Fitch Ratings has affirmed the following bonds issued by the
Maryland Health and Higher Education Facilities Authority on behalf
of General German aged People's Home of Baltimore (Edenwald) at
'BBB':
--$49,030,000 revenue refunding bonds, series 2015.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a pledge of Edenwald's gross revenues,
a first mortgage lien and a debt service reserve fund.
KEY RATING DRIVERS
ROBUST LIQUIDITY POSITION: Edenwald's liquidity metrics of 566
days cash on hand (DCOH), 73.2% cash to debt, and 10.1x cushion
ratio at July 31, 2016 (seven-month interim), were all above
Fitch's 'BBB' category medians of 400 days, 60% and 7.3x,
respectively. Liquidity continues to be supported by good
independent living unit (ILU) occupancy and strong net entrance fee
receipts.
STRONG CASH FLOW: Edenwald's net entrance fee receipts have
averaged $6.8 million annually over the last four years. Net
entrance fee receipts were exceptionally strong through July 31,
2016 at $6.1 million, which resulted in improved debt service
coverage of 2.4x for the seven month interim period.
FAVORABLE MARKET AREA: Edenwald is located in Towson, MD, part
of Baltimore County (rated 'AAA'/Stable Outlook). Edenwald's robust
independent living unit (ILU) occupancy, averaging 92% over the
last four years, is supported by a favorable market area
characterized by solid real estate trends and a growing age and
income-qualified population.
WEAK OPERATING PERFORMANCE: Edenwald's operating ratio of 124.3%
in 2015 was unfavorable to Fitch's 'BBB' median of 96.1%. The
outsized ratio is indicative of Edenwald's pricing and service
model, focus on individualized resident care and limited
direct-admit activity in its skilled nursing facility (SNF).
RATING SENSITIVITIES
STABILITY EXPECTED: Fitch expects General German Aged People's
Home of Baltimore to produce strong net entrance fee receipts that
support its liquidity position and adequate debt service coverage.
Any significant deviation in cash flows that negatively affects
coverage could pressure the rating.
CREDIT PROFILE
General German Aged Peoples Home of Baltimore owns and operates
Edenwald, a Type-A, lifecare, continuing care retirement community
(CCRC) located in Towson, MD, about 15 minutes outside of
Baltimore. Edenwald currently consists of 281 ILUs, 56 assisted
living units (ALUs) and 71 private SNF units. Edenwald opened on
the current campus in 1985 and was renovated and expanded in 2006
with the addition of 60 luxury ILUs located in a connected building
called the Terrace. Edenwald offers non-refundable, 50-month
amortizing, 50% refundable, and fully refundable contract options.
Edenwald had total revenues of $25.1 million in 2015.
ROBUST LIQUIDITY POSITION
Unrestricted cash and investments grew to $38.4 million at July
31, 2016, from $30.2 million at Dec. 31, 2012. Liquidity metrics of
566 DCOH, 73.2% cash to debt, and 10.1x cushion ratio were all
above Fitch's 'BBB' category medians of 400 days, 60% and 7.3x,
respectively. Fitch expects Edenwald to generate strong net
entrance fee receipts that support unrestricted liquidity over the
medium term.
STRONG CASH FLOW
Edenwald's net operating margin (NOM)-adjusted of 28% through
the interim 2016 period was ahead of Fitch's median of 19.3%.
NOM-adjusted was supported by exceptionally strong net entrance fee
receipts of $6.1 million through July 31, 2016, representative of
20 move-ins. Management is expecting to have a total of 35-40
move-ins before year end.
Edenwald's cash flow has supported adequate debt service
coverage, which has averaged 1.8x over the last four years,
slightly below Fitch's 'BBB' median of 2.0x. Coverage improved to
2.4x through the seven-month interim period due to robust net
entrance fee receipts.
STABLE OCCUPANCY
Edenwald's ILU occupancy averaged 92% over the last four years
and was 88% through the interim period. Lower current year
occupancy is attributed to higher resident turnover, as Edenwald's
residents continue to age through the continuum of care. Edenwald's
average age of resident is relatively high at 87 years, which is
indicative of a possible wave of larger turnover over the medium
term. In particular, original residents of Edenwald's Terrace
apartments are beginning to turnover, which should allow Edenwald
to benefit from higher entrance fee receipts over the medium to
longer term. ILU occupancy has been supported by a solid real
estate market and a growing age and income-qualified population in
the primary marketing area.
Edenwald's strategy of individualized care and attentive service
has been successful in keeping their resident's out of the health
care center for longer, as indicated by an average SNF occupancy of
71.7%. Occupancy was somewhat increased at 79% through the interim
due to the recently higher rate of turnover. Lower SNF occupancy is
not a credit concern given Edenwald's Type-A resident
agreements.
WEAK OPERATING PERFORMANCE
Edenwald had an average $2.7 million loss from operations over
the last four audited years, resulting in a very high average
operating ratio of 121.3%, which was significantly unfavorable
compared to Fitch's 'BBB' median of 96.1%. The negative operating
performance is attributed to Edenwald's pricing and service model
and its focus on resident wellness and individualized care.
Edenwald runs a fully staffed medical suite on its campus seven
days a week and its average nursing per resident day hours of 4.2
is significantly above the state average.
Additionally, Edenwald does not currently accept many outside
admits into its ALUs or SNF and does not participate in the
Medicare program. While Fitch recognizes the strategic value of
high quality, individualized care and focus on community residents,
it notes that Edenwald's lack of access to incremental revenues
from the ALUs and SNF hamper its operating performance and may cap
the rating over the medium term.
DEBT PROFILE
The 2015 fixed-rate bonds are the only debt outstanding.
Edenwald does not have any swaps.
DISCLOSURE
Edenwald covenants to disclose certain financial and operating
information, including audited financial statements and occupancy
data, within 150 days after the end of each fiscal year. Disclosure
is provided on the Municipal Securities Rulemaking Board's EMMA
website.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria
Not-for-Profit Continuing Care Retirement Communities Rating
Criteria (pub. 04 Aug 2015)
https://www.fitchratings.com/site/re/868824
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/site/re/750012
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010886
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010886
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsPrimary AnalystDmitry FeofilaktovAssociate
Director+1-212-908-0345Fitch Ratings, Inc.33 Whitehall StreetNew
York, NY 10004orSecondary AnalystPaul
RizzoDirector+1-212-612-7875orCommittee ChairpersonJames
LeBuhnSenior Director+1-312-368-2059orMedia Relations:Elizabeth
Fogerty, +1 212-908-0526elizabeth.fogerty@fitchratings.com