SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 1.0 Executive Summary ............................................................................................... 1 1.1 Project Description .............................................................................................................. 2 1.2 Business Model ...................................................................................................................... 2 1.3 Project Location .................................................................................................................... 3 1.4 Sources and Uses................................................................................................................... 3 Sources .........................................................................................................................................3 Project Budget .............................................................................................................................4 1.5 Development Process and Project Timeline ................................................................. 6 Project Timeline..........................................................................................................................6 1.6 Job Creation Overview and EB5 Investor Opportunity.............................................. 7 1.7 Market Potential .................................................................................................................... 7 1.8 NAICS Codes Used for this Project ................................................................................... 8 1.9 Financial Opportunity ......................................................................................................... 9 Projections ...................................................................................................................................9 Financial Summary .................................................................................................................. 10 1.10 Value Proposition............................................................................................................. 11 2.0 Target Market Demand .......................................................................................14 2.1 Target Market Identification ........................................................................................... 14 2.1.1 Austin Senior Housing Market Metrics ...................................................................... 16 3.0 2012 Drivers of the Senior Housing Market ........................................................17 4.0 Sunset Arms..........................................................................................................24 4.1 Services Provided ............................................................................................................... 24 4.2 Facility and Room Layouts ............................................................................................... 27 4.3 Permits Required................................................................................................................ 29 5.0 Management Summary .......................................................................................30 5.1 Organization ........................................................................................................................ 30 5.1.1 Sunset Arms Management ............................................................................................ 30 5.1.2 Company Principals ....................................................................................................... 30 6.0 Staffing ..................................................................................................................32 6.1 Staffing Demand Analysis ................................................................................................. 32 6.2 Staffing Chart ....................................................................................................................... 33 6.3 Job Descriptions .................................................................................................................. 33 7.0 E-Verify .................................................................................................................46 8.0 Employment and Economic Impacts .................................................................47 8.1 Assumptions ......................................................................................................................... 47 8.2 Projected Economic Impacts ........................................................................................... 48 8.2.1 Projected Economic Impacts for Entire Project ........................................................... 48 8.2.2 Construction Jobs Overview Phases I and II ................................................................ 48 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 8.2.2.1 Total Construction Jobs Anticipated from Project ................................................................... 48 8.2.2.2 Total Impacts from Assisted Living Operations Years One and Two ................................. 48 9.0 Central Texas Economic Development .............................................................49 9.1 Central Texas Four-Region Demographics and Economy ....................................... 49 10.0 Austin-Red Rock MSA .......................................................................................53 11.0 Target Market Analysis ....................................................................................57 12.0 Demand Determinants .....................................................................................59 13.0 Market Analysis .................................................................................................62 13.1 Austin Assisted Living Market Potential ................................................................... 62 13.2 IBISWorld Industry Market Analysis for NAICS Code 623312............................. 64 13.3 IBISWorld Industry Market Analysis for NAICS Code 236620............................. 71 14.0 Competition .......................................................................................................79 15.0 Strategy and Implementation .........................................................................81 16.0 Financial Plan ....................................................................................................84 16.1 Balance Sheet Projection ............................................................................................... 84 16.2 Five-Year Annual Income Statement .......................................................................... 85 16.3 Five-Year Annual Cash Flow ......................................................................................... 86 Data Sources ...............................................................................................................88 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s David Anheuser, Founder and CEO of Sunset Arm s Assisted Con tact: Living Facility LLC Con tact E-mail: davidanheuser@Sunset Arms.com Location : Sunset Arm s 15550 Ranch Road; 620 North Austin, Texas Telephone Number: (512) 961-0078 Fax Nu mber: (512) 356-0351 Website: www.SunsetArm s.com Nu mber of Direct FullTime Employees: 58.4 EB-5 Financing Sou ght: $11,000,000 Location of Project: This document is a business plan and not an offering of securities. It contains confidential and proprietary inform ation for the Sunset Arm s project. S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 1.0 Executive Summary The plagues of the human spirit run rampant in cold, sterile, social and physical environments. Today’s retirement community residents want to live within vibrant architectural and social frameworks that nurture a life still worth living, not ones that reflect time spent waiting to die. Empowerment, quality care, good health, and an enriched lifestyle for elders, are the hallmarks of Sunset Arms. Far more devastating than physical illness to our elders, is lack of purpose. Studies have shown that seniors who are engaged in activities they find meaningful are far more likely to retain mental acuity, physical health and emotional well-being. Although the hospital model tries to provi de such stimulation, activities are usually organized by staff, with little or no input from patients and become just one more set of required tasks for all involved. Elders want, need, and deserve autonomy over their daily lives. Sunset Arms envisions a different way of ushering retirement community residents through a new stage in their lives, acknowledging that where they live is their home and belongs to them, not to the staff. It is the mission of Sunset Arm s to set a new standard of retirement living and to help make retirement a new rewarding start in life full of excitem ent, class, beauty, safety and comfort. These properties will be residential facilities in the truest sense of the word. Page 1 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 1.1 Project Description Sunset Arms Assisted Li ving Facility, LLC is a Texas-based limited liability corporation that has been formed for the purpose of developing and operating an 84-unit assisted living facility for elderly patients. The company has targeted a site in the Austin-Red Rock Metropolitan Statistical Area for the location of its facility that will have a minimum of 84 assisted living units with a total initial EB5 capital investment of $11,000,000. The Sunset Arms Assisted Living Facility will have a minimum of 84 units available for occupancy that is to be comprised of 84 assisted living units. When construction is complete, the facility will be wholly owned and operated by the developer who will directly support and staff services to residents including nursing care, memory care, a schedule of activities, laundry and housekeeping, dietary assistance, maintenance and security, and transportation. Assisted Living Facility Design Overvie w Unit Type Availab le Beds Assist ed L iving: S mall Stu dio Un it 24 Assist ed L iving: Mediu m S tu dio Un it 12 Assist ed L iving: L arge S tu dio Un it 2 Assist ed L iving: L argest S tu dio Un it 1 Assist ed L iving: S mall 1 B edr oom Un it 1 Assist ed L iving: L arge 1 B edroom Un it 1 Assist ed L iving: Mediu m 1 B edr oom Un it 11 Assist ed L iving: L arger 1 B edr oom Un it 1 Assist ed L iving: Mediu m 2 B edr oom Un it 6 Assist ed L iving: S mall 2 B edr oom Un it 6 Assist ed L iving: L arge 2 B edroom Un it 6 Total Capacity 84 Aver age Daily Cen su s (@ 84.5% occu pan cy) 71 1.2 Business Model Sunset Arms will, as do many assisted living facilities, provi de services for residents that require assistance with activities of daily living on a frequent basis but do not have a high enough level of infir mity to require residence at a nursing facility. These amenities and services range from housing, meals, laundry, housekeeping, transportation, social-recreational activities, Page 2 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s maintenance, and security, to other similar services that are not medical or skilled nursing services. Clients that require assistance with instrumental activities of daily living will have the option for management of medications, finances, shopping, preparing snacks, meals, and housework. 1.3 Project Location While chosen for a lot size that permits a relatively expansive urban development, the location on Ranch Road was selected for its proximity to retail and healthcare services. 1.4 Sources and Uses Sources The assisted living facility will be funded in sum by EB-5 capital obtained through the Austin Regional Center and fundi ng from domestic sources. Page 3 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Sunset Arms Assisted Living Facility, LLC Project I: Capitalization Summary 1 2 3 Source EB-5 Equity Investment Domestic Equity Investment Loans from Domestic Sources TOTAL Amount $2,500,000 $2,200,000 $6,300,000 $11,000,000 NOTES 1. There will be an equity investment in the Project of up to $2.5 million from up five EB-5 investors. The loan will have an interest rate of one percent to three percent. 2. Investment from domestic sources includes equity contributions from the project developer. 3. The project developer anticipates applying for a construction loan. Project Budget The Developer estimates that constructing the assisted care facility will require a total of $11 million dollars, including $6.6 million in hard construction costs. Sources and Uses of Funds SOURCES Loan from LP1 (EB-5 Capital) Domestic Investment Loans from Domestic Sources Total Sources $2,500,000 $2,200,000 $6,300,000 $11,000,000 USES Land Acquisition Hard Construction Costs Soft Costs Furniture, Fixtures & Equipment Other (startup costs, working capital, etc.) Total Uses $1,650,000 $6,600,000 $1,500,000 $300,000 $950,000 $11,000,000 Page 4 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 1. Land Acquisition: Includes purchase price, taxes, legal fees, and insurance. 2. Hard Construction Costs: Includes costs for materials and labor for shell and core building construction, site costs (utility fees, signage, sidewalks, landscaping) and interior construction. 3. Soft Costs: Includes permit fees, entitlement costs, construction management fees, broker and retail commissions, insurance and taxes, loan costs, financing costs, and contingency. 4. Architecture: Site and building planning 5. Engineering: Associated civil and structure planning 6. Furniture, Fixtures & Equipm ent: includes costs associated with interior buildout of the new facility. 7. Other: Includes startup costs for development (typically called mobilization draws) for insurance that must be in pla ce prior to the insurance; deposits on lumber and concrete for example. Working capital is for use during the lease stabilization period to ensure the operations can continue even if the asset is short in operating cash. Page 5 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 1.5 Development Process and Project Timeline The new assisted living facility will be a ground- up real estate construction project with a development period of approximately two and a half years. Stage 1. Design/Permitting/Construction 2. Initial Occupancy and Leasing Stab ilization Hiring Year One and Two TOTAL DURATION (Estimated) Duration 12 months 12 months 24 months 1. Design and Permitting: When entitlements are complete and sufficient financing has been secured, the project will be ready to break ground. At this point the developer will finalize design plans and secure final permits (time estimate: six months), and construction will commence. The developer plans to finance this portion of the process through developer equity. 2. Construction: The developer estimates a construction perio d of twelve months, including site work, shell building construction, and interior build-out. EB-5 funds will be combined with a construction loan and developer equity to complete construction. Preleasing efforts will begin at the half way point of construction. 3. Leasing Stabilization: The new facility will be owned and operated by Sunset Arms, the project developer who will lease the indi vidual beds. The developer estimates that the facility will reach a stabilized occupancy rate (84.8%) after one year. Project Timeline Year One Design, Perm itting and Construction Initiation Design Developer Equity Injected Here Permitting Construction EB5 Monies Injected to Fund Preleasin g Operational Hiring Legal Stabilization Hiring Stabilized Operations 58.2 45.0 Page 6 Year Two 13.2 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 1.6 Job Creation Overview and EB5 Investor Opportunity The Sunset Arms lifestyle will necessarily create employment opportunities in the Austin MSA County area. Since the construction phase is slated to last only one year, the direct jobs considered are those resulting from the operational phase. Impact Type Employmen t Labor Income Total Value Added Ou tpu t 58.2 $9,577,777 $23,254,374 $48,164,598 20.2 $2,244,355 $4,058,110 $6,751,795 31.6 $2,342,875 $4,836,188 $7,752,740 110 $14,165,006 $32,148,672 $62,669,132 Direct Effect In direct Effect In duced Effect Total Effect There are currently available opportunities for six direct investors to form one of the cornerstone investments that will support the 58 jobs for initial operating activity. 1.7 Market Potential The project is in Austin MSA, the capital and a location consistently ranked near the top of lists for the best place to retire. A feasibility study confirmed strong demand for additional senior housing. The numbers for the local industry indicate that the Company will not be entering a saturated market and the opportunity to establish a niche foothold in this market exists now. Based strictly on revenue projections, the potential for the Austin MSA alone is fully fifty percent that of Texas as a whole. Projected Industry Growth in Austin MSA, Texas and the US to 2016 Year 2012 2013 2014 2015 2016 Austin MSA $329,299,776 $352,350,760 $377,015,314 $403,406,385 $329,299,776 Texas $1,537,580,000 $1,585,250,000 $1,675,600,000 $1,757,710,000 $1,880,870,000 United States $51,252,600,000 $52,841,500,000 $55,853,400,000 $58,590,200,000 $62,695,500,000 S ource The charts below, explored in greater detail in the market analysis section, graphically represent the phenomenal opportunity in this market. Page 7 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Regional Assisted Living Rental Rates Compared to Remainder of Country Minimum Rate Range Median Maximum Median Annual Rate Five-Year Annual Growth $625 $3,300 $9,750 $39,600 6% Texas – Whole State $2,150 $3,750 $6,500 $45,000 13% Austin MSA $2,150 $3,815 $6,500 $45,774 14% Region USA S ource Austin MSA Aggregate Independent Living Assisted Living Occupancy 93% 93% 92% Year-Over-Year Rent Growth 14% 14% 14% Property Count 155 20 135 S ource 1.8 NAICS Codes Used for this Project Below are the primary NAICS codes used for this project and their definitions. 623312 Retirement Communities This United States industry comprises establishments primarily engaged in providing a range of residential and personal care services with on-site nursing care facilities for (1) the el derly and other persons who are unable to fully care for themsel ves and/or (2) the el derly and other persons who do not desire to live independently. Indivi duals live in a variety of residential settings with meals, housekeeping, social, leisure, and other services available to assist residents in daily living. Assisted-living facilities with on-site nursing care facilities are included in this industry. 236220 Commercial and Institutional Building Construction This industry comprises establishments primarily responsible for the construction (including new work, additions, alterations, maintenance, and repairs) of commercial and institutional buildings and related structures, s uch as stadiums, grain elevators, and indoor swimming facilities. This industry includes establishments responsible for the on-site assembly of modular or prefabricated commercial and institutional buildings. Included in this industry are commercial and institutional building general contractors, commercial and institutional building operative builders, commercial and institutional building design-build firms, and commercial and institutional building project construction management firms. Page 8 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 1.9 Financial Opportunity Projections The financial projections shown below are supported by the market information in Section 2.0, Local Market Environment and Demand. Financial Summary Financial Summary $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 1 $0 2 $0 Total Owner Equity $6,472,753 $6,472,753 TOTAL ASSETS $17,606,369 $34,480,802 $43,902,474 $45,766,423 $57,876,375 Cash $2,978,051 Net Operating Income $2,978,051 3 $3,200,460 4 $3,200,460 5 $3,200,460 $9,673,213 $11,740,527 $24,269,595 $3,200,460 $5,064,409 $17,174,361 EB5 Opportunity This venture offers eleven EB-5 immigrant investors the opportunity to invest $1 million indivi dually in an EB-5 pooled investment with each investment creating 10 jobs. Page 9 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Investment Summary The developer has already invested $2,200,000 for his own money. EB-5 investors become limited partners in a new entity tha t loans money to the project. Each EB-5 investor receives a total return of 20% along with payoff of their $1 million investment after approval of I-829 conditions for removal are met. The investment must be sustained through this point to qualify for permanent green card. Financial Summary Financial Summary $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 1 $0 2 $0 Total Owner Equity $6,472,753 $6,472,753 TOTAL ASSETS $17,606,369 $34,480,802 $43,902,474 $45,766,423 $57,876,375 Cash $2,978,051 Net Operating Income 3 $3,200,460 $2,978,051 4 $3,200,460 5 $3,200,460 $9,673,213 $11,740,527 $24,269,595 $3,200,460 $5,064,409 $17,174,361 Revenue Compared to Owner’s Equity Revenue Compared to Owner Equity $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $1 2 3 4 5 Operating Gross Profit Page 10 6 7 Total Owner Equity 8 9 10 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Income Compared to Owner’s Equity Income Compared to Owner Equity $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $$(50,000,000) 1 2 3 4 5 6 7 8 9 10 $(100,000,000) Net Income 1.10 Value Proposition Beyond what is believed to be phenomenal opportunity for a high -return investment with long-lasting value, there are many current macroeconomic and demographic considerations that support this venture. This is only bolstered by the business model that will be introduced into the target market. One of the most overri ding considerations for this venture is the existence of a target market that is not only viable now but is estimated to grow exponentially by the year 2050. A long recession essentially stopped construction of new inventory in what was once a glutted market. Circumstances, however, have changed. Every year that baby boomers age another year, these facilities are more in demand. At this juncture, the number of units under construction is in no way keeping pace with the growth of the target market. Entrants into this arena right now have a tremendous opportunity to establish a niche foothold in an industry for which the need has already been established. The occupancy rate for independe nt living properties in both Texas and Austin averaged 93 percent in the fourth quarter of 2011. The average occupancy rates for independent living and assisted living are both 1.2 Page 11 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s percentage points above their respective cyclical lows. In the Austin area, year-over-year rent growth is anticipated to be double that of the nation at 14%. There is strong absorption for both independent living and assisted living, exceeding the rate of new supply coming on line. For senior housing as a whole, the increase in the occupancy rate is being led by independent living. The first quarter of 2012 was the fifth consecutive quarter in which the pace of annual absorption is above that of annual inventory growth, resulting in rising occupancy. Year-over-year rent growth for senior housing increased to 1.7 percent, from 1.6 percent in the third quarter of 2011 and 0.8 percent in the fourt h quarter of 2010. The Company invests considerable time, money, and energy to ensure residents are surrounded by beauty with striking architecture, lovely landscape designs, and high-class finishes through the property. This community will feature beautiful amenities such as a swimming pool, sports and activities facilities, a tropical swimming pool, sports classes, dancing, tai chi, yoga, table tennis, etc. The Company will create a top-notch facility for the trendsetting facility, which will help develop the great potential seniors carry within them. Consultants, advisors and coaching people will be there to support seniors in pursuing their interests and their enterprises. The Company is committed to making meals a highlight of the day by providing healthy, fresh, internationally inspired, tasty meals. Meals will set a new standard since the company invests much more money per meal per person than other facilities do. An internationally inspired chef will work closely with Sunset Arms’ dietician to provi de meals which are as balanced and nutritious as they are delicious. This facility will be second to none in offering a wi de range of services in a combination that best promotes resident well -being and ease. Sunset Arms offers independent and assisted. The Company is a profitable organization that believes that the best advertising and best business comes through happy and satisfied Page 12 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s residents. Commitment to its residents will be clear when prospective residents see that facilities have: More employees in relation to the number of residents, provi ding superior service. Commitment to excellence in all aspects of the organization. Unmatched concern for the comfort and well -being of residents. Page 13 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 2.0 Target Market Demand Support for the revenue projections and demand for this service in the AustinRed Rock Metropolitan Statistical Region are based on a number of sources, described and cited in this section. 2.1 Target Market Identification The following is the profile of the target. Target Market Profile Bastrop County Population Projection, Age 75+ Total Population 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ 65+ 75+ 2010 107,105 90,711 71,865 48,020 32,053 23,568 17,125 16,082 136,848 56,775 2012 112,368 98,792 79,891 54,509 35,696 24,979 17,733 17,681 150,598 60,393 Interpolated/Extrapolated to subject time period: Total Population, 75+ 2010 2011 2012 75-79 23,568 24,274 24,979 80-84 17,125 17,429 17,733 85+ 16,082 16,882 17,681 2017 118,358 116,524 97,116 74,966 49,246 31,524 19,815 21,049 196,600 72,388 2013 26,288 18,149 18,355 2014 27,597 18,566 19,028 2015 28,906 18,982 19,702 2016 30,215 19,399 20,375 2017 31,524 19,815 21,049 2014 41,513 6,863 6,614 5,662 6,612 8,017 2,874 3,051 1,023 796 2015 42,975 7,025 6,571 5,593 6,679 8,769 3,161 3,227 1,109 842 2016 44,438 7,186 6,529 5,523 6,747 9,520 3,448 3,402 1,196 887 2017 45,901 7,348 6,487 5,454 6,814 10,271 3,735 3,577 1,282 933 Population with Income Projection, Ages 75+ Households by Income and Age of Householder: Total <$15,000 $15,000-$24,999 $25,000-$34,999 $35,000-$49,999 $50,000-$74,999 $75,000-$99,999 $100,000-$149,999 $150,000-$199,999 $200,000+ 2012 38,587 6,540 6,698 5,801 6,477 6,515 2,300 2,701 850 705 2017 45,901 7,348 6,487 5,454 6,814 10,271 3,735 3,577 1,282 933 Interpolated/Extrapolated to subject time period: Ages 75+ 2010 2011 Total ----<$15,000 ----$15,000-$24,999 ----$25,000-$34,999 ----$35,000-$49,999 ----$50,000-$74,999 ----$75,000-$99,999 ----$100,000-$149,999 ----$150,000-$199,999 ----$200,000+ ----- 2012 38,587 6,540 6,698 5,801 6,477 6,515 2,300 2,701 850 705 2013 40,050 6,702 6,656 5,732 6,544 7,266 2,587 2,876 936 751 Page 14 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Unmet Demand Calculation Primary Market Area (PMA) Unmet Demand Definition Number Needing Assistance Age 75-79 80-84 85+ % Needing Assistance 19.5% Dependent on Analysis-Type 31.2% 49.5% 2012 2013 2014 2015 2016 2017 6,117 6,921 11,051 6,431 7,068 11,472 6,745 7,261 11,893 7,059 7,363 12,314 7,373 7,645 12,734 7,687 7,568 13,155 Number of Income-Qualified 2012 2013 2014 2015 2016 2017 Age 75-79 80-84 85+ 3,099 3,506 5,599 3,366 3,699 6,004 3,635 3,913 6,410 3,907 4,075 6,815 4,181 4,335 7,221 4,457 4,388 7,627 Gross Market Available: 12,203 13,069 13,958 14,798 15,737 16,471 42% 42% 42% 42% 42% 42% 5,125 5,489 5,862 6,215 6,610 6,918 % of Gross Market representing demand from couples Demand Refining Step B 11% 11% 11% 12% 13% 14% Demand % of Gross from outside PMA Refining Step C 15% 15% 15% 15% 15% 15% Demand Refining Step D Net Market, Age,Income,Status 8,298 8,887 9,491 10,210 11,016 11,694 Demand Refining Step E 1,483 1,483 1,489 1,489 1,495 1,501 Net Market Available, Net Exsting Units 6,815 7,404 8,002 8,721 9,521 10,193 Estimated Penetration Rate 25.4% 24.4% 24.1% 23.2% 23.9% 24.2% Final Available, Unmet Demand 1731 1807 1929 2023 2276 2467 Demand % of Gross Market Living Alone: Refining Step A Number of Gross Market Living Alone: Sub-Total Existing Units The final unmet demand calculated above clearly indicates that the region will easily accommodate the assisted living units introduced by this facility. Based on this, the Company turned to validation of its anticipated staffing needs against industry and local area standards, as shown in the analysis below. The Company has derived its revenue projections from both national industry benchmarks as well as regional industry information. Page 15 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 2.1.1 Austin Senior Housing Market Metrics Property Types Majority Independent Living Majority Assisted Living Metro MAP32-100 Metro MAP32-100 Stabilized Occupancy 93.20% 90.40% 92.20% 90.60% Average Monthly/Daily Rent $3,523 $2,565 $3,764 $3,321 Median Age 15 22 13 15 Median Units/Beds Per Property 151 159 63 61 65.00% 64.10% 95.80% 88.00% 20 758 85 1,546 Inventory 3,653 159,378 1,609 110,746 Independent Living Units 2,886 114,104 44 5,890 444 25,183 1,483 101,209 9.50% 6.70% 4.20% 4.70% 0 2,807 312 3,565 For Profit (%) Property Count Assisted Living Units1 Penetration Construction Units/Beds 1. Includes Memory Care Page 16 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 3.0 2012 Drivers of the Senior Housing Market The Retirement Communiti es industry will exhibit accelerated growth in the next two decades. An aging population and growing need for dementia care (care provided to those with memory impairment) are stimulating much of the industry's growth. Retirement communities provide a numb er of services for seniors who suffer from chronic illnesses to assist them with activities of daily living. Over the past five years, the number of assisted living facilities that provide dementia care has risen as a proportion of total facilities. On the other hand, companies that do not include these services have suffered by the changes in the housing market and economy. During the five years to 2017, an improving economic environment, an aging population, healthcare reform legislation and new service offerings will facilitate industry growth. It is estimated that industry revenue will grow at an annualized rate of 4.9%, reaching $65.1 billion in 2017. As the housing market improves, more seniors will be able to sell their homes and pay resident fees. However, the unstable commercial construction market will keep the supply of retirement and assisted living facilities low, despite expected increased finances for this market. As a result, further mergers and acquisitions are expected, with the number of industry companies projected to decrease an average of 0.5% per year during the next fi ve years to 14,464. In addition, technological advances and new architectural designs will play a crucial role in industry growth as demand for innovative amenities strengthens. Many trends will drive the senior market in 2012, among them the following: 1. Higher Levels of Acuity - Increased Risks and Costs Senior living and housing provi ders are beginning to experience higher levels of acuity (aka sickness) for their prospective residents. This elevates the risk of entrance and subsequently the cost of provi ding care. Acuity levels are rising because many seniors have delayed the entry for economic reasons, and they’ve become more accustomed to utilizing family, technology, medicine and community support to remain in their current environment. Page 17 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Higher acuity levels can lead to a higher cost of care, and providers may need to raise their costs as a result of increased risk, or change their policies all together to avoid the consequences of higher acuity. This may in turn force government benefits programs into playing an even larger role in funding seniors’ care, and it’s also possible seniors may face discrimination for entry into facilities based on their acuity level. 2. Senior Housing Community Evolution - Shift in Brick and Mortar Functions As the profile of senior housing residents change, so will the definition of types of senior care communities. The shift in resi dent profiles is giving way to a migration in communities: • Independent Li ving Becomes More Like Assisted Living. As more home and community based services initiatives are implemented, seniors living in apartment complexes or 55+ communities will see a greater level of a la carte services offered that will resemble more of an assisted living “feel” at a lower cost delivery as services will be unbundled. • Current Assisted Living Facilities will function more like Skilled Nursing. Current nursing homes will be handling the “sickest” seniors in the coming years as an alternative to hospital stays. The traditional model of nursing care will migrate to assisted living communities that can have differing levels of care within those communities. As part of this trend, many assisted living communities are finding that the average age of entry for its communities is increasing as people are living with less care longer. • Dedicated Alzheimer’s care facilities will begin to re -appear in earnest in the next 12-24 months. This trend is similar to a period in the early 2000s when many dedicated memory care communities were established. At the time, there were funding problems and the trend was somewhat ahead of its time given the number of memory care patients. However, a decade later, the supply of assisted living/dementia care communities is low while the demand is steady and increasing, regardless of the funding issues. 3. Aging in Place: Local Community Footprint Expand s With Home and Community Based Services Migratory trends for seniors are decreasing as the economic effects are more devastating than previously imagined, which leads to seniors remaining in their Page 18 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s local communities longer. However, the definition of “local community” is changing or better yet expanding. Before the definition of local communi ty used to be defined a 10-15 mile radius, it now encompasses an expanded area of almost 100 miles, based on supply, demand and costs. This expanded radi us is possible as home and community based services and networks are growing, predominantly in major metropolitan markets. Senior living communities and hospitals are partnering more closely to offer a full continuum of care as an extension of their brick and mortar campuses. These marketing efforts are designed to ease seniors into the system of care, s tarting at home and provi ding opportunities to expose indivi duals to the levels of care and communities they’ll be able to choose from when it becomes necessary. The linkages from home health care, clinic, rehab centers to assisted living and skilled nursing facilities will blur more as the power of the network of care becomes greater, and once in the network, indi vi duals may find themselves to be “customers for life.” 4. Creative Senior Living Solutions Gain Traction – Communal Living and Multigenerational Housing Concepts such as multigenerational housing, the Greenhouse Project, senior villages, co-housing, homes built with in-law apartments and other communal living solutions will continue appearing and evolving as indi viduals and families learn about the costs of senior housing. The el derly will increasingly move in with their families—or each other— as the economics of co-housing/cohabitation make a compelling case for multigenerational housing. Each of these solutions provi des maximum flexibility but as these models become more popular, regulation and fundi ng to further develop these alternatives may stall future growth. Those living in single-family homes will invest capital in their homes as more parents move in with their adult children. Using home office spaces, basements, attics and other existing solutions will make way for more formal renovations including the “grannie apartment” as either an add-on or standalone. Unlike additions for bathrooms or kitchens, the resale value of “grannie” ren ovation shoul d be discounted greatly when considering the costs if given any consideration at all. Others may opt for pre-fab cottages or PODs as solutions Page 19 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s that can be moved, stored or re-sold when a senior needs to move to a more comprehensive care community. As the housing market stays stuck in neutral through 2012, money will be invested in making the home more of a multi -generational dwelling out of necessity. Renovation will be a key dri ver in adaptation for senior housing in both single family homes. The key will be the return on the investment (ROI) but given the uncertainty of the amount of time that an elder may live with their children, it is difficult if not impossible to have a sense of certainty with respect to time. The resale value of these enhancements or modifications will have negli gible effect on the value of the home unlike more popular renovati ons such as kitchens and baths. 5. Politics and the Need for Affordable, Assisted Living Partisan politics and the election year will do li ttle to advance senior housing policy within the next 12 months. The good news is that the election will bring sobering discussions about the future of health care and senior care. Medicare, Medicaid and other entitlement programs will be at the forefro nt of the campaign, as the country’s ability to pay its bills, both operating costs and debt service, is called in question. Politicians are realizing that the aging demographics in America are an economic train wreck waiting to happen and are identifying the problem but not discussing any concrete solutions. The greatest policy challenge yet to be fully addressed is the need for some type of affordable, assisted living for low-income Americans. This includes solutions for simple services to assist with the activities of daily living (ADLs) and memory care. Even considering low-to-moderate income standards, will these ratios and income percentages be realistic (e.g. 60% of median area income)? Congress and state legislatures will need to conceptualize a nd develop some kind of interagency solution that bri dges the gap between housing and care. 6. Senior Care Technology – Monitoring and PERS Go Mainstream Senior care technology will begin to become more mainstream both for aging in Page 20 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s place and for those in communities. More applications (or “apps”) will be developed for a range of devices including laptops, PCs, tablets and smart phones. Cross-platform applications will be critical as care givers (both professional and familial) will want to carry their o wn devices and won’t want to carry multiple devices. As end users of technology fall into the younger spectrum, more companies will provide solutions that integrate into the existing technology platforms. Personal Emergency Response Systems (PERS) will b ecome more prevalent and blend in more with everyday life. Technologies for monitoring will begin to focus on habits and indivi dual behaviors on mundane tasks that don’t require specific interaction with a device. Monitoring pressure in beds, trips to the bathroom, turning on the coffee pot in the morning are examples of simple monitoring techniques that, when monitored for exception processing purposes, provide a means of monitoring without direct user interaction with any device. For seniors who are less technologically savvy, the television still is the primary electronic device that is connected in their home or their room in the community in which they live. Cable television operators have a strong position to deliver more telecare and monitoring services through their “pipes” and their boxes. Look for set top box manufacturers and cable companies to develop interfaces and applications built in for senior care. 7. Real Estate - Land Rush, Location, Housing Discrim ination Home prices will continue to present challenges for senior housing communities across the US in 2012. As the job market improves slightly during the course of 2012, the housing market will firm up and provi de a solid bottom for housing prices in good markets. For markets that have an exorbitant amount of foreclosures, it will still be some time before those markets change. Communities will still have a lag factor as many seniors that may want to move in will still be reluctant to sell their home at current market prices. Once the housing market recovery gains traction, there could be a surge in demand for independent living communities as capital is released after the sale of the home. Land acquisition and development will become critical in 2012 as competition for prime locations intensifies. The good news is that low financing rates will Page 21 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s help make the carry on the new acquisitions more palatable but put pressure on banks to provi de construction financing. Locations acquired during the next 12 months will be the new communities s tarting in late 2013 and 2014. Municipalities will need to address permits and application for new senior housing projects on these parcels as both a means to provide community support and an attempt to increase tax revenues for their communities. The days of NIMBY should start to diminish as residents realize that lack of supply for good senior housing in local communities. Housing discrimination against seniors will begin to gain national attention during 2012. As seniors are forced to downsize and c hange their lifestyles, landlords may begin to show delicate signs of age discrimination. 8. Financing For Senior Housing Communities – How Long Can Rates Stay Low? Rates will stay low for the balance of 2012 thanks to the efforts of the Federal Reserve and the troubles that remain with the European banking system. Senior housing provi ders will have a window of opportunity to lock in these low rates for the next 12 -18 months that gives those who are building or renovating time to get their communities fi lled up. Banks will continue to loosen up their underwriting requirements as competition heats up for established owners and operators, and more banks will look at smaller or less-experienced operators in an effort to expand their lending. Banks will become more interested in the details of the underlying operating model for each community financed, looking for functional and financial flexibility to change and adapt with supply and demand in the local marketplace. In 2012, regional banks will have an upper hand with senior housing construction financing with knowledge of local markets and demographic trends and REITs (real estate investment trusts) and large, national banks will provi de the long-term financing options. REITs held the upper -hand in the capital markets in 2011 and will most likely remain king of the jungle as long as rates stay low. As older communities begin to show their functional obsolescence, many senior housing companies will need to examine their current buildings and make Page 22 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s decisions about renovating or starting from scratch. The costs for renovation shoul d remain less expensi ve than new construction if feasible. 9. Personal Finance Challenges and Long-Term Care Insurance Declines in the net worth of American population presents bot h short and long term challenges to senior living. If the United States enters a new recession or a slow, steady growth trajectory through 2012, it will do little for retirement savings for those who find it necessary to move into senior housing communities. Coupled with a continued challenged residential real estate market, the trend for improved net worth in the 55+ crowd seems unlikely in 2012. As families move in together and more children are caring for their parents, the prospect of financial abuse looms larger and will create some societal challenges where lines are blurred as family members manage finances for their parents. Long-term care insurance is becoming more prevalent and will continue to grow in senior housing communities during 2012. As younger seniors enter communities with LTC insurance, the increases in the administrative work and burden on supporting handling LTC insurance claims added with any kind of additional support adds to the overhead costs for owners and operators. At some point, these additional costs will be passed along through rate increases in one fashion or another. The good news is that some communities are finding that their newer entrants have a well-balanced retirement plan that includes LTC insurance but the bad news is that those seniors may become “high maintenance” residents given the complexity of their LTC insurance. 10. More Senior Living Professionals Needed for Growing Industry No matter how well a community is constructed, the overall basis for a well -run community is the people that make it operate on a day -to-day basis. The senior living industry will see increased demand for qualified professionals that will provide more upward pressure on wages compared to the last two years based upon supply and demand. With funding cut backs anticipated for both Medicare and Medicaid programs, government agencies at both the federal and local level need to provi de more training and support funds to cope with the employee development challenges. Compounding the people crisis is the crackdown on overtime regulations for home-care provi ders. Page 23 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 4.0 Sunset Arms 4.1 Services Provided A paradigm shift in the way many fam ilies live has slowly altered the face of the American way of life over the last hundred years. The C om pany will take advantage of the opportunity to participate in this change. Long-since abandoned are the traditional living arrangements where families lived together or even in the same neighborhood or city. Undeniably, economic changes have fostered some of this change but there are new sets of rules being evolved for communities. After a decades-long hiatus where community was an oft-forgotten concept, those of like mind who want to live together and want to live with others whose vision of the community is the same are now forging new communities. These communities include today’s assisted living communities. Sunset Arms Assisted Living Facility, LLC will introduce into the Austin MSA a concept that, while it exists in theory, has not yet fully been realized. Bridging the gap between l uxury retirement community care and high-end nursing home care, Sunset Arms will provi de an upscale assisted living environment where the quality of life is matched only by the medical foundation that underlies it. At least, the facility will offer the following: Spacious apartments featuring kitchenettes, private baths, views and personalized security response systems Fine dining offering three delicious meals each day with an array of comfort food and healthy choices 24-hour onsite nursing staff and personal assistants Onsite physical therapy, outpatient rehabilitation and exercise programs Full-time activity director and innovative recreation programs Supporti ve services that include transportation, laundry assistance, Page 24 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s housekeeping and a concierge A state-of-the-art memory care program that focuses on the needs of the indi vidual and creating a peaceful, serene environment What this facility will not be is a huge sprawling community. Focused on a small number of residents at any one time, the organization will enable the staff to provide the best care possible to its residents. Anyone who has cared for an Alzheimer’s victim knows that this is not a responsibility that permits inattention. Left unattended, a resident with Alzheimer’s may look fine but do something unpredictable —and something that endangers their health—the next. This facility will provi de a compassionate care setting for such people. All professional staff, nursing personnel, and caregiver s are specially trained in Alzheimer’s and dementia -related care. Ongoing education and training allows the facility to provi de the latest and highest quality of care to meet the unique needs of its residents Memory Care Program and Units The Sunset Arms Memory Care Community is designed to provi de a secure environment for persons with Alzheimer’s disease and related memory impairments. Residents are able to enjoy comfortable living areas, colorful dining rooms and a secure courtyard with covered porches , gardens and walking paths. You can expect excellence in the following services and programs: 24-hour personal assistants and on-site nurses available to respond to resident needs, including bathing, dressing, hygiene, grooming, supervision, anxiety, wandering and socialization Structured activities, supervised di ning and exercise programs Health monitoring, including medication administration; incontinence care; and coordination of medical services On-site care planning by an experienced team of heal thcare professionals Quarterly assessments to ensure services continue to meet the needs of each resident and encourage personal involvement in activities of daily living. The Dementia and Memory Care Response System The community is equipped with a rel iable alert and staff call system that can Page 25 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s actually summon the care staff to the resident’s apartment without the resident being cognitively alert. Behavior or incidents requiring staff assistance is reported to our care team through a silent wireless pag ing system while maintaining a calm environment. The system can alert staff to respond promptly to residents with a high risk of falling or who require assistance with activities of daily living. These units have been specifically designed to minimize s eparating walls, which allows the resident freer movement throughout their apartment. Assisted Living Program and Units These units are notable for their quality, ambiance and the serenity of the surroundings. They include: Spacious apartments featuring kitchenettes, private baths, courtyard views and personalized security response systems Fine dining offering three delicious meals each day with an array of comfort food and healthy choices 24-hour on-site nursing staff and personal assistants On-site physical therapy, out-patient rehabilitation and exercise programs Full-time activity director and innovative recreation programs Supporti ve services which include transportation, laundry assistanc e, housekeeping and a concierge. Trained and caring resident assistants provide medication management, daily walking assistance with escorts, important daily reminders, diabetic management, continence care and daily living assistance with dressing, bathing and grooming. By offering quality support services, a s well as positive interactions and experiences, the goal is to reduce frustration and confusion. Staff members learn the backgrounds, history and important lifestyle routines of each resident, including favorite activities, food preferences and persona l care routines. Giving residents purpose is a major component of all Sunset Arms programs. Page 26 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 4.2 Facility and Room Layouts Gui delines from the Alzheimer’s Association were used to create a soothing and peaceful atmosphere provi ding residents a sense of comfort, dignity and well being all in a warm, familiar, home-like setting. In addition, outdoor programming gives residents an opportunity to enjoy and experience nature in a safe setting. It is believed that in the Memory Care Unit or not, this approach is a sound one. Page 27 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s At Sunset Arms, each resident receives an indi vidualized fram ework for care that is continually adjusted as needs arise and is designed to promote engagement, socialization and independence. Page 28 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 4.3 Permits Required Licen se Name Requ irements Texas Application for State License to Operate a LongTerm Care Facility Completed applications for a license must be subm itted 45 days before the building is expected to conform to the Life Safety Code and architectural requirements. Done Texas Department of Health Food Establishment License All establishments engaged in cooking and/or serving food must be inspected by the State of Texas in order to ensure compliance with safety regulations. Done Texas Assisted Living Facility Type B - Alzheimer's Disease and Related Disorders Completed applications for a license must be subm itted 45 days before the building is expected to conform to the Life Safety Code and architectural requirements. Done Texas Sales Tax and Use Permit All businesses in Texas need to register with the Texas Comptroller of Public Accounts. Done Page 29 Completed S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 5.0 Management Summary 5.1 Organization 5.1.1 Sunset Arms Management David Anheuser, Chief Operating Officer Administrative Assistant Ann Davis, Health Services Administrator Gerald Gervais, Financial Director Sam Arnheim, Marketing Director 5.1.2 Company Principals David Anheuser – President and C hief Operating Officer, the Sunset Arms Assisted Living Facility, LLC As President and Chief Operating Officer, Mr. Anheuser leads the business operations of the Sunset Arms Assisted Living Facility, LLC. A proven entrepreneurial business leader and a licensed architect and general contractor, Mr. Anheuser has built a number of successful real estate services companies including Counterpoint Builders, which performs design, construction, development and finance for its clients. Mr. Anheuser and Counterpoint Builders have designed and developed over $750 million of commercial real estate. Counterpoint Builders is regularly recognized by the Austin Business Journal. Most recently, Counterpoint was ranked number thirty-six of Austin’ Fastest Growing Businesses. He holds a Masters in Architecture from The Uni versity of Alabama at Birmingham. Previously, he earned a Master’s in Business Administration from the University of Southern California in Los Angeles, California. Gerald Gervais – Financial Director Mr. Gervais has experience covering all areas of real estate analysis, business Page 30 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s planning, and large project solutions. O ver his career, he has financed approximately $1 billion of commercial real estate transactions. He is primarily responsible for management of the Sunset Arms Assisted Li ving Facility, LLC Investor Visa program. Mr. Gervais has lived in numerous countries around the world including Dubai, China and Japan. Mr. Gervais received his Master’s in Finance from Baylor University. Ann Davis, Health Services Adm inistrator Ms. Davis is an accessible, effective health administrative leader who has successfully trained and retained a staff of resident-focused healthcare personnel in her current position as administrator of Austin’s Bethany Assisted Living Center. She is a skilled initiator of marketing strategies and process improvement plans in order to maintain a competitive industry advantage and effectively resolve organizational issues. She has already demonstrated her commitment to the concept of resident-centric care and has in fact initiated several programs with attendant policies and procedures in her c urrent position. Ms. Davis has a Masters of Health Services Administration (M.H.S.A.), Uni versity of Michigan School of Public Health. Sam Arnheim, Marketing Director Mr. Arnheim is a highly skilled sales and marketing professional with proven experience in building relationships, networking within the assisted living target market, provi ding excellent customer service and closing sales. He was directly responsible for a ten percent increase in occupancy in two assisted living facilities and brought one from startup to full occupancy within a year. With more than 12 years of experience, with strong credentials and a proven industry. He has been director of both functions. At Florida State Uni versity, Administration. he is a highly motivated professional track record in the senior housing marketing and market ing and leasing he received his Master’s in Business Page 31 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 6.0 Staffing 6.1 Staffing Demand Analysis The Company validated its anticipated staffing needs against industry and local area standards, as shown in the analysis below. Their predicted staffing level of 58 is well within local standards. Revenue Comparison MARKET The subject property is located in Austin, Texas, Bastrop County REVENUE COMPARISON The Subject Property is providing the following units and monthly rates: Type Quantity Small Studio Unit Medium Studio Unit Large Studio Unit Largest Studio Unit Small 1 Bedroom Unit Large 1 Bedroom Unit Medium 1 Bedroom Unit Larger 1 Bedroom Unit Medium 2 Bedroom Unit Small 2 Bedroom Unit Large 2 Bedroom Unit 30 11 2 1 1 1 11 1 1 1 1 Monthly Rent $1,500 $1,900 $2,400 $3,200 $3,500 $3,900 $3,750 $4,200 $4,500 $3,900 $4,900 Total Revenue Assisted Living Total Number of Units Assisted Living Cost-per-Unit per-Month, Assisted Living $1,680,600 31 $4,518 The Primary Market Area -- Bastrop County -- contains the following current-market characteristics Characteristic Current Inventory, Majority AL Average Monthly Rent Stabilized Occupancy Value 1483 $3,764 92.2% Current-Market Properties Arden Courts Alzheimer's AssistedLiving 11630 Four Iron Dr Austin. TX 78750 Argent Court Assisted Living 508 Old Austin Hwy Bastrop, TX 78602 Barton Hills Assisted Living 1606 Nash Ave Austin, TX 78704 Cedar Ridge Alzheimers 2100 S. Lakeline Blvd Cedar Park, TX 78613 Colonial Gardens 3700 Adelphi Lane Austin, 71X 78727 Cottages at Chandler Creek - TheNorth Cottage 2401 North AW Grimes Blvd Round Rock. TX78665 Elmcroft of Austin 7017 Manchaca Rd Austin, TX 78745 Emeritus at Beckett Meadows 7709 Beckett Rd Austin, TX 78749 Emeritus at North Austin 5310 Duval Rd Austin, TX 78727 Emeritus at San Marcos 1401 Wonder World Dr San Marcos, TX 78666 Emeritus at Spicewood Springs 4401 Spicewood Springs Rd Austin, TX 78759 Emeritus at Vista Oaks 1604 Lohmans Crossing Rd Austin. TX 78734 Grace House of Lake Travis 11825 FM 2244 BEE CAVE, TX 78738 Heather Wilde Assisted Living 401 Heatherwilde Blvd Pflugerville, TX 78660 Parmer Woods, A Merrill GardensCommunity 12429 Scofield Farms Dr Austin, TX 78758 Round Rock 8005 Cornerwoocl Dr Austin, TX 78717 San Marcos 1720 Ranch Road 12 San Marcos, TX 78666 Si lverado Senior Living - OnionCreek 11330 Farrah Lane Austin, TX 78748 Sterling House of Georgetown 2600 E University Ave Georgetown, TX 78626 Summit at Northwest Hills 5715 Mesa Dr Austin, TX 78731 The Cottages at Chandler Creek -The South Cottage 2351 North AW Grimes Blvd. Round Rock. TX78665 The Isle at Cedar Ridge 2200 S Lakeline Blvd Cedar Park, TX 78613 The Legacy at Georgetown 4909 William Drive Georgetown, TX 78633 The Pavilion at Great Hills AssistedLiving and Memory Care Community 11819 Pavilion Blvd Austin, TX 78759 The Pointe at Cedar Park 450 Discovery Blvd Cedar Park, TX 78613 University Village Memory Care 4701 Campus Village Dr. Round Rock. TX78665 Wyoming Springs Assisted Livingand Memory Care 7230 Wymoning Springs Drive Round Rock TX78664 Page 32 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Sales Per Employee Forecast The information below is provided by Bizminer for Bastrop, County, for the "Sector: Health Care-Social Assistance" : Annual Sales per Employee 2010 2011 2012 Average $67,271 $72,147 $73,239 $70,886 Subject Property, Number of Required Employees to support forecasted revenue: Revenue Projected Staff Requirement 2014 2015 2016 2017 2018 $2,354,486 $3,817,793 $3,968,331 $4,187,248 $4,798,169 33 54 56 59 68 6.2 Staffing Chart 6.3 Job Descriptions Executive Director Determine and formulate policies and provi de overall direction of companies or private and public sector organizations within gui delines set up by a board of directors or similar governing body. Plan, direct, or coordinate opera tional activities at the highest level of management with the hel p of subordinate executi ves and staff managers. Page 33 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Tasks Direct or coordinate an organization's financial or budget activities to fund operations, maximize investments, or increase efficiency. Confer with board members, organization officials, or staff members to discuss issues, coordinate activities, or resolve problems. Analyze operations to evaluate performance of a company or its staff in meeting objectives or to determine areas of potential cost reduction, program improvement, or policy change. Direct, plan, or implement policies, objectives, or activities of organizations or businesses to ensure continuing operations, to maximize returns on investments, or to increase productivity. Prepare budgets for approval, including those for funding or implementation of programs. Direct or coordinate activities of businesses or departments concerned with production, pricing, sales, or distribution of products. Negotiate or approve contracts or agreements with suppliers, distributors, federal or state agencies, or other organizational entities. Review reports submitted by staff members to recommend approval or to suggest changes. Appoint department heads or managers and assign or delegate responsibilities to them. Direct human resources activities, including the approval of human resource plans or activities, the selection of directors or other high -level staff, or establishment or organization of major departments. Business Office Manager Plan, direct, or coordinate one or more administrative services of an organization, such as records and information management, mail distribution, facilities planning and maintenance, custodial operations, and other office support services. Tasks Direct or coordinate the supportive services department of a business, agency, or organization. Prepare and review operational reports and schedules to ensure accuracy and efficiency. Set goals and deadlines for the department. Acquire, distribute and store supplies. Page 34 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Analyze internal processes and recommend and implement procedural or policy changes to improve operations, such as supply changes or the disposal of records. Plan and administer budgets for contracts, equipment and supplies. Monitor the facility to ensure that it remains safe, secure, and well maintained. Hire and terminate clerical and administrative personnel. Oversee the maintenance and repair of machinery, equipment, and electrical and mechanical systems. Oversee construction and renovation projects to improve e fficiency and to ensure that facilities meet environmental, health, and security standards, and comply with government regulations. Community Relations Director Engage in promoting or creating an intended public image for indi viduals, groups, or organizations. May write or select material for release to various communications media. Tasks Respond to requests for information from the media or designate an appropriate spokesperson or information source. Study the objectives, promotional policies, or needs of organizations to develop public relations strategies that will influence public opinion or promote i deas, products, or services. Plan or direct development or communication of informational programs to maintain favorable public or stockholder perceptions of an organization's accomplishments or agenda. Establish or maintain cooperative relationships with representati ves of community, consumer, employee, or public interest groups. Prepare or edit organizational publications for internal and external audiences, including employee newsletters and stockholders' reports. Coach client representatives in effective communication with the public or with employees. Confer with production or support personnel to produce or coordinate production of advertisements or promotions. Confer with other managers to identify trends or key group interests or concerns or to provi de advice on business decisions. Arrange public appearances, lectures, contests, or exhibits for clients to increase product or service awareness or to promote goodwill. Page 35 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Consult with advertising agencies or staff to arrange promotional campaigns in all types of media for products, organizations, or indi viduals. Receptionist Answer inquiries and provide information to the general public, customers, visitors, and other interested parties regarding activities conducted at establishment, offices, and employees within the organization. Tasks Operate telephone switchboard to answer, screen, or forward calls, providing information, taking messages, or scheduling appointments. Greet persons entering establishment, determine nature and purpose of visit, and direct or escort them to specific destinations. Transmit information or documents to customers, using computer, mail, or facsimile machine. Hear and resolve complaints from customers or the public. Perform administrative support tasks, such as proofreading, transcribing handwritten information, or operating calculators or computers to work with pay records, invoices, balance sheets, or other documents. File and maintain records. Provi de information about establishment, such as location of departments or offices, employees within the organization, or services provi ded. Collect, sort, distribute, or prepare mail, messages, or courier deliveries. Process and prepare memos, correspondence, travel vouchers, or other documents. Receive payment and record receipts for services. Resident Services Director Answer inquiries and provide information to the general public, customers, visitors, and other interested parties regarding activities conducted at establishment and location of departments, offices, and employees within the organization. Tasks Operate telephone switchboard to answer, screen, or forward calls, providing information, taking messages, or scheduling appoi ntments. Greet persons entering establishment, determine nature and purpose of visit, and direct or escort them to specific destinations. Page 36 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Transmit information or documents to customers, using computer, mail, or facsimile machine. Hear and resolve complaints from customers or the public. Perform administrative support tasks, such as proofreading, transcribing handwritten information, or operating calculators or computers to work with pay records, invoices, balance sheets, or other documents. File and maintain records. Provi de information about establishment, such as location of departments or offices, employees within the organization, or services provi ded. Collect, sort, distribute, or prepare mail, messages, or courier deliveries. Process and prepare memos, correspondence, travel vouchers, or other documents. Receive payment and record receipts for services. Assisted Living Director Assess patient health problems and needs, develop and implement nursing care plans, and maintain medical records. Administer nursing care to ill, injured, convalescent, or disabled patients. May advise patients on health maintenance and disease prevention or provi de case management. Licensing or registration required. Tasks Monitor, record, and report symptoms or changes in pa tients' conditions. Maintain accurate, detailed reports and records. Record patients' medical information and vital signs. Order, interpret, and evaluate diagnostic tests to identify and assess patient's condition. Modify patient treatment plans as indicated by patients' responses and conditions. Direct or supervise less-skilled nursing or healthcare personnel or supervise a particular unit. Consult and coordinate with healthcare team members to assess, plan, implement, or evaluate patient care plans. Monitor all aspects of patient care, including diet and physical activity. Instruct indi viduals, families, or other groups on topics such as health education, disease prevention, or childbirth and develop health improvement programs. Prepare patients for and assist with examinations or treatments. Page 37 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Memory Care Director Assess patient health problems and needs, develop and implement nursing care plans, and maintain medical records. Administer nursing care to ill, injured, convalescent, or disabled patients. Ma y advise patients on health maintenance and disease prevention or provi de case management. Licensing or registration required. Tasks Monitor, record, and report symptoms or changes in patients' conditions. Maintain accurate, detailed reports and records. Record patients' medical information and vital signs. Order, interpret, and evaluate diagnostic tests to identify and assess patient's condition. Modify patient treatment plans as indicated by patients' responses and conditions. Direct or supervise less-skilled nursing or healthcare personnel or supervise a particular unit. Consult and coordinate with healthcare team members to assess, plan, implement, or evaluate patient care plans. Monitor all aspects of patient care, including diet and physical activity. Instruct indi viduals, families, or other groups on topics such as health education, disease prevention, or childbirth and develop health improvement programs. Prepare patients for and assist with examinations or treatments. Care Givers, Memory Care Assist mentally impaired or emotionally disturbed patients, working under direction of nursing and medical staff. May assist with daily living activities, lead patients in educational and recreational activities, or accompany patients to and from examinations and treatments. May restrain violent patients. Includes psychiatric orderlies. Tasks Complete physical checks and monitor patients to detect unusual or harmful behavior and report observations to professional staff. Record and maintain patient informati on, such as vital signs, eating habits, behavior, progress notes, treatments, or discharge plans. Page 38 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Maintain patients' restrictions to assigned areas. Work as part of a team that may include psychiatrists, psychologists, psychiatric nurses, or social workers . Provi de patients with assistance in bathing, dressing, or grooming, demonstrating these skills as necessary. Clean and disinfect rooms to maintain a safe and orderly environment. Restrain or aid patients as necessary to prevent injury. Provi de mentally impaired or emotionally disturbed patients with routine physical, emotional, psychological, or rehabilitation care under the direction of nursing or medical staff. Serve meals or feed patients needing assistance or persuasion. Organize, supervise, or encourage patient participation in social, educational, or recreational activities. Assisted Living Care Givers Assist the elderly, convalescents, or persons with disabilities with daily living activities at the person's home or in a care facility. Duties perf ormed at a place of residence may include keeping house (making beds, doing laundry, washing dishes) and preparing meals. May provide assistance at non-residential care facilities. May advise families, the elderly, convalescents, and persons with disabilities regarding such things as nutrition, cleanliness, and household activities. Tasks Administer bedside or personal care such as ambulation or personal hygiene assistance. Prepare and maintain records of client progress and services performed, reporting changes in client condition to manager or supervisor. Perform housekeeping duties, such as cooking, cleaning, washing clothes or dishes, or running errands. Care for indi viduals or families during periods of incapacitation, family disruption, or convalescence, provi ding companionship, personal care, or help in adjusting to new lifestyles. Perform healthcare-related tasks, such as monitoring vital signs and medication, under the direction of registered nurses or physiotherapists. Transport clients to locations outside the home, such as to physicians' offices or on outings, using a motor vehicle. Instruct or advise clients on issues such as household cleanliness, utilities, hygiene, nutrition, or infant care. Page 39 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Participate in case reviews, consulting with the tea m caring for the client, to evaluate the client's needs and plan for continuing services. Train family members to provi de bedside care. Dining Services Director Plan, direct, or coordinate activities of an organization or department that serves food and beverages. Tasks Monitor compliance with health and fire regulations regarding food preparation and serving, and building maintenance in lodging and dining facilities. Monitor food preparation methods, portion sizes, and garnishing and presentation of food to ensure that food is prepared and presented in an acceptable manner. Count money and make bank deposits. Investigate and resolve complaints regarding food quality, service, or accommodations. Coordinate assignments of cooking personnel to ensure econom ical use of food and timely preparation. Schedule and receive food and beverage deliveries, checking delivery contents to verify product quality and quantity. Monitor budgets and payroll records, and review financial transactions to ensure that expenditures are authorized and budgeted. Maintain food and equi pment inventories, and keep inventory records. Schedule staff hours and assign duties. Establish standards for personnel performance and customer service. Cooks Prepare and cook large quantities of foo d for institutions, such as schools, hospitals, or cafeterias. Tasks Clean, cut, and cook meat, fish, or poultry. Cook foodstuffs according to menus, special dietary or nutritional restrictions, or numbers of portions to be served. Clean and inspect galley equipment, kitchen appliances, and work areas to ensure cleanliness and functional operation. Apportion and serve food to facility residents, employees, or patrons. Page 40 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Direct activities of one or more workers who assist in preparing and serving meals. Wash pots, pans, dishes, utensils, and other cooking equipment. Compile and maintain records of food use and expenditures. Take inventory of supplies and equipment. Bake breads, rolls, and other pastries. Train new employees. Servers/Aides Serve food to indi viduals outside of a restaurant environment, such as in hotel rooms, hospital rooms, residential care facilities, or cars. Tasks Monitor food distribution, ensuring that meals are delivered to the correct recipients and that gui delines, such as those for special diets, are followed. Clean or sterilize dishes, kitchen utensils, equipment, or facilities. Examine trays to ensure that they contain required items. Place food servings on plates or trays according to orders or instructions. Load trays with accessories such as eating utensils, napkins, or condiments. Take food orders and relay orders to kitchens or serving counters so they can be filled. Stock service stations with items such as ice, napkins, or straws. Remove trays and stack dishes for return to ki tchen after meals are finished. Prepare food items, such as sandwiches, salads, soups, or beverages. Monitor food preparation or serving techniques to ensure that proper procedures are followed. Activities Director Answer inquiries and provide informatio n to the general public, customers, visitors, and other interested parties regarding activities conducted at establishment and location of departments, offices, and employees within the organization. Tasks Operate telephone switchboard to answer, screen, or forward calls, providing information, taking messages, or scheduling appointments. Page 41 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Greet persons entering establishment, determine nature and purpose of visit, and direct or escort them to specific destinations. Transmit information or documents to customers, using computer, mail, or facsimile machine. Hear and resolve complaints from customers or the public. Perform administrative support tasks, such as proofreading, transcribing handwritten information, or operating calculators or computers to work with pay records, invoices, balance sheets, or other documents. File and maintain records. Provi de information about establishment, such as location of departments or offices, employees within the organization, or services provi ded. Collect, sort, distribute, or prepare mail, messages, or courier deliveries. Process and prepare memos, correspondence, travel vouchers, or other documents. Receive payment and record receipts for services. Memory Care Activities Conduct recreation activities with groups in public, private, or vol unteer agencies or recreation facilities. Organize and promote activities, such as arts and crafts, sports, games, music, dramatics, social recreation, camping, and hobbies, taking into account the needs and interests of indi vi dual member s. Tasks Enforce rules and regulations of recreational facilities to maintain discipline and ensure safety. Manage the daily operations of recreational facilities. Administer first aid according to prescribed procedures, and notify emergency medical personnel when necessary. Organize, lead, and promote interest in recreational activities such as arts, crafts, sports, games, camping, and hobbies. Greet new arrivals to activities, introducing them to other participants, explaining facility rules, and encoura ging participation. Supervise and coordinate the work activities of personnel, such as training staff members and assigning work duties. Confer with management to discuss and resolve participant complaints. Explain principles, techniques, and safety procedures to participants in recreational activities, and demonstrate use of materials and equipment. Complete and maintain time and attendance forms and inventory lists. Page 42 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Evaluate recreation areas, facilities, and services to determine if they are producing desired results. Assisted Living Activities Conduct recreation activities with groups in public, private, or vol unteer agencies or recreation facilities. Organize and promote activities, such as arts and crafts, sports, games, music, dramatics, social recreation, camping, and hobbies, taking into account the needs and interests of indi vi dual members. Tasks Enforce rules and regulations of recreational facilities to maintain discipline and ensure safety. Manage the daily operations of recreational facilities . Administer first aid according to prescribed procedures, and notify emergency medical personnel when necessary. Organize, lead, and promote interest in recreational activities such as arts, crafts, sports, games, camping, and hobbies. Greet new arrivals to activities, introducing them to other participants, explaining facility rules, and encouraging participation. Supervise and coordinate the work activities of personnel, such as training staff members and assigning work duties. Confer with management to discuss and resolve participant complaints. Explain principles, techniques, and safety procedures to participants in recreational activities, and demonstrate use of materials and equipment. Complete and maintain time and attendance forms and inventory list s. Evaluate recreation areas, facilities, and services to determine if they are producing desired results. Maintenance Director Directly supervise and coordinate work activities of cleaning personnel in hotels, hospitals, offices, and other establishment s. Tasks Plan and prepare employee work schedules. Coordinate activities with other departments to ensure that services are provided in an efficient and timely manner. Inspect work performed to ensure that it meets specifications and established standards. Resolve performance and personnel problems. Page 43 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Establish and implement operational standards and procedures for the departments supervised. Investigate complaints about service and equi pment, and take corrective action. Maintain required records of work hours, budgets, payrolls, and other information. Inspect and evaluate the physical condition of facilities to determine the type of work required. Van Drivers Transport residents or special clients, such as the elderly or persons with disabilities. Ensure adherence to safety rules. Tasks Follow safety rules as residents board and exit buses or cross streets near bus stops. Comply with traffic regulations to operate vehicles in a safe and courteous manner. Maintain order among pupils during trips to ensure safety. Check the condition of a vehicle's tires, brakes, windshield wipers, lights, oil, fuel, water, and safety equipment to ensure that everything is in working order. Escort small children across roads and highways. Report any bus malfunctions or needed repairs. Pick up and drop off residents at regularly scheduled neighborhood locations, following strict time schedules. Maintain knowledge of first-aid procedures. Prepare and submit reports that may include the number of passengers or trips, hours worked, mileage, fuel consumption, or fares received. Housekeepers Perform any combination of light cleaning duties to maintain pri vate households or commercial establishments, such as hotels and hospitals, in a clean and orderly manner. Duties may include m aking beds, replenishing linens, cleaning rooms and halls, and vacuuming. Tasks Carry linens, towels, toilet items, and cleaning supplies, using wheeled carts. Page 44 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s Disinfect equipment and supplies, using germicides or sterilizers. Clean rooms, hallways, lobbi es, lounges, restrooms, corridors, elevators, stairways, and other work areas so health standards are met. Empty wastebaskets, empty and clean ashtrays, and transport other trash and waste to disposal areas. Observe precautions required to protect hotel and guest property and report damage, theft, and found articles to supervisors. Replenish supplies, such as drinking glasses, linens, writing supplies, and bathroom items. Clean rugs, carpets, upholstered furniture, and draperies, using vacuum cleaners and shampooers. Dust and polish furniture and equi pment. Keep storage areas and carts well-stocked, clean, and ti dy. Wash windows, walls, ceilings, and woodwork, waxing and polishing as necessary. Laundry Operate or tend washing or dry-cleaning machines to wash or dry-clean facility articles such as cloth garments, blankets, draperies, linens, rugs, and carpets. Tasks Receive and mark articles for laundry or dry cleaning with identifying code numbers or names, using hand or machine markers. Start washers, dry cleaners, driers, or extractors, and turn valves or levers to regulate machine processes and the vol ume of soap, detergent, water, bleach, starch, and other additives. Sort and count articles removed from dryers, and fold, wrap, or hang them. Examine and sort into lots articles to be cleaned, according to color, fabric, dirt content, and cleaning technique required. Load articles into washers or dry-cleaning machines, or direct other workers to perform loading. Mix and add detergents, dyes, bleaches, starches, and other solutions and chemicals to clean, color, dry, or stiffen articles. Clean machine filters, and l ubricate equipment. Remove items from washers or dry-cleaning machines. Operate extractors and driers, or direct their operation. Inspect soiled articles to determine sources of stains, to locate color imperfections, and to i dentify items requiring special treatment. Page 45 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 7.0 E-Verify The Company will participate in E-Verify to document both the legality of its employees and the number that are hired. E-Verify is an electronic program through which employers verify the employment eligibility of their employees after hire. The program was authorized by the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA). In short, employers submit information taken from a new hire's Form I-9 (Employment Eligibility Verification Form) through E-Verify to the Social Security Administration and United States Citizenship and Immigration Services (USCIS) to determine whether the information matches government records and whether the new hire is authorized to work in the United States. E-Verify is administered by the United States Department of Homeland Security, USCIS, Verification Division, and the Social Security Administration. The USCIS Verification Division is dedicated to providing program support, administering unparalleled customer service to both employers and workers, developing innovative technological solutions, and performing community outreach to further the mission of EVerify. Page 46 S u n se t A r m s A s s i s t e d L i v i n g F a c i l i t y , L L C Austin, Texa s 8.0 Employment and Economic Impacts With planned development over a period of years, this project will have a very significant impact on the Austin region. The econometric analysis has calculated the permanent increase in employment, output, and la bor income and indirect business taxes. The number of permanent new jobs created consists of the following components: Direct new jobs for the construction and operation of the Sunset Arms Assisted Living Facility, LLC Indirect and induced jobs from the construction and operation of the Sunset Arms Assisted Living Facility, LLC, as calculated with the IMPLAN model, using multipliers for Travis, Williamson, Hays, Bastrop and Caldwell Counties, Texas. 8.1 Assumptions The following assumptions were used as the basis for the IMPLAN projections: Employee numbers were based on client-provided data that was validated based on industry and local market standards, specifically those for Austin, Texas. Projected revenue and expense figures were based on client-provi ded data and validated based on industry and local market standards, specifically those for Austin, Texas. The multipliers used were those for Travis, Williamson, Hays, Bastrop and Caldwell Counties, Texas. Specifically: Construction The inputs used for construction reflected the hard costs provided by the client and di d not include the soft costs in accordance with USCIS requirements. The inputs used for construction did not include any real estate purchases in accordance with USCIS requirements . The number of direct, indirect and induced construction jobs was derived from client-provided jobs input and the hard-cost investment in the project and were not solely a derivative of inputting the project hard cost Page 47 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s inputs into the IMPLAN system. Resulting outputs such as value-added are a direct reflection of combining these two inputs in this way as opposed to relying on the automatically generated IMPLAN results. 8.2 Projected Economic Impacts 8.2.1 Projected Economic Impacts for Entire Project Impact Type Employmen t Labor Income Valu e Added Ou tpu t Direct Effect Indirect Effect 58.2 20.2 $9,577,777 $2,244,355 $23,254,374 $4,058,110 $48,164,598 $6,751,795 Induced Effect Total Effect 31.6 110 $2,342,875 $14,165,006 $4,836,188 $32,148,672 $7,752,740 $62,669,132 8.2.2 Construction Jobs Overview Phases I and II The construction of the various components of this project will be spread over a six-year span, as shown in the project timeline. The current plan enables the project to begin accruing revenue in year three while continuing to invest money into the project. 8.2.2.1 Total Construction Jobs Anticipated from Project Impact Type Employmen t Labor Income Valu e Added Ou tpu t Direct Effect Indirect Effect 58.2 20.2 $9,577,777 $2,244,355 $23,254,374 $4,058,110 $48,164,598 $6,751,795 Induced Effect Total Effect 31.6 110 $2,342,875 $14,165,006 $4,836,188 $32,148,672 $7,752,740 $62,669,132 8.2.2.2 Total Impacts from Assisted Living Operations Years One and Two Impact Type Employmen t Labor Income Valu e Added Ou tpu t Direct Effect Indirect Effect 58.2 20.2 $9,577,777 $2,244,355 $23,254,374 $4,058,110 $48,164,598 $6,751,795 Induced Effect Total Effect 31.6 110 $2,342,875 $14,165,006 $4,836,188 $32,148,672 $7,752,740 $62,669,132 Page 48 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 9.0 Central Texas Economic Development In line with the goals of the region’s economic development strategy, the industry clusters that they have been made priorities and in order to participate in the revitalization of the region, the Company will develop this Project. A paradigm shift in the way many fam ilies live has slowly altered the face of the American way of life over the last hundred years. The Com pany will take advantage of the opportunity to participate in this change. Long-since abandoned are the traditional living arrangements where families lived together or even in the same neighborhood or city. Undeniably, economic changes have fostered some of this change but there are new sets of rules being evolved for communities. After a decades -long hiatus where community was an oft-forgotten concept, those of like mind who want to live together and want to live with others whose vision of the community is the same are now forging new communities. These communities include today’s assisted living communities . 9.1 Central Texas Four-Region Demographics and Economy The Central Texas countryside is characterized by two major geographic areas. On its eastern side, rolling prairies extend from Hillsboro south to Brenham. Traveling westward, slopes and cedars appear more frequently on the upper rim of the Texas Hill Country. This diverse landscape provi des an array of resources that fuel regional industries and foster economic growth. The macroeconomic view of this area is considered here because it provides the context for this regional center’s operation. Manufacturing plays a pivotal role in the area’s econom y. Area businesses manufacture a broad range of products including lim e, plastics, desserts and soft drinks. Mining is a traditional pillar of the regional econo my. Enterprises such as clay, ceramic and refractory mining have remained robust, while value -added activities such as wholesaling and transportation have evol ved to support them. Page 49 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Since the 1940s, the military has played a large role in the Central Texas economy. Fort Hood, in the Killeen area, has trained and deployed soldiers for military conflicts since World War II. The base’s presence supports local communities and businesses while bringing in jobs from outside the state. Manufacturing plays a pivotal role in the area’s economy. Area businesses manufacture a broad range of products including lime, plastics, desserts and soft drinks. The region has experienced job growth similar to the state’s growth, and should follow state trends through 2013. The employment growth rate in Central Texas shoul d outpace Texas growth in 2009, with a projected decrease in Texas of less than one percent, while Central Texas is projected to grow less than one percent. Industry Employment Projections, Central Texas Regio n, 2003-2013 S ource Page 50 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Growth in the Bryan-College Station metro area should exceed the Texas growth rate in 2010 and continue outpacing the state through 2013. Non -metro counties in Central Texas are projected to lose jobs in 201 0, followed by projected job gains through 2013. Economic Trends Of the projections by period’s end, three supersectors show steady expansion throughout the period. The Professional and Business Services sector should top all supersector growth with 36 percent more jobs in 2013 than 2003. The sector is projected to add jobs each year to finish with 33,239 in 2013, led by Financial Support Services projected to add 1,589 jobs over the period. Engineering Services should lead all industries in the sector wit h 2,839 jobs in 2013. Leisure and Hospitality is another supersector projected to add jobs each year, growing 32 percent from 2003 to 2013 to finish the period with 43,249 jobs. Most of this growth is attributable to its leading job industry, Lim ited Serv ice Restaurants, which is projected to add 5,644 jobs by 2013. The third supersector projected to add jobs each year is Education and Health Services. General Medical and Surgical Hospitals lead all industries in jobs and job growth throughout the period, projected to add 42 percent of supersector jobs by 2013 to finish with 17,658. Home Health Care Services should finish as the second largest industry with 7,526 jobs projected in 2013. Educational industries as a group are projected to grow more modestly, led by Colleges, Uni versities and Professional Schools contributing four percent of supersector job growth by 2013. Despite various industry downturns, other supersectors show strong projected job growth. At almost 32 percent, projected growth in the Agr iculture, Natural Resources and Mining sector trails only growth in Professional and Business Services. This comes after strong rebounds from contractions in 2004 and 2006, and growth projected through the 2009 national recession. Overall, jobs in the Central Texas econom y are expected to grow by 21 percent between 2003 and 2013. Page 51 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Oil and Gas Support Activities should lead all supersector industries, contributing 72 percent job growth by 2013. Dimension Stone Mining and Quarrying should see large percentage gains, projected to finish with 280 jobs in 2013 from a start of only 11 jobs in 2003. Government represents the largest regional supersector with 170,074 projected jobs in 2013. Government jobs shoul d increase by 20 percent from 2003 to 2013, led by a projected job gain of 9,682 in State Government. Local Government accounts for more employment than any industry in the region with 60,222 jobs projected in 2013. Most of these Local Government jobs are in public schools. Except for a slight contraction in 2004, the supersector is projected to add jobs in each year of the 10 -year period. Other supersectors anticipating positive job growth rates over the period include Construction (22 percent); Trade, Transportation and Utilities (17 percent); Financial Activities (17 percent); Other Services (14 percent); Information (13 percent); and Manufacturing (eight percent). Economic Structure Job growth depends upon a region’s underlying economic structure. That structure includes multiple factors, including nat ural resources, labor force characteristics and the composition and concentration of the region’s industries. This latter characteristic, also called clustering, is particularly important since industry clusters give firms within them access to more suppli ers and to skilled laborers with valuable knowledge and information. The benefits that result from high industry concentrations give a region its competitive edge. Page 52 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 10.0 Austin-Red Rock MSA The demographics for this population are important because it i s from this source that the project will derive its employee base. Population 2000 Population 1,233,226 2010 Population 1,694,835 2012 Population 1,781,486 2017 Population 2,028,376 2000-2010 Annual Rate 3.23% 2010-2012 Annual Rate 2.24% 2012-2017 Annual Rate 2.63% 2012 Male Population 50.2% 2012 Female Population 49.8% 2012 Median Age 32.7 In the identified area, the current year population is 1,781,486. In 2010, the Census count in the area was 1,694,835. The rate of change since 2010 was 2.24% annually. The five-year projection for the population in the area is 2,028,376 representing a change of 2.63% annually from 2012 to 2017. Currently, the population is 50.2% male and 49.8% female. Households by Income Current median househol d income is $57,397 in the area, compared to $50,157 for all United States househol ds. Median household income is projected to be $64,537 in five years, compared to $56,895 for all United States households Current average household income is $79,400 in this area, compared to $68,162 for all U.S households. Average household income is projected to be $89,332 in five years, compared to $77,137 for all United States households. Current per capita income is $30,878 in the area, compared to the United States per capita income of $26,409. The per capita income is projected to be $34,649 in five years, compared to $29,882 for all United States households. Median Household Income 2012 Median Household Income $57,397 2017 Median Household Income $64,537 2012-2017 Annual Rate 2.37% Page 53 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Average Household Incom e 2012 Median Household Income $79,400 2017 Median Household Income $89,332 2.39% 2012-2017 Annual Rate Housing 490,954 2000 Total Housing Units 2000 Owner Occupied Hous ing Units 271,670 2000 Owner Occupied Hous ing Units 195,032 24,252 2000 Vacant Housing Units 700,245 2010 Total Housing Units 2010 Owner Occupied Hous ing Units 376,697 2010 Renter Occupied Housing Units 267,612 2010 Vacant Housing Units 55,936 732,133 2012 Total Housing Units 2012 Owner Oc cupied Hous ing Units 389,061 2012 Renter Occupied Housing Units 287,867 55,205 2012 Vacant Housing Units 826,048 2017 Total Housing Units 2017 Owner Occupied Hous ing Units 452,413 2017 Renter Occupied Housing Units 319,745 53,890 2015 Vacant Housing Units Currently, 53.1% of the 732,133 housing units in the area are owner occupied; 39.3%, renter occupied; and 7.5% are vacant. Currently, in the United States, 56.5% of the housing units in the area are owner occupied; 32.1% are renter occupied; and 11.4% are vacant. In 2010, there were 700,245 housing units in the area - 53.8% owner occupied, 38.2% renter occupied, and 8.0% vacant. The annual rate of change in housing units since 2010 is 2.00%. Median home value in the area is $192,911, compared to a median home value of $167,749 for the United States. In fi ve years median value is projected to change by 1.07% annually to $203,505. Unemployment The following chart shows a comparison of the unemployment trend for the State of Texas over the past decade. Southwest Business Services created this Page 54 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s chart based upon BLS data. As the chart clearly indicate s, after decreasing between 2006 and 2008, the unemployment rate has spiked sharply since then. The unemployment rate in the county is a major driver for projects such as this one. Job Creation and Job Flows 2011 Austin Quarter Four Austin (Average: Selected plus Three Prior Quarters Texas Quarter Four Texas (Average: Selected plus Three Prior Quarters 808,020 805,562 10,338,472 10,203,041 Net Job Flows -2,775 3,790 -86,415 58,757 Job Creation 35,070 34,690 470,768 478,437 New Hires 105,825 109,259 1,561,777 1,606,104 Separations 124,825 119,052 1,889,695 1,744,279 9.00% 8.40% 10.10% 9.20% Average Monthly Earnings $4,639.00 $4,445.75 $4,362.00 $4,239.25 Average New Hire Earnings $2,835.00 $2,779.00 $2,777.00 $2,715.00 Category Total Employment Turnover The chart above and the one below show the number of new hires, separations and turnover in August MSA and Texas as a whole. The one below reflects Page 55 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s information for the accommodation and food services industry. This information is of critical importance when evaluating the existence of a workforce adequate to staff the planned facility. Job Creation and Job Flows for Health Care and Social Assistances 2011 Austin Quarter Four Austin (Average: Selected plus Three Prior Quarters Texas Quarter Four Texas (Average: Selected plus Three Prior Quarters 89,674 88,218 1,376,805 1,362,818 Net Job Flows -807 598 -21,485 4,737 Job Creation 2,996 3,081 41,346 45,722 New Hires 10,205 10,618 168,095 177.237 Separations 11,856 10,904 207,417 190,003 Turnover 9.10% 8.10% 9.9% 8.9% Average Monthly Earnings $4,483.00 $4,128.25 $3,846.00 $3,706.25 Average New Hire Earnings $2,865.00 $2,643.75 $2,484.00 $2,410.25 Category Total Employment What the tables indicate for the Austin MSA overall job creation scenario and job creation scenario in the health care and social assistance industry, in particular, is the following: For the most recent year in which data is available, 2011, separations were greater than new hires in the Austin MSA in all industry sectors For the most recent year in which data is available, 2011, turnover at year end was greater than the average of the three prior quarters in all industry sectors For the most recent year in which data is available, 2011, separations were greater than new hires in the Austin MSA in the health care and social assistance For the most recent year in which data is available, 2011, turnover in the health care and social assistance sector was almost double the rate in all other industry sectors in the Austin MSA Each of these conclusions indicates that an employable workforce exists in this sector. Page 56 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 11.0 Target Market Analysis Fifty-five million people in the United States are over 55 years of age and 34 m illion are over 65 years old, a not inconsequential figure and one that figure will double by 2030. It is likewise a market oft-ignored that is a potential goldm ine. In North America, sixty-eight percent of all high net-worth individuals are over fifty -five, a lucrative market to be sure. Today, approximately one million Americans live in an estimated 39 ,000 assisted living communities across the country. An integral part of the care continuum, assisted living is a dynamic form of residential care, serving primarily elderly people and indi viduals with disabilities. Assisted living was created in response to consumer demand for person-centered care. Assisted living residences provi de assistance with phys ical activities and health-related needs. Assisted living staffs embrace a philosophy of care that meets the social, emotional, cultural, intellectual, and spiritual well-being of residents in a manner that maximizes resident independence and respects resident choice, dignity, and privacy. While it seems like a dichotomy, today’s retirement community residents want to retain their mobility and independence of spirit for as long as possible but with the assurance that as they require more assi stance it will be available. . Austin Target Market Current and Projected Population Age Range 2010 Total Population T otal(50+) 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ 65+ 75+ 2015 Number 32,257 6,509 5,878 4,901 3,641 2,988 2,758 2,550 3,032 % of Total Population 26.7% 5.4% 4.9% 4.1% 3.0% 2.5% 2.3% 2.1% 2.5% Number 34,546 6,347 6,221 5,749 4,847 3,426 2,736 2,184 3,036 % of Total Population 28.1% 5.2% 5.1% 4.7% 3.9% 2.8% 2.2% 1.8% 2.5% 14,969 8,340 12.4% 6.9% 16,229 7,956 13.2% 6.5% Page 57 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Demographically, Austin MSA mirrors the trends of the rest of the nation as far as being home to an exponentially increasing number of residents between the ages of 55 and 75. The market base does exist to absorb this facility. Austin Over 55 Households by Income 2010 2010 Households by Income and Age of Householder 55+ 55-64 65-74 75+ Total 6,238 4,015 4,969 15,22 <$15,000 957 849 1,424 3,230 $15,000-$24,999 854 590 952 2,396 $25,000-$34,999 760 510 600 1,870 $35,000-$49,999 1,114 686 752 2,552 $50,000-$74,999 1,136 665 598 2,399 $75,000-$99,999 604 310 302 1,216 $100,000-$149,999 573 231 248 1,052 $150,000-$199,999 155 39 40 234 85 135 53 273 Median Household Income $41,050 $35,900 $26,404 $35,470 Average Household Income $54,971 $51,848 $40,054 $49,278 Total $200,000+ Austin Over 55 Household by Income 2015 2015 Households by Income and Age of Householder 55+ Total 55-64 65-74 75+ 6,883 5,011 4,722 Total 16,616 <$15,000 903 900 1,205 3,008 $15,000-$24,999 849 633 797 2,279 $25,000-$34,999 712 521 475 1,708 $35,000-$49,999 1,164 848 738 2,750 $50,000-$74,999 1,550 1,068 821 3,439 $75,000-$99,999 650 431 307 1,388 $100,000-$149,999 709 347 273 1,329 $150,000-$199,999 214 72 52 338 $200,000+ 132 191 54 377 Median Household Income $46,853 $41,688 $32,041 $40,887 Average Household Income $60,316 $57,697 $44,387 $55,00 Page 58 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 12.0 Demand Determinants COMMERCIAL BUILDING CONSTRUCTION DEMAND The key factors that influence demand for commercial building constructi on vary according to the type of building (i.e. hotels, retail stores and offices). However, overall industry activity is determined by current economic conditions and investor confidence. Key economic factors that influence investment decisions include the prevailing interest rate and availability of finance; current and expected rates of general economic growth; the expected investment yield (long-term rental yield and spec ulative capital gains); taxation treatment of building investment compared with other types of assets; vacancy rates of existing building stock; the rate of replacing aging building stock; and changes in the structure, distribution and population's size. The industry is also subject to one-off stimuli to building demand resulting from the impact of natural disasters, such as the damage caused by tropical storms, hurricanes and earthquakes. Office construction is principally determined by growth in the service sector work force, growth in foreign investment inflow and developer spec ulative activity. The average age of commercial office stock is an important determinant of demand for the addition of new stock or the upgrade of existing stock. New technologies in the areas of IT and communications have negatively influenced rapidly aging building stock, thereby increasing demand for premium stock. Retail building construction (e.g. retail stores, shopping malls, gas stations) is principally determined by shopping preference and patterns (i.e. choices between boutiques and complexes); population growth rates and catchment areas; and patterns in consumption expenditure. Hotel construction is determined by growth in international and domestic tourism; major cultural, sporting, entertainment and business events; growth in casino licenses; and existing supply of accommodation. Other commercial building construction is determined by population growth and urban spread; increases in tourism and leisure time; major cultural and sporting events (i.e. Winter Olympics); and Page 59 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s popularity of new sports and recreational activities (i.e. soccer and beach volleyball). Demand Determ inants The homeownership rate in the United States is the overarching determinant of industry demand. When homeownership is high, rental demand tends to decline. Homeownership levels a re generally influenced by the health of the housing market (i.e. housing prices), mortgage rates, unemployment rates, along with local market population demographics and general economic trends. Local Demographics and Population Trends US demographics are strong determinants industry demand, because homeownership is largely affected by marriage rates, divorce trends and family sizes. Marriage and di vorce rates affect demand because couples tend to own homes at higher rates due to higher disposable incomes . Family sizes are also important because homeownership tends to increase as the demand for space rises, often due to family expansion from the birth of children. Population trends are also important factors in the demand for homeownership. Generally, densely populated urban areas have lower homeownership rates than suburban and rural locations. These metropolitan areas are characterized by homeownership costs that are significantly higher than the national average, and thus renting is a more financial via ble option. Industry demand tends to be high in such markers. At the same time, it is important for industry participants to invest in property in areas of strong population growth. Economic activity is the main determinant of population distribution withi n the United States, because indivi duals tend to work and live in areas with strong business activity and employment prospects. Therefore an expansion of an area's business activity--via a large company opening a new office in a market, for instance-often results in heightened demand for rental property. Housing Market Trends The health of the housing sector is an important determinant of rental industry growth. During times of low interest rates and strong property appreciation, homeownership levels tend to rise. This was particularly evident during the real Page 60 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s estate bubble that occurred prior to the subprime mortgage crisis, when homebuyers were able to buy property by borrowing large sums, and then watch the value of their homes appreciate. Since the bubb le burst in late 2007, however, credit has become much harder to obtain, and home prices have pl ummeted due to a vast oversupply. These two factors have rendered homeownership a much less popular and viable option for many Americans —a downturn that has been good news for the apartment rental industry. Economic Cycles Industry demand is strongly affected by general economic cycles. During times of strong economic growth, indi viduals tend to spend more money on living expenses. However, strong economic growth may also lead to a rise in homeownership levels, which can adversely affect industry demand. Consequently, economic growth can be a double -edged sword for property lessors. The most important indicator for industry demand in regards to economic cycles is the unemployment rate. During times of high unemployment, people tend to cut living expenses by moving in with relatives or friends, or moving to units with lower monthly rents. Job growth often varies across regions within the United States, and the health of the local employment market has a greater direct effect on home ownership rates in a given market. However, the national unemployment rate is also an important barometer for determining consumer sentiment due to the influence of national news outlet s on the perception of job security. If indi viduals believe there is a lack of job security, they may cut back on living expenses in an attempt to prepare for the possibility of losing their jobs. Page 61 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 13.0 Market Analysis This project, introduced into the Austin assisted living industry arena, will be influenced by regional market trends and national ones . 13.1 Austin Assisted Living Market Potential Projected Industry Growth in Austin MSA, Texas and the US to 2016 Year 2012 2013 2014 2015 2016 Austin MSA $329,299,776 $352,350,760 $377,015,314 $403,406,385 $329,299,776 Texas $1,537,580,000 $1,585,250,000 $1,675,600,000 $1,757,710,000 $1,880,870,000 United States $51,252,600,000 $52,841,500,000 $55,853,400,000 $58,590,200,000 $62,695,500,000 S ource The numbers for the local industry indicate that the Company will not be entering a saturated market and the opportunity to establish a niche foothold in this market exists now. Texas Assisted Living Rental Rates Compared to Remainder of Country Region USA Minimum Rate Range Median Maximum Median Annual Rate Five-Year Annual Growth $625 $3,300 $9,750 $39,600 6% Texas – Whole State $2,150 $3,750 $6,500 $45,000 13% Austin MSA $2,150 $3,815 $6,500 $45,774 14% S ource Austin MSA Aggregate Independent Living Assisted Living Occupancy 93% 93% 92% Year-Over-Year Rent Growth 14% 14% 14% Property Count 105 20 85 S ource Assisted Living Provisional Income Projections Overall Occu pancy % Total Revenues 2012 2013 2014 2015 54.0% 84.8% 84.8% 84.8% $2,354,486 $3,817,793 $3,968,331 $4,187,248 Page 62 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Au stin -Red Rock Revenue Projection s Per Establish men t 2012 T otal Revenues T otal Establishments Revenue Per Establishment 2013 $329,299,776 85 $3,874,115 2014 $352,350,760 87 $4,050,009 2015 $377,015,314 89 $4,236,127 $403,406,385 91 $4,433,037 S ource When compared to the revenue projections for all Austin-Red Rock assisted living facilities, it appears that those for the Sunset Arms are well aligned with regional industry standards. Austin Market Benchmarks KEY INFLUENCERS Metro MAP32-1001 Projected Annual Growth2 (%) 3.10% 0.90% 45-64 Age Households Percent of all Households 63.90% 57.90% Median Income $67,917 $62,945 Projected Annual Growth2 (%) 3.70% 1.50% 75+ Age Households Percent of all Households 9.50% 14.50% Median Income $32,363 $27,706 Median Home Value $188,300 $164,350 (Top 100) 0.60% -3.0% (USA) Annual Change In Individual Home Prices Austin Senior Housing Market Metrics Property Types Majority Independent Living Majority Assisted Living Metro MAP32-100 Metro MAP32-100 Stabilized Occupancy 93.20% 90.40% 92.20% 90.60% Average Monthly/Daily Rent $3,523 $2,565 $3,764 $3,321 Median Age 15 22 13 15 Median Units/Beds Per Property 151 159 63 61 65.00% 64.10% 95.80% 88.00% 20 758 85 1,546 3,653 159,378 1,609 110,746 2,886 114,104 44 5,890 444 25,183 1,483 101,209 9.50% 6.70% 4.20% 4.70% 0 2,807 312 3,565 For Profit (%) Property Count Inventory Independent Living Units Assisted Living Units 1 Penetration Construction Units/Beds 1. Includes Memory Care Page 63 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 13.2 IBISWorld Industry Market Analysis for NAICS Code 623312 Industry Definition This industry includes companies that primarily provide residential and personal care services for the elderly and other indi viduals who are unable to fully care for themselves or who desire to live in a community facility. The industry excludes companies that predominantly provi de inpatient nursing, skilled nursing or rehabilitative services. Products and Services The Assisted Li ving industry's principal activities are room and board; nursing and other supervision; assistance in daily living and housekeeping services. Chart: Product and services segmentation Retirement and assisted living communities provi de a substantial range of products, including independent living (IL), assisted living ( Assisted living), skilled nursing (SN) and a combination of these, usually referred to as Page 64 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s continuing care retirement communities (CCRC). Facilities that primarily provide skilled nursing are not included in this industry. The US Census Bureau classifies the segments as homes for the elderly and continuing care retirement communities. Market Share Concentration Concentration in this industry is low. This industry is highly fragmented, with the four largest operators accounting for around 15.0% of industry revenue. Based on total resident capacity, the top five operators of senior living facilities (including independent living facilities) control only nine percent of the market, according to the American Seniors Housing Association. Consolidation slowed during the recessionary years of 2008 and 2009, when lending was difficult to secure from banks. However, banks and private equity entities are beginning to view retirement homes and assisted living as a desirable sector again, and the major REITs in senior housing are well positioned to invest again. However, many of the acquisitions made during the coming years will likely remain with distressed properties, and high -end properties are unlikely to be sold. Some companies are focused on taking advantage of the fragmented industry. For instance, Brookdale Senior Living was formed in 2005 for the purpose of combining two senior living operating companies, Brookdale Living Communities, Inc. and Alterra Healthca re Corporation. Brookdale acquired American Retirement Corporation in 2006 to become the largest operator of senior living facilities in the United States. Brookdale plans to continue acquiring through selectively purchasing assets of existing operating c ompanies of indi vi dual communities. In October 2009, the company acquired 18 communities (or 1,197 units) from Sunrise Senior Living, and in December 2009, the company acquired three previously managed retirement center communities, totaling 642 units. Revenue Volatility The level of volatility is low. Industry revenue has a low level of volatility. Page 65 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s During the five years to 2011, revenue growth fluctuated 1.8% per year on average. The slow nature of changes in supply and demand cause fl uctuations in revenue and profitability. When operators begin construction on new facilities, it is difficult - if not impossible - to stall or stop the construction in response to an economic downturn or dampened demand. Thus, oversupply occurs, which reduces occupancy and profitability. Demand is also slow to change and thereby challenging to notice and adapt to. Seniors might delay moving into a facility due to a poor housing market. By the time operators perceive low demand, they may already have plans for additional cons truction or they may not be able to reduce supply quickly enough before demand recovers. Thus, in periods of oversupply, operators are not able to adjust to lower occupancy and profitability typically declines. Occupancy can also be reduced by demographic factors that are specific to the type of facility or the region. During certain periods of the year, facilities tend to have multiple residents terminate their resident agreements at or around the same time. For instance, in regions with strong climate fl uctuations, the winter months of any gi ven year are difficult for occupancy because of higher deaths among seniors in the winter and residents are less interested in moving over the Christmas and New Year holidays. In addition, because of the demographics of industry residents, including age and health, resident turnover rates in communities are difficult to predict. As a result, units may be unoccupied for a period of time, which could cause decreases to revenues and profit margin. In contrast to these factors that increase volatility, the non- discretionary nature of stays adds stability to industry earnings. A senior's move to an assisted living facility is often a necessary move; that is, it is not a discretionary decision. As a result, sales in assisted living and the continuing care segments are relatively consistent from year to year. Consistent growth in the population of the aged will benefit industry performance. Inconsistent regulatory environment Compliance with various regulations, which are cha ngeable, may result in industry operators using resources, including cash, in order to meet requirements. An intensified regulatory environment impacts providers because Page 66 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s of the increase in the number of inspections or surveys by governmental authorities and possible consequent citations for failure to comply with regulatory requirements. Operators spend considerable resources to respond to federal and state investigations or other enforcement action. From time to time in the ordinary course of business, c ompanies may receive deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys. Although most inspection deficiencies are resolved through an agreed-to plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed or certified facility, which could result in fines, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal healthcare programs or other sanctions, including criminal penalties. The regulatory environment surrounding the senior living industry continues to evolve and intensify in the amount and type of laws and regulations affecting it, many of which vary from state to state. Companies may be unable to predict the future course of federal, state and local legislation or regulation. If regulatory requirements increase, whether through enactment of new laws or regulations or changes in the enforcement of existing rules, revenue and profitability could be adversely affected. Industry Outlook The Retirement Communities industry is forecast to expand through 2016, generating 2.4% annual average growth and reaching $43.9 billion in revenue. Revenue growth in 2012 is forecast to accelerate to 3.3% as demand restrained during the economic recession will temporarily pick up. During the following years, an improving economic environment, an aging population, favorable healthcare reform and new service offerings will support continued growth. Indi vi duals aged 65 and over are increasingly technologically conscious, and technologically advanced facilities will attract this significant and growing demographic. More rooms will have instant voice and visual access to family and friends, and facili ties will feature a wide variety of medical sources ranging Page 67 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s from physicians to nutritionists. Technology will be able to measure calorie intake, weight gain and loss, changes in hearing, eyesight, blood pressure and vital signs. Industry Ratios Revenue ($m) Establishments Employment Wages ($m) 2007 36,256.50 20,729 740,864 16,670.40 2008 36,649.50 20,507 678,950 14,220.00 2009 36,973.20 20,468 653,354 14,548.90 2010 37,889.80 20,278 659,887 14,909.70 2011 38,931.80 20,401 668,796 15,358.60 2012 40,209.70 20,434 678,828 15,902.90 2013 40,963.30 20,376 689,689 16,205.10 2014 41,919.70 20,452 701,413 16,625.30 2015 42,416.10 20,552 713,338 16,864.60 2016 43,922.40 20,710 726,178 17,467.90 Communication connectivity will also be more frequent, fac ilitating residents' ability to maintain a healthy and vibrant lifestyle, while allowing operators to reduce accidents and liabilities. Also, the industry will design more home -like facilities that offer the ability to socialize in an integrated and welcom ing gathering place. Operators will likely incorporate better and more creative use of light, sound, water and greenery in new developments. Competitive Analysis Basis of Competition Competition in this industry is high and the trend is steady . The Retirement Communities industry is highly competitive, as evi denced by the large number of operators and low average profit margin. The competitive environment is attributable to low barriers to entry and periods of excess supply. Industry companies compete among themselves and with other organizations that provide similar senior living alternatives, such as home healthcare agencies, community-based service programs and skilled nursing facilities. In general, regulatory and other barriers to competitive entry in the retirement center and assisted living sectors of the senior living industry are not substantial, except in the skilled nursing area. Although new construction of senior living Page 68 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s communities has declined in recent years, oversupply has troubled the indus try, leading to competition that pressures profitability. Location, location, location Competition in this industry is principally based on location. Residents want to be close to family and friends and feel that they are in a familiar area. While achieving geographic diversity is advantageous, operators tend to focus on areas that have dense populations of seniors, such as Florida and California. In addition to location, product positioning is an integral basis of competition. Some regions lend themselves to specific types of services. If a large portion of the local population is approaching 85 years and over, memory services are key. Further, companies that focus on only one or two core business strategies are more likely to achieve sustained growth and survi ve economic recession, according to the Assisted Living Federation of Amer ica. Hence, companies shoul d clearly define their set of products, customer segments, and technologies that build the greatest competitive advantage in the local area. Within any region, companies can gain market power by building a well -defined customer segment and developing and maintaining customer loyalty. This is a particularly powerful strategy in retirement communities and senior living because it is a high-touch, personal business that invol ves residents and families. Barriers to Entry Barriers to entry in this industry are low and are increasing. The Retirement Communities industry has moderate barriers to entry, particularly when there is no certificate-of-need (CON) regulation. A CON may be required in the case of continuing care retirement centers (CCRCs). CONs are legal documents required in many states before proposed acquisitions, expansions, or creations of medical facilities Page 69 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s are allowed. Certificates-of-need are necessary for the construction of a medical facility in 36 states and are issued by state healthcare agencies. Operators must also adhere to other federal, state and local government laws and regulations (which can be extensive) when establishing and o perating facilities. For instance, facilities must be accredited and licensed. Many states have imposed moratoria on new retirement homes beds. Aside from regulation, barriers to entry are low. Capital costs per bed are lower for senior living facilities than for hospitals, and new operators can enter the market with little personal equity and high debt. Retirement homes do not need highly specialized equipment and the labor force is less skilled than it is in hospitals. Although licensing can be burdensom e, the costs to becoming accredited are low. Finally, the market is highly fragmented, and there are few very large operators. Therefore, operators can enter the market with a small number of beds and compete with an existing facility. However, operators must attract a critical mass of patients to be viable, and it may be difficult for new entrants to establish referral relationships with medical practitioners, insurers and hospitals, or awareness among the local community. There also appear to be some a dvantages to larger operators in this industry. Bigger companies can spread some costs (including information technology costs) over many locations, can refer patients to their own facilities, and may be in a better position to negotiate with suppliers and payers. Entry barriers are relatively higher in the Continuing Care Retirement Communities segment. Currently, about 80% of all CCRCs are owned and operated by non-profit entities. CCRCs are often big projects, and many CCRCs are large campuses on 20 to 50 acres of land. Obtaining the necessary approvals can take years, and financing can be difficult to obtain. For-profit developers and investors have tended to shy away from CCRCs, focusing instead on rental projects. Page 70 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Risk Rating Analysis Industry Risk Score Forecast Period: Ending December 31, 2012 To calculate the overall risk score, the risks pertaining to industry structure (structural risk), expected future performance (growth risk) and economic forces (sensitivity risk) are assessed. Risk scores are based on a scale of one to nine, where one represents the lowest risk and nine the highest. The three types of risk are scored separately, then weighted and combined to deri ve the overall risk score. Structural Risk Analysis Structural risk is forecast to be MEDIUM-LOW. This highly competitive, as evi denced by the large number of operators and low average profit margin. The competitive environment is attributable to low barriers to entry and periods of excess supply. Industry companies compete among themselves and with other organizations that provi de similar senior living alternatives, such as home healthcare agencies, community-based service programs and skilled nursing facilities. Even though the industry has no specific tariffs, it experiences a high level of industry assistance through government funding. Revenue volatility is low, as a result of being partially buffered government fundi ng which reduces fluctuations. Sensitivity Risk Sensitivity risk is forecast to be MEDIUM -LOW over the outlook period, down from MEDIUM in 2011. The two factors with the most significant impacts on the industry are number of adults over 65 years old and house price index. A rise in either of these factors will lower industry risk. 13.3 IBISWorld Industry Market Analysis for NAICS Code 236620 NAICS Code Definition and Market Overview This industry comprises establishments primarily responsible for the construction (including new work, additions, alterations, maintenance, and repairs) of commercial and institutiona l buildings and related structures, such Page 71 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s as stadiums, grain elevators, and indoor swimming facilities. This industry includes establishments responsible for the on-site assembly of modular or prefabricated commercial and institutional buildings. Included i n this industry are commercial and institutional building general contractors, commercial and institutional building operative builders, commercial and institutional building design-build firms, and commercial and institutional building project construction management firms. A snapshot of this industry’s performance is shown below. Products and Services The Commercial Building Construction industry's principal activities are auto service and sales store construction; entertainment and recreation buildin g construction (i.e. casinos, gyms, cinemas and arenas); hotel and motel construction; office building construction; public commercial warehouse construction; radio and television broadcast studio construction; restaurant, café and bar construction; retail store construction; service and gas station construction; shopping center or shopping mall construction. Product and services segmentation Page 72 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Industry firms provide general contracting services; remodeling contracting services; construction management ser vices; other non-building construction activities; and other business activities. Market Share Concentration Concentration in this industry is low. The industry has a low level of concentration, with the four largest players accounting for about 5.7% of industry revenue. The largest industry participants are general contractors, but these firms often use subcontractors and local firms to develop projects. As a result, most participants are subcontractors that compete on a local or regional basis. Additionally, large participants operate in several construction segments outside commercial building including civil projects, and municipal and institutional building construction, which further dilutes the concentration of industry revenue. About two-thirds of establishments employ fewer than 10 people, including 47.0% of firms that employ fewer than five people. About 2.0% of industry establishments employ more than 100 people. These large -scale players are multi-establishment companies with branches that oper ate across many states and regions. Revenue Volatility The level of volatility is high. The industry has a high level of volatility. The industry is exposed to wide cyclical fluctuations in demand, resulting from movements in long-term interest rates, general economic growth and expected rental yield. The industry was especially volatile in the past five years due to the sudden drop off in demand caused by the contraction in business activity and investment during the recession. Revenue dropped by as much as 30.3% in 2010 after growing by 3.0% in 2008. Industry Outlook Continued economic recovery translated into lower unemployment, greater consumer spending, and a drop in office vacancies, will drive improvement in the commercial building construction industry in the next fi ve years. The industry's recovery will be slow as it continues to be plagued by high vacancy Page 73 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s rates, which generally spike during economic downturns. The previous real estate boom will initially hinder growth because many markets remain overbuilt. Industry Ratios Year Revenue ($m) Establishments Employment Wages ($m) Private Nonresidential Construction ($ Billion) 2007 217,759.30 32,293 447,005 93,636.50 438,200.00 2008 224,888.60 32,664 447,684 99,873.00 466,400.00 2009 158,142.00 32,212 380,747 83,499.00 367,300.00 2010 110,197.50 31,816 349,319 75,264.90 309,100.00 2011 103,749.90 31,537 334,927 70,861.20 319,900.00 2012 105,880.00 32,349 351,673 74,038.40 329,500.00 2013 111,796.00 33,149 373,829 79,865.70 407,000.00 2014 120,188.60 33,599 414,202 94,767.80 439,400.00 2015 129,924.70 34,909 451,480 95,616.60 472,800.00 2016 139,737.80 36,329 466,831 100,994.30 537,800.00 2017 147,080.50 36,610 499,509 113,614.70 588,600.00 Similarly, the industry will be hampered by high unemployment, which will remain elevated for most of the next five years due to the employment market's slow recovery. Nonetheless, recovery in the industry is expected to gain momentum in 2013, with revenue forecast to grow 5.6% to $147.1 billion. Consumer and business confidence will need to increase significantly before high investment activity takes place in the commercial real estate market. Spending on renovations of existing facilities will strengthen as corporate profit and business operations also improve, and a growing economy will boost demand for new construction of offices, retail buildings, hotels and other commercial structures. The Commercial Building Construction industry's revenue is expected to increase at an average annual rate of 6.8% t o $147.1 billion in 2017, as businesses gradually recover and begin expandi ng operations, which will increase demand for new construction. Economic recovery will also strengthen investment into the real estate market as property values inch upward and commercial rent rises. Page 74 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Competitive Analysis Basis of Competition Competition in this industry is high and the trend is steady. This industry is characterized by highly competitive conditions on a regional and national basis and across all scales of operation. Competition between contractors typically occurs on the basis of proven quality and technical capacity and efficiency, rather than solely on the basis of price differentiation. Price tends to be more important on smaller-scale or less complex constructi on projects and on public sector-funded contracts. Large-scale construction projects are typically either put to public tender (i.e. advertised in the media or through government publications) or put to a closed tender, where the client invites selected c ontractors to quote on a project. The selection of contractors for a closed tender is based on the operator's reputation or past performance and close relationships with developers and financiers. Tendering on extremely large or complex construction projec ts is confined to a few large-scale players. Most small- to medium-scale building contractors confine their activities to a localized market. Several builders have established solid reputations in narrow market segments (e.g. restaurants and cafes or comm ercial parking lots) and leveraged this experience to generate contracts across broad geographical markets. Small-scale operators rely very heavily on word-of-mouth referrals to obtain private sector contracts, but they also advertise in general media an d some use the internet to promote their businesses. It is common for smaller operators to establish relationships with prime contractors and property developers within a local region or specialized area. There is a growing trend for building contractors to take an equity interest in the development consortium on projects such as office complexes. This trend effectively blocks competition from other builders and ensures the work flow for the contractor involved. Equity involvement by the builder is apparen t across all scales of construction. Page 75 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Barriers to Entry Barriers to entry in this industry are low and are steady. New industry entrants face a number of challenges, mostly related to access to capital. Construction projects require an extensive outlay of resources, in terms of both materials and labor. This means that securing ample finance for upcoming projects is something that new construction companies can't afford to fall short of. Initial finance typically comes from investors and bank loans, howe ver business lending has tightened in the past fi ve years. Strict lending standards now exclude many business owners (largely those that have experienced losses during the downturn) from being eligible for loans. Success in the industry largely depends on the number of projects in the pi peline. New entrants will also be at a disadvantage compared with larger more established firms that maintain good banking relationships, which allow them to more nimbly access capital for upcoming projects. New construction companies also face the challenge of finding skilled financial leaders to manage cash flow when there are projects underway. Another key constraint to entry is the difficulty that new competitors may encounter in trying to gain a foothold in the market d ue to their lack of an established reputation. Establishing client relationships is critical to the success of companies in the industry. Existing firms have the distinct advantage of already having a pool of skilled subcontractors, arrangements with mater ial suppliers and arrangements with financial institutions and property developers. Most new entrants enter this industry from subcontracting special trade skills (notably carpentry and concreting contracting); therefore, they may enter with pre-established reputations and relationships with property developers or general contractors. The growing trend for building contractors to take an equity interest in the development consortium on projects effectively blocks competition from other builders. Smaller contractors in particular are working together on certain Page 76 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s projects as it improves the ability to compete with larger firms, especially with large complex developments. Contractors are increasingly working together to reduce risk. However, new entrants to the industry - with limited financial resources and narrow networks of business contacts - will likely be excluded from equity participation in such development consortiums. Commercial construction contractors must hold appropriate licensing and registration to operate in each state, which can be a deterrent to some entrants to the industry. Industry Risk Score Forecast Period: Ending December 31, 2012 To calculate the overall risk score, the risks pertaining to industry structure (structural risk), expected future performance (growth risk) and economic forces (sensitivity risk) are assessed. Risk scores are based on a scale of one to nine, where one represents the lowest risk and nine the highest. The three types of risk are scored separately, then weighted and combined to derive the overall risk score. Structural Risk Analysis Structural risk will be HIGH over the outlook period. The largest risk factor in this industry is the high level of competition. Businesses competing fiercely for market share are forced to inc ur expenses to differentiate their offerings, keep prices low to entice demand or both. The result is a greater likelihood of declining revenue and lower profits. The competition risk is exacerbated by the low barriers to entry, which will keep competition high over the long term. In addition, the industry must deal with high revenue volatility, which requires prudent management of cash flows and planning in the face of uncertain demand. Businesses that fail to account for these challenges a re at a risk for sudden losses or diminished margins. Sensitivity Risk Sensitivity risk is forecast to be MEDIUM over the outlook period, unchanged Page 77 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s from MEDIUM in 2011. The two factors with the most significant impacts on the industry are consumer spending and rental vacancy rates. When there is a rise in consumer spending, risk will fall; whereas a rise in rental vacancy rates will cause industry risk to increase. Page 78 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 14.0 Competition This map and the chart below show the locations of the new enterpri ses primary competitors. The Company plans an aggressive entry into the market to establish its brand. Page 79 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Facility Name Anderson Mill Assisted Living Arboleda House Arden Courts of Austin Argent Court Assisted Living Ashwood Retirement & Assisted Back To Eden Group Home Barton Creek Senior Living Barton Hills Assisted Living Brighton Gardens Of Austin Brookdale Senior Living Brookdale Senior Living Brookdale-Summit At Lakeway Buckner Villas Clairmont-Austin Collinfield House Colonial Gardens Continental Retirement Community Elm Crost Emeritus at Beckett Meadows Emeritus at North Austin Emeritus at Spicewood Springs Gardens Franklin Gracy Woods II Nursing Ctr Greenridge At Buckner Villas Hannah's Place Heritage At Gaines Ranch Heritage Plaza Retire Comm Horizon Bay Longhorn Village Merrill Gardens Merrill Gardens At Round Rock Paradise Court Assisted Living Parmer Woods Pavilion Assisted Living LLC Pavilion At Great Hills Plaza At Querencia Premieant Premieant Premieant Premieant Inc Querencia At Barton Creek Regency Village Care Ctr South Austin Assisted Living Southern Hospitality Home St George's Court Address 11009 El Salido Pkwy 7502 Arboleda Cv 11630 Four Iron Dr 508 Old Austin Hwy 12151 Hunters Chase Dr 11201 Plains Trl 2500 Barton Creek Blvd 1606 Nash Ave 4401 Spicewood Springs Rd 11200 Terrace Bluff Dr 4409 Gaines Ranch Loop 1915 Lohmans Crossing Rd 11110 Tom Adams Dr 12463 Los Indios Trl 9205 Collinfield Dr 3706 Adelphi Ln 4604 S Lamar Blvd 7017 Manchaca Rd 7709 Beckett Rd 5310 Duval Rd 4401 Spicewood Springs Rd 3522 E Martin Luther King Jr Blvd 12042 Bittern Holw 11110 Tom Adams Dr 12251 Running Bird Ln 4409 Gaines Ranch Loop 9121 North Plz 8005 Cornerwood Dr 12501 Longhorn Pkwy 12429 Scofield Farms Dr Apt 114 8005 Cornerwood Dr 14109 FM 969 12429 Scofield Farms Dr Apt 114 11819 Pavilion Blvd 11819 Pavilion Blvd 2500 Barton Creek Blvd 1110 W William Cannon Dr Ste 201 3215 Western Dr 7906 Brodie Ln 4700 Ganymede Dr 2500 Barton Creek Blvd 6500 Brush Country Rd 4601 Chesney Ridge Dr 5000 Shoalwood Ave 1443 Coronado Hills Dr Page 80 City Austin Austin Austin Bastrop Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin Austin SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 15.0 Strategy and Implementation The Company is hiring a management company well-known in this arena, Assisted Li ving Management, to organize and oversee the implementation of the project. The Company will hire a full -time salesperson who is comfortable making sales calls within the market and who can develop relationships of trust with both referral sources and potential residents. A web page will be developed that brings leads to the facility, makes the brand visible in the community and educates potential residents as well as their families. The Company will involve itself in the medical world of the current residents. Accompany them to hospitals and doctor’s offices and make sure the doctors and nurses know who is caring for them. The medical visits become marketing opportunities. They will mail and deliver information to these referral sources and consider holding l uncheons in doctors' offices to spend time answering their questions. Every resident has a physician, a dentist, a cardiologist/other specialist, even a funeral home where they have relationships. All will be listed in resi dent files and will be made aware of the Company. A priority will be to increase visibility in the market. There are many competitors in the market and the Company needs to be easy to know about, easy to locate, and be top of mind to referral sources. There are scores of Skilled Nursing Facilities in the area; help their discharge planners. They need affordable and quality care for patients. They have time constraints from insurance plans, and pressure to reduce re-admission to hospitals. They must be aware of what we offer and what our strong suits are. Hosting happy hours or spa days are ways to focus on these professionals. The Company will enforce a culture of YES for move-ins. The entire staff must understand that sales are the number one priority of the community. Page 81 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s The Company will notify referral agencies of our strengths with the belief that this will result in multiple leads. Good relationships with the ones who conduct business ethically are win-win. A major goal is to minimize attrition, which is also known as the back door. Family concerns will be addressed immediately and thoroughly. The Executive Director will be present and approachable. The Company will offer solutions before the situation becomes a move -out or a hospitalization. The Company will be on the VA referral list as well as on the referral lists for major health maintenance organizations and the Housing Authority. The Company will produce a comprehensive Move-in Generation Plan and Event and Media advertising plan, updated quarterly. Competitive analyses of the local market will be completed quarterly to determine the most effective strategies and realign the current strategy, if necessary. The operating plan will leverage uncovered strengths, weaknesses, opportunities and threats for targeted sales r esults. There will be a Resident-Focused Sales Guidelines Training that will include training the Leadershi p Team and Front Desk. The facility will develop strategic partnerships with referral sources such as healthcare providers, physicians, clergy, a gencies on aging, home health agencies, social workers, and case workers. Facility personnel will focus on making move-ins happen quickly, within 24 to 48 hours. Training will be given on new resident discovery process, giving effective tours and closing. Page 82 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s A program of Everyone Sells will be implemented. The sales process will be continuously monitored using VITALS. LEAD VITALS processes intelligence gathered in the outbound effort to further refine the prospect targets and value proposition to track leads, new inquires, tours, move-ins and measurable sales statistics while maintaining and updating the customer relationship management lead tracking database. It further enables the Company to c ultivate existing leads. The Company will implement a Choose Your Neighbor resident referral program to increase family and resident referrals. Page 83 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 16.0 Financial Plan 16.1 Balance Sheet Projection Balance Sheet Projection ASSETS 2014 2015 2016 2017 2018 Cash Current Assets Total Current Assets $3,868,634 $0 $3,868,634 $4,066,753 $0 $4,066,753 $4,279,565 $0 $4,279,565 $4,543,028 $0 $4,543,028 $4,867,769 $0 $4,867,769 Capitalized Expenditures Accumulated Depreciation Net Long-term assets $6,300,000 $220,000 $6,080,000 $6,324,000 $440,000 $5,884,000 $6,360,000 $660,800 $5,699,200 $6,408,000 $882,000 $5,526,000 $6,451,184 $1,103,600 $5,347,584 TOTAL ASSETS $9,948,634 $9,950,753 $9,978,765 $10,069,028 $10,215,353 $0 $0 $0 $0 $0 $0 $6,300,000 $0 $6,300,000 $0 $6,300,000 $0 $6,300,000 $0 $6,300,000 $6,300,000 $6,300,000 $6,300,000 $6,300,000 $6,300,000 $3,648,634 $3,650,753 $3,678,765 $3,769,028 $3,915,353 $9,948,634 $9,950,753 $9,978,765 $10,069,028 $10,215,353 LIABILITIES Current Liabilities/Deferred Revenue Long-Term Liabilities: Construction Loan Loans from Domestic Sources TOTAL LIABILITIES SHAREHOLDER EQUITY Total Owner Equity TOTAL LIABILITIES AND EQUITY Page 84 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 16.2 Five-Year Annual Income Statement Income Statement Projection END OF YEAR Jan-14 1 Jan-15 2 Jan-16 3 Jan-17 4 Jan-18 5 Revenues Application Fees Deposits Rent Ancillary Income Total Revenues $19,868 $59,437 $2,238,425 $36,755 $2,354,486 $7,280 $21,840 $3,711,714 $76,959 $3,817,793 $7,280 $21,840 $3,856,793 $82,419 $3,968,331 $7,280 $21,840 $4,072,330 $85,799 $4,187,248 $7,280 $21,840 $4,683,632 $102,147 $4,798,169 Expenses Administration Management Fee Marketing Nursing Activities Laundry & Housekeeping Dietary Maintenance & Security Transportation Utilities Property Taxes Insurance Other Incentive Bonus Total Cash Op. Expenses $154,637 $122,352 $88,246 $420,864 $57,120 $108,113 $315,234 $89,901 $63,577 $150,498 $205,962 $48,179 $24,338 $27,152 $1,876,171 $232,437 $190,838 $73,839 $675,992 $55,119 $130,778 $430,555 $102,179 $78,259 $165,358 $199,678 $46,799 $23,660 $75,659 $2,481,149 $240,497 $198,378 $70,979 $701,991 $56,419 $134,158 $437,055 $104,779 $80,339 $169,518 $204,877 $47,839 $23,660 $82,419 $2,552,909 $248,817 $209,297 $71,239 $727,991 $57,719 $137,538 $443,815 $107,379 $82,419 $173,678 $209,817 $49,139 $23,660 $95,159 $2,637,668 $292,688 $239,908 $86,367 $849,276 $67,174 $163,138 $527,799 $124,752 $95,963 $206,321 $249,505 $57,578 $28,789 $100,762 $3,085,222 Net Operating Income $478,314 $1,336,644 $1,415,423 $1,549,581 $1,712,946 Debt Service / Lease Costs ($720,030) ($738,000) ($756,450) ($775,361) ($858,872) Depreciation ($220,000) ($220,000) ($220,800) ($221,200) ($221,600) Taxable Income ($461,716) $378,644 $438,173 $553,020 $632,474 ($132,525) ($153,361) ($193,557) ($221,366) $246,119 $284,812 $359,463 $411,108 Tax Charge NET INCOME $0 ($461,716) Page 85 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s 16.3 Five-Year Annual Cash Flow Statement of Cash Flows Projection 2014 2015 2016 2017 2018 ($461,716) $246,119 $284,812 $359,463 $411,108 $0 $220,000 $720,030 $132,525 $220,000 $738,000 $153,361 $220,800 $756,450 $193,557 $221,200 $775,361 $221,366 $221,600 $858,872 $478,314 $1,336,644 $1,415,423 $1,549,581 $1,712,946 $24,000 $36,000 $48,000 $43,184 ($6,300,000) $6,300,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Tax charge Depreciation Debt Interest $0 ($220,000) ($720,030) ($132,525) ($220,000) ($738,000) ($153,361) ($220,800) ($756,450) ($193,557) ($221,200) ($775,361) ($221,366) ($221,600) ($858,872) Total, Other ($940,030) ($1,090,525) ($1,130,611) ($1,190,118) ($1,301,838) Increase (Decrease) in cash ($461,716) $198,119 $212,812 $263,463 $324,741 Cash, Beginning of Year Cash, End of Year $4,330,350 $3,868,634 $3,868,634 $4,066,753 $4,066,753 $4,279,565 $4,279,565 $4,543,028 $4,543,028 $4,867,769 Cash flows from Operating Activities Net Income Adjustments to Reconcile: Tax charge Depreciation Debt Interest Total, Operating Activities Cash flows, investing activities Total Capital Spending $0 Cash flows, financing activities Construction Loan Principal, Payoff Loans from Domestic Sources, Proceeds Total, Financing Activities (Net) Cash flows, Other Page 86 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s Data Sources Raw data analyzed for Southwest Business Services’ market research data and competitive analysis reports is sourced from an array of the nation's government and pri vate statistical sources. None of these raw data sources creates the final measures reflected in industry profiles. In total, data elements are sourced specifically from: - Dun and Bradstreet - Demographics.com - Surveys - Personal Interviews - IRS SOI Corporation Income Tax Returns - IRS SOI Corporation Tax Book - IRS SOI 1040 Schedule C Income Tax Returns - IRS SOI Statistics of Income- Indi vidual Tax Statistics - United States Economic Census of Manufactures - United States Census Economy Overview United States Census Annual Survey of Manufactures United States Census Annual Retail Trade Survey United States Census Annual Wholesale Trade Survey United States Census Quarterly Financial Reports United States Census County Business Patterns Bureau of Labor Statistics Monthly Employment Reports Bureau of Labor Statistics Monthly Unemployment Reports United States Census Wholesale Trade Report United States Census Quarterly (New Housing) Sales by Price and Financing - United States Census Total Construction Spending United States Census Retail Trade Report United States Census Quarterly Services Survey Commercial Real Estate Survey Credit Reporting Agencies Business Directories While 100% firm coverage is desirable for analysis purposes, the greatest value of reports rests in discerning patterns of activity, w hich are reflected in the large Page 88 SUNSET AR MS ASSISTED LIVING FACILITY, LLC A u stin, T ex a s samples used to develop our reports. The overall current coverage of the databases surpasses 13 million active business operations at any point in time. To the best of our knowledge, the data contained in our business plans is valid through 2011. Page 89
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