OREANDA-NEWS. April 13, 2015. Fitch has assigned an 'A-' rating to \\$45.5 million of Orange County Health Facilities Authority, FL revenue bonds series 2015 that are expected to be issued on behalf of Presbyterian Retirement Communities (PRC).

In addition, Fitch affirms the following parity bonds issued on behalf of PRC:

--\\$44.3 million Orange County Health Facilities Authority (FL) rev bonds series 2014;
--\\$113 million St. Johns County Industrial Development Authority (FL) rev bonds, series 2010A;
--\\$25 million St. Johns County Industrial Development Authority (FL) rev bonds, series 2010B

The Rating Outlook remains Positive.

The series 2015 bonds will be issued as fixed rate. Bond proceeds will be used to fund the first phase of the construction of a new 160 independent living unit community called Westminster Baldwin Park (WBP) located in Baldwin Park FL, fund a debt service reserve fund and pay costs of issuance. The bonds are expected to sell the week of April 27 through negotiated sale.

SECURITY
Debt payments are secured by a pledge of the gross revenues, mortgages on PRC's communities, and debt service reserve funds.

KEY RATING DRIVERS

SOLID CREDIT PROFILE: The Positive Outlook reflects PRC's improving financial performance, coupled with its underlying credit strengths, which include a large and diversified revenue base, a continued investment in plant, modest entrance fee pricing, and reduced entrance fee and health care risks, as over 95% of its current residents have a fully amortizing, Type 'B' contract.

IMPROVED OPERATING PROFITABILITY: PRC's operating ratio improved to 96.8% through the third quarter of fiscal 2015 from 100.8% in the prior year period reflecting the improvement in overall occupancy. The higher level of monthly service fee and resident revenues combined with solid expense control resulted in revenue only coverage of pro forma maximum annual debt service of 1.2x through the 9 months ended Dec 31, 2014 which equal to Fitch's 'A' category median of 1.2x.

IMPROVED OCCUPANCY: System-wide occupancy of PRC's independent living units improved to 91.6% through the nine months ended Dec. 31, 2014 from 87.1% at March 31, 2014. Occupancy in the St. Petersburg and Bradenton regions, which was at 78.1% at fiscal year-end 2014 (year ended March 31) improved to 87.2% at Feb 20, 2015

ADEQUATE LIQUIDITY: At Dec 31, 2014, PRC's unrestricted cash and investments totaled \\$133.7 million which translates to 351 days cash on hand, a cushion ratio of 9.0x (based on pro forma MADS) and 75.7% cash to pro forma debt; each of which are weak relative to the respective 'A' category medians of 692, 15.8x and 127.2%. Fitch views PRC's liquidity position as adequate in light of its modest refund liability, its strong historical capital spending and modest debt burden.

RATING SENSITIVITIES

CONTINUATION OF POSITIVE TREND: Over the next two years should operations and coverage remain stable and PRC's occupancy and liquidity continue to strengthen an upgrade would be likely.

NEW COMMUNITY DEVELOPMENT: While management's experience and track record in development and construction are viewed favorably, Fitch would like to see a moderation of the attendant development and fill risk associated with the WBP project.

CREDIT PROFILE
Founded in 1954, PRC is a Florida not-for-profit organization focused on residential and health care communities for older adults. The obligated group (OG) consists of seven members, five of which own and operate nine continuing care retirement communities (CCRC) in Jacksonville, Orlando, Winter Park, Bradenton, St. Petersburg, and Tallahassee, FL. Westminster Services, Inc., a management company, and Westminster Retirement Communities Foundation, Inc. are also in the OG. HUD housing comprises most of the non-OG entities. PRC has 10 HUD rental facilities.

As of Feb 20, 2015, the OG consisted of 2,035 ILUs, 471 ALUs and 751 skilled nursing beds. Total operating revenues in fiscal 2014 were \\$150.9 million. Fitch's analysis is based on the results of the OG.

NEW CAMPUS DEVELOPMENT

Located in Baldwin Park FL, WBP will be a satellite campus of Westminster Winter Park, which is located less than one-half mile away. The community will be constructed on a 7.5 acre site and when fully completed will consist of 160 ILU apartments and 40 skilled nursing beds. Proceeds from the series 2015 bonds will be used to fund phase one of the WBP project, which includes the site work for the entire development, as well as construction of 80 ILUs and 40 skilled nursing beds which are being moved from Westminster Winter Park (which currently has 120 skilled nursing beds). The remaining 80 skilled nursing beds at Westminster Winter Park will be remodeled to add additional private rooms and common areas.

The ILUs will range in size from 1,095 to 3,035 square feet and be a mix of 1, 2 and 3 BR units. MSF will range from \\$1,925 to \\$2,150 with a \\$750 monthly fee for a second person in the unit. Entrance fees will range from \\$192,720 to \\$546,907. Entrance fees from Phase I are expected to be used to fund the construction and development of 80 additional ILUs.

Marketing efforts on WBP began in March 2015. According to management's projections WBP expects to reach 50% pre-sales by December 2015 (an average of five net sales per month) and reach 80% pre-sales by Aug 2016 (3.7 net sales per month), which Fitch believes is reasonable. PRC has engaged Love & Company to serve as the marketing consultant for WBP.

OCCUPANCY DRIVING FINANCIAL GAINS

Occupancy in the ILUs has improved in fiscal 2015. Through Feb. 20, 2015, aggregate occupancy in PRC's ILUs improved to 91.6% from 87.1% and 78.3% at FYE 2014 and 2013, respectively. The occupancy improvement has been driven largely by PRC's west coast communities in St. Petersburg and Bradenton through higher absolute occupancy as well as combining or eliminating certain smaller units. Thus, occupancy rates of 65.8% and 78.1% at PRC's West Coast facilities at FYE 2013 and 2014 reflected 973 total ILUs. The improvement to 87.2% at Feb. 20, 2015 reflects a total 922 ILUs. Occupancy in the west coast communities' 219 ALUs and 331 SNFs remained solid at 88.6% and 91.8%, respectively.

Occupancy at PRC's other communities in Jacksonville, Orlando, Winter Park, and Tallahassee (with a total of 1,113 ILUs) remain very strong at 95.3% at Feb. 20 which is consistent with occupancy rates of 94.8% at FYE 2014 and 89.3% at FYE 2013. Similarly, aggregate occupancy among the 252 ALUs and the 420 SNF beds was a very solid 92.9% and 89.8%, respectively, at Feb. 20.

The improved occupancy across the system has generated improved profitability from core operations. Through the nine-month period ended Dec. 31, 2014 resident service revenues totaled \\$104.6 million which is up roughly \\$9.6 million or 10% from the prior year period. Combined with strong expense control, PRC generated \\$3.1 million of income from operations (2.5% operating margin) through 3Q 2015 compared to a \\$2 million loss from operations (-1.8% operating margin) in the prior year period. PRC's operating ratio of 96.8% through Dec. 31 was a sharp improvement from FY 2014's operating ratio of 101.7% and is consistent with Fitch's 'A' category median of 97.1%. PRC management follows a budgeting philosophy that uses monthly service fees to cover operating expenses and the net entrance fee receipts to cover debt service, fund capital improvements and build reserves. Investment income and contributions are not included for budgeting purposes.

With the higher ILU occupancy, total move ins have declined in FY 2015 from the robust level of FY 2014. Through Dec. 31, PRC had a total of 260 move ins (346 annualized) compared to 482 in FY 2014. However, entrance fee receipts from turnover units has remained strong at \\$19.9 million through 3Q 2015 (\\$26.5 million annualized) compared to \\$27 million in net entrance fees from turnovers in FY 2014.

The improvement in core operations produced improved revenue only coverage of pro forma maximum annual debt service (\\$14.9 million) of 1.2x through the 9 months ended Dec. 31, 2014, which is improved from 0.7x in FY 2014 and is consistent with Fitch's 'A' category median of 1.2x. Including turnover entrance fee receipts, coverage of pro forma MADS is an adequate 2.2x in fiscal 2014 and 3.3x through nine-month interim period.

LIGHT BUT ADEQUATE LIQUIDITY

PRC's liquidity figures trail Fitch's 'A' category medians. At Dec. 31, 2014, PRC's had unrestricted cash and investment of \\$133.7 million which translates to 351 days cash on hand, a 9.0x cushion ratio (based on pro forma MADS) and 71.9% cash to debt; each lagging the respective Fitch 'A' category medians of 692, 15.8x, and 127.2%, respectively. Fitch believes PRC's weak liquidity metrics relative to the 'A' category medians (which is predominately refundable entrance fee contracts) reflect the organization's declining refund contract and its strong historical capital spending. According to management, over 95% of resident entrance fees are non-refundable after 48 months which results in a very modest refund liability at Dec. 31 of just \\$53.1 million. Similarly, PRC's strong capital spending has been funded out of cash flow. PRC's age of plant is at the category median of 10.4 years and its capital spending as a percentage of depreciation has averaged 157% annually since fiscal 2010, which is significantly above Fitch's 'A' category medians. Capital spending has been largely funded out of cash flow, which has suppressed liquidity growth.

DEBT PROFILE

The series 2015 bonds will increase pro forma MADS by roughly \\$2.8 million to \\$14.9 million (as provided by the underwriter) from \\$12.1 million. Pro forma MADS equates to a modest 8.8% of annualized fiscal 20154 total revenues which is in line with the 'A' category median of 8.9%. Pro forma debt to net available for fiscal 2014 of 4.8x is above the 'A' category median of 3.5x. Historical coverage of pro forma MADS of 2.5x in fiscal 2014 and 3.3x through the nine-month interim period trails the 'A' category median but does not include the benefit of the expected entrance fees and resident service revenue from the new WBP units.

Including the series 2015 issue, PRC debt structure will consist of 90% fixed rate bonds and 10% variable rate debt. Fitch views PRC's current debt structure positively, believing it provides stability to PRC's overall credit profile.

DISCLOSURE
PRC covenants to provide annual audited financial statements, quarterly un-audited financial statements, and occupancy statistics to the Municipal Securities Rulemaking Board's EMMA system and to bondholders.