HJ Sims Underwrites Approximately $135 Million for John Knox Village’s Westlake Tower Expansion
“John Knox Village of Florida is undergoing a transformation that requires a multi-period financing approach. With the help and expertise of the HJ Sims team, the projects (2020 new money and refinancing totaling $72,480,000 and 2021 campus expansion totaling $134,265,000) were executed with the best possible financial outcome. John Knox Village was able remove interest rate and remarketing risk, access capital and lower the interest profile while maintaining an investment grade rating, all while meeting operational occupancy and performance goals (93% existing occupancy rate and preselling to 70% the expansion project). HJ Sims built the financing team that allowed management to focus on operations achieving the above-mentioned results. These accomplishments would not have happened to these great results if not for the Sims team. Thanks Sims.”
– Bruce Chittenden, Chief Financial Officer, John Knox Village of Florida.
John Knox Village (“JKV”) in Pompano Beach has been providing holistic living for age and income-qualified residents for nearly 40 years. It is the second largest continuing care retirement community (“CCRC”) in the State of Florida consisting of 654 independent living units, 64 assisted living units, and 194 skilled nursing beds furnished in the Green House® model of elder care. JKV chose HJ Sims as its investment banking partner in 2020 to assist in financing a new community pavilion, which included dining facilities, a new lake, various parking spaces and a new central energy plant; additionally, the community sought HJ Sims to provide guidance and counsel while navigating the COVID-19 pandemic. After the successful 2020 bond financing, the JKV team sought to partner again with Sims in connection with its Westlake Tower expansion project, which encompassed two high-rise independent living buildings totaling 146 units (the “Expansion Project”).
The Expansion Project was supported by robust demand within its existing independent living units, which have consistently observed occupancy of over 90%. Additionally, the market demand for the project was evidenced by the presales velocity for the expansion, which reached over 70% presales within 7 months of starting the 10% deposit process.
Sims worked closely with management and the board of JKV to analyze potential financing structures, analyzing all bank, all fixed rate bond, and a hybrid of bank and bond financings to balance management and the board’s preference with respect to bank involvement, negative arbitrage on project funds, interest rate risk, and lender risk. Sims ran a full bank solicitation process, receiving a number of attractive proposals. Ultimately, management and the board of JKV indicated that they preferred an all fixed rate bond solution utilizing Sims’ Entrance Fee Principal Redemption Bonds® as the vehicle for the short-term debt to be repaid from entrance fees. To minimize the adverse impact on maximum annual debt service (MADS), the amortization for the long-term Series 2021 Bonds was largely wrapped around JKV’s existing Series 2015 and Series 2020 Bonds.
Initially, the project and financing teams anticipated a financing in early 2022. However, faster-than-anticipated presales and a sharply rising construction cost environment encouraged a more accelerated financing pace.
Sims also assisted the JKV team in preparing and participating in the Fitch Ratings process. During the annual review for its outstanding bonds in August 2021, Fitch had downgraded JKV to BBB+ with a Negative Outlook, citing application of its new “U.S. Public Finance Not-For-Profit Life Plan Community Rating Criteria”, which had been issued in March 2021, as well as the pending expansion. When the Series 2021 Bonds were reviewed, Fitch revised the rating to BBB, Stable Outlook, primarily driven by the updated ratings criteria and the approximately $213 million in additional debt JKV assumed with the Series 2020 and Series 2021 bond issuances.
The Sims team’s familiarity with the Office of Insurance Regulation process and Florida real estate finance law ensured that matters that could have created additional cost for JKV or delays for either the Pavilion project or the Expansion project were spotted in advance and addressed by the development and financing teams.
On December 10, 2021, HJ Sims priced $134,265,000 of fixed-rate bonds in December 2021 consisting of $84,265,000 Revenue Bonds Series 2021A, $25,160,000 Entrance Fee Principal Redemption Bonds® Series 2021B, and $24,840,000 Entrance Fee Principal Redemption Bonds® Series 2021C. The Series 2021B and Series 2021C Bonds were sold without a Debt Service Reserve Fund at coupon rates of 2.000% and 1.450%, respectively. The Series 2021A Bonds did have a Debt Service Reserve fund and were structured as four term bonds with a maximum maturity of 2056, which had a 4.000% coupon to yield 2.750% by the first optional call date of September 1, 2027. Overall, the all-in true interest cost to JKV was 3.43%.
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