LOS ANGELES — Fitch Ratings May 16 upgraded 71.3 million in revenue bonds issued by the Hawaii Department of Budget & Finance for a 392-unit retirement community BBB from BBB-minus.
The outlook for Kahala Nui's series 2012 bonds was revised from positive to stable at the higher rating, according to the Fitch Ratings report.
Kahala Nui is a Honolulu continuing care retirement community with 270 independent living units, 63 assisted living units, and 60 skilled nursing beds. In 2013, Kahala reported total operating revenues of $26.6 million.
The bonds are backed by a pledge of gross revenues, a leasehold mortgage on real property subject to ground lease, and a debt service reserve fund, according to Fitch.
"The upgrade to BBB reflects a continuation of Kahala's improving operating performance and resultant debt moderation," Fitch analysts said in the report.
Kahala has consistently grown its level of unrestricted liquidity since reaching stable occupancy in 2007, according to the Fitch report.
The facility has significant debt burdens with maximum annual debt service as percent of revenue at a relatively high 18% in 2013, according to the report. However, good cash flow has reduced its debt to net available to 4.1 times in 2013 from a high 9.8 times in 2009. Kahala's limited capital needs and its steady revenue only coverage of 1.1 times in 2013 help mitigate its debt burden somewhat.
Since it opened in 2005, analysts said, Kahala's independent living occupancy has been very strong, and stood at 97.5% at Dec. 31, 2013. Kahala maintains a robust wait list of over 200 prospective residents, and provides the only Type-A refundable entrance fee contract in the local service area.
Fitch said it views Kahala's location within Honolulu's most affluent communities as a credit strength. The median asset level of prospective residents on Kahala's wait list equals over five times the average entrance fee to the community.
