In addition, Fitch affirms at 'A-' the following parity bonds issued by
The Rating Outlook is revised to Positive from Stable.
The series 2014 bonds will be issued as fixed rate. Proceeds from the bonds will be used to refund the 2004A bonds, fund future and prior capital projects, fund a debt service reserve fund, and pay for costs of issuance. In addition, over the next year, Fitch expects PRC to refund from cash flow its series 2004B bonds, which Fitch does not rate, and a
Debt payments are secured by a pledge of the gross revenues, mortgages on PRC's communities, and debt service reserve funds.
KEY RATING DRIVERS
STRENGTHENING CREDIT PROFILE: The Positive Outlook reflects PRC's improving financial performance, coupled with its underlying credit strengths, which include a large and diversified revenue base, a continued investment in plant, modest entrance fee pricing, and reduced entrance fee and health care risks, as over 95% of its current residents have a fully amortizing, Type 'B' contract.
SOLID ENTRANCE FEE YEAR: Total entrance fees (including proceeds from initial units) totaled
IMPROVING LIQUIDITY: The strong entrance fee receipts and good investment returns helped PRC grow its unrestricted cash and investments by 14% to
CONTINUATION OF POSITIVE TRENDS: Over the next two years, should operations and coverage remain stable and PRC's occupancy and liquidity continue to strengthen, an upgrade would be likely.
Founded in 1954, PRC is a
OCCUPANCY DRIVING FINANCIAL GAINS
IL occupancy, which had been below 80% for the last three fiscal years, rose to 87.1% at year end 2014. The lower occupancy was driven largely by challenges at PRC's west coast communities in
PRC addressed other occupancy challenges on the west coast with a revamped marketing strategy that included new marketing leadership, a better alignment of incentives for PRC sales employees, the offering of a rental contract, and the use of marketing consultants. In
Overall, PRC had 482 move-ins in fiscal 2014, over 100 more than in fiscal 2013 and more than double the 221 IL units filled in 2012. As a result, PRC had
PRC management follows a budgeting philosophy that uses monthly service fees to cover operating expenses and the net entrance fee receipts to cover debt service, fund capital improvements and build reserves. Investment income and contributions are not included for budgeting purposes. Using this philosophy, PRC has produced a relatively stable positive net operating margin, which has ranged from 3.1% to 4.5% and stood at 3.6% at year end 2014. Fitch's 'A' median is 5.6%.
PRC's yearly net entrance fee receipts have provided good coverage of debt service. In its weakest entrance fee year in 2012, when PRC had net entrance fee receipts of
Strong Capital Spending Offsets Liquidity
PRC's liquidity figures trail Fitch's 'A' category medians. At
Offsetting the below median liquidity figures is PRC's strong capital spending out of cash flow. PRC's age of plant is at the category median of 10.4 years and its capital spending as a percentage of depreciation has averaged 158% a year over the last five fiscal years, significantly above Fitch's 'A' category median of 104.4%. This equates to approximately
PRC expects to continue to invest in its plant. Among the expansion projects expected to be undertaken are the building of 25 IL units for
The high level of capital spending out of cash flow has helped to keep PRC's debt burden manageable. At
With this debt issuance and the refunding of debt that is expected in the next year, including the repaying of 2004B bonds which are currently supported by a bank letter of credit, PRC will have all but 14% of its debt as fixed rate. This continues a restructuring of PRC's debt portfolio from mostly variable rate debt to fixed rate that began with the 2010 debt issuance. The refunding of the 2004B bonds will also eliminate PRC's exposure to bank letters of credit. Fitch views PRC's current debt structure positively, believing it provides stability to PRC's overall credit profile.
PRC has one fixed-payor swap with Bank of America on a notional amount of
PRC covenants to provide annual audited financial statements, quarterly un-audited financial statements, and occupancy statistics to the Municipal Securities Rulemaking Board's EMMA system and to bondholders.
Additional information is available at 'www.fitchratings.com'.
--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities', dated
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
Source: Fitch Ratings
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