|[April 30, 2014]
Fitch Affirms Cathedral Village (PA) Revs at 'BBB-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'BBB-' rating on the following bonds
issued on behalf of Cathedral Village (CV):
--$9,175,000 of Philadelphia Authority for Industrial Development
revenue bonds (Cathedral Village Project), series 2013.
--$665,000 of Philadelphia Industrial Development Authority, PA revenue
bonds (Cathedral Village Project), series 2003A and 2003B.
The Rating Outlook is Stable.
The debt is secured by a security interest in gross receipts and a first
lien on and security interest in the facilities.
KEY RATING DRIVERS
IMPROVED MOVE-INS: CV's 26 move-ins through the eight month fiscal year
(FY) 2014 (June 30 year end) interim period were better than FY 2013 and
FY 2012 full year move-ins of 25 and 23, respectively. Move-ins have
been helped by a reenergized marketing effort, including new materials
and additional staff, and the use of a rental option. However, CV is
nearing management's maximum number of rental contracts it will allow.
SLIGHT OCCUPANCY IMPROVEMENT: Independent living unit (ILU) occupancy
has increased slightly in the interim period to 76.2% from 74.1% in FY
2013. CV continued to be impacted by elevated levels of turnover in FY
2013, with 41 units turning over. Fitch notes positively that turnover
is significantly down, with only 12 turnovers for the first eight months
of FY 2014. A sustained period of lower turnover could alleviate the
stress on IL occupancy.
MANAGEABLE DEBT BURDEN KEY CREDIT STRENGTH: CV's debt burden remains
manageable, with maximum annual debt service (MADS) as a percent of
revenues of 9.6% in the eight-month interim, compared to Fitch's 'BBB'
median of 12.4%. MADS coverage by turnover entrance fees has averaged 2
times (x) over the last four audited years, slightly above Fitch's
category median of 1.9x. Additionally, a portion of CV's debt matures in
2016, which will drop MADS to $1.1 million from $2.3 million, further
lightening CV's debt burden.
THIN FINANCIAL PROFILE: CV's liquidity and profitability metrics are
below category medians, with liquidity particularly thin. However, CV's
consistent net entrance-fee receipts and manageable debt burden help
mitigate the weaker operating profile.
OCCUPANCY IMPROVEMENT: Fitch expects CV's occupancy to show further
improvement in the near to medium term. Further deterioration in
occupancy could negatively affect the rating.
FUTURE CAPITAL NEEDS: While renovations at CV's health center, Bishop
White Lodge, have been completed, CV still has capital needs for which
CV management is in the planning phase. Fitch expects more information
on the scope and timing of these projects over the next one to two
years. CV has limited debt capacity at the current rating level, but the
maturing of a portion of CV's debt in 2016, which will free up
approximately $1 million in cash flow a year, does provide CV with some
financial flexibility in pursuing the projects.
Cathedral Village is a Type-A continuing care retirement community
located in Philadelphia, PA. The community consists of 293 ILUs (50 of
which are eligible to be utilized as assisted living) and 133 skilled
nursing beds. In FY 2013, Cathedral Village had operating revenues of
approximately $24.3 million.
CV had an increased 26 move-ins through the eight-month interim period,
compared to 25 and 23 move-ins in full year FY 2013 and FY 2012,
respectively. Growth in the number of move-ins has been attributed to
reenergized marketing efforts and patient outreach. A new director of
marketing was hired in mid FY 2013, and several advertising personnel
have been replaced in an effort to improve marketing operations. In
addition, CV has created a marketing suite on campus and acquired a new
marketing database that has been active since the beginning of FY 2014.
A new rental contract has been added to expand options and entice
additional prospects; a number of move-ins in the interim period is
attributed to this new residency contract. However, CV's reaching its
stated number of units it will allow under this option, which could
pressure occupancy if sales are unable to improve.
SLIGHT OCCUPANCY IMPROVEMENT
ILU occupancy increased slightly in the interim period to 76.2% from
74.1% in FY 2013. The increase was in part due to a significant decrease
in turnovers from 41 in FY 2013 to 12 in the eight-month interim period
of FY 2014. Management is budgeting to reach 80% occupancy by FY 2015,
and 89% occupancy by FY 2019, which Fitch views as feasible given the
improved marketing efforts, and could be further helped if turnover
levels continue to moderate over the new few years. Skilled nursing
facility (SNF) occupancy was a low 58% due to the construction at Bishop
White Lodge, which included the closing of a whole floor during
renovation, but is expected to increase to 79% by FY 2015 now that
renovations have been completed.
MANAGEABLE DEBT BURDEN KEY CREDIT STRENGTH
CV's debt burden remains manageable as total operating revenue of $15.6
million resulted in a MADS as a percent of revenue of 9.6% in the
interim period, comparing well to Fitch's 'BBB' median of 12.4%. MADS
coverage by turnover entrance fees has averaged 2x over the last four
audited years, slightly above Fitch's category median of 1.9x. Coverage
was 1.5x in the eight-month interim period of 2014, up from 1.3x in the
same period of 2013. Additionally, a portion of CV's debt matures in
2016, which will drop MADS by more than 50% to $1.1 million, further
lightening CV's debt burden. Renovations at Bishop White Lodge, which
included the creation of a short-term rehabilitation unit and were
financed in 2013 via $4.2 million bank loan, have been completed. Fitch
views positively CV's creation of a separate rehab unit, and believes it
will be financially accretive to the organization's financial
performance. CV has additional capital plans in the medium term, which
would be funded through further borrowing. Fitch believes that CV does
not have room for additional debt at the current rating level, but notes
that the debt decrease in 2016 may provide slight room for additional
borrowing to support capital projects.
THIN FINANCIAL PROFILE
CV's low SNF occupancy contributed to stressed financial metrics in FY
2013 and in the eight-month interim period of 2014. CV's 83.6 days cash
on hand, 30.5% cash to debt and 2x cushion ratio in the interim were all
significantly below Fitch's 'BBB' medians of 371.3 days, 58.9% and 6.9x
respectively. In addition, CV's net operating margin adjusted of 13%
compared unfavorable to category median on 21.3%. However, CV's
consistent net entrance-fee receipts help mitigate the organization's
weak operating profile. Management is budgeting for a total of 38
move-ins for FY 2014 and Fitch believes that improved occupancy in the
near to medium term should help improve liquidity and operating
Disclosure language requires annual audit within 120 days, quarterlies
within 45 days, with balance sheet, income statement, cash flows,
occupancy and annual budget. However, disclosure covenant requires that
information be sent only to the Trustee, Underwriter, and Bondholders
holding $1 million of more. CV discloses quarterly and annual audited
financial results on EMMA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
'Rating Guidelines for Nonprofit Continuing Care Retirement Communities'
(July 10, 2013).
Applicable Criteria and Related Research:
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
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