NEW YORK–(BUSINESS WIRE)–Fitch Ratings has assigned a ‘BB’ rating to the following State Of
Connecticut Health And Educational Facilities Authority Revenue Bonds
expected to be issued on behalf of Church Home of Hartford Inc. D/B/A
Seabury (Seabury Obligated Group):
–$51,990,000 Healthcare Facility Expansion Issue (Church Home Of
Hartford Incorporated Project) Series 2016A Fixed Rate Bonds;
–$9,400,000 Healthcare Facility Expansion Issue (Church Home Of
Hartford Incorporated Project) Series 2016B-1 Tax Exempt Mandatory
Paydown Securities (TEMPS-80SM);
–$13,750,000 Healthcare Facility Expansion Issue (Church Home Of
Hartford Incorporated Project), Series 2016B-2 Tax Exempt Mandatory
Paydown Securities (TEMPS-50SM).
Fitch has also affirmed at ‘BB’ the rating on the following parity bonds
also issued on behalf of the Seabury Obligated Group:
–$35,600,000 Public Finance Authority Healthcare Facility
Expansion/Refunding Bonds (Church Home of Hartford Incorporated
Project), Series 2015A.
The Rating Outlook is Stable.
The 2016 bonds are expected to be issued as fixed rate. Proceeds will be
used to finance phases B and C of Seabury’s master facilities plan, fund
debt service reserve funds and capitalized interest for 24 months, and
pay for the costs of issuance. The two series of 2016B bonds are
anticipated to be issued as temporary debt, which will be paid down from
the initial IL entrance fees as certain occupancy levels are reached.
The bonds are expected to sell via negotiation the week of March 1.
Pledge of gross revenues of the obligated group (OG), a mortgage, and a
debt service reserve fund.
KEY RATING DRIVERS
SIZABLE EXPANSION/REPOSITIONING PROJECT: Seabury is moving forward on a
$75 million capital program that will add 68 independent living (IL)
units as part of a new building, and 12 skilled nursing beds as well as
renovate and/or expand parts of assisted living and common areas. The
project will increase Seabury’s IL units by 25%.
STRESSED FINANCIAL PROFILE: The ‘BB’ rating assumes the successful
construction and fill up of the new ILUs, and the pay down of
approximately $25 million in short-term debt from initial entrance fees
received by 2019. Seabury’s debt burden will remain elevated even after
occupancy stabilizes on the new units.
MITIGATING CREDIT STRENGTHS: Development and fill risk is tempered by
Seabury’s underlying credit strengths, which include a long operating
history, good demand for services as reflected in high occupancy, and
historically stable operating performance.
STABLE OVERALL OPERATING PROFILE: Seabury has maintained total campus
occupancy (IL, AL and skilled nursing combined) of above 90% over the
last eight years. The high levels of occupancy has supported a very good
operating ratio, which has averaged 92.6% over the last four audited
years, particularly strong for a Type ‘A’ Lifecare facility.
GOOD MARKET POSITION: Seabury does have competitors in its service area.
However, its entrance fees remain in line with area housing prices and
competitor pricing. Seabury markets itself as an active community, which
has attracted younger seniors. Seabury’s average age of IL entry is
below 80, and given the age of entry, its yearly IL turnover has been
below 6% over the last three years, which is low for the sector.
CAPITAL PROJECT MANAGEMENT: Construction and project management risks
from Church Home of Hartford Inc. D/B/A Seabury’s (Seabury) sizable
capital project are mitigated by execution of a Guaranteed Maximum Price
(GMP) contract, owner’s and contractor’s contingencies, engagement of
owner’s representative and liquidated damages. However, a delay in the
receipt of initial entrance fees could cause negative rating pressure.
OPERATING PROFILE MAINTENANCE: The rating assumes that Seabury’s current
financial profile, characterized by high occupancy and solid operating
metrics, will remain stable during the project period.
The Seabury OG is a Type ‘A’ life care continuing retirement community
(CCRC) located in Bloomfield, CT, just northwest of Hartford. The
community currently includes 191 IL units, 49 AL units, and 60 skilled
Fitch bases its financial analysis on the results of the OG, which
consists of Seabury, the senior living campus described above, and
Seabury Meadows, which operates 58 memory support beds and is located
adjacent to the senior living campus. Total OG operating revenues were
$26.6 million in FY2015. Seabury also has two non-OG affiliated
organizations, the Seabury Charitable Foundation and Seabury At Home,
which is a CCRC without walls. The financial performance of the
affiliates is not included in the results reported in this press release.
SECOND PHASE OF CAPITAL PLAN
In 2015, Seabury issued debt to fund a variety of projects as part of a
phase A of a large master facilities plan. The projects include a new
front entrance and new bistro area, renovation of the kitchen and main
dining space, an arts studio, salon and day spa, and renovation of
administrative offices. These projects are in progress and are expected
to be finished within the next three months.
With the current $75 million debt issuance Seabury is moving forward
with Phases B and C of the master facilities plan. Fitch assigned the
‘BB’ rating to the 2015 debt in anticipation of this larger debt
issuance. The rating reflected the anticipated size of the debt to be
issued, the short term debt structure, and the execution risk for the
projects. Fitch notes that prior to the debt issuance Seabury had a very
strong financial profile, with its operating, liquidity, and debt
metrics all solidly investment grade.
This next phase is a large repositioning project that will add 68 IL
units and include renovation and expansion of assisted and skilled
nursing areas, including a new dedicated short term rehab unit and a new
primary care space, as well as additional parking space. The
construction will also feature a new chapel that will seat up to 225
people, which will be funded separately by Seabury.
Currently, Seabury has secured 36 entrance fee deposits and management
will not begin construction on the new ILUs until pre-sales reach 41 or
60%. To fund the project Seabury is issuing three series of debt, two of
which will be short term bonds, approximately $25 million, payable from
initial entrance fees received on the new IL units as they fill up,
which is estimated to total $28.5 million. The debt will significantly
stress Seabury’s financial profile over the next three to five years.
In spite of the execution risk and additional debt burden, Fitch views
the projects positively, believing that they will be financially
accretive to Seabury, enabling the campus to remain competitive over the
longer term. Currently Seabury’s high occupancy and low turnover is
limiting revenue growth. The project will increase the number of
Seabury’s IL units by 25% and the total unit increase will be
approximately 22% or 80 units, when including the additional skilled
nursing beds and AL units that will be built.
Management has taken appropriate steps to reduce the inherent
construction and development risk through the execution of a GMP with a
provision for liquidated damages, funding of owner’s and builder’s
contingencies totaling 6% of construction costs and the engagement of an
The sizable number of units to be added, especially the 68 IL units, and
the need to fill them in order to pay down debt are credit concerns.
However, Seabury’s high IL occupancy, 98% at December 31, 2015, its low
turnover, under 6% over the last few years, and its Seabury At Home
product, which is an entry point for potential new IL residents,
demonstrate a good demand for services and pent up demand as so few IL
units have turned over at Seabury in the last few years.
In addition, the new IL units from a size and price perspective should
fit well with Seabury’s current stock of ILs. The new units, on average,
will have slightly larger floor plans than the current ILs, but that is
being driven by the demand for large units, which are Seabury’s most
popular units. Seabury has begun to combine apartments to meet the
demand for larger units. Fitch notes that the largest units at 1,600
square feet, which are also the most expensive, have already pre-sold.
Seabury also plans to renovate current ILs to the standard of the new
ILs as they turnover.
Fitch recently toured the campus and saw the progress of the Phase A
projects, which were underway. Seabury has a sizable campus and the new
IL building should integrate well with the current buildings. The new IL
building along with the new chapel/auditorium and bistro will be a
central part of the campus after construction and represents a
significant upgrade to the common spaces and flow of the current campus.
STEADY OPERATIONAL PERFORMANCE
Seabury has historically maintained a steady financial performance, with
its operating ratio particularly strong for type ‘A’ contract community.
The operating performance was down slightly in FY15, due in part to
changes to Medicare short term rehab related to shorter lengths of stay
and reduced referrals from hospitals that Fitch is seeing across the
sector. The weaker performance was offset by a good year for entrance
fees ($2.7 million in net entrance fee receipts). As a result, Seabury’s
operating ratio weakened to 93.7% from 90.9%, relative to a category
median of 96.1%, and its net operating margin – adjusted improved to
15.4% from 13.4%, relative to a category median of 19.3%.
The below median net operating margin – adjusted does reflect the low
level of IL turnover at Seabury. Only 11 IL units (5.8% of its IL units)
turned over in 2015. IL turnover is generally higher than that in the
sector. The IL expansion should help increase turnover in the longer
First quarter FY16 results were softer. Seabury’s operating rose to
98.8%, as the issues in Medicare rehab continued to impact performance.
The timing of entrance fee on sales also impacted with performance, as
IL turnover increased at Seabury in the first quarter. The units were
remarketed and sold, and those sales will be reflected in the quarter
two performance. As a result, the net operating margin adjusted in first
quarter FY16 dropped to a thin 4.2%.
Fitch views Seabury’s occupancy as a credit strength. At December 31,
2015, IL, AL and skilled nursing occupancies were 98%, 92%, and 98%,
respectively, which is consistent with Seabury’s occupancy through the
historical period. In addition, Seabury has 137 active members on its
priority waitlist and 133 members in Seabury At Home, of which 83% are
on the priority waitlist. Membership fees for Seabury At Home average
$70,098 per person.
Liquidity was adequate at Dec. 31, 2015, with $19.2 million in
unrestricted cash and investments equating to 305 days cash on hand, a
7.2x cushion ratio, and 52.6% cash to debt. However, Seabury’s liquidity
will severely weaken after the debt issuance with its cushion ratio and
cash to debt falling to 3.4x and 22.2%, respectively. The cash to debt
figure assumes pay down of the short term debt.
As of Dec. 31, 2015, Seabury had approximately $34.5 million in
long-term fixed rate bonds. Total debt will peak at approximately $106
million in 2016 before paydown of the short-term debt and be
approximately $80 million in 2020 after the IL units stabilize. A pro
forma analysis of the debt, using a debt figure of $85 million and
maximum annual debt service (MADS) of $5.6 million shows a very elevated
At Dec. 31, 2015, MADS of a percent revenue was 21.5%, debt to net
available was 19.1x, and MADS coverage was 0.8x, all consistent with a
non-investment grade rating. Seabury will not be tested on the $5.6
million MADS figure until 2020.
Fitch expects Seabury’s debt profile to improve as the short term debt
is paid down, other debt amortizes, and the new units are brought into
service and begin to generate revenue and over the longer term turnover
Seabury will covenant to provide annual disclosure within 150 days of
fiscal year end, and quarterly disclosure within 45 days of each quarter
end. Disclosure will be made via the Municipal Securities Rulemaking
Board’s EMMA System.
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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