NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BB+' rating on the following bonds issued on behalf of Wichita Falls Retirement Foundation Project, doing business as Rolling Meadows:
--17,850,000 Red River Health Facilities Development Corporation first mortgage revenue bonds (Wichita Falls Retirement Foundation Project), series 2012.
The Rating Outlook is Stable.
SECURITY
Bonds are secured by a gross revenue pledge, a mortgage, and a debt service reserve fund.
KEY RATING DRIVERS
SOLID GROWTH IN LIQUIDITY: Since Dec. 31, 2011, Rolling Meadows (RM) has grown its unrestricted cash and investments by 50% from $7.9 million to $11.8 million at June 30, 2014 (six-month interim). All of RM's major liquidity ratios are now very strong for the non-investment grade category and help to offset concerns about RM's small revenue base.
STABLE OPERATING PERFORMANCE: RM's operating ratio has averaged an 89.3% over the last four audited years and stood at 80.1% in the six-month interim period. This level of performance is in line with Fitch's expectations for a rental facility, which without entrance fee revenues rely solely on operations to pay debt service and need to have operating ratios below 90%. Fitch's 'BBB' category median for all types of facilities is 97.2%.
SMALL REVENUE BASE: While RM's total operating revenues grew to $9.2 million in fiscal 2013 from $8.4 million in fiscal 2010, it continues to have the smallest revenue base of Fitch's rated senior living portfolio. Fitch's median revenue size for standalone continuing care retirement communities was $23.7 million in 2013.
ILU OCCUPANCY IMPROVEMENT: Independent living unit (ILU) occupancy has improved from a low 86% in fiscal 2011 to 91.8% in fiscal 2013. While average ILU occupancy dropped to 88.8% through the six-month interim, it was 91% as of August 2014, and management is budgeting to finish fiscal 2014 at 92% occupancy.
MODERATING DEBT BURDEN: Maximum annual debt service (MADS) was 12.2% of total revenues in fiscal 2013, improved from 14.4% in fiscal 2010. MADS was strong at 2.4x in fiscal 2013.
RATING SENSITIVITIES
CLARITY ON POTENTIAL PROJECT: RM is contemplating a project on undeveloped land on its property. Fitch expects to have more clarity on any potential project within the next two years and expects RM's financial profile to remain stable over this time. RM's overall financial profile has strengthened since Fitch first rated RM due to improved occupancy and liquidity growth. Over the medium term and depending on the impact of any capital projects, positive rating pressure may be warranted if RM's occupancy continues to remain above 90%, its liquidity and revenues continue to grow, and debt service coverage stays at approximately 2x.
CREDIT PROFILE
Located in Wichita Falls, TX, Rolling Meadows is a type-D (rental) continuing care retirement community with 170 ILUs and 82 skilled nursing facility (SNF) beds in a gated community on 25.2 acres of land. Rolling Meadows has its own home health agency for residents, which provides assisted living services for a fee.
LIQUIDITY GROWTH
Since Dec. 31, 2011, RM's unrestricted cash and investments have grown by 50% to $11.8 million at June 30, 2014 (the six-month interim), from $7.9 million. At June 30, 2014, RM had 562 days cash on hand (DCOH), a cushion ratio of 9.7x and cash-to-debt of 65.2%, all very strong for the rating level. Liquidity growth has been helped by good cash flow and modest capital spending in recent years, which averaged just 49.8% of depreciation over the last four audited years. The improved liquidity figures continue to offset concerns over RM's small revenue base.
2013: STRONG OPERATING YEAR
Rolling Meadows' operating performance is driven heavily by independent living occupancy, which fell below 90% in 2011 and 2012. As result, RM's operating ratio rose above 90% in both years and debt service coverage weakened to 1.4x in 2012 from 1.6x in 2011 and 1.8x in 2010. In 2013, occupancy rose back above 90% as RM finished a large front-entryway project. The stronger occupancy led to a very solid operating ratio of 87.3% and debt service coverage of 2.4x. Coverage and bottom line performance were also helped by good realized gains on investment, which has grown as RM's liquidity has grown.
CAPITAL UPDATE
In the last review Fitch noted positively that RM completed a major renovation project that included upgrades to its front entrance and the rebuilding of its main dining room. With the project completed, RM is contemplating developing land on its property. One option RM is exploring is to build an assisted living (AL) building, which would bring a new service onto the campus. Currently, AL services are offered through home care services. RM reports some competition from standalone AL service providers. RM is in the early planning stages in development of the land, and Fitch expects more clarity over the next two years. Fitch expects RM's routine capital over this time to average approximately $400,000 to $500,000 a year.
While RM's leverage position has been moderating over the last two years, given RM's revenue size, any debt issuance would have an impact on the organization. However, Fitch notes positively RM's consistent operating performance, good market position, and its liquidity growth, which provides a significant level of financial flexibility at the current rating level and over time could lead to upward rating pressure, depending on the final scope and size of the expansion project.
OUTSTANDING DEBT PROFILE
Rolling Meadows has $17.85 million of traditional fixed-rate bonds outstanding (series 2012). There are no swaps.
Disclosure:
Rolling Meadows covenants to deliver to EMMA audited financial statements and utilization within 150 days of fiscal year end, and quarterly unaudited financial statements and utilization within 45 days of quarter end.
Additional information is available at 'www.fitchratings.com'.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com':
--'Not-for-profit Continuing Care Retirement Communities Rating Criteria', July 24, 2014
Applicable Criteria and Related Research:
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752470
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=877434
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