Fitch Affirms Riverview Retirement Community (WA) at 'BBB-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'BBB-' rating on the following bonds issued by the Washington State Housing Finance Commission on behalf of Riverview Retirement Community (Riverview):

--$15.36 million revenue and refunding bonds, series 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of the obligated group's gross revenues, a mortgage on Riverview's properties and a debt service reserve fund.

KEY RATING DRIVERS

STRONG DEMAND INDICATORS: Riverview's favorable reputation and market niche as a moderately priced senior living community leads to strong demand trends. Independent living unit (ILU) occupancy averaged a healthy 95% over the last four fiscal years (Dec. 31 year-end) and amounted to 95.6% through the first three quarters of fiscal 2015. Additionally, assisted living unit (ALU) and skilled nursing facility (SNF) occupancies averaged a solid 92.2% and 92.3% respectively, during the first three quarters of fiscal 2015.

IMPROVING OPERATING PROFITABILITY: As a result of the completion of construction projects that disrupted services, better occupancies and suitable rate increases, operating profitability improved over the past few years. After negative results in fiscal 2013, the operating margin increased to 1.1% in fiscal 2014 and 6.1% for the nine-month fiscal 2015 interim period. The operating ratio also showed good improvement, declining to a very good 92.0% as of Sept. 30, 2015, from 99.8% in fiscal 2013.

MANAGEABLE DEBT POSITION: Riverview's debt position is low with maximum annual debt service (MADS) representing 4.5% of revenues for the nine month unaudited period ending Sept. 30, 2015. This compares very favorably to Fitch's 12.4% 'BBB' category median. Adjusted debt to capitalization of 48.4% and debt to net available of 3.4x are also favorable to Fitch's 'BBB' category medians of 58.8% and 5.9x, respectively. MADS debt service coverage was solid in fiscal 2014 at 2.8x mostly due to adequate net entrance fee receipts, and jumped to a robust 4.8x for the nine month period ending Sept. 30, 2015.

ADEQUATE LIQUIDITY BALANCES: Riverview's liquidity position is mixed but improving. At Sept. 30, 2015, Riverview had $14.6 million in unrestricted cash and investments, which is up about 12% from fiscal 2013 and amounts to 95.2% of debt and a 15.4x cushion ratio, both above the respective 'BBB' category medians of 60% and 7.3x. Days cash on hand (DCOH), however, was 297 at the end of the nine month interim period, which is light against the 'BBB' category median of 400 DCOH.

MODIFICATIONS TO GOVERNANCE STRUCTURE: Effective Jan. 1, 2016, Riverview is expected to complete the merger of its three separate corporations and boards of directors. Fitch views the consolidation as a positive rating factor since the new structure more formally aligns the community's business interests and eliminates potential conflicts.

RATING SENSITIVITIES

SUSTAINED FINANCIAL PERFORMANCE: Given Riverview Retirement Community's modest operating profile, weakened occupancy levels or cash flow that leads to lower debt service coverage ratios or liquidity metrics, could negatively affect the rating. Positive rating pressure is possible if earnings improvements are sustained and result in further cash accumulation.

CAPITAL PLANS: Riverview Retirement Community's capital plans relating to potential land acquisitions and a new memory care facility are preliminary. Fitch expects more clarity on the size and scope of the projects within the next 12 months and will factor the effects of any possible debt or equity contributions or construction risk at that time. However, Fitch does note that Riverview Retirement Community does have some debt capacity at the current rating level.

CREDIT PROFILE

Riverview is a type-C continuing care retirement community located in Spokane, Washington with 165 ILUs, 135 ALUs and 75 SNF beds on a 27-acre campus. Total operating revenue in fiscal 2014 was $19.3 million.

Riverview is currently composed of three separate corporations, which together provide a full continuum of senior care and comprise the obligated group: Riverview Lutheran Home of Spokane (assisted and independent living services), Riverview Lutheran Care Center (skilled nursing provider) and Riverview Village (independent living units). Effective, Jan. 1, 2016, Riverview is expected to complete the merger of these three separate corporations into Riverview Lutheran Retirement Community, (which is the former Riverview Lutheran Care Center). In addition, the three separate boards of directors will also be consolidated into a single governance entity. There will be limited financial impact since all merging entities are obligated group members and the surviving entity is and will be an obligated group member. Fitch views the restructuring as a positive rating factor since the new organization better aligns Riverview's business interests and eliminates potential governance conflicts.

DISCLOSURE

Riverview covenants to provide audited financial information within 150 days of fiscal year end, and quarterly financial information including internal financial statements, occupancy statistics, payor mix data, and an officer's certificate within 45 days of each 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

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993881

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993881

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Paul Rizzo
Director
+1-212-612-7875
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gary Sokolow
Director
+1-212-908-9186
or
Committee Chairperson
Eva Thein
Senior Director
+1-212-908-0674
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Paul Rizzo
Director
+1-212-612-7875
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gary Sokolow
Director
+1-212-908-9186
or
Committee Chairperson
Eva Thein
Senior Director
+1-212-908-0674
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com