association of jewish aging services annual meeting.… · · 2018-02-06hj sims has provided the...

Association of Jewish Aging Services Annual Meeting

February 2018

The Governance That Got Us Here, Won’t Get Us There

The changing responsibilities of nonprofit boards.

Generative: Insight

Fiduciary:Oversight

Strategic: Foresight

3 Modes: What’s the Difference?

1. Fiduciary – Board as Control Mechanism-Dashboards

2. Strategic – Board as Direction-Setter-Achievements, Market Position

3. Generative – Board as Meaning Maker- Enduring Impact

3 Modes: What Do We Measure?

Future of Nonprofit Sector

“Change lives.” – Peter Drucker

4 Duties – Lester Salamon1. Guardian of values2. Meet unmet need, often difficult and

unprofitable3. Advocate, especially for those without voice4. Create social capital, aka community

What are the Traditional Responsibilities of the Nonprofit Sector?

According to Salamon…

1. Fiscal2. Competitive3. Legitimacy

Major Challenges of the Nonprofit Sector?

According to Salamon…

Major Impulses of the Nonprofit Sector?

Nonprofit Sector

Commercialism

Professionalism

Volunteerism

Civic Activism

“We must reject the idea- well intentioned, but dead wrong- that the primary path to greatness in the social sectors is to become

‘more like a business.’”

Measuring Impact

According to Collins and cross-referenced with Chaitt, Ryan, and Taylor…

• Superior Performance… Fiduciary• Distinctive Impact… Strategic• Lasting Endurance… Generative

Greatness Defined

Time- Commitment of the community of peopleMoney- Public programs, self pays, philanthropyBrand- Reputation, tradition, ETHIC

… to attract people!

“Money doesn’t attract people as well as people attract money.” –Jim Collins

The Essential Assets for Success

1. Sexual harassment.2. Using designated funds to support debt.3. Legal fees paid to board chair’s firm.4. CEO loaning money to meet cash flow needs.5. Board decided they didn’t want to do a certain

project, CEO did it anyway.6. Executive staff buying and selling individual stocks.

Governance Situations

CONNECT WITH US

Thank you LeadingAge and Tessa Atkinson-Adams

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Table of Contents or Agenda

I. Introduction

II. Correlation Between Strong Governance and Organizational Strength

III. “Financial Foot Faults” - Contrasts in Governance

Introduction

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Aaron RulnickManaging Principal

Rockville, MD(301) 424-9135

[email protected]▪ Sims banker since 1997

▪ Co-Leader of Sims’ banking team, member of Sims Board andOperating Committee

▪ Involved in financing over $4.3 billion for senior living providers

▪ Serve on Board of Governors and Finance Committee of Charles E. Smith LifeCommunities (Parent Organization to Hebrew Home of Greater Washington)based in Rockville, MD and serve as President of Housing Boards

▪ Representative Clients/Financings:

▪ Aviva Senior Life (formerly Kobernick-Anchin-Benderson) (FL)

▪ Hebrew Health Care (CT)

▪ Jewish Federation of South Palm Beach County – Sinai Residences (FL)

▪ Legacy Senior Communities (TX)

▪ Menorah Park (OH)

▪ Menorah Park (NY)

▪ Village Shalom (KS)

▪ Wexner Heritage Village (OH)

Introduction

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▪ HJ Sims has provided the Right financing solutions since 1935

▪ $21+ billion in financings nationwide for senior living providers nationwide

▪ Over $2.0 billion of financing experience for Jewish-sponsored organizations since 1983 (Platinum AJAS Sponsor)

▪ Provide most innovative and efficient financing structures for start-up,expansion and repositioning projects

▪ Unparalleled distribution of tax-exempt bonds to individual and institutional investors

▪ Ability to syndicate large bank deals

▪ $257 million financing syndicated to 10 banks for NewBridge on the Charles

▪ Ability to secure financing in difficult market conditions

▪ Lowest cost of capital

▪ Approximately 160 employees and 20 investment bankers dedicated to senior living sector

▪ Strong commitment to Board education at national, state and community level

▪ Many Sims bankers serve on non-profit Boards

Introduction

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• Jewish Home for the Elderly (CT)

• Hebrew Health Care (CT)

• Jewish Federation of South Palm Beach County (FL)

• Aviva Senior Life (formerly Kobernick-Anchin-Benderson) (FL)

• Village Shalom (KS)

• Hebrew SeniorLife (MA)

• Jewish Home for the Aged (ME)

• Gurwin Jewish (NY)

• Center for Nursing and Rehabilitation (NY)

• Hebrew Hospital Home Continuum of Care (NY)

• Jewish Senior Life (NY)

• Menorah Park (NY)

• Metropolitan Jewish Health System (NY)

• NJ Geriatric Center of Workmen’s Circle

• Seashore Gardens (NJ)

• Lions Gate (NJ)

• Menorah Park (OH)

• Wexner Heritage Village (OH)

• Legacy Senior Communities (TX)

• Beth Sholom Village (VA)

Representative Jewish-Sponsored Senior Living Clients/Financings

Introduction

Correlation Between Strong Governance and Organizational Strength

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Impact of Strong Board Governance

▪ Mission fulfillment

▪ Quality

▪ Short and long-term financial viability

▪ Ratings and Accreditation

▪ Growth opportunities and cost of capital

Correlation Between Strong Governance

and Organizational Strength

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Mission Fulfillment▪ Critical that each Board member:

▪ Understands the core business of the organization

▪ Is in agreement with overall direction and strategies for the organization

▪ Is engaged – provides management an additional layer of accountability

▪ Is informed – do not want to make a decision in a crisis



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Quality

▪ How do you evaluate quality?

▪ What are you trying to measure?

▪ What benchmarks/metrics can you use?

▪ Quality Assurance Committee/Quality Dashboard



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Short and Long-term Financial Viability▪ Annual Budget Process/Capital Budget

▪ Must ensure that there are adequate resources to accomplish goals and strategies

▪ Review of Interim and Audited Financial Statements

▪ Financial Ratios

▪ Snapshot of operations

▪ Areas of strength

▪ Areas for improvement

▪ Comparison to local and national competition

▪ Comparison to investment grade communities

▪ “Executive Session” with auditors to identify areas of risk

▪ Financial and operational viability of future plans

▪ Understand debt capacity/drivers to maximize debt capacity

▪ Select strategic partners

▪ Utilize expertise from other disciplines and industry leaders



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Investment Grade Ratings and Accreditation

• Quantitative process with qualitative component



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Growth Opportunities and Cost of Capital▪ Analyzing growth opportunities:

▪ Active, engaged, focused and educated Board leads to:▪ Stronger quality outcomes▪ Stronger financial metrics



Lower cost of capital

Financial Foot Faults –Contrasts in Governance

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Financial Foot Faults – Contrasts in Governance

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▪ Large affinity-based organization located in Southwest

▪ Founded first community in 1966

▪ At peak, owned a dozen senior living communities and managed three large skilled nursing facilities

Organization “X”


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▪ Moved corporate headquarters from rural location of original community to “Big City”

▪ Communities were all located in small towns, but management wanted to be in Big City

▪ Did not own or manage any communities in Big City

▪ Management distanced itself from its roots

Foot Fault #1


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▪ Departure from core business line

▪ Invested approximately $1.8 million of cash, along with additional resources to develop “new computer software to integrate in-home services for seniors such as:

▪ Automated medicine dispensers

▪ Fall sensors

▪ Computer terminals for seniors to enter their vital signs

▪ Reminders for medical appointments

▪ Online portal to talk to a nurse at the program's national client service center

▪ Raised $4.0 million from outside investors in addition to cash investment by Organization X

▪ Program was unsuccessful and ran out of funding, causing Organization X to write-off investment

Foot Fault #2


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▪ Received gift of land for new community

▪ “B-/C+” site

▪ On periphery of market

▪ Site was adequate, but required that Organization X execute well

▪ Organization X did not have recent experience developing start-up retirement community

Foot Fault #3


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▪ Negative Impact of Short-Term Solutions

▪ New community encountered construction delays and cost overruns

▪ Broken pipe caused four month delay in opening of assisted living, memory care and nursing units

▪ Issued $5.4 million of additional bonds to fund approximately $4.7 million of additional construction costs

▪ New community experienced slow fill

▪ While new community had reserves to support extended fill-up, Organization X panicked and sold nursing homes to generate additional cash

▪ Generated one-time cash infusion, but compromised ongoing operations and debt capacity of Organization X’s Obligated Group

▪ Significant turnover at Executive Director position

▪ Contributed to sense of urgency and instability

Foot Fault #4


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▪ Impatience of Board

▪ Hired third-party manager to replace executive team, but did not give enough time to turn around operations

▪ Board needed to take longer-term view

▪ Should have retained third-party manager until turnaround was complete

▪ Could then reestablish internal management team and preserve not-for-profit legacy of the organization

▪ Instead, Board unnerved and wanted out

▪ Filed for Chapter 11 bankruptcy in 2014

▪ Communities sold

Foot Fault #5


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▪ Among largest senior living providers in Mid-Atlantic

▪ Founded first community in 1948

▪ Obligated Group consists of five retirement communities and one assisted living facility

Organization Y


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▪ Developed new retirement community in 2007 outside of Organization Y’s Obligated Group (“OG”)

▪ In support of new community, Organization Y provided the following:

▪ Land-lease

▪ Administrative Services

▪ Funding of significant pre-development capital

▪ Converted to subordinate debt upon permanent financing of new community

New Campus Development


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▪ Impact of Financial Crisis

▪ New community opened in June 2008 and struggled to fill during Financial Crisis

▪ Filed for Chapter 11 bankruptcy in March 2013

▪ Plan of reorganization confirmed on May 31, 2013

Foot Fault


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▪ Financial Support from Organization Y

▪ Deferred ground lease payments and fees for administrative services

▪ Wrote-off subordinated loan as part of Plan or Reorganization

▪ Agreed to guaranty up to $7 million for future health care expansion and provided a $5.6 working capital line

▪ Board highly engaged/maintained long-term perspective

▪ Carefully considered implications of providing significant financial support and concessions

▪ Limited financial exposure to Organization Y’s OG

▪ Preserved financial capacity to support needs of communities within OG

▪ Unwavering support of executive team

Organizational Commitment


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▪ Current occupancy in independent living = 96%

▪ Approximately 230 days cash on hand

▪ Closed on $7 million health care expansion on September 29, 2016

Successful Turnaround of New Community


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THANK YOU!

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