OREANDA-NEWS. Fitch Ratings has affirmed its 'BBB+' rating on the following bonds issued on behalf of Aldersly:

--$6,360,000 California Statewide Communities Development Authority, revenue refunding bonds, series 2015A;
--$275,000 California Statewide Communities Development Authority, taxable revenue bonds, series 2015B.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a gross revenue pledge and a mortgage pledge of the obligated group (OG). In addition, there is a debt service reserve fund.

KEY RATING DRIVERS

VERY STRONG FINANCIAL PROFILE: Aldersly's financial profile is characterized by robust liquidity metrics, strong debt service coverage, a low debt burden and adequate profitability. The majority of Aldersly's financial ratios exceed Fitch's 'BBB' category medians.

SMALL REVENUE BASE: Aldersly generated just $8.7 million of total operating revenues in fiscal 2015 (Sept. 30 year-end; draft audit) which is the smallest revenue base in Fitch's rated portfolio and well below median revenue size of its 'BBB+' peer group. Fitch believes Aldersly's small number of units (56 ILUs, 30 ALUs and 20 SNFs) and revenue base is inherently more volatile as small changes in occupancy and turnovers can have an outsized impact on financial performance.

SOLID OCCUPANCY: Aldersly's independent living unit (ILU) occupancy remained solid at 92% in fiscal 2015, despite a higher than expected level of turnover. Management is focused on marketing initiatives and lead generation that should improve occupancy over the medium term. Assisted living unit (ALU) and skilled nursing facility (SNF) occupancies were 96% and 84%, respectively, in the same year.

LONGER-TERM CAPITAL NEEDS: Aldersly's campus is well maintained despite its high average age of plant; Fitch believes there may be longer-term capital needs to enhance the marketability of the campus, especially with a different generation of residents who may seek a higher level of amenities. Although there are no major projects on the horizon, Aldersly has purchased two adjacent properties that may be used for expansion purposes in the future.

RATING SENSITIVITIES

MAINTENANCE OF FINANCIAL PROFILE: Fitch expects Aldersly to maintain financial metrics that are in excess of the 'BBB' category median ratios given its small revenue base.

CREDIT PROFILE

Aldersly is a Type-B continuing care retirement community (CCRC) located in San Rafael, CA in Marin County, approximately 20 miles north of San Francisco. The community consists of 41 one-bedroom apartments, 15 studios, 30 assisted living units (studio and one bedroom), and a 20 bed skilled nursing facility. Aldersly has been managed by Life Care Services (LCS) since 2004, which Fitch believes provides access to additional resources for a single-site entity.

Aldersly has created a subsidiary to purchase land if and when available for future expansion. Two adjacent properties (individual homes) have been purchased to date and are currently being utilized as rental units.

ROBUST LIQUIDITY

Aldersly's $20.6 million in unrestricted cash and investments at Sept. 30, 2015 equated to a very strong 988 days cash on hand (DCOH), 310.4% cash-to-debt, and 44x cushion ratio, all of which were significantly above Fitch's 'BBB' category medians of 400 days, 60% and 7.3x, respectively. Unrestricted liquidity has grown from $13.9 million in fiscal 2012 to $20.3 million in fiscal 2014. However, liquidity growth was stunted somewhat in fiscal 2015 due to unrealized losses of $1.3 million, indicative of Aldersly's aggressive investment portfolio, which has a 62% exposure to equities.

Budgeted routine capital plans are slightly elevated from prior years, but remain manageable at approximately 115% of depreciation expense in fiscal 2016. Aldersly's proposed projects at the time of the 2015 issuance have been slow to start; however, the elevator project is expected to be completed in 2016. The projects will be funded out of remaining bond funds, and should not impact liquidity.

LOW DEBT BURDEN

Aldersly's debt burden is light with maximum annual debt service (MADS) of $468,000 equating to a very low 4.9% of fiscal 2015 revenues, favorable to Fitch's 'BBB' category median of 12.4%. In addition, Aldersly's debt service coverage has averaged a very high 5.8x and was at 5x in fiscal 2015. Revenue-only coverage was a strong 2.3x in the same year, compared to Fitch's median of 1x.

ADEQUATE PROFITABILITY

Operating profitability was somewhat lower in fiscal 2015 due to lower revenue from the high attrition in the ILUs and higher than expected expenses related to worker's compensation. Net operating margin (NOM)-adjusted of 11.7% was below the category median of 19.3%; however, excess margin of 13.1% was significantly above the 'BBB' median of 3.6%. Management expects operating profitability to improve in fiscal 2016 and has stated that interim performance is tracking close to budget. However, employee wages may continue to be an ongoing challenge due to the need for competitive employee compensation in order to ensure higher retention. Fitch notes that Aldersly's robust liquidity position and low debt burden allow for a certain degree of operational volatility at the current rating level.

SOLID OCCUPANCY

Aldersly's ILU occupancy remained solid at 92% in fiscal 2015, despite a higher than expected level of turnover for the year. ALU and SNF occupancies were at 96% and 84%, respectively in the same year. ILU occupancy declined slightly to 86% through the three months ended Dec. 31, 2015. In response, management has put out an RFP for a local ad agency and is focused on securing more prospective resident leads going forward, which should help supplement occupancy over the medium term. Fitch notes that Aldersly's SNF is all semi-private rooms and there are no current plans to convert to private rooms.

DEBT PROFILE

The 2015 fixed-rate bonds are the only bonds Aldersly has outstanding.

DISCLOSURE

Aldersly covenants to provide annual audited information within 150 days of fiscal year end and quarterly information for all four quarters within 45 days of quarter end.