October 2, 2014

Archdiocese Announces Multiple Real Estate Transactions; Projects Expected Satisfaction of Trust and Loan Funding Shortfall

Today’s announcement details the most recent in a series of actions taken by the Archdiocese to restore and stabilize its fiscal foundation; Agreements of sale reached for
200 + acre tract in Delaware County with Cardinal Crossing Realty Associates, LP; 54 + acre parcel in Chester County to Woodbine Partners, LP;
and 454+ acre tract in Northampton County with David T. Davis

Contextual Background Regarding Archdiocesan Financial Situation

In July of 2013, the Archdiocese of Philadelphia published audited financial statements for the fiscal year ended June 30, 2012. The financial statements disclosed a $39.2 million operating deficit for that period as well as very significant underfunded balance sheet liabilities that measured in the hundreds of millions of dollars.

Since his arrival in Philadelphia over three years ago, Archbishop Chaput has repeatedly expressed his commitment to financial transparency and prudent stewardship of the resources of the Archdiocese. Beginning in the summer of 2012, a series of steps were taken to begin to remedy Archdiocesan fiscal challenges. The Archbishop’s residence along with a property in Ventnor, New Jersey, were both sold to provide necessary immediate cash flow. Many other actions followed including a reduction of 25% of the workforce at the Archdiocesan Pastoral Center in order to stem the operating deficit. None of those measures were taken lightly, but all were essential to maintaining the presence of the Catholic Church in the Philadelphia region and the good works accomplished through its various ministries.

The audited financial statements published by the Archdiocese last December for the fiscal year ended June 30, 2013 illustrated the beginning of the positive impact of these actions with an “as reported” surplus of $3.9 million and a core operational deficit that had been reduced to $4.9 million from the $17.9 million core deficit that had been reported for the fiscal year ended June 30, 2012. The report did indicate, however, that significant underfunded balance sheet liabilities remained in the categories of Trust and Loan, Self-Insurance, Priests’ Pension obligations and the Lay Employees’ Retirement Plan (LERP).

Background Regarding Previous Actions Taken to Address Archdiocesan Fiscal Challenges
Please note that the amounts presented below and labeled as “current underfunding” are unaudited approximations as of June 30, 2014. Amounts noted as of June 30, 2013 are audited figures previously published by the Archdiocese. The current estimates of the underfunded balance sheet liabilities have been positively impacted by proceeds applied from the transaction involving the Archdiocesan cemeteries, which was completed in May 2014. Those allocations are noted below.

Additionally, these previously disclosed underfunded balance sheet liabilities will be further reduced upon closing of the transaction involving Archdiocesan nursing homes (https://archphila.org/press releases/pr002402.php). Specific allocations of the net proceeds from that transaction have not yet been determined.

  • Trust and Loan-current underfunding estimated at $49.8 million after an allocation of $30 million from the cemeteries transaction (i.e. underfunded by $79.8 million as of June 30, 2013).
  • Self-Insurance-current underfunding estimated at $18.9 million after an allocation of $11.5 million from the cemeteries transaction (i.e. underfunded by $30.4 million as of June 30, 2013).
  • Priests’ Pension obligations-current underfunding estimated at $76.3 million after an allocation of $11.5 million from the cemeteries transaction (i.e. underfunded by $87.8 million as of June 30, 2013).
  • The Lay Employees’ Retirement Plan (underfunded by $142 million as of June 30, 2013). N.B. The Archdiocese froze its Lay Employees’ Retirement Plan (LERP) effective July 1, 2014. More information regarding that action can be found at https://archphila.org/press releases/pr002266.php.

With the real estate transactions announced today, the Archdiocese projects that it expects to satisfy the promissory note executed in May 2012 to address the underfunded liability in the Archdiocesan Trust and Loan Fund. This fund, composed of deposits from parishes throughout the Archdiocese, was positively impacted previously by a $30 million allocation from the transaction involving Archdiocesan cemeteries that closed in May 2014. Funds realized after closing costs from the sales of land in Delaware County and Northampton County will be used to pay down the outstanding balance on the promissory note.

The Chief Financial Officer for the Archdiocese, Tim O’Shaughnessy, noted, “We expect that the proceeds from these transactions should be sufficient to fully satisfy the remaining shortfall in Trust and Loan. If the proceeds fall short of what is necessary, we will apply amounts from the sale of remaining pledged properties as needed.”

Funds realized after closing costs from the sale of land in Chester County were allocated to reduce the underfunded Priests’ Pension obligations, which were positively impacted previously by an $11.5 million allocation from the transaction involving Archdiocesan cemeteries, which closed in May 2014.

Contextual Background Regarding the Delaware County Transaction (Site of the Don Guanella Village and Cardinal Krol Center)

In an effort to address the underfunded balance sheet liabilities noted above, an evaluation of various Archdiocesan real estate assets and operating entities was undertaken. This evaluation focused on assets that could potentially be used to remedy the underfunded balance sheet obligations.

Among the real estate assets evaluated was a 200+ acre property tract along Sproul Road in Marple Township (Delaware County). The site comprises the campus of Don Guanella Village (DGV), which was founded in 1960 by Catholic Social Services of the Archdiocese of Philadelphia (CSS) and the Servants of Charity as a residential education program for young men with cognitive and developmental disabilities. In 1976, the Cardinal Krol Center opened on the DGV campus to provide pastoral care, medical care, rehabilitation services, educational programs, job training and activities for men over the age of 21 with developmental disabilities in a residential setting.

These services are a ministerial outreach of CSS. They are provided in partnership with various governmental agencies at the city, county, and state levels, including the Commonwealth of Pennsylvania’s Office of Developmental Programs (ODP), which provides licensing and regulatory oversight for operations. Program expenditures exceeding government reimbursements are funded via the Don Guanella Village Fund and the Catholic Charities Appeal.

In October 2012, representatives of CSS and DGV met with family members of the residents of DGV to discuss changes in best practices for care being called for by ODP that prioritized smaller, community based homes for the intellectually disabled. The best practices focused on moving away from institutional based care, like that being provided at DGV, to a more community centered, home based, and mainstreamed model. To that end, CSS and DGV submitted concept papers and proposed budgets to the state that would move the men from the DGV campus to community based group homes over a two year period. This plan was shared with families of residents.

The first phase of the plan was completed by June 30, 2014 with 30 men moving to group homes and 16 men moving to Divine Providence Village. The second year of the transition began on July 1, 2014 with plans for 38 additional men to move to community based homes. This process is currently underway and on schedule. The move of each resident was carefully reviewed with family members to ensure that the unique needs of every man would be met.

The plan also noted that approximately 30 men residing at DGV were medically fragile and would not be able to thrive in a community based setting. CSS requested permission and funding to construct a small campus to continue caring for this group of men in an appropriate fashion.

The subsequent implementation of this plan resulted in the expected underutilization of the DGV campus as the majority of residents began moving to residential care programs within the community-at-large. As a result of the expected underutilization, Archbishop Chaput decided to market the property in January 2014. That decision was communicated to DGV employees and families of residents at that time. It came only after much prayer and careful consideration as well as review by the boards of Catholic Social Services, the College of Consultors, the Council of Priests, and the Archdiocesan Real Estate Advisory Committee.

Financial Aspects of the Delaware County Transaction

Today, the Archdiocese of Philadelphia announced that it has entered into an agreement to sell the property to Cardinal Crossing Realty Associates, LP (CCRA), headquartered in Jenkintown, Pennsylvania. CCRA will seek to develop the property for commercial and residential usage. This transaction will require Vatican approval, which has been granted to the Archdiocese in other instances.

Mr. Walter D’Alessio, Chair of the Archdiocesan Real Estate Advisory Committee, said, “Numerous offers for the property on Sproul Road were evaluated. It’s critical to understand that important factors beyond price were considered when evaluating these offers. Cardinal Crossing Properties proposed a deal with a comprehensive development plan, absent of significant contingencies that appropriately considered the expectations of local government agencies. They also expressed a willingness to close the transaction in a timely fashion and they will work within the context of the challenges being faced by Catholic Social Services. The committee felt that the offer presented by Cardinal Crossing was the strongest one received when all factors are considered.”

Upon closing, and subject to the satisfaction of contractual conditions, CCRA will provide payments totaling $47 million to the Archdiocese. The net proceeds available after closing costs will be applied to lessen the previously disclosed underfunding noted in the Archdiocesan Trust and Loan Fund (i.e. via a pay down of the Trust and Loan promissory note).

Impact on Current Cardinal Krol Center Residents and Employees

The Archdiocese is firmly committed to providing continued care to the residents of the Cardinal Krol Center at DGV and ensuring continued employment for those working in this vital ministry. Both resident families and employees, who have been updated regularly throughout this process, received information about the announcement of sale earlier today.

Impact on Medically Fragile Residents
The Archdiocese recognized from an early stage that it was important to work in conjunction with Catholic Social Services to create a residential campus that would allow for the efficient delivery of appropriate clinical support for the approximately 30 residents of the Cardinal Krol Center who are medically fragile.

As a result, the Archdiocese has ensured provision of acreage on which to construct a mini-campus for the medically fragile men. The process of constructing a campus for these medically fragile residents will be extremely complex and the first priority is the safety and welfare of these men. It requires not only acreage, but also appropriate zoning considerations, setbacks, topography, and access to roads, utilities, and sewer lines. Additionally, the Commonwealth of Pennsylvania’s Office of Developmental Programs, which will provide necessary funding for the new residential campus, will exercise regulatory oversight for any proposed location. As such, appropriate options will be considered, including locations other than the acreage retained on the DGV site.

Future Ministerial Outreach to Individuals with Developmental Disabilities

After the completion of the sale of this property, Catholic Social Services of the Archdiocese of Philadelphia will continue to partner with state and local government agencies to care for the spiritual and physical needs of individuals with intellectual disabilities in accord with the best practices set forth by the Commonwealth of Pennsylvania.

CSS programs in this ministry encompass a broad continuum including home based care, adult foster care, employment opportunities, job training and group homes in the community. Additionally, CSS continues to operate the Divine Providence Village and Saint Edmond’s Home campus based sites. Each day, vital services are provided to more than 400 individuals through the various programs outlined above.

Contextual Background Regarding the Chester County Transaction (Excess Acreage on the Site of the Saint John Vianney Center)

An additional Archdiocesan real estate asset evaluated in the effort to address underfunded balance sheet liabilities involved 55+ acres along the southeast corner of U.S. Route 30 and Woodbine Road in Downingtown (Chester County), which form a portion of the Saint John Vianney Center campus (SJVC).

Financial Aspects of the Chester County Transaction

Today, the Archdiocese of Philadelphia announced that it has sold this parcel on the SJVC property to Woodbine Partners, L.P. (WP) in September 2014. WP is currently considering its plans for the future use of this land. The acreage involved in this transaction was excess land that is not essential to the operations of SJVC.

Net proceeds after closing costs of approximately $3.7 million were allocated to Priests’ Pension obligations.

Future Operations of the Saint John Vianney Center

After the completion of the sale of this property, Saint John Vianney Center will continue in its mission without interruption of services. SJVC will retain all of its current buildings on approximately 15 acres of land.

Contextual Background Regarding the Northampton County Transaction (The Mary Immaculate Center)

Another Archdiocesan real estate asset evaluated in the effort to address underfunded balance sheet liabilities involved the Mary Immaculate Center property, which is situated on 454 + acres in Northampton (Northampton County). The property was originally purchased by the Vincentian Fathers in 1936. This religious order opened a seminary on the grounds in 1939. In 1990, the Vincentians closed the seminary and sold the property to the Archdiocese of Philadelphia.

In turn, the Archdiocese utilized the buildings and grounds for the Spirituality Year Program component of its own program of priestly formation from 1991 to 2005. Until 2009, the Mary Immaculate Center was available to various groups for spiritual retreats. The Archdiocese closed the facility at that time as it was not self-sustaining and could not generate enough income to meet ongoing maintenance and utility costs, which have been subsidized by the Archdiocese since the closure of the center.

Financial Aspects of the Northampton County Transaction

Today, the Archdiocese of Philadelphia announced that it has entered into an agreement to sell the Mary Immaculate Center property to David T. Davis, who is currently determining its future use.

The sale price is $5.5 million. The transaction is expected to close, after satisfaction of contractual conditions, sometime in early 2015. The net proceeds available after closing costs will be applied to lessen the previously disclosed underfunding noted in the Archdiocesan Trust and Loan Fund (i.e. via a pay down of the Trust and Loan promissory note).

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Contact
Kenneth A. Gavin
Director of Communications
215-587-3747