CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 3 of 4 2024 there has been an additional 20% reduction. Furthermore, maintenance costs increased, principally related to completion of exterior painting of the facility's buildings. In 2023, the property utilized $152,000 of replacement reserves to cover the painting and other eligible costs. The painting was completed in 2023 and enhances the overall curb appeal and marketability of the community. Maintenance costs also increase due to an increase in unit turnover, as outlined above. The property has seen resident tenure reduced from an average of 2 years pre-COVID to about 1.5 years post- COVID. High unit turnover has been the result of long-tenured residents passing away, moving away with families, or needing higher level of care that needs to be provided at higher skilled nursing facilities. Additionally, filling vacant units at a care facility is a longer process, ranging from three weeks to 1.5 months, as California Title 22 regulates the lengthier approval process for an applicant to move into The Parkview, including approval by the California Department of Social Services, Community Care Licensing Division prior to them moving in. Finally, the rapidly rising interest rates in 2023 have had a profound impact on The Parkview. The property incurred $336,000 in interest expense since the property's $15 million of permanent debt has a floating interest rate. This is a 40% increase in interest expense in 2023 alone. In 2024, the property is continuing to see higher levels of debt service payments due to the fluctuating interest rates. The Parkview Efforts to Maintain Financial Sustainability Both BLP Partners, Inc. and Eskaton continue to coordinate their efforts to ensure that a similar request does not need to be made in future years, and that The Parkview remains on a fiscally solid foundation. Efforts reported by The Parkview toward correcting the prior years' financial issues include: • Increased focus on marketing and outreach to improve the property's occupancy, including bi-weekly sales events and tours for prospective residents and their families. • Regular evaluation of rents to ensure that they are competitive, and if necessary, offering concessions, such as one month's free rent. • Implementing 2-5% rent increase on units that are turned over. The property has historically raised the rent 5% to 7% for newly re-leased units, and this may have resulted in The Parkview not being as competitive rent-wise compared to other assisted living properties in the region. Vacancy is steadily improving in 2024. The Parkview recently has had six new move-ins resulting a 91% occupancy rate as of the end of July. Occupancy rate is projected to be at 95% by the end of December. As the vacant units get re-leased and occupancy stabilizes, The Parkview is projecting unit turnover costs to decrease as well. The interest rate environment is expected to improve in the coming months as the Federal Reserve recently provided positive signals that an interest rate cut is likely before the end of the year. Based on the first five months of 2024 through May, The Parkview is projecting an annualized $785,697 operating margin for 2024. The projected annualized total operating expenses are already below the 2024 budget level, and as The Parkview continue to see its occupancy rate nearer to 95%, this operating margin will further increase, which leaves The Parkview very optimistic that the property will not have an operating deficit in 2024. Page 281 of 454