Dear Fellow Shareholders:
The Board, supported by its accountant and management staff, has recently completed its financial projections for year-end 2013 and has adopted an operating budget for 2014.
We are pleased to report that 205 West End will finish this year with a small operating surplus. Thanks to conservative financial management and diligence, we have completed another year in very good shape.
This year we completed a major capital project, the modernization of our six elevators. This work started in October of 2012 and is projected to be finished in early December. We expect that the elevators will be more reliable and will consume about a third of the amount of electricity, saving the building about twenty thousand dollars per year.
In addition, we took advantage of extremely favorable interest rates and offers of long-term credit by lending institutions to refinance the Cooperative’s underlying mortgage. Instead of the ten-year balloon financing customary for our type of building, the board was able to secure a thirty-year fully amortizing mortgage at an excellent rate, thus both providing sufficient capital for the needs of our aging building and locking in an historically low rate for many years to come.
Variances between budgets and projected year-end actual expenditures
As you know, many of the cooperative’s expenses are not under the board’s direct control. 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 2013 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 2013 looks:
● Real Estate Taxes, budgeted for 2013 at a revised $ 4,464,100, are projected to end the year at $ 4,365,800, 2.2 % under budget. In 2014 we expect to pay real estate taxes of about $ 4,654,400, an increase of 4.25 % over last year’s budget, and the major driver of this year’s maintenance increase.
● Energy (electric, steam, and cogen gas), were budgeted at a combined cost of $ 1,342,000 for 2013. While final bills are still to be presented, the projected energy expenditures in these categories are forecast to be approximately $ 1,496,300, about 11.5 % above budget. Our projections for next year are for an aggregate spend of $ 1,471,500, assuming limited price inflation due to the depressed economy. This is an increase of 9.6 % over last year’s budget. As we have noted in our last five annual reports, the 2014 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 Cooperative, 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 We are budgeting a 9 % increase for 2014 at $ 230,000. Note that the 2013 forecast of $ 223,600 is about 6 % above the 2013 budget of $ 211,000.
● LTCA Dues will increase relative to 2013 budget of $ 632,300 to $ 635,400, an increase of about ½ %.
● Staff Payroll - wages, benefits, workers compensation, and disability insurance – are estimated to be going from $ 1,333,700 in 2013 to $ 1,349,500 in 2014, an increase of 1.2 %. This number is necessarily an estimate, since the negotiations for the new contract will not commence until April of 2014.
● Maintenance and Repairs remain within reasonable expectations. Our anticipated expenditures in 2013, budgeted at $ 530,000 will be coming in at $ 377,700, a substantial underrun due primarily to the elevator modernization project. Based on recommendations from our Resident Manager and AKAM, we are budgeting $ 469,500 for 2014, a decrease of 11.4 %.
● Water and Sewer were budgeted at $ 332,600 for 2013 and are budgeted at $ 355,000 for 2014, an increase of 4.2 %. Our forecast for 2013 is $ 346,600.
● Mortgage Interest and Amortization This is determined by our mortgage, which we refinanced in 2013, and is budgeted and forecast at $ 1,406,400.
In summary: For 2014, shareholders can expect a 2.64 % maintenance increase (for a total of $ 3.59 per share per month).
Along with all other New York City cooperatives, given the increases in real estate tax, labor, and utilities, we are facing a maintenance increase for the year beginning January 1, 2014. 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 2014. You will see a credit/debit journal entry on your March statement. From an accounting standpoint this is treated as an operating assessment, and thus has no impact on maintenance.
From the start, we have tried to be both prudent in our expenditures and to make full use of opportunities to contribute to our building’s overall financial health. This includes reducing costs whenever and wherever possible. 205 West End Avenue remains one of the most conservatively managed 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 support.
The entire Board joins me in wishing you and your families a very good holiday season and a happy, healthy 2014.
Marc Donner, President
Board of Directors