HJ Sims Market Commentary: Oases of Care

by Gayl Mileszko

November is Long Term Care Awareness Month, and this year marks the 20th anniversary of the annual designation. As one of the top capital funding sources for continuing care retirement communities and other senior living facilities, HJ Sims understands that 70% of men and women over the age of 65 will have need for some type of long-term care in the coming years. The vast majority — some 78% — will receive this care at home, relying on family and friends for help with daily tasks. For caregivers, providing this assistance can be rewarding. But over time it can also take a tremendous physical, emotional and financial toll. So, many of those in need of assistance choose to enter into a continuum of professional care that features independent living, various levels of assisted living, memory support and skilled nursing. We have helped to finance more than $30 billion of thriving not-for-profit and for-profit communities in most every U.S. state and recognize the value of the services they provide not only to care recipients but to all their loved ones. This month, we encourage you to contact your HJ Sims representative to discuss how you can plan ahead for long term care and how you can invest in bonds that finance the oases of care known as life plan communities.

Broadview Senior Living at Purchase

Last week, HJ Sims was in the market with one of the largest senior living financings of the year. We underwrote a $398 million municipal issue with five series of non-rated bonds for a brand-new life plan community being built on the campus of the State University of New York at Purchase. Broadview Senior Living at Purchase College will feature 174 affordable and market-rate independent living apartments, 46 independent living villas, 36 assisted living beds and 32 memory care beds. The bonds were structured with four tiers of tax-exempt and taxable entrance fee redemption bonds and had two tax-exempt final maturities in 2056 priced at 4.50% to yield 4.625% and 5.00% to yield 4.50%. The Local Development Corporation of Westchester County issued the bonds in denominations of $100,000 and they were sold exclusively to accredited investors and qualified institutional buyers.

Sinai Residences of Boca Raton

Two weeks ago, HJ Sims sold $264 million of bonds for an expansion of the Searstone Retirement Community in Cary, North Carolina. This week we have a $128.8 million refinancing for the Toby & Leon Cooperman Sinai Residences in Boca Raton. The non-rated issue is coming through the Palm Beach County Health Facilities Authority, and bonds are structured for forward delivery in March of 2022. Next week we plan a $19.5 million BBB rated refinancing and new money issue through the Massachusetts Development Finance Agency bonds for Loomis Village in South Hadley and Applewood Retirement Community in Amherst. We expect to bring several more projects to market by the end of the year, increasing the total amount of capital we will have raised for senior living in 2021 to more than $1.5 billion.

The Stash of Cash and Hunt for Yield

Market conditions remain highly favorable for almost every issuer and borrower in the capital markets. Stocks are at record highs; all three major market averages finished higher for the fourth straight week. Most Treasury auctions have attracted above average demand. High yield corporate issuance this year has totaled $423 billion, 14% higher than last year, which was record-setting. Buyers of tax-exempt and taxable municipal bonds have outnumbered sellers since last December and there is a ton of cash in search of yield to counter inflation. Money market funds last week took in a whopping $42 billion and muni ETF flows were the most in 20 weeks. And more cash is rolling in. In November, muni bondholders will receive $41.8 billion of principal and interest to re-invest or spend, and another $48.9 billion next month.

2021 Returns to Date

U.S. Treasuries returned 0.02% in October but they are down 2.69% on the year before even adjusting for inflation. The 2-year yield at 0.49% nearly doubled during the month. The 10-year ended 7 basis points higher at 1.55%. The 30-year closed at 1.93%, down 11 basis points and the 20- to 30-year end of the curve inverted, such that the 20-year bond yield finished 4 basis points higher at 1.97%. Fixed income results have paled in contrast with equities this year: the Dow is up 17%, the S&P 500 is more than 22% higher, the Nasdaq has gained 20%, and the Russell 2000 16%. With 2 months and less than 40 full trading days to go in 2021, benchmark investment grade corporate bonds are down 0.88%, mortgage-backeds are down 1%, investment grade munis are just slightly positive at 0.85%, while preferreds are up 2%, high yield corporate bonds +4.47%, high yield munis +5.5%, and convertible bonds +9.5%.

Market Movers

The first week of November is event-filled and investors have a lot to monitor. Areas of focus are Washington, Richmond and Trenton, Glasgow, Vienna, Taiwan, and Russia. In Washington, the Federal Open Market Committee is expected to announce a slowdown it its purchases of Treasuries and/or mortgages and to elaborate on its stance on inflation. The Departments of Commerce and Labor will release economic updates on construction spending, factory orders and nonfarm payrolls. The House may vote on the more fiscal stimulus in the form of the reconciliation and infrastructure bills, The Supreme Court takes up hot-button abortion, gun and death penalty cases. In Virginia and New Jersey, gubernatorial elections may foreshadow 2022 mid-term outcomes. In Scotland, the two-week COP26 climate change summit kicks off. Vienna-based OPEC+ meets virtually to vote on December production. China continues to send warplanes into Taiwan’s airspace. There is a new Russian military buildup near Ukraine.

Focus on Municipal Bonds

For municipal bond investors, this week’s municipal primary calendar is in the $5-7 billion range, down from $9 billion last week. Including our refunding for Sinai Residences, there are three forward delivery bond issues. There are also two green bond issues, two social bond housing deals and a sustainable housing deal. Among other senior living deals, there is a $38 million non-rated issue for Simpson Senior Services in Pennsylvania and a $50 million BBB rated transaction for United Methodist Retirement Homes and its three life plan communities in North Carolina. In the high yield sector last week, the California Statewide Communities Development Authority sold $80 million of non-rated essential housing bonds due in 2047 priced at par to yield 3.50%. Legacy Traditional Schools in Texas had a $53.4 million non-rated sale that included 2056 term bonds priced at 4.50% to yield 4.475%. The College of Saint Rose in Albany brought a $48.1 million BB rated refunding structured with 2051 term bonds priced with a coupon of 4% to yield 3.23%. Academy Del Sol in Tucson came to market with a $20.5 million non-rated 35-year deal yielding 6.093% and Madison Academy in Flint, Michigan sold $9.75 million of bonds that included a 2046 maturity priced at 5.00% to yield 4.40%.

For more information on value and yield in the fixed income markets, as well as on investing in long term care, please contact your HJ Sims representative.

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