OREANDA-NEWS. Fitch Ratings has affirmed the 'BB' rating on the following Alachua County Health Facilities Authority, FL bonds issued on behalf of East Ridge Retirement Village (ERRV):

--$68.2 million health facilities revenue bonds, series 2014.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge of gross revenues and receivables of the obligated group (OG), a first mortgage lien on all current and future property of the OG, and a fully-funded debt service reserve.

KEY RATING DRIVERS

PROJECT COMPLETED; STABILIZATION UNDERWAY: The $53 million total capital project was completed in 2015, within budget and slightly behind schedule. ERRV took occupancy of the new assisted living units (ALUs), memory support units (MSUs) and skilled nursing facility (SNF) in December 2015. Project stabilization is still expected by May 2017, when the units reach 93% occupancy.

ADEQUATE CASH FLOW: Though slightly weaker in 2014 with 23 sales and $2.7 million in net entrance fees, ERRV generated an improved 28 sales and approximately $4 million in net entrance fees through Nov. 30, 2015. Further, its operating ratio remains healthy at 92.7%, indicative of solid expense controls. ERRV is expected to maintain net entrance fee levels and existing occupancy levels, producing adequate maximum annual debt service (MADS) coverage near 1.0x through stabilization.

GOOD ILU OCCUPANCY: Despite heavier turnover than prior years, solid sales and marketing helped maintain ERRVs ILU occupancy near 80% in 2014 and through November 2015. With a total $4 million in net entrance fees through November, ERRV remains in line with budget expectations.

ELEVATED DEBT LEVEL: Overall, ERRV's pro forma leverage metrics reflect a sizeable debt burden against its current financial profile, as indicated by 1.1x coverage of MADS by turnover entrance fees and MADS equal to 25.3% of 2015 revenues.

RATING SENSITIVITIES

PROJECT STABILIZATION: The rating remains contingent upon East Ridge Retirement Village's ability to attain sufficient fill of its new units, reaching stabilized occupancy by mid-2017. Fitch believes the risk on the fill up of the units is mitigated by the strong demand for skilled nursing services and the experience of sponsor, manager and developer in successfully managing campus repositioning projects.

FUTURE CAPITAL PLANS: While outside the 12-24 month rating review period, East Ridge Retirement Village is contemplating its second campus expansion phase which would likely include an independent living unit (ILU) expansion with possible debt financing. Fitch anticipates reviewing these plans as they are formed and approved, and will take rating action as necessary.

CREDIT PROFILE
ERRV is a Type A lifecare continuing care retirement community (CCRC) located on 76 acres in the town of Cutler Bay, Florida, approximately 20 miles south of Miami. The community currently includes 221 Independent Living Units (ILUs) 90 Assisted Living Units (up from 57 in 2014) 31 memory support units (up from 0 in 2014) and 74 Skilled Nursing Facility units (up from 60 in 2014). ERRV reported total revenues of $20.4 million in fiscal 2014 (year ended Dec. 31).

PROJECT IS PROGRESSING
ERRV's $53 million expansion of its assisted living, memory support, and health care units opened nearly on time in December 2015. With a net of 78 new units, ERRV expects to achieve stabilized occupancy by mid-2017 on schedule. Through Nov. 30, 2015 ERRV reported 86.7% ALU and 86.5% SNF occupancy, and expects to meet or exceed its first occupancy covenant test at March 31, 2016.

STEADY PROFITABILITY EXPECTED
Despite elevated turnover in 2014 and 2015, ERRV has maintained sufficient ILU sales and occupancy to generate adequate operating cash flow and coverage metrics. In addition, marketing of the newly opened ALU, MSU and SNF units will escalate in the coming months and are expected to support ongoing revenue growth and improving occupancy in 2016. In addition, ongoing ILU renovations should preserve healthy sales and occupancy in 2016 and 2017. Limited competition coupled with the appeal of larger units is expected to preserve and grow occupancy over the near to medium term.

DEBT PROFILE
ERRV remains highly leveraged, as indicated by marginal coverage of MADS as well as a high 11.9x debt to net available at Nov. 30, 2015. Still, ERRV's first debt service coverage covenant test will occur in the earliest of a) 2017 after stabilized occupancy, or b) in 2019.

ERRV has $68.2 million in series 2014 fixed-rate term bonds outstanding, with maturity in 2049. Debt service is not level, with 25 months of capitalized interest and amortization through 2019. MADS is equal to $5.1 million, and debt service is level from 2020 through maturity. ERRV has no swaps.

DISCLOSURE
ERRV covenants to provide annual disclosure within 150 days of fiscal year end and quarterly disclosure within 45 days of each quarter end. Disclosure will include balance sheet, statement of revenues/expenses, statement of cash flows, calculation of days of cash on hand, debt service coverage, and occupancy. Disclosure is made through the Municipal Securities Rulemaking Board's EMMA system, and has been timely and thorough.