A Secure Retirement

A Secure Retirement

A Southwest Florida retirement community sees its commitment to science, statistical projections and employee retention programs pay off: It recently scored the highest credit rating in the country.

FINANCES by Jean Gruss | Editor / Lee-Collier

From a financial standpoint, Moorings Park in Naples is the best retirement community in the country.

Bond-rating firm Fitch recently rated Moorings' debt A+, making it the only retirement community of its kind in the country to receive the firm's top rating. What's more, Standard & Poor's, another rating agency, also gave the Moorings a coveted AAA rating.

The high ratings mean Moorings Park can sell bonds at very favorable interest rates in the future because investors are confident the retirement community has the means to pay interest and principal. In addition, the top rating can reassure current and prospective residents that the community will be there through their retirement years. It touts the ratings on its Web site, www.mooringspark.org.

"Their financial profile is outstanding," says Fitch analyst Jim Mitchell in Tampa. He cited The Moorings' strong balance sheet and Naples' wealthy demographics as the two factors that put them in the A+ category among the 55 communities Fitch rates.

So what does it take to land the valuable rating?

Continuing care

For starters, it's important to price the product well, say Guenther Gosch, Moorings' president and CEO, and Patricia Ruble, executive director of finance. That's a difficult science that involves figuring out how long residents of the retirement community will live and how much expensive nursing care they'll require. As the long history of failed nursing homes shows, that's not an easy thing to do.

The Moorings is a type of tax-exempt retirement community called a continuing-care retirement community (CCRC) that charges a large upfront fee for admission and monthly maintenance fees thereafter. In return, the community promises to care for its residents for the rest of their lives, from independent-living apartments to assisted living and nursing-home care. The ownership remains with the community, so when a person dies it can admit a new resident and charge a new entrance fee.

Because it's difficult to say when someone will need intensive nursing care or how long they'll live, the management of The Moorings has to get the price of admission right or they could face financial shortfall.

Still, The Moorings is not exempt from market forces. "We're constrained in some ways by what our competition charges," Gosch says. In addition, Gosch says The Moorings has to spend a lot of money to renovate and build new facilities to give prospective and current residents the impression that they're getting a good value. "These people have substantial wealth," he says. "It's not a question of affordability."

Today, new Moorings residents pay a $270,000 entrance fee for a one-bedroom apartment and a monthly fee of $2,000. For the largest three-bedroom apartment, residents pay an $850,000 entrance fee and a monthly fee of $5,000. Monthly and yearly fees are reset and adjusted annually to cover increases in operating costs.

To price the entrance fee accurately, The Moorings hires actuaries from Atlanta-based A.V. Powell & Associates who study the history of past residents to estimate how long prospective residents might live at The Moorings. The Moorings has been in operation since 1981 and the actuaries found residents enter the community at about age 79 and stay for 13 to 14 years. It's important to put the right price on the entrance fee because that ultimately pays for renovations and expansions of the community.

The Moorings has over 600 residents spread around 337 independent-living apartments, 44 assisted-living apartments and 106 skilled-nursing beds. The Moorings had total revenues of about $40.8 million in 2005, up 14% from $35.7 million in 2004. It has about $45 million in debt outstanding.

Growing surely but slowly

The Moorings has a waiting list with an undisclosed number of people on it and Gosch says it regularly conducts surveys and focus groups to find out what they want in a retirement community.

"Our market analysis tells us it's time to grow and we'll be talking to folks about how they'd like their apartments," Gosch says. The Moorings has a total of 83 acres off Goodlette-Frank Road in Naples where it can build an additional 77 apartments.

Instead of selling bonds and using the proceeds to build or renovate a facility, The Moorings uses entrance fees new residents pay to fund the expansion. Only when The Moorings has collected enough entrance fees to build a new facility does it turn to the bond market to sell debt to rebuild its reserves. "We won't expand unless we pre-sell it - that makes Fitch very happy," Gosch says. It services the debt with future entrance fees.

To reassure investors, The Moorings obtains a letter of credit from a bank to back the repayment of the debt. Most recently, Ruble says Wachovia has provided the letter of credit, though she declines to reveal the terms.

Ruble and Gosch take pains to communicate their plans to the credit rating agencies. While the agencies can't give financial advice, Ruble takes it as a stamp of approval when an analyst doesn't foresee a problem with any expansion the community might undertake.

In a report to investors, Fitch cited the community's strength in attracting residents. "The Moorings has consistently had occupancy rates in the mid- to high 90% in their independent living and health care areas over the past seven years, which has resulted in solid profitability and strong debt-service coverage that has consistently been higher than Fitch's median for A-rated facilities," the report says.

Outside help

One of the biggest financial risks at a CCRC is the nursing home. That's because when the facility promises care for life, it will have to pay for the often-costly care for those who can't perform daily tasks or who are very ill. Residents won't be turned away if they run out of money, an infrequent occurrence.

At The Moorings, the entrance fee and monthly fees that residents pay won't cover an extended stay at the nursing home, called The Chateau. So the community's executives decided to open the 106-bed nursing home to the public. It costs $350 a day on average, or about $128,000 a year and half of The Chateau residents are from outside the CCRC.

Generally, Medicare will not pay for an extended stay at a nursing home, so many residents pay out of pocket. However, a few residents have started to pay with long-term-care insurance they bought earlier.

Meanwhile, The Moorings makes sure that healthy residents stay out of the nursing homes. It promotes exercise classes and healthy lifestyles, though the upscale clientele means they're not as chronically ill as the general population.

Long-term employment

Gosch and Ruble say it's critical for a retirement community to keep employee turnover low. Ruble, for example, has been at Moorings Park for 20 years and Gosch for 13 years.

The Moorings spends about 70% of its operating revenues on wages and benefits for its 513 employees. Although Gosch declines to cite specifics about the benefits, he says the benefits for families of employees are superior to competitors.

In addition, the residents established a non-profit foundation about 10 years ago called Moorings Park Foundation. With net assets approaching $1 million, the foundation pays for childcare and a dozen student scholarships for employees' children.

Gosch says the foundation's contributions to employee welfare make a difference in employee retention and recruitment. The community's not-for-profit objectives makes a difference too, he says, because the culture and ambience is better focused on the residents' needs than squeezing profits for shareholders.

HOW TO MANAGE A SUCCESSFUL RETIREMENT COMMUNITY

Moorings Park President and CEO Gunther Gosch and Executive Director of Finance Patricia Ruble say four ingredients are essential to running a retirement community:

1. Price the product well. In an industry that has had its share of financial scandals, charging the right price to stay in business is essential.

2. Grow only when demand exceeds supply. Develop a list of prospective buyers and poll them routinely about what they want. Then expand when demand warrants it.

3. Finance growth through cash flows, don't raise debt aggressively and communicate your plans with credit analysts.

4. Find good employees and managers and figure out how to keep them for the long term. A comprehensive health care and benefits package is a must.

-Jean Gruss