BBB-minus rated Wisconsin county senior living deal pricing as HY demand grows

Waukesha County, Wisconsin-based Three Pillars Senior Living Communities is set to price $109 million of BBB-minus senior living bonds Tuesday, coming as high-yield outperforms other municipal sectors.

The bonds issued by the Wisconsin Health and Educational Facilities Authority will consist of $63 million of Series 2024A bonds due 2059, $8 million of Series 2024B-1 bonds with an expected maturity of May 15, 2027, and a stated maturity of Aug. 15, 2029, and $37.6 million of Series 2024B-2 bonds with an expected maturity of Feb. 15, 2027, and a stated maturity of Aug. 15, 2028.

The independent living bonds are federally tax-exempt but Wisconsin state taxable.

Three Pillars Senior Living Communities has already pre-sold 70% of the planned independent living units, a few of which are depicted in an artist’s rendition here.

The bonds’ proceeds will provide most of the money for construction of 110 independent living residential units plus community facilities in Waukesha County, in southeast Wisconsin. The facilities will be located on land Three Pillars already owns adjacent to its existing independent living, assisted living and nursing home facilities.

In “active adult” communities for seniors, like the one being planned, seniors move into an age-restricted community while still physically and mentally capable of living without assistance. They benefit from being around other seniors and from a variety of facilities at the site meant to provide entertainment and support pastimes and physical pursuits. The Three Pillars independent living facility will be the first of this type in Wisconsin.

The Series 2024B-1 bonds and Series 2024B-2 bonds are to be paid off through entrance fees into the community. The Series 2024A bonds are to be paid off with any available money from Three Pillars but will mainly be paid by the new residents’ monthly charges.

Pre-sales of the units started in 2023 and as of February 70% of the units were sold, according to an investor presentation. Joe Mulligan, managing director at Cain Brothers, said active adult communities’ pre-sales usually average 4.5 per month in the United States but Three Pillars has averaged eight per month, a hopeful sign.

Cain Brothers is a division of KeyBank Capital Markets and is the investment banker and underwriter on the deal.

“The sizable additional debt and the risks associated with the large construction project reduces financial flexibility in the short to medium term but” the new facility should be financially positive to the community in the long term, said Fitch Directors Madeline Tretout and Gary Sokolow.

The bond sale will more than double Three Pillars’s debt, the analysts noted. The BBB-minus rating “considers the strong pre-sales for the new community…, continued strong occupancy of 96% at Three Pillars’ existing independent living units and slower than anticipated recovery at the assisted living units … following some pandemic-related softening and an expansion.” Fitch has a stable outlook on the bonds.

Mulligan said there were three days of investor meetings in Wisconsin concerning the bonds last week and that he feels confident the market will have a good appetite for the bonds.

Construction of the new facility is expected from April of this year to October 2026. The new facility will be on 78 acres adjacent to the existing campus of 100 acres.

The sale and occupancy of the new units is expected to increase the percentage of non-licensed units on the site to 55% from 38%, said Jan Freuck, chief financial officer for Three Pillars. This changed service mix is expected to improve Three Pillars’s operating margins, she said.

Private and other non-federal government pay revenues as a percent of total net resident services is expected to improve to 83% in fiscal 2028 from 73% in fiscal 2023, Mulligan said.

Quarles & Brady is the Wisconsin Health and Educational Facilities Authority’s bond counsel.