Impact Funding: Catholic Private Equity Growing Catholic Cemeteries

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1 Impact Funding: Catholic Private Equity Growing Catholic Cemeteries

2 2 Overview What is Social Impact Funding Catholic Cemeteries: Pastoral Business Opportunity Social Impact Fund: CFCS Capital Discussion

3 3 The Definition of Social Impact Investment Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. - Global Impact Investing Network (GIIN) The Catholic Church invests billions of dollars under USCCB negative screening SRI guidelines, but no positive screening model to invest in Catholic initiatives The Catholic Church s approach to impact investing is informal and lacks a formal measurement of results (i.e. schools, shelters, parishes) Catholic donors and institutions have millions of dollars available for investment

4 4 The Church is perfectly positioned: $6 Billion annual Catholic spend for cemetery services The Catholic Church is the largest cemetery operator in the United States o Over 6,000 cemeteries, however o Not offering the full range of products and services The market for services has changed dramatically, while the Church s model is relatively unchanged The Church is generally underinvested in selection of inventory and other services Only 6 of nearly 200 dioceses offer Funeral services, including cremation services.

5 5 Overview What is Social Impact Funding Catholic Cemeteries: Pastoral Business Opportunity Social Impact Fund: CFCS Capital Discussion

6 6 Outdated Model Requiring Innovation/Investment PAST In days past, our families relied on their local Catholic funeral home; and the Church could be assured that they would be guided through our rites. Funeral Home Church Cemetery Burial of Deceased Church PRESENT Funeral Home Cremation Cemetery Today, the variety of choices, and lower affinity of Catholics, means our families may not know where to turn in time of need.

7 7 The rise of cremation has caught the Church without the correct mix of products/services Cremation is rapidly gaining popularity due to its perceived simplicity and low cost. The national average is now exceeding 50%. Many dioceses already have cremation rates exceeding the national average. Preference for End of Life Services National Projections 5

8 8 This reality has put the Church at risk of becoming irrelevant in the eyes of families The Catholic Church was slow to respond, with inventory and funeral services, as shifts occurred in the desires of the faithful.

9 This is exactly the time for the Church to invest and expand this vital end of life ministry 9 General and Catholic Population 000 s, US, 5-year periods Pre-sale Window Life Expectancy The Baby Boomer wave is about to be felt in the End-of-Life market, particularly within a robust presales program. 0 < > 99 Total Population Catholic Population Sources: Centers for Disease Control and Prevention US Census Bureau Center for Applied Research in the Apostolate, Georgetown University

10 The CMS Catholic-outsource model has fueled tremendous adoption in over 20 dioceses around the United States 10 Management Services Client Mission Acceleration Program Consulting Engagements

11 11 CMS as a Catholic operator has a track record of enhancing the ministry All but one of CMS s client-dioceses had operating deficits when it took over operating responsibilities. Every one of those produces excess cash-flow that can be reinvested in other ministries. Original 5 Client- Dioceses Catholic Oakland (C) (F) 422,000 Sacramento (C) (F) 995,000 Detroit (C) 1,221,000 Spokane (C) (F) 109,000 Monterey (C) 206,000 Annual Revenue Population From To $ 18,400,00 0 $ 5,500,000 $ 5,500,000 $ 1,300,000 $ 1,700,000 $ 40,000,000 $ 23,000,000 $ 10,400,000 Years Active with CMS CAGR % % % $ 2,700, % $ 6,000, % (C) Cemetery (F) Funeral From 2003, Oakland s growth from $8 million has a CAGR of 14% for 12 years

12 12 Catholic Funeral & Cemetery Services logo is symbolic of our mission: Catholic Rooted in the life of the Church Christ Centered Mission Oriented Serving the Living Authority and Resource on Funeral, Cremation and Cemetery Services This approach allows a diocese to be an extension of the parish, the resource on end of life services, whether they have funeral homes or not.

13 13 Overview What is Social Impact Funding Catholic Cemeteries: Pastoral Business Opportunity Social Impact Fund: CFCS Capital Discussion

14 14 CFCS Capital Overview CFCS Capital is a private, for-profit investment manager focused on end-of-life investments only in the Catholic Church Founded in 2017 by a General Partner with investing and operating experience, raising a $150 million inaugural fund Investors are Catholic Institutions, dioceses, and high wealth Catholic families wishing to make a social impact Investments will generally be real estate leases for funeral home, columbaria, and cemetery development

15 15 Risk aversion within the Church: The need for outside capital Three Horizons of Cemetery Improvement High-class choices Revenue Stabilize the Operation - Stop allowing other ministries to subsidize cemeteries Grow to Build and Reinvest - Realize operating profits - Reinvest in capital and programs, including entering the funeral ministry - Know the perpetual care needs of the cemeteries - Segregate funds as necessary - Provide dividends to diocese in support of other ministry Time

16 16 Catholic Investment Model: Expanding End-of-Life Ministries Provides rapid expansion potential The Relationship Provides access to a transaction pipeline Invests in assets Operates assets CMS is an acronym for Catholic Management Services, an operating company which currently exists to operate cemeteries for nearly 20 dioceses. CFCS is an acronym for Catholic Funeral and Cemetery Services, the brand under which CMS operates client-dioceses cemetery ministries. CFCS Capital is a fund management company.

17 17 CFCS Capital provides non-recourse capital and guaranteed returns to dioceses Ownership CFCS Capital Management LLC ( the General Partner ) Management The Church retains pastoral control with CMS, a Catholic operating entity, overseeing operations Limited Partners CFCS Capital Fund I ( the Investment Fund ) Catholic Management Services ( the Operator ) CMS provides the management expertise Investment Dividends CFCS Capital provides nonrecourse capital Assets, rights Diocese of XYZ Cash / stream Perpetual Care CFCS XYZ, LLC ( the Operating Company ) Structure can be operating lease or individual capital projects Perpetual Care Fund Operating Bank Accounts Pre-need Cemetery Funds

18 18 Investment case: Turn-key cemetery Example Investment Starting Revenue $ 2,500,000 Investment $ 1,500,000 Investor Cash-flow $ 4,800,000 Return Horizon 10 Years Diocesan Cash-flow $ 4,200,000 IRR 22.2% MOIC 3.2 Value Proposition: CFCS Capital, in partnership with CMS, provides a diocese with a chance to stem historic operating struggles. Diocesan Economics: * Risk of future losses are backstopped by CFCS Capital * Dividend of 5% of Revenue after turnaround (projected yr. 3) * 5% donation to Perpetual Care Fund immediately Fund Economics: CFCS Capital collects all operating cash-flow over the life of the arrangement. Add-on opportunities: CFCS Capital will be able to provide capital for additional needs of the cemetery system inventory construction, funeral home acquisitions, etc.

19 19 Investment case: Niche inventory Calvary Niches St. Michael Cemetery, Livermore, CA Cathedral Niches San Juan Bautista, Puerto Rico Low Cost: Inventory costs in the range of $ per unit, with sales prices averaging 10x the capital investment. Revenue Share: Set a release price with the diocese of 70% of each sale, until ROI target is met. Operating expense: Nearly all revenue is incremental and non-deferred to the diocese because this project becomes an element in a portfolio of inventory. Perpetual care: Niches are low maintenance and designed for extremely long lives, so donations to perpetual care funds are minimal. Example Investment Inventory Units 500 Investment $ 200,000 Total Project Revenue $ 2,000,000 Investor Cash-flow $ 800,000 Return Horizon 7 Years Diocesan Cash-flow $ 1,200,000 IRR 124% MOIC 4.0

20 20 Investment case: Funeral home acquisition Sorensen Chapel (Funeral Home), Hayward, CA Value Proposition: Diocese is able to enter a business with no capital investment. The move into this business allows a diocese to extend its ministry across the entirety of the Order of Christian Funerals. Example Investment Acquisition Price $ 3,000,000 Multiple of NOI 6x Leverage $ 1,860,000 Starting Revenue $ 1,950,000 Revenue growth 5.5% CAGR Investor Cash-flow $ 4,300,000 Return Horizon 10 Years Diocesan Cash-flow $ 1,060,000 IRR 24.2% MOIC 3.7 Structure: The locations, generally purchased from owner-operators, are acquired, owned and operated by CFCS Capital. The diocese cooperates formally (via a CMS management agreement over the cemeteries), or informally via a joint marketing agreement. During pre-determined windows, the diocese can buy the funeral homes per a formula. Fund Economics: CFCS Capital can acquire small secular operators and immediately layer the Catholic connection on the location, driving immediate revenue growth. Buy-sell formula ensures liquidity options and ROI targets.

21 21 Investment case: Funeral home / crematory St. Mary Funeral Home and Chapel St. Mary Cemetery, Sacramento, CA Leverage: Bank financing is available to improve investment returns. Multiple Revenue Streams: Funeral and crematory facilities can augment cashflow by providing wholesale services to the market, if necessary. Office and chapel space can receive rental revenue from cemetery operations. Diocesan interest: Diocese is able to enter a business with no capital investment and buy out the equity investors after the business is at full earning potential. Key Components Example Investment Funeral chapel Office space Arrangement rooms Crematory Project Costs $ 6,000,000 Investment $ 1,500,000 Leverage $ 4,500,000 Return Horizon 10 Years

22 Thank You! 22