On February 3, the Business Board of the Governing Council met to review U of T’s current financial status and consider the university’s economic forecast until the end of April. Despite all three campuses being shut down amid an internationally lagging economy, the university is projecting a net income $34 million greater than the previous year’s.
This rise in income was reported to accompany a $60.9 million decrease in outstanding debt. The rest of the meeting also covered U of T’s extant $1.07 billion in ongoing capital projects, $794 million in deferred maintenance costs, and efforts to recruit international students.
Increasing net income
The financial forecast was assembled by U of T Chief Financial Officer Sheila Brown, who projected the university’s total net income for the 2020–2021 academic year to be $475 million. This figure is derived from projected revenues of $3.803 billion over projected expenses of $3.328 billion, and is an increase from the 2019–2020 academic year’s $441 million actual net income.
This forecast would see U of T’s net assets rise to $7.195 billion by the end of the year — up from $6.431 billion at the beginning.
Due to the unpredictability of investment returns, U of T’s annual net income forecasts always include a substantial margin of error. Brown’s projections have historically been conservative, with the university often seeing tens or even hundreds of millions of dollars more in net income than predicted.
To calculate the $475 million figure, Brown used a hypothetical investment return rate of seven per cent. Alternate predictions in her report were a more conservative $457 million from a return rate of five per cent, and a more optimistic $502 million from a return rate of 10 per cent.
“Our normal practice with the investment return is that we do not project it forward,” Brown said. “What we do instead is we take the return that we’ve earned to November 30, we assume there’ll be no further change, and we build the forecast on that basis. And then we provide a sensitivity analysis so that you can see what changes in investment return will do to these numbers.”
Brown also presented the Status Report on Debt, which found that U of T’s actual outstanding debt dropped from $1.006 billion in 2019–2020 to $946 million this year. Of this, external debt accounts for $710 million while internal borrowed funds stand at $236 million.
In accordance with U of T’s debt strategy — which has been in place since 2012 — the university’s debt policy limit for 2020–2021 is $1.85 billion, but it is expected to increase to $2.273 billion by April 30, 2026.
“For this year, our conclusion from this report is that the debt strategy is prudent,” Brown said. “Based on the projected capital projects that are expected to go ahead by 2026, this strategy is expected to deliver an appropriate amount of debt to enable both projects to go forward.”
While the strategy has adequate capacity to support the university’s capital plans by 2026, future initiatives will require the revision of the debt strategy. “We are working on an expansion and a revision of this debt strategy to incorporate the off balance-sheet or indirect debt… generated through partnerships that are likely to arise as a number of these projects go forward,” Brown said.
She emphasized that the university has enough resources to finance construction projects that are currently under active consideration. “We don’t see any need for external debt over the next couple of years,” she continued. “In fact, our projections indicate that it will probably be longer than that.”
Brown added that taking on more external debt might be needed only if the university changes its capital plans or wants to speed up the construction. “The university treats debt as a scarce resource that we allocate very carefully,” she said. “But we do believe that we do have some additional capacity that could be developed, particularly in those cases where we can enter into partnerships with others for projects that will be revenue-generating for the university.”
Expanding capital projects
U of T Executive Director of Capital Projects Adrienne De Francesco presented the Capital Projects report and provided updates regarding capital projects currently undergoing construction.
U of T has seen a 6.7 per cent increase in student population in the last five years and has many capital projects planned to accommodate this growing population. Currently, the university has $1.07 billion in reserves for capital projects and infrastructure, the most developed projects of which De Francesco spoke on.
On the refurbishment side, they described the FitzGerald Building renovation as “a very good example of adaptive reuse,” noting that “typical of historic old buildings, you always discover something you didn’t expect.” They also reported that the Robarts Commons expansion is expected to be completed by the spring despite delays caused by the building’s steel structure.
Regarding new initiatives, De Francesco described how the Schwartz Reisman Innovation Centre West is set to have 22,900 square metres of tenant space with an additional 2,300 square metres of underground parking. They also provided updates on the Landmark Project, noting that geothermal drilling would continue for two or three more months before excavation for the garage structure can begin.
Growing maintenance concerns
The backlog of 2020’s deferred maintenance costs was $794 million across all three campuses. The university also has an estimated $984 million in future obligations for deferred maintenance, which does not include utility infrastructure and asbestos removal.
The cost of deferred maintenance for the university was 23 per cent higher per square foot than the 2019 provincial average cost. The university’s level of investment in deferred maintenance is also only 0.72 per cent of the building replacement value — putting us far below the provincial average of 1.45 per cent and even lower than the national average of 2.07 per cent.
U of T Chief Operating Officer of Property Services and Sustainability Ron Saporta explained this disparity in the report on deferred maintenance. “Historically, deferred maintenance focused solely on our building assets, but the university owns quite a lot of other assets,” Saporta said. “On the St. George Campus, for example, we have one of the largest and oldest district energy [systems] that provides heating and cooling and electricity to the majority of our campus.”
To evaluate the condition of campus facilities, the university uses a facility condition index (FCI), calculated by dividing the total cost of existing deficiencies by the current replacement value of the facility. The FCI index has been steadily climbing over the past three years and is currently at 15.7 per cent. The university audits the facilities every five years.
Saporta explained that U of T prioritizes deferred maintenance through level of risk. “What comes up to the top is some of our most important building systems. We have our roofs, fire protection systems… and then elevators,” said Saporta. “[By using] this as a metric to make investments into deferred maintenance, we also start to see the risk scoring of these priority systems start to go down over time.”
UTSG’s deferred maintenance needs currently take up 75 per cent of the university’s priority deferred maintenance. However, ongoing capital projects have aided in eliminating $45.5 million in deferred maintenance costs. Saporta also noted that U of T saw a $79 million decrease in deferred maintenance liability this year, with the majority of the decrease due to capital projects.
A university for the world
Professor Joseph Wong, U of T’s interim vice-president international, also delivered his annual report on international students, international partnerships, and international experiences.
During the 2019–2020 academic year, recruitment efforts attracted international students from 161 countries. For the fall 2020 admission cycle, the university introduced new international scholarships, which helped attract students from regions that previously saw less applicants.
“Of course, our international students represent an extremely important revenue stream to the University of Toronto,” Wong said. “But they also are of extraordinary value to the U of T community, transforming how we teach our learners, learn how we conduct research… [and] how we prepare our graduates for future careers.”
Despite the pandemic, Wong reported that U of T was able to build new partnerships with institutions around the world. “We have introduced five new international doctoral clusters on a range of topics and partners: from cities and urban infrastructure with the University of Manchester, to advanced manufacturing with the Korean Advanced Institute of Science and Technology,” Wong said.
Four years ago, only 16 per cent of U of T undergraduates participated in an international learning opportunity, a figure which could have risen to 25 per cent last year if not for COVID-19. According to Wong, the university had aimed for the figure to reach 33 per cent by 2022, but the pandemic has affected those plans.
The next meeting of the Business Board is scheduled for March 17.