Fitch Affirms Life Care Ponte Vedra, Florida's Bonds at 'BBB'; Outlook Stable

• Press Release
• Source: Fitch Ratings
• On 2:23 pm EST, Friday November 6, 2009

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on approximately $21.7 million of Life Care Ponte Vedra, Florida's (dba Vicar's Landing) series 2007 bonds issued through the St. John's County Industrial Development Authority. The Rating Outlook is Stable.

The affirmation of the 'BBB' rating is supported by Vicar's Landing's (Vicar's) high occupancy rates across all lines of service, sound financial performance, outstanding location in Ponte Vedra Beach adjacent to the Tournament Players Club (TPC) at Sawgrass, and long operating history. Vicar's has sustained an average occupancy in the independent living units of 96% over the last four fiscal years and in the nine month interim period ended Sept. 30, 2009, occupancy was 93%. Further, occupancy in the assisted living units and skilled nursing facility has improved to 95% and 97%, respectively, up from 82% for both in at fiscal year end. Vicar's also maintains a wait list of approximately 232 people. Given the strong occupancy levels across the several lines of care and management's attention to controlling expenses, Vicar's generated income from operations of $503,000 (in the interim) and excess income of $982,000. This results in maximum annual debt service coverage of 2.5 times (x), which compares favorably to the 'BBB' category median of 1.7x.

Vicar's benefits from an excellent location in Ponte Vedra Beach, an upscale service area in the northeastern part of Florida known for its resorts and recreational activities, most notably, The Players Championship PGA Tour event. While this area has suffered declines in home prices, management noted that prospective residents are still able to sell their homes but the time on the market has increased. As a result, the average turnover time for vacated units increased to closer to 90 days as compared to 60 days in prior years. Finally, Fitch believes Vicar's long operating history and reinvestment in physical plant (average age of plant of 9.6 years) enhances the facility's ability to attract potential residents in the more difficult operating environment.

Fitch's main credit concerns include Vicar's relatively light liquidity, the risks associated with the historical support of Vicar's sister facility - Glenmoor Retirement Community, and general concerns associated with the housing markets in Florida. On Sept. 30, 2009 Vicar's unrestricted cash and investments (including minimum liquid reserve funds) totaled $10.2 million, equating to 264 days cash on hand, 5.4x cushion ratio, and 47% cash to debt, which are light relative to the 'BBB' category medians of 336 days, 6.2x, and 48%, respectively. The absolute dollar amount of unrestricted funds and the associated ratios are largely unchanged from fiscal year end. As of Oct. 31, the unrestricted funds increased approximately $760,000, improving these ratios to 283 days, 5.8x, and 50%. Vicar's has not seen a larger increase in unrestricted funds since December 2008 mainly due to one large receivable and the repurchase of $810,000 of the series 2007 bonds. While undergoing renovations to the nursing facility, Vicar's experienced termite damage greater than anticipated which has led to additional costs of approximately $1.7 million. However, these costs were covered by termite bonds that still have to reimburse Vicar's $1 million, which management expects to receive prior to year end.

Vicar's has lent approximately $8 million to Glenmoor and has extended a line of credit for $2 million. It is expected that the loan will begin to be repaid by 2013 and the line of credit will not be drawn upon. The current state of the economy, combined with Florida's particularly hard hit housing market poses general concerns for the senior living sector. Vicar's prime location and historical operating history somewhat mitigates this risk.

The Stable Outlook is based on Fitch's belief that Vicar's will continue to maintain high occupancy levels and generate positive operating income.

Life Care Ponte Vedra is a type A life care facility consisting of 212 independent living apartments, 15 patio homes, 38 private assisted living beds, and 60 skilled nursing beds. The facility is located in Ponte Vedra Beach, FL, approximately 20 miles southeast of downtown Jacksonville. In fiscal 2008 (ended Dec. 31) total revenues were $17.9 million.

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