Tim Wade Administrative Vice President, NYS and New England Healthcare Division M&T Bank. Kristen Richardson Putnam Investments

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1 2016 SENIOR LIVING SYMPOSIUM SENIOR LIVING FINANCING OPTIONS PRESENTED BY: Chad Himel Director Ziegler Tim Wade Administrative Vice President, NYS and New England Healthcare Division M&T Bank Kristen Richardson Putnam Investments March 16, 2017 B.C. Ziegler and Company Member of SIPC & FINRA

2 OBJECTIVES Discuss recent trends in senior living financing and what providers need to know when seeking capital. Understand what steps provider organizations need to take to successfully prepare for capital projects and be a strong candidate for financing. Hear how lenders and investors perceive the senior living sector and understand their evaluation process for providing funds to senior living organizations. 2

3 AGENDA TOPIC 1 INTRODUCTION TOPIC 2 PANEL DISCUSSION QUESTIONS & ANSWERS 3

4 TOPIC 1: INTRODUCTION

5 $1,287 $1,186 $1,448 $1,630 $1,500 $1,663 $2,243 $2,445 $2,522 $4,058 $2,434 $2,605 $2,966 $2,146 $2,092 $2,442 $3,145 $3,934 $1,320 $1,174 $1,900 $968 $1,381 $1,303 $1,901 $2,012 $290 $304 $180 $798 $876 $820 $630 $627 $899 $415 $255 $1,160 $737 $1,079 $814 $1,014 $940 $1,492 $817 In Millions $1,696 $2,284 $1,790 $2,555 $924 $2,766 $3,460 NOT-FOR-PROFIT SENIOR LIVING FINANCINGS $8,000 $7,000 VOLUME BY PURPOSE $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 New Money Refunding Trends for refinancings follow borrowing cost movement (ex. 50% of volume in 2007) Average new money per year for last five years was approximately $1.5 billion New money average for 5 most recent years far below 5-year average pre-crash of $2.8 billion SOURCE: Thomson Financial Securities Data, 12/31/15; and Ziegler Investment Banking, 12/31/15 5

6 In Millions NOT-FOR-PROFIT SENIOR LIVING FINANCINGS $8,000 $7,000 VOLUME BY CREDIT STRUCTURE $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Non-Rated (Unenhanced) Rated (Unenhanced) Letter Of Credit Backed Bond Insurance FHA/GNMA 2009 was a transition year as bank LOCs evaporated Unrated Bonds as a % of Total Bonds Issued much higher in as a result of shift in bank focus to Direct Placements but much of that directed to refundings SOURCE: Thomson Financial Securities Data, 12/31/15; and Ziegler Investment Banking, 12/31/15 6

7 NOT-FOR-PROFIT SENIOR LIVING FINANCINGS TODAY S FINANCING VEHICLES Historical vehicles remain Traditional tax-exempt bonds Rated Unrated With new creative structures (Draw-down) Bank financing Government backed Some vehicles changed or gone for one reason or another Bond Insurance - gone Bank Financing Non-bank qualified direct purchase, LOC SOURCE: Ziegler Investment Banking 7

8 NOT-FOR-PROFIT SENIOR LIVING FINANCINGS TODAY S FINANCING VEHICLES HUD s ORCF (Lean) updated interpretation of Board and Care has opened a new financing avenue for some rental senior living properties In the 1990 s, HUD financed rental senior living through their Section 231, Congregate Housing program After suffering losses in that program, HUD effectively shuddered it In it s newest Lean Handbook, HUD has updated and broadened its interpretation of Board and Care to include unlicensed communities that meet certain criteria 3 meals per day Continuous protective oversight State must be in compliance with the Keys Amendment SOURCE: Ziegler Investment Banking 8

9 SENIOR LIVING BANK CREDIT MARKETS Banks continued to be a strong source of credit for senior living providers in 2016 Interest rate trends Short term rates slightly higher, but swap rates remain low Fed on watch for short-term rate increases in 2016 Fixed rates were very strong throughout 2015 and have continued to be attractive in 2016 SOURCE: Ziegler Investment Banking 9

10 SENIOR LIVING BANK CREDIT MARKETS Use of proceeds Refinancing activity LOC supported VRDBs to Direct Placement Fixed Rate to Direct Placement More significant expansion, renovation and repositioning projects than in previous years New construction capital remains selective, but the appetite is there among both banks and fixed rate investors The search for yield continues SOURCE: Ziegler Investment Banking 10

11 HISTORICAL INTEREST RATES (SENIOR LIVING) Variable Rate Demand Bonds vs Revenue Bond Index vs Fed Fund Target Rate vs 30-Year NR Institutional VRDBs Revenue Bond Index Fed Fund Target Rate 30-YR NR Institutional Minimum: 0.02% 2.98% 0.25% 3.85% Maximum: 8.00% 7.83% 8.25% 10.75% Average: 2.20% 5.44% 3.06% 6.94% Current: 0.62% 4.11% 0.75% 5.41% Variable Rate Demand Bonds Fed Fund Target Rate Revenue Bond Index 30-Yr NR-Institutional SOURCE: Ziegler Investment Banking, as of 3/3/16 11

12 BANK DIRECT PURCHASE MARKET In 2016 Ziegler closed 51 fixed rate bond issues and 33 bank direct purchases Compared to 2015: 29 fixed rate bond issues and 31 bank direct purchases Typical term 7-10 years, but have seen 10+ year commitments Senior Living Tax-Exempt Bank Direct Purchase Annual Fees (1) (Ratings: Fitch/S&P/Moody's) AVERAGE ANNUAL FEE (%) SPREAD OVER 65%-67% OF LIBOR (5 YEARS) AVERAGE ANNUAL FEE (%) SPREAD OVER 65%-67% OF LIBOR (7-10 YEARS) Unrated - Start-Up Communities (2) Unrated - Existing Stable Communities 1.20 Rare Rare "BB" Rated (Fitch, S&P or Moody's) "BBB" Rated (Fitch, S&P or Moody's) "A" Rated (Fitch, S&P or Moody's) ) Letters of Credit are 0.25% % higher, if available 2) If available, meaningful equity and/or credit support is required in order to achieve minimum required bank appraisal levels SOURCE: Ziegler Investment Banking, as of 12/31/16 12

13 INSTITUTIONAL BOND MARKET OVERVIEW Institutional Investors Prefer longer maturities Different buyers will purchase unrated, rated and credit enhanced bonds Purchase in multi-million dollar blocks 10-Year optional redemption is market standard Other redemption options are available, but typically impact the yield required by investors 30- or 35-year amortization Capacity to purchase bonds is supply/demand driven Currently very favorable SOURCE: Ziegler Investment Banking 13

14 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 HISTORICAL INTEREST RATES SENIOR LIVING YIELDS Year Maturity BBB Category 30-YR "BBB" 10-Yr Average % YTD % Today % 2.00 Source: Ziegler Capital Markets, as of 3/3/16 14

15 CHANGES IN MUNICIPAL BOND FUND CASH FLOWS In Millions $12,500.0 $11,250.0 $10,000.0 $8,750.0 $7,500.0 $6,250.0 $5,000.0 $3,750.0 $2,500.0 $1,250.0 $0.0 -$1, $2, $3, $5, $6, $7, $8, $10, $11, $12, $13, $15, $16, $17, $18, $20,000.0 Cash Flow Source: Investment Company Institute, as of January, 2017 Current Month Flows are estimated from reported weekly in/outflows 15

16 ACTIVE INSTITUTIONAL PURCHASERS OF SENIOR LIVING DEBT American Century, Mountain View, CA Franklin Resources, San Mateo, CA San Francisco: Charles Schwab Lapis Advisers Wells Capital Mgt LOS ANGELES, CA: Bel Air Investors Capital Research & Mgt First Western Capital Kayne Anderson Capital PIMCO, Newport Beach, CA COLORADO: Equus Private Wealth Fundamental Advisors Yellowstone Advisors, Kamuela, HI MINNEAPOLIS, MN: SIT Investments Thrivent Financial Voyageur Thornberg Mgt, Santa Fe, NM Waddell & Reed Inc., Shawnee Mission, KS SOURCE: Ziegler Capital Markets, as of 12/31/16 CHICAGO, IL: Allstate Insurance, Northbrook INVESCO, Chicago John Nuveen, Chicago Northern Trust, Chicago McDonnell Investments, Oak Brook Performance Trust, Chicago Adams Hall Inv, Tulsa, OK MILWAUKEE, WI BMO/M&I Investment Mgt. Northwestern Mutual Wells Capital Mgt USAA, San Antonio, TX NEW YORK: Alpine Funds Alliance Capital Mgt Barclay Capital Belle Haven Capital Blackrock Capital Mgt Fundamental Advisors Goldman Sachs Guardian Inc. Hamlin Capital Avalon Advisors, Houston, TX PENNSYLVANIA: AH Williams Asset Mgt Clark Capital Delaware, Philadelphia Federated, Pittsburgh Vanguard Group, Malvern DALLAS, TX: McGowan Group Orix Capital Markets INVESCO JP Morgan Asset Mgt Loews Corp Morgan Stanley Oppenheimer Funds Samson Capital Adv Silvercrest Asset Mgt Spring Mountain Capital Van Eck Western Asset Mg Pine Capital Mgt, Freeport, ME Baltimore, MD: Brown Advisory T Rowe Price TIAA-CREF Mgt, Charlotte, NC Asset Preservation, Fidelity Mgt & Research, Merrimack, NH Whalerock Point Partners Providence, RI CONNECTICUT: Cedar Ridge Partner Hartford Insurance Hartford Inv Mgt Group RCM Capital Mgt NEW JERSEY: Blackrock Lord Abbett Prudential Inv SMC Fixed Income Mgt Spring Mountain Capital Atlanta, GA Eagle Asset Mgt, Clearwater, FL Wasmer Schroeder, Naples, FL BOSTON, MA: BNY Mellon Breckenridge Cap Adv Columbia Deutsche Asset Eaton Vance Mgt John Hancock Liberty Mutual Massachusetts Financial Services Pioneer Inv Mgt Putnam Inv Mgt Standish Mellon Wellington Mgt Braintree Capital Braintree, MA 16

17 QUESTIONS & ANSWERS B.C. Ziegler and Company is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN, Web site: Attendees are eligible to receive credits for attendance at the 2016 LeadingAge Massachusetts & Ziegler Senior Living Symposium. No prerequisites are required for this group-live educational conference. Program level is basic. For more information regarding administrative policies such as complaint and refund, please contact our offices at Fees for this workshop are detailed on the registration form B.C. Ziegler and Company Member SIPC and FINRA

18 ABOUT ZIEGLER Ziegler is a privately-held investment bank, capital markets, wealth management and alternative investments firm A registered broker dealer with SIPC & FINRA Ziegler provides its clients with capital raising, strategic advisory services, equity & fixed-income trading, wealth management and research Founded in 1902, Ziegler specializes in the healthcare, senior living, educational and religious sectors as well as general municipal finance 18

19 DISCLAIMER Investment banking services offered through B.C. Ziegler and Company. FHA mortgage banking services are provided through Ziegler Financing Corporation which is not a registered broker/dealer. Ziegler Financing Corporation and B.C. Ziegler and Company are affiliated and referral fees may be paid by either entity for services provided. This presentation was prepared based upon information provided to Ziegler Investment Banking (ZIB) and contains certain financial information, including audited and unaudited information, certain statistical information and explanations of such information in narrative form (the Information ). ZIB believes this information to be correct as of the date or dates contained herein. However, the financial affairs change constantly, and such changes may be material. Today s discussion may contain forward-looking statements, which may or may not come to fruition depending on certain circumstances, including those outside the control of management. Please be advised that ZIB has not undertaken, assumed no duty and are not obligated to update the Information. In addition, please be advised that past financial results do not predict future financial performance. The material in this presentation is designed to present potential financing structures and options for discussion, however it does not represent a commitment to underwrite bonds, place debt or provide financing and thus should not be relied upon as a promise of financing or underwriting commitment. 19

INSTITUTIONAL INVESTOR PANEL

INSTITUTIONAL INVESTOR PANEL MARY JANE MINIER Head of High Yield Municipal Credit Invesco DEAN LEWALLEN Vice President and Senior Analyst Alliance Bernstein JIM LEBUHN Senior Director Fitch Ratings ED