December 12, 2011
Dear Fellow Shareholders:
The Board, supported by its accountant and management staff, has recently completed its financial projections for year-end 2011 and has adopted an operating budget for 2012.
We are pleased to report that 205 West End will finish this year with a small operating deficit of about 0.7%. Thanks to conservative financial management and some luck, we have finished another year in good shape.
While the 2011 year saw no major capital projects, it saw two key steps in preparation for the future. First of all, in 2011 we refinanced the Co-op’s underlying mortgage, securing a 4.2% interest rate for the next ten years and reducing the building’s monthly interest expense while at the same time providing an infusion of capital for necessary projects. In addition, we started preparing to modernize the building’s fifty-year-old elevator system, a project that we expect to implement in 2012.
Variances between budgets and projected year-end actual expenditures
As you know, most of the cooperative’s expenses are not easily controlled by the board. Labor costs are set by union contracts, insurance rates are dictated by carriers, energy prices by the market, and taxes by the city. That said, we make every effort to control other costs. While 2011 final numbers still have to be confirmed, and will be audited by our accountant and reviewed by you at the time of our annual shareholders’ meeting in the spring, here is how 2011 looks:
Real Estate Taxes, budgeted for 2011 at $3,885,900, are projected to end the year 2.74% over budget at $3,992,300. In 2012 we expect to pay real estate taxes of $4,529,300, an increase of 16.56%. This is the fourth year in a row that our maintenance increase has been dominated by the increase in property tax.
Energy (electric, steam, and cogen gas), were budgeted at a combined cost of $1,470,000 for 2011. While final bills are still to be presented, the projected energy expenditures in these categories are forecast to be approximately $1,470,400, almost exactly what we budgeted. Our projections for next year are for an aggregate cost of $1,507,900, assuming approximately flat consumption as well as little price inflation due to the depressed economy. These expenses are paid through the Condo and we, the Co-op, are responsible for only about 90% of them, while the garage and the professional units pick up the rest. As we have noted in our last four annual reports, the 2012 budget continues to reflect the savings from producing a significant portion of our electricity and steam needs from our cogeneration plant.
Note: Although we have submetered the co-operative, the budget for the condominium must reflect the entire electrical payments to our suppliers so that our bills get budgeted, paid, and booked properly. Due to submetering, only about 35% of the building’s electrical consumption (that which services the common areas) is applied to our maintenance calculations. The remaining 65% of our electrical usage is paid directly by tenants and shareholders according to measured consumption, and does not affect maintenance charges.
Insurance costs for 2011 were budgeted at $206,900. We are budgeting a 3.48% decrease for 2012 at $199,700. Note that the 2011 forecast of $194,700 is well below the 2011 budget.
LTCA Dues will be increased relative to 2011 actual payments of $597,100 to $625,900, an increase of 4.82%.
Staff Payroll - wages, benefits, workers compensation, and disability insurance – will be going from $1,258,300 in 2011 to $1,314,000 in 2012, a 4.4% increase mandated by our union contractual obligations.
Maintenance and Repairs remain within reasonable expectations. Our anticipated expenditures in 2011, budgeted at $506,000 will be coming in at $641,600, a substantial overrun driven by a number of extraordinary items this year, including the backflow preventer valves that we were required to install. Based on recommendations from our Resident Manager and AKAM, we are budgeting $494,000, a decrease of 2.4%, for 2012. One reason that we are able to reduce this item for 2012 is that the elevator modernization project supersedes the regular maintenance for the elevators. Since it’s virtually impossible to separate the ongoing maintenance from the major project work, we eliminate the regular maintenance from the operating budget and include it in the project budget during the time that the work is under way.
Water and Sewer was budgeted at $352,300 for 2011 and is budgeted at $341,700, for 2012, a slight reduction of 3%. This is because in 2011 management discovered a substantial systematic error by the city and got it corrected. This resulted in a substantial one-time reduction for 2011, now forecast at $317,900. Our 2012 budget is much higher than the 2011 forecast, reflecting the fact that the city is again raising water rates in 2012.
Mortgage Interest and Amortization In 2011 we refinanced the Co-op’s underlying mortgage, locking in an interest rate of 4.2% for the next ten years. This reduces our overall principal and interest expenditure by about 13.5%. The magnitude of this saving helps to partially mitigate the substantial increase in property taxes expected in 2012.
In summary: For 2012, shareholders can expect a 4.49 % maintenance increase (for a total of $3.47 per share per month).
Along with all other New York City cooperatives, given the increases in real estate tax, labor, utilities, and other costs, we are facing a maintenance increase for the year beginning January 1, 2012. As in previous years, we will be recouping some of the increased operating costs by holding back the NYC real estate tax rebate due most shareholders in the first quarter of 2012. You will see a credit/debit journal entry on your March statement. From an accounting standpoint this is treated as an operating assessment, and will allow us to hold the maintenance increase to 4.49%.
From the start, we have tried to be both prudent in our expenditures and, whenever possible, to make full use of opportunities that would contribute to our building’s overall financial health. This includes lowering costs whenever possible. 205 West End Avenue remains one of the most financially competitive buildings in the Lincoln Towers complex, measured by maintenance increases, maintenance per share, general balance sheet, and capital improvement measures.
We appreciate your confidence and ongoing feedback and the entire Board joins me in wishing you and your families a very good holiday season and a happy, healthy New Year.
Marc Donner, President