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Fitch Assigns Piper Shores (ME) an Implied 'A-' Rating; Outlook Stable

July 8, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned an implied general revenue obligation rating of 'A-' to Maine Life Care Retirement Community (DBA Piper Shores).

The Rating Outlook is Stable.

Piper Shores has two series of bonds outstanding totaling approximately $27.5 million at Dec. 31, 2013, which Fitch rates 'AA' with a Stable Outlook based on the credit quality of the state authority's loan pool.

KEY RATING DRIVERS

HEALTHY LIQUIDITY METRICS: Piper Shores' balance sheet strength provides a significant financial cushion versus its small revenue base and elevated debt burden. Unrestricted cash and investments at May 31, 2014 (5 month interim) totaled $35.1 million, which equates to a robust 940 days cash on hand, and 127.9% cash to debt which compares favorably to Fitch's 'A' category peers.

LEADING MARKET POSITION: Piper Shores' location and position as the only non-profit lifecare CCRC in the state of Maine has resulted in regional draw and steady demand for services, which helps to offset credit concerns around Piper Shores' relatively small revenue base and single-site operating platform. Additionally, its entrance and monthly fee levels compare favorably to area housing values and economic levels.

CONSISTENT OCCUPANCY A STRENGTH: Piper Shores has consistently maintained over 94% campus-wide occupancy since 2009, evidencing robust demand for its services and providing a steady level of net entrance and monthly fee revenue which supports profitability.

STEADY CASH FLOW: From 2009 - 2013, Piper Shores' net operating margin-adjusted has averaged 24%, ranging from 19.4% to 33.7%; above the 2013 'A' category median of 23.1%. Further, its revenue only coverage improved to 1.2x in 2013, indicating good operating efficiency for a type 'A' life-care contract facility, as Fitch's 'type A' median revenue only coverage is 0.7x.

ELEVATED DEBT BURDEN: Maximum annual debt service of $2.7 million equates to a high 14.6% of 2013 total revenues compared to Fitch's 'A' category median of 8.4%. Though Piper Shores has a higher debt burden in comparison to the 'A' category peers, the credit's overall financial position is supported by a solid balance sheet and revenue-only MADS coverage.

RATING SENSITIVITY

CONSISTENT OPERATING RESULTS: Fitch expects Piper Shores to sustain steady operating cash flow and coverage, via steady occupancy and expense management. Piper Shores is budgeting for moderate capital spending over the near term, which should preserve its balance sheet strength and maintain coverage metrics which are consistent with the rating.

CREDIT PROFILE

Piper Shores is located on 138 acres of ocean-front property in Scarborough, Maine. Scarborough is a coastal resort community, approximately seven miles south of Portland. As the state's only type-A lifecare retirement community, its 40 cottages, 160 independent living apartments, 20 assisted living units, and 40 skilled nursing beds enjoy consistently solid occupancy.

HEALTHY LIQUIDITY METRICS

Since 2008 Piper Shores' unrestricted cash and investments have grown almost 60% reflecting solid operating results and net entrance fee receipts. As of May 31, 2014 Piper Shores had $35.1 million in unrestricted cash and investments, equating to a 127.9% cash to debt ratio and a 13x cushion ratio versus Fitch's 'A' category medians of 125.2% and 15.3%.

Fitch notes that the FASB accounting amendment which reclassifies certain advance fees as deferred revenue and other advance fees as a liability will have an impact on Piper Shores' balance sheet. Based on these new accounting regulations, Piper Shores expects to report a future service obligation of approximately $5.8 million and an additional $15.4 million in liabilities for refundable entrance fees in fiscal 2014. Fitch notes Piper Shores' 2012 actuarial study showed a solid pricing margin analysis as well as a satisfactory funded status. While this non-cash adjustment does not materially impact Fitch's quantitative analysis, Fitch will continue to monitor both the accounting and the actuarial calculations for future service obligation as part of its review.

LEADING MARKET POSITION

As the only type-A lifecare nonprofit CCRC in Maine, Piper Shores has experienced consistently strong occupancy and strong demand. Over 50% of its residents originate outside the state, and the waitlist is consistently solid with 71 interested parties currently awaiting available units. With its regional draw, Piper Shores' most relevant three competitors are located in New Hampshire. Fitch believes Piper Shores' competitive entrance fee pricing, type-A contract, and desirable location will continue to support a strong market position going forward.

STEADY CASH FLOW

Very consistent occupancy has supported consistent operating performance since 2008. Operating ratio and net operating margin have been solid for the last six years, averaging a 99.4% operating ratio and 5.7% net operating margin, compared to Fitch's respective 2013 'A' category medians of 95.8% and 5.6%.

Despite a slight decline in operating performance in fiscal 2013 to a 104% operating ratio and 1.8% net operating margin, performance through the May 31, 2014 five-month interim indicates slightly better performance at 103% operating ratio and 1.9% net operating margin. Additionally, net entrance fees of $2 million through May are trending ahead of the $3.4 million received in 2013 and providing solid 2.7x debt coverage of MADS.

ELEVATED DEBT BURDEN

Fitch views Piper Shores' capital structure as elevated yet conservative. Piper Shores'$27.5 million in outstanding debt is 84% fixed rate and 16% variable rate. The variable rate debt is directly placed with TD Bank through 2022, and fully amortizes. The series 2004B bonds ($23.1 million outstanding) issued via the state pool mature in 2029 and bear fixed interest at a rate of 4.8%. Debt service on the 2004B bonds is relatively level at $2.2 million, with MADS of $2.7 million in 2027.

Piper Shores has an interest rate swap against its variable rate debt, with a notional amount of $5.0 million and no collateral posting requirement. No significant increase in leverage is anticipated over the near term.

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

Applicable Criteria and Related Research:

--'Rating Criteria for Not-for-Profit Continuing Care Retirement Communities'(July 10, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Not-for-Profit Continuing Care Retirement Communities--Effective July 26, 2011 to July 12, 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644895

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=838605

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

Emily Wadhwani

Director

+1-312-368-3347

or

Secondary Analyst

Katie Proux

Analyst

+1-312-368-3348

or

Committee Chairperson

Jim LeBuhn

Senior Director

+1-312-368-2059

or

Media Relations

Elizabeth Fogerty, New York, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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