In addition, Fitch affirmed the 'A' underlying rating on the
Royal Oaks plans to issue
The rating takes into account approximately
The Rating Outlook is Stable.
The series 2002 bonds are secured by a gross revenue pledge and mortgage pledge of the obligated group (OG). Fitch's analysis is based on the consolidated entity, which includes the
KEY RATING DRIVERS
EXCELLENT FINANCIAL PROFILE: Royal Oaks' overall financial profile is strong with robust liquidity, improved profitability, and very good debt service coverage. Strong financial performance has been supported by improved occupancy driven by continued investment in its plant and service offerings.
GOOD OCCUPANCY: With the hiring of a new marketing director, Royal Oaks' occupancy has steadily improved after hitting a low in
NEW MEMORY CARE BUILDING: Royal Oaks in the process of constructing a dedicated memory care building and renovate all existing skilled nursing beds to private suites. Project costs are estimated at
RESTRUCTURING DEBT PORTFOLIO: The series 2014 bonds are expected to fund
EXECUTION OF CONSTRUCTION PROJECT: Despite various risks inherent in executing a major capital project, Fitch expects the overall operational and financial profiles to remain stable over the next year and believes the current financial position provides cushion for temporary operating variability. Successful execution leading to continued financial strengthening may lead to positive rating pressure.
People of Faith, Inc. d/b/a Royal Oaks is a Type A continuing care retirement community (CCRC) with 364 ILUs, 59 assisted living units (ALUs), and 125 bed skilled nursing facility (SNF; includes 54 memory care beds) located in
Excellent Financial Profile Supported by Demand for Services
Royal Oaks' overall financial profile is characterized by excellent liquidity, cash flow, and debt metrics. Solid financial profile is supported by high demand for services, reflected by strong sales results and sound occupancy across the campus. In fiscal 2014, occupancy was 94.2% in ILUs, 96.6% in ALUs, and 79.2% in skilled nursing.
Profitability metrics are weak against the 'A' medians, reflecting Royal Oaks' Type A entrance fee structure, but remained relatively consistent over the last three fiscal years. Most recently in fiscal 2014, operating ratio was 102.7% compared to Fitch's 'A' median of 95.8% and Fitch's Type A median of 98.8%. Net entrance fees received was solid at
Royal Oaks is currently in the process of constructing a new memory care building, which will house 56 private units over two floors. The building will accommodate dementia care patients, which has historically made up about half of skilled nursing occupancy. The existing skilled nursing units will be renovated to private units, and in the process, bed capacity may decrease to 113 from 125.
Over the years, Royal Oaks has renovated and upgraded its campus with a new wellness and dining facility and refurbished all the ILUs as they turn over. Routine capital is budgeted at approximately
Strong Debt Metrics Pro Forma 2014 Bonds
Royal Oaks does not provide disclosure to bondholders, since all of the debt is VRDBs. Royal Oaks has been providing quarterly and annual disclosure to Fitch with access to management.
Additional information is available at 'www.fitchratings.com'.
--'Revenue Supported Rating Criteria' (
--'Not-for-profit Continuing Care Retirement Communities Rating Criteria' (
Revenue-Supported Rating Criteria
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
Source: Fitch Ratings
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