Fitch Affirms Greenspring Village's (Virginia) Rev Bonds at 'A'; Outlook Stable
Fitch Rating affirms at 'A' the following ratings for Fairfax County Economic Development Authority bonds issued on behalf of Greenspring Village, Inc. (Greenspring):
--$35.0 million fixed rate revenue bonds series 2006A,
--$25.9 million variable rate demand bonds, series 2006B
The Rating Outlook is Stable.
Bondholders are secured by a gross revenue pledge and a deed of trust that consists of a mortgage lien. The bonds are also secured by a debt service reserve fund for the fixed rate debt.
KEY RATING DRIVERS
STRONG CREDIT PROFILE: Greenspring's solid financial and qualitative factors make it one of the strongest stand-alone continuing care retirement communities (CCRCs) rated by Fitch.
FINANCIAL RATIOS EXCEED 'A' MEDIANS: Most of Greenspring's financial metrics exceed Fitch's 'A' category medians, highlighted by debt service coverage in 2012 (unaudited figures) of 5.4x (including entrance fee revenue) and 'revenue only' coverage of 3.1x.
STRONG LIQUIDITY GROWTH: Since 2009, Greenspring's level of unrestricted cash and investments has grown by 65% to $97 million at Feb. 28, 2013.
CONSISTENTLY HIGH OCCUPANCY: High occupancy, above 95% in all levels of care, has supported excellent cash flow and results from management's initiatives including lifecycle campus investments, apartment upgrades upon turnover, use of an outside real estate agent and select use of a promissory note program.
SOLID AREA DEMOGRAPHICS: Greenspring benefits from a favorable service area (Fitch Rates Fairfax County GOs 'AAA'), with a diverse economic base and high wealth and income levels. Competition is manageable and Greenspring's entrance fee pricing competitive and within range of local area housing prices. Fairfax does have Sequestration exposure but, to date, it has not affected the regional economy or home sales.
LARGE CAMPUS CAPITAL PROJECT COMMENCING: Greenspring is beginning a seven-year, $72 million campus-wide capital program that includes renovation of its health center, a new aquatic center, dining room renovations, and a new campus entrance. The majority of the expenses will occur over the next two to three years and Greenspring currently plans to fund the projects out of cash flow, although that could change.
CLARITY ON CAPITAL PLAN AND ECONOMY: Greenspring's sizable capital plans, coupled with concerns around the effects of sequestration, preclude positive rating pressure at this time. However, over the next two years, Greenspring should make material progress on the projects and more clarity on the effects of sequestration should be known. Should Greenspring's credit profile remain stable over this time upward movement in the rating is likely.
The affirmation of the 'A' rating reflects Greenspring's consistently high occupancy across all levels of care, favorable service area, and excellent cash flow that has supported liquidity growth and robust debt service coverage levels.
Unaudited results for 2012 show an operating ratio of 84%, which is consistent with Greenspring's past operating performance and compares favorably to Fitch's 'A' category median of 95.2%. The strong operating performance generated excellent "revenue only" debt service coverage of 3.1x in 2012; significantly better than the 'A' category median of 1.1x. Debt service coverage including net service entrance revenues is robust at 5.4x in 2012.
Greenspring's strong operating performance, coupled with a positive investment performance, has resulted in unrestricted liquidity growth of over $25 million from 2011 to 2012, adding 78 days cash on hand to the balance sheet and improving cash to debt to over 167%. Greenspring's liquidity metrics now exceed Fitch's 'A' category medians and liquidity, which had historically been average, has grown into a credit strength.
Driving the strong operating performance has been Greenspring's high occupancy across all levels of care. ILU occupancy has been above 98% since 2007 and stood at 98.4% as of Feb. 28, 2013. Assisted living unit (ALU) and skilled nursing (SN) bed occupancy have also been excellent generally in the high 90% range since 2007.
Supporting the high ILU occupancy has been Greenspring's use of an outside real estate agent to assist incoming residents in the sale of their homes. Greenspring's management reports that residents that use the real estate agent's service sell their house within 19 days of being on the market, an excellent number. Greenspring also utilizes a promissory note program. The balance as of Feb. 28, 2013 was $5.8 million. None of the promissory notes are past 90 days due, and management reports that most settle within the first two months. Greenspring's waitlist remains strong at over 1,200 indicting robust demand for services.
Greenspring benefits from its location in economically favorable Fairfax County, which enjoys a diverse economic base, highly educated labor force, and lofty wealth and income levels. However Fitch believes that the Fairfax County, and the State of Virginia economies are likely to feel the effects of spending cuts related to sequestration given the levels of government employees in the county and the state. While sequestration has not affected Greenspring's ability to market available units, the full impact of sequestration is still relatively unknown, and therefore, limits upward movement in the rating in the near term.
Greenspring is beginning a $72 million, seven-year major campus capital spending program. The planned projects include renovation of the health center, a new aquatic center and community building, renovation of the dining spaces, and other campus upgrades. Management is planning to fund the capital program from cash flow and equity contributions. Fitch looked at Greenspring's projections for funding the project and found them reasonable and achievable. Greenspring will also continue to spend its usual yearly capital expenditures, typically between $8 and $9 million a year.
The Stable Outlook reflects Fitch expectations that Greenspring's occupancy and operating performance will remain at current levels. Over the next two years, Greenspring should make significant progress on the capital project and the effects, if any, of sequestration will be clearer. Should Greenspring's financial profile remain relatively stable over the next two years upward movement in the rating is likely.
Greenspring has one series of variable rate debt which is not a credit concern given Greenspring's ample liquidity. Additionally, the bonds have been privately place with Wells Fargo, since Fitch's last review, eliminating any near term put and remarketing risk. Greenspring has one variable to fixed rate swap associated with the debt. Wells Fargo is the counterparty. The mark to market as of March 31, 2013 is a negative $1.5 million, and no collateral posting is required. The swap expires in October of 2014.
Greenspring is located in Springfield, VA, which is approximately 14 miles southwest of Washington D.C. The facility is a type-C continuing care retirement community with 1,404 ILUs in three neighborhoods, 144 ALUs and 136 SN beds. Greenspring had total unaudited operating revenues of $86.3 million in 2012.
Greenspring covenants to provide audited annual financial information to the Municipal Securities Rulemaking Board's EMMA system and to bondholders. Greenspring also covenants to provide quarterly financial information including balance sheet, income statement and cash flow statements, but no management discussion and analysis.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities' (July 12, 2012).
Applicable Criteria and Related Research
Revenue-Supported Rating Criteria
Rating Guidelines for Nonprofit Continuing Care Retirement Communities
Fitch Ratings, Inc.
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