Saturday, June 30, 2012

TLC is defaulting on payments and selling land

The financial situation of TLC is something I have been worrying about for a number of years now.   I have read the financial statements of the Land Conservancy on an ongoing basis and the level of debts the TLC held was not sustainable.

Here is what I posted almost two years ago on Vibrant Victoria:

I am looking through the financial statements of the TLC and at the moment it is not financially sustainable unless they are able to get about $2 million in cash donations per year. Anything less and the group will suffer from serious cash flow problems. In 2009/10 they improved their cash flow situation it would seem, but 2008/09 was not so good.

Their accounts are not clear at all because the TLC is very land rich but cash poor. The donation of a piece of land is recorded as a current year revenue and makes the income statement look much better than it would seem. They clearly have a lot tied up in land but it is not clear to me that they have enough money to sustain the organization.

There is also movement of money around in the accounts that is not clear. There is a $400,000 endowment fund that I am not certain if it ended up in the restricted or unrestricted fund.

They currently carry about $5.2 million in debts on about $31,000,000 of properties. Not all their debts are secured.

Their restricted fund, which is where the properties are recorded, is going up in value, but the unrestricted fund has $3.2 million more in liabilities than assets.

If there were no new campaigns to buy land, would the TLC bring in enough income to sustain itself? If it needs to find new properties to save so that it can fundraise effectively, how many can it buy before it becomes a problem?

and here is what I posted there in September 2011

So I was looking their audit and it looks like things are not getting better.

1) Total debt carried by the TLC has risen a lot in the last year - $130,000 or so is in a mortgage from the employees of the TLC. Last year the total debt was $5,898,166, this year it has risen to $7,447,635. Most of this increase is in short term and not long term

2) Cashflow - overall the TLC spent $311,317 more last year than it took in. A big reason for this was the spending on land purchases. Due to the nature of the TLC, the financing from year to year is not nearly as clear as I would like. I think they should be offering five year and ten year audits to see how things balance out over the longer term.

3) Revenues v Operation expenses - on the surface of it TLC looks sustainable on this basis, but I am not certain how tied or not the various donations are they receive. There were a few areas in which the costs rose a lot last year - interest costs rose from $288,408 to $330,274. Staff costs rose from $1,785,012 to $2,303,943 

TLC needs ongoing donations of about $2.8 to $3.0 million a year to maintain TLC as it is. This does not include any new property purchases. I also assume they can renew all their mortgages as they come due each year.

One thing that sort to sticks out at me in their books is the increase in salaries. The extra $419k does not seem to make sense to me. TLC seems to have 30 employees now - this means an average cost in salary and benefits of $76,800. In 2010 they had 29 employees but an average cost in salary and benefits of $61,500. This is roughly a 25% pay hike for TLC staff in one year.

In September of last year the auditor for TLC, Grant Thornton had this statement up on page one of the audit:

The Society has a significant working capital deficiency of $3,531,262, and unrestricted deficit of $2,926,520, a decrease in net cash flows of $172,515, and has incurred short and long term debt to fund general operations and for the acquisition of conservation lands and covenants. There is significant doubt about the Society’s ability to continue as a going concern. The Society will need to raise significant cash flow to fund operations and fund current and long term liabilities. The Society has been successful in raising funds over its fourteen years of operation, and has a consistent record of growing its membership base year over years; however, there can be no assurances that additional funding will be available in the future. These uncertainties may cast significant doubt on the Society’s ability to continue as a going concern and, ultimately, the appropriateness of the use of accounting principles applicable to a
going concern.

The idea of any land conservancy is that the land is long term protected from development, they need to be thinking in terms of generations and not years.   This means as an organization they need to be very conservative with their money and they need to grow slowly, no faster than it is possible for them to retire any debt and long term secure properties.

As far as I can tell there is no plan in place for how to protect the properties owned by TLC or any plans for an orderly dissolution of the society.    Raising the sort of money they will need to recover will need an angel donor giving them millions of dollars.    I am not sure they will be able to find that now given that they have known they need someone like this for a number of years and have not been able to find anyone.

With a lot of staff laid off and no active campaigns to raise money for a property, the money coming in is likely even lower than it was in the past.  I assume the fundraising is going to became a campaign based on the threat to sell specific lands, the only problem is that people thought they paid for the properties once already and were unaware their money did not go towards the property they donated for.

There will also likely be people expecting the province to step in and then vilify Christy Clark for not stepping up.

My one hope now is that the board has a plan in place for how to protect as many properties as possible should the society go bankrupt, which seems very possible now.   Without a plan in place now they will be at the mercy of the bankruptcy trustee.

All land conservancies have to have full proof mechanisms in place to secure the land in perpetuity.  Not only did TLC not do this, they mortgaged existing properties.   TLC built up a house of cards that required ongoing expansion to bring in new money to pay off old debts but meanwhile going deeper in debt.

This outcome was so clearly telegraphed when Bill Turner engineered his return in 2009.  The board at the time saw the writing on the wall and knew drastic action was needed.  Three years later and things are much worse, who knows if recovery is possible.
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