Hot Springs Village Property Owners’ Association Board of Directors Report

Memo To: Lesley Nalley, CEO

From: Liz Mathis, Controller LM

Date: August 15, 2018 Re: July 2018 Financial Reports

Attached please find the following financial package documents:

• Executive Summary

• Financial Dashboard

• Statement of Financial Position

• Statement of Revenue and Expenses

• Statement of Capital Additions

• Property Dashboard

• Operational Dashboard

1

Hot Springs Village POA Executive Summary as of July 31, 2018

% Operating Expense Budget Spent YTD 54% % Capital Budget Spent YTD 30.55% % Net Revenue Earned vs. Budgeted YTD 51% Properties/Units Paying Assessments 23,629; 68%; 65<Dec

FINANCIAL DASHBOARD

For 2018 $98k more in assessments have been received over last year. YTD total operational revenue is 10.14% higher than 2017. Administration, Sales, Public Safety, Public Utilities, Lakes, P&I, Food & Beverage & Golf all show an increase in revenue from the prior year. Total operating expense is currently 8.00% higher than 2017, as budgeted. The $17.3mil in 2018 operating expense is split as shown in the graph on page 5. Expenses in all departments except Golf are at or below budget year to date. Golf is just slightly over budget year-to-date related to seasonal personnel expenses. 52% of the Association’s year to date revenue came from billed assessments. The service and amenity usage of those assessment dollars is as follows: Administration 29.31%, Sales & Development 7.73%, Public Safety 26.70%, Public Works 9.76%, Lakes 1.1%, Food & Beverage 3.36%, Golf 12.84%, and Recreation 9.37%. Public Utilities & P&I are not currently being subsidized with assessments.

STATEMENT OF FINANCIAL POSITION CASH: HSVPOA ended the month with $9mil of cash/cash equivalents, a $163k increase from 2017. This increase is attributed to increases in reserves, offset by spending for deferred maintenance and carry over capital from 2017 being completed. $1.2mil is currently restricted. $870k of the restricted balance relates to the sewer bond ($301k available for improvements and the rest in required reserves). Other restricted funds include workers comp and employee insurance. ASSESSMENTS RECEIVABLE: $18.4mil of assessments are currently outstanding, with $15.6mil accrued for bad debt, pending resolution of the NRPI successor entity collection efforts. 10,825 properties are considered unproductive or not in good standing.

OTHER MEMBERSHIP RECEIVABLES: $166k of other membership receivables are currently outstanding. This fluctuates from month to month due to the bi-monthly utility billing. As of the end of July, five months of utilities have been billed. LONG TERM DEBT: $4.71mil of long term debt is currently outstanding. The current debt ratios, cash balance, and projected operating results demonstrate HSV’s ability to meet the related debt service obligations for 2018. NET WORTH: HSV’s current net worth is $71.7mil, an increase of $152k from prior year.

2

STATEMENT OF REVENUE AND EXPENSE NET REVENUE: Total net revenue (1) is 51% of budget and $1mil more than 2017. While total revenue is up from the prior year, several divisions show decreases in Revenue over prior.

• In Public Works revenue is down related to the sales of vehicle decals which have been postponed in 2018 pending completion of the gates project.

• Recreation revenue is down from the prior year related to delay of Pickleball annual memberships. In addition, fitness center revenue is also trending under budget and prior year and is projected to be approximately $50k under both budget & prior year. Staff have adjusted spending accordingly and are working on an improved tracking system to determine how usage has changed.

• Golf revenue is up $154k from the prior year. Both current and prior year numbers now include proceeds from the golf cart trade ins.

EXPENSE: Total operational expense (2) is 54% of budget and $1.38mil more than 2017, as budgeted. NET OPERATING RESULTS: Net excess (deficit) before depreciation and capital was $1.26mil (3), as compared to a $1.56mil last year. CAPITAL: Capital spending totals $1.86mil of the combined 2018 & 2017 rollover capital of $6.1mil budgeted for 2018.

PROPERTY DASHBOARD Approved new home permits total 40 year-to-date versus 22 at this point in 2017. There are 9,181 water meters and 8,046 sanitation customers currently active. There are 8,819 improved lots, representing 36 more than at December 2017, and 25,337 unimproved lots in the Village. Additionally, there are 99 time share units and 199 assisted living units. The POA owns 3,218 lots. 99% of improved lots, 66% of unimproved lots not owned by the POA, and 100% of the timeshare and assisted living units are currently in good standing. Currently, there are 7,534 unimproved lots and 73 improved lots with assessment balances greater than 60 days outstanding. 104 fewer properties are considered delinquent between December 2017 and this month. A new item to note on the Property Dashboard is on the Sales & Construction Activity Chart. Starting in 2018 we will be reporting the number of Discovery Packages completed year-to-date. Hot Springs Village POA has hosted 17 Discovery Packages since March of this year.

OPERATIONAL DASHBOARD

GOLF: There were 78 less playable days (across 8 courses) than 2017. The average consolidated revenue per playable day this year is $2,392 vs. $2,223 for the same period last year, which reflects an increase of $169.51 more revenue per playable day year-to-date. Year over year improvements in revenue per round were posted by all courses except Coronado, and total revenue per round is up $2.39 per round. Overall rounds were down 6,435 related to wet weather earlier in the year. The decrease in rounds is related to member, reciprocal and VIP play. Guest play related to public, accompanied member guest, tournaments and golf packages is up 1200 rounds from the prior year.

3

FOOD & BEVERAGE: Costs of Goods Sold (COGS) as a percentage of sales shows month over month improvement at Magellan Deli & Waypoint. All locations except DeSoto Club and Ponce Center Bar show improvement since January. On average, COGS as a percentage of sales is trending 4.23% over the budgeted percentage of sales. Labor as a percentage of sales show month over month improvement at Balboa Club, DeSoto Club, Ponce Center Bar & Waypoint. All locations except Magellan Deli, Coronado Center Bar & Granada Grill show improvements since January. On average, labor as a percentage of sales is trending 3.13% over the budgeted percentage of sales. Staff are working on plans to improve inventory management and address labor costs while maintaining operating hours and customer service. RECREATION: The variance per event has reduced in all areas except the Fitness Center since January of 2018. Ponce Center variance increased from the prior month. There were a higher number of events and guests during the month, but revenue was lower because the majority of those events and guests were related to the week-long youth theater workshop co-sponsored by the HSV POA and the Concerts Association. Coronado Center variance also increased over the prior month and noted the lowest number of events and attendees of this year in July. These are typical seasonal variations for these two centers because the shows, concert series etc. typically run from September – May. Tennis & Fitness show improvement to the variance over the prior month. The Tennis Center had a decrease in both revenue and visits but was able to reduce expenses as well. The Fitness Center had an increase in the number of visits, increased revenue and decreased expenses. PUBLIC WORKS & PUBLIC UTILITIES Metrics based on Utility Billing are shown each month and will experience fluctuations due to the bi-monthly billing schedule. July is not a billing month and these all reflect a decrease over the prior month. The excess revenue in operations is budgeted for capital spending & for system maintenance & improvements. PERMITTING & INSPECTIONS: In addition to the 49 new home permits sold year to date (with 40 approved thus far) there have been 1,235 permits sold for different types of additions and 134 issued for a variety of items including signage, fines & in-home business permits. PUBLIC SAFETY New metrics show the net spending per resident for all Public Safety services. Bi-monthly fluctuations are related to ambulance revenue charged on the utility bills. The month over month reductions in this per resident average are on a downward trend and will continue as the residency in HSV increases. Residency estimates have increased by 53 people since January 2018. WORKER’S COMPENSATION This metric reflects the average year-to-date worker’s compensation expenses per employee. This number will continue to increase throughout the year as more claims are paid. The overall goal is to reduce year over year. Year end 2017 worker’s compensation costs averaged $255.51 per employee. 2018 is currently averaging $96.20 per employee year-to-date.

4

2018 YTD 2017 YTD Inc/(Decr) %Change8,682,174$ 8,583,805$ 98,369$ 1.13%

10,722,783$ 10,697,359$ 25,424$ 0.24%9,989,640$ 8,976,346$ 1,013,294$ 10.14%

17,328,034$ 15,941,332$ 1,386,702$ 8.00%7,338,394$ 6,964,986$ 373,408$ 5.09%1,867,098$ 1,179,798$ 687,299$ 36.81%6,567,396$ 6,881,006$ (313,610)$ -4.78%

301,498$ 1,061,075$ (759,577)$ -251.93%942,514$ 358,514$ 584,000$ 61.96%300,000$ 100,000$ 200,000$ 66.67%

3.10 2.807.30 5.58

Viability RatioDebt Service Coverage Ratio

Operational RevenueOperating Expenses

Capital SpendingCash Available for Operations

Capital Reserves

Subsidy Before Capital

Remaining Sewer Bond Funds

Public Utility Reserves

Assessments & Penalties Billed

HOT SPRINGS VILLAGE POAFinancial Dashboard

as of July 31, 2018

At a Glance Comparison of Select Financial Data

Assessments Received

14.33%

3.94%

14.61% 14.21%

10.44%

1.17% 0.58%

4.93%

27.97%

7.82%

0.00%

4.00%

8.00%

12.00%

16.00%

20.00%

24.00%

28.00%

32.00%

% Expense to Total

Budgeted % 2018 YTD Actual 2017 YTD Actual

Assessment 52%

Administration 1%Sales & Development 0%

Public Safety 2%

Public Works 5%

Public Utilities 14%

Lakes Management 1%

P&I 1%

Food & Bev 3%

Golf 18% Recreation 3% Actual YTD Revenue % to Total

5

2018 2017

OPERATING CASH 5,026,396$ 5,340,006$ RESTRICTED CASH 1,242,609 1,549,257 INVESTMENTS - OPERATING RESERVES 1,541,000 1,541,000 PUBLIC UTILITY CAPITAL RESERVES 300,000 100,000 NON-UTILITY CAPITAL RESERVES 942,514 358,514 TOTAL CASH AND CASH EQUIVALENTS 9,052,519 8,888,777

MEMBERSHIP ASSESSMENT RECEIVABLE GROSS ASSESSMENTS BILLED 18,459,606 22,228,828 LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS (15,627,160) (19,530,744) NET MEMBERSHIP ASSESSMENT RECEIVABLE 2,832,446 2,698,084

OTHER MEMBERSHIP RECEIVABLES 166,489 84,812 OTHER RECEIVABLES 37,479 38,479 INVENTORIES 66,999 143,274 PREPAID EXPENSES 415,211 283,633 REAL ESTATE HELD FOR SALE, NET REALIZABLE VALUE 2,413,500 2,127,000 RECOVERABLE ELECTRIC COSTS 3,787,060 3,889,750 PROPERTY AND EQUIPMENT, Net of Accumulated Depr. 63,796,808 63,787,410 TOTAL ASSETS 82,568,511 81,941,219

LIABILITIESACCOUNTS PAYABLE 413,666$ 367,503$ ACCRUED EXPENSES 2,594,331 2,624,999 PREPAID ASSESSMENTS AND FEES 2,467,971 2,388,402 SECURITY DEPOSITS & OTHER DEPOSITS 599,645 572,008 ARVEST LOAN - DESOTO 785,115 1,079,214 REGIONS LOAN - FIRE TRUCK 901,206 - LINE OF CREDIT - - BONDS PAYABLE 3,025,000 3,280,000 TOTAL LIABILITIES 10,786,934 10,312,126

MEMBERSHIP EQUITYUNDESIGNATED 70,539,063 71,170,579 DESIGNATED FOR FUTURE REPAIRS & REPLACEMENT 1,242,514 458,514 TOTAL MEMBERSHIP EQUITY 71,781,577 71,629,093

TOTAL LIABILITIES AND MEMBERSHIP EQUITY 82,568,511$ 81,941,219$

HOT SPRINGS VILLAGE POA Comparative Statement of Financial Position

as of July 31, 2018

ASSETS

LIABILITIES AND MEMBERSHIP EQUITY

6

2018 Over/(Under) Budget % BudgetBudget 2018 2017 Prior Year Remaining Earned/Spent

Assessments, Penalties & Other Rev 18,465,306 10,722,783 10,697,359 Provision for future Bad Debt (2,690,000) (2,114,799) (2,165,454) Net Assessment Revenue 15,775,306 8,607,984 8,531,905 76,080 7,167,322 Administration REVENUE 296,811 182,534 119,918 62,616 114,277 61% EXPENSE (4,301,793) (2,482,788) (2,375,070) 107,717 (1,819,005) 58%Net Administration (4,004,982) (2,300,253) (2,255,152)

Sales, Mktg, Disc. Ctr. & Dev. REVENUE 314,320 71,592 33,179 38,414 242,728 23% EXPENSE (1,373,196) (682,071) (434,163) 247,908 (691,125) 50%Net Sales & Development (1,058,876) (610,479) (400,984)

Public Safety REVENUE 834,295 423,854 384,317 39,537 410,441 51% EXPENSE (5,075,559) (2,532,299) (2,322,890) 209,409 (2,543,260) 50%Net Public Safety (4,241,264) (2,108,445) (1,938,573)

Public Works REVENUE 2,300,553 1,038,839 1,054,909 (16,070) 1,261,714 45% EXPENSE (3,180,747) (1,809,433) (1,399,396) 410,037 (1,371,314) 57%Net Public Works (880,194) (770,594) (344,487)

Public Utilities REVENUE 7,098,565 2,962,044 2,509,485 452,559 4,136,521 42% EXPENSE (4,655,201) (2,462,508) (2,384,329) 78,179 (2,192,693) 53%Net Public Utilities 2,443,364 499,536 125,156

Lakes Management REVENUE 119,275 115,610 90,185 25,425 3,665 97% EXPENSE (377,871) (202,619) (244,501) (41,882) (175,252) 54%Net Lakes Management (258,596) (87,009) (154,316)

Permitting & Inspections REVENUE 146,000 157,924 132,890 25,035 (11,925) 108% EXPENSE (177,998) (100,452) (172,710) (72,258) (77,546) 56%Net Planning & Inspection (31,998) 57,472 (39,821)

Food & Beverage REVENUE 1,574,726 588,402 308,443 279,959 986,324 37% EXPENSE (1,808,217) (853,556) (500,245) 353,311 (954,661) 47%Net Food & Beverage (233,491) (265,154) (191,802)

Golf REVENUE 6,913,434 3,833,355 3,678,554 154,801 3,080,079 55% EXPENSE (8,213,171) (4,847,080) (4,716,770) 130,310 (3,366,091) 59%Net Golf (1,299,737) (1,013,725) (1,038,216)

Recreation REVENUE 1,239,161 615,485 664,466 (48,982) 623,676 50% EXPENSE (2,753,862) (1,355,228) (1,391,257) (36,030) (1,398,634) 49%Net Recreation (1,514,701) (739,743) (726,791)

2018 Budget 2018 Actual 2017 Actual Over/(Under)

Prior Year Budget

Remaining Gross Revenue 39,302,446$ 20,712,423$ 19,673,705$ Bad Debt Expense (2,690,000) (2,114,799) (2,165,454) Net Revenue (1) 36,612,446 18,597,624 17,508,251 1,089,374 (18,014,822) 51% Operational Expense (2) (31,917,616) (17,328,034) (15,941,332) 1,386,702 (14,589,582) 54%Excess (Deficit) Before Depr.(3) 4,694,830$ 1,269,590$ 1,566,918$

Depreciation (2,060,803)$ (2,404,270)$

HOT SPRINGS VILLAGE POAComparative Statements of Revenue and Expenses

Months ended July 31, 2018 and July 31, 2017

Actual YTD

7

2018 2018 Prior Year BudgetSpending Budget Rollover Remaining

Administration 442,994$ 1,219,192$ 433,200$ 1,209,398$ Sales, Mktg, Disc. Ctr. & Dev. - 150,000 - 150,000 Public Safety 164,776 281,178 60,000 176,402 Public Works - - - - Public Utilities 873,818 1,031,879 621,095 779,156 Lakes Management 31,600 55,000 - 23,400 Permitting & Inspections - - - - Food & Beverage 41,894 44,100 58,964 61,170 Golf 110,766 309,752 107,132 306,118 Parks and Recreation 201,250 481,000 1,260,000 1,539,750 Total Year to Date Capital Additions 1,867,098$ 3,572,101$ 2,540,391$ 4,245,394$

HOT SPRINGS VILLAGE POAStatement of Capital Additions

as of July 31, 2018

8

Water Meters Billed: Sanitation Billed:Residential 8,852 Res-House 464Commercial 207 Res-Curb 7,464Sprinkler 80 Commercial 118Construction 42 No Sanitation 1,088

Total 9,181 Total 9,134

Population Estimate: 14,163

Hot Springs Village POAProperty Dashboardas of July 31, 2018

296 318 312354 336

24 43 23 22 40

469426

359

269 283

6 24170

50100150200250300350400450500

2014 2015 2016 2017 2018

YTD YTD YTD YTD YTD

SALES & CONSTRUCTION ACTIVITY

Home Sales New Home Permits Homes Listed

POA Lot Sales Discovery Packages

66%

99%

0% 20% 40% 60% 80% 100% 120%

Unimproved Lots - Non POA

Improved Lots

% GOOD STANDING

7,61

6

95

7,71

1

7,53

4

73

7,60

7

UNIMPROVED IMPROVED TOTAL

PROPERTIES OUTSTANDING MORE THAN 60 DAYS

YR END 2017 YTD 2018

9

2018 2017 VarianceYTD Playable Days 1,450 1,528 (78)Revenue/Day 2,392$ 2,223$ $169.51

VarianceMagellan Deli 17,720$ 46.39% 15,166$ 36.84% 2,554$ Balboa Club 41,845$ 43.71% 35,827$ 34.80% 6,018$ DeSoto Club 54,734$ 41.00% 103,201$ 34.80% (48,467)$ Ponce Center Bar 3,037$ 34.92% 3,124$ 33.08% (87)$ Waypoint 13,371$ 27.12% 24,147$ 37.60% (10,776)$ CCC Bar 8,426$ 41.15% 6,551$ 32.96% 1,875$ Granada Grill 94,838$ 44.72% 108,961$ 37.16% (14,123)$

VarianceMagellan Deli 18,708$ 48.98% 17,233$ 41.86% 1,475$ Balboa Club 43,412$ 45.35% 33,177$ 32.23% 10,236$ DeSoto Club 91,870$ 68.82% 121,626$ 32.23% (29,756)$ Ponce Center Bar 1,988$ 22.86% 5,858$ 62.05% (3,870)$ Waypoint 28,702$ 58.21% 35,912$ 55.92% (7,211)$ CCC Bar 6,553$ 32.01% 6,568$ 33.02% (15)$ Granada Grill 153,943$ 72.59% 160,811$ 54.84% (6,868)$

Total SubsidyTotal Accounts Receivable Due

$30,178

Hot Springs Village POAOperational Dashboard

as of July 31, 2018

Leased Facilities

GOLFYTD Playable Days & Revenue per Day

FOOD & BEVERAGECOGS as a % of Sales

Labor as a % of Sales

YTD Budget

YTD Budget

$46,424

15.0020.0025.0030.0035.00

2018 vs 2017 Actual Revenue/Round

2018 Actual Revenue/Round 2017 Revenue/Round

10

Hot Springs Village POAOperational Dashboard

as of July 31, 2018

Revenue Expense VariancePonce Center per Event 635.28$ 1,405.54$ (770.26)$ Ponce Center per Attendee 5.39$ 11.93$ (6.54)$ CCC per Event 109.26$ 234.99$ (125.73)$ CCC per Attendee 3.45$ 7.42$ (3.97)$ Coronado Tennis per Visit 4.83$ 7.14$ (2.31)$ Coronado Fitness per Visit 3.49$ 5.33$ (1.84)$

Revenue Expense VarianceWater 119.71$ 31.92$ 87.79$ Waste Water 202.84$ 166.32$ 36.52$ Sanitation 92.18$ 49.05$ 43.14$

Revenue Expense VarianceNew Homes, Additions & Other Fees 111.37$ 70.84$ 40.53$

Public Safety Worker's Comp

PUBLIC WORKS & PUBLIC UTILITIESYTD Average Per Customer

Permitting & InspectionsYTD Revenue vs. Expense Per Permit

RECREATIONYTD Revenue vs. Expense Per Event

$25.35 $20.41

$27.21

$15.71

$27.27

$18.14 $15.13

$- $5.00

$10.00 $15.00 $20.00 $25.00 $30.00

Net Public Safety Spending Per Resident

Operations Spending Per Resident

$32.04 $45.58

$59.56 $65.03

$76.40 $76.00

$96.20

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

YTD Worker's Comp Expense Per Employee

WC Expense Per Employee

11