Jan 2 - Fitch Ratings has affirmed the 'BBB+' rating on the following
revenue bonds issued by the Industrial Development Authority of the City of
Winchester, Virginia, on behalf of Westminster-Canterbury of Winchester,
Inc. d/b/a Shenandoah Valley Westminster-Canterbury:
--Approximately $34.4 million residential care facilities fixed-rate revenue
bonds, series 2005A;
--Approximately $10.9 million residential care facilities variable-rate revenue
bonds, series 2005B*.
*Underlying rating. The series 2005B bonds are supported by an irrevocable
direct-pay letter of credit (LOC) from BB&T.
The Rating Outlook is Stable.
Debt payments are secured by a pledge of the gross revenues of the obligated
group as well as a mortgage on the property and a debt service reserve fund.
KEY RATING DRIVERS
CONSISTENTLY SOLID OCCUPANCY: Independent living occupancy has remained above
90% over the last five years and was 90.9% through the nine months ended Sept.
30, 2012. There has been strong sales activity due to successful marketing
initiatives with 24 move-ins through the nine months ended Sept. 30, 2012
compared to 18 in 2011 and 20 in 2010. This has led to solid entrance fee
generation. However, ILU occupancy remains below budgeted levels of 94%.
GOOD LIQUIDITY: Shenandoah Valley Westminster Canterbury's (SVWC) liquidity
ratios exceed the 'BBB' category medians with 833 days cash on hand and 85% cash
to debt at Sept. 30, 2012 compared to the 'BBB' category medians of 369 days and
HIGH DEBT BURDEN: SVWC has a high debt burden with MADS equating to 14.5% of
fiscal 2011 revenue compared to the 'BBB' category median of 12.9%. Debt service
coverage (Fitch's calculation) in fiscal 2011 and through the nine-month interim
period ended Sept. 30, 2012 was solid at 2.2x and 2.1x, respectively due to
solid net entrance fee receipts.
CAPITAL PROJECT UNDERWAY: In 2013, SVWC is executing on part of its strategic
plan by expanding its skilled nursing facility by eight beds, expanding the
healthcare and wellness center, centralizing administration and upgrading
accounting software. The cost of these projects is expected to be about $10
million, which may be financed by cash, additional debt or a combination of
both. Fitch will assess the impact of the financing plan on the rating when
details are available. However, given SVWC's already high debt burden, there is
limited additional debt capacity at the current rating level.
SMALL REVENUE BASE: SVWC's relatively small revenue base inherently subjects the
organization to higher debt service coverage volatility as small changes in
occupancy or turnover can impact coverage.
SVWC has consistently sustained solid occupancy in its independent living units
(ILUs) and occupancy continued to remain above 90% in fiscal 2011 and through
the nine-month interim ended Sept. 30, 2012. Marketing initiatives include
deferring entrance fee payment without interest for up to four months, a new
website and tagline, direct mail efforts and access to amenities for prospective
residents. SVWC has a history of solid occupancy across the continuum of care as
demonstrated by average occupancies over the past three fiscal years of 92.9%
for ILUs, 88.7% for assisted living units (ALUs) and 95.7% for skilled nursing
facility units (SNFs). ILU occupancy through the nine months ended Sept. 30,
2012 remained good at 90.9% although below its budgeted level of 94%.
Located in Winchester, VA, SVWC's closest competitor is over 20 miles away.
There is currently minimal competition in the primary service area. However, the
Village at Orchard Ridge, which is also located in Winchester, has recently
reached 70% pre-sales and has broken ground for construction of a new senior
living facility just a few miles from SVWC. This new continuing care retirement
community (CCRC) is expected to open in 2013. Although Orchard Ridge is a type-C
CCRC, offering a different residency contract than SVWC, Fitch views this
increased competition negatively and will monitor the impact on SVWC's occupancy
levels, if any, when the new facility opens in 2013.
SVWC has a stable operating profile, with an adequate operating ratio of 99.8%
in fiscal 2011 compared to the 'BBB' category median of 97.2%. Adjusted net
operating margin (includes turnover entrance fees) in 2011 of 19.7% is down from
26.3% in fiscal 2010 but still in line with the 'BBB' category median of 20.3%.
Through the nine-months ended Sept. 30, 2012, adjusted net operating margin
improved to 36%, reflecting the strong entrance fee generation in 2012. SVWC's
strong liquidity metrics are a primary credit strength. Liquidity levels are
consistently above the 'BBB' category medians. Total unrestricted cash and
investments at Sept. 30, 2012 equaled $37.5 million, which translates into a
strong 833 days cash on hand (DCOH), 9.8x cushion ratio, and 85% cash to debt,
all well-exceeding the respective 'BBB' category medians of 369 days, 6.6x and
50.9%. Fitch views maintenance of strong liquidity metrics to be important given
its small revenue base.
SVWC's debt burden is elevated as indicated by MADS as a percentage of revenue.
MADS ($3.8 million) represent a high 14.5% of fiscal 2011 revenues, which is
above the 'BBB' category median of 12.9%. SVWC's debt service coverage (DSCR)
including turnover entrance fees as calculated by Fitch has been solid at 2.2x
in fiscal 2011 and 2.1x through the interim period, which is in line with the
'BBB' category median of 2x. SVWC's definition for debt service coverage under
its bond documents and LOC agreement use a five-year average of realized
investment gains or losses, which resulted in debt service coverage ratios of
1.97x for the nine months ended Sept. 30, 2012 compared to 1.82x in fiscal 2011.
Fitch notes that SVWC's interim period net entrance fee receipts include the
outstanding balance on its note receivable program related to its marketing
initiative that allows the deferral of an entrance fee payment. Actual net
entrance fees received through the nine months ended Sept. 30, 2012 was $4.752
million compared to $5.859 million reflected on the cash flow statement. The
$5.859 million figure includes $887,000 of notes receivable outstanding. Fitch's
financial analysis uses the $4.752 million figure.
SVWC had a total of $43.1 million in bonds outstanding as of Sept. 30, 2012, of
which about 75% are fixed-rate and about 25% are variable-rate demand bonds
(VRDBs). The VRDBs are supported by a LOC from BB&T that expires in 2013, and
cash to putable debt is a strong 3.46x. Management is currently working with
BB&T to determine its options for its LOC-backed outstanding debt.
The Stable Outlook reflects Fitch's expectation that SVWC will maintain strong
occupancy, resulting in stable operations and solid liquidity. Fitch believes
SWVC has limited debt capacity at its current rating level and will evaluate the
impact of the potential financing of future capital projects on its rating once
plans have been finalized.
Located on a 65-acre campus in Winchester, Virginia, SVWC is a type-A CCRC with
212 independent living units (ILUs), 60 assisted living units (ALUs) and 40
skilled nursing facility (SNF) beds. Total operating revenue was $22.99 million
in fiscal 2011. For the series 2005A bonds, SVWC covenants to provide audited
annual financial statements no later than 180 days after the end of each fiscal
year including occupancy data. SVWC also covenants to provide quarterly
financial statements including the balance sheet, statement of operations and
cash flow and occupancy data within 45 days of the end of each fiscal quarter.