NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued on behalf of Pennswood Village (PV):
--$41.9 million Bucks County Industrial Development Authority, PA revenue bonds, series 2013.
The Rating Outlook is revised to Positive from Stable.
SECURITY
The bonds are secured by a revenue pledge, mortgage, and debt service reserve fund.
KEY RATING DRIVERS
IMPROVING OPERATING PROFILE: The Outlook revision to Positive from Stable reflects the improvement in PV's independent living unit (ILU) occupancy, which has driven year-over-year improvement in cash flows. PV's ILU occupancy improved from a low 82% in fiscal 2013 to 92% through the five month interim period (ended Aug. 31, 2015), supporting a net operating margin (NOM)-adjusted of 34.0%, which was above Fitch's 'BBB' median of 19.3% and significantly improved from 15.6% in fiscal 2013.
SOLID CASH GROWTH: Year-over-year growth in entrance fee receipts has resulted in a 29% growth in unrestricted cash and investments from fiscal year-end 2012 (year ended March 31) to FYE 2015. PV's 504 days cash on hand (DCOH), 79.9% cash to debt and 12x cushion ratio at fiscal 2015 year-end all compared well to Fitch's 'BBB' medians of 400 days, 60% and 7.3x, respectively. Through the five-month interim period, liquidity metrics declined slightly due to certain renovation projects being funded out of cash but remained above median levels.
MANAGEABLE DEBT BURDEN: PV's debt burden remains manageable as evidenced by MADS as 9.4% of total revenues in fiscal 2015, favorable to Fitch's median of 12.4%. Debt to net available of 4.1x was also favorable to the median of 5.9x, and much improved from 10x in 2012.
STRATEGIC PLAN IN PROCESS: PV is in the process of developing strategic plan for the facility, which will guide the development of a Master Facilities Plan (MFP). While no new debt issuance is expected at this time, Fitch will assess the scope and financial impact of the MFP once further clarity is available.
RATING SENSITIVITIES
STABILIZATION OF OPERATING PROFILE: Fitch expects Pennswood Village's annual entrance fee receipts to moderate over the medium term, as occupancy stabilizes at over 90%. Should Pennswood Village maintain above median-level financial performance, in spite of expected entrance fee moderation, upward rating movement would be likely over the next 12 to 18 months.
CREDIT PROFILE
Pennswood Village is located in Newtown, PA, which is in Bucks County, PA. PV is a type-A continuing care retirement community with 304 ILUs, 37 assisted living units (ALU) and 53 skilled nursing facility (SNF) bends. PV's total operating revenue was approximately in $29.4 million fiscal 2015.
IMPROVING OCCUPANCY AND PROFITABILITY
Despite operating in a competitive environment with a large number of other CCRCs in the region, PV's ILU occupancy improved from a low of 82% in fiscal 2013 to 87% in fiscal 2015 and further to 92% through the 5 month interim period. Management is expecting for occupancy to reach 94% by FYE 2016, and to stabilize at that level over the medium term.
PV's annual occupancy growth has supported a year-over-year improvement in net entrance fee receipts. PV's 37 move-ins in fiscal 2015 generated $9.1 million of net entrance fee receipts for the year, which was significantly above $3.1 million in fiscal 2012. NOM-adjusted improved to 27.8% from 11.5% over the same period. Net entrance fee receipts continued to be strong through the five-month interim period at $5.1 million, resulting in a high 34% NOM-adjusted. Management expects move-ins to stabilize at approximately 25 annually, which should allow PV to produce profitability above the 'BBB' median going forward.
PV's core operating profitability has also improved over the last four fiscal years, as evidenced by a 101.2% operating ratio in fiscal 2015, improved from 105.6% in fiscal 2012. Additionally, the average resident age at the time of move-in to the facility has improved to 79 years from 84 years over the time period, which should help keep residents out of the higher, more expensive, levels of care for longer, further supporting operating profitability.
SOLID CASH GROWTH
PV's year-over-year entrance fee growth has contributed to an improvement in unrestricted cash from $25.9 million at FYE 2012 to $33.5 million at FYE 2015. PV's 504 days cash on hand (DCOH), 79.9% cash to debt and 12x cushion ratio at March 31, 2015, all compared well to Fitch's 'BBB' medians of 400 days, 60% and 7.3x, respectively. Unrestricted cash and investments declined to $31.3 million at August 31, 2015 due to PV's hallway renovation project being funded out of cash. The approximate renovation cost is $3.5 million and the project has been on time and under budget to date.
MANAGEABLE DEBT BURDEN
MADS as a percent of revenue was 9.4% in fiscal 2015, which compares favorably to Fitch's 'BBB' median of 12.4%. Additionally, MADS coverage of 3.7x was above the 2.0x median and improved from 1.6x in fiscal 2012. However, revenue only coverage remained low at 0.4x in the same year, indicative of PV's Type-A contract offering.
PV is in the strategic planning process that will dictate the direction of the community over the medium term. Once the planning process is complete, PV will focus on developing an MFP over the next eight to 10 months. While no new debt issuance is expected at this time, Fitch will assess the scope and financial impact of the MFP once further clarity is available.
DEBT PROFILE
PV's outstanding debt is a bank qualified, direct placement with Bank of America. The term of the bank qualified bonds is for five years (ending in 2018) with a fixed rate over that time.
DISCLOSURE
PV does not disclose publically as all of its debt is currently privately held.
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=992696
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992696
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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