STANDING COMMITTEES Finance and Asset Management … · 2018. 7. 24. · System wide as-built...

F–4 STANDING COMMITTEES Finance and Asset Management Committee

F–4/203-17 3/9/17

Asset Liability Management Semi-Annual Borrower Reports (SABRe) INFORMATION For information only. BACKGROUND The Semi-Annual Borrower Reports (SABRe) are an aspect of an overall credit framework that is used at UW to assure that financial risks are identified and managed from the origination of an internal loan or debt issue to its final maturity. SABRes provide the Board of Regents with up-to-date information on the financial health of major borrowers and present proforma vs. actual performance along with financial metrics. Key financial indicators show changes in performance and allow the Regents to see how the entities are responding to a dynamic funding environment. Housing and Food Services, UW Medical Center, Northwest Hospital, Intercollegiate Athletics and the School of Dentistry Clinics present a debt metric, a cash flow metric, and a reserves measure. When available, these measures are from audited financial statements and benchmarked against the most recent Regent approved proforma or current financial plan. The research campus at South Lake Union presents actual and projected School of Medicine support and four-year historical growth in grants and reserves. Attachments 1. Credit Framework for ILP Loans 2. Housing and Food Services Semi-Annual Borrower’s Report – March 2017 3. Intercollegiate Athletics (ICA) Semi-Annual Borrower’s Report – March 2017 4. University of Washington South Lake Union (SLU) Semi-Annual Borrower’s

Report – March 2017 5. University of Washington Medical Center (UWMC) Semi-Annual Borrower’s

Report – March 2017 6. Northwest Hospital (NWH) Semi-Annual Borrower’s Report – March 2017 7. School of Dentistry (SOD) Semi-Annual Borrower’s Report – March 2017

Credit Framework for ILP Loans

ORIGINATING OPERATING REPORTING MANAGING

Institutional / Project Risks &

Opportunities

Timely Funding & Accurate

AccountingTransparency & “Early Warning”

Loan Maintenance & Financial

Mitigation

Space Utilization 3

One Capital Plan 2,3

Institutional Debt

Capacity Estimate 4

Financial Due Diligence 1,4

• Base Case

• Key Risks

• Stress Tests

• Mitigation Plans

Funding Plan 1-4

• Draw schedule for project

by source (debt, gifts,

reserves, state)

Financing Agreement 1,4

• Debt covenants

• Reporting requirements

Annual disclosure 1,4

• Financial statement audits

• Covenant requirements

Loan Servicing 1,4

• Amortization schedule

• Recording of loan

• Repayment budget

Dedicated staff specialist for

each borrower 1,4

Regular borrower meetings 1,4

• Review covenant

compliance

• Discuss upcoming

challenges

Capital Project

Budget 1,3

Internal Loan 1,4

Semi-Annual Borrowers

Report 1,4

Semi-Annual ILP Report 4

ILP Audit 4

Financial Stability Plan 1,2,4

BO

AR

D O

F R

EG

EN

TS

APPROVE REVIEW APPROVE

UN

IVE

RS

ITY

AD

MIN

IST

RA

TIO

N

Stakeholder

1 – Borrower

2 – Planning & Budgeting

3 – Capital Planning and Development

4 – Treasury

ATTACHMENT 1F–4.1/203-17 3/9/17

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(1) Actual balances will be used on future capital expenditures or to retire debt

Housing and Food Services (HFS)

Semi-Annual Borrower’s Report – March 2017 Summary Occupancy and demand remain robust throughout the HFS system for the current academic year putting the program on solid financial footing for

FY17. In FY16, reserves increased by $8.2M and debt service coverage was 1.48x. Phase 4a of the Housing Master Plan (HMP) was approved by the Board of Regents in January 2016 and will open to students in Autumn 2018. This

phase is underway and proceeding as planned. The proforma and projections include Phases 1-4a of the HMP. In July 2016 the Board of Regents approved the architect, site, and $10M pre-construction budget for phase 4b, the final phase of the HMP. Phase 4b

includes two residence halls, Oak and new Haggett, consisting of approximately 1,070 beds. Oak is planned to open Autumn 2019 followed by new Haggett Hall, which will open in Autumn 2020.

Cash flows for FY16 exceeded the proforma due to higher than planned occupancy, increased off-campus property revenue (Radford Court, Nordheim Court, Commodore Duchess), and strong summer conference sales. Funding for the phase 4b pre-construction budget will be provideddirectly from HFS reserves and contributes to the reduced cash flows projected for FY17 and FY18.

As a result of strong cash flows in recent fiscal years, HFS system reserves exceeded proforma levels at the end of FY16 by $11M. The reserve requirement totaled $17.2M in FY16 and is equivalent to 4 months of operating expenses plus $2.5M. HFS has earmarked $18M in

restricted reserves for phase 4a FF&E ($9M) and phase 4b pre-construction costs ($9M). The remaining reserve balance of $26.6M is held for risk mitigation, early debt repayment, equity contributions to phase 4b, and savings for future renovations of McMahon and Hansee Halls.

Risk and Mitigations A significant decline in student occupancy is the primary risk to the system. Private market competition, price sensitivity, and reductions in long-

range UW enrollment impact student occupancy. These risks are monitored by HFS throughout the year and, if necessary, mitigated by strategic occupancy planning.

Total HFS debt service is equivalent to 28% of FY17 gross revenues or 46% of total FY17 operating expenses. HFS maintains debt service coverage (DSC) of at least 1.25x to mitigate this risk. DSC for FY17 is forecasted to be 1.36x.

Strong reserve balances mitigate risks in the short term and are being saved for future capital projects.

Selected Indicators System wide as-built occupancy indicates the overall health of residence hall and dining operations and measures demand for the system.

2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 As-Built Occupancy 110.2% 106.9% 110.9% 110.0% 110.2% Returning Residents(1) 35.2% 38.0% 40.4% 37.3% 38.6% Freshman Capture Rate(2) 66.9% 71.6% 67.0% 68.6% 68.3% (1) Percent of prior year Spring resident count(2) Percent of freshman admission count

1.37 1.25 1.26 1.30 1.37 1.41 1.26 1.29 1.32 1.70

1.56 1.48 1.36 1.38 1.42 1.28 1.31 1.34

0.00

2.00

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Debt Service CoverageNet operating income as a multiple of debt service

Pro forma (Phase 3 FY14-15 & Phase 4a FY16+) Actual thru FY16/Projected ILP Minimum 1.25x

4.2 3.3

-4.2

4.90.3 0.9

-11.3-5.0

6.67.710.8 8.2

2.8

0.0

4.5

-10.5-4.2

7.5

($15)($10)

($5)$0$5

$10$15


Cash FlowNet operating income less debt service and capital expenses

Pro forma (Phase 3 FY14-15 & Phase 4a FY16+) Actual thru FY16/Projected

$ Millions

30.1 33.3 50.8 55.7 56.0 57.0

45.6 40.7 47.3 42.7 53.6 61.8 64.6 64.6 69.1

58.6 54.4 61.9

$0

$100


Reserve Balance(1)

Unrestricted net assets; ILP minimum is 4 months of adjusted HFS operating expenses

Pro forma (Phase 3 FY14-15 & Phase 4a FY16+) Actual thru FY16/Projected ILP minimum

$ Millions

ATTACHMENT 2Page 1 of 1F–4.2/203-17

3/9/17

Intercollegiate Athletics (ICA)

Semi-Annual Borrower’s Report – March 2017 Summary ICA has made significant progress in improving its financial stability; however, the department continues to anticipate operating deficits in the years

between Don James Center renewals (FY19, FY20, and FY21). ICA's updated cash flow projection for FY17 is $720K; the FSP estimate for FY17 was a $5.6m deficit. FY17 projections reflect $8.1M higher revenues than the FSP in the following categories:

o $2.4M increase in gate revenue, o $2.9M increase in contributions ($1.9M in annual giving related to Game Changer campaign, $1.0M is the anticipated increase in seat-related

contributions for the 2017 football season), o $2.6M additional from the conference ($2.2M is tied to participation in the Peach Bowl / CFP Semi-Final, $400K additional is related to the

Pac12 network's expanded deals with Dish Sling, FIOS and Charter). The revenue increase is offset by $2.5M additional expenses in the following areas:

o $1.4M in salary and benefits related to incentive bonuses, o $900K in travel expenses for the Peach Bowl, o $240K anticipated additional University overhead charges tied to increases in gate revenue.

FY18 and FY19 projections assume steady gate revenue growth associated with the strength of the football program. In addition to aggressive goals set around ticket sales, ICA is also anticipating revenue growth in seat-related contributions tied to the seat reallocation process for the 2018 season, and commensurate expansion of premium seating options within Husky Stadium.

The FSP included $8M in unidentified revenue enhancements/expense reductions in FY19 in order to break-even; the updated projection below excludes the $8M placeholder.

ICA's FY18 budget presentation to the Board in April will include updated 5-year projections including cost reductions and proposed opportunities for campus support to help minimize deficits.

Risks and Mitigations Financial projections do not include the significant financial impacts associated with any coaching changes in any of our teams. While ICA has surpassed its annual fundraising goal by $1.9M in FY17, sustaining that momentum over the life of the campaign will be difficult. Football day of game expenses - including cost of security and guarantees paid to visiting non-conference opponents - continue to escalate at a

significant pace. Mounting costs associated with NCAA deregulation, challenges to amateurism and litigation pose considerable financial risks. Increasing Pac12 distributions, revenue sports outperforming expectations, and an apparel deal in FY20 would help mitigate these risks.

Selected Indicators 2016 2017 % of prior year Football Season Ticket Renewals (as of Feb 1) 32,740 38,280 116.92% New Season Ticket Sales(1) 3,249 5,000 153.89% Football Luxury/Premium Seating Sold Out Sold Out N/A

(1) Projection for 2017

0.32 0.81

1.22 1.17 0.97 1.11 0.77

1.21 1.36 0.92

-

1.00

2.00

FY14 FY15 FY16 FY17 FY18 FY19

Debt Service CoverageNet operating income as a multiple of debt service; FSP suspended ILP minimum through FY19

2016 FSP Proforma Actual (FY14-FY16) / Projected (FY17-FY19) Pre-FSP ILP Minimum

-14.8

-5.6

0.8

0.0

-8.4

0.2

-5.8

0.7 3.0

-4.6-15-10

-505


Cash FlowNet operating income plus gifts less debt service and capital expenses

2016 FSP Proforma Actual (FY14-FY16) / Projected (FY17-FY19)

$ Millions

17.3 11.7 12.5 12.4

33.0 32.1 26.3 27.0 30.0 25.4

$0

$25

$50


Reserve BalanceUnrestricted net assets; FSP established ILP minimum at $10M through FY19

2016 FSP Proforma Actual (FY14-FY16) / Projected (FY17-FY19) ILP Minimum

$ Millions

ATTACHMENT 3F–4.3/203-17 3/9/17

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University of Washington – South Lake Union (SLU)

Semi-Annual Borrower’s Report – March 2017 Summary South Lake Union (SLU) includes SLUI, SLUII, SLU3.1, and SLU3.2. The recently negotiated F&A rate has led to increasing surpluses in future years to partially offset administrative costs (74% in FY16, 75% in FY17,

76% in FY18 and FY19, and 76.5% in FY20-22). For the period FY13 to FY16, grant activity has grown at SLU by an average of 7.7% compared to -0.2% at non-SLU locations. The decrease in FY15

and FY16 over FY14 is a combination of factors including faculty departures and competitive renewals requiring multiple submissions for approval. UW Medicine faculty were second in the country among all medical schools and first among public medical schools in total NIH research funding based on Federal FY15 awards.

Actual results reflect lower density in research space due to challenging federal grant environment, as well as the decision to include a Biological Safety Level 3 (BSL3) lab in SLU3.1 with the same research density assumption as other research space.

SLU 3.2 ($143M in borrowing) was approved by the Board of Regents in September 2015 and activity is included in this report starting in FY18. Risks and Mitigations Potential federal research funding cutbacks, similar to 2013 sequestration, could result in delayed awards and reduced funding. Potential shift from federal research to non-federal research at SLU could result in lower ICR. Grant conversion to higher indirect cost rate at slower rate than forecast would move higher indirect cost recovery into later years (assumed 25% of

grants convert to new rate each year). SoM has the opportunity to increase research density at SLU with ongoing recruitments which will reduce AICR and other support required. NIH is requesting overall higher funding in FY17, compared to FY16 levels.

*Note: CAGR = Compound Annual Growth Rate

4.6

-0.2 -1.22.4

6.7 5.9

2.84.3

5.6

-0.4

-2.2-4.9

-0.8

3.4 2.74.2

5.56.8

-$6.0

-$3.0

$0.0

$3.0

$6.0

$9.0FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

SLU Actual vs Proforma Total SLU ICR1 and Other Revenues vs Expenses - Surplus/(Deficit) by Year

ICR Surplus/(Deficit) - Proforma (op bud/projected after 10 years) ICR Surplus/(Deficit) - Actual (projection for FY17-22)

ICR excludes central libraries and central administration. Values for ICR Surplus/(Deficit) in FY18 and beyond have been updated and may differ from prior SABRe reports.

$0

$100

$200

$300

$400

FY13 FY14 FY15 FY16

Total SoM Reserves(excluding grants/contracts)

CAGR*(1.8%)

Reserves were the primary funding source of the FY16 forecasted operating loss. FY16 has been updated to final.

$ Millions

308.4 316.8 313.6 292.1

50.2 72.5 63.4 62.7

422.5 411.4 425.7 419.9

$0

$200

$400

$600

FY13 FY14 FY15 FY16

SoM Direct Research Expenditures

South Lake Union SoM excluding South Lake Union

SLU CAGR* 7.7%

$ Millions

483.9 489.1472.7 482.6

ATTACHMENT 4F–4.4/203-17 3/9/17

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University of Washington Medical Center (UWMC)

Semi-Annual Borrower’s Report – March 2017 Summary

UWMC is experiencing a challenging FY17 as pressures on net revenue are significant and labor expenses are higher than anticipated. The expansion project is expected to be completed in FY18. UWMC’s total margin for FY17 through December was -3.9%. Days cash on hand of 80 days remains above the Internal Lending Program (ILP)

minimum. As of December, debt service coverage of 1.19x is below the 1.25x ILP minimum. Financial ratios for FY14-FY16 represent audited actuals. FY17 represents preliminary unaudited results through December 2016. FY18 through

FY22 are from the most recent Long Range Financial Plan (LRFP) presented to the UW Medicine Board Finance and Audit Committee in January 2017.

Risks and Mitigations Success at executing priorities in the strategic plan and implementing performance improvement initiatives is key to the achievement of

financial objectives going forward. UWMC continues to monitor against internal and external benchmarks and seeks to achieve best practices. Declines in commercial payer reimbursement have significant impacts and are being monitored on a monthly basis. Impacts on net revenue from health care reform and activities of commercial and government payers continue to be incorporated into financial

planning for UWMC. Transformation of care and strong expense management continue to be high priorities. Leadership is focused on process improvements targeted at improvement in financial results. This work is a priority of leadership both at the

Medical Center and executive leadership within UW Medicine. Selected Indicators NOTE: Measurement date for ILP covenants is June 30 of each year at which point compliance is assessed.

FY14 Actuals FY15 Actuals FY16 Actuals FY17 Budget Admissions 18,033 18,092 18,362 18,787 Total Surgeries 14,538 15,313 15,895 15,754 Occupancy 81% 80% 82% 82% ICU Occupancy 84% 85% 87% 75%

3.4% 3.2% 4.0% 3.2% 3.7% 3.3% 3.5%1.5%

2.5%

-2.5%-3.9%

2.6% 2.9% 3.4% 3.9% 3.8%

-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%


Total MarginOperating income plus non-operating income expressed as a percentage of revenue

FY18-FY22 are projections

Proforma (2012) Actual (FY14-FY17 YTD Dec) / LRFP (FY18-FY22)

4.83 4.83 5.56

4.38 4.67 4.60 4.79 3.77

4.43

1.71 1.19

4.06 4.16 4.49 4.89 4.97

0.00

2.00

4.00

6.00


Debt Service CoverageNet operating income as a multiple of debt service,


Proforma (2012) Actual (FY14-FY17 YTD Dec) / LRFP (FY18-FY22) ILP minimum 1.25x

117 115 112 116 122 128136

102 95 9080 78 85 89 90 90

0

40

80

120

160


Days Cash On HandUnrestricted cash divided by daily operating expenses


Proforma (2012) Actual (FY14-FY17 YTD Dec) / LRFP (FY18-FY22) ILP minimum 75 days

ATTACHMENT 5F–4.5/203-17 3/9/17

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(1) Cash and cash equivalents as defined in the bond documents is composed of cash and short term investments.

Northwest Hospital (NWH)

Semi-Annual Borrower’s Report – March 2017 Summary The Financial Stability Plan (FSP) for NWH targeted a break-even bottom line through volume and revenue enhancements and expense reductions in

FY16. For FY17, through December 2016, margins are negative. o NWH's audited total margin for FY16 was -1.2%. Preliminary unaudited total margin for FY17 through December is -7.1%. o Debt service coverage is below the 1.25x Internal Lending Program (ILP) minimum at -0.19 for FY17 through December. o Days cash on hand of 60.5 in FY16 was above the ILP minimum of 50 days. Cash has declined to 47 days for FY17 and is below the ILP

minimum. Financial ratios for FY13-FY16 represent audited actuals. FY17 represents preliminary unaudited results through December 2016. FY18-FY22 reflect the Long Range Financial Plan (LRFP) presented to the UW Medicine Board Finance and Audit Committee in January 2017. The

Financial Stability Plan (FSP) represents the plan presented to the Board of Regents in October of 2015. Projections are revised and updated annually as part of the budget and planning cycle. o The plan includes lease payments associated with campus enhancements to be completed in 2018. This project has not been approved by the

Board of Regents. Assumptions are being revisited as part of the budget cycle. Risks and Mitigations Success at executing priorities in the strategic plan and implementing performance improvement initiatives are key to the achievement of financial

objectives going forward. Leadership continues to monitor performance monthly. Potential negative impacts to net revenue from health care reform and activities of commercial and government payers continue to be incorporated

into financial planning for NWH. Transformation of care and strong expense management continue to be high priorities. The strategic priorities as outlined in the FSP presented to the Regents in October, 2015 continue to be a leadership focus.

Selected Indicators NOTE: Measurement for ILP covenants is June 30 of each year at which point compliance is assessed.

FY14 Actuals FY15 Actuals FY16 Actuals FY17 Budget Admissions 9,211 9,934 10,060 10,559 Surgeries 9,428 9,581 9,907 11,079 Occupancy 61% 66% 67% 70%

2.38 4.30 4.77 5.05

1.65 2.01 2.18

-0.19

3.58 4.03 4.29 4.53 4.79

-2.000.002.004.006.00


Debt Service CoverageNet operating income as a multiple of debt service


Financial Stability Plan (Oct '15) Actual (FY14-FY17 YTD Dec) / LRFP (FY18-FY22) ILP Minimum 1.25x

1.2% 2.1% 2.3% 2.5%

-1.4% -1.4% -1.2%

-7.1%

1.2% 1.5% 1.8% 1.8% 1.8%

-8.0%

-5.0%

-2.0%

1.0%

4.0%


Total MarginOperating income plus non-operating income expressed as a percentage of revenue


Financial Stability Plan (Oct '15) Actual (FY14-FY17 YTD Dec) / LRFP (FY18-FY22)

57 51 51 5671

56 6147 50 51 53 53 55

0

40

80


Days Cash On Hand (1)

Unrestricted cash divided by daily operating expensesFY18-FY22 are projections

Financial Stability Plan (Oct '15) Actual (FY14-FY17 YTD Dec) / LRFP (FY18-FY22) ILP Minimum 50 days

ATTACHMENT 6F–4.6/203-17 3/9/17

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School of Dentistry (SOD)

Semi-Annual Borrower’s Report – March 2017 Summary SOD is working to meet commitments outlined in the Financial Stability Plan (FSP). A preliminary audit report is complete and it is clear that the Dean’s Office does not have enough oversight of departmental/program expenditure

approvals and budget transfers. Predoctoral clinics have increased patient visits and reduced expenditures. Increases in expenditures in the postdoctoral clinics and faculty practice clinics are driven by the allocation of teaching faculty salaries to clinical

budgets. SOD, working with University administration, has limited staff and faculty hiring. Only crucial positions impacting patient safety and/or the students’

educational program are being filled. The Oral and Maxillofacial Surgery faculty practice has moved to the second floor of the Center for Pediatric Dentistry and is treating patients. The Advance General Practice clinic has moved from its second floor location in Health Sciences to the third floor, reducing the number of staff. The

School of Pharmacy has been assigned to the vacated space. FY17 revenue includes onetime grants of $3M. Additional revenue enhancements are in the planning stages and not reflected in the projection.

Selected Indicators

FY15 FY16 FY17 Q2 Patient Volume 95,297 103,160 50,915 Patient Mix Medicaid 45% 50% 45% Private Insurance 27% 26% 20% Self-Pay 28% 24% 35%

1.92 1.01 1.49 1.44

-3.28 -2.59-3.93

-1.66-3.31

-5.49 -5.98-10.00

-5.00

0.00

5.00FY14 FY15 FY16 FY17 FY18 FY19 FY20

Debt Service CoverageClinical net operating income as multiple of debt service

2016 FSP Proforma Actual thru FY16/Projections

12% 6% 6% 5%

-31%-22%

-29%

-10%-23% -23% -23%-40%

-20%

0%

20%FY14 FY15 FY16 FY17 FY18 FY19 FY20

Operating MarginClinical operating expenses expressed as a percentage of revenue (excluding debt service)


-27 -27 -27 -27-19 -23

-32 -33 -38 -39 -41-60

-40

-20

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Fund BalanceCumulative clinical net assets


$ Millions

ATTACHMENT 7F–4.7/203-17 3/9/17

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STANDING COMMITTEES Finance and Asset Management … · 2018. 7. 24. · System wide as-built...

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