• Point Analysis has been described in detail under "Contributions."
• The Point Analysis is the basis for the following three types of analysis:
  • Comparison (two or three Point Analyses)
  • Area (up to 1,000 point analyses, each done with origin at the centroid of a block group).
  • Multi-Unit Simulation (up to 1,000, incorporating an assessment of the price elasticity of demand for each of the facilities being taken over).
• Point Analyses can be the basis for a site feasibility study that reports out the key variables described under the Net Demand Model.
  • Supply, the number of competing beds at price and amenity point.
  • Demand, the number of beds of demand at price and amenity point.
  • Net Demand in beds at price and amenity point.
  • Break even
  • Maximum Initial Daily Rate (MIDR)
  • Price Elasticity of Demand is normally not considered in an Area Analysis, but is included in a Point Analysis and the Multi-Unit Simulation.

  Comparison Analyses are two or three Point Analyses which employ the following pattern:

• Beginning with survey research in the general area, follow the normal "link to data on the ground" method, establishing the appropriate travel time trace coefficients to use in the later steps.
• Once a value for the travel time coefficient(s) have been established, map the same trace(s) around each of the three sites. These traces are quantitative, 100% replicable, and form the basis for the comparison to follow. Without the ability to create these traces and the links to data on the ground, the entire process is impossible.
• Using normal Point Analysis methodology, compute
  • Supply, the number of competing beds at price and amenity point.
  • Demand, the number of beds of demand at price and amenity point.
  • Net Demand in beds at price and amenity point.
  • Break even
  • Maximum Initial Daily Rate (MIDR)
• Compare the MIDR for each site.
  • As explained in the introduction to the HighValue Slide Show, determine the difference in daily rate,
  • Multiply the difference by $250,000 (e.g., a $5.00 difference is $1.25mm).
  • This step establishes the relative values of the sites.
• If appropriate, "triangulate" against a known site.

  Area Analyses are simply up to 1,000 point studies conducted by a computer.

• The area is defined by the client. Assume the client wants to build an 80 bed facility at a daily rate of $95.00. Each resident will have a private room with a private bath (complex mixes of types of offerings must await a later step involving experience and judgment. At this point the process is simply to "do the drill")
• Usual field work is conducted within the defined area to determine the supply of competing facilities and the interviews to determine the values of the "link to data on the ground."
• A preliminary trace is run around the outside of the defined area to identify what facilities on the outside of the area need to be mapped and investigated.
• The computer program selects a beginning block group and identifies its centroid. The centroid is used as an imaginary "site."
• A point study is conducted:
  • a travel time trace is thrown out from the "site"
  • Supply within the travel time trace is evaluated and stored
  • Demographic Demand within the trace is computed.
  • Net Demand is computed.
• The block group is then colored blue if Net Demand is 80 beds or over, colored red if less than zero, and some intermediate colors if in between.
• The process, after setup, usually runs about 24 hours on a fast computer.
• The result is the red and blue "quilt" already shown in the slide shows.
• A list of each of the block groups is made and then sorted by Net Demand at the $95 per day figure.
• The client now knows which areas to avoid (red) and has a list, by Net Demand, which lists where to start to seek a site and when to stop.
• A Comparison analysis is then used to sort out the finalists.
  
  
  

   Multi-Unit Simulations:   

• Multi-Unit Simulations cannot be described as easily as the other analyses because each one is different. What follows is only a taste of the process. Again, each one is different.
• Who should use them. We do not even suggest that such an analysis be done for a client who has not developed comfort with and respect for comparison and area analyses.
• "Once off." This type of analysis is "once off" and specific to the client and the situation. It is not a trivial operation, and it requires considerable effort from many people.
• "Client Driven" After an initial report, the client initiates the scenarios that are tested in the simulation and the client selects among the alternatives that come out of the simulation for the next step. Our role is to tame the sophisticated applications so the client can ask questions and get answers without worrying about technological overhead. This process can be conducted securely over the internet.
• Suitable situations for the employment of a Multi-Unit Simulation might include a
  • ten-facility takeover or workout
  • in a field of perhaps 100 competing facilities
  • spread over several counties.
• "Cash flows baseline"
  • One continuing feature is a "cash flows baseline" that tracks investment in and cash out. Thus, one has an easy "meter" to look at when evaluating alternatives.
  • Depending on the client's preferences, the "meter" can be set up to show either the
    • net discounted present value of the investment
    • or the internal rate of return.
• The initial steps include a preliminary analysis of what exists:
  • Demographic analysis of the field in which all the transactions take place. See the demographic section of "who we are."
  • GIS system mapping of all roads, boundaries, and places necessary for the simulation are put in place.
  • Data are acquired and laid down in the GIS system. If special data are required by the Demographic Analysis, they are purchased from Census and laid down in the computer. (An example of these special data might be information about whether or not an informal caregiver (usually a spouse) is living in the household.)
  • Point Studies on each Facility to determine
    • Net Demand
    • MDIR
    • Price Elasticity of Demand
    • Break even (from an operational analysis)
  • Comparison Studies on selected facilities to determine demand model triangulation
  • Modified Area Analysis to determine how each facility fits into the matrix of Demographic Demand and the Supply of competing facilities.
  • From this preliminary analysis, the "underperformers" and the (a much less likely event) "overperformers" can be identified.
    • "Underperformers" fall into two categories: (1) facilities with a net demand at price point that is higher than what is currently realized (this information is unique to our analysis) and (2) those with excessive variable costs (a normal part of any takeover or workout). Analysis is appropriate to figure out why. This process is typical: both operational experience and analytic experience are necessary, as is client involvement.
      • The first places to look are adjustments that do not involve major capital costs:
        • Management.
        • Marketing
      • Then, in the few cases that management and marketing adjustments do not offer solutions, capital-intensive changes are considered.
        • Physical Improvements
        • Sell the facility
        • Don't acquire the chain
      • Each of these is reduced to entries on the cash flows baseline (see above). Different adjustments or combinations of adjustments can be played out in the simulation to see the effect on the return of the investment.
    • "On Track" are those facilities which are operating at or close to net demand at price point and which have costs within acceptable margins. These facilities are left alone at the preliminary stage, but are examined in later stages to see if their contribution to the investment can be improved by any of the adjustments just discussed.
    • "Overperformers" are those facilities which either:
      
      (1) Operate above net demand. Fiscal Associates' test is to triangulate with other facilities to determine if the Net Demand effect is real and not an artifact of the demand model (such tests are standard in all cases and this test is additional; see discussion of triangulation above).
      
      (2) Have costs too good to be believed. Normal due diligence should identify why the costs are better than might be believed.
      
      
• Example: consider an alternative like changing pricing for a facility:
  • First, the MDIR needs to be tested; if sufficient slack in the Net Demand exists, then the price elasticity of demand will indicate what results to anticipate for the proposed change. In some cases, the simulation should be re-run several times with differing assumptions to identify inputs for later steps, described below.
    
    
  • Second, determine if it is reasonable to increase pricing without capital improvements. If so,
    • Run the simulation to determine what pricing is possible.
    • Posted to the "cash baseline," described above. This will show up on the baseline as a zero cost, additional income in the years leading up to sale, and will increase the value at sale by the stream of additional cash flows, capitalized at a conservative figure like 13%.
      
      
  • Third, if capital improvement is necessary to increase the daily rate,
    • Run the simulation to provide the client with an indifference plot of price increase vs. capital cost.
    • The client will choose values for each and the simulation will be run again.
    • On the "cash baseline," the cost of the upgrade is an outlay and the price increase is income which increases the capitalized value at sale as described above; each will be automatically be posted to the "cash baseline," described above.
      
      
  • Fourth, incorporate the decisions tested in the simulation. The decisions taken by the client for this and other similar issues now become part of the simulation and can be adjusted later as bidding and/or negotiations provide information.
• Later steps:
  • The simulation is refined to incorporate information determined in the due diligence process and in all the steps above.
  • The simulation is routinized as soon as possible so that the client can have easy access to the simulation. Internet access to the system and a contact person allow the client to run the simulation with various changes to assumptions without involving high level staff from Fiscal Associates. These changes are appropriate to keep the simulation in touch with reality. After the first year, for a modest maintenance fee, the simulation can be kept on line for periodic consultation and update over the years up until the chain is sold.