General

President’s Letter – Materials for Haig Point Annual Member Meeting

To allow us to make the most of our time together at the Annual Haig Point Member meeting at 3:00 P.M. on Monday, February 21st, I am writing this executive summary of key topics and updates.

Updates on Key Initiatives

We will not cover these in our meeting, with the exception of questions that might pertain to them at the end of the meeting.

Guest Cottages – We continue to focus our efforts on building the Guest Cottages through direct investment by some of our members. At this time former Haig Point Board Presidents Bill Tait and Carl Walter, working with the Board and Haig Point management, are in active discussions with potential investment partners. The discussions are too premature to present at this point and we will share information if and when we get near a definitive agreement.

Melrose Purchase – Doug Egly has had some preliminary discussions with the purchasers of Melrose. Future discussions will include Haig Point board Members. We are under a non-disclosure agreement and cannot share details at this time. What we can share is that they are very enthusiastic about working together on many fronts. This could have a positive impact on our capital plan. We also believe the vision they have for Melrose is one that is not competitive with Haig Point. We also believe that the success of their venture will only enhance Daufuskie Island and the growth of Haig Point.

Spec Housing – As our Long-Range Strategic Plan calls out, “new Rooftops” to sell are crucial to increasing the growth rate of our membership. We have several strategies in place that have had limited success to date.

· Spec Homes built through member investment. We did this with three Osprey homes and are pursuing options for additional homes. We are currently in discussions with two offsite system-built home builders to determine if they want and can do this project, as well as meet the targeted home price to allow our member investors to make a reasonable return on their investment.

· Spec Homes built by a developer(s) – This has been an ongoing effort, by Doug Egly (HP CEO) and Adam Martin (Vice President of Sales & Marketing). This has been one of their top priorities and it has been historically difficult to find developers who are willing to come to Haig Point because of the hot real estate market in the area surrounding us. Recently, several developers have expressed interest in Haig Point and we are now entering discussion to explore those possibilities. Once again, we have signed non-disclosure agreements and cannot discuss any details at this time. What we can say is the discussions are very preliminary and in the discovery phase.

Comments on the Long-Range Capital Plan

First of all, on behalf of the Board and our members, I would like to thank the many members who have participated in the planning process and spent so much of their personal time researching information, meeting with vendors and developing information that made this plan possible. Without their efforts we could not have put together such a detailed 15-year Capital Plan.

I would also like to look back briefly to the period prior to 2015 when the club was spending around $600,000 a year in capital annually. We were very much in a cut to survive mode. During that period our property values were declining, homes were taking 2 to 3 years to sell, our membership was shrinking and our club assets were in or headed for disrepair.

After that period, with the support of our great membership, we began to invest in our community, bringing in high speed internet, building the Calibogue Beach deck, replacing the carts paths on the Signature Course and bringing our Marine assets back to the standards necessary to extend their usable life. We have invested in excess of $2 million per year doing these things since 2016.

At the same time we invested in strategies to bring in outside revenues, such as golf, events, Equestrian trail rides, the Daufuskie Island Ferry Service and a real estate company. Those strategies have also proven to be very successful, bringing in millions of dollars of profitable outside revenues to support our club. We also created new membership categories, like the National Memberships, that not only increase our revenues, but proved to be an important source of new, full-time members.

The outcome of these successes has been:

· House values have increased by over 67% during this period. This alone has increased individual member’s wealth by hundreds of thousands of dollars during this period.

· Haig Point lot sales and pricing have dramatically increased.

Long- Range Capital Plan

Probably the most important thing to keep in mind is that the Capital Plan is a fluid document that needs regular review, including a thorough review by the Board quarterly, the Finance and other committees monthly. Even with the most thorough planning there are so many things that impact it from an environmental standpoint it is impossible to construct a Capital Plan where the expenditures and capital raised can be accurately forecasted for more than 12 months. A few examples of issues impacting a capital plan:

· Haig Point’s actual financial success and growth

· Environmental issues beyond our control

o Storms

o Economic issues and changes (recession, interest rates, etc.)

o Inflation

o Items like the Melrose sale

o Resource and vendor availability to do work on our timetables.

With this in mind, we finalized a plan based on what we know now, can confidently predict in the near term and set up a planning structure (which our CFO Jeff Smith has done) where we can monitor the plan and quickly make changes to it as needed.

Also, as part of this planning process we are setting up a progress report that will be sent to our membership on a quarterly basis once the plan is implemented. The report, issued by the Finance Department will include:

· Detailed capital expenditures for the quarter and year to date

· Year-to-Date status against the actual Capital Plan

· Funding sources for the capital expenditures

Overview

Please keep in mind there are two categories within a Long- Range Capital Plan. The first is Maintenance Capital, which is maintaining or replacing existing assets. The second is Developmental Capital, which is the purchase of new amenities and services. At this time we have identified a few, relatively inexpensive Developmental Capital projects.

By far the largest component of this plan is Maintenance Capital. The biggest projects in this category are projects that are done every 15 to 30 years. Unfortunately, as with the ferries, we are still in a bit of catch up mode, particularly on items like roads and docks. This has caused our plan to be a bit front loaded.

Although the Capital Plan is looking out 15 years, (a new 15th year will be added at the end of each year), the focus of our detailed planning is the three-year period of June 2022 through December 31, 2024. This will also be the portion of the plan that we will ask you to approve through a membership vote. With that in mind, almost all of my comments will be focused on this three-year timeframe.

Maintenance Capital Plan

Infrastructure -There are thousands of components to this part of the plan and thanks to the great work by Haig Point management, particularly Tim Richards (Director of Member Services), we have a detailed listing of Haig Point’s assets right down to the windows in the buildings. For each item we have a life expectance date, replacement cost, etc. The big challenge is understanding whether we actually have to replace or simply repair each item. Because of that variable this is one of the areas of the Capital Plan that will need constant updating.

This is also the area where we are still well behind in Infrastructure repair and replacement. In recent years we have spent less than $500,000 per year repairing and replacing Infrastructure assets. This is considerably short of what we should have been spending. Even without big projects like roads and bridges, we most likely need twice that much annually. This is why it is so important to get our dues to the correct level so we can do this work on a timely basis. Otherwise, if deferred, these items become major issues and more expensive to repair.

The primary item we focused on is the immediate need to repair our roads. The positive part of this piece of Infrastructure is that based on surveying our roads many of the roads are still in very good condition and will not need replacing for many years. We have looked at spot repairs, especially since the majority of road repairs are due to tree root damage. That is very expensive and based on our history of doing like repairs, does not give us the longevity we need, so complete replacement where needed is a much better approach.

Because we only have to replace sections of roads, parking areas and the POA, we believe based on our road surveys, that we can accomplish our goals for the roads by repairing approximately $3 million of roadway expenses. We are contacting vendors now to understand their availability with the hopes of doing this project in 2022.

These preliminary estimates could change slightly after we finalize a complete road survey over the next couple of weeks.

Other major infrastructure item are bridges and bulk heads. Although not in the immediate spend plan, we will make it a priority to establish timelines on these and cost.

Marine

With the Ferry renewal project being completed with the Haig Point IV work this coming summer, we will have extended the life of our ferries considerably and do not expect to purchase a new ferry for five years.

As most of you are aware our docks, landings and barges (the floating portion of the dock you step off to board the ferry) are in disrepair. Our plan calls out the following repair and replacement costs.

· The Engineering work in 2022 costing $240,000

· The Dock, Barge and Fuel replacement on Hilton Head in 2023 will cost an estimated $1.7 million.

· The Dock and Barge replacement on Daufuskie in 2024 will costs of $1.4 million.

Also in the Marine Plan is the purchase of a barge type landing craft to allow us to better service members, vendors and construction projects in 2023. We believe that between the revenue generated and the cost reductions to Haig Point it will more than pay for itself. Although we have identified it as an item to be funded by members, that may change if we are able to borrow at purchase. The cost of this type of craft is approximately $780,000.

Golf Course – Golf courses require a renewal every 15 to 20 years. This includes regrassing, bunker repairs, etc. The last time Haig Point did the Signature Course was in 2006 -7. The Osprey course has never had a renewal. For the vast majority of members who are golfers you already know that the bunkers are in very poor shape and we are beginning to have issues on the edges of many of the greens where we have trouble keeping the grass healthy. The Bermuda grass it also poor condition. We would like to do this project sooner, but you must purchase the seed and schedule the work well ahead of doing the actual project. Because of that we cannot do it before 2024.

The Golf and Greens Committee has worked with Rees Jones to develop a master plan for both golf courses. The total costs of this renovation of the Signature Course is approximately $7.4 million, which not only includes the costs of the work, but the lost revenue (golf, dining, rental income, etc.) from closing of the golf course for 6 – 8 months during the period of April through November.

The master plan to renew the Osprey Course, which has not been renewed since 1986, includes making it a more family friendly course with a par 3 layout within it. That work is estimated to cost approximately $4.5 million and is tentatively scheduled somewhere in the period of 2026 and 2029. At this time we did not feel the utilization and the number of members justified that expense versus other projects.

To those of you who are non-golfers and feel that golf gets too much money, it is important to know that other than being on a beautiful island with beaches, golf is our greatest asset. It drives significant annual revenue between dues, outside revenue, events and other items directly related to golf activities. It is also the major reason that over 75% of our members joined Haig Point and buy real estate here.

Environmental – This will not be brought into the Capital Plan until late 2023 or early 2024. Our current Haig Point budgets now includes money to repair existing revetment work annually. In the four areas of planning identified in the Initiative Update section, the one that might require significant capital in the future is shoreline protection. But, it also might not and because of that we elected to not put in “placeholder” capital estimate. The other three measurers should not require significant investment.

Food & Beverage – most of the capital expenditures in this area are small and covered in our normal annual budgeting. The one that is not, is to make the existing tent outside the Club House Grill Room a permanent structure. This has become a very popular place to eat and allows us to relatively inexpensively expand our Food & Beverage services, while offering our members a better experience. Although we consider this Developmental Capital, I will discuss it in this section. This project will cost approximately $500,000 including furnishings and other items.

Looking out over the next 15 years, dependent on our growth, we may require expansion of our Food and Beverage operations. At this time the plan does not reflect investments of that type.

Guest Cottages- Just a quick note. We have not included these in the Capital Plan because they will initially be member investor built. Also, at the point that Haig Point were to buy out the investors, the loan required to purchase them would be funded by the positive cash flow of the Guest Cottages themselves and secured by the asset.

Developmental Capital

There are three projects identified in this area, the first of which I discussed in the Food & Beverage section. That is making the tent outside the Grill Room a permanent structure.

The other two are Pickleball Courts and Multipurpose Recreation Room.

Pickleball Courts – this project is to build 4 permanent Pickleball courts at the HP Tennis Center. The cost is approximately $300,000. This project would begin immediately after the membership approves the Capital Plan and has tremendous member support.

Multipurpose Recreational Building/Fitness Center – The fitness classes and activities at Haig Point have increased greatly over the last few years thanks to a group of our members. The Racquet Sports, Wellness and Recreation Committee has recommended that we build a Multipurpose Recreational Room to replace the Helmus Center to allow greater participation in each class, as well as a more comfortable environment. In Board discussions we discussed going directly to a fitness center. The reasons for that were:

· Our current fitness center is very poor and limited in how it can be used. Many members who would use a fitness center don’t use it because of that.

· Secondly, we are the only club in the Low Country who does not have a true fitness center. Having one is very attractive to potential new members.

· The Multipurpose Recreational Building would cost $500,000 to construct, if instead we were to opt for a modern fitness center would cost between $3 – 4 million. Because we know we will eventually have a fitness center it does not seem to be a wise investment to build a recreational building. That said, we need to know how membership feels on this issue before we finalize this decision. We will survey the membership on this.

The Racquet Sports, Wellness and Recreation Committee also recommended athletic fields and several other items that were fairly small capital items that can be addressed outside the Capital Plan.

Funding for the Capital Plan

Summarizing all of the projects discussed from 2022 through 2024 in the Capital Plan totals a gross annual capital spend of the following:

· 2022 = $4,090,000

o Road = $3 million (Note: this could be in 2023 if vendors are not able to do work in 2022)

o Docks = $240,000

o Pickleball Courts = $300,000

o Permanent Outside Grill Room Dining Area = $500,000

o Golf Course = $50,000

· 2023 = $3,000,000

o Docks - $1.4 million

o Landing Craft $780,000

o Golf = $275,000

o Marine (boats & inventory) = $535,000

· 2024 = $9 million

o Docks = $1.4 million

o Signature Golf Course = $7,300,000

o Marine (boats & inventory) = $300,000

Important Note on Funding

2022 and 2023 will require a member assessment, either spread over the year or a single payment each year. The 2024 Maintenance Capital, especially the Signature Golf Renovation, we would like to spread over multiple years since it is a once every 15 to 20 year project. In doing this, we would like to support the loan with dedicated funding within our dues structure, not an assessment. Our ability to get such a bank loan will be determined by Haig Point’s financial health in 2023. The purpose of this chart is to show you the actual costs per member of the Capital Plan during the 2022 through 2024 period. It should be noted that most of the 2024 assessment is directly related to the golf course renovation.

In the years after 2024 we think large Capital Expenditures will decline dramatically because of the Capital investments we, with member approval will make in 2022 through 2024. Also, most of those investments will be for assets that won’t require further capital for at least 15 to 20+ years. In addition to that the current ferry loans will be retiring. That should put us in a position to address most capital projects after 2024 within our dues structure, using loans to smooth the payments out.

All Member assessment funding will be placed in a dedicated account for use only on the approved projects and cannot be used for operating expenses.

There are only three potential large projects that currently fall into the 2025 – 2029 period.

Those are:

o Osprey Course Renovation – By this time if membership approves the project we should be able to spread the costs over a period of years.

o New Ferry – as a new asset it would be purchased through a bank loan and the cost covered through our dues structure as have past ferry purchases.

o Fitness Center – This is very much an open issue until we receive the member feedback on this project.

For the remainder of the plan after 2029, the only major Capital Purchase we forecast is the purchase of new ferries as indicated in the plan. Those too would be purchased with bank loans and most likely paid off within the dues structure.

Dues

An extremely important part of the Capital Plan is to set the dues at a level that enables us to breakeven on Haig Points operations. This is crucial because:

o It protects Haig Point financially should real estate and membership sales slip because of issues within the economy.

o It allows us to pay for all of the small Maintenance Capital expenditures annually that we currently are not, as indicated in the Infrastructure portion of this document.

o It allows us to take profits from the real estate operations and put them towards Capital projects or the retirement of debt.

o Finally, it gives us greater strength in our negotiations with banks, giving us access to loans and better interest rates for large capital projects, such as the Golf Course Renovation.

Because it is so important to the success of this plan, we will be asking membership to vote to approve a 10% dues increase starting July 1, 2022 (billed June 1). After that dues increase, future dues increases will be based on inflation.

If membership does not approve that dues increase, we will not be able to move forward with the rest of the capital plan because we will not be able to fund the Maintenance Capital needs of our community that are called out in the Infrastructure section of this plan. We will also be at risks if there are downturns in the economy causing real estate sales and new memberships growth to decrease. Also, we may not have access to bank loans when we need them to support unexpected issues or when we try to spread the costs on large capital projects. Keep in mind there were no dues increase during the period of 2016 to 2020, which caused many of the issues that this plan had to address and would have mitigated some of the member assessments now in this plan.

Next Steps

1. Survey membership to get their feedback on:

o Building a fitness center versus a multipurpose room

2. Incorporate survey results into the Capital Plan and finalize 2022 - 2024 portions of the Capital Plan

3. Have multiple open sessions to educate membership on various parts of the Capital Plan (Ongoing through member vote on Capital Plan)

4. Member vote: on the Long-Range Capital Plan (by May 1, 2022)

a. 10% Dues increase (All Club Members)

b. POA/Roads/Bridges/Marine (All Property Owners)

c. Club Capital Items (Golf course, pickleball, Grill Room Patio Extenstion) (All Club Members)

5. Implement Plan (if approved) (June 1, 2022)

6. Issue initial Capital Spending report to membership (October 1, 2022)

My personal excitement is that we have finally arrived at the point where we are within striking distance of having the club and community assets we want. We still have plenty to do, but we are now in a position to catch up on our deferred maintenance. Once we do that we can set our dues structure to anticipate the Maintenance Capital expense of the future and build a plan to do them in a timely manner. By using bank loans we can spread bigger one-time projects over years, so those too can be taken care of within our dues payments.

To be very clear, it is important that we make the commitment to build upon the gains in house, property and membership values that we have experienced over the last 5 years. We need to continue to pursue strategies that perpetuate our membership growth momentum and not fall back into stagnant or declining membership growth. That is why we feel it is critical that we all commit to this plan and make the necessary investments in our club.

I know this is another long President’s letter and I appreciate you taking the time to read it. I believe that by giving you this information it will better prepared you and us for the Annual Member Meeting Monday, February 21. It will also allow you to formulate your questions. Please forward them to comment@haigpoint.com by Sunday, February 20th so that we can consolidate them.

Respectfully,

Gary Baum, President Haig Point Board of Directors