Office of Healthcare Programs

Transcription

1 Southeastern Mortgage Association FHA UPDATE FROM THE Office of Healthcare Programs April 11, 2018

2 SECTION 232 PROGRAM Over 3,500 loans insured under this program Over 3,350 facilities located in all 50 states and the District of Columbia Over $27.6 billion in insured mortgages 28.3%, 28% 1.9%, 2% 69.7%, 70% Board & Care Homes Nursing Homes Assisted Living Facilities Statistics based on data as of 1/31/18

3 PRODUCTION STATISTICS FYE2018 AS OF

4 FISCAL YEAR-END PRODUCTION STATISTICS Section 232 Mortgage Insurance Commitments FY FY Refinancing Construction

5 As of October 2017

6 ORCF PORTAL

7 232 HEALTHCARE PORTAL PRODUCTION User Acceptance Testing (UAT) began November 6, 2017 for Lenders and HUD staff and is ongoing until the completion of the projects initially uploaded. There are a total of 11 Applications that have been submitted through the 232 Healthcare Portal within the Production Module. Of those 11 Applications submitted: FHA Number Issued 5 Application InProcess 2 Application Firm Issued 3 Closing Executed Documents Uploaded 1 Production Estimated Start Date May 7, 2018

8 232 HEALTHCARE PORTAL OPERATOR FINANCIALS Quarterly Average of 71% of all projects are submitted.. 83% of the Lenders are in compliance. Issues Being Resolved Transfers of Operators

9 232 HEALTHCARE PORTAL ASSET MANAGEMENT Asset Management Transactions Submitted since January ,865 71% of Lenders is using this tool to process asset management transactions. We receive an average 405 transaction monthly.

10 ORCF LOAN COMMITTEE

11 LOAN COMMITTEE CONCERNS Loan Committee expectations including key risks: Financial Indicators Minimum NOI needed to support the requested mortgage Trends in NOI, operating margin, average daily rates (quality mix) Organizational Structure 3rd party or Identity of Interest (IOI) issues Company and executive management names (rather than recent LLC names) Owner and Operator Experience Duration with project and turnaround experience Quality of Care Indicators Risk management policies Existing Debt to be Refinanced Bank debt, partnership debt, allocated debt, origination date of existing debt

12 232 CLOSING PROCESS

13 ORCF CLOSINGS IN ACTION PAINTBRUSH ( ) FRESNO, CALIFORNIA ANTHEM LAKES ( ) JACKSONVILLE, FLORIDA CHESTNUT RIDGE AT BLOWING ROCK ( ) BLOWING ROCK, NORTH CAROLINA PARKER SENIOR LIVING EXPANSION ( ) PARKER, COLORADO

14 OVERVIEW Who s involved in Closings? Relationships are Key!! Lender UW Lender Counsel Lender Closing Liaison Borrower/Borrower Counsel LENDER TEAM HUD TEAM Touch Time / Causes for Delay Transaction Documents Policies & Resources Used in Closings ORCF UW HUD Counsel HUD WLM Closer Contract UW Contract Closer

15 TOUCH TIME Complete, clean, and accurate closing packages get reviewed and closed quicker All special conditions must be met and properly documented prior to closing Fast turnaround is KEY - Lender Counsel/Lender Closer- UW s responsiveness to HUD Closer & HUD Attorney Causes for delay: Title & Survey issues, A/R Financing, Master Lease Waivers that come in after Firm issuance Incomplete or inaccurate documents Environmental Issues

16 POLICIES & RESOURCES USED IN CLOSING - GUIDANCE Healthcare Mortgage Insurance Program Hand Book REV-1, Issued January 12, (Chapter 9 - Closing, Chapter 10 Construction, and Chapter 11 - Cost Certification) Hud.gov/ORCF Internet website althcare_facilities/residential_care Blasts From the Closing Corner Lean Thinking/FAQs

17 Recent Blasts

18 Emergency Generators April 3, 2018 REVISED GUIDANCE FOR PROCESSING RESERVE FOR REPLACEMENT (R4R) REQUESTS RELATED TO FLORIDA S EMERGENCY GENERATOR RULES The Florida state legislature has passed emergency generator rules for assisted living facilities (here) and skilled nursing facilities (here). Governor Rick Scott signed them into law on March 26, We understand that the compliance deadline is July 1, 2018, but providers may file for an extension out to January 1, 2019, under certain circumstances and with approved documentation. Further, we understand that the approved state budget includes funding to help defer the costs to comply with the rules imposed on skilled nursing facilities (no such funding has been proposed for assisted living facilities). Section 232 project borrowers are encouraged to contact their servicing lender to develop a plan for achieving compliance with these rules. The following guidance amends that given in the October 13, 2017, Blast concerning the eligibility of generators and related components as reserve for replacement items. It applies specifically to R4R requests for a Section 232-insured facility in Florida coming into compliance with the emergency generator rules: All R4R release requests for generators, storage tanks and other related components pursuant to complying with these requirements are to be sent to 232R4RRequest@hud.gov, rather than the Portal ( s should include in the Subject Line: Florida Generator Requirement ). This applies to lenders following the established delegated approval process. All pertinent R4R release requests should include a copy of the emergency plan submitted to the state to demonstrate full or partial compliance, and must include copies of any documents supporting an extension request beyond the July 1, 2018 deadline. For Skilled Nursing Facilities only: the R4R release request must include a plan for replenishment of the R4R account within a six-year period (the approximate amount of time Medicaid is expected to reimburse providers via Florida s Prospective Payment System). The total amount to be replenished should be supported by documentation reflecting the percentage of Medicaid beds at the facility. If the request will bring the balance of the R4R account below the $1,000 per unit recommended minimum threshold, a waiver may be considered. The existence or non-existence of a generator on the PCNA will not be a reason on its own to deny a request. Pursuant to H.3 of the handbook, advances may be considered for this type of work. Pursuant to H.4 of the handbook, requests shall be made no more than one year after the expenditure occurred; complying with the Florida requirement will not be a rationale for waiving this requirement. Section H.5 of the handbook has guidance on delegated approval (by lenders). Generators/tanks/component improvements (as long as they meet the requirements of this section) may be processed using the delegated approval process; in these cases, the details of the approved transaction are to be sent to the 232R4RRequest@hud.gov mailbox rather than through the Portal, per above. The Environmental Guidance provided in the November 13, Blast is applicable to the above requests.

19 New Section 232 Documents April 10, 2018 SECTION 232 DOCUMENTS AVAILABLE FOR PUBLIC REVIEW AND COMMENT On April 10, 2018 a Federal Register Notice (FR-7001-N-09) was published to open a 30-day comment period on the revised collection of Section 232 documents. The entire collection subject to this notice, in both clean and redline format, is available for review at: Please read, consider, and submit your comments, if any. In order to be considered, all comments must be submitted as instructed in the Federal Register. The comment period ends May 10, Please also note that the current document collection is still in effect, and should be used for all transactions, until further notice.

20 MONTICELLO Corley Audorff Monticello Corley Audorff Managing Director (770)

21 MONTICELLO Corley Audorff Overview Bridge Programs 1-3 years +/- 0% to 100% recourse Fixed or floating, index driven I/O, amortizing, other Prepayment lockout/penalties HUD Program 75% of REL / 35 years Non-recourse Fixed Fully amortizing Prepayment lockout/penalties

22 MONTICELLO Corley Audorff Purposes Acquisition Turnaround Lease-up from construction Construction and lease-up Cash out refinance

23 MONTICELLO Corley Audorff Deal Screening The Easy Part LTV DSCR The Hard Part Experience Turnaround Story Purchase Price Mortgage Credit Timing

24 MONTICELLO Corley Audorff Term Impact on Pricing Fixed Costs Investor purpose

25 MONTICELLO Corley Audorff Acquisition Scenario Acquisition A Acquisition B

26 MONTICELLO Corley Audorff Turnaround Scenario Turnaround A Turnaround B

27 MONTICELLO Corley Audorff Turnaround Scenario Turnaround A Turnaround B

28 MONTICELLO Corley Audorff Lease-Up Scenario Lease-Up A Bridge 3 years after CO Immediately to HUD Lease-Up B Bridge 1 year after CO ~2 years to HUD Lease-Up C Bridge immediately after CO 3+ years to HUD

29 MONTICELLO Corley Audorff Construction + Mini-Perm Scenario

30 MONTICELLO Corley Audorff Cash-Out Scenario

31 MONTICELLO Corley Audorff Thank you. Corley Audorff Managing Director (770) Monticello

32 APPRAISAL UPDATE Michael Baldwin, MAI, ASA (305) OHC Advisors, Inc. April 11, SMAC Mike@OHCadv.com

33 Typical Cap Rates Current Market Conditions New / Big Average Old / Small IL 6.25% 6.50% 7.00% AL/MC 7.00% 7.75% 8.50% SNF 11.50% 12.50% 13.50% Typical Price/Bed New / Big Average Old / Small IL $325K $250K $175K AL/MC $300K $225K $150K SNF $250K $90K $40K April 11, 2018 Michael Baldwin, MAI, ASA OHC Advisors Mike@OHCadv.com (305)

34 Many newcomers Construction Activity Mostly AL/MC Freestanding MC is harder Operators are blurring the lines April 11, 2018 Michael Baldwin, MAI, ASA OHC Advisors (305)

35 Appraisals HUD vs. Non-HUD Same: USPAP guidelines Definition of market value Data sources Cap rates Market, HUD Approaches to value Income, Sales, Cost, HUD T-12 Different: Valuation scenarios Content / scope requirements April 11, 2018 Michael Baldwin, MAI, ASA OHC Advisors Mike@OHCadv.com (305)

36 Content/Scope Requirements HUD vs. Non-HUD HUD Inspections Expirations MVTAB IOD DC Market Analysis Special cases: ground leases, tax abatements, restricted rents, NFP Non-HUD Varies, but less intensive Mindful for Bridge to HUD deals April 11, 2018 Michael Baldwin, MAI, ASA OHC Advisors (305)

37 Valuation Scenarios Scenario HUD Non-HUD Stabilized (223f) Expand/Renovate (241a) New Construction (232NC) 1. Current As Is 1. Current As Is 1. Current As Is 2. Current Hypo. Complete/Stable -- Value Difference? 1. Current As Is 2. Future U.C. 3. Future U.S. 1. Hypo. As Complete/Stable 1. Current As Is (Land) 2. Future U.C. 3. Future U.S. Bridge to HUD 1. Current As Is 2. Current Hypo. As Stabilized 3. Future U.C. - maybe 4. Future U.S. - maybe April 11, 2018 Michael Baldwin, MAI, ASA OHC Advisors Mike@OHCadv.com (305)

38 MONTICELLO Corley Audorff Monticello Corley Audorff Managing Director (770) PRIVATE AND CONFIDENTIA

39 MONTICELLO Corley Audorff Transaction Scenario Highlights EBITDAR $7.4MM Purchase Price $76,000,000 Financing Request $64,300,000 SNF Per Bed Cost $91,000 AL Per Bed Cost $290,000 Avg Star Rating 3 Star $5.0MM $2.0MM $2.0MM Current Pro Forma 3 SNFs 1 ALF Total Beds Expense & Occupancy $45.2MM 90% % $43.8MM SNF 1 SNF 2 SNF 3 AL Current Pro Forma 3 SNFs Occupancy

40 MONTICELLO Corley Audorff Borrower s Background Formed in principals with operations in the state 34 Long Term Care Facilities Across 4 states 3,000 beds Annual Revenues Exceeding $200MM Regulatory Technology: Point Click Care Combined Net Worth of $124,000,000 Combined Liquidity of $12,000, average star ratings of existing facilities 1.7 average before takeover

41 MONTICELLO Corley Audorff Skilled Nursing Turnaround Story Improving staffing models Reducing various expense items Improving operation margins from 10% > 17% Comparable to other facilities in the local market and in line with their current facilities Appraised at $60,800,000 $118,000 average value per bed Consistent Census / Revenue PPD Expense Change Nursing $ > $98.50 Pharmacy Housekeeping GLPL Insurance Therapy

42 MONTICELLO Corley Audorff Transaction Overview Loan Funding $64,300,000 Rate Interest Reserve Loan Term Prepayment Fees Floating rate over LIBOR $1,500,000 to be funded from the proceeds of the Loan Funding and will be used to pay interest on an ongoing basis 24 months with one extension option for 6 months Any time after 18 months following the Loan Funding Origination Fee equal to 1% of the Loan Funding payable at closing 50% recourse to Guarantors Recourse Liquidity Recourse to Guarantors to be reduced to 25% when all the Properties meet the minimum Net Income from Operations detailed below for a trailing 12-month period (including a 5% Management Fee and a Replacement Reserve of $500 per bed). Guarantors to maintain a minimum liquidity of $6,000,000 in cash and marketable securities.

43 MONTICELLO Corley Audorff Surveillance / Follow-up Beginning six months following the date of Loan Funding, and tested quarterly thereafter, the borrower will be required to maintain the following covenants: 1). Portfolio:1.45 DSCR for trailing 12 months based on the 30-day LIBOR plus 4.00% and a 25 year amortization. 2). Individual Facilities: 1.00 DSCR for trailing 12 months based on the 30-day LIBOR plus 4.00% and a 25 year amortization. 3). Each property shall maintain the following minimum T12M Net Income from Operations: Property 1 Property 2 Property 3 Consolidated Month 6 $2,002, $1,391, $1,608, $5,002, Month12 $2,496, $1,735, $2,006, $6,238, Month 15 $2,743, $1,908, $2,205, $6,856, Month 18 $2,990, $2,080, $2,405, $7,475, ). The Guarantors to have an aggregate liquidity minimum of $6.00MM. 5). The Guarantors are to provide PFS within 90 days of each year. 6). Tax returns are due 30 days after filing. Assisted Living Facility sold in month 10 for $32MM Borrower prepaid $22MM bringing the outstanding loan amount down to $42.3MM

44 MONTICELLO Corley Audorff Thank you. Corley Audorff Managing Director (770) Monticello

45 Valuation Considerations Michael Baldwin, MAI, ASA Oracle Healthcare Advisors (305)

46 FHA Lender Considerations

47 ORCF CONSIDERATION

48 Questions?