Fitch Rates Berkshire Retirement Community dba Kimball Farms (MA) Revs 'A-'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'A-' rating to the following bonds issued on behalf of Berkshire Retirement Community dba Kimball Farms (MA):

--$15,070,000 of Massachusetts Development Finance Agency, series 2015 first mortgage revenue bonds.

The Rating Outlook is Stable.

The bonds are expected to be issued as fixed rate. Proceeds will be used to refund Berkshire Retirement Community's series 1994, 1999 and 2001 bonds, establish a debt service reserve fund and pay for costs of issuance.

SECURITY

The bonds are secured by a pledge of gross revenues, a first mortgage lien on certain property and equipment and a debt service reserve fund.

KEY RATING DRIVERS

SOLID LIQUIDITY: The assignment of the 'A-' rating is supported by Kimball Farms' strong liquidity position over the last four years. Kimball Farms' 670 days cash on hand (DCOH), 163.5% cash to debt and 22.2x cushion ratio at Dec. 31, 2014 (fiscal year end) all compared well to Fitch's 'A' category medians.

MODERATE DEBT BURDEN: Kimball Farms' pro forma debt burden is moderate, as represented by pro forma maximum annual debt service (MADS) as 6.5% of 2014 revenues, favorable to Fitch's median of 8.9%. In addition, Kimball Farms' solid operating performance and stable entrance fee receipts resulted in robust pro forma debt service coverage of 4.6x through 2014, above Fitch's median of 3.7x.

STRONG OCCUPANCY: Kimball Farms' independent living unit (ILU), assisted living unit (ALU) and skilled nursing facility (SNF) occupancies averaged a strong 92%, 95% and 97%, respectively, from 2010 to 2014. Kimball Farms solid occupancy statistics are considered a primary credit strength by Fitch.

ROBUST OPERATING PROFITABILITY: Kimball Farms' operating profitability, supported by robust occupancy and a favorable payor mix, has been strong over the last four years. Kimball Farms' operating ratio of 81.2% and net operating margin (NOM)-adjusted of 29.2% through 2014, both compared favorably to Fitch's 'A' category medians of 97.1% and 23.4%, respectively.

BERKSHIRE HEALTHCARE SYSTEM (BHCS) AFFILIATION: BHCS, the largest nonprofit senior living company in Massachusetts, is the sole corporate member of Kimball Farms. The affiliation allows Kimball Farms access to savings through group purchasing efforts, as well as management services through Berkshire Health System Management Systems (BHSMS), and is viewed favorably by Fitch.

RATING SENSITIVITIES

OPERATING STABILITY EXPECTED: Fitch expects Kimball Farms to continue producing positive operating results which should help grow liquidity and provide solid debt service coverage over the medium term.

CREDIT PROFILE

Kimball Farms is a Type-A Continuing Care Retirement Community located on two campuses in Lenox, MA. The Kimball Farms at Walker Street campus includes 150 ILUs, 48 ALUs, and 26 memory care units. The Kimball Farms Nursing Care Center at Sunset Avenue includes 74 SNF beds with a dedicated memory care unit. The campuses are located approximately one mile apart, and transportation is provided to residents and family members.

SOLID LIQUIDITY

Kimball Farms' $29.3 million in unrestricted cash and investments equated to a robust 670 DCOH, 163.5% cash to debt and 22.5x cushion ratio at Dec. 31, 2014, all of which compared favorably to Fitch's 'A' category medians of 692 days, 127.2% and 15.8x, respectively. Kimball Farm's debt burden will be lower post issuance, resulting in a pro forma cash to debt of 194.1%. Unrestricted liquidity has grown modestly from $22.4 million at Dec. 31, 2011, and is expected to improve further over the medium term, given Kimball Farms' consistently strong operating results. At March 31, 2015, cash and investments equated to 638 DCOH, 195.5% pro forma cash to debt and 22.3x cushion ratio.

In addition to routine capital, which has averaged $1.5 million over the last four years, Kimball Farms' five year capital plan includes the remodeling and renovation of the kitchen, dining and activity areas in its AL and Memory Care facilities, as well as a possible development of a wellness space. The projects are expected to cost approximately $5 million and will be funded through resident donations and interest rate savings from the current bond issue, and will not impact liquidity. During its site visit, Fitch found the Walker Street campus to be attractive and well renovated. The Sunset Avenue campus is older and may require capital improvements over the medium to long term; however, SNF occupancy has been historically strong at the campus, which mitigates near term concerns.

MODERATE DEBT BURDEN

Kimball Farms' pro forma MADS of $1.3 million equated to 6.5% of 2014 revenues, while pro forma debt equated to 2.5x net available, both favorable to Fitch's 'A' medians of 8.9% and 3.5x, respectively. Debt service coverage has averaged a strong 4.8x from 2011 to 2014, above the 3.7x median. In addition, Kimball Farms' strong operating performance resulted in robust revenue only coverage of 3.6x in 2014, significantly above Fitch's median of 1.2x. Revenue only coverage of 3.2x was strong through the three month interim period (ended March 31, 2015).

Post issuance, the series 2015 fixed rate bonds will be the only debt outstanding. The 2015 bonds will have a final maturity date of 2031 and an average expected coupon of 4%. There are no swaps outstanding. Kimball Farms does not have any additional debt plans over the near to medium term.

OCCUPANCY AND OPERATING PROFITABILITY

Occupancy has been very consistent across the continuum of care over the last four years and was 95%, 95% and 96% for ILU, ALU and SNF, respectively in 2014. Strong occupancy is attributed to a favorable market position and very limited competition in the market place.

Kimball Farm's operating profitability has remained strong over the last four years, supplemented by robust occupancy and a favorable payor mix. Operating ratio and NOM-adjusted have averaged 85% and 29.6% from 2011 to 2014. NOM of 24.2% in 2014 was significantly above Fitch's 'A' median of 6.2%. Fitch expects Kimball Farms to continue producing strong operating results over the medium term.

FAVORABLE MARKET POSITION

Kimball Farms is located in Berkshire County, MA, a destination community for New York and Massachusetts residents, which allows it to access a wider pool of prospective residents. Additionally, Kimball Farms' entrance fee prices are commensurate with the local real estate market. Competition in the service area is limited, as the closest competitors are located over a hundred miles away.

Fitch views favorably Kimball Farms' affiliation with BHCS, which allows it to access savings through group purchasing efforts, nursing staff economies, as well as leadership and expertise not typically available for smaller stand-alone communities.

DISCLOSURE

Kimball Farms covenants to provide annual financial statements, as well as occupancy and utilization reports, within 150 days of the fiscal year end to the Municipal Securities Rulemaking Boar's EMMA system.

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

Applicable Criteria and Related Research:

--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 24, 2014);

--'Revenue-Supported Rating Criteria' (June 16, 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

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984143

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Dmitry Feofilaktov
Analyst
+1-212-908-0345
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Eva Thein
Senior Director
+1-212-908-0674
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Dmitry Feofilaktov
Analyst
+1-212-908-0345
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Eva Thein
Senior Director
+1-212-908-0674
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com