Fitch affirms the 'BBB' rating on $21,255,000 Bexar
County Health Facilities Development Corporation revenue bonds (Army
Retirement Residence Foundation Project) series 2002. The Rating
Outlook is revised to Positive from Stable.
The Positive Rating Outlook reflects Army Residence Community's (ARC) solid liquidity growth and improved operating profitability. Liquidity indicators are strong with cash and investments growing to $21.8 million at six months ended Dec. 31, 2005 (compared to $11.3 million at June 30, 2002), which equates to 566 days cash on hand and 106% cash to debt. Fitch's 'BBB' category median ratios are 278 days and cash to debt of 57%. Profitability levels have also improved as ARC posted a net income of $488,000 in fiscal 2005, as compared to a $31,000 loss in the prior year, and had an excess margin of 2.9% and operating ratio of 101.8%. Through the six months ended Dec. 31, 2005, ARC had an operating ratio of 94.9% and excess margin of 8.8% when normalizing investment gains due to a large one-time sale during the period (78.1% and 23.0% based on actual figures). MADS coverage has improved to 2.3 times (x) in fiscal 2005 and 3.3x normalized through the six months ended Dec. 31, 2005. Increased unit turnover has resulted in growth of net advance fees received of $2.9 million in fiscal 2005 and projected $3.2 million in fiscal 2006 (six months annualized). In addition, expense growth has been modest over the last two and a half years.
The ARC's primary strength remains its strong demand as it serves a unique market niche. ARC is only one of approximately eight continuing care retirement communities (CCRC) nationwide that exclusively serve retired military officers. Demand for services remains strong, with occupancy consistently at or above 97% in its 387 independent living units (ILU) over the last twelve years. In addition, 30 assisted living units (ALU) have occupancy of 96.7%, with 29 units occupied. Fitch believes high occupancy rates should continue due to increasing nationwide demand for retirement housing for the military, the ARC's solid reputation, and a waiting list of roughly 470 applicants.
Primary credit concerns include future capital needs and competition from military focused (and non-military focused) CCRCs. ARC's average age of plant is high at 12.7 years, which indicates the need for future capital expenditures. In addition, ARC faces both local and national competition due to its military focus, competing against a number of CCRCs in the primary market area, two of which are military focused.
A positive rating action over the next two years will depend upon sustained profitability levels without any significant deterioration to coverage and leverage indicators as the scope of any future campus expansion is developed.
ARC is a Type A CCRC for retired military officers located in San Antonio, TX with 387 independent living units, 30 assisted living units, and 91 nursing care beds (including 18 dementia care). In fiscal 2005, ARC had total revenue of $16.5 million. ARC covenants to provide annual audited financials and quarterly disclosure to bondholders, which are disseminated through the NRMSIRs. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, occupancy statistics and a management discussion and analysis.
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.
The Positive Rating Outlook reflects Army Residence Community's (ARC) solid liquidity growth and improved operating profitability. Liquidity indicators are strong with cash and investments growing to $21.8 million at six months ended Dec. 31, 2005 (compared to $11.3 million at June 30, 2002), which equates to 566 days cash on hand and 106% cash to debt. Fitch's 'BBB' category median ratios are 278 days and cash to debt of 57%. Profitability levels have also improved as ARC posted a net income of $488,000 in fiscal 2005, as compared to a $31,000 loss in the prior year, and had an excess margin of 2.9% and operating ratio of 101.8%. Through the six months ended Dec. 31, 2005, ARC had an operating ratio of 94.9% and excess margin of 8.8% when normalizing investment gains due to a large one-time sale during the period (78.1% and 23.0% based on actual figures). MADS coverage has improved to 2.3 times (x) in fiscal 2005 and 3.3x normalized through the six months ended Dec. 31, 2005. Increased unit turnover has resulted in growth of net advance fees received of $2.9 million in fiscal 2005 and projected $3.2 million in fiscal 2006 (six months annualized). In addition, expense growth has been modest over the last two and a half years.
The ARC's primary strength remains its strong demand as it serves a unique market niche. ARC is only one of approximately eight continuing care retirement communities (CCRC) nationwide that exclusively serve retired military officers. Demand for services remains strong, with occupancy consistently at or above 97% in its 387 independent living units (ILU) over the last twelve years. In addition, 30 assisted living units (ALU) have occupancy of 96.7%, with 29 units occupied. Fitch believes high occupancy rates should continue due to increasing nationwide demand for retirement housing for the military, the ARC's solid reputation, and a waiting list of roughly 470 applicants.
Primary credit concerns include future capital needs and competition from military focused (and non-military focused) CCRCs. ARC's average age of plant is high at 12.7 years, which indicates the need for future capital expenditures. In addition, ARC faces both local and national competition due to its military focus, competing against a number of CCRCs in the primary market area, two of which are military focused.
A positive rating action over the next two years will depend upon sustained profitability levels without any significant deterioration to coverage and leverage indicators as the scope of any future campus expansion is developed.
ARC is a Type A CCRC for retired military officers located in San Antonio, TX with 387 independent living units, 30 assisted living units, and 91 nursing care beds (including 18 dementia care). In fiscal 2005, ARC had total revenue of $16.5 million. ARC covenants to provide annual audited financials and quarterly disclosure to bondholders, which are disseminated through the NRMSIRs. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, occupancy statistics and a management discussion and analysis.
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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