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B.C. Ziegler and Company | Member SIPC & FINRA
CHANGING TIMES FOR NOT-FOR-PROFIT LIFE PLAN COMMUNITIES: TRANSPARENCY, REGULATIONS, FINANCING
Rich ScanlonSenior Managing [email protected]. Petersburg, FL
Brandon PowellManaging [email protected], VA
PRESENTED BY
ZIEGLER INVESTMENT BANKING | SENIOR LIVING FINANCE
July 31, 2018
LEADINGAGE FLORIDA ANNUAL MEETING
2
ZIEGLER SENIOR LIVING FINANCE PRACTICEFINANCE TEAM FOR FLORIDA
TERRY M. HERNDONDirectorChicago, IL
BRANDON POWELLManaging DirectorRichmond, VA
MARK A. BAUMGARTNERChief Credit OfficerMilwaukee, WI
LISA MCCRACKENDirector, Senior Living Research & DevelopmentChicago, IL
RICHARD J. SCANLONSenior Managing DirectorSt. Petersburg, FL
REANAE SETHAssistant Vice PresidentChicago, IL
KEVIN STROMSenior Managing DirectorHead of Capital MarketsChicago, IL
DANIEL J. HERMANNPresident & CEOHead of Investment BankingChicago, IL
AMY CASTLEBERRYDirector,Credit Specialist Chicago, IL
SCOTT M. DETERMANDirectorInterest Rate ProductsChicago, IL
3
Ziegler’s 21st Annual Senior Living Finance + Strategy
ConferenceSept. 12 – 14, 2018 at
Hyatt Regency Hill Country Resort & Spa
San Antonio, Texas(F + S Conference will return to
Florida in 2019!!!)
The CFO Workshop SeriesSM, the Investor Workshop SeriesSM, and the Senior Living Finance + Strategy Conferences are designed to provide
cutting edge thinking and information to senior living executives, investors, capital markets’ participants and other industry professionals.
STRATEGIC AND INDUSTRY-FOCUSEDRESEARCH EDUCATION: YOU’RE INVITED!
4
• THE STATE OF LIFE PLAN COMMUNITIES
SECTION 1
• DISRUPTORS DEFINING THE “NEW NORMAL”
SECTION 2
• THE FINANCING ENVIRONMENT FOR LIFE PLAN COMMUNITIES
SECTION 3
AGENDA
SECTION 1The State of Life Plan Communities
6
THE STATE OF LIFE PLAN COMMUNITIES
Growth Defined
Competition
Consolidation
Occupancy
The Future- Redefining the LPC
7Sources: Ziegler National CCRC Listing & Profile, LeadingAge, NIC MAP® Data and Analysis Service, The National Center for Health Statistics, Centers for Medicare and Medicaid Services, Ziegler population estimates
TODAY’S RETIREMENT OPTIONSA LOOK AT SENIORS HOUSING & SERVICES SUPPLY
• 1,955 communities 600,000 unitsLife Plan Communities
• 4,800 centers 289 participants/dayAdult Day
• 12,000 communities 1 million residentsAffordable Housing
• 4,000 agencies 1.34 mill discharged/yr.Hospice
• 15,600 homes 1,400,000 units Nursing Homes
• 1,100 communities 53,000 unitsFreestanding Memory Care
• 20,250 communities 1million residentsAssisted Living/ Residential Care
• 12,600 agencies 4 million served/yr.Home Health
• 3,200 properties 725,000 unitsPrimarily IL Housing 3%
15%
17%
22%
24%
26%
33%
51%
79%
% NFP
8
NATIONAL LPC (CCRC) DATABASE....NFP AND FP PROVIDERS
CT - 28
DE - 12
MA - 31
NJ - 40
MD - 44
1,955 Total LPCs
18
36
132
11530
21
105
73
71
74 20
66
41
53
4
66
57
145
21
21
198
42
32
49
59
85
9
HI - 6
7
4 7
19
NH - 19
12
26
25
17
DC - 6
8
7
RI - 8
1
VT - 3
1 to 25
26 to 50
51 to 75
76 to 100
Over 100
None
Source: Ziegler Investment Banking as of 9/1/17
9
SYSTEM TRENDS 2017LZ 150 PUBLICATION: BACKGROUND AND METHODOLOGY
• Size not quality
• Not-for-profit multi-site senior living organizations primary focus
• Descriptive information on eachsystem– state, size (by type of unit),
classification of system, rating, accreditation, addition of 2nd
community.
• Statistics related to affiliation, employees, residents and more
• Excludes affordable units when computing size; excludes primarily acute/post-acute/health care systems
• Comparable to other listings of largest organizations (i.e., Fortune 500)
Source: Preliminary 2017 LeadingAge Ziegler 150 Publication (data as of 12/31/16)
10
FLORIDA PROVIDERS IN THE LZ 150
Source: Preliminary 2017 LeadingAge Ziegler 150 Publication (data as of 12/31/16)
2017
Ran
k
2016
Ran
k
Units(as of 12/31/16)
Communities(as of 12/31/16)
System Name State Total ILU ALU NCB Total LPC IL AL NH3 3 ACTS Retirement Services, Inc. 1 PA 7,862 5,529 901 1,432 21 21 0 0 0
11 9 Lifespace Communities, Inc. 1 IA 4,069 3,066 174 829 12 12 0 0 017 16 Westminster Communities of Florida FL 3,270 2,049 470 751 9 9 0 0 029 27 Shell Point Retirement Community FL 2,110 1,384 398 328 2 2 0 0 062 59 SantaFe Senior Living, Inc. FL 1,306 876 316 114 3 3 0 0 0142 148 Moorings Park FL 662 480 76 106 2 2 0 0 0
2017
R
ank Summary of Market Rate Units
(as of 12/31/16)
Campus State Total ILU ALU NCB % ILU %ALU %NCB7 John Knox Village of Florida, Inc. FL 938 719 64 155 76.7% 6.8% 16.5%
23 Miami Jewish Health Systems, Inc. FL 637 99 100 438 15.5% 15.7% 68.8%30 St. Joseph's John Knox Village FL 589 265 161 163 45.0% 27.3% 27.7%42 Fleet Landing FL 515 354 101 60 68.7% 19.6% 11.7%44 The Advent Christian Village FL 510 309 40 161 60.6% 7.8% 31.6%49 The Estates at Carpenters FL 493 372 49 72 75.5% 9.9% 14.6%55 St. Mark Village, Inc. FL 474 264 130 80 55.7% 27.4% 16.9%56 Cypress Cove at HealthPark Florida, Inc. FL 470 362 44 64 77.0% 9.4% 13.6%64 Waterman Village FL 454 257 77 120 56.6% 17.0% 26.4%
1 Acts (3) and Lifespace (11) operate 4 and 5 communities, respectively, in Florida.
11
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
1980 1985 1990 1995 2000 2005 2010 2015
Uni
ts
Year
ILU ALU NCB All Units
All other organizations pre-1980
National Senior Campuses
Ascension Senior Living
Benedictine Health System
Trinity Senior Living Communities
2017 LZ 150GROWTH: GROWTH OF LARGEST 100 SYSTEMS, COMBINED UNIT MIXFROM 1980 (EXCLUDES EVANGELICAL LUTHERAN GOOD SAMARITAN SOCIETY)
Source: 2017 LeadingAge Ziegler 100 Publication (data as of 12/31/16)
12
GROWTH AMONG NFPS DEFINED
•• Repositionings• Expansions• Affiliations• Satellite
Campuses• HCBS• Alliances &
Partnerships• Joint Ventures
• New full-service communitylocations
13
38.0%
71.5%
36.0%
76.5%
32.0%
75.2%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
New community locations (affiliationsor development)
Expansion or repositioning of existingcommunity
Percentage of LZ 150 who plan to grow through…
2017 2016 2015
GROWTH PLANS OVER THE NEXT TWO YEARS
Source: 2015, 2016 & 2017 LeadingAge Ziegler 150 Publications
Estimated 40% new locations
14
COMMUNITY EXPANSION & REPOSITIONINGS: TRENDS 2014-2017
Source: Ziegler Investment Banking (deals as of 7/31/17)
-Repositioning dated units-Conversion to private units*does not include those who downsized SN
-Carving out specialized memory care units-Largely in Assisted Living
-Adding IL units-Expanding amenities; investing in common areas-Repositioning dated ILUs
15
NON-LIFE PLAN COMMUNITY GROWTH
• There is an increase in providers developing satellite locations– Close proximity to a main campus– Generally smaller with fewer
amenities/services– Contractual relationship with main
campus– Relies on main campus for
leadership, governance– Can grow over time into
independent, full campus– Often will leave out skilled care from
the continuum
Source: 2017 LeadingAge Ziegler 150 Publication (data as of 12/31/16)
16
FOR-PROFIT COMPETITION BUILDING OUT MARKETS
• Growth among Florida for-profits has been significant
• Largely independent living, assisted living and
memory care
• Puts pressure on occupancy rates
• Can create oversupply in certain markets and impact
future growth opportunities for not-for-profit providers
17
SIGNIFICANT DEVELOPMENT ACTIVITY IN FLORIDAMID MARCH 2018- MID JULY 2018
• Since mid-March, more than 20 for-profit senior living communities have opened, been announced, or begun construction in Florida
• More than 3,000 new senior living units will come onto the Florida market– Largely independent living,
assisted living and memory care communities
– One new skilled nursing facility (Kendall, FL)
Source: Ziegler Investment Banking (7/19/18)
18
RECENT & PROPOSED FLORIDA NFP NEW CAMPUS LOCATIONS
Project Sponsor Location Year Opening
The Arlington of Naples Lutheran Life Communities Naples 2016
Sinai Residences of Boca Raton Jewish Federation of South Palm Beach County Boca Raton 2016
Village at the Lakes Miami Jewish Health Miami Lakes Expected 2020The Colonnade of Estero Volunteers of America Estero Expected 2020
Legacy Pointe at UCF University of Central Florida Winter Park Expected 2021
Lakeside at Waterman Village Waterman Communities Mt. Dora Expected 2021
19
FOR-PROFIT PROPERTIES WITH DEVELOPMENT BELOW RECENT HIGH
0
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Num
ber o
f Pro
pert
ies
With
Con
stru
ctio
n
Seniors Housing Construction by Profit Status; MAP314Q05 – 2Q18
Not-For-Profit
For-Profit
Source: NIC MAP® Data Service | www.nic.org/nic-map
20
NOT-FOR-PROFIT CONSTRUCTION AS PERCENT OF INVENTORY COMPARATIVELY FLAT
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Construction vs. Inventory; MAP31Seniors Housing | 4Q05 – 2Q18
For-Profit Independent Living*
For-Profit Assisted Living*
Not-for-Profits
Source: NIC MAP® Data Service | www.nic.org/nic-map
* Excludes CCRCs
21
SENIORS HOUSING GROWTHQ4 2014-Q4 2017
Source: NIC MAP® Data Service (12/31/17)
22
GROWTH THROUGH SPONSORSHIP TRANSITIONS
• Affiliations and acquisitions are on the rise – Often more efficient than organic
development– Fueled by changes in healthcare
market, increased competition– Drivers: Scale, market share,
sophistication, capital access, etc.– Opposites often attract
• Two smaller organizations – Stronger together
• Two Systems – Dominate market, control destiny
• Single-sites join larger system – “You’re my knight in shining armor . . .”
Spo
nsor
ship
Tr
ansi
tions
Affiliations
Acquisitions
Dispositions
23
DRIVERS FOR NFP SENIOR LIVING CONSOLIDATION
Complexities of Healthcare
1990 2000 2010
Infl
uenc
e
Leadership Turnover
Technology Demands
Diversify Service Lines
Hospital Consolidation
Ability to Attract & Retain Talent
Complexities of Healthcare
Leadership Turnover
Technology Demands
Diversify Service Lines
Hospital Consolidation
Ability to Attract Talent
Technology Demands
Hospital Consolidation
Ability to Attract Talent
Financial Pressure
Financial Pressure
Access to Capital
Access to Capital
Access to Capital
Financial Pressure
Leadership Turnover
Complexities of HealthcareAccess to Capital
Reinvestment Requirements
Reinvestment Requirements
Competition
Competition
Competition
TODAY
Growth Capital
Complexities of Healthcare
• Occupancy pressures
• Competition• Higher pt. acuity• Negative revenue
impact
Leadership Turnover
• As Boomer CEOs retire, can serve as catalyst to explore affiliation
• CEO recruitment challenge for smaller organizations
24
Source: Ziegler Investment Banking (Data through end of May, 2017)
198 to FP sector
• Free-standing SNFs
• Financially distressed CCRCs
NFP to NFP, 22.2%
NFP to FP, 60.9%
FP to NFP, 9.8%
Closure, 7.1%
FOR-PROFITS ACT QUICKLY
25
0
10,000
20,000
30,000
40,000
50,000
60,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Uni
ts
Year
MA Total - NSC Excluded NCampus Total - NSC Excluded
FROM 1990BY AFFILIATIONS, MERGERS & ACQUISITIONS AND NEW CAMPUS GROWTH
2017 LZ 150 GROWTH OF COMBINED UNIT MIX
Source: 2017 LeadingAge Ziegler 150 Publication (Data as of 12/31/16)
Projected Growth2017 -2019
Growth Attributed
to New Campuses
Growth Attributed to Affiliations, Mergers &
Acquisitions
26Note: Includes market-rate communities; excludes government subsidizedSource: Ziegler Investment Banking Q1 2018
NOT-FOR-PROFIT CHANGE OF OWNER/SPONSORAFFILIATIONS, DISPOSITIONS, ACQUISITIONS, CLOSURES
Fewer multi-site affiliations in 2017
>400 communities since 2010
27
ACTIVITY AMONG LEADINGAGE ZIEGLER 150 ORGANIZATIONS
• Ziegler is aware of 7 situations where LZ 150 organizations are exploring mergers Noted with LZ 150 rank
1. ELGSS (#2) & Sanford Health (N/A)- PUBLIC
2. Lifespace (#11) & Senior Quality Lifestyles Corporation (#36)- PUBLIC
3. Elim Care (#41) & Augustana Care (#30)- PUBLIC
4. Not public- national discussion
5. Not public- statewide discussion
6. Not public- regional discussion
7. Not public- regional discussion
• This reflects nearly 300 market-rate communities and 45,000 market rate units potentially in transition, the bulk of which are SNF’s in the ELGSS/Sanford situation
Source: Ziegler Investment Banking, 6/7/18
28
ACQUISITIONS BY NFPS ON THE RISE
• There has been an increase in the number of NFPs acquiring for-profit facilities/communities in recent years
– Assisted Living– Memory Care– Independent Living– Multi-level (non-Life Plan Community)
• NFP organizations who are financially strong and have cash to acquire– Opportunity to build-out acquired community– Ability to enter new markets
Source: Ziegler Investment Banking (9/1/17)
29
RECENT FLORIDA AFFILIATIONS
City Type Profit Status
Glenmoor - Westminster Communities St. Augustine CCRC NFP to NFP
Menorah Manor – Solera & ElcoProperties
Clearwater ALF NFP to FP
Heron House Assisted Living -Undisclosed
Largo ALF NFP to FP
St. Joseph’s John Knox Village –Concordia Lutheran
Tampa CCRC NFP to NFP
University Village Tampa CCRC NFP/FP to TBD
Source: Ziegler Investment Banking (July 2018)
Not-for-profit consolidation in Florida has been less significant than in other states and regions
30
NOT-FOR-PROFITS MAINTAIN HIGHER OCCUPANCY
83%
85%
87%
89%
91%
93%
95%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Seniors Housing Occupancy by Profit Status; MAP314Q05 – 2Q18
Not-For-Profit
For-Profit
Source: NIC MAP® Data Service | www.nic.org/nic-map
31
NOT-FOR-PROFIT CCRCS MAINTAIN HIGHER OCCUPANCY
83%
85%
87%
89%
91%
93%
95%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CCRC Occupancy by Profit Status; MAP314Q05 – 2Q18
Not-For-Profit
For-Profit
Source: NIC MAP® Data Service | www.nic.org/nic-map
Florida CCRC Occupancy (FP & NFP)
• Miami: 87.1%• Orlando: 90.5%• Tampa: 87.4%
32
ENTRANCE FEE AND RENTAL OCCUPANCY GAP TRENDING LOWER BUT REMAINS HIGH
Source: NIC MAP® Data Service (12/31/17)
33
REDEFINING THE LIFE PLAN COMMUNITY
• Branding, name changes- staying relevant for the future consumer
• Preparing for the Baby Boomers– They want choice (dining options; contract types; types of units)– Self-directed living and care– Transparency (pricing), involvement
• Focus on wellness, active and purposeful living
• Need to understand the impact of “Aging in Place” in IL/AL– Better aligns with consumer expectations for receiving services and aging in
their unit….but impacts business model of the continuum– Can also present challenges when marketing to a younger, vibrant Boomer (if
IL resembles AL in many ways)
SECTION 2Disruptors Defining the “New Normal”
35
KEY DISRUPTORS & CATALYSTS
• Workforce pressures– Overall shortages of staff– Wage pressures (minimum wage increases)– Growth in for-profit sector pulling more staff
• Continued growth in HCBS – Impacting the continuum business model– Enabling consumers to age-in-place more easily
• Skilled Nursing Pressures, Particularly Post-Acute– Labor pressures creating additional challenges– Occupancy at record lows
• Technology is a game-changer– Consumer-oriented– Staffing Solutions– Operational efficiencies
36
TOP CONCERNS AMONG SENIOR LIVING CFOS
4%8%
23%26%26%27%28%29%31%
36%46%47%
75%79%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Emergency PreparednessSuccession Planning
IL OccupancyChanging Consumer
CompetitionTechnology Costs & Adoption
Regulatory ChangesAffordability of product/services
Capital NeedsDeclining Reimbursement
Financial PerformanceSkilled Nursing/Post-Acute Pressures
Labor Costs (wages, benefits)Staff Recruitment & Retention
Top 5 Areas of Concern for 2018
Source: Ziegler CFO HotlineSM: 2018 Key Issues
37
STAFFING CHALLENGEWAGE PRESSURE• California transitioning minimum wage to $15/hour by 2022 if > 26 employees; in
some cases sooner; Berkeley will transition to $15/hour by 2018, San Jose by 2019
• Chicago going to $13/hour by 2019
• New York approved $15/hour for fast food workers
• Colorado passed Amendment 70 increasing minimum wage to $12/hour by 2020
• Florida minimum wage is $8.25/hour (current Federal Minimum Wage rate)
• Prompting senior living providers to assess their own entry-level rates.
Source: On Shift, Jan. 6, 2016http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx#Table
38
DEMAND FOR LABOR
Occupation Number of New Jobs (Projected) 2014-2024
2016 MedianPay
Personal Care Aides 458,100 $21,920
Registered Nurses 439,300 $68,450
Home health aides 348,400 $22,600
Combined food prep and serving workers
343,500 $19,440
Retail salespersons 314,200 $22,680
Nursing Assistants 262,000 $26,590
In a number of markets, staff earned income is insufficient to secure quality housing in a reasonable proximity to the community.
Source: US Bureau of Labor Statistics, 2016
39
WORKFORCE STATISTICS
• 74% of CNAs leave for jobs outside of the health care sector• Manufacturing• Retail
• Pressures being felt outside of healthcare positions as well
Source: 2017 Survey by Indiana Health Care Association/Indiana Center for Assisted Living
40
FLORIDA UNEMPLOYMENT FIGURES
Source: Bureau of Labor Statistics, May 2018
3.9%
391K
41
MARCH CFO HOTLINE -CEO RETIREMENT TRENDS
33.6%
28.5%
19.0%
18.9%
26.1%
41.5%
15.5%
16.9%
32.6%
40.3%
18.1%
9.0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Less than 5 years
5-10 years
11-15 years
More than 15 years
How many years do you estimate that your CEO has until retirement?
2018 2015 2013
Source: Ziegler CFO HotlineSM, March 2018
42
POST-ACUTE PRESSURES
• The nature of care for short-term rehabilitation is changing– Skipping skilled care, discharge to home– Higher acuity patient– Shorter lengths of stay– Narrowing of networks…are you in or out?
• Changing payment models impacting providers– Medicare Advantage– Bundles– ACOs
43Source: Ziegler CFO Hotline, August 2016 & August 2017
ZIEGLER CFO HOTLINE: POST-ACUTE ACTIVITIES
29.5%
33.3%
61.0%
74.3%
53.8%
56.6%
82.1%
83.5%
0% 20% 40% 60% 80% 100%
An increase in consumers with treatmentplans that skip skilled care altogether
Narrowing of networks from area hospitals,physicians groups
Patients with a higher level of acuity than inyears' past
Decreased length of stays in skilled care
Is your organization experiencing any of the following regarding your healthcare setting?
2017 2016
44
COST OF CARE – INCREASES FROM 2016
• Between 2016 and 2017, the cost for…– a private skilled nursing room
increased by 5.5% – Home health aide services
increased by 6.2%
• Genworth attributed the dramatic rising rates to…– Increased labor costs– Increased acuity of short-stay
patients (higher cost of care)
Source: 2017 Genworth Cost of Care Survey
2017 U.S.Median
Monthly Cost
2017 FloridaMedian
Monthly Cost
Assisted Living (private room)
$3,750 $3,100
Skilled Nursing (private room)
$8,121 $8,882
Skilled Nursing (semi-private room)
$7,148 $7,908
Home Health Aide $4,099 $3,813
Adult Day $1,517 $1,408
45
MEDICARE, PRIVATE PATIENT DAY MIX DECLINING
Source: National Investment Center for Seniors Housing; Skilled Nursing Data Report (March 2018)
46
MEDICAID, PRIVATE RPPD INCREASING SLOWLY
Source: National Investment Center for Seniors Housing; Skilled Nursing Data Report (March 2018)
Managed Medicare
Private
Medicaid
Medicare
47
NATIONAL SKILLED NURSING OCCUPANCY CONTINUING TO SET RECORD LOWS
• 5-Year occupancy low in 2017
• Reduced average length of stay– Managed care– Medicare bundles– ACA
• Increased reliance on home care and assisted living
• Dallas average skilled nursing stabilized occupancy for Q2-2018 was below the national average at 72.6%
81.7%
Source: National Investment Center for Seniors Housing; Skilled Nursing Data Report (Oct 2012-Sept 2017)
48
SKILLED NURSING BEDS- FUTURE PLANS
32.7%
7.3%
60.0%
23.5%
14.3%
62.2%
27.3%
11.7%
61.0%
0% 20% 40% 60% 80%
We are planning/considering areduction in the number of skilled
nursing beds we have
We are planning/considering addingto the number of skilled nursing beds
we have
We are not looking to make anychanges to the number of skilled
nursing beds we have
Regarding the number of skilled nursing beds throughout your community/system, which of the following best applies:
AllSingle SiteMulti Site
Source: Ziegler CFO Hotline, August 2017
49
PRESSURE POINTS FOR LIFE PLAN COMMUNITIES
• Various states have had proposed legislation to require entrance fees to be rapid within a certain period of time – California (90 day refund requirement)– Maryland (30 days proposed; did not get passed) – New Jersey (1 year; first-in/first-out policy; passed several weeks ago)– Florida (120 day refund requirement, 90 days after 1/1/2016)
• These are often triggered by a default or financially distressed Life Plan Community – Florida falls into this category
• Increased voice of the resident groups; increasingly driving regulation – Here come Baby Boomers!
• It is anticipated that this increased scrutiny will only increase
50
CHANGING FACE OF SENIOR CARE TECHNOLOGY
Ziegler white paper
51
ZIEGLER LINK•AGE FUND (ZLF)
Healthcare Services Healthcare IT Other
• Behavioral Change Management• Capitated Physician Models• Concierge Medicine• Homecare 2.0• Hospice and Palliative Care
• Clinical Decision Support• Medication Management• Population Analytics• Remote Monitoring• Telehealth
• Institutional Pharmacy• Medicare Advantage / Dual Eligible
Plans• Post-acute Care Diagnostics and
Therapeutics
Representative Business Models
Reduction of Hospitalizations and
Readmissions
Prevention and Wellness Strategies
Government Funded Programs / Public
Health Related Matters
Aging in Place Coordination of CareChronic Disease
Management
ZLF Fund
(RECENTLY
ACQUIRED BY
AFAM)
Source: Ziegler Link.age Longevity Fund
52
A key goal of our Funds is to foster collaboration between our limited partners and our portfolio companies, and introduce limited partners to new technologies and services. Since launching our first fund, Ziegler Link•Age Longevity Fund, the Investment Managers have…
• Sponsored over 40 demonstrations of new technologies and services for senior care providers• Helped arrange over 25 pilot programs/customer relationships between our limited partners and portfolio
companies or companies conducting demonstrations
ZIEGLER LINK•AGE FUNDSDEMO THURSDAY PROGRAMS
53
ZIEGLER LINK•AGE FUNDSDEMO THURSDAY PROGRAMS
54
GROWTH AREAS IN TECHNOLOGY-ENABLED SOLUTIONS FOR AGING AND HEALTHCARE
Source: Ziegler Link.Age Funds
SECTION 3The Financing Environment For Life Plan Communities
56
TAX-EXEMPT MARKETPLACE FOR SENIORLIVING MARKET CONTINUES TO GAIN MOMENTUM
• Market now expects consistent value; needs to be fed…
• This includes all types of “quality” situations for rated existing organizations to new campuses
• Senior Living sector is one of the last areas where investors can get any “yield”– Supply/demand imbalance favors borrowers as “fund inflows” exceed new
issues– Despite this, remain “conservative” in your capital assumptions for future
projects• Certain investors are willing to stretch their “credit tolerance” for more
“unconventional projects”
Source: Ziegler Investment Banking
57
CAPITAL MARKETS SNAPSHOT
• Long-term interest rates remain low with significant demand from institutional investors
• Low volume in Q1 – Q2 2018
• Long-term rates have been range bound with the 30yr MMD Index between 2.50% –3.00% over the past 6 months, currently hanging around the high end of that range during Q3 2018
• Short-term variable rates are rising with the expectation of continued Fed increases –leading to an overall flattening of the yield curve
– Fed increased their target rate by another 0.25% in December, March and June– Market expectations are for one or two additional Fed increases in 2018– 1-Month LIBOR now at 2.07%
• With the passage of the Tax and Jobs Act on December 22, 2017 both the fixed rate bond market and direct bank placements were impacted
– Advance refundings are no longer allowed so fixed rate bonds can only be refunded on a current basis (within 90 days of the call date)
– 21% corporate tax rate, many borrowers with bank debt will see an increased cost of 0.35% -0.85% passed through to them as the tax-exempt conversion is less advantageous at the lower tax rate
Source: Ziegler Investment Banking
58
NOT-FOR-PROFIT SENIOR LIVING FINANCINGS
Source: Thomson Financial Securities Data, as of 12/31/2017, Ziegler Investment Banking, Volume & Other Bank Credit Estimates thru 12/31/2017
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
VOLUME BY CREDIT STRUCTURE
Public Fixed Rate Public Bank (Letters of Credit) Estimated Private Bank Direct Purchase Other
59
• Compared with one year ago, the sector experienced a net loss of one rating; there are also two less organizations rated by multiple rating agencies.
NON-PROFIT SENIOR LIVING CREDIT RATING TRENDSCUMULATIVE SENIOR LIVING RATINGS
• All of these agencies publish guidelines for their ratings
• CCAC, Fitch & S&P publish rating category medians for key ratios
Rated Bond IssuesThrough 7/20/18
ICR/IDR/IGR
Fitch 118 12S&P 22 3
Moody’s 0 0*140 **15
*5 organizations have debt rated by more than one rating agency. Therefore, there are a total of 133 organizations with fixed rate rated debt.
Source: Ziegler Investment Banking, as of 7/20/18
NON-PROFIT SENIOR LIVINGCREDIT RATING TRENDS
**S&P ICR=Issuer Credit Rating / Fitch IGR=Implied General Revenue Rating & IDR=Issuer Default RatingRatings assigned at the provider’s request after fixed rate debt has been paid.
0
20
40
60
80
100
120
140
160
180
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Moody's S&P Fitch
60
10 12
0
29
55
27
0 0 00
10
20
30
40
50
60
A CategoryRatings
BBB CategoryRatings
BB CategoryRatings
S&P Fitch Moody's
Ratings Distribution by Category• Roughly 20% of LPCs are rated
Rating Categories
“A” 39“BBB” 67“BB” 27Total 133
NON-PROFIT SENIOR LIVING CREDIT RATING TRENDS
SOURCE: Ziegler Investment Banking, as of 4/20/18
61
FLORIDA SENIOR LIVING BOND RATINGS
Facility Name Single/Multi Current RatingThe Moorings Single AMayflower Retirement Community Single A-Presbyterian Retirement Communities Multi A-John Knox Village of Florida Single A-Shell Point Village Single BBB+Sunnyside Village Single BBBMiami Jewish Health System Single BBBFleet Landing aka Naval Continuing Care Single BBBVillage on the Isle Single BBB-Carpenter’s Home Estates Single BBB-Cypress Cove Single BB+East Ridge Retirement Village Single BB-
62
• Upgrades have lagged strong financial performance of many Life Plan Communities
• Growth with debt has resulted in downgrades or maintenance of a rating that might have been upgraded
Indicates change in rating for an organization
• Recent Downgrades– Underperformance on new projects– Decline in investment performance
NON-PROFIT SENIOR LIVING CREDIT RATING TRENDSINCREMENTAL UPGRADES AND DOWNGRADES (1995 YTD)
Source: Ziegler Investment Banking, as of 7/20/18
63
LIFESPACE COMMUNITIES
• LZ150 #11 and “A” rated (Fitch) since creation of the Obligated Group (11 communities) in 2010
• ILU expansion opportunities, SNF replacements, and need to add ALU/MS to several campuses led to identified “Project Needs” of over $400 million
– Close to $500 million in capital requirements for 6 communities to be completed over 4+/- years
– Structured in 3 separate bond issues, each 12-18 months apart to minimize negative arbitrage on Trustee held project funds, etc.
• Board was fully informed starting in 2015 that this plan would lead to a reduction in the “A” rating
– “A” rating had been highly valued and extensively marketed to potential residents – “Rating fixation” can lead to repositioning delays– Rating would have been reduced had they “done nothing” as avg. age of the plant
was climbing and occupancy declining• Several rated Ziegler clients find/have found themselves in the same position with
respect to the need to “reinvent” their campuses – Village on the Isle – ILU Expansion/SNF Replacement– Fleet Landing – major expansion of several levels of care– The Mayflower – developing plans for major/multi-level expansion
64
CHANGES IN MUNICIPAL BOND FUND CASH FLOWS
Municipal Bond Fund Cash Flows vs. 30-Year MMD
(14,000)
(12,000)
(10,000)
(8,000)
(6,000)
(4,000)
(2,000)
0
2,000
4,000
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Municpal Bond C
ash Flows ($'000)30-Y
ear
'AAA
' MM
D In
dex
Rate
(%
)
Source: LipperFMI Data Service, as of 7/18/18, and Thomson Financial MMD as of 7/20/18
65
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
30-YR NR-Institutional
30-YR "BBB"
30-Yr MMD
30-Year NR Institutional vs 30-Year “BBB” vs MMD 30-Year “AAA” (1990 YTD - Weekly)
NR = Non-Rated
HISTORICAL SENIOR LIVING INTEREST RATES
Source: Ziegler Investment Banking, as of 7/20/18
Current Market Max Averages:
MMD 30-YR “AAA” 9.1330-YR “BBB” 9.5030-YR NR Institutional NR 10.75
66
Senior Living Interest Rate Ranges Tax-Exempt Revenue Bonds (1)
1) Non-state specific2) Long-term (25-30 Yr), fixed rate
CURRENT INTEREST RATES (SENIOR LIVING)
SOURCE: Ziegler Investment Banking, as of 7/20/18
SENIOR LIVINGFINANCING STRUCTURES (1)
(Insurers Ratings: Fitch/S&P/Moody's)
CREDITENHANCEMENT
Unrated - Start-Up Communities 6.250% - 6.500% -- + 334 to + 359 + 192 to + 217Unrated - Existing Stable Communities 4.600% - 4.900% -- + 169 to + 199 + 27 to + 57Unrated - General Market Retail 4.600% - 4.900% -- + 169 to + 199 + 27 to + 57"BBB" Rated (Fitch, S&P or Moody's) 3.850% - 4.000% -- + 94 to + 109 + -48 to + -33"A" Rated (Fitch, S&P or Moody's) 3.650% - 3.750% -- + 74 to + 84 + -68 to + -58"AA" Rated (FHA) 3.400% - 3.500% 0.50% + 99 to + 109 + -43 to + -33"AA" Rated (Fitch, S&P, Moody's) 3.400% - 3.500% -- + 49 to + 59 + -93 to + -83"AAA" Rated (FHA) 3.200% - 3.400% 0.65% + 94 to + 114 + -48 to + -28
SPREAD TOREVENUE BOND
INDEX
AVERAGE LONG-TERM INTEREST RATE
RANGES (2)
AVERAGE RATESPREAD TO
"AAA" MARKET
67
RETAIL PARTICIPATION IN MUNI’S HAS DECLINED
• Retail holding of municipal bonds has fallen from $1.9 trillion in 2010 to $1.6 trillion in 2017– Declined by $103 billion in 2017– Still represents about 41% of the total municipal market– Those who are buying are staying within a 10 year maturity
• Reasons for the retail holders change in investment perspective– Somewhat “spooked” since the financial crisis– Wary of “chaotic economic policy” from WDC and concerned about
consequences of a trade war, etc….– Tax reform lowered the top tax bracket from 39.6% to 37.0%– FA’s more focused on separately managed accounts (“SMA”) rather than
recommending individual bonds– Strong equity market performance
Source: The Bond Buyer, April 2, 2018
68
BOND DISTRIBUTION CHANNELSZIEGLER’S SENIOR LIVING VOLUME
Source: Ziegler Investment Banking, as of 12/31/17
$2,658.990.7%
$118.34.0% $40.3
1.4%$49.01.7%
Institutional Retail VRDBs Co-Manager/Selling Grp
2016Total Par Amount$2,866,420,000
$2,471.896.9%
$65.82.6% $12.2
0.5%
Institutional Retail Co-Manager/Selling Grp
2017Total Par Amount$2,549,780,000
69
HISTORICAL VARIABLE INTEREST RATES
Source: Ziegler Investment Banking, as of 7/6/18
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LIBOR (1 Month)
10-Year Average1-MO LIBOR: 6.34%
10-Year Average1-MO LIBOR: 4.13%
10-Year Average1-MO LIBOR: 1.63%
70
FLATTENING OF THE YIELD CURVE
Source: Ziegler Investment Banking, as of 7/6/18
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Jan-
14
Mar
-14
May
-14
Jul-1
4
Sep
-14
Nov
-14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep
-15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep
-16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep
-17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
30-Yr 'BBB' 67% L + 1.05% 82% L + 1.29%
4.60% 4.28% 3.06% 2.97%
Tax Cuts and JobsAct of 2017
1.69%
71
• LIBOR is a reported estimate of 20 bank’s cost of unsecured, borrowed funds from one another, in five different currencies, across seven maturity periods
• Goal is to create a new benchmark which is solely constructed from transaction based data from highly liquid, collateralized markets
• Sunset of the LIBOR Index:– Potential phase out by 2021– Concern: what will the replacement be and how will it be implemented?
– Time– $$– Market uncertainty / disruption
PROPOSED SUNSET OF LIBOR
72
• Ziegler is a privately-held investment bank, capital markets and proprietary investments firm
• A registered broker dealer with SIPC & FINRA
• Ziegler provides its clients with capital raising, strategic advisory services, equity & fixed-income trading and research
• Founded in 1902, Ziegler specializes in the healthcare, senior living and educational sectors as well as general municipal finance
ABOUT ZIEGLER
73
Investment banking, capital markets and proprietary investment services offered through B.C. Ziegler and Company. FHA mortgage banking services are provided through Ziegler Financing Corporation which is not a registered broker/dealer. Ziegler Financing Corporation and B.C. Ziegler and Company are affiliated and referral fees may be paid by either entity for services provided.
This presentation was prepared based upon information provided by Management and contains certain financial information, including audited and unaudited information, certain statistical information and explanations of such information in narrative form (the “Information”). Management believes this information to be correct as of the date or dates contained herein. However, the financial affairs change constantly, and such changes may be material. Today’s discussion may contain forward-looking statements, which may or may not come to fruition depending on certain circumstances, including those outside the control of management. Please be advised that management has not undertaken, assumed no duty and are not obligated to update the Information. In addition, please be advised that past financial results do not predict future financial performance.
DISCLAIMERS
