OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' rating on the approximately \\$32.7 million series 2006 and 2012 bonds issued by the Hospital Facilities Authority of Multnomah County, Oregon, on behalf of Terwilliger Plaza, Inc. (Terwilliger).

The Rating Outlook is revised to Positive from Stable.

SECURITY
The bonds are secured by a pledge of gross receivables and a mortgage. Additional security is provided by two debt service reserve funds.

KEY RATING DRIVERS

SUSTAINED STRONG FINANCIAL PROFILE: The Rating Outlook revision to Positive from Stable reflects Terwilliger's continued strong financial performance that has been driven by consistently high occupancy.

HIGH OCCUPANCY: Terwilliger's independent living unit (ILU) occupancy continues to be very strong and was 95% through June 2015 compared to 96% in 2014 (Dec. 31 year end) and is a drastic improvement from 87% in 2011. Management attributes the strong sales activity to the solid housing market and prior financial incentives have not been utilized since 2013.

SOLID DEBT SERVICE COVERAGE: Debt service coverage is good for the rating level at 3x in 2014, which was aided by solid net entrance fee receipts as well as higher than normal realized gains. Debt service coverage through the six months ended June 30, 2015 was 2.3x compared to the 'BBB' category median of 2x and is lower than expected due to the type of units that were vacated and resold (higher percentage of studios).

STRONG LIQUIDITY: Liquidity has consistently grown to \\$28.9 million in unrestricted cash and investments at June 30, 2015, which translated to 790 days cash on hand and 84.6% cash to debt compared to the BBB category medians of 408 and 60.2%.

LONG OPERATING HISTORY AND UNIQUE MARKET POSITION: Terwilliger has been operating in the Portland, OR market since 1962. In addition to its location in downtown Portland, the community is one of only three continuing care retirement communities (CCRCs) in the U.S. primarily governed by its residents, which Fitch views as a differentiating factor in a competitive market.

SMALL REVENUE BASE: With total revenues of \\$16.7 million (fiscal 2014), Terwilliger has one of the smaller revenue bases in Fitch's CCRC portfolio, which inherently subjects the organization to higher volatility as changes in occupancy or turnover, or external factors like financial market movements, can have a larger impact on the organization's financial profile.

RATING SENSITIVITIES

FUTURE CAPITAL PLANS: Terwilliger is land locked and has been purchasing adjacent property when available to prepare for the longer term. The 10-year capital plan is not available yet and is expected by the end of 2015. However, future development cannot move forward until land is available, which may draw out the timing of any large capital projects. Fitch will continue to monitor Terwilliger's plans in addition to a CEO transition in 2016. The maintenance of its current financial profile in addition to manageable capital plans would likely result in upward rating movement over the next two years.

CREDIT PROFILE
Located in Portland, Oregon, Terwilliger Plaza is a type-B (modified life care) CCRC, offering independent, assisted, and residential care living services in 310 units: 245 ILUs and 65 assisted living units (ALUs) and residential care units. There is no skilled nursing facility (SNF). Nursing care is provided to residents who require that level of care in the ALUs and residential care units. Terwilliger offers a traditional non-refundable contract and a 90% refundable contract. The refundable contracts are only available for the ILUs in the Heights (newest ILU addition). In fiscal 2014, Terwilliger had \\$16.7 million in total revenue. The CEO has announced her retirement, which will be effective in April 2016 and a search is underway.

Strong Occupancy
ILU occupancy has improved significantly since 2011, which has mainly been driven by the recovery in the real estate environment. ILU occupancy was 95.3% through the six months ended June 30, 2015 compared to 90.9% in fiscal 2013, 86.6% in fiscal 2012, and 87% in fiscal 2011. ALU occupancy was 86.9% through the six months ended June 30, 2015, and the ALUs are 'closed' units, which means they are only available to residents of Terwilliger.

Good Market Position
Terwilliger has been operating in the Portland, OR market since 1962. In addition to its location in downtown Portland, Terwilliger is one of only three CCRCs in the U.S. governed by a board of directors made up of a majority of residents, which Fitch views as a differentiating factor in a competitive market. Terwilliger has four main competitors, with relatively similar configurations of ILUs and either ALUs or residential care units, but they all have a SNF unit unlike Terwilliger which closed its SNF in 1998. Other characteristics that contribute to Terwilliger's strong occupancy include its location on the west side of the Willamette River, the self-governing community, its long history in the market, having an optional meal program instead of mandatory plan, and providing on-site in-home health services. Additionally, Terwilliger's entrance fees span a large range, enabling the organization to attract residents of varying income levels.

There are two planned developments in the area, but management is not concerned about the additional competition given the strong demand in the market. A recent market assessment study was conducted that indicated that there is capacity for additional ILUs in the market.

Solid Debt Service Coverage
Terwilliger's debt service coverage was 3x in 2014 compared to 2.9x in 2013 and 2.2x in 2012. The improved debt service coverage is due to improved net turnover entrance fees received, good operating performance, and the benefit of higher than normal realized gains in 2014. Net turnover entrance fees received were \\$4.8 million in 2014, \\$5.5 milion in 2013 and \\$3.7 million in 2012. Management projects that net entrance fees received to remain around \\$4-5 million a year and debt service coverage to be close to 3x over the next two years.

A continued focus on expenses and steady rate increases has resulted in improved operating ratios that are below 100% for the third consecutive year. Total expenses also dropped in fiscal 2013 due to the series 2012 refinancing, which resulted in about \\$700,000 reduction in interest expense. The board and management team have been proactive in response to expense management and are preparing for an increase in wage pressures prior to any mandated minimum wage adjustment.

Strong Liquidity
Liquidity continues to improve with \\$28.9 million unrestricted cash and investments at June 30, 2015 compared to \\$20.9 million in fiscal 2011. Liquidity growth has been driven by good cash flow, modest capital spending and improved investment returns. There has been a significant improvement especially in the cash to debt ratio, which was 84.6% at June 30, 2015 compared to 54.2% at Dec. 31, 2011 and the 'BBB' category median of 60.2%.

Future Capital Plans
The last major capital project was in 2008 when Terwilliger constructed the Heights, a 10-story apartment building, with larger ILUs. Terwilliger's three-year capital plan is about \\$4 million a year (approximately 1.3x depreciation expense) and is predominantly for apartment remodels as well as funding for its master plan and land acquisition.

Terwilliger has been in the process of acquiring adjacent property as it becomes available and a longer-term master facilities plan is currently being developed. Fitch believes Terwilliger's financial profile could support a higher rating level depending on the size, scope, and timing of its future capital plans. Fitch will evaluate the capital plan when it is complete, which is expected to be completed by the end of 2015.

Conservative Debt Profile
Total outstanding debt is approximately \\$34 million and is conservative with 91% fixed rate and 9% variable rate. The \\$1.44 million series 2006B-1 and \\$1.625 million series 2006B-2 are adjustable rate, which reset to current market rates on certain reset dates. The series 2006B-1 bonds will reset on Dec. 1, 2016 and the series 2006B-2 will reset on Dec. 1, 2018. Bondholders may put the bonds at the reset date or Terwilliger may opt to redeem the bonds depending on the rate. Fitch does not view this as a concern given Terwilliger's strong liquidity position. There are no swaps outstanding.

Disclosure
Terwilliger covenants to provide to EMMA annual audited financial statements and utilization and statistical information within 120 days of fiscal year end, unaudited interim financial statements (balance sheet and income statement) within 45 days of quarter end. Terwilliger's disclosure is thorough and includes quarterly disclosure calls as well as covenant compliance calculations.