The Rating Outlook is revised to Stable from Positive.
The bonds are secured by a gross revenue pledge, first mortgage, and a debt service reserve fund.
KEY RATING DRIVERS
FINANCIAL STRENGTHENING DRIVES UPGRADE: Positive momentum in Casa's operational and financial performance continued in fiscal 2013 and in the 2014 interim period, producing solid financial metrics now consistent with an 'A-' rating. Top-line revenues also grew in 2012 and 2013 following several years of stagnation, as units filled up and rate increases were implemented.
SUSTAINED OCCUPANCY GROWTH: Occupancy in the independent living units (ILUs) has consistently improved since 2012, following four years of declines. Through the nine-month interim period ended
LARGE CAPITAL PLANS: Casa plans to spend approximately
STRONG PRO FORMA METRICS: Despite a 20% planned increase in long-term debt, pro forma balance sheet metrics are strong, and remain consistent with the higher rating.
AGGRESSIVE INVESTMENT ALLOCATION: Casa has approximately 80% of its investments in either equities or alternative investments, which Fitch believes is an aggressive investment allocation. While market risk has historically been a key credit concern, Fitch believes Casa's current investment portfolio size relative to need provides increased room for short-term market volatility.
STABILITY EXPECTED: Fitch expects Casa to continue generating healthy cash flows during a period of heightened capital spending. While deterioration in cash flow or balance sheet is not expected, significant negative variance current levels may lead to negative rating pressure.
Casa de las Campanas is a type-A continuing care retirement community (CCRC) located in
Sustained Occupancy Growth and Good Market Position
Following four years of declines, ILU occupancy began recovering in 2012, supported by a rebound in the local real estate market. Compared to a low of 82.4% in 2011, ILU occupancy was reported at 95.1% for the nine month interim period ended
Improved Underlying Operations
Due to weak occupancy and low rate increase, total operating revenues were stagnant at
Profitability metrics remain mixed, reflecting Casa's Type A structure. In fiscal 2013, operating ratio was 100.2% and net operating margin was 5.6%, compared to the 'A' medians of 95.8% and 5.6%, respectively. However, net operating margin-adjusted was very strong at 45.8% compared to the median of 23.1%.
Supported by strong sales and investment performance, unrestricted cash and investments grew to
A large part of liquidity growth was due to solid net entrance fee receipts, which reached a high of
Large Capital Plans Expected
Casa is entering Phase I of its master facility plan, to be executed in fiscal years 2015-2016. This phase entails repositioning 20 ILUs and 15 memory care units, as well as renovating various parts of the campus including the wellness and fitness facilities. Casa expects to issue up to
Phase II and III are expected in the medium to long term, and would involve building a new skilled nursing facility and potential addition of more ILU units. Only the impact of Phase I is incorporated into this analysis, given the uncertain timing and scope of the later phases.
Conservative Debt Profile
Strong Pro Forma Ratios
Given Casa's strong cash flows and balance sheet position, debt metrics are expected to remain solid at the 'A-' rating after the issuance of
Casa provides annual audits within 150 days of each fiscal year end, and quarterly, unaudited financials within 45 days of each quarter end through the Municipal Securities Rule Making Board's EMMA system.
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
Most Popular Stories
- GE Healthcare Bringing Jobs to Massachusetts
- Faith Groups Divest From Fossil Fuels
- James Foley Beheading Video Is Real Thing: White House
- Apple Stock Bounces Back Big Time
- Entrepreneur Contest Announced in Idaho
- Why BofA Won't Pay $17 Billion After All
- Obama Weighs Move on Legal Immigration
- Notes From the July FOMC Meeting
- Eric Holder Arrives in Ferguson
- Spiders Get Bigger, Reproduce Faster in Cities