Richard W. Dallas, CPA 2007-A Opportunity Drive, Suite 7 Roseville, CA Tel (916) Cell (916) rwdallas@earthlink.

Transcription

1 2007-A Opportunity Drive, Suite 7 Roseville, CA Tel (916) Cell (916) rwdallas@earthlink.net Professional Organization Memberships American Institute of Certified Public Accountants & California Society of Certified Public Accountants May 6, 2016 Wells Fargo Bank, N.A., as Trustee for $43,940,000 City of Alhambra Revenue Bonds (Atherton Baptist Homes Project) Series 2010A and Series 2010B Dated as of January 1, 2010 Ladies and Gentlemen: Following is my Update Report as of March 31, 2016 on Atherton Baptist Homes (Atherton), as specified under Updates to the Management Consultant Report in my Management Consultant Report re Non- Compliance with Series 2010 Bonds Loan Agreement Occupancy and Financial Covenants (Management Consultant Report) dated March 31, My Update Report begins with an Executive Summary and is followed by a discussion of the objective of the Update Report as of March 31, 2016, the basis for the Update Report as of March 31, 2016, my scope and approach to monitoring and reporting on the implementation of recommendations, Series 2010 Bonds financial and occupancy covenant compliance, and attendance at meetings of Atherton s Board of Trustees, Executive Committee and Finance Committee. Executive Summary All of those recommendations included in the Management Consultant Report, which were identified in the Timelines for Implementation of Management Consultant Recommendations on pages in my Management Consultant Report, as recommended to be implemented or in-process of being implemented on or before June 30, 2014 and/or September 30, 2014, and/or December 31, 2014, were implemented or in-process of being implemented as of those dates, except for recommendation #1a discussed under Financial Reporting Process and Operating, Entrance Fee and Capital Budget Preparation Process in subsequent quarterly update reports. As discussed on page two of this report, Atherton satisfied its debt service coverage and liquidity covenant requirements and its occupancy requirements for the Courtyard and Classic IL units, as of March 31, Page two includes findings resulting from my review as of March 31, 2016; and pages 3-5 include updates of recommendations and findings from my Management Consultant Report and previous quarterly reviews. Retirement Housing and Health Care Accounting and Consulting Since 1981

2 Page 2 of 6 Objective of the Update Report as of March 31, 2016 The objective of the Update Report as of March 31, 2016 was to determine the status of the implementation of those recommendations included in the Management Consultant Report, which were identified in the Timelines for Implementation of Management Consultant Recommendations on pages in my Management Consultant Report, as recommended to be implemented or in-process of being implemented on or before June 30, 2014 and/or September 30, 2014, and/or December 31, 2014, and to assess Atherton s progress toward full compliance with the Series 2010 Bonds financial and occupancy covenants. Basis for Update Report as of March 31, 2016 Preparing and presenting a report to Wells Fargo Bank, N.A. (the Trustee), Atherton s Board of Trustees and staff management, and any interested Owner of the Series 2010 Bonds as of March 31, 2016, in accordance with the provisions included in Updates to the Management Consultant Report on page 13 in my Management Consultant Report. Scope and Approach to Monitoring and Reporting on the Implementation of Recommendations I toured Atherton s grounds, buildings and vacant residential living units, discussed the status of my Management Consultant Report recommendations with Atherton, and reviewed documentation supporting their status, based on the recommended timelines included in the Timelines for Implementation of Management Consultant Recommendations on pages in my Management Consultant Report. My Management Consultant Report (and subsequent quarterly update reports) findings and recommendations and related Atherton actions are available on DACbond and EMMA.) Findings resulting from my review as of March 31, 2016 Full Compliance with the Series 2010 Bonds Financial and Occupancy Covenants For the third consecutive quarter, Atherton satisfied its debt service coverage and liquidity covenant requirements and its occupancy requirements for the Courtyard and Classic IL units. (See details on page six.) Marketing and Sales of Residential Living Units The following campus actions to improve the quality of services for residents and to improve working conditions for staff, and to enhance Atherton s ability to market and fill unoccupied independent living and assisted living units were completed or in the process of completion as of March 31, 2016: Continued installation of washer and dryers in select IL units in Irving Manor and Casa Colby Continued renovation of Classic IL units, as they become available for reoccupancy Renovation of Assisted Living units, as they become available for reoccupancy Replacement of major equipment in Atherton s administrative offices

3 Page 3 of 6 Update of Findings and Recommendations resulting from my review as of (the date(s) indicated) Marketing and Sales of Residential Living Units Marketing and Sales Finding #1e (September 30, 2015) Sales of apartments on the second floor of the Classic independent living buildings are more difficult than sales of similar first floor apartments in the same buildings, and remain vacant for substantially longer periods of time, primarily because the second floor apartments are not licensed for non-ambulatory occupancy, and the location of a single elevator in the Irving Manor apartment building. Marketing and Sales Recommendation #1e (September 30, 2015) During 2016, Atherton should perform or obtain cost-benefit analyses on obtaining non-ambulatory licensure for the second floor Classic independent living buildings, and for the installation of additional elevators in the Irving Manor apartment building. If obtaining such non-ambulatory licensure is found to be financially feasible, Atherton should proceed with the necessary building improvements, on a building-by-building basis, as funds for such capital improvements become available. Also, if the installation of additional elevators in the Irving Manor apartment building is found to be financially feasible, Atherton should proceed with the installation of additional elevators as funds for such capital improvements become available. If obtaining non-ambulatory licensure is not found to be financially feasible for second floors of some of the Classic independent living buildings, and/or if the installation of additional elevators in the Irving Manor apartment building is not found to be financially feasible, Atherton should consider filling some of the second floor apartments in these buildings with month-to-month lease residents instead of entrance fee residents. Marketing and Sales Finding #1e (March 31, 2016) All of the second floor apartments in the Classic independent living buildings were occupied or reserved by the end of the first week of May. Based on the current high occupancy and reservation levels, Atherton has decided to defer evaluating the need for non-ambulatory apartments in the second floors of those buildings and the need for additional elevators in the Irving Manor apartment building. Marketing and Sales Recommendation #1e (March 31, 2016) Atherton should continue to closely monitor the occupancy levels of the second floor apartments in the Classic independent living buildings and, if occupancy and reservation levels decline significantly, Atherton should evaluate the need for non-ambulatory apartments in the second floors of those buildings and the need for additional elevators in the Irving Manor apartment building at that time.

4 Page 4 of 6 Update of Finding and Recommendation resulting from my review as of (the date indicated) (Continued) Facility and Departmental Management and Operating Structure and Responsibilities Facility and Departmental Management Finding #1f (September 30, 2014) Historically, with the exception of direct admit residents into skilled nursing under the Medi-Cal program, decisions to provide benevolent housing and care to prospective residents have been made by Atherton s CEO without the benefit of a formally documented policy including acceptance criteria and an approval process. Facility and Departmental Management and Operating Structure and Responsibilities (Continued) Facility and Departmental Management Recommendation #1f (September 30, 2014) Staff management should draft a benevolence policy and procedures including acceptance criteria and an approval process, and submit it to the appropriate Board Committee(s) for approval and recommendation to Atherton s Board of Trustees for adoption at its February 6, 2015 meeting. Facility and Departmental Management Finding #1f (December 31, 2014) I reviewed a draft benevolence policy and procedures prepared by staff management, and provided Atherton s CEO with written comments, questions and suggestions, which we discussed. I also reported this status at Atherton s February 6, 2015 Executive Committee meeting. Atherton expects the benevolence policy and procedures to be addressed during a May 8-9, 2015 Board meeting and retreat and Board committee meeting(s), refined by staff management, as may be needed, and brought back to the Board later in 2015 for approval. Facility and Departmental Management Finding #1f (September 30, 2015) At its May 9, 2015 Board retreat (following its May 8, 2015 Board meeting), Atherton s Board members decided that Atherton would follow a measured approach to administer its charitable mission. The measured approach management concept was adopted at Atherton s August 7, 2015 Board meeting. The May Board retreat benevolence policy discussion also resulted in a decision for staff management to provide quarterly reports to the Board on the cost of Atherton s charitable mission. The quarterly reporting of its charitable mission costs began at Atherton s August 7, 2015 Board meeting, providing the Board with a better understanding of the components and magnitude of Atherton s mission. Establishing charitable mission cost parameters and policy guidelines were discussed at the May Board retreat, but none were established during the retreat. Staff management expects the cost parameters and policy guidelines to be developed during the fourth quarter of 2015, and adopted by the Board at its February 5, 2016 meeting.

5 Page 5 of 6 Update of Finding and Recommendation resulting from my review as of (the date indicated) (Continued) Facility and Departmental Management Finding #1f (December 31, 2015) The quarterly reporting of its charitable mission costs continued at Atherton s November 6, 2015 Board of Trustees meeting. During the fourth quarter of 2015, Atherton staff management drafted policy guidelines and procedures for its charitable mission; and a first reading occurred at the February 5, 2016 Board meeting. Atherton expects formal policy guidelines and procedures to be adopted at its May 6, 2016 Board meeting, documenting charitable mission qualifications for prospective and existing residents, and defining mission oversight responsibilities of staff management and the Board of Trustees. Facility and Departmental Management Finding #1f (March 31, 2016) A second reading of Atherton staff management s draft policy guidelines and procedures for its charitable mission occurred at the Board of Trustee s meeting on April 29, Following comments from Board members, the draft was referred back to staff management for further revision. Atherton plans to have the revised draft policy and policies for its charitable mission to be approved in June 2016 during a telephonic Board meeting.

6 Page 6 of 6 Series 2010 Bonds Financial and Occupancy Covenant Compliance Although not required by my March 31, 2014 Management Consultant Report, following is a schedule of Atherton s compliance, with Sections 5.3(b) (debt service coverage ratio), 5.3(c) (liquidity) and 5.4(b) (occupancy) of the Loan Agreement, and my Management Consultant Report (Mgmt. Con. Rept.). The actual amounts were provided by Atherton; and no procedures were performed on the underlying support for data provided by Atherton. Accordingly, I am unable to express any form of assurance on the actual amounts. Required Actual Compliance Date Covenant Amount Amount Loan Agreement (1) Mgmt. Con. Rept. (2) Debt Service Coverage Ratio (3) 1.20x 2.04x March 31, 2015 September 30, 2014 Liquidity (Days) (4) June 30, 2015 June 30, 2017 Occupancy Courtyard (5) March 31, 2012 n/a Occupancy Classic (5) June 30, 2010 December 31, 2014 (1) Required (2) Forecasted in March 2014 (3) Actual amount for the 12 months ended March 31, 2016 (4) Actual amount at March 31, 2016, based on three months operating expenses (5) Actual amount at March 31, 2016 Attendance at Meetings of the Atherton Board of Trustees, Executive Committee, Finance Committee and Investment Committee I attended the February 5, 2016 Atherton Board of Trustees meeting and the Board s Executive and Finance Committee meetings. I presented a summary of my Update Report as of December 31, 2016 to the Board of Trustees and the Executive and Finance Committees. I accepted comments and responded to questions during each of my presentations. I also attended meetings of Atherton s April 29, 2016 Board of Trustees, Executive and Finance Committee meetings. Closing I appreciate the cooperation extended to me by Atherton s management staff and department directors, during my inquiry and document review and report preparation. Sincerely, Richard W. Dallas, CPA Richard W. Dallas, CPA