Fitch Affirms Carpenter's Home Estates (Florida) Bonds at 'BBB-'; Outlook Stable
NEW YORK-(Business Wire)-September 24, 2009 - Fitch Ratings has affirmed the 'BBB-' rating on approximately $24.9 million City of Lakeland, Florida fixed-rate revenue bonds, series 2008, Carpenter's Home Estates (Carpenter's) project. The Rating Outlook is Stable.
The affirmation is based on Carpenter's strong operating profile, strong occupancy in the assisted living units (ALUs) and skilled nursing beds (SNBs), and adequate debt service coverage. Over the past two fiscal years, Carpenter's has posted an operating ratio of 94.2% (2007) and 95.7% (2008). In the seven months interim ended July 31, 2009 this ratio improved to 85.4% due to expense controls and improvements in operations at the skilled nursing facility. Further, profitability is driven almost entirely from operations with investment income as a percentage of total revenues of only 2.7% over the last two years. Investments are held in cash and cash equivalents.
Carpenter's has been able to maintain very strong occupancies in the ALUs and SNBs, averaging 97.3% and 98.6% over the last three years, respectively. In the interim, assisted living occupancy was 98% and skilled nursing occupancy was 100%. Maximum annual debt service coverage has been adequate over the last two years at 2.2 times (x) in 2007 and 1.6x in 2008 as compared to the 'BBB' category median of 2.2x. In the interim, coverage was 2.1x.
Carpenter's has been able to maintain this coverage without any benefit of entrance fee or monthly service fee receipts of the newly constructed 32-unit independent living building. Additionally, management was able to purchase and cancel $1.7 million of outstanding debt at a discount, which effectively pays off the principal for 2009-2011 and reduces the principal payment in 2012. Carpenter's holds approximately $970,000 in a capitalized interest fund which will help support future operating cash flow, given the additional interest expense that started in July 2009.
Primary credit concerns include declining occupancy in the independent living units (ILUs), weak fill-up of the new ILUs, and light liquidity for the rating category. Occupancy in the 340 ILUs has declined from 96% in 2007 to 84.7% through June 2009. While Carpenter's maintains a considerable waitlist, prospective residents have been reluctant or unable to sell their homes given the particularly bad housing downturn in Florida. The same holds true for the new 32-unit independent living building, which now has its certificate of occupancy after having a temporary certificate since July. At this point only three of the units have been moved into. Management has begun offering some incentive programs and discounts to entrance fees which has generated more interest in the community, and has managed expenses accordingly as noted by the operating ratio. Unrestricted cash and investments has improved to $8.5 million through July 2009, up from $7.5 million at fiscal year end, equating to 231 days cash on hand, 3.9x cushion ratio, and 34% cash to debt all of which fall below the 'BBB' category medians of 321 days, 7.5x and 60%, respectively. However, each new ILU sold will positively affect these ratios by building cash reserves or allowing Carpenter's to pay down debt from the entrance fees.
The Stable Outlook is based on Fitch's belief that Carpenter's will continue to generate solid operating results and improvements to occupancy in the ILUs should help to strengthen the liquidity position.
Established in 1986, Carpenter's Home Estates is a type A continuing care retirement community located in Lakeland, FL, which is approximately 35 miles east of Tampa. The facility consists of 372 ILUs, 49 ALUs, and 72 SNBs. In fiscal 2008, Carpenter's had total revenues of $16.9 million.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.
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