marketing analysis for senior community

Atlantis Senior Living

Capital and Operational Improvements

Upon acquisition, the facility will be managed by Imagine Senior Living, which is a co-GP of the Project. Imagine Senior Living is planning the following capital and operational improvements to the facility based on preliminary findings. As they make in-depth due diligence, the improvement plan will be refined.

Capital Improvements

Basically, in good condition, it will require new lighting, paint, some carpet, apartment make-ready, landscaping, signage, parking lot restriping, and some furniture.

Ventura Hills must be turned into a community that is more like a Country Estate than a set of facilities.

Clean, age-appropriate colors with professional design and craftsmanship that represent the area and culture of the location.

A well-maintained comfortable setting with outdoor space and exceptional landscaping. Bird feeders and lounge chairs as symbols of a life of leisure.

Operational Improvements

Revenue generation:

Implementing strategic marketing plan, lead generation, follow up and closing sales with a dedicated website and a strategic social media campaign with planned postings and updates to improve marketing and sales.

Creating a Sales Culture.

Creating one of its kind healthcare programs including a sustained Memory Care program.

Introducing Ancillary Program.

Cost savings:

Cultural change to reduce employee turnover.

Renegotiated vendor contracts to generate costing savings.

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Atlantis Senior Living

Operational Cash Flows

Operational Revenues

Operational revenues will include resident monthly rents, level of care fees, move-in fees, and other misc. income

The Seller’s 2020 Revenues have been between $171K and $189K per month through June 2020 and the Seller has maintained the revenues during COVID.

We anticipate that COVID may continue for a year and the revenues for the first year since taking over will be moderately increased to $195K.

After COVID, we anticipate the revenue growth will be significant. At even the local current average market occupancy rate of 84%, the monthly revenue will be around $290K.

Occupancy

We anticipate the occupancy will exceed 70% within one year after COVID, exceed 80% about 20 months after COVID.

The management company’s occupancy target will be over 92%.

Operational Expenses

Labor expenses account for about 60% of total operating expenses (excluding debt services). The management company will staff according to the level of cares. The management company has identified areas for improvements.

The management company will charge a market level management fee (5% of gross revenues) with incentive bonus for achieving high performance targets.

Overall, the management company must deliver at the minimum Net Operating Income of $600,000 and 18% margin in the 3rd year, which are very modest in the industry. However, the management company is expected to generate above 25% margin two years after COVID or $800,000+ annual NOI. A detailed management budget will be submitted by the management company and approved by us within 100 days after taking over.

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Atlantis Senior Living

Investment Structure

Total Investment

Acquisition price and closing costs including Asset Manager’s acquisition fee: $ 3 million

Capital Improvement investment: $ 0.4 million

Working capital plus year 1 interest reserve: $ 0.6 million

Total Investment: $ 4 million

Loans

Acquisition Loan anticipated: $2 million

We are speaking with various lenders for the best overall loan terms

Equity Investment

Total equity: $ 2 million

Asset Manager & Facility Manager (Class B Investor) 20%

Limited Investors (Class A Investor) 80%

If upon closing, the actual equity required is significantly less than initially subscribed by investors, excess of the initial capital contribution may be returned proportionally to all investors shortly after closing.

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Asset Manager & Facility Manager (Class B)

Limited Investors (Class A)

Special Purpose Entity

(Limited Liability Company)

Owns real estate of the facility

Receives operational revenue and pays expenses

20%

80%

Facility Management Company

“New Name”

Assisted Living and Memory Care Facility

Manages the facility through a Facility Management Contract

Employs staff

Atlantis Senior Living

Cash Flow Distributions

Investment Cash Flows

Net Operating Income (EBITDA) after paying debt services (interest and principal) and reserving for working capital will be available for distributions, subject to loan restrictions.

Asset Management Expenses

Asset Manager will charge 2% of Initial Equity Contribution by Limited Investors annually as Asset Management Fee

Professional expenses such as tax, audit, and legal related to investors will be deducted at cost (estimated $10,00 a year)

Distributions

> During the holding period:

An annual 9% preferred return will first either be paid (if there is sufficient new cash flow) or accrued pari passu to all Class A and Class B investors.

Excess distributable cash flows above the 9% preferred return will be distributed 20% to Asset Manager (Class B) as Asset Manager’s Promote / Carrie, and 80% to all Class A and Class B investors pari passu.

> Upon exit sale, net proceeds from the sale of the asset after paying back loan balance will be distributed in the following order, to the extend of the available cash

All Class A and Class B investors will first receive any accrued and unpaid Preferred Return, pari passu

All Class A and Class B investors will then receive return of its investment, pari passu

Excess cash will be distributed 20% to Asset Manager and Facility Manager (Class B) as their Promote / Carrie, then 80% to all Class A and Class B investors pari passu.

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Atlantis Senior Living

Exit Sale and Returns

After the facility reaches stabilized financial performance, it can be sold on the market.

This is our preferred exit strategy. There is an active market for cash flowing senior housing with buyers including REITs, PE funds, and other institutional investors.

Conservatively, we anticipate that the facility will have a strong trailing 12-month performance starting the 4th year when we can put the facility on the market.

Alternatively, investors may achieve partial capital refund and cash out through refinance

with a fixed term commercial loan provided by commercial banks or FNMA or with a HUD insured loan at a low and fixed interest rate for 30-35 years.

After refinance cash out, investors will continue to enjoy cash flows from the facility.

Economics

Cash yields during the holding period (including 1-year COVID impact) assuming no refinance

Upon exit by the end of year 5 (if COVID impact lasts 1 year after taking over), the market value of the facility will exceed $ 6.5 million with a target value of $ 9 million or higher.

Market capitalization rate in 2019 had reached a record low, pushing asset price to record high1. Even at 9% exit cap rate, which would be the worst annual average for B Class AL/MC since first tracked in 2012, its market value will exceed $9 million at our expected $800K+ EBITDA level. At $ 600K minimum EBITDA, the market value will exceed $6.5 million.

At $9 million, our facility’s price per unit would be only $ 93K, still below historical average for B Class properties.

Limited investors’ exit multiple over investment will be 2x in the conservative Base Scenario. We target our exit multiple of over 3x.

Investor IRR upon Exit is conservatively estimated to be 20%+. Significant higher yields and exit IRR are targeted.

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	Limited Investors Cash on Equity Yield
Year	1	2	3	4	5
In Conservative Base Scenario	0%	0%	15%+	15%+	15%+

Source：1. The Senior Care Acquisition Report 2020

Note: The cash yields and IRR estimates are subject to change without notice.

Atlantis Senior Living

Management Teams

Asset Manager:

Atlantis Senior Living

Experienced with senior housing portfolio purchase and asset management for institutional investors.

Experienced in buying, developing, and turning around standalone facilities for individual investors.

One of the first to introduce U.S. senior housing operational models to Chinese insurance companies and regulators.

Managing Partner having over 20 years successful track record in managing and turning around senior living facilities in the U.S.

A licensed Nursing Home Administrator, Licensed Assisted Living Administrator, Licensed Preceptor within California which means he has the state authorization to train future Nursing Home Administrators. Teaching senior living facility management at University of Southern California.

Facility Management:

Imagine Senior Living (https://imagineseniorlivingllc.com/)

Also will be an owner of the Property entity;

Providing facility management through a Management Contract with the Property entity with performance requirements and incentives;

Key leaders with years of hands-on operational and marketing experience at major senior living management companies both locally and regionally and with successful marketing, operation improvements and turned-around track records.

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