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Señorío de Aloha – Annual Report from the President

Dear Owners,

INTRODUCTION. IF YOU INTEND TO VOTE DIRECTLY OR BY PROXY AT THE GENERAL MEETING, I URGE YOU TO CHECK THE DELINQUENCY LIST. THERE ARE A NUMBER OF OWNERS WHO MAY NOT BE AWARE THAT THEY OWE SMALL AMOUNTS. If you appear on this list you have until the morning of the General Meeting to pay the outstanding amount, and thus exercise your right to vote in person or by proxy. An updated debt list will be available the same morning of the General Meeting and will be used to verify which owners can exercise their right to vote. Participation in the OGM / EGM via Zoom, Teams, Skype, etc. is only permitted in Catalonia, therefore it is necessary to hold the General Meeting in person.

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I hope that the newsletters of past years have kept you informed, and have helped you understand how the management team has prioritized and dealt with day-to-day challenges. You will recall that the motto of the 2022 General Meeting was to bring the community to a position of “Strength, Stability and Transparency,” attempting to leave behind the problems of the past. Although much has been achieved since then, becoming stronger and more transparent, there is a series of past events that have resurfaced threatening stability. Unfortunately, this means that difficult decisions are looming, which are described in this report and which will be discussed at the General Meeting.

2022 began once our new administrator Adenjo, our manager Victor, and project manager Andreas took their positions, enabled by the approval of a budget based on an approach to improve our contractors and a special assessment focused on projects to improve years of infrastructure deterioration, as well as lack of legal compliance. I am pleased to say that there have been many positive comments about the improved appearance of the community since mid-last year. A key aspect of this has been the attitude of the community staff and the way they are now managed. I am sure you will agree that the gardens have not looked this good for a long time. With respect to maintenance, not only has the amount of works completed taken a great step forward, but so have the response times. There will be owners who do not have such a perception, for the simple reason that they are unaware of how frequently things break or malfunction. With respect to cleaning, improvements are perhaps more modest or inconsistent. A careful analysis detected a conflictive relationship between the supervisor and the cleaners, which has now been resolved. Without doubt the greatest change with our contractors has been the approval to terminate COFER’s security contract and to reorient the HELP concierge service.

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These changes took effect in October of last year and since then has generated much debate and concern as we transition from a “human” approach to technology to better protect both property and people. There is more detail in this report and it will be an important point of discussion at the General Meeting. Special assessments and increases in community fees by their nature are not popular, but last year’s recommendations were based on engineering assessments and rising costs concerning infrastructure deterioration, legal compliance issues and contractors. Allow me to illustrate this with three examples:

Perhaps some owners mistakenly believe that the pools are a vanity project, but the reality is the risk of closure and a significant fine from the regulatory authorities. Another reason for carrying out these infrastructure investments is the savings they can bring us in the future. A good example is the introduction of a saltwater system for the pools. In 2016 the budget for pool maintenance for one year was 16.700€, in 2023 it is 4.500€ which is a fourfold reduction, and this will repeat every year. There have been similar regulatory risks due to lack of proper maintenance and updates over the years, such as sprinklers and fire extinguishers. The risk here was that the community’s insurance coverage would be declared void and without effect. These works have been financed from the community budget. Deterioration and safety concerns have necessitated beginning work on the repair of terraces and garages. With respect to the latter, these have been limited to repairs that do not infringe the main litigation against builder FCC.

When I was elected president in 2020, I hastened to point out that it would take more than 5 years and more than 1,500,000 Euros to raise Señorío de Aloha, my opinion on this has not changed. However, I congratulate the community on taking the difficult decision in 2022 to raise the first tranche of financing. This has set the ball rolling, and although there will always be a number of owners who disagree, now we have a team to complete these multi-year projects which can significantly influence the value of your property.

1. ACTIONS BY PREVIOUS CONTRACTORS AGAINST THE COMMUNITY

I must draw your attention to some inherited problems in 2020. Given that they have resurfaced, the management team has no choice but to find solutions to safeguard the community’s stability.

A) Multimalaga. In summary, the courts ruled against the community, ordering it to pay costs. The origin of this problem goes back to 2009, when the community terminated the contract with the security company for failing to meet its own security requirements. At some point later, the community’s security team was destroyed and the community initiated criminal proceedings against the perpetrators. I understand that this ended very badly and the prosecution ultimately failed. Once free from criminal proceedings, a civil suit was initiated against the community. The two cases have occupied the courts for the

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last 13 years, and at the end of 2022 the court ruled in favor of Multimalaga for the amount of 49,000 Euros plus interest and costs. At the time of writing this report, the final amount to the community is unknown, but is estimated at 60,000-70,000 Euros. Our current lawyers, who have reviewed the conclusions of the case, have advised us not to appeal the sentence because it would be very unlikely that we would win; and because the costs would increase even further.

B) Previous Lawyers. Everyone knows that for years the community has been burdened by the number of debtors. The previous administration appointed lawyers with close ties to the community, whose task was to recover these debts. Despite the passage of years, the overall results could be interpreted as insignificant. According to the terms agreed at that time, the lawyers came late last year and demanded payment. The current administration is unable to object to those claims, partly because only a small fraction of the community’s documents and records were handed over in 2020. The claim is for 29,000 Euros, which we have been able to negotiate and reduce to 22,000 Euros to be paid in several installments during this year.

C) Painting Company. In 2014/15 a contract of approximately 870,000€ was approved to repaint the community, which was finally completed in 2017. At the time of signing the contract, the community did not have sufficient funds and the Administration in office requested a one-time payment of approximately 500,000€ to offset the deficit. We have no record of the amount actually received, nor of how it was spent or accounted for. For reasons not fully explained in the Minutes or records of the General Meetings between 2017/18/19, and with no evidence of a contract, the community agreed to additional painting works worth 148,000€. This brought it to 1.1 million Euros, the total cost of repainting Señorío. Upon completion of the works in 2017, the community had no money to pay for the painting. This debt is recognized in the Creditors list at the end of 2019 but the community was never provided with a clear explanation of the exact scope of the works in relation to this additional verbal agreement. Note that during all that period, the community hired the services of an auditor, but detected no irregularities related to painting payments. After the change of administration in 2020, the painting company had been requesting 148,000€, minus the fees that had been paid in the months prior to the General Meeting that formed part of an agreed payment schedule. The new Administration then requested that the painting company provide evidence of a contract or information about the additional works, as well as documentation supporting what was required, such as work certificates for the accepted works and their quality. In the absence of receiving documentation from the Painting Company and the previous administration, we refused to make such payments. As you know from the creditor reports you have been receiving annually, Painting has been included as a creditor. What has now happened is that someone from the community has provided the Painting Company with a copy of the 2020 General Meeting documentation that mentions them as creditors. In turn, the painting company has gone to court to demonstrate that there is evidence of the debt in the official records of the

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community, despite the fact that, as far as we know, there is still no evidence of a contract. This is a clear indication that the community has some responsibility regarding the debt. It is more than evident that the work performed was dreadful, but the community accepted it anyway. There is no evidence of the commitment, nor of the warranties since there is no documentation. As things stand, the community could not fulfill the payment obligation. In summary, in the coming months we will better understand what the community has to pay to cover all the above claims. As things stand, we see no option but to request approval for a new special assessment. You will have to decide whether or not to provide extra money so that the community can resolve these historical cases brought against it, taking into account the timing of additional financing for the long-term works program which is already underway, and whose details are summarized further below. The special assessment amount will likely be similar to that of 2022.

2. 2022 ACCOUNTS

During 2022, the community’s financial situation has remained stable. This is due, in large part, to a 15% increase in community fees and special assessments, which has brought over 400,000 Euros for infrastructure projects which could not be financed with ordinary fees. During the period, approximately 90% of owners have paid community fees, which is considered a good level of participation. However, the fact is that at a time of significant investment in community improvements, responsible owners have to bear the burden of those who refuse to pay but take advantage of the benefits. A summary of accounts is attached for your review before the General Meeting. To be as clear as possible, and in accordance with the community’s usual practice, we produce separate budgets and accounts for the use of ordinary fees and special assessments. As was the case last year, Gerry Burke, Vice-President of Señorío and accountant by profession, will take the opportunity to explain the accounts and answer questions at the General Meeting.

3. CREDITORS

As in the recent past, we pay some creditors from cash flow. The most significant in 2022 has been COFER, and this has been done as part of the security strategy change. At that time, we did not know that other creditors, along with unexpected claims received against the community described in point 1, would act against us. Nevertheless, the community must continue to move toward a position of solvency that does not depend on the goodwill of creditors. The attached report should provide assurance that the current administration is dedicated to reducing the community’s creditors and not add a new one.

4.) DEBTORS

Adenjo will provide an update on the various debtors at the General Meeting. In the meantime, two reports are attached. One will provide you with a summary of debtors in 2022 with respect to the total that the administrator was authorized to collect. It also breaks down ordinary fees, so you can see the difference in participation in ordinary and extraordinary fees. Failure to pay either of these now results in the application of penalties that can be claimed in court. The second report details each debtor and the amount owed. You can see that the 10 largest debtors have been in the community for a long time and represent approximately 80% of total debt. It is very important that owners understand that significant amounts of that debt are not collectible. It is the nature of “community accounting” in Spain that prevents the cancellation of uncollectible debt as would be normal in “commercial business” and in other countries. Owners should appreciate the great amount of time that Adenjo devotes to pursuing debtors, which seriously distracts from other work. In the case of long-term debtors, it is the complexity that consumes time, due to the involvement of lawyers, notaries, etc. With short-term debtors, a great effort is made to encourage them to pay before it is necessary not only to request penalties but also to initiate legal action. Unfortunately, it appears we will undertake more legal action in 2023 to prevent further growth of short-term debt. The community simply cannot afford to let those who do not pay get away with it at the expense of those who do! Another example of where the Administration intends to be more active is in the enforcement of the new Law in Spain that allows communities to deny access to pools or internet services to defaulters, their tenants and guests. There will be an opportunity to discuss this at the General Meeting but we assume that the majority of owners want to see how the full force of the Law is used to make debtors pay their debts.

5.) SECURITY

For the last 3 years, I have written several times and spoken at meetings about “cost versus effectiveness” of having one man provide security to the entire community. I have already commented on the impossibility of one man simultaneously watching several cameras of a closed-circuit TV system and at the same time be making rounds through the community. I have mentioned how many robberies are the work of people with insider information who may have rented apartments for this purpose, and know perfectly well how to evade the security of one man. Or as a man sitting most of the day at the main entrance office lets anyone into the community with the simple pretext that they want access; or even that the owners themselves have to call the police themselves in the face of disturbances due to lack of action by the security guard; and perhaps, worst of all, catching the security guard red-handed stealing from a property. In the 7 years I have been in the community, the service of a single person has cost on the order of 850,000-900,000€. Apart from providing an appearance of security, it is fair to say that the cost-benefit relationship has been very poor. Attempts to obtain better value for money from COFER for the night service were hampered, because they were an important creditor to whom we owed more than 100,000€. Meanwhile, the daytime concierge service that was contracted with HELP did not include someone licensed to review the CCTV cameras. It was reassuring to see a man at the door, acting as a postman in the community, but offering a very low level of security. I remind you of this background because after a majority approval at the last General Meeting, COFER’s night watch service is discontinued effective October 2022. This represents an annual saving of 58,000€ (if summer coverage is approved). As part of the termination agreement, the debt of 65,000€ with COFER was settled. In the case of HELP with a cost of 60,000€/year, we redesigned its service to have better value for money. The way this works in practice can be summarized as follows. However, Andreas Norman, our project manager, will explain it in more detail at the General Meeting.

a) A technology-based ‘Access Control’ system will be proposed. The plan would be to implement it in phases throughout the community, starting with the perimeter and entrance doors. The essence of Access Control is to limit access at various points in the community to those with permission to enter through key fobs that cannot be duplicated and through mobile applications. This will allow owners to grant access to outsiders, but in a controlled manner. It allows tracking throughout the community at various access points and moreover it is dynamic, since key fobs and applications can be activated and deactivated. The current intercom system is planned to operate in parallel. Many owners will have doubts, but this system is already in use in other communities, companies, government institutions, etc. However, we recognize that the summer periods in Señorío bring great problems. Therefore, until the new system is fully operational, the plan is to hire a person to cover night security during the summer.

b) The HELP service is retained, but has been oriented toward maintenance, security and mail delivery. The HELP employee has the following schedule:

Monday to Friday 8:00 AM to 2:00 PM and 4:00 PM to 10:00 PM Saturdays 4:00 PM to 10:00 PM

Adenjo will provide a contact number. However, I want to emphasize that this is not a service for fixing a broken washing machine, or changing a light bulb. Repairs/maintenance in the complex must be reported to Adenjo beforehand so that Victor, our manager, can schedule them, otherwise things cannot be done efficiently. The HELP employee has maintenance/repair schedules that take up most of the time. Additionally, they conduct random patrols around the community in a security capacity. They will be reachable during their working hours in case of a security breach or emergency, such as a water leak, a power outage, etc. Parcel delivery companies will be able to access the community through the owners’ intercom. Companies that deliver regularly are encouraged to come at certain times when HELP is also available to allow access in the absence of owners. As has been mentioned, there will be much to discuss about security at the General Meeting. I am convinced that we are developing a much better approach with real improvements and savings. The time to get it operational depends greatly on the speed of investment. Andreas will explain all of this at the General Meeting.

6. UTILITY COSTS

In 2022 there has been a worldwide increase in the cost of electricity and water utilities. The community exceeded the budget for both services considerably. In the case of water, the community experienced significant water leaks in underground tanks that form part of the water supply to houses and the fire sprinkler system as well as the network of pipes that feed the pools. At the General Meeting, Victor will provide a technical description of these problems, but I can advance that the complete review of the pools and the use of saltwater will significantly reduce water consumption in the future. The necessary repairs to the tanks and pipes are in progress and we trust that water consumption in 2023 will be reduced. One real area of improvement with respect to water consumption is the garden irrigation system. One of the first works performed by Victor and Andreas in early 2022 was the repair of the broken irrigation system, which had led the gardeners to use uncontrolled manual irrigation. Repairing this system ourselves saved tens of thousands of euros on external contractors and has benefited us even more in terms of lower water consumption. Likewise, the decision to disconnect the broken irrigation system from the apartments last September also resulted in a reduction in water consumption.

As for electricity, it must be accepted that the Spanish market is rigged between generators and distributors, therefore there are constant offers to change suppliers. What is also complex is the rate system based on Power and CUPS: these influence the rates, but critically in 2022 determined whether a user qualified for the large VAT reduction. (take a look at your electricity bill to understand it.) The situation in Señorío was completely sub-optimal, to say the least. The electrical circuits in Señorío have never been realigned to reflect how consumption has changed over the years. Victor is now working on it. Additionally, we are working with a results-based electricity consultant to negotiate better rates and conditions. The estimate is for a cost reduction of 15,000€ on a similar consumption basis. 50% of the savings obtained go to the consultant in the first year and from that point on the community keeps the entire savings obtained. These are significant efforts to achieve future savings. Adenjo is working with the consultant and will be able to inform us of progress at the General Meeting.

7. COMMUNITY FEES

Increasing community expenses by 15% for the second half of 2022 was an absolute necessity to keep pace with the higher costs. Many owners were not happy with this decision for various reasons, including the cost of the staff to manage the community. I would like to point out that with a projection of corresponding income and expenses of 1.1 million Euros, the amount of work this generates justifies the cost of the staff. By way of comparison, the community of Aldea Blanca, near Señorío, has average community expenses for a 2-bedroom apartment of around 5,000€ per year. Its annual ordinary budget also is around 1.1 million euros and its general administration costs are very similar to ours. It is true that the value of the apartments is higher than ours, but that is the reason we are investing in bringing Señorío to a comparable quality. In the budget for 2023 we are proposing to owners to maintain the current level of fees. This reflects better control over contracted services and the maintenance being performed in the community. Adenjo’s work in collecting fees and pursuing debtors also contributes greatly to keeping fees in line with or better than the inflation rate.

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8. IMPROVEMENT PLANS

The following list is a combination of new works and continuation works from the ordinary budget and special assessments. The financing of some of these works requires recognition and approval by the owners:

• Continue improving the terraces that are causing problems for neighbors in lower floors.
• Continue installing ventilation in storage areas affected by humidity and flooding.
• Continue waterproofing affected areas in garages. Note: work cannot begin in areas that are subject to legal proceedings against FCC.
• Continue changing fabric covers of the loungers.
• Continue monitoring water pipes in the community. Many times it is a matter of random pipe bursts, so it is reactive rather than proactive work.
• Increase oversight of works in the community to prevent illegal construction and improve current community rules for this purpose.
• Calculate the areas that were included but have not been completed in the community painting contract 2015-18 to include them in the next payment negotiations.
• Several apartment chimneys are experiencing smoke problems which are not common to all apartment chimneys. Further evaluations are needed to determine the most cost-effective solution.
• Seek owner approval at the General Meeting to begin phase 1 of the Access Control system and complete proposals for subsequent phases for approval.
• Continue verifying health and safety aspects within the community to ensure compliance with law and regulations, including community insurance conditions.
• Continue with simpler painting works that improve the community’s appearance.
• Continue the process of repairing tiles on paths, stairs and other community areas.
• In line with the overall security strategy, increase the effectiveness and scope of CCTV.
• Modernize and repair the community’s intercom system, which is an integral part of the overall security system.
• Improve the condition of railings throughout the community and where regulations require it, install additional railings on terraces.
• Change/improve the lighting on some community paths.

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9. STEERING COMMITTEE / WORKING COMMITTEE

Last year I requested volunteers to undertake an update of community rules which are not adequate for their purpose. A key aspect was to try to organize the modifications and improvements proposed by owners. No owner stepped forward at that time, although recently one owner has shown interest if others are willing. The invitation remains open and being frank I must say that within the administration all resources are focused on what is considered as priority. One owner approached me last year with the request that a representative join the community committee. If there are candidates who want to run, have them make themselves known to Adenjo.

10. NAO POOL CLUB

Almost a year after discussing this matter, one cannot overemphasize the threat this club poses to property values in the area. Neither should we underestimate the power of political and institutional connections that protect the club’s illegal operations. The club’s activities do not comply with its operating license. The noise output exceeds all legal standards. Antisocial behavior impacts neighboring communities. After numerous meetings with our neighbors and legal representatives, we now understand the scale of the work and approach to take. The recommendation to the General Meeting is that owners approve joint action with neighboring communities to initiate legal proceedings and approve funds for legal and associated expenses as budgeted.

11. PRESIDENCY EXPENSES

I find myself obliged to comment on this matter, due to the number of owners who have accused me of receiving a salary or being paid by the community. I would like to remind everyone that it was a group of grateful owners who proposed a gift as a gesture of thanks for the time and experience I bring to the community. If I say so myself, it is more than most people even care to think about. When I was asked to comment on this last year, I said that I thought it was fair that a president should not have to pay the community like a regular owner, since all owners benefit from an efficient president. As I had never requested any compensation, mainly because of the complaints received, I decided not to receive any payment from the approved funds. The 2022 accounts show a gratuity payment relatively small compared to what was approved at the General Meeting. For 2023 I have instructed Adenjo to reduce the amount by 50%. I have decided to run again in 2023 because I believe my continuity is essential for the community, so that it overcomes the difficult financial situation caused by the inherited legal cases that are currently active. If I am reelected, I want to point out that it is not realistic to expect someone to take on significant additional work for several years in addition to the normal functions of president and that without fair compensation in return. I will have served the community for 3 years as a volunteer and not as an employee. I believe it is right that another owner be ready to assume the role.

Sincerely,

John Riley President SdA

March 2023