Guide to EOA 3-Step Project Profiles
The Service Manager (SM) Housing Network has identified the need to develop resources for SMs to evaluate housing projects approaching end-of-operating agreements (EOA). A sub-committee was therefore established, known as the SMHN EOA Workgroup, to consult with Housing Services Corporation (HSC) on their EOA work and also to develop a toolkit for SMs to use as a complementary resource. HSC developed an Ontario EOA Planning Guide for Former Federal Housing Programs along with a legal issues document available through the HSC EOA Resource Center. The SMHN EOA Workgroup collaborated with HSC to review these two documents. The toolkit produced by the Workgroup includes this guide and the accompanying Excel based EOA 3-Step project profile.
HSC will be releasing an Ontario EOA Planning Guide for Provincial Reformed Programs in early 2017.
End-of-operating agreements (EOA) is a catch-all term that will be commonly used in this toolkit, but generally reflects a time for social housing programs where a significant event occurs. For former Federal Housing Programs, this point is the end of the operating agreement and most likely the payoff of the mortgage. For Provincial Reformed Programs that do not have an operating agreement, this critical point is the payoff of the mortgage. In the case of Public Housing, the critical point is the payoff of the debenture.
The purpose of this toolkit is to assist SMs to conduct an evaluation of a housing project as it reaches their EOA. An analysis is conducted on the ability of the project to sustain the current level of rental affordability without subsidy while covering operational costs and meeting long-term capital needs. This is a simplistic analysis to begin EOA discussions with housing providers. The information inputted into the toolkit template is just a snapshot. Further tools and analyses will need to be developed to weigh different alternatives and options.
Source of information
The financial information needed for this analysis can be sourced from SM databases, housing provider Annual Information Returns (AIR), and housing provider internal financial documents if project level breakdowns are required. The collection of the information needed for this analysis can also be facilitated through HSC’s EOA Services, which includes the EOA Projection Tool. Projected capital expenditures and capital backlog should be sourced from building condition assessments (BCA) and/or HSC’s Asset Planner software.
Instructions to Complete 3 Steps:
**Complete this tab last after completing Steps 1-3, Post EOA Subsidy Scenarios, and Post EOA Refinancing Scenarios tabs.
- Name - Enter the actual name of housing provider/project once at the top of the ‘Summary’ tab and it will automatically populate on the other tabs.
- Housing Provider Overview– Insert a brief summary of the housing provider project below the Name field.
- Operating Viability Post EOA – Insert a summary of the result of the analysis completed in Step 1 Financial Overview. Use the appropriate graphic (checkmark or X) whether they are viable or not post EOA maintaining the same level of affordability without subsidy.
- Capital Funding Adequacy Post EOA – Insert a summary of the analyses completed in Step 1 Financial Overview. Use the appropriate graphic (checkmark or X) whether they have adequate base capital funding post EOA.
- Review Other Factors – Insert a summary of the key points from Step 2 Important Considerations. Graphic remains same.
- Explore and Assess Options – Insert a summary from Step 3 Explore and Assess Options. This will also include any findings or observations from the Post EOA Subsidy Scenarios tab and the Post EOA Refinancing Scenarios tab. Graphic remains same.
Step 1 Financial Overview
**Cells requiring user input have the following formatting in this step.
- Name - Populates from the Summary tab.
- Key Info - Include important information such as:
- End-of-operating agreement date (enter a year only where indicated as it’s used in formulas);
- EOA - End of operating agreement
- EOM - End of mortgage
- DM - Debenture maturity
- Operating Program type (Provincial Reformed, Section 95 PNP, etc);
- Accumulated operating surplus or deficit at latest fiscal year end;
- Capital reserve account balance at latest fiscal year end (used in formulas);
- Facility Replacement cost - as determined by Asset Planner or BCA (used in formulas);
- Location of building(s)/project (urban, suburban, rural, etc);
- Mandate (seniors, singles, supportive, families, etc);
- Building type (townhouse, low-rise apartment, semi-detached, etc);
- Year built;
- Affordability mix including number of RGI or income-tested units and market units. Change description of units if needed;
- Unit types – Number/type of units. There are additional unit type entry fields that have be accessed by selecting the ‘+’ sign in the left hand margin.
- Market rent analysis - comparison of actual low end of market (LEM) or market rents charged versus CMHC AMR average. May be useful to note depth of affordability of market rents compared to CMHC AMRs.
- Operating Viability - This tests the project's viability in a pre-EOA environment and a post-EOA environment without any on-going subsidy. This analysis includes the following:
- Year Under Review – Please enter the base year being used for all the financial and capital needs data. This will be used in capital funding shortfall formulas as the base year. A default year of 2015 is being used.
- Rental and non-rental revenues – RGI/Market revenues, market vacancy losses, parking, laundry, solar revenues, other fees etc.
- Total Subsidies – This is a subtotal of all subsidies. There is a space to enter Rent supplement revenue and Federal Operating Subsidy, most often found in former Federal programs. There are also spaces to enter RGI, Operating/Mortgage, Property Tax, and Other subsidies, which are found in Provincial Reformed programs. It is important for the functionality of the formulas in Post EOA Subsidy Scenarios and Post EOA Refinancing Scenarios Tabs to enter the subsidies in the correct cell. Once the applicable subsidies are entered, hide the unused rows clicking the ‘+’ or ‘-’ signs in the left hand margin.
- Operating expenses - admin & maintenance, insurance, utilities, property tax, bad debts, etc.
- Mortgage - annual principal and interest payments (used in formulas).
- Annual capital reserve contribution - mandated amount per operating agreement (used in formulas).
- Total operating costs – sum of operating expenses, mortgage, and CR contribution.
- Net income before EOA - Total revenues less Total operating costs.
- Project viability assessment pre EOA - Insert an observation in the blank cells below ‘Net income before EOA’ about whether the project is viable pre-EOA, whether it can contribute additional funds to its reserves, and whether it cross-funds other projects. An automatic green highlight is used to indicate ‘viable’ whereas Orange highlight has been used to indicate ‘not viable’.
- EOA Savings (Loss) - This analysis assumes that at EOA, the mortgage is paid off and all subsidies end. It is calculated as the cost of the mortgage minus subsidies (including rent supplements). A positive amount indicates the project would benefit at EOA whereas a negative amount would indicate a net loss at EOA.
- Net Income post EOA - Net income before EOA plus EOA Savings (Loss). This could alternatively be calculated as Rental and non-rental revenues minus operating expenses minus capital/replacement reserve contribution.
- Project viability assessment post EOA- Insert an observation: if the Net Income post EOA is negative, the project will generally not be viable with current affordability mix at EOA without on-going subsidy. If the Net Income post EOA is positive, the project may be viable with current affordability mix. An automatic green highlight is used to indicate ‘viable’ whereas orange highlight has been used to indicate ‘not viable’.
- Capital Funding Shortfall with base funding - Assuming the base capital reserve contribution is made, this analysis determines the capital shortfall at the base year (i.e. 2015), EOA year, and in 30 years (i.e. 2044). This analysis includes the following:
- Balance in capital reserve (CR) fund - This cell will pre-populate with the capital reserve balance entered under ‘Key Info’ on the first page. Actual capital reserve account balance as of the beginning of 2015 (or base year being used). Also, include the base year capital reserve contribution in this amount as well.
- Current Projected Capital Repair Backlog- Projected capital expenditure backlog included in Asset Planner or BCA as of January 1, 2015 (or base year being used). Enter this amount as a negative number.
- Base year shortfall or surplus - Unfunded backlog of projected capital expenditures (balance in reserve plus current year reserve contribution less current reserve backlog).
- Base CR contributions 2016 (or year after base year) through EOA - This cell is calculated by a formula.
- Projected Capital needs 2016 (or year after base year) through EOA - Source this amount from Asset Planner or BCA. Enter this amount as a negative number.
- EOA Capital shortfall or surplus - This equals the base year shortfall plus the base capital/replacement reserve contributions to EOA plus the projected capital needs to EOA.
- Base CR contributions EOA to 30 years - This cell is calculated by a formula.
- Projected Capital Needs EOA to 30 years - Source this amount from Asset Planner or BCA. Enter this amount as a negative number.
- 30 Year Capital shortfall - EOA capital shortfall (or base year shortfall when EOA has passed) plus base capital/replacement reserve contributions EOA to 30 years plus projected capital needs EOA to 30 years.
- Enter an observation about whether the project can meet its capital needs with just the base level of capital/replacement reserve contribution to EOA and 30 years.
- Facility Condition Index (FCI) ratings are calculated at the base year, EOA year, and 30 years. FCI is calculated as the capital shortfall divided by the replacement cost. FCI figures will highlight automatically, with the condition colour rating, depending on the percentage.
- Here are the FCI ratings:
Very Good range: / FCI (<0%)
Good range: / FCI (0%-5%)
Fair range: / FCI (5%-10%)
Poor range: / FCI (10%-30%)
Critical range: / FCI (> 30%)
- Additional Annual Capital Funding Needed - This section determines the amount of additional capital funding needed (in addition to the base level capital/replacement reserve contribution) to maintain the project in either Very Good condition or Good-Fair Condition. See Post EOA Subsidy Scenarios tab for the effect of transferring operating surpluses (surplus sharing) to offset capital needs.
- Very Good condition is defined as no backlog of capital repairs whereas Good-Fair condition is defined as an acceptable backlog of capital repairs of 5% of facility replacement cost. Both ‘condition’ do not need to used. To simplify the sheet, pick one and hide the row of the ‘condition’ not used.
- Capital Funding Shortfall to EOA - The amounts to maintain the project in a Very Good or Good-Fair condition until EOA are calculated by formulas. Enter in an observation about the ability of the housing provider project to meet its capital needs to EOA.
- Enter an observation about whether the project can meet its capital needs with just the base level of capital reserve contribution to EOA given the effect of any potential surplus sharing.
- Capital Funding Shortfall for 30 years - The amounts to maintain the project in a Very Good or Good-to-Fair condition for 30 years are calculated by formulas. Enter in an observation about the ability of the housing provider project to meet its capital needs to EOA.
- Enter an observation about whether the project can meet its capital needs with just the base level of capital reserve contribution through 30 years given the effect of surplus sharing analysed on the Post EOA Subsidy Scenario tab.
Step 2 Important Considerations
Information about the items listed in Step 2 Important Considerations is articulated in more detail in the EOA Planning Guide for Ontario’s Former Federal Housing Programs and End of Operating Agreements: Legal Issues (Federal Operating Agreements). SMs should use this template to collect available information, stakeholder preferences, and develop work plan items.
Step 3 Explore and Assess Options
Information about the items listed in Step 3 Explore and Assess Options is articulated in more detail in the EOA Planning Guide for Ontario’s Former Federal Housing Programs. Step 3 should be filled out using observations from the Post EOA Subsidy Scenarios and Post EOA Refinancing Scenario tabs. Specifically the subsidy scenario tabs will help with the options for a New or Extended Operating Framework, Operating/Capital Subsidy, and Refinancing. SMs should use this template to collect available information, stakeholder preferences, and develop work plan items.
Post EOA Subsidy Scenarios
This spreadsheet provides several subsidy scenarios in a post EOA environment. It illustrates the subsidy required to maintain Status Quo Post EOA (funding formula less mortgage payments) and single subsidy situations including: RGI or Rent Supplement subsidy, Property Tax subsidy, Operating subsidy, Other Subsidy, or a Custom subsidy (see user input cell). If the subsidy scenario results in a positive net income with subsidy option, a result of “likely option” will appear. If the subsidy scenario results in a negative net income, a result of “unlikely option” will appear. This tab is a simplistic presentation of scenarios for discussion purposes. More detailed and thorough analyses will be needed.
The second part of the spreadsheet allows for the transfer of operating surplus (surplus sharing) to offset the capital funding needs to maintain a “Good-Fair” state of repair (5% of FCI). To select the percentage of operating surplus to be transferred, select the drop down menu highlighted in yellow. Surplus sharing will only occur if the net income is above zero. Surplus will only transfer if the net income above is above zero. The resulting annual capital funding need is net of the transferred surplus. If the subsidy scenario results in a lower capital needs shortfall than the base annual funding required, a result of “Good option” will appear. If not, “No benefit” will appear. This simplistic calculation provides an illustration of the effect of a subsidy scenario on also funding capital needs.
Post EOA Refinancing Scenarios
This spreadsheet provides the ability to create refinancing subsidy and capital funding scenarios in a post EOA environment. It illustrates the effect of various refinancing scenarios on a continued Provincial Reformed funding formula or on continued rent supplements. Any other subsidy scenarios should be manually inputted in the Custom Subsidy line or wherever applicable.
**Cells requiring user input have the following formatting in this step.
An outline of this sheet is as follows:
- Subsidy Paid Before EOA & Pre-EOA Annual Mortgage Payment – These are pre-populated amounts linked from Step 1.
- Loan Amount – Enter the net loan amount (net of existing mortgage payoff, cancellation, and admin fees) under either of the 3 options (used in formulas).
- Interest Rate – Enter the applicable interest rate for the loan period (used in formulas).
- Number of years – Length of the amortization (used in formulas).
- Monthly and Annual mortgage amount – Calculated payment amounts.
- Net income without subsidy – This is pre-populated from Step 1.
- Subsidies – These are pre-populated from Step 1. As indicated above, the Provincial Reformed funding formula and rent supplements for federal programs are assumed to continue. No other subsidy continues unless manually inputted.
- Custom subsidy – Use this line to enter a custom amount not reflected.
- Rating of option – A formula will determine whether the refinancing option is a “Possible Option” or an “Unlikely Option” depending on whether the Net income with subsidy option is greater than 0.
- Select surplus transfer % - Similarly to the Post EOA Subsidy Scenarios tab, enter the preferred operating surplus transfer amount to offset capital needs.
- 30 Year Capital Shortfall – This is pre-populated from Step 1.
- Acceptable Backlog – This is pre-populated from Step 1.
- Refinancing proceeds – Is equal to the loan amount.
- Annual capital funding need to maintain “Good-Fair” condition – The Reduced Capital Shortfall/Surplus divided by 30 years.
- Transfer of Operating Surplus – Percentage surplus transfer multiplied times the Net income with subsidy option.
- Rating of option - A formula will determine if the refinancing option is a “Good Option” or “No Benefit” depending on whether the Capital Needs Shortfall post Operating Surplus Transfer is greater the Status Quo without mortgage scenario.
- Comments – Factors when determining if refinancing is a viable option should be summarised here.
We would like to thank the following groups and workgroup members for their contribution to this project:
Housing Services Corporation (HSC)
Ontario Municipal Social Services Association (OMSSA)
Stephen Arbuckle, City of Ottawa
Kelly Black, District of Timiskaming
Chantille Davis, OMSSA
Annette Keogh, Manager, Prince Edward Lennox & Addington
Tim Leung, City of London
Margaret McCutcheon, City of Toronto
Anna McGregor, County of Dufferin
Darlene Piseuna-Ray, Region of Peel
Derek McMaster, City of Ottawa
Lisa Oliveira, HSC
Scott Robertson, HSC
Elizabeth Yih-Hutchinson, City of London
Adam Sweedland, City of Hamilton
Maria Varlokostas, City of Toronto
Denis Desmeules, City of Greater Sudbury
Judy Lightbound, HSC
Josh Browne, City of London
Arfona Zwiers, County of Simcoe
Jennifer McLaughlin, Region of Peel
OMSSA SMHN EOA Work Group June 22, 20161