Fitch Affirms Blakeford at Green Hills, TN's Bonds at 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued on behalf of The Blakeford at Green Hills (Blakeford):

--$28.6 million Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, TN revenue refunding bonds, series 2012.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

SOLID OPERATING PROFILE: Blakeford's operating profile is characterized by solid historical cash flows and an efficiently managed skilled nursing facility (SNF) that supports a very strong operating ratio. Blakeford's net operating margin of 15.2% and operating ratio of 89.6% in 2015 were both favorable to Fitch's 'BBB' category medians of 8.9% and 96.1%, respectively.

MANAGEABLE DEBT BURDEN: Blakeford's debt burden is manageable with maximum annual debt service at 10.2% of total revenues and debt to net available of 5.3x in 2015, both comparing favorably to the 'BBB' medians. In addition, Blakeford's revenue only coverage has averaged a strong 1.4x over the last four years, which is impressive, particularly for a Type-A community.

ADEQUATE LIQUIDITY: Blakeford's $16.7 million in unrestricted cash and investments at March 31, 2016 equated to 420 days cash on hand (DCOH), 57.8% cash to debt and an 8.1x cushion ratio, all of which were in line with Fitch's 'BBB' medians of 400 days, 60% and 7.3x, respectively.

STRONG OCCUPANCY AND MARKET POSITION: Blakeford operates in an affluent service area that is anchored by Vanderbilt University, has limited Type-A competition, and remains the only CARF-CCAC lifecare community in the region. These factors contribute to a strong independent living unit (ILU) occupancy, which has averaged at 95% over the last four years and was at 97% through the three month interim period (ended March 31, 2016). Assisted living unit (ALU) and SNF occupancies were lower at 80% and 81% through the interim, but management reports that SNF occupancy is back up to 86% through April of 2016.

RATING SENSITIVITIES

OPERATING STABILITY EXPECTED: Fitch expects Blakeford at Green Hills to produce stable entrance fee receipts and operating income to support its liquidity position and solid debt service coverage over the medium term.

POTENTIAL EXPANSION PROJECT: Blakeford at Green Hills is contemplating a possible independent and assisted living expansion project on its current campus. The project is estimated to cost between $25-$35 million and will be funded by debt. Fitch notes that Blakeford has some debt capacity at the current rating level but will evaluate the full financial impact of the project closer to the time of issuance.

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), 46 assisted living units (down from 60 in 2014) and 83 skilled nursing facility units. The majority of residents are on a 90% refundable contract. In 2015, Blakeford reported total operating revenues of $20.2 million.

SOLID OPERATING PROFILE

Blakeford operates a large, 83 bed, SNF (5 star CMS rated) that enables it to accept a significant number of outside admits, including Medicare short-term rehab patients. As a result, the SNF service line accounted for 52% of net operating revenues in 2015. Effective management and a favorable payor mix (51% private pay and 34% Medicare) in the SNF supported a very strong operating ratio of 89.6% in the same year, comparing very well to Fitch's 'BBB' median of 96.1%. The metric is particularly impressive given Blakeford's lifecare contract offering to its campus residents. Blakeford's high Medicare exposure leaves it vulnerable to potential changes to care management reimbursement. Blakeford does not accept Medicaid patients.

Blakeford continues to expand its short-term rehab service line and is in the process of converting 14 of its ALU beds, which were located in its SNF building and were taken off-line in 2015, to a separate short-term rehab unit. The total number of SNF beds will not change as some of the currently semi-private rooms will be converted to fully-private as part of the repositioning.

Blakeford had a total of 24 move-ins in 2015, equating to $2 million in net entrance fee receipts for the year, supporting a robust 23.4% NOM-adjusted. Stronger net entrance fee receipts resulted in a robust MADS coverage of 2.6x in 2015. Net entrance fee receipts were a negative $605,000 through the first quarter, but management attributes this to timing of refunds and expects to end 2016 with at least $1 million in net entrance fee receipts.

MANAGEABLE DEBT BURDEN

Blakeford's revenues have grown by 22% over the last four years which has helped moderate its debt burden over the time period. Blakeford's MADS is level at $2.1 million for the life of the bonds and made up a manageable 10.2% of total revenues in 2015, comparing well to Fitch's 'BBB' median of 12.4%. In addition, total debt was 5.3x of net available, which was favorable to the 5.9x median. Blakeford's solid operations in its SNF have resulted in robust revenue only coverage over the last four years and coverage was a very strong 1.8x through the interim period, compared to Fitch's median of 1.0x.

LARGE CAPITAL PLANS

Blakeford is evaluating a new master facilities plan (MFP) which is expected to incorporate the construction of 40-45 ILUs and a dedicated 20 ALU Memory Care facility. The project is likely to start in 2017 and is projected to cost between $25-35 million to be funded via debt. Blakeford's routine CapEx budget for 2016 outlines $2.5 million in spending, however, $2 million is expected to be funded via leftover monies from the 2012 debt issuance and will not impact liquidity.

Blakeford is almost fully occupied in its ILUs and Fitch would view the expansion project positively, as it would allow the community to continue growing its top-line revenues. In addition, management reports that there is high demand for Memory Care beds in the community and the addition of a Memory Care unit should further support operating revenues. Blakeford's debt burden is currently manageable, but a large debt issuance without an influx of cash flows could pressure the debt burden and rating.

DEBT PROFILE

All of Blakeford's debt is fixed rate. There are no swaps outstanding.

DISCLOSURE

Blakeford covenants to provide annual audited disclosure within 150 days of the fiscal year end and quarterly disclosure within 45 days of the quarter end.

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

Applicable Criteria

Not-for-Profit Continuing Care Retirement Communities Rating Criteria (pub. 04 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868824

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

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

Additional Disclosures

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005639

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005639

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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Dmitry Feofilaktov
Associate Director
+1-212-908-0345
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gary Sokolow
Director
+1-212-908-9186
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Dmitry Feofilaktov
Associate Director
+1-212-908-0345
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gary Sokolow
Director
+1-212-908-9186
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com