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���������ֳ� - San Francisco - 23 May 2022: ���������ֳ� has upgraded Atherton Baptist Homes' Issuer Default Rating (IDR) and series 2016 revenue bonds issued by Alhambra (CA) to 'BBB-' from 'BB+'.

The Rating Outlook is Stable.

SECURITY

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

ANALYTICAL CONCLUSION

The upgrade to 'BBB-' reflects Atherton's balance sheet growth, with improved cash on hand of 501 days and cash-to-adjusted debt of 102% at FYE 2021. ���������ֳ� believes Atherton has modest balance sheet flexibility to support its future capital spending and partially offsets its weak operating risk assessment, which reflects the community's elevated average age of plant. ���������ֳ� believes Atherton will need to make significant capital investments in order to maintain its facilities and 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 couple of years. The rating also reflects the community's stable 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.

KEY RATING DRIVERS

Revenue Defensibility: 'a'

Consistent Demand in Stable Market

The strong revenue defensibility reflects Atherton's stable market area and high degree of price flexibility. Atherton is a Type C community (offering fee for service contracts) and maintains a strong brand awareness given its longevity in the community and religious affiliation. The community benefits from limited Type C competition and maintains consistent demand for its 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 occupancy rate has remained healthy and stable at 92%, despite slightly weaker assisted living (AL) and skilled nursing facility (SNF) occupancy rates; however, this was somewhat intentional given the workforce challenges. AL occupancy rates should improve over the next 12 months as pandemic restrictions are lifted and residents move to higher levels of care. AL occupancy rates have already improved through 1Q22 at 97%.

Operating Risk: 'bb'

Maintenance Of Robust Operating Metrics Expected

The weak operating risk assessment primarily reflects Atherton's elevated average age of plant at 17 years as of fiscal 2021 and modest capital investments. Capital spending has averaged below depreciation expense in the last five years. ���������ֳ� believes the community will need to make significant capital investments in order to maintain its market position over the long term. Capex is expected to pick up with annual capital spending expected to exceed depreciation expense over the next five years. Management is planning a few projects, including construction of a new duplex, renovation of its AL facility and adding a new kitchen and cafe.

The PPP loan received in fiscal 2020 was fully forgiven in fiscal 2021, resulting in the revenue recognition of approximately $1.6 million. This contributed to robust operating performance in 2021 as the community reported a net operating margin (NOM) of 5.4% as of fiscal 2021.

Despite pandemic-related disruptions, strong IL occupancy supported relatively stable net entrance fees. As a result, NOM adjusted was healthy at 17.6% as of fiscal 2021. Atherton maintained this trajectory through 1Q22 reporting NOM of 5.0% and NOM adjusted of 12.1% as of March 31, 2022. ���������ֳ� expects the community will continue to maintain a healthy operating cost flexibility and strong cash flow generation over the outlook horizon.

Financial Profile: 'bbb'

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

Atherton's liquidity position significantly improved at FYE 2021 as a result of strong market performance and investment gains, coupled with a robust year of unrestricted donor gifts. This contributed to an improvement in cash on hand to 501 days and strengthening of cash-to-adjusted debt to 102% as of fiscal 2021. Given robust operations, MADS coverage remained healthy at 5.4x in fiscal 2021.

���������ֳ�'s scenario analysis indicates Atherton will maintain the trajectory of healthy cash flow generation and strengthening of its cash-to-adjusted debt metric over the next several years. Even under a sustained 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 be sustained above 100% over the next several years.

Asymmetric Additional Risk Considerations

There are no asymmetric risk factors affecting the rating determination.

RATING SENSITIVITIES

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%,

--Sustained operating metrics while reinvesting in physical plant leading to a higher operating risk profile assessment.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

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

--Significant issuance of debt to address Atherton's long-term capex needs resulting in decline of liquidity levels and cash to adjusted debt declining below 70%.

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.

CREDIT 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), 4 memory care beds for early cognitive impairment and 99 skilled nursing facility (SNF) beds. Total revenue as of audited fiscal year-end 2021 (Dec. 31 FYE) was $23.6 million.

Sources of Information

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), v1.3.3 (1)

ADDITIONAL DISCLOSURES

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

ENDORSEMENT STATUS