NEW YORK–(BUSINESS WIRE)–Fitch Ratings has affirmed the ‘BBB+’ rating on the following bonds
issued on behalf of BHI Senior Living (BHI or Obligated Group):
–$22,015,000 Indiana Finance Authority Revenue Bonds, Series 2013A;
–$28,455,000 Indiana Finance Authority Revenue Bonds, Series 2011.
The Rating Outlook is Stable.
Bonds are secured by a Gross Revenue Pledge, a Mortgage lien on certain
property and a Debt Service Reserve Fund.
KEY RATING DRIVERS
CONSISTENT FINANCIAL PERFORMANCE: BHI’s operating metrics exceed Fitch’s
‘BBB’ category medians, with the operating ratio and the net operating
margin — adjusted averaging 92.6% and 22.4%, respectively, over the
last four audited years. High total occupancy, which has been
consistently above 90% across all levels of care, has supported the
operating results, and the performance has been maintained in spite of
ongoing capital projects at all three of BHI’s campuses, including a
sizable expansion at its main campus, Hoosier Village.
GOOD LIQUIDITY FOR RATING LEVEL: At March 31,2016, BHI had $59.2 million
in unrestricted cash and investments (not including approximately $5
million of funds outside the obligated group), which equated to days
cash on hand of 561 and cash to debt of 70.5%, both above Fitch’s ‘BBB’
category medians of 400 and 60%, respectively.
CAPITAL PLAN NEARING COMPLETION: BHI has completed almost all of the
projects of a large capital plan begun in 2011. The last large project
is a 34-unit independent living (IL) apartment expansion at Towne House.
The units have been pre-sold and the project is expected to be completed
and filled by year’s end. After that, BHI will likely move forward on a
smaller cottage expansion at Hoosier Village, which will be built in
smaller clusters as units are pre-sold. Over the last four audited
years, BHI’s capital spending as a percentage of depreciation has
averaged 379.8% and it was 443.8% in the three month 2016 interim period.
MODERATING DEBT BURDEN: At year end 2013, BHI’s maximum annual debt
service (MADS) as a percent of revenue was 15.9% and its debt to net
available was 8x, both of which were elevated relative to Fitch’s ‘BBB’
category medians of 12.4% and 5.9x. At year-end 2015, those figures had
moderated to 13.6% and 6.2x, and Fitch expects this trend to continue as
operations continue to grow as the expansion Il units are filled. MADS
coverage has also improved through the historical period and stood at a
solid 2.1x at year end 2015, relative to a median of 2x.
STABLE OPERATING PERFORMANCE: Fitch expects BHI Senior Living’s
operating performance to remain stable over the outlook period.
Continued growth in the balance sheet and stronger cash flow leading to
higher debt service coverage could lead to positive pressure on the
rating over the longer term. A sustained fall off from the current
operating performance could pressure the rating.
BHI is a Type B provider with three campuses: Hoosier Village in
Indianapolis, IN with 290 independent/residential units and 77 health
center beds; Towne House in Fort Wayne, IN with 180
independent/residential units and 76 health center beds; and Four
Seasons in Columbus, IN with 110 independent/residential units and 72
health center beds. BHI had total operating revenues of $46.9 million in
The financial results reflect the consolidated entity; however, the OG,
which consists of the three campuses, accounts for the overwhelming
majority of revenue and most of the assets of the consolidated entity.
STABLE FINANCIAL PROFILE
BHI has consistently posted solid operating results. Three month 2016
interim results show a 90.4% operating ratio, a 21.6% net operating
margin – adjusted, and 1.9x debt service coverage, all of above their
respective ‘BBB’ category medians. The performance over the last four
years and through the interim period has been helped by good revenue
growth, which had an 8% CAGR from 2012 to 2015.
The revenue growth is attributed to the fill up of expansion units,
including the 100 unit IL/residency building at Hoosier Village, and BHI
management’s increased focus on sales. The additional 34 IL units being
built on the Towne House campus should continue to support the good
revenue growth. Additional support for the solid performance has been
strong occupancy levels, with IL occupancy at 100% at year-end 2015.
The strong operational performance has provided for good revenue only
coverage. BHI’s revenue only coverage was 1.1x in 2014, 1.4x in 2015 and
1.5x in the three month 2016 interim period, relative to Fitch’s ‘BBB’
category median of 1x. The MADS figure of $6.5 million occurs in 2036,
with debt service steady at $5.8 million in the years prior.
CAPITAL SPENDING CONTINUES
BHI is nearing completion of a cycle of capital spending that began in
2011. Over this time, BHI issued approximately $40 million in debt to
fund projects across all three of its campuses. A repositioning and
expansion project at Hoosier Village was the largest of the projects and
was completed in 2015. The two last pieces are an IL expansion at Towne
House and a cottage expansion at Hoosier Village. Fitch expects these
projects to be completed over the next two years.
The projects have begun to be accretive to BHI’s overall performance, as
reflected in the good trend in BHI’s revenue only coverage. Longer term,
BHI is exploring an additional IL apartment expansion on land it owns on
the Hoosier Village campus. That expansion is likely a couple years away
and is not factored into this rating. However, the strong level of IL
occupancy support further expansion and Fitch believes BHI has capacity
to pursue the project at the current rating level, give the good trend
in performance and with the successful completion of the capital
projects begun in 2011.
All of BHI’s $84 million in long term debt is fixed rate, and BHI has no
swaps. Approximately 40% ($34 million) of the debt is privately placed
bonds with a bank. The private placement term last through 2024 and has
a higher debt service covenant of 1.3x, compared to the MTI covenant of
1.1x. In addition, the 2014 bond holders can accelerate amortization for
a covenant violation. The bank placement increased the risk of BHI’s
debt profile (prior to the 2014 all of BHI’s debt was public debt).
However, BHI does have over 1x cash to debt for the bank placement.
BHI covenants to disclose on EMMA annual audited financial reports
within 150 days of the fiscal year end and financial reports 45 days
after the end of each fiscal quarter. MD&A is provided for the quarterly
disclosure, and a days cash on hand and debt service coverage
calculation are provided for the yearly disclosure.
Additional information is available at www.fitchratings.com.
Not-for-Profit Continuing Care Retirement Communities Rating Criteria
(pub. 04 Aug 2015)
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
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