OREANDA-NEWS. Fitch Ratings has assigned a 'BBB-' rating to the following bonds expected to be issued by the Tarrant County Cultural Education Facilities Finance Corporation on behalf of Querencia at Barton Creek (Querencia):

--\\$50,525,000 retirement facility revenue bonds series 2015

The series 2015 bonds are expected to be issued as tax-exempt fixed-rate bonds. Bond proceeds will be used to (1) refund the outstanding series 2005A bonds; (2) fund the restoration and repair of exterior facades and patios; (3) fund renovation and expansion of certain common areas; (4) fund a debt service reserve fund; and (5) pay costs of issuance. The series 2015 bonds are expected to price via negotiation the week of September 21.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an interest in the gross revenues of the obligated group, a security interest in certain mortgaged properties and a debt service reserve fund.

KEY RATING DRIVERS

STRONG OCCUPANCY: Querencia's strong demand and market niche is reflected in consistently high occupancy rates, with independent living unit (ILU), assisted living unit (ALU, including memory support) and skilled nursing (SNF) occupancy all averaging 97% between fiscal years 2010 and 2014.

SOLID PROFITABILITY: Operating profitability has been solid with net operating margin (NOM) and net operating margin adjusted (NOMA) averaging 10.8% and 28.8% since fiscal 2012, exceeding Fitch's 'BBB' category medians of 9.2% and 20.4%, respectively. NOMA temporarily declined to 20.5% in fiscal 2014 due to a decrease in net entrance fee generation before rebounding back to prior levels at 32.5% in the six month interim period ending June 30, 2015 (the interim period).

HIGH DEBT BURDEN: Pro forma MADS equals a high 19% of fiscal 2014 total revenue. Despite the robust profitability, coverage metrics remain only adequate for the rating category with MADS coverage equal to 1.2x in fiscal 2014 and 2.1x in the interim period.

WEAK BUT IMPROVING LIQUIDITY: Despite significant improvement in absolute liquidity, pro forma liquidity metrics are weak for the rating category with 360 days cash on hand, 35% cash to pro forma debt and 4.7x cushion ratio.

PLANNED EXPANSION PROJECT: Due the strong demand for its services, Querencia is planning an expansion project that is estimated to cost approximately \\$63 million and is expected to be funded by a bond issuance. However, the project requires approval from the city of Austin and thus far the plans have been denied by the city due to zoning restrictions. The expansion project is not incorporated into the current rating due to the uncertainty that Querencia will receive the necessary approvals to proceed with the project.

RATING SENSITIVITIES

SUSTAINED CASH FLOW: Fitch expects NOMA to remain at levels consistent with those achieved in the interim period and in fiscal years 2012 and 2013, providing for MADS coverage of approximately 2.0x. Failure to maintain cash flow and coverage metrics consistent with the rating category may result in negative rating pressure given the light liquidity metrics.

EXECUTION OF EXPANSION PROJECT: Due to the weak liquidity metrics and heavy debt burden, execution of the expansion plan in the near term is likely to result in a downgrade. The rating impact will be determined by the final timing and scope of the project and Querencia's ability to grow into the increased debt burden upon stabilization.

CREDIT PROFILE

Located in the Barton Creek neighborhood of Austin, TX, Querencia (Barton Creek Senior Living Center, dba Querencia at Barton Creek) operates a Type A continuing care retirement community (CCRC) with 167 ILUs, 40 ALUs, 23 memory support units and 40 SNFs. The community opened in June 2007. Querencia is the sole member of the obligated group and accounts for 100% of consolidated total assets and 100% of consolidated operating revenues.

Querencia's parent company and sole corporate member is Senior Quality Lifestyles Corporation (SQLC). In addition to Querencia, SQLC owns and operates four CCRCs in Texas and one in Carmel, IN, with a total of 1,857 CCRC units. SQLC ranked as the 30th largest CCRC on the 2014 LeadingAge Ziegler 150.

STRONG OCCUPANCY

Querencia's consistently strong occupancy rates reflect the community's niche market position, strong demand for its services and strong demand across the Austin market for senior housing services. ILU occupancy has averaged 97% since fiscal 2010 and equaled 98% at June 30, 2015. Both ALU and SNF occupancy rates are similarly strong, with both averaging 97% since 2010 and equal to 97% and 95%, respectively, at June 30, 2015. Querencia turns down approximately 220 SNF admissions per year due to capacity constraints. The community also maintains a strong wait list with 70 prospective residents having deposited \\$10,000 for an ILU.

Demand for CCRC services is particularly strong in Austin. Of the six communities competing with Querencia in the Austin market, all six maintain ILU occupancy in excess of 90%. Of the six competitors, only two offer lifecare contracts, effectively reducing Querencia's competition.

SOLID PROFITABILITY

Strong occupancy rates, entrance fee generation and effective management practices have translated into solid operating profitability for the rating category. Operating ratio and net operating margin (NOM) have improved each of the past three years with operating ratio decreasing to 96.7% in fiscal 2014 from 103.1% in fiscal 2012 while NOM increased to 13.4% from 9.2%. Net operating margin adjusted (NOMA) has been particularly strong, averaging 28.8% since fiscal 2012, but decreased to 20.5% in fiscal 2014. The decline was primarily due to decreased net entrance fees from a combination of the community's charitable care program and deferred entrance fees. Interim period profitability has been strong with operating ratio, NOM and NOMA improving to 95.1%, 14.4% and 32.5%, respectively, exceeding Fitch's 'BBB' category medians of 97.4%, 9.2% and 20.4%. Fitch expects profitability to be enhanced going forward by a property tax exemption received in 2015 from the Travis Central Appraisal District in recognition of Querencia's ongoing charitable care provided to its residents.

HIGH DEBT BURDEN

Querencia's pro forma debt burden is heavy, with pro forma MADS equal to 19% of fiscal 2014 total revenue, exceeding Fitch's 'BBB' category median of 12.3%. MADS coverage of 2.0x and 2.1x in fiscal years 2012 and 2013 was consistent with Fitch's 'BBB' category median of 2.0x, but MADS coverage decreased to 1.2x in fiscal 2014 due to the compressed NOMA. MADS coverage rebounded in the interim period to a solid 2.1x. Revenue only MADS coverage has improved from a light 0.5x in fiscal years 2012 and 2013 to 0.7x in fiscal 2014 and 0.8x in the interim period, reflecting the strengthened core operations.

WEAK BUT IMPROVING LIQUIDITY

Unrestricted liquidity has strengthened significantly, increasing from \\$2.3 million in 2010 to \\$17.9 million at June 30, 2015. The increase reflects the stabilization and successful fill-up of the community after opening in 2007, strong operations and net entrance fee generation. Despite the increase, liquidity metrics remain weak for the rating category with 360 days cash on hand, 35% cash to debt and 4.7x cushion ratio comparing unfavorably to Fitch's 'BBB' category medians of 408 days, 60.2% and 6.9x.

Approximately \\$10 million of series 2015 bond proceeds will be used to repair water damage incurred on the community's porches and balconies. The damage is the subject of ongoing litigation which could result in reimbursement to Querencia for the repairs. Any related insurance or settlement proceeds would be viewed favorably as it would materially accelerate Querencia's liquidity growth.

PLANNED EXPANSION PROJECT

Querencia is planning an expansion project that includes the addition of 68 new ILUs, 12 new ALUs, 10 new memory support units and 24 additional SNFs, plus additional common spaces and parking. The project is estimated to cost approximately \\$63 million and is expected to be funded by a bond issuance, a portion of which would be redeemed with initial entrance fees from the new ILUs. The expansion is driven by the strong demand for Querencia's services, high occupancy rates and capacity constraints in skilled nursing. The project requires approval from the city of Austin and thus far Querencia's plans have been denied by the city due to zoning restrictions. Timing is currently uncertain and could occur within twelve months if Querencia receives approval from the city. However, the project will not happen if Austin does not grant approval.

Fitch views the expansion project favorably given Querencia's strong historical occupancy and SQLC's successful execution of prior capital projects; however, Fitch is concerned about the potential increase in debt. Any related rating impact will depend upon the final timing and scope of the project as well as Querencia's ability to successfully execute the project and to grow into the heavier debt burden upon project stabilization.

DEBT PROFILE

Subsequent to the series 2015 bond issuance, Querencia will have approximately \\$51.2 million of total debt outstanding. The pro forma debt profile will be 100% underlying fixed-rate bonds. Fitch views the conservative debt profile as appropriate for the rating level. Querencia is not counterparty to any interest rate swap agreements. Pro forma MADS is expected to equal approximately \\$3.8 million.

DISCLOSURE

Querencia covenants to provide annual disclosure within 150 days of fiscal year end and quarterly disclosure within 45 days of each fiscal quarter end. Disclosure is provided through the Municipal Securities Rulemaking Board's EMMA system.