Market Commentary: Evolving Ecosystems

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Through Facebook and Twitter, mountains of data providing insight on human behavior are available to advertisers and social scientists to study and exploit. Via algorithms used in video gaming, datamining is also being applied to the analysis of behavior in nature, where technology now provides oceans of data documenting the social behavior of fish, for example, to help us better understand and model ecosystems. As it turns out, fish form dynamic social networks well outside of schools, taking cues from each other and telegraphing critical information such as where it is safe to go and eat.

These days it is hard for those of us on solid ground to know where it is safe to go out — never mind what is safe for us to invest in. The Federal Reserve, the executive and legislative branches of government at the federal, state and local levels have taken unprecedented actions to both depress and bolster our economy since January. Social media, social distancing, home delivery services, N95 masks, UV-C light, air purifiers, corticosteroids, Vitamin D, convalescent plasma, all appear to be aiding us in battling this pandemic. Common sense, gut instinct, and trusted family, friends, colleagues, and investment advisers are also guiding us as we endeavor to protect our savings and boost our investments in an evolving ecosystem amid an ocean of uncertainty.

We are six months a pandemic that has felled more than 1 million around the world. Our nation has been struck by a recession of historic proportion. But many students are back in the classroom. Consumer confidence just jumped to 101.8 in September, up from 86.3 in August. Daily TSA Airport Passenger screenings have risen from 87,534 on April 14 to 873,038 on September 27. Retail sales have exceeded pre-crisis levels since June. New home sales have risen at the fastest pace since 2006. The Federal Reserve Chair, in testimony before Congress, refers to our economic recovery as “highly uncertain” and points to the need for additional stimulus. But the last jobs report reflected positive momentum. Data on September, the last we will see before November 3, will be reported on Friday. Third quarter GDP will be reported a mere five days before Election Day.

The stock market has had some significant intraday twists and turns in September trading and many strategists expect volatility to increase as we draw close to the presidential election. At this writing with one more day of data to go, equity indices are all down for the month: after swinging by more than 2300 points the Dow is down more than 3%, the S&P 500 has fluctuated by more than 340 points and has fallen over 165 points, and the Nasdaq has lost 6% with intramonth highs and lows varying by as much as 1400 points. On the commodity side, oil prices have fallen nearly 9% to $38.86 and gold prices are down more than 4% to $1,886 an ounce. Bond markets have been remarkably steady. Treasuries have traded in a narrow range all month, strengthening overall. The 2-year yield stands at 0.12%, the 10-year at 0.65% and the 30-year at 1.42%. The 10-year BAA corporate bond yield is flat on the month at 3.01%. Investment grade corporate issuance now exceeds $1.53 trillion in 2020. High yield corporate issuance at $335 billion is already higher than it has been for any full calendar year on record; this month’s volume exceeds $45 billion but the sector is expected to post a loss of 1.30%.

In the municipal bond market, the AAA general obligation bond 2-year benchmark yield has dropped 3 basis points this month to 0.13% while the 10-and 30-year yields have risen by 2 basis points to 0.83% and 1.58%, respectively. Municipal Market Analytics reports that munis have been essentially unchanged for 22 consecutive sessions, beating a 40-year old record. Approximately 40% of primary market sales in September have been federally taxable. Investors took in $25 billion of cash from bond redemptions and maturities; $2.2 billion flowed back into municipal bond mutual funds. Funds have seen 20 straight weeks of net inflows. Year-to-date, the BofAML Municipal Index is up 3.31%; the High Yield Index has returned 0.93% and the Taxable Muni Index 10.86%

September muni volume will likely exceed $50 billion for the second consecutive month. Among the higher yielding transactions last week, Lake County, Florida sold $126 million of non-rated bonds for Lakeside at Waterman Village in a financing that included 2055 term bonds priced at 5.75% to yield 5.58%. The Washington Housing Finance Commission issued $81.3 million of non-rated bonds for Rockwood Retirement Communities structured with 2056 term bonds priced with a coupon of 5.00% to yield 5.25%. The North Carolina Medical Care Commission came to market with a $53 million BBB-minus rated deal for Friends Homes that had 30-year term bonds priced at 4.00% to yield 3.48%. The Public Finance Authority of Wisconsin was in the market with a $22.8 million non-rated financing for Freedom Classical Academy In North Las Vegas structured with 2056 term bonds priced at 5.00% to yield 4.89%. The Colorado Educational and Cultural Facilities Authority sold $18.7 million of non-rated bonds for Liberty Tree Academy that came with 30-year term bonds priced at par to yield 5.75%.

This week, the markets are focused on the first presidential debate, quarter-end portfolio rebalancing, the Friday jobs numbers, prospects for agreement on a pre-election stimulus bill, Treasury loans to U.S. passenger airlines, economic data from China, outflows from high yield corporate bond funds, and a string of Federal Reserve speakers. As we enter the final quarter of the year, we encourage you to contact your HJ Sims advisor to review your positioning and strategy.

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Market Commentary: Twisting Path to Election Day

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In the 40 days to Election Day, we follow a path with many twists and turns, certain only to be surprised by what is around the next corner. We have already had quite a journey this year, one that has taken us into a pandemic, a recession, and in directions never before traveled in terms of fiscal and monetary policy, lockdowns, and behavioral change. The appointment of a new Supreme Court Justice may lead us into a right turn, but other developments could have us bear left. The Federal Reserve has used all of its paving powers to try and keep our economy us on a straight and narrow course – one that may extend out to mile markers in 2023.  Financial markets have not always followed it. Stocks have stumbled this past week under a range of pressures. But since Labor Day, the bond markets have been keeping a steady pace. The municipal bond market has seen almost no change in price for three consecutive weeks.  Benchmark yields offer us no clue on future direction, although market history since 2014 tells us that the quarter end tends to take us on a downward slope. At this writing the 2-year Treasury yield and the 2-year AAA municipal general obligation bond yield are at 0.13%, the 10-year Treasury yields 0.66% and the tax-exempt counterpart yields more at 0.84%. The 30-year Treasury yields 1.42% while the 30-year muni is higher at 1.58%.

Last week’s $9 billion municipal calendar met with another warm welcome.  HJ Sims came to market with an $18.1 million BB rated issue for Presbyterian Villages of Michigan and sold the 4.75% Public Finance Authority bonds due in 2053 at a discount to yield 5.00%.  Among other senior living deals, the North Carolina Medical Care Commission had a $96 million BBB+ rated deal for Presbyterian Homes that featured 5.00% bonds due in 2050 at a yield of 3.03%. The Kalamazoo Economic Development Corporation issued $47.8 million of BB rated bonds for Heritage Community’s Revel Creek expansion that had term bonds due in 2055 priced at 5.00% to yield 4.40%. Franklin County, Ohio brought a $27.8 million BBB rated financing for Ohio Living Communities that included 2045 term bonds priced at 4.00% to yield 3.73%.  In the education sector, the St. Paul Housing and Redevelopment Authority issued $26 million of BB+ rated charter school bonds for Hmong College Preparatory Academy that had a maximum yield of 3.55% in 2055, and the California School Finance Authority brought a $10.1 million non-rated deal for Real Journey Academies that had a 39-year maturity priced at 5.00% to yield 3.98%.

At these, or even lower rates prevailing for most issuers, the volume is expected to increase for the next five or six weeks. So much uncertainty surrounds Election Day and outcomes that may not be known for days, weeks or months that borrowers are rushing to bring deals to market as soon as possible.  This week’s muni calendar is expected to exceed $12 billion. Corporate high yield issuance is only $2.5 billion away from a record high for the year and investment grade issuance is expected to total $30 billion. We encourage you to contact your HJ Sims financial professional to discuss whether your portfolio is well positioned for the twists and turns in the months ahead, how you might better prepare, and which opportunities to anticipate.

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Financing the Perception of Safety

FOR IMMEDIATE RELEASE

September 22, 2020

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

Financing the Perception of Safety
Senior Living Survey Finds Residents Feel Safe, Glad to be Part of a Community during Pandemic 

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, participated in the Senior Living COVID-19 Sentiment Report, which surveyed 4,000+ current and prospective senior living community residents, assessing their thoughts/ feelings about the COVID-19 pandemic. Lynn Daly, Executive Vice President, Sims’ Chicago office, authored content included in the 104-page report, COVID-19 Sentiment Report: A Survey of Independent Living Desirability & Safety.

The Survey, published by Plante Moran Living Forward and Retirement DYNAMICS®, was distributed to 23,000+ residents, prospective residents and staff at senior independent living communities nation-wide.

Among the results, it was discovered that of more than 4,000 current and prospective senior living community residents, 77% of current senior living community residents were somewhat or strongly supportive of living in a community during the Pandemic, with 87% of prospective community residents feeling somewhat or strongly glad to be living at home during the Pandemic. Click here to download the report.

While surveyed prospects worried about social isolation and daily tasks when living in their own homes, Survey results showed a slight decrease in their likelihood to move into an independent living community due to the Pandemic. The survey revealed:

  • 92% of staff felt their community responded well to Pandemic.
  • 93% of residents felt their community took all precautions.
  • 85% of staff agreed residents “are safer in their community than in their previous homes.”
  • 77% of residents said they were “glad to be living in a community during the Pandemic,” with 86% affirming they were glad they moved.
  • Prospective residents (61%) and residents (68%) felt socially isolated during shelter-in-place.
  • 74% of prospective residents reported their time frame for a move has been unchanged.

While independent living communities received high marks from seniors on cleanliness, sanitation and communications, communities earned low grades on recreation activities, dining and technology offered during shelter-in-place.

The Survey received a 21.1% overall response, and was sent to independent senior living communities throughout the U.S., generating 7,000+ comments. The results indicate that prospective senior living residents recognize that living in a community would provide them peace of mind, safety and security. However, they are happy to be home during the Pandemic. For senior living providers and operators, making small operational changes can improve prospective residents’ perceptions, with the hope that they will make the commitment and enjoy what moving to a campus would provide.

“HJ Sims is deeply passionate about the providers we serve. We appreciate that COVID-19 has stretched our provider clients in unimaginable ways, including resident and staff safety, retention/recruitment of staff, uncertainty and negative press. We welcome helping those in the industry become more knowledgeable about COVID-19 and are pleased to provide relevant data on what providers are doing right, and where they can improve to align themselves with the perceived needs of consumers and staff. We have tremendous faith in the non-profit senior living model and embrace the opportunity to support its sustainability and resilience,” said Daly.

Ms. Daly has 30+ years of experience working exclusively with nonprofit organizations on their financing needs. Read more here.

Lynn Daly: ldaly@hjsims.com | 312-505-5688.

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, HJ Sims has nationwide investment banking, private client wealth management and trading locations. Member FINRA, SIPC. Facebook, LinkedIn, TwitterInstagram.

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Market Commentary: Rock, Paper, Scissors

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Hope is what sustained the 102 passengers of the Mayflower who departed from Plymouth, England for the New World four hundred years ago this week. In far more grim circumstances than we face today, on September 16, 1620, there were 41 Protestant Separatists or “Saints” – better known today as the Pilgrims – seeking freedom from the Church of England. A larger group of commoners including servants and children dubbed “Strangers” simply gambled the little they had on a new life in an unknown place in northern Virginia. They were 50 men whose average age was 34, 19 women, 14 teenagers and 19 children. The oldest was 64 and the youngest, Oceanus, was born during the voyage, which was financed by London stockholders. Crammed together with sheep, goats, chickens and dogs on the gun deck only 58 feet long, 24 feet wide and 5.5 feet high, they spent a grueling 66 days at sea during the height of the storm season. They ate old bread and dried fruit and salty fish; with no fresh drinking water, each person was rationed a gallon of beer per day. Nearly five percent of those aboard died en route. Yet, they were filled with gratitude to meet their new world.

The Mayflower passengers arrived in New England on November 11 and a group of 41 managed to draft and sign a 200-word document that came to be known as the Mayflower Compact, the first document to establish the framework for our self-government. It was a simple text, one worth a review in this complicated era where there are too many federal laws in force to count and even more regulations among the 50 subject matter titles in the Federal Register. Signatories agreed to “solemnly and mutually, in the presence of God, and one another; covenant and combine ourselves together into a civil body politic; for our better ordering, and preservation and furtherance of the ends aforesaid; and by virtue hereof to enact, constitute, and frame, such just and equal laws, ordinances, acts, constitutions, and offices, from time to time, as shall be thought most meet and convenient for the general good of the colony; unto which we promise all due submission and obedience.”

Plymouth Rock was said to have “received the footsteps of our fathers on their first arrival” in Plymouth Harbor on December 21, 1620. But, as the Pilgrims and the non-believers slowly built their town, they largely remained aboard the Mayflower in tiny quarters for another four harsh winter months. They endured outbreaks of scurvy, pneumonia and tuberculosis, malnutrition and exposure. Only 52 of the passengers departing from England, including 5 women and half of the 50-man crew, survived that first winter.

There are an estimated 10 million living Americans and 35 million people around the world who are descended from the original passengers on the Mayflower. Several hundred thousand who are not descended from the Aldens, Bradfords or Winslows still risk untold peril every year to come to America by sea, land and air. Latest federal data show that 7.8% of our population self-designates as having English roots, 14.7% German, 12.3% Black or African-American, 10.9% Mexican, 5.5% Italian, 3.3% French, 3% Polish. The U.S. population exceeds 331 million now outnumbered by only China and India. More than 40 million of us were born in another country. 56 million of us are aged 65 or older, but our median age is 38.3 years. Approximately 6.3 million of us work in financial services.

In difficult times, it is important to maintain perspective in order to remain hopeful, much like the Mayflower passengers; we must hold steadfast to the belief that the world will improve. In a time where we are concerned for our loved ones, and in an era where we feel nervous, we must remember that back in the time of the Mayflower, the death rate of the newcomers exceeded 50%. At this writing, the COVID-19 death rate per 100,000 population is 0.06%. However, with tragedy comes a sense of gratitude for what we do have, for what kindness exists in the world. And, we hold hope for a vaccine, we have appreciation for our medical workers who treat those who are need, we gather to help strangers and neighbors, alike. Overall, this is a time to come together—we can experience this as an opportunity to unite.

Perspective helps us process the deaths of more than 196,000 Americans at this writing. With a changing world, twenty-nine million of us are receiving some type of unemployment assistance and many more have had hours or pay cut and income slashed. We have become adaptable as a significant number of children can only go to school online, but some are unsupervised and others have only limited access to the internet and learning. Small businesses are closing by the thousands in cities and small towns—some transitioning to an online model with the evolution of these times. On top of all of this, hurricanes and floods have battered the people of the southeast and megafires have destroyed nearly five million acres in the West. After six-plus months, we see some pockets of recovery but much of the nation is exhausted, numbed, or in a state of shock. The luckier among us gripe about inconveniences: gyms and salons closed, lost vacations, reunions and celebrations postponed. But at night, most of us toss and turn, worry about our college students, our parents in health care facilities, a second wave of illness, our weight, our retirement, the vaccines being rushed to market, how long we can postpone medical tests and procedures, whether our vote will count in November. Life has changed dramatically for many in these past seven months.

The financial markets are always looking to the future and the view from Wall Street is still much rosier than the one from Main Street right now. Investors have come to look to the Federal Reserve as the Rock of Gibraltar, a veritable Pillar of Hercules – a mythical point once marking the limit to the known world, now widely viewed as our barrier to unthinkable loss. So far so good. But the Fed can only loan money. So, state and local governments and markets have also looked to Washington for fiscal relief. Again: so far so good. Maybe too good. Federal spending topped $6 trillion for the first time last month and the federal deficit has topped $3 trillion for the first time; Congressional appropriators are discussing even more fiscal spending but cannot reach agreement. Eventually, they will have to take the scissors to the budget, but for now we are in historic spending mode. The President has taken certain executive actions, and perhaps no more legislative is necessary or possible until after the elections, so it is to the unelected officials of the central bank that we look for any further immediate relief if needed. 

The Fed’s monetary policy committee, the Open Market Committee, met this week for the 8th time this year and provided reassurance that they will be accommodative, hold interest rates at rock-bottom levels through 2023 and basically do whatever else is required for our economy. Economic data show that we have regained at least half of the loss of output so we may see third quarter gross domestic product above 25%. CNN and Moody’s Analytics have teamed up to produce a “Back-to-Normal” Index that actually shows the U.S. at 80% of pre-pandemic levels.

Despite the pandemic-induced recession and pain experienced across virtually every sector, the S&P 500 is up 5.27% this year, the tech-heavy Nasdaq is up nearly 25%. Gold has gained more than 28%.  The 2-year Treasury has strengthened significantly; its yield has dropped lost 143 basis points and currently stands at 0.13%.  The 2-year municipal general obligation bond yield has fallen 91 basis points to 0.13%. The 10-year Treasury at 0.67% is down 124 basis points. The 10-year muni has decreased 60 basis points to 0.84% and the 10-year Baa corporate bond yield at 2.98% is down 72 basis points.  The 30-year Treasury yield has fallen 95 basis points to 1.43% and the comparable muni yield has shed 51 basis points to stand at 1/58%.

Corporate and municipal borrowers continue to vie for space on the calendar of buyers.  So far this year, tax-exempt muni issuance at $337 billion is up 33% year-over-year. Corporate bond issuance as a whole totaled $210 billion in August alone. High yield corporate issuance exceeds $308 billion so far this year, up 74% from 2019.  Mutual fund investors have added a net of $19.2 billion to municipal bond funds, $139.4 billion to investment grade corporate funds and $40.8 billion to high yield corporate funds. With record Treasury issuance this year, outstanding debt at 9/15 totals $26,790,503,839,118.28 and returns are up about 9.31%.

Last week was shortened by the Labor Day holiday but it was by no means a quiet one. HJ Sims underwrote a $107.3 million A-minus rated revenue bond issue for Presbyterian Retirement Communities which we structured with tax-exempt term bonds due in 2055 priced with a coupon of 4.00% to yield 3.10% and taxable bonds due in 2050 priced at 4.00% to yield 4.125%.  Among recent deals on the high yield calendar, there was a $17.1 million BB+ rated California School Finance Authority issue for Classical Academies that had a thirty year term bond priced at 5.00% to yield 3.42%; a $13.3 million Ba1 rated Public Finance Authority financing for KIPP Charlotte that included 35-year term bond priced at 5.00% to yield 4.50%;  and a $10.3 million BB+ rated New Hope Cultural Education Facilities Finance Corporation issue for Southwest Preparatory Academy in San Antonio that came with a 2050 maturity priced at 5.00% to yield 4.00%.

This week, Plymouth, Minnesota has a $41.7 million general obligation bond sale planned. Local Massachusetts news reports that Plymouth Rock, the Landing Place of the Pilgrims, the symbol of our country’s first hardships and struggles, a representation of our freedom and desires for a better life, an international attraction typically drawing a million tourists every year, has unfortunately been vandalized for the second time in one week. Yet, we persevere.

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Market Commentary: Alternatives

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There are only 54 days to Election Day (at the time of this writing). We can tell by the attack ads on TV, the robo calls, the mailers, the endorsements, the increasingly slanted campaign coverage from all sides. The fight is often framed in terms of Democrats versus Republicans, conservatives versus. liberals, progressives versus moderates, left versus right, Red versus Blue, incumbents versus challengers, the Coasts versus the Heartland, or Us versus Them. It is said to be the most important election ever, once again. And, as the sportscaster in Rocky IV exclaimed, “It’s a gutter war – no holds barred!”  On the presidential ballot, we do not hear much about the fifteen third party and independent candidates. So, for those taking due diligence seriously, it may seem that considering all the alternatives, the choices are more difficult. But, as the big day draws nearer, our choices dramatically narrow to essentially two as we examine our options from the perspective of our vested interests to either find the candidate who will best represent us or “pick the lesser of the evils” as some believe. As Henry Kissinger once said, “The absence of alternatives clears the mind marvelously.” Speaking of alternatives…

The alternative minimum tax (AMT) and the ordinary income tax are two parallel income tax systems in the U.S. The former was enacted in 1969 by Congress after the public became outraged to learn that a significant number of higher income filers had so many itemized deductions that they paid no income tax. So, to ensure that everyone pays what is viewed as their “fair share,” taxpayers must calculate their taxes under each system and pay whichever is higher. But, since the AMT was not indexed for inflation until 2013, over time more and more retirees and middle class taxpayers became subject to the higher rate. About five million filers were paying the AMT in 2017 when the Tax Cuts and Jobs Act was enacted. The new law applies to tax years 2018 to 2025. It increases the AMT exemption (generally $113,400 for married couples in 2020), indexes it to inflation, and sets the income levels at which the exemptions phase out at much higher levels (generally $1,036,800 for married couples filing jointly in 2020). Many of the tax breaks that triggered the AMT for middle class taxpayers have been changed, so there needs to be quite a few tax preference items to trigger it. These include incentive stock options, a large amount of long-term capital gains, some types of accelerated depreciation, and interest on private activity bonds. Fewer than 200,000 households are now impacted and corporations are no longer exposed to AMT liabilities.

Income from private activity bonds that fund private company projects that benefit the public such as stadiums, airline terminals, and solid waste facilities may be subject to the AMT, meaning that interest income would be taxed at the applicable AMT rate. This could be 26% or 28%. That would be a major hit to muni yields already at or near historic lows. It is easy to tell if a bond is subject to the alternative minimum tax. Since 1986 it has been required that a tax attorney provide an opinion stating whether or not the interest on each muni bond is a tax-preference item subject to the AMT. The opinion is clearly printed on the cover of each official statement. Investors must read any muni bond fund prospectus more carefully. Some funds, including Vanguard’s, may invest as much as 20% of their assets in private activity bonds so a portion of their income distributions may be subject to the AMT.

Investors are advised to speak with their tax advisors before buying bonds, or funds with bonds, that are subject to the AMT.  For those who are not subject and not likely to become subject, we encourage you to contact your HJ Sims advisor.  AMT bonds can offer some incremental yield pickup in the range of 20 basis points in the current market. They also provide access to different sectors of the muni market such as pollution control projects, student loans, single-family housing, and public-private venture expressways.  Among major issuers of both AMT and non-AMT bonds are the Port Authority of New York and New Jersey and the City and County of Denver, Colorado. Last week, The New York Transportation Development Corporation issued $1.51 billion of Baa3 rated special facilities revenue bonds subject to the AMT for the Delta Air Lines Terminal C and D redevelopment project at LaGuardia Airport. The 2045 term bonds priced at 4.375% to yield 4.55%.

HJ Sims was in the market last week with a $134.9 million Palm Beach County Health Facilities Authority bond issue for the Toby and Leon Cooperman Sinai Residences of Boca Raton expansion. We structured the non-rated Series A bonds with a 2055 maturity priced at 5.00% to yield 4.60%. The Series B-1 bonds due in 2027 were priced at 3.00% to yield 3.05%, the Series B-2 bonds due in 2025 were priced at 2.625% to yield 2.75%, and the Series C taxable bonds due in 2024 had a 3.875% coupon priced to yield 4.00%. Among other senior living financings, the Economic Development Corporation of the City of Grand Rapids and the Michigan Strategic Fund brought $47.1 million of BBB-minus rated refundings for United Methodist Retirement Communities and Porter Hills Presbyterian Village with final maturities in 2044 priced at 5.00% to yield 3.88%.

This week’s muni calendar is expected to total $7 billion but the investment grade corporate market may see as much as $50 billion of new issues.. At this writing, the 2-year AAA municipal general obligation bond yield stands at 0.15% versus the 2-year Treasury at 0.14%. The 10-year muni benchmark is at 0.83% while the comparable Treasury yield is 0.68%.  The 30-year tax-exempt yield is 1.57% and the Treasury is lower at 1.43%. The 10-year A rated corporate bond yields 2.22%. Stocks are weaker for the third session, sinking to a four-week low. Oil at $36.87 a barrel has fallen to prices last seen in mid-June. Gold at $1,930 an ounce is 6% off its record August high. This week’s economic calendar includes Job Openings, the Producer and Consumer Price Indices. The Senate returns from recess to vote on an alternative stimulus measure and the nation pauses on Friday, the 19th anniversary of September 11 to honor the memory of those lost and pay tribute to heroes we will never forget.

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Market Commentary: Under Pressure

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We live in a world where every inch of our body is subjected to atmospheric pressure of about 14.7 pounds per square inch (psi) at sea level. We don’t do well with abrupt increases, but if the pressure rises gradually, we are able to tolerate a lot more — something even in the range of 400 psi. There are, of course, other pressures placed upon us: pressures to be perfect, to be successful, to fit in, to be fit. From physics, we recall that the only characteristic of pressure is magnitude. From life, we know that magnitude fluctuates and that it often cannot be controlled.

For six months now, governmental policies developed in response to the pandemic have placed unprecedented pressures on individuals, families, groups, businesses, and communities. Some are folding under the pressure, other have exploded, some have adapted, others thrive. Some take medication for relief, others find release in other forms: prayer, kickboxing, community service, grants, loans, forbearance. Many state and local governments and other enterprises working with shaky budgets are unwilling to accept what may be permanent changes in revenues and expenses, and hold their breath for a fifth windfall from Washington. Financial markets, on the other hand, have enjoyed 11 years of monetary policy windfalls in the form of low rates, frequent injections of liquidity, and an ever-expanding balance sheet. So far, none have cracked under the strain of record levels of debt issuance by the U.S. Treasury and American corporations, the worst collapse in GDP in our history, 27 million unemployment claims, hundreds of bankruptcy filings, $26.7 trillion of national debt, a $4 trillion federal budget deficit, $110 billion of state budget shortfalls, and unfunded pension liabilities of $1.62 trillion. Quite to the contrary.

S&P 500 has more than fully recovered from the March coronavirus lockdown shock and is up 8.3% on the year to 3,500 as of August 31. The Nasdaq is up a staggering 31% in 2020 to 11,775. Gold has gained 30% and is now priced at 1,971 an ounce. The 2-year Treasury yield at 0.13% has plummeted 143 basis points. The 10-year is down 121 basis points to 0.70%. The 30-year at 1.47% is 91 basis points lower. The 10-year BAA corporate bond yield has fallen 68 basis point to 3.02%. In the tax-free sector, the 2-year AAA municipal general obligation bond yield has dropped 88 basis points to 0.16%, the 10-year is down 63 basis point to 0.81% and the 30-yield has fallen 53 basis points to 1.56%.

Last week, the Fed indicated that it will continue to monitor the pressure gauge, remaining accommodative regarding rates and tolerating periods of higher inflation in order to focus on keeping unemployment low. The forward-looking stock market, full of optimism for coronavirus treatments and vaccines and pleased with the better than expected economic data, continued to rally. But inflation is not welcome in the lexicon of bondbuyers, so a pressure switch was triggered.. Municipals and Treasuries both weakened; for tax-exempts, it was the third consecutive week of higher yields. Muni investors, flush with cash from more than $47 billion of maturing and called bonds in August added a total of $9.5 billion to mutual funds and ETFs despite increasing credit concerns. On the month, Treasury returns fell 1.20%. The general muni market as measured by the ICE BofAML Municipal Index lost 0.34% while the High Yield Index gained 0.42%. So far this year, Treasuries are up 9.02%, munis are up 3.25%, taxable munis are up 10.45%, and corporate bonds with maturities of 15 year and longer are up 9.05%.

Primary municipal bond volume in August exceeded $40 billion for the third straight month, propelled by $12.6 billion of taxable issuance. In the high yield sector, the Hastings Campus Housing Authority in California sold $406.8 million of non-rated bonds with a final maturity that went all the way out to 2061 priced at 5.00% to yield 4.95%. The Public Finance Authority issued $73.2 million of non-rated bonds for Whitestone Senior Living in Greensboro, North Carolina structured with 2055 term bonds priced at 5.25% to yield 4.56%, and a $20.8 million non-rated transaction for Pine Springs Preparatory Academy in Holly Springs, North Carolina that had 2055 term bonds priced at 6.25% to yield 6.618%. The North Carolina Medical Care Commission came to market with a $47.8 million non-rated deal for Pennybyrn at Maryfield that included a 2050 maturity priced with a 5% coupon to yield 4.09%. The Arizona Industrial Development Authority brought a $28.5 million non-rated financing for Linder Village in Meridian, Idaho with a single maturity in 2031 priced at 5.00% to yield 5.245%.

This week, HJ Sims is in the market with a $135.8 million expansion financing for the Toby & Leon Cooperman Sinai Residences of Boca Raton. The non-rated bonds are being issued by the Palm Beach County Health Facilities Authority and are structured with maturities in 2024, 2025, 2027, and 2055. Among other deals planned for this week is a $1.3 billion Baa3/BB+ New York Transportation Development Corporation issue for Delta Airlines at LaGuardia Airport Terminals C & D, a $274 million Southern Ohio Port Authority financing for PureCycle, a $162 million BBB/BB+ rated Metropolitan Pier and Exposition Authority deal for McCormick Place, a $48.2 million BBB- rated Michigan Strategic Fund/Grand Rapids Economic Development Corporation transaction for Porter Hills Presbyterian Village, and a $16.5 million BB+ rated California School Finance Authority financing for Classical Academies.

Markets will be closed on Monday as America takes the long Labor Day weekend to decompress and celebrate the many contributions made by its workforce of 160 million to the strength and prosperity of our nation. We hold closest in our thoughts the 27+ million who are unemployed and under employed as a result of the pandemic and hope that, with the help of personal and professional networks, that their searches are soon successful and talents again rewarded.

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Market Commentary: Neither Snow Nor Rain Nor Low Yields

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The first American post office was located in a bar in Boston, and no one who studies American history would be surprised to learn this. The historic 1639 site has since been replaced many times over and is now home to a 42-floor skyscraper of mixed office and residential use in the downtown area. So, Hinsdale, New Hampshire now holds the record for the country’s oldest continuously operating post office, a clapboard structure on Main Street that still boasts the original brass postal boxes. That location is one of 31,322 currently managed by the United States Postal Service, an independent agency of the Executive Branch, with roots dated back to 1792 when first authorized by the U.S. Constitution. Its 630,000 employees handle 48% of the world’s mail volume, operate one of the largest civilian fleets on the planet with nearly 228,000 vehicles, and place itself at the core of a $1.6 trillion mail industry with more than 7.3 million workers.

There has been a lot of attention focused of late on this agency and its prominent, perhaps integral, role in the coming elections. If many of us decide not to vote in-person at polling sites, as expected, will it be able to process millions of mail-in ballots securely and on time? Under the post 9/11 Mail Cover Program, they already photograph the front and back of every piece of U.S. mail as part of the sorting process, and we currently entrust them to handle 471 million pieces of mail every day, 36 million of our annual address changes, and 80 million of our money orders. Many of our local postal workers are highly trusted as neighbors and friends, better known to us than are any other government representatives, relied upon for critically needed deliveries. In the early days of parcel post, even children were “mailed” back and forth between parents and grandparents on rural routes. But, over the years, the postal mission of serving the public good was in large part intertwined with a business model that has become outdated by technology. It is seen by some as a poster child for mismanagement, a target for privatization, or a black hole unworthy of further taxpayer subsidies.

Ben Franklin was the first U.S. Postmaster General and Louis DeJoy is the 75th to hold that role. DeJoy is the second highest paid government official after the President and, since June, has presided over the nation’s largest retail network — bigger than McDonald’s, Starbucks and Walmart combined – paying $2 billion in salaries and benefits every two weeks, overseeing one of the nation’s oldest law enforcement agencies, straining under losses of $2.2 billion between April and June, $11 billion of debt, and Congressionally imposed limits on rate increases as well as requirements for pre-funding retiree health benefits. DeJoy, a CPA and former logistics executive, was just hauled before several Congressional committees in urgent virtual hearings, peppered with questions on his recent policy changes, and led on record to commit to delivering ballots within one to three days of being mailed. He was unable to cite the cost of mailing a postcard (35 cents) but was thankfully not asked to try and recite the famous words engraved on the front of New York City’s Farley Post Office: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds”, written by the ancient Greek historian Herodotus in the 5th century B.C. in reference to messengers in the Persian Empire.

The House of Representatives came back from recess for a rare Saturday session to pass a bill providing $25 billion in emergency funds for the USPS and halt any changes to its operations until after the November election. The funds would be in addition to the $10 billion loan made by the Treasury in July under a provision of the CARES Act. If additional funds are approved by the Senate and White House, they would likely come in the context of a larger stimulus package on which no consensus has been reached since May. Main Street Americans, many struggling with budgets in the hundreds and thousands of dollars find it hard to process discussions involving billions and trillions. And yet these numbers pepper the daily headlines. One trillion is a thousand billion. One billion seconds ago, it was 1988. One trillion seconds ago it was roughly 30,000 B.C. A trillion dollars in $100 bills stacked on top of each other would be 789 miles high. A United Nations policy brief projects that the pandemic will cause $1 trillion in losses to the tourism industry. More than $1.4 trillion if investment grade corporate debt has been issued so far this year. Apple’s market capitalization hit $1 trillion in August of 2018 and it topped $2 trillion last week. The U.S. budget deficit has climbed to a record $2.81 trillion. The total size of the municipal market is $3.9 trillion. The stock market has surged by $13 trillion since its March 23 low; at this writing, the S&P 500 at 3,456 and Nasdaq at 11,589 have risen to record highs. The Chinese economy totals $14 trillion and the U.S. economy totals $21 trillion. Governments and central banks have already committed $20 trillion to pandemic relief efforts The U.S. debt exceeds $26.5 trillion. Assets in U.S. funded and private pension plans exceeded $32 trillion in 2019. The largest banknote on record, 100 Trillion, was issued in Zimbabwe in 2008 at the peak of a hyperinflationary period; it was worth $33 on the black market.

The International Capital Markets Association estimates the size of the global bond market at $128.3 trillion. Bond traders, however, are working with yields that are microscopic. At this writing, the 10-year Treasury yields 0.71%. The comparable sovereign yield in Japan is 0.03%, in the United Kingdom, Spain, and Portugal it is about 0.30%, in Canada it is 0.62%, in France -0.12%, in Germany -0.41%, and in Switzerland -0.47%. The 10-year top-rated tax-exempt municipal general obligation bond yields 0.75%. The U.S. can-maker Ball Corporation recently made history by selling 10-year BB+ rated bonds at 2.875%, the lowest coupon ever in the high yield market for a bond with a tenor of 5 years or longer, according to Bloomberg. There is some nice yield, however, to be found in the U.S. corporate and municipal markets for those able to tolerate some credit and duration risk.

At HJ Sims, neither price trends nor fund flow levels nor light dealer inventories nor lack of primary supply stays our traders from the hunt for and swift execution of purchases and sales for our income-seeking clients. We scour the high yield muni and corporate markets for our clients and offer opportunities to those who contact us with their interests and risk guidelines. Last week, the Tarrant County Cultural Education Facilities Finance Corporation brought a $131.4 million non-rated deal for MRC Stevenson Oaks in Fort Worth that featured 2055 term bonds priced at par to yield 6.875%. The Massachusetts Development Finance Agency had a $56.6 million BB+ rated financing for Milford Regional Medical Center that had a final maturity in 2046 priced with a coupon of 5.00% to yield 3.27%. The Florida Development Finance Corporation issued $14.4 million of non-rated bonds for UCP Charter Schools structured with 2050 term bonds priced at 5.00% to yield 4.70%. The City of Topeka had a $12.4 million non-rated financing for senior service provider Midland Care that included 20-year tax-exempt bonds priced at par to yield 4.00%.

This week, more schools re-open with hybrid learning plans, the world’s foremost economists gather for the first virtual Jackson Hole symposium, and the first virtual Republican National Convention convenes a week after the first virtual Democratic National Convention. U.S. and Chinese trade officials meet, riots continue to upend cities from Portland to Kenosha to New York, and Hurricane Laura threatens our citizens in Texas and Louisiana. There are now more than 179,023 deaths associated with CV-19 in the US. As this summer comes to an end, our thoughts, prayers, and good wishes are with all of the students, families, caretakers, healthcare providers, government officials, party leaders, legislators, thinkers, negotiators, public safety officials, businesses, associations, and market-makers working so hard to help us endure and transcend this pandemic.

Exclusive Opportunities For Our Clients

It Is Best to Read Past the Headlines When It Comes To the COVID-19 Impact

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Genesis Healthcare, Inc. (GEN) the largest nursing home provider in the U.S., released its earnings report last week. The report, and the earnings call, provided some interesting insight into the impact of the COVID-19 pandemic on the nursing home industry.

A variety of financial media outlets reported that Genesis was “battered,” “brought to its knees” and “staring down bankruptcy.” Keeping with the theme of constant negative news that the nursing homes (and senior care industry, in general) are facing in the media. These drastic headlines caught our and our investors’ attention. However, after reading the earnings report and listening to the earnings call, a very different picture emerged – one that is much more cautiously optimistic and in-line with what we are seeing among the senior living communities we have financed.

The real loss – As George Hager, the President of Genesis, explained on the earnings call, COVID-19 dealt a heavy blow to Genesis. However, as Hager points out, the company’s nursing homes, concentrated in the northeast, are already showing signs of recovery. While the company estimated that it had experienced pandemic-related operating losses in Q2 of $213 million, along with an 11% drop in occupancy, what the press did not report was that Genesis also received $228 million in government assistance (not included in earnings) through rate increases, grants, Paycheck Protection Program and other financial assistance. Genesis also reported that some of their hardest hit communities are now COVID-19-free and are seeing improved occupancy rates.

Tom DiVittorio, Senior Vice President and Chief Financial Officer of Genesis directed attention to the fact that nearly 90% of the $145 million of COVID-19-specific additional costs incurred in Q2 were labor-related. DiVittorio further reported that: “These cost levels have come down since their peak in the month of May, as we systematically reduced reliance on expensive agency labor and thoughtfully ratcheted back enhanced pay programs and practices that were absolutely essential during the peak of the outbreaks.”

Tracking the COVID-19 Impact

Is Genesis “facing down bankruptcy?” The “bankruptcy” reference was included in a number of stories and a reference to bankruptcy was included in the earnings report, but a little further reading provides context. As Genesis’ CFO highlighted during the earnings call, under Sarbanes Oxley, Genesis was required to do an analysis of whether they would be able to meet all their financial obligations if (1) they received no further government funding and (2) they made no expense reductions. Of course, the answer to that question was that under those circumstances, they would be in financial trouble and face bankruptcy. It was this last statement that made the headlines in much of the financial media. On its earnings call, the company shares that this analysis needs to be put into context since (1) there are already additional funds earmarked for nursing homes in the previously passed CARES Act, and provisions for additional funding exists in each of the House and Senate bills being considered; (2) Genesis is taking actions to control expenses; and (3) and Genesis expects to continue its plan to divest of unprofitable assets.

We find that the Genesis experience is similar to many of our investment partners’ encounters in the senior care realm. The industry was hit hard, but has shown great determination in fending off the blow and adjusting their business. Changes to Medicare rules and government assistance measures have helped offset some of the loss, but such help will continue to be necessary until senior housing providers can rebuild occupancy. Occupancy in nursing homes is climbing as hospitals return to stability. Some in the senior- housing world are witnessing a boost in interest as seniors who suffered through the pandemic in isolation at home are seeking a more supportive alternative. While the industry is not out of the woods just yet, it is best not to take COVID-19 headlines at face value.

Repurposing Aging Senior Living Facilities to Affordable Senior Housing

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Background

Older senior housing communities, in particular skilled nursing facilities, face numerous financial and operational challenges.  For example, combinations of changing neighborhood demographics, shifting care option preferences, the presence of newer, modern competition and constraints on third-party reimbursement have increasingly caused nursing homes to struggle to maintain healthy occupancy ratios and cash-flow.  Often, when cash-flow is tight, repairs and improvements are delayed, if done at all; senior housing property executive management and their governing boards can reasonably ask:

  • Does it make sense to invest in a component of our campus that no longer may be as relevant?
  • Is our mission as an organization being limited or compromised because of an inefficient physical plant that no longer serves the needs of residents and potential new residents?
  • Are there repurposing options for older, inefficient buildings, and if so, how can they be financed?

These questions, important to all senior housing operators, are perhaps more acute for not-for-profit, mission-based organizations, who generally operate on tighter operating budgets.  Moreover, the option of selling a building on campus to outside, third-party interests, may be counterproductive to the overall reputation of the community, as the buyer may not operate the property in a manner consistent with the original charitable mission.  With so many aging senior living facilities facing financial hardship, creative measures must be taken to avoid eventual closures and bankruptcies.

One Solution: Conversion of a Portion of a Senior Housing Community to Affordable, Low-Income Senior Housing

The way forward may be the conversion of older, less-functional components of a senior housing campus, like a skilled nursing facility, to an affordable assisted living or age-restricted multifamily housing.

Such a conversion could serve the dual purposes of: (1) expanding the mission of a not-for-profit provider whose primary operation is in the market-rate sector and (2) addressing a dramatic shortage nationwide of affordable housing, especially for lower-income seniors.

Consider that the National Low-Income Housing Coalition reports that there are 7.2 million affordable housing units needed for low-income families and individuals across the country. By re-purposing healthcare or other older buildings on campus to affordable housing or assisted living, not-for-profit sponsors can avoid closures, unwanted sales to unrelated buyers, and financial hardship.

Key Element of Affordable Housing Finance: Low – Income Housing Tax Credits (LIHTCs)

One of the major challenges to the development of affordable housing is that there is typically a large gap between the costs of the project and the amount of financing that can be supported by operational cash-flow. In many affordable transactions, the gap is filled with equity generated from the procurement of Low-Income Housing Tax Credits (LIHTCs). These credits can significantly lessen the financial burden of conversion or repurposing senior living facilities into affordable assisted living or age-restricted senior housing.

LIHTCs provide developers and owners with a significant equity contribution towards the new construction, substantial rehabilitation, refinance, or acquisition of affordable housing projects. The program is administered by the Internal Revenue Service (IRS) through State Housing Finance Agencies and local Development Agencies. LIHTCs connect investors with sponsors and developers, providing the investors with considerable tax benefits over a period of approximately 10 years in exchange for their investment into the creation or preservation of affordable housing properties.

LIHTCs are generally available under two programs: 9% credits and 4% credits. The 9% credits cover more development costs but are extremely competitive to secure and often require a sponsor to commit to a higher degree of affordability with respect to rents and income limitations of residents. Moreover, the highly competitive and limited-supply 9% credit is typically reserved for new construction without any other federal subsidies.

The 4% credits, which often are accompanied by an allocation of tax-exempt multifamily housing revenue bonds, is typically allocated on a non-competitive basis. The 4% credits are considered part of the bond allocation, and given these credits are more accessible than their 9% counterpart and are available for repurposing existing buildings, the 4% execution will likely be the more likely product available.

In a typical LIHTC transaction, the credits would produce equity that covers anywhere from about 30% – 70% of the development costs associated with repurposing existing facilities into affordable housing. The LIHTC is equity, not to be repaid by the Project Owner. The typical Project ownership structure for LIHTC transactions is a Limited Partnership or Limited Liability Corporation, with the not-for-profit sponsor serving as a general partner or managing member and the tax credit investor acting as a limited partner or member. The not-for-profit sponsor can earn a development fee in a LIHTC transaction.

Debt Structures: HUD Mortgage Insurance as a Complement to 4% Credits/Tax Exempt Bond Financing

LIHTCs provide the equity for an affordable senior housing development; however, additional sources of financing will be needed to complete the capital stack.

Three HUD-insured mortgage loans can provide a source of financing for the debt component of a LIHTC transaction: Section 221(d)(4); Section 223(f); and Section 232 (assisted living). While a modest number of affordable assisted living facilities have been financed under the Section 232 program, the vast majority of HUD transactions that involve LIHTCs occur with the Section 221(d)(4) and Section 223(f) multifamily programs. (For a detailed summary of HUD’s mortgage insurance programs, please visit www.simsmortgage.com.)

The HUD 221(d)(4) program is the most likely option to accomplish the goals of a senior living sponsor to repurpose to affordable housing when the cost to renovate the property is higher than $40,000 per unit. This program is used for new construction and substantial rehabilitation and combines construction and permanent financing into one mortgage with an amortization and term of up to 40 years. Interest rates for the 221(d)(4) loans are currently in the low 3% range. The industry-best 40-year amortization lowers debt service payments, enhancing the feasibility of the Project.

Section 223(f) can be used when the cost of the renovation is less than $40,000 per unit. This program features a maximum 35-year amortization and current interest rates in the range of 2.50%. Both Section 221(d)(4) and Section 223(f) have .25% annual mortgage insurance premiums for affordable projects. These premiums are payable on the unpaid principal balance throughout the life of the loan.

A HUD-insured loan typically complements the tax-exempt bond financing that is needed “up front” to qualify for the 4% LIHTCs. That is because bond proceeds must be disbursed to pay project costs. However, the tax-exempt bonds are of limited duration, typically maturing after the rehabilitation is completed and the project is placed into service. The HUD-insured loan becomes the long-term financing after the bonds are redeemed post-rehabilitation.

LIHTC transactions often need additional sources of funding beyond the equity and tax-exempt bond/HUD debt. This funding can come from a variety of sources such as state grants or supplemental financing programs, Federal Community Development Block Grants (CDBG), HOME funds and deferred development fees.

Are LIHTCs for You?

The LIHTC process is complex and involves significant administrative and reporting activities once the project is placed into service; however, if utilized properly, tax-credits can be a uniquely beneficial tool to preserve or create affordable assisted living or age-restricted housing. This process is further complicated if the converted units are part of an existing building financed with taxable or tax-exempt debt under a Master Trust Indenture (MTI). While it’s not impossible to layer tax-credit debt into the existing capital stack, additional legal and advisory work would need to be done to determine the correct path forward.

Due to the highly complex nature of these transactions, LIHTC consultants are typically used to assist with the tax credit application and ensure IRS compliance issues are followed. Not-for-profit sponsors without LIHTC experience may partner with an experienced developer, who becomes part of the ownership structure, albeit in a limited control setting.

Sims Mortgage Funding, Inc. (SMF) would perform the upfront screening of the transaction from the LIHTC and HUD-insured loan perspectives, and would coordinate with our parent company, HJ Sims, on the identification of tax-exempt bond issuing agencies with access to 4% credits and the selection of the agency most suitable for the sponsor’s needs. Moreover, we may be able to recommend specific LIHTC developers, consultants and attorneys based on the sponsor’s geographic location. Finally, SMF would help the provider identify legal help to ensure the new debt works with the existing MTI debt on the campus.

For more information, please contact Johnny Sears at jsears@simsmortgage.com.

Sims Mortgage Funding, Inc. originates, underwrites, and funds loans for Healthcare, Multifamily and Hospital projects. We have completed over $2 billion in HUD-insured transactions and are an approved LEAN (healthcare) and MAP (multifamily) lender.

HJ Sims successfully Positions SearStone for Accretive Phase II

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July 22, 2020

CONTACT: Tara Perkins, AVP Marketing Communications | 203-418-9049 | tperkins@hjsims.com
HJ Sims successfully Positions SearStone for Accretive Phase II

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce a June 30 closed financing in the amount of $6.6 million for Samaritan Housing, Inc. d/b/a SearStone Retirement Community (SearStone), a life plan community located in Cary, NC. SearStone consists of 131 independent living apartments, 38 independent living estate homes, 14 assisted living units and 25 skilled nursing beds. The assisted living and skilled nursing services are offered at the Brittany Place Healthcare Center (Brittany Place).

Sims financed the first phase of SearStone with a $117.5 million non-rated fixed rate bond issue in June 2012 and an expansion of the Healthcare Center in 2016 with an $8 million issue. Sims provided the original seed capital, and the funds to advance refund the 2012 issue, and provided a portion of the pre-development capital for the Phase II expansion in 2017. Given the growing demand for independent living units, planning commenced for a Phase II expansion project and pre-development costs were funded with $5.5 million of proceeds from the Series 2017B Bonds. Phase II should double the size of SearStone and is projected to be financially accretive; additional pre-development capital was needed. Phase II is known as the Highview at SearStone and contemplates the addition of 152 independent living units, 28 assisted living units (14 specialized memory care units) and 24 skilled nursing suites. New dining venues, along with additional common and green spaces will be also provided.

Sims successfully underwrote $4.6 million of tax-exempt bonds and $2.0 million of taxable bonds to provide supplemental pre-development capital for Phase II, scheduled for financing in early 2022.The financing was completed as one of the first non-rated senior living financings placed in the bond market since COVID-19, and provided close to $6 million of expendable proceeds, that combined with remaining funds from the Series 2017B Bonds and $1 million+ in borrower equity, will fund predevelopment costs associated with the Phase II.

With Sims’ leadership and the collaborative work of SearsStone’s senior management team, Board, Management Company (Retirement Living Associates), Developer (Greenbrier) and the financing working group, SearStone successfully completed the financing and obtained bondholder consent to issue the proposed debt; secured sufficient pre-development capital to pursue Phase II; and provided covenant relief and maintained sufficient operating, financial and strategic flexibility to implement the future expansion to optimize its campus.

“SearStone has once again benefitted from the superb leadership of Aaron Rulnick and the Sims team. Our financing would have been challenging in any environment, but we were facing a tight time-frame in a market shut-down by COVID. Sims worked tirelessly and creatively to overcome obstacles, and we are so pleased with the result. SearStone can continue to pursue the Highview Expansion project, which will right-size and optimize our campus, with the financial resources and flexibility we need to be successful,” said Stan Brading, President, Samaritan Housing Foundation, Inc.

Financed Right® Solutions: Aaron Rulnick: 203-418-9008 | arulnick@hjsims.com or Tom Bowden:-804-398-8577 | tbowden@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. Testimonials may not be representative of another client’s experience. Past performance is no guarantee of future results. Member FINRA, SIPC. Facebook, LinkedIn, Instagram Twitter.

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Encore on the Lake

HJ Sims completes innovative dual bank senior – supplemental debt financing for Encore on the Lake. This new middle market independent living campus is a planned 80-unit Independent Living Community to be constructed on a 6.8 acre site in North Strabane Township, Washington County, PA.

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Searstone

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HJ Sims successfully completes $6.6 million of Tax-exempt and Taxable Revenue Bonds to position Samaritan Housing Foundation, Inc., d/b/a Searstone Retirement Community, a life plan community located in Cary, NC, for accretive Phase II.

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Advance Refundings

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Consider Supporting the Reinstatement of Advance Refundings

Advance refundings are a critical tool to help state and local governments and 501(c)(3) organizations lower their debt costs. 

Nearly three years ago, advance refundings were eliminated as part of the Tax Cuts and Jobs Act of 2017. At the time, the assumption was that the borrowers of tax-exempt bonds used to finance advance refundings would access the taxable bond market if an advance refunding was necessary. While taxable advance refunding volume has increased over the past two years, non-rated borrowers and smaller advance refundings have been essentially locked out of the taxable bond market.  

Taxable municipal bond investors are not as prolific as tax-exempt municipal bond investors. The taxable muni market tends to focus more strongly on rated credits with considerable size. This leaves non-rated conduit borrowers, especially non-rated 501(c)(3) institutions like rural hospitals, universities and senior living communities at risk because they do not have access to the same markets to refinance higher coupon debt.

On July 1, 2020, eight bipartisan senators came together to introduce the LOCAL Infrastructure Act that reinstates advance refundings as a critical tool to help state and local governments and 501(c)(3) organizations lower their debt costs. Senators Roger Wicker (R-MS), Debbie Stabenow (D-MI), Michael Bennet (D-CO), Shelley Moore Capito (R-W.Va.), John Barrasso (R-WY), Bob Menendez (D-NJ), Jerry Moran (R-KS), and Tom Carper (D-DE) cosponsored the legislation. There is also legislation in the House that includes the reinstatement of advanced refundings. In light of this, we believe that now may be the best time to restore advance refundings.

How Can You Take Action

Write a letter to your U.S. senator appealing for their help to restore advance refundings through the Senate Finance Committee bill. Help the eight senators who have already come together to co-sponsor the LOCAL Infrasturcture Act.

The draft letter below is written from the perspective of a board member or officer at a non-profit senior living community.

Letter Text

Greetings,

I am a constituent of the Senator and the [_________________] of [____________________], a senior living community in the Senator’s state. I understand a bipartisan group of senators led by Mr. Wicker of Mississippi recently introduced the LOCAL Infrastructure Act, which would restore advance refunding bonds, and I would like to encourage the Senator to consider the legislation and assist in its passage in the Senate.

Use of tax-exempt advance refunding bonds has not only saved state and local governments billions of dollars, but it has also provided 501(c)(3) senior living communities similar to ours the opportunity to refinance our debt and restructure covenants in the past. If advance refundings were to be restored, it would allow more comprehensive services, including infrastructure projects and enhancements to senior living communities, to be completed at a lower cost. This tool would provide an opportunity for 501(c)(3) senior living communities as well as state and local governments to recover faster from the effects of the COVID-19 pandemic and to efficiently access low interest rates to provide essential facilities and services to your constituents.

As a result of the COVID-19 pandemic, many senior living communities, state and local governments and other obligors of tax-exempt bonds are experiencing dire financial situations, and some are having difficulty paying scheduled principal and interest on their outstanding debt. It would greatly benefit such entities to be able to refinance their debt at today’s interest rates that are often lower than the interest rates payable on outstanding debt, which often was issued years ago. While there has been a surge of taxable municipal bond issuance to advance refund debt in recent months, the investors in those bonds will typically purchase transactions of considerable size and with high investment grade ratings. This leaves the super-majority of senior living communities without a viable option to refinance debt at a time when the Federal government has brought bank lending rates down to less than 0.25% and municipal bond indices are hovering around all-time lows. Many senior living communities that have debt that would be beneficial to refinance today issued that debt between 2011 and 2015 where the municipal bond index was 2-3% higher than where it is today. This could save senior living communities millions of dollars, benefitting your constituents.

These advance refundings could even allow senior living communities to defer debt service in the near term to respond to cash flow issues as a result of the pandemic. As communities’ existing debt is often paid with healthcare revenues and other revenues received from residents, these streams have been interrupted as some communities have been hard hit by COVID-19 infection and others have locked down all ability for new residents to move-in.

If you would like more information on how advance refundings could benefit senior living communities in general, please do not hesitate to connect with an HJ Sims Investment Banker at hjsbanking@hjsims.com. HJ Sims is a privately-owned investment bank that was founded in the midst of the Great Depression and was the first investment bank to finance a senior living community with tax-exempt bonds after the advent of Medicare in 1965.

We believe strongly that the reinstatement of advance refundings would be a tool that could provide significant savings to the senior living industry at a time when providers need all of their tools available to provide low cost care to the most vulnerable population. We encourage you to consider supporting this bipartisan effort to help state and local governments and 501(c)(3)s like ours.

Thank you.

Senate Finance Committee Members

State
Party
Senator
Website
CO
D
Michael Bennet
Already a cosponsor, but would help to support ARs. https://www.bennet.senate.gov/public/index.cfm/write-to-michael
DE
D
Thomas Carper
Already a cosponsor, but would help to support ARs. https://www.carper.senate.gov/public/index.cfm/email-senator-carper
IA
R
Chuck Grassley
https://grassley.senate.gov/constituents/questions-and-comments
ID
R
Mike Crapo
https://www.crapo.senate.gov/contact/email-me
IN
R
Todd Young
https://www.young.senate.gov/contact/email-todd
KS
R
Pat Roberts
Already a cosponsor, but would help to support ARs. https://www.roberts.senate.gov/public/index.cfm/emailpat
LA
R
Bill Cassidy
https://www.cassidy.senate.gov/contact
MD
D
Ben Cardin
https://www.cardin.senate.gov/contact/email-ben
MI
D
Debbie Stabenow
Already a cosponsor, but would help to support ARs. https://www.stabenow.senate.gov/contact
MT
R
Steve Daines
https://www.daines.senate.gov/connect/email-steve
NC
R
Richard Burr
https://www.burr.senate.gov/contact/email
NE
R
Ben Sasse
https://www.sasse.senate.gov/public/index.cfm/email-ben
NH
D
Maggie Hassan
https://www.hassan.senate.gov/contact/email
NJ
D
Robert Menendez
Already a cosponsor, but would help to support ARs. https://www.menendez.senate.gov/contact
NV
D
Catherine Cortez Masto
https://www.cortezmasto.senate.gov/contact
OH
R
Rob Portman
https://www.portman.senate.gov/meet/contact
OH
D
Sherrod Brown
https://www.brown.senate.gov/contact/email
OK
R
James Lankford
https://www.lankford.senate.gov/
OR
D
Ron Wyden
https://www.wyden.senate.gov/contact/email-ron
PA
R
Patrick Toomey
https://www.toomey.senate.gov/?p=contact
PA
D
Robert Casey, Jr.
https://www.casey.senate.gov/contact
RI
D
Sheldon Whitehouse
https://www.whitehouse.senate.gov/contact/email-sheldon
SC
R
Tim Scott
https://www.scott.senate.gov/contact/email-me
SD
R
John Thune
https://www.thune.senate.gov/public/index.cfm/contact
TX
R
John Cornyn
https://www.cornyn.senate.gov/contact
VA
D
Mark Warner
https://www.warner.senate.gov/public/index.cfm/contact
WA
D
Maria Cantwell
https://www.cantwell.senate.gov/contact/email/form
WY
R
Michael Enzi
Already a cosponsor, but would help to support ARs. https://www.enzi.senate.gov/public/index.cfm/e-mail-senator-enzi

HJ Sims 2020 Late Winter Conference Recap

Thank you!

On behalf of the entire HJ Sims Investment Banking team, we want to thank you for attending the 17th Annual HJ Sims Late Winter Conference at the InterContinenal San Diego in San Diego, California. We at HJ Sims are proud of our commitment to furthering conversation about financing methods & operating strategies in the Senior Living Industry. Bringing together a dynamic group of speakers from Non-Profit and Proprietary Senior Living Providers, as well as outside experts with thought-provoking views, it is our goal to have provided profound insight and an invaluable forum for exchanging ideas and information.

We also recognize that our conference was one of the last in-person events that was fortunate to take place. We appreciate those who attended, and we look forward to when we can get together in-person again.

Post-Conference Follow-Up

Our Conference Recap provides comprehensive coverage of the many sessions and event highlights from the 2020 HJ Sims Late Winter Conference.

Highlights include:

  • Keynote speakers from outside the senior living industry who shared valuable ideas from fields like Canyon Ranch® – the leader in luxury health and wellness introduced a potential new concept for senior living communities; Dr. Matthew Lieberman, a dedicated researcher on cognitive social neuroscience where we explored research indicating that we need to be connected socially to be physically and psychologically healthy; and Dr. Robert Genetski, an economist who led a discussion of the current financial markets where we explored principles vital to economic and political freedom.
  • Informal and memorable activities to bolster connection and conversation, included a glorious morning on the waters of San Diego Harbor for sailors and fishing enthusiasts; golfing at the world-renowned Torrey Pines; tasting a sample of San Diego’s best brewery and distillery products; and sharing an incredible evening with friends and a few new animal pals at the famed San Diego Zoo.
  • Educational sessions that covered topics such as: acute and post-acute care, medical and recreational cannabis, serving middle-income seniors, strategies to avoid moving from a stressed to distressed financial or operational situation, and a new approach to incorporating wellness in senior living.

In case you missed it, below are the details from our 17th Annual HJ Sims Late Winter Conference.

Agenda
Schedule and activities
Roster of conference speakers and their biographies

We invite you to watch the highlights of our conference in a recap video that features all the best parts of our conference. We also invite you to view the many beautiful photos from our conference.

Peruse the photo gallery and video montage below, and visit the HJ Sims FacebookInstagramLinkedIn or Twitter pages.

Taco Tuesday Dinner and Reception – LWC2020

San Diego Zoo Reception

Network Breaks

Corporate Social Responsibility: Gift of Life

The Gift of Life (GOL) team was thrilled to provide an update about the strong partnership between HJ Sims and GOL during the last two years, which has helped to promote the registry and subsequently add new donors, as well as supported numerous efforts to advance the GOL mission.

For more information on HJ Sims’ CSR program and Gift of Life, please visit: www.hjsims.com/servingourcommunitites.

Save the Date

Please save the date for next year, the 18th Annual Sims Late Winter Conference at the Sarasota Hyatt Regency, Sarasota, Florida. While we are still grappling with how we will hold our annual conference, rest assured, we will hold one… more to follow. Stay tuned, and stay healthy.

Thanks again!

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

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FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is 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 non-profit 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, CA. Previously 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 finance, and 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 an office in Jupiter, FL, housing 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 in Metro 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 Closes Financings for Lenbrook, MRC Manalapan; Partners with Voralto for Acquisition

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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

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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. 

Gift of Life: Recap from 17th Annual Late Winter Conference

Gift of Life (GOL) joined our 17th Annual HJ Sims Late Winter Conference February 25-27 in San Diego. GOL was represented by Alicia Lorio, a leader of their Young Professionals Committee in Orange County; and GOL blood stem cell donor, Alec Nadelle.

Alicia shared GOL’s history and spoke about the importance of growing the GOL stem cell registry to give second chances to those afflicted by blood and bone cancer. Before introducing Alec, Alicia shared how individuals can get involved with GOL and increase the number of those within the registry by encouraging individuals to swab their community and swab at their workplace.

Next, Alec shared his experience with GOL. He donated blood stem cells in November 2012 to a (then 71-year-old) woman battling a fast-moving form of Leukemia. The presentation left attendees feeling truly moved.

The team was excited to share an update about the amazing CSR partnership that HJ Sims and GOL have shared during the last two years.

From running fundraising drives to sponsoring the Steps for Life events to helping underwrite equipment for a
new state-of-the-art Stem Cell Collection Center located in Boca Raton, HJ Sims continues to be honored to support GOL and their mission to cure blood cancer through marrow and stem cell donations. GOL has facilitated nearly 3,600 transplants since its inception.

For more information, visit www.giftoflife.org