Posted on Feb 20, 2008

CHICAGO--(Business Wire)-- Fitch Ratings has assigned a 'BBB-' rating on approximately $52.2 million Washington State Housing Finance Commission refunding revenue bonds series 2007A (Wesley Home Project)(Wesley). The Rating Outlook is Stable. Key ratings drivers supporting the 'BBB-' rating include adequate coverage of historical pro-forma debt service, strong occupancy and demand for units, solid operating profitability and modest competition in south King County. A higher rating is precluded due Wesley's light liquidity indicators and management's planned campus repositioning over the next 6-8 years. The series 2007 bonds refunded Wesley's series 2005 variable demand bonds which provided proceeds, in part, to fund the construction of Wesley Homes Lea Hill, a 174 unit retirement facility located in Auburn, WA. The Lea Hill community was completed in May 2007. Without the benefit of the additional revenues generated from Lea Hill, Wesley's historical pro-forma debt service coverage in fiscal years 2004, 2005 and 2006 was 1.7 times (x), 1.9x and 2.3x, respectively. Through the 11-months ended Nov 30, debt service jumped to 4.0x reflecting initial entrance fees and receipt of monthly service fees at Lea Hill. Historical occupancy at Wesley Homes' Des Moines campus has been above 94% across all levels in each of the last 5 years. In addition, the Des Moines facility has a wait list of 180. The 126 independent living units at Lea Hill were 100% occupied as of Dec. 31 with a waiting list of over 100. Wesley's operating profitability has been solid as reflected in operating ratios of 92.4 and 84.6 in fiscal 2005 and 2006, respectively. While Fitch believes management may be somewhat challenged by the full impact of the increased interest expense associated with series 2007 bonds, Fitch believes the additional revenues from Lea Hill project should blunt this impact. Finally, Wesley benefits from modest competition in the south King County service area with one facility, Judson Park (part of American Baptist Homes of the West, not rated by Fitch) located approximately 1.5 miles away. Judson Park is very similar to Wesley in regards to product offering, pricing of services and occupancy. While Wesley's absolute level of cash and investments has shown solid growth since 2002, liquidity measures are below Fitch's 'BBB' median. At Dec 31, 2006, Wesley's unrestricted cash and investments totaled $13.6 million which translated into 257 days cash on hand (DCOH) and 24% of long term total debt. At Nov. 30, 2007, cash and investments had increased to $15.2 million reflecting 225 DCOH and 29% of total debt outstanding as compared to Fitch's 'BBB' medians of 292 DCOH and 59% cash to debt. Management has stated their intention to pursue a campus repositioning over the next 6-8 years. While the size, scope and timing is subject to change, Fitch views Wesley's current capacity for additional debt at 'BBB-'to be limited. The Stable Outlook reflects Fitch's expectation that Wesley will maintain historical profitability and coverage measures. Fitch believes material improvements in liquidity measures are dependent on management's desire to increase entrance fee pricing. Issuance of additional debt in absence of improved liquidity may put downward pressure on the rating. Wesley Homes consists of two campuses: Wesley Homes Des Moines consists of 337 ILUs, 40 ALUs and 148 skilled nursing beds. Wesley Homes Lea Hill consists of 126 ILUs, 32 ALUs and 16 Memory Care units. Total revenue through the 11 months ended Nov. 30, was $26.8 million. Wesley Homes covenants to disclose annual audited financial statements with in 120 days of each fiscal year end and quarterly unaudited financial statements within 45 days of each fiscal quarter-end. 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. Fitch Ratings James LeBuhn, 312-368-2059, Chicago Michael Borgani, 415-732-5620, San Francisco or Media Relations: Cindy Stoller, 212-908-0526, New York Copyright Business Wire 2008