fall 2005
TRANSCRIPT
University of LouisvilleStudent Housing Business Plan Presentation
Market AnalysisOperations ReviewImplementation Plan
University of LouisvilleMarket Analysis
BenchmarkingStudent SurveyDemand Projections
3
Market Analysis
Benchmarking Profile of Off-Campus Properties
Sample Size: 22 properties located within 15 miles of campus
Property Size: 42 to 689 units; median 208 units Leases: All offer 12-month leases; majority offer
6- or 9-month leases (most for an additional charge)
Security deposits: $0 to $450 Occupancy: 77% to 100%; median 92%
4
Market Analysis
Benchmarking Off-Campus Rents by Unit Type
$565
$890 $930 $1
,080
$460
$459 $5
62
$779
$390
$345
$369
$550
Efficiency
(n=6)
1 Bedroom
(n=20)
2 Bedroom
(n=21)
3 Bedroom
(n=8)
High
Median
Low
5
Market Analysis
Benchmarking Peer Institutions
SUNY at Buffalo University of Cincinnati University of Illinois – Chicago University of Kentucky – Lexington University of Memphis University of Missouri – Columbia University of Nevada – Reno University of Pittsburgh University of South Florida Wayne State University
6
Market Analysis
Benchmarking Peers: Beds/Units as a % of Enrollment
Median: 12%65%
25%
23%
23%
12%
12%
12%
12%
10%
9%
7%
SUNY at Buffalo
University of Pittsburgh
University of Kentucky-Lexington
University of Missouri-Columbia
University of Memphis
University of Illinois-Chicago
University of Louisville
University of Nevada-Reno
University of Cincinnati
University of South Florida
Wayne State University
18%University of Louisville Proposed
7
Market Analysis
Benchmarking Peers: Fall 2004 Occupancy
Median: 98.5%
100%
100%
99%
99%
98%
97%
93%
82%
University of Cincinnati
SUNY at Buffalo
University of Illinois-Chicago
University of Pittsburgh
University of Louisville
University of Missouri-Columbia
University of Nevada-Reno
University of Memphis
8
Market Analysis
Benchmarking Peers: Room Rate Traditional Double
Median: $3,800
$4,790
$4,680
$4,636
$4,510
$4,190
$3,400
$3,363
$3,168
$3,108
$2,620
University of Illinois-Chicago
University of Cincinnati
SUNY at Buffalo
University of Pittsburgh
University of Nevada-Reno
University of Missouri-Columbia
University of Kentucky-Lexington
University of Louisville
University of South Florida
University of Memphis
$4,600University of Louisville Proposed
9
Market Analysis
Benchmarking Peers: Room Rate Suite Double
Median: $4,636
$5,290
$5,210
$5,138
$4,790
$4,750
$4,636
$4,280
$4,250
$3,777
$3,108
$2,912
University of Nevada-Reno
University of Illinois-Chicago
University of Cincinnati
University of Pittsburgh
University of Missouri-Columbia
SUNY at Buffalo
Wayne State University
University of Kentucky-Lexington
University of Louisville
University of South Florida
University of Memphis
$5,140University of Louisville Proposed
10
Market Analysis
Student Survey Off-Campus Housing Costs Per Person
Single Students
$425
$300$250 $250
$144
$117
$100 $102
$569
$417
$350 $352
One Bedroom
(n=45)
Two Bedroom
(n=93)
Three Bedroom
(n=47)
Four Bedroom
(n=23)
Utilities
Rent
11
Market Analysis
Student Survey Off-Campus Housing Costs Per Unit
Married/Family Students
$450 $525$625
$175$160
$245$625
$685
$870
One Bedroom
(n=16)
Two Bedroom
(n=38)
Three Bedroom
(n=11)
Utilities
Rent
12
Market Analysis
Student Survey Median Price Per Unit Comparison With
Market Rents
Students are generally renting at or below the median price in the market
Married/family students generally seek lower cost housing than single student who share the rent
ASL Market Sample $460 $459 $562 $779
Single Student Survey Respondents $392 $425 $600 $750
Married/ Family Survey Respondents - $450 $525 $625
EfficiencyOne
BedroomTwo
BedroomThree
BedroomMarket
13
Market Analysis
Student Survey Unit Types and Rents Tested in the Survey
Renovated Traditional Double
Full renovation that includes new furniture, new wall and floor finishes, replacement of heating and cooling, plumbing, electrical systems, and new windows so that the hall is like
when it was first built
$3,920 $436
Improved Traditional Double
Full renovation as described above plus more private and less crowded bathrooms, new study/ lounge areas, expanded public
areas including kitchens, laundries, and meeting rooms, improved in-room temperature control, and new acoustically
insulated windows
$4,600 $511
New Semi-Suite DoubleNew construction, two double rooms sharing a semi-private
bath (similar to Kurz Hall)$5,140 $571
New Semi-Suite SingleNew construction, two single rooms sharing a semi-private
bath (similar to Kurz Hall)$5,860 $651
DescriptionTested AY Rent
Monthly EquivalentUnit Type
14
Market Analysis
Student Survey Most Important Factors Respondents
Considered in their Housing Decision
0 500 1000 1500 2000 2500
Availability of parking
Ability to meet other students/social atmosphere
Physical condition of the housing
Freedom from rules and regulations
Security
Have own bedroom
Have personal space/privacy
Adequate living space
Proximity to campus facilities and services
Affordable cost
Weighted Scale
OverallOn CampusOff Campus
15
Market Analysis
Student Survey Interest in Proposed Housing
45%
18%
37%
20%
26%
57%
18%
15%
9%
9%
41%
On Campus Off Campus Total
Would not have livedthere.
Probably would not havelived there (less than a50/ 50 chance).
Might have lived there(50/ 50 chance).
Definitely would havelived there.
16
Market Analysis
Student Survey Reasons for Lack of Interest in Proposed
Housing
0 100 200 300 400 500 600
Prefer University Tower or Medical/Dental Apartments
Prefer Louisville Hall
Prefer existing traditional campus housing
I already own a home
Prefer Bettie Johnson Hall
I live with my spouse and/or children
I do not want to move
Concerned about the level of rules & regulations
I live with my parents/relatives
Prefer to rent off campus
The housing is too expensive
Number of Respondents
Off Campus
On Campus
17
Market Analysis
Demand Projections Off-Campus Student Demand – Fall 2004
Overall, 7.5% of current off-campus residents “would” or “might” be interested in the proposed housing
Significant percentage of off-campus freshmen interested
ClassCapture
Rate50%
ClosureCapture
Rate25%
Closure
Freshmen 2,167 8% 82 30% 164 245
Sophomores 1,884 2% 22 17% 79 101
Juniors 2,120 5% 48 21% 114 161Seniors 2,285 3% 36 17% 98 134
8,456 187 454 641
Full-timeOff-Campus Enrollment
Projected Demand
Definitely InterestedMight Be Interested
18
Market Analysis
Demand Projections On-Campus Student Demand – Fall 2004
Overall, 32% of current on-campus residents “would” or “might” be interested in the proposed housing
Lower-division students most interested
ClassCapture
Rate50%
ClosureCapture
Rate25%
Closure
Freshmen 1,550 50% 389 35% 135 524
Sophomores 604 45% 135 35% 53 187
Juniors 164 30% 24 53% 22 46Seniors 68 33% 11 33% 6 17
2,386 560 215 775
Full-timeOn-Campus Enrollment
Projected Demand
Definitely InterestedMight Be Interested
19
Market Analysis
Demand Projections Total Demand by Unit Preference – Fall 2004
Demand at higher rents for renovated traditional halls and new semi-suites still exceeds the proposed supply of 1,033 beds
Renovated Traditional Double $3,920 18% 117 20% 158 274
Improved Traditional Double $4,600 30% 194 42% 323 517
New Semi-Suite Double $5,140 20% 127 19% 149 276New Semi-Suite Single $5,860 32% 204 19% 144 348
Total 100% 641 100% 775 1,416
Preference Demand
Total Projected Demand
2004 Rent Per Student
Per AY Unit TypeOff-Campus Students Preference Demand
On-Campus Students
University of LouisvilleOperations Analysis
Progress Report Challenges and Opportunities Visioning the Future
21
Operations Review
Overview Four Aggressive Years of Growth and
Improvements Challenges and Opportunities Remaining
Major issues and recommendations for University Leadership
Major Issues and recommendations for Housing and Residence Life
Visioning the Future
22
Operations Review
Progress Report Four Years of Growth and Improvement
General fund subsidy has been eliminated from the housing budget
Student housing capacity has doubled in four years from 9% to over 18% of fulltime undergraduate students
ULP surpluses have been used, in part, to expand renovations in traditional U of L residence halls
23
Operations Review
Progress Report …More Improvements
Housing license cancellation policies and penalties have been strengthened to reduce mid year vacancies and improved spring occupancy by 2-3 % annually.
Space renovated in Threlkeld for the Etscorn Honors Center
Publications and marketing efforts have been enhanced considerably
Policy review has been completed with policy adaptations for enhanced student service have been implemented
24
Operations Review
Progress Report … And Even More Improvements…
Strengthened overall residence hall security and fire safety program with access control and sprinkler systems
House calls and Facility Assistant visits implemented in each hall
Enhanced First Year Experience for students in residence halls through personal calls before fall semester, meetings with first year students (MPACT), roommate contracts, and several other initiatives
25
Operations Review
Challenges and Opportunities Recommendations for University Leadership
Effect the coordinated marketing and management of UofL Housing with ULP
For a specified period of years consistent the housing master plan, re-direct general fund overhead charges and housing budget surpluses directly to the residential capital projects
26
Operations Review
Challenges and Opportunities Recommendations for University Leadership
Effect the coordinated marketing and management of UofL Housing with ULP
For a specified period of years consistent the housing master plan, re-direct general fund overhead charges and housing budget surpluses directly to the residential capital projects
27
Operations Review
Challenges and Opportunities Recommendations for University Leadership
Delegate to the Housing and Residence Life management team the decisions of where students should be assigned based on market forces and educational needs.
Develop a plan to eliminate the requirement that upper class students living on campus must purchase a meal plan
28
Operations Review
Challenges and Opportunities Recommendations for University Leadership
Appoint a task force of faculty and student affairs and housing staff to develop a strategic plan for an expanded focus on residential learning
Provide appropriate educational funds to support the residential learning initiatives needed to support recruitment and retention of students
29
Operations Review
Challenges and Opportunities Housing and Residence Life
How can the residential facilities and the on campus experience support recruitment and retention of students?
Can we guarantee housing to all first year students? What is the primary focus of the educational experience in
residence life? Developing business practices that enable full tracking of all
fiscal issues while allowing reduction in operating costs Adapting practices where appropriate from the Allen &
O’Hara management and marketing model
30
Operations Review
Challenges and Opportunities Recommendations for Housing Leadership
Develop a plan, in collaboration with enrollment management, to guarantee all first year students who apply by May 1st each year (and thereafter as well)
Identify market niches and marketing strategies to increase overall fall occupancy by 2-3% within three years
31
Operations Review
Challenges and Opportunities Recommendations for Housing Leadership
Establish first year residence halls so that front-loaded student support can efficiently enhance their retention to the sophomore year
Centralize residence education and student services around a simplified and focused residential experience to enhance the success of first year and other residential students
32
Operations Review
Challenges and Opportunities Recommendations for Housing Leadership
Reduce operating expenses through re-organization, more clearly focused student academic success activities, and re-engineered business practices
Develop a business model scenario applying the ULP operations structure to UofL Housing to clearly identify the added operating expenses of the current H&RL budget
Analyze the differences to determine if the added expenses are justified by student outcomes in terms of recruitment or retention
33
Operations Review
Visioning the Future A Vision for the Cardinal’s Residential
Experience The educational experience of living on campus is
recognized and valued Aggressively funded capital investments transform the
traditional residence halls into engaged learning environments with comfortable and secure accommodations
The recruitment of next generation students is enhanced by the quality residential facilities and programs at the University of Louisville
University of LouisvilleImplementation Plan
Scope Financial Plan Summary Recommendations
35
Implementation Plan
Scope On-Campus Facilities
Operations: All existing halls Capital Improvements: Residential master plan
projects; others deferred ULP Beds
Bettie Johnson, Kurz, and Campus Commons not in financial model
Project surpluses source of revenue only Merger of management systems to be determined
36
Implementation Plan
Scope ULP Merger/Acquisition
Ownership to remain with ULH No financial benefit to University ownership Risk of financial default should remain with ULH Improving net available cash flow to University Additional debt service not advisable in wake of $50
million in new debt for residential master plan Management
Short-term: Process re-engineering to approach vision Long-term: Realignment to single point of control
within University to achieve vision
37
Implementation Plan
Financial Plan Challenges and Constraints
Rental rates are low High operating costs per bed Ongoing renewal and replacement Existing debt service Low reserve balance
Outcome: Minimal debt capacity exists to fund renovations and quality construction
38
Implementation Plan
Financial Plan Creating Debt Capacity
Increase rents faster than operating costs Charge rental premiums for comprehensive
renovations and new construction Trim operating costs and non-operating transfers Minimize capital expenses
Outcome: Increased cash flow that can be leveraged to fund capital improvements
39
Implementation Plan
Financial Plan Revenue Assumptions
6% annual escalation through FY2009 all beds 45% premium in year following project completion 95% post-completion occupancy
Operating Cost Assumptions Current operating results as baseline 3% annual inflation (i.e., 3% less than rents) 10% reduction in year following completion
40
Implementation Plan
Financial Plan Capital Improvements
Capital Expenses 25% of annual surplus, if available
Construction Costs Based on input from planning team $160 per gross square foot for new construction
Development Budgets Include FF&E, design fees, development costs,
contingency, and financing costs Average markup 33% of construction costs
41
Implementation Plan
Financial Plan Financing and Reserves (New/Reno)
Bond coupon rate 5.5% 5.0% Term 30 yrs 20 yrs Earnings on reserves 2.5% Reserves
Balance of $1.0 million assumed as of 7/1/2005 Operating surpluses are transferred to reserves Operating deficits are funded from reserves Provide backup debt service coverage
42
Implementation Plan
Financial Plan Summary
ProjectProjectType
Revenue Beds/Units
Development Budget
Scheduled Completion
49A: West Hall Vacate 0 - Aug-2006
49B: Center Hall Vacate 0 - Aug-2006
49C: Wellness Hall Vacate 0 - Aug-2006
New Commons Phase 1 New Construction 250 14,309,000 Aug-2007
Threlkeld Hall Renovation 241 9,467,000 Aug-2008
New Commons Phase 2 New Construction 250 14,733,000 Aug-2008
Stevenson Hall Vacate 0 - Aug-2009
Miller Hall Renovation 292 11,830,000 Aug-2009
Unitas Towers Deferred 298 -
University Tower Apts Deferred 100 -
Medical Dental Complex Deferred 100 -
Louisville Hall Deferred 209 -
1,740 50,339,000$
43
Implementation Plan
Financial Plan Bed Distribution
0
500
1,000
1,500
2,000
2,500
3,000
3,500
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
ULP BedsSingleDoubleTripleQuad
44
Implementation Plan
Financial Plan Operating Budget
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Net RevenueOperating CostNet Operating Income
45
Implementation Plan
Financial Plan Debt Service Coverage
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Target Min. Coverage
Debt Service Coverage
46
Implementation Plan
Financial Plan Reserves
($5,000)
$0
$5,000
$10,000
$15,000
$20,000
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Restricted for Debt CoverageUnrestricted FundsTransfer To (From) Reserves
47
Implementation Plan
Summary Recommendations Establish advisory team to oversee the Plan Collaborate with Academic Affairs to establish
living/learning environments Formalize inter-departmental business processes and
agreements in support of full auxiliary status Seek operational and programmatic efficiencies to
reduce operating costs Implement phased facilities renewal plan Move oversight and control of ULP management to
Residence Administration
48
Extra Slides Follow
49
Implementation Plan
ULP Analysis Key Provisions of Partnership Structure
Annual Rent Equal to the Net Available Cash Flow Revenues less operating expenses, debt service,
management fee (6%), and deposits to reserves
Debt is non-recourse to the University Purchase Option
Purchase price equal to outstanding principal balance Lessor responsible for loan recording fees and transfer
taxes
50
Implementation Plan
ULP Analysis Ground Rent Received
Through FY2003, University reports $337,623 revenues received
For FY 2004, ULP financial statements report ground lease expenses (payments?) Bettie Johnson Hall $531,172 Kurz Hall $435,494
Though less than projected because of early tenant issues, the properties now have the potential to return projected cash flow
51
Implementation Plan
ULP Analysis Purchase Option for Bettie Johnson Hall
ULP Debt Outstanding principal balance$23,485,000 Annual debt service $1,365,000
University annual debt service on refinancing $1,706,000 at 6.0% TIC $1,528,000 at 5.0% TIC $1,358,000 at 4.0% TIC
52
Implementation Plan
ULP Analysis BJH Outstanding Balance and Refinancing
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
Pri
ncip
al
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
An
nu
al P
+I
Series 2001 Pincipal
P+I at 4% Refi RateP+I at 5% Refi Rate
P+I at 6% Refi Rate
53
Implementation Plan
ULP Analysis BJH Breakeven Analysis of Purchase
Estimated revenue for FY2005$2,600,000
UL operating expense budget for FY2006 is $2,995/bed or $10.43/gsf
4% TIC 5% TIC 6% TIC
Estimated Revenues 2,600,000$ 2,600,000$ 2,600,000$
Less: Debt Service (1,358,000)$ (1,528,000)$ (1,706,000)$
Operating Cost Allowance 1,242,000$ 1,072,000$ 894,000$
Cost per Bed 490 beds $2,535 $2,188 $1,824
Cost per GSF 175,277 gsf $7.09 $6.12 $5.10
54
Implementation Plan
ULP Analysis Conclusions
Housing will have difficulty operating within a cost structure necessary to breakeven
Current ground lease payments would have to be replaced, requiring an even more efficient operation
With planned renovations and new construction, the timing is not advantageous for taking on additional debt for the acquisition
55
Implementation Plan
ULP Analysis Recommendation for BJH
Do not exercise purchase option until Housing can meet or exceed current operating results
In the near term, solve problem of split management systems through a re-engineering of processes rather than through acquisition
In the long term, reconsider acquisition when planned renovations and construction are complete and if advantageous financially and risk-wise