1 Integrating Innovative Financing Strategies for Future
Flexibility February 25, 2015
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Table of Contents I.Speaker Introductions II.Setting the Stage
III.Case Studies
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Moderator James Bodine, Executive Vice President HJ Sims
Speakers David Laffey, Senior Vice President, Director of Capital
Markets LCS Jimmy Taylor, Jr., Chief Operating Officer Omega
Communities Jeffrey Sands, Managing Principal/General Counsel HJ
Sims
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David Laffey, Senior Vice President, Director of Capital
Markets LCS
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5 Timber Ridge at Talus, Issaquah, Washington
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6 Refinancing and Expansion Financing- Timber Ridge Overview
Timber Ridge is a for-profit Lifecare CCRC situated on 9.5 acres at
the base of Cougar Mountain in Issaquah, WA Phase I of the
community consists of 184 ILUs (98% occupied) and a 36 bed Health
center LEED Certified Silver Ph II to add an additional 145 ILUs
(84% pre-sold), 9 additional SNF beds, 14 Assisted Living Units and
a 12 unit Memory Care $28 MM of existing debt on Ph I Partnership
Structure Third JV between LCS/Westminster Funds. 85%
Westminster/15% LCS Partnership spans over a decade Includes 8
separate Joint Ventures +$30 MM of partnership equity invested
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7 Refinancing and Expansion Financing- Timber Ridge Opportunity
Refinance PHI debt, $28 MM, and source expansion financing for PH
II, $126.5 MM, for a total project financing of $154.5 MM Continue
very high resident satisfaction and excellent reputation Cater to
market demand Challenges Market liquidity Refinancing of existing
debt and provision for expansion financing Closed end fund as a
partner with a stated maturity date. Dovetail debt
maturity/community stabilization with fund maturity Bank market
support albeit heavy guarantees, incremental equity (+$30 MM
invested) and modified loan amount Need to combine Multiple Sources
of Financing Continued resident satisfaction
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8 Refinancing and Expansion Financing- Timber Ridge Solutions
& Results Solicited Capital Markets interest across the
spectrum of participants including Banks, Institutional Investors,
Taxable bond funds and REITs Financing Parallel-processed financing
solicitations Dovetailed loan maturity with Fund maturity $154.5 MM
of total senior financing provided entirely by NHI $90 MM to be
repaid from entrance fees from PH II, approximate 80% occupancy,
with $60 MM of permanent debt Limited guarantees Purchase Option to
NHI upon stabilization Dovetailed Fund maturity with Purchase
Option
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9 Trillium Woods, Plymouth, Minnesota
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10 Start-Up Financing Trillium Woods New LifeCare community to
be built in Plymouth, MN Situated on 46 acres of land Phase I to
include 209 ILU (gross entry fees of +$116,000,000) and a 44 bed
Health center Total Phase I project cost of $161,400,000
Opportunity - Occupancy of Primary Market Entrance fee product
nearly 100% occupied Limited Lifecare options Net market
penetration rate of 5.8%
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11 Start-Up Financing Trillium Woods Challenges $161,400,000
Capital Cost Budget Limited market liquidity Review all capital
alternatives including Bank financing, bond financing, private
placement, senior & subordinate debt New competition to come on
stream Construction cost escalations
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12 Start-up Financing Trillium Woods Solutions & Results
Financing Parallel-processed financing solicitation of commercial
banks, institutional taxable bond funds, hedge funds and family
offices Secured senior debt commitments from commercial lenders for
$70 MM, representing a repayment to those lenders upon achievement
of a 65% initial occupancy Secured parity debt of $28 MM from the
family office of the owner of the construction company. Represents
full debt repayment upon achievement of 85% initial occupancy
Partnership owns the project free and clear of all debt at 85%
occupancy Projected debt capacity upon repayment of debt of +$60
MM, which will be accessed for PH II funding
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Jimmy Taylor, Chief Operating Officer Omega Communities
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14 Omega Communities The Fountains of Hope OMEGA CAPITAL/OMEGA
COMMUNITIES Multifaceted Financial Firm Senior Housing; Venture
Capital; Real Estate; High Net Worth Insurance Senior Living With a
Mission SYNOPSIS 140 Bed Assisted Living and Memory Care Facility
Bill Sims adjusted 110 bed assisted living and memory care facility
Ingress/Egress issues and site accessibility (Sarasota I-75
Visibility) Drove Jeff Sands to 6 competing facilities and counted
turns Began structuring financing in June 2014 Broke ground in
October 2014 and closed financing in November OPPORTUNITY Expand
Southwest Florida I-75 Footprint North Port; Sarasota; Fort Myers;
Others Partner with 5,000+ member church also responsible for 13
other churches Largest indoor shopping mall built in US in last
decade Adjacent to Lakewood Ranch 5 th Best Subdivision in US in
2013
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15 CHALLENGES William B. Sims, Managing Principal; HJ Sims
Ingress/Egress Slightly ahead of our time? Major connector
announced in January Impending competition MITIGATING FACTORS THE
OMEGA TEAM Life Care Services and The LCS Family of Companies 24
month cooperative relationship prior to launch LCS Development
serves as Project Manager during construction Serves as Operating
Partner/Manager Investment in project/provided operating backstop
(First Ever) Core Construction/Gilbane Building Company Combined $3
billion bonding capacity Senior housing experience/overall
expertise and reputation Quality; Controls; Professionalism;
Relationship; Balance Sheet Omega Communities The Fountains of
Hope
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16 MITIGATING FACTORS (Continued) CliftonLarsonAllen Sue
Bunevich served as single point of contact Specific expertise and
flexibility to adapt to our unique model Market Study and
Feasibility Study integrity Legal Counsel David Williams of Butler
Snow Bob Gang and Bruce Giles-Klein of Greenberg Traurig Ty
Roofner, Brian Watson and Alina Arbuthnot of Burr Forman 7
Additional Firms SOLUTIONS AND RESULTS Creative and Complex
Financing Structure Use of 142(d) revenue bonds (tax free) Use of
taxable bonds for greater financing flexibility Mezzanine financing
by new partner Brevet Capital Letter of credit vs. cash for certain
reserves Land value contribution reduces loan to overall cost Draw
down bond allocation/reduced debt service reserve Omega Communities
The Fountains of Hope
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17 FINAL CAPITAL STACK Single Purchaser for Tax Free Bonds
($20.15 Million) Also willing to purchase taxable tail ($1.45
Million) HJ Sims introduction; Sims also had backup plans
Accommodating terms (flexibility, rate, call, etc.) Letter of
credit vs. cash for certain reserves Equity Mezz Land Senior Tax
Free Senior Taxable EB5 $2.7 million land contribution and $750,000
letter of credit $4 million of Mezz funding by Brevet Capital
$20.15 million of tax free bonds purchased by single institutional
investor $1.45 million of taxable bonds purchased by same investor
EB-5 raise to cover Mezz and letter of credit retirement within 18
months Omega Communities The Fountains of Hope OMEGANOMICS (Be
Careful What You Wish For) Scalable and Reproducible Senior Housing
Model Brevet committed to 9 additional senior living projects with
Omega Brevet also invested working capital into Omega Communities
Brevet Investment Fund emphasizes use of EB-5 funding Previous bond
purchasers interested in participating again, among others Omega
expects to close 3-4 projects in 2015 (Fort Myers and Atlanta)
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Jim Bodine, Executive Vice President HJ Sims
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19 Acquisition & Recapitalization Financing Laurel Lake
Retirement Community Synopsis Strong performing 425 unit/bed Single
Site Not-for-Profit CCRC in Hudson, OH Opened 1989 & Affiliated
in 1997 with Catholic Health Partners CHP divestiture of LLRC (and
selected senior living facilities) in 2013 Opportunity Consolidate
ownership/operation by incumbent Management via Acquisition
Continuity of successful operation, high resident satisfaction and
excellent reputation in the community Continued investment in
services, programs and facilities to maintain strong position
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20 Challenges Two-Step Acquisition Bid-to-Financing Process
Coordination of Multiple Constituents of Sponsor (Board,
Management, Residents) Competitive Bid Process and Short Timeline
Establishing Bidding Credibility with Parent (CHP) Highly Leveraged
Transaction Finance Purchase Price, Working Capital & Reserves
Limited Sponsor Equity Acquisition & Recapitalization Financing
Laurel Lake Retirement Community
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21 Challenges (Continued) Acquisition of Independent Living
Units (First Use Tax Code Limitations) Requiring Equityor Taxable
Financing Need to Combine Multiple Sources of Financing Bank &
Bond Debt (Taxable & Tax-Exempt) Senior & Subordinate Debt
Solutions & Results Acquisition Integrating iterative financial
forecasting and debt capacity analysis to formulate purchase price
Modeling multiple financing/capital structure scenarios including
bank and bond debt on senior/subordinate bases Established
credibility with Seller (and Advisors) and selected as Winning
Bidder Acquisition & Recapitalization Financing Laurel Lake
Retirement Community
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22 Solutions & Results (Continued) Financing
Parallel-processed financing solicitation of commercial banks
(senior debt) and institutional & retail investors (subordinate
debt) Secured senior debt commitments from commercial banks and
indications of interest for subordinate debt Successfully navigated
integration of security, covenant and default/remedy provisions
between senior and subordinate debt Solidified investor interest in
subordinate debt, combining retail and institutional participation
$50 million total financing $36 million senior taxable bank debt
(adjustable/variable rate) $9.5 million senior tax-exempt bank debt
(adjustable/variable rate) $2 million subordinate tax-exempt bonds
(fixed rate) $2.7 million subordinate tax-exempt bonds (adjustable
rate) 5.42% blended all-in financing cost Acquisition &
Recapitalization Financing Laurel Lake Retirement Community
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Jeffrey Sands, Principal/General Counsel HJ Sims
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24 Sims Case Study Athena Acquisition VI, LLC SIMS RAISES $7.8
MILLION OF PREFERRED EQUITY FOR ACQUISITION OF A PORTFOLIO OF 6
NURSING HOMES IN MASSACHUSETTES Herbert J. Sims & Co., Inc.,
(Sims) through an affiliate, provided $7.8 million of preferred
equity to finance the acquisition of a portfolio of 5 skilled
nursing facilities in Massachusetts comprised of 705 skilled
nursing beds and one leasehold interest with 21 skilled nursing
beds (the Portfolio) by Athena Health Care Associates Inc.
(Athena).
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25 Sims Case Study Athena Acquisition VI, LLC Background Sims
was approached by Athena, a successful long-term care operator in
New England with locations in Connecticut, Massachusetts and Rhode
Island, to finance the acquisition of a portfolio of 5 skilled
nursing facilities and one leasehold interest in Massachusetts
comprised of 726 beds. The plan of finance included a first
mortgage loan, preferred equity, sellers not an equity from Athenas
principals. Challenges There were several challenges associated
with this financing including: Closing within 30 days Providing a
high-leverage financing equal to 95% of appraised value Meeting
very strict Senior Lender requirements on the form of our
investment Avoiding certain regulatory restrictions Anticipating a
possible future HUD refinancing
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26 Sims Case Study Athena Acquisition VI, LLC Specific
Structuring Challenges Senior Lender Prohibition on any subordinate
debt Limitations distributions Limitations on change of ownership
High Leverage Issue Bad appraisal Regulatory Restrictions Licensure
not conducive to investment partnerships with multiple owners
Anticipated HUD Refinancing Need to structure so as to have
argument that investment is eligible for HUD refinancing Time
Constraint
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27 Structure of Athena Transaction Athena Member Athena
Landlord MA III LLC Athena Health Care Systems MA III LLC Class A
Equity Athena Acquisition VI, LLC (Issuer) Athena Equity 5 Realty
Companies6 Operating Companies 100% Equity Lease s HJ Sims
Investments, LLC 100% Taxable Bonds ($12.275M) Senior Debt
($68.750M) Limited Guaranty from Athena
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28 Sims Case Study Athena Acquisition VI, LLC Result Sims was
able to provide preferred equity that met the needs and the
requirements of both Athena and the Senior Lender. The expertise
and creativity of Sims bankers, along with the flexibility and
industry knowledge of its retail investors resulted in a unique
solution for Athena. Preferred equity investments with excellent
owners such as Athena are the latest example of Sims using its
extensive investor base to provide financing to senior housing
providers. Sims excels in filling the niches that allow an owner or
developer to complete a transaction by providing creative financing
such as preferred equity or mezzanine debt.