Fitch Affirms Naval Continuing Care Retirement Foundation (Fleet Landing) Revs at 'BBB'
--$40,050,000 Revenue and Refunding Bonds (Fleet Landing Project) series 2013A;
--$17,610,000 Revenue Bonds (Fleet Landing Project) series 2013B.
The Rating Outlook has been Revised to Stable from Positive.
A gross revenue pledge and mortgage. A debt service reserve fund provides additional security.}
KEY RATING DRIVERS
IL PROJECT DRIVES OUTLOOK REVISION: The revision of the Outlook to Stable from Positive reflects Fleet's plans to move forward on a sizable independent living (IL) expansion on land it recently purchased. The Outlook revision to Stable reflects the likelihood of the project moving forward over the next two years even as Fleet's financial performance remains closer to the higher end of the 'BBB' category. The project is in the planning phases, and there would be a period of pre-sales before construction would start.
SOLID FINANCIAL PROFILE: Fleet Landing's financial profile is characterized by above median maximum annual debt service (MADS) coverage, improving liquidity, and consistent and strong net entrance fee receipts. Fleet finished FY2015 with a 36.8% net operating margin - adjusted and 3.6x MADS coverage, above Fitch's 'BBB' category medians of 19.6% and 2x, respectively.
OCCUPANCY REMAINS HIGH: Fleet had IL occupancy of 98%, assisted living (AL) occupancy of 95, and skilled nursing occupancy of 88%. IL occupancy is the highest through the historical and has been on a steady increasing trend since it was 88% in FY2012. The strong IL occupancy coupled with a waitlist currently of 182 shows a good demand for services as Fleet undertakes its expansion project.
STRONG LIQUIDITY GROWTH: High occupancy and good cash flow have supported steady liquidity growth with unrestricted cash and investments improving by 93% since year end 2012, with Fleet's liquidity ratios now exceeding Fitch's 'BBB' category medians.
IMPACT FROM CAMPUS EXPANSION: Fitch expects that over the next year the Naval Continuing Care Retirement Foundation, Inc. d/b/a Fleet Landing's (Fleet) high occupancy will continue to support good cash flow and debt service coverage. While Fleet has some debt capacity at the current level, the rating could be negatively affected depending on the size, scope and financing structure associated with the expected expansion project.
Fleet Landing is a type-A continuing care retirement community located in Jacksonville, FL. The community consists of 354 independent living units, including 190 cottages, 73 assisted living units, 24 memory care units, and 49 skilled nursing beds. In the year ended Dec. 31, 2015, Fleet had total operating revenues of approximately $32.9 million.
The 'BBB' affirmation reflects Fleet's high occupancy, solid financial results, and above median coverage. Fleet's net operating margin-adjusted has averaged 37.4% over the past four audited years, comparing favorably to Fitch's 'BBB' category median of 19.3%. Over this time net entrance fee receipts have averaged a solid $11.5 million a year.
The strong cash flow has helped Fleet generate solid MADS coverage. Over the past four audited years Fleet's MADS coverage averaged 3.5x and stood at 3.1x at June 30, 2016, relative to a median of 2x. MADS of $4.1 million represented 12.1% of revenues at June 30, 2016, which compares well to Fitch's category median of 12.3%.
Unrestricted cash and investments have materially improved as a result of the strong cash flow. At June 30, 2016, Fleet's $43.4 million in unrestricted cash and investments equated to 637 days cash on hand and 73.3% cash to debt, both now above Fitch's 'BBB' category medians. Fitch views Fleet's improved liquidity position as a credit strength and believes continued building of the balance sheet will be key, as Fleet moves forward on the expansion project.
2013 Bond Projects Nearing Completion
Fleet is in the last stages of finishing the third and final phase of a capital plan that was funded with the 2013B debt issuance and includes renovation and expansion of its assisted living and health center. A new AL/memory care support building opened in 2015, with occupancy of the 24 units at approximately 90%. The health center is being renovated as part of phase three, and the number of skilled nursing beds was reduced to 49 from 58, but will have 64 beds upon completion of the project. Post-project, Fleet will also have mostly private beds in its health center. Fleet reported an above budget Medicare census in 2015 in spite undergoing the skilled nursing renovations. The renovated health center will also have a refurbished rehab wing.
Competitive Service Area
There are three continuing care retirement community (CCRC) competitors in Fleet's primary service area: Life Care Ponte Vedra (d/b/a Vicar's Landing - rated 'BBB'), The Glenmoor, and Cypress Village. However, Fitch believes that Fleet's long presence in the market, modest IL pricing, good marketing efforts, and well maintained campus help mitigate competitive concerns.
OUTSTANDING DEBT PROFILE
Fleet has a conservative debt profile, with all of its $59.2 million in long-term debt fixed and with no outstanding swaps.
Fleet covenants to provide annual financial information to EMMA no later than 150 days after the fiscal year-end.