NEW YORK--()--Fitch Ratings affirms the 'AA' rating for the GMAC Commercial Military Housing Trust XVI, Joint Base Lewis-McChord Project Certificates as follows:
--$39 million Series 2010A;
--$120 million Series 2008A;
--$75 million Series 2004A;
--$150 million Series 2002A.
The Rating Outlook is Stable.
The certificates are secured by a first lien on all receipts of the project after operating expenses and a debt service reserve fund (DSRF). Project receipts are predominantly comprised of the monthly housing allowance deposited to a trustee held lockbox. The monthly housing allowance, known as Basic Allowance for Housing (BAH), is a cash allowance based on local rental rates, average utility usage and rental insurance and is an integral part of the compensation of US military personnel.
KEY RATING DRIVERS
Minimal Base Closure Risk: Joint Base Lewis-McChord (JBLM) is one of the largest military installations on the West coast. The 2005 Base Realignment and Closure Commission (BRAC) directed a merge of Ft. Lewis with McChord Air Force Base making the risk of closure in the near term remote.
Adequate Debt Service Coverage: The debt service coverage ratios (DSCR) of 1.75 times (x) for year end 2011 and 1.65x for 2012 reflecting projections for the twelve months ending Dec. 2012. This coverage ratio is calculated on all of the outstanding parity debt.
Basic Housing Allowance: Current and projected basic allowance for housing (BAH), which is a strong and reliable source of revenue, experienced cumulative increases from 2008 to 2012 which slightly exceeded the cumulative underwriting assumptions used for BAH through the initial development period (IDP).
Occupancy Strong: The project has maintained high occupancy of over 96% and maintains a waiting list of over 1,200 families.
The rental income from military housing allowances and the constant demand for affordable rental properties for military families in and around the Seattle/Tacoma area make this a strong credit. In reviewing the office of management and budget of the U.S. (OMB) report pursuant to the sequestration transparency act of 2012 (P.L. 112 - 155), Fitch takes the approach that the BAH for servicemen and women of the armed forces would not be affected.
All certificates are structured with a level debt service for their term after an interest only period during construction. Debt service coverage levels are covenanted to be maintained at 1.5 times (x) over the life of the certificates, and are currently demonstrating coverage over 1.7x based on the combined cash flows of phases I through IV. The phases correspond with the series 2002 through 2010, respectively.
In addition to the strong debt service coverage on the certificates, certificate holder security is further enhanced by an equity contribution of $89 million from the department of the Army, $10 million in equity from Equity Residential, and a cash funded DSRF sized at approximately six month maximum annual debt service of the combined certificates. Additionally, the project has a surety bond in place of a DSRF with AMBAC on the 2002 and 2004 issuances. While a six month cash funded DSRF is not typical for military housing bonds with investment grade ratings and the surety bonds from AMBAC is not considered a credit strength, the performance of the phased in project in regard to delivery of new units and the amount of equity mitigates the DSRF sizing concern. The ground lease runs for 50 years.
The property and development manager for JBLM Project is Equity Residential (EQR). EQR has a Fitch rating of 'BBB+' as of Dec. 2011 with a Stable Outlook. EQR has performed the operations since the first financing and has been able to maintain a set level of available family housing units during the construction which provide an ongoing revenue stream. It is important to note that construction is primarily for single family housing and therefore not considered a complex construction project. This was one of the first military housing projects under the military housing privatization initiative and EQR continues to deliver under the terms of the contract.
The total end state upon completion of all phases at Ft. Lewis and McChord AFB will be 4,964 single family units. Unit delivery is presently expected to be on or ahead of schedule.
All phases of the Project involve the acquisition, development, demolition, construction/renovation, rental and management of 4,964 end state military family housing units, including 265 new single family and duplex units to be constructed with a portion of the 2010A loan proceeds. The Series 2010A loan was the fourth loan funded for the Project. The initial funding of $150 million and conveyance of 3,637 housing units at Ft. Lewis, subject to a 50 year ground lease, occurred on April 1, 2002. The second funding of $75 million occurred on June 7, 2004. The third funding occurred on Dec. 4, 2008 in the amount of $120 million at which point McChord Air Force Base was added to the Project and an additional 978 McChord units were conveyed. It is expected that 1,115 of such conveyed units will be demolished, 3,131 units will be renovated, and 1,729 new units will be constructed. Upon completion of the development period in Dec. 2016, the Project will be comprised of 4,964 housing units with 104 previously renovated units scheduled for demolition in 2033 for a total end state unit count of 4,860 after 2033.
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 Bond Counsel, Underwriter, and the Department of Defense report 'Base Closure and Realignment Report' dated December 1988, April 1991, March 1993, March 1995 and May 2005.
Applicable Criteria and Related Research:
--'Rating Criteria for Military Housing' (Sept. 20, 2012);
--'Revenue-Supported Rating Criteria' (June 12, 2012).
Applicable Criteria and Related Research:
Military Housing Rating Criteria
Revenue-Supported Rating Criteria