BUSINESS PLAN
DATE: TO:
Client ABC
CC:
Alex O’Brien, President / Eddie Moreno, VP, Operations
FROM:
Community Manager, Community XYZ
RE:
Community XYZ – Annual Business Plan
Dear Client ABC, Over the last year, our team has reviewed the performance of the community relative to the market over the previous leasing season. After reviewing previous year’s performance and the position of the asset in relation to the market, we developed the enclosed 2019 branding, messaging and leasing strategy attached, which will help drive occupancy and rate performance goals, and craft the marketing mix our team will employ to achieve those goals. The accompany operating budget reflects the execution of the projected revenue goals for the 2019 fiscal year, as well as the expense management and operational strategy for the corresponding period. Previously provided rate and occupancy recommendations are attached to complete our 2019 Annual Business Plan. We look forward to achieving your investment objectives in the upcoming fiscal year, while providing the best possible living-learning experience for our residents, the universities they attend, and community in which they live. Sincerely,
Community Manager Cardinal Group Management
C O M M U N I T Y XY Z
–C I T Y , STATE
T A BL E OF C ON TEN TS
1. Executive Summary 2. Community Overview 3. Operational Expense Strategy A. B. C. D. E.
General & Administrative Payroll and Team Repairs & Maintenance Service Contracts Turnover
4. Capital Recommendations 5. Exhibits A. Rate Recommendation Memo B. Annual Marketing Strategy C. Operating Budget Summary - Fiscal Year 2018
Executive Summary Cardinal Group Management strives to maximize the value of every community through aligning performance and operational success. After a successful leasing year, Community XYZ is positioned to achieve an average occupancy of 85.4% through the first eight months of 2019 at an average rate per bed of $627/month for new leases and $619/month for renewals. The CGM team has completed a comprehensive analysis and is committed to focusing on the following key measures through the leasing season to ensure that occupancy projections are met for the 2019 leasing cycle:
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Position the asset at an attractive price point to capture high volume early renewals with rates that equate with the 2018-2019 effective rates per floor plan while strategically pursing rate growth in new leases and significantly reducing concessions Continue to pursue Community XYZ brand messaging to focus on three primary brand advantages: cottage style living, larger units than the competitive set, and a vibrant and exciting lifestyle. Engage residents with life-style focused events that emphasize our re-branding message, including community sponsored events at the football tailgates, Greek life philanthropy events, marketing at popular bars and restaurants in the area, onsite events and emphasize unit size to incoming new leases. Achieve 95% fall pre-leased occupancy projection by August 31, 2019
The following business plan also outlines our recommended operational strategy, with a focus on renegotiating service contracts to realize year-over-year savings and stabilization of the onsite management team. Community XYZ team renegotiated several contracts beginning July 2017 that were inherited from the previous management company such as; the landscaping contract, shuttle bus service contract, hiring a full-time housekeeper instead of continuing to use the vendor that was in-place, as well as utilizing the maintenance team for pool upkeep. Cardinal Group has also included a recommended annual capital expenditure budget, which allows for turnover related furniture and flooring replacements, along with deferred maintenance projects, such as installing security gates throughout the clubhouse, restoring aged landscaping to improve curb appeal, adding trash cans to all patios to begin in-house valet trash service, as well as improving the interior and exterior of the clubhouse. The continued demand for housing in this market will allow all competitive communities to increase rates for the next leasing cycle. While some competitors have re-invested in community and unit upgrades to maintain and grow rates, Community XYZ will be able to ultimately benefit from improvements across the submarket. While competitors increase rates, the community will be able to maintain a lower renewal and new lease rate, offering a competitive alternative to newer products in the market at a slightly lower rate. The community will be positioned as a value option given the cottage style living, amenity suite, internet and cable utility package, and academic year lease term. Every time a reputation obstacle presents itself, the Community XYZ team will continue to emphasize the re-branding of the community and utilize this to
their advantage by marketing with promotional items, signage, and re-branding conversations. By executing on the following business plan, Cardinal Group Management expect to drive performance in the 2019 calendar year and meet or exceed the budgeted NOI contained in the attached 2019 budget.
Community Overview Subject Community: Location: Description: Owner:
Community XYZ City, State 899 Bed/194-unit apartment community Client ABC
Community XYZ is an 899-bedroom apartment community located in City, State. The community is located approximately 1.7 miles south of ____ University. The community features three, four, five, and six-bedroom cottage-style homes with clear views of the hill country. Community XYZ was built to be cottage style living, which has been thriving in the ___ off-campus housing community but is slowly beginning to decline due to the amount of newly built mid-rises in the area. The Community XYZ has a total of 147 three-bedroom units, 48 four-bedroom units, 470 five-bedroom units, and 234 six-bedroom units. The Community XYZ sits on a beautiful 25 acres, with a clubhouse, fitness center, the largest three-tiered pool in the market, a dog park, and numerous locations for outdoor activities within the community. Community XYZ is one of four cottage style living communities in the market. Each unit has plank wood flooring throughout the common areas, carpeted bedrooms, and ceramic tile in the bathrooms. The apartments come with all major appliances, stackable washer and dryers, as well as an optional furniture package. Monthly rent includes basic cable and high-speed internet, while residents are responsible for monthly electricity and water usage. All residents have access to the three-tiered pool, 24-hour fitness center, resident lounge and computer lab, study rooms, saunas, steam rooms, tanning salons, cabanas, dog park and basketball court and private shuttle. Due to its proximity to ____ University, most of the resident base consists of full-time students. Community XYZ is popular with the Greek community at ____ University. Several groups of ___ Bobcats have called Community XYZ home, and the community captures a significant percentage of its’ occupancy from referrals and Greek life.
Ancillary Income Strategy Residential Fees: •
Leasing Fees: The operating budget allows for 100% of application fees to be waived for the entire leasing season and redecoration fees ($95/lease) to be assumed waived for 25% of applicants through the year, timed with anticipated leasing velocity. Waived fees will allow the community to appeal to a value sensitive market, while still allowing for small growth year-over-year in the Admin/Redec Fee line items. Waived fees will also allow the community to remain a part of the competitive set throughout the market.
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Pet Fees: The operating budget assumes that 6% of the community will pay $25/month pet rent, plus an additional $250 non-refundable pet fee due upon move in. This is lower than in previous years as more students are registering their animals as emotional support animals to avoid the community’s pet policies. The on-site team will be diligent
in the registering of these animals and any fines/fees assessed for pet behavior or damage. The community has enrolled in the Pet DNA program to assist the community in capturing any unregistered animals that may be living on-site. The pet fees will increase based on the number of unregistered pets throughout the community. •
Late Fees: The budget allows for an initial late fee of $25 on the 4th of the month, $50 on the 9th, $75 on the 14th, $100 on the 19th, $125 on the 24th and $150 on the 29th. The budget assumes that 15% of residents receive an initial late fee and 3% will receive daily charges until rent has been paid in full.
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Resident Fines: The budget allows for income from replacement key fobs, trash charges, damage to the community, illegal pet fines, unauthorized occupants and non-compliance with the community rules and regulations.
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Transfer Fees: The budget allowed for $250 in fees every other month which equates to one resident transfer per month in August, October, December, February, April, and June.
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Eviction/Legal Fees: The budget allows for one eviction per month for a one-time $300 legal fee. Last year, Community XYZ team on average evicted three residents per month due to non-payment of two months’ or more in rent, which attributed to the negative variance for the 2018-2019 term.
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Move-Out Charges: Based on previous year’s actuals, the move-out damages are budgeted at $100/person for 65% of all expected move-outs. Most of the move-out charges can be attributed to paint and wall damage, carpet replacements, cleaning services needed beyond the normal wear and tear, as well as mirror and glass damage. Each resident will be responsible for their individual bedroom and all common area charges are split amongst the residents within the apartment.
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Utility Billing and Recoveries: Using the third-party billing service, Conservice, the community bills back electricity, waste management, and water & sewer usage to all individuals along with a service fee of $4.00/bill. Conservice handles the payment of all bills and splits the usage among all residents within the apartment.
Bad Debt: •
Previous bad debt performance at the community averaged around 2.0% of total gross potential rent. As the community is now stabilized the budget assumes a decrease in bad debt, at an average of 1.50% of total GPR through the fiscal year, increasing slightly near the end of semesters to account for increase in resident activity and often unpaid damage charges upon move-out.
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Bad Debt Recovery - The recovery efforts will offset a portion of the bad debt, as Cardinal Group has a partnership with RD Fuller who is able to recover aged debt that is submitted to them on a monthly basis by the onsite team.
Operational Expense Strategy General and Administrative: •
Information Systems: Budget includes monthly services for information systems that are utilized onsite, including Entrata, Gmail, resident portals and Grace Hill. Operations are not expected to fluctuate in 2019, and information system expenses are expected to remain stable.
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Office Supplies: Year over year, the administrative expenses are expected to remain stable. General office supplies are adjusted seasonally for bulk purchases for lease file folder supplies during prime leasing season. This line item will also include any expenses for the community vehicle as far as gas, inspections, and service requirements. Operations of the office are not expected to fluctuate in 2019, and assumptions for office supplies are in-line with previous year’s expenses.
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Office Utilities and Contracts: The budget includes a line for office utilities that can primarily be attributed to the monthly phone line service through CenturyLink, Elauwit, and the on-call maintenance cell phone through Verizon. Office contracts are expected to stay consistent year over year due to in-place contracts. Budget includes monthly contracts for office phone lines, on-call maintenance phone, copier and printer, answering service, handy trac systems, Pitney Bowes, IT services, US Postal Solutions, and monthly Conservice ConTrol fee for contract management. Contract expenses are expected to remain flat year-over-year.
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Recruiting, Team Training, and Meals & Events: Monthly recruiting expenses allow for candidate sourcing and screening to quickly fill open positions, such as local job boards, Wonscore testing, and background screening for all prospective team members. The Team Meals & Events budget allows allocation for $10/month per team member and a one-time increase allocation in August to account for turn.
Payroll and Team: •
Office Team: The on-site office team consists of a Community Manager, Assistant Community Manager, Leasing and Marketing Team Lead, Assistant Leasing and Marketing Team Lead, three full-time leasing agents, and two part-time leasing agents. The Community Manager joined the Community XYZ team in September 2017 and has been with Cardinal Group Management for a little under three years. The Assistant Community Manager has been at the community for three years, and the Leasing and Marketing Team Lead joined the Community XYZ team in July 2017 during the takeover. The Assistant Leasing and Marketing Team Lead has been with Cardinal Group Management for a little under two years and joined the community in January 2018, while two of the leasing agents have been with the community for three years, and three of the leasing agents joined the team in the most recent months.
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Office Team Changes: Since takeover of the community in July 2017, The Community XYZ team transitioned to adding full-time leasing agent positions to provide a consistent professional leasing presence in the office and eliminated the community intern position. Payroll associated to the full-time leasing agents is offset by savings in the community interns line item, and the addition of leasing agents will provide more professional and consistent resources to the office and leasing team.
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Maintenance Team: The on-site maintenance team consists of a Maintenance Team Lead, two Maintenance Team Members, two Porters, and a Housekeeper. The additional porter for 2019-2020 will be utilized to assist with the in-house valet trash service that will be implemented towards the end of September 2018. Most of the maintenance team members are new to the community but are seasoned with experience in student housing and their positions.
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Maintenance Team Changes: The additional porter was hired to implement the new inhouse valet trash service. The full-time housekeeper was hired to eliminate the current in-place cleaning service contract and to provide a consistent presence in the office to maintain the everyday cleaning responsibilities that are needed in the office, amenities, and throughout the community.
Repairs and Maintenance: •
Year-Over-Year Changes: The repairs and maintenance budget is expected to grow slightly year-over-year, due in part to the need for more HVAC supplies, A/C replacements, washer and dryer replacements, washer and dryer supplies, as well as general preventative maintenance expenses.
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The R&M Pool and Hot Tub line item accounts for pool supplies and chemicals, as the on-site team has the proper certifications and can handle the service in-house.
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The R&M – Cleaning and Repairs line item contains monthly allocation for cleaning supplies which is adjusted seasonally for larger expenses during turn. The line item is also adjusted seasonally to prepare for additional cleaning supplies expenses due to the in-house cleaning service performed by the full-time housekeeper.
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Seasonal expenses include a large allocation near turnover for key and lock replacements, as well as a large one-time allocation in the spring to re-mulch the community and refresh the landscaping with annual foliage.
Service Contracts: •
Consistent Expenses: In 2019, the community will maintain consistent operational expenses for the elevator, landscaping, security service and pest control. The community will see a decrease in the private shuttle service for 2019-2020 lease term as the community transitioned to a company that is charging half of the amount per month. Community XYZ will also not see a monthly cleaning service fee as the team hired a fulltime housekeeper and all cleaning throughout the community is handled by the on-site team.
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Proposed Changes: Cardinal Group will pursue renegotiation of both the pest control and landscaping contracts in Q1 of 2019, as the service from these vendors are inconsistent and the contract rate is above what other vendors offer for these services in the market. Cardinal Group expects to see a reduction in the hourly rate offered by the service contract and in the monthly cost of preventative pest control service. Turnover: •
2018 Vendors: Capital Area Property Services and Property Doctors split the painting and cleaning turnover workload during turn. The Steamery and Certified Carpet split the
workload of carpet cleaning, while Flooring Warehouse and Powerhouse Carpet completed the workload for carpet replacements. •
2019 Vendors: In 2019, Cardinal Group will work with Property Doctors and Capital Area Property Services to take on the entire project once again regarding painting and cleaning. The team will reach out to Flooring Warehouse and Powerhouse Carpet for carpet replacements and continue to search for additional bids for necessary carpet replacements. The Steamery and Certified Carpet is expected to take on the entire project for all carpet cleaning that is needed during turn in 2019.
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Execution Notes: Similar to previous years, the on-site team will handle all punch and in-unit work orders. Additional temporary labor will be sourced to help with trash, trash-outs, move in packets and keys, and assemble replacement furniture.
Capital Expense Strategy Deferred Maintenance: •
The on-site maintenance team maintains a quarterly preventative maintenance schedule that includes unit walks for all units to ensure that any issues are identified and remedied before they pervade the community. During these inspections the maintenance team also notes any possible lease violations to the office team, in order to maximize resident revenue through lease compliance.
Expected Replacements: •
Additional budgeted resources account for replacements with turnover, including the expected replacement of: o Misc. plumbing replacements o Cabinet replacements o Carpet replacements o Appliances replacements, including oven, washer/dryer, and refrigerator o Furniture replacements for furnished units, including mattresses, couches, desks, and desk chairs o Mirror and window replacements o Power wash the front and back of 194 units
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Small quarterly allocations are included in the budget for replacement of appliances that may fail throughout the year, as experienced in the previous operating year.
Recommended Upgrades and Modifications: •
In 2018 the community upgraded the fitness room equipment, the volleyball court, the pool chairs and cabanas, re-striped the parking lot, added additional visitor parking throughout the community, implemented in-house valet trash service, improved landscaping in the front of the clubhouse, replaced all light heads that were out within the community, and re-wrapped the private shuttle bus and truck to assist with the rebranding process.
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Going into 2019, Cardinal Group recommends installing two security gates throughout the clubhouse allowing residents to only have 24-hour access to the fitness room, as well as the computer lab. This will allow increased security throughout the clubhouse, as well
as traffic control outside of business hours. Installing security gates will also allow for the team to rent out the clubhouse to only residents, which will generate additional revenue for the community. •
A component of the continued branding strategy for 2019 includes an overhaul of the brand and website to stay competitive in a market that is expected to see the development of three new communities in 2019. The team will continue to battle reputation issues in 2019-2020 but is positive that the community has overcome most reputation issues thus far.
Exhibits Exhibit A:
Rate Recommendation Memo
Exhibit B:
Annual Branding and Messaging Plan
Exhibit C:
2019 Fiscal Year Operating Budget