Fitch Affirms Miriam Osborn Memorial Home Assoc. (NY) Revs at 'A-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A-' rating on the following Dormitory Authority of the State of New York bonds issued on behalf of Miriam Osborn Memorial Home (dba The Osborn):

--$38.4 million series 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of gross revenues and receivables, and a mortgage on certain obligated group property. Additional security is provided by a debt service reserve.

KEY RATING DRIVERS

STRONG OCCUPANCY: The Osborn has maintained very strong occupancy over the past decade, averaging over 95% across all units since 2002. Service expansion into memory care, home health and outpatient rehabilitation service lines have added revenue diversity, and should support healthy demand going forward.

LOW LEVERAGE: The Osborn has approximately $38.4 million in fixed rate debt, and a maximum annual debt service (MADS) requirement of $3.5 million. Coverage and leverage metrics remain comparable to Fitch's 'A' category medians, and should moderate over time. No additional debt is anticipated over the near to medium term.

BALANCE SHEET EROSION: Fitch notes that nearly $7 million in unrealized investment losses in fiscal 2015 worked against cash flow to bring unrestricted cash down slightly to $49.7 million from $51.9 million in 2014. This decline coupled with a growing revenue (and expense) base from service expansion reduced days of cash on hand (DCOH) to 349 from 400 in 2014. DCOH remained light for the rating category at 331 through April 30, 2016. Still, 125% cash to debt and a 14x cushion ratio at April 30 are both sufficient for the rating category against Fitch's 'A' category medians of 125.1% and 18.5x, respectively.

FAVORABLE SERVICE AREA CHARACTERISTICS: The Osborn's primary market has favorable wealth indicators, a growing population in the 65+ age group, and strong real estate values which are consistent with the Osborn's entrance fee pricing. Additionally, the Osborn's 100+ year history has generated a strong market position and favorable reputation, which is borne out in a consistent wait list of over 150 prospective residents.

MODERATING CAPITAL NEEDS: The Osborn's future capital needs are modest, including routine needs near $4 million annually, as well as ongoing upgrades to existing units as they turn over during the next six years. Healthy cash flow including turnover entrance fee receipts should provide adequate cushion against any balance sheet impact.

RATING SENSITIVITIES

INCREMENTAL LIQUIDITY IMPROVEMENT: Fitch expects the Osborn to continue generating steady entrance fee revenues and solid operating cash flow, which should enable balance sheet growth over the medium term as capital expenditures moderate.

CREDIT PROFILE

Miriam Osborn Memorial Home (the Osborn) began its operations in 1908 as a retirement home for the aged in Rye, New York, and currently operates as a type 'C' fee-for-service continuing care retirement community (CCRC). Rye is approximately 35 miles north of New York City, in Westchester County. The Osborn provides 148 entrance fee units, 40 entrance fee garden homes, 97 rental units, 13 memory support units, and 84 skilled nursing beds. The Osborn also provides home health services through the charitable organization Osborn Home Care. For fiscal 2015 (year ended Dec. 31), total reported revenues were $55.1 million.

GROWING REVENUE BASE

The Osborn continues to grow beyond its unit-based sources of revenue, and has successfully expanded home health to nearly $14 million in revenue in 2015, equal to over 25% of total revenues. Fitch notes that total revenues have grown consistently since 2012, at over 9% annually to $54.7 million in 2015, and are expected to increase another 5% in 2016. Expenses have largely kept in line with revenues, and the Osborn's operating ratio remains healthy at 97.4% through April 30, 2016.

Growth in operating base against a weakened balance sheet negatively impacted the Osborn's liquidity against expenses, which remains light at 331 DCOH in April 2016 against Fitch's 'A' category median of 681 DCOH. Still, Fitch notes that the Osborn's limited health care liability as a type C fee-for-service community and conservative debt structure help mitigate the need for more robust liquidity. In addition, balance sheet growth is expected over the medium term as capital needs wane and steady operating performance continue to generate solid net operating margins (NOM) and net entrance fee levels. For 2016, coverage near 3x is expected including $6.5 million in net entrance fees (15.6% NOM-adjusted). Through April, The Osborn was behind target with 2.4x coverage and 1.6 million in net entrance fees (12.1% NOM-adjusted).

DEBT PROFILE

The Osborn has a total of $38.4 million (par) in fixed rate series 2012 bonds outstanding. MADS is $3.5 million, which the Osborn covered at 3.84x in 2015 per its covenant calculation. The Osborn is not party to any swap instruments.

DISCLOSURE

Annual disclosure is provided within 165 days of each fiscal year end, and includes financial statements, operating data, covenant performance, and management discussion & analysis. Quarterly disclosure is provided within 45 days of each quarter end. All disclosure will be provided via the Municipal Securities Rulemaking Board's EMMA system.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Not-for-Profit Continuing Care Retirement Communities Rating Criteria (pub. 04 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868824

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009629

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009629

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728006240/en/

Fitch Ratings
Primary Analyst
Emily Wadhwani
Director
+1-312-368-3347
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60605
or
Secondary Analyst
Eva Thein
Senior Director
+1-212-908-0674
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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