Fitch Ratings affirms its 'A-' rating on the following Denver West Metropolitan District, Colorado (the district) general obligation unlimited tax (GOULT) bonds:
--$54.2 million GOULT bonds.
The Rating Outlook is Stable.
The bonds are secured by an unlimited property tax levy.
KEY RATING DRIVERS
RENEWED BUILDING ACTIVITY: The mature tax base of the district is benefiting from renewed development activity, which had stalled during the most recent recession. Recent tax base losses were moderate in comparison to other Denver area metropolitan districts. Management anticipated these tax base declines, mitigating the impact to the district's operations.
HIGH TAX BASE CONCENTRATION: Taxpayer concentration remains high in this commercially oriented district, presenting credit risk. However, Fitch believes it is mitigated to a degree by the various types of development in the district, the strength of the largest taxpayer, and the project's desirable location.
EXPERIENCED MALL OWNER: Simon Property Group, Inc. owns various district properties and recently expanded its ownership interest in the Colorado Mills Mall; the limited partnership owning the mall is the district's largest taxpayer at roughly 24% of the total. (Simon Property Group's Fitch Issuer Default Rating (IDR) is 'A-', with a Stable Outlook.)
IMPROVED OCCUPANCY RATES: Occupancy rates at district retail centers have rebounded after trending downward during the recession. Office and multifamily occupancy rates have also improved in the last year. Maintenance of satisfactory occupancy levels and retail activity will be a key determinant in future assessed valuation (AV)calculations, which will affect the district's ability to maintain its target property tax rate.
MIXED DEBT PROFILE: The district's debt profile is mixed, characterized by a high overall debt burden and slow principal amortization, balanced against the district's limited future debt plans.
WHAT COULD TRIGGER A RATING ACTION
LARGE REASSESSMENT LOSSES: Large and sustained tax base losses, attributed to declining occupancy levels, could lead to negative rating action.
Organized in 1984, the district is located primarily in Lakewood, CO, approximately 10 miles west of downtown Denver. The district encompasses 509 acres and was created to provide infrastructure for commercial, retail, and residential development. Located adjacent to Interstate Highway 70, the district's major components are the Colorado Mills Mall (a 1.2 million-square-foot regional shopping center), and the Denver West Office Park (a campus-style, 29-building office park with 1.44 million square feet of leasable space). Other enterprises include a Marriott Hotel, auto dealership, two retail strip centers, and several owner-occupied office buildings. Two luxury apartment complexes totaling 573 units have been constructed; both complexes have been excluded from the district, but the properties remain subject to obligations incurred by the district prior to their exclusion dates (1998 and 2003, respectively).
HIGH TAX BASE CONCENTRATION
Taxpayer concentration within the district is substantial. The top 10 taxpayers account for nearly 55% of 2012 AV, which is consistent with prior years. The Colorado Mills Mall/Simon Property is the largest taxpayer at slightly less than 25% of AV. Given its relatively mature development status, taxpayer concentration levels in the district likely will remain high for the foreseeable future. While the concentration risk is a concern, Fitch believes it is mitigated to a degree by the various types of development in the district, the strength of the largest taxpayer, and the project location.
MIXED DEBT PROFILE
The district's overall debt level, totaling 16% of 2012 market value, is high and is expected to decline only gradually. Nearly all infrastructure needs have been met, limiting the district's future debt plans. Management reports that new debt would be issued only if a large commercial project required additional infrastructure improvements. The district also has limited debt capacity within its current debt limit of $65 million as specified in its service plan. Principal amortization is well below average, with only 30% of all debt repaid within 10 years.
MODERATE TAX BASE DECLINES
The district's tax base declined by a cumulative 14.6% from 2010-2012 due to reappraisal losses and property appraisal protests. The AV loss in 2012, which was a reassessment year, was in line with management's expectation of continued moderate losses. The next reassessment is scheduled for 2014 and district consultants are conservatively projecting another 5% and 10% AV loss in office park properties and certain retail centers, respectively. In this scenario, management expects to maintain the district's historical 35-mill tax rate by modest debt restructuring through a planned refunding. Such losses are expected to be partially offset by two new projects in progress, a luxury apartment project and a retail center which have an estimated combined AV equal to 5.6% of 2012 AV.
IMPROVED OCCUPANCY RATES
The Colorado Mills Mall, which opened in November 2002, is a value retail shopping mall owned by a limited partnership of which Simon Property is the managing partner. The combined occupancy rate at Colorado Mills Mall and Denver West Village (which Simon Property also owns) is reported to be in the 80% range according to Simon Property. Denver West Village is a 310,000-square-foot retail center featuring a multi-screen theater and various retail stores and restaurants. While more detailed occupancy information for the mall was not available, taxable sales activity at the mall does indicate a rebound is in progress. All seven out parcels at the mall have been sold, and various commercial enterprises occupy six of these spaces. The occupancy rates at the Denver West Office Park and Denver West Plaza are favorable, totaling 88% and 90%, respectively.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was informed by information from CreditScope, University Financial Associates, S&P/Case Schiller Home Price Index, HIS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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