Fitch Affirms Blakeford at Green Hills (TN) Revs at 'BBB'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'BBB' rating on the approximately $30.1 million Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County revenue refunding bonds, series 2012 issued on behalf of the Blakeford at Green Hills (Blakeford).

The Rating Outlook is Stable.

SECURITY

Debt payments are secured by a pledge of the gross revenues of the obligated group, a mortgage and a fully funded debt service reserve fund. The obligor is Blakeford at Green Hills Corporation.

KEY RATING DRIVERS

SOLID OPERATIONS: Blakeford's profitability metrics remain solid for the rating category and reflect management's focus on increased revenue through new programs and expense management. Operating ratio and adjusted net operating margin were both very good in fiscal 2013 at 89.6% and 21.6%, respectively.

CONTINUED LIQUIDITY GROWTH: Blakeford's liquidity indicators have consistently improved year-over-year since hitting a low in fiscal 2009. Days cash on hand increased to 412.9 at 2013 fiscal year end (December 31) from 368.6 in 2012. Cash to debt also improved to 56.3% in 2013 from 48.9% in 2012.

STRONG MARKET POSITION AND STABLE OCCUPANCY: Due to its location in a desired service area, proximity to Vanderbilt University and limited type A competition, Blakeford has maintained stable occupancy across the continuum of care with occupancy at 97% for its independent living unit (ILU), 93% for its assisted living units (ALU) and 92% for its skilled nursing facility (SNF) units at the three-month interim period ending March 31, 2014.

GOOD DEBT SERVICE COVERAGE: MADS coverage remains strong year-over-year with current coverage based on turnover entrance fees only at 2.2x in fiscal 2013 compared to the 'BBB' median of 1.9x.

LARGE SKILLED NURSING COMPONENT: Blakeford's large skilled nursing facility comprising over 50% of its total operating revenues, which supports its strong revenue-only debt service coverage ratio of 1.7x in fiscal 2013 compared to the 'BBB' category median of 0.9x.

RATING SENSITIVITIES

CONTINUED STABILITY EXPECTED: Fitch expects Blakeford's financial profile and utilization metrics to remain in line with current performance.

FUTURE CAPITAL PROJECTS: Blakeford is moving forward with expansion and repurposing planning of its campus and is considering adding up to 60 new ILUs. The consultant firm Dixon Hughes Goodman was hired to assess market demand. Blakeford will evaluate results of the marketing study and make a determination for the addition of new ILUs within the next year, but not likely to start construction before mid-2015, at the earliest. Fitch will review the impact of those projects when details are available.

CREDIT PROFILE

Located in the Green Hills section of Nashville, Tennessee, Blakeford is a type-A continuing care retirement community with 124 independent living units (ILUs), 60 assisted living units (ALUs) and 83 skilled nursing facility (SNF) units. In 2013, Blakeford reported total operating revenues of $17.5 million. Blakeford received CARF-CCAC accreditation for its full continuum of services in February 2014, which Fitch views positively.

Overall, Blakeford's financial profile can be characterized by strong occupancy, improved debt service coverage and a strengthening balance sheet. Liquidity was formally a credit concern, but with the year-over-year improvements, is now in line with 'BBB' category medians.

Solid Operations

Blakeford's operating profitability is good for the rating category. An operating ratio of 89.6% in fiscal 2013 was an improvement from 93.4% in fiscal 2012 due to additional cost cutting initiatives including the vertical integration of previously outsourced payroll operations. Blakeford has made significant investments in technology and created a tool that can monitor performance improvement online, which has also contributed to improved operations. Net operating margin of 16.8% in fiscal 2013 and 22% through the three month interim period ending March 31, 2014 has remained stable and above the 'BBB' category median of 9.9%. Adjusted net operating margin was 21.6% in fiscal 2013, which is in line with the 'BBB' category median of 21.3% but down from 32.5% in fiscal 2012, reflecting a decrease in entrance fee turnover.

Continued Liquidity Growth

Total unrestricted cash at March 31, 2014 (three-month interim) was approximately $17 million, a 38% increase from fiscal 2011. This equates to 414.7 days cash on hand, 56.3% cash to debt and 7.8x cushion ratio, all improved and in line with the respective 'BBB' category medians of 371.3 days, 58.9% and 6.9x. Blakeford has built up its cash over 55% since hitting a low in fiscal 2009 when it used $1.3 million to unwind a swap associated with the series 2005 debt and $1.5 million to pay down some of the variable series 2005 bonds, which have since been refunded to fixed rate.

Strong Market Position and Stable Occupancy

Blakeford has a strong and positive reputation in its market area, which Fitch notes is characterized by above-average socio-economic indicators. The strong service area supports consistently high occupancy throughout the continuum of care. Fitch views occupancy as a credit strength and believes it provides a solid indication of Blakeford's ability to maintain favorable operating metrics and debt service coverage. Furthermore, the limited number of type-A facilities in the market reduces the threat of competition eroding Blakeford's robust profitability. Occupancy in the ILUs was 95% in fiscal 2013 and increased to 97% through the three month interim ended March 31, 2014. Fitch expects stability in occupancy metrics given Blakeford's good market position.

Good Debt Service Coverage

Blakeford has 100% fixed rate debt, which Fitch views favorably. MADS equates to a moderate 12% of 2013 revenues compared to the 'BBB' category median of 12.4%. MADS coverage ratio of 2.2x in fiscal 2013 is down from 3.1x in fiscal 2012 as a result of lower ILU turnover during 2013, but still compares favorably to the 'BBB' category median of 1.9x. Blakeford is considering potential repositioning and expansion initiatives within the next two years, but no definitive plans are presently in place. Fitch will review the impact on its financial profile when details are available.

Large Skilled Nursing Component

Blakeford has a large skilled nursing facility bolstered by a good payor mix (25% Medicare/51% private pay/24% other pay as of fiscal 2013), comprising a considerable 50% portion of its total operating revenues. The SNF facility fills a need in the community for skilled beds and occupancy benefits from strong relationships with local hospitals. SNF occupancy is good, averaging 96.0% utilization over the last three years (2011-2013). The SNF revenue in addition to its expanding home health program, drives Blakeford's strong revenue-only debt service coverage ratio of 1.7x in fiscal 2013 and 1.9x in the three-month interim (Mar. 31, 2014) compared to the 'BBB' category median of 0.9x.

Disclosure Practices

Blakeford will covenant to provide annual audited disclosure within 150 days and quarterly unaudited disclosure within 45 days.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 10, 2013).

Applicable Criteria and Related Research:

Rating Guidelines for Nonprofit Continuing Care Retirement Communities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=40171

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834567

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Contacts

Fitch Ratings
Primary Analyst
Dana S. Ringer, +1 312-368-3215
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Katie Proux, +1 312-368-3348
Analyst
or
Committee Chairperson
Eva Thein, +1 212-908-0674
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Dana S. Ringer, +1 312-368-3215
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Katie Proux, +1 312-368-3348
Analyst
or
Committee Chairperson
Eva Thein, +1 212-908-0674
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com