THE SENIOR LIVING INDUSTRY AND CAPITAL MARKETS TODAY AND TOMORROW

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The Senior Living Industry

& Capital MarketsToday & Tomorrow

February 25, 2015

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WELCOME

Moderator

William Sims, Managing Principal, HJ Sims

Panel

Aaron Rulnick, Managing Principal, HJ Sims

Jeffrey Sands, Managing Principal / General Counsel, HJ Sims

Anthony Luzzi, President, Sims Mortgage Funding

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Opening

• 80th Birthday Video

• 2014 Highlights

• Marketing Senior Living Communities With Income Investing

• 2015 Outlook and Upcoming Sessions

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2014 Highlights

• Maximizing Retail Distribution

• Bringing Creativity to Your Financings

• Utilizing Our Board and Ownership Perspectives

• Providing Sage Advice and Aggressive Execution

FINANCED RIGHT IN ACTION

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Maximizing Retail Participation

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• How it helps clients− Lower cost of capital− Higher loan to cost− Structure and covenant flexibility

• How it helps investors− Liquidity for institutional investors− Liquidity for private placement investors

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Execute marketing strategies on a national and local scale

Develop marketing vehicles that reach the targeted

investor group

Determine investor audience for the bond issuance

(retail & institutional)


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Marketing Vehicle How it is used

Brochure • Provides extensive detail about the offering and Community

Postcard for an Event • Details about an onsite event that promote the investment opportunity• Used for targeted retail investors to bring them to the site

Print Campaign • Advertisements for the investment placed in local, regional and national print media• Advertisements can be adjusted for digital media opportunities

Online Presence • Creation of a new website just for the bond issuance • All email and digital advertising are directed to this site• Can be linked via other websites including HJ Sims and client website


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Marketing Vehicle How it is used

Email • Access to current HJ Sims clients & prospects• Create email advertisements for potential local contacts

Direct Mail • Tool to be used with the client to reach a targeted group of residents and impact investors

Seminar Event • Target Audience includes HJ Sims clients, potential residents, friends of the client• Invitation is sent 2 weeks prior via email or direct mail• Event materials will include the Brochure, the Preliminary Offering Statement and a Response Card


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Maximizing Retail ParticipationCase Study:

The following is an overview of a recent Marketing Plan for the Sinai Residences of Boca Raton:

• Construction of a new CCRC located in Palm Beach County, Florida in association with the Jewish Federation of South Palm Beach County

• $213.8 million of new issue tax-exempt, non-rated bonds • Combination of long-term fixed-rate bonds and entrance fee

principal redemption bonds• The Investor Audience consisted of:

− Institutional Buyers including mutual funds and insurance companies

− Individual Investors: HJ Sims existing clients Members and associates of the Jewish Federation of

South Palm Beach County Jewish community outside of Palm Beach County and the

Jewish Federation

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Brochure Sample

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Groundbreaking Postcard

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hjsims.com/sinai

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Branded Print Ads

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Maximizing Retail ParticipationResults:

The following were the results of the comprehensive marketing plan for the Sinai Residences of Boca Raton:

• Over 200 phone inquiries from the print ads• 130 leads assigned to HJ Sims Income Advisors• 80+ attendees at the Investor Seminar Event• Over 1,000 unique page views to the website:

− Average time spent on the site was over 10 minutes− 21% of the visitors downloaded the brochure− 24% of the visitors downloaded the Preliminary Official

Statement• $76 million of bonds sold through HJ Sims Income Advisors• The balance of the bonds sold through 37 Institutional

Investors• Lowered annual debt service by $1,000,000

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Bringing Creativity to Your Financings

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• New products and services financed

− Draw-Down Bonds

− Maximizing HUD Proceeds

− Proprietary Ownership with Non-Profit Participation

− Geriatric Psychiatric Facility

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Draw-Down BondsRiverview Senior Resort

• $29,365,000 financing for start-up rental

• $24,910,000 first mortgage bonds

• $4,455,000 subordinate bonds

• $4,310,000 equity plus liquidity support

• Land also contributed

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− Sold to institutional investor

− Draw-down feature saved .61% or 61 basis

points on interest

− First draw = $630,000

− 7 year call feature

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• $4,455,000 subordinate debt

− Sold by Sims to its retail clients

− 25 year maturity

− 10 year fixed rate

− 3 year call feature

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• Background

− 126 unit elderly project located in Center City

− Built in 1985; financed under HUD Section 202 Direct Loan program

− 100% subsidized with Section 8 Housing Assistance Payment (HAP) Contract

− Owned/Sponsored by local not-for-profit

− Sister facility across the street financed by HUD Section 202/811 PRAC program

Maximizing HUD ProceedsScottish Rite House, Philadelphia, PA

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• Challenges

− Building needed capital improvements that could not be financed through annual cap ex

− Sister facility also needed capital improvements but had no viable options for funding

− HUD’s refinance options for Section 202 properties was in “state of flux” creating uncertainty about what would be the best option to refinance


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• SMF Approach

− Identify solution based not on “either-or” but “both of” owner’s goals

− Analyze correctly HUD’s “conflicting” refinance guidelines to ensure financing approach would be approved

− Develop application for refinance designed to meet owner’s dual objectives


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• The Results

− SMF originated $9,586,700 loan insured under Section 223(f) program

− Transaction processed under MAP guidelines and approved in 71 days

− Loan proceeds used to:

• Prepay existing debt

• Fund $523,700 in Cap Ex reserves

• Fund $2,523,900 in Repair Escrow

• Fund $1,000,000 for sister facility

• Fund $1,438,000 for Developer Fee


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• How We Pulled It Off

− Careful analysis of HUD’s evolving guidelines to ensure success

− Close cooperation with appraiser establishing proper valuation

− Constant dialogue with HUD staff regarding extra loan proceeds

− Coordination with Sponsor, Mortgagor, Management Agent and Contractor


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Proprietary Ownership With Non-Profit Participation

The Springs of South Biscayne

• New rental community

− On Church campus

− Owned by a proprietary corporation

− Share of operating profits to Church

− Church may serve and minister to senior living

community’s residents and staff

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• $24,500,000 financing for start-up rental

• $21,800,000 first mortgage


• $5,600,000 equity plus liquidity support



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− Draw-down bonds


− 6¾ year call feature

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− 6¾ year fixed rate

− 6¾ year call feature

− Sold by Sims to its retail clients

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Geriatric Psychiatric Facility

• Sims financed a new transitional care and geriatric psychiatric facility for VOA Rehabilitation Center, a subordinate affiliate of Volunteers of America National Services

• Geriatric Psychiatric

− Patients = 65+− Required research by Sims and

communication of new service to investors

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Geriatric Psychiatric Facility

• Best research available = Demand of 0.5 beds per 1,000 population aged 55+

• No Medicaid

• 80% Medicare – $900/day

• 10% Managed Care – $500/day

• 8% Commercial Insurance – $500/day

• 2% Private Pay

• Hospital license but skilled nursing home

staffing

• Substantial savings to payers drives demand

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Utilizing Our Board and Ownership Perspectives

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• Ability to visualize how Board members will react to various proposals and how to respond to their concerns

− As Board members, what questions would we ask?

− As Board members, where would we see the risks and opportunities?

− As Board members, would we agree that the proposed recommendations are furthering the mission and strategic plan of the organization?

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Conservative and Aggressive

• In your shoes

− We understand many of the wide variety of issues you face

− Better able to communicate your views to multiple parties

− Better able to craft financial solutions to put your organization in the best possible position

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• Ownership activities are through a Sims’ affiliate, HJ Sims Investments (“HJSI”)

• HJSI raises capital through private placements sold to “accredited investors”

• Investments are either preferred equity or mezzanine debt

• 103 deals placed in last 12 years with a par amount of $514 million

• Currently HJSI has $234 million invested in 43 separate investment ventures

• Current investment portfolio includes 108 properties worth over $1.5 billion

• HJSI currently owns over 1,325 units of senior housing outright

• HJSI oversees all of its investments and operates through 3rd party management all of the units it owns

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• Advantages to clients and investors

− Keeps us tuned into the day to day issues facing our clients

− Allows us to provide real advice to our clients

− Helps us to better analyze and underwrite transactions

− Helps us understand the real time needs of our clients when structuring deals

− Allows us to spot problems early and help owners solve them

− Provides us with on-the-ground expertise to advise on issues

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Sims Invests $4.35 Million of Equity For the Acquisition of 57-unit Assisted Living Community in Carmel, California

Background

• Distressed project which was in default on its HUD debt

• Seller was under pressure from HUD to divest but was resisting

• Sims was approached by the Freshwater Group and Watermark Management to assist in an acquisition strategy

Challenges

• Many broken pieces – Sims needed to underwrite Watermark’s new business plan which was a radical departure from the current operating model

• Because of default situation, any participant (including Sims) needed to be acceptable to HUD and meet HUD borrower requirements

• Needed to accommodate the interests of the Seller who wished to remain as a minority partner in the deal

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Results

• Sims position as an approved HUD borrower put it in a unique position to participant in the deal

• Because we have owned and operated communities like Carmel, we became actively engaged in shaping the turnaround plan and were able to successfully underwrite Watermark’s ultimate business plan.

• Even after the closing, we continue to try to be a “value added” partner.

• Successfully utilized preferred equity to meet HUD’s limiting parameters

• Worked collaboratively to establish a structure that allowed the Seller to share in some “upside” if the deal meets certain performance goals.


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Providing Sage Advice and Aggressive Execution

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• “The best thing about Sims is not that their relationships with banks and bond institutions guarantee that you will get the best possible terms and rates, nor that their fees are competitive. The best thing about Sims is having the absolute confidence that the advice they give follows only one mandate…What is best for the client.”

— Neil Volder, CEO/Executive Director, Harbor’s Edge

• Financed Right

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• Harbor’s Edge

− High-rise CCRC in Norfolk,VA

• 163 IL apartments; 33 AL; 17 memory support; 33 SNF

• Considering $100+ million expansion

Funded $6.5 million of pre-development capital with proceeds from $56.06 million refinancing/new money bond issue in December 2015

» Key Considerations

• Minimize cost of capital

• Eliminate refinancing risk

• Maximize alternative use if no Phase II


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• Harbor’s Edge

− Reviewed and commented on third party market study to verify preliminarydevelopment plan

Pricing considerations

» Views

» Housing values

» Income considerations

» Affordability

− Healthcare repositioning

» Scope

» Delivery model

» Competition


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•Chapin Home for the Aging, Queens, NY

− Background

Skilled nursing facility containing 220 beds

Client of Sims since early 90s

First HUD-insured loan closed in 1991; refinancing in 2004

Owned/operated by a local not-for-profit established in 1860s


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• Chapin Home for the Aging, Queens, NY− Challenges

Low interest rates and intense competition for HUD financing business created a “feeding frenzy” of solicitations by HUD lenders

Most – if not all – pitched a “standard” refinance transaction that did not take into account specifics of Department of Health requirements, Medicaid reimbursement and HUD guidelines

Client knew they might benefit from a refinance but did not know which option would produce the best results for them

HUD’s refinancing protocols through a note modification were evolving, also injecting some uncertainty into what would be the best option


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• Chapin Home for the Aging, Queens, NY

− SMF Approach

We took a closer look at current reimbursement structure with Chapin’s auditors and determined that Department of Health’s “typical rules” were not applicable

Once HUD’s position on note modifications were clarified, we made a careful analysis of best option: new loan versus note modification

Once that was determined, we reached out to current loan servicer/GNMA issuer to structure a working agreement on how to develop refinancing

This option reduced our revenue potential but was best deal for client since it would create the most debt service savings; and, it would result in them being exempt from several of HUD’s new requirements


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• Chapin Home for the Aging, Queens, NY

− The Results

Note modification proposal was approved by HUD in 13 days; closing followed 46 days later

Cash flow savings: $284,000 per year

Cost to complete refinancing: $80,000


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• Newbridge on the Charles

− $457 million original bond issue in 2007 backed by letters of credit from 7 banks (3 foreign banks)

− Start-up CCRC near Boston

− Opened during residential real estate recession

− Letter of credit due to expire in December 2014 with over $240 million outstanding


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− Advice

Improve cash flow through raising revenues and decreasing expenses

Increased cash flow resulted in higher appraisal

Appraisal also raised through limited collateral provided by Hebrew Senior Life, the sponsor


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− Execution

Letter of credit eliminated

10 banks purchase $244.5 million bonds, and one bank made a taxable $12.5 million term loan

Purchase amounts range from $12 million – $34 million

88% of bonds purchased at 3.29% for 5 years

Annual interest expense reduced by $1,200,000

Hebrew SeniorLife collateral should be released in 3 years


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2015 Outlook

Interest Rates

Senior Living

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2015 OutlookInterest Rates

Trend Isolated Effect on the Bond Market

Improving Economy Higher Interest Rates

Lower Unemployment Rate Higher Interest Rates

End of the Federal Reserve’s Quantitative Easing Program

Higher Interest Rates

Improving Consumer Psychology

Higher Interest Rates

Stronger Dollar Currency Lower Interest Rates

Low Labor Participation Rate Lower Interest Rates

Lower Economic Growth Outside of U.S.

Lower Interest Rates

Lower Commodity Prices Lower Interest Rates

Low Inflation Lower Interest Rates

European Union and Japanese Monetary Easing

Lower Interest Rates

Republican Majority – U.S. Senate

Not Sure

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2015 Outlook

• The advantages of investing in senior living bonds

− Sensible equity alternative

− Improving economy helps credit performance

− Maturity means principal repaid

− Keep income but shorten duration – credit risk vs. duration risk

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2015 Outlook

*Mid-market swap rates have been adjusted to a BBB Investment grade credit level. Rates displayed above are indicative only. For more accurate rates, please contact a Sims banker.

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2015 Outlook

• Technology

− Broadening relationships within your market

− Successful aging

− Revenue enhancements

− Staying at home becomes easier and more interesting

− “Broadening Senior Living Communities’ Appeal”

− “Positive Aging” – Dr. Jeste

− “Scientific Pricing” – Dr. Kuyumcu

Senior Living

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2015 Outlook

• More Recognition

− Population – 2nd and 3rd generations

− Investment community

− 17 x cash flow values – sub 6% capitalization rates

− “Evaluating Communities for Loans, Acquisitions and

Sales”

− “Integrating Innovative Financing Strategies”

Senior Living

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2015 Outlook

• Affordability

− Value matters

− “What to Do When Things Are Not Going So Well”

− “Maximizing Value and Efficiency in Our

Communities”

Senior Living

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2015 Outlook

“Let’s Hear From The Leaders”

Integrates All of the Concepts

Senior Living

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2015 Outlook

The First Baby Boomers Turn 75 in 2021 –

Six More Years to Go!

Senior Living

Documents

THE SENIOR LIVING INDUSTRY AND CAPITAL MARKETS TODAY AND TOMORROW