The Structure of IHC’s DST Investments

Wally Smith:
Getting into the structure of some of the deals, you offer both all-cash and leverage deals. I know in the past, it has flip flopped. You have one, have the next. What’s your plan there going forward. Do you continue to still have both?

Patrick Lam:
Oh, absolutely. I think we always go into the deal, not picking already what that deal is going to be, whether it’s all-cash or leverage. I think when we look at a community or an
offering, we want to make sure it works and it pencils real well through underwriting and Mike Jones and his department. Once we like the facility and realize the stabilized facility with a lot of potential, then that’s when we figure out if we want to do an all-cash or a leverage deal. And so if we look forward to the next six months, we’re going to have about six leverage deals and about three all cash deals coming out.

Wally Smith:
Excellent. Good deal. Is there a size that’s a sweet spot for you? 100 beds or what size facilities do you like?

Patrick Lam:
Mike?

Mike Jones:
Yeah. I think that what you said is about right. That’s about the sweet spot, anywhere from 80 to 120 units. Our purchase price on something like that is depending on location and class and vantage of the assets, anywhere from 25 to $50 million.

Wally Smith:
Okay. And then as far as you’re structuring these things, do you take on outside debt to be able to do them? Do you have your own war chest, if you will? How do you approach the deals?

Mike Jones:
Yeah, both. From the leverage standpoint, we work with several different banks that are comfortable with the DST structure that we’ve been able to provide leverage. So they provide loans on first mortgage debt on the properties, somewhere around 50% loan to value on the offers. The leverage we offer is typically 45 to 53, 54% leverage on our deals. From the standpoint of closing, we do have our own fund that we use to make sure we have the ability to close when in the chance that there’s a gap between the capital raise and the closing of the property.

Wally Smith:
It really puts you in a strong position then when you’re bidding for a property, I guess.

Mike Jones:
Yeah, absolutely. Yeah.

Patrick Lam:
And I think that’s really the biggest difference between us and other sponsors in the DST space. We not only have banks and lenders that we’re preferred that we work with, but you’re right, we have that war chest. So if you do business with us at IHC or Inspired Healthcare Capital, you are going to know 100% that we’re going to close on time.