Lenbrook

Lenbrook is an existing life plan community which consists of 350 independent living residences located in two adjoining towers, the Brookhaven Tower and the Lenox Tower, and is located in Atlanta, Georgia.

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Market Commentary: 57 Varieties

An ambitious young Canadian immigrated to the United States at the age of 29 and began a business in Chicago by selling cheese from the back of a wagon. Six years later, James L. Kraft was joined by three brothers and they soon moved their headquarters to New York. By 1915 they had patented a processed cheese product that did not require refrigeration and sold six million pounds of it to the U.S. Army for military rations. They rebranded as Kraft Cheese Company and captured 40% of the U.S. cheese market before they sold themselves to National Dairy in 1930. Four decades later, the Kraft name was resurrected and the firm began a long series of dizzying mergers and sales until it was acquired by Philip Morris then spun off again. In 2008, Kraft replaced AIG in the Dow Jones Industrial Average and pursued ventures with Group Danone and Cadbury. In 2012, Kraft divided its business into two companies, one focused on grocery product sales in North America, the other on snack product sales worldwide.

Henry J. Heinz, the driven young son of German immigrants was 25 years old when he formed a horseradish packaging company in Sharpsburg, Pennsylvania. In 1876 he started another firm with his cousin and brother. Within 20 years he bought them both out and expanded his business line from tomato ketchup and sweet pickles to include more than the “57 Varieties” in his catchy slogan. By 1908, the Pittsburgh-based firm had become the world’s largest tomato manufacturer and, over time, developed marketing innovations ranging from octagon shaped glass bottles to single-container pouches of mustard and relish to commercials set to the hit song “Anticipation.” The company was managed by members of the Heinz family until 1969. Henry was the great-grandfather of U.S. Senator H. John Heinz III and a second cousin twice removed of President Donald J. Trump.

In 2015, Kraft’s parent company merged with H.J. Heinz Holding Corporation in a $23 billion transaction arranged by Berkshire Hathaway and 3G Capital, two firms that hold a 47% ownership stake. Kraft Foods in Northfield, Illinois became a division and brand within Kraft Heinz Company (NASDAQ: KHC), now the fifth largest food company in the world with 80 factories and $24 billion of annual revenue. The Heinz brand and division in Pittsburgh includes many of the world’s most popular condiment including relish, sauces, gravy, vinegar and baked beans. Kraft’s most popular products include Philadelphia Cream Cheese, Planters Nuts, Jell-O Desserts, Kool Aid, Maxwell House, Oscar Meyer, Nabisco cookies, Cadbury and Toblerone chocolates and, of course, Kraft Macaroni and Cheese which sells one million boxes a day.

The debt-financed merger of the two American success stories has made it rather tough going for shareholders. Market share, revenue and net income have declined along with consumer preferences for fewer packaged foods and the company is reliant on Wal-Mart Stores for more than 20% of its sales. Kraft Heinz has slashed expenses, cut dividends, sold assets, and taken writedowns in an effort to remain competitive. The brand names nevertheless retain huge popularity: during the pandemic lockdowns, pantries around the world have been stocked with Kraft and Heinz staples that are trusted and viewed by consumers as having value. The company is in a defensive sector, one that is likely to remain strong under stay-at-home, eat-at-home scenarios throughout the recession. It has scale and a solid supply chain. In addition, as of March 31, the company had $5.4 billion of cash and a $300 million credit facility still untapped.

Kraft Heinz came to the high yield corporate bond market earlier this month with a $1.5 billion deal funding a tender offer but found enough investor demand to upsize the bond issue to $3.5 billion. This was its first debt raise in the high yield market as the company was downgraded to BB+ by S&P and Fitch who cited a two-year decline in profits, high dividend payouts, and failure to bring its $32 billion debt level down after splurging on acquisitions. Among its outstanding debt, the 4.375% bonds due 6/1/2046 are priced at $92.97 to yield 4.854% at this writing. We compare the yield to that offered by 20-year Treasuries at 1.19%, 30-year Treasuries at 1.43%, 30-year Fannie Maes at 1.55%, and 30-year Baa rated taxable municipal bonds at 3.95%. On the tax-exempt side, Baa3 rated State of Illinois general obligation bonds due in 2045 currently yield 5.17%. For current offerings from our municipal and corporate bond trading desks, please contact your HJ Sims Advisor.

We divert from our usual weekly commentary focused on municipal bonds this week to pay tribute to one of our longtime corporate bond traders, Peter Polakoff, who passed away this week. Peter was a senior vice president in our Boca Raton office for 19 years until he retired after 45-year career in corporate and municipal bond trading. He relished the stories behind each bond and could always find hidden gems among the varieties in our $8 trillion corporate debt market. We at HJ Sims extend our sympathies to his family.

Market Commentary: Frozen Thinking

There is at least one place on Earth untouched by the scourge of the pandemic: it is our driest, windiest, and southernmost point, a place that never had an indigenous population, one so cold that if you throw boiling water into the air it will instantly vaporize. With fewer than 5,000 scientists or tourists in peak season, all clumped into one of 70 camps scattered across a desert tundra the size of the United States and Mexico combined, 98% of which is ice, it is the least densely populated of our seven continents, entirely surrounded by water. Antarctica is a scientific preserve governed jointly by 54 countries under a treaty banning military, mining, and nuclear activities. As far as we know, there is no mad rush to seek refuge from pandemic fatigue, Zoom burnout, and anti-lockdown protests there on the Frozen Continent. Most of us have been camping in our homes for two months, creating “quaran-teams”, social bubbles, and virtual cocoons. The cable news, radio, print and social media that so polarized us at the start of the year has largely united us in our need for real-time information, assurance of progress, distraction, and consolation. Some of our thinking, however, is still frozen in time.

Let us take a look at how we view stocks and bonds for a moment. At the start of the new decade, it looked like we were continuing the record-setting 128 month-long economic expansion with rallies ahead in virtually all markets for as far as the eye could see. Unemployment was at 50-year lows. Borrowing rates were at record lows. Inflation was under control. Not everything was rainbows and unicorns for all Americans by any measure. Plus we knew asset prices were inflated. The cycle had to end at some point. But before we heard of SARS-CoV-2, the Fed was our backstop and traders were able to discount nearly all talk of recession, impeachment, war with Iran, or breakdowns in relations with China. Then came the twin traumata of destabilized oil markets and the Wuhan virus cluster that was declared a global pandemic on March 11. Like volcanic eruptions on Antarctica, they changed the landscape. For almost three weeks, the uncertainty was like lava flow and caused markets to move in ways not seen before. Federal, state and local officials then intervened with restrictive policies that had no precedent. Central bankers followed by Congress, moved at the polar opposite of glacial speeds with mountains of money that came out of air as thin as it is on the highest continent in the world.

Citizens complied. Schools quickly learned how to hold online classes. Businesses put up signs: “Sorry Temporarily Closed,” “Take-Out Only,” “Stay Safe, See You Soon.” Markets without trading floors, operating from remote workstations with residential Wi-Fi, took comfort in daily Task Force briefings, reports on the yeomen’s efforts underway to develop tests, treatments and a vaccine, manufacturers nimbly switching from car parts to ventilators, naval hospital ships redeployed, convention centers reconfigured as triage centers. The anguish of separation and loss, particularly among families of those in nursing homes, was in some small part allayed by hopeful signs of slowdowns and recoveries in countries overseas that were earlier afflicted, and reports from hospitals that were not as overwhelmed as feared.

But the lockdowns were extended. Now, barely one third of Americans say they are working and 30% have withdrawn more than $6700 on average from their retirement savings, mainly to buy groceries. More than 4 million Americans are skipping their mortgage payments. Cars are still lining up for hours at food banks. It has become painfully clear how many millions of Americans live paycheck to paycheck, and how many work in jobs not eligible for unemployment. How small businesses are so closely reliant upon daily community patronage that, according to one Washington Post report, more than 100,000 have permanently closed since March. Nevertheless, financial markets turned around. As Fed and federal aid began to flow, the Dow, the Nasdaq, the S&P, the Russell 2000, U.S. Treasuries, municipal bonds, corporate bonds, gold all began upward price swings again. A red, white and blue rally is still underway well before all the damage has been done and counted. Some of this makes sense. We understand that U.S. Treasuries are the world’s most liquid securities and that many of our stocks and bonds have unmatched global value. A 14% run-up in the price of gold since the start of the year is not a surprising increase for this safe haven, given the enormity of the upheaval. We also know how important Amazon and Domino’s Pizza and Dollar Tree have been to all of us during the shutdown. But analysts also point out something that does not sit well: that businesses are declaring bankruptcy and there are likely many more to come, yet the S&P 500 is trading at the highest price-to-earnings ratio since the peak of the dot-com bubble.

Many sectors are still being tarred with a broad brush. In some energy trades, offshore oil drillers have been lumped together with oil storage firms. Well-run airlines are trading alongside those less prepared to endure the groundings of most of their fleet for most of the year. Many well-managed senior living communities have bonds that attract no good bids despite having no cases of the virus and hundreds of staff and residents who are relieved to be safe and well supplied on their carefully tended campuses. Because of the constant clamor from governors and mayors lobbying Congress for aid now that the fat federal wallet has been flashed, some investors are most concerned about state and local bond defaults and possible bankruptcies. Their fears involve municipal authorities with the power to levy taxes and hike user fees rather than companies who never had such powers but have in fact filed for bankruptcy, like Intelsat, Neiman Marcus, J.C. Penny, and Whiting Petroleum.

More than two thirds of states are relaxing restrictions this week and America is slowly returning to work. But the timing of re-opening schools and many types of businesses is still unclear. We know that it will take longer than we would like for our economy to return. The Director of the National Economic Council says things are starting to turn. The White House Economic Adviser thinks we are looking at a very strong third quarter. The Treasury Secretary expects economic conditions to improve in the third and fourth quarters. The Chairman of the Federal Reserve says a full recovery may not happen until the end of 2021. In the meantime, Americans need to repair or shore up some of our personal finances and that means a hunt for current income as well as future returns.

When looking at stocks, the New York Times recently reported that, from 1926 through March 2020, dividends alone accounted for 40.2 percent of the total return of the S&P 500 Index. Several market strategists and asset managers contend that corporate buybacks have in fact been the only net source of money entering the stock market since the 2008 financial crisis. Now, the CARES Act precludes public companies that borrow money from buying back any of its company stock or issuing any dividends for one year after the repayment of the loan or the expiration of the loan guarantee, unless there was a pre-existing contract. There may be political pressure to extend this. Some of the companies that have already announced the reduction or suspension of dividends are Ford, Delta, Boeing, Macy’s, Marriott, and Disney. Unlike bond interest, stock dividends are always only paid at the discretion of corporations. If we assume that the coronavirus-induced recession produces dividend cuts of around 25%, that means investors could collectively lose between $100 billion and $150 billion in annual dividends on top of losses from stock price declines this year. Although the Nasdaq is up more than 2% year-to-date at the time of this writing (primarily due to Netflix, Alphabet, Amazon, and Facebook), the Dow is down 14% and the S&P 500 is down 9%. So, some big portfolio hits are in store.

As public companies announce cuts or suspension of suspend quarterly stock dividends for this year and perhaps longer, we remind ourselves that interest payments on the vast majority of municipal bonds will continue. Munis offer the opportunity to either supplement or replace those missing stock dividends with tax-exempt income. Last week saw an $800 million Baa3 rated financing for the State of Illinois featuring a 25-year maturity with a 5.75% coupon priced at a discount to yield 5.85%. This week, in addition to the $4 billion of new tax-exempt bonds expected to come to market, our municipal bond traders are also seeing $3 billion of taxable municipal bond issues, some of which feature interest exempt from state taxation for in-state residents. These include insured general obligation bonds for the City of Bridgeport, A1 rated revenue bonds of the Great Lakes Water Authority, and an A- minus rated sale for the University of Tampa. In addition, the new issue calendar includes quality municipal bonds being sold in the corporate bond market. Some examples include AA+ rated Northwestern University and AA rated Emory University. Our corporate bond trading desk monitors these sales as well as higher yielding corporate debt trading in the secondary market.

Credit analysis has never been as critical as it is now in the process of evaluating the merits of all these individual offerings. As a result of this pandemic-induced recession, outlooks, ratings, and events affecting performance and durability are changing weekly. Your HJ Sims advisor can help guide you through many of the key considerations. These include reviews of historic default rates for municipal and corporate bonds (at 0.18% and 1.74%, respectively). They include technical factors, such as mutual fund flows, inventories, bids-wanted, redemptions, and visible supply. It is equally important to consider fundamental factors including liquidity, cash flow, utilization, and debt service coverage. But this is a time in which we all need to consider broader contexts: how local and regional economies have been impacted, political leadership, community sentiment, changing demographics, direct federal stimulus whether in the form of low interest loans or block grants, and central bank liquidity facilities made available to support our primary and secondary markets. All play a role in determining the level of risk inherent in an investment and its suitability as a short- or long-term holding in your portfolio. At HJ Sims, we believe in the outcome of income. Thinking together in new ways as we define the “new normal” for our continent, we look forward to finding bond solutions that work for you.

HJ Sims Closes Financings for Lenbrook, MRC Manalapan; Partners with Voralto for Acquisition

CONTACT: Tara Perkins, AVP Marketing Communications | 203-418-9049 | tperkins@hjsims.com

HJ Sims Closes Financings for Lenbrook, MRC Manalapan; Partners with Voralto for Acquisition

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful closing of three transactions.

Lenbrook, a life plan community in Atlanta, GA, pursued financing for its recent Kingsboro at Lenbrook expansion. After a successful 2016 refinancing and a 2018 pre-development financing, Lenbrook again retained Sims to manage the financing process for the $107 million project. A priority  of Lenbrook’s was to maximize the ability to deleverage the debt of the financing without penalty. The entrance fee debt was maximized and the long-term debt amortized while permitting early repayment from turnover entrance fees.

 Sims coordinated a request for proposals to gauge interest in both the entrance fee and long-term debt. Due to the COVID-19 impact on bond markets and conduit bond issuers, Sims coordinated with the board and management of Lenbrook to pivot the transaction from tax-exempt financing consisting of bank short-term debt and long-term fixed rate bonds to taxable all-bank financing while closing early and achieving Lenbrook’s goal of maximizing deleveraging while maintaining flexibility. Fitch assigned a BBB- rating with stable outlook.

In Monmouth County, New Jersey, MRC Manalapan (MRC) is developing an assisted living and memory care community. MRC principals (and LV Development) collaborated with Springpoint Senior Living (Springpoint) to arrange the project and contracted with Springpoint to operate the community (Springpoint at Manalapan) under a long-term lease. Sims was engaged to implement debt financing supplemented by equity provided by the MRC principals.

Following a Sims-led solicitation, Peoples United Bank was selected to provide $14.3 million of taxable senior debt financing, incorporating a construction/mini-perm structure with a five-year balloon maturity. The loan includes tiered-interest rate pricing with reductions in loan credit spread following progression from construction, opening and stabilization. Primary security includes a revenue pledge and property mortgage. Supplemental security includes dual guarantees provided by the MRC principals and succeeded at completion by a limited tenant guaranty. Sims, Peoples and the financing team worked diligently with the MRC principals to secure final approvals, successfully closing in mid-May 2020.   

Established in 1977 and headquartered in Houston and Dallas, TX, Voralto is a 42-year-old senior housing owner/operator with a combined 120+ years of experience in the senior housing industry. Committed to growing the company through strategic acquisitions and new developments, Voralto currently owns/operates 8 assets totaling 590 beds in TX and GA. Sims was approached by Voralto to provide equity for the acquisition of an assisted living and memory care community in northern TX. Voralto’s business plan included the implementation of operational changes.

Sims formed a joint venture with Voralto to acquire the community. Sims’ equity provided liquidity to overcome any short-term performance issues resulting from COVID-19 and time to implement the business plan.

Scheduled to close in March, Sims and Voralto overcame challenges from COVID-19. Drawing from expertise of its bankers and investors, Sims underwrote Voralto’s business plan and provided a customized solution.

Financed Right®:

Non-profit: Aaron Rulnick: arulnick@hjsims.com | For-profit: Jeff Sands: jsands@hjsims.com

HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm, headquartered in Fairfield, CT, with nationwide locations. www.hjsims.com. Investments involve risk, including loss of principal. This is not an offer to sell or buy any investment. Past performance is no guarantee of future results. Member FINRA, SIPC. HJ Sims is not affiliated with Lenbrook, MRC Manalapan, Voralto Funding I. Facebook, LinkedIn, Instagram Twitter.

HJ Sims Expands Investment Banking Team to West Coast, Midwest; Grows Private Client Team in Florida, Puerto Rico

CONTACT: Tara Perkins, AVP Marketing Communications | 203-418-9049 | tperkins@hjsims.com  

HJ Sims Expands Investment Banking Team to West Coast and Midwest; Grows Private Client Team in Florida and Puerto Rico 

FAIRFIELD, CT HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935is pleased to announce the addition of two senior bankers as the firm expands with the opening of new offices in the Midwest and on the west coast. 

Lynn Daly joins Sims as Executive Vice President in its new Chicago location with 30+ years of experience working with nonprofit organizations in financing. Daly was acting head of Senior Living Investment Banking at BB&T Capital Markets, where she managed BB&T’s senior living relationships in the Midwest, facilitating financings of $1.3+ billion. Prior to BB&T Capital Markets, Daly spearheaded the Catholic Initiative within senior living investment banking for Ziegler, and served as Head of Allied Irish Bank’s Midwest region. Daly earned a BS in economics from Kalamazoo College, and an MBA from Northwestern University’s Kellogg Graduate School of Management.  

“We are so thrilled to welcome Lynn Daly to the HJ Sims family. Lynn is a well-respected and nationally recognized thought leader in the senior living sector and the perfect leader to grow our presence in the Midwest and to work with our team as we continue to expand throughout the US. Lynn’s extensive experience as both a senior commercial and investment banker, along with her integrity, deep knowledge, and client-centered approach, are vital characteristics and values that will guide our clients and business partners through these challenging times,” said Aaron Rulnick, Managing Principal, Sims. 

Brady Johnson joins Sims as Senior Vice President in its new west coast office, in Orange County, CAPreviously with Hunt Real Estate Capital, Johnson was responsible for real estate debt originations for seniors housing and healthcare properties. He helped establish the firm’s seniors housing real estate lending platform, including a proprietary bridge loan program and expansion of the firm’s agency and HUD financing capabilities. Johnson closed the firm’s first Fannie Mae seniors housing loan, followed by its first seniors housing Freddie Mac loan. Prior to joining Hunt, Johnson served as Director of Seniors Housing & Healthcare at RED Capital Group, and served with GE Capital in various commercial finance roles. Johnson earned an MBA from Thunderbird School of Global Management and Bachelor’s degrees (Economics and Spanish) from the University of Utah.  

“We are excited to welcome Brady Johnson to the Sims family. Brady will help establish our west coast presence serving for-profit and non-profit senior living clients. Brady’s broad experience in FHA, Fannie Mae, Freddie Mac, mezzanine and senior housing financeand his focus on achieving the best solutions for his clients make him a great asset,” said Jeffrey Sands, Managing Principal, Sims. 

In late 2019, Sims expanded its Private Client team, adding aoffice in Jupiter, FLhousing a three-person advisory team, as well as a senior partner of Sims Energy. HJ Sims’ Puerto Rico private client office moved its Guaynabo headquarters to a larger space iMetro Office Park. The spacious quarters enable the team to better host clients, while the expansion reinforces Sims’ established presence and growth on the island. 

HJ SIMS: Founded in 1935HJ Sims is a privately held investment bank and wealth management firm, headquartered in Fairfield, CT, with nationwide locations. www.hjsims.com. Investments involve risk, including loss of principal. This is not an offer to sell or buy any investment. Past performance is no guarantee of future resultsMember FINRA, SIPC. FacebookLinkedInInstagram Twitter. 

CaraDay Healthcare

As part of a larger portfolio acquisition, CaraDay Healthcare acquired the fee simple interests in four skilled nursing communities located in Temple, Texas. CaraDay is a newly formed healthcare company whose skilled nursing centers are advancing integrated and coordinated care that delivers superior outcomes, experience, and value.

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