and the overall XYZ Housing portfolio are as follows: Moose Creek respondents had a net satisfaction of 62%, lower than the net satisfaction portfolio-wide (74%); Moose Creek respondents felt a net good of 57% in XYZ Housing's performance in meeting their housing needs. Portfolio-wide, the tenant rating was higher (72%); XYZ Housing staff performance scored a net good of between 45% (responds to repair requests in a timely manner) and 62% (provides information on how to contact them). The XYZ Housing portfolio as a whole received a higher rating, ranging between 67% and 75%; Satisfaction with maintenance ranged from 42% to 67%, with the suite maintenance score on the low end and exterior grounds on the high end (67% portfolio-wide); At Moose Creek, the overall level of safety of the various areas of the building scored a net good of 54%. The safeness of lobby areas rated a net good of only 43%. The XYZ Housing portfolio as a whole received a higher overall rating (66%); Moose Creek respondents feel that XYZ Housing is very good at providing affordable housing, garden and grounds maintenance and general maintenance (cleaning and repair); and, The Corporate Research Group 35 May 2010

39 Respondents indicated XYZ Housing can improve in the areas of security (i.e. improved lighting), janitorial, suite maintenance and staff (i.e. response time, helpfulness, etc) at Moose Creek. 7.3 Functional Performance Indicators Moose Creek is comprised of: 8 low-rise wood framed residential apartment buildings; 17 wood-framed residential townhouse buildings; and, 1 wood frame amenity building. The complex consists of: 169 units: o 18 - studio apartments; o 32-1 bedroom units; o 73-2 bedroom units; o 42-3 bedroom units; o 3-24 bedroom units; and, o 1 - Other unit. Common space of: o fitness rooms; o lounges; o gardens; o garden walkway; o 2 laundry rooms; o 30 washers; o 30 dryers; and, o exterior parking. The Corporate Research Group 36 May 2010

40 Figure 7-1, Moose Creek Aerial (aerial photo removed) Source: XYZ Housing The functional performance of the asset can be gauged/measured by the following metrics: Table 7-1, Functional Performance Metrics Metric Description Target Actual Response Building Efficiency Ratio Rentable Area Gross Area 15% 0% Vacancy Rate Overall annual vacancy rate. 1.2% 1% Density Ratio Percentage of Market to Non- Market Units Floor Space Ratio (FSR) vs. Building Site Footprint Rentable Area (# of units Occupants) # of residential market units total # units FSR =0.37 Building footprint: 69,660 ft² Site area: 385,654 ft² tbd tbd tbd 0 tbd tbd Rentable and gross areas are reported to be the same The actual vacancy rate of 1% is lower than the average market vacancy rate of 1.2% for the Metropolitan Southeast End There are no market units in the asset. FSR may be less than what could be achieved under a rezoning 7.4 Conclusion Moose Creek is functioning as per its original design to provide housing to single and multiple occupants in a medium density environment. A tenant survey indicates that although the tenants are generally satisfied with the level of service, improvements could be made with respect to staff performance, security, cleaning and suite maintenance. The Corporate Research Group 37 May 2010

41 Moose Creek, Metropolis, CANADA 8.0 Financial Performance This section provides detailed financial performance of the asset over the previous 5 year period. Financial analysis of options is presented separately (see Section 12). 8.1 Actual Pro Forma The following figure summarizes the financial performance of the asset over the last five full fiscal periods. The figure also shows the variance (annually) between budget and actual results. Figure 8-1, Five Year Financial Performance Symbol Legend: Revenue: Green arrow; >= 5% Yellow arrow; < 5% >= 0 Red arrow; < 0 Expenses: Red flag; > 0 Yellow flag; < 0 and >= -5% Green flag; < -5% 2004/ / / / /09 Actual Budget Variance Actual Budget Variance Actual Budget Variance Actual Budget Variance Actual Budget Variance REVENUE PROVINCIAL CONTRIBUTION TENANT RENT 647, , % 702, , % 708, , % 792, , % 866, , % SUNDRY REVENUE 15,100 12, % 16,700 14, % 17,499 15, % 18,475 15, % 18,987 15, % REVENUE 662, , % 719, , % 726, , % 810, , % 885, , % EXPENDITURES SALARIES & LABOUR 107,308 88, % 108,232 95, % 67,328 95, % 90,812 98, % 87, , % MORTGAGE COSTS 316, , % 1,010,341 76, % 51,773 76, % 56,676 76, % 182,814 56, % MODERNIZATION & IMPROVEMENTS , , BUILDING MAINTENANCE 69,222 74, % 115,719 75, % 117,386 67, % 274,428 71, % 210,563 75, % UTILITIES 134, , % 144, , % 153, , % 139, , % 119, , % OPERATING 42,610 46, % 41,753 47, % 41,839 48, % 51,692 45, % 55,429 39, % GRANTS IN LIEU TAX 80,544 80, % 93,156 85, % 90,591 86, % 92,549 99, % 83,629 91, % OFFICE AND OVERHEAD % % EXPENDITURES 750, , % 1,513, , % 635, , % 916, , % 739, , % Net -88, , % -793, , % 91, , % -105, , % 146, , % Net before Capital and Debt (P&I) 228, , % 216, , % 255, , % 162, , % 329, , % Source: XYZ Housing The Corporate Research Group 38 May 2010

42 Moose Creek, Metropolis Territory, Canada As shown: Revenue has shown a steady increase during this period; Expenses have been up and down, varying based largely on the extent of capital upgrades in certain years; and, Net Income (NOI) has increased in this period. Figure 8-2, Cumulative and Average 5 Year Results Overall Cumulative 5 Year Change 5 Year Annual Average Change Actual Budget Variance Actual Budget Variance REVENUE PROVINCIAL CONTRIBUTION TENANT RENT 3,717,685 3,326, % 743, , % SUNDRY REVENUE 86,760 71, % 17,352 14, % REVENUE 3,804,445 3,398, % 760, , % EXPENDITURES SALARIES & LABOUR 461, , % 92,228 96, % MORTGAGE COSTS 1,618, , % 323, , % MODERNIZATION & IMPROVEMENTS 323, , BUILDING MAINTENANCE 787, , % 157,464 72, % UTILITIES 690, , % 138, , % OPERATING 233, , % 46,665 45, % GRANTS IN LIEU TAX 440, , % 88,094 88, % OFFICE AND OVERHEAD 343 1, % % EXPENDITURES 4,554,600 2,873, % 910, , % Net -750, , % -150, , % Net before Capital and Debt (P&I) 1,191,824 1,124, % 238, , % Source: XYZ Housing 8.2 Estimated Market Pro Forma 9 The following table provides a summary pro forma statement for the asset, as prepared as part of the valuation. It reflects imputed financial performance of the asset if it were subject to market norms and conditions. 9 Source: Future Value Narrative Appraisal dated January 18, 2010 The Corporate Research Group 39 May 2010