TEXT-Fitch rates Naval Continuing Care Retirement Foundation, Fla.
Feb 12 - Fitch Rates Naval Continuing Care Retirement Foundation, Inc. (FL) Revs 'BBB'; Stable Outlook Ratings Endorsement Policy 12 Feb 2013 1:28 PM (EST) Fitch Ratings-New York-12 February 2013: Fitch Ratings has assigned a 'BBB' rating to the following city of Atlantic Beach, FL health care facilities revenue and refunding bonds (Fleet Landing Project) issued on behalf of Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing: --$41.1 million series 2013A bonds. Proceeds of the series 2013A fixed-rate bonds will be used to refund the outstanding series 1999 and series 2006 bonds, reimburse for prior expenditures, fund a debt service reserve fund, and pay costs of issuance. The bonds are expected to sell the week of March 4, 2013. The Rating Outlook is Stable. SECURITY The bonds are secured by a gross revenue pledge and mortgage pledge. A debt service reserve fund will provide additional security. KEY RATING DRIVERS GOOD DEMAND INDICATORS: Fleet Landing experiences strong demand across all levels of care, as independent living unit (ILU), assisted living unit (ALU), and skilled nursing (SNF) occupancies averaged 90.1%, 92.8%, and 90.7%, respectively, over the past five years. Fitch views Fleet Landing's good demand for services as a primary credit strength. SOLID NET ENTRANCE FEE RECEIPTS: Fleet Landing's good IL demand helps support solid net entrance fee receipts, which contributed to robust pro forma debt service coverage of 3x in fiscal 2012 (Dec. 31; unaudited). Due to the consistent levels of entrance fee receipts, Fleet Landing has averaged 2.6x pro forma maximum annual debt service (MADS) coverage (turnover entrance fees only) over the past five years - comparing favorably against the 'BBB' category median of 1.8x. STRONG PRESENCE IN MARKET: Fleet Landing has been operating in Jacksonville, Florida since 1990 and originally opened as a military retiree community. However, in 2003 Fleet Landing opened its residency requirements to all individuals and not only retired military personnel. Despite the organization's long history in the market place there are three competitors located in the primary service area (PSA). ASSISTED LIVING EXPANSION PROJECT: In the fall of 2013, Fleet Landing plans to enhance and renovate its current health center, which includes the relocation of an existing maintenance facility and construction of 24 ALUs/memory support units. Management estimates the cost to be approximately $14 million, which may be funded through a combination of cash and/or long-term debt. RATING SENSITIVITIES LIQUIDITY DETERIORATION: Fitch would view a significant decline in Fleet Landing's unrestricted liquidity unfavorably as it is already light for the 'BBB' rating level. CREDIT PROFILE 'BBB' RATING ASSIGNED The 'BBB' rating reflects Fleet Landing's good demand for services across all levels of care, consistent operating profitability leading to solid pro forma MADS coverage, and strong market presence operating in the PSA. In December 2012, Fleet Landing had ILU occupancy of 88.4%, ALU occupancy of 93.8%, and SNF occupancy of 92.4%, which demonstrated the organization's good demand for services across all levels of care. Fleet Landing's good demand helps drive and sustain its consistent level of profitability - illustrated by a net operating margin-adjusted average of 33.4% over the past five fiscal years. This metric compares favorably against Fitch's 'BBB' category median of 20.3%, which is viewed favorably. Fleet Landing's continued profitability generated solid pro forma MADS coverage of 3x in fiscal 2012, which was the highest for the community in the past five years. Overall, Fitch views the organization's ability to consistently cover MADS in excess of the median as a primary credit strength. Pro forma MADS of $4 million represented 14% of total revenues in 2012, which is in line with Fitch's median of 12.9%. Originally opened as a military retiree community, Fleet Landing has successfully operated in Jacksonville, FL. since 1990. Beginning in 2003, the community has allowed all individuals regardless of military service background to take residence, which Fitch views as a positive credit factor that helps bolster ILU demand. Overall, Fitch views management's diverse marketing and advertising strategy favorably, which appeals to potential residents with different wealth levels and/or professional experience and has supported demand growth over the past several years. KEY CREDIT CONCERNS Fitch's main credit concerns include Fleet Landing's upcoming capital plans, light liquidity position, and competitive environment. Management intends to borrow approximately $14 million in the fall of 2013 for the construction of a 24-unit assisted living/memory support space. Fitch's MADS of $4 million includes any potential borrowing for this project. Even though Fitch believes management can absorb the project financially, there are general construction risks that include cost overrun and construction delays, which give cause for concern. Additionally, the project plans are not finalized and any increase to the expected borrowing would be viewed negatively. At Dec. 31, 2012, Fleet Landing had $21.5 million of unrestricted cash and investments, which translated into 351.3 days cash on hand, 5.4x pro forma cushion ratio, and 39.6% pro forma cash to debt. The community's pro forma cushion ratio and cash to debt position compared unfavorably against Fitch's respective medians of 6.6x and 50.9%. Fitch views Fleet Landing's light liquidity position for the rating level as a primary credit concern. In the PSA, Fleet Landing has three continuing care retirement community (CCRC) competitors. Life Care Ponte Vedra (d/b/a Vicar's Landing - rated 'BBB'; Positive Outlook by Fitch), The Glenmoor, and Cypress Village are each located within the PSA and represent the community's most significant competitive threats. However, Fitch believes that Fleet Landing's long presence in the market, aggressive marketing and advertising strategy, and well-maintained campus help mitigate the competitive concern. STABLE RATING OUTLOOK The Stable Rating Outlook reflects Fitch's expectation that Fleet Landing will maintain its consistent operating profitability, which generates solid pro forma debt service coverage. Additionally, Fitch expects Fleet Landing to continue to hold good demand indicators across all levels of care. OUTSTANDING DEBT PROFILE After the 2013A debt issuance Fleet Landing will have all of its outstanding debt in fixed-rate mode with no outstanding swaps. Overall, Fitch views Fleeting Landing's debt profile as conservative. ORGANIZATIONAL OVERVIEW Fleet Landing is a type-A continuing care retirement community located in Jacksonville, FL. The community consists of 354 independent living units, 74 assisted living units, and 80 skilled nursing beds. In the year ended Dec. 31, 2012 (unaudited), Fleet Landing had total revenues of approximately $28 million. Fleet Landing covenants to provide annual financial information to the MSRB's EMMA system no later than 150 days after the fiscal year-end. 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 Related Research: 'Revenue-Supported Rating Criteria', dated June. 12, 2012. 'Rating Criteria for Not-for-Profit Continuing Care Retirement Communities', July 12, 2012. Applicable Criteria and Related Research: Revenue-Supported Rating Criteria Not-for-Profit Continuing Care Retirement Communities Rating Criteria
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