The Rating Outlook is Stable.
The bonds are secured by a pledge of gross revenues, a mortgage lien on property and a debt service reserve fund.
KEY RATING DRIVERS
STRONG OCCUPANCY: Westminster's location and reputation in the
EXPANSION PROJECT COMPLETED: The final phase of the expansion project was completed with the addition of 11 ILUs in
IMPROVING PROFITABILITY: Operating profitability improved in fiscal 2013 and the three-month interim period ending
HIGH DEBT BURDEN: Westminster's debt burden has moderated due to the increased revenue generated from the expansion units, but remains high with maximum annual debt service (MADS) equal to 20.6% of revenue in fiscal 2013.
LIGHT LIQUIDITY RELATIVE TO DEBT: Liquidity metrics remain light relative to Westminster's high debt burden with 45.9% cash-to-debt at
CONTINUED STABILIZATION: Fitch expects that operating profitability will continue to improve and that decreased capital spending will strengthen liquidity metrics. Post-expansion operations are expected to stabilize in 2014. Upward rating movement is precluded until debt service coverage is sustained at levels consistent with an investment grade rating.
Westminster's location and excellent reputation in the
EXPANSION PROJECT COMPLETED
The expansion project began in 2010 and concluded with the completion of 11 phase II ILUs in
Operating profitability improved in fiscal 2013 and in the three month interim period. Operating ratio improved to 112.5% in fiscal 2013 from 117.4% in fiscal 2012 while net operating margin increased to 4.0% from 0.6%. Operations continued to improve in the interim period with operating ratio decreasing to 110.2% and net operating margin increasing to 6.7%. The improvements reflect the benefits of the expansion project and effective cost management as Westminster adjusted its expense base to the expanded operations. While improved, these profitability metrics compare unfavorably to Fitch's 'BBB' category medians of 97.2% and 9.9%, respectively.
Net operating margin adjusted increased to 28.6% in fiscal 2013 from 26.2% in fiscal 2012 and is strong relative to Fitch's 'BBB' category median of 21.3%. The strong net operating margin adjusted reflects Westminster's strong demand for services and net turnover entrance fee generation, which equaled
Post-expansion operations are expected to stabilize in fiscal 2014 and Fitch expects operating profitability to continue to improve.
HIGH DEBT BURDEN
Westminster's debt burden has moderated, reflecting the increased revenue generated from the expansion project, but remains high. MADS as a percent of revenue decreased from 27.6% in fiscal 2011 to 20.6% in fiscal 2013. Fitch expects that the debt burden will continue to moderate in fiscal 2014 as the community benefits from a full year of revenue from the phase II expansion units.
MADS coverage increased from 1.3x in fiscal 2012 to 1.7x in fiscal 2013 due to the improved profitability and net entrance fee generation. However coverage remains dependent upon entrance fees, with revenue-only MADS coverage equal to a light 0.3x in fiscal 2013 relative to Fitch's 'BBB' median of 0.9x. Revenue only coverage improved to 0.7x in the interim period, reflecting the full quarter of revenue generated from the phase II expansion units.
LIGHT LIQUIDITY RELATIVE TO DEBT
Liquidity metrics remain stressed relative to Westminster's elevated debt burden. Westminster had
Westminster covenants to provide annual audited financial statements within 150 days of the end of each fiscal year and quarterly unaudited financial disclosure within 45 days of each quarter-end. Disclosure is provided through the Municipal Securities Rulemaking Board's EMMA system.
Additional information is available at 'www.fitchratings.com'.
--'Retirement Communities Rating Criteria' (
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
Source: Fitch Ratings
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