Sims Finances Campus Expansion and Repositioning Project Integrating New Bond Debt with Existing Bank Financing
“We had the pleasure of working with the team at HJ Sims in preparation for our recent campus expansion. They did an exemplary job of helping us navigate what was a very complex debt structure. They brought an amazing depth of experience, were patient, and provided thorough explanation throughout the process. Their wonderful team is professional, responsive, and enjoyable to work with. HJ Sims is a true partner in every sense of the word – they invested in our mission, in the success of our organization, and went above-and-beyond their role as investment bankers.”
– Matt Lewis, CEO, Village Shalom
Partnered Right®
Village Shalom is an existing life plan community, comprised of 64 independent villas, 54 assisted living apartments, 52 skilled nursing units and 36 memory care suites, located on a 26 acre campus in Overland Park, Kansas. While Village Shalom’s current campus opened in 2000, Village Shalom traces its roots of serving the Kansas City Jewish community to 1902. Sims was engaged by Village Shalom in Fall 2014 and played a key role in planning for this major campus expansion and repositioning project – this included assisting in the navigation of the design-development process, providing input on multiple financing options and assessment of financial feasibility, along with formulation and successful implementation of the plan of finance. As part of this process, Sims served as structuring agent for a $6.3 million pre-development loan, structured as tax-exempt bank debt, with Cedar Rapids Bank & Trust completed in April 2017.
Structured Right®
Catalysts for the project included consistently strong demand for independent living units and a desire to realign the mix of healthcare services (assisted living and skilled nursing), particularly in memory care. The 76-unit apartment expansion will include underground parking and a new “Main Street” with added common areas and amenities. The new memory care building will consist of two 16-bed assisted living households and one 16-bed skilled nursing-based household. The proposed project will also include the relocation and enhancement of the rehab center and therapy gym. In aggregate, the project will result in the addition of 101 total units/beds, including 76 new ILUs (Apartments) and 25 net beds in healthcare (AL-MC and SNF). Further evidencing Village Shalom’s commitment to the project, it embarked on a major fundraising campaign in support of the new project with a $16 million campaign goal, a portion of the proceeds of which will supplement external debt financing.
With a portion of the project combining demolition, renovation and new construction, there were a number of issues to consider in the staging of this work and its impact on operations and financial performance. Sims participated actively in this planning and evaluation process. This included assessing the financial impact of a transition in operations leading up to the project commencement, in the healthcare center, in particular, with the requirement for a controlled census reduction to vacate a portion of the healthcare center to permit planned demolition of a portion of the facility.
Sims explored a range of financing alternatives including all bond financing as well as a combination of bond and bank financing, particularly for the portion of the financing to be repaid with first generation entrance fees anticipated to total about $20 million. Village Shalom ultimately opted to proceed with all bond financing while retaining existing bank financing outstanding at an attractive rate and financing terms.
A key element of financing structuring related to balancing the use and timing of the application of anticipated debt financing proceeds, combined with entrance fees from the sale of the new ILUs and capital campaign proceeds of up $12 million (with $9.3 million in pledges at the time of financing). This included use of entrance fees and capital campaign proceeds to repay the outstanding Series 2017 Bank Debt (pre-finance capital) as well as retention of a portion to bolster balance sheet liquidity, prior to being applied to repay a portion of the Series 2018 Bonds.
Executed Right®
Financing implementation addressed a number of factors. This included integration of multiple components of financing on a parity basis, combining the new Series 2018 Bond financing with outstanding bank financing. Outstanding debt consisted of Series 2013 Bank Debt, fully amortizing at an attractive fixed rate, and Series 2017 Bank Debt (Pre-Finance Capital) to be repaid with a combination of capital campaign proceeds and a portion new entrance fee receipts to be received from the lease of the new ILUs. Further, Sims assisted in the formulation and approval of amendments from the existing banks to an existing Master Trust Indenture to address the financial impact of the temporary reduction in healthcare census, along with the typical transitional impact on operations and financial performance during project construction and subsequent project fill-up. This was paired with the formulation of marketing and occupancy covenants to track the continued pre-sales and ultimate occupancy of the new ILUs, continuation of a liquidity covenant with thresholds scaling-up during the construction and fill-up periods along with a debt service coverage ratio, with covenant calculation resuming following project completion and stabilization. While the project and financing process unfolded over a four year period, due to the scope and phasing of the project undergoing significant changes, completion of financing was accomplished on an accelerated basis. This resulted from the need, following several earlier delays, to start construction in mid-July and avoid the possibility of construction cost increases. Sims worked constructively with Village Shalom and the financing team to undertake an expedited bond marketing/sale process and closing just three days following bond sale.
Financed Right®
On July 16, 2018, Sims closed the $60,585,000 issuance of non-rated tax-exempt bonds, comprised of $41.1 million of long-term fixed rate bonds with a 35 year final maturity combined with $19.5 million of fixed rate intermediate-term bonds with a final maturity of 7 years (2025) (and anticipated redemption by 2021). The financing allows Village Shalom to commence an important next chapter in its existence and service of seniors in the greater Kansas City region, offering additional independent living units as well as a more comprehensive array of healthcare services including assisted living, memory care and skilled nursing, both long-term care and shorter-stay rehabilitation. It represents a committed long-term and stable source of capital with fixed interest rates along with security and covenant structure that provides clarity to operations and finances going forward along with a framework for future growth of programs and/or facilities.
For more information on how Village Shalom was Financed Right® by HJ Sims, please contact:
Aaron Rulnick
(301) 424-9135
Melissa Messina
(203) 418-9015
Patrick Mallen
(203) 418-9009
James Bodine
(267) 360-6245