KeyBank - CAHF IO Symposium Presentation

7/29/2019 KeyBank - CAHF IO Symposium Presentation

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KeyBank Real Estate Capital

Presents

Financing Resources Now And In The Future

CAHFS

Independent Owners Symposium

La Costa Resort & Spa

Carlsbad, CA

May 1 & 2, 2012


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Cary R. Tremper Craig GulleySenior Vice President Vice President

KeyBank Real Estate Capital KeyBank Real Estate Capital

8115 Preston Road, Suite 500 2301 Rosecrans Ave., Ste. 2155

Dallas, TX 75225 El Segundo, CA 90245(214) 540-9130 (310) 744-2234

[email protected] [email protected]


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KeyBank Real Estate Capital Financing Resources Now And In The Future

I. Why HUD

Benefits Of HUD Financing

HUDs Commitment To The Skilled Nursing Industry

II. Overview of HUD Performance for the past three years and YTD

III. Overview of HUD Loan Programs & How They Benefit CAHF Members

IV. Cons Of HUD Financing

V. Q & A


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Why HUD?

Benefits Include:

Low fixed interest rates

Current rates are sub 3.50%

Long Term Fully Amortizing Mortgages

Refinance terms up to 35 years.

New construction & sub rehab terms up to 40 years.

High Leverage

Refinance & acquisition up to 80% LTV or 80% LTC.

New construction up to 90% LTC or 80% LTV.

Non recourse

The ability to:

Pay off existing short term, high interest rate debt

Finance capital improvementsFinance prepayment penalties, swap termination fees

Finance replacement reserve deposits

Finance third party cost and financing fees


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Why HUD?


Nationally HUD is the #1 financing source for Nursing Homes.

HUD has approximately 1,805 Nursing Homes in its servicing portfolio.

HUD currently insures $12.6 Billion in Nursing Home Mortgages.

There are currently 15,622* Nursing Homes In the US and 1,229* Nursing Homes in CA.

One out of every 8.65 or 12% of Nursing Homes in the US has a HUD insured mortgage.

One out of every 9.25 or 11% of Nursing Homes in CA has a HUD Insured Mortgage. Currently 133

Nursing Homes in the CA has a HUD Insured Mortgage.

It is estimated that HUD will insure 2,057 Nursing Home mortgages or 13% of Nursing Homes by its FYE2012.

This will result in one out every 7.60 Nursing Homes in the US being financed by a HUD Insured

Mortgages.

*Source: The Henry J. Kaiser Family Foundation.


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Why HUD?


The great majority of Nursing Home loans in HUDs servicing portfolio are for owners of less than 10

facilities.

The HUD Insured Mortgage Program for Healthcare Facilities was initially developed as a hybrid ofthe Multifamily Insured Mortgage Program to insure mortgages for smaller Mom & Pop type owners

of Nursing Homes.

Larger regional & national owners of Nursing Homes didnt start using the HUD Insured Mortgage

Programs until the late 1990s to early 2000.


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SUMMARY OF SECTION 232 ACTIVITY

FY 2012 YTD Info As Of 03.31.12

Applications Received 2009 2010 2011 2012 YTD (24 weeks)

Refinance/Purchase 180 490 347 119

Refinance Existing HUD 16 138 301 159

New Construction 8 79 139 72

Other 0 1 1 3

Total 204 708 788 353HUDs Annual Loan Volume Continues To Increase With The Majority Being SNF Loans

Closings 2009 2010 2011 2012 YTD (24 weeks)

88 309 415 335

Applications In Queue 2009 2010 2011 2012 YTD (28 weeks)

60 327 303 37 Refinance34 New Construction

Total 60 327 303 71

HUD Continues To Improve Its Ability To Handle The High Volume Of Loans Being Submitted And

Has Reduced The Loan Queue To The Lowest Its Been Since 2010!!!

Current Average Time Queue, Underwriting, Closing

Queue Time To Assignment To Underwriter 30 DaysUnderwriting To Issuance Of Firm Commitment 30 45 Days

Firm Commitment To Loan Closing 30 45 Days

Average Time From Submission To Closing 90 Days

HUD Continues To Improve Its Average Time To Process Transactions!!!


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Summary of Section232 Activity Applications Received

180

16 8

490

138

79

347

301

139

119

159

72

0

50

100

150

200

250

300

350

400

450

500

2009 2010 2011 2012

(YTD)

Refinance/Purchase

Refinance/ExistingHUD

New Construction

2009204 Applications Received

2010


2011


2012 YTD353 Applications Received


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Summary of Section232 Activity Closings

88

309

415

335

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 (YTD)

2012 Estimate Of Closings

622 Loans


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Summary of Section232 Activity Total HC Loans & Total SNF Loans By $$$s

309

195

415

311

335

216

544

468

0

100

200

300

400

500

600

2010 2011 2012

(YTD)

2012

(Est.)

Total Loans

Total Nursing HomeLoans

2010 SNF Loan Volume

195 Loans

$1,1715,072,400

2011 SNF Loan Volume311 Loans

$2,516,901,400

2012 (YTD) SNF Volume

216 Loans

$1,736,016,300

2012 Estimated SNF Volume468 Loans

$3,761,368,650

$

2.5

2B

$1

.72B

$1.7

4B

$3

.76B


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Targeted Owner/Operator & Property Type

Owner / Operator Type

Single Site Owner/Operator Multiple Site Owner/Operator

Owners & Operators with proven track record Private or Publicly Owned with Related Operator (Identity of Interest) Private or Publicly Owned with Unrelated Operator(Third Party Operator)

Property Type

Licensed SNF/ALF/ALZ IL units cant exceed 25% of total licensed units Cant be newly completed or substantially rehabilitated for at least 3 years prior to submission to HUD.

Built mid 1970s or later.

Well maintained/good physical plant/minimum deferred maintenance

Stabilized properties with strong historical occupancy history ADA Compliant UFAS Compliant


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Targeted Owner/Operator & Property Type

Location

Primary & secondary markets with historically strong occupancy rates. Tertiary markets exhibiting strong operational performance or growth potential Located within PMA and States with flat or increasing reimbursements rate profiles

Located near strong referral sources; i.e. hospitals, medical centers, other referral IL/AL/MC/SNF

properties.

Facilities with a historically solid quality of care history as it relates to:

State Health Surveys

CMS Regulatory / 5 Star Ratings


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Healthcare Refinance / Acquisition

232/223(f)

Eligible Property Type:

Licensed SNF/ALF/ALZ IL units cant exceed 25% of total licensed units

Cant be newly completed or substantially rehabilitated for at least 3 years prior to submission to HUD.

Maximum loan amount based upon the lesser of:

100% of Transaction Cost

80% LTV (Refinance) or 80% LTC (Acquisition) 1.45 DSC

Maximum term based upon the lesser of: 35 Years or; 75% of Remaining Economic Life

Interest Rates:

Low fixed rates; spread over 10-year Treasury.

Other Program Features: Non Recourse

Fully Assumable

Secondary Debt Permitted Subject To FHA Requirements.


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232/223(f)

Prepayment:

Negotiable; typically 2 year lockout with 8,7,6 ... 3, 2, 1 prepayment penalty.

Mortgage Insurance Premium (MIP) 1% first year; .50% annually

Eligible Mortgagor:

Single Asset Entity; Profit & Non-Profit Entities Principals with owner/operator experience and no adverse credit history or defaulted HUD loans.


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232/223(f)

CAHF Members Can Benefit From Using This Program By

Replacing Existing Short Term / High Interest Rate Debt

With A New 35 Year Fully Amortizing, Low Fixed Interest Rate Loan.

Financing Up To 100% Of Existing Debt, Prepayment Penalties, Capital Improvements & Closing Cost;

Not To Exceed 80% LTV.

Financing Up to 80% Of Purchase Price, Capital Improvements & Closing Cost; Not To Exceed 80%LTV.

Using In Conjunction With Bank Bridge To HUD Financing For Acquisitions Where Timing Is An

Issue.

Using In Conjunction With Bank Bridge Financing For Equity Take-Out Or Additional Leverage

Prior To Refinancing With HUD. **

**HUDs Two Year Debt Seasoning Rule Applies To

Any Newly Placed Debt Less Than Two Years Old.


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Healthcare Refinance Of Existing HUD Loan

232 (a7)


Original Loan Amount

1.11 DSC

100% of Cost

Targeted Loan Size:

Not to exceed original outstanding principal balance

Maximum Loan Term:

Existing term can be extended up to 12 years; not to exceed term of original mortgage.

Interest Rates:

Low fixed rates; spread over 10-year Treasury.

Prepayment:


3rd Party Reports:

Subject to PCNA report if existing PCNA

is 10 years old or greater.


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232 (a7)

Mortgage Insurance Premium (MIP)

1% first year; .50% annually

Other Items Eligible For Financing:

Capital Improvements

Prepayment Penalty

Other Program Features:

Non Recourse Fully Assumable

Secondary Debt Permitted Subject To FHA Requirements.


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232 (a7)

CAHF Member Benefit From Using This Program By

Refinance Current HUD Loan, Lower Interest Rate And Extend Loan Term.

Finance Up To 100% Of Existing Debt, Prepayment Penalties, Additional Capital Improvements &

Closing Cost.


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Healthcare New Construction & Sub Rehab

232 NC/SR

Eligible Property Type:

Licensed SNF/ALF/ALZ

IL units cant exceed 25% of total licensed units


90% of Transaction Cost

80% LTV (SNF) or 75% LTV (ALF)

1.45 DSC

Maximum term based upon the lesser of:

40 Years For New Construction or; 75% of Remaining Economic Life If Rehab

Interest Rates:

Low fixed rates; spread over 10-year Treasury


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232 NC/SR

Other Program Features:

Non Recourse

Fully Assumable

Secondary Debt Permitted Subject To FHA Requirements

Prepayment:


Mortgage Insurance Premium (MIP) 1% first year; .50% annually

Eligible Mortgagor:

Single Asset Entity; Profit & Non-Profit Entities

Principals with owner/operator experience and noadverse credit history or defaulted HUD loans.


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232 NC/SR

CAHF Members Can Benefit From Using This Program By

Building A New Or Replacement Skilled Nursing Facility.

Adding Additional Units Or A New Wing To An Existing Skilled Nursing Facility.

Financing A Major Renovation And Pay-Off Existing Debt On An Existing Facility.

Financing Up To 90% Of The New Construction Cost Or 100% Of The Major Renovation Cost.

On New Construction Transactions The Total Mortgage Amount Cant Exceed 80% LTV For SNFs

Or 75% LTV For ALFs.


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Cons

HUD Regulatory Agreement Restrictions

Requires annual audited financial statements on the mortgagor entity.

Semi-Annual cash distributions. Usually not an issue in an Opco/Propco structure.

Insurance Notice Requirements Minimum Professional Liability Coverage of $1MM per occurrence and $3MM aggregate.

Maximum $100M deductible. Operators of > 50 facilities may request a lower deductible

Provide a six-year loss history of claims filed against the operator & manager for all facilities of the

operator & manager.

Policy must carry a AM Best B++ Carrier Rating or Demotech Financial Stability Rating of A orhigher.

Captives & RRG are acceptable

Minimum Fidelity Bond coverage required and must be equal to two times gross receipts

Must Escrow The Following Through Mortgagor

Taxes

Insurance

Property Insurance Only

Replacement Reserves


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Cons

Operator AR Loan Restrictions

Subject to HUD Intercreditor Agreement.

AR Loan is limited for use only for FHA projects and to only bridge timing delays between

governmental reimbursements and operators obligated payment to lenders, vendors, accounts payables,

etc. Properties with HUD Insured Mortgages must have their own separate AR Line. Existing lines must be

bifurcated to satisfy this requirement.

Deposit Accounts

Facility deposit accounts shall be subject to HUD Deposit Account Instruction Service Agreement

(DAISA) & Depository Account Control Agreement (DACA). The rationale for this requirement is to protect HUD and the FHA lender against potential risks, such

as the borrower moving bank accounts immediately following closing without the notice or consent of

the FHA Lender. With a DACA/DAISA, the FHA lender must be notified and must approve any such

move before it occurs. In the instance of an assignment of a loan to HUD, which is later assigned or sold

to another lender, without a DACA/DAISA already in place, a DACA/DAISA would likely be difficult

to obtain.


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Cons

Master Lease Requirements

A master lease will be required on any group of facilities under common control numbering three or

more facilities and/or with an aggregate mortgage amount of $15,000,000 or more.

Minimum lease payment must equal 1.05 x DSC, plus applicable HUD required escrows (taxes,

property insurance, replacement reserves).

Two Year Debt Seasoning

All refinance debt must be two years or older. The two year debt seasoning rule does not apply

acquisition debt funded by a bridge loan.

New Construction

Davis Bacon / Prevailing Wage Rates Required

Timing

6+ months for a refinance or acquisition transaction.

12+ months for a new construction transaction.

Others

No cash out financing

No early rate lock

Standard HUD documents are non-negotiable.


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KeyBank - CAHF IO Symposium Presentation

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