NEW YORK--(BUSINESS WIRE)--In the course of its ongoing surveillance efforts, Fitch Ratings has affirmed the 'A-' rating on approximately $12.2 million of Maryland Health and Higher Educational Facilities Authority revenue bonds (Hebrew Home of Greater Washington), series 2002. The Rating Outlook is Stable.
SECURITY:
Pledge of all receipts from the obligated group (the nursing home and Landow House) and a debt service reserve fund.
KEY RATING DRIVERS
Strong Occupancy Levels: The continued demand for services reflected in Hebrew Home of Greater Washington's (Hebrew Home) high occupancy--92% in independent living, 98% in assisted living, and 98% in skilled nursing, as of June 30, 2011--is a credit strength.
Strong Liquidity Relative to Debt: With a cushion ratio of 29.5 times (x) and cash to debt of 236.9% at year-end 2010, Hebrew Home's liquidity relative to debt is a credit strength and exceeds Fitch's 'A' medians.
Manageable Debt Burden: Maximum annual debt service (MADS) as a percentage of revenue is a low 3.2% (Fitch's 'A' median is 8.9%), which supports solid debt service coverage (4.3x in 2010), and mitigates weaker operating results and the inherent volatility in Hebrew Home's reliance on investment income for bottom line positive results.
Demonstrated Philanthropic Support: Fundraising remains very strong with Hebrew Home raising $27 million as part of a capital campaign for its centennial anniversary.
High Medicaid Exposure: At approximately 70%, Hebrew Home's Medicaid as a percentage of its skilled nursing facility (SNF) payor mix is very high putting pressure on the philanthropic support and investment income returns to offset Medicaid's low level of reimbursement.
CREDIT PROFILE
The affirmation is based on Hebrew Home's overall credit profile characterized by excellent demand for its services, solid liquidity, manageable debt burden, and demonstrated philanthropic support from the local community.
As the only Jewish affiliated nursing home in the suburban Washington, D.C. region, demand for Hebrew Home's skilled nursing services remains strong, with occupancy in its 519-staffed skilled nursing beds at 98% through June 30, 2011 (it was 97% at year-end 2010). Occupancy was also solid at Hebrew Home's 500 independent living units (Revitz and Ring House) at 92% as of June 30, 2011 (93% at fiscal year-end 2010), as well as at its 60-unit Landow House assisted living facility, which was 98% occupied at June 30, 2011, up from 94% at year-end 2010.
Hebrew Home's liquidity remains a credit strength, especially liquidity as related to its debt burden. Hebrew Home had unrestricted cash and investments of $76.6 million at year-end 2010, which translated to 394.8 days cash on hand, a 29.5x cushion ratio, and 236.9% cash to debt. All of those figures were up year-over-year, and those figures have grown slightly through the interim period, in part due to the increase in philanthropy and unrealized gains on investments, through June 2011.
Philanthropy from the community remains a major credit strength. Hebrew Home is closing in on its $30 million goal for a capital campaign undertaken on behalf of its centennial anniversary. A third of the funds will support capital projects, a third general operations, and a third for the endowment. To date, $27 million has been raised, which is a much more robust level of fundraising than the overwhelming majority of other senior living providers that Fitch rates.
Primary credit concerns include the historical reliance on non-operating income to generate positive excess margins and Hebrew Home's heavy exposure to Medicaid payors (approximately 70% of its gross patient revenue) in skilled nursing. This high level of exposure to Medicaid is a concern as Medicaid provides low reimbursement levels (relative to private pay and Medicare) and is under pressure for further cuts, leaving Hebrew Home vulnerable to potentially adverse governmental budgeting and the legislature.
Historically, Hebrew Home relied heavily on investment income to supplement weaker operations and provide for solid excess margins. However, in recent years Hebrew Home has made operations more efficient and its operating ratio has improved every year since 2007. It was 95.3% in 2010 compared with 98.4% in 2007, but still trails the 'A' median of 94.1%.
Volatility in investment returns has also led to volatility in the excess margins, with excess margins of 7.4%, (0.5%), and 1.2% in 2010, 2009, and 2008, respectively. While Fitch believes that Hebrew Home's cash and investment reserves, philanthropic support, and improved operating profile provide adequate assurance of long-term financial stability, multiple periods of poor investment results may hamper liquidity and bottom line results.
Hebrew Home's manageable debt burden further offsets credit concerns. MADS as percentage of revenue of 3.2% is much lower than Fitch's 'A' median of 8.9%. This coupled with the improvements to Hebrew Home's operating performance have led to solid revenue only debt service coverage (there are no entrance fees receipts as Hebrew Home is a rental facility) of 4.3x in 2010 and 6.9x through the interim period.
The Stable Rating Outlook reflects Fitch's belief that Hebrew Home's financial profile will remain stable supported by the continued high levels of occupancy and the manageable debt burden. Additionally, Hebrew Home does not have any major capital plans or expected borrowings of significance.
Its largest project in the near term is an $8 million, 18-unit dementia services expansion at Landow. A naming gift of $1.75 million has been received and the sources for the rest of the funding are still being considered. Fitch believes Hebrew Home has the financial cushion to comfortably fund this project and it is not a credit concern. Hebrew Home currently does not have a separate and secure unit for patients with memory issues, so Fitch views positively the building of this unit, which is more and more a standard senior living service, and the dementia unit should bring additional residents to Hebrew Home.
Located in Rockville, Maryland (approximately 20 miles northwest of Washington, D.C.), Hebrew Home is a multi-level provider with 556 nursing beds (517 staffed beds), 60 assisted living units, and 500 independent living units. Total revenue in fiscal 2010 was $74.3 million. Only the nursing home and the assisted living (Landow House) are part of the obligated group (OG). Fitch uses consolidated statements for analytical purposes. In 2010, the OG represented approximately 87% of total revenues and 85% of total assets.
Hebrew Home covenants require that they provide bondholders with annual audited and quarterly financial statements. Fitch notes that quarterly disclosure includes a balance sheet and income statement for the obligated group only, and does not include management discussion and analysis, a cash flow statement, and utilization statistics. Hebrew Home's financial statements are disseminated through EMMA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 20, 2011;
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities', dated July 26, 2011.
--'Nonprofit Nursing Home Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Rating Guidelines for Nonprofit Continuing Care Retirement Communities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=40171
Nonprofit Nursing Home Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648843
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