Oct 30 - Fitch Ratings has assigned a rating of 'BBB+' to the implied
general revenue obligation of RiverWoods at Exeter (RiverWoods) New Hampshire.
The Rating Outlook is Stable.
KEY RATING DRIVERS
HIGH IL OCCUPANCY A CREDIT STRENGTH: Over the last four fiscal years (June 30
year end), RiverWoods' independent living unit (ILU) occupancy has averaged
96.5%. These figures include the fill-up of RiverWoods' 100 units (76 apartments
and 24 cottages) expansion project, The Boulders, which opened in March 2010.
Fitch views RiverWoods' on time expansion fill up of 100 new units, especially
in the current challenging senior living environment, as a credit strength and
evidence of a strong demand for RiverWoods' services. Assisted living and
skilled nursing occupancy, which has ranged from 85% to 96%, were lower at 65.9%
and 83%, respectively, and reflect the impact of the first generation residents
at The Boulders, who have yet to move through the continuum of care.
POSITIVE OPERATING TREND: RiverWoods' operating ratio has been at around 100%
from fiscal 2009-2011, but audited results for fiscal 2012 show the operating
ratio improving to 91.3%. The improved operating ratio reflects the added
monthly service fee revenue from the newly occupied Boulder units. RiverWoods'
net operating margin - adjusted has also shown improvement rising from 12.1% in
fiscal 2010 to 22.5% in fiscal 2011 and remaining solid in 2012 at 21.4%.
Fitch's 'BBB' category median is 17.6%. Fitch expects the net operating margin -
adjusted to sustain its current levels over the next three to five years as the
Boulders apartments begin to turn over.
LIQUIDITY A STRENGTH: At June 30, 2012, RiverWoods had $56.4 million in
unrestricted cash and investments, which equated to 782.8 days cash on hand
(DCOH), a 14.2 times (x) pro forma cushion ratio, and 89.1% cash to debt, which
compare favorably with Fitch's 'BBB' category medians of 361.4, 5.9x and 51%,
respectively. Liquidity has steadily increased through the historical period,
when unrestricted cash and investments stood at $25 million in June of 2009.
GOOD SERVICE AREA CHARACTERISTICS. Exeter and the surrounding communities have
solid demographics with New Hampshire an attractive retirement destination, due
in part to its low cost of living with no state taxes. This is reflected in 48%
of RiverWoods' current residents coming from out of state. There is competition
in the region, but it is not a credit concern and the strong fill up of The
Boulders reflects the good demand for services.
MANAGEABLE DEBT BURDEN: Debt levels are manageable at the rating level with pro
forma maximum annual debt service (MADS) as percent of revenue at 10.4% and pro
forma MADS coverage in fiscal 2012 of 2.2x, both better than Fitch's 'BBB'
medians of 13.% and 1.6x, respectively. Pro forma revenue only MADS coverage was
solid at 1.3x. It was the first time it was over 1x through the historical
period and reflects RiverWoods' improved operating profile in fiscal 2012.
AGGRESSIVE DEBT PROFILE: RiverWoods does have a riskier capital structure for
the rating level. Currently, all of RiverWoods' $65.6 million in long-term debt
is variable rate. The variable rate debt is privately placed and the placement
period is for 10 years. This limits put risk over the medium term; however, it
remains uncommitted capital. Approximately all of the debt is swapped to fixed
rate. Pro forma MADS is $4 million and was provided by the underwriter.
Located in the Exeter, New Hampshire, RiverWoods at Exeter is a type-A
continuing care retirement community with 391 independent living units (ILUs),
71 assisted living units (ALUs) and 78 skilled nursing facility units (SNFs). In
2011, RiverWoods reported total operating revenues of $37.9 million.
RiverWoods has a unique campus layout and is composed of three self-contained
campuses within very close proximity to each other. Each campus, the Woods, the
Ridge, and the Boulders, was built separately and each offers its own assisted
and skilled nursing services, as well as separate dining services, recreation,
and programming. While this approach may lead to operating inefficiencies,
RiverWoods' management team views it as a marketing strength and reflective of
residents' expressed desire to remain within the same campus as they move
through the continuum of care.
Additionally, regardless in which campus residents reside, they have access to
the dining, recreation, and programming at all three sites. Fitch toured all
three campuses. The recently opened Boulders is physically very attractive. The
Woods, built in 1990s and the oldest of the three, is marketable, but will need
capital investments to update certain sections, including the skilled nursing
wing. The Ridge opened in 2004, is in very good condition. RiverWoods management
has made regular capital investments in the plant and that is reflected by an
average age of plant of 9.7 years.
With the stabilization of the Boulders, RiverWoods showed a marked
year-over-year improvement in operating performance. Operating ratio of 91.3% in
fiscal 2012 is improved from 101.3% in fiscal 2011, and compares favorably to
the 'BBB' category median of 97.2%. Net operating margin-adjusted (including
turnover entrance fees) remained consistent year-over-year at 21.4% in fiscal
2011 compared to 22.5% in the prior year and slightly above the 'BBB' category
median of 20.3%.
Historical coverage of pro forma MADS (estimated at $4 million as provided by
the underwriter) of 2.2x in fiscal 2012 compares favorably to the 'BBB' category
median of 2.0x. Pro forma revenue only coverage was also strong at 1.3x and much
better than fiscal 2011's 0.7x, which also reflects the improved operating
performance. Pro forma MADS equates to a manageable 10.4% of 2012 revenues
compared to the 'BBB' category median of 12.9%.
At June 30, 2012, RiverWoods unrestricted cash and investments totaled $56.4
million, which equals 782.8 days cash on hand, 14.2x pro forma cushion ratio and
89.1% cash to debt and are solid for the rating level and better than their
respective 'BBB' medians.
Fitch views occupancy as a credit strength and believes it reflects RiverWoods'
reputation in the market, the above-average socio-economic characteristics of
the service area, and the manageable level of competition. Occupancy in the ILUs
has averaged 96.5% over the last four audited years, with fiscal 2012 the first
year the Boulders was included. Occupancy in the SNF has averaged just under 90%
over the last four audited years. Assisted living (AL) occupancy which was
generally high fell to 65.9% in fiscal 2012, but that is due mostly to new
Boulders resident not yet moving through the continuum of care. AL units
increased to 71 from 47 with the addition of the Boulders. ALU occupancy is not
a concern as it is not a driver of cash flow at the level that IL occupancy is.
The Stable Outlook is based on Fitch's expectation that RiverWoods will continue
to produce stable debt service coverage supported by strong occupancy and solid
turnover entrance fees receipts.
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 Guidelines for Nonprofit Continuing Care Retirement Communities, July
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Rating Guidelines for Nonprofit Continuing Care Retirement Communities