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
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
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
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
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Elizabeth Fogerty, New York, +1 212-908-0526
Source: Fitch Ratings