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Public Hearing - Palm Court Project - BWC/Vanderwood Company
Agenda Item No. D-3E wieder -X,-7 consulting s December 13, 1985 Mr. Charles P. Spencer Housing and Redevelopment Program Manager City of Huntington Beach 2000 Main Street Huntington Beach, California 92648 Re: Palm Court Bond Issuance Conditions Dear Pat: This is a followup to my December 12, 1985 letter to you which had been predicated upon the conditions to issuance of bonds which were contained in the staff report made available -to us by you on Monday and which was the basis of discussion at our meeting on Wednesday`, December 11 . Certain of our comments contained in that letter are now obsolete in view of the final staff report which I received this morning. Accordingly, this letter supersedes the prior letter and will set forth the conditions to the issuance of bonds which would make it feasible for the development to go forward at this time with bond financing. 1 . My client agrees to use all reasonable efforts to acquire Mr. Niccole' s property. They are willing to pay Mr. Niccole in excess of the $325, 000 price established in the City' s appraisal, provided that they will be given a credit for the excess against the amount they have agreed to contribute for street and utility relocation. They are not stating the amount of the current outstanding offer to Mr. Niccole because of the fact that Mr. Niccole' s son indi- cated that Frank Mola is also negotiating to acquire that property. At such time as the BWC/Vanderwood offer to Mr. Niccole and his son is either accepted or expires, they will be willing, under appropriate circumstances, to discuss the amount of the offer with the City. In a conversation between Mr. Niccole senior and the Developer this evening, Mr. Niccole indicated that he would not trade the subject property for Frank Mola' s house unless a condition were inserted in the deal requiring an ultimate transfer of the 17082 pleasant circle • huntington beach . california 92649 9 (714) 846-4301 e Mr. Charles P. Spencer December 13 , 1985 Page 2 subject property to BWC/Vanderwood. Mr. ' Niccole stated that he would continue to live by his prior statements that he will give BWC/Vanderwood the first right to purchase his property. He indicates that he cannot commit to a sale until he has an alternate site in the area which will accommodate his motor homes, boat and certain other items . He has stated that the Fire Station which the City is attempting to dispose of would accommodate his needs. If the developer is unable to acquire the property on a voluntary basis, the City' s condition states that the developer shall request that the City negotiate for the pur- chase and utilize its condemnation power if necessary. If the City chooses to comply with that request, the developer shall make available $325, 000 plus such portion of the developer' s agreed contribution for street and utility relocation as the City chooses to use .for the land acquisi- tion, provided that the City would then acquire the property and transfer it to the developer, pursuant to an Owner' s Participation Agreement discussed below. 2 . Because the developer will have approximately $500, 000 in bond issuance costs at risk if the bonds are issued, it requires assurance from the City Council and Agency with respect to the likelihood of the developer' s being able to reach agreement on an Owner' s Participation Agreement which would entitle developer to utilize the bond funds . The developer has previously submitted a draft of Owner' s Participation Agreement by letter dated January 25, 1985 to Mr. Douglas La Belle (copy enclosed) for review by the Agency and its attorney. My client is requesting that the bond issuance be approved on the express condition and understanding that the developer, City and Agency shall negotiate in good faith to enter into an Owner' s Participa- tion Agreement which is consistent with the enclosed Owner' s Participation Agreement except as follows: a. Such minor and reasonable modifications as are necessary to conform the agreement to the deal set .forth in this letter and as are necessary in the good faith opinion of the Agency, City and their legal counsel to pro- tect the legitimate interests of the City and Agency which are consistent with the structure of the deal as set forth in this letter. Mr. Charles P. Spencer December 13 , 1985 Page 3 b. Although the enclosed Owner' s Participa- tion Agreement obligates the City and Agency to use the power of eminent domain, we hope that by Monday the developer will have acquired Mr. Niccole ' s property. If they have not done so, they will be willing to discuss possible alternatives with the City/Agency at that time. I believe that it may be necessary to request that on Monday night at least five affirmative votes be given by the members of the City Council/Agency to set a public hearing initiating condemna- tion proceedings . C. As my client understands the range of foreseeable deal points which must be negotiated in the Owner' s Participation Agreement, the only significant eco- nomic term relates to the extent of the developer' s contribu- tion to the cost of relocating and reconstructing the street and utilities as are required to effect the Precise Plan of Street Alignment for Lake/Orange/Atlanta, including all curbs, gutters, paving, medians, utility lines and installa- tion, sewers, pipes, conduits, drains and traffic signals . As was indicated in my prior letter to you, the developer would propose to revise the enclosed Owner' s Participation Agreement to provide that it will contribute $400, 000 toward the aforesaid costs less the excess, if any, by which the cost to acquire Mr. Niccole' s property exceeds the $325, 000 price established in the City' s appraisal . If the City were able to bring the level of utility company contributions back to the point they understood them to be when negotiations were suspended many months ago, the total cost of such realignment and relocation, after contributions from the utility companies, would be approximately $350, 000. Thus, the developer' s contribution of $400, 000, depending on the amount required to acquire Mr. Niccole' s property, should leave a modest balance to be absorbed by the City/Agency. .Further, the Agency could finance any remaining costs through tax-exempt bonds or as a tax-exempt loan from the developer to be repaid from tax increment. We also enclose a memoran- dum dated December 12, 1985 from our economic consultants, Kotin, Regan & Mouchly, Inc. , which indicates that the pro- ject cannot further subsidize the cost of the street and utility realignment. d. The enclosed Owner' s Participation Agree- ment recognizes that the developer is being required to dedi- cate approximately one-third of its property for the Precise a e Mr. Charles P. Spencer December 13, 1985 Page 4 Plan of Street Alignment and therefore requires that the City pay the cost of acquiring the triangle portion owned by Messrs . Niccole and Trainer. Based on the structure of the deal as set forth above, that portion .of the Owner' s Partici- pation Agreement would be revised so that the developer would pay the cost of such acquisition within the limits stated above. 3 . The developer will dedicate all property required for right-of-way at the time of recordation of its final tract map, subject to Agency/City' s obligations to realign and reconstruct streets and utilities in accordance with the Owner' s Participation Agreement which shall by then have been negotiated and executed by all parties. 4. The condition in the bond documents requiring that the parties negotiate and enter into an Owner' s Partici- pation Agreement shall include a statement that both parties agree to negotiate in good faith in a manner consistent with terms and conditions—approved by the City Council/Agency during the etr10 onth�bond escrow period, and that if the parties - a unable to reach agreement within such period, the bond s=row period to, extended automatically for an additiona�. 4-month per1,9Q��d and thereafter may be extended by •vote of �`�?e City Council/Agency. Developer does not want to 'have a Ic`d dition the bond which would cause it to be redeemed`in� that there is still any hope of con- cluding negotiations . This extension of the bond escrow period would also be used if Mr. Niccole' s property cannot be acquired and the City Agency is unable or unwfl�ditional to aPpT a redesign. This would give the parties time to either acquire the Niccole property or redesign. T This is an important point in view of the developer' s $500, 000 commitment to issuance costs. 5 . The City has proposed bond documents which include conditions regarding the matters discussed above and documents which require consent of not only the City, Agency and developer, but also the Trustee for the bondholders . The City, Agency and developer would have much more flexibility in dealing with future occurrences, if the Trustee' s consent were not required with respect to these conditions which in- volve the relationship between the City, Agency and devel- oper. If the documents are not revised on this issue, we could find ourselves at a point in the future where the City, Y 1, Mr. Charles P. Spencer December 13, 1985 Page 5 Agency and devleoper all agree on an alternative course of action, but because the Trustee' s consent cannot be obtained, the bond funds will not be available for development of the /project. l/ 6 . A provision should also be added to the bond documents would permit an insurance company, Bank or other institution to purchase the bonds after the escrow period without the need for a letter of credit to back the bonds. 7 . In the event that the bond must be redeemed because of a failure to acquire the Niccole property, or a failure of the City/Agency to approve an alternate design or the failure of the parties to reach agreement on an Owner' s Participation Agreement, the City' s one-half of one percent issuance fee shall be refunded in full to the developer. 8 . In reviewing the first draft of bond docu- v ments, the developer noted that the Regulatory Agreement states that it will remain in full force and effect even after such time as the bonds are redeemed and paid in full . That agreement should be cancelled and terminated along with all other bond documents at such time as the bonds are redeemed in full. The CC&R' s which would dedicate the Pror- 'ect to the approved senior use would, nevertheless, remain in effect. 9 . All bond documents shall be revised in accord- ance with the understandings contained herein unless a devia- tion is approved by both the developer and the City/Agency. As we have indicated to you, because a decision regarding the bond financing must be made by both Council and the developer on Monday, December 16, these modifications to the City' s conditions are imperative if BWC/Vanderwood is to be able to utilize the bond financing. We have not stated an intermediate or "negotiating" position because there is simply no time for going back and forth, if the bond is to issue this year. As you know, my client will not be able to use bond financing next year under the multifamily housing regulations which will become effective in January of 1986 (and there is the possibility of tax reform legislation which would further prohibit bond use next year) . t Mr. Charles P. Spencer December 13, 1985 Page 6 . We believe that the conditions outlined above are normal and customary for a bond transaction such as this and, most importantly, they are reasonable and realistic in view of the costs, risks and requirements associated with the project. They are also consistent with the requirements of and structure suggested by our underwriter, First Boston. Subsequent to our receiving these conditions from staff at our December 11 meeting, I am even more convinced of the validity and value of including conditions set forth in this letter in addition to staff' s conditions as set forth in the revised report which I received this morning. BWC/ Vanderwood simply cannot undertake a bond sale without reasonable protection. The $500, 000 cost of having the bonds issued is too great to risk on the hopes that unrealistic conditions can be worked out at a later date. Because I have been questioned on this point by Council members, it should beJnoted that the City' s approval of the bond issuance, subject to the conditions requested by the developer, could not in any way increase the City' s potential liability for historical delays and impediments to development of this property. If anything, approval of the bonds subject to these realistic conditions would indicate the City' s good faith in dealing with the property and the developer. It should also be noted that the indemnities which my client has offered the City with respect to its failure to condemn Mr. Niccole' s property are subject to the issuance of a bond for Palm Court. That bond cannot issue if the approval is subject to conditions which are unrealistic or unreasonable. As we have discussed, because the developer has already committed to and made arrangements for closing escrow on both the Southern Pacific and Trainer properties, they will be the owners of those properties and most of these issues will have to be dealt with whether or not bond financ- ing is utilized. . We hope that you will be able to help the City/ Agency understand the importance of approving the bond in a form which will permit implementation of the Precise Plan of Street Alignment and development of our project without delay. The alternative will involve further delay, loss, cost, expense and liability to all parties involved. t Mr. Charles P. Spencer December 13, " 1985 Page 7 As always, thank you very much for your coopera- tion. Sincerely, Leland E. Wieder LEW:mc cc: James C. Van Derhyden Charles Thompson . i • BWC DEVELOPMENT CO. 615 SOUTH FLOWER STREET.LOS ANGELES.CA 90017 i 213-624-1001 January 25, 1985 Mr. Douglas LaBelle Deputy Director of Development City of Huntington Beach 2000 Main Street Huntington Beach, CA 92648 Re: Palm Court Dear Doug: As we discussed, I enclose the following in connection with our Palm Court Development: 1 . Owner/Participation Agreement. 2 . Economic Pro Forma. 3 . Design Brochure with a revised statistical page indicating the reduction in units from 279 to 258 units . We look forward to moving ahead on this matter as soon as is possible so that a bond can be issued by June of 1985. I would also like to confirm that the January 31, 1985 meeting at Carl McLarand and Associates has been . rescheduled to 8 :00 a.m. of that morning. We appreicate the assistance which you, Charlie Thompson, Jim Palin and Mike Adams have given us in moving this matter along in an expeditious manner. Sincerely, ANTHONY CA ZONERI AC: kmh Enclosures cc: Mr. Charles Thompson Mr: Jim Palin Mr. Mike Adams Hon. Ruth Bailey Hon. Robert Mandic" Hon. Ruth Finley Hon. 'Jack Kelly Hon. Don MacAllister Hon. John Thomas KOTIN. REGAN & MOUCHLY, Inc. Real Estate Consultants 11611 San Vicente Boulevard ' Suite 700 Los Angeles,California 90049 213/820-0900 MEMORANDUM TO: Anthony Canzoneri , Managing General Partner BWC/Vanderwood Company FROM: Ehud G. Mouchly and Allan D. Kotin SUBJECT: Palm Court - Keyser Marston Comments to Huntington Beach on Acceptable Developer Rates of Return DATE: December 12, 1985 At your request, Kotin, Regan & Mouchly, Inc. (KRM) has reviewed a letter dated November 26, 1985 from Keyser Marston Associates to Charles Spencer of the City of Huntington Beach on the subject of your Palm Court proposal . The letter addresses the issue of "the amount that the developer [your company] can afford to pay for land and offsites." Although the letter deals with several aspects of your project and the proposed land transaction, the central issue seems to be the "appropriate" rate of return on equity for you the developer. Specifically, Keyser Marston concludes that an additional $1,050,000 contribution towards offsite improvements would be "consistent with an 18% Internal Rate of Return ( IRR) on equity, which is appropriate for a to-be-built project of moderate risk." Without this addi- tional contribution, the most recent pro forma projections indicate an IRR of approximately 22%, a rate which Keyser Marston apparently believes is higher than is "appropriate." KRM has consulted to many developers engaged in the development of market rate housing of various types for the elderly. Our experience suggests that most developers would consider 30% to be the minimum acceptable projected IRR on equity investment at this point in the p anning process. Furthermore, our familiarity with this particular project enables us to properly judge the appropriate levels of risk and return. This 30% threshold rate typically applies to projects with more conventional higher cost debt financing than is projected for Palm Court. Theoretically, the cost of financing should have no effect on the "acceptability" of the rate of return on equity. KOTIN. REGAN & MOUCI. Inc. • Canzoneri - Palm Court December 12, 1985 Lower cost bond financing will , to some degree, indirectly reduce the risk since it will enable you to offer the housing at a lower cost than competitors using conventional higher cost financing. Offsetting whatever benefit may be created by lower cost financing is the increased risk associated with an un- tested location in a designated redevelopment area in which redevelopment has yet to begin. Accordingly, we believe that any further deterioration in the currently pro- jected IRR will render this project infeasible. We are convinced that any material additional contribution by the developer to land and offsites, such as the one proposed by Keyser Marston, would inhibit the development of this project. Authorized to Publish Advertisements of all kinds including public notices by Decree of the Superior Court of Orange County, ' California, Number A-6214, dated 29 September, 1961. and A-24831, dated 11 June, 1963. STATE OF CALIFORNIA County of Orange NOW 14011C!AdwnuWq Cowered b�r,11. by this ellldewl is set in point {� VO with 10 pnce Coluthn width - 'Gj,'t 1'g� y�A V 0 19° I am a Citizen of the United States and a resident of y - the County aforesaid; I am over the age of eighteen Y L�� years, and not a party to or interested in the below GYM entitled matter. I am a principal clerk of the Orange Coast DAILY PILOT, with which is combined the NEWS-PRESS, a newspaper of general circulation, _. printed and published in`the City of Costa Mesa, j �_,P.U-BLIC-°_NOTICE, County of Orange, State of California, and that a !f PUBLIC.HEARING NOTICE OF •t j Notice Of Public Hearing I REDEVELOPIVIENTc I ,AGENCY OF THE 1 "CITV.OF HUNTINGTON BEACH 'MULTI-FAMILY, { 'HOUSINO.REVENUES of which copy attached hereto is a true and complete eoNOS Copy, was printed and published in the Costa Mesa, F(P OT COURT-PROJECT) O REB NOTICEw�IS`?:HEREBY GIVEN:that'o6.06cember 2, Newport Beach, Huntington Beach, Fountain Valley, 1985'atthd66Ui;of7:30p.m! or as soon thereafter as' Irvine, the South Coast communities and Laguna possible In the-Councill. Chambers, 2000 Main, Beach issues of said newspaper for 1 time Street, Huntington Beach;!. California 92648,,the Re-, 0e4elopment Agency of the, ODA l3 veict>w eE ks to wit the issue(s) of city of Huntington Beach'Will' hold a public hearing on the proposed Issuance of the Agency's Multi=Family Hous- Ing Revenue Bonds. 1985 November: 1 6 5 Series A (Palm Court Pro- November ject)., :n •the aggregate amount not-to-exceed $25 million,Said Bonds'relate-,to the;proposed financing,of is. 198 multi-family congregate ¢elderly.' .housing ,project kknown ss Pelm Courtand-6 198 b'e o w.n e d b y; �BWC/.Vanderwood Com-' pany'cgnslating of approx-� Imately 190 units located In the city of Huntington Beach 198— at the northeast corner off lAtianta Avenue'and lakei Street. All Interested'per- :sons ere Invited to attend, 198 said Hearing and -express' their opinions for or against said proposal. Further Information may be obtained from,the Office of the City Clerk,2000:M�n I declare, under penalty of perjury, that the Street, Huntington Beach fore goingis true and correct. California 9264e; (714)1 536-5227 between the hours: of 8:00 a.m. and,5:00-p.r% .Monday through'Friday ez i' cluding holldays -_' Executed on November 18 , 198 5 Date 'OF 15-85 HUNTINOTON' at Costa Mesa, California. A BEACH REDEVELOPMENT GENCY, .Allele M. .Wentworth,Clerk :,Published Orange Coast. Daily Pilot November 16, Signature 1985 sa-1si ,3Ce Ql-1l1 RESOLUTION NO. 5597 A RESOLUTION OF THE CITY COUNCIL' OF THE CITY OF HUNTINGTON BEACH APPROVING THE CONSTRUCTION OF THE PALM COURT MULTIFAMILY CONGREGATE ELDERLY HOUSING PROJECT WHEREAS, the City of Huntington Beach is a charter city duly created and existing under its charter, the laws and Constitution of the State of California; and The Redevelopment Agency of the City of Huntington Beach is a redevelopment agency duly created and existing pursuant to the California Health and Safety Code; and On July 12 , 1984 the city adopted Resolution No. 5408 en- titled, "Resolution of the City Council of the City of Huntington Beach Expressing the City' s Intention to Issue Revenue Bonds for the Acquisition, Construction, and Installation of a Multifamily Rental Housing Project by BWC/Vanderwood Company in an Amount Not to Exceed Twenty-five Million Dollars, " wherein the city approved the issuance of bonds pursuant to provisions of the Health and Safety Code in an aggregate amount not to exceed $25 million for the project; and It has been determined that the Redevelopment Agency may sell its bonds in lieu of the city' s bonds for the financing of the project; and On December 2 , 1985 the city conducted a public hearing on the project; and The city wishes to approve the project and the issuance of the bonds as required by the California Health and Safety Code; and Internal Revenue Code section 103(k) requires that such tax-exempt bonds must be approved by the elected legislative 1. body of the government unit issuing the bonds after a public hearing following reasonable public notice, NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Huntington Beach as follows: That . it does approve the project described hereinbefore and as described in the above-referenced public notice, and the issuance and sale of up to $25 million aggregate principle amount of bonds therefor by the Huntington Beach Redevelopment Agency, pursuant to the California Health and Safety Code. PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the 2nd day of December 1985 . Mayor ATTEST: APPROVED AS TO FORM: City Clerk City Attorney REVIEWED AND APPROV/ED: INITIATED AND APPROVED: City Adminfstrat6r Dbputy ity Administrator Redevelopment ahb; 11/27/85 1065L 2 . • • Res. No. 5597 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss: CITY OF HUNT INGTON BEACH ) I, ALICIA M. WENZWORTH, the duly elected, qualified City Clerk of the City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do hereby certify that the whole number of members of the City Council of the City of.Huntington Beach is seven; that the foregoing resolution was passed and adopted by the affirmative vote of more than a majority of all the members of said City Council at a regular meeting thereof held on the 2nd day of December 19 85 by the following vote: AYES: Councilmen: Kelly, Finley, Green, Thomas NOES: Councilmen: MacAllister, Bailey ABSENT: Councilmen: None ABSTAIN: Mandic City Clerk and ex-officio Clerk of the City Council of the City of Huntington. Beach, California RE EST FOR CITY CO CIL/ REDEV ® Y L TION RH 85-64 �D a November 22 1985 Submitted to: Honorable Mayor it W @WKip Honorable Chairman and Redevelopment Agency Members v� Submitted by: I Charles.W. Thompson, City Administrator/Chief Executive Off cer L Prepared by: Douglas N. LaBelle, Deputy City Administrator/Redevelopment Subject: TEFRA PUBLIC HEARING - PALM.COURT- PROJECT Consistent with Council Policy? ( Yes ( ] New Policy or Exception Statement of Issue, Recommendation,Analysis, Funding Source,Alternative Actions,Attachments: STATEMENT OF ISSUE: A TEFRA hearing for the Palm Court property was initially conducted by the City Council on September 3, 1985. Following that hearing, the City Council did not approve the necessary resolution to enable the sale of tax exempt bonds. Subsequent to that action, the.project's developer, BWC Vanderwood Company, has explored another bonding mechanism to provide the same results, but is not, as previously proposed, a "Certificates of Participation" Bond Issue. At your meeting of November 4, 1985, it was your action to direct staff to re-advertise for a new TEFRA hearing to allow for further consideration of this matter. RECOMMENDATION: . CITY COUNCIL ACTION: After the required public hearing is conducted, approve the execution of the attached resolution documenting the Palm Court project's required public hearing. AGENCY ACTION:. Authorize staff to negotiate and prepare a contract for Bond Counsel services with the firm of Brown, Wood, Ivey, Mitchell, and Petty to serve as Bond Counsel in this transaction. ANALYSIS: The developer has acknowledged_its current inability to acquire all of the parcels within the project site. Further, the Agency is in receipt of letters (please see attached) from one of the property owners, stating his unwillingness to become a part of the project, or . to be acquired at this time. However, the developer has represented to continue to use best efforts to conclude acquisitions within the project site, or to redesign the project consistent with the configuration of the portion of the site, thus far acquired. Subsequent to the City Council's action of November 4, 1985, staff asked Keyser Marston Associates, Inc., the Agency's financial consultants, to analyze the project's feasibility. The result of this analysis has been attached for your review. 1 PIO 4/84 RH 85-64 November 22, 1985 Page Two Providing that the developer is able to acquire necessary parcels, and the project's development takes place as conditionally approved by the Planning Commission, staff has identified the major beneficial characteristics that will result from the construction of the proposed project. These include, but are not limited to: 1. Implementation of a portion of the downtown circulation system - Lake /Atlanta alignment; 2. Provides for 192 high quality, senior citizen dwelling units. 3. Generation of expendable income to support the new commercial and office development proposed within the Main-Pier Project Area; 4. The project's projected assessed value is anticipated to create approximately $150,000 to $175,000 of tax increment annually in the second year following completion. This anticipated increment can be used to finance infrastructure needs within the Main-Pier Project . Area. 5. The project will establish a strong architectural statement that will assist in the creation of a revitalized downtown image and set a precendent with design amenities that are in compliance with the adopted Downtown Design Guidelines. Section 103W of the Internal Revenue Code requires that the local legislative body conduct a public hearing and state approval of a project, (by Resolution or Certificate), before a financing can be completed. This hearing and the attached Resolution is presented to the City Council in accordance with that requirement. It is important to note that adoption of the attached resolution, at the close of the public hearing, does not constitute approval of the financing or its attendant documents. Upon approval of the attached resolution, staff will continue to work with the Underwriter and Bond Counsel for this financing to structure a Bond Issue. The financing documents and a resolution authorizing their execution, will be forwarded to the City Council/Redevelopment Agency for its consideration at the meeting of December 16, 1985. Only upon approval of this authorizing resolution will the bonds actually be sold. ALTERNATIVES: Do not approve the above recommendation. C �3 1 • • RH 85-64 November 22, 1985 Page Three FUNDING SOURCE: Costs paid from bond proceeds (Bond Counsel fees contingent on closing transaction). One-half of one percent issuance fee will be assessed. ATTACHMENTS• 1. Resolution 2. Letters from Mr. Niccole 3. Keyser Marston Analysis CWT/DLB/CPS:lp 1653h 3 Sc �j 1 �� .�0 q• ;kECE.IVED NOVZ '01985 November 19, 1985 REDEVELOPMENT Douglas LaBelle Deputy City Administrator CITY OF HUNTINGTON BEACH -- 2000 Main Street. Huntington Beach, CA 92648 Dear Mr. LaBelle: Please be advised that my November 13th letter to you was incorrectly dated 1984. The letter was written on November 13, 1985. I 'apologize for the inconvenience. . Sincerely,;" RECEIVEp - NOV 2 1q85 S I REDEVELOPMENT 400 3rd Street Huntington B ch, CA 92648 Key serMarstonAssociateslnc. Timothy C.Kelly Golden Gateway Commons A.Jerry Keyser 55 Pacific Avenue Mall Michael Marston San Francisco,Californiawll 415/398-3050 Kate Earle Funk -wee, Robert J.Wetmore Michael Conlon LOS ANGELES 213/622-8095 Richard L.Botti REQ�t'in. Calvin E.Hollis,II November 26, 1985 `,�tt`OT SAN DIEGO 619/942-0380 Heinz A.Schilling Mr . Charles Spencer Special Projects Coordinator City of Huntington Beach Office of Redevelopment 2000 Main Street Huntington Beach, CA 92645 Dear Mr . Spencer : Pursuant to your request, this letter provides further evaluation of the proposal ("Palm Court") by BWC/Vanderwood Company for a site generally bounded by Lake Street, Orange Avenue and the mid=block 1-ine between Pecan and Atlanta Avenue in Huntington Beach. The issue you have . posed to us is essentially identical to your; previous concern, i.e., the amount that the developer can afford to pay for land and off-sites. The approach taken to respond to .the question is also similar to the one previously employed and invol- ves an evaluation of the project economics before land and offsite costs, followed by (1) an overlaying of the developer's obligation to Southern Pacific Land Company (SP), and (2) a consideration of whether the project can support additional cost burdens. As previously, the evaluation is based on the reported economic characteristics of this project, not on what a developer would pay for land and off-site to construct a use or series of uses that might be more (or less) profitable than the proposed project. The conclusion of this reevaluation of the developer's -economics is that the Pro forma supports land and off-sites of $3,750,000. With $2,700,000 as the developer's investment in land, a developer payment of $1,050,000 would be available. as a contribution toward offsites. This is consistent with an 18% Internal Rate of Return (IRR) on equity, which is appropriate for a to-be-built project of moderate risk. The subject of this evaluation is Palm Court, a "Mediterranean villa for the active retired" consisting of apartments, assisted living units, nursing units, retail and ancillary parking, and significant open space and landscaped areas. r� Real Estate Predevelopment&Evaluation Services Mr . Charles Spencer November . 26, 1985 City of Huntington Beach Page Two The architectural design of the three and four story structures would be distinguished and have a character similar to good quality building in Santa Barbara. Garage and nursing would be Type I construction; residential and retail, Type V. The project would provide an environment for three levels of acti- vity for retired persons, including independent living (apart- ments), assisted living, and nursing. The assisted living and nursing units would be adjuncts .to independent living and available only to residents of this complex who reside in the apartment units . The project is identical to that identified in the previous re- ports, with these exceptions: ( 1) the number of apartment units has been reduced from 205 to 192; (2) the number of beds in nursing has been reduced from 60 to 30; (3) there is possible exposure to the developer of a need to provide 104 additional parking spaces pursuant to Conditional Use Permit ,Condition if (Conditional Use Permit No. 85-24, 7/5/85) . Site amenities and unit features required for an upscale project for the elderly would be provided. Based on data provided by the Office .of Redevelopment, the site would be comprised of about 4.84 acres, as follows: ( 1) Developer land 4.59 Acres (2) Less developer dedication ( .92) Acres (3) Plus street vacations .74 Acres (4) Plus addit;%::al property to -43 Acres 4.84 Acres The project FAR would be about 1.3:1. The project would be financed with tax exempt bonds. We have reviewed the cost assumptions provided by the developer. They show a substantial reduction (14.4%) in hard costs from pre- vious estimates. Based on familiarity with similar issues, we question the estimate of bond issuance costs at 3.5% of the amount of the proceeds. A more representative cost is 6.0%, inclusive of underwriter's fee, issuance costs (legal, printing, etc.), and credit enhancement. The revised cost is assumed in our analysis. Palm Court Economic Assumptions 5 22 85 10 85 Rents Apt (Monthly Ave.) $1,500 $1,521.50 Assisted Living 1,500 1,525 Second Resident 300 350 Nursing 66.50 63.00 Occupancy .90-92.5% 93% Absorption Apartments 24 mos. 24 mos. Assisted Living 24 mos. 24 mos. Ancillary Revenue $0.50/Resident/PD $0.50/Resident/PD Inflation Income 5% 6% Expenses 5% 5% Wages FTEs 94.8 72.6 Average Wage $13,959 $13,724 Operating Expenses Variable (per resident day) $5.30 (apts.) $6.66 (apts.) $5.81 (assisted lvg.) $5.92 (assisted lvg.) $5.74 (nursing) $5.90 (nursing) Fixed $80,400/yr $79,200/yr Utilities $1.38/SF $1.32/SF Taxes $200,000/yr $200,000 Insurance $50,000/yr $36,000/yr Marketing $12,000/mo. during $12,000/mo. during fill, $2,000/mo fill, $2,000/mo thereafter thereafter Base Management Fee 6% Revenue 6% Revenue Mr. Charles Spencer November 26, 1985 City of Huntington Beach Page Three The income and expense assumptions, shown in table 1, do not show substantial variability from earlier estimates in per unit and per bed revenues. Rental income per unit is somewhat higher. Nursing income is somewhat lower. A major alteration in the income profile is a halving of the number of beds in nursing from 60 to 30. At a daily rate of $63 - $66.50, the reduction in the number of beds results in a loss of more than $600,000/yr. in gross income. Addi- tional revenue to the. project of $130,000/yr. would accrue from interest on the bond reserve account. The expense analysis provided by the developer indicates a decline in the estimated number of fulltime employees (expense reduction of about $330,000/yr.) and substantial increase in variable expenses (food and supplies) for the apartment units (additional expense of about $100,000/yr.). For cost of debt, a 9-1/2% interest rate (fixed rate) appears attainable in the market, rather than the 10% rate indicated by the developer. The rate of return deemed appropriate for the project is -identical to that specified in the previous analyses: 18% IRR 'on equity. For this project, the IRR calculation appears to be a more useful .indicator than other measures such as ROI in that the management fee is paid only in later years of the projection, and therefore does not show up as an expense at the time of initial stabilized occupancy. The developer has imputed $2,700,000 to the value of the land he is assembling. If a transaction with SP at $1,600,000 can be struc- tured and if additional land is purchased at $650,000, the devel- oper's land cost would be $2,250,000. The imputation of an additional $450,000, bringing the value to $2,700,000, appears conservative against recent land sales in the area at $30/SF±. Therefore, the city might accept the $2,700,000 estimate as the developer's investment in land. It should be recognized, however, that the developer is receiving both profit from the land and a $650,000 fee at the front-end and that the issuance of bonds by the Agency- will enhance financial feasibility. The analysis indicates that in addition to assembling the land, the developer could pay $1,050,000 towards off-sites if project perfor- mance matches pro forma expectations. This compares to the esti- mate of $1,080,000 in the letter of May 29. You have indicated street improvement and utility relocation costs . of $780,000 to be apportioned to this project. It appears that I'AHLE PALM COURT PRO FORMA SUMMARY ---------------------------- (#i�i�U'S> YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR II (8 mans. ) - - --- - -- REVENI.IE RESIDENTIAL- (PER DEV 1()/B5) #630 $21996 #4,940 #5,338 $5,658 $5,998 $6,357 #6,739 RETAIL 61 171 206 216 227 238 250 262 RESERVE FUND INTEREST 130 130 130 130' 130 130 130 13t) ADD WORKINU CAPITAL 1,761 1,2b3 BAD llE61' -15 -25 -28 -29 -31 -33 -35 ------- ------- ------- ------- ------- ------- ------- ------- TOTAL REVENUE $2,579 #4,545 $5,251 #5,656 #5,986 #6,335 #6,704 #7,096 EXPENSES PER 10/85 PRO FORMA $863 $1,989 $2,603 #2,702 $2,837 #2,979 $3,128 #3,285 CAPITAL IMPROVEMENTS 25 50 50 75 75 loc. 100 100 MANAGEMENT FEE 0 O O 0 0 316 723 946 TOTAL. EXPENSES #888 #2,039 #'21',653 $2,777 $2,912 $3,395 $3,951 #4,331 NET INCOME BEFORE DEBT SERVICE $1,691 #2,506 $2,598 $2,879 $3,074 #2,940 #2,753 #2,765 SALES PROCEEDS H10% CAP RATE $27,b5i) (LESS) COST OF SALE, C4% #1,106 (LESS) BOND PR1N. BAL. SIV,940 NET SALES PROCEEDS #6,6ii4 DEBT' SERVICE $1,465 $2.,197 $2,197 $2,197 $2,197 $2,197 $2,197 S-2,197 NET INCOME AFTER DEBT SERVICE $226 #309 #401 $682 $877 $747, $556 #7,172 TOTAL DEVEL. COST- $21,849 BEFORE LAND LESS BOND- PROCEEDS 21,608 E(JLI I TY ----$241 IRR BEFORE LAND 131.0% • LAND u OFF SITE COSTS IRR ------------ #1,600,000 33.6:: (S.P. OBLIGATION) $2,250,i,00 26.5% (S.P. PLUS ADDITIONAL LAND) #3,480,000 IB.2i (1 + 2 PLUS OFFSITES) #3,750,00n 18.0% --------------------------- KEYSER MARSTON ASSOCIATES, INC. NOVEMBER 22, 1985 1 1 Mr. Charles Spencer November 26, 1985 City of Huntington Beach Page Four this cost could be borne by the project if the pro forma assump- tions are realized. In view of the complexities and uncertainties regarding the devel- opment economics of this project, a resolution of issues related to developer payment for off-sites could be structured on project performance. This could, for example, .involve the developer front- ing all or a portion of the off-site costs, with an adjusted payment at a future date based on the return to the equity position that is actually realized. An important caveat to all of these findings is that neither time nor budget have permitted a detailed income/expense evaluation of this project. This letter is subject to the attached certification. Thank you for requesting these comments. Regards , KEYSER MARSTON ASSOCIATES, INC. /obrt WWt re RW:vlb CERTIFICATION I certify that, to the best of my knowledge and belief, the statements of fact contained in this appraisal report are true and correct. I further certify that the reported appraisal analyses and opinions are limited only by the reported qualifying conditions and are my personal, unbiased, professional analyses and opinions. I certify that I have personally inspected the site. I further certify that I have no present or prospective interest in the appraised property. The appraisal analyses and opinions were developed and this appraisal report has been pre- pared in conformance with (and the use of this report is subject t.o) the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the America Institute of Real Estate Appraisers. I do not authorize the out-of-context quoting from or partial reprinting of this appraisal report. Further, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of media for public communication without the prior written consent of the appraiser(s) signing this appraisal report. /2 z x eouse ll Alf 0-.6 ��Jp�9 k1N6 . Aim CouA BWC DEVELOPMENT CO. S15 ECU'-+F=L CwEP ANGEL ES.CA SCO17/ 21--+.624-ICO1 November 27 , 1985 S � Eh►p , •►1/�Es SAS^9� - ��d('TFD, �'c�� or iteir� es HAND DELIVERED oP,��dt C tJ baclIoM pep ����G�:w� �er� burSaN.ro� Office of Redevelopment boNa W►.OM�'`s �A1�ud Huntington Beach .City Hall 4� y�Z ( WJdt�113 r 2000 Main Street Huntington Beach, CA 92648 /N Attention: Charles P. Spencer (6) eove4-t4r-+ Housing & Redevelopment y )pevd Program Manager Tirrow-n, Zfaaj �1}G1�etl AN� Re: Palm Court Dear Pat: CAhd<< Q{pi�44V This letter. will confirm our agreement to fully . indemnify the agency and City in connection with any costs, expenses or liabilities which might be incurred by reason of the issuance of a tax exempt bond for Palm Court. We further agreed that all bond proceeds, other than the issuance costs and land funds will remain in escrow until we are in a position to commence development of the project. In addition, during that period in order to protect the City and the bond holders with respect to those funds which are not held in escrow, we will post a letter of credit to back the bonds for an amount equal to any portion of the bond proceeds which are not held in escrow. Finally, if we are unsuccessful in purchasing the Niccole property and the City is unwilling or unable to condemn the property, we will not hold the City liable for the failure to condemn. Thank you for your cooperation in this matter. Very truly yours , Terry E. Tornek Director of Development TET:rw cc: Leland E. Wieder 40 Authorized to Publish Advertisements of all kinds including public notices by Decree of the Superior Court of Orange County, California, Number A-6214, dated 29 September, 1961. and `v A-24831, dated 11 June. 1963. CA STATE OF CALIFORNIA County of Orange PubIK NOIiGs Advsrtisinp cov«w �1 by this anidsvn is w in 7 point with to pica column width VV �C7 PUBLIC NOTICE I am a Citizen of the United States and a resident of NOTICE RI 1PUBLIC HEARING the County aforesaid; I am over the age of eighteen HUNTING ON BEAACH -PROPOSED years, and not a party to or interested in the below INSTALLMENT BALE OF MULTI-FAMILY entitled matter. I am a principal clerk of the Orange CONGREGATE ELDERLY', CT Coast DAILY PILOT, with which is combined the HOUSING LM610RT) —(PALM couRT� , NOTICE IS HEREBY NEWS-PRESS, a newspaper of general circulation, OIVEN,by,the Redevelop- ment Agency of th6,gf Hunt printed and published in the City of Costa Mesa, IngtonBeach(the'Agency")i that a public hearing'wlll be County of Orange, State of California, and that a held by.the City Council at, the hour of`7:30 P!Won Notice of Public Hearing ue5aetSetbOouncl Chambers," 2000 -Main Street, Huntington Beach; California. 92648, on the proposed Installment sale by of which copy attached hereto is a true and complete A g e n c y i o BWC/Vander'wood, Com- copy, was printed and published in the Costa Mesa, any of-a multi-famlly con- site elderly housing pro- Newport Beach, Huntington Beach, Fountain Valley, pact known as-Palm Court (more fully described In the Irvine, the South Coast communities and Laguna Installment Sale Agreement hereinafter referred to) cor- Beach issues of said newspaper for 1 time era of Atlanta'A en eat thet and Lake Street,_In the city of conse 1gOvexllitianksoo wit the issue(s) Of Huntington Beach.Such:In. shall be•,upon the terms and'eubleel to'the condltlons-`pr'61dia'ln"the proposed form of.-Inetell- ment sale agreement by and August 23 198 5 between_BWC/Vanderwood Company and`.'A`envy, dated as of June 1, 1985,a copy of which Is on file with 198 the of of the Agency and Is available for Inspection by • any Interested. person re- questing'the same'to the of- 198 five of the Agency at 2000 Main Street, Huntington Beach,California 92848,be- Aween.tli-e houri of 8:00 a.m. 198 and. 5:00 p.m;•. Monday through Friday, 'exclu'dlrig holidays.. The ;Instillment Sale Agreement",li-eintid.; 198 pated'to Include 192 living units and be In an amount of $25000,00b: Ail Interested ppeersons are Invitgd to-attend.;said heBrN In :"'and ,expiesti their I declare, under penalty of perjury, that the op4nione for or agelnst said foregoing is true and correct. matter. . . 9 9 Further Inforniatlon may be'obtalned from the Office of the City Clerk,2000 Main Street, Huntington Beach, California 9264C'_ (714) Executed on August 27 19$ 5 536-5227. ''I at Cost Mesa, C lifornia. BEACH EDE E O OF IPM NT AGENCY,- By:.Alicia. M. Wigerrorth,Clerk $ ', Published-Orangpe Coast Si natu DallyPllot August,23 1985 g F 262 REQI;ST FOR CITY COU IL/ _ ` REDEVELOPMENT AGENCY ACTION RH 85-45 Date August 22, 1985 Honorable Mayor and City Council Members/ Submitted to: Honorable Chairman and Redevelopment Agency Members % `Q a ° y' oo Submitted b K� Charles W. Thompson, City Administrator/Chief Executive Officer � I� Prepared by: Douglas N. La Belle, Deputy City Administrator/Redevelopmen Subject: TEFRA PUBLIC HEARING - PALM COURT PROJECT Consistent with Council Policy? d4 Yes [ ] New Policy or. Exception C Statement of Issue, Recommendation,Analysis, Funding Source,Alternative Actions,Attachments: STATEMENT OF ISSUE: Progress on the effort to provide tax exempt financing for the Palm Court Congregate Care Facility was suspended pending the outcome of an appeal to Planning Commission approval of the project. Now that this issue is resolved it would be appropriate to commence work on the tax exempt financing and the major first step would be to conduct of the required TEFRA hearing. RECOMMENDATION: CITY COUNCIL ACTION: After the conduct of the required public hearing approve the execution of the attached resolution approving the Palm Court Project for tax exempt financing; and AGENCY ACTION: Authorize staff to negotiate and prepare a contract for bond counsel services with the firm of Brown, Wood, Ivey, Mitchell and Petty to serve as Bond Counsel in this transaction; ANALYSIS• Since the outcome of the appeal to Planning Commission approval of Palm Court was resolved on August 6, 1985, the project has now achieved all required,entitlements. The developer is requesting that this previously induced project be provided with tax exempt financing through the "Certificates of Participation" mechanism. Through the Certificates of Participation the Redevelopment Agency would purchase the project in whole from the developer and simultaneously sell the project back to the developer. The.developer in turn pledges to make installment sale payments to the Redevelopment Agency from project revenues and the Agency in turn pledges to make payments to the Trustee. The Certificates of Participation structure was previously used between the city and the Redevelopment Agency to conduct the financing for Emerald Cove. C PIO 4/84 RH 85-45 August 22, 1985 Page Two The developer will be required to provide a "Credit Enhancement Device" as the ultimate security for the transaction. Through this mechanism a bank provides a letter of credit, collateral or other security to the owners of the certificates. Should the project default for any reason this financial institution is required to make whole the certificate owners. The purveyor of the Credit Enhancement Device then looks toward the developer and project to recover its loss. Neither the purveyor of the Credit Enhancement nor its form have yet been determined by the developer for this transaction. Section 103(k) of the Internal Revenue Code requires that the local legislative body conduct a public hearing and state approval of a project (by resolution or certificate) before a financing can be completed. This hearing and the attached resolution is presented to the City Council in accordance with this requirement. It is important to note that, while it will also be necesssary for the Redevelopment Agency to conduct a subsequent public hearing as required by the Health and Safety Code and take specific action regarding the approval of financing documents, the principle effort involved in the preparation of the financing documents will be concluded before further actions are presented to the Agency for its consideration. This effort will represent a significant commitment of the Redevelopment Agency staff and the services of Bond Counsel whose fee will approximate $30,000. These remaining efforts will be undertaken with approval of the attached resolution. ALTERNATIVES: Do not approve the above recommendation. FUNDING SOURCE: Costs paid from bond proceeds (Bond Counsel fee contingent on closing transaction). One-half of one percent issuance fee will be assessed. ATTACHMENTS: 1. Resolution. 2. Certificates of Participation Fact Sheet. CW T/DLB/SV K:sar 1281h CERTIFICATES OF PARTICIPATION AUTHORIZING LEGISLATION The Community Redevelopment Law of the State of California empowers redevelopment agencies to issue certificates of participation to finance housing, commercial and industrial projects. This authorization is not based upon any particular section of the Community Redevelopment. Law, but rather on the broad power of redevelopment agencies to acquire and dispose of real property. GENERAL PURPOSE The general purpose of certificates of participation is to spur development within redevelopment project areas. FEDERAL AND STATE REQUIREMENTS - Federal requirements All Federal requirements which apply to industrial development bonds also apply to certif-icates of participation. - State requirements The project to be financed must be located in a redevelopment project area or redevelopment survey area and have benefit of an "allocation" of authority to issue from local government or state. CITY/AGENCY ROLE Through this method of financing, the Redevelopment Agency momentarily acquires the development to be financed and simultaneously resells it back to the project developer. By virtue of the fact that redevelopment agencies did at one time hold title to the project, tax exempt status of the Redevelopment Agency is lent to- the project and debt incurred to finance the project. Through this means, tax exempt interest rates are available to finance commercial and industrial projects. Like the other programs for providing tax exempt financing to meet the public purposes discussed, there is no general obligation of the City or Redevelopment Agency involved. The development must stand on its own merits and the, risk is shouldered by the lending institution and developer. POTENTIAL PROJECTS This type of financing has applicability in several of the City' s current or proposed redevelopment project or survey areas, for example, the Gothard Industrial Corridor , the Beach Boulevard Commercial Corridor, and Downtown. 1302h CERTIFICATE OF PARTICIPATION FINANCINGS -GENERAL SUMMARY- I. INTRODUCTION Although certificate of. participation financings are a recent invention, in -fact they represent a new variation on a traditional and time-honored financing technique. For years public bodies have financed their equipment needs pursuant to a lease or installment sale arrangement whereby a lender, typically a local bank, agrees to acquire the equipment and lease or sell (on an installment basis) the equipment to the public body. Because the public body's obligation to pay rent or installment purchase payments may constitute a tax-exempt obligation, this . basic financing method is an alternative to the issuance of tax-exempt bonds. In order to make this form of financing available to the general bond market' as well as banks and other institutional lenders, certificates of participation have been devised representing rights to receive portions of the tax-exempt rent or installment purchase payments. II. REASONS TO USE CERTIFICATE OF PARTICIPATION FINANCINGS Certificate of participation financings may be used .to finance all types of public projects, as well as private projects to be financed on a tax-exempt basis. Unlike bonds, certificate of participation financings involve the exercise of a public body's power to acquire and dispose of property, rather than the power to incur debt or borrow money. As a result, certificate of participation financings avoid many restrictions applicable to bonds, such as maximum interest rate limitations and public sale requirements. On the other hand, legal limitations on the acquisition and disposition of property, such as public bidding or hearing requirements, will apply to such financings. Whether or not a certificate of participation form of financing is prc-ferable to bonds in a particular case depends upon the legal limitations which apply to each method of financing. Despite the differences between certificate of participation financings and bonds under state law, federal tax law regards the two as identical in substance. As a result, federal tax rules applicable to bonds will also apply to certificate of participation financings. The choice between bonds and certificates is not influenced by federal tax considerations. III. MECHANICS OF CERTIFICATE OF PARTICIPATION FINANCINGS A. Private Projects Attached hereto is a flow chart showing how a certificate of participation financing works for a private project. Essentially, such a financing is as follows: 1. A third party professional vendor or leasing corporation (the "Vendor") enters into an agreement with the private party to purchase the land constituting the site for the project. The Vendor also enters into an Installment Sale Agreement with the public agency (the "Public Agency") 'pursuant to which the Vendor agrees to construct the improvements on the site, and upon completion to convey the entire project to the Public Agency. The Public Agency agrees to pay the purchase price in periodic installments denominated in principal and interest components. The Public Agency's agreement to pay the installment payments constitutes a tax-exempt obligation under federal tax law, such that the interest component of each installment ° payment is tax-exempt. The Public Agency's liability to make the installment payments is expressly limited to the revenues it receives from the installment sale of the project to the private party (see below) . The Public Agency must be authorized to enter into the Installment Sale Agreement pursuant to any applicable state law. As an alternative to an installment sale form of financing, the Public Agency may lease the project from the Vendor, agree ing to make periodic rental payments, and in turn may sublease the project to the private party. 2. The Public Agency enters into a second Installment Sale Agreement with the private party whereby the Public Agency agrees to convey to the private party, simultaneously with the conveyance to the Public Agency from the Vendor, title to the completed project. The private party agrees to pay installment payments at the same times and in the same amounts as the Public Agency is required to pay under the first Installment Sale Agreement. The installment payments made by the private party constitute the revenues from which the Public Agency satisfies its obligations under the first Installment Sale Agreement, and such revenues are assigned to the Vendor. As a result of the two installment sales, title to the project vests in the private party immediately upon the completion of construction, and the private party has the sole obligation to pay debt service on the financing. 3. In order to provide funds to build the improvements, the Vendor assigns to a trustee bank its right to receive all installment payments made by the Public Agency, which consist of revenues paid by the private party. The trustee bank is instructed to issue certificates of participation which are purchased by an underwriter or a lending institution. The certificates of participation represent proportionate interests of the holders to receive a portion of each installment payment made by the Public Agency under the first Installment Sale Agreement. Because a portion of each payment is denominated as interest, interest with respect. to the certificates is tax exempt to the certificate holders. —18— 4. The proceeds of sale of the certificates are deposited by the trustee bank into a construction fund, • to be drawn out for the purpose of constructing the project. The Vendor appoints the private party as its agent for purposes of constructing the project, 'so that the private party is responsible for supervising and managing the actual construction. B. Public Projects Certificates of participation may also be used to finance any public improvement which the Public Agency is authorized to acquire under state law. Such a financing works the same as the financing described above for a private project, except as follows: 1. The Public Agency's obligation to pay the installment payments or lease payments is usually a general obligation, payable from any source of available funds. In the case of a revenue-producing enterprise, the Public Agency's obligation may be limited to revenues from the project.. 2. In the case of a Public Agency which is subject to the constitutional debt limitation (e.g. cities, counties and school districts) , the form of financing must be a Tease if the Public Agency's obligation to make the payments constitutes a general obligation. 3. The project is not sold or leased to a private party, but remains under public ownership and operation. 4. The Vendor appoints the Public Agency as its agent for purposes of construction the project. —19— (1) Lender buys certificates from Trustee, pays proceeds into Construction Fund held by Trustee (8) Trustee pays Revenues to Lender, LENDER thereby paying the certificates held by Lender (7) Vendor assigns Revenues (3) Vendor and Public to Trustee Agency enter into Installment Sale TRUSTEE -----———— PROFESSIONAL Agreement #1 VENDOR whereby Vendor BANK agrees to build CORPORATION project and Public Agency agrees to n purchase price (2) Trustee holds Construction Fund - I Installments over Private Party as agent of Vendor I time - Public draws funds to finance construction Agency's obligatioi- of project I is TAX-EXEMPT and (6) Public Agency � limited solely pays its to Revenues installment obligations PUBLIC from Revenues received from AGENCY LEGEND Private Party Flow of n (4) Public Agency and proceeds of (5) Private Party I Private Party certificate pays Revenues I enter into sale in installments - I Installment Sale in actual Agreement #2 Flow of operation, whereby Public Revenues Private Party PRIVATE Agency agrees to pays directly sell completed Flow of title to Trustee PARTY project to to project Private Party and Private Party agrees to pay Revenues in installments NOTICE OF PUBLIC HEARING CITY OF HUNTINGTON BEACH PROPOSED INSTALLMENT SALE OF MULTI-FAMILY CONGREGATE ELDERLY HOUSING PROJECT - PALM COURT NOTICE IS HEREBY GIVEN by the Redevelopment Agency of the City of Huntington Beach (the "Agency) that a public hearing will be held by the City Council at the hour of 7:30 P.M. on Tuesday, September 3, 1985, at the Council Chambers, 2000 Main Street, Huntington Beach, California 92648, on the proposed installment sale by Agency to BWC/Vanderwood Company of a multi-family congregate elderly housing project known as Palm Court (more fully described in the Installment Sale Agreement hereinafter referred to) located at the northeast corner of Atlanta Avenue and Lake Street, in the city of Huntington Beach. Such installment sale shall be upon the terms and subject to the conditions provided in the proposed form of installment sale agreement by and between BWC/Vanderwood Company and Agency,_ dated as of June 1, 1985, a copy of which is on file with the Clerk of the Agency and is available for inspection by any interested. person requesting the same to the office of the Agency at 2000 Main Street, Huntington Beach, California 92648, between. the hours of 8:00 a.m. and 5:00 p.m., Monday through Friday, excluding holidays. The Installment Sale Agreement is anticipated to include 192 living units and be in an amount of $25,000,000. All interested persons are invited to attend said hearing and express their opinions for or against said matter. Further information may be obtained from the Office of the City Clerk, 2000 Main Street, Huntington Beach, California 92648 - (714) 536-5227. Dated: CITY OF HUNTINGTON BEACH REDEVELOPMENT AGENCY By: Alicia M. Wentworth Clerk 1012h TEFRA Hearing - Publish August 23, 1985 r_ RESOLUTION NO. 5568 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH APPROVING A PROJECT COMPRISED OF THE CONSTRUCTION OF .THE PALM COURT MULTI-FAMILY CONGREGATE ELDERLY HOUSING PROJECT (THE PROJECT) WHEREAS, the city of Huntington Beach, California (the "City") is a charter city duly created and existing under its charter , the laws and Constitution of the State of California ; and The Redevelopment Agency of the city of Huntington Beach (the "Agency" ) is a Redevelopment Agency duly created and existing pursuant to the Health and Safety Code of the State of California (the "Act") ; and On July 2 , 1984 the city adopted Resolution No. 5408 entitled "Resolution of the City Council of the City of Huntington Beach Expressing the City' s Intention to Issue Revenue Bonds for the Acquisition, Construction, and Installation of a Multi-Family Rental Housing Project in an Amount Not to Exceed Twenty-Five Million Dollars" ; (the "Inducement Resolution" ) wherein the city approved the issuance of bonds (the "Bonds") pursuant to the Act in an aggregate amount not to exceed $25 million for the project; and The city has determined the Agency may sell Certificates of Participation in lieu of the Bonds for the financing of the project; and On September 3, 1985 the city conducted a public hearing on the project; and The city wishes to approve the project and the issuance of the Bonds or Certificates of Participation as required by the Act; and Section 103 (k) of the Internal Revenue Code requires that such tax-exempt bonds must be approved by the elected legislative body ( in this instance, the City Council) of the government unit issuing the bonds or certificates after a public hearing following reasonable public notice. �-A L�tJ NOW , THEREFORE, it is hereby resolved by the City Council of the city of Huntington Beach as follows: 1. The city of Huntington Beach hereby approves the project described above and as described in the above referenced public notice and the issuance and sale of up to $25 million aggregate principle amount of bonds or certificates therefore by the Agency pursuant to the Act. 2. This resolution shall take effect immediately upon its adoption. e- ADOPTED THIS 3rd day of September , 1985. ATTEST: City Clerk Mayor APPROVED AS TO FORM City Attorney INITIATED AND APPROVED: Wepu 7157i of Redevelopment APPROVED: City Administra or 0754L r � Res. No. 5568 : STATE OF CALIFORNIA ) COUNTY OF ORANGE ) so: CITY OF HUM INGTON BEACH ) I, ALICIA M. WENTWORTH, the duly elected, qualified City Clerk of the City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do hereby certify that the whole number of members of the City Council of the City of_Huntington Beach is seven; that the foregoing resolution rg�IG D t adopted by the affirmative vote of more than a majority of all the members of said City Council at a regular meeting thereof held on the 3rd day, of September , 19 85 by the following vote: AYES: Councilmen: Kelly, Green, Thomas NOES: Councilmen: MacAllister, Bailey, Finley ABSENT: Councilmen: Mandc (out of room) City Clerk and ex-officio Clerk of the City Council of the City of Huntington Beach, California REQUEST FV0 REDEVELOPMENTSBENCY ACTION RH 85-66 1/t-1S R-07"16N '�'U AI P"Vf- PWI t e o a y Date December 4, 1985 Tie U 6+e - Submitted to: Honorable Chairman and Redevelopment Agency Me bers Submitted by: Charles W. Thompson, Chief Executive O ' r Prepared by: Douglas N. La Belle, Deputy City Administrator/Redevelop men Subject: AUTHORIZING RESOLUTION APPROVING FINANCING DOC ENTS - PALM COURT PROJECT Consistent with Council Policy? Yes [ J New Policy or Exception Statement of Issue, Recommendation, Analysis, Funding Source, Alternative Actions, Attachments: STATEMENT OF ISSUE: On December 2, 1985 the City Council conducted a public hearing on the subject financing and authorized staff to proceed with the preparation of the financing documents. Attached for the Redevelopment Agency's consideration is the necessary resolution approving the financing documents for Palm Court. RECOMMENDATION: Approve and authorize the execution of the attached resolution which approves the documents necessary to provide tax exempt financing for the Palm Court Project. , ANALYSIS: Approval of the attached resolution will provide the sale of Redevelopment Agency Bonds to provide construction and long term financing for the Palm Court Project prior to the end of 1985. Consistent with the direction of Council on December 2, .1985 at the close of the TEFRA Hearing on this project, the following caveats are included in these Bond documents: 1. The developer has the prerogative to request the Agency to proceed with eminent domain for the acquisition of any or all parcels within the project site. The Agency will determine at its sole discretion, and following all procedures for eminent domain proceedings as established in the California Health and Safety Code, to approve or deny such a request. The developer also has the prerogative to request consideration of a redesigned project by filing such requests with the appropriate city bodies governing such entitlement-to-use approvals. Notwithstanding these developer prerogatives no proceeds of the bonds will be disbursed for the acquisition of land unless and until one of the following conditions has been satisfied: (a) All three parcels which when assembled configure the project site are in escrow and prepared to close; f (x- PI O/1/85 RH 85-66 December 4, 1985 Page Two OR (b) (i) the design of a project of a lesser scope has been reviewed by and approved by all discretionary approval bodies including but not limited to Planning Commission, Redevelopment Agency, and the City Council and further that such project has been provided with all necessary entitlement to use approvals and (ii) there is by separate action of the Redevelopment Agency specific approval for the disbursement of funds with a full disclosure to and by the Redevelopment Agency Members that proceeds are to be disbursed for the acquisition of land for a project of reduced scope and (iii) that all aspects of such project of reduced scope have been incorporated in an OPA which has been approved and executed by the developer and the Agency. 2. An Owner Participation Agreement shall be completed and fully executed by all parties that includes the developer's obligations with respect to but not limited to a schedule of performance, offsite improvements, and utility relocations, within 90-days of the issuance of bonds OR prior to the disbursement of proceeds for land acquisition whichever occurs first. The only proceeds of the Bonds which will be disbursed at the Bond Issue closing will be those to pay the costs of issuance (Underwriters discount, Bond Counsel fees, bond printing and rating agency fees, etc. and city's issuance fee). All other proceeds will be held in escrow until the conditions described above are met. ALTERNATIVES: Do not approve the attached resolution. This will pre-empt the sale of tax exempt bonds to finance the Palm Court Project in calendar year 1985. FUNDING SOURCE: Costs paid from bond proceeds. City's one-half of one percent issuance fee will be assessed. ATTACHMENTS: Resolution No. CWT/DLB/SVK:sar 169 6h t"-: RESOLUTION NO. d ,i AA RESOLUTION OF THE HUNTINGTON BEACH REDEVELOPMENT AGENCY -- AUTHORIZING THE SALE OF NOT TO EXCEED $25, 000, 000 AGGREGATE '- i PRINCIPAL AMOUNT OF THE REDEVELOPMENT AGENCY' S MULTI-FAMILY HOUSING REVENUE BONDS (PALM COURT HOUSING PROJECT) , 1985 SERIES A MAKING CERTAIN FINDINGS AND DETERMINATIONS , AND APPROVING AND AUTHORIZING THE EXECUTION OF RELATED DOCUMENTS, AGREEMENTS AND ACTIONS ,4HEREAS , the Redevelopment Agency of the City of Huntington Beach ( the "Agency") has determined that there is a shortage in the City of Huntington Beach (the "City") of decent, safe, and sanitary housing and a consequent need to- encourage investment and. upgrade redevelopment project areas and increase the . supply of housing in the City; and Chapter 8 of Part 1 of Division 24 of the Health and Safety Code of the State of California, as amended (the "Act") , authorizes the Agency to issue revenue bonds in order to make long-term, low interest loans through "qualified mortgage lenders" to finance residential construction in order to encourage is eqt investment and upgrade redevelopment project areas and increase the supply of housing; and The Agency previously has determined to engage in a program of financing residential construction pursuant to the Act; and On July 2 , 1984, the Agency- adopted a resolution of intention, Resolution No. 5408, to provide financing for a 264-unit residential rental development to be known as Palm Court (the "Project") ; and The Project will be wholly located within a redevelopment project area ; and In order to finance the Project, the Agency proposes to issue its Multi-Family Housing Revenue Bonds (Palm Court Housing Project) , 1985 Series A (the "Bonds") , pursuant to the Act in an aggregate principal amount not to exceed twenty-five million dollars ($25, 000 000) , and to lend the proceeds of the sale of the Bonds to BW C/Vanderwood , a California general partnership (the "Developer") through a "qualified mortgage lender, " ; and 1. L4 n ,r � (1/1rc PALM COURT Councilman Don MacAllister ' v v Lid 1 1 El in I Lf ® ' GuJ' �. ;.t. I II II r w j ' • •� A •ice � ":!Y, p Otto ,�l •a kls NS ,r V 44F1 J� �� Selling to Seniors : It's a Lively Market You can't afford to ignore this growing market segment. Gadi Kaufmann er (see Exhibit I). For these reasons, market segment presents major oppor- Beverh•Hills, California the housing industry must take a sec- tunnies for rea estate sa es ro esston- and look at retirees. als, developers, and lenders. But this interest in the elderly Although it s c ettr t at the elder- The findings of a recent government should not he confined to the popula- ly represent a large and lucrative mar- study indicate that America is rapidly Lion growth of the next century. In 'et, they are genera y unc erseryec i becoming "an aging society.' Indeed, 1982, seven states (California, New' re gar ding ousin or t etr s erta izec adults over 65 now outnumber teen- York, Florida, Pennsylvania, Texas. needs. art o the pro� em is t gat re- aders and have become one of the fast- Illinois, and Ohio)each had more than tirement housing evokes different est-growing population groups tot e I million persons age 6a or o er— images to different people. For some, it country. Population projections lore- nearly hall of the elderly population in means large communities that ha%e cast that the post-World War II "baby the country. Adding in the states of recreational facilities such as S%%'m- boom" generation will begin to reach Michigan and New Jersey with nearly ming pools, golf courses, clubhouses, retirement age by the year 2010, and a million elderly each, these nine states and so on. To others, it connoics a by the year 2030 nearly one out of contain more than half of the country's facility that offers some type of nursing every five Americans will be 65 or old- elderly population. This concentrated.,, care. Exliiblt I a x a g x 3 A aSize andPr'oporhon s Future UR Elderly:Population 5 E (number in=population ba'reFers to the 4peicentsof the total populauon)' t iz _.`s d Number s t�ti c y�,7rt h cu `ems y .y! `fp-f_'k`',, 1'"�.�,. i SMilllolis w 35-{; '•'' max a t{•'*.S --i#"4 - s ,� ;;,,,.? € K .P.z r 3y ;5 '�• -,W ' e: `.i -t � s=`Z ,' -rya,y�4,. -' - r _ 'f _i' % t it 5'Yk>^ 'x- 4 rg -4I 'tr ...:t -,t.•4- f� aer "1 Ac. - qx�r a -•,s - ` :•, ' _ 199-0 198Q 3: 2000{ 20f0 2020 2030 rr _ 4 F _ Pro�ecIted Number of Elderly,People.? T s F. w 1980 =x25 s-million i 2020 34 8�mtllion F n ' " u -qP.w-'� I€� F 3, r}5 1990r= 29 S mtllion 2020 45 ] million �r �, '�- ��``" � x ,y.� �Asa• �7�3�� y y � = „+{r-d. �Rr .+..}�"�`��" - Fes,''„€-tom,.r 7,:.. "�"���a-e � _^•-a-i; F a5'-..:�v � ,,'�}+��,"' c.�'- -al�. .,s•�,rr�'wz 3.�'y� � " �trt��' d.. y.�} r�'��1��� C.��Ii�t�]S gIJf� $@-es'II Pr ctro �;-tJ+nth'Amencan Jui 1982 June 1985 11 I i i i ' I 3 t Whatever your perceived notions Exhibit II about housing for the elderly. the fol- lowing overview will Qive you some RetlTement Market_Summary ` interesting facts about retirement com- 'New:—town/ Village Subdivision/ munities, market segmentation, and Ctty Gommumty Corriplez Residence j other areas that will help you better Age Group' 50+ 50+ _65`+ address the needs of this growing g P G5+ buyer market. Averaged- 10,000-15;000 __5,_000 '_500. 50-400 Size Mobility The most important fact to remember Lifestyle Active social Active,-social- -Less active Active to is that most older people do not move 'independent ,independent 'social;some inactive,social, far from their preretirement locales. medical independent or The Census Bureau reports that al- services, needs medical though 2.8 million people aged 55 or care older moved to a different house in Foe-Sale .For Sale' ;For Sale-.- -For Rent + For Sale/For ..` 1 1982, 60 percent staved in the same vs. ' Fee --Rent county. Onlv about one-half million For Rent x J f actually moved to another state—fety- Amenities -- Self coritamed, `Full Mtmmal rec« - Minimal rec- er than one in five of the total moves by full recreation--'.recreation, `reation, no' -reation, _ the elderly. shopping :semi-self- `shopping, security Statistics show that retirees who medical contained, on-site medical, move to other states Lena to be more '4'f== security security affluent, better educated, and more Market Out-of-state' Mainly local, ~"Mainly local, Mainly local, active. These people typically look for Source + local, intrastate --some some an "active retirement community" that intrastate out-of-state out-of-state offers the recreational amenities of a more vital lifestyle. In 1982, 70,000 Price Affordable to Affordable to Subsidized to Subsidized to elderly persons moved from the North- Range luxury luxury luxury luxury east and Midwest to states in the South Location Generally Sun Suburban Usually Varies from and West. Belt where suburban, urban to rural Partly because the mobile elderly large amounts some urban are affluent and obviously in need of of land are new housing,this has been the segment available. most often targeted by developers. Un- Near metro- fortunately, however, the elderly who politan area move shorter distances or who might Product Wide variety, Wide variety, Limited Wide variety be persuaded to move to a local hous- includes includes variety, ranging from ing alternative (if one were available) single-story single-story includes mobile home have been virtually neglected as a a[ctached and attached and single-story parks to market. detached detached, attached, free-standing low-rise low-rise, high-rise Market Segmentation central dining As with any population group, the SOURCE.Robert Charles Lesser a Co. elderly market is not homogeneous. It g can be divided into three broad market v segments: .�. 1. Go/go—The active retiree or prere- -- a tiree, generally between ages 55 and 70.This group is still composed mostly of couples. J. r� 2. Slow/go—The semiactive retiree r i between ages 60 and 75 who needs \ nearby general medical care. This group comprises an increasing propor- tion of singles but is still predominant- Eli] i o I ly couples. — 1 3. N'o/go—The 65-and-over retiree in need of standby or permanent medical 12 real estate today' care.This segment consists of predom- golf, square-dancing; and arranged offered by some 55-and-over develop- inamly single households. tours may not close the sale when con- ments. However, because of the con- trasted with superior security, 24-hour servative nature of this market, these Development Options medical services, and meal arrange- are not nearly as popular as the more The developers of retirement housing ments. Because each development is traditional 30-year fixed mortgages. fall into the categories of nonprofit(re- unique in its offerings, each salesper- ligious organizations, unions, fraternal son must carefully tailor the presema- Conclusion organizations, and so on) and for-prof- tion to his prospective buyer. We have seen more and more special- it organizations. Of the 1,530 retire- All-cash transactions are fairly ized housing products developed for ment projects identified in a recent common in this market, since the el- every segment of our population over directory compiled by the University deny buyer can transfer equity from the past 20 years. Yet the special needs of:Michigan,more than 70 percent are his previously owned home. When of the elderly have not been a e uate v developed and managed by the non- financing is required, however, re- addressed by the real estate and devel- profit entity. The nonprofits tend to member that special terms or unique o ment community. This un erserve develop and manage retirement pro- gimmicks/incentives are not the typi- and .growing market o ers count ess� jects that include nursing care, while cal approach. In fact, financing for opportunities for those developers and' the for-profits tend to shy away from retirement-age buyers is usually the real estate profession7s who are will- this specialized area. same as that for first-time buyers— ing to build and sell housing that meets As with any market, there are a i.e., 30-year fixed-rate loans. This _ the special needs of the elderly. ❑ variety of product types available. The does not mean that other terms and Urban Land Institute has categorized varieties of loans are not available. Fif- ;1.1r. Kaufmann, senior vice president and the available development options, teen-year fixed loans,one-, three-, and partner of Robert Charles Lesser & Co., is concentrating on the size and scope of five-year adjustable loans, and so- responsible for the company's consulting the retirement-oriented project. The called "reverse" mortgages may be and branch office operations. ULI definitions include the following: a - 5 1. \'eu.-tnz;n cttl—A self-contained More about Housin and theEderl community that covers thousands of y 4V F f r Z= —1 acres and has a population of 5,000 or Numerous agencies across the country canFproyide_useful nformauon on ` more. These are most often in the Sun types of retirement housing and the special phousing problems facing-5�he Belt and away from urban centers. elderly. These six national organizations represent older Americans and cane hei questions. 2. Village community—Although not P answer your q fully self-contained, it has some sup- American Association of Homes for the Aging , rt �= port services and a population of 1050 1.7th Street N.W. Suite 770 1,000-5,000 over an area smaller than Washington,.D.0 20036 a new-town community. 202/296 5960' t 3. Complex—A smaller-sized develop- American Associationof'-Retired Persons t merit that contains a mixture of hous- 1909 K:Street 1V W e- Mo, types. Very often this is a life-care Washington, D_C-20049 facility that contains, in addition to 202/872 4700.e ;: independent living units. congregate- r care apartments, food service, and GerontologicalSociefy of America some nursing care. 141'1K Street IV W, Suite 300 t -Was`litngton; D C 20005' 4 W, F �. 4. Subdivision residence—The "typi- 202/393141�1ta s cal" housing project consisting of one �` = wu r National Caucus/Center on Black,Aged,Inc rend ally lepss than 500 n d thetran to1x424KyStreet.N W; Site 50Q_ } g g Washington;D-C 20005 s � ` `� of product can vary from a mobile- ,x P 202/637 8400 � f � home park to a freestanding apartment ., •* - � building. NaIT- tional Council on the Aging _ s rylandAvenue These development options are ex- 600=Ma r plored in more detail in Exhibit II. Washington, D"C '20024 � 202/479 1200 x d r 21 Marketing Techniques National Council of Senior Citizens 'R r x ..�, - - A real estate perspective on this mar- 925'15th StreetN W i � sue #r ket will vary with the"go/go,slow/go Washington, D C 20005't 6 � 400t or no/go" personality of the retire- `202/347 8800fi � v ment-age buyer. Such amenities as " ... &_ �`�g� June 1985 13 Desinin for Aging a lifetime of efhort money, and emp_Lion in a home may find that they no longer can live comfortably in it he- cause its design cannot accommodate their changing physical needs. The Can American homes be built (and sold) to only alternative becomes some form of institutionalized living, with its inher- ent loss of independence and pri\ac, and its disruption of self-image. There All of us are aging. The changes that cult.) The design of kitchens and are those, of course, ��•ho are prepared every person undergoes during a life- bathrooms must take into account re- to leave a single-family home, but they time alter physical. intellectual, and stricted movement and a decreased find few alternatives to large instittt- emotional needs. Yet our built emi- ability to reach high places. Storage Lions. Small-group housing for the ronment, particularly our housing, is spaces, appliances, and tabletops need elderly, where tenants can share re- not always designed to meet our evoly- to be lowered, and handrails and other sponsibiliLies vet retain a comfortable ing requirements through a full life- supports may have to be added. social setting.isone possibleanswerand time of use. Our structures are static— All of our senses change as we is a potential new market for architec,s, built to suit only our demands of the age, also. For instance. noise tends to huilders, and real estate developers. moment. But what happens when we become more stressful, so the use of Flexibility must be built not only age' Can our homes age with us' acoustic baffling and carpeting is inn- into new housing stock but into reno- That is the question now being portant. The flickering of fluorescent gated and rehabilitated units as well. asked by designers and developers lights and glare can be extremely dis- Designers and builders are i)cc„mine across the country as the building turbing to the eyes. In addition, eve- increasingly aware that the life cycle.I industry begins to face one of the most sight can deteriorate with improper a house must mirror the life cycle of important realities of our time—the lighting. The use of task lighting and the people who lice in it. In an age of graying of America. By the end of this glare-reducing matte finishes is one of shrinking space. smaller home:. and decade. there will be .+ million more the solutions to this problem. high costs, a home that is built to work Americans over 65 than there were at The ability to (distinguish colors for the occupant for a lifetime ;rule the beginning of the decade—an 13 often deteriorates. so bold. contrasting becomes a sound investment. If current percent increase. As a society we are colors may be appropriate. The sense trends continue.and homeowner.,can't getting older, but the places in which of touch also is altered with aging, so change homes as frequenLly a< ihec did we live :•emarn unchanged. Will the contrasts in textures become useful not in the past, then We must build:utcl sell house w e buy at 3� still suit us when only to help manipulate objects like houses that can change ith people. we turn 65' doorknobs, which are difficult for ar- Long-term usefulness and lon,-terns Those in the industr• are now thriLic hands to turn, but as a me.rns of afTordabiliL% are hecomin r new .�atrh- beginning to look seriously not only at stimulating the senses ns well. This words for an aging popul:oion. j the problems of designing buildings idea of stimulation is one of the most that meet the needs of those who are important, yet most ne�,llec•ted, aspects A Team Effort already elderly, but at ways to allow of designing for agin,. Workin together, archiw(c :Ili,!buildings to evolve as the demands and Although phvsical and mental (--I- 'elopers' with input from :real c�:.tic capabilities of' the users change pabilities change as we a,e, enuotonal professu>nals, can produce hontc< dMI through time. This process requires an needs(to not. The need for privacy. the are auractiyc, efficient. and ntiu kri- understanding of the needs, require- desire for independence. ancd the im- ahle. The traditional sellit7 points of a merits, and desires of older people. porLance of retaining self-esteem and house will remain. but now a ne\, .me Buildings—whether homes, work confidence are constant throuUhout can he added—lifetime ciabidity. places, or health-care facilities—must our lives. Our social relationships may The architect;%"developer re;ri (s- take into account the special needs of' differ through time. but the need to he Late professional partnership must the aging. social remain a critical part of- living. begin to produce housing that meets The built environment must reflect not the needs of both younger hontebuyers Changing Requirements only the changes in our lives as we age who look for long-term benefits and Movement becomes more difficult as tit the constants as well. Too often older buvers who seek living emiron- we age, so not only must doorways be our buildings exacerbate the problems ments that respond to their special widened to accommodate wheelchairs, needs. Clearlc,the nature of the hume and stairs eliminated in some cases, riers, making life rustratim� and buying public is changing. It is critical but a total environment must be uncomfortable. But even more untor- that designers. builders.and real esuue created that both facilitates and en- tunate is the emotional disru Lion professionals respond to the evolvinif courages mobility. (Ramps are not the caused bV the ten encv of the built needs of the Arnerican people.01 answer; the forward shift of the body's environment to prevent independent center of graviLy during aging makes nd social interaction. Y u.,an'tch negotiating sloped surfaces more dif- Elderly people who have invested 14 real estate today' Architects' Roundtable Three years ago, the American Institute of architects (AIA) Cohen: also, the homebuyer didn't decide what quality elec- began to explore the issues relating to housing and our aging trical wiring was needed. or what structural capacity was society. A Task Force on Aging was established in 1983 by needed in the wood joints in the floor. Industry standards the AIA board of directors to increase awareness of and were established for safety that satisfy the needs of society, as sensitivity to the changing housing requirements of the elder- well as those of the homebuyer. Why are we not capable of ly population. establishing those types of standards for viable, usable hous- Last spring the task force met to discuss the issues. ing or work places that would make it possible for people to Members included architects Martin H. Cohen (chairman), work, if they could work, beyond age 65? Samuel A. Anderson, Walter W. Hackler, and Edward H. But although there may be changes in codes and stan- Noakes. The following excerpts from their roundtable dis- dards, you aren't going to accomplish attitude changes only cussion will give real estate professionals more background through regulations. You're going to need regulations to help and insight into the housing problems of the elderly. put a threshold on what is minimally acceptable. There must � be some consensus [in the housing industry]. Does current housing design serve the needs of the aging? What about the costs involved in meeting the needs of Anderson:This group is concerned with design for aging, not the elderly? design for the aging. When you think about the ramifications :Noakes: I think the costs are often minor—maybe nothing of that, there is a subtle but very important difference, more than colors, lighting, draperies, and furniture within because we are all aging.We are talking about a process that the house that may not be related to the structure of the house starts as soon as we start occupying buildings or homes. itself. Cohen: In that context, you would have to say that the built Anderson:The kind of things that need to be done might be to rearrange fixtures in the bathroom, to make sure that doors environment is not adequately responding to the needs of f aging. If aging constitutes a process over time that affects all are wide enough to get a wheelchair through and that stair people, and if the goal for those people is to maximize their risers aren't too steep. Things like that do have some cost. But enjoyment of a full lifespan—with a limit on the amount of the cost is a lot less than building a new special-purpose social and economic dependence that they have on others— nursing unit for that person somewhere else. then right now we would have to conclude that much of our Cohen:The current solution is to assume that we must aban- built environment currently limits one's span of independent don our present home and find another one [when we reach living, retirement age]. That means that an individual, at the time Hackler:I think that our housing does not allow for the aging that his economic productivity ceases, must abandgn the eq- process. Our houses today are not adaptable to all the physi- uit} cal impairments that go along with aging. And I don't think apartment,a congregate home,a life-care retirement commu- builders, architects, and other real estate professionals have nity,or whatever—all of which are rather expensive forms of picked up on this or have become aware of the problem until [housing]. now. We need to look at things like stairs, lighting, entrance If the person has the equity in a home, why doesn't he or she use it to make some changes in that home lights, kitchens, and appliances. I would say most kitchen . In theory, appliances are designed for your average 30-year-old buyer. that ought to cost a lot less and would also preserve not only A 65-year-old would have problems with some types of the individuals home. but the relationship that person has stoves. with.the community and the people in it. How do you convince younger people to build or buy How does design affect the emotional aspects of aging? houses that will serve them for a lifetime? Anderson: The greatest psychological benefit we can offer is to make the elderly feel less dependent on others. actually, Cohen: It's more than just a question of convincing home- it's not just the elderly—it's all of us. We want to make that buyers. Thirty-year-olds are probably not interested in what happen as naturally and gracefully as we possibly can. their requirements are going to be when they're 80. First, 30-year-olds don't think in those terms, and second, we are a Cohen:The greatest psychological problem of aging is fear of very mobile society,and nobody kngws where he's going to be that day when you will no longer be able to take care of when he reaches that age. What we are really talking about yourself. Most aging people seek to put that day off as long as are real estate practices, in terms of what constitutes a good they can. And that's why most people fear the idea of home. entering a nursing home. Because that means the surren- Do we want a throwaway economy?Housing stock that der—unconditional surrender—of one's independence. And may have been the best investment a 30-year-old could buy psychologically, if we can make it possible for people to feel with his income may need to be replaced, or the people in it they are still in control of their own lives, that's all most displaced. How economic is that for a society? elderly people ask for. Anderson: How are you going to convince a 30-year-old to :Noakes: The most important thing emotionally is to keep spend more, or convince him to build or buy a home that is people living in their own homes—the environments they're adaptable?Statistics show that most people retire and stay in used to, as opposed to being in nursing homes, hospitals, or the same community where they work. It is to the buyer's care facilities. advantage to have a house that he can sell most readily to a I think this concern is going to justify itself over the next person of any age, and if he's got one that's usable by a 20 years, when we will have 95-year-old households living disabled or partially disabled person, that's going to make it independently and getting along okay in an environment that even easier to sell. lets them. That's what we're after. 0 1 the Seniors and Salespeople financial frameworkfrework withese homeowners to undthinawhich 1 young prospective tie buyers of their homes are operating. Those retirees who can pay cash for their new homes I Sensitivity is the key. or to buy into a retirement community need never come to grips with contem- Carla Anderson porary financing. But for those who Minneapolis, Minnesota must, as one program administrator for a local agency providing services to The shape of the real estate market is the professional and interpersonal older people put it, "You have to rein- changing. According to census data, in skills that will enable you to work suc- terpret the value of the dollar in cur- I 1980 one of every four Americans was cessfully with older homeowners. rent terms." You may especially notice 55 years of age or older. That's more the absence of an updated view of mar- than 47 million people. And the num- Differences to Note ket conditions when you try to discuss bers are growing. In fact, this is the Selling a home and moving is a very discount points and explain why sell- fastest-growing segment of the U.S. different experience for seniors than it ers participate in this cost. population. is for a corporate family undergoing In working with homeowners in In the absence of extended fami- transfer, or a young first-time buyer, their 60s, 70s, and older, you'll proba- li--support systems, new retirement or the family moving to satisfy ex- bly also be confronting generational communities are filling a ga e - panding space and status needs. For differences in decision-making styles. ing senior citizens to be self-sufficient the older homeowner, the decision to Many retirees grew up with the belief and independent into their 70s, 80s, sell the home of many years' standing that decision-making is strictly a male .and longer. The support services that comes slowly. It's a decision that is function. This is especially true of these communities provide make it made and remade—perhaps three, decisions involving real estate, large work. They offer good access to health four, or even five times—and that sums of money, and the selection of a care, dining facilities, transportation, sometimes takes many years to reach. new home.Odd as it sounds to contem- laundry and cleaning services, t rar- It's quite unlike the "this-is-the-time- porary ears, this attitude is fairly com- ies, beauty salons, and more. The nat- to-buv-a-home" resolve of the young mon among older sellers. ural reluctance ot retirees to leave couple that propels so many people friends and family—all the relation- into the housing market at the begin- Approaches that Work ships developed over halt a century or ning of every new year. Older homeowners are different, so more—along with increasing numbers For seniors, a move to a retire- you'll need different skills. But the of people to the -an -over age group ment community is usually prompted rewards, in both financial and human combine to create a new and expan - by a concern about declining capac- terms, make it well worth the trouble ing localoustng mar et. ity—physical or mental. The identity to acquire those skills. Developers, ever quick to spot transformation that accompanies this You'll find that the working style trends, are building for this growing decision is difficult. After all, a per of professionals who provide social ser- market. Retirement communities,once son's home is the stage on which many vices to seniors bears watching. Espe- regarded as an exclusive Sun Belt phe- of life's most important ceremonies are cially noteworthy are the carefully nomenon, are now appearing every- acted out—births, career highlights, modulated voices and the unhurried where. Who would ever have dreamed and all the important rites of passage speech patterns, as well as the accept- that a market for retirement homes of one's children. Moving from this ing and nonjudgmental posture—the would exist as far north as Minnesota? home means accepting the identity of "no-question-is-a-foolish-question" But, in fact, the market is hot. an older person and the limitations approach of these professionals. This In my own community,the Twin that old age imposes. encourages frank and open discussion Cities of Minneapolis and St. Paul,the The move and the decisions sur- and increases the likelihood that ques- condominium and cooperative apart- rounding it are frequently character- tions and concerns will be laid out on ment communities specifically geared ized by an unusually high level of the table early in the working relation- to retirees are selling better than other family involvement, too. The extent of ship,enabling you to deal with them in condos and co-ops.Sold-out retirement family participation will vary accord- a timely manner. This personal style communities are likely to have waiting ing to the age, marital status, and of building trust will help to bridge the lists that are several years long. proximity of family members to the occasional gap in understanding that The demographics are positive. older homeowner. Typically, it's one can develop in any relationship. These retirement housing options, in- or more of the children who encourage In general, plan on spending creasingly available in every commu- the decision and facilitate the move. more counseling time with your older nity, open up new markets for real Older homeowners who have homeowners. Chances are you'll get estate professionals.It's to your advan- lived in their homes for many years, if good backup from family members. tage to be aware of this shift in the not decades,often display a lack of real Get them on your side. You'll also find homeowner population and to develop estate-related experience. It's hard for that the developers of retirement com- 16 real estate today I' f i munities are sensitive to the special couple put it, "It's great to see them ing the home of one older couple, we needs of retirees and can be helpful. make this change while they can still found that the husband, Joe, followed Because a retiree's move is so do it on their own." Family members prospective buyers to make sure they often prompted by a concern about can ease the transition by organizing a opened every closet and to provide declining capacity to cope with the household sale, by helping with deco- details on every improvement and al- ' hassles of home ownership, it's very rating decisions in the new home, and teration made to the house during the important for you to define the deci- by providing positive reinforcement last 25 years. sion positively. Emphasize the freeing when resolve falters. We sat down with Joe and and fulfilling aspects of this life-cycle It's equally important to recog- helped him develop a list of all those change. One Minneapolis retirement nize when it would be disastrous to features and improvements and used community developer conducts a series involve a family member. Older sellers this as the basis for an information of seminars,appropriately titled"New can be as fiercely independent as any- sheet on his home. Then we kept a Beginnings." These meetings are de- one else. To call upon a son or daugh- supply of those at the house for pros- signed to help buyers of retirement ter to help a parent make the "right" pects to pick up. Knowing that pro- condominiums walk themselves decision can be demeaning and patron- spective buyers would have all the through the move, stage by stage. Dis- izing to someone who is determined to information he regarded as important cussions cover the legal documents in- be self-sufficient. It's also a problem if reduced Joe's anxiety and made him volved in a purchase, the homeselling a parent is counting on a specific type comfortable about letting salespeople process, interior decorating alterna- of assistance from a son or daughter show his home unaccompanied. tives, and other aspects of the transi- who is, however,either unaware of his We also made it a point to check tion. Advisory committees for new parent's need or unable to make such a with salespeople after showings and residents also help to create a sense of commitment. It's wise to check in the give Joe a report on the prospects' i community and "connectedness." early stages to find out what level of responses. This helped to satisfy his The move and the corresponding family involvement a senior is antici- need for information about the people identity transformation can be pating and is comfortable with. viewing his home, and gave him a smoothed in other ways,too. In selling chance to provide us with feedback— the home of one elderly couple, my The Seniors' Involvement his impressions of those prospects and partner and I tried a variation on the Many retired homesellers are discon- their attitudes. I usual "just listed" announcement to certed by the idea of strangers—i.e., You'll find that older people need the neighbors. We mailed a letter— prospective buyers—visiting their more time to be comfortable with with the sellers' blessings, of course— home during. their absence. A seller change and decisions. Pushing for a to 150 of their neighbors indicating who has lived in a home for 30 or 40 speedy response to a purchase agree- their plans to leave their home of 35 years is likely to be intensely interested ment,for example,may leave an older years and giving the location of their in seeing every prospective buyer and seller feeling "railroaded" into a pre- new home. Our sellers were delighted in explaining the specialness of his mature decision. Remember, too, that with the many notes and phone calls home. sensory loss often occurs with age. from friends and neighbors wishing . This means you might have a Your seller may have a hearing prob- them well and promising visits to their tough time selling the idea of a combi- lem that he may not tell you about. new address. The announcement and nation lockbox. A seller may wish to Working successfully with older its response provided positive rein- meet prospective buyers to assess their people means spending more time. in forcement to the sellers and helped to suitability in terms of personal crite- face-to-face conversation and less time consolidate their decision in their own ria. And your seller may detain a pro- on the telephone. minds. We got good public relations spective buyer at the showing just to exposure in the community, too. explain details of home maintenance Meeting Those Needs over the years. Seniors often have the The proliferation of new housing op- The Family Ties luxury of time to spare and sometimes tions for retirees in local communities It's a wise idea to help your senior forget that others—especially young across the country presents real estate seller to handle the memories during first-time buyers—do not. professionals with an enormous and this transition. Taking a piece of his What can you do to facilitate growing market. Working this market, home with him can provide an older showings and keep your seller com- however,requires sensitivity to the dif- seller with a sense of continuity. If fortable with the process?First,a clear ferent perspective and needs of older keeping a light fixture or door knocker and complete discussion of the show- homeowners.One definite need is for a makes the move easier, encourage it. ing procedure early on pays off. You real estate salesperson who inspires (Of course, you want replacements may not win on the issue of a combina- trust and who can understand and installed in a timely fashion, too.) tion lockbox; but on the other hand, if mediate the financial, family,and psy- Family members can be your an older seller is always at home, the chological issues associated with a late- greatest allies, but you need to know functional necessity doesn't exist. in-life transition. when to involve them. They can be Make the sellers participants in very supportive of the retirees'decision the marketing program. Give them a REALTOR@ Anderson is a salesperson with to move. As the daughter of one older role. For example, when we were sell- Merrill Lynch Realty-Burnet. Jute 1985 17 Unlock Equity for Older Homeowners You can help senior citizens plan a profitable home sale. Liz Benton is not a sta�gering figure, but it is a cost of living are much less expensive. A;ea, Hawaii ure that is increasing yearly. The For example, one couple I knew. equity these seniors have in their had substantial equity in a home, but omes is considerable. Two-thirds of their liquid assets could not possibly a t e omes that are owned free of stretch to cover their costs. Without When a real estate salesperson has mortgage debt belong to el er home- seeking advice, they sold their home- successfully matched a family to a owners, according to Census Bureau and moved to Florida in search of a home, he derives a special satisfaction: studies. turthermore, the elderly pop- less expensive retirement residence. not only has he helped them attain ulation is growing. In 1980, approxi- However, they found that their hous- their goal of home ownership, but he mately 36 million Americans were ing dollars would not purchase a homer also has helped provide them with a over age 60.The estimated number for in which they could be happy, and nest egg for their senior years. Wheth- the year 2000 is 45.5 million. The despite their efforts they could not find er the salesperson sells them their first, implications of these figures for the replacements for the friendships they second,or last home, the equity repre- real estate market are far-reaching had left behind. So they once again:' sented by home ownership will most indeed. sold their home and moved back to, likely be one of their biggest assets The painful decision for many Hawaii. In the interim, many thou- upon retirement. Often, financial seniors is to sell their home, buy some- sands of retirement dollars had been planning based on a sound use of that thing much smaller elsewhere, and spent in airline tickets and moving- equity can make the difference be- attempt to live on the profits cleared costs. tween ease and hardship for an elderly from the sale. Here in Hawaii we couple or a senior citizen entering often see retirees leaving the state and Alternatives # retirement. people they love and moving to the Lenders and investors, even relatives T But how do seniors become mainland,.where real estate and the of the seniors, can arrange financing aware that there are solutions to their through a variety of means. Rental, cash-flow problems less drastic than � reverse-annuity mortgages (RAMs), simply selling their property and at- _ r shared equity, and sale-leasebacks are tempting to make do with the profits? some examples. Though they are new, One answer is that we real estate the alternative financing methods may professionals should be as aware of be worth trying in order to unlock the alternative methods as we are of con- - equity in a senior's home.They gener- ventional loans. When an elderly cou- ate cash flow and,in some cases,allow ple are preparing to put their home on the senior to remain in the home. the market, we should ask why they Unfortunately,many retirees who find . want to sell their home at this time of themselves with few assets other than :. their lives. If they answer that all their F their home do not know where to turn assets are in the house, then we should Q(J��'Y for advice. At our company, we some- be able to help them find the alterna- times recommend that seniors place tives, if they wish, that would allow their home on the rental market until, them to enjoy their home and have a they have had an opportunity to inves-' cash income as well. tigate the possibility of—and even:- try—moving to another state. If they-; A Growing Problem find that selling is really desirable,the... In the earl '80s,the number of homes property can then be listed. owned eo a 65 or older was about 25 percent of the national total, ac- From Equity to an Annuity cor in to ures rom the 1983 Most brokers are aware of the reverse-r Census Bureau Housing Survey. Thac annuity mortgage concept, which` 18 real estate todtk I gained new vogue recently. In mid- The Sale-Leaseback Solution the immediate family,but any investor I 1980, the San Francisco Development Another option for the elderly is the or lender could enter into the picture. Fund created a practical RAM as part sale-leaseback plan. The senior sells Shared-equity mortgages are similar of a pilot program directed toward his home to either an investor or an to co-op ownership of property—rent- Marin County, California, residents heir, who leases the property back to ing property as a preferred share- over 62 years of age,with low to mod- the senior for life. This method results holder—with an individual interest in erate income, who lived in owner- in a monthly payment to the senior, the total.The investor would be taking occupied single-family dwellings. and the investor assumes maintenance an equity interest in the house, too. Three types of reverse mortgages were and property-tax responsibilities. Mother and father sell their home to to be made available to generate To understand how a sale-lease- the investor—say,a son or daughter— monthly cash payments to the senior, back works, consider this hypothetical who then leases the home back to and four financial institutions were example. A 76-year-old widow has a them. They can share payments and initially involved. house that is appraised independently tax benefits, depending upon how the RAM loans were to be paid back at $100,000. To attract investors, it is transaction is structured. The parents at the end of a specified term, usually sold for a discounted price:in this case, can receive a down payment that pro- 10-15 years; however, should 'the $73,000. She receives a 10 percent vides them with ready cash and a property value continue to appreciate down payment of $7,300 and a 13- monthly payment in the form of prin- during the loan term, a proportionally year (actually 12 years, 11 months) cipal plus interest. In addition, they large amount of equity would still promissory note for the balance of continue to live in the home for the rest remain after the loan was paid off. $65,700, including interest at 11.5 of their lives (or for the term agreed Deferred annuities also could be pur- percent. She collects a monthly pay- upon). If the parents pay rent to the chased with a portion of the loan funds ment of $816, and after paying $400 buyer-investor as part of the arrange- to assure a continuing stream of in- for rent, she has $416 left. If she lives ment, the buyer-investor receives the come for life. beyond the pay-out period, an annuity tax advantages of a person holding Many states allow lenders to pro- purchased by the buyer will maintain rental investment property: mainte- vide reverse-annuity mortgages. Since the $816 monthly payments for the nance and repair, depreciation, inter- 1979, Hawaii's law concerning alter- rest of her life. est, and so forth. native mortgage instruments has con- The benefit of shared equity to tained the reverse-annuity mortgage, Many Uses for Home Equity the retiree is also apparent: immediate ' defined as a mortgage derived from the Some elderly persons hesitate to do cash, lower monthly expenses, no homeowner's accumulated equity that anything that might interfere with insurance to pay on the house,no wor- provides for periodic payments from a "the home going to the children." On ries about repairs and regular mainte financial institution to a homeowner. the other hand, there is a growing nance,and lower or no property taxes. On the surface,the reverse-annu- awareness that children no longer an- Additionally,the retiree now has some ity program would seem to be the ticipate inheriting the family home. In peace of mind. Gone are the fears of salvation of all retirees who find them- most cases, the home is simply sold being a burden on the children. selves property-rich and cash-poor. after the parents are gone, because the Not so. The reverse-mortgage concept children have already established Brokers'Judgment has been around for at least 25 years. themselves in other homes,quite possi- As informed real estate professionals, The key, of course, is funding. Those bly in other cities. In addition,growing we can go above and beyond the call of mortgage dollars must come from numbers of children believe that par- duty in looking for alternatives for somewhere, and many lending institu- ents should enjoy their retirement seniors. Service should be paramount tions are more interested in mortgages years rather than worry about having in our thinking—even if, on the sur- for the young or middle-aged home- something to leave to their children. face, there will be no immediate mon- owner.Some admittedly do not wish to Why, then, doesn't the retiree etary return. A great many retirement get involved in a situation that might who has considerable equity in a home plans that were made in their middle lead to repossession of the home of a obtain an equity loan from a bank or years by people now approaching se-' senior citizen. Also, administering savings institution to provide him with nior-citizen status are proving to be such a program is demanding in terms needed cash? Quite simply, the senior insufficient. Although inflation seems of employee and computer time. probably does not have enough income to be greatly reduced at the present, But there are success stories. In to qualify for a home-equity loan. there is still cost-of-living inflation. December 1984, the California RAM Even if the loan is possible, what hap- Retirement dollars and fixed incomes program mentioned above reported pens after the equity has been used do not inflate. The real estate profes- that 100 loans with a total value of up? No home, no income. sional, more than any other person, nearly $13 million had been written. Before this situation reaches a can help these seniors plan to unlock So financial institutions in some areas crisis, a sale-leaseback should be con- the equity in their homes in appro- are supporting the reverse-annuity sidered. Or, the senior homeowner priate and constructive ways.❑ program; but not all elderly persons may want to look into the shared-equi- with limited liquid assets are being ty mortgage (SEM) concept. This is RRALTOR0 Benton, GR/, CRS&, is princi- assisted. usually arranged through members of pal broker for Liz Benton,REALTORS©. June 1985 19 •� D�1..�1�1�4;�1� �—� �ii iuli niii "P'1!t1 I 1 • � �����'d—• L �1JI �il _//v'_'-.-^Gl�.'ll U�idlli'.g ..I?`r 11+Y1 1� ��,f/ .►� '� //li/.d �I ��� flnilu I 11�1'.� I i. '_ '� �%d :y i�. � T//�� lid _Ilfl�ll � � d, � r '!n� Liri�•j` — iirii ��7�� �' � r.. I' i I 11 I i/ ; i� 11JI � i .1 -- i1Tlnu 'ii� � 'JI :fl JI I I - i .�In11U11111' -_- ----n�s: a —I—�I qlW �d�i • { � � � S S'�st�ri� I 1"jt.. I � ' 1�. / I�•I � - �� �s 11 �i' •E=•i�nl � � I � ' 11 _/.. i. � .� �-lirlc��� 'A.11�.�A� .l•�_i1.1�P l�' I�j,"' i1i � 1 ` �i I' � _� iu BWC/Vanderwood Development • • Beach, • ��/�����\ '/,/�i', � ��������`,,��N�/�t\ ..� ���� � '.��+r �� .�i-,/ - �. "ems•` � -�3��� ' �r ��;,, ��� `\ /�\ r,� ,�G�•.yr(y/��;' �, �;;'� -�y^. .dam f�I``� - j���r �'� ` ��'r'�'7�,j1/,/� Il�� �I1� I , �� Ll�;�l �i� � /� .._ � ���-T.7 11,_ -r 1� -.:��..,. .. _•_` ,� F _ 4-9 //G:��cm1,00 .�_1 Y� y �I�� �g-•�..w/�t' -.r. �� .-;�'3� _^f t, � �,;-'___ �Q ��4r�{ i n� �.�s•� 'nor�_� '�mcl^�� � �.�� r _ c - --�.�'�` ti µ � ��-"•� Dill 11��.. �t -�� ;�tl�� -1� "+s e...� S.� 9 1,/� _�^' i�l�c5 � .r _ -- ._ :t�C•. ,) ���TTT .aa �:n 't 4 �='_i "�- fh����. � �� �;•iK��Y ' +d p�i• o� ���ii�1�� ` 5 J'��I.i D li! y�Me71t �1 �..I�" '�. �'^a 2 ��-- �r�a.r J?'�t� � .��d •i ` j�:�/..:H r.:� }1 _-�9� �= - =aon Ss.>r+ 1 ti3 flli- i'i�1� _"� '- "�'• ''r ,cam-.'i' �. 31 ��''�8��_ � �I I�b-t�'�'-a:• - _;=7i�� _ - �-�-- — —_ • : • C • • • • - • • • • 'll • rU 60, *39 IL 0:—A �q . !;W.t-fit ?IVA .0 tic 6 • \ Inlw• �� Y a �/ •10 1 1l:llf M••.lM 1 , Ica. 11.471� •v • A 1� •!1 � 1 f ••Y�'li; j ♦ 1•+•I♦f 1 1 •u.�r6 top— • V' "a~-10 Juwf�MOW i P A L M C O U R T HUNTINGTON BEACH CAL I F O R N I A A B W C, / V A N D E R W O O D M I X E D U S E D E V E L O P M E N T THE EHRENKRANTZ GROUP / 855 Front 5treet San Fr a n c i s c o Ca I i f o r n i a 9 4 1 1 1 4 1 5 9 5 6 4 3 9 4 •' Co.-..,..•,.,.0 urv(r TABULATION . . - UNIT A •403.1.4s _ UMT 0 127 619% UNIT C "30''.14,7s 9Ffj • . • ( TOTAL '205. 100% 7e c ,_ _ • ~C •_ . - - - � OQANCE AVENUE _ _ _ _ �!• . > OND FLOOR PLAN o Zo 6,0100 ' . A L I.W T I N G T 0 N BEACH C A L I F 0 R N I A A BWC / VANDER WOOD MIXED USE DE V E L 0 P M E N T EHRENKRANTZ GROUP /,. 8,55 Front S t reet / 5 a n F r a n.c,i s c o / C a l i f o r n i a 9 4 1 1 1 / ( 4.1 5. ) ''.9 .5 .6 4.3_;9 4- _ \ jr Jt • 'rB �E ORANGE AVENUE •• _ 1r OURTH FLOOR PLAN . 0 20 6O 100 A L M C O U R T It UN TINCT0N BEACH CALIF0RNIA A BWC / V-AN0ERWOOD MIXED USE DEVELOPMENT THE -FWRF\IKRA,"IT7 CROUP. I R S S Front S t r e e r / S a n F r a n c i s c n / C a I i I n r n i'a' 9 4. 1 1 1 / ( 4 1 5 ) 9 'S 6' - .4 3-9 4 1 `pgl t 1sIti 1. elm 1'p , h Y`At % l; ' tI fi sa I L: Y, h `,�I. �.1•>� //9' ``'Jj. .� ' `i 'y.�.b� ,'i! III f � ti ''� '� •' ` ' a2`'t 'tr r��ll x ,�` �i�,�gt>• ,�1 �y,.t. �� ]]]1 I� ►''�,;h t� _'�4N $�I !1,V At ko V rS 4'�. 7F � I•1` '.. �r i` /cca •� III-•, ..^-rid, r by i� m.a 2 ZNSO 74 I'{ ih""` '•' I ;'r'�',-fir � `'�'�.�a•:_.y..•='=` � .•�,�{.� L � 1 I�1V 4 b,, Y w•}tj Y4i a y� ti. 1\ n �',4a '��a3-a, i 1�� '�w v".:.��.. �bpF�'�}..r�i c�'�•,�ik���tT \ �i". ,hti1.� •� +,. 41 �,► �'�_, 4�0 .7• +».,4 S'.�1,t Y '` ,.v,� '�a�p') ,�,: (,35, i0m, 6z f . `frF • 40 7� 7 ORANGE AVENUE - 4f OURTH FLOOR .PLAN 0 20 60100 • A L � M _ - - C O U - R T U N T I N G T O N B E A C H C A L I F O R N I A A .8 W C / V-A N D-E R W. O O D M I X E D U S E. D E V E L O P M E N T TNF FHRFNLCRAjuT7 C=R()Ilp• 1 8 S S Front Srreer / San Francisco ./ -C a I i f o r n i'a' 9.4 1. 1 1 . -/ (. 4 1 5 3 9, 5 6 - , .4 3 9 4 ELM SECTION THROUGH COURTYARD UNITS 0 e 24 40 . .. HUN T I V C.T ON BAA C N C A E I F O'R N 1 A A B W.0 I V A N D E.R WOOD m I x E O U 5 E D E V E L 0 P.H E N r ' THE. EHRENKRANNTZ .GROUP / e 5 5 front Street / S a'n F r a n c r s c 0 / C a l i t o r n i a', 94 11 1 1 ( 4 1 5 ) 9 5.6. A'3 9 4 s A � . 1 ago INK SECTION AT LAKE STREET o 4 12 :o P A L M C O U R T HUN TINGTON BEACH CAEIf ORNIA A 8 W C / V ANDER'W OOD MIXED U5E. DE V EEOP .rsE N F THE EHRENKRANTZ GROUP / 855 Front 5treet / San Francisco / Calif o r n i a 9 4 1 1 1 / l 4 1 S ) 9 5 6 4 ] 9 4 �G Fl Am - Q 10 PARTIAL SECTION. THROUGH COURTYARD UNITS AT REAR PROPERTY LINE mp U WT,I N G T O N 8 E A C H.. C A L 1 F O RN t o A 8 w C V V-A N D E.R w 0 O D M I X E.D U•5•E D E V. E L-O..P M-E,N T HE,..EHREINKRANTZ. GROUP . / 8 5,5 F r o n.t .5.t•r a e. t 7 S a.n F r a,a c-i.s c.o / C•a I i f o r n i•a 9 4 1, 1.: 1 / ( .4 1 5 1 4• c 'F A 1 0 A IF SECTION THROUGH LAKE STREET UNITS A • :L M: . C . o' U N T I G .T O N 8 E A C H C A L I F- O R N I A A 8 W C / V A N D E R:W O O D-- MIX E D US E D E.V E.L O: P WE N.T- E EHRENKRANTZ GROUP / .855 Front .5tre.e.t 5an Fr a n c i sc-o Ca. Iifornia 9 4' 1 1 1 4. 1 5 9 •5 6 - 4 3 9 4 Qrl QQ can r� a rim �Q �Q rl R rl ri 01 In rc rrrrr PARTIAL .ELEVATION AT ORANGE AVENUE MP H U N T I N G T 0 N 8•EA- CH ,` CA,LIF0R.-NIA A 8 W C Y VANDERW000 M-IXED- 'USE DEVELOP 'MENT. THE EHRENKRANTZ GROUP• / 8.5 S. _F r. o n t . S t r e e.t / .,S.a n F r a n c i s-c.o / C a I.i I o r n i a ' 9 -4 1 1 1 / -1-4 1 5 ) .9 •S 6 4 3. 9 4 . '�'• ��:.� is e' - :, a.�:�, L� •} •�, yi" '.vd.h..• _- f�` :'�% :. -� .fit �•''S.i,:.. -1 . ���'his ` ;(���}r�-' :.Z' � .4p .�i ''i!'`r•{ ^i��r7`�'%:,r r �S':_ .'�i ,.,, � ;•• •(,' " '�: �.. .-, :'fit\-r�s•r.+ir, 1•. ,i':j:,6 y`•r . 1� jr� �. i • a r� fS � t '6'iys � '' �� `',!� `► \t `i•�5) SkyJ� � `j, .�„ ~•.� `, ':f,. " .��c.NV•, , a, :?Z�Y::,a� fr. 75:,. .x.Y'•,' � •;xr. �.f' 5.�.\�,�4 d, i• rtry: ';�' . ' l�" �:.±'t.1,,!,., _ �'' ,y�:,�Y.��.:1�.,:;.. _::�3tira 3;,.�%;jr Sit.:�..t-_ :•.r.{:e "e.. + is 21'-0' } +II I � )3'•0' t • t �:. i ol.� i Ga;i�l I w..c r.l �t= b. y I �. o •I c OO O O � lil.11 ` MI �1 • I 1 I 00 it -- - p _ O - O UNIT A UNIT B UNIT C: . STUDIO 1 BEDROOM 2 MASTER BEDROOM - -. • 432 Rsf Unit 595 Rsf Unit 891 Rsf Unit - • 108 Rsf Deck 63.75 Rs f Deck 132 Rsi Deck 0 2 4 8. 16 ... UNIT PLANS t 1 1 1 1 A- L . - M • - C: . :O U R � T N T I N C T O N B E A C H C A L I F O R N I A - A B W C / V w.,N D E.R W O O D M I X E-D U S E D E V E L'O P-M E N T E E H R E N K R A N T Z' G R O.0 P- 8 5 5 F r o n t s t r e e t 'S a,n F r,a n c i s c o . C a l i f o r n i a 9 4 1 .1: 1 4 1 5 9.5 6 4.3 9 4 12'-0• t 12•-0• L " ASSISTED LIVING NURSING UNIT 288 Rsf Unit .264 Rsf Unit 72Raf Deck 84 qsf Garden/Sun Space HEALTH CENTER UNIT PLANS a 'i 4 a jb PA A N :T N G T O N B E A C H C A L..I F O R N t A - A B W C / V-A..N.D.E R W.O O.D M I X E D U S E ..D E V E L O P M,E-N T. T.H F F H R'F.N K'R A N T 7 C. R n U P' 8:5 5-, F r o n t S-t. r e.e-t 5 a F rVia.'n c i-,s c o `'C a I i...f o r ri i s 9 "4. 1 1 .1 4-1 5 9.5'6` .4 3 9 4., t> lip 4� f �I''Ir- r r xN him— `�1 ail �� •����;'��i,��I;�1 � � �li��i�A 7 \\ I R J I(" i• r` 1.1,�,,7t 1 it ,r' I r;� �.rAf •:���►j,�, I i��`� ��f t •�b •�j�1{'`��' N +`��,,��XX It �....-• .:^'Sr'.'xr Zk- .@. �'k ;��,�� •I C:►d�t�,�'+,2f,��,��L A,J/'� fl1 ��,y,r�ao- r `1,r�1�7r� 1, ,��1'd,�'�j� � �1.�t� � :•i t��t� t.�..,,a.,t `t'�_�3a"� "�3 ,'�' \1 �a'" �!1. e i Ay \`i. \#� .'7 ?'w v Yim C�• `fib• 4 l�. '++, �Q � 'i,7 t _ .`-�r�'.''S+g � ! r �1 \ •'� 1..�e,q,.. r Y �,� .,�' •� I v�F[u. � >V `� K )r � �'• �\ �l � UCe ■k'.=�.y�•..w.+Tr.�:a..Y�-'..�._.�'1• 4r i�.ao- •Ci � 1 1_ '• r�'��{�;�, ����' s,.-� ''fit'^�±,,k?i., �,., t ,s �� ; �'��;irl �, �',"� � � 'V� i`.4 � Mir. .�- _ �rx• i-C'q / G 't���5 �-' �'.� �..' {. - .mil � �^-�-��7..r..�-,,, \ mod'; �.�.? �i7 f~ �rati / � �e \�•�l� �/ it Jil :lic r O - Gil [VYA 7TZRrdM'0§Vir You've spent a lifetime building your nest, . . now spend a lifetime enjoying it in luxury and security 17 o•\0 0 ,t1: �i 1 \, of j ., •� q.. r t5 �J R5 Fb'f�] FD F�.l� �? R•�? R �'•FS' '� � �.�•., ,�� � ,a ( �,/,, o moo,aalfl0tooalEItonot:toril!" . , 1 o-000lETD - El Q fty-olU 0110 1 o 1y ul1 m U .o ❑ gi Oc f � � r is �, ,� r �Iy \, �F�t,,i \��•� - ,. �_ �' , r I w In our youth we are inclined to view �§ ourselves as invincible machines immune t0 erosion, and impervious to the damaging ` is effects of time. But as the years advance we IN are made aware of our vulnerability as we- begin to notice evidence of normal"wear and tear."At this juncture of life; while our " ' machinery is still functioning adequately, we ; should reexamine lifestyles and explore .,avenues for possible change in order to maintain a state of optimum well being. Calusa Harbour has been created to supply that change.We are a non-denominational proprietary operation catering to that elite segment of. w society who can afford,and who demand W only the finest in,services, cuisine and living concepts. Calusa Harbour is a 20-story luxury high-rise on the waterfront providing'round-the-clock security in the prestigious Fort Myers-Sanibel- Captiva area of Florida. We are located in the downtown Fort Myers area convenient to shopping and cultural activities. We supply a . PP 9 PP y •° � variety of services designed to,maintain thel healthy individual through life's highs and , lows — good days and bad. We have , dedicated ourselves to the concept of � w luxurious living, supplying all hotel-type services possible with the finest in food.and dining ambiance. A full and active athletic and recreational program is available and participation is encouraged. ° s ■ W MIY�M , U, p r: t s �=•_ �ls°c" x Because we are cognizant of occasional �� � �. {• . physical limitations, we have provided for individual assistance that may be required on .,M those 'low"days when the "machinery"m' ay be slightly uncooperative by offering ready assistance in the privacy of one's apartment. Assistance with your morning bath — or that E - extra 'push"on a "weak"day is readily available. Tray service is made available as well if you should not feel up to having your dinner in the dining room. Every apartment is equipped with an RNF�l+�y emergency call system for that possible real emergency. /t rings at the nurse's station t' i' and two licensed nurses appear at your door within 3 minutes. o: . � Dining is a truly "delicious"experience . comparable to one of our country's finest: rev �i � You will be seated by our gracious hostess and served by an adorable uniformed waitress offering a large selective daily menu ' f...._..... in addition to a-la-carte choices. /f you're in 11 the mood for frog legs or mama's chicken �:,, V: .,__ soup with matzo balls those tastes can be ' e catered to. . `4 !• From the moment you arrive and our �'�. �� ►'� '� �_� doorman takes your luggage you will be •,... . - -_ +' welcomed by warmth and service, service and service. Our welcoming committee (►// greets each new resident, introducing them ' to their neighbors and joining them for dinner on their first night at Calusa. h ' • —- - - _ -- --- - - -- - — -- -- ---i — As you sip your soda or cup of Cafe-au- ® lait in our outdoor sidewalk Cafe you will _ chat with your friends and neighbors and RON . make your plans for the day. — — Do you own a boat? - Do you like to fish? You can keep your boat within walking distance from your home - or fish behind your apartment. If you choose to keep your car, a parking.space is available for it. If not, one of our vehicles is always available for your shopping or fun outings to theater, movies • or a visit to your physician. If in your apartment you become ill or i' i ;� �� �, apprehensive, activating your emergency call system will summon a nurse within 3 y , j j jI j / / �. ; �: minutes. /' Shuffleboard is one of the many. /; , / / i activities available to residents. Or you may play a game of pool,ping pong, swim,fish or just sun bathe. Of course there are many card ' "" players - bingo buffs - backgammon enthusiasts and pleasant conversationalists rel among us. ` ! You've spent a lifetime feathering your nest .. . . now spend a lifetime enjoying it in �- luxury and security at Calusa Harbour. ARTIST'S CONCEPTION �- � 11 lava ro 1 £ r x , 4Ta e 2. 77 61 - m�p q. •'Y 7 fY k i, Fe. " "1Qor i DINING KITCHENETTE LIVING I SLEEPING a►N►Na 0IKITCHENETTE 1 F' x 15` A f C --- -- 00 A/c - ti LIVING I SLEEPING ---- =--- 11' x 24' 24' The Islander/ - The Royal Palm 2 ' Designed for single occupancy with a The Marina view North over the river, or South Q' A more spacious apartment with a over the city. ©:-- view to the West. KITCHENETTE DINING 1 LIVING/SLEEPING 13' x 24' The outrigger. A more spacious apartment with a view to the East. 24' j� o The Schooner Plans _ A more spacious apartment KITCHENETTE North over the river, or South CD over the city. DINING ----- ❑ 0 A/C A/C00 J ' ---- N 0 KITCHENETTE El BEDROOM LIVING • 1:5'9" x15.'9" 15'9" x15'9" --------- A/C I. .; IN 32' LIVING BEDROOM AREA 12' x 12' 12' x 18' KITCHENETTE . I I I n The Tradewinds A/C AIC Located on the corners of the high- rise, this apartment provides \\ N delightful accommodations fora The'Harbour MASTER retired couple. LIVING Our most spacious, BEDROOM BEDROOM 12' x 18' offering a panoramic 15'9" x 15'9" 12' x 11 ' view of beautiful sunrises and majestic sunsets..Northwest or Southwest views. 40' - ALL DIMENSIONS APPROXIMATE J Our second floor consists of a plush, beautifully carpeted and colorfully decorated, Medicare Approved, skilled Health Center for any serious spell of �. :. - Illness. However, it Is our intense desire and w9 _ dedication to provide a unique concept of v , multi-level services and Individualized care for our residents so that the likelihood of any resident spending any extended period of time on the nursing floor will be minimal. Included In your regular monthly maintenance fee are the services of Calusa Harbour Health Center. We pride ourselves on providing the most professionally J competent, most tastefully decorated, nursing care center In the state. Our staff is • motivated and trained to cater warmly to Individual needs. Residents and staff are well acquainted with one another so that a stay on our health care floor Is like a visit with concerned friends. The services of competent physical, speech and occupational therapists are available when t required. _ ` i �;; -�+�� �,,, �,,�►._ y , I� � � / f:► 66 �r� ., ;, \ �� 'i ,,; �� �\ .�•- \ d �. � ,\ W •I I 1 Two Ways to Enjoy Retirement Living. . . Personal Care ___Rental Units SINGLE DOUBLE SINGLE DOUBLE APARTMENT PERSONAL PERSONAL APARTMENT MONTHLY MONTHLY CARE CARE RENTAL RENTAL Bedroom Alcove $1,195 $ --- Bedroom Alcove $ 695 $ --- Deluxe Alcove W 1,295 1,495 Deluxe Alcove W $ 795 $ 975 Deluxe Alcove E 1,395 1,575 Deluxe Alcove E $ 895 $1,075 One Bedroom 1,495 1,675 One Bedroom $ 995 $1,175 One Bedroom Deluxe 1,595 1,780 One Bedroom Deluxe $1,100 $1,280 Two Bedroom 1,695 1,880 Two Bedroom $1,200 $1,380 PERSONAL CARE SERVICES AMENITIES • Three meals per day (In modern • Main meal daily in the riverfront dining Personal Care dining room) room (breakfast and lunch optional) • Assistance in activities of daily living • Social and recreational program (bathing, dressing, etc. • Shuffleboard courts • 24-hour Personal Care attendant • Professional size pool table • Supervision of medication • Scheduled transportation in the Calusa • Skilled nursing available if necessary van • Weekly maid service AMENITIES INCLUDE • Sheets and pillow cases weekly • Social and recreational program • Health care available • Shuffleboard courts • All utilities except telephone • Professional size pool table • Wall-to-wall carpeting • Scheduled transportation in the Calusa • Interior and exterior maintenance van • Round-the-clock security • Weekly maid service • 24-hour emergency call system • Sheets and pillow cases weekly • Sprinklers in each apartment • Health care center available • Smoke detector in each apartment • All utilities except telephone • All electric kitchenette • Wall-to-wall carpeting • Safety bars in bath tub • Interior and exterior maintenance • Beauty/barber shop available • Round-the-clock security • Gift and sundries shop • 24-hour emergency call system • Sprinklers in each apartment ONE YEAR MINIMUM LEASING • Smoke detector in each apartment • All electric kitchenette • Safety bars in bath tub • Beauty/barber shop available �\ • Gift and sundries shop 0° Mm Pr AU W30 oil 6m �? �o0 = owarionk m fMw a MR i Alla ((o:83))WS2S= V�lek 4?� BASIC AME 'RICaA11T MEDICAL, INC. 1984 lnu AkReport r , OP®fir. �P ff Ail NO 0 NOW stod G� WO 40Ic ♦r �� ^�'t`. � �t! � RJR �tt � s 1 Y THE COVER Stanley Wilson,Jr.was about three months old when he developed upper lung problems.His parents treated him at their Omaha,Georgia home for nearly a year until October of 1984.Assuming he was sleeping peacefully,Stanley Jr.'s mother, Alice,made her nightly check on him only to find he had stopped breathing. She rushed him to Stewart-Webster Hospital, Richland,where he received the swift emergency attention that saved his life. "I can't praise the hospital and doctors and nurses enough,"Mrs.Wilson says."If a person could love a doctor or a doctor's care,that's just how much faith I have in the doctor and the hospital.Not love on a personal basis,but love as a physician." Now,at 16 months,Stanley,Jr.'s asthma is under control.He is free to play and explore the world on his miniature red tractor.Basic American Medical,Inc.is pleased to have provided the services that made Stanley,Jr.'s recovery possible. I I • • k I F CONTENTS L = Letter to Shareholders 2 Medical Facilities 4 i Retirement Living Communities 10 I Health Services and Products 12 I Financial Section 16 Stock Trading Information 34 Operating Units/Subsidiaries 34 Directors and Officers 36 Stockholder Information 37 I FINANCIAL IFGBLIGHTS (Dollars in thousands,except per share amounts) Year Ended December 31, 1984 1983 1982 1981 1980 Operating Revenues S212,250 S153,934 $118,599 S86,246 S57,268 Net Income 5,902 5,980 4,123 4,003 3,219 Earnings Per Share .93 1.00 .78 .76 .61 Earnings Per Share(Pro Forma)(1) .87 .65 .75 .66 .44 Total Assets 148,897 94,886 61,331 60,994 42,739 Long-Term Debt 69,428 35,565 32,105 36,724 49,638 Shareholders'Equity 37,596 36,919 14,613 10,491 7,618 Weighted Average Common Shares Outstanding 6,363 5,999 5,260 5,260 5,260 Book Value per Common Share 6.35 5.70 2.78 1.99 1.45 Dividends Declared per Share — .25 — — — (1)Adjusted to reflect assumption that significant acquisitions were made as of January 1 i of the year preceding the date of the acquisition. See Note 2 to the Company's consolidated financial statements. I i ABOUT BASIC AMERIC►AN MEDICAL, INC. Basic American Medical,Inc.owns,operates pharmacy services,computer software,data or manages acute care hospitals,long-term processing and medical equipment and fur- care facilities and congregate living com- niture manufacturing and marketing.The plexes.It also provides services and products Company's common shares are traded under to the health care market such as outpatient the NASDAQ symbol BAMI. surgery,contract therapy,mobile diagnostics, i i i TO OUR SHARMFOLDERS: We are The year 1984 provided both milestones a difficult environment. j and challenges for Basic American Medi- Our Company experienced a year of excited about cal,Inc.We became a$200-million-plus growth in 1984.We acquired Health Care company in terms of operating revenues. Management Corporation,Columbus, these growth Our acute care hospitals increased in Georgia in January,1984.The firm had number from five with 834 beds to 16 with seven acute care hospitals with 230 beds developments. 1,443 beds.Basic American Medical,Inc. and three nursing homes with 150 beds began managing its first retirement living at that time.We transferred our Georgiana community in March,4984 and added and North Mobile Community Hospitals to three more management contracts during Health Care Management Corporation,and the year. by year-end 1984 it had 12 hospitals with We are excited about these growth devel- 423 beds and five nursing homes with 249 opments,especially in light of the chal- beds.We believe the expansion of this ru- lenges to the health care environment this ral hospital chain is a viable business strat- year. Our domestic hospitals began receiv- egy.We will continue to actively pursue it. ing payment for Medicare services under Another 1984 hospital acquisition was the new Prospective Payment System on Our Lady of Guadalupe Community Hos- January 1, 1984.At that time,our oc- pital in San Juan,Puerto Rico.This 246-bed cupancy rate began to decline.Lower in- hospital is our entry into the Puerto Rican patient census seems to be a national market.During 1984,we began construc- trend.In fiscal year 1983,our five hospitals tion of a 100-bed hospital in Englewood, had 28,371 admissions with an average Florida and are looking forward to its open- length of stay of 7.1 days and an occupancy ing during 1985.In addition,we plan to be- rate of 66.5 percent.In 1984,with 16 hospi- gin construction of a 120-bed hospital in tals,we had 44,765 admissions with an av- LaGrange,Kentucky to be opened in 1986. erage length of stay of 6.1 days and an oc- Our Company acquired a durable medi- cupancy rate of 52.7 percent. cal equipment business this fall. United In this fiscal year,our operating reve- Health Care Services,Inc.,Philadelphia, nues rose to$212.25 million from$153.93 serves the home health care market.This million in 1983,a gain of 37.9 percent.Net business has excellent potential to reach income was$5.90 million,or$.93 per share, to the patient at home. in 1984 compared with$5.98 million,or We believe our entry into the retirement $4.00 per share,in the prior year.This past living industry has been successful.This year was a disappointing one for our Com- division should experience accelerating parry in terms of earnings.However,we growth.In 1984,we signed three manage- remain as optimistic as ever for the future. ment contracts and at year-end we man- With change comes opportunity.We aged 713 apartment units and 361 nursing have responded accordingly.We have home beds.We will add many more to this taken the cost cutting measures and other base before the end of 1985. necessary steps to keep costs in line with The dynamic growth in the retirement the reduced inpatient activity. Our out- living division prompted the appointment patient surgery and rehabilitation centers of Rollin E.Jackson to President,Indepen- are handling increased patient loads.Our dent Living Communities.Mr.Jackson was marketing programs have been sharpened formerly Vice President-Properties with and expanded.We have been able to oper- the Company.In addition,we are pleased ate at a profit and to expand our services in to have JayA.Jarrell join us as Vice Presi- 2 • Resident's Name: CHARLOTTE K.WLURG Age: 71 Community: COLTER VILLAGE Location: GLENDALE,ARIZONA Date Moved In:JULY,1984 dent-Finance.R.Q.Richards III has served ' on our Board of Directors with distinction l ! for three years.For business reasons,he has chosen not to stand for re-election as a director at our annual meeting.We greatly appreciate the valuable service he has given to our Company. The Board of Directors of Basic Ameri- can Medical,Inc.has pursued an active stock repurchase program.During 1984, - ! ! it authorized the purchase in the open market of up to 500,000 shares of common E stock to be held as treasury shares.At December 31,1984,we had repurchased ' 246,560 shares of the Company's stock in the open market and 356,500 shares in a private transaction all held as treasury shares.The Board and our management believe that the stock's value exceeds its ' price and the recent purchases of the Com- pany's stock are in the best interest of the shareholders and the Company. =` The services and products Basic Ameri- can Medical,Inc.offers continue to grow in depth and quality.We are committed to the health care industry and its opportunities �. for dynamic growth.Our size,diversity and flexibility will serve us well as we meet 1z=, the milestones and challenges ahead. y1+�/ ��i/!)r, = -.- _ { '1s[{try[•_ We wish to thank our employees andraf./ shareholders for the continued interest and support have received. `j'�r' �)'II'�'''"ll�•�1 j�1� 1 t pp e'A ' Ethan Jacks Chairman of the Board fi s z 4 t`g re Franklin L.Jackson Vice Chairman of the Board Brady R.Justice,Jr t President t Y hat Mrs.MacClurg really enjoys most is reading."From 7:00 a.m.to 6:00 p.m.," the St.Louis native laughs."I read all those Readers'Digest condensed books.I think I've read all the books they have!" !` Mrs.MacClurg first went to the Colter Village skilled care center before she moved into her apartment.She has praises for the care she received during those few weeks: "It's not the idea that they give you your pills,it's the idea that somebody cares.You're not alone.It's no fun to be in a room by yourself.Now I am happy as a lark!" 3 MEDICAL FACILITIES . . _ , .. Basic American Medical,Inc.greatly fter 12 years,Vern White can see again. We feel these expanded its hospital division during 1984. Due to an ammonia burn,he lost one eye We added 11 hospitals and 609 beds fora Aand became legally blind in the other. hospitals new total of 16 hospitals and 1,443 beds. Until days before his December, surgery,he offer a valued We will continue to follow an aggressive thought his remaining eye was too damaged to growth plan in 1985.Our current con- make sight possible.In a one hour surgery Mr. service to struction projects include a 100-bed hospi- White received the cornea transplant that has tal in Englewood,Florida,to open in the changed his life. the fall and a 120-bed hospital in LaGrange, "There was no pain connected with it,"said Kentucky,scheduled to open in 1986. Mr.White remembering his surgery at the Fort communities. We are excited about the growth in our Wers Community Hospital Outpatient Surgery Health Care Management Corporation Center.The day after his surgery,Mr.White's subsidiary during 1984.The subsidiary's patch was removed and he could see,although newly acquired hospitals benefit from the not well enough to read.Mr.White is thrilled purchasing and management efficiencies with what he has."Words really can't describe � of our group.We feel these hospitals offer it.Everything is so beautiful.I had never seen a valued service to their communities n4P wife Martha Jo before this,"he explains. and believe that with our management Mrs.White had fun showing her husband their expertise,they will prosper. Christmas tree when they returned home from Marketing has been of major importance the hospital: "It was the first one he had seen in for all of our hospitals this year,particu- a long,long time!" larly for our larger hospitals.Although Over the years,the Whites had grown occupancy rates have dropped,usage of accustomed to Mr.White's blindness and so had our outpatient facilities has risen.Outside Mr.White's seeing eye dog,Titus."He is a little services and activities,such as the Walk for confused,"Mr.White says."I take off down the Your Heart program at Fort Myers Commu- driveway without him and he doesn't know quite nity Hospital,have increased awareness what to do.He can really give me a talking to,but in our respective communities.Each he is still niy friend! " hospital is free to develop its own specific marketing plans.This has proven to be an effective method to meet our individual hospitals'needs. With the advent of Medicare's Prospec- tive Payment System,the health care in- dustry has become a sometimes difficult environment for many hospitals.We feel our hospitals are operating at an efficient level.We are also proud of the consistent quality of service of our staff and person- nel.Our management will continue to make that a priority. I 4 Former • Address:Age: 56 O' O• D. Illness,Injury or •' TRANSPLANT Admission D.te: DECEMBER.1984 . 1 , a 0 71/ C7 I..'ill I �a OU aw vs jI� . 7��y1 �� • r�{f\'l�:— y3 ?f Y`^le t�y�l '� \�. ' "'� '''�w*�'',r l. �#v;�����'��`^ ..;�� r ��;.�•��A�,�'z tt'l����A��r���llct�S�C�`.�i.�,,,, AWL Former Patient's Name: MAX NICHOLA • Age: 73 Address: FORT MYERS,FLORIDA Illness,Injury or Treatment: QUADRUPLE CORONARY BYPASS SURGERY Admission Date:JANUARY,1984 C: ax and Alice Nichols walk a brisk three miles �r per day in the pleasant morning air of i southwestern Florida.They are avid fans of the Walk for Your Heart program sponsored by Fort Myers Community Hospital,the American Heart Association and The Bell'Ibwer Mall.The miracle is I that prior to his surgery at Fort Myers Community Hospital,Mr.Nichols could only vmllk a block before r having to take a nitroglycerin tablet.Nova,he saes, he hasn't even looked at one since his surgery: Mr.Nichols says he had no fear whatsoever of going into the hospital. "I knew we were in a good e hospital and in good hands.I am glad that I had the surgery,"he says."We are very satisfied.Everything and everyone was courteous at the hospital." The couple has enjoyed living in Fort Myers since their move from Michigan 15 years ago.Since Mr. Nichols'successful surgery;they say,"We are enjoying life now like never before.It's been a.wonderful time together.We are looking forward to a few more years." 6 • Fall-.1 all a WE WE i yy Ljit _ �) �l 4 �r �� r 1. ..�s �+�ry 1 �� jf i A� ,'�Y1A�•+1 t t�,{{{{�����„A , � �� _ 7 Y� Fy.r . y�r��d�r r•, r to .ti•� •` t � •\\� ,•)^ +" I'r 1` 1 1' �rL -� 1 ,�'��Z' ' '' �'a: .`-�'"'•�; . \. ,+' ',, Ott� t 1��;4, u� d� tit.^ritl� i`p�'��i�t:• / �r�*'=�� •�, I ' t, � r i�r.:<(t f• � � ;� rr��Ss.',,s�_; �j'••+—t•'*:t' \ I' t` ,. ,\ _ may„ it 7 tr-,�"t N.��N •• • • • •• ••• Former Patient's Name:WILLIAM SIMl� • Age:86 Address:PRESTON,GEORGIA Illness,Injury or Treatment:ARTERY GRAFT,STROKE,HEARTATTACK Admission Date:APRIL,1984 — _- - -- peaking about her husband,Rena Simmons says,"He can't use his hands the way he could, but he can work.He's working on the water pipe today,he had one freeze up down at the barn." William Simmons spent six weeks at Stewart- Webster Hospital,Richland,during the spring of 1984.In that time,he underwent surgery for an artery graft on his leg and suffered a stroke and heart attack.Mrs.Simmons remembers that time well because he was so sick.She stayed aver nigh many times and then would go home to feed his animals the next day. The Simmons have high praises for the attending hospital staff."They got up whenever I walked in and looked at him,"Mrs.Simmons says. "They're all real good.They're just as sweet as they can be.Every one of them.When I couldn't be there with him,they tried to feed him,always doing what was best for him." Mr.Simmons,who worked on concrete bridges for 30 years,still loves to work on his farm.A-.one time he raised corn,cotton,peanuts and potatoes. Although Mr.Simmons'stroke has left his speech and motions somewhat slowed,he now enjoys tending his pigs,chickens and cows. ,A VNI 3' 8 • Former Patient's Name: MARSHIM,PH Age:3 Address: OMAHA,GEORGIA Illness,Injury or Treatment: PNEUMONIA Admission Date: NOVEMBER,1984 g t� hen Sandra Selph and her daughter,Marsha,drive past Stewart-Webster Hospital,Richland,Marsha will say"That's nW hospital!"Mrs.Selph describes the-kind of care Marsha received at that hospital:"The people don't have just a job on their_hinds—that counts for a lot for me.Wheneverycu gc in there,they treat you vmlh a little heart and compassion—I'd ra her go.there." 9 • • RETIREMENT LIVING COMMEWNES Our potential The management of retirement living The demographics of the retirement age communities is a natural growth area for group in America make this an exciting residents are Basic American Medical,Inc.The Com- strategy for our Company.Each dam,nearly parry's founders have 20 years of experi- 6,500 people in our country celebrate their healthy and ence and expertise in both the nursing 65th birthday.At present,10 percent of home and apartment industries.During our population,or more than 25 million mobile. 1984,we completed the corporate staffing people,are over 65. Ibn million of these are needed to handle the number and size of over 75.It is expected that by the year 2000, communities we will be managing. there will be approximately 35 million There are two concepts of retirement people aged 65 and older.The need for living communities—life care and rental. retirement housing will grow dramatically Life care centers require a one-time and Basic American Medical,Inc.plans to endowment fee plus a regular monthly fee. be in a position to serve this industry. o The rental concept works on the basis of signing an agreement for an agreed period of time.Basic American Medical,Inc. manages communities that operate on the rental concept. Our potential residents are healthy and mobile.Our retirement living communi- ties offer a socially active,independent lifestyle that is free from the maintenance of a single family home. Should a health problem occur,our residents know emergency and long-term health care is readily available. 10 Resident's Name: LENA JO KELLY ER Age:85 Raw Community: CALUSA HARBOUR Location: FORT MYERS,FLORIDA Date Moved In: JUNE,1984 yj. 5� - z i Ot ha`nng c b y her apartment sold Mrs.Glaser cn-he idea of moinng to Ca.usa Harbour."Oh,I just like the view,"she says."I like it here very much.They'll have to put me ou !" When Mrs.Glaser and her late husband,Alfred,lived in their historic country home in Lansdowne,Pennsylvania,they did a lot of entertaining.Now,when she has guests, she Lakes them to the dining room at Calusa.Harbour:"You fee:you can put your hands right out in the river.It's the nicest dining room I know of." 11 0 0 HEALTH SERVICES MENOWNINNOM AND PRODUCTS The company Basic American Medical,Inc.provides a fter 20 years of instruction,Gerald Bass received variety of services and products to the his Samurai name,Chikara Joshu,and permis- health care market.These companies con- Asion to teach Japanese fencing from the Masterprovides tinued to add more contracts and custom- of that martial art in America.Despite years of physical ers during 1984. strenuous physical activity perfecting his art,Mr. I Our contract therapy company,Rehabil- Bass suffered a heart attack and was hospitalized for occupational itative Health Services,Inc. serves nearly five days. 100 facilities such as hospitals,nursing The surprise to Mr.Bass was that his therapists at and Speech homes,clinics and school systems,in the Southwest Regional Rehabilitation Center were some 15 states.The company provides willing to work with him to put together a routine therapy. Physical,occupational and speech therapy that actually improved his skills. "I felt so good about as well as cardiopulmonary and respira- what I was doing because the people were,showing tory care and Holter monitoring.This fall, such interest and concern with my recovery at the the Company acquired a durable medical rehab center,"says Mr.Bass."I was aware of how equipment firm that markets to the home strong I was becoming.Much stronger than before. health care market.In addition to contract I've never felt better in my life." services,we also operate five rehabilitation Mr.Bass now is the Master,or Shihan,of three centers in Indiana,Florida,Maryland and styles of fencing.The 16 teachers at his eight schools California. teach the ancient llth century form of laido,using Healthcare Prescription Services,Inc. swords;Jo Jitsu,using canes;and Kendo,using bam- currently has nearly 80 contracts to serve boo sticks.Mr.Bass is shown teaching the latter form. approximately 9,040 beds.The firm provides off-premises pharmacy services primarily to nursing homes.This year,it began to service some of our small rural hospitals and has added to their efficiency. B&W Diagnostics,Inc.maintains some 170 ultrasound diagnostic and 40 computer- ized tomography service contracts.Approxi- mately 190 hospitals,clinics and physician offices in some 13 states take advantage of our fixed and mobile equipment. Medical Engineering,Inc.continues to expand its customer base.This division licenses software systems to approximately 57 facilities in some 23 states.Omni Manu- facturing,Inc.,Atlanta,Georgia,began sell- ing its new wheelchairs for the nursing home and home health care market this fall.In January 1985,Omni introduced its new electric bed for the home health care. market.This bed is lighter than most for ease of delivery and features a replaceable motor.Mw 12 H � � Awl >N Q A J NDA � "r` �QJf��(� y4,1�` �7 I ,l1`j��1 'J•�i98[ . tit \._ ION �� We �,l,�o ayetta Wagster can smile while she does her Mrs.'dlagster noticed reduced pain within twc Q�L►7 exercises in her spacious living room.She is weeks of doing her new exercises.She remembers Rfree from the pain of torticollis,the shortening one day when the pain was gone: `After about six operate five of one group of muscles in the neck,that has plagued months,I went to bend doom to pick up toys in the rehabilitation her from birth when her collar bones were fractured nursery and thought,I don't believe it was there. during a.difficult delivery. So, I bent down again,and it wasn't.It was gone. centers. At seven years of age,Mrs.Wagster's condition was Something I had lived with for so long,year after diagnosed and surgery performed.She then spent year.That's when I realized that all the exercising three months in a body cast because of the torticollis was paying off." and resulting curvature of the spine.Mrs.Wagster Mrs.Iffiagster knows she will have to do her 30 went back periodically until she was 16 when she exercises every day for the rest of her life.But,she was officially discharged.Happy and free from pain, does not know where she would be today if she had Mrs.Wagster enjoyed participating in all the normal not found her RHS therapist.Mrs.Wagster's eyes activities of growing up. sparkle as she says: "I can take care of the kids, Shortly after her firs child was born,her pain entertain,go out to dinner and take in a play;It as returned.Over a course of five years,Mrs.Wagster's wonderful this last Christmas,being able to go shop- headaches turned into pulling sensations in the ping and stay as long as I wanted in the store.For the crown of her head and pressure in the roc`of her last five years,I have not been able to do that." mouth.Still,it did not occur to her that it could be torticollis again,until she no-iced one earring looking lower than the other one.Her family physician found a.slight tilt in her head and recommended physical therapy. `After years of running to every doc or or specialist,I actually wondered if I wasn't wasting my time,"Mrs.Wagster says,remembering her first visit with one of Rehabilitative Health Services'physical therapists.'But,I thought she acted like she knew what she's doing."She did. 14 ;o, Awl,. ,.. .01 tt'i.f ����` � •S� l T+f'` .i(� i- ,: _�•-'. fF. ,,17% �` �:l ; ' ,�.s%.. l �rf t / J .• ��� . �:� Sri ,,. • (� A k Y - ,i tip. / • it :2 Am, r U� "t tv �..... MANAREMENT'S DISCUSSION i AND ANALYSIS OF FINANCIAL CONDITION AND Wax t a a RESULTS OF OPERATIONS Basic American Medical, Inc. and Subsidiaries (In millions except per share data) 1984 1983 1982 Operating revenues $ 212.3 $ 453.9 $ 418.6 Provision for contractual allowances and uncollectible accounts 48.4 37.8 25.8 Net operting revenues 163.9 116.1 92.8 Operating costs and expenses 154.4 106.3 86.3 Interest and other income .7 1.1 .6 Income before provision for income taxes 10.2 10.9 7.1 Provision for income taxes 4.3 4.9 3.0 Net income $ 5.9 $ 6.0 $ 4.1 Earnings per share $ .93 $ 1.00 $ .78 Weighted average common shares outstanding 6,362,954 5,998,883 5,259,582 Results of Our operating revenues increased to bursement classification and should result $242.3 million in 1984 from$153.9 million in increased Medicare reimbursement and Operations in 1983,a 37.9%increase; the increase to increased profits in 1985. N $153.9 million in 1983 from$148.6 million Beginning in 1984,the Federal govern- in 1982 represented a 29.8%increase.Of ment's prospective payment system for the 37.9%increase in 1984,approximately Medicare inpatients became effective 24.0%($36.9 million)is attributable to hos- for our domestic hospitals.The payment pital acquisitions in 1984,and approxi- system changed from a cost-based reim- mately 8.3%($12.7 million)results from the bursement program to a prospective acquisitions in August 1983 of a mobile method of payment based on prede- diagnostics company and a furniture man- termined weighted rates for diagnosis- ufacturing and distribution company serv- related groups.Excluding the 1984 hospital ing the long-term health care industry.The acquisitions,our admissions and patient revenue growth in 1983 resulted from an days declined 4.8%and 13.1%,respectively increase in admissions and patient days The average length of stay and average (8.3%and 2.6%,respectively)and the acqui- occupancy rate declined by 8.7%and 13.2%, sitions of the mobile diagnostics company respectively.Despite these declines,our and furniture manufacturing and distribu- revenues increased due to increases in tion company.Other factors contributing revenue charges.We also began in 1984 a to our revenue growth in 1984 and 1983 cost-control program which effectively were hospital charge increases and the controlled our costs.As a result,our expansion of our pharmacy services and income before provision for income taxes contract therapy company. increased moderately for our hospitals. Effective January 4,1985,Charlotte Management believes the steps to increase Community Hospital in Florida received outpatient services and increase the inten- a reclassification for Medicare reim- sity of inpatient services,as well as con- bursement purposes from its classi- tinuing to control costs,will result in con- fication as a non-metropolitan hospital to tinued revenue growth and improvement a rural-referral center status.This places in earnings for our hospitals. Charlotte in a higher Medicare reim- The provision for contractual allow- i6 ances and uncollectible accounts was Interest and other income declined 22.8%of operating revenues in 1984,com- by approximately$458,000,or 37.7%,as pared to 24.6%in 1983.This decrease a result of recording a greater equity in results from a lower percentage of patients loss in a therapy company joint venture under third party reimbursement plans (approximately$334,000 greater than for our hospitals acquired in 1984.Exclud- last year)and lower interest income from ing the 1984 acquisitions,our percentage having less cash available for investment. remained approximately the same Net income remained approximately the between 1984 and 1983. same in 1984,following a 45.0%increase in Total expenses increased by$48.1 mil- 1983.Earnings were$.93 per share in 1984 lion,or 45.2%,in 1984,and by$20.0 million, compared to$1.00 per share in 1983.In or 23.2%,in 1983.As a percentage of reve- 1984,we had a decrease in income before nue,total expenses increased to 72.7%in provision for income taxes offset by a 1984 from 69.1%in 1983.This increase is lower effective tax rate.The decrease in due to our acquisitions in 1984 and 1983. income before provision for income taxes Of the 45.2%($48.1 million)increase in resulted primarily from expenses being expenses in 1984,41.5%($44.1 million)is higher than revenues related to the expan- a result of our hospital acquisitions in sion of our therapy company and a greater 1984 and the acquisitions of the mobile loss from our joint venture in a therapy diagnostics company and furniture man- company.We maintained our profits at ufacturing and distribution company in approximately the same level in 1984 for August 1983,which involved certain our other companies.The lower effective nonrecurring expenses associated with tax rate is primarily due to higher acquisitions. investment tax credits. In 1984 and 1983,we generated$17.0 be expended in 1985 to complete this facil- L T lqulc UTT and million and$11.6 million of funds,respec- ity.We will also begin in 1985 the construc- tively from operations.Funds for acquisi- tion of a 120-bed hospital in LaGrange, Sources of tions,the expansion and remodeling of Kentucky,a project which will require it existing facilities and new equipment approximately$14.0 million in funds.It is Capl Ual totalling$47.1 million and$20.8 million in expected to be completed in the fall of 1986. 1984 and 1983,respectively,were provided Long-term financing will be obtained for by operations,additional debt financing these facilities.Also,it is likely additional and the issuance of 1,250,000 shares of acquisitions will be made in 1985. common stock which generated new At December 31,1984,we had$22,850,000 funds of$18.4 million,net of costs,for the in bank lines of credit,of which$12,000,000 Company in May 1983.At December 31, was available.We believe adequate sources 1984,we had in progress the construction of capital are available from operations, of our new 100-bed hospital in Englewood, additional lines of credit and additional Florida.This$14.0 million facility is long-term financing to fund future growth expected to be open in the fall of 4985. and expansion and meet current liquidity Approximately$12.0 million is expected to requirements. � In 1984 and 1983,inflation became a less tion of cost-saving programs and systems. Inf la t Ulon significant factor in the nation's economy. Management believes the Company has Increased operating costs of the Company been,and continues to be,well positioned have been offset by increases in patient to perform in a period of changing prices. and other charges and by the implementa- 1 17 CONSOLIDATED STATEMENTS OF WE 1210 e I1 ` FINANCZAL POSITION Assets Basic American Medical, Inc. and Subsidiaries December 31, 1984 1983 CURRENT ASSETS: Cash and temporary cash investments $ 3,166,296 $10,746,413 Accounts receivable,including estimated amounts due under third party reimbursement programs,less allowances for doubtful accounts of$2,247,000 in 1984 and$1,656,000 in 1983(Note 1) 32,790,376 22,317,160 Accounts receivable-related party,net (Note 8) 1,632,089 — Notes receivable(Note 3) 778,624 237,050 Inventories(Note 1) 5,895,069 3,573,444 Prepaid expenses 1,023,532 1,087,643 Refundable income taxes (Note 6) 3,532,972 202,129 Total current assets 48,818,958 38,163,839 PROPERTYAND EQUIPMENT,at cost(Notes 1 and 4): Land and improvements 5,501,473 3,741,921 Buildings and improvements 48,976,076 26,012,159 Furniture and equipment 48,482,867 30,470,975 Property under capital leases 6,100,711 8,544,604 Construction in progress 2,709,295 11242,354 111,770,422 70,012,043 Less-Accumulated depreciation and amortization (24,707,163) (18,884,426) Net property and equipment 87,063,259 51,127,587 NOTES RECEIVABLE(Note 3) 301,807 267,702 OTHER ASSETS: Goodwill,net of accumulated amortization(Notes 1 and 2) 6,086,160 3,198,349 Other,net of accumulated amortization(Note 1) 6,627,074 2,428,101 Total assets $148,897,258 $94,885,578 Liabilities CURRENT LIABILITIES: Notes payable(Note 4) $ 5,194,854 $ 661,630 and Current maturities of long-term debt and obligations under capital leases(Note 4) 6,881,951 4,402,746 Accounts payable,including estimated amounts payable Shareholders under third party reimbursement programs(Note 1) 10,157,261 7,081,240 E1 Accrued salaries and wages 3,811,519 3,040,872 quity Other accrued liabilities 6,144,044 4,118,441 Deferred income taxes(Note 6) 7,241,586 2,351,210 Total current liabilities 39,431,215 21,656,139 DEFERRED INCOME TAXES(Note 6) 1,499,870 69,587 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES,net of current maturities(Note 4) 69,427,804 35,565,010 Total liabilities 110,358,889 57,290,736 MINORITY INTEREST(Notes 1 and 2) 942,595 675,409 SHAREHOLDERS'EQUITY: Common stock,$1.00 stated value,10,000,000 shares authorized,6,519,742 shares issued;5,916,682 and 6,469,582 shares outstanding in 1984 and 1983(Note 5) 6,519,742 6,519,742 Additional paid in capital 16,872,461 16,872,461 Retained earnings(Note 4) 20,010,273 14,108,480 Less-Treasury stock,603,060 shares in 1984 and 50,160 shares in 1983,at cost (5,806,702) (581,250) Total shareholders'equity 37,595,774 36,919,433 Total liabilities and shareholders'equity $148,897,258 $94,885,578 18 The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF INCOME Basic American Medical,Inc.and Subsidiaries Year Ended December 31, 1984 1983 1982 OPERATING REVENUES $212,250,208 $153,934,245 $118,598,504 LESS-Provisions for contractual allowances and uncollectible accounts(Note 1) 48,363,243 37,830,444 25,783,024 Net operating revenues 163,886,965 116,103,801 92,815,480 OPERATING COSTS AND EXPENSES: Salaries,wages,and fringe benefits 66,368,569 48,572,736 42,407,226 Other operating costs 70,892,907 47,219,980 33,847,481 Depreciation and amortization(Note 1) 9,046,119 5,105,922 4,560,712 Interest expense(Note 4) 8,066,757 5,404,027 5,478,458 154,374,352 106,302,665 86,293,877 Income from operations 9,512,613 9,801,136 6,521,603 INTEREST AND OTHER INCOME, net(Note 1) 757,366 1,215,205 649,984 Income before provision for income taxes and minority interest 10,269,979 11,016,341 7,171,587 PROVISION FOR INCOME TAXES(Note 6) 4,301,000 4,940,000 3,026,000 Income before minority interest 5,968,979 6,076,341 4,145,587 MINORITY INTEREST (67,186) (96,688) (22,798) NET INCOME 5 5,901,793 S 5,979,653 $ 4,122,789 EARNINGS PER SHARE,based upon 6,362,954, 5,998,883 and 5,259,582 weighted average common shares outstanding for 4984, 1983 and 1982,respectively $.93 S1.00 $ 78 The accompanying notes to consolidated financial statements are an integral part of these statements. 19 CONSIIDATED STATEMENTS OF CUES IN FINANCIAL POSITION Basic American Medical, Inc. and Subsidiaries Year Ended December 31, 1984 1983 1982 FUNDS PROVIDED: Net income $ 5,901,793 $ 5,979,653 $ 4,122,789 Add-Charges not requiring working capital- Depreciation and amortization 9,046,119 5,105,922 4,560,712 Long-term deferred income taxes 1,430,000 274,000 362,000 Minority interest in net income 67,186 96,688 22,798 Equity losses in unconsolidated companies 564,649 179,638 — Funds provided from operations 17,009,747 11,635,901 9,068,299 Proceeds from stock issuance — 18,122,461 — Additional long-term debt and capital lease obligations 18,431,438 5,247,000 2,248,000 Change in notes receivable (34,105) 2,109,247 27,503 Reduction of goodwill and property due to utilization of net operating loss carryforward — 1,312,900 — Change in minority interest 200,000 485,757 (6,442) Total funds provided 35,607,080 38,913,266 11,337,360 FUNDSAPPLIED: Businesses purchased,net of$465,832 in 1984 and $776,215 in 1983 of working capital acquired- Property and equipment 26,331,431 7,357,342 — Goodwill 2,940,283 3,229,603 — Other assets 2,106,745 139,740 — Long-term debt assumed and incurred (23,703,640) (5,240,553) — 7,674,819 5,486,132 — Reduction of long-term debt and obligations under capital leases 8,272,284 7,101,528 6,866,809 Property additions,net of retirements 18,206,244 12,504,335 4,939,296 Increase in other investments 1,569,403 1,179,844 — Dividend distributions — 1,314,896 — Repurchase of common stock 5,225,452 481,250 — Other 1,778,835 314,296 139,511 Total funds applied 42,727,037 28,382,281 11,945,616 INCREASE(DECREASE)IN WORKING CAPITAL $(7,119,957) $10,530,985 $ (608,256) 20 Year Ended December 31, 1984 1983 1982 CHANGES IN COMPONENTS OF WORKING CAPITAL: Increase(decrease)in current assets- Cash and temporary cash investments S(7,580,117) S 7,466,953 S 537,357 Accounts Receivable 12,105,305 9,880,836 (2,553,564) Notes receivable 541,574 (794,827) 1,004,730 Inventories 2,321,625 1,474,426 215,408 Prepaid expenses (64,111) 700,716 (258,186) Refundable income taxes 3,330,843 (1,060,697) 1,262,826 10,655,119 17,667,407 208,571 (Increase)decrease in current liabilities- Notes payable (4,533,224) (661,630) 1,107,343 Current maturities of long-term debt and obligations under capital leases (2,479,205) 843,364 (1,828,738) Accounts payable (3,076,021) (3,683,235) 520,148 Accrued liabilities (2,796,250) (3,242,019) (778,788) Accrued Federal and state income taxes — — 391,516 Dividends payable — — 1,730,000 Deferred income taxes (4,890,376) (392,902) (1,958,308) (17,775,076) (7,136,422) (816,827) INCREASE(DECREASE)IN WORKING CAPITAL S(7,119,957) $10,530,985 S (608,256) The accompanying notes to consolidated financial statements are an integral part of these statements. 21 CONS&IDATED • STATEMENTS OF SHAREHOLDERS' EQUITY Basic American Medical, Inc. and Subsidiaries Common Stock Shares Amount BALANCE,December 31,1981 5,269,742 $5,269,742 Net income — — BALANCE,December 31,1982 5,269,742 5,269,742 Net income — — Proceeds from stock issuance 1,250,000 1,250,000 Dividends — — Repurchase of 40,000 shares of common stock — — BALANCE,December 31,1983 61519,742 6,519,742 Net income — — Repurchase of 552,900 shares of common stock — — BALANCE,December 31,1984 61519,742 $6,519,742 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS l Basic American Medical, Inc. and Subsidiaries 1 a.Principles of Consolidation leases.Maintenance and repairs are Summary of The consolidated financial statements expensed as incurred. include the accounts of Basic American The cost basis for certain depreciable Si i flCant Medical,Inc.(the Company)and its major- property and equipment acquired in a pur- ity owned subsidiaries.All significant chase transaction in 1984 is greater for tax Accounting intercompany accounts and transactions purposes than for financial reporting pur- have been eliminated in consolidation. poses by approximately$1,300,000.The Policies Minority interests have been reflected for cost basis for certain depreciable property subsidiary companies not wholly owned. and equipment acquired in purchase transactions in 1983 and 1981 is less for tax b.Inventories purposes than for financial reporting pur- Inventories are stated at the lower of cost poses by approximately$7,100,000.In 1983, (first-in,first-out)or market. approximately$767,000 of the$7,100,000 amount was reversed as a result of the uti- c.Property and Equipment lization of net operating loss carryforwards Amounts capitalized as land,buildings existing at the date of acquisition.There and furniture and equipment,including was no such utilization in 1984.As a result additions and improvements to existing of these transactions,the depreciation facilities,are recorded at cost. reflected in the financial statements in Depreciation is provided for financial 1984 is approximately$332,000 greater reporting purposes on the straight-line than allowed for tax reporting purposes. method over the estimated useful lives of the assets.Equipment under capital leases d.Goodwill are being amortized on the straight-line The excess of cost of businesses pur- method over the lives of the respective chased over the tangible net assets 22 Additional Paid in Retained Treasury Capital Earnings Stock Total $ — S 5,320,934 $ (100,000) $10,490,676 — 4,122,789 — 4,122,789 — 9,443,723 (100,000) 14,613,465 — 5,979,653 — 5,979,653 16,872,461 — — 18,122,461 — (1,314,896) — (1,314,896) — — (481,250) (481,250) 16,872,461 14,108,480 (581,250) 36,919,433 — 5,901,793 — 5,901,793 — (5,225,452) (5,225,452) $16,872,461 $20,010,273 S(5,806,702) $37,595,774 The accompanying notes to consolidated financial statements are an integral part of these statements. acquired is being amortized over forty cally been based on costs,as defined,of years(Note 2). rendering service to program benefici- aries,plus a return on equity.The deter- e.Investments in Unconsolidated mination of costs requires interpretation Companies of the applicable laws and regulations,and The Company records its investments in such determinations are subject to audit 50%or less owned companies using the and adjustment by the intermediary.Effec- equity method of accounting.At December tive January 1,1984,the Federal govern- 31,1984 and 1983,the Company had ment's prospective payment system for investments in and advances to uncon- Medicare inpatients became effective for solidated companies of$1,862,000 and the Company's domestic hospitals.The $325,000,respectively,which are reflected payment system for Medicare inpatients in other long term assets,net of the Com- changed from a cost based reimbursement pany's equity in losses of unconsolidated program to a prospective method of pay- companies of$565,000,and$180,000 in 1984 ment based on predetermined weighted and 1983,respectively.Equity in losses of rates for diagnosis related groups,plus a unconsolidated companies is reflected in return on equity.The Company's Puerto other income,net,in the accompanying Rican hospital continued to be reimbursed consolidated statements of income. under the cost based program. The Company records services rendered L Third Party Reimbursement to program beneficiaries at regular rates Approximately 46%of the Company's oper- and provisions are made to reduce such ating revenue is derived under Medicare revenues to estimated reimbursable reimbursement programs.Reimburse- amounts through the provision for con- ments under these programs have histori- tractual allowances. 23 NOTES CONTINUED 2. During 1984,the Company acquired 100% adjustment based on Omni's achievement of the outstanding common stock of of the future earnings level,is payable on Acquisitions Health Care Management Corporation or before April 1,1987.The$1,329,000 (HCMC).The transaction was accounted excess of the acquisition cost(net of the for as a purchase with an effective date of balance subject to adjustment)over the fair January 3,1984.The acquisition cost of value of net tangible assets acquired has $5,175,000 was paid in cash with the been allocated to goodwill.The remaining $2,399,000 excess of acquisition cost over balance if paid will be allocated to goodwill the fair value of net tangible assets and amortized over the remaining useful acquired allocated to goodwill. life. HCMC is located in Columbus,Georgia, Omni is located in Atlanta,Georgia,and and at January 3,1984,owned or leased is a manufacturer of furniture and equip- seven acute care hospitals and three nurs- ment used by the medical services indus- ing homes containing 230 beds and 150 try.Omni markets its products and similar beds,respectively.During 1984,the Com- products manufactured by others to major pany transferred its Georgiana and North long-term health care facilities and others Mobile Community Hospitals to HCMC throughout the United States. and through additional acquisitions HCMC During 1983,the Company acquired an had at December 31,1984,12 hospitals and 80%equity interest in B&W Diagnostics, five nursing homes containing 423 beds Inc.and subsidiary(B&W).The trans- and 249 beds,respectively action was accounted for as a purchase Effective April 1,1984,the Company, with an effective date of August 4,1983. through its 80%-owned subsidiary,BAMI- The acquisition cost was$3,431,000,subject Puerto Rico,Inc.,purchased certain assets to B&Ws achievement of future earnings. including Our Lady of Guadalupe Commu- Of such amount,$2,538,000 in cash has nity Hospital.The acquisition cost was been paid.The remaining balance of $14,628,000,which consisted of$3,140,000 $893,000,which is subject to adjustment in cash and assumption of debt of based on B&Ws achievement of the $11,488,000.The$14,628,000 acquisition future earnings level,is payable on or cost was allocated$14,382,000 to property before March 31,1985.The$1,449,000 and equipment and$246,000 to inventory excess of the acquisition cost(net of the Our Lady of Guadalupe Community balance subject to adjustment) over the Hospital is a 246 bed general acute care fair value of net tangible assets acquired hospital and is located in Hato Rey,a sub- has been allocated to goodwill.The re- urb of San Juan,Puerto Rico. maining balance if paid will be allocated During 1983,the Company acquired an to goodwill and amortized over the 80%equity interest in Omni Manufac- remaining useful life. turing,Inc.and subsidiaries(Omni).The B&W is located in Chicago,Illinois and transaction was accounted for as a pur- is a provider of diagnostic imaging serv- chase with an effective date of August 1, ices to hospitals and medical clinics in a 1983.The acquisition cost was$6,425,000, 13 state area. subject to Omni's achievement of future The Company also purchased other earnings.Of such amount,$3,875,000 in companies during 1984,1983,1982 and sub- cash has been paid and notes of$1,350,000 sequent to December 31,1984.These acqui- are payable in 1985.The remaining bal- sitions are not material to the Company's ance of$1,200,000,which is subject to consolidated financial statements. 24 The operations of all purchased compa- companies purchased were included in nies are included in the consolidated state- the results of operations as of the begin- ments of income from the dates of their ning of the year preceding the year in acquisition.The unaudited proforma which the purchase occurred,follow— results of operations,assuming that the Year Ended December 31, 1984 1983 1982 Unaudited Unaudited Unaudited Net operating revenues $169,574,635 $152,447,459 $108,062,248 Net income $ 5,521,654 $ 3,892,547 $ 3,931,771 Earnings per share(based $.87 $.65 $.75 upon 6,362,954,5,998,883 and 5,259,582 weighted average common shares outstanding for 1984,1983 and 1982,respectively) The following is a summary of notes receivable: 3. December 31, 1984 1983 NoWs Short-term- D,�UG Related parties- Receivable Promissory note receivable,interest at prime(11%at December 31,1983) $ — $ 75,000 Promissory note receivable,interest at prime plus 1% (113/a%at December 31,1984) 15,955 — Others- Promissory note receivable,interest at prime plus 1% (113/a%at December 31,1984) 301,992 — Promisory notes receivable,interest rates ranging from non-interest bearing to 15% 311,904 153,000 Current maturities of long-term promissory notes receivable 148,773 9,050 $778,624 $237,050 Long-term- Related parties- Promissory notes receivable,non-interest bearing at December 31,1984 $ 20,000 $118,000 Others- Promissory notes receivable,interest rates ranging from non-interest bearing to 151/2% 430,580 158,752 450,580 276,752 Less-Current maturities 148,773 9,050 $301,807 $267,702 25 ��z�_____.1 NOTES CONTINUED 4. Long-term debt and obligations under capital leases consisted of the following: December 31, 1984 1983 F]nanc; ig Mortgage note payable to Northwestern National Life Insurance Company,interest at 12%%,payable in Arrangements monthly installments,including interest,of$154,142 through November 1993,secured,subject to the first mortgage holder,by substantially all the real and personal property of Charlotte Community Hospital,Inc. $13,083,826 $13,238,020 Mortgage note payable to the Department of Housing and Urban Development.Original loan amount assumed of $7,830,000 at 8'/2%and a$3,330,000 supplemental mortgage at 9%,payable in monthly installments, including interest,of $102,687 through December 2001, secured by Our Lady of Guadalupe Community Hospital facility. 10,977,571 — Mortgage note payable to First Indiana Federal Savings Bank of Indianapolis,interest at 10%,payable in monthly installments,including interest,of$79,936 through August 1993,secured by Fort Myers Community Hospital facility 7,898,094 8,058,686 'Ibrm loan to Sun Bank,interest at prime(103/4%at December 31,1984).Entire amount due by December 31,1986 6,000,000 — Note payable to American Fletcher Leasing Corporation, interest at 13%%,payable in monthly installments, including interest,of$87,109 through January 1989, secured by various equipment 3,068,691 3,807,000 Medical Clinic Board of the City of Thomasville,Alabama, First Mortgage Medical Facilities Revenue Bond,interest at 70%of prime(7'/e%at December 31,1984)payable quarterly, principal payments of$37,500 payable quarterly beginning March 1985 through December,2004,secured by the first mortgage of Thomasville Hospital 3,000,000 — Downtown Development Authority of the City of Fort Gaines,Georgia,Industrial Revenue Bonds,interest at 70%of prime(7'/2%at December 31,1984)payable monthly, ' principal payments of$12,500 payable monthly,beginning July 1987 through June 2007, secured by the first mortgage on Fort Gaines Hospital 3,000,000 — i I I 26 December 31, 1984 1983 Note payable to Sun Bank of Orlando,Florida,interest at prime plus'/4%(11%at December 31,1984),payable in monthly installments of$15,556 plus interest through December 1989,secured by mortgage on a building $ 2,800,000 $ — Downtown Development Authority of Glenwood,Georgia, First Mortgage Medical Facilities Revenue Bonds,interest rate varies from 11%to 143/io%depending on the maturity date of the bonds and is payable monthly,annual principal payments beginning February 1989 of$25,000 increasing to$350,000 through February 2010,secured by the first mortgage of Wheeler County Hospital 2,625,000 — Note Payable to Manufacturers Hanover Leasing Corporation,interest at 13'/2%,payable in monthly installments,including interest,of$55,254 through September 1989,secured by various equipment 2,315,649 — Note payable to Manufacturers Hanover Leasing Corporation,interest at 133/4%,payable in monthly installments,including interest,of$48,446 through September 1989,secured by various equipment 2,019,486 — Mortgage note payable to First Indiana Federal Savings Bank of Indianapolis(net of$2,195,523 and$2,222,618 participation receivable at December 31,1984 and 1983, respectively)interest at 11'/4%,payable in monthly installments,including interest,of$17,630(net of$22,300 monthly participation payment)through January 1996 and secured by Kissimmee Memorial Hospital facility 1,662,359 1,677,788 Mortgage note payable to United First Federal Savings and Loan Association of Sarasota,interest at 12%%net of discount imputed at date of acquisition of Charlotte Community Hospital,Inc.of$575,000(reduced by$74,000 at December 31,1983 due to utilization of net operating loss carryforwards and being amortized over the remain- ing life of the note; See Note 6),payable in monthly install- ments,including interest,of$24,717 through November 1993 and secured by property and equipment 1,630,718 1,645,106 Note payable to Gibson Products Company,interest at 11'/2%,payable in monthly installments,including interest,of$15,362 through May 2003,secured by an office building 1,410,519 1,431,039 27 NOTES CONTINUED December 31, 1984 1983 Notes payable to former shareholders of acquired company, interest at 10%,payable in annual installments of $1,350,000,plus interest,through October 1985 $ 1,350,000 $ 2,700,000 Note Payable to Manufacturers Hanover Leasing Corporation,interest at 133/4%,payable in monthly installments,including interest,of$24,127 through November 1989,secured by various equipment 1,030,533 — Various mortgage,promissory and installment notes, interest ranging from 8%to 227/a%payable in various monthly installments through 2006 7,816,976 2,029,021 Obligations under capital leases,imputed interest rates of 10%to 21%,payable in monthly installments of various amounts and maturing at various dates 4,620,333 5,381,096 76,309,755 39,967,756 Less-Current maturities 6,881,951 4,402,746 Long-term debt and obligations under capital leases $69,427,804 $35,565,010 Certain subsidiaries'financing agree- capital equipment leases was approxi- ments contain limitations on payment of mately$3,696,000 and$4,892,000 at Decem- cash dividends and borrowing and capital ber 31,1984 and 1983,respectively.The expenditures.Under provisions of these obligations are recorded on the basis of the financing agreements,retained earnings present value of the leases,assuming of approximately$1,772,000 as of Decem- interest rates ranging from 10%to 21%. ber 31,1984,were restricted as to payment Approximate future minimum lease of dividends. payments,by year and in the aggregate, The amount of principal maturities of under the capital leases with initial or long-term debt and that portion of capital remaining terms of one year or more are lease obligations representing principal as follows: maturities for the subsequent five years 2376507 are summarized as follows: 1985 $1, , 1986 ,83434,78080 1985 $ 6,881,951 1987 1,215,470 1986 11,466,662 1988 452,650 1987 5,134,197 1989 140,174 1988 4,653,410 Thereafter 83,700 1989 4,979,974 Total minimum lease payments 6,103,281 The capital lease obligations relate to Less-Amounts representing equipment leased by the Company.These interest 1,482,948 leased assets are included in the consoli- dated property and equipment accounts. Present value of minimum The accumulated amortization related to lease payments $4 620,333 28 Notes Payable reflected as current liabilities in the accompanying statements of financial position consisted of the following: December 31, 1984 1983 Line of credit payable to Valley Bank of Oshkosh,Wisconsin, interest at prime plus 1/%(111/4%at December 31,1984) S1,800,000 $ — Line of credit payable to Unibanc Trust,interest at prime (103/4%at December 31,1984) 1,600,000 599,630 Line of credit payable to National Bank and Trust of Columbus,Georgia,interest at prime plus 1/2%(111/4%at December 31, 1984) 1,450,000 — Other,interest rates ranging from 11%to 113/4%at December 31,1984 344,854 62,000 $5,194,854 $661,630 In addition to the lines of credit listed $6,000,000 of the$15,000,000 was converted above,the Company has available two lines to term debt due in December 1986.There of credit in the aggregate amount of were no other amounts outstanding on $18,000,OOO.The first is a$15,000,000 line this line at December 31,1984.The second with interest at the lesser of prime or 1.80% line has a$3,000,000 limit with interest at above the Certificate of Deposit rate.The prime plus 1%.There were no amounts amount outstanding becomes due in May outstanding on this line at December 1985,however,at the Company's option, 31,1984. On May 19,1983,the Company increased $18,122,461,net of costs,for the Company. �, the number of shares of common stock During 1984 and 1983,the Company issued to 6,519,742 through the issuance repurchased 592,900 shares of its common Cornznon Stock of 1,250,000 shares at$15.75 per share. stock at a cost of$5,706,702.These shares The issuance generated new funds of are being held as treasury shares. The Company files a consolidated Federal income tax return with all subsidiaries that are �. at least 80%owned. r�,�� In 1984,the Company had a Federal taxable net operating loss of $1,316,000 which,along Income 1G,1Les with investment tax credits of$883,000,gave rise to a $1,488,500 refund claim. The provision(credit)for income taxes consisted of the following: Year Ended December 31, 1984 1983 1982 Federal- Current $(1,488,500) $3,189,500 $583,000 Deferred 5,879,000 1,119,000 1,969,000 State (89,500) 631,500 474,000 $4,301,000 $4,940,000 $3,026,000 29 NOTES CONTINUED Deferred income taxes result from timing differences in the recognition of revenues and expenses between financial and tax reporting.The sources of these differences and their related tax effects were as follows: Year Ended December 31, 1984 1983 1982 Cash basis of reporting for tax purposes for certain subsidiaries S3,598,000 $ — S — Tax depreciation over book depreciation 1,475,000 499,000 468,000 Bad debt expense for tax in excess of book bad debt expense 1,158,000 452,000 1,846,000 Employee benefits deducted for book purposes (253,000) 253,000 — Other items,net (99,000) (85,000) (45,000) $5,879,000 $1,119,000 $1,969,000 The income tax provision differs from the amount computed by applying the Federal statutory income tax rate to income before taxes for the following reasons: Year Ended December 31, 1984 1983 1982 Amount % Amount % Amount % Computed"expected"tax provision $4,724,000 46.0 % S5,067,500 46.0% S3,299,000 46.0% Equity loss in companies not utilized in consoli- dated tax return 260,000 2.5 % — — — — Amortization of basis difference for assets acquired in purchase transactions 74,000 .7 % 164,000 4.5 % 178,000 2.5 % Investment tax credits utilized (883,000) (8.5)% (600,000) (5.4)% (413,000) (5.8)% State income taxes,net of Federal income tax benefit (48,500) (.5)% 341,000 3.1 % 256,000 3.6 % Adjustment for prior year overaccrual — — — — (190,000) (2.6)% Others,net 174,500 1.7 % (29,500) (.4)% (404,000) (1.5)% Total income tax provision S4,301,000 41.9 % $4,940,000 44.8% S3,026,000 42.2 % _ J 30 The Company's various subsidiaries had Net Investment net operating loss and investment tax Operating Tax credit carryforwards at their acquisition Year of Loss Credit dates which can be used to offset future Expiration Carryforward Carryforward tax liabilities of the various subsidiaries. 1990 $ — $ 96,000 Subject to review by the Internal Revenue 1991 — 10,000 Service,carryforwards expire as follows: 1992 — 12,000 1993 — 279,000 1994 800,000 58,000 1995 1,748,000 38,000 1996 262,000 60,000 1997 280,000 237,000 $3,090,000 $790,000 Rental expense for the years ended Decem- 1985 $ 2,158,000 ►y, ber 31, 1984,1983 and 1982 was 52,383,000, 1986 1,578,000 $1,275,000 and$665,000,respectively.Min- 1987 1,425,000 Lees imum rental commitments under non- 1988 1,234,000 cancellable operating leases having an .1989 1,094,000 initial or remaining term of more than Thereafter 11,579,000 one year are as follows: Total minimum payments $19,068,000 Basic American Medical,Inc.has trans- The Company has agreements with Q. actions with entities under the control of entities controlled by certain principal U certain principal shareholders.The Com- shareholders of the Company to Relay manage 5t1�pany leases office space from certain of long-term residential care facilities owned 1 l�} { these related entities.Total rent expense or leased by such entities.The agreements ltrl Related paid to related entities was$240,000 in provide that the Company will receive an 1984,$119,000 in 1983 and$93,000 in 1982. annual management fee,depending on the In 1984 and 1983,the Company also pro- facility,of either a fixed annual charge of FQ Pd>z'tleS vided data processing services to related $175,000 or six and one half percent of entities. Such data processing revenue gross revenue plus fifty percent of net charged to related entities was$260,000 in cash flow(subject to certain performance 1984 and$197,000 in 1983.With the excep- standards).The Company earned$248,000 tion of the hospital subsidiaries,which in management fees from such contracts operated autonomously,administrative, in 1984.The Company also makes loans to accounting,data processing and other man- such entities for working capital purposes. agement-related services were provided These loans are on a demand basis and through March 31,1983,to the Company bear interest at the prime rate of the Com- and its subsidiaries by a related entity on a pany's lead bank.During 1984 the Com- cost allocation basis. Such administrative pany advanced a total of$4,142,000 of costs charged to the Company were which$1,640,940 remained outstanding $228,000 in 1983 and$457,000 in 1982. at December 31,1984.The Company also 31 NOTES CONTINUED guarantees one facility's annual lease obli- fee of$293,000 and$84,000 for 1984 and gations which range from$1,008,000 to 1983,respectively. $1,200,000 during the next 24 years. Also,in 1983 the Company sold In 1984 and 1983 a related entity per- undeveloped land to a related entity.The formed construction work at cost plus a land was sold for its appraised value of seven percent management fee based upon approximately$156,000,resulting in a gain estimated construction costs.The Com- of approximately$126,000. pany was charged for actual construction costs of$3,510,000 and$1,158,000 in 1984 and 1983,respectively,and a management (1. The Company's Florida hospitals insure sequent claims,the hospitals are obligated JJ �,1 their professional liability risks for claims to fund additional premiums. ProfeSSlOnal under$100,000 per occurrence with an Effective July 1,1982,coverage for claims insurance trust that is controlled by the in excess of$100,000 per occurrence is pro- Liability hospitals.Premiums paid to the insurance vided by commercial coverage.Prior to that trust are determined by independent actu- date,claims in excess of$100,000 were cov- Insurance arial studies based on the hospitals and ered by the Patient Compensation Fund, the State of Florida's actual claims experi- an agency of the State of Florida.The ence.The three Florida hospitals owned Patient Compensation Fund may assess by the Company have paid premiums to member hospitals additional amounts to the trust in the aggregate amount of avoid any deficits arising from covered $231,000 in 1984,$456,000 in 1983 and claims filed in the future.At December 31, $308,000 in 1982. At December 31,1984 and 1984,the Company has accrued the total 1983,the trust had net assets of$317,000 assessments received as of that date of and$209,000,respectively,after recording $3,011,000,less payments made in 1984 of a reserve for claims of$1,335,000 and $475,000.Professional liability insurance $1,227,000,respectively.Should the trust for the Company's other hospitals is fund not be adequate based upon sub- provided by commercial coverage. to• The Company has a money purchase and also allows voluntary contributions retirement plan covering all eligible by the participants.The Company made Retirement employees meeting certain minimum contributions of$587,000 in 1984 and 1983 eligibility requirements.The plan provides and$406,000 in 1982. P1 for Company contributions in an amount 1 equal to 2%of each participant's base salary 11. The Company has an incentive stock The options are exercisable within the option plan which provides to key employ- period stated in each option agreement not Employee ees options to purchase shares of common to exceed ten years.In 1984,options cov- stock at prices not less than the fair market ering 161,800 shares were granted at an Stock value of the shares at the time the options average option price of$95/8.At December are granted.There were 200,000 shares 31,1984,no options had been exercised. Option Plan reserved for this plan at December 31,1984. 32 The following is a summary of the quarterly results of operations for the two years ended l �• December 31,1984.(Dollars in thousands,except per share amounts): 1 Fiscal Quarters First Second Third Fourth Selected 1984 Quarterly Net revenues $43,336 $41,096 $36,536 S42,919 Financial Data Net income $ 2,993 $ 1,364 S 308 $ 1,237 Earnings per common share(1) S.46 S.21 $.05 $.20 (unaudited) 1983 Net revenues $29,764 $26,074 $27,639 $32,627 Net income $ 2,647 S 1,100 S 1,024 $ 1,209 Earnings per common share(2) $.50 $.19 S.16 S.19 (1)Because of the purchase of 552,900 shares of treasury stock in 1984,the earnings per common share amounts for the quarters in 1984 do not equal$.93 earnings per weighted average common share outstanding for the entire year,as reflected in the consolidated statements of income. (2)Because of the issuance of the 1,250,000 shares of common stock in May 1983,the earnings per common share amounts for the quarters in 1983 do not equal the$1.00 earnings per weighted average common share outstanding for the entire year,as reflected in the consolidated statements of income. REPORT OF INDEPENDENT ACCOUNTANTS We have examined the consolidated state- present fairly the financial position of the Board ments of financial position of BASIC Basic American Medical,Inc.and sub Tb- AMERICAN MEDICAL,INC.(an Indiana sidiaries as of December 31,1984 and 1983, Of Directors corporation)and subsidiaries as of De- and the results of their operations and the cember 31,1984 and 1983,and the related changes in their financial position for each and Shareholder consolidated statements of income, of the three years in the period ended shareholders'equity and changes in December 31,1984,in conformity with gen- Of Basic financial position for each of the three erally accepted accounting principles years in the period ended December 31, applied on a consistent basis. American 1984.Our examinations were made in accordance with generally accepted audit- ingInc.:standards and,accordingly,included Medical, 1 such tests of the accounting records and such other auditing procedures as we con- Arthur Andersen&Co. sidered necessary in the circumstances. In our opinion,the consolidated Indianapolis,Indiana, financial statements referred to above March 1,1985. 33 s STOCK TRADING MMYMLWA 5-11--E-1INFORMATION The common stock of Basic American listed in the table are high and low bid prices, Medical,Inc.is traded in the over-the-counter which reflect inter-dealer prices,without retail market,and its price is quoted under the markup,mark-down or commission and may NASDAQ symbol BAMI.The following table not necessarily represent actual transactions. sets forth stock price information as regularly Beginning on February 14,1984,when the quoted in NASDAQ for each quarter since Company joined the NASDAQ National trading in the stock began on the date of the Market System,the prices listed are high Company's initial public offering,May 19, and low sale prices. 1983.Prior to February 14,1984,the prices Stock Price 1984 1983 High Low High Low First Quarter $13.38 $9.00 — — Second Quarter(from May 19 in 1983) 11.13 8.25 $17.50 $13.25 Third Quarter 10.50 8.00 17.75 12.50 Fourth Quarter 9.63 7.00 16.88 9.38 There were approximately 773 holders of record of the Company's common stock as of February 8,4985. The Company declared a cash dividend on by the Board of Directors in light of condi- its common stock of$.25 per share or an tions then existing,including the Com- aggregate of$1,314,896 on February 17,1983. pany's earnings,financial condition,capital The Board of Directors presently antici- requirements and other factors.These pates that no further cash dividends will factors include restrictions on dividend be paid in the foreseeable future.Instead, payments by terms of various loan agree- all available funds will be retained for rein- ments to which some of the Company's vestment in the business operations of the subsidiaries are parties. See page 28 of Company.The declaration and payment of this report for further discussion. dividends in the future will be determined OPERATING UNITS/ SUBSIDIARIES Health Air-O-Tronic Incorporated Charlotte Community Hospital,Inc. Winter Springs,Florida d/b/a Rehabilitative Health Services,Inc. Services B&W Diagnostics,Inc. Indianapolis,Indiana Chicago,Illinois F&E Community Developers of and Products Basic American Healthcare Florida,Inc. Management,Inc. Indianapolis,Indiana Indianapolis,Indiana Florida Medical Collection Services,Inc. Basic American Medical,Inc. Kissimmee,Florida d/b/a Medical Engineering,Inc. Health Care Management Corporation Fort Myers;Florida Columbus,Georgia Century Mortgage Corp. Healthcare Prescription Services,Inc. Indianapolis,Indiana Indianapolis,Indiana 34 Independent Living Communities RehabCare Corporation Indianapolis,Indiana St.Louis,Missouri Omni Manufacturing,Inc. United Health Care Services,Inc. Atlanta,Georgia Philadelphia,Pennsylvania Pulmonary Care Services,Inc. Atlanta,Georgia Alabama Georgia Henry County Hospital(L) Marion Memorial Hospital(L) Hospital Abbeville — 48 Beds Buena Vista — 30 Beds Georgiana Community Hospital(L) Tf rrell County Hospital(0) Georgiana — 22 Beds Dawson — 34 Beds Cleburne County Hospital(L) Fort Gaines-Clay County Hospital(0) Heflin — 30 Beds Fort Gaines — 35 Beds North Mobile Community Hospital(0) Wheeler County Hospital(0) Satsuma — 38 Beds Glenwood — 40 Beds Thomasville Hospital(0) Stewart-Webster Hospital(0) Thomasville — 49 Beds Richland — 32 Beds Wedowee Hospital(L) South Carolina Wedowee — 34 Beds Live Oaks Hospital(L) Florida Ridgeland — 31 Beds Fort Myers Community Hospital(0) Puerto Rico Fort Myers — 400 Beds Our Ladyof Guadalupe Kissimmee Memorial Hospital(0) Community Hospital(0) Kissimmee — 120 Beds San Juan — 246 Beds Charlotte Community Hospital(0) Port Charlotte — 254 Beds Alabama Georgia T 1Grm Henry County Nursing Home(L) Marion Memorial Nursing Home(L) 1J Abbeville — 60 Beds Buena Vista — 50 Beds Care Cleburne County Nursing Home(L) Fort Gaines-Clay County lJ Heflin — 40 Beds Nursing Home(0) Thomasville Nursing Home(M) Fort Gaines — 49 beds Thomasville — 50 Beds Arizona Indiana Retirement Colter Village Retirement Center(M) Wesley Manor,Inc.(M) Glendale — 105 Apartments, 186 Beds Frankfort — 227 apartments,115 beds, TiTrite,r Florida 24 single family homes,10 duplexes and LV111� Calusa Harbour Retirement Center(M) one sixplex Fort Myers — 253 Apartments,60 Beds New Jersey King's Row(M) Middletown — 128 Apartments Owned(0) Leased(L) Managed(M) 35 DIRECTORS AND -- . OFFICERS Directors man Jackson Gerald Laboda,D.D.S. Chairman Practicing Maxillofacial Surgeon Basic American Medical,Inc. R.Q.Richards,III Franklin L.Jackson President,Southwest Agri-Development Vice Chairman Specialists,Inc.,an affiliate of the Basic American Medical,Inc. Company Brady B.Justice,Jr. President Basic American Medical,Inc. Corporate man Jackson Bruce E.Smith Chairman of the Board Assistant Secretary Officers Franklin L.Jackson Partner,Stark Doninger Mernitz&Smith Vice Chairman of the Board Ronald Hicks Brady B.Justice,Jr. Treasurer President President and TI-easurer,Basic American Industries,Inc.,an affiliate of the Joe L.Scott Company Senior Vice President George W.Davis Robert D.West Assistant Treasurer Senior Vice President Treasurer,Standard Grocery Co.,Inc., Jay A.Jarrell an affiliate of the Company Vice President-Finance John G.Stark Secretary and General Counsel Senior Partner,Stark Doninger Mernitz&Smith 36 STOCKHOLDER INFORMATION Corporate Offices Stock Listing 4000 East Southport Road Basic American Medical,Inc.common P.0.Box 27249 stock is listed on the NASDAQ National Indianapolis,Indiana 46227 Market System(BAMI). (317)783-5461 10-K Transfer Agent A copy of the Company's Form 10-K(filed Merchants National Bank&Trust with the Securities and Exchange Com- Company of Indianapolis mission)is available upon request without Stock Transfer Department charge to any stockholder.Written requests P.0.Box 5035 should be addressed to the Investor and Indianapolis,Indiana 46255 Financial Public Relations Department at (317)267-7331 the corporate offices. Annual Meeting Inquiries The annual meeting of stockholders will Questions concerning stockholder accounts be held on Friday,April 26,1985 in may be addressed to our transfer agent, Indianapolis,Indiana. Merchants National Bank&Trust Company Independent Public Accountants of Indianapolis, Stock Transfer Department. Arthur Andersen&Co., Questions and requests for information Indianapolis,Indiana from stockholders,security analysts, General Counsel brokers,media members and the public Stark Doninger Mernitz&Smith, may be addressed to the Investor and Indianapolis,Indiana Financial Public Relations Department at the corporate offices. Design:DesignMark Inc. Photography:Spahr Photography,Inc. 4?� BASIC AMERICAN MEDICAL, INC. 4000 East Southport Road P.0.Box 27249 Indianapolis,Indiana 46227 (317)783-5461