News Column

Fitch Affirms Village on the Isle, FL Revs at 'BBB+'; Outlook Remains Positive

June 17, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BBB+' rating on the following bonds issued on behalf of Village on the Isle (VOTI):

--$29.3 million Sarasota County Health Facilities Authority Revenue Bonds (Village on the Isle, Inc. Project) series 2007.

The Rating Outlook remains Positive.

SECURITY

The bonds are secured by a gross revenue pledge, first mortgage, and debt service reserve fund.

KEY RATING DRIVERS

POSITIVE OUTLOOK MAINTAINED: VOTI had a good cash flow year in 2013, which helped increase unrestricted cash and investments by 19%. However, an upgrade is precluded at this time as VOTI's liquidity metrics are still on the low end of the 'A' rating category. The maintenance of the Positive Outlook reflects Fitch's belief that VOTI can continue to grow its unrestricted liquidity over the next year, which should bring its metrics more in line with the 'A' medians.

OPERATING PERFORMANCE REMAINS SOLID: Three-month 2014 interim results show VOTI with an 84.3% operating ratio, a 29.7% net operating margin - adjusted, and 2.7x maximum annual debt service (MADS) coverage, all consistent with prior year results.

HIGH OCCUPANCY: VOTI continues to maintain very strong occupancy across all levels of care - 97.2% for independent living units (ILU), 97% for assisted living units (ALU) and 99.5% in skilled

nursing as of March 31, 2014.

MARKET POSITION A CREDIT STRENGTH: VOTI benefits from its location in Venice, FL, on the west coast of Florida in Sarasota County (Fitch implied GO rating of 'AAA'), has limited competition from other full continuum of care providers, and entrance fees prices that compare well with area housing prices.

CONSERVATIVE FINANCIAL PROFILE: VOTI has all fixed-rate debt and the majority of its investments are in cash and fixed income.

RATING SENSITIVITIES

Continued Cash Flow: Fitch expects VOTI's cash flow, which has been consistently strong, with VOTI's net operating margin-adjusted averaging 29% over the last four audited years, to continue in 2014.

CREDIT PROFILE

VOTI operates a continuing care retirement community located in Venice, FL, approximately 75 miles south of Tampa on Florida'sGulf Coast, which consists of 217 ILUS, 90 ALUs, and 60 skilled nursing beds. VOTI offers both a Type 'A' and Type 'B' contract. Total revenues for fiscal year 2013 were approximately $20.6 million.

Solid Financial Profile

The affirmation and Positive Outlook reflect VOTI's sound operating performance, liquidity growth, strong occupancy levels, and solid debt service coverage.

VOTI finished 2013 with an 86.4% operation ratio and a 31% net operating margin-adjusted, both above 'BBB' and 'A' category medians and stronger than the prior three audited years. VOTI has averaged an 89.5% operating ratio and a 29% net operating margin-adjusted over the last four audited years. The strong operating performance is supported by high occupancy across all levels of care, with none of VOTI's year-end occupancy levels falling below 95% over the last four audited years. In addition, VOTI has managed expenses well and its operating performance generally exceeds budget.

Debt service coverage has been strong as well, especially revenue-only coverage, which has averaged 1.4x over the last four audited years and stood at 1.8x in the three-month 2014 interim period. The 'A' median for revenue-only coverage is 1.2x.

Unrestricted cash and investments have steadily grown over the four-year historical period. At Dec. 31, 2013, cash and unrestricted investments were $20.6 million, a 40% increase from Dec. 31, 2010, when cash and unrestricted investments were $14.6 million. Unrestricted liquidity continued to grow through the three-month fiscal 2014 interim period to $21.9 million. This equates to 513.5 days cash on hand, a 7.3x cushion ratio, and 82.4% cash-to-debt, all above the 'BBB' medians, but trailing the 'A' medians of 563.7, 15.3, and 125.2, respectively. Further growth in liquidity over the next rating period would likely lead to an upgrade, as the ratios would be strengthened against the medians.

Solid Market Position

VOTI is positioned well in its service area with manageable competition, moderate entrance fees relative to the local real estate market, and solid demand for services. For its Type 'A' contract, VOTI's highest entrance fee is $200,000 for a new cottage and its lowest is just under $60,000 for a studio (the majority of current residents have a Type 'A' contract). In June 2013, VOTI completed seven new cottages, and they are all filled.

In its last rating review, Fitch was concerned about the area's housing market, but stress on the housing market has eased since then. A Fitch new issue report on Sarasota County from November 2013 noted that 'after a significant economic setback during the recession . . . the county's economy is experiencing a sustained recovery with modest increases in building permit activity, a more substantial rise in sales tax collections, an uptick in housing prices, and a decline in foreclosure activity.' The full report, 'Sarasota County, Florida' was released on Nov. 6, 2013 and can be found at www.fitchratings.com.

VOTI has steadily invested in its plant, which keeps its campus marketable. Over the last four audited years VOTI's capital spending has averaged 141.1% of depreciation, which is above the 'A' category median of 104.4%. Fitch expects capital spending to be closer to depreciation over the next two years, with the biggest project an elevator expansion project in one of its ILU buildings, which is expected to cost approximately $800,000.

Disclosure

VOTI covenants to provide audits within 150 days of year end, quarterly statements within 45 days of quarter end, including occupancy statistics, annual budget, and any notice of a material event to EMMA.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Guidelines for Nonprofit Continuing Care Retirement Communities,' July 10, 2013.

Applicable Criteria and Related Research:

Rating Guidelines for Nonprofit Continuing Care Retirement Communities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=40171

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835047

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Gary Sokolow

Director

+1-212-908-9186

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Dmitry Feofilaktov

Analyst

+1-212-908-0345

or

Committee Chairperson

Eva Thein

Senior Director

+1-212-908-00674

or

Media Relations:

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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