\n TABLE OF CONTENTS<\/p>\n Page
\n Number<\/p>\n
\nStatement of Basic Assumptions and Limiting Conditions
\nSummary of Salient Facts and Conclusions
\nSubject Photographs <\/p>\nIntroduction 1
\n Property Identification 1
\n Purpose of the Appraisal 1
\n Function of the Appraisal 1
\n Scope of the Appraisal 1
\n Asset Rights Appraised 2
\n Effective Date of the Appraisal 2
\n Definition of Value 2
\n Compliance 3
\n Competency 3
\n Sale History 4
\n Reasonable Exposure Time 4
\nHistory and Nature of the Business Environment 6
\nRegional and Market Analysis 14
\nNeighborhood and Site Description 20
\n Real Estate Tax and Assessment Analysis 22
\nImprovements Description 25
\nHighest and Best Use 28
\nValuation Methodology 31
\nIncome Approach 32
\nCost Approach 40
\nCorrelation of Value 58
\nCertification 59<\/p>\n
ADDENDUM<\/p>\n
Business Enterprise Schedules A- 1<\/p>\n
EXHIBIT SECTION<\/p>\n
Exhibit A – Legal Description E- 1
\nExhibit B – Building Descriptions E- 2
\nExhibit C – Land Improvements Description E-11
\nExhibit D – Professional Qualifications E-12
\n<\/c><\/s><\/caption>\n<\/table>\n
7
\n STATEMENT OF BASIC ASSUMPTIONS AND LIMITING CONDITIONS<\/p>\n
The appraisers assume:<\/p>\n
1. That the subject property is marketable and that the property is free
\n and clear of all liens, encumbrances, easements and restrictions
\n unless otherwise noted.<\/p>\n
2. No liability for matters legal in nature.<\/p>\n
3. That ownership and management will be in competent and responsible
\n hands. We have not been engaged to evaluate the effectiveness of
\n Management and we are not responsible for future marketing efforts and
\n other Management actions upon which actual results will depend.<\/p>\n
4. That the property will not operate in violation of any applicable
\n government regulations, codes, ordinances or statutes. It is assumed
\n that all required licenses, certificates of occupancy, consents or
\n other legislative or administrative authorization from all local,
\n state or national governmental or private entities or organizations
\n have been or can be obtained or renewed.<\/p>\n
5. Unless otherwise noted, that there will be no changes in reimbursement
\n or tax regulations.<\/p>\n
6. That there are no concealed or dubious conditions of the subsoil or
\n subsurface waters including water table and floodplain. We further
\n assume that there are no regulations of any government entity to
\n control or restrict the use of the property unless specifically
\n referred to in the report.<\/p>\n
7. That there are no significant changes in the supply and demand
\n patterns as indicated in this report. It is emphasized that this is
\n not a study of market feasibility, rather an appraisal of the property
\n under market conditions as observed as of the date of our market
\n research. These market conditions have been researched and are
\n believed to be correct; however, the appraisers assume no liability
\n should market conditions materially change because of unusual or
\n unforeseen circumstances.<\/p>\n
The following limiting conditions are submitted with this report:<\/p>\n
1. All of the facts, conclusions and observations contained herein are
\n consistent with information available as of the date of valuation.
\n Value is affected by economic conditions, local and national. We,
\n therefore, assume no liability for any unforeseen precipitous change
\n in the economy.
\n 8
\n STATEMENT OF BASIC ASSUMPTIONS AND LIMITING CONDITIONS<\/p>\n
2. The valuation applies only to the property described herein and was
\n prepared for the function stated in this report and should not be used
\n for any other purpose.<\/p>\n
3. The appraisers have made no survey of the property. Any and all maps,
\n sketches and site plans are assumed to be correct, but no guarantee is
\n made as to their accuracy.<\/p>\n
4. Information furnished by others is presumed to be reliable, and where
\n so specified in the report, has been verified; but no responsibility,
\n whether legal or otherwise, is assumed for its accuracy, and it cannot
\n be guaranteed as being certain.<\/p>\n
5. The signatories herein shall not be required to give testimony or
\n attend court or be at any governmental hearing with reference to the
\n subject property unless prior arrangements have been made with
\n Valuation Counselors Group, Inc.<\/p>\n
6. Disclosure of the contents of this report is governed by the bylaws
\n and regulations of professional appraisal organizations. Neither this
\n report nor any portions thereof shall be disseminated to the public
\n through public relations media, news media, advertising media, sales
\n media or any other public means of communication without the prior
\n written consent and approval of the appraisers and Valuation
\n Counselors Group, Inc.<\/p>\n
7. No responsibility is taken for changes in market conditions after the
\n date of valuation, or for the inability of the property owner to find
\n a purchaser at the appraised value.<\/p>\n
8. The legal description shown herein has been included for the sole
\n purpose of identifying the subject property. The figures have not
\n been verified by a licensed surveyor or legal counsel and should not
\n be used in any conveyance or any other legal document.<\/p>\n
9. We were not aware of and the report does not take into consideration
\n the possibility of the existence of asbestos, PCB transformers, or
\n other toxic, hazardous, or contaminated substances and\/or underground
\n storage tanks containing hazardous material. The report does not
\n consider the cost of encapsulation treatment or removal of such
\n material. If the client\/property owner has a concern over the
\n existence of such conditions in the subject property, the appraisers
\n consider it imperative to retain the services of a qualified engineer
\n or contractor to determine the existence and extent of such hazardous
\n conditions. Such consultation should include the estimated cost
\n associated with any required treatment or removal of hazardous
\n material.
\n 9
\n STATEMENT OF BASIC ASSUMPTIONS AND LIMITING CONDITIONS<\/p>\n
10. The report, the final estimate of value and the prospective financial
\n analyses included herein are intended for your information. Neither
\n this report nor its contents nor any reference to Valuation Counselors
\n Group, Inc. may be included or quoted in any offering circular,
\n registration statement, prospectus, sales brochure, appraisal, loan
\n document or other document without Valuation Counselors Group, Inc.’s
\n prior written permission.<\/p>\n
11. The estimate of the market value stated herein is the value of the
\n subject property as a single entity. No consideration was given to a
\n bulk sale or group purchase of properties. In the event that this
\n appraisal is used as a basis to set a market price, no responsibility
\n is assumed for the seller’s inability to obtain a tenant or purchaser
\n at the value reported herein.<\/p>\n
12. It is assumed that there are no outstanding issues related to fraud
\n and abuse statutes under the Medicare\/Medicaid program which would
\n impact value.<\/p>\n
13. It is assumed that the business has an adequate insurance plan.<\/p>\n
14. A copy of this report and the working papers from which it was
\n prepared will be kept in our office files for eight years.
\n 10
\n SUMMARY OF SALIENT FACTS AND CONCLUSIONS<\/p>\n
\n
\nGENERAL DATA<\/p>\nEffective Date of Value March 1, 1994<\/p>\n
Date of Inspection March 16, 1994<\/p>\n
Property Identification Integrated Health Services of St. Louis at Gravois<\/p>\n
Property Location 10954 Kennerly Road, St. Louis, St. Louis County, Missouri<\/p>\n
Assets Appraised Tangible and Intangible Assets<\/p>\n
Interest Appraised Leased Fee Estate<\/p>\n
Number of Licensed Beds 167<\/p>\n
Number of Operating Beds 148<\/p>\n
Land Size 6.816 Acres<\/p>\n
Improvement Description Two total story plus basement, Class C, masonry and steel framed nursing home
\n consisting of 49,719 gross square feet, built in 1966, 1975 and 1987 with
\n renovations in 1993\/1994. There are also two residences located to the east of
\n the nursing home.<\/p>\n
INDICATIONS OF MARKET VALUE<\/p>\n
Income Approach $8,500,000<\/p>\n
Market Approach N\/A<\/p>\n
Cost Approach $7,600,000<\/p>\n
Final Estimate of Market Value $8,500,000<\/p>\n
REASONABLE EXPOSURE TIME Twelve Months
\n<\/c><\/s><\/table>\n
11
\n SUBJECT PHOTOGRAPHS<\/p>\n
(Photo)<\/p>\n
NORTH (FRONT) ELEVATION LOOKING SOUTHEAST FROM
\n ACROSS KENNERLY ROAD
\n 12
\n SUBJECT PHOTOGRAPHS<\/p>\n
(Photo)<\/p>\n
EAST ELEVATION LOOKING WEST AT WING FROM
\n INTEGRATED HEALTH SERVICES OF
\n ST. LOUIS AT GRAVOIS
\n 13
\n SUBJECT PHOTOGRAPHS<\/p>\n
(Photo)<\/p>\n
REAR ELEVATION OF
\n 10910 KENNERLY ROAD FROM NUMBER 7 KENNERLY MANOR ROAD
\n 14
\n SUBJECT PHOTOGRAPHS<\/p>\n
(Photo)<\/p>\n
FRONT ELEVATION OF
\n NUMBER 1 KENNERLY MANOR ROAD WHICH IS
\n SCHEDULED TO BE TORN DOWN
\n 15
\n INTRODUCTION<\/p>\n
PROPERTY IDENTIFICATION<\/p>\n
The subject property, known as Integrated Health Services of St. Louis at
\nGravois, consists of a 167 licensed bed nursing and rehabilitation facility
\nlocated at 10954 Kennerly Road, St. Louis, St. Louis County, Missouri. For
\ntitle reference and legal description, see the Exhibit Section. The
\nimprovements consist of a 49,719 square foot building located on a 6.816 acre
\nsite. The improvements also include two residential structures.<\/p>\n
PURPOSE OF THE APPRAISAL<\/p>\n
The purpose of the appraisal is to estimate the market value of the leased fee
\nestate as of the date specified within this report.<\/p>\n
FUNCTION OF THE APPRAISAL<\/p>\n
This report is to be used in connection with financing.<\/p>\n
SCOPE OF THE APPRAISAL<\/p>\n
This appraisal engagement has been conducted using applicable standard
\nappraisal techniques and in conformity with the Uniform Standards of Appraisal
\nPractice as set forth by the Appraisal Foundation. This appraisal entails the
\ncollection, analysis and description of data pertaining to physical, legal and
\neconomic conditions that affect the use and value of the subject property and
\nany other relevant data that would pertain to the appraisal of a healthcare
\nfacility. In our valuation of the subject property, we have conducted the
\nIncome and Cost Approaches to value. The Income Approach entailed a present
\nvalue analysis of lease income. The Cost Approach involved the estimation of
\nthe depreciated replacement cost of the improvements based upon national cost
\npublications, which was added to the value of the land as if vacant. The
\nMarket Approach has not been utilized due<\/p>\n
1
\n 16
\n INTRODUCTION<\/p>\n
to the dearth of transfers involving like interests in nursing facilities. We
\nbelieve the lease payments include a return on assets beyond the real property.
\nIn accordance with Uniform Standards of Professional Appraisal Practice
\n(USPAP), an attempt must be made to estimate the value of the real property
\nfrom the value of other assets which may exist. However, an attempt to
\nascertain the contribution of the various assets to income is nearly impossible
\nsince the value of the tangible property is highly interrelated to the business
\nenterprise. Accordingly, as allowed by the departure provision of USPAP, we
\nhave not provided an allocation of value between the real property and other
\nassets which may exist.<\/p>\n
ASSET RIGHTS APPRAISED<\/p>\n
The property rights appraised herein is the leased fee interest in the
\nproperty.<\/p>\n
The interest is defined by the Appraisal Institute as follows:<\/p>\n
LEASED FEE ESTATE: The ownership interest held by a landlord with the
\n right of use and occupancy conveyed by lease to others; usually consists
\n of the right to receive rent and the right to repossession at the
\n termination of the lease.<\/p>\n
EFFECTIVE DATE OF THE APPRAISAL<\/p>\n
The date of this appraisal is March 1, 1994.<\/p>\n
DEFINITION OF VALUE<\/p>\n
For the purpose of this report, market value is defined as follows:<\/p>\n
The most probable price which a property should bring in a competitive and
\n open market under all conditions requisite to a fair sale, the buyer and
\n seller, each acting prudently, knowledgeably and assuming the price is
\n not affected by undue stimulus. Implicit in this definition is the
\n consummation of a sale as of a specified date and the passing of title
\n from seller to buyer under conditions whereby:<\/p>\n
2
\n 17
\n INTRODUCTION<\/p>\n
a) buyer and seller are typically motivated;<\/p>\n
b) both parties are well informed or well advised and each acting in
\n what he considers his own best interest;<\/p>\n
c) a reasonable time is allowed for exposure in the open market;<\/p>\n
d) payment is made in terms of cash in U.S. dollars or in terms of
\n financial arrangements comparable thereto; and<\/p>\n
e) the price represents the normal consideration for the property sold
\n unaffected by special or creative financing or sales concessions
\n granted by anyone associated with the sale.<\/p>\n
COMPLIANCE<\/p>\n
To the best of our knowledge, the analyses, opinions and conclusions that were
\ndeveloped in this report, have been prepared in conformity with the Uniform
\nStandards of Professional Appraisal Practice (USPAP) of the Appraisal
\nFoundation and the Appraisal Institute.<\/p>\n
COMPETENCY<\/p>\n
From our understanding of the assignment to be performed, which we have
\naddressed in the Scope of this Appraisal, it is our opinion that we are fully
\ncompetent to perform this appraisal, due to the fact that:<\/p>\n
a. The appraiser has full knowledge and experience in the nature of this
\n assignment.<\/p>\n
b. All necessary and appropriate steps have been taken in order to
\n complete the assignment competently.<\/p>\n
c. There is no lack of knowledge or experience that would prohibit this
\n assignment from being completed in a professional competent manner or
\n where an unbiased or misleading opinion of value would be rendered.<\/p>\n
3
\n 18
\n INTRODUCTION<\/p>\n
SALE HISTORY<\/p>\n
The real estate currently has as its fee titled owner a partnership by the name
\nof Gravois Health Care, Inc., with the business enterprise doing business as
\nIntegrated Health Services of St. Louis at Gravois. The operating company is
\ncalled Integrated Health Services, Inc. who has operated the facility since
\n1987.<\/p>\n
According to public records, the subject property has not transferred in the
\npast five years. We understand the facility is under agreement for sale to
\nCrescent Capital for $8,500,000 and will be leased back to Integrated Health
\nServices, Inc.<\/p>\n
REASONABLE EXPOSURE TIME<\/p>\n
Reasonable Exposure Time, for the purpose of this report, is defined as: “The
\nestimated length of time the property interest being appraised would have been
\noffered on the market prior to the hypothetical consummation of a sale at
\nmarket value on the effective date of the appraisal; a retrospective estimate
\nbased upon an analysis of past events assuming a competitive and open
\nmarket.”(1)<\/p>\n
The concept of reasonable exposure encompasses not only adequate, sufficient
\nand reasonable time, but also adequate, sufficient and reasonable effort. This
\nconcept also takes into consideration the type of property being appraised,
\nsupply\/demand conditions as of the effective date of the appraisal and the
\nanalysis of historical sales information (sold after exposure and after
\ncompletion of negotiations between the seller and buyer). The reasonable
\nexposure period is, therefore, a function of price, time and use, not an
\nisolated estimate of time alone.<\/p>\n
– ————————<\/p>\n
1 Uniform Standards of Professional Appraisal Practice, 1993 Edition,
\n Washington, DC: The Appraisal Foundation, 1991, page 63 (SMT-6).<\/p>\n
4
\n 19
\n INTRODUCTION<\/p>\n
Reasonable exposure time is always presumed to precede the effective date of
\nthe appraisal and differs for various types of real estate and under various
\nmarket conditions. Our estimate of exposure time is, therefore, based on the
\nsubject property’s determined Highest and Best Use as a healthcare facility in
\na market where there is evidence of demand for such services.<\/p>\n
The estimate of reasonable exposure time is not a predication, but rather, is
\nonly a judgment made by the appraiser based on market conditions preceding the
\neffective date of the appraisal.<\/p>\n
Based upon the determination of the subject’s Highest and Best Use, with
\nconsideration given to the overall condition and physical characteristics of
\nthe subject, it is estimated that a reasonable exposure time preceding the
\nactual sale of the property and thus implicit in our value estimate is twelve
\nmonths.<\/p>\n
5
\n 20
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
INDUSTRY OUTLOOK<\/p>\n
The elderly care segment of the healthcare industry includes such providers as
\nnursing homes, personal care facilities and retirement centers. Demand for
\nelderly care services continues to increase with the growth of the elderly aged
\nsegment of the United States population.<\/p>\n
The sixty-five and over aged portion of the population is forecasted to grow an
\nadditional 11% between 1990 and 1995. During 1990, the elderly aged sixty-five
\nyears and over comprised 13.3% of the total United States population, as
\ncompared to 11.3% as of the 1980 census report. Furthermore, the sixty-five
\nand over aged portion of the population is forecasted to increase to 14.1% of
\ntotal population by 1995.<\/p>\n
United States population statistics and forecasts are provided on the following
\ntable.<\/p>\n
\n\n FORECASTED UNITED STATES POPULATION
\n (THOUSANDS)<\/p>\n PERCENT CHANGE
\n 1980 1990 1995 1980 TO 1990 1990 TO 1995<\/p>\n
\n Total U.S. 226,546 249,958 260,788 10.3% 4.3%
\n 65 Years + 25,549 33,184 36,828 29.9% 11.0%
\n Percent of 11.3% 13.3% 14.1%
\n Total U.S.
\n 75 Years + 9,969 14,257 16,935 43.0% 18.8%
\n Percent of 4.4% 5.7% 6.5%
\n Total U.S.<\/p>\n Source: Donnelley Demographics
\n<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
6
\n 21
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
Another factor which has contributed to growth in demand for elderly care is
\nthe increased life expectancy of the United States population.<\/p>\n
As the average life expectancy for both men and women continues to increase, as
\nillustrated on the following table, the probability of an elderly person
\nrequiring some form of healthcare service also increases.<\/p>\n
\n\n UNITED STATES LIFE EXPECTANCY <\/p>\n MEN WOMEN
\n AT BIRTH AT AGE 65 AT BIRTH AT AGE 65
\n <\/p>\n1900 45.6 11.4 49.1 12.0
\n1910 50.2 11.4 53.7 12.1
\n1920 54.6 11.8 56.3 12.3
\n1930 58.0 11.4 61.4 12.9
\n1940 60.9 11.9 65.3 13.4
\n1950 65.3 12.8 70.9 15.1
\n1960 66.6 12.9 73.2 15.9
\n1970 67.1 13.1 74.8 17.1
\n1980 69.9 14.0 77.5 18.4
\n1990 72.3 15.1 79.9 19.9
\n2000E 73.4 15.7 81.1 20.8 <\/p>\n
Source: United States Bureau of the Census
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
7
\n 22
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
While most major healthcare providers will benefit from the graying of America,
\nthe nursing home industry will be the chief beneficiary. According to the
\nUnited States Commerce Department, long-term care spending for nursing home and
\nhome care services during the 1988 to 2003 period is expected to increase twice
\nas quickly as the rate of growth of those receiving the services. Demand for
\nretirement centers and personal care facilities has also increased due to the
\naforementioned demographic factors coupled with the fact that the majority of
\nyoung couples are employed full-time and unable to care for elderly parents at
\nhome.<\/p>\n
During the late 1980s, the growth of total facilities or number of units per
\nfacility in the retirement industry increased significantly. In a survey
\nconducted by Contemporary Long-Term Care (CLTC), 72% of the fifty largest
\nretirement operators reported an increase in their total number of facilities
\nin 1988. The growth had slowed in 1989 with 55.6% of fifty-four operators
\nsurveyed reporting increases in total facilities and number of units per
\nfacility. The average number of units per facility increased from 84 to 122
\nunits in the same survey.(2)<\/p>\n
Growth in the retirement industry is forecasted to continue, but at a much
\nslower rate in regards to the growth exhibited during the 1980s.<\/p>\n
United States healthcare costs have increased dramatically over the past few
\nyears. From 1950 to 1990 healthcare expenditures have grown from 4.4% of gross
\nnational product to 12.2% and are forecasted to grow to 16.4% by the year 2000.
\nTotal federal government outlays for healthcare have increased from $24 per
\ncapita in 1965 to $753 in 1990, with forecasts to increase to $1,810 by the
\nyear 2000. Furthermore, health insurance premiums had increased 1,195% between
\n1970 and 1990.<\/p>\n
– —————————<\/p>\n
(2) “Growth Slows But Continues”, CLTC, June, 1990.<\/p>\n
8
\n 23
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
The current fiscal policy of the United States Government has left many states
\nresponsible for providing services the federal government previously provided.
\nThis has led to a fiscal crisis in many states. The direct impact of these
\nchanges is seen in reduced Medicaid budgets. The problem is compounded by the
\nfact that Medicaid has grown faster than any other major state expenditure.
\nCurrently, Medicaid covers slightly less than 50% of total patient days in
\nnursing homes. In 1989 Medicaid accounted for an average of 14% of the state
\nbudget, compared to 9% a decade ago. A recent survey by the National
\nAssociation of State Budget Office indicates that a total of twenty-eight
\nstates face budget deficits and thirty-two states expect Medicaid spending to
\nexceed current forecasts.(3)<\/p>\n
Escalating costs and the faltering reimbursement system has forced many states
\nto consider decertification and withdrawal from the program. In addition,
\nlong-term care providers in several states have turned to the courts in an
\neffort to receive fair reimbursement from the Medicaid system. Consequently,
\nwidespread healthcare cost containment may exhibit downward pressure on the
\nvalue of long-term care facilities with a high reliance on Medicaid patients.<\/p>\n
Long-term care by source of funds from 1960 to 2000 is presented on the
\nfollowing table.<\/p>\n
– ————————<\/p>\n
(3) Pallarito, Karen, “Budget Deficit Threats to Shut Out Medicaid
\n Benefits”, Modern Healthcare, April 22, 1991.<\/p>\n
9
\n 24<\/p>\n
HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
\n\n Long-Term Care Expenditures Aggregate, Per Capita and Percent Distribution,
\n By Source of Funds: Selected Calendar Years 1960-2000<\/p>\n THIRD PARTIES
\n GOVERNMENT<\/p>\n
DIRECT ALL PRIVATE OTHER STATE
\n PATIENT THIRD HEALTH PRIVATE AND
\n YEAR TOTAL PAYMENTS PARTIES INSURANCE FUNDS TOTAL FEDERAL LOCAL MEDICARE MEDICAID<\/p>\n
\n 1960 100.0% 80.0% 20.0% — 1.0% 1.0% 1.0% 1.0% — —
\n 1970 100.0% 46.9% 51.0% 0.0% 4.1% 46.9% 28.6% 18.4% 4.1% 28.6%
\n 1980 100.0% 43.5% 56.5% 1.0% 3.0% 52.5% 30.5% 22.0% 2.0% 48.5%
\n 1985 100.0% 49.5% 51.6% 1.2% 2.1% 48.4% 28.4% 20.0% 1.8% 44.6%
\n 1990 100.0% 45.0% 55.0% 1.1% 1.9% 52.2% 32.4% 19.8% 4.7% 45.4%
\n 1995 100.0% 42.9% 57.0% 1.3% 1.9% 53.8% 33.1% 20.7% 3.7% 48.1%
\n 2000 100.0% 45.0% 55.0% 1.7% 2.0% 51.4% 31.7% 19.6% 3.4% 45.8%<\/p>\n Note: 0.0 denotes values less than $50 million.
\n Source: Health Care Financing Administration. Office of the Actuary. Office of National Health Statistics. Baltimore,
\n Maryland: December, 1991.<\/p>\n
Forecasts: Sonnefeld, Sally; Waldo, Daniel; Lemieux, Jeffrey; McKusick, David, Projections of National Health Expenditures
\n Through the Year 2000. Health Care Financing Review, Fall 1991, Vol. 13, No.1. Health Care Financing
\n Administration. Baltimore, Maryland: October, 1991.
\n<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
25
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
As indicated, healthcare facilities currently derive most of their revenue from
\ngovernment sources such as Medicaid, Medicare and the Veterans Administration
\nand from private sources such as personal funds and insurance programs. The
\nMedicaid program, which accounts for over 45% of the United States nursing home
\nrevenues, typically pays rates significantly lower than Medicare or private
\nrates.<\/p>\n
Medicaid covers the skilled or intermediate nursing home costs of qualified low
\nincome residents for an unlimited period. Medicare only pays part of the
\nskilled nursing home costs incurred by qualified residents during a limited
\nperiod. In addition, nursing homes must meet strict federal guidelines in
\norder to qualify as Medicare certified for reimbursement. Therefore, only a
\nlow percentage of nursing home patients qualify for Medicare coverage relative
\nto Medicaid. However, nursing homes that attract a higher percentage of
\nMedicare or private pay patients typically have higher operating margins than
\nsimilar facilities with a higher Medicaid census.<\/p>\n
Competition is increasing among nursing homes for the more lucrative Medicare
\nand private pay patients. For example, many nursing homes have been developing
\nnew services such as multiple levels of care, retirement facilities,
\nAlzheimer’s and ventilator programs and other specialized services for niche
\nmarkets.<\/p>\n
In addition, as acute care hospitals have experienced lower reimbursement
\nlevels and declining occupancy rates, many have expanded into skilled nursing
\nservices to boost revenues. According to a 1986 survey conducted by the
\nAmerican Hospital Association, Chicago, approximately 19% of hospitals own or
\noperate skilled nursing facilities, 14% operate swing bed programs (use empty
\nacute care beds for long-term care) and 12% own or operate intermediate care
\nfacilities. Competition from swing bed programs is likely to intensify as more
\nhospitals qualify for Medicare reimbursement under this program.<\/p>\n
11
\n 26
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
Although nursing facilities benefit from increasing demand and changes in
\nMedicare reimbursement, widespread healthcare inflation concerns will keep
\ndownward pressure on nursing home revenues. Federal, state and local
\ngovernments, along with insurance companies and other third party payers, are
\ncontinually seeking ways to contain healthcare expenditures. The focus on
\nacute care cost containment is spreading to all types of healthcare facilities.<\/p>\n
CONCLUSION<\/p>\n
Although the healthcare industry, as a whole, has experienced good growth over
\nthe past several years, the news is not all good. An estimated thirty-eight
\nmillion Americans have no health insurance coverage at all with children
\naccounting for 36% of this total. Currently, as many as another fifty million
\nAmericans are believed to have inadequate coverage. The percentage of total
\nhealthcare costs of the United States gross national product (GNP) continually
\nincreases every year and it is estimated that it will consume 28% of the GNP by
\nthe year 2010.<\/p>\n
There are currently a number of proposals before the Senate and House of
\nRepresentatives’ committees to change the current structure of the healthcare
\nindustry. Some of these proposals call for a form of national healthcare with
\nothers leaning towards a heavily regulated form of a free-enterprise system.
\nAll the proposals currently being debated have a great number of controversial
\nissues, which makes the passage of a new healthcare system very unlikely in the
\nforeseeable future. This plan and the speculation around it suggests the
\npossible merging of the Medicare and Medicaid programs, putting spending
\ncapitalizations at an 8% level, making greater utilization of managed care and
\nmanaged competition and the creation of a National Health Care Board to oversee
\nthe creation of Healthcare Insurance Purchasing Cooperatives (HIPCs). It is
\ngenerally felt by the lawmakers like Congressman Stark, that there will be no
\ninterference or cutbacks on long-term care. It is<\/p>\n
12
\n 27
\n HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
believed that the current problems will reach a severe crisis level before some
\naction by Congress will occur.<\/p>\n
Escalating costly regulation and inadequate reimbursement from Medicaid and a
\nshortage of qualified nurses have squeezed industry profits. In an effort to
\nremain profitable, many providers have diversified into medical specialty
\nunits, which tend to be more profitable than typical nursing care. In any
\ncase, the elderly care segment of the healthcare industry continues to evolve
\nin response to profound social and economic influences.<\/p>\n
13
\n 28
\n REGIONAL AND MARKET ANALYSIS<\/p>\n
The subject property is located in St. Louis, St. Louis County, Missouri. The
\nSt. Louis Consolidated Metropolitan Statistical Area (CMSA) is a bistate region
\nconsisting of the city of St. Louis, the four Missouri counties of St. Louis,
\nSt. Charles, Franklin and Jefferson and the five Illinois counties of Clinton,
\nMadison, Monroe, St. Clair and Jersey. The St. Louis Primary Metropolitan
\nStatistical Area (PMSA) consists of the city of St. Louis, the Missouri
\ncounties of St. Louis, St. Charles, Franklin and Jefferson and the Illinois
\ncounty of Monroe.<\/p>\n
The St. Louis metropolitan area is located near the geographic and population
\ncenters of the United States. According to Sales and Marketing Management, the
\nSt. Louis PMSA is ranked twentieth in population, twentieth in number of
\nhouseholds and twenty-second in effective buying income. In median household
\neffective buying income, the St. Louis PMSA is ranked seventy-third, ahead of
\nother areas such as Atlanta, Indianapolis, Oklahoma City and Tulsa.<\/p>\n
The area’s location in the center of the United States and on a waterway system
\nhas made the region a leading industrial and transportation center. The port
\nof St. Louis is the busiest inland port in the nation, with the St. Louis
\ndistrict constituting the second largest railroad terminal in the country,
\nsurpassed only by Chicago. St. Louis is served by fourteen trunk-line
\nrailroads and five switching lines, with Amtrak providing passenger service to
\na variety of cities in the nation. Trucking service is available with more
\nthan 200 common carrier truck lines and numerous local lines operating in the
\narea. Four interstate highways serve the area, with I-70 linking Washington,
\nD.C. with the west, I-55 running from Chicago to New Orleans, I-44 connecting
\nSt. Louis with I-40 at Oklahoma City and I-64 traveling inland from Virginia
\nto St. Louis.<\/p>\n
Airline service is available from Lambert-St. Louis International Airport.
\nEleven scheduled passenger airlines, eight commuter lines, one all-cargo
\nairline, two air freight cartage agents and fourteen air freight forwarders all
\noperate from the airport.<\/p>\n
14
\n 29
\n REGIONAL AND MARKET ANALYSIS<\/p>\n
The St. Louis metropolitan area enjoys a well diversified economy being a major
\nfinancial, manufacturing, telecommunications and trade and distribution center
\nserving the central United States. The area’s largest employer is the
\nMcDonnell Douglas Corporation, with approximately 33,000 St. Louis area
\nemployees. In addition to design and manufacturing facilities for military and
\naerospace equipment, McDonnell Douglas is headquarters for McAuto, one of the
\nnation’s largest data processing centers. The area is home to two of the
\nnation’s largest shoe manufacturers, Interco, Inc. and Brown Group, Inc., and
\nto Southwestern Bell, a major telecommunications firm. Other firms
\nheadquartered in St. Louis include Monsanto Company, Ralston Purina Company,
\nPet Inc., Peabody Coal Company, Seven-Up, General Dynamics, Graybar Electric
\nand Emerson Electric. In addition to headquarters, research and chemical
\nmanufacturing facilities, Monsanto Company also has silicon chip manufacturing
\nfacilities in the metropolitan area.<\/p>\n
According to Donnelley Demographics, St. Louis County had approximately 392,675
\nresidents in 1991 as compared with the 1980 census level of 453,085. This
\nrepresents a 13.3% decrease from 1980 to 1991. Population is estimated to
\ndecrease further to 364,925 in 1996. The portion of the county’s residents
\nover age sixty-five was 18.8%, or 73,847 residents in 1991 as compared with
\n17.6%, or 79,920 residents in 1980. While the percentage of elderly residents
\nhas increased, the number of elderly residents has decreased approximately 7.6%
\nfrom 1980 to 1991. The county’s elderly population is expected to decrease to
\n67,180 in 1996 representing 18.4% of the estimated 1996 forecasted population.<\/p>\n
15
\n 30
\n REGIONAL AND MARKET ANALYSIS<\/p>\n
The following tables present selected demographic data for St. Louis County.<\/p>\n
\n\n TOTALS AND MEDIANS<\/p>\n
1980 1991 % CHANGE 1996
\n CENSUS ESTIMATE 1980 TO 1991 FORECAST<\/p>\n
\nTotal Population 453,085 392,675 -13.3% 364,925
\nTotal Households 178,048 166,041 -6.7% 160,042
\nHousehold Population 443,305 382,920 -13.6% 355,170
\nAverage Household Size 2.5 2.3 -7.4% 2.2
\nAverage Household Income $14,723 $27,332 85.6% $33,443
\nMedian Household Income $11,713 $20,545 75.4% $24,641<\/p>\nSource: Donnelley Demographics
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
16
\n 31
\n REGIONAL AND MARKET ANALYSIS<\/p>\n
\n\n POPULATION BY AGE<\/p>\n
1980 CENSUS 1991 ESTIMATE 1996 FORECAST
\n NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
\n AGE
\n
\n Total 453,085 100.0% 392,675 100.0% 364,925 100.0%
\n 0 – 4 32,361 7.1% 28,677 7.3% 26,007 7.1%
\n 5 – 9 30,768 6.8% 27,173 6.9% 25,370 7.0%
\n 10 – 14 32,148 7.1% 25,918 6.6% 24,574 6.7%
\n 15 – 19 39,676 8.8% 25,989 6.6% 24,664 6.8%
\n 20 – 24 44,626 9.8% 27,800 7.1% 24,612 6.7%
\n 25 – 29 38,121 8.4% 31,169 7.9% 24,051 6.6%
\n 30 – 34 26,653 5.9% 33,980 8.7% 27,162 7.4%
\n 35 – 39 19,472 4.3% 30,414 7.7% 30,111 8.3%
\n 40 – 44 17,875 3.9% 22,251 5.7% 27,515 7.5%
\n 45 – 49 19,712 4.4% 16,562 4.2% 20,448 5.6%
\n 50 – 54 23,227 5.1% 15,049 3.8% 15,306 4.2%
\n 55 – 59 25,003 5.5% 16,048 4.1% 13,793 3.8%
\n 60 – 64 23,523 5.2% 17,798 4.5% 14,132 3.9%
\n 65 – 69 23,803 5.3% 18,904 4.8% 15,805 4.3%
\n 70 – 74 21,474 4.7% 17,363 4.4% 15,971 4.4%
\n 75 – 79 16,927 3.7% 15,479 3.9% 13,687 3.8%
\n 80 – 84 10,207 2.3% 11,568 2.9% 10,669 2.9%
\n 85 + 7,509 1.7% 10,533 2.7% 11,048 3.0%<\/p>\n 17
\n 32
\n REGIONAL AND MARKET ANALYSIS<\/p>\n
An area map is provided on the following page.<\/p>\n
18
\n 33
\n REGIONAL AND MARKET ANALYSIS<\/p>\n
AREA MAP<\/p>\n
(PHOTO – MAP)<\/p>\n
19
\n 34
\n NEIGHBORHOOD AND SITE DESCRIPTION<\/p>\n
NEIGHBORHOOD ANALYSIS<\/p>\n
The subject property is situated in the southwest quadrant of Highway 20 and
\nI-270 on Kennerly Road approximately ten miles from downtown St. Louis. Access
\nto the property is very good. The major artery serving the area includes I-270
\nwhich intersects all the major highways and interstates serving St. Louis in
\nall directions.<\/p>\n
The area consists mainly of single family homes with numerous new developments
\nof $200,000 homes to many over $400,000 in value, scattered older homes on
\nlarge tracts and small individual commercial tracts.<\/p>\n
Adjoining the property to the north is vacant land, to the east and south
\nsingle family homes and to the west new single family homes and the Friendship
\nVillage Retirement Center.<\/p>\n
A location map is provided on the following page.<\/p>\n
20
\n 35
\n NEIGHBORHOOD AND SITE DESCRIPTION<\/p>\n
LOCATION MAP<\/p>\n
(PHOTO – MAP)<\/p>\n
21
\n 36
\n NEIGHBORHOOD AND SITE DESCRIPTION<\/p>\n
ZONING<\/p>\n
The subject land sites are all zoned R-1, Residence District, by the county of
\nSt. Louis, Missouri. This zoning requires a minimum site size of one acre
\nexcept those tracts of record prior to April 8, 1965 containing less area.
\nThis would apply to the one lot adjoining the west side of the nursing home
\nsite on Gravois Road which contains 1.88 acres.<\/p>\n
Use of the property for a nursing home requires a CUP, Conditional Use Permit
\nunder the April 8, 1965 zoning regulations of St. Louis County. The nursing
\nhome met these requirements under its grandfather clause for the original
\nhome, which was subsequently razed in 1987 and the 1975 addition, which secured
\na building permit prior to 1965. In 1972, the nursing home wanted to expand
\nand a conditional use permit was approved zoning 6.816 acres for nursing home
\nuse. This includes the nursing home and the two residential homes: 7 Kennerly
\nManor Drive and 10910 Kennerly Road. The conditional use permit requires all
\nimprovements on the 6.816 acre site be used in conjunction with the nursing
\nhome operations. A subdivision permit is required to separate the two
\nresidential improved sites out of the CUP zoning. It is assumed that the
\nsubdividing could be reasonably obtained upon appropriate application to the
\nSt. Louis County Planning Commission.<\/p>\n
REAL ESTATE TAX AND ASSESSMENT ANALYSIS<\/p>\n
The subject property is assessed a total of $766,280, which is comprised of
\n$55,120 for the land and $711,160 for the improvements. The city and county
\ntax rate in 1993 is 5.475 (plus 1.700 surcharge on the nursing home property)
\nper $100 of assessed value. Taxes in 1994 are estimated as follows:<\/p>\n
22
\n 37
\n NEIGHBORHOOD AND SITE DESCRIPTION<\/p>\n
\n\n 1994 Taxes <\/p>\n
Parcel Number Parcel Number Parcel Number
\n 28M540245 28M530059 28M540256 Totals
\n (4.22 Acres) (0.716 Acres) (1.88 Acres) (6.816 Acres)
\n
\n Land $ 40,510 $ 5,680 $ 8,930 $ 55,120
\n Improvements 698,050 — 13,110 711,160
\n Total $ 738,560 $ 5,680 $ 22,040 $ 766,280
\n 1993 Taxes $52,991.68 $310.98 $1,206.69 $54,509.35
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nSITE DESCRIPTION<\/p>\n
The appraised land consists of a total 6.816 acre site. The nursing home is
\nsituated on a 4.22 acre (183,823 square foot) site fronting about 1,088 feet
\nalong Kennerly Road on the north and east lines which includes 10910 and 10980
\nKennerly Road. The topography is generally level at street grade along the
\nfrontage with a slight slope to the west and downward to basement floor grade
\nat the rear. The slope is then steeper to the rear south and west lines. The
\nshape is rectangular with an angled east line.<\/p>\n
Residence 7 Kennerly Manor Drive (formerly Ozarkdale Drive) has frontage of
\nabout 150 feet along the curve of the street and is a part of the total 6.816
\nacre CUP nursing home zoning. The grade is gently sloping from the street to
\nthe front of the building and drops off to basement level at the rear and
\ncontinues downward to the north. This site contains 1.88 acres and is also CUP
\nzoned. The site is adjacent to the east line of the two acre excess land site.<\/p>\n
23
\n 38
\n NEIGHBORHOOD AND SITE DESCRIPTION<\/p>\n
The residence at 10910 Kennerly Road is also a part of the CUP zoned site and
\nis located in the extreme southeast corner of the overall tract fronting along
\nKennerly Road on its east and southeast lines and along Kennerly Manor Drive on
\nits south line. The site grade is gently sloping from the street frontage to
\nthe front of the building and drops off to basement level at the rear and
\ncontinues downward to the north. The vacant land at 10980 Kennerly Road
\nconsists of 0.716 acre and is zoned R-1. It follows the terrain of the main
\nfacility and is presently wooded.<\/p>\n
Subject management has advised us that the Residence 7 Kennerly Road, which is
\npresently unoccupied, is scheduled to be torn down and the parking lot
\nexpanded. As such the residential improvements at 7 Kennerly Road have not
\nbeen considered in this valuation. In addition, the residence at 10910
\nKennerly Road is expected to be converted to house the nursing home business
\noffices. Therefore, all sites were considered operating acres.<\/p>\n
The overall land configuration is very irregular with a slope downward from all
\nside street frontages to the center of the property then continuing downward in
\na natural watershed runoff ravine to the west.<\/p>\n
\n\n Summary of Land Sites <\/p>\n Facility Zoning Acres <\/p>\n
\n Nursing Home R-1, CUP 4.220
\n 7 Kennerly Manor Drive R-1, CUP 1.880
\n 10910 Kennerly Road R-1, CUP 0.716
\n Total Land Area 6.816
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n 24
\n 39
\n IMPROVEMENTS DESCRIPTION<\/p>\n
IMPROVEMENTS DESCRIPTION<\/p>\n
The site is improved with a two story plus basement, 49,719 square foot 167
\nlicensed bed nursing home which operates with 148 beds. Constructed in 1966,
\nwith additions in 1975 and 1987 and renovations in 1993\/1994, this building has
\nbrick and block exterior walls over a foundation consisting of concrete piers
\nand grade beams and is supported by a steel frame. The roof structure consists
\nof wood and steel rafters with plywood and rigid insulation. The roof is
\ncovered by asphalt shingles.<\/p>\n
The floor structure consists of steel joisted concrete. Floor coverings
\nconsist of terrazzo throughout; carpeting in the offices; sheet vinyl in the
\neast wing; and exposed concrete in the laundry and maintenance shop.<\/p>\n
Partitioning consists of drywall covered metal studs in most areas with ceramic
\ntile partitioning in the tub rooms and concrete block partitioning in the
\nmechanical areas. Built-in items include wood handrails, cubicle curtain
\ntracking, five nurses’ stations and an exhaust hood in the kitchen with an
\nAnsul fire suppression system.<\/p>\n
The ceilings are covered by plaster on metal and rock lath with some drywall
\nand suspended metal grids with lay-in acoustical tiles.<\/p>\n
Heating, ventilating and air conditioning are provided via hot water boilers
\nand chillers. The patient rooms are heated and cooled by radiant floor heat
\nand ducted cooled air.<\/p>\n
Standard plumbing fixtures include fifty-two water closets, fifty-six
\nlavatories, twenty-six tubs, twelve sit-down shower stalls, six janitor sinks
\nand five showers. Hot water is heated by commercial gas automatic heaters.<\/p>\n
25
\n 40
\n IMPROVEMENTS DESCRIPTION<\/p>\n
Lighting consists primarily of fluorescent illumination. Other electrical
\nfeatures include a nurses’ call and paging system, a fire alarm system and door
\nalarms.<\/p>\n
Other features include a sprinkler system and two elevators.<\/p>\n
There are two residential buildings at the rear of the overall 6.816 acre site
\nfronting on Kennerly Road and Kennerly Manor Drive. These are briefly
\ndescribed as:<\/p>\n
7 KENNERLY MANOR DRIVE – Brick veneer, one story plus basement single
\n family residence containing 1,633 square feet with four bedrooms, two
\n full baths, fully equipped kitchen, attached two car garage, central
\n air conditioning, full basement with walkout patio doors. This
\n structure was built in 1962, is in fair condition and is scheduled to
\n be demolished.<\/p>\n
10910 KENNERLY ROAD – Masonry walls, one story plus basement single
\n family residence containing 1,836 square feet with three bedrooms, one
\n and one-half baths, fully equipped kitchen, quality interior finishes,
\n carpeting and drapes, full walkout basement with two car plus garage,
\n central air conditioning and supplemental furnace. This structure was
\n built in 1960 and is in fair condition and is scheduled to become
\n business offices.<\/p>\n
Thirty rooms have recently been remodeled and thirty are currently in the
\nprocess of being remodeled. Other improvements being considered are painting,
\ntelevision system, upgrading of employees lounge and upgrading and modification
\nof dining rooms.<\/p>\n
LAND IMPROVEMENTS<\/p>\n
Land improvements include, but are not limited to, asphalt paving, concrete
\nsidewalks, aprons, equipment pads and bumpers, underground utility lines,
\nexterior lighting, stone retaining wall, concrete retaining wall with fence,
\nsignage and illuminated concrete fountain and fencing.<\/p>\n
26
\n 41
\n IMPROVEMENTS DESCRIPTION<\/p>\n
EQUIPMENT DESCRIPTION<\/p>\n
Based upon an inspection of the facility, it appears that the nursing home is
\nequipped with the normal complement of items necessary to adequately serve the
\nsubject nursing and rehabilitation facility. Upon acquisition of the facility
\nby Integrated Health Services, Inc. in 1987, new office and lounge furniture
\nwas added. The equipment appears to be in good condition for its age and use.<\/p>\n
27
\n 42
\n HIGHEST AND BEST USE<\/p>\n
The Appraisal Institute defines highest and best use as follows:<\/p>\n
The most profitable, likely use to which a property can be put. The
\n opinion of such use may be based on the highest and most profitable
\n continuous use to which the property is adapted and needed, or likely
\n to be in demand in the reasonably near future. However, elements
\n affecting value which depend upon events or a combination of
\n occurrences, which, while within the realm of possibility, are not
\n fairly shown to be reasonably probable, should be excluded from
\n consideration. Also, if the intended use is dependent upon an
\n uncertain act of another person, the intention cannot be considered.<\/p>\n
The use of the land which may reasonably be expected to produce the
\n greatest net return to land over a given period of time. That legal
\n use which will yield to land the highest present value, sometimes
\n called optimum use.<\/p>\n
In estimating the highest and best use, there are essentially four states of
\nanalysis:<\/p>\n
1. POSSIBLE USE – Uses which are physically possible for
\n the site in question.<\/p>\n
2. PERMISSIBLE USE (LEGAL) – Uses permitted by zoning
\n and deed restrictions on the site in questions.<\/p>\n
3. FEASIBLE USE – Possible and permissible uses which
\n will produce a net return to the owner of the site.<\/p>\n
4. MAXIMALLY PRODUCTIVE USE – Among the feasible uses,
\n that use which will produce the highest net return of
\n highest present worth.<\/p>\n
The highest and best use of the land (site) as if vacant and available for use
\nmay be different from the highest and best use of the property as improved.
\nThis will be true when the improvement is not an appropriate use and yet makes
\na contribution to total property value in excess of the site.<\/p>\n
28
\n 43
\n HIGHEST AND BEST USE<\/p>\n
The following conditions must be met in determining the highest and best use:<\/p>\n
The use must be legal.<\/p>\n
The use must be probable, not speculative or conjectural.<\/p>\n
There must be a profitable demand for such use and it must return to
\n land the highest net return for the longest period of time.<\/p>\n
In order for the subject site to fulfill its highest and best use, that use
\nmust meet four criteria. It must be (1) physically possible, (2) legally
\npermissible, (3) financially feasible, and (4) maximally productive. These
\ncriteria are further explained as follows.<\/p>\n
PHYSICALLY POSSIBLE<\/p>\n
The size, shape, location, utility availability and terrain impose
\n physical restraints upon the type of uses possible for the subject.
\n Any use incompatible with the utility capacity or constraints imposed
\n by the size, shape or terrain would not be considered physically
\n possible. As mentioned in the land description section of this
\n report, the subject is irregularly shaped and contains a gross land
\n area of 6.816 acres. All utilities are available at the site and all
\n required site improvements are in place. The physical characteristics
\n of the site in terms of size, shape and topography are favorable for
\n flexible development. Overall, the physical aspects of the site are
\n such that they do not impose any constraints which would prevent the
\n site from being developed to its highest and best use.<\/p>\n
LEGALLY PERMISSIBLE<\/p>\n
Uses of the land must be permitted by zoning and deed restrictions and
\n other legal considerations. The subject site is currently zoned R-1
\n (Residence District) by the county of St. Louis. Nursing home use is
\n a conditional use in this zoning designation. The present use of the
\n site for a nursing home is a legal use.<\/p>\n
29
\n 44
\n HIGHEST AND BEST USE<\/p>\n
FINANCIALLY FEASIBLE<\/p>\n
Any use of the subject which provides a financial return to the land
\n in excess of that required to satisfy operating expenses, financial
\n expenses and capital amortizations is considered financially feasible.
\n It is our opinion that the subject’s current use as a nursing home is
\n financially feasible based upon the operating performance of the
\n subject facility.<\/p>\n
MAXIMALLY PRODUCTIVE<\/p>\n
Among the feasible uses, that use which will produce the highest net
\n return at the highest present worth. The subject site is improved
\n with a 142 bed nursing home. The improvements are in good condition
\n with a significant remaining economic life. Functional utility of the
\n structure meets the market standards expected of a nursing home and
\n demand for this type of development is evident in the marketplace.
\n Based upon the supply and demand characteristics of the nursing home
\n industry in Missouri, it is our opinion that the highest and best use
\n of the property, as improved, is its current use as the site of a
\n nursing home.<\/p>\n
On reviewing the conditions and criteria for establishing the highest and best
\nuse of the subject, we have examined the market for the subject services and
\nthe regional and local economy as well as the existing physical and zoning
\ncharacteristics of the site. Additionally, we have considered the quality and
\ncondition of the subject improvements amendable for use as a nursing and
\nrehabilitation facility.<\/p>\n
Based upon our review and analysis of the subject market, it is our opinion
\nthat the highest and best use of the site as vacant would be for healthcare
\ndevelopment such as the subject and as improved would be for the continuation
\nof its current use as that of a nursing and rehabilitation facility.<\/p>\n
30
\n 45
\n VALUATION METHODOLOGY<\/p>\n
There are three generally accepted approaches to estimate the value of an
\nasset, which are summarized as follows:<\/p>\n
INCOME APPROACH: This approach translates earnings, or expected cash
\n flows, into an estimate of value. It is based upon the premise that
\n value is determined by the present value of all future expected
\n income. Thus, forecasted earnings are converted to value through the
\n application of discount or capitalization rates derived from the
\n investment market.<\/p>\n
MARKET APPROACH: This valuation approach is based upon the comparison
\n of the subject to the sales of similar assets in the marketplace. Two
\n methods of estimating value via this approach are the Primary Sales
\n Comparison Approach and the Secondary Market Approach. The Primary
\n Sales Comparison Approach entails the analysis of direct asset
\n transfers, while the Secondary Market Approach involves the analysis
\n of multiples derived from equity transfers in public secondary markets
\n or exchanges.<\/p>\n
COST APPROACH: This procedure provides an indication of the value of
\n an asset by reducing an estimate of the current cost to reproduce or
\n replace an asset by an estimate of accrued depreciation. Depreciation
\n includes physical deterioration, functional and external (or economic)
\n obsolescence.<\/p>\n
In general, the Income Approach is the most reliable approach to value an
\nincome producing property. It best considers the income potential and risk
\ncharacteristics specific to the subject property. The Market Approach has not
\nbeen applied due to the lack of transfers of leased facilities. Nursing homes
\ntypically transfer in fee simple estate, with the assets of the operating
\ncompany included. The interest considered in this appraisal is that of a
\nleased fee estate, and we were unable to locate meaningful sales of similar
\ninterests to compare to the subject. The Cost Approach has limitations due to
\nthe difficulty in quantifying the depreciation and obsolescence in the assets.<\/p>\n
The Income and Cost Approaches are presented on the following pages.<\/p>\n
31
\n 46
\n INCOME APPROACH<\/p>\n
The Income Approach gives consideration to the net income expectancy from
\nrental of the property, and to the capitalization of this income in accordance
\nwith prevailing returns on properties or investments of similar risks to
\ndetermine the amount at which ownership would be justified by a prudent
\ninvestor. Since it is the purpose of this appraisal to estimate the market
\nvalue of the leased fee estate, the Income Approach is considered to be the
\nmost reliable method of valuation. The first step involves the estimating of
\nthe subject’s potential gross income. For this, we deduct reasonable
\nallowances for expenses to arrive at the indicate net income which is
\ncapitalized into the value estimate.<\/p>\n
ESTIMATE OF GROSS INCOME<\/p>\n
Integrated Health Services, Inc. has represented that this facility will be
\nsold to Crescent Capital and leased back to Integrated Health Services, Inc.
\nThe facility, including land, buildings, equipment and furnishings, will be
\nleased to Integrated Health Services, Inc. for a ten year period, with two, ten
\nyear renewal options. Although we have not been provided with a copy of the
\nfinal lease, Integrated Health Services, Inc. has provided us with a lease
\nsynopsis which indicates that the base rent in the first year will be $922,250.
\nIn the second and third forecast years, contract rent is adjusted 1% annually.
\nIn subsequent years, additional rent has been based upon the terms of the lease
\ncontract which stipulates the subsequent annual increases will be increased by
\nthe greater of 1) 1% of the then-current minimum rent, or 2) the lesser of
\neither 3.75%, or the greater of either 5% of the incremental net operating
\nincome (before corporate allocations), or 67% the consumer price index from the
\npreceding period.<\/p>\n
32
\n 47
\n INCOME APPROACH<\/p>\n
In our Discounted Cash Flow forecast, we have assumed an initial ten year
\nholding period, and have assumed that Integrated Health Services, Inc. will
\nexercise the two, ten year renewal options. Revenue has been estimated based
\nupon contract rent comprised of base rent plus additional rent, which we have
\nassumed to be at market. Because of the scarcity of arm’s length leases on
\nnursing facilities and the multitude of adjustments which would be required to
\nequate a lease comparable to the subject, revenue has been forecast based upon
\ncontract rent.<\/p>\n
The incremental net operating income factor is calculated based upon the
\nincremental performance of the most recently ended fiscal year as compared with
\nthe preceding year. The increment is then multiplied by a factor of 0.05.<\/p>\n
The lease is a net lease with the lessee responsible for operating expenses.
\nManagement costs have been estimated at 4% of revenue. This charge considers
\nthe cost of collection and accounting for rents. We have also estimated
\nnominal reserves for replacement at $100 per bed, increasing with inflation.
\nTotal expenses in the first forecasted year are estimated at $51,690, or 5.6%
\nof revenue. Net income is estimated at $870,560 in the first forecasted year,
\nincreasing to $1,065,770 by the tenth year. Schedules A-1 through A-5 in the
\nAddendum to this report present the subject’s historic and prospective
\noccupancy, payor mix and operating performance of the operating business. The
\nsubject’s prospective performance has been estimated based upon information
\nfrom Management in conjunction with historic performance. The subject business
\nenterprise is expected to exhibit a large increase in net operating income in
\nthe first forecast year attributable to an increase in medical specialty unit
\ncensus. Medical specialty unit patients are generally of high acuity level,
\ncommanding substantially higher rate levels than skilled nursing and
\ncontributing largely to net operating income. Operating performance of the
\nbusiness has been analyzed to gauge the potential of the Company to center its
\nrent obligations and is a factor in estimating additional rent. Forecasted net
\noperating income of the business enterprise<\/p>\n
33<\/p>\n
48
\n INCOME APPROACH<\/p>\n
amount to five and one-half times lease payments in the first forecasted year,
\nwhich appears to provide adequate coverage.<\/p>\n
DISCOUNT RATE CALCULATION<\/p>\n
CAPITALIZATION PROCESS AND DISCOUNT RATE<\/p>\n
As the annual cash flow and reversionary values are estimated ten years into
\nthe future, it is necessary to discount these values into a present value
\nestimate. Present value is today’s cash lump sum which represents the current
\nvalue of the right to collect the future payments and reversion. It is the
\naggregate value of the discounted future payments and reversion.<\/p>\n
The discount rate used must reflect a sufficient rate of return for a developer
\nor owner of property over the holding period. The rate must take into
\nconsideration the time value of money and charges for holding costs. The rate
\nmust also reflect an adequate rate of return for the risk involved when
\ncompared to other types of investments.<\/p>\n
When analyzing discount rates, it is important to realize that all investments
\nare in competition with each other for the investment dollar. The investor has
\na choice of: (1) bank rate securities such as government bonds, industrial or
\nmunicipal bonds and debentures, (2) stocks and other securities, or (3)
\nselected enterprises or other real estate investments at varying rates of
\nreturn. The acceptable rate of return to the investor is affected by
\nconsiderations of risk, burden of management, degree of liquidity and other
\nfactors (including personal preference). The analysis quite often follows the
\nhistorical summation of these factors, known as a “built-up” rate.<\/p>\n
34
\n 49
\n INCOME APPROACH<\/p>\n
As an example, an adjustment for risk is added to a safe or minimum risk rate
\nas an increment to compensate for the extent of risk believed to be involved in
\nthe use of the capital sum. Another adjustment is usually made of nonliquidity
\ndue to the time required to realize cash from the resale of the property. The
\nresale period may vary with the general marketability of the type of property
\nand the amount of the cash investment required.<\/p>\n
The principle of discounting money to be received in the future is based upon
\nthe fact that today’s dollar can be invested to earn a return, while the
\nexpected future dollar not yet generated, cannot. The discount rate must
\nreflect what is called the opportunity cost of capital. Thus, the investor is
\ncompensated by the discount rate for the current lost opportunity in investing
\nin alternative assets.<\/p>\n
In order to determine the appropriate rate, we have reviewed current monetary
\nrates as of March 1994.<\/p>\n
The following table presents yield rates associated with various types of
\ngovernment and corporate securities as indicated by the March 1, 1994 Wall
\nStreet Journal.<\/p>\n
\n\n YIELD RATES AS INDICATED BY THE MARCH 1, 1994
\n WALL STREET JOURNAL<\/p>\n SECURITY YIELD<\/p>\n
\n Prime Rate 6.00%
\n Ten Year U.S. Treasury Bonds 6.14%
\n Corporate Bonds
\n Aaa, Aa 6.20% to 7.42%
\n A, Baa 6.52% to 7.58%
\n Ba, C 9.44%
\n<\/c><\/s><\/caption>\n<\/table>\n 35
\n 50
\n INCOME APPROACH<\/p>\n
As indicated by the following survey conducted by Real Estate Research
\nCorporation, required rates of return for commercial grade real estate were
\napproximately 5.6% to 5.9% above year treasury bonds in the first two quarters
\nof 1993.<\/p>\n
\n\n Real Estate vis-a-vis Capital Market Returns*<\/p>\n Fourth Third
\n Quarter Quarter
\n 1993 1993<\/p>\n
\n Real Estate Yield (%) 11.7% 12.0%
\n Moody’s Aa Utilities (%) 7.0% 7.4%
\n Moody’s Aaa Corporate (%) 7.0% 7.2%
\n 10 Year Treasuries (%) 5.3% 5.7%
\n *This survey was conducted in October, 1993 and reflects desired
\n returns for fourth quarter 1993 investments.<\/p>\n Source: Real Estate Research Corporation
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n
As the subject property would have less liquidity and more risk than commercial
\ngrade real estate, it is reasonable to expect that the discount rate would be
\nhigher than the real estate yields presented. Several factors which influence
\nthe selection of a discount rate include the following:<\/p>\n
o Currently, there are restraints on supply through
\n licensure requirements which alter normal economics;
\n and<\/p>\n
o The value of the facility is highly related to the
\n operation of the business which is involved in the
\n provision of services such as healthcare, dietary and
\n housekeeping operations which entail a higher level
\n of Management expertise.<\/p>\n
36
\n 51
\n INCOME APPROACH<\/p>\n
Therefore, given the alternative investments available and taking into
\nconsideration the risks associated with real estate development and the
\nrealization of the additional rent revenue, we believe a 12.5% discount rate
\nfor the subject is appropriate. This return is considered equivalent to
\ninvestments with comparable risks available today for the same time period.<\/p>\n
FINAL CASH FLOW<\/p>\n
The earnings and cash flow forecasts in this analysis only cover a ten year
\nperiod. In reality, the property will generate earnings and cash flow well
\nbeyond the five year forecast period. Therefore, the value of this distant
\ncash flow stream, called a “reversion” value, must be estimated.<\/p>\n
We have assumed that Integrated Health Services, Inc. will exercise the renewal
\noptions after the initial ten year lease period. Therefore, the reversion
\nvalue has been estimated based upon the capitalization of net cash flow in
\nforecast year eleven. We have used a terminal capitalization rate of 10% in
\ncalculating the reversion value. According to Real Estate Research
\nCorporation’s Fourth Quarter 1993 Investor Survey, terminal capitalization
\nrates for multifamily housing averaged 9.4%. Since the risk associated with
\nthe subject is believed to be similar but slightly above that on multifamily
\nhousing, we have added a risk premium to the average terminal capitalization
\nrate exhibited by multifamily housing. The reversion value has been discounted
\nto present value at the discount rate of 12.5%.<\/p>\n
37
\n 52
\n INCOME APPROACH<\/p>\n
INCOME APPROACH CONCLUSION<\/p>\n
The sum of the annuity and reversion values estimated within the Discounted
\nCash Flow Analysis represent the total value of the property. Based upon our
\nanalysis, this value can be represented in the rounded amount of:<\/p>\n
$8,500,000
\n ==========<\/p>\n
The following schedule presents the earnings forecast and Discounted Cash Flow
\nAnalysis and indicated value.<\/p>\n
38
\n 53
\n INCOME APPROACH<\/p>\n
SCHEDULE A
\n INTEGRATED HEALTH SERVICES OF ST. LOUIS AT GRAVOIS
\n DISCOUNTED CASH FLOW FORECAST<\/p>\n
\n\n Forecasted Forecasted Forecasted Forecasted Forecasted Forecasted Forecasted
\n Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
\n
\nREVENUE:
\n Minimum Rent $ 922,250 $ 922,250 $ 931,473 $ 940,787 $ 966,000 $ 991,889 $1,018,472
\n Additional Rent 9,223 9,315 25,213 25,889 26,583 27,295
\n ———————————————————————————————————–
\n TOTAL REVENUE $ 922,250 $ 931,473 $ 940,787 $ 966,000 $ 991,889 $1,018,472 $1,045,767
\n ———————————————————————————————————–
\nEXPENSES: <\/p>\n Management Fee 36,890 37,259 37,631 38,640 39,676 40,739 41,831
\n Replacement Items 14,800 15,392 16,008 16,648 17,314 18,006 18,727
\n ———————————————————————————————————–
\n TOTAL EXPENSES 51,690 52,651 53,639 55,288 56,989 58,745 60,557
\n ———————————————————————————————————– <\/p>\n
NET INCOME 870,560 878,822 887,148 910,712 934,900 959,726 985,209<\/p>\n
DISCOUNT RATE 0.8889 0.7901 0.7023 0.6243 0.5549 0.4933 0.4385
\n PRESENT VALUE 773,831 694,378 623,072 568,553 518,803 473,404 431,977<\/p>\n
DISCOUNT RATE 12.5%
\nTERMINAL CAPITALIZATION
\n RATE 10.0%<\/p>\n
CONCLUSION OF VALUE
\n ANNUITY 5,166,071
\n REVERSION 3,369,099
\n =========
\n FIXED ASSET VALUE $8,535,170<\/p>\n
\n Forecasted Forecasted Forecasted Forecasted
\n Year 8 Year 9 Year 10 Year 11
\n
\nREVENUE:
\n Minimum Rent $1,045,767 $1,073,793 $1,102,571 $1,132,120
\n Additional Rent 28,027 28,778 29,549 30,341
\n —————————————— ———-
\n TOTAL REVENUE $1,073,793 $1,102,571 $1,132,120 $1,162,461
\n —————————————— ———-
\nEXPENSES: <\/p>\n Management Fee 42,952 44,103 45,285 46,498
\n Replacement Items 19,476 20,255 21,065 21,908
\n —————————————— ———-
\n TOTAL EXPENSES 62,428 64,358 66,350 68,406
\n —————————————— ———-
\nNET INCOME 1,011,366 1,038,213 1,065,770 NET INCOME 1,094,055<\/p>\n
CAP. RATE 10%<\/p>\n
TERMINAL VALUE 10,940,547<\/p>\n
DISCOUNT RATE 0.3897 0.3464 0.3079 0.3079
\n PRESENT VALUE 394,174 359,678 328,200 REVERSION 3,369,099<\/p>\n
<\/c><\/c><\/c><\/c><\/s><\/caption>\n
<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
54
\n COST APPROACH<\/p>\n
In the Cost Approach, the subject property is valued based upon the market
\nvalue of the land, as if vacant, to which the depreciated replacement cost of
\nthe improvements and equipment is added. The replacement cost of the
\nimprovements and equipment is adjusted for accrued depreciation resulting from
\nphysical deterioration, functional obsolescence and external (or economic)
\nobsolescence.<\/p>\n
The cost analysis involves three basic steps:<\/p>\n
o Land value estimate.<\/p>\n
o Estimation of the replacement cost of the
\n improvements and equipment.<\/p>\n
o Estimation of the accrued depreciation from all
\n causes.<\/p>\n
The sum of the market value of the land and the depreciated replacement cost of
\nthe improvements and equipment is the estimated market value via the Cost
\nApproach.<\/p>\n
LAND VALUATION<\/p>\n
The appraised property consists of approximately 6.816 acres (296,905 square
\nfeet) of land. The site exhibits approximately 1,088 feet of frontage along
\nthe south side of Kennerly Road.<\/p>\n
40
\n 55
\n COST APPROACH<\/p>\n
Land valuation, as reported herein, assuming the site vacant is based upon the
\nfollowing steps:<\/p>\n
o A comparison with recent sales and\/or asking prices
\n for similar land.<\/p>\n
o Interviews with reliable real estate brokers and
\n other informed sources who are familiar with local
\n real estate activity.<\/p>\n
o Our experience in estimating land values; and when
\n necessary, due to a lack of other available data,
\n segregation of purchase price of improved properties.<\/p>\n
The following six sales are located within the general market area of the
\nsubject property and are considered to be representative of market activity and
\nconditions as of the valuation date. To the best of our knowledge, all
\nproperty rights transferred were fee simple. The following sales were
\nconsidered arm’s length transactions and did not include any special or
\ncreative financing, except where noted.<\/p>\n
41
\n 56
\n COST APPROACH<\/p>\n
LAND SALE NUMBER 1<\/p>\n
\n
\nLocation: 5139 Mattis Road, St. Louis, St. Louis County, Missouri<\/p>\nDate of Sale: February 1, 1990<\/p>\n
Sale Price: $300,000<\/p>\n
Size: 1.19 Acres (51,856 Square Feet)<\/p>\n
Zoning: C-8<\/p>\n
Price Per Acre: $252,100<\/p>\n
Price Per Square Foot: $4.86<\/p>\n
Grantor: Taylor, Morlay Simon, Inc.<\/p>\n
Grantee: Anwar Shah<\/p>\n
Deed Book\/Page Number: 9500\/1767<\/p>\n
Tax Parcel Number: 29L541183<\/p>\n
Comments: Purchaser built a 13,466 square foot eye center in 1991.
\n<\/c><\/s><\/table>\n
42
\n 57
\n COST APPROACH<\/p>\n
LAND SALE NUMBER 2<\/p>\n
\n
\nLocation: Tesson Ferry and Town South Roads, Soppington, Missouri<\/p>\nDate of Sale: February 28, 1990<\/p>\n
Sale Price: $415,000<\/p>\n
Size: 1.64 Acres (71,438 Square Feet)<\/p>\n
Zoning: C-8<\/p>\n
Price Per Acre: $253,048<\/p>\n
Price Per Square Foot: $5.81<\/p>\n
Grantor: Boatmen’s Bank<\/p>\n
Grantee: Voss Properties<\/p>\n
Deed Book\/Page Number: 6611\/2234<\/p>\n
Tax Parcel Number: 29L142010
\n<\/c><\/s><\/table>\n
43
\n 58
\n COST APPROACH<\/p>\n
LAND SALE NUMBER 3<\/p>\n
\n
\nLocation: 4079 Telegraph Road, St. Louis, St. Louis County, Missouri<\/p>\nDate of Sale: January 7, 1993<\/p>\n
Sale Price: $300,000<\/p>\n
Size: 1.375 Acres (59,895 Square Feet)<\/p>\n
Zoning: C-8<\/p>\n
Price Per Acre: $218,182<\/p>\n
Price Per Square Foot: $5.01<\/p>\n
Grantor: Shirley and William Nahn<\/p>\n
Grantee: Site Oil Company of Missouri<\/p>\n
Deed Book\/Page Number: Not Available<\/p>\n
Tax Parcel Number: 30H410219
\n<\/c><\/s><\/table>\n
44
\n 59
\n COST APPROACH<\/p>\n
LAND SALE NUMBER 4<\/p>\n
\n
\nLocation: 5423 Telegraph Road, Mehlville, Missouri<\/p>\nDate of Sale: April 27, 1990<\/p>\n
Sale Price: $310,000<\/p>\n
Size: 1.2 Acres (52,272 Square Feet)<\/p>\n
Zoning: R-2 (To Be Rezoned Commercial)<\/p>\n
Price Per Acre: $258,333<\/p>\n
Price Per Square Foot: $5.93<\/p>\n
Grantor: Schnuens Markets, Inc.<\/p>\n
Grantee: Union Electric Company<\/p>\n
Deed Book\/Page Number: 8749\/2472<\/p>\n
Tax Parcel Number: 31H130800
\n<\/c><\/s><\/table>\n
45
\n 60
\n COST APPROACH<\/p>\n
LAND SALE NUMBER 5<\/p>\n
\n
\nLocation: 12152 Tesson Ferry Road, St. Louis, St. Louis County, Missouri<\/p>\nDate of Sale: December 7, 1990<\/p>\n
Sale Price: $302,000<\/p>\n
Size: 1.259 Acres (54,885 Square Feet)<\/p>\n
Zoning: C-8 (See Comments)<\/p>\n
Price Per Acre: $239,873<\/p>\n
Price Per Square Foot: $5.50<\/p>\n
Grantor: VTF Enterprises<\/p>\n
Grantee: Physicians Building Partnership<\/p>\n
Deed Book\/Page Number: Not Available<\/p>\n
Tax Parcel Number: Not Available<\/p>\n
Comments: Purchased subject to rezoning from Residential to C-8. Purchaser built a 12,000 square foot brick
\n medical\/office building with a 5,000 square foot basement.
\n<\/c><\/s><\/table>\n
46
\n 61
\n COST APPROACH<\/p>\n
LAND SALE NUMBER 6<\/p>\n
\n
\nLocation: Highway 21, Soppington, Missouri<\/p>\nDate of Sale: February 1, 1990<\/p>\n
Sale Price: $415,000<\/p>\n
Size: 1.609 Acres (70,132 Square Feet)<\/p>\n
Zoning: C-8<\/p>\n
Price Per Acre: $257,924<\/p>\n
Price Per Square Foot: $5.92<\/p>\n
Grantor: Boatmen’s Bank<\/p>\n
Grantee: William and Loriann Voss<\/p>\n
Deed Book\/Page Number: 8708\/1476<\/p>\n
Tax Parcel Number: 29L140463
\n<\/c><\/s><\/table>\n
47
\n 62
\n COST APPROACH<\/p>\n
These six sales are summarized below. All are located within the general
\nmarket area of the subject property and are considered to be representative of
\nmarket activity and conditions as of the valuation date.<\/p>\n
\n\n Summary of Land Sales<\/p>\n Price Per
\n Sale Sale Land Area Square
\n Number Location Date (Square Feet) Zoning Foot<\/p>\n
\n 1 5139 Mattis Road 02\/90 51,856 C-8 $4.86
\n 2 Tesson Ferry and Town South Roads 02\/90 71,438 C-8 $5.81
\n 3 4079 Telegraph Road 01\/93 59,895 C-8 $5.01
\n 4 5423 Telegraph Road 04\/90 52,272 R-2 $5.93
\n 5 12152 Tesson Ferry Road 12\/90 54,885 C-8 $5.50
\n 6 Highway 21 02\/90 70,132 C-8 $5.92
\nSubject 10954 Kennerly Road, et al. — 296,905 CUP —
\n<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nANALYSIS<\/p>\n
In analyzing the land sales, certain elements should be considered when making
\nadjustments to the price of each comparable property. The elements of
\ncomparison are: 1) market conditions (time); 2) location; and 3) physical
\ncharacteristics.<\/p>\n
48
\n 63
\n COST APPROACH<\/p>\n
MARKET CONDITIONS (TIME)<\/p>\n
The condition of the market may change between the time of sale and the
\n date of the appraisal and adjustments would have to be made to reflect the
\n market. Changed market conditions result from various causes such as
\n inflation, deflation, changing demand, changing supply and changing land
\n use patterns. The tendency over time is for land values to appreciate.
\n Based on analysis of the recent economic conditions of the region, there
\n is evidence that values have increased slightly. The estimated marketing
\n period for land in the Charlotte area at least one year. The supply of
\n vacant land is limited and demand was considered good.<\/p>\n
LOCATION<\/p>\n
An adjustment for location may be required if the locational
\n characteristics of the comparable properties are significantly different
\n from those of the subject. A property’s location is analyzed in terms of
\n the relative time\/distance relationship between it and all likely
\n destinations and origins. The relationship is relative because the
\n location of a property can only be judged in relation to that of others.<\/p>\n
PHYSICAL CHARACTERISTICS<\/p>\n
Physical characteristics differ between properties. These differences
\n may require a number of comparisons and adjustments to the subject. An
\n appraiser may be required to judge the value that is added or lost by the
\n size and shape, corner influence, utilities, etc. Size and shape can
\n affect functional utility in relation to optimum size and frontage to
\n depth ratio. The appraiser must also recognize that smaller tracts of
\n land typically sell for a higher unit price. Typically, corner influence
\n creates a higher unit of value due to the frontage on two or more streets.
\n Also, the availability of utilities influences value.<\/p>\n
The six sales, representative of the subject sites, indicate a range of values
\nfrom $4.86 to $5.93 per square foot.<\/p>\n
All sales were found to be superior to the subject land due to the factor of
\ntopography. Therefore, downward adjustments were applied accordingly.<\/p>\n
49
\n 64
\n COST APPROACH<\/p>\n
In keeping with the theory that smaller lot sizes transact at a higher price
\nper unit, all the sales were adjusted downward for containing a smaller lot
\nsize.<\/p>\n
In addition, all the sales warranted upward adjustments for the factor of time.
\nThe indicated range of values after adjustment is $3.94 to $5.44 per square
\nfoot.<\/p>\n
We have concluded on a land value of $4.75 per square foot for the 296,905
\nsquare foot (6.816 acres) site. We have summarized the land value as follows:<\/p>\n
296,905 Square Feet x $4.75 = $1,410,299
\n ROUNDED: $1,410,000
\n ==========<\/p>\n
Following are a land sales adjustment grid and comparable land sales map.<\/p>\n
50
\n 65
\n COST APPROACH<\/p>\n
\n\n Adjustment Grid<\/p>\n Subject Sale Sale Sale Sale Sale Sale Number
\n Number 1 Number 2 Number 3 Number 4 Number 5 Number 6<\/p>\n
\n Land Area\/Square Feet 296,905 51,856 71,438 59,895 52,272 54,885 70,132
\n Price Per Unit — $4.86 $5.81 $5.01 $5.93 $5.50 $5.92
\n Date of Sale Current 02\/90 02\/90 01\/93 04\/90 12\/90 02\/90
\n Time Adjustment +8% +8% +2% +8% +7% +8%
\n Time Adjusted Price $5.25 $6.27 $5.11 $6.40 $5.89 $6.40
\n Location 0 0 0 0 0 0
\n Size -15% -10% -15% -15% -15% -10%
\n Access 0 0 0 0 0 0
\n Visibility 0 0 0 0 0 0
\n Zoning 0 0 0 0 0 0
\n Topography -20% -5% -5% -5% -10% -5%
\n Other 0 0 0 0 0 0
\n Total Adjustment -25% -15% -20% -20% -25% -15%
\n Sale Price $5.25 $6.27 $5.11 $6.40 $5.89 $6.40
\n Adjusted Value $3.94 $5.33 $4.09 $5.12 $4.42 $5.44
\n<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n 51
\n 66
\n COST APPROACH<\/p>\n
COMPARABLE LAND SALES MAP<\/p>\n
(PHOTO MAP)<\/p>\n
52
\n 67
\n COST APPROACH<\/p>\n
BUILDINGS AND LAND IMPROVEMENTS VALUATION<\/p>\n
The buildings and land improvements have been valued on the basis of
\nreplacement cost less accrued depreciation. The cost new was estimated using
\ncost factors obtained from the calculation section of Marshall Valuation
\nService (MVS), a nationally recognized cost manual. To these costs we have
\nadded soft costs reflecting such items as legal and accounting fees,
\nfeasibility studies, architect’s fees and plans, test borings, appraisal fees,
\nsuperintending, carrying costs and other contingency costs and an amount
\nrepresenting entrepreneurial profit, which is not included in MVS’s unit costs.<\/p>\n
Entrepreneurial profit is a necessary element in the motivation to construct
\nthe improvements and represents an additional amount a developer would expect
\nto receive for construction of a similar project. The amount of
\nentrepreneurial profit varies according to the economic conditions and type of
\ndevelopment, but typically ranges from 10% to 20% of total project costs. We
\nhave contacted several developers, contractors and other familiar with real
\nestate construction. Although each project will vary and each developer
\nexpects a different rate of return, most anticipate a return that falls in the
\nabove stated range. Based on these conversations, we have estimated
\nentrepreneurial profit to comprise 20% of our estimate of the replacement cost
\nof the building.<\/p>\n
The overall cost for the subject nursing home building was estimated at
\n$7,282,943 inclusive of all soft costs and entrepreneurial profit. This figure
\nis equivalent to $146.48 per square foot of gross building area. The residence
\nat 10910 Kennerly Road was estimated at $138,991. The land improvements have
\nbeen estimated at $596,436.<\/p>\n
A description and pricing of the cost to replace the buildings and land
\nimprovements is included in the Exhibit Section.<\/p>\n
53
\n 68
\n COST APPROACH<\/p>\n
Depreciation of a structure is its loss in value due to physical deterioration,
\nfunctional obsolescence and external (or economic) obsolescence. Economic life
\nis the period over which the improvements to the real estate contribute to the
\nvalue of the property. These terms are defined as follows:<\/p>\n
PHYSICAL DETERIORATION: The loss in value due to deterioration or
\n ordinary wear and tear, i.e., natural forces taking their toll of the
\n improvements. This begins at the time the building is completed and
\n continues throughout its physical life.<\/p>\n
FUNCTIONAL OBSOLESCENCE: The loss in value within the property due to
\n poor plan, functional inadequacy, or super adequacy due to size, style,
\n design or other items. This form of depreciation occurs in both curable
\n and incurable forms.<\/p>\n
EXTERNAL (OR ECONOMIC) OBSOLESCENCE: The loss in value caused by forces
\n outside the property itself. It can take many forms such as excessive
\n noise levels, traffic congestion, abnormally high crime rates or other
\n factors which affect a property’s ability to produce an economic income
\n thereby causing a decline in desirability. Other forms of economic
\n obsolescence may include governmental restrictions, excessive taxes or
\n economic trends.<\/p>\n
ECONOMIC LIFE: Economic life is the period over which improvements to
\n real estate contribute to property value. The economic life of a good
\n quality healthcare facility is typically forty-five to fifty years.<\/p>\n
REMAINING ECONOMIC LIFE: Remaining economic life can be defined as the
\n number of years remaining in the economic life of the structure or
\n structural components as of the date of the appraisal.<\/p>\n
In estimating the overall economic life of the improvements, data on economic
\nlives, published by Marshall Valuation Service and the American Hospital
\nAssociation were considered. The assignment of economic lives assumed that,
\nexcept for the building shell and foundation, building components would be
\nreplaced periodically over the life of the building.<\/p>\n
54
\n 69
\n COST APPROACH<\/p>\n
In accordance with the guidelines of the MVS manual, it is estimated that the
\nbuilding will have a total economic life of forty-five years. As stated
\nearlier, the subject property was constructed in 1966, 1975 and 1987 with
\nrenovations in 1993\/1994. As previously noted, the subject has recently
\ncompleted the renovation of thirty rooms with an additional thirty rooms in the
\nprocess of being renovated. The subject, which has been well maintained, was
\nconsidered to be in good overall physical condition. We estimate that the
\nbuilding has an effective age of ten years, which equates to a remaining useful
\nlife of approximately thirty-five years. After consideration of all
\nsignificant physical factors affecting the subject property, the total physical
\ndeterioration of 25% is imputed to the building.<\/p>\n
As stated previously, the improvements have been well maintained, are in good
\noverall condition and are considered modern and functional in all respects. A
\nthorough inspection of the subject property revealed that, while typical wear
\nand tear for a building of this age has occurred, no significant items of
\ndeferred maintenance were noted. Based on this knowledge, it is our opinion
\nthat the subject does not suffer from functional obsolescence. Furthermore, it
\nis our opinion that the subject property does not suffer from any undue
\neconomic obsolescence. Based upon the previous analysis, total accrued
\ndepreciation from all causes of 25% is imputed to the subject nursing home
\nbuilding.<\/p>\n
As previously noted, the subject property premises includes two residences, 7
\nKennerly Manor Drive and 10910 Kennerly Road. Management has indicated that
\nthe residence at 7 Kennerly Manor Drive will be razed in the near future for
\nthe purpose of adding thirty-five additional parking spaces. As such, we have
\nnot considered the value, if any, associated with the current structure.<\/p>\n
The residence located at 10910 Kennerly Road, which Management has designated
\nas office space, appeared in fair condition with a total depreciation estimate
\nof 56% applied to the residence.<\/p>\n
55
\n 70
\n COST APPROACH<\/p>\n
The elements that make up the land improvements have shorter economic lives
\nthan that of the building. We have estimated the aggregate economic life of
\nthese items to be twenty years with an effective age of fourteen years, which
\nequates to an average remaining useful life of six years. The amount of
\naccrued depreciation attributable to the land improvements has also been
\ncalculated on an economic age\/life basis, resulting in a 70% depreciation
\nestimate.<\/p>\n
The estimate of the depreciated replacement costs of the buildings and land
\nimprovements is presented as follows:<\/p>\n
\n\n DEPRECIATED
\n REPLACEMENT REPLACEMENT
\n ASSET COST DEPRECIATION COST
\n
\nNursing Home Building $7,282,943 $1,820,736 $5,462,207
\nResidence 138,991 77,835 61,156
\nLand Improvements 596,436 417,505 178,931
\nTOTAL $8,018,370 $2,316,076 $5,702,294
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nEQUIPMENT VALUATION<\/p>\n
Nursing and rehabilitation facility equipment includes, but is not limited to,
\nitems such as: all patient room furniture; kitchen utensils, appliances,
\ndinnerware and accessories; office machines, desks, chairs and files;
\nmaintenance and housekeeping machines and tools; laundry appliances; lounge
\nfurniture; audio\/visual equipment and chapel furnishings; nursing items
\nincluding monitoring devices, chart racks, medication carts; and items for
\nphysical therapy including parallel bars, training steps, pulleys and
\nhydrocollators. The subject contains various special equipment to accommodate
\nthe specialty units. However, we understand certain items such as ventilator
\nequipment are leased.<\/p>\n
56
\n 71
\n COST APPROACH<\/p>\n
Depreciated equipment values in nursing homes typically range from $2,000 to
\n$4,000 per bed. Generally the low end of this range represents equipment in
\nfacilities which is either highly depreciated, low in quality or low in volume
\ndue to smaller common areas and office space. A newer facility, or a facility
\nwhich has a high percentage of private patients and a location in an affluent
\narea, will generally have an equipment value at the high end of the range.<\/p>\n
Based on our experience, it is estimated that the value of the equipment in use
\ncan be reasonably represented at $3,500 per bed, which when multiplied by 148
\noperating beds, indicates a market value for all equipment of:<\/p>\n
$518,000
\n ========
\nCONCLUSION<\/p>\n
Based upon the investigation, as previously defined, the results of the Cost
\nApproach, as of March 1, 1994 are reasonably represented as follows:<\/p>\n
Land $1,410,000
\n Buildings 5,523,363
\n Land Improvements 178,931
\n Equipment 518,000
\n ———–<\/p>\n
TOTAL $7,630,294<\/p>\n
ROUNDED $7,600,000
\n ==========<\/p>\n
57
\n 72
\n CORRELATION OF VALUE<\/p>\n
Each of the three traditional approaches to value have been considered, and we
\nhave applied the Income and Cost Approaches. The Market Approach has not been
\napplied due to the lack of sales of similar leased fee estate interests as the
\nsubject. While the approaches are independently developed, the same
\nfundamental principles of valuation and economics form the logical basis for
\neach approach. The indications of value by the two approaches are as follows:<\/p>\n
Income Approach . . . . . . . . . . . . . . $8,500,000
\n Market Approach . . . . . . . . . . . . . . N\/A
\n Cost Approach . . . . . . . . . . . . . . . $7,600,000<\/p>\n
The Income Approach involved a detailed analysis of the earnings potential of
\nthe property. The Income Approach best considers the physical characteristics,
\nearnings potential and risk specific to the subject entity. Because of the
\nlimitations inherent in the Cost and Market Approaches, the value estimated by
\nthe Income Approach was considered the best representation of value for the
\nsubject.<\/p>\n
The Cost Approach involved a detailed analysis of the individual components of
\nthe property. These costs were estimated using sources which were considered
\nto be reliable. However, in light of the complexity of estimating the
\nreplacement cost and depreciation of the various components in this approach,
\nit is not necessarily the most reliable of the value estimates. Furthermore,
\nthe Cost Approach, as performed herein, failed to include such assets as a CON
\nand going concern value.<\/p>\n
Based upon the analysis as presented in this report, it is estimated that the
\nmarket value of the leased fee interest in Integrated Health Services of St.
\nLouis at Gravois, as of March 1, 1994, can be represented in the rounded amount
\nof:<\/p>\n
$8,500,000
\n ==========<\/p>\n
58
\n 73
\n CERTIFICATION<\/p>\n
We certify that, to the best of our knowledge and belief…<\/p>\n
o The statements of fact contained in this report are true and
\n correct, and that this report has been prepared in conformity with
\n the Uniform Standards of Professional Appraisal Practice of The
\n Appraisal Foundation and the Principles of Appraisal Practice and
\n Code of Ethics of the American Society of Appraisers. <\/p>\n
o The reported analyses, opinions and conclusions are limited only
\n by the reported assumptions and limiting conditions, and are our
\n personal, unbiased professional analyses, opinions and conclusions.<\/p>\n
o We have no present or prospective interest in the property that is
\n the subject of this report; we have no personal interest or bias
\n with respect to the parties involved. <\/p>\n
o The appraisal assignment was not based upon a requested minimum
\n valuation, a specific valuation, or the approval of a loan. <\/p>\n
o Our compensation is not contingent on an action or event resulting
\n from the analyses, opinions or conclusions in, or the use of, this
\n report. <\/p>\n
o Gerald L. Huether has personally inspected the property and Wade A.
\n Collins has provided professional assistance. <\/p>\n
\/s\/ Wade A. Collins
\n– ———————————————
\nWade A. Collins, Vice President, Healthcare
\nValuation Counselors Group, Inc.<\/p>\n
\/s\/ Gerald L. Huether
\n– ———————————————
\nGerald L. Huether, Staff Appraiser
\nValuation Counselors Group, Inc.<\/p>\n
59
\n 74<\/p>\n
ADDENDUM
\n 75<\/p>\n
BUSINESS ENTEPRISE SCHEDULES
\n 76
\n A-1<\/p>\n
SCHEDULE A-1
\n INTEGRATED HEALTH SERVICES OF GRAVOIS AT ST. LOUIS
\n COMPARATIVE INCOME STATEMENT DATA<\/p>\n
Year End Year End
\n 12\/31\/92 12\/31\/93
\n REVENUE: <\/p>\n
Patient Revenue (Net) $6,268,316 $6,396,923
\n Ancillary & Other 1,215,862 812,491
\n ————————–
\n TOTAL REVENUE $7,484,178 $7,209,414
\n ————————–<\/p>\n
OPERATING EXPENSES:<\/p>\n
General & Administrative 399,183 477,996
\n Dietary 356,397 358,122
\n Housekeeping & Laundry 223,171 199,384
\n Healthcare 2,635,850 2,517,531
\n Ancillary & Social Services 2,058,298 2,329,156
\n Property 163,570 136,873<\/p>\n
————————–
\n TOTAL OPERATING EXPENSES 5,836,469 6,019,062
\n ————————–
\n NET OPERATING INCOME 1,647,709 1,190,352
\n (PRE-MGT.FEE)<\/p>\n
77
\n A-2
\n SCHEDULE A-2
\n INTEGRATED HEALTH SERVICES OF GRAVOIS AT ST. LOUIS
\n OCCUPANCY AND REVENUE ANALYSIS<\/p>\n
\n\n Forecasted Forecasted Forecasted Forecasted Forecasted
\n Year End Year End Year End Year End Year End Year End Year End
\n 12\/31\/92 12\/31\/92 03\/01\/95 03\/01\/96 03\/01\/97 03\/01\/98 03\/01\/99
\nREVENUE: And
\n Thereafter<\/p>\n
\n Skilled Nursing 2,768,156 2,417,331 2,033,597 2,135,277 2,242,041 2,354,143 2,471,850
\n Percent of Total 44.2% 37.8% 23.7% 23.9% 24.1% 24.3% 24.4%<\/p>\n MSU & Complex Care 3,500,160 3,979,592 6,536,921 6,798,398 7,070,334 7,353,147 7,647,273
\n Percent Of Total 55.8% 62.2% 76.3% 76.1% 75.9% 75.7% 75.6%<\/p>\n
————————————————————————————————–
\n Total Revenue 6,268,316 6,396,923 8,570,518 8,933,675 9,312,375 9,707,290 10,119,123<\/p>\n
PATIENT DAYS:<\/p>\n
Skilled Nursing 30,832 24,299 22,265 22,265 22,265 22,265 22,265
\n Percent of Total 76.8% 69.0% 57.0% 57.0% 57.0% 57.0% 57.0%<\/p>\n
MSU & Complex Care 9,302 10,939 16,790 16,790 16,790 16,790 16,790
\n Percent Of Total 23.2% 31.0% 43.0% 43.0% 43.0% 43.0% 43.0%<\/p>\n
————————– ——————————————————————–
\n Total Patient Days 40,134 35,238 39,055 39,055 39,055 39,055 39,055<\/p>\n
Average Daily
\n Census 110 96.5 107.0 107.0 107.0 107.0 107.0<\/p>\n
Available Beds 148 148.0 148.0 148.0 148.0 148.0 148.0<\/p>\n
Occupancy
\n Percentage 74.3% 65.2% 72.3% 72.3% 72.3% 72.3% 72.3%<\/p>\n
————————————————————————————————–<\/p>\n
\n Effective Effective Effective Effective Effective Effective Effective
\n 07\/01\/92 07\/01\/93 09\/01\/94 09\/01\/95 09\/01\/96 09\/01\/97 09\/01\/98<\/p>\nAVERAGE DAILY PATIENT
\n REVENUE:<\/p>\n
\n Skilled Nursing 89.78 99.48 91.34 95.90 100.70 105.73 111.02
\n Annualized
\n Increase 10.8% -7.0% 5.0% 5.0% 5.0% 5.0% <\/p>\n MSU & Complex
\n Care 376.28 363.80 389.33 404.91 421.10 437.95 455.47
\n Annualized
\n Increase -3.3% 6.0% 4.0% 4.0% 4.0% 4.0% <\/p>\n
————————– ——————————————————————
\n Weighted Average 156.18 181.53 219.45 228.75 238.44 248.55 259.10
\n Annualized
\n Increase 16.2% 17.9% 4.2% 4.2% 4.2% 4.2%<\/p>\n
<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n
<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
78
\n A-3<\/p>\n
SCHEDULE A-3
\n INTEGRATED HEALTH SERVICES OF GRAVOIS AT ST. LOUIS
\n REVENUE AND EXPENSES PER PATIENT DAY AND COMMON SIZE DATA<\/p>\n
\n\n Operating Statistics Forecasted Forecasted
\n Year End Year End Developed From Year End Year End
\n 12\/31\/92 12\/31\/93 V.C.I. Database 03\/01\/95 03\/01\/96
\nREVENUE: (1993 Dollars) <\/p>\n
\n Total Patient Days 40,134 35,238 39,055 39,055 <\/p>\n Patient Revenue (Net) 156.18 181.53 158.66 219.45 228.75
\n Ancillary & Other 30.30 23.06 36.34 25.17 26.24
\n ——————— ——- ———————-
\n TOTAL REVENUE 186.48 204.59 195.00 244.62 254.99
\n ——————— ——- ———————- <\/p>\n
EXPENSES: <\/p>\n
General & Administrative 9.95 13.56 17.73 15.95 16.74
\n Dietary 8.88 10.16 9.12 11.69 12.15
\n Housekeeping & Laundry 5.56 5.66 5.29 6.71 6.98
\n Healthcare 65.68 71.44 57.10 76.46 81.05
\n Ancillary & Social Services 51.29 66.10 52.80 69.96 73.46
\n Property 4.08 3.88 9.75 4.07 4.23
\n ——————— ——- ———————-
\n TOTAL OPERATING EXPENSES 145.42 170.81 155.74 184.83 194.61
\n ——————— ——- ———————-
\nNET OPERATING INCOME 41.06 33.78 39.26 59.79 60.38 <\/p>\n
REVENUE: <\/p>\n
Patient Revenue (Net) 83.8% 88.7% 81.4% 89.7% 89.7%
\n Ancillary & Other 16.2% 11.3% 18.6% 10.3% 10.3%
\n ——————— ——- ———————-
\n TOTAL REVENUE 100.0% 100.0% 100.0% 100.0% 100.0%
\n ——————— ——- ———————-
\nEXPENSES: <\/p>\n
General & Administrative 5.3% 6.6% 9.1% 6.5% 6.6%
\n Dietary 4.8% 5.0% 4.7% 4.8% 4.8%
\n Housekeeping & Laundry 3.0% 2.8% 2.7% 2.7% 2.7%
\n Healthcare 35.2% 34.9% 29.3% 31.3% 31.8%
\n Ancillary & Social Services 27.5% 32.3% 27.1% 28.6% 28.8%
\n Property 2.2% 1.9% 5.0% 1.7% 1.7% <\/p>\n
——————— ——- ———————-
\nTOTAL OPERATING EXPENSES 78.0% 83.5% 79.9% 75.6% 76.3%
\n ——————— ——- ———————-
\nNET OPERATING INCOME 22.0% 16.5% 20.1% 24.4% 23.7% <\/p>\n
\n Forecasted Forecasted Forecasted
\n Year End Year End Year End
\n 03\/01\/97 03\/02\/98 03\/02\/99 <\/p>\n
\nREVENUE: <\/p>\n Total Patient Days 39,055 39,055 39,055 <\/p>\n
Patient Revenue (Net) 238.44 248.55 259.10
\n Ancillary & Other 27.35 28.51 29.72
\n —————————————
\n TOTAL REVENUE 265.79 277.07 288.82
\n —————————————
\nEXPENSES: <\/p>\n
General & Administrative 17.58 18.46 19.38
\n Dietary 12.64 13.14 13.67
\n Housekeeping & Laundry 7.26 7.55 7.85
\n Healthcare 85.91 91.06 96.53
\n Ancillary & Social Services 77.14 80.99 85.04
\n Property 4.40 4.57 4.76 <\/p>\n
—————————————
\n TOTAL OPERATING EXPENSES 204.92 215.78 227.23
\n —————————————
\nNET OPERATING INCOME 60.88 61.29 61.59 <\/p>\n
REVENUE: <\/p>\n
Patient Revenue (Net) 89.7% 89.7% 89.7%
\n Ancillary & Other 10.3% 10.3% 10.3%
\n —————————————
\n TOTAL REVENUE 100.0% 100.0% 100.0%
\n —————————————
\nEXPENSES: <\/p>\n
General & Administrative 6.6% 6.7% 6.7%
\n Dietary 4.8% 4.7% 4.7%
\n Housekeeping & Laundry 2.7% 2.7% 2.7%
\n Healthcare 32.3% 32.9% 33.4%
\n Ancillary & Social Services 29.0% 29.2% 29.4%
\n Property 1.7% 1.7% 1.7% <\/p>\n
—————————————
\n TOTAL OPERATING EXPENSES 77.1% 77.9% 78.7%
\n —————————————
\nNET OPERATING INCOME 22.9% 22.1% 21.3% <\/p>\n
<\/c><\/c><\/c><\/s><\/caption>\n
<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
79
\n A-4 <\/p>\n
SCHEDULE A-4
\n INTEGRATED HEALTH SERVICES OF GRAVOIS AT ST. LOUIS
\n GROWTH OF REVENUE AND EXPENSES<\/p>\n
\n\n Year
\nOverall Ending Forecasted<\/p>\n
\nREVENUE: 12\/31\/93 03\/01\/95<\/p>\nPatient Revenue (Net) 2.0% 29.0%
\nAncillary & Other -33.1% 27.8%
\n —— —–
\nTOTAL REVENUE -3.7% 27.8%
\n —— —–<\/p>\n
EXPENSES:<\/p>\n
General & Administrative 19.7% 25.9%
\nDietary 0.5% 23.5%
\nHousekeeping & Laundry -10.6% 26.8%
\nHealthcare -4.5% 15.9%
\nAncillary & Social Services 13.1% 14.8%
\nProperty -16.3% 13.7%
\n —— —–
\nTOTAL OPERATING EXPENSE 3.1% 17.0%
\n —— —–
\nNET OPERATING INCOME -27.7% 82.2%
\n 0<\/p>\n
Per Patient Day<\/p>\n
REVENUE:<\/p>\n
Patient Revenue (Net) 16.2% 17.9%
\nAncillary & Other -23.9% 7.8%
\n —— —–
\nTOTAL REVENUE 9.7% 16.7%
\n —— —–
\nEXPENSES:<\/p>\n
General & Administrative 36.3% 15.0%
\nDietary 14.4% 12.8%
\nHousekeeping & Laundry 1.8% 15.9%
\nHealthcare 8.8% 6.0%
\nAncillary & Social Services 28.8% 5.0%
\nProperty -4.7% 4.0%
\n —— —–
\nTOTAL OPERATING EXPENSES 17.4% 7.0%
\n —— —–
\nNET OPERATING INCOME -17.7% 65.8%
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n
80
\n A-5<\/p>\n
SCHEDULE A-5
\n INTEGRATED HEALTH SERVICES OF GRAVOIS AT ST. LOUIS
\n PROSPECTIVE OPERATING PERFORMANCE<\/p>\n
\n\n Forecasted Forecasted Forecasted Forecasted Forecasted
\n Year End Year End Year End Year End Year End Year End Year End
\n 12\/31\/92 12\/31\/93 03\/01\/95 03\/01\/96 03\/01\/97 03\/02\/98 03\/02\/99
\n
\nREVENUE: <\/p>\n Patient Revenue (Net) $6,268,316 $6,396,923 $8,570,518 $8,933,675 $ 9,312,375 $ 9,707,290 $10,119,123
\n Ancillary & Other 1,215,862 812,491 983,114 1,024,771 1,068,212 1,113,512 1,160,753
\n —————————————————————————————————–
\nTOTAL REVENUE $7,484,178 $7,209,414 $9,553,632 $9,958,446 $10,380,586 $10,820,802 $11,279,876
\n —————————————————————————————————–
\nEXPENSES: <\/p>\n
General & Administrative 399,183 477,996 622,770 653,909 686,604 720,934 756,981
\n Dietary 356,397 358,122 456,370 474,625 493,610 513,354 533,888
\n Housekeeping & Laundry 223,171 199,384 261,984 272,463 283,362 294,696 306,484
\n Healthcare 2,635,850 2,517,531 2,986,083 3,165,248 3,355,163 3,556,472 3,769,861
\n Ancillary & Social Services 2,058,298 2,329,156 2,732,449 2,869,071 3,012,525 3,163,151 3,321,308
\n Property 163,570 136,873 158,798 165,150 171,756 178,626 185,771
\n —————————————————————————————————–
\n TOTAL OPERATING EXPENSES 5,836,469 6,019,062 7,218,453 7,600,465 8.003,019 8,427,234 8,874,294
\n —————————————————————————————————–
\nNET OPERATING INCOME
\n (PRE-MGT.FEE) 1,647,709 1,190,352 2,335,179 2,357,981 2,377,568 2,393,568 2,405,582
\n<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
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