Fitch Ratings has affirmed the 'BBB' rating on the following bonds issued on behalf of Givens Estates United Methodist Retirement Community, NC (Givens):

--$62.7 million North Carolina Medical Care Commission retirement facilities first mortgage revenue refunding bonds, series 2007.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by pledged assets, including gross receipts, a first mortgage lien, and a debt service reserve fund.

KEY RATING DRIVERS

STRONG OCCUPANCY: Givens benefits from strong demand across all levels of care, as independent living unit (ILU) occupancy was 96% in fiscal-year (FY) 2013 (Dec. 31, 2013; audited), with assisted living unit (ALU) and skilled nursing (SNF) occupancies at 93% and 95% respectively. Fitch continues to view Givens' consistently strong occupancy, with a strong waitlist for services, as a primary credit strength.

ADEQUATE PROFITABILITY: Fitch views Givens' profitability as adequate for the 'BBB' rating level despite the recent decline reflecting the acquisition of Givens Highland Farms (GHF) and its large capital improvement plan. Through the 10-months ended Oct. 30, 2014 (unaudited), Givens generated an operating ratio of 94.2%, net operating margin of 12.4%, and net operating margin-adjusted of 19.9%. These metrics are down from historical figures, but are still consistent with the prior year's performance and inline Fitch's 'BBB' category medians of 97.4%, 9.2%, and 20.4%, respectively.

SATISFACTORY DEBT SERVICE COVERAGE: Maximum annual debt service (MADS; $6 million) coverage was 1.8x in FY2013. Through the 10-month interim period 2014, coverage improved to 2.2x by turnover entrance fees and 1.7x by revenue-only, largely due to $3.4 million of realized gains and solid net entrance fees received from turnover units. Overall, these metrics are in line with or exceed Fitch's 'BBB' category medians of 2x and 0.9x respectively.

CAPITAL IMPROVEMENT PLAN: Givens is in process of building 48 additional ILUs on the Creekside portion of its Asheville facility, which are expected to be completed and opened by September 2016 (to be built in two phases). The expansion is being financed through bank construction loans, which are expected to total $16 million and will be repaid primarily from initial entrance fee receipts. Further, Givens has expansion plans at its Givens Highland Farms (GHF) campus, which is expected to be done on phased approach at a total cost of approximately $24 million over the next four years. The financing process for GHF will be similar to the Creekside expansion as all construction will be financed through incremental bank construction loans and paid off by initial entrance fees. Despite the organization's sizable capital plan, Fitch views the strategy of expanding services and market presence favorably.

PRESSURED BALANCE SHEET: At Oct. 31, 2014 (unaudited), Givens had total unrestricted cash and investments of $30.6 million, which equated to 319 days cash on hand, 5x cushion ratio, and 38.6% cash to debt. These metrics compared unfavorably against Fitch's 'BBB' category medians of 408 days, 6.9x, and 60.2%, respectively, and are viewed as a primary credit concern. Fitch believes liquidity growth has been limited due to the organization's sizeable capital improvement plan.

RATING SENSITIVITIES

LIMITED DEBT CAPACITY: Through the October 2014 interim period, Givens' debt burden measured by MADS as a percentage of revenue was 13.2%, which was slightly elevated against the category median of 12.3%. Despite the revenue growth associated with the GHF transaction, Givens still has a relatively high debt burden and Fitch believes the organization has little capacity for any significant additional long-term debt at the current rating level.

CREEKSIDE & GHF EXPANSION FILL-UP: While Fitch views the Creekside and GHF expansion projects favorably over the long term, there is fill-up and construction risk associated with such projects. Any unforeseen fill-up issues, cost overruns, and/or construction delays could pressure the rating.

CREDIT PROFILE

ORGANIZATIONAL OVERVIEW & DISCLOSURE

Givens Estates United Methodist Retirement Community is a Type C continuing care retirement community (CCRC) and operates two facilities - Givens Estates in Asheville, NC and Givens Highland Farms in Black Mountain, NC, with a combined total of 579 ILUs, 77 ALUs, and 144 skilled nursing beds.

Givens has covenanted to provide annual audits within 120 days of fiscal year end and quarterly disclosure within 30 days of quarter end via the MSRB's EMMA system. Fitch views the disclosure requirements imposed by the state of North Carolina Department of Insurance favorably and believes the content represents an industry best practice.

RATING AFFIRMATION OF 'BBB'

The 'BBB' rating affirmation is supported by Givens' strong historical occupancy, satisfactory MADS coverage, solid market position, and adequate profitability. Fitch's central credit concerns include the organization's relatively high debt burden, pressured balance sheet, and capital expansion plans that include construction and related fill-up risk of the Creekside and GHF expansion projects.

CONSISTENTLY STRONG OCCUPANCY

Occupancy has remained strong through the October 2014 interim period at 96% ILU, 93% ALU and 93% SNF occupancy. Historically strong occupancy in all areas of service has been considered a primary credit strength which has allowed Givens to generate solid profitability to support solid MADS coverage. Additionally, Givens' strong demand for services has allowed the organization to successfully fill (100%) its first phase of unit expansion at Creekside, which Fitch views favorably. Both Givens and GHF maintain robust waitlist, which also highlights the organization's strong demand for services.

SATISFACTORY DEBT SERVICE COVERAGE

MADS coverage by turnover entrance fees has seen a consistent year over year improvement since FY2009, rising to 2.2x in the 2014 interim period from 1.9x in the prior period. Revenue only coverage has also been consistently strong in the same time period, and was 1.7x in the interim, which compared favorably against the category median of 0.9x. Further, revenue-only coverage has averaged 1.3x over the past four years, which demonstrates management's ability to sufficiently manage expenses while growing top-line revenue. With the 2012 acquisition of GHF total operating revenues increased by 46%, which moderated the historically high MADS as a percentage of total revenues metric to 12.4% from a very high 21.6% in FY2010.

PRESSURED LIQUIDITY

As of Oct. 31, 2014, Givens had total unrestricted cash and investments of $30.6 million, which equated to 319 days cash on hand, 5x cushion ratio, and 38.6% cash to debt. These metrics compared unfavorably against Fitch's 'BBB' category medians of 408 days, 6.9x, and 60.2%, respectively, and are viewed as a primary credit concern. Liquidity growth has been inhibited by the organization's sizeable capital improvement plan.

CAPITAL EXPANSION PLANS

Givens Estates has taken out an $8 million bank loan for Phase II construction related to the Creekside project. Phase I of the project was completed on time and on budget and Phases II and III will also include separate 24 ILU additions to the campus with expected opening to be by September 2015 and September 2016, respectively. Currently, 20 of 24 units for Phase II have been pre-sold with 10% entrance fee deposits received and management expects nearly 100% occupancy upon completion of both Phases. Seven million from initial entrance fees is expected to pay off the construction loans with the remainder being repaid from cash flow.

Further, Givens plans to add approximately 72 new units at its GHF campus, which will be constructed in four Phases in a similar approach to the Creekside expansion. Financing for each Phase will be through bank construction loans for a total of approximately $24 million ($6 million for each Phase). Management anticipates each loan will be paid off from initial entrance fees with no borrowing of additional long-term debt. Management expects presales for Phase I at GHF to begin in February 2015 with Phase I completion near the end of first-quarter 2016.

Overall, Fitch believes Givens is near its debt capacity for the rating level and believes any additional debt will have to be commensurate with revenue and cash flow growth given its already high debt burden and light balance sheet.

OUTSTANDING DEBT PROFILE

Fitch views Givens' debt profile as conservative, since 73% is traditional fixed-rate bonds and 27% is variable-rate with no outstanding swaps. The variable rate debt are bank loans with First Tennessee Bank that include $13.4 million (acquisition of GHF) that matures in 2022, $8 million (construction of Phases II of the Creekside project) that matures in 2016, and $1.4 million (finance renovation at GHF) that also matures in 2022. Fitch used MADS of $6.09 million, which includes all debt except the construction bank loans for Creekside since that is expected to be repaid by 2016 primarily from initial entrance fees.

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

Applicable Criteria and Related Research:

--'Non-for-Profit Continuing Care Retirement Communities Rating Criteria', dated July 2014.

Applicable Criteria and Related Research:

Not-for-Profit Continuing Care Retirement Communities Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752470

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=963215

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