Fitch Rates Air Force Village, Texas Bonds 'BBB+'; Outlook Stable.

TAMPA, Fla. -- Fitch Ratings has assigned a 'BBB+' rating to the $70,000,000 Tarrant County Cultural Education Facilities Finance Corporation Retirement Facility revenue bonds (Air Force Village Obligated Group Project) series 2007. Bond proceeds will be used to refund Air Force Village's outstanding series 2000 and 2005 bonds issued through Bexar County Health Facilities Development Corporation and to fund the construction, renovation and rehabilitation of retirement and health care facilities for Air Force Villages, Inc. and its affiliates, fund a debt service reserve fund, and pay the costs of issuance on the series 2007 bonds. The bonds are anticipated to be priced the week of April 9, through negotiation, by Ziegler Capital Markets Group. The Rating Outlook is stable.

The 'BBB+' rating is supported by Air Force Village's long operating history in the San Antonio market, historically high occupancy levels in independent living, sound operating performance which has led to solid debt service coverage, and strong liquidity, strong governance, well-maintained facilities and a draw from a national market due to their retired military officer resident base. The facilities at Air Force Village have had a long history in the market with Air Force Village I (AFV I)opening in 1970 and Air Force Village II (AFV II) opening in 1987. AFV I and II have consistently had occupancy rates in the mid to high 90% range in independent living while skilled nursing care occupancy has been fairly low. Monthly service fees at AFV II are set to absorb any losses from skilled nursing due to the low occupancy. The high occupancy in independent living at the facilities has resulted in reasonable historical pro forma debt service coverage of 1.7 times (x) over the past two fiscal years. The facilities have been well maintained, as evidenced by the average age of plant of 12.8 years for facilities built in the early 1970s and mid-1980s. Fitch toured the facilities and found them to be well kept and attractive.

Fitch's main credit concerns include the competition in the service area from another retired military officer retirement community (Army Retirement Residence in San Antonio), reliance on entrance fees to cover debt service, and a limited market due to the facilities only being available to retired military officers. Although San Antonio is the home of two not-for-profit corporations whose retirement communities are dedicated solely to retired military officers, all these facilities have experienced excellent occupancy in their independent living units. However, limiting the resident market to only retired military represents a credit risk. Air Force Villages, Inc. has relied on entrance fees to cover debt service historically, as evidenced by the low revenue-only coverage of 0.4x, 0.1x and 0.4x over the past three fiscal years. While typical for a type-A facility, it is nonetheless low and a credit concern.

The Stable Rating Outlook assumes continued sound operating performance and stable occupancy rates in independent living and assisted living units and improved occupancy in skilled nursing. Fitch expects liquidity to remain solid over the near term.

Air Force Villages, Inc. operates two type-A continuing care retirement communities located in San Antonio, TX. The communities combined consist of 766 independent living units, 34 assisted living units, 54 Alzheimer's beds, and 172 skilled nursing beds. In the fiscal year ended June 30, 2006, Air Force Villages, Inc. had total revenues of approximately $33.5 million.

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