TEXT-Fitch affirms Fort Jackson Housing, S.C. tax revs at 'AA-'
Feb 5 - Fitch Ratings has affirmed the rating on the $103.5 million Fort Jackson Housing, LLC (SC) taxable revenue bonds, 2008 series A (the bonds) at 'AA-'. The Outlook for the bonds is Negative. SECURITY The bonds are secured by a first mortgage lien on all improvements and a pledge of all receipts of the 850 unit family project at Fort Jackson located east of Columbia, SC. The receipts are predominantly made up of the monthly housing allowance or basic allowance for housing. The bonds are also secured by a cash-funded debt service reserve fund. SENSITIVITY/KEY RATING DRIVERS CURRENTLY ADEQUATE DEBT SERVICE COVERAGE: Actual debt service coverage for trailing 12 months operating data as of Dec. 31, 2012 demonstrates coverage of 1.40x which exceeds the original underwriting projection of 1.29x coverage. However, debt service is expected to increase in 2014 as originally planned and revenue needs to increase in the near term to address that increase and to meet future coverage projections. BAH INCREASED: The Basic Allowance for Housing (BAH) at Fort Jackson increased an average of 8.6% in 2013 from 2012. Additionally, BAH increased at a rate of 18.6% on average from 2008 - 20013. These increases far outpace the underwriting assumption of 2% annual increases in BAH through the IDP, however the positive impact of this on revenue is somewhat mitigated by occupancy issues which have created a need to draw on the tenant waterfall and rent some units at different BAH rates. CONSTRUCTION NEAR COMPLETION: The project is 95% complete. All of the 610 new units have been constructed. 38 units are beginning renovations which will be the remaining work to be done on or before the end of the IDP in October 2013. ADDITIONAL CHANGE IN SCOPE: The project experienced a second change in scope in May 2012 to make funds available for infrastructure and asbestos abatement related change orders. This reduction in the scope of work will reduce the numbers of units which will receive renovations to 38 units from 78 and make $2 million available. This could negatively affect the demand for these units which will not receive renovations and in turn overall project occupancy. TENANT WATERFALL DRAWN UPON: While the project has been averaging approximately 95% occupancy as of Sept 2012, the tenant waterfall has been extended to allow for 14% of unit rentals to retired military personnel, DoD civilians and families from Shaw AFB. CASH FUNDED RESERVE: Debt service reserve fund is sized at maximum annual debt service and cash funded. WHAT COULD TRIGGER A RATING ACTION INABILITY TO INCREASE REVENUE BY 2014: The continuation of a lower than projected occupancy rate for available units and the renting of units to tenants outside of the originally intended audience in the near term will likely create negative rating momentum. Additionally, capitalized interest is being reduced to zero as planned and will no longer be available to bolster debt service coverage in 2014. FUTURE BAH VOLATILITY: Decreases in future BAH rates may lead to decreased project revenue and debt service coverage. CREDIT PROFILE The 2008 series A bonds were privately placed in October 2008. The proceeds were used to provide a portion of the total development costs for constructing and renovating military family housing resulting in an end-state of 850 units at Fort Jackson and funding for reserves. The project is experiencing an average occupancy of 94%. This occupancy statistic includes the 14% of units that are being rented to individuals from the tenant waterfall which include retirees and civilians who were not part of the originally intended audience. In 2014 capitalized interest will be reduced to zero as originally planned and debt service will increase from approximately $7.3 million to $7.7 million; and therefore achieving high occupancy levels with tenants from the originally intended audience is critical to reaching projected rental revenue levels and debt service coverage ratios. While construction is on schedule, the scope of the project was reduced twice by Major Decisions from the Army to downsize the amount of units originally planned for renovation to 38 from 119. As a result of this change in scope, a total of 81 units will not receive any work and therefore may be less desirable to potential tenants which may in turn affect occupancy and debt service coverage ratios. 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 Revenue-Supported Rating Criteria, this action was additionally informed by information from Trimont Real Estate Advisors. Applicable Criteria and Related Research: --'Revenue-Supported Rating Criteria' (June 12, 2012); --'Rating Criteria for Military Housing' (Sept. 20, 2012). Applicable Criteria and Related Research: Military Housing Rating Criteria Revenue-Supported Rating Criteria