TEXT-Fitch affirms John Knox Village, Mo. revs at 'BBB-'

Mon Oct 1, 2012 5:48pm EDT

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Oct 1 - Fitch Ratings has affirmed the 'BBB-' on the following bonds issued
on behalf of John Knox Village (JKV): 

--$55.4 million Lee's Summit (MO) Industrial Development Authority revenue 
refunding bonds, series 2007 (John Knox Village). 

The Rating Outlook is Stable. 

SECURITY

Security interest in unrestricted gross receivables and a first mortgage lien on
an 11.6 acre parcel which includes the care center. 

KEY RATING DRIVERS

STABLE FINANCIAL PERFORMANCE: Solid entrance fee receipts offset slightly weaker
operating performance in fiscal 2012 resulting relatively stable year over year 
performance with little change in financial profile. Operating performance 
through the five month interim period ended Aug. 31st is ahead of prior year 
results. 

LOW LEVERAGE POSITION: JKV benefits from a low leverage position which helps to 
mitigate historically weak operating profitability. With maximum annual debt 
service (MADS) equating to a light 8.4% of fiscal 2012 total revenues, JKV 
posted solid coverage of MADS including entrance fee receipts of 1.9x in both 
fiscal 2011 and 2012. 

MIXED LIQUIDITY INDICATORS: JKV's unrestricted cash and investments totaled 
$35.5 million as of Aug 31, 2012, which equates to 212.6 days cash on hand 
(DCOH), a 6.4 times(x) cushion ratio and 61.4% of long term debt as compared to 
the respective 'BBB' medians of 369, 6.6x and 50.9%. 

FOCUS ON SALES AND OCCUPANCY: Entrance fee sales dipped to 40 in fiscal 2012 
from 47 in the prior year but well ahead of 2010 and 2009 levels. Furthermore, 
occupancy in the skilled nursing beds has improved in fiscal 2012 and through 
the 5 month interim period. 

CREDIT PROFILE

The affirmation of the 'BBB-' rating reflects JKV's stable financial performance
which is characterized by low leverage, solid debt service coverage and weak 
profitability indicators. Management's focus on sales has resulted in an 
improved level of net entrance fee receipts of $5.6 million and $5.8 million in 
fiscal 2011 and 2012, respectively. The improvement in entrance fee receipts 
combined with JKV's low leverage position results in solid coverage of maximum 
annual debt service (MADS) of 1.9x in both fiscal 2011 and 2012. 

Relative to Fitch's 'BBB' category medians, JKV's operating profitability metric
are weak, reflecting the challenge of maintaining occupancy on over 1,400 units 
in the current operating environment. Over the last four fiscal years (2009 
-2012) net operating margin has ranged between 4.0% and 6.6% annually (compared 
to the 'BBB' median of 9.5%) while net operating margin-adjusted has ranged 
between 8.0% to 13.5% over the same period (compared to the 'BBB' median of 
20.0%). Management is targeting $1.5 million in operating costs reductions in 
fiscal 2013 in an effort to improve core operations and provide funds for 
increased level of capital investment. 

Fitch's credit concerns remain the challenge of maintaining occupancy of JKV's 
large number of units (over 1,400 total units) in the current operating 
environment. Management continues to pursue a long term repositioning of the 
campus by removing certain units from inventory and/or converting to high demand
dementia units. However, Fitch remains concerned as the number of occupied 
independent living units further eroded in 2012 to approximately 884 units from 
926 in 2011 and 962 in fiscal 2010. Occupancy in JKV's 151 assisted living (AL) 
and 347 skilled nursing (SNF) has improved since FYE 2011 and as of Aug. 31st 
was 97.4% and 83.9%, respectively. 

The Stable Outlook reflects Fitch's belief that JKV will generate liquidity, 
operating and debt metrics consistent with results generated in fiscal 2011 and 
2012. With the development of AL and SNF dementia care services, JKV now offers 
a complete continuum of long term care services on a single campus. 

John Knox Village is a type-B/ C continuing care retirement community located in
Lee's Summit, MO, with 944 'available' ILUs, 151 assisted living units (ALUs) 
and 347 skilled nursing beds. In fiscal 2012, JKV had total revenues of $66.0 
million. JKV provides audited and quarterly information through the MSRB's EMMA,
with cash flows, occupancy figures, and a small MD&A section. Fitch views the 
level of detail on the disclosure favorably. 

Additional information is available at 'www.fitchratings.com'.  The ratings 
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has 
been compensated for the provision of the ratings.

Applicable Criteria and(New York Ratings Team)
FILED UNDER:
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