84 H. A Collaborative Approach to Repositioning

84

‐

H.

 

A

 

Collaborative

 

Approach

 

to

 

Repositioning

Karen Christiansen ‐Executive Vice President, CFO

Lori Woodward ‐Senior Vice President, Sales, Marketing, Corporate 

Communications

Jonathan Grant ‐Vice President, Operations – Mid‐Atlantic Region

Objectives

•

Learn

 

how

 

one

 

organization

 

successfully

 

repositioned

 

several

 

communities

 

while

 

maintaining

 

financial

 

health

 

and

 

credit

 

ratings.

•

Hear

 

how

 

members

 

of

 

various

 

departments

 

worked

 

together

 

to

 

support

 

sales

 

and

 

marketing

 

initiatives.

•

Discuss

 

the

 

pricing

 

strategies

 

and

 

contract

 

options

 

used

 

to

 

improve

 

occupancy

 

in

 

competitive

 

markets.

Agenda

•

Overview

 

of

 

the

 

ACTS

 

organization

•

The

 

challenges

 

and

 

opportunities

 

of

 

the

 

Great

 

Recession

 

•

Review

 

of

 

three

 

repositioning

 

projects

–

Operations

 

perspective

–

Sales

 

&

 

Marketing

 

influence

–

Financial

 

implications

 

OVERVIEW

 

OF

 

THE

 

ACTS

 

2015 LZ 150:  ACTS Retirement‐Life Communities, Inc.

• LZ 150 #:  3 Headquarters Location: Pennsylvania, West Point 

• Year Founded:  1971

• Total Units (as of 12/31/14):  7,993

– 5,652 ILUs

– 904 ALUs

– 1,437 NCBs

• Classification:  Primary: National Secondary: Across States

• Total # of Communities: 23 # of CCRCs:23 # of Accredited Organizations:22 Affordable Housing: N/A

• Debt Rating:  Yes Fitch:  A‐ S&P:  BBB+

• Practices:  While past growth was primarily through new campus development, current growth has been 

through acquisition and/or expansion. Non‐denominational background has led to acquisitions of others 

without religious ties. Most recent acquisition was in 2010: Peninsula United Methodist Homes and Heron 

Point of Chestertown.

• Managed Housing: N/A

5

1st_{Community opened in 1972}

2nd_{Community opened in 1976}

3rd_{Community opened in 1977}

Source: 2015 LeadingAge Ziegler 150 Publication (data as of 12/31/14)

Total Assets $1.264B

Annual Operating Revenue $390.0M

# of Residents 8,569 # of Employees (ft & pt) 5,856 Regional Clusters Northeast Mid-Atlantic Mid-South Southeast

ORGANIZATIONAL

 

OVERVIEW

PA

Ft.Washington Estates Gwynedd Estates Spring House Estates Southampton Estates Lima Estates Normandy Farms Estates Granite Farms Estates Brittany Pointe Estates

FL St. Andrews Estates Edgewater Pointe Estates Indian River Estates

Azalea Trace*

NC Plantation Estates Tryon Estates

SC Park Pointe Village*

GA Lanier Village Estates

AL Magnolia Trace* DE Cokesbury Village* Country House* Manor House* MD Heron Point*

The Evolution of ACTS

40+ Years and Counting…

*Denotes year of Affiliation

THE

 

CHALLENGES

 

AND

 

OPPORTUNITIES

 

OF

 

THE

 

3,500 4,000 4,500 5,000 Available 4,241 4,228 4,224 4,222 4,368 4,567 4,580 4,726 4,728 4,706 4,701 Occupied 4,000 4,032 4,023 4,028 4,163 4,371 4,374 4,443 4,474 4,435 4,320 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Average Occupancy

Independent Living Occupancy

Occupancy 94% 95% 95% 95% 95% 96% 96% 94% 95% 94% 92%

Sales

 

&

 

Occupancy

 

Results

84.3% 86.6% 89.7% 200 250 300 350 400 450 500 550 600 70% 75% 80% 85% 90% 95% 100%

Independent Living Occupancy

Communities below 85%

• Granite Farms Estates (Media, PA)  

• Manor House* (Seaford, DE) 

• Heron Point* (Chestertown, MD) • Magnolia Trace* (Huntsville, AL) 

• St. Andrews Estates North (Boca Raton, FL) • St. Andrews Estates South (Boca Raton, FL) • Edgewater Pointe Estates (Boca Raton, FL) 

• Indian River Estates (Vero Beach, FL)

2010 Occupancy 95‐100% 6 90‐94% 4 85‐89% 5 Below 85% 8 * Affiliate communities

•

Created

 

CORT

 

Committee

(Community Occupancy Recovery Team)

‐ Multi‐discipline team

‐ Finance, Operations, Sales & Marketing, Real Estate

‐ Review every aspect of each community

‐ Leadership, staffing, culture, physical plant, competition,  contract offering, pricing strategies

•

Created

 

COPS

 

Committee

(Contract Options & Pricing Strategies)

‐ Transferred contract offering & pricing strategies 

COPS

 

Committee

• Modified refund provisions within Type A resident contract  to eliminate “death” penalty

• Added certain services that are provided within the  monthly fee

– Home Health, Cable, Internet

• Per unit pricing based on attributes of every unit

• Discount programs weighted by unit rating and days vacant • Added various pricing options/contracts

– High entrance fee / low monthly fee (and vice versa)

– Modified health care contract provides for a LTC carve‐out

– Rental contracts

The Physical Plant… 

Repositioning Opportunities

• Add Residential Amenities

– Remote clubhouses

• Create Larger Independent Living Units

– Unit combinations

• Adjust Healthcare Unit Mix

– Increase Assisted Living and Early Dementia

• Enhance Privacy in Skilled Care Center

REPOSITIONING

 

OPPORTUNITIES

St.

 

Andrews

 

Estates

 

(North

 

&

 

South)

Boca

 

Raton,

 

FL

St.

 

Andrews

 

Estates

 

(North

 

&

 

South)

Repositioning

500 750 1,000 Available 928 917 910 906 898 899 Occupied 857 840 802 773 719 687 2005 2006 2007 2008 2009 2010

(Boca Raton, Florida)

3  ACTS Communities

– St. Andrews Estates (North & South) 

and Edgewater Pointe Estates

92.3% 91.6% 88.1% 85.3% 80.1% 76.4%

Turnover Move‐ins Vacancies

2005 117 97 71 2006 113 96 77 2007 107 69 108 2008 92 63 133 2009 113 59 179 2010 102 57 212

• Large number of units in saturated market

• Unit mix heavily weighted towards smaller apartments • Traditional health care center, heavily weighted towards 

skilled nursing beds

Unit Type _FootageSq. _Units# of Avg. # 10 yr Vacancies Units Vacant -2010 Studio 510 66 10 17 One Bedroom 685 172 17 44 Two Bedroom 994 231 23 54 Number of Units Assisted Living 40 Skilled Nursing 119

St.

 

Andrews

 

Estates

 

– The

 

Resolution

• Reduce number of Independent Living Units

– Unit combinations to create larger units

– Create remote clubhouses to bring certain amenities to each 

apartment building

– Increase number of assisted living units

– Increase number of private rooms in skilled nursing 

To

 

accomplish

 

all

 

the

 

above,

 

the

 

decision

 

was

 

made

 

to

 

take

 

an

 

entire

 

ILU

 

building

 

out

 

of

 

service

“F”

 

Building

St.

 

Andrews

 

Estates

Repositioning

Why the “F” Building?

Enhancements

•

Enhance the Delivery of Health Services

– Consolidating the Health Center (WillowBrooke and OakBridge Terrace) at St. Andrews North

– Replacing the existing OakBridge Terrace currently located at St. Andrews South

– Creating Assisted Living Apartments & Suites

– Adding Specialty Care Memory Support within OakBridge Terrace

– Creating more privacy by adding private rooms and enhancing semi-private rooms in WillowBrooke Court

Effect on St. Andrews Estates Residents

•

All Residents residing in Building “F”

apartments will need to be transitioned

by December 31, 2011.

•

Residents will be given a choice of

available apartments at any ACTS

community.

•

Major Construction throughout

campus.

The

 

Message

We

 

need

 

you

 

to

 

move

The

 

Promise

We

 

will

 

duplicate

 

what

 

you

 

have

and

 

make

 

it

 

better

How

 

can

 

we

 

do

 

this?

 

• Provided for within Resident Agreement

• Legal right was less important than Resident buy‐in and  excitement

“Relocation From Residential Unit to Another as Required by Company”

Company reserves the right to make all necessary arrangements and  adjustments regarding residence not otherwise specifically provided in this  Resident Contract.  Company may relocate Resident to a different residential 

unit in the Retirement Community, substantially similar to that selected by 

Resident, if it determines that such a move should be made for the benefit of 

Resident or for the proper operation of Retirement Community, as 

determined by Company.  In the event Resident is directed to relocate, no  additional Entrance Fee payment will be required and Company shall be  responsible for all reasonable moving and relocation expenses.  Resident shall  execute an addendum which shall reflect all changes in the Monthly Rate.

Relocation

 

Accommodations

ACTS will provide:

• A comparable sized, newly renovated apartment unit, including:

– Choice of carpet, paint & cabinets

– Replicating all original upgrades

– $2,500 upgrade voucher

• A Monthly Fee credit for first 3 months after relocation

Coming

 

Together

We

 

are

 

all

 

in

 

this

 

together

The Next Steps…

• Executive Director will schedule an appointment with each Resident to discuss specifics of the transition.

• Relocation Coordinator will schedule an appointment to review available apartments and plan the relocation process.

– Appointments and unit selections will be based on Residents original move-in date (earliest move-in date will select first)

• Upon selection of available unit and apartment upgrades, the dates for renovation and relocation will be established.

Implementing the Plan

• Implementation team created

– RVP, Corp Real-estate, Community ED

– Move-in-coordinator

• Planning room selected in F-building

– Planning boards

– Dedicated hot-line

• Weekly ops meetings held

– Team updates

– Lessons learned

• Weekly resident events planned

– Cheese and crackers

– Constant communication updates

CONCEPTUAL FLOOR PLAN EXISTING BUILDING E TV LOUNGE ACTIVITIES ENTRANCE SERVICE ENTRANCE EXISTING CONNECTOR TO BUILDING E GAME LOUNGE RESTROOM COUNTRY KITCHEN

DINING

OakBridge Terrace Private Suite includes: Private bedroom, kitchenette, parlor, bath & walk in closet; some with 11 x7 patio

New Bedroom in OBT Private Room

Construction

TYPE “A” – PRIVATE RESIDENT ROOM

Outcome

• 72 ILUs Closed • 34 Households Relocated • 42 Apartments Renovated • 60+ Residents Impacted • Conversion of independent living building to new Assisted Living  ‐ Opened in 2013

• Renovation of existing WillowBrooke Court – Opened in 2014

Before After Change

ILU 561 460 ‐101

OBT 40 72 +32

WBC 119 89 ‐30

St.

 

Andrews

 

Estates

Repositioning

A

 

Sales

 

&

 

Marketing

 

Perspective

St.

 

Andrews

 

Estates:

 

Sales

 

Impacts

•

Sales

 

closing

 

put

 

on

 

hold

 

until

 

residents

 

chose

 

new

 

apartments

•

One

 

salesperson

 

assigned

 

to

 

move

‐

in

 

coordination

 

to

 

facilitate

 

St.

 

Andrews

 

Estates:

 

Marketing

 

Impacts

•

ACTS

 

brand:

  

experience

 

and

 

innovation

‐‐

focus

 

not

 

only

 

on

 

“independent

 

living”

 

environments

•

Marketing

 

“lifestyle”

 

continues

 

rather

 

than

 

“higher

 

level

 

of

 

care”

•

Campus

‐

wide

 

quality

 

of

 

service

 

and

 

amenities—

ability

 

to

 

continue

 

consolidation

 

of

 

“north

 

&

 

south”

St.

 

Andrews

 

Estates

Repositioning

Funding

 

the

 

Project

This

 

costs

 

how

 

much?

Most Challenging Economic Conditions

Real

 

Estate

 

Market

–

Slowdown in Apartment Resales

(New Move-ins)

–

Resulting in a Reduction in Occupancy

Financial

 

Market

 

–

Decline in Investment Returns

Timing

 

is

 

Everything

•

ACTS

 

completed

 

its

 

first

 

affiliation

 

with

 

another

 

system

 

in

 

May,

 

2010

•

Provided

 

additional

 

revenue

 

to

 

ACTS

 

–

management

 

fees

ACTS Mission Foundation

ACTS Acquisition Company, LLC

PUMH (3 CCRCs) Heron Point  of Chestertown

Organizational

 

Structure

‐

2010

ACTS Management Services, Inc.

ACTS Retirement Services ,Inc. 

(Parent Company)

ACTS Retirement‐Life 

Communities, Inc.      

Lanier Village 

Estates

Azalea Trace

Park Pointe Village

ACTS Signature Community 

Services, Inc.  Village Nursing Care

PUMH ACTS Obligated Group

Without Azalea Trace With Azalea Trace

Key Financial Indicators

ACTS Obligated Group

Liquidity 2009 2010 2009 2010

Unrestricted Cash & Reserves $148.1M $149.4M $167.2M $168.3M

Days Cash on Hand 248 242 262 255

Capital Structure

Debt Service Coverage 1.8x 1.8x 1.9x 1.9x

Debt to Assets 40% 43% 39% 42%

Profitability

Operating Ratio 99.2% 97.7% 98.7% 97.1%

Operating Margin 2.2% 2.3% 2.2% 2.6%

ACTS Obligated Group Financing

2010 Tax‐Exempt Bond Issue

• Funding planned capital improvements and repositioning efforts 

‐ St. Andrews Estates (North & South), Edgewater Pointe,  Indian River Estates (East & West)

• $54 million of fixed rate bonds

• Principal is “wrapped” around existing debt service, thus  only increasing maximum annual debt service by the amount  of interest on the Series 2010 Bonds.

Granite

 

Farms

 

Estates

Repositioning

The

 

Situation

400 500 600 700

ACTS

 

– Mid

‐

Atlantic

 

Region

(Delaware County)

 2 ACTS Communities

– Lima & Granite Farms Estates

96.2% 96.7% 96.1% 92.4% 88.0% 85.1%

Turnover Move‐ins Vacancies

2005 66 62 25 2006 67 70 22 2007 71 67 26 2008 66 41 50 2009 69 38 79 2010 66 39 98

The

 

Repositioning

 

Plan

•

Clubhouse

 

renovation

 

and

 

pool

 

addition

•

Reduce

 

apartment

 

inventory

– Combining Smaller Apartment Residences

– Creating Remote Clubhouses and Common Area Spaces  

– Renovation / reconfiguration of existing assisted living and 

skilled care center

– Converting an Existing Apartment Building into OakBridge Terrace Suites 

• Replacing the existing OakBridge Terrace

• “E” Building  _{Before After Change} ILU 360 300 ‐60 OBT 40 60 +20 WBC 82 60 ‐22 Total 482 420 ‐62

Granite

 

Farms

 

Estates

Repositioning

Agenda Presented To Residents

• Understanding the Need for 

the Repositioning of Granite 

Farms Estates

– Inconvenience of major 

clubhouse renovations

• How it affects Residents of 

the Elm Building 

• Review of Resident 

Accommodations

• The Next Steps…

Club House 

Enhancements

Project

 

Overview:

•Convert Existing 4 Story IL 

Building of 72 Apartments

•Create New Assisted Living/ 

OBT Households

•Reposition 3rd_& 4th_Floors 

Existing IL Building:

• 4 floors, 22,225 sf per floor, total of 88,900 SF

• 72 Apartments 

Proposed Conversion to AL/OBT:

• New entry & elevator lobby  • 1st and 2nd floors – New, Specialized approach  to Assisted Living; 20 units per floor Proposed IL renovation: • Private entry & elevator lobby • Renovated public spaces

• 3rd and 4th_{floor – premium IL} 

apartments

Project Configuration

GRANITE FARMS ESTATES Elm Building

How

 

it

 

affects

 

Elm

 

Building

 

Residents

• All Residents residing in Elm Building 

apartments will need to be transitioned • Residents will be given a choice of 

available apartments at Granite Farms  – Alternative arrangements can be 

made to relocate to any other ACTS  community.

Relocation Accommodations

ACTS

 

will

 

provide:

• A comparable sized, newly renovated  apartment unit, including:

– Choice of carpet, paint & cabinets

– Replicating original upgrades

– $2,500 upgrade voucher 

• A Monthly Fee credit for first 3 months after relocation   • Professional  packing, moving, unpacking and placement 

services  

Existing corridor

Elm

 

Building

 

Existing

 

Hallway

Conceptual Remodeled Corridor

Envisioned New OBT unit

N

e

w

Pri

v

The

 

Next

 

Steps…

• Executive Director will schedule an appointment with each  Resident to discuss specifics of the transition.

• Relocation Coordinator will schedule an appointment to  review available apartments and plan the relocation process.  

– Appointments and unit selections will be based on 

Residents original move‐in date(earliest move‐in date will  select first)

• Upon selection of available unit and apartment upgrades, the  dates for renovation and relocation will be established. 

Granite

 

Farms

 

Estates

Repositioning

Granite

 

Farms

 

Estates:

  

Sales

 

Impacts

•

Sales

 

closings

 

put

 

on

 

hold

 

until

 

residents

 

chose

 

their

 

new

 

apartments

•

Reduction

 

in

 

sales

 

force

•

Compensation

 

program

 

changed

 

for

 

remainder

 

of

 

sales

 

staff

 

during

 

on

‐

hold

 

period

•

Pre

‐

sales

‐

type

 

program

 

implemented,

 

including

 

30

th

_anniversary

 

_discounts

Granite

 

Farms

 

Estates:

 

Marketing

 

Impacts

•

Repositioning

 

included

 

renovation

 

to

 

main

 

“amenities”—brand

 

new

 

dining/clubhouse,

 

addition

 

of

 

fitness

 

&

 

aquatics

 

center

•

Timing

 

coincided

 

with

 

upcoming

 

30

th

_anniversary

•

Timing

 

also

 

coincided

 

with

 

ACTS

 

company

‐

wide

 

focus

 

on

 

updated

 

new

 

floor

 

plan

 

and

 

finish

 

packages

 

(including

 

3

 

professionally

 

decorated

 

and

 

furnished

 

models)

Granite

 

Farms

 

Estates:

 

Sales

 

Results

 

•

28

 

move

‐

ins

 

in

 

2015

 

and

 

7

 

already

 

scheduled

 

for

 

Q1

 

2016

 

•

Increased

 

new

 

leads

 

by

 

20%

•

Presales

 

of

 

repositioned

 

E

 

building

 

to

 

be

 

Granite

 

Farms

 

Estates:

 

Product

 

Positioning

 

Impact

•

New

 

Granite

 

Farms

 

Estates

 

in

 

same

 

market

 

as

 

another

 

ACTS

 

campus

 

creates

 

need

 

for

 

differentiated

 

marketing

 

messaging

‐‐

Two

 

great

 

communities

 

but

 

for

 

two

 

different

 

types

 

of

 

customer

Granite

 

Farms

 

Estates

Repositioning

Leveraging

 

Capital

 

Structure

 

Opportunities

Series

 

2012

 

Plan

 

of

 

Finance

 

• Refinance Existing Indebtedness ($98.555 million) ‐ Series 1998 PA Bonds $70 million @ 5.25% (2028) ‐ Series 1998 FL Bonds $14.555 million @ 5.13% (2029) ‐ Series 1999C GA Bonds $14.0 million @ 7.25% (2029)

• Refinanced as Series 2012

‐ Expected Yield of:  PA Bonds 4.1%; FL Bonds 3.8%;  GA Bonds 3.3% ‐ Anticipates Bonds will be sold at premium  

‐ Interest Rate Savings and Shorter Amortization produce Total Debt  Service Savings of $34.4 million

Summary

 

of

 

2012

 

Financing

 

Financing Achieves:

• Significant Aggregate Debt Savings 

• New money issue to create $15 million project fund • Long Term Debt Increases by only $4.9 million 

• Maximum Annual Debt Service is reduced from $31.1 million to  $30.6 million (while maintaining a level debt service platform)

$0.00  $5,000,000.00  $10,000,000.00  $15,000,000.00  $20,000,000.00  $25,000,000.00  $30,000,000.00  $35,000,000.00 

Heron

 

Point

Repositioning

The

 

Situation

Heron

 

Point

 

of

 

Chestertown

Opened in 1991 91 Cottages 102 Apartments

45 AL Beds 38 Skilled Beds

•

Became

 

ACTS

 

affiliate

 

in

 

May,

 

2010

ILU Occupancy Challenges



FYE 2007 91.2%



FYE 2008 85.4%



FYE 2009 75.1%

Heron

 

Point

 

of

 

Chestertown

Additional

 

Challenges

•

Deferred

 

maintenance

•

Financial

 

issues

–

Received

 

a

 

“going

 

concern”

 

audit

 

opinion

 

FYE

 

2009

–

Debt

 

covenant

 

violation

•

Large

 

entrance

 

fee

 

refund

 

liability

–

Refundable

 

contracts

 

(90%)

Heron

 

Point

 

of

 

Chestertown

Results

 

of

 

Affiliation

•

Immediate

 

financial

 

statement

 

improvement

•

Elimination

 

of

 

“going

 

concern”

 

opinion

April 30, 2010 May 1, 2010

Total Assets $28.6 million $61.5 million

Long-term Debt $30.0 million $30.0 million

Heron

 

Point

 

of

 

Chestertown

Results

 

of

 

Affiliation

• Introduced the ACTS‐like lifecare contract & pricing

– Offered existing resident contract conversion opportunity

• Restructured Debt

– Tender Offer that reduced debt outstanding

– Moratorium on Debt Service

• ACTS provided $3 million line of credit

– Satisfy debt payments, entrance fee refund obligations

– Address deferred maintenance

• Refinancing in 2013

– ACTS line of credit increased to $5 million

– Established $5 million project fund

Heron

 

Point

Repositioning

Spending

 

The

 

Project

 

Fund

•

New

 

Roofs

 

for

 

Cottages

•

New

 

Updated

 

Deck

•

Country

 

Kitchen

•

Main

 

Dining

 

Room

 

Renovation

•

New

 

Lobby

 

•

Wellness

 

Center

 

Expansion

WBC

 

Country

 

Dining

 

Room

Heron

 

Point

Repositioning

Sales

 

&

 

Marketing

 

Influences

Heron

 

Point:

 

Sales

 

Impacts

• Hired new salesperson with outside industry sales 

experience to complement existing salesperson who had  good relationships with prospects—good balance

• New regional sales director provided another layer of focus • New ACTS leadership increased customer confidence in 

future  financial success and resident referral

• ACTS Life Care® plan sells to Heron Point “plan‐in‐place”  customers

Heron

 

Point:

 

Marketing

 

Impacts

  

•

Increased

 

marketing

 

budget

 

and

 

focused

 

plan

 

created

 

long

‐

term

 

gains

 

in

 

new

 

leads

•

Target

 

marketing

 

plan—key

 

geographic

 

areas

•

Promote

 

unique

 

advantages

 

of

 

Chestertown

 

alongside

 

advantages

 

of

 

ACTS

Heron

 

Point:

 

Prospect

 

targeting

  

Post

‐

Affiliation

Pre

‐

Affiliation

Heron Point: Marketing Post‐Affiliation

REPOSITIONING

 

OPPORTUNITIES

Independent Living Occupancy

The Progress…and Continued Focus

Current Occupancy 95‐100% 14 90‐94% 3 85‐89% 2 Below 85% 4 95‐100% 6 90‐94% 4 85‐89% 5 Below 85% 8 2010 Occupancy

Thank

 

You!

Questions?

84

‐

H.

 

A

 

Collaborative

 

Approach

 

to

 

Repositioning

Karen Christiansen ‐Executive Vice President, CFO

Lori Woodward ‐Senior Vice President, Sales, Marketing, Corporate 

Communications