Keys to a Successful FHA 242 Project Financing

1. HomeTown Health 2011 Annual Spring Conference April 25-27 Sea Palms Resort Keys to a Successful FHA 242 Project Financing $31,000,000 “Capital Project Solution” Alan P. Richman President & CEO InnoVative Capital LLC Norma Jean Morgan Chief Executive Officer Effingham Hospital

2. Presentation Themes • Maintaining Hospital Independence to Foster Financial Prosperity • Strategic Planning and FHA 242 Mortgage Insurance A Roadmap to Successfully Financing a New Hospital 2

3. Learning Objectives • A Best Business Practices Approach to Developing, Structuring and Financing a Hospital Modernization Project with FHA 242 Mortgage Insurance Including an Understanding of the Required … • Upfront Planning Process and Rationale • Team Players • Analyses and Reports • The Timeline of Events and Milestones to Mitigate Out-Of-Pocket Risks 3

4. Learning Objectives (continued) • Building Consensus Support of the Hospital, Physicians, Board, Community and the Municipality • How to Obtain Municipal Financial Support • How to Value the Economic Benefits of the Hospital to the Community and the Return on Investment for the Municipality • How to Assess a Job “Well Done” v. “Just Ordinary” 4

5. The Planning Process • Selecting the Team • Feasibility Assessment and Debt Capacity • Master Planning and Project Development • Milestone Planning • Governance, Management and Staff Involvement • Capital Budgeting and Key Decision Making • Composite Funding – Tax Assessment Review • Economic Impact Analyses and Municipal Return on Investment 5

6. The FHA 242 Financing Transaction Timeline FHA 242 Mortgage Insurance Underwriting STEP I. PRE-APPLICATION PREPARE & SUBMIT – Months 1-2 FHA 242 Mortgage Insured Financing STEP II. PRE-APPLICATION MEETING WASHINGTON, D.C. – Month 2 STEP I. ANALYZE ALTERNATIVE DEBT STRUCTURES – Months 3-4 STEP III. PREPARE AND SUBMIT HUD APPLICATION (inc feasibility study and Sources and Uses Statement) – Months 3-5 STEP II. SELECT DEBT STRUCTURE – Month 5 STEP IV. COMPLETION OF PROJECT DEVELOPMENT & DESIGN – Month 5 STEP III. SELECT UNDERWRITER –Month 5 STEP V. ISSUANCE OF HUD COMMITMENT (req. GMP) – Months 6-7 STEP IV. FINANCING RELATED LEGAL WORK – Month 5-6 STEP VI. HUD CLOSING AT REGIONAL OFFICE (Initial Endorsement) – Months 7-8 STEP V. MARKET, PRICE & CLOSE FHA 242 DEBT INSTRUMENT – Months 7-8 6

7. Effingham Hospital Authority – Case Study Objectives and Goals • To meet the medical needs of a quickly growing county that is medically underserved. • To insure the viability of the local hospital and to retain local control. • Determine what infrastructure needs must be met to bring the hospital medical facility in line with current medical demands. • To educate the local populace of the value of local, community based healthcare. 7

8. Effingham Hospital Authority – Case Study Issues to be Addressed • Existing facility was a great example of 1960’s design. • Heavy outmigration of patients due to lack of dedicated physicians in the county. • Existing hospital board fragmented as to whether to sell, move or improve the hospital onsite. • Local populace viewed the hospital as merely a “band-aid station.” • Hospital was viewed as an unneeded cost center by the county government. 8

9. Effingham Hospital Authority – Case Study Solutions • Board solidified on an improvement strategy to meet the growing needs of the county and set a goal to accomplish this task over a five year period. • Started a strategy of recruiting employed primary care physicians to be based within the county. • Constructed outpatient diagnostic centers within established population centers. • Consulted with InnoVative Capital to perform a debt capacity analysis to see what type of improved facility was attainable. • Began a county wide awareness campaign. 9

10. Effingham Hospital Authority – Case Study The Results • At the direction of the Board, InnoVative Capital submitted to HUD an application for FHA 242 Mortgage Insurance. • To obtain HUD’s underwriting approval, the citizens of the county petitioned the county to continue its contract to offset uncompensated care with county tax support for the term of the bonds. Approval was granted by the county. • With HUD’s approval in-hand, FHA 242 mortgage insured $30.94 million Recovery Zone Economic Development Bonds were issued and closed just prior to the 12/31/10 BABs program expiration date. The net rate was 3.6%. • Construction is on target to open a 58,000 modernized clinical space in 03/01/2012. • As an result of the physician recruitment strategy. A new surgeon was added to the staff. Surgical volume has increased by 73%. • Admits have increased by 202% and OP visits have increased 37%. 10

11. Effingham Hospital Authority – Case Study The Results 11

12. Effingham Hospital Authority – Case Study The Results 12

13. Effingham Hospital Authority – Case Study The Results PRESS RELEASE: December 30, 2010 LANDMARK FHA 242 FINANCING EFFINHGAM HOSPITAL RECEIVES A 3.63% LOAN $31 MILLION FIXED RATE TWENTY-SEVEN YEAR BONDS 13

14. Questions? Alan P. Richman President & CEO InnoVative Capital Tel: 610-543-2490, Ext. 101 arichman@innovativecapital.com Norma Jean Morgan Chief Executive Officer Effingham Hospital Tel: 912-754-0160 morgano@effinghamhospital.org 14