WRO Medical Support Center proposal on construction project

 

 

WROMSC_WRO Medical Support Center

 

Table of Contents

 

Executive Summary and Finance Application

 

1.0. Introduction

1.1. Healthcare in Evolution

1.2. Vision and Mission Statement

1.3. Background Information

1.4. The WROMSC Project

2.0. Structure and Approach

2.1. Organization

2.2. Departments

2.3. Scope of the Project

2.4. Human Resources

2.5. The Creation of New Facility

3.0. Site Details and Plans

3.1. WROMSC Site Details

3.2. Project/Facility Design and Construction

3.3. Construction Schedule and Budget

4.0. Planning for Services

4.1. Guiding Principles for Patient Services

4.2. Services to Patients and Research

4.3. Next Steps in the Planning Process

5.0. Project Financials

5.1. Budget Assumptions

5.2. Revenue Assumptions

5.3. Operating Expenses

5.4. Cash Flow and NPV Analysis

 

 

5.0. Project Financial

 

5.1. Budget Assumptions

 

● US $1,00 = 1,200 Korean Won(Used throughout this Business Plan).

 

● Area of construction is per architect's area table except penthouses of 960m2(480 m2 x 2 Buildings) on the top of two buildings.

Total lot area is 10,780.9 m2 including the north side of purchasable site area and building area is 3,970 m2(building coverage : 36.8%).

Gross Floor Area(G.F.A) is 86,691 m2 with Floor Area Ratio, 258.4% (above-ground).

 

 

The usage of new hospital in the architect's area table is totaled 37 clinical departments and 750 beds in the 18-level building.

 

(Usage)

(Building "A"-South)

B.1 to B.7 Basement

26,577.0 m2

1st to 11thFloor Area.

13,928.5 m2

Parking, Mech/Elect. & Control Rooms, X-Ray, Treatment Rooms, and Funeral, etc. Medical Exam, Information, Reception, Administration, Pharmacy, Emergency Care, Departments, Delivery/Neonate Rm., Dental, O.R., Clinical Pathology, Other Treatment, Cafeteria, Kitchen, Store,

Other support, Meeting/Presentation Rm., Roof Garden,etc.

(Building"B"-North)

B.1 to B.7 Basement 32,257.0 m2

1st to 11stFloor Area. 13,928.5 m2

 

Total 86,691.0 m2("A : and "B", 37 Clinical Departments and total 750 beds).

 

● Cost estimate(See Section 3.2. Project/Facility Design and Construction, Page 3.0-17) has been sought from architect's office.

 

Building Work 86,691 m2 @ $1,260.42

$109,267,000

Civil & Other Works lump sum

$21,850,000

Total Direct Construction Costs

$131,117,000

 

The budget allowance has accordingly set at $1,200.40/m2 with a 5% contingency($1,260.42 m2).

 

 

Development Costs Budget

 

 

Construction, Fit-out & M&E, Landscape

US $

Site Preparation & Civil Works

lump sum incl. demolition

14,059,000

Building Works

86,691 m2 @ $1,260.42

109,267,000

(Mechanical &Electrical Facil.)

incl.(lump sum)

(32,770,000)

Landscaping

10,780.9 @ $39.00

421,000

Medical Gas Facility

lump sum

1,300,000

Misc. Works and Facility

lump sum

6,070,000

Total Construction Costs(Direct)

131,117,000

 

 

 

Other Facility

US $

Medical Equipment

AppendixⅢ

112,500,000

Furnishings, fixtures, and Cars

750 beds @ $1,678

1,258,500

Computers and Information Sys

750 beds @ $1,214

910,500

Total Facility Costs (Direct)

114,669,000

 

 

 

Architect, Consultants, Management and Other

US $

Design, Permits, Project Mgt

lump sum

4,370,000

Legal, Insurance, Title, Admin

lump sum

3,930,000

Pre-opening Expenses 550,000(Mgt.)+$480,000(Salary)

1,030,000

Total Other Costs (Indirect)

9,330,000

 

Grand Total Development Costs(excl.Land and Finance) $225,116,000

 

 

Loan Required and Equity Considerations

 

Project Budget

US $

Development Costs

255,116,000

Purchase of additional land at agreed price

7,400,000

Finance arrangement fees and costs

5,490,000

Total Project Budget

268,006,000

Rounded to Loan Facility of

$268,000,000

 

 

Equity Considerations

 

Valuation of Property

US $

The valuation covers proposed land and building in the amount of 22,830,000,000 Won. The converted value is :

19.025,000

The existing medical equipment, furnishings & fixtures are

10,000,000

(Future Value of the Land after development, in the amount of 32,612,200,000 Won. The value is $27,176,800)

-

Net Equity Value

29,025,000

 

 

Total Project Value

US $

Net Equity in land

29,025,000

(Domestic Investment and owner's equity)

Loan Required and Proposed

268,000,000

Total Project Value (356,430,000,000 Won)

297,025,000

 

 

           Project Funding Draw-Down Schedule

 

Project development Period/Description

Draw-down

Balance

Month 1. land 7,400,000, other 4,370,000, legal.

31,559,000

31,559,000

Month 3. 3,930,000, and const. 15,859,000

0

31,559,000

Month 5. other 5,490,000 and const.

30,562,000

62,121,000

Month 7. 25,072,000

0

62,121,000

Month 9. -

0

62,121,000

Month 11. other 1,000,000 and const.

27,749,000

89,870,000

Month 13. 26,749,000

0

89,870,000

Month 15. -

0

89,870,000

Month 17. other 1,169,000, equip. 28,000,000

64,039,000

153,909,000

Month 19. and const. 34,870,000.

0

153,909,000

Month 21. equip. 28,000,000

28,000,000

181,909,000

Month 23. const. 28,567,000 and equip.

56,767,000

238,676,000

Month 25. 28,200,000

0

238,676,000

Month 27. equip. 28,2994,000 and expense 1,030,000

29,324,000

268,000,000

Accumulated Total Draw-down and Balance

268,000,000

268,000,000

 

 

Using these core assumptions, and variations upon them, we have developed financing scenarios ranging from the most conservative to the most optimistic. However, assurance must be received from the lenders that operational savings could be applied to mortgage repayment, as we are confident that the saving derived from consolidating our activities in new and functional facilities will generate the amount required. This financing strategy will acquire more precision as we proceed with the next steps of planning. As we progress through functional and technical programming for the facility, our understanding of the costs involve will become clearer.

 

 

5.2. Revenue Assumption

 

2000's statistical data as shown in AppendixⅡ was based on forecasting revenues for next 20 years as follows :

 

Assumptions from Daily Census per 100 Beds(25% & 15% leverage)

 

* Outpatient Visits(Daily) : 201.1 x 750/100 x 1.25=1,885 OP Visits

 

* Inpatient Days(Daily) : 76.4 x 750/100=659 Days

 

Average Charge per Patient(No leverage)

 

* Outpatient Visits : US $ 24.01 (28,814 Won) Refer to AppendixⅡ.

 

* Inpatient Day : US $ 87.12 (104,531 Won) Refer to AppendixⅡ.

 

Key Assumptions for Revenue

 

Average Charges(Assumptions-No Leverage)

 

- per Outpatient Visit : US $ 24.00 (28,800 Won)

 

- per Inpatient Days : US $ 87.00 (104,400 Won)

 

Income Projections (Assumptions)

 

Based on the size identified previously, and Outpatient and Inpatient revenues much less than the average of Metropolitan Hospitals for the first and second years, the WROMSC is expected to generate between $27 million and $85 million in gross operating annual revenues over the next nineteen years. The Outpatient Visits are considered to become stable 2, 190 daily numbers from Year5(2009) to Year20(2024), but average 5% of inflation rates is adopted in the charges from Year5 continuously. The Inpatient Days are expected 540 and 720 for the first and second year of operation respectively. From Year5, 5% inflation rate on the charges are allowed. For the Other Net Incomes, meal services for 500 staff are $122,900 and $134,000 in Year2-5. Lease for funeral services area generates $157,600, $175,800, and $197,000 in Year2-5, and directly operating stores will make $109,200 annually from Year2 to Year5. Revenues from all kinds of certificate fees are estimated around 0.2% of total patient revenue, which will be $49,800, $59,900, $67,500, $74,300 and $78,000 in the following tables.

 

5.3. Operating Expenses

 

Expenses

 

Material costs are included drugs, medical supplies, food, and medical expendables, and were based on percentages of patient revenues sourced from Ministry of Health and Welfare & Korea Health Industry Development Institute. Total material costs were estimated as 32% of total patient revenue(income) in the Income Projections. Also, based on statistics in AppendixⅡ, drugs(66.4%), medical supplies(14.1%), foods(7.9%) and medical expendables(11.6%) are classified as shown in the following Operating Expenses(Projections). Manpower costs, that are comprised of salaries and payroll costs for physicians, nurses, pharmacists, technicians, clerk and engineers, night duties, and retirement allowance, are estimated as follows:

 

 

Year

Headcount

Average Salary

Salary Total

2006

500

500×$917×12months

$5,502,000

2007

550

500×$963×12months

$6,355,800

2008

550

500×$1,010×12months

$6,666,000

2009

550

500×$1,060×12months

$6,996,000

 

Night Duties ($14.17×30days×12months) and H/C 112 for 750 Beds.

 

 

Year

2006

2007

2008

2009

Headcount

40,300

44,300

48,300

52,200

Total Amount

$571,100

$659,100

$754,600

$856,300

 

Retirement allowances is 10% of total salaries and payroll costs including night duties and other allowances.

 

 

Year

2005

2007

2008

2009

Retirement allowances

$607,300

$701,500

$742,100

$785,200

 

Total salaries and payroll costs are as depicted in the following tables.

 

 

Administrative

 

There are various account such as fringe benefits, power utilities, stationeries & expendables, depreciation & reserve, repair/maintenance out-sourcing, and others, in the administrative expense accounts. This reflects on average 14% of total patient revenues, and it is estimated as 12 to 14.66% increased by about 1% yearly from 2006 to 2009 shown in Operating Expenses Projection.

 

Annual Inflation

 

Income and Expenses have been inflated at 5% a year from 2006 or 2007, but there are no inflation until the WROMSC utilization will reach stabilization in 2009/10. These inflation levels are taken from Trends in the Hospital Management, 1998, KHDI.

 

Summary of Pro Forma Planning Factors

 

Based on the above performance assumption, the planning factor for total annual revenues would range over $27 million in the initial year and steadily climb to over $85 million after 20 years. The pro forma analysis in this section that these performance levels would justify an intial investment of cost of approximately $268 million not including land. These estimate should be considered initial planning factors, pending actual development cost estimates based on a specific design.

 

Loan Payment Schedule

 

The total loan required is $268,000,000 over years, with a five year grace period on principal repayment, as utilization of funds is mentioned earlier.

 

Loan payment schedule is in Cash Flow Analysis :

 

Annual Interest Rate(%) 5

 

Monthly Interest Rate 0.004166666

 

Loan Amount $268,000,000

 

Term(year)w/Grace period, 5yr. 20

 

 

Year

Principal

Interest

Balance

1-5

0

See Page16/17

268,000,000

6-20

See Page18/20

See Page18/20

See Page18/20

 

 

5.4. Cash Flow and NPV Analysis

 

In order to properly evaluate whether or not to accept or reject the investment, the Net Present Value method was utilized.

The NPV technique simply compares the present value of the incomes generated by the property to the cost of development or acquisition cost. The rules below illustrated how the NPV method is used to screen and evaluate potential investment opportunities :

 

Net Present Value(NPV)=Present Value of Cash Flow-Investment Outlay

If NPV>=0(Value of Project is greater than or equivalent to Cost)

 

Then, investment should be accepted.

 

If NPV<0(Value of Project is less than Cost)

Then, investment should not be accepted.

 

As displayed on the following pages, the cash flow generated by the project yields a value of $16.8 million compared to a cost $14.2 million.

Given these values, the Project is capable of generating sufficient cash flow to warrant the investment or loan.

 

 

Discount Cash Flow Analysis

Discount Rate

10.00%

Year of Discounted Cash Flow

Operating Income

Present Worth Factor

Present Worth

Year1

-

.909091

0

Year2

$26,626,600

.826446

$22,005,447

~

~

~

~

Year15

$66,018,300

.239392

$15,804,253

~

~

~

~

Year20

$84,113.3

.148644

$12,502,937

Sum of 20 Years Cash Flow: NPV $402,840,616.

 

 

Calculation of the IRR is based on the pre-tax investment and returns in each of the years during the investment's projected lifetime.