University of Louisville

1. University of Louisville Student Housing Business Plan Presentation Market Analysis Operations Review Implementation Plan

2. University of Louisville Market Analysis Benchmarking Student Survey Demand Projections

3. Market AnalysisBenchmarking • Profile of Off-Campus Properties • Sample Size: 22 properties located within 15 miles of campus • Property Size: 42 to 689 units; median 208 units • Leases: All offer 12-month leases; majority offer 6- or 9-month leases (most for an additional charge) • Security deposits: $0 to $450 • Occupancy: 77% to 100%; median 92%

4. Market AnalysisBenchmarking • Off-Campus Rents by Unit Type

5. Market AnalysisBenchmarking • Peer Institutions • SUNY at Buffalo • University of Cincinnati • University of Illinois – Chicago • University of Kentucky – Lexington • University of Memphis • University of Missouri – Columbia • University of Nevada – Reno • University of Pittsburgh • University of South Florida • Wayne State University

6. Wayne State University 7% University of South Florida 9% University of Cincinnati 10% University of Nevada-Reno 12% University of Louisville 12% University of Illinois-Chicago 12% University of Memphis 12% University of Louisville 18% Proposed University of Missouri-Columbia 23% University of Kentucky-Lexington 23% University of Pittsburgh 25% SUNY at Buffalo 65% Market AnalysisBenchmarking • Peers: Beds/Units as a % of Enrollment • Median: 12%

7. University of Memphis 82% University of Nevada-Reno 93% 97% University of Missouri-Columbia 98% University of Louisville University of Pittsburgh 99% University of Illinois-Chicago 99% 100% SUNY at Buffalo 100% University of Cincinnati Market AnalysisBenchmarking • Peers: Fall 2004 Occupancy • Median: 98.5%

8. University of Memphis $2,620 University of South Florida $3,108 University of Louisville $3,168 University of Kentucky-Lexington $3,363 University of Missouri-Columbia $3,400 University of Nevada-Reno $4,190 University of Pittsburgh $4,510 University of Louisville $4,600 Proposed SUNY at Buffalo $4,636 University of Cincinnati $4,680 University of Illinois-Chicago $4,790 Market AnalysisBenchmarking • Peers: Room Rate Traditional Double • Median: $3,800

9. University of Memphis $2,912 University of South Florida $3,108 University of Louisville $3,777 University of Kentucky-Lexington $4,250 Wayne State University $4,280 SUNY at Buffalo $4,636 University of Missouri-Columbia $4,750 University of Pittsburgh $4,790 University of Cincinnati $5,138 University of Louisville $5,140 Proposed University of Illinois-Chicago $5,210 University of Nevada-Reno $5,290 Market AnalysisBenchmarking • Peers: Room Rate Suite Double • Median: $4,636

10. Market AnalysisStudent Survey • Off-Campus Housing Costs Per Person • Single Students

11. Market AnalysisStudent Survey • Off-Campus Housing Costs Per Unit • Married/Family Students

12. Market AnalysisStudent Survey • Median Price Per Unit Comparison With Market Rents • Students are generally renting at or below the median price in the market • Married/family students generally seek lower cost housing than single student who share the rent

13. Market AnalysisStudent Survey • Unit Types and Rents Tested in the Survey

14. Affordable cost Proximity to campus facilities and services Adequate living space Have personal space/privacy Have own bedroom Security Overall Freedom from rules and regulations On Campus Physical condition of the housing Off Campus Ability to meet other students/social atmosphere Availability of parking 0 500 1000 1500 2000 2500 Weighted Scale Market AnalysisStudent Survey • Most Important Factors Respondents Considered in their Housing Decision

15. Market AnalysisStudent Survey • Interest in Proposed Housing

16. The housing is too expensive Prefer to rent off campus I live with my parents/relatives Concerned about the level of rules & regulations I do not want to move I live with my spouse and/or children Prefer Bettie Johnson Hall I already own a home Prefer existing traditional campus housing Off Campus Prefer Louisville Hall On Campus Prefer University Tower or Medical/Dental Apartments 0 100 200 300 400 500 600 Number of Respondents Market AnalysisStudent Survey • Reasons for Lack of Interest in Proposed Housing

17. Definitely Interested Might Be Interested Full-time Capture 50% Capture 25% Off-Campus Projected Class Rate Closure Rate Closure Enrollment Demand Freshmen 2,167 8% 82 30% 164 245 Sophomores 1,884 2% 22 17% 79 101 Juniors 2,120 5% 48 21% 114 161 Seniors 2,285 3% 36 17% 98 134 8,456 187 454 641 Market AnalysisDemand Projections • Off-Campus Student Demand – Fall 2004 • Overall, 7.5% of current off-campus residents “would” or “might” be interested in the proposed housing • Significant percentage of off-campus freshmen interested

18. Definitely Interested Might Be Interested Full-time On-Campus Projected Capture 50% Capture 25% Enrollment Demand Class Rate Closure Rate Closure Freshmen 1,550 50% 389 35% 135 524 Sophomores 604 45% 135 35% 53 187 Juniors 164 30% 24 53% 22 46 Seniors 68 33% 11 33% 6 17 2,386 560 215 775 Market AnalysisDemand Projections • On-Campus Student Demand – Fall 2004 • Overall, 32% of current on-campus residents “would” or “might” be interested in the proposed housing • Lower-division students most interested

19. Total 2004 Rent Off-Campus Students On-Campus Students Projected Per Student Unit Type Preference Demand Preference Demand Demand Per AY Renovated Traditional Double $3,920 18% 117 20% 158 274 Improved Traditional Double $4,600 30% 194 42% 323 517 New Semi-Suite Double $5,140 20% 127 19% 149 276 New Semi-Suite Single $5,860 32% 204 19% 144 348 Total 100% 641 100% 775 1,416 Market AnalysisDemand Projections • Total Demand by Unit Preference – Fall 2004 • Demand at higher rents for renovated traditional halls and new semi-suites still exceeds the proposed supply of 1,033 beds

20. University of Louisville Operations Analysis Progress Report Challenges and Opportunities Visioning the Future

21. Operations ReviewOverview • Four Aggressive Years of Growth and Improvements • Challenges and Opportunities Remaining • Major issues and recommendations for University Leadership • Major Issues and recommendations for Housing and Residence Life • Visioning the Future

22. Operations ReviewProgress Report • Four Years of Growth and Improvement • General fund subsidy has been eliminated from the housing budget • Student housing capacity has doubled in four years from 9% to over 18% of fulltime undergraduate students • ULP surpluses have been used, in part, to expand renovations in traditional U of L residence halls

23. Operations ReviewProgress Report • …More Improvements • Housing license cancellation policies and penalties have been strengthened to reduce mid year vacancies and improved spring occupancy by 2-3 % annually. • Space renovated in Threlkeld for the Etscorn Honors Center • Publications and marketing efforts have been enhanced considerably • Policy review has been completed with policy adaptations for enhanced student service have been implemented

24. Operations ReviewProgress Report • … And Even More Improvements… • Strengthened overall residence hall security and fire safety program with access control and sprinkler systems • House calls and Facility Assistant visits implemented in each hall • Enhanced First Year Experience for students in residence halls through personal calls before fall semester, meetings with first year students (MPACT), roommate contracts, and several other initiatives

25. Operations ReviewChallenges and Opportunities • Recommendations for University Leadership • Effect the coordinated marketing and management of UofL Housing with ULP • For a specified period of years consistent the housing master plan, re-direct general fund overhead charges and housing budget surpluses directly to the residential capital projects

26. Operations ReviewChallenges and Opportunities • Recommendations for University Leadership • Effect the coordinated marketing and management of UofL Housing with ULP • For a specified period of years consistent the housing master plan, re-direct general fund overhead charges and housing budget surpluses directly to the residential capital projects

27. Operations ReviewChallenges and Opportunities • Recommendations for University Leadership • Delegate to the Housing and Residence Life management team the decisions of where students should be assigned based on market forces and educational needs. • Develop a plan to eliminate the requirement that upper class students living on campus must purchase a meal plan

28. Operations ReviewChallenges and Opportunities • Recommendations for University Leadership • Appoint a task force of faculty and student affairs and housing staff to develop a strategic plan for an expanded focus on residential learning • Provide appropriate educational funds to support the residential learning initiatives needed to support recruitment and retention of students

29. Operations ReviewChallenges and Opportunities • Housing and Residence Life • How can the residential facilities and the on campus experience support recruitment and retention of students? • Can we guarantee housing to all first year students? • What is the primary focus of the educational experience in residence life? • Developing business practices that enable full tracking of all fiscal issues while allowing reduction in operating costs • Adapting practices where appropriate from the Allen & O’Hara management and marketing model

30. Operations ReviewChallenges and Opportunities • Recommendations for Housing Leadership • Develop a plan, in collaboration with enrollment management, to guarantee all first year students who apply by May 1st each year (and thereafter as well) • Identify market niches and marketing strategies to increase overall fall occupancy by 2-3% within three years

31. Operations ReviewChallenges and Opportunities • Recommendations for Housing Leadership • Establish first year residence halls so that front-loaded student support can efficiently enhance their retention to the sophomore year • Centralize residence education and student services around a simplified and focused residential experience to enhance the success of first year and other residential students

32. Operations ReviewChallenges and Opportunities • Recommendations for Housing Leadership • Reduce operating expenses through re-organization, more clearly focused student academic success activities, and re-engineered business practices • Develop a business model scenario applying the ULP operations structure to UofL Housing to clearly identify the added operating expenses of the current H&RL budget • Analyze the differences to determine if the added expenses are justified by student outcomes in terms of recruitment or retention

33. Operations ReviewVisioning the Future • A Vision for the Cardinal’s Residential Experience • The educational experience of living on campus is recognized and valued • Aggressively funded capital investments transform the traditional residence halls into engaged learning environments with comfortable and secure accommodations • The recruitment of next generation students is enhanced by the quality residential facilities and programs at the University of Louisville

34. University of Louisville Implementation Plan Scope Financial Plan Summary Recommendations

35. Implementation PlanScope • On-Campus Facilities • Operations: All existing halls • Capital Improvements: Residential master plan projects; others deferred • ULP Beds • Bettie Johnson, Kurz, and Campus Commons not in financial model • Project surpluses source of revenue only • Merger of management systems to be determined

36. Implementation PlanScope • ULP Merger/Acquisition • Ownership to remain with ULH • No financial benefit to University ownership • Risk of financial default should remain with ULH • Improving net available cash flow to University • Additional debt service not advisable in wake of $50 million in new debt for residential master plan • Management • Short-term: Process re-engineering to approach vision • Long-term: Realignment to single point of control within University to achieve vision

37. Implementation PlanFinancial Plan • Challenges and Constraints • Rental rates are low • High operating costs per bed • Ongoing renewal and replacement • Existing debt service • Low reserve balance • Outcome: Minimal debt capacity exists to fund renovations and quality construction

38. Implementation PlanFinancial Plan • Creating Debt Capacity • Increase rents faster than operating costs • Charge rental premiums for comprehensive renovations and new construction • Trim operating costs and non-operating transfers • Minimize capital expenses • Outcome: Increased cash flow that can be leveraged to fund capital improvements

39. Implementation PlanFinancial Plan • Revenue Assumptions • 6% annual escalation through FY2009 all beds • 45% premium in year following project completion • 95% post-completion occupancy • Operating Cost Assumptions • Current operating results as baseline • 3% annual inflation (i.e., 3% less than rents) • 10% reduction in year following completion

40. Implementation PlanFinancial Plan • Capital Improvements • Capital Expenses • 25% of annual surplus, if available • Construction Costs • Based on input from planning team • $160 per gross square foot for new construction • Development Budgets • Include FF&E, design fees, development costs, contingency, and financing costs • Average markup 33% of construction costs

41. Implementation PlanFinancial Plan • Financing and Reserves (New/Reno) • Bond coupon rate 5.5% 5.0% • Term 30 yrs 20 yrs • Earnings on reserves 2.5% • Reserves • Balance of $1.0 million assumed as of 7/1/2005 • Operating surpluses are transferred to reserves • Operating deficits are funded from reserves • Provide backup debt service coverage

42. Implementation PlanFinancial Plan • Summary

43. Implementation PlanFinancial Plan • Bed Distribution

44. Implementation PlanFinancial Plan • Operating Budget

45. Implementation PlanFinancial Plan • Debt Service Coverage

46. Implementation PlanFinancial Plan • Reserves

47. Implementation PlanSummary Recommendations • Establish advisory team to oversee the Plan • Collaborate with Academic Affairs to establish living/learning environments • Formalize inter-departmental business processes and agreements in support of full auxiliary status • Seek operational and programmatic efficiencies to reduce operating costs • Implement phased facilities renewal plan • Move oversight and control of ULP management to Residence Administration

48. Extra Slides Follow

49. Implementation PlanULP Analysis • Key Provisions of Partnership Structure • Annual Rent • Equal to the Net Available Cash Flow • Revenues less operating expenses, debt service, management fee (6%), and deposits to reserves • Debt is non-recourse to the University • Purchase Option • Purchase price equal to outstanding principal balance • Lessor responsible for loan recording fees and transfer taxes

50. Implementation PlanULP Analysis • Ground Rent Received • Through FY2003, University reports $337,623 revenues received • For FY 2004, ULP financial statements report ground lease expenses (payments?) • Bettie Johnson Hall $531,172 • Kurz Hall $435,494 • Though less than projected because of early tenant issues, the properties now have the potential to return projected cash flow