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CCRC Analytic Benchmarks and 2009 Medians

January 13, 2010

BB&T Capital Markets Summary. The continuing care retirement communities

Julie S. Peterman, CFA (CCRC) industry faced a challenging operating
Fixed Income Research environment in late 2008/early 2009. The real estate
804-649-3994 market bust that occurred in early 2008 fueled a decision
jpeterman@bbandtcm.com by many seniors to “watch and wait” in their homes
instead of placing their home on the market and
Continuing Care Retirement Community committing to a move into a CCRC. In addition, the
(CCRC). Includes at least two of the financial markets began their plummet during the second
following on a single campus: half of 2008 before dropping to their lowest point in
several years during March 2009. This one-two punch
• Independent Living Units (ILUs) resulted in pressure on both occupancy levels and available
• Assisted Living Units (ALUs) cash for many of the CCRCs under coverage. Thus, all but
• Skilled Nursing (SNF) one of the financial ratios used by BB&T Capital Markets
deteriorated in 2009 versus 2008 (based on audits from
June 2008 through May 2009). The sole exception was
Table 1: Selected Median Ratios1 days in account receivable. Anecdotally, we heard many
2009 2008 management teams speak about the efforts made to collect
NOM (%) 5.6 8.1 receivables promptly as a means to bolster cash levels. We
Operating ratio (%) 104.0 100.5 anticipate that many projects will continue to have
Excess margin (%) (1.0) 5.7 independent living unit (ILU) occupancy below the desired
Days cash on hand 229 289 95% threshold when we update for the 2009 medians, as it
DSCR (x) 1.62 1.96 appears that occupancy levels hit their lows during the late
DSCR w/o ent. fees 0.55 0.93 summer and early fall of 2009. During the upcoming year,
Cash to debt (%) 34.8 42.6 we will continue to highlight occupancy levels, but will
more closely examine operating expense growth.
Adj debt to cap (%)2 62.1 61.5
AAP (yrs) 9.4 9.1
Comment. Our 2009 medians (Table 7, p. 5) are listed by
CSR (x)3 0.9 n/a
existing coverage, single-site facilities, and multi-site
Debt per bed ($) 118,632 113,753
facilities and are based on audits from the 12-month period
Monthly op. exp. ($) 3,382 3,170
of June 2008 through May 2009. We compare our medians
Source: BB&T Capital Markets. NOM: net operating
margin; DSCR: debt service coverage ratio; AAP: to those published by CARF-CCAC (Commission on
average age of plant; CSR: capital spending ratio. Accreditation of Rehabilitation Facilities-Continuing Care
1. The medians are based on 32 facilities in both Accreditation Commission), Fitch Ratings, and Standard &
2008 and 2009. Poor’s (S&P). Generally speaking, the primary difference
2. Includes refundable entrance fees.
3. The CSR was a new ratio implemented in 2009. between the projects under our coverage versus those
covered by the rating agencies is the amount of leverage.

BB&T Capital Markets fixed income research analysts produce proprietary research in conjunction with the BB&T trading
desks that trade as principal in the instruments mentioned in this research. BB&T fixed income research is therefore not
independent from the proprietary interest of BB&T Capital Markets, which may create a conflict with your interests.
Additionally, BB&T Capital Markets does and seeks to do business with issuers covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as one of many factors in making their investment decision.

For important additional disclosure information, please refer to the end of this report.
 CCRC Analytic Benchmarks and 2009 Medians

In 2009, however, the major difference between operations that drove the year-over-year gain in
BB&T Capital Market’s medians and CARF- investment income/other.
CCAC medians was the magnitude of year-over-
year decline. The sheer size of CARF-CCAC may Table 3: Financial Trends for Multi-Site
have provided more of a dilutive effect, but without CCRCs (2007 versus 2006)
the benefit of having the input details, it is Category % Better % Worse
impossible to draw a firm conclusion. Resident fees 100.0% 0.0%
Entrance fees 71.4% 28.6%
Year-over-year analysis. Almost every financial Investment Income, assets rel. 0.0% 100.0%
metric experienced deterioration for our 32 projects Contribs/other 14.3% 85.7%
in the sample (Table 2 and Table 3). We separate Net operating margin 42.9% 42.9%
our single-site projects from our multi-site projects Operating Ratio 28.6% 71.4%
as there are economies of scale as well as revenue Excess margin 14.3% 85.7%
and geographic diversity for the multi-site projects DCOH 28.6% 71.4%
DSCR 14.3% 85.7%
that would normally cushion the blow of an
DSCR-Revenue 0.0% 100.0%
economic downturn. In 2008, though, neither group
Cash to debt 42.9% 57.1%
was especially immune to the operating challenges.
Adj. Debt to Cap 57.1% 42.9%
Source: BB&T multi-site CCRC database; sample size=7.
Table 2: Financial Trends for Single-Site
CCRCs (2008 versus 2007)1 As for the multi-site segment, there were few
Category % Better % Worse
surprises. The only interesting event of note was
Resident fees 92.3% 7.7%
that the debt service coverage on a revenue-only
Entrance fees 42.3% 57.7%
Investment Income, assets rel. 19.2% 80.8%
basis declined for each of the seven projects. This
Contribs/other 11.5% 73.1% ratio excludes entrance fees in the calculation and
Net operating margin 42.3% 57.7% measures the project’s ability to meet debt service
Operating Ratio 42.3% 57.7% through operating and non-operating revenue. The
Excess margin 23.1% 76.9% project with the lowest revenue-only debt service
DCOH 26.9% 69.2% coverage (and the largest year-over-year
DSCR 30.8% 69.2% percentage decline) offers primarily Life Care
DSCR-Revenue 30.8% 69.2% contracts with the Standard refund as the most
Cash to debt 30.8% 69.2% popular refund. In the Standard refund plan, the
Adj. Debt to Cap 26.9% 73.1% amount of the entrance fee that is refundable
Source: BB&T single-site CCRC database; sample size=25. declines by 2% over 50 months, and, after that
1. There is one project whose financial performance during
fiscal 2007 and fiscal 2008 resulted in outliers across all ratios;
time, the entrance fee refund is zero. It is possible
therefore, it was not included in the medians, but was included to speculate that the community has underpriced its
in the year-over-year analyses. contracts and is not fully subsidizing future
healthcare costs. However, with such a small
The two areas of interest for our single-site projects sample size, we are unable to conclusively prove
were resident revenue and investment income and that assumption.
assets released. With the former, we were surprised
to see two projects whose annual monthly rate Occupancy: The primary concern for the majority
increases in 2008 could not mitigate the revenue of the CCRCs during 2010 is to shore up
lost from occupancy declines. For one project, occupancy. Of the 32 facilities (we excluded rental
there are only ILUs, and rate increases were only facilities and start-up facilities either still under
3.5% versus occupancy declines of 4.1%. For the construction or in fill-up), nearly 80% of the
other project, occupancy declines were not severe; projects have seen year-over-year declines in ILU
however, the project is in the middle of eliminating occupancy (through the September 30, 2009
unprofitable contracts. The latter item of interest secondary market disclosure). Although it appears
was investment income, especially that there were that occupancy lows occurred during the late
five projects that actually saw this area improve summer or early fall of 2008, we believe it is too
year-over-year. Digging further, we discovered early to say whether the trend is really improving.
three of those projects had June 2008 fiscal year- More often than not, projects have been using
ends while the other two had September 2008 year- marketing incentives and discounts to bring
ends, meaning the full market decline was not prospective residents into the community, and
reflected. In addition, one of the September year- many projects curtailed those incentives at the end
end projects had net assets released from of December.

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 CCRC Analytic Benchmarks and 2009 Medians
We typically like to see ILU occupancy of 95.0% time, as cash entrance fees and cash levels build
or better; however, through September 30, 2009, (thereby increasing investment income), EM tends
less than 10% of the facilities under coverage to rise. NOM has the tendency to fall, as direct
satisfy that criteria—that is down from one third a admits from the community (higher monthly fees)
year ago (Table 4). The number of facilities with are replaced with internal transfers resulting in
occupancy levels below 90% is quickly lower revenue in the higher levels of care (but
approaching the 50% level. Lower than ideal ILU without necessarily any concurrent reduction of
occupancy levels negatively impact nearly every operating expenses). In addition, over time,
aspect of the project, especially profitability, as management may overlook raising monthly fees in
many costs are fixed and not easily modified until line with the increase in operating expenses,
the next budget year. In some cases, unless thereby contributing to the decline in NOM.
monthly fees are increased at higher rates to offset
the lost resident fee revenue, there is little a facility Second, for many Life Care (Type A) facilities,
can do except cut labor costs (which may impact NOM is inherently weaker than other contract
resident services) and limit capital expenditures types due to the risk in underwriting future
(such as putting off a renovation or refurbishment). healthcare costs with current entrance fee contracts.
In addition, lack of entrance fees from turning More often than not, these facilities supplement
available units over directly impacts debt service monthly fees with non-operating revenue. Thus,
coverage and indirectly affects liquidity ratios (less these facilities may often have ongoing weak NOM
cash to invest). Monitoring this third of our ratios but stronger OR and EM ratios. During our
facilities under coverage will be our primary goal surveillance review process in 2009, almost every
for surveillance in 2010. management team spoke about cost saving
measures already in place or soon-to-be-
Table 4: Independent Living Unit Occupancy implemented initiatives. This ratio will be highly
Levels—2007-20091, 2, 3 monitored in the 2010 surveillance process. If the
2007 2008 2009 cost savings initiatives are as successful as the
>95.0% 33.3% 25.0% 9.4% management teams predict, the NOM median
90.0%-94.9% 40.0% 50.0% 46.9% should improve next year.
<90.0% 26.7% 25.0% 43.7%
Source: BB&T Capital Markets Medians and benchmarking. The Commission on
1. N=30 in 2007; N=32 in 2008 and 2009. Accreditation of Rehabilitation Facilities-
2. Each year was measured at September 30. Continuing Care Accreditation Commission
3. The majority of projects report average annual occupancy.
However, there are a few projects that report point in time.
(CARF-CCAC) publishes the most comprehensive
Where available, we have used average annual. CCRC medians, covering 204 projects. Standard &
Poor’s (S&P) and Fitch Ratings also publish CCRC
Profitability. Primarily, we look at three medians on projects they rate, currently covering
profitability ratios: net operating margin (NOM), about 80 credits for S&P, excluding credit
operating ratio (OR), and excess margin (EM). As enhanced debt, and 120 projects for Fitch. With an
shown in Table 5, the NOM is the strictest ratio, estimated 1,860 CCRCs in the U.S., the majority of
while the EM is the most inclusive. With the CCRC projects are financed on an unrated basis.
general economic conditions during 2008, we were CARF-CCAC breaks their medians out by single
not surprised to see all three profitability medians and multi-site facilities as well as by contract type
deteriorate. (fee-for-service or Life Care), but not into rated
and unrated categories. The rating agencies break
Table 5: Profitability Ratios their medians out by rating category and contract
Net Operating Margin Operating Ratio
Rev. - Ex. / Rev. Exp. / Rev.
Operating Margin
Rev. - Exp. / Rev.
Excess Margin
Rev. - Exp. / Rev. type, but by definition don’t publish ratios specific
Resident Fees
Other Operating Rrev. to the unrated market.
Revenue

Resident Fees Interest Income

Resident Fees Other Operating Rrev. Net Assets Released
Other Operating Rrev. Interest Income Amortized Entrance Fees
Resident Fees Interest Income Net Assets Released Contributions BB&T’s CCRC medians are derived from 32
Other Operating Rev. Net Assets Released Amortized Entrance Fees Realized Gains
Cash Expenses unrated projects, broken out by single-site and
Expenses

Cash Expenses Interest Expense

Cash Expenses Interest Expense Depreciation Expense multi-site projects. We have excluded our three
Cash Expenses Interest Expense Depreciation Expense Bad Debt

Source: BB&T Capital Markets

rental projects and our two start-up facilities (one
still under construction and one that is still in fill-
We caution readers looking at these ratios in up) from the medians. For the most part, our ratio
isolation. First, profitability ratios evolve as a definitions are consistent with those used by
facility matures. In the early years, NOM tends to CCAC. The detail on definitions and calculation
be high and EM tends to be low. However, over methodologies are attached as appendices to this

BB&T Capital Markets Page 3

 CCRC Analytic Benchmarks and 2009 Medians
report. We continue to use the adjusted debt to
capitalization ratio that includes refundable
entrance fees in the calculation. Even though
CCAC has indicated for a couple of years that they
would make a similar change, they have not yet
done so. The difference is not significant for most
of our CCRCs, but is important for some projects
that are currently undergoing or have recently
completed major ILU expansions in order to “right-
size” the campus. These projects typically have
significant unrestricted net asset deficits that
exceed deferred advance fees, thereby skewing the
ratio. We also added two ratios in 2009, the Capital
Spending Ratio and the Operating Cash Flow to
Short-Term Debt Ratio. We will begin a trend
analysis for these ratios when we publish next
year’s medians report. Included in the Appendix is
a table that outlines the definitions for the financial
ratios used in our analyses.
Which set of medians is most useful depends on
the circumstances surrounding the individual
project. However, we emphasize that a financial
analysis should include a large number of ratios,
not just one from each category (profitability,
liquidity, and capital structure). In addition, ratio
analysis should be used in conjunction with
BB&T Capital Markets
demographic characteristics and other qualitative
aspects of each individual project. For a project
seeking an investment grade rating, the rating
agency medians are the most appropriate. For all
others, we like to use the CCAC database due to its
sheer sample size.
BB&T’s CCRC Rating System. We have
assigned a BB&T rating to the debt of selected
unrated continuing care retirement communities.
This rating reflects our judgment of the relative
credit risk on these bonds. From strongest to
weakest, our rating system currently includes the
following: BBB-, BB+, BB, BB-, B+, B-, and D.
BB&T ratings are not a proxy for ratings assigned
by national rating agencies, which may be stronger
or weaker than the ratings we have assigned.
During 2009, we upgraded our BB&T rating on
only one CCRC, while we downgraded three. In
addition, we lowered the outlook on one CCRC.
One project that we currently rate a BBB- carries a
similar rating from Fitch. BB&T’s rating
distribution of all CCRCs rated as of the date of
this report is detailed in Table 6.
Page 4
 CCRC Analytic Benchmarks and 2009 Medians
Table 6: BB&T’s CCRC Rating Distribution Tables: By Rating and By Project

BB&T Rating Distribution

Rating Number Percent
BBB- 3 8.1%
BB+ 6 16.2%
BB 2 5.4%
BB- 18 48.6%
B+ 6 16.2%
B- 1 2.7%
D 1 2.7%
Total 37 100.0%

CCRC Project BB&T Ratings (Sorted by Project)

Rating Project State Rating Project State
BB- Asbury, Inc. TN BB- Orlando Lutheran Towers FL
B+ The Beatitudes AZ BB- Penick Village NC
B+ Bishop Spencer Place MO BB+ Pleasant View PA
BB- Brandon Oaks VA BB- Presbyterian Homes NC
BB- Brethren Village PA BB Salemtowne NC
B+ Brookwood Village NC BB The Evergreens NJ
BB- Buena Vida Estates FL BB+ The Summit VA
B+ Covenant Place SC BB- United Church Homes & Services** NC
BB+ Cypress Glen NC BB- UMRH (Croasdaile Village) NC
BB+ Edgewood Summit WV BBB- Village at Woods Edge VA
BB+ Falcons Landing VA B- Virginia Baptist Homes** VA
BBB- Givens Estates NC BBB- Virginia United Methodist Homes VA
D Glebe (The) VA BB- WC Blue Ridge VA
B+ Ingleside at King Farm MD BB- WC Chesapeake Bay VA
BB- Kendal at Lexington VA BB- WC Lynchburg VA
BB- Lucy Corr Village VA BB- WC Rappahannock*** VA
BB- Lutheran Homes of SC SC BB+ WC Winchester* VA
BB- Meadowlark Hills KS B+ Westminster at Lake Ridge** VA
BB- Williamsburg Landing VA
Source: BB&T Capital Markets as of December 31, 2009.
*Upgraded over the past twelve months.
**Downgraded over the past twelve months.
***Lowered outlook over the past twelve months.

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 CCRC Analytic Benchmarks and 2009 Medians
1
Table 7: 2009 Medians
2008 2008 2008 2008 2008 2008 2008 2008
CCAC CCAC Fitch S&P S&P BB&T BB&T BB&T
Single- Multi- BBB Single- Multi- CM CM CM
Ratios
Site Site n=36 Site Site Total Single- Multi-
n=172 n=32 BBB BBB n=32 Site Site
n=36 n=19 n=25 n=7
Independent Living Units (ILUs) -- -- -- -- -- 206 194 473
Assisted Living Units (ALUs) -- -- -- -- -- 52 42 125
Nursing Beds -- -- -- -- -- 73 60 256
Total Units/Beds -- -- -- -- -- 359 306 957
Profitability Ratios
Net Operating Margin (%) 4.9 3.7 0.8 -- -- 5.6 3.9 6.2
Net Operating Margin--Adjusted (%) 18.5 17.1 16.6 -- -- 18.5 19.4 16.2
Operating Ratio (%) 99.0 101.4 99.6 96.0 92.7 104.0 104.6 100.6
Operating Margin (%) 1.6 1.8 -- (1.4) (2.3) (2.3) (3.9) 2.4
Total Excess Margin (%) 2.0 2.3 2.2 4.2 1.8 (1.0) (3.3) 2.4
Liquidity Ratios
Days in Accounts Receivable 18.0 25.0 -- -- -- 17.1 16.1 18.1
Days Cash on Hand 306 281 336 401 211 229 224 234
Cushion Ratio (x) 7.9 8.5 6.2 8.7 5.8 4.3 4.4 3.7
Capital Structure Ratios
Debt Service Coverage Ratio (DSCR) (x) 2.30 2.40 1.70 2.10 2.00 1.62 1.43 1.73
DSCR -- w/o Entrance Fees (x) 0.80 1.40 0.80 0.80 1.20 0.55 0.50 0.91
Debt Service as a % of Revenue (%) 9.9 8.5 11.8 12.0 8.5 17.3 17.3 11.4
Cash to Long-Term Debt (%) 57.2 39.4 47.5 74.3 46.3 34.8 33.9 35.7
Long-term Debt to Total Capital (%) 83.0 82.2 -- 79.4 83.2 81.4 83.1 73.0
Long-term Debt to Capital -- Adjusted (%) 58.0 62.4 60.8 43.9 57.6 66.2 66.3 64.9
Long-term Debt to Total Assets (%) 38.8 49.2 -- -- -- 56.1 55.9 56.2
Average Age of Facility (years) 10.8 10.8 10.6 11.0 10.3 9.4 9.5 9.2
BB&T Capital Markets Supplemental
Ratios
Capital Spending Ratio (x) -- -- 1.3 -- -- 0.9 0.8 1.0
Operating Cash Flow to Short-Term Debt (x) -- -- -- -- -- 0.0 0.1 (0.1)
Debt per Bed ($) -- -- -- -- -- 118,632 133,821 78,463
Operating Expenses per Bed per Month ($) -- -- -- -- -- 3,382 3,407 3,293
Unrestricted Cash ($) -- -- -- -- -- 10,858 9,417 22,827
Long-Term Debt ($) -- -- -- -- -- 44,890 39,240 82,995
Unrestricted Net Assets ($) -- -- -- -- -- (2,509) (3,810) 11,828
Total Assets ($) -- -- -- -- -- 64,593 60,924 142,858

Source: BB&T Capital Markets (12/09), CARF-CCAC (11/09), Fitch (9/28/09), and S&P (10/13/09).
1. CARF-CCAC, Fitch, and S&P are based on 2008 audits; BB&TCM are based on audits from June 2008 through
May 2009.

BB&T Capital Markets Page 6

 CCRC Analytic Benchmarks and 2009 Medians
Appendix A: CCRC Ratio Definitions
Net Operating Margin Ratio (NOM)
Resident Revenue
-Cash Expenses (net of interest, depr., amort.)
Resident Revenue
Net Operating Margin Ratio - Adjusted (NOM-A)
Resident Revenue
+Net Proceeds from cash entry fees
-Cash Expenses (net of interest, depr., amort.)
Resident Revenue
+Net Proceeds from cash entry fees
Operating Ratio (OR)
Total Operating Expenses
- Depreciation and Amortization Expense
Total Operating Revenues
- Amortization of Deferred Revenue
Operating Margin Ratio (OM)
Total Operating Revenues (excludes nonoperating revenue)
-Total Operating Expenses
Total Operating Revenues
Total Excess Margin Ratio (EM)
Total Revenues (includes nonoperating revenue)
-Total Operating Expenses
Total Revenue
Days in Accounts Receivable (DAR)
Net Accounts Receivable
Residential and Healthcare Revenues divided by 365
Days Cash on Hand Ratio (DCH)
Unrestricted Cash and Investments
(Operating Expenses-Depreciation & Amortization)/
365
Cushion Ratio (CUSH)
Unrestricted Cash and Investments
Maximum Annual Debt Service (MADS)
Debt Service Coverage Ratio (DSC), Analytic
Total Revenues
-Amortization of Deferred Revenue
+ Net Proceeds from Entry Fees
-Cash Expenses (net of interest, depr., amort., & bad debt)
Maximum Annual Debt Service (MADS)
Debt Service Coverage Ratio -Revenue Basis - (DSC-R)
Total Revenues
-Amortization of Deferred Revenue
-Cash Expenses (net of interest, depr., amort., & bad debt)
Maximum Annual Debt Service (MADS)
BB&T Capital Markets
Debt Service as a Percentage of Total Revenue (DS/R)
Maximum Annual Debt Service (MADS)
Total Revenues
Unrestricted Cash to Long-term Debt Ratio (CD)
Unrestricted Cash and Investments
+Debt Service Reserve Fund
Long-term Debt (excluding current maturity and Intermediate Term Bond
Long-term debt as a percentage of Total Capital Ratio
Long-term Debt (excluding current maturity and Intermediate Term Bond
Long-term Debt
+Unrestricted Net Assets
Long-term debt to Total Capital Ratio - Adjusted
Long-term Debt
Long-term Debt
+Unrestricted Net Assets
+Deferred Revenue from Nonrefundable Advance Fees
Long-term debt to Total Capital Ratio - Adjusted, B
Long-term Debt
Long-term Debt
+Unrestricted Net Assets
+Deferred Revenue from Nonrefundable Advance Fees
+Deferred Revenue from Refundable Advance Fees
Long-term Debt to Total Assets Ratio
Long-term Debt
Total Assets
Age of Facility (years)
Accumulated Depreciation
Annual Depreciation Expense
Capital Spending Ratio (x)
Net additions to Property, Plant, and Equipment
Annual Depreciation Expense
Operating Cash Flow to Short-Term Debt (x)
Net Cash Provided by Operating Activities (excluding entrance fees)
-Entrance Fees
-Restricted Asset References
Current Maturities of All Debt
Long-Term Debt per Bed ($)
Long-term Debt
Total Number of Beds
Cash operating expenses per bed per month ($)
Cash Expenses (net of interest, depr., amort., & bad debt)
Total Number of Beds/12
Page 7
 CCRC Analytic Benchmarks and 2009 Medians
ADDITIONAL INFORMATION IS AVAILABLE ON REQUEST
ANALYST CERTIFICATION:
I, Julie S. Peterman, CFA, hereby certify that the views expressed in this research report accurately reflect my personal
views about the subject obligor(s) and its (their) debt. I also certify that I have not been, am not, and will not be receiving
direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.

DISCLOSURES
Although the information and statistics in this report have been obtained from sources we believe to be reliable, we do not
guarantee their accuracy or completeness. All opinions and estimates included in this report constitute our judgment as of
the date of this report and we do not undertake to advise the reader as to changes in figures or our views. This is not a
solicitation of an order to buy or sell any securities.

This report does not provide individually tailored investment advice. Investors must make their own investment decisions
based on their specific investment objectives and financial position and using such independent advisors as they believe
necessary.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or
warranty, express or implied, is made regarding future performance.

BB&T Capital Markets Fixed Income Research Disclosures as of 1/13/10

Issuer/Obligor Disclosure
Not applicable Not applicable

BB&T Capital Markets Fixed Income Research Disclosure Legend

1. BB&T Capital Markets does not compensate its research personnel for specific investment banking services
transactions. The author of this report receives compensation that is based on, among other factors, the firm’s
overall investment banking, sales & trading, and other businesses affiliated with BB&T Capital Markets.
2. The analyst or member of the analyst’s household owns the securities of the subject company/obligor.
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BB&T Capital Markets Page 8