|[December 28, 2012]
Fitch Affirms Trinity Terrace (TX) Series 2011 Bonds at 'BBB+'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB+' rating on the approximately $45.2
million outstanding Tarrant County Cultural Education Facilities Finance
Corporation revenue refunding bonds, series 2011, issued on behalf of
Cumberland Rest, Inc. d/b/a Trinity Terrace, which are privately placed
with Wells Fargo (News - Alert) Bank.
The Rating Outlook is Stable.
The bonds are secured by a gross revenue pledge of the obligated group
and a mortgage on the property.
KEY RATING DRIVERS
CONSISTENTLY STRONG OCCUPANCY: Trinity Terrace's occupancy is solid at
over 90% across the continuum of care. Trinity Terrace is in the process
of converting some semi-private rooms to private, which should further
improve referrals to the skilled nursing facility.
SOLID LIQUIDITY: Trinity Terrace's liquidity indicators are strong and
well exceed Fitch's 'BBB' category medians. At Oct. 31, 2012, days cash
on hand was 1,208.7 and cushion ratio was 13.4x, both favorable compared
to the respective category medians of 369 days and 6.6x.
ADEQUATE OPERATING PERFORMANCE: Because of relatively flat revenues
without a moderation in expenses, profitability in fiscal 2012 was down
from fiscal 2011 but still relatively in line with 'BBB' category
medians. Also, Trinity Terrace's significant liquidity position provides
some cushion for fluctuations in operations.
HIGH DEBT BURDEN: In fiscal 2012 (September 30 year-end; unaudited
results), maximum annual debt service (MADS) comprised 18.5% of total
revenue compared to the 'BBB' category median of 12.9%. MADS coverage
has been stable due to solid generation of net entrance fee receipts.
MADS coverage by turnover entrance fees only was 2x in fiscal 2012,
compared to 2.3x in fiscal 2011 and in line with the 'BBB' category
median of 2x. Trinity Terrace's debt profile is somewhat aggressive with
a redemption date in 2016 for its 2011 bonds, which are privately placed
with Wells Fargo. However, Trinity Terrace's liquidity position
mitigates this concern with 101.3% cash to debt.
The 'BBB+' rating reflects Trinity Terrace's consistently good occupancy
and very strong liquidity position. The primary credit concerns are
relatively flat revenues in fiscal 2012, mostly because of a decline in
its Medicare census, and a high debt burden.
Despite opening a second tower (80 ILUs, underground parking and a
fitness and wellness center) during a challenging economic environment
in 2008, Trinity Terrace was able to reach stabilization in the new
tower in February 2011 while maintaining over 90% occupancy in its
existing units. Occupancy in the ILUs, ALUs and SNF has averaged 91.9%,
92.8% and 91.9%, respectively, over the last three years (2010 - 2012).
Currently, 94% of ILUs are occupied and the remaining units have been
sold. In its SNF, Trinity Terrace is converting fifteen suites to
private rooms, which Fitch views favorably as it should help attract
Medicare rehab patients and allow Trinity Terrace to improve its
Trinity Terrace was the only full service continuing care retirement
community (CCRC) in the Ft. Worth service area until 2010 when Stayton
at Museum Way (Stayton), a Greystone development, opened less than five
miles from its campus. Stayton is truggling with fill up and occupancy
is about 54% as of November 2012. Trinity Terrace's occupancy has
remained strong despite the new competition and the key reasons to the
continued strong demand include ongoing renovations to common areas and
its long-standing position in the community. Management is even
considering adding a third tower to its existing campus due to its
current occupancy levels and success in opening its second tower. This
project has been contemplated since Fitch's initial rating in January
2012 and Fitch will review the impact on the rating when the size, scope
and timing of the project are determined.
Trinity Terrace's liquidity indicators exceed Fitch's 'BBB' category
medians and are viewed as a primary credit strength, mitigating to some
extent, the corporation's high debt burden and dip in profitability in
fiscal 2012. At Oct. 31, 2012, Trinity Terrace had $47.1 million in
total unrestricted cash and investments, which equated to a strong
1,208.7 days cash on hand, 104.1% cash to debt and 13.4x cushion ratio,
which all exceed Fitch's respective 'BBB' category medians of 369 days,
50.9% and 6.6x.
Operating results in fiscal 2012 (unaudited) were below prior year
results but still in line with the 'BBB' category medians. This dip can
mostly be attributed to a drop in the Medicare census. However,
management believes the conversion of 15 rooms to private suites will
improve occupancy in the SNF and lead to improved revenue generation
going forward. Operating ratio in fiscal 2012 (unaudited) was 100.1%,
which has deteriorated from 97.5% in fiscal 2011. Net operating margin
in fiscal 2012 was 6.1%, which is down from 11.9% in fiscal 2011 and
somewhat light compared to the 'BBB' category median of 9.5%. Adjusted
net operating margin (includes entrance fees) was strong at 30.1%, which
is favorable compared to the 'BBB' category median of 20.3%.
MADS equaled a high 18.5% of fiscal 2012 (unaudited) revenues. This is
elevated compared to the 'BBB' category median of 12.9%. Strong sales
activity and turnover entrance fee generation has resulted in stable
debt service coverage. Marketing initiatives include rebranding with a
new ad campaign and frequent educational events. In 2012, the net
turnover entrance fee was $4.8 million compared to $4.3 million in 2011
and $3.3 million in 2010.
Trinity Terrace's debt profile is somewhat aggressive for its rating
level with 100% variable rate swapped to fixed rate. Total outstanding
debt was $45.2 million as of Sept. 30, 2012. This debt (series 2011
bonds) is privately placed with Wells Fargo with an initial term of five
years. There is no collateral posting requirement. Management is
considering additional debt in the medium term, which Fitch will
evaluate when details become available. Trinity Terrace's capital budget
for fiscal 2013 is manageable at about $2 million.
Trinity Terrace is managed by Pacific Retirement Services (PRS) under a
five year management agreement, which was renewed July 20, 2010. PRS
provides management, marketing, accounting and information technology to
Trinity Terrace and Fitch believes Trinity Terrace benefits from the
The Stable Outlook reflects Fitch's expectation that Trinity Terrace's
profitability and debt service coverage will return to historical norms
and occupancy and liquidity will remain stable.
Located on 4.75 acres in Ft. Worth, Texas, Trinity Terrace is a
full-service modified type-B CCRC with 254 ILUs, 20 ALUS and 60 skilled
nursing facility units. In fiscal 2012 (unaudited), Trinity Terrace had
$19.03 million in total operating revenue. Trinity Terrace does not
covenant to disclose annual financial statements to EMMA.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Rating Guidelines for Nonprofit Continuing Care Retirement
Communities' (July 12, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Rating Guidelines for Nonprofit Continuing Care Retirement Communities
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