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Cypress Cove at HealthPark Florida, Inc. (Cypress Cove) is a continuing care retirement community located on a 48-acre site within HealthPark Florida, a 402-acre multi-facility health-oriented park south of downtown Fort Myers, Florida. Cypress Cove currently consists of 362 independent living units, 44 assisted living units and 64 skilled nursing beds.
Cypress Cove is owned by Lee Healthcare Resources, a support organization to Lee Memorial Health System, which includes four acute care hospitals, a home health agency, a nursing home, outpatient treatment and diagnostic centers, physician offices, a children’s hospital and a rehabilitation hospital all within Lee County, FL.
HJ Sims provided initial construction financing for Cypress Cove in 1997, as well as expansion financing for the community in 2002.
Immediately following the collapse of Lehman Brothers in 2008, Cypress Cove was scheduled to remarket $6.5 million in Adjustable Rate Bonds. With no liquidity in the market, Cypress Cove elected to use cash reserves to retire $5.125 million of their own bonds.
While the remarketing was unsuccessful, the obligor met its immediate obligation to reimburse bondholders for all principal and interest tendered. As a result of such a large cash outflow, Cypress Cove struggled to meet its liquidity covenants.
To make matters worse, the ensuing housing crisis had a dramatic negative impact on the value of single-family homes, increasing the difficulty of attracting new residents to the community. Despite the difficult economic challenges the community faced, Cypress Cove remained financially disciplined when drops in sales and occupancy occurred.
Management implemented aggressive financial strategies and marketing plans to increase its sales and occupancy and fulfill its financial obligations. Examples of implemented strategies include purchasing outstanding bond to reduce interest expense, retention of experienced sales and marketing teams, promoting move-in incentives and resident referral programs, temporarily discounting entrance fees to align with current housing prices and introducing new entrance fee contracts.
In early 2011, Cypress Cove began to see significant improvement in sales activity due to these focused efforts. However, as the community rebounded from the economic downturn, it continued to be constrained by the covenants and restrictions from its initial construction financing over 15 years ago.
Sims worked with Cypress Cove to install a new capital structure consisting of 100% fixed rate bonds, eliminating remarketing and interest rate risk associated with existing adjustable rate bonds. As a result, the financing team was able to establish new bond documents with much more flexible covenants.
The plan of finance also included over $4 million to fund capital improvements throughout the campus. With positive movement in the market and strong execution from HJ Sims, the community was able add an additional $2 million dollars to their capital improvement budget for a total of $6 million.
The Series 2012 refinancing will allow Cypress Cove to save $1.4 million in annual debt service through 2026, equivalent to a 24% reduction in annual debt service. The issue was more than two times over-subscribed, allowing Sims to price the 35 year bond at a yield of 5.75%. Even after funding over $6 million in capital improvements, the community realized over $1.8 million in Net Present Value savings as a result of the refinancing.
The new structure and savings will allow Cypress Cove to further its continued success.
For more details on this restructuring, please contact your Sims banker or Robert Gall.