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TEXT-Fitch rates Naval Continuing Care Retirement Foundation, Fla.
February 12, 2013 / 6:36 PM / in 5 years

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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