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���������ֳ� - San Francisco - 18 May 2023: ���������ֳ� has affirmed Atherton Baptist Homes' Issuer Default Rating (IDR) and series 2016 revenue bonds issued by Alhambra (CA) at 'BBB-'.

The Rating Outlook is Stable.

The rating affirmation at 'BBB-' reflects Atherton's satisfactory balance sheet metrics, consistently positive operating performance, and solid market position. In fiscal 2022 (Dec. 31; audited), Atherton had total unrestricted cash and investments of approximately $26.6 million, which translated into 457 cash on hand and cash-to-adjusted debt of nearly 102%. ���������ֳ� believes Atherton has some limited balance sheet flexibility to support its capital investment plans, which buttresses the 'bbb' operating risk assessment. ���������ֳ� expects that Atherton will continue to make meaningful capital investments in order to maintain its facilities and solidify the organization's long-term market position.

���������ֳ�'s scenario analysis, which factors in a period of elevated (but manageable) capex, supports the expectation of rating stability at the 'BBB' category level over the next several years. The rating also reflects the community's stable and solid market position, and its economically stable service area poised to support consistent demand for its offerings, which ���������ֳ� views will continue to support healthy occupancy rates.

SECURITY

The bonds are secured by a gross revenue pledge, mortgage lien and debt service reserve fund.

KEY RATING DRIVERS

Revenue Defensibility - 'a'

Consistently Solid Demand in Stable Market

The strong revenue defensibility continues to reflect Atherton's stable market area and high degree of price flexibility. Atherton is a Type C community (offering fee for service contracts) and maintains solid brand awareness in its primary service area given its well established presence in the community and religious affiliation.

The community benefits from limited Type C competition and maintains consistent and solid demand for its service offerings. ���������ֳ� believes Atherton's rates and affordability provides moderate price flexibility with rate increases that occur regularly, and are affordable relative to the service area's median home values.

The community's independent living (IL) occupancy rate has remained healthy at approximately 93% in 2022, while assisted living (AL) improved to approximately 89% (from 84% in 2021) and skilled nursing facility (SNF) occupancy rates were stable at 85% for the year. ���������ֳ� notes that AL occupancy rates were improved as pandemic restrictions were largely lifted and residents moved to higher levels of care. Going forward, ���������ֳ� expects Atherton's demand and occupancy rates across all levels of care to be relatively stable at current levels (if not somewhat improved), which will continue to support satisfactory operational performance.

Operating Risk - 'bbb'

Maintenance of Good Operating Metrics Expected

The 'bbb' operating risk assessment primarily reflects Atherton's consistent and good operating metrics coupled with the organization's enhanced level of historical capital investment that has helped to further solidify Atherton's market position. In fiscal 2022, Atherton generated a 3.2% operating margin, 4.3% net operating margin, and 18.5% net operating margin (NOM)-adjusted, which demonstrates consistent and good operating performance, and has allowed the organization to build its balance sheet reserves, while reinvesting in its campus. Over the past five fiscal years, Atherton's NOM-adjusted has averaged a solid 19.2% and is consistent for the rating level.

Capital spending has incrementally increased and improved over the past five fiscal years with Atherton's capex reaching a high 96% of depreciation in fiscal 2022, highlighted by the community's duplex addition, which is scheduled to be occupied later this calendar year. Capex was a relatively low 63% of depreciation in fiscal 2018, but has subsequently ramped up, as management has made a dedicated effort to reinvest in the campus, which ���������ֳ� views favorably.

���������ֳ� believes the community will continue to make meaningful capital investments in order to maintain its market position over the longer term. Capex is expected to tick up sometime over the next two years, as Atherton plans to update its assisted living units. Overall, ���������ֳ� expects the community will continue to maintain a good operating cost flexibility assessment over the outlook horizon.

Financial Profile - 'bbb'

���������ֳ�'s Scenario Analysis Supports Rating Stability at 'BBB' Rating Category

In fiscal 2022, Atherton's liquidity position remained relatively stable from the prior year's improved unrestricted balance sheet reserve position. At fiscal year-end, Atherton had days cash on hand of 457 days and cash-to-adjusted debt of nearly 102%, which was essentially identical with the 2021 level. With Atherton's consistent operations, MADS coverage was good at 2.7x in fiscal 2022.

���������ֳ�'s scenario analysis indicates Atherton will maintain the trajectory of good cash flow generation, which should lead to incremental strengthening of its balance sheet reserves over the next several years, despite planned capital investment. Even under a temporary operating and financial market stress, coupled with an elevated (but manageable) capital outlay, Atherton's forward-looking leverage metrics would remain in line with ���������ֳ�'s 'BBB' category expectations. ���������ֳ�'s scenario analysis indicates cash-to-adjusted debt metrics would return to near 100% toward the out years of the scenario analysis.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Significant deterioration in operating performance where NOM and NOM adjusted are sustained below 0% and 11%, respectively;

--Material incurrence of additional debt to address Atherton's long-term capex needs resulting in decline of liquidity levels and cash to adjusted debt falling below 65% for a sustained period.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--Significant improvement in liquidity levels where cash to adjusted debt is sustained at or above 140%;

--Improved and sustained operating performance from current levels while reinvesting in physical plant, which leads to a higher operating risk profile assessment.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

PROFILE

Founded in 1914, Atherton is a Type-C life plan community (LPC) located in Alhambra, CA. The community provides independent living, in-home care, assisted living, skilled nursing, short-term rehab and hospice services with 167 Classic independent living units (ILU), 50 Courtyard ILUs, 32 assisted living units (ALU), four memory care beds for early cognitive impairment and 99 skilled nursing facility (SNF) beds. Total revenue as of audited fiscal year-end 2022 (Dec. 31 FYE) was approximately $24.5 million.

In addition to the sources of information identified in ���������ֳ�'s applicable criteria specified below, this action was informed by information from Lumesis.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ���������ֳ�'s ESG Relevance Scores, visit .

Additional information is available on

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Portfolio Analysis Model (PAM), v2.0.0 (1)

ADDITIONAL DISCLOSURES

• Dodd-Frank Rating Information Disclosure Form
• Solicitation Status
• Endorsement Policy

ENDORSEMENT STATUS