Fitch Rates Lasell Village (MA) 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'A' rating to the implied general revenue obligation of Lasell Village, MA (LV).

The Rating Outlook is Stable.

KEY RATING DRIVERS

SOLID DEMAND FOR UNIQUE PROVIDER: LV has averaged 93% occupancy in its independent living units (ILUs) over the past five years. LV is unique in its location adjacent to the campus of Lasell College (LC), where LV residents are required to complete at least 450 hours of continuing education. LV's strong demand has helped generate satisfactory levels of total and revenue-only debt service coverage.

STRONG LIQUIDITY: In fiscal 2016, LV had unaudited $38.8 million of unrestricted cash and investments, up from $24.8 million in 2012. This translated to 890 days cash on hand (DCOH), 28.7x cushion ratio, and 231.8% cash to debt, all of which exceed Fitch's 'A' category medians.

GOOD SERVICE AREA CHARACTERISTICS: Located in Newton, MA, LV operates in a good service area that has high wealth and socioeconomic indicators compared against state and national averages.

CAPITAL NEEDS: LV's immediate capital needs, including a renovation project, are manageable. Management is refining other potentially larger capital plans, including a possible addition of memory care. This project would be at least three years out and is not incorporated into the rating.

RATING SENSITIVITIES

MAINTENANCE OF CURRENT PROFILE: Fitch expects that Lasell Village (LV) will maintain its strong balance sheet, have solid demand, and generate consistent operating results.

CAPITAL PLANS: Fitch believes LV has capacity at the current rating level to fund planned capital improvements from cash or new debt. Fitch will factor further capital plans into the rating as information becomes available.

CREDIT PROFILE

Lasell Village is located in Newton, MA, was formed originally in 1990 and opened in 2000. In 2003, LC approved for the transfer of sole membership to LV from the college, in which the community was given autonomy to operate independently.

The community consists of 182 ILUs, nine supported living units (SLU), and 38 skilled nursing beds (SNF). In fiscal 2016 (unaudited), LV had total revenues of $18.5 million.

UNIQUE PROVIDER STATUS; SOLID DEMAND

Located in Newton, MA and in close proximity to the campus of LC, LV has a unique market position that Fitch believes provides a competitive advantage. LV is a unique educational provider of senior living services, which requires its residents to complete 450 hours of continuing education at LC. Further, the organization benefits from a close relationship with the college that includes management and financial oversight.

LV's market position is evidenced in its high occupancy rates, including ILU occupancy averaging 93% from fiscal 2012 to fiscal 2016. In addition to its unique offering, LV's demand profile benefits from its proximity to Boston and from a desirable service area with high wealth and socioeconomic indicators. Management reports that about half of recent new residents come from the immediate area; the rest relocate from elsewhere, often to live near adult children.

SOLID FINANCIAL PROFILE

LV's financial profile is characterized by a strong balance sheet and consistent profitability, which supports adequate debt service coverage. At June 30, 2016 (unaudited), LV had $38.8 million in unrestricted cash and investments, up from $24.8 million at June 30, 2012. Unrestricted cash and investments now equal 865 DCOH, 28.7x cushion ratio, and 231.8% cash to debt. Each of LV's liquidity metrics exceeds Fitch's 'A' category medians of 671 days, 14.4x, and 116.5%, respectively. LV's balance sheet is a primary credit strength, and recent growth in cash supports additional debt capacity or capital spending at the current rating level.

In fiscal 2016, LV recorded an improved operating deficit of $859,000. Excluding depreciation expense and recognition of entry fee revenue, LV's operating ratio improved to 89.7%; this compares favorably to LV's average of 96.3% over the prior four years and to Fitch's 'A' category median. However, LV's adjusted net operating margin has been less consistent at 17.4% in fiscal 2016 compared to 26.8% in fiscal 2014 due to lower net entry fee receipts in 2016 (all turnover units). A recent upward repricing could improve entry fees net of refunds beginning in fiscal 2017.

Historical profitability has supported adequate maximum annual debt service (MADS) coverage averaging 3x over the past five fiscal years, including 2.9x in fiscal 2016, in line with Fitch's 'A' category median. Revenue-only coverage has improved consistently to 1.3x in fiscal 2015 and 1.9x in fiscal 2016, ahead of Fitch's 'A' category median of 1.2x.

CAPITAL NEEDS

LV is going ahead with a periodic renovation and refresh of the ILU facilities, which are about 15 years old. The approximately $4 million estimated cost is manageable and will modernize interior spaces.

In addition, LV is considering adding memory care. Plans are preliminary, and any such project is at least three years out due to permitting and selection requirements, but the cost could be significant relative to LV's size. Fitch believes that LV's solid operations and strong balance sheet provide capacity for capital spending or additional debt at the current rating level. However, this project is not factored into the rating until more information is available.

DEBT PROFILE

LV's only outstanding debt obligations are the directly purchased series 2014 bonds. The variable rate bonds are swapped to fixed rate through maturity in 2037 but have a mandatory tender in 2024. The fixed-payor swap has a remaining notional value of $16.8 million as of June 30, 2016. The mark-to-market valuation was negative $4.7 million. LV has no collateral posting requirements related to the swap.

DISCLOSURE

LV has no public debt instruments outstanding and does not provide public continuing disclosure. However, LV makes regular disclosures to its lender as required under a credit agreement and has provided information to Fitch to assign and maintain a public rating.

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/site/re/868824

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/site/re/750012

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016022

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016022

Endorsement Policy
https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst:
Tipper Austin, +1-212-908-9199
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Eva Thein, +1-212-908-0674
Senior Director
or
Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Tipper Austin, +1-212-908-9199
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Eva Thein, +1-212-908-0674
Senior Director
or
Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com