A Pathway to Successful Facility and Strategic Planning JOHN ZUMBRUNNEN, CEO zumBrunnen, Inc. – Atlanta, GA MARIO MCKENZIE, PRINCIPAL CliftonLarsonAllen LLP – Charlotte, NC ANGELA LARSON, CFO Montereau – Tulsa, OK

JOHN H. ZUMBRUNNEN, CEO zumBrunnen, Inc. - Atlanta, GA and Charlotte, NC University of North Dakota, BSME US Army Corps of Engineers Construction Engineer, 1972 ETP 35 years in construction and construction consulting Founded zumBrunnen, Inc Founded FacilityForecast® Software 1998 Extensive experience: – Construction inspection/quality control – Construction administration – Facility condition assessment – Capital replacement budgeting Associations or Participation in: –LeadingAge and States: FL, NC, SC, GA, IL, OH, PA, TX, MA, CA –CASP, CLAS, CAST –APRA (Association of Professional Reserve Analysts) –CAI (Community Association Institute for CIRA) and States: GA, NC, SC, Fl –NCAIS and SAIS (Independent Schools), NBOA (National Business Officers Association for Independent schools) Faculty and Author: - UNT Coalition for Leadership in Aging Services (CLAS) National Certification Program for Aging Services Professionals (CASP) - CLAS Author: “Asset Management” class room and online training - Industry Publications and White Papers

Demonstrates how: The Montereau executive team and the board worked with their financial and engineering consultants to model and identify strategic options from which a mission-based comprehensive strategic plan was developed. It was critical to their strategic planning process to answer: What are the physical limitations and capital replacement needs of my community, What services and improvements are needed, and What can we afford?

The Challenge: Appropriate and Timely Responses Executives need facility information - CMMS – Short- and long-term expenses – Maintenance performance – Client (resident) satisfaction – Cost reduction/improvement Nimble Boards: good dashboards – Mission and vision – Accurate market information – Competition, needs, and capacity – Determine financial health and capacity – Physical health – Response time is becoming more critical Strike while the iron is hot

Strategic Facilities Plan Has 4 Fundamentals 1.Comprehensive understanding of the true condition of your existing facilities 2.Near-term improvement plan 3.Long-term strategic plan 4.Funding/financing plan Existing building expenses and funding requirements as related to your overall strategic facilities plan are identified via a “Reserve Study….”

Reserve Studies - More Than a Cap X Budget Objective and Comprehensive Reporting to: – Your clients – residents, home owners, patients – Boards, agencies, lenders, auditors, other benefactors Validate: – Repair, renovate, reposition or replace – Model projects – Fee rates or increases Fund Reserves Per Your Business Model and Strategic Plan: – Do not under reserve or over reserve – Capital campaigns Identify Other Work and Future Capital Projects: – Combine multiple repairs and projects into one – ID replacements/repairs to include with project or refinance

Process and Goals Team Senior level independent engineering consultants, 20+ yrs. Coordinate inspections and interviews with all departments Consider all previous reports, proposals, budgets, etc. Other specialty consultants as needed Managed by an executive officer (CFO or other professional) in your organization Goals Tailor the study to clients business model Structure reporting format to client reporting needs Consensus and ownership Defendable and executable

Funding Methods Fund Depreciation – Amortize the replacement cost of the building Component Method (aka Fully Funded Method) – Fund individual components of the building based on their depreciation schedule Cash Flow Method (aka Proportional Funding) – Fund the replacement cost of just those assets to be replaced during a specified period of time Special Assessment Method – Pay as you go

Cash Flow Method Annual Reserve Funding = $3M for years and $2.7M for 2018 and balance $1.6M Max. reserves is = $4.7M in year 2027, which is 32% of accumulated depreciation

Component Method (aka Fully Funded) Annual Reserve Funding = $3M for years , $2.6 M in 2018 and the remaining years ranges from $2.1M - $2.6M Max. reserve: $4.7M Cash Flow (previous page) vs. Fully Funded of $16.7 M This funding method ties up a lot of cash, which can be used for other purposes

White Paper - Take Home “Fundamentals of a Reserve Study and Reserve Funding Plan” – Better understanding of the fundamentals of a Reserve Study