HomeMy WebLinkAboutOIH Finl Feaso 1 6 17
Trusted Guidance to the Senior Living Industry
Consultant’s Report
Financial Feasibility Analysis
Of
Our Island Home
Nantucket, MA
January 6, 2017
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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TABLE OF CONTENTS
Introduction 3
Background & Summary of the Project 5
Summary of Significant Projection Assumptions
Basis of Assumptions 6
Summary of Revenue Assumptions 6
Summary of Operating Expense Assumptions 9
Other Financial Assumptions 10
Summary of Project Budget & Financing Plan 10
Project Timeline 11
Projected Financial Statements 13
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Town of Nantucket
Our Island Home
Nantucket, MA 02554
SK Advisors (“SK”) was engaged by the Town of Nantucket (the “Town”) to conduct an independent
financial analysis of Our Island Home (“OIH”), a skilled nursing facility located in Nantucket, MA. This
analysis was intended for the purpose of conducting a financial feasibility for a new replacement facility
for OIH.
Through extensive study, the Town has determined that the existing OIH needs to be replaced
with a new, more contemporary facility to provide care and services to the elderly living on Nantucket.
Over the years, the OIH physical structure has aged and does not meet the standard of care for elderly
residents. In November 2016, the Board of Selectman voted to explore plans for a replacement skilled nursing
facility to be located on a new site on Miacomet Road (the “Project”).
The Town engaged SK to conduct a financial feasibility analysis of the Project. Work conducted by
SK included: (i) an analysis of the demographics on Nantucket, which were taken in the context of broader
national trends to determine the proper size and bed mix for the Project; and, (ii) a financial feasibility
analysis to project the future operations of the new facility.
SK developed a set of detailed revenue assumptions based on OIH’s current rates and utilization
metrics. SK also analyzed the current expenses of OIH, and worked with OIH Management to develop a
set of expense assumptions. The end result is a financial projection that illustrates the forecasted
operations of OIH if it were to proceed with construction of the new facility. Overall, this report includes
a summary of the financial projections and key assumptions which SK and OIH Management believe to be
significant.
The projections included in this report constitute “forward‐looking statements.” When used in this
report, the words “estimate,” “expect,” “project,” “intend,” “anticipate,” “believe,” “may,” “will,” “continue”
and similar expressions identify forward‐looking statements. Any forward‐looking statement is subject to
uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in
such forward‐looking statements. Although SK and management of OIH believe that the assumptions upon
which these projections are based are reasonable, any of the assumptions could prove to be inaccurate and,
as a result, the forward‐looking statements based on those assumptions could also be incorrect. All phases of
the operations of OIH involve risks and uncertainties, many of which are outside of OIH’s control and any one
of which, or a combination of which, could materially affect the results with respect to operations.
Factors that could cause actual results to differ from those expected include, but are not limited to,
general economic conditions, reduced third party reimbursement rates, changes in tax laws or governmental
regulations, unanticipated expenses or delays encountered during construction and other risks.
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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This report is not prepared in accordance with the American Institute of Certified Public
Accounting’s generally accepted accounting principles or accounting or auditing standards.
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Background & Summary of the Project
Our Island Home (“OIH”) is a 45‐bed skilling nursing facility located on the island of Nantucket,
Massachusetts and owned and managed by the Town of Nantucket. The existing OIH facility opened in
1981 and represents a traditional/institutional care model.
As the skilled nursing industry has evolved, the preferred care model has transitioned away from the
traditional/institutional model and more toward the resident‐centered model (i.e. “small home” care
model). This evolution has been driven by many factors, not the least of which is the understanding that
the traditional/institutional model of care was not meeting the social and emotional needs of residents.
Moreover, government reimbursement (Medicare and Medicaid), which is the primary revenue source
for skilled nursing facilities, has been pushing reimbursement dollars away from institutional models of
care.
The existing OIH physical structure is predominantly semi‐private rooms with shared bathrooms and not
handicapped accessible. The existing structure does not support a contemporary standard of care for
elderly residents. After extensive study, the Nantucket Board of Selectman voted to explore plans for a
replacement skilled nursing facility to be located on the campus of Sherburne Commons, an independent
and assisted living community also located on Nantucket.
The new facility would be a 34,611 square foot structure, comprising four 10‐bed houses connected by
common areas. The facility would comprise a total of 40 beds, 30 designated as long‐term care and 10 as
Level IV Rest Home beds (also known as a Residential Care Facility). A Rest Home is a housing facility,
licensed by the Massachusetts Department of Public Health, which provide 24‐7 supervision and
supportive services but for individuals who do not need a nursing home level of nursing or medical care.
While OIH has historically reported solid occupancy for its 45‐bed facility (average of 91.2% over the past
three years), two factors point to a reduction in long‐term care beds: (1) there has been a general trend
across the country of lower utilization of nursing home beds due to alternative care options; and, (2) an
analysis of the acuity mix of OIH residents found that a certain number would be better suited for a lower
level of care option, such as a rest home.
For more information on the evolution of the skilled nursing industry and the impact on OIH’s future plans,
refer to report “The Future of Eldercare on Nantucket” (March 2016), prepared by SK Advisors and Rabig
Consulting.
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Summary of Significant Projection Assumptions
Basis of Assumptions
The assumptions utilized in the financial projections dated January 4, 2017 are based on:
Management’s fiscal 2017 budget for the existing facility;
Program for the Project, consisting of four 10‐unit small houses (one Rest Home and three
Skilled Nursing houses);
Operating plan for the Project as developed by Rabig Consulting and Management;
Development program for the Project as developed by DG Jones International, Inc. and
SMRT Architects & Engineering; and
Management’s financing scenario
OIH has historically operated at a deficit, thus requiring an annual subsidy from the Town to cover
the shortfalls. The financial projections that follow on the proceeding page are intended to present
the projected operations of the new project prior to any required subsidy from the Town.
Summary of Revenue Assumptions
Revenues are driven by occupancy of both the Skilled Nursing and Rest Home beds. OIH’s current
occupancy is approximately 92% (41.4 out of 45 beds). Stabilized occupancy for the project is
assumed to be 94% (37.6 out of 40 beds). See below for detail regarding stabilized occupancy by
level of care.
Stabilized Occupancy and Fill Up
Skilled Nursing:
The proposed, new Skilled Nursing beds are forecasted to be available for occupancy in January
2019 and be full upon opening from existing OIH residents. It is assumed that OIH will reduce
its skilled nursing/long‐term care occupancy over a twelve month period beginning with the
start of construction by allowing for natural attrition and discharges. Based on its historical rate
of discharge, as analyzed over a period of five years, the natural annual attrition rate is
approximately 16‐19 residents.
Stabilized occupancy of 95% (or 28.5 beds) is projected to be reached in January 2019.
Rest Home:
The proposed, new Rest Home beds are forecasted to be available for occupancy in January
2019.
Stabilized occupancy of 92% (or 9.2 beds) is projected to be reached by December 2019 based
on a 12‐month fill schedule, detailed as follows:
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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The first fully stabilized year of occupancy is FY2021.
Daily Service Fees and Payer Mix
It is assumed that OIH will generate its revenue by charging a Daily Service Fee (or per diem rate), as
is its current practice. Management has assumed that 75% of the Skilled Nursing residents will be
Medicaid/MassHealth payers, 20% will be private payers, and the remaining residents will be
Medicare payers (5%).
For the Rest Home, Management has assumed that approximately 90% of the residents will be
Medicaid/MassHealth payers; the remainder will pay a private pay rate. Daily service fees, payer
mix, and occupied units are presented below, inflated to FY2021 dollars (the first stabilized year of
operations):
Month
Beds
Available
Occupied
Beds Cumulative % Occupied
1 January‐19 10.0 ‐ ‐ 0.0%
2 February‐19 10.0 1.0 1.0 10.0%
3 March‐19 10.0 1.0 2.0 20.0%
4 April‐19 10.0 1.0 3.0 30.0%
5 May‐19 10.0 1.0 4.0 40.0%
6 June‐19 10.0 1.0 5.0 50.0%
7 July‐19 10.0 1.0 6.0 60.0%
8 August‐19 10.0 1.0 7.0 70.0%
9 September‐19 10.0 1.0 8.0 80.0%
10 October‐19 10.0 1.0 9.0 90.0%
11 November‐19 10.0 0.2 9.2 92.0%
12 December‐19 10.0 ‐ 9.2 92.0%
Rest Home Fill‐Up Assumption
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Unit Type/Payer Type
Payer
Mix
Number
of Residents
Daily Service Fees
(FY2021 $)
Skilled Nursing
Private Pay
Medicaid/MassHealth
Medicare
20%
75%
5%
5.69
21.38
1.43
$533.26
215.30
386.43
Skilled Nursing Occupied Units/
Average Fees
100%
28.50
$287.45
Rest Home
Private Pay
Medicaid/MassHealth
10%
90%
0.92
8.28
$347.78
132.50
Rest Home Occupied Units/
Average Fees
100%
28.50
$154.03
Revenue Inflation Rates
The following annual revenue inflation rates are applied in July of each year:
Rest Home private pay rates 3.0%
Rest Home Medicaid rates 2.0%
Skilled nursing private pay rates 3.0%
Skilled nursing Medicaid rates 2.0%
Skilled nursing Medicare rates 2.0%
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Summary of Operating Expense Assumptions
Operating expenses were generated from analysis of the FY2017 operating budget and adjusted for
the small house model. Variable costs, such as utilities and food costs, are projected to fluctuate
with occupancy. Staffing costs (wages and benefits) comprise 63% of total operating expenses, or
approximately $3,851,000 in FY2021. Benefits are assumed to equal 30% of wages. Historically,
benefits have ranged from 22.7% to 27.6% of wages, with an average of 24.8%.
Non‐staffing costs (excluding debt service) comprise 37% of total operating expenses, or
approximately $2,276,000 in FY2021. Included in this is approximately $742,000 for Barnstable
County Retirement, $192,000 for utilities, and $646,000 for professional services.
Most operating expenses (such as food, utilities, supplies) are assumed to increase by 3.0%
annually. However, Management anticipates that certain expenses will inflate at a higher rate.
Specifically, healthcare insurance benefits are assumed to increase 7.5% annually. Likewise, the
Barnstable County Retirement Benefits are assumed to increase 6.0% annually.
Per Patient Day Analysis
The following illustrates the projected expenses on a per patient day (PPD) basis for FY2021:
FY2021
SNF Rest Home Total PPD
Beds 30 10 40
FTEs 38.80 3.50 42.30
Patient Days 10,403 3,358 13,761
28.50 9.20 37.70
Expenses
Salaries & Benefits 3,547 304 3,851 279.85
Barns Cty Rtrmt 681 61 742 53.92
Contractual Oblig 111 36 147 10.68
Utilities 145 47 192 13.95
Food 129 42 171 12.43
Prof Svcs ‐ SNF 452 ‐ 452 32.86
Prof Svcs ‐ Other 147 47 194 14.08
Medical Supplies 71 23 94 6.83
General Insurance 73 23 96 6.98
Other Supplies 47 15 62 4.51
Other Expenses 95 31 126 9.16
Total Expenses 5,498 629 6,127 445.24
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Routine Capital Expenditures
Routine capital expenditures are projected at $41,000 in FY2021. Beginning in FY2022, this amount
is inflated 3.0% annually.
Other Financial Assumptions
Certified Public Expenditure Program
Since 2010, OIH has participated in Massachusetts’ Certified Public Expenditure program (CPE),
which is a program that provides additional reimbursement for municipally owned skilled nursing
facilities. There are only two municipally‐owned skilled nursing facilities in Massachusetts that
receive CPE funding: OIH and Taunton Nursing Home (Taunton, MA).
The timing of the CPE payments is highly inconsistent (e.g. benefits tied to 2011 were not received
until 2014), and the continuation of this program is uncertain. OIH (and by extension, the Town)
cannot be expected to rely on CPE as a funding source in the future. As a result, the projections do
not include any funds received as part of the CPE program.
Summary of Project Budget & Financing Plan
The project budget, which includes four 10‐unit small houses, totals approximately $29.9 million.
Construction is assumed to begin in September 2017 and continue for 16 months, with occupancy
beginning in January 2019.
The project is proposed to be financed with long term bonds to be issued by the Town. The
financing is assumed to close in September 2017. It is anticipated that the bonds would be in place
for 20 years. For purposes of the projections, an interest rate on the debt of 3.50% was assumed.
A sources and uses table for the Project is provided below:
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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Sources and Uses of Funds (in thousands)
Project
Sources:
Bonds
$29,929
Total Sources of Funds: $29,929
Uses:
Construction Total
Design & Engineering
Owner’s Contingency
Owner’s Representative
Miscellaneous
$25,627
1,978
1,099
660
565
Total Uses of Funds: $29,929
The plan of finance outlined above is for informational purposes only; however, since OIH is a
municipally‐owned and operated facility, certain rules apply to the financing and operation. The
operations and financing will be funded through two separate funds at the Town level.
At this time, no determination on the potential future use of the existing OIH site has been made or
how that may impact the projections.
Project Timeline
The above timeline is preliminary and assumes a positive vote at the April 2017 Town Meeting. Note
that these dates could change due to a variety of factors, many of which are outside the control of OIH
and/or the Town of Nantucket.
April 2017 Town meeting to authorize borrowing
and ballot to approve debt exclusion
April 2017 ‐ September 2017 Development activities (planning,
entitlements, architecture, etc.)
May 2017 Issue Bond Anticipation Notes to fund
pre‐financing project costs
September 2017 Close on Financing
September 2017 ‐ December 2018 Construction (16 months)
January 2019 Project Available for Occupancy
Our Island Home
Financial Feasibility Analysis
Five Years Ending June 30, 2025
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PROJECTED FINANCIAL STATEMENTS
Trusted Guidance to the Senior Living Industry Our Island HomeProjected Statements of Activities and Changes in Net Assets (Deficit)For the Fiscal Years Ending June 30th(in thousands of dollars)2021 2022 2023 2024 2025Revenue, gains, and other supportNet resident service revenuesAssisted Living and Memory Care 517 529 541 553 565 Health care 3,078 3,151 3,225 3,301 3,379 Total revenue, gains, and other support3,595 3,680 3,766 3,854 3,944 ExpensesWages 2,935 3,023 3,114 3,208 3,304 Benefits and other 916 986 1,059 1,141 1,228 Barnstable County Retirement 742 787 834 884 937 Utilities 192 197 203 210 216 Contractual obligations 147 151 156 160 165 Food 171 176 181 187 192 Professional services 646 666 686 706 728 Medical supplies 94 97 100 103 106 General insurance 96 99 102 105 108 Other supplies 62 64 66 68 70 Other expenses 126 129 133 137 142 Total expenses6,127 6,375 6,634 6,909 7,196 Cash flows (losses) from operations(2,532) (2,695) (2,868) (3,055) (3,252) Interest expense (949) (907) (864) (819) (773) Principal payments on Series bonds (1,173) (1,214) (1,256) (1,300) (1,346) Cash flows (losses) from operations after debt service(4,654) (4,816) (4,988) (5,174) (5,371) Investment and interest income, net - - - - - Routine capital expenditures (41) (42) (44) (45) (46) Net cash flows before project activity below(4,695) (4,858) (5,032) (5,219) (5,417)