The Pines at Davidson Inc.

“Ex officio members do not have voting rights”

“The board of directors of the pines at davidson maintains an audit committee as one of its standing committees. All members of the audit committee are volunteer directors who are independent of management. All members of the audit committee are experienced business people or cpas and the chairperson is a cpa. The chairperson also serves as a member of the executive commitee of the organization's board of directors and reports as needed directly to the board of directors. The audit committee meets at least annually in executive session with the auditors without management present. Cliftonlarsonallen audits the organization and also prepares its form 990 based on information provided by the pines' management. Prior to filing the form 990 tax return the form 990 is reviewed by the audit committee. A copy of the form 990 is also provided to all directors prior to filing.”

“The organization monitors the conflict of interest policy by sending a questionnaire prepared by the organization's attorney at least annually to all directors. The directors return the signed questionnaires. Management of the pines works closely with its legal and tax advisors in the event any directors indicate potential conflicts and provide assistance in determining proper treatment and disclosure. The executive committee of the board of directors and/or the board of directors is also apprised of any potential conflicts of interest.”

“The executive committee of the pines' board of directors ("board") serves as the compensation committee, evaluating performance and setting compensation for the president/executive director and vice president/cfo of the pines. The executive committee is comprised of those directors of the corporation who are the chairperson, vice chairperson, treasurer, and secretary of the corporation and the chairpersons of the committees of the board of directors. The compensation committee meets at least annually. The committee assesses job performance against objectives established by the board as part of the corporation's strategic plan, which for 2017 included eight key strategic goals: (1) delighted residents; (2) high quality healthcare and other services; (3) a caring, talented and loyal staff; (4) state-of-the-art facilities; (5) strong community relations; (6) an innovative culture and a spirit of inquiry; (7) effective board governance; and (8) financial strength. The board also adopted quantifiable, measureable objectives for each of these eight key goals to help measure performance of the pines' management team. Some examples of such objectives include (numbers in parentheses refer to the related strategic goal): maintaining a passing health department rating on the pools (4); achieving a county health department restaurant sanitation score of 93 or better (2); having no incidents of resident abuse or neglect (2); meeting employee turnover and satisfaction objectives (3); meeting resident satisfaction objectives (1); answering nursing call bells within three minutes 95% of the time (1); striving to respond to all life safety related and high priority work orders in a timely manner (1); raising gifts to grow the entry assistance fund (5); scoring at the median or better on 17 key financial ratios calculated annually on approximately 109 single-site, nonprofit, accredited continuing care retirement communities (8); striving to maintain an 'a-' fitch rating or better (in 2019, this objective changed to strive to maintain a fitch investment grade rating of 'bbb+ or better through december 31, 2028, and thereafter strive to achieve and maintain a fitch investment grade rating of 'a- or better) (8); operating the facility at an operating margin of 3% to 5% or better (8); maintaining positive cash flow each year as measured by cash used or provided from operations (8); and maintaining 95% occupancy or better in independent living (6). The compensation committee considers compensation for similar positions at other nonprofit organizations in the same industry with comparable total revenues. The pines' independent compensation consultant gathers such information on approximately 45 other nonprofit continuing care retirement communities (mainly in nc, sc, va & md). Similar information is gathered on 21 nonprofit ccrcs (primarily on the east coast). The compensation committee also considers a national compensation survey done for leading age that provides regional and national compensation data for similar positions at approximately 520 nonprofit continuing care retirement communities. The president and vice president rank below the 75th percentile when their combined annual compensation is compared to the compensation survey information referred to above.”

“Form 990 as well as the conflict of interest policy and the corporate bylaws are available on request at the business office of the pines. The audited financial statements are also available on request and a copy is kept in the library of the pines at davidson. The organization files a disclosure statement annually with the north carolina department of insurance and is available on the ncdoi website. Such disclosure statement contains significant information about the status and operations of the pines. Such disclosure statement is also available in the library of the pines and is distributed to all applicants for residence.”

“Net asset released from restriction for operations 2,333,459. Change in value of temp restricted pledges -112,140. Net assets released from donor restrictions -2,760,566.”

“No change in method since the prior year.”

“The revenue less expenses for the fiscal year 2018, as reported on part i, line 19 of the form 990, reconciles to the organization's audited financial statements in the following manner: total operating revenue and support 21,810,079 total operating expenses 19,877,067 increase in unrestricted net assets 1,933,012 form 990, part i, line 19 -- revenue less expenses 4,589,199 restricted contributions (2,166,175) unrestricted contributions (600) restricted interest income (489,412) per audited financial statements 1,933,012 the increase in unrestricted net assets of $1,933,012 for fiscal year 2018 represents 8.9% of total operating revenue of $21,810,079 for such year. This ratio is referred to as the operating margin ratio. An operating ratio of 8.9% means that $8.90 out of every $100 in operating revenues remained after accounting for operating expenses. By way of comparison, the 75th percentile operating margin ratio for a group of approximately 109 single site accredited continuing care retirement communities was 4.75% for 2018 (source: 2019 financial ratios trend analysis of carf-ccac accredited organizations). A positive operating margin over time is an indication that the pines can prudently manage its costs and expenses from year to year, and that the pines is financially stable enough to support its services. The operating margin increased from 4.4% in 2017 to 8.9% in 2018 because total operating revenue between years increased approximately 4.7% (mainly due to favorable changes in occupancy and unit mix) and total operating expenses decreased 0.1%. The pines began planning for a major expansion of its facilities and services in 2016 that extended through 2018 ("project"). The project includes adding a two story addition to the nursing unit (net increase of 24 nursing beds); renovating assisted living dining; adding a new two story large meeting room; adding new fitness equipment space; renovating the dining facilities to include a marketplace, coffee/gelato kiosk, pub and waited table service; adding two new apartment buildings containing 38 new villa apartments; and adding parking and a new second entrance. In january 2019, the pines' construction manager began site work in connection with the project. In december of 2017 the pines' credit rating was revised by fitch from an 'a-' to an 'a' credit rating. In february 2019, as expected the pines' credit rating was revised by fitch from an 'a' to a 'bbb+' credit rating in response to the projected changes in the pines' financial position as a result of undertaking the project. An organization with an investment grade rating (considered to be 'bbb- or higher) can typically borrow funds at lower, more favorable interest rates. In its report entitled "2019 median ratios for not-for-profit life plan communities," fitch reports that out of 151 rated life communities (i.e. Continuing care retirement communities) only 60 were rated 'bbb+ or higher. In march 2019, the pines borrowed $46 million in tax exempt public debt and arranged to borrow an additional $12 million in tax exempt bank debt. The pines' investment banking firm (ziegler) estimates that the pines' "bbb+" credit rating resulted in a cost of borrowing that was 0.65% lower than if the transaction were non-rated, resulting in a gross cash flow savings of $9,768,326. In addition, the "bbb+" credit rating enabled the pines to borrow funds without maintaining a debt service reserve fund, which reduced the borrowing need by approximately $3.5 million. In summary, the pines profitability (reflected in the 8.9% operating margin for 2018) is being used to help finance improvements in the pines' facilities and services in 2019 and beyond.”