Sustaining Our Mission into the Futurecatholic-leaders-symposium.com/.../CLS-ppt_SustainingOurMission_F… · Sustaining Our Mission into the Future October 26th, 2013 / 2:50 PM .

C AT H O L I C L E A D E R S ’ S Y M P O S I U M

Sustaining Our Mission into the Future

October 26th, 2013 / 2:50 PM

OF THE GAME C A T H O L I C L E A D E R S’ S Y M P O S I U M

Sustaining Our Mission into the Future James Emerson and Rebecca Neth Townsend / October 26th, 2013 / 2:50 PM

Presenters:

P A G E 2

James Emerson LeadingAge911 [email protected] 407.620.2264

Rebecca Neth Townsend Senior Vice President Ziegler Capital Markets [email protected] 480.483.5980



§  Section 1 - Introduction: Strategic Sponsorship Sustaining the Mission

§  Section 2 - Sustaining the Mission Act While Strong

§  Questions & Answers

P A G E 3

Agenda


Section 1: Introduction -

Strategic Sponsorship Sustaining the Mission



2013 LZ 100 GROWTH OF COMBINED UNIT MIX

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Units

Year

MA Total - NSC Excluded NC Total - NSC Excluded

FROM 1990BY AFFILIATIONS, MERGERS & ACQUISITIONS AND NEW CAMPUS GROWTH

Growth Attributed to Affiliations, Mergers &

Acquisitions

Growth Attributed

to New Campuses

Source: 2013 LeadingAge Ziegler 100 Publication (Data as of 12/31/12)

P A G E 5



77122

168227

320

540

993

1,096

192 214261

304

354422

497 510

50 71 83 100

142 198

273 291

-10 -12 -13 -17 -27 -49 -111 -138

-200

0

200

400

600

800

1,000

1,200

1980 1985 1990 1995 2000 2005 2010 2012

Com

mun

ities

Expansion New Community Merg/Acq/Affil Disposition

186%

100%

41%0%

0%50%

100%150%200%250%

1980 1990 2000 2012

Growth of New Communities(% Growth)

*Cumulative totals are as of 1/1 of that year

Expansion: The addition of new units to an existing community.

Note: If a new community is added to an existing campus this is also considered an expansion.

New Community: Growth by the addition of units through construction of a new location.

Merger/Acquisition/Affiliation: Growth of a multi-site organization by the addition of units through merger, acquisition or affiliation.

Disposition: The sale or closure of a community.

2013 LZ 100 Growth Type of Growth CUMULATIVE GROWTH OF LARGEST 100 SYSTEMS Source: 2013 LeadingAge Ziegler 100 Publication (data as of 12/31/12)

P A G E 6



Sponsorship Transition Continuum of Options

Equi

ty r

equi

red b

y ne

w s

pon

sor

(aff

ilia

tor

/ ac

qui

rer)

Strategic control by acquired organization High Control Low Control

Management with future option

Sponsorship Transition Options

Asset

Purchase

Steps into current org and debt structure – guarantee

debt service. Limited Support

Steps into current org and debt structure.

Steps into current

organization structure.

Restructure debt.

Liabilities and guarantees by new sponsor

P A G E 7



The Dilemma of “Which” Mission

When organizations are faced with needing to determine where strength of resources need to be invested – issue of fiduciary responsibility to entire mission contrasted against keeping sponsorship Catholic/faith-based/not for profit.

P A G E 8

Introduction to Senior Living M&A Select CCRC Transactions: 2010-2012

P A G E 9

Seller FP/NFP Buyer FP/NFP Total Units/Beds State(s) Price Price Per

Bed/Unit Closed Date

Groves of Lincoln NFP Benchmark Senior Living FP 168 MA $ 30,000,000 $ 178,571 2013 Sumner on Ridgewood NFP Concordia Lutheran NFP 189 OH $ 23,000,000 $ 121,693 2012 Highland Farms FP Givens Estates NFP 308 NC N/A N/A 2012 Newcastle Place NFP LCS/Private Equity Partner FP 229 WI N/A N/A 2012 Village at Penn State NFP Liberty Lutheran NFP 186 PA $ 18,000,000 $ 96,774 2012 St. Mary of the Woods NFP Atrium Centers LLC FP 158 OH $ 16,680,000 $ 105,570 2012 The Clare at Water Tower NFP Chicago Senior Care, LLC FP 334 IL $ 53,500,000 $ 160,180 2012 McKendree Village NFP Covington Senior Living FP 469 TN $ 17,600,000 $ 37,527 2011 Fairview Village NFP Lifespace Communities, Inc. NFP 506 IL $ 20,000,000 $ 39,526 2011 Clearwater Retirement Community NFP Preferred Care FP 114 KS $ 3,550,000 $ 31,140 2011 Springfield Place/J.F. Hawkins Nursing Home NFP Prestige Healthcare FP 211 SC $ 11,300,000 $ 53,555 2011 The Heritage Retirement Community NFP Legend Retirement FP 178 TX $ 13,000,000 $ 73,034 2011 CHRISTUS Health - Christus St. Joseph Villa, Marian Center NFP The Ensign Group, Inc. FP 339 UT $ 16,569,000 $ 48,876 2011 Texada, Inc. - Wisteria Place FP The Ensign Group, Inc. FP 292 TX $ 14,000,000 $ 47,945 2011 Ramsey Village FP CRMS Communities NFP 139 IA $ 11,250,000 $ 80,935 2010 Edgehill CCRC (Stamford Health System) NFP Benchmark Senior Living FP 287 CT $ 70,000,000 $ 243,902 2010 Erickson (Sedgebrook and Monarch Landing) NFP Senior Care Development FP 917 IL $ 69,270,000 $ 75,540 2010 Northern Berkshire Healthcare-Sweetwood (CCRC) and Sweet brook (SNF) NFP DES Senior Care Holdings, Inc FP 254 MA $ 6,600,000 $ 25,984 2010 The Franciscan Sisters of Chicago Service Corp. - Villa de San Antonio NFP KISCO Senior Living FP 193 TX $ 17,250,000 $ 89,378 2010 River Hills Village FP Regional IL Operator NFP 137 IA $ 10,000,000 $ 72,993 2010 Erickson Retirement Communities FP Redwood Capital Management FP 5,700 MD $ 365,000,000 $ 64,035 2010 CCRC owned by Community of Christ Church NFP SW Management (IL) FP 300 MO $ 17,000,000 $ 56,667 2010 Central Dupage Health System - Wyndemere NFP Life Care Services LLC FP 446 IL $ 45,000,000 $ 100,897 2010 Peninsula United Methodist Homes NFP ACTS Retirement-Life Communities NFP 1,000 DE & MD $ 98,750,000 $ 98,750 2010 Capstone Village NFP University of Alabama NFP 159 AL $ 9,500,000 $ 59,748 2010 Stapeley in Germantown NFP Wesley Enhanced Living NFP 230 PA $ 12,500,000 $ 54,348 2010 Sherburne Commons NFP Servant Healthcare FP 60 MA $ 6,000,000 $ 100,000 2010 Covenant of South Hills (Sponsored by B'nai B'rith International) NFP Concordia Lutheran Ministries NFP 232 PA $ 15,000,000 $ 64,655 2009 Brandon Woods at Alavar N/A Senior Housing Properties Trust FP 259 KS $ 21,000,000 $ 81,081 2009 Reeds Landing NFP Loomis Communities NFP 218 MA $ 3,550,000 $ 16,284 2009

Transaction involving a not-for-profit seller and a for-profit buyer

Source: Senior Living Reports 2009-2013


Section 2: Sustaining the Mission –

Acting While Strong



§  Catholic §  Methodist §  Episcopalian §  Baptist §  Presbyterian §  Lutheran

§  Community NFP §  Bank foreclosures §  Bankruptcies §  Receiverships §  Others . . .

P A G E 11

“Working with other Organizations to Strengthen and Develop our Common Mission”



§  Prepare your Board

§  Prepare your Management Team

§  Prepare your organization financially

§  Set aside sufficient financial reserves for the purpose of new area of Mission Development

§  Demonstrate that fiscal strength of current organization will not be jeopardized or threatened by acquisition

P A G E 12

Prior to Consolidation



§  Discuss concept with organization’s auditing firm §  Impact on current financial statements §  Possible organizational structure for acquisition

§  Discuss concept with current lender §  Impact on current loan documents §  Permitted uses of existing cash §  Possible financing needs and capabilities

§ Prepare for short term financing § Prepare for long term financing

P A G E 13

Important Preparations



§  Be patient, develop the relationships

§  Volunteer to assist providers, regulators, lenders

§  Utilize Board members

§  Take polite initiatives

§  Listen to rumors

§  Access information, build histories, internet

§  Research, Guidestar, on line public files, Charity

§  Navigator, Emma.msrb

P A G E 14

Identify Potential Candidates



§  What is the hidden potential for the future?

§  Location desirability, marketability

§  Additional land for development or redevelopment

§  Buildings can be changed

§  Market can change

§  LOCATION cannot be changed

P A G E 15

Be Willing to Consider Unlikely Candidates as Well as the Desirable Obvious



§ Maintain objectivity during due diligence

§ Avoid: “We wanted to do that project in the worst way…

and we did!”

§  Be willing to bite your lip and walk away

P A G E 16

“Only New Mistakes”



BIGGER is not better…

STRONGER is better!

P A G E 17



§  Feasibility studies that were overly optimistic about original fill up time, high stabilized occupancy levels, ever increasing entrance fee prices and monthly service fees, and growing positive operating margins.

§  Borrower retaining cash from original initial entrance fees to create large days cash on hand later used to fund multiple years of negative operations rather than initially paying down the original long term debt resulting in highly overleveraged communities.

§  Added debt caused by negative arbitrage during construction process and delays

P A G E 18

Symptoms of troubled organizations (cont’d)



§  Refunds that now exceed the current entrance fees and remodeling costs. (e.g. $500,000 entrance fee with 90% refund = $450,000 refund compared to current entrance fee of $350,000 with no cash for refurbishing costs and debt service)

§  Growing refund queues with delayed payments to residents’ estates, sometimes using cash for debt service to prevent loan defaults.

P A G E 19




§  Weakened sponsor or affiliate that contributed needed equity or guarantees.

§  Entrance fees that have become stagnant and often decreasing.

§  Overzealous marketing programs that promised entrance fee refunds of 75%, 90%, 100% with the anticipation that entrance fees would increase significantly after the first generation to provide surplus cash for refunds, refurbishing of the living units, and debt service.

P A G E 20




§  Service creep resulting in significant overstaffing, with little or no monitoring of operating benchmarks because “our residents expect or ‘demand’ this level of service”

§  Expensive dining services programs to meet high demand resident expectations.

§  Inappropriate transfers to higher levels of care of residents who want the extra service and attention resulting in higher operating losses for the organization.

P A G E 21




§  Insufficient cash to maintain common areas and exteriors attractive resulting in growing deferred maintenance and “poor show” for prospective and current residents.

§  Growing number of vacant units needing refurbishing and inappropriate to market.

§  Dependence on investment earnings and gains, contributions that have now dwindled or disappeared.

§  Declining marketing area or neighborhood since the community was constructed.

P A G E 22




§  Trusting Board members who don’t understand financial statements and often confuse “earned

entrance fees” with current cash and conclude that “all is OK”.

§  Management that sometimes withholds or disguises negative information in order to protect their jobs.

§  Loyal marketing team that has not made the transition to become a SALES TEAM and are no longer effective

in backfilling vacancies and unfilled units.

P A G E 23




§  Potential residents whose investments are earning minimal returns and are now extremely cautious regarding major outlays for entrance fees in sluggish housing markets.

§  If loan default does occur, multiple lenders often cannot agree upon realistic terms to restructure the loan based on the amount of debt the community can support which may result in forced restructure such as Chapter 11.

§  Board and management’s hesitancy to face the challenges early because of their concern regarding negative publicity in forced restructures.

P A G E 24



Sustaining Our Mission into the Future October 26th, 2013 / 2:50 PM

Presented by: James Emerson [email protected] 407.620.2264 Rebecca Neth Townsend [email protected] 480.483.5980

Thank you.

Sustaining Our Mission into the Futurecatholic-leaders-symposium.com/.../CLS-ppt_SustainingOurMission_F… · Sustaining Our Mission into the Future October 26th, 2013 / 2:50 PM .

Documents