NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on approximately $17.8 million St. John's County Industrial Development Authority fixed-rate revenue bonds, series 2007, issued on behalf of Life Care Ponte Vedra (dba Vicar's Landing; VL).
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a gross pledge, first mortgage lien, security and interest in residency agreements, and a debt service reserve fund.
KEY RATING DRIVERS
SLIGHTLY ELEVATED DEBT BURDEN: In 2014, VL issued $16 million of direct placement debt to fund a campus renovation project ($9 million of which has been drawn to date, with the remainder to be drawn within six months). Once the full amount is drawn VL's total debt burden will equal approximately 51% of its unrestricted cash. VL's maximum annual debt service (MADS) is estimated to increase to $3.1 million, which equates to an elevated 15.7% of annualized revenue through the six-month interim period (ended June 30, 2014), compared to Fitch's 'BBB' median of 12.4%.
STRONG OVERALL OCCUPANCY: VL maintained strong occupancy across all levels of care in 2013 with 97% independent living unit (ILU), 93% assisted living unit (ALU) and 87% skilled nursing facility (SNF) occupancies. Fitch views VL's continuously strong occupancy as a primary credit strength.
SOLID OPERATIONS: Offsetting its debt burden are VL's consistently strong operations, which have been supported by robust occupancy metrics over the last four fiscal years. In fiscal 2013 (Dec. 31, year-end) VL's operating ratio of 88.7% was better than the category median of 97.2% and is notable given the community's Type A residency contract. Net operating margin-adjusted was 24.1% in the same year, above the 21.3% median.
MODERATING CAPITAL NEEDS: VL's capital needs will begin to moderate after the completion of its campus renovation project in 2014. VL's 2015 capital budget will be slightly elevated at $5.6 million, and will incorporate a $2 million six-bed addition to the community's nursing facility. After 2015, VL's capital budget is very manageable, averaging approximately $1.7 million annually for the following three years.
FAVORABLE SERVICE AREA CHARACTERISTICS: VL is located in Ponte Vedra Beach, FL, and serves an upscale service area in the northeastern portion of Florida. VL's location in Ponte Vedra Beach helps support to organization's consistent ILU demand.
RATING SENSITIVITIES
MAINTENANCE OF CURRENT FINANCIAL PROFILE: Fitch expects VL to maintain their strong occupancy and solid operating profile which should support balance sheet growth and sufficient debt service coverage.
CREDIT PROFILE
Vicar's Landing is a Type A life-care continuing care retirement community (CCRC) consisting of 227 ILUs, 38 private ALUs, and 60 SNF beds. The community is located approximately 20 miles southeast of downtown Jacksonville, FL. In fiscal 2013 VL's total revenues totaled $20.6 million.
SLIGHTLY ELEVATED DEBT BURDEN
As VL draws down on the remainder of the series 2014 direct placement bonds its total debt will equal approximately 51% of its unrestricted cash, based on the six-month interim figures. Although pro forma MADS is estimated to increase to $3.1 million from $1.9 million, historical coverage of pro forma MADS is solid at 2.5x and 2.1x in 2013 and 2012, respectively.
VL's campus includes nine apartment buildings, 15 patio homes and a community building, all of which are 25 years old. Funds from the bond proceeds will be used to build a new community center, replacement of the siding and windows on the apartments and patio homes as well as a variety of other renovations. Fitch views the projects positively as they will continue to keep VL's campus marketable for the long term.
STRONG OVERALL OCCUPANCY
VL is currently 100% sold and occupied in its ILUs. However, due to renovations of turnover apartments a number of residents have yet to move in, which has delayed the receipt of entrance fees on turnover units leading to weakened coverage. Coverage dropped to a low 0.9x through the six-month interim period. Management expects a number of new residents to move in over the coming months and reports receiving approximately $610,000 in entrance fees in July with no refunds for the month. Fitch expects entrance fee receipts to normalize over the rest of the year.
VL maintains an ongoing wait-list of over 200 prospective residents which should ensure further occupancy stability over the medium term. Through the interim period ALU and SNF occupancies have been below historical levels at 82% and 80%, respectively; however, this is less of a credit concern given VL's Type-A contract.
SOLID OPERATIONS
VL's operating ratio of 88.7% in fiscal 2013 exceeds the 'BBB' category median of 97.2% and is very strong given VL's type-A contract. The six month interim operating ratio was 96.3% closer to historical levels. Net operating margin was 9.4% over the same time period, in line with category median of 9.9%, while net operating margin-adjusted was 13.3%, improved from 11.3% through the same prior year period.
VL has historically provided financial support to its sister-facility, Glenmoor Retirement, a Type-A CCRC located in St. Augustine, FL. Glenmoor has emerged from bankruptcy after filing for bankruptcy in 2013. Most of VL's senior management team also manages Glenmoor as Life Care Pastoral Services Management has a management agreement with both facilities. VL's management states that Glenmoor's operating performance is stabilizing and that VL will no longer provide support to the facility. While Fitch views this positively, given the long relationship between the two facilities a certain level of credit concern will remain until Glenmoor can reach full financial stability.
MODERATING CAPITAL NEEDS
After the completion of its renovation project in 2014, VL is expecting to build a $2 million six-bed addition to its SNF in 2015. VL's capital expenditures will begin to moderate after the SNF expansion and will average approximately $1.7 million per year from 2016 to 2018. VL is not anticipating any additional debt plans over the medium term.
DEBT PROFILE & DISCLOSURE
Fitch views VL's debt profile as moderate, consisting of approximately 76% fixed-rate and 24% variable-rate debt with no outstanding swaps. VL's covenants to provide annual and quarterly disclosure through the Municipal Rule Making Board's EMMA system. Throughout the credit review process, management was candid and timely in its responses to Fitch.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities (July 24, 2014).
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=844875
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