OREANDA-NEWS. April 14, 2016. Fitch Ratings has affirmed the 'BBB' rating on the following revenue bonds issued by the Industrial Development Authority of the City of Alexandria, VA or the Fairfax County Economic Development Authority on behalf of Goodwin House Incorporated (GH):

--\\$68.8 million series 2015;
--\\$136.5 million series 2007.

The Rating Outlook is Stable.


The series 2015 bonds and series 2007 bonds are obligations of GH and secured by mortgages on GH's real estate, a gross receipts pledge, and respective debt service reserve funds.


STRONG DEMAND CHARACTERISTICS: Fitch views GH's strong demand as a key credit strength which supports the organization's successful financial profile. In fiscal 2015 (Sept. 30 year-end; audited), average occupancy in the independent living units at both campuses (ILU) was a strong 96%, 90% in the assisted living units (ALU) and 95% in the skilled nursing facilities (SNF). Moreover, GH maintains extensive waiting lists at both campuses.

CAMPUS REPOSITIONING PROJECT UNDERWAY: GH has a large campus repositioning project underway at its GHA campus, which includes a new healthcare/memory care building, renovation of common spaces and conversion of existing space to additional ILU and ALU apartments. The project is on budget, but slightly behind schedule with the SNF/memory care building expected to be completed by March 2017. Fitch views the project favorably as there is the necessity and demand to modernize healthcare operations and allow for the expansion of ILUs.

SOLID LIQUIDITY METRICS: GH continues to have solid liquidity metrics consistent with the 'BBB' rating. At Dec. 31, 2015 (three-months; unaudited), GH's unrestricted cash and investments totaled \\$144.3 million, which translated into 889 days cash on hand (DCOH), 10.8x cushion ratio, and 69.3% cash to debt, and compared favorably against Fitch's 'BBB' medians of 400 DCOH, 7.3x, and 60.0%, respectively.

FAVORABLE SERVICE AREA: GH's northern Virginia markets (Fairfax and Arlington counties - both rated 'AAA' by Fitch) display good service area characteristics such as above average wealth indicators, and stable housing markets - all of which support GH's strong demand.

ELEVATED DEBT BURDEN: Maximum annual debt service (MADS) of \\$13.4 million represents a high 16.5% of total fiscal 2015 revenues when compared to the 'BBB' category median of 12.4%. However, historical coverage of MADS (including turnover entrance fees) has been a very solid 2.3x and 1.9x in fiscal 2015 and 2014, respectively.


SUCCESSFUL PROJECT COMPLETION: Fitch expects that Goodwin House will complete its redevelopment project within budget with the new healthcare facility ready for occupancy in April 2017. A material increase in project costs or lengthy delay in project completion could pressure the rating.

MAINTENANCE OF CURRENT PERFORMANCE: Over the longer term, successful completion of the repositioning project combined with continued strong occupancy and financial performance may drive upward movement in the rating.


GH is a predominantly Type A continuing care retirement community (CCRC) that operates campuses in Alexandria, VA and Bailey's Crossroads, VA. Goodwin House Alexandria (GHA) consists of 255 ILUs, 41 ALUs, and 80 SNF beds. Goodwin House Bailey's Crossroads (GHBC) consists of 328 ILUs, 42 ALUs, 69 SNF beds, and 16 memory support beds. In fiscal 2015, GH had total operating revenues of \\$72.6 million.

Management is embarking on a two part repositioning project at its GHA campus which includes the construction of a new five story building to house 80 private SNF beds and a 10 room memory care household. Upon completion of the new healthcare building, GH will renovate the existing space to add 16 new ILU apartments and 11 ALUs as well as upgrade a portion of the dining venues and common areas. The healthcare and memory care units are expected to be completed in March 2017 and available for occupancy by April 2017. The renovations and repurposing of the existing space is expected to be completed and occupied by March 2018.

At the time of Fitch's last rating action, GH had not secured the GMP, building permits or the CON. The GMP, building permits for demolition, excavation and foundation work and the CON were secured in the summer and fall of 2015. The final building permit is expected to be received in April 2016.

The project is "on budget" but roughly three weeks behind schedule due to weather delays in January and February and contractor's internal coordination issues. The project team is currently working on resequencing certain parts of the construction to recoup lost time. Fitch analysts toured the campus in 2015 and view the project favorably as there is the necessity and demand to modernize healthcare operations.

The total cost of the project is \\$68.2 million and funded by \\$43.2 million of series 2015 bond proceeds and \\$25 million equity contribution.

GH's strong historical occupancy and demand for services continue to be primary credit strengths which drive solid net entrance fee receipts. ILU occupancy as measured by units reserved and occupied was nearly 100% in each of the last four quarters. GH collected net entrance fee receipts of \\$19.1 million and \\$17.2 million in fiscal 2015 and 2014, respectively, which translated into net operating margin-adjusted (NOM-adjusted) of not less than 27.0% in each year; well exceeding the 'BBB' category median of 19.3%. As a result, coverage of MADS including turnover entrance fee receipts was a solid 2.3x and 1.9x in 2015 and 2014, respectively. However, revenue only coverage is a light 0.8x in fiscal 2015 reflecting GH's type A (predominately nonrefundable) entrance fee contract.

GH's solid demand characteristics help support the organization's overall successful financial profile. GH has a long history of operating in the Northern Virginia service area, which is an additional positive credit factor. The primary markets of Arlington County (general obligation [GO] bonds rated 'AAA' by Fitch) and Fairfax County (GO bonds rated 'AAA' by Fitch) each have solid population growth trends, high wealth levels, and a diverse economic base. Additionally, entrance fees continue to be consistent with local housing prices.

GH provides quarterly utilization and financial information to the MSRB's EMMA system. Fitch views GH's disclosure practices as excellent, since it includes management discussion and analysis and semiannual investor calls.